The new California Rules of Professional Conduct are now in effect and have changed how law firms and lawyers must identify and analyze conflicts when considering lateral hires. As we have previously reported, the new rules have a tremendous impact on all California attorneys, including for law firms and lawyers navigating attorney departures and law firm transitions. In this post, which is part of a series, we will examine how certain new conflicts rules, rules 1.7, 1.9 and 1.18, will impact law firm departures.
Analyzing and Avoiding Conflicts of Interest During Departures
Understanding and analyzing actual and potential conflicts is an essential part of any attorney transition. Law firms have (or should have) internal protocols for checking conflicts when prospective clients or new matters are being considered by the firm. If these conflict protocols are operating correctly, most conflicts can be detected early and either avoided or successfully managed. However, attorney transitions may cause significant challenges to the firm’s conflict protocols. Considering or transitioning a new attorney, or group of attorneys, into a law firm’s practice undoubtedly will bring with it the potential for conflicts either with the firm’s clients or with the transitioning attorneys’ clients, including prospective and former clients. Unless this is properly navigated, these conflicts can result in a breach of duty to clients, attorney discipline and/or disqualification from a matter.
Many have described California’s former conflicts rule, rule 3-310, as having a checklist approach to analyzing conflicts based on particular fact patterns. The new conflict rules, however, place California more squarely in line with the ABA standards, while incorporating the existing California case law on conflicts into its analysis. Specifically, rule 1.7, requires the lawyer to analyze whether there is either direct adversity “to another client in the same or a separate matter,” or a “significant risk the lawyer’s representation of the client will be materially limited by the lawyer’s responsibilities to or relationships with another client, a former client or a third person, or by the lawyer’s own interests.” If applicable, and if the lawyer wants to continue with the representation, she must obtain informed written consent from each affected client.
New Rules Articulate Duties to Former and Prospective Clients
While former rule 3-310(E) addressed an attorney’s duties to former clients when analyzing conflicts, new Rule 1.9 has a specific provision addressing a lawyer’s duties to a client who has become a former client due to her departure and transition to a new firm. Under the rule 1.9(b), a departing lawyer has a conflict with a client of the lawyer’s former law firm only if there is a substantial relationship and she has “actual knowledge of confidential information protected by Business and Professions Code section 6068, subdivision (e) and rules 1.6 and 1.9 (c).” (Rule 1.9, Cmt. 4.) If a conflict exists under rule 1.9, informed written consent from each affected client is required. Thus, when conducting due diligence in bringing on lateral partners and groups, it is important for law firms to understand not just what client matters each attorney worked on while at their prior firm, but to identify to what extent those attorneys had access to and knowledge of confidential information related to any client matter. The primary consideration in analyzing conflicts of interest involving a former client is confidentiality, although there is also a “residual duty of loyalty” that the Supreme Court has recognized, and the new rule affirms. (See rule 1.9 Executive Summary, citing to Wutchumna Water Co. v. Bailey (1932) 216 Cal. 564 and Oasis West Realty v. Goldman (2011) 51 Cal.4th 811.)
With respect to prospective clients, the new rules also impose a duty on lawyers related to consultations with prospective clients. Rule 1.18(a) defines a prospective client as “a person who, directly or through an authorized representative, consults a lawyer for the purpose of retaining the lawyer or securing legal service or advice from the lawyer in the lawyer’s professional capacity.” While the concept that lawyers have a duty to prospective clients already exists in California law, the rule was included so that lawyers have a clear understanding of their duties to prospective clients.
Specifically, under rule 1.18, lawyers have an obligation to preserve the confidential information of a prospective client acquired during a consultation prior to the establishment of an attorney-client relationship and are prohibited from representing clients with interests materially adverse to the prospective client absent informed written consent and proper screening. Identifying and managing potential conflicts with the prospective clients of new lateral partners is not something that all law firms currently do, but under the new rules they must.
Make Sure Your Conflicts Protocols have Adapted to the New Rules
California’s new conflict rules require law firms to conduct a more rigorous analysis of the scope of the client relationships that each potential new attorney has, as well as whether the new attorney has knowledge of confidential client information related to former and prospective clients. This information must then be analyzed in the context of the law firm’s current, former and prospective clients. For transitioning partners, make sure your potential new firm has robust and up-to-date conflicts protocols to identify these issues properly before you make any transition. Law firms and lawyers should also understand how imputation applies and whether screening procedures can be utilized to protect confidential information and still permit the representation (more on this in the next blog.)
If not properly identified and managed, conflicts can not only interfere with client representations and risk a breach of duties, they may also expose lawyers to discipline and or disqualification from a matter.
Dena M. Roche
O’Rielly & Roche LLP