Daily Development for Thursday, August 19, 1999
A. Randolph, Jr.
Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
ATTORNEY CLIENT; CONFLICTS OF INTEREST: Where an attorney has played a substantial role in a contested matter while working for one law firm, and later relocates to another law firm that represents a conflicting interest in the same matter, the new law firm will, at the request the former client, be disqualified, and the new firm cannot avoid such disqualification by building a "security wall" to insulate the new attorney from that matter.
Kassis v. Teacher's Insurance and Annuity Assoc., 1999 WL 444339 (July 1, 1999)
Mallin, a partner at Weg & Myers, represented plaintiffs in a litigation against several defendants, including TIAA. Thurm and Arnold represented TIAA and another defendant. For three years, a new associate at the firm Arnold, worked closely with Mallin. Although at the outset Arnold functioned in minor rolse, describing himself as a "calendar clerk," ultimately Arnold took a more active role in the litigation, conducting five depositions, including at least one of a party, had frequent contact directly with the client, and participated in several attempted mediations of the matter.
After three years, Arnold informed the partner at Thurm & Arnold who was responsible for TIAA's side of the litigation that Arnold was considering moving to another firm. She encouraged him to submit a resume to Thurm & Arnold, and in short order Thurm and Arnold hired him.
Mallin immediately raised concerns about conflicts of interest, and Thurm & Arnold assured Mallin that they had taken steps to "insulate" Arnold from the TIAA litigation. These steps included locating Arnold in an office on the other side of the building of this 26 lawyer firm, removing the files for the litigation from general storage to a partner's office, and rigid instructions to Arnold and others in the firm to have no interchange regarding the TIAA litigation. The lower appeals court described these efforts as the building of a "Chinese Wall," which the editor, an unabashed China admirer, views as a perfectly appropriate term, but which others, who have never seen the real Great Wall of China, have informed him is "politically incorrect." Nevertheless, in an excess of caution, the editor will refer to the device as a "security wall."
Three days after Arnold began working at Thurm & Arnold, Mallin filed a petition to disqualify Thurm & Arnold as counsel for TIAA. The trial court and intermediate appeals court denied the petition. The trial court found Arnold's involvement in the litigation "limited." The appeals court did not comment on this conclusion, but indicated that there had been no allegation of specific confidences that Arnold had obtained that might be breached, and that Arnold, as an "officer of the court," could be relied upon to maintain any confidences. It viewed the security wall as sufficient protection against inadvertent leakage of information and further commented that Mallin's motion struck it as a "litigation ploy." It pointed out that Thurm and Arnold had "lived with the case" for five years and that, at the time of the appeals decision, the case was on the trial calendar. It indicated concern about new costs being imposed upon Thurm's clients in the matter.
On appeal, Held: Reversed. Thurm & Arnold is disqualified. The New York Court of Appeals held unanimously that the question was not one of whether the "security wall" would likely be effective to insulate Arnold, but whether there was the "appearance of impropriety" in Thurm & Arnold's hiring Arnold in the midst of this litigation after Arnold had had substantial exposure to information held by the opposing side. The court commented that "'side switching' clearly implicates the policies both of maintaining loyalty to the first client and of protecting that client's confidences."
The court noted that Mallin's motion hardly could be called a "litigation ploy," because it was Thurm & Arnold that knowingly recruited Arnold directly from the "field of battle" with full awareness of the potential problems, and Mallin's motion was made only days thereafter, hardly evidence of a carefully worked out strategy. Any problems resulting from the further involvement of Thurm & Arnold in the litigation resulted from Thurm & Arnold's original action and stout resistance to the consequences.
Thurm & Arnold had attempted to distinguish earlier cases of imputed disqualification by suggesting that those cases involved special circumstances of firms with specially integrated work forces. The Court of Appeals acknowledged that the rule of imputed disqualification is not ironclad, and all facts and circumstances must be considered. But here, Arnold's involvement with this long simmering litigation was certainly more than inconsequential. In such a case, there is an "appearance of impropriety" when someone with access to confidential information bolts to the other side. No amount of wall building could be enough to cure this breach of the duty of loyalty.
Comment 1: Veterans will remember the day when the editor "went medieval" in criticizing another New York court for deciding that an attorney who had served as general counsel for a client for ten years could move to another firm where one of the partner's acted as a receiver in a foreclosure action against the client. The court first held that receivers have no ethical duties (wrong) and then held that the party seeking disqualification had a duty to show what specific information might be communicated improperly (also wrong) and finally held that in a large firm with several floors of lawyers, it was unlikely that the information could be wrongfully communicated anyway, and insulating devices were not even necessary (really, really wrong). This delightful case was Bank of Tokyo Trust v. Urban Food Malls, 650 N.Y.S.2d 654 (App. Div. 1996) , the DD for July 18, 1997, on the DIRT website. The Court of Appeals did not cite the case here.
Comment 2: The case reserves judgment on future, similar cases, so the door has not been slammed on all recruiting of lateral transfers by "megafirms," who almost unavoidably will wind up looking at lawyers who have some exposure to confidential information concerning parties adverse to the recruiter's clients. But the door certainly has been moved a bit more close.
Whether the same ethical rules ought to obtain in transactional practice that obtain in litigation practice is a nice question. But secrets are secrets, and they can hurt when they are disclosed. Further, loyalty is a high duty as well. Perhaps lawyers in Mr. Arnold's position do not pay too high a price for professionalism when we say that they are barred at least from joining law firms who are in the process of a major contested matter (transaction or litigation) when they have had substantial exposure to one side's secrets.
Needless to say, the implications of the case go far beyond this relatively narrow set of facts. What happens when an experienced lawyer moves to another firm and thereafter that firm's client becomes adverse to a party that the "just moved" lawyer represented earlier? Perhaps "wall building" would suffice here. The New York court doesn't say it wouldn't. It only says that the instant case was just too much to stomach. The editor concurs.
Comment 3: Others have criticized the editor's comments on ethics as uttered by one who has never had to meet a payroll. Fair enough. But the editor nevertheless maintains that we as professionals must recognize that ethics by their very nature are "anti market." If we are going to enjoy the rich benefits of professional status, then we must follow rules that give our clients the special protections that they deserve. This may prevent us from making as much money as we like and even (shudder) may prevent firms from being as big as they want.
Some have argued that the rule of liability is enough. But with big profits, one can buy lots of insurance, and ignore ethical constraints entirely when they get in the way of those profits. If we lack significant ethical rules, we are not professionals. If we are not professionals, then there is no reason that any barber can't dispense legal advice with every haircut. The client can decide who to go to for acvice and how much to pay. The current system denies the client this choice because we have decided that clients need professional, ethical representation. If that's what we've decided, then we'd better mean it. The barbarians are at the gate!!
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