Earlier this month, I spoke at a Washington State Bar Association Continuing Legal Education Seminar about legal ethics for the business attorney. Specifically, my presentation discussed how the Washington Rules of Professional Conduct for attorneys (RPCs) address conflicts of interest that can arise when representing business entities such as LLCs, corporations, or the individual members, shareholders, and officers of business entities. Don’t yawn! Legal ethics is a fascinating topic involving complex relationships and dramatic turns. Don’t believe me? Read on.
Imagine, for example, that an attorney is contacted by a hypothetical potential client, Elizabeth, to discuss forming a new LLC. Elizabeth plans to form Bennet LLC with her four sisters, Kitty, Lydia, Jane, and Mary. Elizabeth would like the law firm to assist with formation of the new LLC, draft an Operating Agreement, and provide ongoing legal advice to the new entity. Before sending Elizabeth an engagement letter, the law firm runs a conflicts check and discovers that Lydia is a member of Wickham Enterprises, LLC, a current client of the firm. Not only is there a potential conflict of interest for the attorney in representing all five of the LLC members but there may also be a conflict involving Lydia’s status as a member of Wickham Enterprises.
Can the attorney represent the individual members and form the new LLC? Very likely yes, provided that all the clients involved provide informed consent waiving the conflict. The RPCs provide that the attorney may be able to represent clients even where a conflict exists in some circumstances, if the clients provide informed consent by confirming in writing that they want the attorney to represent them anyway, despite the conflict.
What about when an attorney no longer represents a client? For example, what if Wickham Enterprises asks the attorney to file a breach of contract lawsuit against Darcy Unlimited, Inc.? The attorney represented Darcey Unlimited in many breach of contract cases, up until two years ago, when Darcy Unlimited fired the attorney and hired a different law firm with nicer conference rooms. Can the attorney represent Wickham Enterprises in a lawsuit against its former client? Does the attorney need to obtain informed consent from Darcy Unlimited? As with many matters involving legal ethics, it depends.
An attorney’s duties to a client under the RPCs do not end upon the termination of the attorney-client relationship. The attorney’s duty to maintain confidentiality continues, for example, even after the attorney-client relationship is terminated. However, the RPCs do not impose on attorneys the same duties toward former clients as current clients. For example, an attorney is not required to obtain the informed consent of a former client in all of the circumstances in which that consent would be required if that client was a current client.
The Washington Supreme Court recently addressed the circumstances in which a matter involving a former client is “substantially related” to a new client’s matter. If matters are substantially related, an attorney would be required to obtain the informed consent of the former client before proceeding with representation of the new client. In its May 2020 decision in Plein v. USAA Casualty Insurance Co., 195 Wn.2d 677, 463 P.3d 728 (2020), the court analyzed facts somewhat similar to the above hypothetical involving Darcy Unlimited. In Plein, a law firm represented the insurance company USAA in bad faith insurance litigation for a number of years. After the law firm no longer represented USAA, the same firm filed a lawsuit on behalf of a new client against USAA, alleging claims similar to those the law firm used to defend the insurance company against.
USAA argued that the RPCs required its former attorneys to obtain its informed consent before representing clients in a lawsuit against the company. (Perhaps no surprise that USAA did not want its former attorney representing a client in a lawsuit against the company.) The Washington Supreme Court disagreed with USAA. The court ruled that the RPCs did not require USAA’s consent to the law firm’s representation of the plaintiffs in the case, even though the new client’s matter was the same type of case that the law firm handled for the insurance company. The court reasoned that while it was the same type of case, the new matter was not substantially related to the work the law firm did on behalf of the insurance company because the new matter involved different facts from the earlier cases.
The result? The law firm could indeed represent a new client in a lawsuit against its former client without the former client’s consent. This does not mean that the law firm could use or reveal confidential information related to the representation of the former client. That is not allowed under the rules of professional conduct. However, the court concluded that just having confidential information regarding a former client does not prevent an attorney from representing another client in a matter adverse to the former client, so long as the matters are not substantially related and, of course, the attorney does not use the confidential information against the former client.
Not all attorneys or law firms would have done what the law firm in the USAA case did and represented clients filing a lawsuit against a former client, even if that representation was not prohibited under the rules of professional conduct. I think it is fair to assume that USAA will not be hiring its former attorneys for work again. What happened here? The court’s opinion does not divulge how the attorney-client relationship soured between the law firm and its former client in this case. As in many matters involving legal ethics, this case involves a story of a relationship breakdown, miscommunication, and drama lurking in between the lines.
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