MARYLAND STATE BAR ASSOCIATION, INC.
COMMITTEE ON ETHICS
ETHICS DOCKET NO. 2003-10
CONFLICTS: May an Attorney Who Previously Represented a Plaintiff in an Asbestos Litigation Against Several Defendants (A, B and C) Continue to Represent the Plaintiff in Asbestos Litigation Against Defendants B and C after He is Hired by Defendant A as a Futures Representative if He No Longer Represents Plaintiff in the Proceeding Against Defendant A and Takes No Fee for Any Recovery Against Defendant A?
Your letter indicates that you have been a plaintiff asbestos litigator for 22 years. Although the use of asbestos insulation generally ceased in the 1970’s, because of the latency period between exposure and the development of disease, new cases of asbestos-induced illnesses continue to be filed at the present time against a myriad of manufacturers and contractor/installers. The claims have driven more than 20 otherwise viable companies into bankruptcy in the last two years.
Your letter notes that in an asbestos bankruptcy, the goal of the debtor is to emerge from Chapter 11 as quickly as possible with a comprehensive and final resolution to its asbestos liability. This would include establishment of an asbestos settlement trust fund, where all present claims, as well as all future claims, will be channeled to the trust. The goal of all asbestos claimants, whether present or future, is to identify and recover all available assets, particularly insurance coverage, that can be used to fund the trust.
The Bankruptcy Court appoints an individual to represent the interests of those claimants who were exposed to the debtor’s asbestos, but who have yet to manifest any disease. The person becomes known as the “Futures Representative” and speaks for those yet to be identified claimants for purposes of formulating the debtor’s reorganization plan and the procedures for distributing the trust funds to claimants. The Futures Representative may hire independent counsel and an expert to quantify the number and type of claimants, both present and future, who can be expected to assert claims. Compensation for the Futures Representative, the futures counsel and any quantification expert engaged by the Futures Representative will be paid from the debtor’s available insurance funds and will reduce the amount otherwise available for distribution to injured claimants through the trust. The job of the Futures Representative is too maximize the cumulative amount set aside for future claimants, while the attorneys representing present claimants want to maximize the share of the “pie” allocated to present claims.
You further indicate that Defendant A filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code about 16 months ago. Defendant A is continuing in possession of its property and the management of its business as a debtor-in-possession under the Bankruptcy Code. Defendant A was a local asbestos insulation contractor based in Maryland and has been sued in thousands of asbestos cases going back as far as 1976. As of the date the petition was filed, there were approximately 58,000 asbestos-related tort claims filed against Defendant A, exceeding several hundred million dollars.
About a month after filing its bankruptcy petition, a Committee of Unsecured Creditors (the “Creditors Committee”) was appointed for Defendant A. You have been approached and interviewed by Defendant A’s Creditors Committee for recommendation to the Bankruptcy Court for appointment as the so called “Futures Representative” for future asbestos claimants against Defendant A. You cite a variety of reasons why Defendant A’s Creditors Committee might want you selected as the Futures Representative, including your willingness to charge lower fees than other candidates, the fact that you would not need to hire independent counsel in Maryland and that you are willing to defer collection of your fees for a period of time. In addition, you note that you are familiar with Defendant A’s operations and worksites, and you have settled hundreds of cases with Defendant A. You are acquainted with members of its Board and its local defense counsel and you enjoy a good professional relationship with nearly all of the other plaintiffs’ counsel who handle asbestos claims against Defendant A and similarly situated defendants.
You have proposed to the Creditors’ Committee that you would divest yourself, for the duration of your service as the Futures Representative for claims against Defendant A, of any current claims you are handling against Defendant A. You would obtain authorization from each of your clients to turn over all such claims against Defendant A to other plaintiffs’ asbestos counsel of each client’s own choosing. You would not receive any fee or compensation of any kind as a result of any settlement or trust distribution obtained by such other attorney on any former client’s behalf from Defendant A’s trust. You would, however, continue to represent current and future clients in claims against other asbestos defendants, for which you would be compensated through the usual contingency fee arrangement.
You state that you have carefully reviewed Rules 1.7, 1.8 and 1.9 of the Maryland Rules of Professional Conduct, and do not believe that your continued representation of clients against defendants other than Defendant A would conflict with your service as the Defendant A Futures Representative. You indicate that the Creditors Committee is willing to have you serve as Futures Representative for Defendant A and you are willing to serve in such capacity, but both of you would like to be assured that no conflict would exist if you were to be recommended and appointed to this position.
Rule 1.7 of the Maryland Rules of Professional Conduct states:
“(a) A lawyer shall not represent a client if the representation of that client will be directly adverse to another client, unless:
(1) the lawyer reasonably believes the representation will not adversely affect the relationship with the other client; and
(2) each client consents after consultation.
(b) A lawyer shall not represent a client if the representation of that client may be materially limited by the lawyer’s responsibilities to another client or to a third person, or by the lawyer’s own interests, unless:
(1) the lawyer reasonably believes the representation will not be adversely affected; and
(2) the client consents after consultation.
(c) The consultation required by paragraphs (a) and (b) shall include explanation of the implications of the common representation and any limitations resulting from the lawyer’s responsibilities to another, or from the lawyer’s own interests, as well as the advantages and risks involved.”
Generally, loyalty to a client prohibits a lawyer from undertaking representation that is directly adverse to that client. The comments following Rule 1.7 indicate that ordinarily a lawyer may not act as an advocate against a client the lawyer represents in some other matter, even if the other matter is unrelated. The Comments to Rule 1.7 also make it clear that a lawyer may represent parties having antagonistic positions on a legal question that has arisen in different cases, unless representation of either client would be adversely affected. The Comments further state that “…when a disinterested lawyer would conclude that the client should not agree to the representation under the circumstances, the lawyer involved cannot properly ask for such agreement or provide representation on the basis of the client’s consent.”
Your inquiry acknowledges that you have represented clients in the past in adversarial proceedings against Defendant A and you have current clients who have filed claims against Defendant A. You propose to “divest” yourself of your current clients and refer them to alternative counsel of their choosing. You further propose to have these “former clients” sign some form of “authorization”. In fact, though, these “former” clients with respect to Defendant A will remain current clients with respect to Defendants B and C. In addition, your obligations to the future claimants against Defendant A (to preserve as much of the “pie” for these future claimants) will necessarily require you to advocate directly against these “former” clients (who themselves want as large a piece of the “pie” from Defendant A as they may be able to obtain).
Although you will discontinue the representation of any plaintiffs in their claims against Defendant A, it appears that you will be thrust into the role of advocating directly against these clients who you continue to represent as clients with respect to their claims against Defendants B and C – matters that are substantially related to the claims of these same plaintiffs against Defendant A. Accordingly, the Committee believes you could not undertake such representation without first obtaining the consent of each client, including those clients you currently represent against Defendant A (but who would be referred to alternative counsel with respect to their claims against Defendant A), as well as the future claimants you will represent as Futures Representative of Defendant A.
You might be able to obtain the type of informed consent required by Rule 1.7(c) from your “former” clients (who you continue to represent against Defendants B and C); however, we question whether it would even be appropriate to solicit such consent.
Moreover, the Committee does not see how you could possibly obtain such informed consent from the as-yet unidentified future claimants against Defendant A. Your responsibility under Rule 1.7(c) to consult fully with each of your clients regarding the advantages and disadvantages of agreeing to consent to your representation of future claimants as Defendant A Futures Representative (while at the same time continuing to represent your so-called “former” clients against other defendants when those “former” clients continue to press their claims against Defendant A) would be pivotal to obtaining such informed consent from your clients. The Committee has previously opined that the client must consent to the new representation knowingly, voluntarily and intelligently. See Ethics Dockets 92-23 and 86-58.* We do not believe it would be possible for Defendant A to provide the type of informed consent required by Rule 1.7(c) on behalf of the unidentified future claimants against Defendant A. Thus, we believe the conflict is a non-waivable conflict under Rule 1.7(a).
Even if you were somehow able to identify the future claimants and obtain informed consent from each of them, as well as from each of the former plaintiffs against Defendant A who you still represent as plaintiffs against Defendants B and C, the Committee believes Rules 1.9(b) would make it almost impossible for you to undertake the representation of the future claimants. Rule 1.9 of the Maryland Rules of Professional Conduct states:
“A lawyer who has formerly represented a client in a matter shall not thereafter:
(a) represent another person in the same or a substantially related matter in which that person’s interests are materially adverse to the interests of the former client unless the former client consents after consultation; or
(b) use information relating to the representation to the disadvantage of the former client except as Rule 1.6 would permit with respect to a client or when the information has become generally known.”
The Committee believes these matters are “substantially related” and the interests of the future claimants are materially adverse to the interests of your former clients in their continuing claims against Defendant A. You would need, therefore, to obtain the consent of these former clients. While the potential conflict may be waivable by obtaining your former clients’ consent, you would still be prohibited from using information relating to the representation in your capacity as Defendant A Futures Representative to the disadvantage of these former clients, except as Rule 1.6 would permit with respect to a client or when the information has become generally known.
The Committee has previously opined that “a finding that the present and prior representations are substantially related carries with it a presumption that relevant, confidential information was disclosed during the former period of representation and would be used adversely to the former client on behalf of the new client . . . .” See Ethics Docket 91-37, quoting Docket 91-12 and Duncan v. Merrill Lynch, 646 F.2d 1020 (5th Cir. 1981).
We do not know what confidential information may have been disclosed to you during the representation of your former clients that might be used adversely to your former clients during the time you serve as Defendant A Futures Representative. The Committee is concerned, however, that your obligation as Defendant A Futures Representative to assure that a sufficient portion of the “pie” available for distribution to present and future claimants against Defendant A is set aside for future claimants might entail using information relating to the representation of your former clients to the disadvantage of these former clients (who would prefer that a greater portion of the “pie” be set aside for claims of current claimants). This use of information might necessarily occur before decisions regarding allocations were finally made and recommended to the Court in a public setting. Accordingly, even with the express consent of your former clients to the representation of future claimants of Defendant A, you would, as part of your function as the Futures Representative, be using information and making recommendations to the Court to the disadvantage of your former clients. Thus, the Committee believes that the representation as Defendant A Futures Representative should not be undertaken. See Ethics Dockets 97-24 and 94-32.
Rule 1.8(b) provides that a lawyer “shall not use information relating to representation of a client to the disadvantage of the client unless the client consents after consultation.” The Committee believes its analysis of your responsibilities under Rules 1.7 and 1.9 would prevent you from serving as Defendant A Futures Representative. Further discussion of Rule 1.8(b) would not shed any additional light on the subject.
* The Committee’s opinions and an index of opinions are available for review at the Maryland State Bar Association web site at www.msba.org (click “Ethics Opinions”.