MARYLAND STATE BAR ASSOCIATION, INC.
COMMITTEE ON ETHICS
ETHICS DOCKET NO. 2004-01
Is there a conflict of interest where an attorney seeks to terminate his relationship with Client A in order to pursue representation of Client B on matters that may result in Client B’s termination of a terminable contract between Client A and Client B?
You are an attorney licensed in Maryland. You currently represent a California non-profit charity with respect to a contract, effective in Illinois, wherein the charity agrees to exclusively sell its donated clothing to a thrift store. You also represent the thrift store owner in other jurisdictions in obtaining contracts with other charities. The thrift store owner has now asked you to represent the thrift store in obtaining contracts with competing charities in the Illinois area. You note that, if the thrift store contracts with other charities to purchase clothing, the thrift store will likely terminate, or significantly decrease the volume of purchases under, the contract with your charity client. You state that you plan to terminate your representation of the charity and go forward with representing the thrift store in its pursuit of contracts with competing charities in the Illinois area, and ask if such plan presents any ethical problems.
You seem primarily concerned with whether there will be a conflict caused by your future representation of the thrift store after you terminate your relationship with the charity, implying a concern about a Rule 1.9 - Conflict with former client - violation. You relayed that, when you began representing the thrift store owner, you made the necessary disclosures to both the charity and the thrift store owner regarding any existing and/or potential conflicts, the limitations on your representation of each, and obtained the consent of both. You have not made inquiry of this Committee regarding your past course of conduct and we shall assume that the disclosures and consents were adequate.
In the course of representing the thrift store owner, you have now become aware of the fact that the thrift store intends to approach other charities in Illinois in order to obtain contracts to purchase their donated items. You acknowledge that such pursuits will have a negative impact on your charity client's contract with the thrift store. The thrift store's pursuit of a course of action that is likely to result in the termination and/or diminution of volume on the charity's contract is plainly relevant and important information to your charity client. Given your duties of confidence to your thrift store client, however, you are not at liberty (absent consent from the thrift store owner) to disclose such information to the charity client. Your ability to share this information with your charity client is limited by your duties to the thrift store and/or your ability to keep information confidential conflicts with your duties to the charity client. In this respect, your representation of both clients conflicts and materially limits the other. Again, we assume that your earlier disclosures and consents covered this type of scenario.
You state that you plan to terminate your relationship with the charity client and to begin representing the thrift store in Illinois. Termination of the previous relationship, standing alone, does not permit the planned representations. Rule 1.9 states that
"a lawyer who has formerly represented a client in a matter shall not thereafter: (a) represent another person in the same or 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 planned representation must not violate either part of Rule 1.9.
Under Rule 1.9(a), you may not represent the thrift store in the same or a substantially related matter where the thrift store's interests are materially adverse to the charity's interests, unless after full consultation, the charity consents. Assisting the thrift store in pursuing competing charities (when such action is likely to negatively impact the charity client's contract and fund-raising efforts) plainly requires you to represent a client in a related matter that is materially adverse to your charity client's interests. Under Rule 1.9(a), after terminating the charity client, you must obtain the charity's consent to your representation of the thrift store in Illinois. In order to make a proper disclosure to the charity client so as to enable it to give informed consent, you would have to disclose the thrift store's intent to pursue other competing charities, the role you will play in securing these other charity contracts, the likely impact of all this on your charity's contract with the thrift store, as well as any and all other relevant information. Again, it will first be necessary to get consent from the thrift store in order to disclose its confidential information regarding its intention to pursue contracts with other charities in addition to, or in lieu of, your charity client.
Further, you must determine whether you are privy to any information about the charity that could be used against the charity or might be relevant to the thrift store's decision to terminate, continue, or diminish the charity's contract (i.e., knowledge of the charity's donation capacity, past performance, future plans for expansion or reductions in size, etc.). Similarly, you could not use any information about the charity's pricing or profit margins in your negotiations of competing contracts with other charities. You must advise the thrift store that any such information about the charity cannot be disclosed to the thrift store nor used in your pursuit of its interests. Under Rule 1.9(b), you cannot use information obtained through representation of the charity to the disadvantage of the charity, unless the information has become generally known. Rule 1.9(b) does not allow for the former client to waive this conflict. As such, if the withholding of any such information would materially limit your representation of the thrift store, you would need to obtain the thrift store's consent under Rule 1.7(b).
Though not posed as part of your inquiry, we also direct you to Rule 5.5(a), which states that a lawyer shall not "practice law in a jurisdiction where doing so violates the regulation of the legal profession in that jurisdiction." The comment to Rule 5.5 indicates that the definition of what constitutes the practice of law varies from one jurisdiction to another and is a matter of law. The determination of whether you are practicing law in other jurisdictions will depend on the laws of those jurisdictions. We simply flag your attention to this matter.