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THE ASSOCIATION OF THE BAR OF THE CITY OF NEW
YORK
COMMITTEE ON PROFESSIONAL AND JUDICIAL ETHICS
FORMAL OPINION 2007-2
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TOPICS: Secondment of law firm attorneys; association
with a law firm.
DIGEST: A law firm may second a lawyer to a host organization
without subjecting the law firm to the imputation of conflicts under
DR 5-105(D) if, during the secondment, the lawyer does not remain “associated” with
the firm. The seconded lawyer will not remain associated with the firm
if any ongoing relationship between them is narrowly limited, and if
the lawyer is securely and effectively screened from the confidences
and secrets of the firm’s clients. Both during the secondment and
afterward, the seconded lawyer and his or her employer should be mindful
of the lawyer’s former-client conflicts under DR 5-108.
CODE: DR 4-101; DR 5-104; DR 5-105; DR 5-108.
QUESTION
Under what circumstances may a law firm “second” a lawyer
to a host organization without subjecting the law firm to the imputation
of conflicts under DR 5-105(D)?
DISCUSSION
Originally a British military term meaning “[t]o remove (an officer)
temporarily from his regiment or corps, for employment on the staff,
or in some other extra-regimental appointment,”1 in
legal circles, secondment has come to describe the practice under which
a lawyer from a law firm temporarily acts as inside counsel for a host
organization, such as a client, a governmental agency, or a charity.2 Secondments
provide mutual benefit: the law firm benefits because the
secondment strengthens the firm’s relationship with the host organization,
the host organization benefits because the seconded lawyer provides needed
assistance, and the seconded lawyer benefits because he or she gains
an insider’s perspective into the business of the host and similar
organizations.
A secondment may take many forms, depending, for example, on whether
(a) the seconded lawyer has access to the confidences and secrets of
the firm’s clients or of the host organization; (b) the host organization
or the firm compensates the seconded lawyer; (c) the firm is compensated
for making the secondment; and (d) the secondment is a partial one, in
which the seconded lawyer devotes only a portion of the lawyer’s
time to the host organization. The many forms that a secondment may take
naturally have different ethical implications, to which we now turn.
I. Ethical Issues Arising from a Seconded Lawyer’s
Continuing Association with the Law Firm Under DR 5-105(D), lawyers associated in a law firm cannot knowingly
accept or continue employment when any one of them would be prohibited
from doing so because of a conflict of interest:
While lawyers are associated in a law firm, none of them shall knowingly
accept or continue employment when any one of them practicing alone would
be prohibited from doing so under DR 5-101(A), DR 5-105(A) or (B), DR
5-108 (A) or (B) or DR 9-101(B) except as otherwise provided therein.3
We discuss below the meaning of being “associated” with
a law firm. As a threshold matter, under DR 5-105, when the seconded
lawyer remains associated with the firm, conflicts may abound. For example,
DR 5-105(A)-(B) prohibit the seconded lawyer who remains associated with
the law firm from representing the host organization in litigated and
transactional matters against the interests of a current client of the
law firm, and DR 5-108 prohibits that seconded lawyer from acting adversely
to the interests of a former client of the law firm in substantially
related matters.
Another significant source of potential conflicts in this context arises
from the possibility that the seconded lawyer may learn confidential
information from the host organization that is imputed to the law firm
under DR 5-105(D) and that is material to one of the firm’s other
clients. For example, the seconded lawyer may learn that the host organization
has been approached on a confidential basis to extend critical working-capital
financing to Corporation Y. At the same time, the firm may represent
Client Z that intends to launch a hostile bid for Corporation Y. Through
its continuing association with the seconded attorney, the law firm would
be considered to possess information that “is so material to the
second representation,” i.e., of Client Z, that the law firm would
be representing “differing interests,” so as to create a
conflict under DR 5-105, “in the sense that the representation
of one client cannot be accomplished without violating the rights of
another.” See ABCNY Formal Op. 2005-2. Similarly, “continued
employment [could] mean violating . . . the requirement of DR 4-101(B)(3)
that a lawyer may not use a confidence or secret for the advantage of
another client.” Id. Accordingly, because obtaining the informed
consent of both Client Z and the host organization would require each
to make disclosures to the other that neither is likely to agree to make,
the law firm and the seconded attorney would be precluded from continuing
to represent either one.
Moreover, when the seconded lawyer is associated with both the law firm
and the host organization, the conflicts of the law firm become the conflicts
of the host organization, and vice versa.4 See
N.Y. State 793 (2006) (when a lawyer is “of counsel” to two
law firms, the lawyer is ordinarily associated with both, and thus the
conflicts of the one firm are imputed to the other). Thus, DR 5-105 would
prohibit, for example, all the attorneys in the host organization’s
law department from acting adversely to any client of the firm.
This analysis leads to the conclusion that a secondment should be structured
so that the seconded lawyer is not associated with the law firm during
the secondment. The key to achieving this lies in the meaning of being
associated with a law firm.
II. Being “Associated” with a Law Firm
The test for determining whether a lawyer is associated with a law firm
has been addressed in two ethics opinions, ABA Op. 88-356 (1988) and
N.Y. State 715 (1999), and in a recent opinion by the United States Court
of Appeals for the Second Circuit, Hempstead Video,
Inc. v. Village of Valley Stream, 409 F.3d 127 (2d Cir. 2005). As noted in N.Y. State 715
(1999), “[t]he Code does not define the term associated.” The
two ethics opinions, both of which addressed whether a temporary lawyer
is associated with a law firm, concluded that “[t]he question whether
a temporary lawyer is associated with a firm at any time must be determined
by a functional analysis of the facts and circumstances involved in the
relationship between the temporary lawyer and the firm consistent with
the purposes for the Rule.” ABA Op. 88-356 (1988); see also N.Y.
State 715 (1999) (association “depends upon the nature of the relationship”).
In Hempstead Video, Inc., the Court of Appeals for the Second Circuit
addressed whether the conflicts of an attorney acting “of counsel” to
a law firm should be imputed to the firm. The Court of Appeals rejected
any per se rule, and instead held that the “substance of the relationship” and
the “procedures in place” should be examined in determining
whether an association exists:
[T]he better approach for deciding whether to impute an “of counsel” attorney’s
conflict to his firm for purposes of ordering disqualification in a suit
in federal court is to examine the substance of the relationship under
review and the procedures in place. The closer and broader the affiliation
of an “of counsel” attorney with the firm, and the greater
the likelihood that operating procedures adopted may permit one to become
privy, whether intentionally or unintentionally, to the pertinent client
confidences of the other, the more appropriate will be a rebuttable imputation
of the conflict of one to the other. Conversely, the more narrowly limited
the relationship between the “of counsel” attorney and the
firm, and the more secure and effective the isolation of nonshared matters,
the less appropriate imputation will be.
409 F.3d at 135. The Court of Appeals concluded on the facts presented
that conflicts should not be imputed to the law firm because the relationship
between the lawyer and the law firm was “narrowly limited,” “attenuated,” and “remote.” Id.
at 136.
Under these authorities, the touchstones for determining association
are the nature of the lawyer’s relationship with the law firm and
whether the lawyer has access to the confidences and secrets of the law
firm’s clients. Hempstead Video, Inc., 409 F. 3d at 135-36. See
also N.Y. State 715 (1999) (when an attorney “has general access
to the files of all clients of the firm and regularly participates in
discussions of their affairs, then he or she should be deemed ‘associated’ with
the firm”). Relatedly, whether an attorney “should be deemed
to have access to the confidences and secrets of [the] clients of [a]
firm depends upon the circumstances, including whether the firm has a
system for restricting access to client files and for restricting informal
discussions of client matters.” Id. “The more narrowly limited
the relationship between the . . . attorney and the firm, and
the more secure and effective the isolation of nonshared matters, the
less appropriate imputation will be.” Hempstead
Video, 409 F. 3d
at 135. The firm may use formal means, including ethical screens, to
deny access to those confidences and secrets. Id. at 134 (“Whether
an attorney is associated with a firm for purposes of conflict imputation
depends in part on the existence and extent of screening between the
attorney and the firm”);5 N.Y.
State 715 (1999) (“if the firm has adopted procedures to ensure
that the . . . Lawyer is privy only to information about clients he or
she actually serves, then, in most cases, the . . . Lawyer should not
be deemed to be ‘associated’ with the firm for purposes of
vicarious disqualification”) (citing ABA Op. 88-356 for the proposition
that an employing firm should “screen each temporary lawyer from
all information relating to clients for which the temporary lawyer does
no work”).
We therefore conclude that when (i) any ongoing relationship between
the seconded lawyer and the law firm is narrowly limited, including that
the seconded lawyer works solely under the direction of the host organization,
and (ii) the seconded lawyer is securely and effectively screened from
the confidences and secrets of the law firm’s clients, the seconded
lawyer should not be considered associated with the law firm, and conflicts
should not be imputed to the law firm. Our conclusion is not altered
by the mere fact, for example, that the seconded lawyer (a) is expected
to return to the firm at the end of the secondment, (b) retains the lawyer’s “class
rank” at the firm, (c) retains the lawyer’s benefits under
the firm’s pension plan, or (d) can send and receive e-mails through
the firm’s e-mail servers (but without access to confidences and
secrets of the firm’s clients).
On the other hand, when the seconded lawyer spends some of the lawyer’s
time at the host organization and the balance at the law firm, working
for other clients of the firm (a “partial secondment”), the
seconded lawyer remains associated with the firm. See ABCNY Formal Op.
1996-8, ABA Op. 90-357 (1990).
III. The Law Firm’s Continuing Supervision of the
Seconded Lawyer
We now consider whether the seconded lawyer remains associated with
the law firm if the law firm continues to supervise the seconded lawyer
in connection with the seconded lawyer’s representation of the
host organization.
In approaching this question, we are mindful of the recent admonitions
of the Court of Appeals for the Second Circuit in Hempstead
Video, Inc.,
in which the Court rejected any per se rule in determining the analogous
question whether an “of counsel” attorney was associated
with a law firm, and held:
A per se rule has the virtue of clarity, but in achieving clarity,
it ignores the caution that “[w]hen dealing with ethical principles,
. . . we cannot paint with broad strokes. The lines are fine
and must be so marked.” Silver Chrysler Plymouth,
Inc. v. Chrysler Motors Corp., 518 F.2d 751, 753 n. 3 (1975) (quoting
United States v. Standard Oil Co., 136 F.Supp. 345, 367 (S.D.N.Y.1955)).
409 F.3d at 135. The Court of Appeals underscored that:
Imputation is not always necessary to preserve high standards of professional
conduct. Furthermore, imputation might well interfere with a party’s
entitlement to choose counsel and create opportunities for abusive disqualification
motions.
Id. at 135-36.
We consider first the circumstance when the host organization requests
the law firm to continue to supervise the seconded lawyer in concluding
a representation of the host organization that the seconded lawyer began
while at the law firm. In this limited, transitional circumstance, we
do not believe either that any additional conflicts would be imputed
to the law firm, or that the seconded lawyer would remain associated
with the firm. First, the law firm has been representing the host organization
all along in the matter, so the law firm continuing to work on the matter
does not by itself create any additional conflict. Second, there is little
difference between the law firm continuing to supervise the seconded
lawyer in this circumstance, and the host organization engaging the law
firm to complete that representation and to work with the seconded lawyer
as a representative of the host organization. To conclude either that
additional conflicts would be imputed or that the seconded lawyer would
remain associated with the law firm would elevate form over substance
and create an unjustifiable rift between the host organization on the
one hand and the seconded lawyer and the law firm on the other, undermining
the host organization’s right to the counsel of its choice. Levine
v. Levine, 56 N.Y.2d 42, 451 N.Y.S.2d (1982) (recognizing, in the context
of law-firm conflicts, that the right to counsel is a fundamental right).
But these considerations are entitled to less weight if the law firm
supervises the seconded lawyer in connection with one or more new representations
of the host organization. Moreover, even one significant new representation
in which the law firm supervises the seconded lawyer could result in
the sort of close and regular relationship between the seconded lawyer
and the law firm that would likely result in conflicts being imputed
and the lawyer being considered associated with the firm. Hempstead
Video, Inc., supra.
Finally, if the law firm supervises the seconded lawyer in connection
with the seconded lawyer’s representing other clients of the law
firm, this would be a partial secondment, and, as discussed above, conflicts
would be imputed to the law firm.
IV. The Effect of Different Compensation Arrangements
on the Determination of Association and the Imputation of Conflicts We next consider whether, if the firm continues to pay the seconded
lawyer during the secondment, or if the host organization pays the firm
for the secondment, the seconded lawyer remains associated with the firm,
or conflicts are otherwise imputed to the firm. If the law firm pays
the seconded lawyer during the secondment, this alone does not result
in the imputation of conflicts to the firm, or make the lawyer associated
with the firm, so long as the seconded lawyer’s professional judgment
is not directed by the firm and the lawyer lacks access to the confidences
and secrets of the firm’s clients. Cf. DR 5-107(B) (with the consent
of the client, a lawyer may accept compensation for legal services from
one other than the client, but shall not permit a person who pays the
lawyer “to direct or regulate his or her professional judgment
in rendering such legal services, or to cause the lawyer to compromise
the lawyer’s duty to maintain the confidences and secrets of the
client . . .”). It is advisable in this situation to
record in writing that the firm will not be directing the professional
judgment of the seconded lawyer.6
For the same reasons, this analysis is not altered if the host organization
pays the firm for the secondment.7 We
hasten to point out that when the host organization pays the firm for
the secondment, the firm must satisfy the requirements of DR 5-104, which
provides in part that when a lawyer seeks to do business with a client,
and if the client expects the lawyer to exercise professional judgment
in order to protect the client in the transaction, the transaction must
be fairly described “in writing to the client in a manner that
can be reasonably understood by the client.” In addition, the lawyer
must recommend that the client consult with independent counsel in connection
with the arrangement, and the client must consent in writing. In all
these cases, a written contract clearly explaining the terms of the secondment
is essential.
V. Avoiding Conflicts with Former Clients Even assuming that the secondment is structured so that the seconded
lawyer is not associated with the firm, the seconded lawyer must, of
course, still conform to DR 5-108. Thus, while at the host organization,
the seconded lawyer is prohibited from undertaking a representation in
a matter that is substantially related to a matter that the lawyer worked
on at the firm, if the new representation would be adverse to the interests
of the former client at the firm. It also bears reminding that if the
seconded lawyer is associated with the legal department of the host organization,
no lawyer in that legal department may act adversely to the interests
of the seconded lawyer’s former clients on substantially related
matters, without the former clients’ consent.8 See
DR 5-105(D). Of course, the seconded lawyer may continue to work on matters
in which the lawyer previously represented the host organization while
associated with the firm.
If the lawyer returns to the firm when the secondment ends, the firm
may be conflicted if the firm seeks to represent, or currently represents,
a client whose interests are materially adverse to the host organization.
Most often, the host organization is already a client of the firm. Therefore,
it would be unlikely that the firm would act adversely to the host organization,
except with its consent, or if the firm has ceased to represent the host
organization. But conflicts may arise even when the host organization
is a current client because of the returning lawyer’s access to
confidential information while seconded. In the example discussed above,
the seconded lawyer learned that the host organization had been approached
to extend critical financing to an acquisition target of Client Z. Even
if the seconded lawyer was not associated with the firm during the secondment,
when the seconded lawyer returns to the firm, if that information is
still material to Client Z, the provisions of DR 5-105(D) will nonetheless
apply, and the firm may then be disqualified from representing Client
Z unless informed consent can be obtained.
Furthermore, if the host organization is a former client of the law
firm when the seconded lawyer returns, the law firm may be precluded
from accepting an engagement in which the firm would be adverse to the
host organization if that representation is substantially related to
the formerly seconded lawyer’s representation of the host organization.9
CONCLUSION
A lawyer may be seconded to a host organization without thereby subjecting
the law firm to the imputation of conflicts under DR 5-105(D) if, during
the secondment, the lawyer does not remain associated with the firm.
The seconded lawyer will no longer be associated with the firm if any
ongoing relationship between the two is narrowly limited and if the lawyer
is securely and effectively screened so that the lawyer does not have
access to the confidences and secrets of the firm’s clients. If
the seconded lawyer splits the lawyer’s time between the host organization
and the firm, the lawyer will be associated with both the firm and the
host organization, and the conflicts of one will be imputed to the other.
If the law firm supervises the seconded lawyer in concluding a representation
for the host organization that the seconded lawyer began while at the
firm, additional conflicts should not be imputed to the firm and the
lawyer should not be considered associated with the firm, again if the
lawyer is securely and effectively screened. Neither the firm paying
the seconded lawyer nor the host organization paying the firm for the
seconded lawyer’s services affects the determination whether the
lawyer is associated with the firm during the secondment. Both during
the secondment and afterward, the seconded lawyer and his or her employer
should be mindful of the lawyer’s former-client conflicts under
DR 5-108.
1. Oxford English Dictionary
Online (2006)
2. The term “host organization” refers
to the entity to which the secondment is made.
3. Model Rule 1.10(a) of the Model
Rules of Professional Conduct is substantially the same:
While lawyers are associated in a firm, none of them shall knowingly
represent a client when any one of them practicing alone would be prohibited
from doing so by Rules 1.7 or 1.9, unless the prohibition is based on
a personal interest of the prohibited lawyer and does not present a significant
risk of materially limiting the representation of the client by the remaining
lawyers in the firm.
4. Under the Code, a law firm
is defined to include the legal department of a corporation. Code, Definitions.
5. See ABCNY 2006-2 for a discussion
of the factors that courts analyze in determining whether a screen is
effective.
6. Best practices also dictate
that the law firm’s procedures to screen the seconded lawyer be
in writing. See ABCNY 2006-2.
7. In effect, the firm would be
acting as a placement agency for the seconded lawyer, as if the seconded
lawyer were a contract lawyer. See ABA Op. 88-356 (1988). There is no
reason why the firm, like a placement agency, cannot temporarily place
its lawyers with host organizations and charge for that service. The
fee is justified because the firm not only loses its ability to bill
the lawyer’s
time during the secondment, but the firm may also be paying the lawyer
during the secondment.
8. See ABCNY 2003-03 for a discussion
of avoiding conflicts with former clients of “laterals,” such
as the seconded lawyer. The host organization should establish appropriate
safeguards, such as a conflicts database, to ensure that conflicts with
the seconded lawyer’s former clients are avoided.
9. It is thus advisable for the
seconded lawyer to keep a record of the matters on which he or she worked
while seconded, to the extent feasible.
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