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Imputed Conflicts of Interest

Feb 15th, 2016

Imputed Conflicts of Interest Rules

This is the ninth of a series of articles, based on a chapter from the 2015 edition of Lawyers’ Professional Responsibility in Colorado by attorney Michael T. Mihm, discussing the current law of conflicts of interest as it applies to Colorado lawyers. It draws upon the Colorado Rules of Professional Conduct; the former Colorado Rules of Professional Conduct, effective through December 31, 2007 (former Colorado Rules or former Colo. RPC); Colorado appellate decisions; ethics opinions; the ABA Model Rules of Professional Conduct; the Restatement (Third) of the Law Governing Lawyers (Restatement); and other resources.

Lawyers associated with law firms are frequently confronted with imputed conflicts of interest. These problems can be particularly significant in a large law firm. Often, the conflict check system reveals a potential conflict of interest because of a representation by another lawyer in a completely unrelated matter. In large law firms, the lawyer representing the other client may be in a different city or state or, indeed, a different country.

In some cases, the conflict check will reveal that another lawyer in the firm may be a witness in litigation. See, e.g., Fognani v. Young, 115 P.3d 1268 (Colo. 2005).

These scenarios raise the specter of imputed conflicts of interest or imputed disqualification. If the conflict of one lawyer is, in fact, imputed to the other lawyers in the firm, the law firm may be required to decline the representation.

The rule of imputed conflicts of interest seems to work well in the context of small or mid-size law firms, where lawyers within the firm may have direct access to, if not actual knowledge of, confidential information about another’s clients. It becomes more problematic in larger firms where, as a practical matter, lawyers within a firm may not have access to confidential information about a client represented by a lawyer in a distant office. It also becomes very problematic in firms where lawyers frequently float among different private law firms, government service, or corporate general counsel’s offices and bring their conflict of interest problems with them.

These problems have consequences. The problems may interfere with lawyers’ efforts to build practices or provide full service to existing clients. The law firm may have to turn down a desirable case or transaction because of some minor representation by a partner in a distant city. These chronic conflict of interest problems can cause talented lawyers to leave the law firm in frustration, often taking clients and other lawyers with them. The consequences of imputed disqualifications are not simply that a law firm is deprived of a lucrative fee; the client may suffer as well. The client may be as distressed as the law firm by the conflict because the client is then deprived of access to its chosen counsel and the counsel’s expertise in a critical matter.

Law firms have attempted various means of addressing the conflict-of-interest problems, such as screening or “confidentiality walls.” When the problems are ignored or handled improperly, the consequences can ensnare the law firm in unpleasant and embarrassing litigation.

Rule Of Imputed Disqualification

A lawyer is obligated to maintain a paramount duty of loyalty to the client. People ex rel. Peters v. Dist. Court, 951 P.2d 926, 929-30 (Colo. 1998); see Hutchinson v. People, 742 P.2d 875, 881 (Colo. 1987). When a lawyer associates with a law firm, the principle of loyalty to the client extends beyond the individual lawyer and applies with equal force to the other lawyers practicing in the firm. Peters, 951 P.2d at 930. This principle is known as the “rule of imputed disqualification.” Id. The rule acknowledges the close personal and financial relationships that exist between a lawyer and other members of a law firm. Id.; see Wright v. Dist. Court, 731 P.2d 661, 663 (Colo. 1987); see generally ABA Standards for Criminal Justice, Prosecution and Defense Function 4-3.5(a) (3d ed. 1993) (“Defense Counsel should not permit his or her professional judgment or obligations to be affected by his or her own political, financial, business, property, or personal interests.”). The rule is based on the presumption that lawyers in a law firm have access to confidential information about each other’s clients. Peters, 951 P.2d at 930.

The rule of imputed disqualification is intended to apply the principle of loyalty to the client vicariously to lawyers who practice in a law firm or other association. Colo. RPC 1.10, cmt. [2]; Peters, 951 P.2d at 929-30. The rule treats all lawyers in a law firm as one lawyer for purposes of applying principles of loyalty to a client. Colo. RPC 1.0(c) (defines “firm” or “law firm”); Colo. RPC 1.10, cmt. [1], (same); Colo. RPC 1.10, cmt. [2] (“Such situations can be considered from the premise that a firm of lawyers is essentially one lawyer for purposes of the rules governing loyalty to the client. . . .”); Peters, 951 P.2d at 930.

Colorado Rule On Imputed Disqualification — Generally

Colo. RPC 1.10 addresses imputed conflicts of interest and, thus, the rule of imputed disqualification. Colo. RPC 1.10 provides that all lawyers in a law firm are disqualified from representing a client when one lawyer associated with the firm is disqualified under Colo. RPC 1.7 (conflicts of interest) or Colo. RPC 1.9 (conflicts of interest with former clients). Colo. RPC 1.10; Peters, 951 P.2d at 930; McCall, 783 P.2d at 1227 (discussing imputed disqualification in the context of DR 5-105(D)). The rule of imputed disqualification applies to both private firms and public law firms such as a district attorney’s office or the Office of the State Public Defender. Peters, 951 P.2d at 930; see McCall, 783 P.2d at 1227.

The rule that all lawyers in a law firm are disqualified from representing a client if one lawyer is disqualified is a rebuttable rule, at least in federal court. SLC Ltd. v. Bradford Group West, Inc., No. 92-4225 (10th Cir. 1993), slip op. at 6-9; English Feedlot, Inc. v. Norden Labs., Inc., 833 F. Supp. 1498, 1507 (D. Colo. 1993), but see Peters, 951 P.2d at 930 n. 6. In determining whether the presumption of imputation has been rebutted, the court should consider the firm’s size, structural divisions, likelihood of any contact between the “infected” lawyer and lawyers responsible for the new representation, and the existence of rules preventing the infected lawyer from gaining access to files concerning the present litigation. Smith v. Whatcott, 757 F.2d 1098, 1101 (10th Cir. 1985); English Feedlot, Inc., 833 F. Supp. at 1507. Where the lawyer who performed the earlier work has left the firm and no lawyer remaining in the firm has any material information relating to the representation, disqualification cannot be imputed to the firm as a whole. English Feedlot, Inc., 833 F. Supp. at 1507. Nevertheless, because Colo. RPC 1.10(a) emphasizes loyalty as well as confidentiality, an “ethical wall” of silence between lawyers will not necessarily prevent the disqualification of all of the members of the firm if the circumstances of the conflict fall within the scope of the rule. Peters, 951 P.2d at 930.

Colorado’s Rule Of Imputed Disqualification

The current Colorado Rule 1.10 tracks the former ABA Model Rule 1.10 (upon which Colo. RPC 1.10 is based), with some clarifying additions helpful to lawyers:

(a) 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.

(b) When a lawyer has terminated an association with a firm, the firm is not prohibited from thereafter representing a person with interests materially adverse to those of a client represented by the formerly associated lawyer and not currently represented by the firm, unless:

(1) the matter is the same or substantially related to that in which the formerly associated lawyer represented the client; and

(2) any lawyer remaining in the firm has information protected by Rules 1.6 and 1.9(c) that is material to the matter.

(c) A disqualification prescribed by this Rule may be waived by the affected client under the conditions stated in Rule 1.7.

(d) The disqualification of lawyers associated in a firm with former or current government lawyers is governed by Rule 1.11.

(e) When a lawyer becomes associated with a firm, no lawyer associated in the firm shall knowingly represent a person in a matter in which that lawyer is disqualified under Rule 1.9 unless:

(1) the matter is not one in which the personally disqualified lawyer substantially participated;

(2) the personally disqualified lawyer is timely screened from any participation in the matter and is apportioned no part of the fee therefrom;

(3) the personally disqualified lawyer gives prompt written notice (which shall contain a general description of the personally disqualified lawyer’s prior representation and the screening procedures to be employed) to the affected former clients and the former clients’ current lawyers, if known to the personally disqualified lawyer, to enable the former clients to ascertain compliance with the provisions of this Rule; and

(4) the personally disqualified lawyer and the partners of the firm with which the personally disqualified lawyer is now associated reasonably believe that the steps taken to accomplish the screening of material information are likely to be effective in preventing material information from being disclosed to the firm and its client.

Colo. RPC 1.10. The revised Rule 1.10(a) is intended to accommodate a lawyer’s strong political or religious views or other personal interests that do not implicate loyalty to the client by other members of the firm and do not risk protection of the client’s confidential information. Colo. RPC 1.10, cmt. [3]; see also ABA Model Rule 1.10, cmt. [3]. While the lawyer’s views or interest might ordinarily disqualify the lawyer from representing a client under Rule 1.7(b), as materially limiting the lawyer’s ability to adequately represent the client, the thinking is that the other lawyers in the law firm who do not share such interests should not be disqualified when there is no risk to a current or former client. Id.

Applicability of Rule when Lawyer Has Left the Firm

Colo. RPC 1.10(b) provides that the rule of imputed disqualification generally does not apply to law firms, under certain circumstances, when the lawyer who was privy to the confidential information has left the law firm and is no longer associated with the firm:

(b) When a lawyer has terminated an association with a firm, the firm is not prohibited from thereafter representing a person with interests materially adverse to those of a client represented by the formerly associated lawyer and not currently represented by the firm, unless:

(1) the matter is the same or substantially related to that in which the formerly associated lawyer represented the client; and

(2) any lawyer remaining in the firm has information protected by Rules 1.6 and 1.9(c) that is material to the matter.

(c) A disqualification prescribed by this Rule may be waived by the affected client under the conditions stated in Rule 1.7.

Colo. RPC 1.10(b) and (c). Thus, the rule of imputed disqualification may not apply if the lawyer who had represented the adverse client has left the law firm, provided, however, that certain conditions have been met. The conditions are:

  • The law firm does not currently represent the client whose interests are adverse to the current client;
  • The lawyer who represented the adverse former client is no longer with the law firm;
  • No lawyer remaining with the firm has information protected by Colo. RPC 1.6 (confidentiality) or Colo. RPC 1.9(c) (also pertaining to confidential information); and
  • The new representation is not the same or substantially related to the prior representation of the adverse former client.

Colo. RPC 1.10(b) and cmt. [5], generally.

The exception to the imputed conflict-of-interest rule is designed to ascertain whether, in fact, lawyers currently with the law firm have confidential information about the adverse former client. If they do not, then the former client’s rights of confidentiality are not impaired and the former client is protected. Restatement § 124(1), p. 297. Whether the exceptions of Colo. RPC 1.10(b) apply, or whether the clients may effectively waive the conflict, depends on the specific facts.

Applicability of the Rule to Law Firm Staff

Colo. RPC. 1.10(b) does not apply to law firm staff members, such as secretaries or paralegals, who were involved in the former representation and are still employed by the firm. The reasoning is that law firm staff members are unlikely to have as intimate a knowledge of confidential and privileged information as lawyers might have. Restatement § 123, cmt. f. In this author’s experience, however, an experienced secretary or paralegal sometimes may have as much or more intimate knowledge of the former client’s confidential information than the lawyers who handled the representation. The reasoning is suspect. The rule contemplates that law firm staff members who were privy to confidential information about the former client should be screened from the new representation. Colo. RPC 1.10, cmt. [4]; see also ABA Model Rule 1.10, cmt. [4].

“Confidentiality Walls” Or Screening For Imputed Disqualification

Many law firms have attempted to address imputed conflicts of interest by constructing “confidentiality walls” or “screening,” with mixed success. Colo. RPC 1.10 and the Comments do not suggest any mechanism for building a confidentiality wall. However, with more and more firms converting to a “paperless” office or maintaining client data on dedicated servers or in “the cloud,” software and technology have made screening more practical and feasible, e.g., a screened lawyer or staff person can be “locked out” from access to files and data about a case. While technology can solve some of the problems arising from screening within an office, technology cannot solve the human element, i.e., people talking with each other in the hallway or lunchroom or overhearing conversations from which they should be screened. In the end, screening only works if law firm leaders enforce the screen and individual attorneys and staff take responsibility for maintaining the screen.

When considering screening, it is helpful to consider the primary reason behind the need for a screen — preserving loyalty to one’s client. Indeed, in the very few cases addressing the issue, the Colorado Supreme Court seems more concerned about the principle of loyalty to the client than whether client information actually passes to a screened lawyer.

For example, the Colorado Supreme Court suggested in a footnote that it might be possible for the Colorado Public Defender’s Office to erect a confidentiality wall by adopting internal procedures in its regional offices to restrict access to clients’ confidential information among the various offices. McCall, 783 P.2d at 1228 n. 6. The Colorado Court of Appeals implicitly approved, in dicta, a confidentiality wall within the Colorado Attorney General’s Office that permitted the Attorney General’s Office to represent the Colorado Real Estate Commission and also prosecute licensing violations before the Commission. Ranum v. Colo. Real Estate Comm’n, 713 P.2d 418, 420 (Colo. App. 1985). However, the supreme court implicitly disapproved of a confidentiality wall in a private law firm in a criminal case. Peters, 951 P.2d at 930. The court noted that the “ethical wall” of silence between lawyers within the private law firm “will not necessarily prevent” disqualification of all members of the law firm “[b]ecause Rule 1.10(a) emphasizes loyalty as well as confidentiality. . . .” Id. The court refused to address the issue of whether the presumption that all lawyers within a law firm would be disqualified under the imputed disqualification doctrine, despite the confidentiality wall, was a rebuttable presumption. Id. at 930 n. 6.

Despite the dearth of authority in Colorado, there is substantial authority from other sources discussing confidentiality walls. While it has no force of law, in 1991, the Colorado Bar Association Ethics Committee issued a Formal Opinion discussing the use of confidentiality walls within large law firms. CBA Ethics Comm. Formal Op. 88 (1991, amended 1992).
Large law firms have exerted significant pressure for approval of confidentiality walls. The revised ABA Model Rules reflect this influence, as well as the recent revisions to the Colorado Rules, both of which specifically define a “screened” lawyer:

Rule 1.0: Terminology

(k) “Screened” denotes the isolation of a lawyer from any participation in a matter through the timely imposition of procedures within a firm that are reasonably adequate under the circumstances to protect information that the isolated lawyer is obligated to protect under these Rules or other law.

Colo. RPC 1.0(k); ABA Model Rule 1.0(k). The lengthy Comments to the ABA Model Rule 1.0(k) and to Colo. RPC 1.0(k) discuss the reasons and procedures for an effective screen:

[9] The purpose of screening is to assure the affected parties that confidential information known by the personally disqualified lawyer remains protected. The personally disqualified lawyer should acknowledge the obligation not to communicate with any of the other lawyers in the firm with respect to the matter. Similarly, other lawyers in the firm who are working on the matter should be informed that the screening is in place and that they may not communicate with the personally disqualified lawyer with respect to the matter. Additional screening measures that are appropriate for the particular matter will depend on the circumstances. To implement, reinforce and remind all affected lawyers of the presence of the screening, it may be appropriate for the firm to undertake such procedures as a written undertaking by the screened lawyer to avoid any communication with other firm personnel and any contact with any firm files or other materials relating to the matter, written notice and instructions to all other firm personnel forbidding any communication with the screened lawyer relating to the matter, denial of access by the screened lawyer to firm files or other materials relating to the matter and periodic reminders of the screen to the screened lawyer and all other firm personnel.

[10] In order to be effective, screening measures must be implemented as soon as practical after a lawyer or law firm knows or reasonably should know that there is a need for screening.

Similarly, the Restatement also permits removing imputed disqualification by screening in certain circumstances:

§ 124. Removing Imputation

(2) Imputation specified in § 123 does not restrict an affiliated lawyer with respect to a former-client conflict under § 132, when there is no substantial risk that confidential information of the former client will be used with material adverse effect on the former client because:

(a) any confidential client information communicated to the personally prohibited lawyer is unlikely to be significant in the subsequent matter;

(b) the personally prohibited lawyer is subject to screening measures adequate to eliminate participation by that lawyer in the representation; and

(c) timely and adequate notice of the screening has been provided to all affected clients.

The reasoning behind Restatement § 124 is that if a lawyer’s involvement with a former client has been so minor that the lawyer was not exposed to significant confidential information, the lawyer’s conflict of interest and disqualification should not be imputed to the rest of the law firm. Restatement § 124, cmt. d(i). Whether the disqualified lawyer was privy to significant client information and cannot be appropriately screened, or was privy to insignificant client information and can thus be properly screened, depends on a number of factors. These factors include:

(1) [W]hether the value of the information as proof or for tactical purposes is peripheral or tenuous; (2) whether the information in most material respects is now publicly known; (3) whether the information was of only temporary significance; (4) the scope of the second representation; and (5) the duration and degree of responsibility of the personally prohibited lawyer in the earlier representation. Id.

If the disqualified lawyer had more substantial contact with the former client, screening might be an appropriate mechanism to remove the disqualification from the rest of the law firm. An example might be a very junior lawyer who peripherally assists a partner at a former law firm on a matter for the client, but has no direct exposure to the client’s confidential information. Id. In some circumstances, however, a lawyer’s involvement with the former client might have been of such significance that screening will not remove the imputed disqualification from the rest of the law firm. Id. Again, the analysis depends on the specific facts of each case. Id.

Screening is a practical method of protecting the confidential information of current or former clients while acknowledging the realities of modern law practice. To be effective, however, law firms must thoroughly analyze each case contemplated for screening, and the lawyers involved must scrupulously observe the screening procedures.