'Potential Client' Conflict Issues: Six Tips for Avoiding Them<br><b><i><font size="-1">Part Three of a Three-Part Article</font></b></i>

To avoid problems under Rule 1.18, a firm's conflict-checking system should detect conflicts not only with current and former clients, but also with former potential clients. In other words, even if a consultation never results in a retainer agreement or an attorney/client relationship, the firm should still record it, so that the firm does not unknowingly take on clients adverse to the past potential client. The firm will not necessarily be disqualified in all those cases in which a consultation took place, but it should consider them carefully to determine whether they pose any problem and, if so, whether screening or other measures can resolve the problem.

(New York has enacted a Rule of Professional Conduct to require conflict-checking systems, but the systems it requires will not necessarily detect conflicts with potential clients. New York Rule of Professional Conduct 1.10(e) requires each firm to “make a record of its engagements, at or near the time of each new engagement,” and to check proposed engagements “against current and previous engagements” (emphasis added). A potential client who does not become an actual client, of course, does not create an engagement. Thus, New York Rule 1.10(e) does not require firms to record potential clients or to check future “ engagements” against them. New York Rule 1.18(c) nonetheless disqualifies firms from some engagements based on information received from potential clients.)

Recall from Part Two of this article that Attorney Sandra Kuntz was contacted in May 2011 by Maternal Grandfather Paul Berger. He mentioned litigation then pending between his daughter (Mother) and her husband Shaun Bergquist (Father) over the parenting schedule for their then–19-month-old child. The consultation consisted of one phone call and a subsequent meeting. To be fully effective, a conflict-checking system should record more than the name of the potential client. Recall that Ms. Kuntz checked her system when Shaun Bergquist (Father) approached her, but did not find her consultation with Paul Berger (Maternal Grandfather) even though that consultation had concerned custody of Bergquist's child. Kuntz had also checked the mother of the children's name but, again, did not detect the conflict, perhaps because the mother no longer had the last name Berger. In hindsight, Kuntz could have avoided any problems if, after the consultation with Berger, she had entered into her conflict-checking system not only Berger's name, but also the names of the real parties in interest — Mother and Father — and of the child at issue.

Ideally, a conflict-checking system should include not only the names of significant people in the matter about which an attorney is consulted, but also the names of significant businesses. A comment to Model Rule 1.9 asserts that “a lawyer who has represented a businessperson and learned extensive private financial information about that person may not then represent that person's spouse in seeking a divorce.” That makes sense, because knowledge about the person's assets, income and future earning prospects would be material in the divorce action.

That knowledge could well be “significantly harmful” in the divorce action, in which case it would disqualify the lawyer from handling the divorce even if the businessperson had been only a potential client and so governed by Rule 1.18. Similarly, an intermediate appellate court held (without citing either rule) that an attorney was disqualified from representing a wife in a divorce action because the attorney had received, from initial consultations, at least some information about the businesses owned by the husband and his brother. Cohen v. Cohen, 2 N.Y.S.3d 605, 606 (App. Div. 2015). But the lawyer could receive that same information by representing a business that constituted a major part of the businessperson's assets, income or future earning prospects.

And if the businessperson's commercial matters are “substantially related” to his or her matrimonial dispute — as the comment assumes they are — then the business' commercial matters are “substantially related” to the matrimonial dispute. A lawyer who has represented or been consulted by a closely held business might, therefore, be precluded from representing the spouse of one of that business' principals in a divorce. It follows that if a firm represents a closely held business, the firm should record in its conflict-checking system not only the name of the business, but also the names of its principals. That precaution will ensure that the conflict-checking system alerts the firm if it is contacted by one of those principals' spouses about a matrimonial matter.

(A lawyer might argue that there is no problem with handling a divorce action after consulting with the adverse spouse's business because whatever results the lawyer achieves in the divorce will not be “significantly harmful” to the former potential client — namely, the business. That argument honors the letter of the rule, but ignores its purpose of allowing potential clients to speak freely with lawyers. Small businesses can hire counsel only through their principals. The principals will be reluctant to share information about the businesses with counsel if the principals know that information could be used against them in a divorce. For a closely held business to enjoy an effective attorney/client relationship, therefore, the business' counsel may have to be disqualified from appearing adverse to a principal of the business in a matrimonial action.)

Disqualification runs the other way as well: Appearing or being consulted in a matrimonial action may disqualify a firm from subsequent commercial matters. If a closely held business forms a major part of the marital estate, then attorneys for both the titled and the non-titled spouse can expect to receive substantial non-public information about the business' assets, liabilities, earnings, and future prospects. Such information could be “significantly harmful” to the business in the hands of an adversary in any future dispute. Thus, the firms that handled the divorce could be precluded from appearing adverse to the business, and so their conflict-checking systems should ideally record the name of the business as well as of the divorcing parties.

In light of all the information that should go into conflict-checking systems, lawyers cannot count on gathering all that information in an initial consultation, even if they try to do so. For example, if one spouse has interests in several closely held businesses, the other spouse may not even learn the names of those businesses until financial discovery begins. The non-titled spouse's lawyer should, therefore, add the names of the businesses to his or her firm's conflict-checking system as they emerge during the representation. Failing to do so risks having a conflict emerge later, after the firm has been engaged adversely to one of the businesses and realizes it has private information about its adversary's finances.

To reiterate, none of the previous situations will necessarily create a conflict. They may not even require screening or other precautions. Perhaps the matters at issue are not in fact substantially related, and perhaps no harmful information was received — especially if years have passed. But a good conflict-checking system should alert a firm to even the possibility of a conflict sooner rather than later, so that the firm need not justify its conduct to a judge — or a disciplinary body.

2. Retain Notes on Consultations with Potential Clients

To evaluate a possible conflict, and if necessary to defend its handling of the issue, a law firm will want attorneys' notes on contacts with potential clients. They will be the best source of facts if “exquisitely fact-sensitive” determinations must be made years later. Ms. Kuntz was able to overturn her disciplinary sanction only because she had both the notes on the initial call from the Maternal Grandfather, and her notes on the subsequent meeting with him, which confirmed that he had provided no additional information at that meeting. Unfortunately, Ms. Kuntz was unable to retrieve the second set of notes until after she had been disqualified from the case. 869 N.W.2d at 120, 124-25.

Admittedly, lawyers may not need notes to resist disqualification because the former potential client generally bears the burden of showing that harmful information was shared. That potential client, who is now an adversary, may deliberately exaggerate or honestly misremember how much information was shared. In such a case, the lawyer will want contemporaneous notes to refresh his or her memory and to persuade a factfinder.

Several items will be especially helpful in notes on pre-retention consultations. First, the notes should indicate what if any documents the potential client provided, if the firm does not retain copies of the documents themselves. Second, the notes should indicate how long the consultation lasted, because numerous courts have used the length of a consultation as a sign of its extent and therefore of the likelihood that confidences where shared or legal advice was given. See, e.g., Poly Software Int'l, Inc. v. Su, 880 F. Supp. 1487, 1489 & n.1, 1491 (D. Utah 1995). Alternatively, logs in a billing system (whether or not the client was billed) may reveal the length of the consultation.

Whether or not the potential client paid any fee is also a strong sign of whether an attorney/client relationship was formed, and that should be recorded as well — most easily by putting a box on the intake form for payment of a fee and then not checking it. If the attorney sees signs of “taint shopping,” that too should be noted. Finally, if the lawyer took any efforts to minimize what he or she learned, those efforts must be recorded so that the firm can show it is eligible to avoid any conflicts by screening under Rule 1.18(e)(2).

Of course, notes are valuable only if they can be retrieved. An experienced lawyer's notes on potential clients — even excluding those who retained the lawyer — will fill boxes. Such boxes can, however, be stored off-site, because taking a few days to retrieve boxes of files to investigate a possible conflict will rarely be fatal. Alternatively, the old records can be digitized.

3. Retain As Much Info As Possible During A Lateral Move

The concerns above, about being able to check conflicts with actual or potential clients — automatically and about being able to retrieve notes on a consultation — apply even to lawyers who have changed firms. In other words, a lawyer who meets a potential client while at Firm A and then moves laterally to Firm B may be conflicted out of appearing adverse to that client on behalf of Firm B. Indeed, absent an effective screen, the lawyer's conflict will be imputed to all of Firm B under Rule 1.18(c). To avoid conflicts, and to make effective screening possible, the lawyer should ideally bring to Firm B the same lists used for conflict checks on him or her at Firm A, including actual and potential clients and other interested parties.

As Charles W. Wolfram wrote, however, “[o]nly a lawyer whose vision is set on departure from the first day she joins a firm will have the foresight to keep a detailed list of client matters that would permit the kind of conflict-checking at the second firm that is routinely conducted for the intake of clients.” Ethics 2000 and Conflicts of Interest: The More Things Change … , 70 Tenn. L. Rev. 27, 59 (2002). Assembling such a list upon departing will require either help from Firm A or a great deal of the lawyer's time.

The laterally moving lawyer will also want some sort of arrangement to be able to retrieve his or her notes (and possibly time records) on consultations from Firm A. Of course, not all laterally moving lawyers can achieve such an arrangement. The lawyer may not leave Firm A on such good terms that Firm A is prepared to invest its time in helping Firm B and the lawyer avoid problems. Even if Firm A is charitably inclined, it may fear that providing a list of its actual and potential clients, to be fed into Firm B's computers, invites Firm B and the lawyer to poach actual and potential business.

4. Consider Limiting The Scope of Initial Consultations

The ABA itself, and various others, have recommended that until a lawyer has decided to accept an engagement, he or she should try to avoid hearing from a potential client more than is necessary to make that decision and to conduct a conflict check. Comment 4 to Model Rule 1.18 says flatly that “In order to avoid acquiring disqualifying information from a prospective client, a lawyer considering whether or not to undertake a new matter should limit the initial consultation to only such information as reasonably appears necessary for that purpose.” (This advice is echoed in, among other places, Green v. Montgomery County, Alabama, 784 F. Supp. 841, 846–47 (M.D. Ala. 1992), which quotes similar language from ABA Ethics Opinion No. 90–358 (1990).) The Model Rule itself provides an incentive to so limit initial consultations: Only if “the lawyer who received the information took reasonable measures to avoid exposure to more disqualifying information than was reasonably necessary to determine whether to represent the prospective client” can his or her firm use screening to avoid imputation of the conflict. In several cases, lawyers who did so avoided disqualification. See, e.g., Poly Software, 880 F. Supp. at 1492 (“cursory interview,” under half an hour, in which “no details of the proposed litigation were revealed”).

Limiting an initial consultation includes advising the client of the limitation. Ms. Kuntz, in her ultimately successful defense of her behavior, explained that:

At every consult I advise the individual that I am meeting them in a very limited capacity to review their issue and provide basic information to make an informed decision whether to proceed with retaining an attorney whether it be my office or elsewhere. I clearly advise that I am not their attorney as a result of the consult and do not agree to become their attorney until review of the information and deadlines, if any, discussed in the initial consult, review and signature of a fee contract, and payment of a retainer in an amount determined within the consult.

Kuntz, 869 N.W.2d at 120.

Presumably, that warning is why Paul Berger did not (Ms. Kuntz claimed) give her any information during the consultation beyond what she already had.

Limiting interviews poses two problems for matrimonial practitioners. First, it interferes with building a relationship of trust with potential clients when that is what they most want and perhaps need. Potential clients contact us at some of the worst moments in their lives. Many of them are spouses who never imagined they would face divorce, or who never thought it was their responsibility to plan for retirement, because they could rely on their spouse. Such clients want reassurance and some sense of what will happen to them. A lawyer who tells them, however gently, “This is a limited consultation. I don't want to hear more about your situation than I absolutely have to based on a set of rules I alone know, and I certainly don't want to give you any advice,” risks losing business to a lawyer who imposes no such limits.

The second problem with limiting initial consultations in matrimonial matters is that the information the lawyer will gather at the initial consultation may be enough to create conflict issues anyway. Like all lawyers, in deciding whether to take a case, we want some sense of how long it will last and how much time and attention it will demand. One of the best clues to that is the total dollar value of the marital estate. If real estate will be at issue, we know that appraisals will probably be required, which takes additional time — especially if the real estate is very valuable, because then counsel are more likely to contest the appraisals. We also want to know roughly how much of the marital estate consists of other assets that will be hard to value or divide, such as privately held businesses.

A party's estimate of the value of the marital estate or of the value of a home or another hard-to-value asset, however, “could be significantly harmful to that person in the [matrimonial] matter” because it could reveal his or her negotiating position. Furthermore, for the reasons discussed above, a conflict could be created if the law firm has previously represented a closely held business that is part of the marital estate. A matrimonial lawyer should, therefore, also ask for the names of such businesses in an initial consultation.

Finally, because a conflict could be created by the law firm's representation of the adverse spouse's employer, at least if the adverse spouse is in a senior position, the initial interview should address employment as well. As an illustration of this issue, in Armstrong v. Blank Rome LLP, no. 651881/13, NYLJ 1202719688381 (App. Div. Mar. 3, 2015), a New York appellate court allowed an ex-wife to proceed with a claim against the large law firm that had represented her in divorce, because her ex-husband was a senior Morgan Stanley executive and participated in Morgan Stanley's decisions to hire outside counsel. She alleged that the law firm had not disclosed that it was simultaneously representing Morgan Stanley and had been preserving its relationship with that client.

Putting these concerns together, one can imagine asking a potential matrimonial client an extensive series of questions about his or her (and his or her spouse's) businesses and homes and their approximate dollar value, without offering any thoughts about the applicable law, other legal advice, or promise to help. Some clients will understand the importance of that process. Others will not. Perhaps if the conflict check is sufficiently automated, a lawyer will be able to run it during the initial consultation and, if no possible concerns appear, move on to a fuller discussion.

A lawyer can also offer potential clients a choice between a limited initial consultation and a fuller interview. Presumably, those who are most eager for reassurances and advice will choose the fuller interview. Those who are calmer or more concerned about saving time or money may appreciate having been given the choice. If a client opts for the fuller interview, the lawyer's notes should record that a limited consultation was offered, to buttress the lawyer's later claim that he or she tried to limit his or her exposure to damaging information.

For example, the intellectual property attorney in Poly Software International, Inc. v. Su, 880 F. Supp. At 1489, explained that a potential client had been “given two options for the interview. One option would primarily focus on the fee schedule of the firm and outline the policies employed in pursuing litigation. Under this option, the potential client would give only a very general description of the litigation proposed. The second option would involve a much more significant interview, focusing on specific details of the potential client's case.” The potential client chose the first option and disclosed only that “he had a dispute against a former partner, software was involved, and there was some type of prior settlement agreement.” The lawyer thus remained able to represent the former partner in the dispute, which did indeed involve intellectual property rights to software.

5. Be Especially Careful About Seeking Clients Online

A firm's website or other online presence, even if essential as a marketing tool, must be evaluated in light of potential client conflicts. A “contact us” page with a box to be filled in describing topics on which they might need representation literally invites viewers to consult about forming an attorney-client relationship (thereby becoming “potential clients”) and perhaps to supply potentially harmful information (thereby risking disqualification).

ABA Formal Opinion 10-457 (2010) indicates that disclaimers on a website can protect the lawyer, but only if the disclaimers are conspicuous and clear, and warn not only that no client-lawyer relationship has been created, but also that the firm is not promising confidentiality, is not giving legal advice, and will not be prevented from representing an adverse party.

6. Be Extra Careful with Vulnerable Categories of Potential Clients

Even beyond the Web, lawyers should be especially careful with clients who are at particular risk of forming the belief that the lawyer represents them or has promised to keep their confidences. Because a person's belief — especially a reasonable belief — is one of the factors that determines whether the person has become a potential client or even a true client; such beliefs endanger the lawyer. People who have never retained a lawyer before are especially likely to make such mistakes. Poly Software, 880 F. Supp. at 1491 n.5.

People who have been or currently are clients of a law firm are also prone to mistake their status, because they may not realize how the representation is limited and so may assume that the firm represents them in their matrimonial action or that it is bound to keep confidences regarding that action. Green v. Montgomery County, Ala., 784 F. Supp. 841, 845 (M.D. Ala. 1992) (disqualifying a firm because it had received information in a call from a former client who “believed he could be open and honest because [the lawyer] had represented him in earlier cases,” only to find that the lawyer was representing his adversary in the instant matter.”).

Perhaps the highest compliment a matrimonial lawyer can receive is when a client whom the attorney had represented in a divorce returns to draft a pre-nuptial agreement with a new spouse. That former client may be eager to work with the trusted attorney again, and vice versa. It is perilous, however, to receive information about the new match without a conflict check — in this case regarding the new fiancée and his or her businesses.

A Concluding Thought

Complying with Rule 1.18 and avoiding disqualification based on contacts with potential clients is not easy. It requires, among other measures, very thorough note-taking and computerized conflict-checking. Another recommended precaution, the limited initial consultation, poses great problems in matrimonial practice.

To put those burdens in perspective, consider that, as an attorney, at least you have the opportunity to consider the issues in advance, to research what the courts demand and what your colleagues are doing, and to refine your procedures in response. The potential client, in contrast, may not even realize that such conflicts are a possibility until he or she looks up to see a familiar lawyer on the other side of the courtroom. The district court in Green held that lawyers should bear the costs of avoiding conflicts because we are “in the best position to avoid, at the least cost to society, the potential harm which can arise.” Id. at 846 n.10.

***** Matthew A. Feigin is an Associate at New York's Katsky Korins LLP.