Issue: April, 2008
Author: John M. Burman
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Ethically Speaking - An Attorney's Duties to Prospective and Former Prospective Clients Who Never Become Clients
As the Scope section of the new Wyoming Rules of Professional Conduct (“the Rules”) notes: “Most of the duties flowing from the client-lawyer relationship attach only after the client has requested the lawyer to render legal services and the lawyer has agreed to do so.” Some duties, however, arise earlier. The duty of confidentiality, for example, “attach[es] when the lawyer agrees to consider whether a client-lawyer relationship shall be established. See Rule 1.18.”
In addition to the duty of confidentiality, Rule 1.18 also imposes on lawyers a requirement to avoid certain types of conflicts of interest with former prospective clients. Finally, the duty to communicate with a prospective client “to the extent reasonably necessary to permit the client to make informed decisions regarding the representation” applies to the decision of whether a prospective client wishes to retain a lawyer.
Rule 1.18 is new to both the ABA Model Rules and the Wyoming Rules. It clarifies the duties of confidentiality and avoiding certain conflicts of interest as those duties apply to former prospective clients. The Rules themselves do not say that the duty of communication applies to prospective clients, but the ABA has opined that it applies in similar circumstances, and it should apply, in general, to the decision of whether to form an attorney-client relationship. All the foregoing duties fall under the heading of an attorney’s duties to prospective clients, and are the subject of this issue’s column.
The Ethical Framework
Rule 1.18 is entitled “Duty to prospective clients.” It was adopted in Wyoming effective July 1, 2006. The Rule codifies the duties of confidentiality lawyers owe to prospective clients articulated by the ABA in a Formal Opinion issued in 1990. It also sets forth conflict of interest standards regarding former prospective clients.
The Ethical Duty of Confidentiality Arises When an Attorney Considers Representing a Prospective Client
“[T]here are some duties, such as that of confidentiality under Rule 1.6, that attach when the lawyer agrees to consider whether a client-lawyer relationship shall be established.” Until recently, no rule directly addressed a lawyer’s ethical duty of confidentiality regarding prospective clients, although the ABA’s Standing Committee on Ethics and Professional Responsibility had found such a duty in some circumstances. Now, Rule 1.18 makes express the duties of confidentiality and avoiding certain conflicts of interest.
As its title suggests, Rule 1.18 addresses a lawyer’s duties to “prospective clients.” A “prospective client” is defined as “[a] person who discusses with a lawyer the possibility of forming a client-lawyer relationship . . . .” The Rule goes on to clarify that a lawyer “shall not use or reveal information learned in the consultation, except as Rule 1.9 would permit with respect to information of a former client.”
The reason for the proscription is that “[p]rospective clients, like clients, may disclose information to a lawyer, place documents or other property in the lawyer's custody, or rely on the lawyer's advice.” As do clients, prospective clients have a reasonable expectation that the lawyer will keep their communications confidential, regardless of whether an attorney-client relationship subsequently comes into being.
Not every person who communicates information to a lawyer is a “prospective client.” “A person who communicates information unilaterally to a lawyer, without any reasonable expectation that the lawyer is willing to discuss the possibility of forming a client-lawyer relationship, is not a ‘prospective client.’”
While prospective clients have a reasonable expectation of confidentiality, their communications are necessarily limited in duration and depth. Accordingly, a prospective client “should receive some but not all of the protection afforded clients.” The difference in the nature of the communications between prospective clients and lawyers results in different, and more limited, protection than is afforded former clients.
Conflicts Caused by Prospective Clients or Former Prospective Clients
The limited protection lawyers owe former prospective clients, who never become clients, is clearly seen in the more liberal standard applied to conflicts of interest, not in the use of or revealing of information from prospective clients; such information is entitled to the same protection as information regarding former clients. Even with the more liberal standard, however, conflicts may result from consultations with prospective clients who never become clients. Such conflicts are easily overlooked until raised by another party (usually the former prospective client).
Rule 1.18 begins with a prohibition that is similar to that regarding former clients. A lawyer who has had discussions with a former prospective client “shall not represent a client with interests materially adverse to those of a [former] prospective client in the same or a substantially related matter if the lawyer received information from the [former] prospective client that could be significantly harmful to that person [the former prospective client] in the matter . . . .” As with former clients, the Rule prohibits representation when the matters involving the former prospective client and the new client are “the same or . . . substantially related,” and the position of the new client is “materially adverse” to the former prospective client’s. The Rule contains an additional requirement, which loosens the prohibition on subsequent adverse representation.
A lawyer who discussed a matter with a former prospective client is not disqualified from subsequently representing a client with materially adverse interests in the same or a substantially related matter unless the lawyer “received information from the prospective client that could be significantly harmful to that person.” The difference between this prohibition and the one that applies to former clients is important. When it comes to former clients, the Rules presume that the lawyer received confidential information from the client, and that presumption is irrebuttable. With respect to former prospective clients, however, the rule is very different.
The critical difference between this Rule’s treatment of former prospective clients and Rule 1.9's treatment of former clients is that a lawyer may not represent a person with materially adverse interests to a former client in the same or a substantially related matter. Period. Rule 1.18, by contrast, requires a third element. That is, the lawyer must have received information that could be “significantly harmful” to the former prospective client.
Two conflict of interest scenarios are common. First, a prospective client contacts a lawyer about representation. The decision about whether to accept a client is usually not made without at least obtaining some information from or about the prospective client. Accordingly, the lawyer and the prospective client communicate. The lawyer may also conduct a preliminary investigation into the facts, the applicable law, or both. The lawyer then decides not to accept the prospective client, who goes elsewhere. Later, the lawyer undertakes to represent a client with interests materially adverse to those of the rejected former prospective client. Suddenly, a motion to disqualify appears, based on the lawyer’s long-forgotten consideration of representing a prospective client.
In the second situation, a prospective client contacts a lawyer about representation. As part of a routine conflicts check, the lawyer finds that another lawyer in the firm represents or represented an adverse party. The lawyer properly declines representation because of the conflict. Later, the lawyer whom the prospective client ultimately retains moves to disqualify the first lawyer (and the lawyer’s firm) because of that lawyer’s acquisition of confidential information from the then former prospective client. And while the lawyer may have collected only enough information to determine the existence of a conflict, that may be enough to have learned important, confidential information. Indeed, the very identity of the prospective client and/or the client’s purpose for seeking representation may be critical pieces of information. How to answer these questions depends on matters such as presumptions and burdens of proof.
Although neither the Rule nor the comments discuss whether a presumption arises, whether it is rebuttable, and, if so, who has the burden of doing so, answers to those questions may be reasonably inferred. First, it appears that a presumption that the prospective client conveyed confidential information does, and should, arise. This appears to be the case because the very reason for the rule is that “[p]rospective clients, like clients, may disclose information to a lawyer . . . . A lawyer's discussions with a prospective client usually are limited in time and depth and leave both the prospective client and the lawyer free (and sometimes required) to proceed no further. Hence, prospective clients should receive some but not all of the protection afforded clients.” The only way to protect prospective clients is to presume that they conveyed confidential information to the attorneys with whom they met, and then require those attorneys to protect that information and not use it to the disadvantage of the prospective clients (such a presumption should not arise when the contact is unilateral–a prospective client should not be able, for example, to flood a group of lawyers with unsolicited e-mails and thereby claim that they are disqualified by the receipt of confidential information). That is just what the Rule does.
Second, the presumption should be rebuttable. This is clear from the provision of the Rule which allows an attorney to subsequently represent a client in the same or a substantially related matter even when the interests of that client are materially adverse to those of the former prospective client. If the presumption were irrebuttable, there would be no reason for that exception.
Finally, the burden to rebut the presumption should be on the attorney whose disqualification is sought. The reason is that the burden is always on the lawyer to clarify whether an attorney-client relationship exists, and, if so, its terms. Placing the burden on a lawyer to show that a client’s, a prospective client’s, or a former prospective client’s expectations are not or were not reasonable makes good sense and is consistent with Wyoming case law.
Showing that the attorney did not receive disqualifying information under Rule 1.18 is similar to showing under Rule 1.9(b) that a lawyer who switched firms did not obtain confidential information that is material. In such a case, disqualification “depends on a situation's particular facts.” How firms operate varies significantly. “A lawyer may have general access to files of all clients of a law firm . . . . In contrast, another lawyer may have access to the files of only a limited number of clients [and] . . . in the absence of information to the contrary, it should be inferred that such a lawyer in fact is privy to information about the clients actually served but not those of other clients.” In any event, when disqualification is sought, the “burden of proof should rest upon the firm whose disqualification is sought.” Those same concepts should apply when disqualification is sought based on a lawyer’s having discussed a matter with a former prospective client.
Before Rule 1.18 was adopted by the ABA, and then in Wyoming, the ABA’s Standing Committee on Ethics and Professional Responsibility issued a Formal Opinion on lawyers’ duties regarding information received from prospective clients, as well as the conflict of interest implications raised by prospective client contacts. That opinion is generally consistent with Rule 1.18, and provides useful guidance on applying conflict of interest rules to prospective clients. Consider the following example:
Client A hires attorney X to represent him in seeking to purchase a piece of property to develop. The property has been on the market for quite some time, and the price is dropping far below the original asking price. Shortly thereafter, B contacts the same attorney, or another attorney in the firm, to represent her in seeking to acquire the same property for the same purpose. Neither A nor B wants anyone to know of their plans, and each hopes to buy the property at a low price. If A learns of B’s plans, or if B learns of A’s, it will significantly affect their plans. Accordingly, simply by talking to B and learning why she wants representation, X has learned confidential information which would be useful to A, information which could be used to the detriment of B. The objectives of A and B are in obvious conflict. Furthermore, X owes each a duty of confidentiality, and cannot, therefore, tell either of the other’s intentions. Three questions arise. First, may X represent A and B? Second, may X continue to represent A, even if X does not represent B? Finally, may X tell A of B’s intentions?
The first question is easily answered. X (and the others in X’s firm) cannot represent B. The second is not so easy. B, through other counsel, may seek to disqualify X because X acquired critical information about B’s intentions which can be used to A’s benefit (and B’s detriment). In response, X may assert that X acted properly in every respect, seeking and obtaining only that information which was necessary to determine if a conflict existed.
The ABA sides with X. X may continue to represent A, even though X has acquired confidential information which could be significantly harmful to B. X may not, however, inform A of B’s identity and intentions until and unless the information becomes generally known. The only restriction is that if X determines that the inability to disclose information about B before it is generally known will materially limit the representation, continued representation is impermissible under Rule 1.7.
The ABA’s opinion identifies three steps that lawyers should take to avoid involuntary and/or inadvertent disqualification. The first two are now part of the Wyoming Rules of Professional Conduct. First, lawyers have an ethical duty to adopt reasonable procedures to enable them to identify conflicts of interest before undertaking representation of a client. Second, lawyers need to limit the information they initially receive from prospective clients to that which is necessary to determine if there is a conflict of interest. And third, if a lawyer learns information from a prospective client which could be used to the benefit of one of the firm’s existing clients, that lawyer should be screened from involvement in the client’s matter. By taking such measures, a firm may be able to successfully resist a motion to disqualify. Failure to do so may lead to involuntary disqualification.
If a lawyer is disqualified from representing a client because of having obtained too much information from a former prospective client, that disqualification is imputed to the others in the firm, with two exceptions. The first exception is the one that we expect–waiver of the conflict. That is, representation is permissible if “both the affected client and the prospective client have made an informed decision to allow the representation, confirmed in writing signed by the affected client and the prospective client.”
The second exception involves screening the disqualified lawyer--something that will be difficult to accomplish in Wyoming. “Screening” is a defined term. It means: “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.” “Isolating” a lawyer in a small firm is difficult, and virtually all firms in Wyoming fit that definition (the only exceptions are the Wyoming Attorney General’s Office and the Wyoming Public Defender’s Office (the Rules define “firm” to include “the legal department of a corporation or other organization.”) As all attorneys in small firms generally have access to information about all the firm’s clients, it is not practicable to “isolate” one from the others in most cases.
If screening is possible, the Rule has one more requirement. Written notice (of the conflict, presumably) must be “promptly given to the prospective client.” The Rule does not specify that the client may, upon receiving such notice, decline the representation, but as a client may always terminate a lawyer, that authority certainly exists.
Because of the potential for disqualifying conflicts of interest arising from discussions with prospective clients, who never become clients, some former prospective clients should be added to the client database. One of the responsibilities of the lawyer or lawyers who manage a law office is to implement “policies and procedures [that] include those designed to detect and resolve conflicts of interest.” Those policies should include adding former prospective clients to the client database if the lawyer who met with the prospective client obtained information which could be “significantly harmful” to that prospective client if the lawyer or firm were to subsequently represent a client with interests “materially adverse” to the former prospective client’s in the same or a “substantially related” matter, triggering the disqualifying conflict of interest provisions of Rule 1.18(c).
Duty of Communication with Prospective Clients
The Rules do not expressly state that the duty of communication, codified in Rule 1.4, applies to the formation of the attorney-client relationship. Nor has the ABA Standing Committee on Ethics and Professional Responsibility ever expressly addressed the issue. The ABA has opined, however, “that Rule 1.4(b) applies when lawyers ask prospective clients to execute retainer agreements that include provisions mandating the use of arbitration to resolve fee disputes and malpractice claims.” The ABA’s rationale for applying Rule 1.4(b) to an agreement to require arbitration is that “the factors that affect and define the client-lawyer relationship often impact the representation . . .” Accordingly, “the Committee concludes that, in appropriate circumstances, such as the present situation, the duty of communication imposed by Rule 1.4(b) may extend to both the client-lawyer relationship and the subject-matter of the representation.”
It is hard to imagine when a decision as important as whether to retain a lawyer will not involve “appropriate circumstances.” A lawyer should assume, therefore, that the obligation to explain a matter “to the extent reasonably necessary to permit the client to make informed decisions” always applies to the formation of an attorney-client relationship. There are, after all, few decisions as important as the one of which lawyer to retain. To suggest that such a decision should not be an informed one, as required by Rule 1.4(b), is nonsensical.
A lawyer’s duty to communicate important information to a prospective client before the lawyer-client relationship is formed, is reinforced by the disclosure requirements of Rule 1.5(b), the Rule which specifies what a client must be told, how the client should be told, and when the client should be told.
Rule 1.5 has the deceptively simple title of “Fees.” It is deceptive because it includes much more. First, it includes the issue of expenses, saying that the expenses for which the client will be responsible, along with fees, must be “reasonable.” Second, and just as importantly, the Rule requires a lawyer to notify a client of the “scope of the representation. In short, a lawyer must communicate to the client, “[t]he scope of the representation and the basis or rate of fees and expenses for which the client will be responsible . . .” The communication should be done “preferably in writing,” and “before or within a reasonable time after commencing the representation . . .”
It is good practice to redact the word “preferably,” and always communicate information about fees, expenses, and the scope of representation in writing (the Rule makes the sensible exception that such information about fees and expenses need not be communicated to the client in the same manner “when the lawyer will charge a regularly represented client on the same basis or rate.” Finally, it is hard to imagine circumstances when the information could be provided “within a reasonable time after commencing the representation,” as permitted by Rule 1.5(b), as such information (about fees, expenses, and the scope of the representation) is critical to a prospective client’s ability to make an “informed decision” about whether to retain a lawyer.
Wyoming lawyers should assume, therefore, that the Rule 1.4(b) duty of communication (explanation) applies to the formation of the lawyer-client relationship, not decisions made just after it is formed. That is, a lawyer must explain the terms on which he or she will represent the prospective client “to the extent reasonably necessary to permit” the prospective client to make an “informed decision” about whether to retain the lawyer. That will, of course, require an explanation of the fees the attorney will charge for the attorney’s services, the expenses which the prospective client will be expected to pay, and the scope of the representation the lawyer will provide to the prospective client.
Far too often the attorney-client relationship arises implicitly, its terms defined by the parties conduct. That should never happen. All lawyers should remember that they have duties to prospective clients, and carrying out those duties properly will prevent an accidental or inadvertent relationship from arising.
Lawyers owe prospective clients three general duties: (1) confidentiality; (2) to avoid certain conflicts of interest; and (3) communication. While the first two are now expressed in Rule 1.18, the third arises by implication from the language of Rule 1.4(b), the duty to explain matters to a client, and ABA Formal Opinion 02-425.
The duty of confidentiality is simple. A lawyer’s duty to “not reveal confidential information” arises at the time the attorney considers whether to enter into an attorney-client relationship with a prospective client. That duty never ends.
Similarly, Rule 1.18 establishes the conditions when a lawyer may not represent a client because of a conflict with the interests of a former prospective client. Representation is inappropriate (i.e., the lawyer is “disqualified”) if three conditions are met. First, the client and the former prospective client have interests that are “materially adverse.” Second, the client and the former prospective client are involved in “the same or a substantially related” matter . . . .. And finally, the attorney obtained information during discussions with the former prospective client that could be “significantly harmful” to the former prospective client. If all three criteria are met, the lawyer is “disqualified,” as are the others in the lawyer’s firm. That imputed disqualification of all lawyers in the firm may be waived, or the disqualified lawyer may be screened and written notice of the conflict given to the new client.
The final duty is the duty to communicate with prospective clients. The reason for this duty is that the decision to enter an attorney-client relationship should be an “informed” one, as is required of all important decisions “regarding the representation.” That decision cannot be informed unless the prospective client understands and agrees to the terms of the representation, including its scope, the attorney’s fees which will be incurred, and the expenses which the client will be expected to repay, the information required to be given to a client by Rule 1.5(b).
John M. Burman teaches professional responsibility at the University of Wyoming College of Law. If there are issues you would like to see addressed in this column, Professor Burman may be reached by e-mail at firstname.lastname@example.org.
The views and opinions expressed and included in "Ethically Speaking" are those of the author only and do not constitute an opinion, finding or viewpoint, official or unofficial, of the Wyoming State Bar or the Board of Professional Responsibility.
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