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Rule 1.9 and substantial relation

Rule 1.9 Duties to Former Client

In certain instances, a party may move to disqualify counsel for an opposing party.  Reasons a party may seek to disqualify opposing counsel may include: 1) concurrent conflicts of interest; 2) personal interest conflicts; 3) former client conflicts of interest; 4) lawyers as witnesses; 5) receipt of confidential, privileged, or stolen information; 6) contact with a represented party; 7) misconduct with witnesses; 8) other misconduct; 9) imputed misconduct, including imputed conflicts of interest; and 10) the appearance of impropriety.  Of these potential bases for disqualification, the most prevalent are generally those related to conflicts of interest.  Specifically, those conflicts involving former duties to former clients under Rule 1.9, Utah Rules Professional Responsibility.

Rule 1.9, Utah Rules of Professional Conduct

Rule 1.9 sets forth:

(a) A lawyer who has formerly represented a client in a matter shall not thereafter represent another person in the same or a substantially related matter in which that person’s interests are materially adverse to the interests of the former client unless the former client gives informed consent, confirmed in writing.

(b) A lawyer shall not knowingly represent a person in the same or a substantially related matter in which a firm with which the lawyer formerly was associated had previously represented a client

(b)(1) whose interests are materially adverse to that person; and

(b)(2) about whom the lawyer had acquired information protected by Rules 1.6 and 1.9(c) that is material to the matter;

unless the former client gives informed consent, confirmed in writing.

(c) A lawyer who has formerly represented a client in a matter or whose present or former firm has formerly represented a client in a matter shall not thereafter:

(c)(1) use information relating to the representation to the disadvantage of the former client except as these Rules would permit or require with respect to a client, or when the information has become generally known; or

(c)(2) reveal information relating to the representation except as these Rules would permit or require with respect to a client.

Put simply, under Rule 1.9, an attorney or the attorney’s former or present law firm that has formerly represented a client must not represent another client “in the same or a substantially related” matter where the new client’s interests are “materially adverse” to the interest of the former client unless the former gives informed consent.

Ironshore v. Callister

In a recent Utah federal court case, the issue over a law firm’s representation of a Defendant was raised by another Defendant that the law firm formerly represented in another matter.  In Ironshore Specialty Insurance v. Callister Nebeker & McCullough, et al., one of the defendants moved to disqualify counsel for one of the other co-defendants.  In 2009, counsel for defendant Callister Nebeker & McCullough represented defendant Stephenson “in negotiating an agreement for the sale of certain of Stephenson’s businesses.”  In 2014, Stephenson filed a lawsuit against Callister Nebeker & McCullough in Utah state court alleging professional malpractice.

As a result of the filing of the lawsuit against Callister Nebeker & McCullough, defendant Ironshore Specialty Insurance provisionally agreed to provide Callister Nebeker & McCullough with a defense of the malpractice action.  However, Ironshore subsequently filed an action for declaratory judgment that the claims asserted in the malpractice action were not covered under any Ironshore policy, and, thus, Ironshore had no duty to provide a defense for Callister Nebeker & McCullough.

Before the court began its analysis of the alleged reason for disqualification, the court noted that the parties stipulated that Callister Nebeker & McCullough’s counsel formerly represented Stephenson, and, as a result, Rule 1.9 “governing former clients [was] implicated.”  Furthermore, the court said, “Some of the malpractice alleged in the Malpractice Action relates to the 2009 Agreement, and Stephenson and Callister are no doubt adverse in the Malpractice Action.”  The court framed the issue before the Court as “whether [Callister Nebeker & McCullough’s counsel] can represent Callister in the current action.”

Requirements for Disqualification Under Rule 1.9

The court began its analysis by stating:

Under Rule 1.9, a party seeking to disqualify opposing counsel must establish that “(1) an actual attorney-client relationship existed between the moving party and the opposing counsel; (2) the present litigation involves a matter that is ‘substantially related’ to the subject of the movant’s prior representation; and (3) the interests of the opposing counsel’s present client are materially adverse to the movant.”  The burden of proof on a motion to disqualify counsel is carried by the party seeking disqualification.

There was no dispute as to whether there was an actual attorney-client relationship existed between the moving party and the opposing counsel, and that the interests of the opposing counsel’s present client are materially adverse to the movant.  This meant that the only issue to resolve was whether present litigation was “substantially related” to the prior representation of Stephenson by Callister Nebeker & McCullough’s counsel.

“Substantially Related” Matters Under Rule 1.9

The court explained:

Matters are “substantially related” for purposes of [Rule 1.9] if they involve the same transaction or legal dispute or if there otherwise is a substantial risk that confidential factual information as would normally have been obtained in the prior representation would materially advance the client’s position in the subsequent matter … Matters are substantially related when there is a substantial risk that confidential factual information that would normally have been obtained in the prior representation would materially advance the client’s position in the subsequent matter.

Put differently, the court said that “[t]he underlying question is whether the lawyer was so involved in the matter that the subsequent representation can be justly regarded as a changing of sides in the matter in question.”  In answering the question of the lawyer’s involvement, “courts should evaluate substantiality by focusing on the factual nexus between the prior and current representation rather than the narrower identity of legal issues,” keeping in mind that “[t]he provision of legal advice on a substantially related matter by itself requires disqualification,” the court said.

Defendant Failed to Prove Matters Were “Substantially Related”

Turning to the facts of the instant case, the court determined:

Stephenson has failed to prove that the work [Callister Nebeker & McCullough’s counsel] did for Stephenson in negotiating the 2009 Agreement is substantially related to the current matter, which involves insurance coverage issues.  [Callister Nebeker & McCullough’s counsel] represented Stephenson in providing legal advice about drafting and negotiating a stock purchase agreement, which is at the core of legal issues in both the Malpractice Action and an underlying commercial dispute, but is not at the core of the instant suit.  The present case will determine only whether an insurance company, and if so which insurance company, will have the duty to defend or indemnify Callister for alleged malpractice, (albeit including possible malpractice arising out of Callister’s work on the 2009 Agreement).  Although there may be some factual overlap between the prior and current representation, it is not the type of overlap that can be regarded as changing sides in the matter or as creating a risk that confidential factual information would materially advance any party’s position in this current litigation.

Having determined that Callister Nebeker & McCullough’s counsel’s former representation of Stephenson was not “substantially related” for purposes of Rule 1.9, the court concluded:

Given the Court’s findings that [Callister Nebeker & McCullough’s counsel’s] representation of Callister in this coverage case is not substantially related to [Callister Nebeker & McCullough’s counsel’s] prior representation of Stephenson, the Court does not determine whether the interests of Callister must be materially adverse to Stephenson in this particular litigation.

Accordingly, the court denied Stephenson’s motion to disqualify Callister Nebeker & McCullough’s counsel.

The Importance of Focusing on the “Factual Nexus”

The holding in Ironshore illustrates the importance of comparing the “factual nexus” between a former representation and a current representation under Rule 1.9.  The court noted that “[a]lthough there may be some factual overlap between the prior and current representation,  it is not the type of overlap that can be regarded as changing sides in the matter or as creating a risk that confidential factual information would materially advance any party’s position in this current litigation.”  This means that even if some facts may overlap, the overlap must be “regarded as changing sides or as creating a risk that confidential factual information would materially advance any party’s position in this current litigation” in order to support disqualification under Rule 1.9.  As a result, both a party seeking to disqualify an opposing party’s attorney and the attorney of law firm sought to be disqualified should focus less on similarities between legal issues in the former and current representation or whether there is a general similarity between the two case, but instead on “whether the lawyer was so involved in the matter that the subsequent representation can be justly regarded as a changing of sides in the matter in question.”  Absent such a showing, disqualification seems unlikely as it relates to the “substantially related” prong of Rule 1.9.

* Photo Cred.: compliance-risk.com

Copyright 2016

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