I have perused a lot of ethics opinions over the years. Whether a kind of scenario presents a conflict is a frequent subject of ethics opinions. I don’t think I’ve read many that address whether a particular conflict of interest is fairly treated as a consentable conflict, however. Having now read Rhode Island Ethics Advisory Panel Op. 2017-02, which does address that topic, I wish it hadn’t.
It is an extremely short opinion, but it gets a remarkable amount wrong in a limited amount of space.
The short version of the question it tackles is:
The inquiring attorney asks whether the law firm may represent the buyer and the seller, two current clients of the firm, in the sale of a division of the seller’s business to the buyer.
The additional factual details that you need, at minimum, to begin to wrap your head around the astoundingly bad conclusion reached in the opinion are:
- The buyer is a manager of a division of the seller’s business.
- The buyer will now be purchasing assets of that division from the seller.
- The buyer will then also have to work out a lease arrangement with the seller for the premises where the division currently operates.
- The buyer has been represented by one attorney in the firm on a number of matters unrelated to this business – that attorney has no relationship with the seller or any knowledge of work done for the seller by his/her firm.
- The seller has been represented by a different attorney in the firm on a number of matters, including matters related to the operation of the seller’s business – that attorney has no relationship with the buyer or any knowledge of work done for the buyer by his/her firm.
- Both the buyer and the seller want the firm to represent them as to negotiations and drafting of necessary documents.
- The firm, if it moves forward, intends to erect an ethics wall/screen (i.e. locked drawers for hard copy materials and limits on electronic access to files) as to the two matters so that there would be no flow of confidential information between the two sides of the proposed representation.
On those facts, the Rhode Island opinion reaches a conclusion that the conflict is so severe that the clients cannot be allowed to give their consent to it. Now, maybe I have left out the facts that the ethics opinion treats as apparently the most important of all – the distinction between the experience level of the seller and the buyer:
The inquiring attorney states that the seller is experienced in business, including the ownership, purchase, and sale of businesses. He/she states that the buyer is sophisticated in the industry of the division, but has never owned, purchased, or sold a business.
Well, there you go. The seller is super sophisticated whereas the buyer is just merely sophisticated. Seriously.
And, no there is nothing unique or unusual about Rhode Island’s version of RPC 1.7 that would explain the conclusion that this conflict is not consentable. Rhode Island’s RPC 1.7(b) looks just like the ABA Model version, as it reads:
(b) Notwithstanding the existence of a concurrent conflict of interest under paragraph (a), a lawyer may represent a client if:
(1) the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client;
(2) the representation is not prohibited by law;
(3) the representation does not involve the assertion of a claim by one client against another client represented by the lawyer in the same litigation or other proceeding before a tribunal; and
(4) each affected client gives informed consent, confirmed in writing.
On the facts set out above, the Rhode Island opinion concludes that there is no way that each lawyer could “reasonably believe that they will be able to provide competent and diligent representation to the buyer and to the seller in this business transaction.”
And, if that weren’t problematic enough (it is), the opinion also does further disservice to readers with its discussion of screening, stating:
The Rules of Professional Conduct permit screening in only three situations, none of which is presented in the facts of this inquiry: screening for lateral hires under Rule 1.10, screening for former government officers and employees under Rule 1.11, and screening for former judges, arbitrators and mediators under Rule 1.12.
The omission of the modifier “nonconsensual” before screening in that quote is an important one.
It’s important because it means that the Rhode Island opinion writers either failed to understand altogether, or simply chose to ignore, the difference between aspects of the ethics rules that permit a firm to erect a “nonconsensual screen” to address a conflict even over a client’s or former client’s objection and the constant ability of a firm to erect a consensual screen if it is part of what is deemed necessary or desirable in order for one or more clients to agree to give informed consent to waive a conflict.
On the whole, this is just an astoundingly poor ethics opinion and one that reaches a result that rings contrary to the client-friendly position that I’m certain the authors thought they were taking.