CONFLICTS OF INTEREST IN CROSS-BORDER PRACTICE
By: Anthony E Davis
In most United States jurisdictions, the governing conflicts-of-interest rules are substantively similar to American Bar Association ("ABA") Model Rule 1.7. Model Rule 1.7 (a) (1) provides that a lawyer isethically prohibited from taking on a representation adverse to the interests of an existing client, absent such client’s informed consent. This is so even if the adverse representation bears no relationship to the lawyer’s concurrent representation of the client. Notably, this rule is of both recent and dubious origin. In a recent scholarly article, aptly titled “No Conflict,” 25 Georgetown Journal of Legal Ethics 207 (2012), Professor Daniel J. Bussel demonstrates that this rule, far from having ancient roots in American jurisprudence, was the result of a few cases in the 1960’s that misconceived the then generally prevailing understanding of the governing principles. Nevertheless those cases led the ABA to formulate a new approach to the definition of lawyers' duty of loyalty now contained in Model Rule 1.7 (a) (1).
The approach of Model Rule 1.7 (a) (1) prevails in the United States. By contrast, in many jurisdictions outside of the United States, the rules governing conflicts of interest are markedly different. This was explained in detail in the Report on Conflicts of Interest in Multi-Jurisdictional Practice: Proposed Amendments to New York Rules of Professional Conduct 8.5 (Disciplinary Authority and Choice of Law) and 1.10 (Imputation of Conflicts of Interest) of the Committee On Professional Responsibility Of The Association Of The Bar Of The City Of New York, issued in March 2010 (the “City Bar 2010 Report”), which may be accessed at Much of the analysis in this article is taken from sections of the City Bar 2010Report.
The City Bar 2010 Report explains:
"In such jurisdictions, a lawyer is only prohibited from acting against the interests of existing clients where there is a significant risk that the clients’ confidences will be used against them…. See, e.g.: The Code of Conduct for Lawyers in the European Union, Rule 3.2 ('A lawyer may not advise, represent or act on behalf of two or more clients in the same matter if there is a conflict, or a significant risk of a conflict, between the interests of those clients. A lawyer must cease to act for both clients when a conflict of interest arises between those clients and also whenever there is a risk of a breach of confidence or where [the lawyer's] independence may be impaired.'); [the] National Bar Council of France Regulatory Decision No. 1999-001 establishing Harmonized Practice Rules for the French Bars, Article 4.1 ('Lawyers may not advise, represent or act on behalf of two or more parties in the same matter if there is a conflict between their interests or, without the agreement of the parties, there is a serious risk of such a conflict.'); [and the] Solicitor’s Code of Conduct 2007 (United Kingdom) ('Solicitor’s Code'), Rule 3.01(2) ('There is a conflict of interest if you owe, or your firm owes, separate duties to act in the best interests of two or more clients in relation to the same or related matters, and those duties conflict, or there is a significant risk that those duties may conflict.') (Emphases added [in the City Bar 2010 Report]). In these jurisdictions, it is a common and accepted practice to take adverse action—whether in transactional matters or in contentious proceedings—against existing clients in unrelated matters. Indeed, in such jurisdictions, the freedom of lawyers to act adversely to their current clients in unrelated matters where confidential information is not at risk is generally considered to be a necessary corollary to a client’s freedom to select counsel of its choice.”
The City Bar 2010 Report explores in depth the problems that arise from the effects and implications of such approaches to conflicts in contrast with the general rule in the United States. It does so by exploring the rules governing the choice of ethics rules, set out in Model Rule 8.5 and state variants of that rule, when opposing rules may lead to different outcomes in different jurisdictions. Most significantly, the City Bar 2010 Report explores the manner in which the effects of differing rules governing conflicts with current clients in unrelated matters are complicated and magnified by the operation of Model Rule 1.10 – the imputation rule. Model Rule 1.10 provides as follows:
(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 Rule 1.7, 1.8 or 1.9, except as otherwise provided therein.
The City Bar 2010 Report demonstrates the concerns created by the imputation rule in multijurisdictional practice byfirms with offices in multiple countries using the following hypothetical facts:
Lawyer A is licensed both in New York and as a Solicitor with the U.K. Law Society. Lawyer A is representing Company Y, a U.K. plc, in an asset sale to Company Z, a New York corporation, in a transaction that will be governed by New York law and involve solely New York assets. Lawyer B, Lawyer A’s partner, a U.K.-admitted lawyer, is subsequently asked (while the New York matter is still pending) to represent U.K.-based Company X in the U.K. acquisition of a Company Y’s U.K. subsidiary. Companies X and Y are both U.K. entities, the subsidiaries being purchased are all located in the U.K. and the agreements will be governed by U.K. law. None of the information that Lawyer A has learned by virtue of her ongoing representation of Company Y is relevant to the acquisition contemplated by Company X.
Under the Solicitor’s Code governing practice in the U.K., Lawyer B may ethically represent Company X without obtaining consent from Company Y. However, the impact on Lawyer A of Lawyer B’s conduct is not clear under current New York Rule 1.10 (which follows the approach of Model Rule 1.10).
The City Bar 2010 Report notes:
"There are two possible interpretations of how the imputation rule should be read in the context of lawyers governed by differing ethical regimes. The first, focusing on
the 'any one of them practicing alone' language, would lead to the conclusion that a lawyer who is not otherwise subject to New York Rule 1.7 [– Lawyer B in this example –] fulfills his or her ethical obligations if he or she conforms his or her conduct to that expected of him or her as a solo practitioner in the jurisdiction whose rules are applicable to the conduct [, in this example, the U.K]. Under this interpretation of the imputation rule, if a U.K. solicitor is ethically permitted to take on an adverse representation of a current client when acting alone as a solo practitioner, then he or she is permitted to do so in the context of legal work undertaken in a law firm in which he or she is affiliated with lawyers admitted in other jurisdictions [notwithstanding that the rules applicable to Lawyer B’s partners elsewhere might lead to a different outcome.]"
However, if New YorkRule 1.10 is applied to Lawyer B, then he or she would be precluded from taking on the matter for Company X "if Lawyer A, a lawyer affiliated in the same firm as Lawyer B, is not ethically permitted to do so." (It should be noted that, under New York Rule 1.10 as well as Model Rule 1.10, Lawyer A would only be precluded from representing Company X adverse to Company Y's subsidiary if Lawyer A is required to treat Company Y's subsidiary as the client Company Y for conflicts purposes). Under New York Rule 1.10, Lawyer B, who would under the rules normally governing his or her conduct be permitted to take on the engagement, must nonetheless conform his or herconduct to that required of Lawyer B's far-away partner, Lawyer A (whom Lawyer B may well never have met or even spoken with) with respect to conflicts of interest with Lawyer A’s clients. Under this approach, these lawyers would be required to apply New York Rule 1.10 even as to the U.K. representation even though the U.K. approach is different. Accordingly, Lawyer B in this situation would be required to decline the proposed representation of Client X absent Client Y’s consent.
To deal with this troubling situation, the City Bar 2010 Report proposed amendments both to the choice of ethics rule (New YorkRule 8.5) and to the imputation rule (New YorkRule 1.10). Specifically, as to New YorkRule 1.10, the Report proposed that Rule 1.10 be amended to provide that: “no conflict will be imputed hereunder where (i) a conflict arises under these rules from the conduct of lawyers practicing in another jurisdiction in accordance with such jurisdiction’s rules of professional conduct, and (ii) such conduct is permitted by the rules of professional conduct of that other jurisdiction.”
Another hypothetical facts postulated in the City Bar 2010Report further highlighted the rationale for proposing an amendment to the New York imputation rule in the context of multijurisdictional practice:
Lawyer B, the London-based lawyer described in the previous example is handling the same acquisition matter for Company X. Lawyer C, who is Lawyer A’s and B’s German-licensed partner in Germany, is concurrently handling a matter for Company Q involving the negotiation of a credit facility with Company X. Neither lawyer is prohibited under the applicable rules of professional conduct from undertaking such a concurrent representation. Company X, however, is concerned that it may have certain tax liabilities under U.S. law, arising from the acquisition, and so it asks Lawyer B to consult with Lawyer B's New York partner, Lawyer A, a tax attorney licensed only in New York.
Currently, under New York Rule 1.10, because Lawyer A is prohibited from acting, all associated lawyers in the firm would equally be prohibited from acting, "and Lawyer B and C are in a bind"– notwithstanding that the rules in both of their jurisdictions would otherwise permit their engagements. Notably, if they hadn’t sought to involve Lawyer A, there would not have been an issue. The City Bar 2010 Report proposed that Lawyer A and Lawyer Bshould be permitted to rely on the Solicitor’s Code provisions governing conflicts of interest, "since the U.K. is the jurisdiction where all lawyers involved believe the representation will have its predominant effect," which would permit Lawyer A’s, Lawyer B's, and their firm's concurrent representation of Company X and Company Q, and, accordingly, Lawyer A would also be permitted to provide the requested tax advice.
This raises another question as to whether the ethics rules concerning conflicts of interest apply equally to sophisticated clients and to other individual clients who may need protection from overreaching and unscrupulous lawyers. In other words, what should the application of the ethics rules be when the clients are not in need of paternalistic protection, but arehighly sophisticated multinational corporations transacting business globally.
During the course of the recently concluded deliberations of the ABA’s 2020 Commission, a proposal was made by a group of general counsel of large, international and global law firms that the presumption that all clients are individuals necessarily requiring protections should not applyin the case of sophisticated clients. The document containing this proposal, “Proposalsor Future Regulation Of Relationships Between Law Firms and Sophisticated Clients” was submitted in March 2011, and is available on the ABA’s website in the materials relating to the 2020 Commission at Subsequently, in an interesting article Regulating Conflicts Of Interest In Global Law Firms: Peace In Our Time? by Janine Griffiths-Baker and Nancy J. Moore,(80 Fordham Law Review 2541 (2012),) the authors recommended a much simpler definition of sophisticated client than that contained in the Proposals, namely that it is any client with its own in-house lawyer. (Interestingly, that approach was recently adopted by a federal courtin Texas in Galderma Laboratories, L.P. v. Actavis Mid Atlantic LLC, 2013 WL 655053 (N.D. Tex.), February 21, 2013 which upheld a general, open-ended future waiver in an engagement letter where the letter had been signed by in-house counsel for a sophisticated corporate client).Notwithstanding these developments, the ABA 2020 Commission itself could not bring itself to propose any changes except to suggest that perhaps the Model Rules should be amended to permit large multinational clients and their outside counsel to agree the choice of ethics rules in the event of ethics issues arising between them.
All of this still leaves firms with international and global practices with a problem concerning multijurisdictional conflicts of interest. Currently, firms must apply the version of Model Rule 1.7 (a) (1)in effect in their headquarter jurisdiction in the United States universally throughout the world. To do otherwise would leave these firms’ lawyers admitted in United States jurisdictions (and, in New York and New Jersey, the firms themselves) at least theoretically open to discipline for violation of the ethics rules as well as to claims for disqualification and disgorgement of fees. It can be argued that the application of the United States' ethics rules globally unnecessarily restricts these firms from accepting engagements outside the United States that would be perfectly proper under local rules.
Is there a solution? It may be, that, in cross-border concurrent representation conflicts of interest, international firms with offices in the United States consider seeking fully informed consent from the United States client alone when the ethics rules applicable to firm lawyers outside the country would allow the representation of the foreign client adverse to the client in the United States, In such instances, discipline would not likely lie against the lawyers in the United States who will have followed applicable ethics rules in seeking consent from the affected United States client. And, as well, motions to disqualify are not likely to be filed as the client in the United States will have given its consent. In addition, the firm presumably will have advised the United States client that the adverse representation outside the country was allowed by the ethics rules there applicable and that the foreign client was also advised of the representation in the United States, although no consent was required by this client.
Of course, the proposals in the City Bar 2010 Report that were offered to resolve most of the issues described above stand little to no chance of being adopted in New York or elsewhere in the United States. However, in the very long run, there is at least hope – and some initial discussions, at least at an academic level and, reportedly within the International Bar Association – of the development of some global principles of professional responsibility. If and when any such global standards are developed, the competing United States and non-United States conflict of interest ruleswould undoubtedly be high on the list of the issues to be resolved.