Rutgers School of Law, OAL case ACPE564

116 N.J.L.J. 204
August 8, 1985

ADVISORY COMMITTEE ON PROFESSIONAL ETHICS

Appointed by the New Jersey Supreme Court

OPINION 564

Conflict of Interest - Employment
of Former In-House Defense Counsel
by Plaintiff Oriented Law Firm

The threshold question presented by this inquiry is whether a law firm which regularly litigates plaintiff's claims against a certain insurance company can properly hire an attorney who is, or recently was, employed by that insurance company. Although the inquiry refers to this lawyer as "a former insurance company attorney," it also characterizes him as "an attorney who defends numerous suits in which (the inquirer's) firm acts as counsel for the plaintiff." The use of the present tense renders it unclear whether the subject attorney still works for the insurance company and would be hired away by the inquirer's firm if ethically permissible, or has already left the carrier's employ. In either event we take it that the insurance company's attorney would be joining the inquirer's firm in the context of an ongoing flow of unfinished litigation between past and present employers. The inquirer's firm, of course, would continue to handle existing and future suits defended by the insurance company, but proposes to erect a "Chinese Wall" around its new attorney so that he would have no participation in matters involving the insurance company. See Ross v. Canino, 93 N.J. 402, 410 (1983).

    The inquirer appears to contend that the usual ethical strictures against representation by a lawyer or his firm of interests adverse to those of a former client should be diluted here because the insurance company was only "technically" the client of the attorney who wishes to switch sides, his real clients being the insured parties whose interests he was engaged by the insurance company to defend. We would certainly agree, and have often held, that where an attorney is employed by an insurance company to represent the interest of an insured party to an action, the insured becomes the attorney's client in every sense of the word. Opinion 542, 114 N.J.L.J. 387 (1984); Opinion 165, 92 N.J.L.J. 831 (1969). This is not to say, however, that the insurance company which employs him is not also a client of the attorney to whom he owes an equal measure of undivided loyalty. Indeed, this dual representation of insurance carrier and insured has sometimes given rise to ethical problems involving a conflict in their respective interests and requiring the attorney to withdraw when that occurs. Opinion 165, supra; Opinion 502, 110 N.J.L.J. 349 (1982); and see Opinion 166, 92 N.J.L.J. 843 (1969). Thus an attorney employed by an insurance company stands in a substantive attorney-client relationship with his employer, and his obligations to his former employer when the relationship ends must be viewed in that light.
    In Reardon v. Marlayne, Inc. 83 N.J. 460 (1980), the New Jersey Supreme Court held that an attorney and his firm are disqualified from representing interests adverse to those of a former client of the attorney when the circumstances establish the following:
        (1)    A prior attorney-client relationship between the former client and the attorney sought to be disqualified;

        (2)    A substantial relationship or a reasonable perception, from the public's perspective, of a substantial relationship between the subject matter of the present suit and that of cases worked on during the former representation;

        (3)    Access to relevant confidences of the former client, which may be proven by other than direct evidence, leading to a conclusive presumption of the attorney's knowledge of such confidences. 83 N.J. at 474.

This ruling largely has been codified by Rules 1.9 and 1.10 of the new Rules of Professional Conduct. Although the Court in Reardon cautioned that each case must be decided upon a detailed analysis of its own particular facts, Id., at 469, it is difficult to fathom how the attorney who wishes to join the inquirer's firm here could surmount the three criteria for disqualification quoted above.
    First, and as already noted, there would exist a prior attorney client relationship between the attorney and the insurance carrier against which the inquirer's firm regularly conducts litigation. As for a "substantial relationship" between the subject matter of such litigation and that of cases worked on by the attorney when he was employed by the insurance company, it is not necessary that the suits or the issues therein be identical. The Supreme Court in Reardon stated that a "substantial relationship between matters will exist where the 'adversity between the interests of the attorney's former and present clients... has created a climate for disclosure of relevant confidential information.'" 83 N.J. at 472. Such information would include "the strengths and weaknesses of (a) corporate client's decision-makers or their attitude toward settlement." Id., at 476. The inquirer here minimizes the attorney's access to the "most important" confidences and secrets of the carrier, but even if this is so, the appearance of impropriety would exist. The Court in Reardon quoted with approval from Motor Mart Inc. v. Saab Motors Inc., 359 F. Supp. 156, 158, (S.D.N.Y. 1973)as follows:
        The prior representation made possible his exposure to business methods and confidential information, giving rise in the present action to an appearance of conflict of interest. Even if his relationship with Saab Motors was relatively small, and even if the prior action did not raise issues identical to those involved herein, his past activities raise a shadow over his present involvement.

    This observation carries over to the third and last of the Reardon criteria for disqualification, "access to relevant confidences of the former client." In this aspect, Reardon says:
        Where such substantially related matters are present or when a reasonable perception of impropriety exists, the court will assume that confidential information has passed between attorney and former client, notwithstanding the attorney's declarations to the contrary. The presumption of access to and knowledge of confidences may not be rebutted. 83 N.J. at 473.

    In short, we believe that the subject attorney's real or apparent access to the confidences of his former employer should disqualify him from accepting a new position in which such information would provide the inquirer's firm with a decided edge in litigating new claims against the carrier. And as indicated above, it appears that the attorney would be leaving behind him a body of existing but unfinished litigation between the carrier and the inquirer's firm as to which useful information might even inadvertently be imparted to the new employer. This plainly is not a situation in which the erection of a "Chinese Wall" around the attorney would satisfactorily overcome the appearance of impropriety or cure the potential for disclosure of relevant confidences. See our Opinion 313, 98 N.J.L.J. 753 (1975); "Developments in the Law - Conflicts of Interest in the Legal Profession," 94 Harv. L. Rev. 1244, 1360 et seq. (1981).
    Finally, the inquirer asks whether the insurance company's consent to the job change would remove the ethical obstacles. On the facts as we understand them, the appearance of impropriety would be so pervasive as to render it doubtful whether such consent would eliminate the problem. See Reardon, supra, at 477; RPC 1.9(b) and 1.7(c). In any event, the consents of all insured parties whose interests might appear to be compromised by the attorney's change of sides would also have to be obtained, an undertaking which seems impracticable at best.

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