Rutgers School of Law, OAL case ACPE654

129 N.J.L.J. 154
October 17, 1991

ADVISORY COMMITTEE ON PROFESSIONAL ETHICS

Appointed by the Supreme Court of New Jersey

OPINION 654

Conflict of Interest: Employment
of Former In-House Defense Counsel
by Plaintiffs' Personal Injury Law
Firm (Modifies Opinion 564)

The Inquirer is a large personal injury law firm that would like to hire as an associate a trial attorney who is presently employed by an in-house counsel firm for a major liability insurance carrier. The Inquirer presently has a number of suits pending against this carrier and approximately six of these suits are being handled by the trial attorney the inquirer would like to employ.
The Inquirer acknowledges that if it were to employ the trial attorney, it would be disqualified from those cases that the Inquirer presently has that are being handled by the trial attorney. The Inquirer proposes that a "Chinese Wall" be erected between all other pending cases it has against insureds of the carrier with respect to which the trial attorney never acquired any protected information. The Inquirer suggests that the trial attorney and the Inquirer should not be disqualified from involvement in future cases involving insureds of the carrier where no "substantial relationship" exists between such future cases and cases in which the trial attorney obtained protected information while employed by the carrier's house counsel.

    The Inquirer concedes that Opinion 564, 116 N.J.L.J. 204 (1985) indicates that should the Inquirer employ the trial attorney, both the trial attorney and the Inquirer would be disqualified from representing clients who have claims against insureds of the carrier now and in the future. The Inquirer, however, contends that Opinion 564 should be reviewed in light of Dewey v. R.J. Reynolds Tobacco Co., 109 N.J. 201 (1988); Petition for Review of Opinion 552, 102 N.J. 194 (1986) and Opinion 569, 116 N.J.L.J. 257 (1985), aff'd, In re Petition for Review of Opinion 569 of the ACPE, 103 N.J. 325 (1986). The Inquirer further submits that in the event Opinion 564, supra, 116 N.J.L.J. 204, is not modified or narrowed, young attorneys who work for insurance carriers' in-house firms will, in effect, become "pariahs" unable to obtain employment with large plaintiff oriented personal injury firms.
    In Opinion 564, we found that an attorney formerly employed by an insurance carrier and the firm that the attorney was associated with were ethically prohibited from representing any clients with interests adverse to the insurance carrier. In reaching our decision, we initially found that both the insurance carrier and the insureds the attorney represented while employed by the insurance carrier were former clients of the attorney and that the obligations the attorney owed to the insurance carrier had to be viewed in that light. In deciding that these obligations prohibited the attorney from representing interests adverse to the insurance carrier, we applied the three prong test enunciated by the Supreme Court in Reardon v. Marlayne, 83 N.J. 568 (1980). That test provides that an attorney and the attorney's firm are disqualified from representing interests adverse to those of a former client of the attorney when the following circumstances have been established:
        (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 74.

It was our application of the second prong of the Reardon test that was of pivotal importance in reaching our decision. In applying that prong we determined that:
        [F]or 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 the 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. Opinion 564, supra, 116 N.J.L.J. 204.

    Based on this reasoning, we concluded that an attorney formerly employed by an insurance carrier, and any firm with which the attorney was later associated, would be ethically prohibited from representing any interest adverse to the carrier.
    However, as the Supreme Court clarified in Dewey v. R.J. Reynolds Tobacco Co., supra, 109 N.J. 201, change in the governing black-letter law with the 1984 adoption of the Rules of Professional Conduct has modified the effect of the Reardon test:         [I]t has been argued that Reardon v. Marlayne, Inc., supra, 83 N.J. 460, governs the resolution of this case. We think not. In that case, we stated a three-part test, recited supra at 208, for determining whether an attorney should be disqualified based on his or her successive representation of adverse interests. That test was created in the absence of any Disciplinary Rule directly on point. Id. 83 N.J. at 470; see infra at 213. Because the RPC's contain provisions expressly designed to resolve that question, we conclude that the Reardon three-part test no longer controls. 109 N.J. at 212.

    In the light of this change; the adoption of other relevant provisions of the Rules of Professional Conduct; the opinion in Dewey; review of subsequent decisions of this Committee; and relevant policy considerations, we now conclude that the scope of Opinion 564, supra, 116 N.J.L.J. 204, should be modified.

    Analysis of a situation such as that presented by the Inquirer has two steps. First a determination must be made as to whether an actual conflict exists, analyzing the facts in the context of the test set forth in RPC 1.9(a). If there is no actual conflict, then under RPC 1.9(b) the possibility of an appearance of impropriety must be examined.
    In regard to the first step, the slight language change in the RPC 1.9(a) test, moving from "substantial relationship between the subject matter of the present suit and that of cases worked on during the former representation" (the Reardon formulation) to "the same or a substantially related matter" is significant. Under the somewhat broader Reardon language, we were led to conclude that a "substantial relationship" could exist even if the specific facts or cases were distinct, as long as there was some other significant nexus. The language of RPC 1.9(a), in contrast, suggests that the matters themselves - the cases - must be substantially related. This language contemplates a factual nexus between the cases. It is a quite distinct situation where a lawyer in the course of prior representation of an insurer gained information about some unique way, not known to the public or others in the industry, that the insurer approached or made decisions concerning types of cases. The information may well be confidential and consequently barred from disclosure under RPC 1.6(a), RPC 1.8(a) and RPC 1.9(a)(2). This would have to be judged by the lawyer in the particular circumstances, and we are not provided sufficient information to offer an opinion in the present inquiry. While disclosure of this information thus may be barred under confidentiality principles, the existence of the information does not make representation in a later case, with completely unrelated facts, a "substantially related matter" under RPC 1.9(a).
    Since the present inquiry postulates that no representation will be provided in any case in which the attorney associate was actually involved on behalf of the insurer [which would constitute a "substantially related matter" within the meaning of RPC 1.9(a)], it remains only to proceed to the second step, and examine the possibility of an appearance of impropriety.
    In Dewey, the Supreme Court restated the rule that an appearance of impropriety must be based on something more than a fanciful possibility. Instead, there must be a reasonable basis for such a concern. Id. at 216. Under Dewey and RPC 1.7(c)(2), the test is whether "an ordinary knowledgeable citizen acquainted with the facts would conclude that the multiple representation" would disserve the interest of one of the clients. If a conclusion has already been made that no confidential information is to be released, and the matter in which representation is to be provided is not one in which the associate had any prior involvement, we do not believe that given these assurances there is any residual appearance of impropriety sufficient to justify the broad prophylactic prohibition we announced in Opinion 564, supra, 116 N.J.L.J. 204. Whether such an appearance may exist in a particular situation will depend on the specific circumstances involved. This is consistent with our Supreme Court's general aversion to "per se" rules, in favor of a "more individualized approach." Petition for Review of Opinion 552, 102 N.J. 194, 205-206 (1986).
    Our position is also consistent with that of the Appellate Division in Gray v. Commercial Union Insurance Co., 191 N.J. Super. 590 (App. Div. 1983). In that case, the court considered whether an attorney who had been retained by Commercial Union Insurance Company for over 20 years should be disqualified from representing a former Commercial Union claims manager in a wrongful discharge action against the carrier. In support of his action, plaintiff alleged that Commercial Union adopted practices and claims procedures that led to the discharge of claims personnel. In determining that the attorney should be disqualified from representing the plaintiff, the Court applied the Reardon three prong test. It found that there was at least the appearance of a substantial relationship between the subject matter of other cases which the attorney had handled for Commercial Union. The Court based its conclusion on the fact that during the 20 years in which he had worked for Commercial Union, the attorney had obtained confidential information and knowledge concerning internal policies of Commercial Union that he would be able to use against it in the plaintiff's action.Id. at 596-598. Thus, after a detailed analysis of the facts before it, the Court determined that a substantial relationship existed between the cases. The Court did not, however, broadly determine that such a substantial relationship exists whenever an attorney who previously represented an insurance carrier represents a client with interests adverse to the carrier.     In sum, we believe that attorneys formerly employed by insurance carriers and the firms that they are presently associated with should not be subject to a blanket ethical prohibition disqualifying them from representing new clients who have claims adverse to the insurance carrier by whom the attorney was previously employed. Accordingly, we conclude that the broad position of Opinion 564, supra, 116 N.J.L.J. 204, that all cases involving the same insurance carrier should be considered "substantially related" to one another, warrants modification. A determination as to whether such cases are substantially related should be made after a detailed analysis of the case in question. In any event, no confidential information secured by the attorney in the course of the previous representation of the insurer may be released to the new employer. Additionally, the attorney cannot be involved personally in any matter in which such confidential information might be used by the attorney to the detriment of the previous client. Whether such information exists, and when it could be so used, are matters committed in the first instance to the sound professional judgement of the attorney involved. Finally, the possible appearance of impropriety also must be examined by the attorney, in the light of all of the facts and circumstances. If the attorney concludes that such an appearance may exist, representation by the firm may not proceed. It is expected, however, that given the protection of confidential information and the bar to representation in a substantially related matter, such appearances of impropriety will be uncommon.
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