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                                         7 N.J.L. 2661
                                        November 23, 1998

                                        154 N.J.L.J. 734
                                        November 23, 1998

         ADVISORY COMMITTEE ON PROFESSIONAL ETHICS

Appointed by the New Jersey Supreme Court



OPINION 686

Conflict of Interes t: Former Associate at Plaintiffs'
Personal Injury Law Firm Seeking Employment
with Firm Representing Insurance Carriers
(Modifies Opinion 654 and Opinion 564)

    The inquirer is a former associate at a plaintiffs' personal injury firm that represents medical care providers in assigned claims against insurance carriers in PIP arbitrations. He inquires whether he may now work for a defense firm that represents the insurance carriers adverse to the medical care providers his former firm represented. The inquirer states that, while employed at his former firm, he was not involved in the representation of all of the medical care providers the firm represented.
    As explained below, this inquiry implicates RPC 1.9. Section (a)(1) of that rule prohibits an attorney from representing a client who is adverse to a former client where the matter is the same or "substantially related" to the matter in which the attorney represented the former client, unless the former client consents after full disclosure and consultation. Section (a)(2) prohibits an attorney from using information relating the representation of a former client to its disadvantage, except as RPC 1.6 (Confidentiality of Information) would permit disclosure. Finally, RPC 1.9(b) makes clear that the provisions of RPC 1.7(c) (the "appearance of impropriety rule") apply to situations such as the one involved in this inquiry. See also RPC 1.10 (Imputed Disqualification) and Opinion 654, 129 N.J.L.J. 514 (1991), discussed more fully below.
    Prior to the Supreme Court's adoption of the Rules of Professional Conduct, an inquiry such as the one presented here was governed by Reardon v. Marlayne, Inc., 83 N.J. 460 (1980). In that case, the Court established a three-prong test to determine whether an attorney would be disqualified from representing interests allegedly adverse to a former client. The former client objecting to the new representation was required to establish:
        (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; and (3) access to relevant confidences of the former client, which may be proved by other than direct evidence, leading to a conclusive presumption of the attorney's knowledge of such confidences.

Id. At 474. The Reardon test, particularly the second prong pertaining to a "substantial relationship," was modified by the adoption of the New Jersey Rules of Professional Conduct generally, and RPC 1.9 and RPC 1.10 more particularly, in 1984. See Dewey v. R.J. Reynolds Tobacco Co., 109 N.J. 201, 212 (1988) ("because the RPC's contain provisions expressly designed to resolve that question, we conclude that the Reardon three-part test no longer controls.")
    In Opinion 654, supra, 129 N.J.L.J. 514, this Committee dealt with an inquiry that presented facts similar to those in the present inquiry. We recognized then that the Reardon test had been modified. In that Opinion, to respond to the question posed by that inquirer, the Committee undertook a two-part analysis. We explained, "[f]irst, 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."
    Similarly, to respond to the present inquiry, we must first determine whether the new matters the inquirer would undertake for his new clients (the insurance carriers) are "substantially related" to the matters in which the inquirer previously represented the medical care providers. If so, then the inquirer and his insurance defense firm would be prohibited from undertaking those matters, unless his former clients consent after full disclosure and consultation. If not substantially related, then we must determine whether the inquirer's shift to the defense firm and representation of its clients against the inquirer's former firm's clients creates an appearance of impropriety.
    The Rules of Professional Conduct do not contain a bright-line definition of "substantial relation." Therefore, we found it helpful to expand our research in this matter to other jurisdictions as we endeavored to determine whether the matters here at issue are "substantially related." See e.g., Hasco, Inc. v. Roche, No. 1-97-0837, 1998 WL 608272*6 (Ill. App. 1 Dist. Sept. 11, 1998) ("To determine whether the two representations are substantially related, ... the trial court must determine (1) the scope of the former representation; (2) whether it is reasonable to infer that the confidential information allegedly given would have been given to a lawyer representing a client in those matters; and (3) whether the information is relevant to the issues raised in the litigation pending against the former client."), citing LaSalle National Bank v. County of Lake, 703 F.2d 252, 255-56 (7th Cir. 1983); In Re Custody of Hooper, No. 16170-6-III, 1998 WL 107023 (Wash. App. Div. 3 Mar. 12, 1998) ("To determine whether the two representations are in fact substantially related, we (1) reconstruct the scope of the facts of the former representation; (2) assume the lawyer obtained confidential information from the client about all these facts; [and] (3) determine whether any former factual matter is sufficiently similar to a current one that the lawyer could use the confidential information to the client's detriment."); Gross v. Gross, No. CIV. A. 97-883, 1997 WL 653909 *2 (E.D. Pa. Oct. 20, 1997) ("Two matters are 'substantially related' when an attorney might have acquired confidential information in the first representation that could be used to the detriment of a former client in a subsequent action. ... The standard is not whether confidential information was actually disclosed in the prior representation which could be used in the subsequent one, but rather whether it might have been disclosed."); Dieter v. Regent of the University of California, 963 F.Supp. 908, 910 (E.D.Ca.1997) ("The California courts have applied a 'substantial relationship' test to determine if a prior representation may conflict with a current representation adverse to the former client. Thus, if the current representation is substantially related to the subject matter of the former representation, and if the new case places the attorney in an adverse position to his former client, then Rule 3-310(E) requires disqualification of the attorney. ... The court must conclusively presume that the attorney learned confidential, material information during the course of the prior representation if the two matters are substantially related.")
    In addition, we are guided by our analysis in Opinion 654, supra, 129 N.J.L.J. 514. There, we noted that, under the reasoning of Reardon, one might 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, given the Court's adoption of the Rules of Professional Conduct subsequent to the Reardon decision." However, we then observed that "[t]he 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." See Opinion 654, supra, 129 N.J.L.J. 514.
    Accordingly, based upon our reasoning in Opinion 654, as well as the analysis engaged in by the courts in other jurisdictions, we conclude that a "substantial relationship" exists when there is a factual nexus between the cases such that the attorney might have acquired confidential information in the first representation that could be used to the detriment of the former client in a subsequent action.

    Here, the matters that the inquirer would undertake for the clients of the defense firm are identical in nature to the matters in which he represented the health care providers previously, and the issues between the former and present matters are the same. Hence, there is a factual nexus between the matters. Moreover, the inquirer concedes that, during his representation of the medical providers, he acquired information about them that could be used to their detriment in his representation of the insurance carriers. For example, he concedes that he has knowledge of the parameters of settlement that are acceptable to each of his former clients. (Obviously, he has no such knowledge about new clients his former firm acquired after his departure). Unquestionably then, under RPC 1.9(a), the new matters would be "substantially related" to the matters in which he represented the very clients that would be adverse to his new clients. In fact, even if the inquirer had not admitted that he had acquired confidential information about his former clients that could be used in the new matters to their detriment, because of the factual nexus between the two representations, our courts "... will assume that confidential information has passed between attorney and former client, notwithstanding the attorney's declaration to the contrary." Reardon v. Marlayne, Inc., supra, 83 N.J. at 473. Consequently, RPC 1.7(a) would not permit the inquirer to undertake the representation of insurance carriers against the medical care providers he formerly represented. This prohibition would apply equally to the inquirer's entire new defense firm, which would be barred from representing the insurance carriers against the inquirer's former clients. This bar would apply to those former clients' new matters (future files) and those former clients' files at the former firm in which the inquirer may not have been actively involved in the litigation. RPC 1.10(a).
    We recognize that one could reasonably argue that in the type of cases involved in this inquiry, the knowledge at issue is not confined to the lawyers, but rather that this information may become known throughout the industry or the profession. If the information the attorney obtained from his former client is generally known by adjusters in the medical or insurance industry, the information may not be privileged, although its source was the attorney's former client. Query, then, whether the fact that the side-switching attorney possesses this information is of any real use against his former clients. Given the limited information before this Committee, we are in no position to determine whether the "confidential" information the inquirer concedes he possesses has become, in effect, public knowledge and has thus lost the protection to which it would otherwise be entitled. In fact, to make a determination whether otherwise confidential information has become public knowledge and therefore is no longer entitled to protection from use or disclosure may require a fully-developed record possible only in the context of an adversarial proceeding.
    When the inquiry turns to clients of the inquirer's former firm in whose representation the inquirer had no involvement, we must determine "whether the attorney whose disqualification is sought has 'acquired information protected by RPC 1.6 and RPC 1.9(a)(2) that is material to the matter.'" Dewey v. R.J. Reynolds Tobacco Co., supra, 109 N.J. at 222, citing RPC 1.10(b). In such cases, "[t]he burden at that point shifts to that attorney to show that no protected information has been acquired." Id. We do not believe that mere "side-switching," without more, would give rise to an appearance of impropriety under RPC 1.7(c)(2) because this situation does not present a "substantial risk of disservice to either the public interest or the interest of one of the clients... The 'appearance' of impropriety must be something more than a fanciful possibility. It must have a reasonable basis." Id. at 222, citing Higgins v. Advisory Committee on Professional Ethics, 73 N.J. 123, 129 (1997).
    In sum, we conclude that neither the inquirer nor any firm for which he may work may represent insurance carriers against the inquirer's former clients in cases involving assigned PIP claims, but they may represent insurance carriers against any clients of the inquirer's former firm in whose matters the inquirer was not involved, assuming, in the latter case, that the inquirer did not acquire any confidential information about these clients of his former firm whom the inquirer did not represent. Even absolute disqualification, however, may erode and become inapplicable over such substantial period as will nullify the currency of the information learned concerning the client.

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