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                                         98 N.J.L.J. 209
                                        March 13, 1975


Appointed by the New Jersey Supreme Court

Conflict of Interest
Prosecuting Third-Party
Forgery Claim Against Client

    An action was brought by several insurance companies against several corporate and individual defendants, seeking the return of insurance proceeds paid on account of a loss which the insurance companies allege was a fraudulent claim. The attorney for one of the corporate defendants and one of the individual defendants, entered his appearance and commenced defense of the action. After much discovery and numerous applications to the court, and after the pretrial conference, all of the checks (originals and photocopies) representing the proceeds of the insurance claims were made available to counsel. Thereupon it was determined that all said checks had been deposited initially with a national bank, and under the Uniform Commercial Code, proper practice would be to join that bank as a third-party defendant since the attorney's clients claimed that their signatures were not authorized and were in fact forged. In this regard, due to the length of time prior to the insurance companies' suit in the matter and the additional length of time during which the matter was pending, the bank involved may have a defense. As a result of several mergers, the bank involved is a bank for which the firm with which the attorney was formerly connected, was the solicitor until February 1, 1974. While the firm was the solicitor, the attorney had handled several forgery claims under the Commercial Code in defense of the bank and since he went into practice with his own office, he has continued to handle a few of the bank's matters, including an unrelated forgery claim which matter is still pending and presents this conflict.
    The attorney inquires as to whether he may continue representation of a client in a pending litigation which has reached the trial list stage, at which point a motion to join as a third-party defendant the bank which he represents in an unrelated matter is appropriate on the basis of the alleged forged endorsements. The third-party action would be brought by the attorney's clients in the pending litigation as defendants third-party plaintiffs, against the same bank which the attorney is defending in an unrelated forgery case and which bank the same attorney has represented in the past, although he is not the solicitor for that bank.
    Disciplinary Rule 5-101 reads as follows:
    Refusing Employment when the Interests of the Lawyer May Impair His Independent Professional Judgment

    (A)    Except with the consent of his client after full disclosure, a lawyer shall not accept employment if the exercise of his professional judgment on behalf of his client will be or reasonably may be affected by his own financial business, property, or personal interests.

    Disciplinary Rule 5-105 reads as follows:

    Refusing to Accept or Continue Employment if the Interests of Another Client May Impair the Independent Professional Judgment of the Lawyer

    (A)    A lawyer shall decline proffered employment if the exercise of his independent professional judgment in behalf of a client will be or is likely to be adversely affected by the acceptance of the proffered employment, except to the extent permitted under DR 5-105(C).

    (B)    A lawyer shall not continue multiple employment if the exercise of his independent professional judgment in behalf of a client will be or is likely to be adversely affected by his representation of another client, except to the extent permitted under DR 5-105(C).

    (C)    In situations covered by DR 5-105(A) and (B) except as prohibited by rule, opinion, directive or statute, a lawyer may represent multiple clients if he believes that he can adequately represent the interests of each and if each consents to the representation after full disclosure of the facts and of the possible effect of such representation on the exercise of his independent professional judgment on behalf of each.

    (D)    If a lawyer is required to decline employment or to withdraw from employment under DR 5-105, no partner or associate of his or his firm may accept or continue such employment.

    It is not clear why the attorney, through his own clients, was not aware of the alleged forged endorsements at the outset and why he therefore did not anticipate the third-party question. Be that as it may, the question should not be decided on the fact that a "surprise issue" arose at a relatively late time in the legal proceedings. Even if it could not have been anticipated, the attorney is faced with a problem of asserting on behalf of his defense clients the alleged forgery and payment by the bank, which bank is also a client for which the attorney has done considerable legal work and which he is presently defending in another unrelated forgery case.
    The attorney asks whether: As alternatives to the withdrawal as counsel for the defendants in the insurance company litigation, would it be permissible to continue if: (a) both clients agree in writing, after full disclosure, that I can continue, or (b) refer the matter to another attorney to argue and present the motion to
bring in the third-party defendant bank, and if the motion is granted, to continue and if not granted, to allow me to continue with the handling of the matter thereafter through trial?
    Problems involving third-party actions can and do arise. In our Opinion 188, 93 N.J.L.J. 789 (1970), we held that such proposed representation is improper notwithstanding consent. In Opinion 156, 92 N.J.L.J. 481 (1969), we held that it was improper for an attorney to represent two or more parties to litigation where all such parties agree to make no claims against each other, because there were potential claims among the parties so joined and the attorney's opinion as to whether or not valid claims could be asserted might be in error. We believe that counsel should ask the court to be relieved from the trial of the case, and do not believe that the alternatives which counsel suggests would properly take care of the facts herein stated.
    In Opinion 158, 92 N.J.L.J. 641 (1969), which was a conflict of interest case, the question involved was whether counsel could
represent a corporation against a former employee for whom counsel had conducted a change of name proceeding. In deciding that there was no conflict because the legal issues were entirely independent of each other and there appeared to be no secrets or confidences
disclosed to the attorney in the present controversy which in any way related to the prior employment, we referred to our Opinion 6, 86 N.J.L.J. 718 (1963), which in part reads as follows:
        Irrespective of any actual detriment the purchaser might suffer, he might naturally feel that he had in some way been wronged when confronted by an action against him by the same attorney whom he had employed.... To maintain public confidence in the bar, it is necessary not only to avoid actual wrongdoing, but even appearance of wrongdoing.

    The impropriety of taking a case against a former client is not based solely on necessity for disclosure of confidential communication. If the former client has any reason to feel aggrieved, the necessity of maintaining proper public relations for the bar and of avoiding the appearance of wrongdoing should cause the attorney to refuse to accept employment in a capacity which is adverse to the interests of the former client.
    The mere fact that under a prior retainer the attorney has advocated views of the law and facts different from those on which his present client rests his case will not ipso facto disqualify him. See Drinker, Legal Ethics 114 (1953). It is only when there is no conflict of interests that former Canon 6 does not apply, as where two matters are wholly unrelated. See A.B.A. Comm. on Professional Ethics and Grievances, Opinions 71, 72 (1932) and 262 (1944).

    Here, we are dealing not with a former client but with a conflict of two clients.
    We refer to our Opinion 205, 94 N.J.L.J. 451 (1971), where the attorney represented a party against a former associate, both being former clients, and we held there was a definite conflict of interest and that arrangements should be made for substitute counsel.
    We said in part:
            Where, as here, there is a very definite conflict of interest or an allegation that the attorney would have the advantage of confidential information, even if the instances are slight, it should forbid the attorney becoming thus involved. The attorney cannot use facts thus obtained which obviously were given to him in a fiduciary capacity to be used for the benefit of others, or adversely to his trust.

            We are cognizant of the fact that in some instances, conflict of interest inquiries have been resolved where there has been a full disclosure and a consent of all parties concerned. We have made it clear that this practice should be engaged in sparingly and only where every party involved clearly understands the situation and the possible eventualities. We have said that this is permissible in some instances, but not where the facts are as indicated in the present inquiry. We feel that the prudent lawyer would be wise never to put himself in the position of representing conflicting interests such as appear here; and if the conflict develops as it has, we feel it would be better for him to withdraw from the matter entirely, giving both parties ample opportunity to obtain other and different counsel.

    See Opinion 209, 94 N.J.L.J. 454 (1971), and Opinion 210, 94 N.J.L.J. 461 (1971), and the opinion cited therein.
    Other jurisdictions which have passed upon these questions have uniformly held that a lawyer should not take a case against his own client.
    See Committee on Professional Guidance of the Philadelphia Bar, Opinion 10 (1941), Committee on Professional Ethics of the Illinois State Bar Association, Opinion 166 (1958), and Committee on Professional Ethics of the Association of the Bar of the City of New York, Opinion 130 (1930).
    Accordingly, it is our opinion that it is not professionally advisable for the inquirer to represent the same client both as advocate and adversary even if the cases are unrelated, and even if there are full disclosure and full consent. We feel that if the depository bank is brought into the proceedings as a third-party defendant a definite connect of interest would be presented and that it would be inappropriate for the attorney to continue to represent the two clients.
    Based on all of the foregoing and following the same reasoning, we conclude that there is a conflict which requires counsel to arrange for a substitution.

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