by Todd W. Smith
We’ve all been there. It’s four in the afternoon and you get a call from a prospective client. After chatting for a few minutes, you realize that it does not make sense for you to take on the new matter. You politely decline, wish them well, and hang up the phone. You’re home free right? Not so fast.
Rule 1.18 of the California Rules of Professional Conduct outlines a number of ethical obligations a lawyer owes to prospective clients—even if the lawyer is not ultimately retained by that client. That Rule, which went into effect on November 1, 2018 as part of the overhauled Rules of Professional Conduct, provides a variety of safeguards to prospective clients who approach lawyers for the purpose of obtaining legal advice.
Defining a “Prospective Client” As a threshold matter, Rule 1.18 defines who is, and who is not, a “prospective client” for purposes of the rule. A prospective client is someone who consults a lawyer “for the purpose of retaining the lawyer or securing legal advice.” On the contrary, a person who communicates unilaterally with a lawyer without a reasonable expectation of forming a lawyer-client relationship or without a good faith intention to seek legal advice is not considered a prospective client.1 These qualifications minimize the risk of gamesmanship, including the scenario whereby a party unilaterally contacts multiple attorneys for the purpose of conflicting them out of being able to represent an adverse party.
Duty of Confidentiality to Prospective Clients Assuming you have consulted with someone who is a prospective client under Rule 1.18, what duties do you owe that prospective client? First and foremost, you may not use or reveal any confidential information learned as a result of the consultation irrespective of whether the lawyer is ultimately engaged to handle the matter. Notably, what qualifies as confidential information under this Rule is quite broad, encompassing any information protected by Business and Professions Code 6068(e) and Rule 1.6 of the Rules of Professional Conduct. Under Section 6068(e), an attorney is obligated to “maintain inviolate the confidence, and at every peril to himself or herself to preserve the secrets, of his or her client.” Client “secrets,” in this context, have been interpreted to include any information obtained by the lawyer during the professional relationship, or relating to the representation, which the client has requested to be inviolate or the disclosure of which might be embarrassing or detrimental to the client.2 It extends even to information that is otherwise publicly available.3
And what if the information learned during the consultation would be helpful to your representation of an existing client? Surely, you can share it with your existing client, right? Nope. Even though you owe duties of disclosure and loyalty to the existing client, the State Bar has concluded that “the weight of ethics opinions” holds that the lawyer may not disclose the information obtained from the prospective client to the existing client, even if it would be helpful or material to an existing client.4
Conflicts of Interest / Ethical Screening In addition to this broad duty of confidentiality, a lawyer who consults with a prospective client may be conflicted out from later representing a client whose interests are adverse to the prospective client in a related matter—again, even if no lawyer-client relationship was ever established with the prospective client. And if that were not draconian enough, this conflict of interest is imputed to the entire law firm (or legal department) unless certain precautionary steps are taken during and after the consultation.
Specifically, Rule 1.18 provides that the conflict is imputed to the entire firm unless:
Taking these elements in turn, while Rule 1.18 does not define what information is “reasonably necessary” to determine whether to represent the prospective client, a State Bar ethics opinion concludes that it encompasses not only information necessary to run a conflict check, but all types of information relevant to the decision of whether to represent a client.5 This could include information about the prospective client and its business, the nature of any proposed transaction, or information about the merits of the case to permit a preliminary assessment of whether the case is frivolous or not.
With respect to screening, an effective ethical screen may include physical, geographic, and departmental separation from lawyers and staff working the matter, restricting access to electronic and hard copy files, sanctions for disclosing information, and prohibiting the screened lawyer from sharing in profits from the representation. Additionally, the screening must be timely (as soon as practical after the firm knows or reasonably should know there is a need for screening) and written notice must be provided to the prospective client so he or she can evaluate the adequacy of the screen.
On the other hand, if a lawyer does not take reasonable measures to avoid receiving more information than is reasonably necessary to make the determination during the consultation, no amount of ethical screening can avoid imputation and, potentially, disqualification. In Skybell Technologies Inc. v. Ring, Inc., 2018 WL 6016156 (C.D. Cal. 2018), a patent infringement action, a defense lawyer joined a new firm in the middle of the litigation. It turns out that the defense lawyer’s new firm previously had several pitch meetings and discussions with the plaintiff, Skybell, related to the patents at issue in the litigation, though Skybell had ultimately decided not to hire the firm. The firm timely imposed an ethical screen between the individuals involved in those earlier pitches and the lawyers handling the litigation.
Notwithstanding the ethical screen, the court concluded that the law firm had not taken reasonable measures “at each stage of the discussions with Skybell” to avoid exposure to more information than was reasonably necessary to determine whether to represent Skybell. Instead of placing limitations on the type of information that Skybell should share with the firm during the consultation, Skybell was “encouraged . . . to be as open as possible with information related to the potential lawsuit against Ring.”6 Accordingly, the court disqualified the firm from representing Ring in the litigation, offering the following precaution: “While prospective clients in the patent litigation context may have come to expect law firms seeking to represent them to offer detailed proposals that require the disclosure of confidential information, it is the responsibility of the firms that participate to ensure that they are aware of and abiding by appropriate ethical standards.”7
Advance Conflict Waivers From the Prospective Client Can a prospective client give his or her consent, in advance, to the lawyer representing an adverse party in a substantially related matter at some future point? While Rule 1.18 does not directly address the issue, a State Bar ethics opinion suggests that such an advance waiver would be enforceable under the right circumstances. According to the opinion, the validity of an advance waiver in this context turns on the extent to which the client understands the material risks that the consent entails. “The more comprehensive the explanation of the types of foreseeable adverse consequences to the client of those representations, the greater the likelihood that the client will have the requisite understanding.”8
The ethics opinion posits a hypothetical scenario whereby a prospective client (a sophisticated company with in-house counsel) wants to evaluate a law firm by giving it material, confidential information about the case, so that the law firm can prepare a memorandum analyzing the case, including its strengths and weaknesses, and setting forth a proposed strategy and budget.9 The law firm agrees to accept the information and to perform the evaluation, at no charge, if the prospective client will agree that, if the firm is not retained, the firm will be free to act adversely to the prospective client in the same or substantially related matter for the competitor of the prospective client.10
The opinion concludes that such a waiver would be enforceable provided that: (1) the attorneys who conducted the interview or who receive confidential information would be screened from the later adverse representation, and (2) the prospective client agrees that should the competitor subsequently retain the firm, the competitor can be informed of, and will be required to consent to, the screening arrangement and the reasons for it.11 These conditions sufficiently protect the prospective client because the representation is limited to a specifically identified opponent (the competitor) and the prospective client is waiving only its claim to disqualify by imputation lawyers that were not involved in the evaluation.12
The fact that the prospective client was a sophisticated organization represented by its own in-house counsel was another factor weighing in favor of upholding the advance waiver. The opinion notes that “[t]he experience and sophistication the client, and whether the client is independently represented, are also relevant in determining whether the client reasonably understands the risks involved.”13
Tips / Practice Pointers So, the next time you get a call from a prospective client, keep in mind the following points to ensure you do not run afoul of your ethical obligations:
Run a conflict check before you speak with the prospective client.
Caution the prospective client not to reveal confidential information. If confidential information must be shared, caution the prospective client not to reveal more information than is reasonably necessary for you to make a decision as to whether you should accept the engagement. For more extensive consultations, repeat those precautions at each stage of the consultation.
Be mindful that, even if you are not engaged to represent the prospective client, you have a duty to maintain the confidentiality of the information shared with you. You cannot use or disclose that information without the prospective client’s consent, even if it would be helpful to one of your existing clients.
If someone in your firm wishes to represent a party adverse to the prospective client on the same or a substantially related matter, promptly set up an ethical wall to screen the lawyers involved in the consultation from participating in the new matter or from sharing in any profits from the new matter. Give written notice of the screen to the prospective client.
If you have concerns about potentially being conflicted out of representing an adverse party, consider asking the prospective client for an advance waiver consenting to your representation of the adverse party in the same or a substantially related matter. Document the advance waiver in writing and be as thorough as possible to ensure that your client fully understands the risks associated with the consent.
ENDNOTES
Todd W. Smith is a partner at Umberg Zipser LLP where he practices complex business litigation in state and federal courts, with a focus on defending law firms and lawyers in legal malpractice actions. He is a member of the OCBA’s Professionalism & Ethics Committee. The views expressed herein are his own. He can be reached at tsmith@umbergzipser.com.