potatoes covered in soil against whiteEven though a Mississippi lawyer’s conflict of interest lasted only one day, that was enough for a U.S. magistrate judge to disqualify him from representing a client adverse to Allstate Insurance Co. on a coverage claim, in a ruling issued last week.  Sending a termination letter to the insurer the day after accepting the new client’s case didn’t help the lawyer.  The judge found that the lawyer’s duty of loyalty required him to turn down the case, in light of the fact that he had pending cases in which he was directly representing Allstate.

Hot potato doctrine

The court recognized that the key issue in the case was whether the lawyer could drop Allstate as a client, turning it into a “former client” for purposes of the conflict-of-interest rules.  If so, then the “more lenient” substantial-relationship test would apply, in which the court looks at whether the new client’s matter is substantially related to the work the lawyer did for the former client.  But if the lawyer takes on the new client and represents it concurrently with the now-adverse existing client without both clients’ consent, then the duty of loyalty under Model Rule 1.7 has been breached.

The “hot potato” doctrine prohibits a lawyer from turning an existing client into a former client by “firing” it in order to accept an engagement adverse to the existing client.  The 1987 case that gave the principle its name is Picker International, Inc. v. Varian Associates, in which the federal district court judge said that “A firm may not drop a client like a hot potato, especially if it is in order to keep happy a far more lucrative client.”

Termination didn’t cure impropriety

In the Mississippi case, the court said that the lawyer’s conduct was understandable:  he hadn’t received any new work from Allstate in over a year; his firm was wrapping up its work on the “handful” of cases it still had, the majority of which were near the end of their life-spans; and the firm planned to end its relationship with the insurer based on the fact that it was not getting new work.

Nonetheless, said the judge, the lawyer and his firm had an attorney-client relationship with Allstate when the lawyer signed a contract to represent the claimant against the insurer, and he couldn’t abandon his existing client by dropping it like a hot potato:  “In withdrawing representation of Allstate to pursue a new, more attractive representation, [the lawyer] violated the duty of loyalty he owed to Allstate.”

Game of spuds

The question of when a client becomes a former client under conflict rules can be a nuanced one.  For instance, the hot-potato doctrine may not operate when a conflict is “thrust upon” a law firm as a result of a client merger, the addition or new parties or other circumstance over which the firm has no control.  Then, the firm may be able to choose to avoid disqualification by withdrawing from the representation that creates the conflict.  See, e.g., Sabrix, Inc. v. Carolina Casualty Ins. Co. (D. Ore. 2003) (hot-potato rule did not apply where withdrawal followed another party’s naming of additional defendant that created conflict).  And timing matters, too.  For example, if a firm has a new client in mind for the future, may it terminate an existing relationship in order to prevent a conflict?

Bottom line:  Be careful in working through these conflict issues so you don’t drop the ball — or the potato.

2017 Happy New Year typeYou may have some holiday leftovers lurking in your fridge (potato latkes, Xmas goose, black-eyed peas, New Year’s Eve caviar), and we too have some interesting ethics topics that we didn’t have room for during 2016 — so here’s a potpourri, touching on positional conflicts, coercive settlements and maybe how not to use your firm’s letterhead.

Arguing damage caps, pro and con

The U.S. district court for the Middle District of Tennessee in October turned back a disqualification motion aimed at Butler Snow, ruling that the firm could  continue representing a personal injury plaintiff who was potentially contesting the constitutionality of the state’s punitive damage caps, while at the same time asserting the caps defensively in at least one pending case for another client.

In its DQ motion, the trucking company defendant said those positions were inconsistent and raised a positional conflict in violation of Tennessee’s version of Model Rule 1.7 and its cmt. [24].

Not so, said the district court.  First, the trucking company waited until two months before trial to try to disqualify the law firm; it would cause severe prejudice to the plaintiff if she had to find new counsel.  Second, the firm retained separate counsel to represent the plaintiff on all post-trial issues challenging the damage caps, an arrangement that plaintiff agreed to at the beginning of her representation.  Third, there was no evidence that the potential conflict had actually affected the injury case, or was likely to compromise the firm’s representation of clients who simply asserted the caps to limit their liability rather than expressly defending their constitutionality.

On all these bases, the court held, the firm could stay in the case, part of which has now been settled.

Threat to publicize sexual allegations

In November, an Arizona lawyer who threatened to use press releases to alert the public to sexual allegations in order to obtain a settlement consented to a 30-day suspension.

In 2015 the lawyer filed a federal sexual harassment complaint on behalf of a client.  In a letter to the defendant, he announced he had created a specific website regarding the allegations, and said he would put up a public “shame on you” banner near the defendant’s restaurants.  He also told the defendant that he had scheduled meetings with police and the federal Department of Justice about the alleged hiring of undocumented workers.  In response to a settlement offer, the lawyer told the defendant’s lawyers that he “intended to destroy” the defendant’s businesses.

The judge in the federal case insisted that the lawyer stop his unprofessional behavior; the parties settled; and the state Disciplinary Judge accepted the lawyer’s admission that his conduct violated Arizona’s versions of Model Rules 4.4 (respect for the rights of others) and 8.4(d) (conduct prejudicial to the administration of justice).  The lawyer also agreed to two years probation and to pay costs.

The rules in my home jurisdiction, Ohio, include Rule 1.2(e), a specific prohibition against threatening criminal charges or professional misconduct allegations solely to obtain an advantage in a civil matter.  Interestingly, the Model Rules lack an express prohibition, although this case illustrates that disciplinary authorities can get there via other rules.

Using firm letterhead

Last, here’s a cautionary tale about using your firm letterhead for a personal legal dispute.

According to plaintiffs in a federal complaint filed in November, a Pepper Hamilton partner entered into a lease-to-own deal with a couple for a $750,000 house he owned.  The couple terminated the contract and moved out, and the lawyer claimed that they owed about $10,000.  The lawyer sent a demand letter for the money in September, using the firm’s letterhead.

That drew a suit from the couple against both the lawyer and the law firm for allegedly violating the federal Fair Debt Collection Practices Act.  “Once [the lawyer] sent the Sept. 19 letter … on [the firm’s] letterhead, he was no longer acting as an individual collecting his own debt, but rather a debt collector subject to the FDCPA,” the couple said in their complaint.

It remains to be seen whether that theory will fly — the case docket does not yet reflect any response to the complaint.  But it points to an issue that you should probably think about in your personal dispute before putting a piece of firm stationery in the printer.