The American Bar Association Standing Committee on Ethics and Professional Responsibility (the “Committee”) issued its most recent opinion, which has an interesting new take on Model Rule 1.16 and the hot potato rule.
Rule 1.16 addresses lawyer withdrawal. Subsection (a) defines when lawyers must withdraw or terminate their representation of a client, and Rule 1.16(b)(2)-(b)(6) set forth situations constituting good cause for which a lawyer may unilaterally terminate legal services.
What about where no good cause exists? Can a lawyer withdraw when they just don’t feel like representing the client anymore? What about when the lawyer wants to avoid a conflict of interest in taking on a new matter? Rule 1.16(b)(1) says that a “lawyer may withdraw” if doing so “can be accomplished without material adverse effect on the interests of the client.” Opinion 516 says that good cause is not required, the lawyer can withdraw for any reason, and the lawyer’s motivation for withdrawal is irrelevant under Rule 1.16(b)(1) – the lawyer just needs to analyze whether there will be a material adverse effect on the client’s interests that cannot be remediated.
Material adverse effect on the interests of the client
The Committee determined that a “material adverse effect” exists when, notwithstanding a lawyer’s efforts to remediate negative consequences, such withdrawal or termination will “significantly impede the forward progress of the matter, significantly increase the cost of the matter and/or significantly jeopardize the client’s ability to accomplish the objectives of the representation.” The material adverse effect must “relate to the client’s interests in the matter in which the lawyer represents the client.”
So long as a lawyer’s withdrawal would not significantly harm the client’s interests in the matter in which the lawyer represents the client, Model Rule 1.16(b)(1) would not force the lawyer to complete the matter simply because the lawyer agreed to do so initially, even if the client may believe the lawyer’s reason for withdrawal is disloyal or the lawyer will be adverse to the client in an unrelated matter after the representation terminates.
The Committee concluded that such determination is aligned with various existing ethics opinions. Connecticut ‘s view is that there is no material adverse effect if all projects for that particular client have already been completed. Same goes for D.C. when no outstanding projects are contemplated in the near future. Michigan’s opinion reflects no material adversity when the case is at an early stage. Pennsylvania found there would be no material adversity where the client retained successor counsel. Missouri provided one avenue to avoid material adversity is by providing ample notice to clients of the impending withdraw.
There will likely be no materially adverse impact on the client when the representation has just gotten started, and the retainer has not even been deposited. The same is true where there’s been no substantial services rendered or where co-counsel can finish any remaining work. Another example is when the bulk of the work has been completed and the only remaining work is ministerial in nature. Where all matters have been complete and there is no impending matter at the time the lawyer withdraws, there generally will be no material adverse effect on the client’s interests in the matter. Having to secure new counsel in this situation, according to Opinion 516, is unlikely to have a material adverse effect on the client’s interests.
The Committee opined that Rule 1.16(b)(1) does not prohibit lawyers from disappointing the client, or withdrawing despite a client’s perception the lawyer is disloyal. Client consent is not a prerequisite. Although restricted by a lawyer’s duty of confidentiality to other clients, lawyers must fully explain the reason for withdrawing, even if the client is not satisfied by the explanation.
Permissible withdrawal under Rule 1.16(b)(1), allows withdrawal irrespective of the lawyer’s reason, as long as it does not have a materially adverse impact on the client’s interests in the matter. Thus, lawyers may withdraw for any reason.
Dropping the “hot potato”
The opinion notes that Rule 1.16(b)(1) may at times be inconsistent with case law holding that a lawyer who withdraws from a representation to litigate against the now-former client may sometimes be disqualified. The “hot potato” doctrine, an extension of the common law duty of loyalty, comes from Picker International v. Varian Associates where the court concluded “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.” When courts apply the “hot potato” rule, they treat the withdrawal as if it did not happen – such that the lawyer represents two current clients adverse to each other and apply Rule 1.7(a)(1), which bars a representation directly adverse to another current client absent client consent. Other courts recognize that the “hot potato” doctrine is not absolute and that it should not apply when the withdrawal is not significantly prejudicial, such as when “a lawyer’s representation is sporadic, non-litigious and unrelated to the issues involved in the newer case.”
The Committee points out that the “hot potato” rule neither originates from Rule 1.16 nor other professional conduct rule and that although disqualification decisions may be informative, they are not dispositive of the meaning of the Rules of Professional Conduct. In ruling on a disqualification motion, courts may decline to disqualify lawyers even when there appears to be a conflict of interest under the applicable rule or (less frequently) disqualify lawyers when there is no violation of an applicable rule as the courts do not rely exclusively on the meaning and application of the Rules of Professional Conduct in deciding these motions. I think the dissent’s point about this not entirely being a get out of jail card is valid because you can still get DQ, but the focus on reading this with Rule 1.9 seems to me important. If there is no material adverse effect on client’s interests in matter you are terminating, and you aren’t dropping them to work on a substantially related matter, and you aren’t using information related to the terminated matter (like you put a screen in place), what is the basis for the DQ?
The Dissent
Unusually, two members of the Committee dissented from the opinion, asserting that it was incomplete because it did not address whether terminating a representation for the purpose of turning around and filing suit against that client for another client could have material adverse effect on the interests of the hot potato client. The dissenters also thought the mandatory withdrawal analysis under Rule 1.16(a)(1) should have been addressed. They also noted that the analysis fell short in only addressing litigators and not transactional lawyers.
What this means for lawyers
Although Rule 1.16(b)(1) is not a free pass, Opinion 516 clarifies that while dropping a client like a hot potato might not be the best look, it does not automatically equate to a Rules’ violation. Lawyers should always carefully analyze whether there would be an adverse material effect before terminating any representation. Still, lawyers must be aware that withdrawing from a representation in this manner might get them disqualified anyway. While the dissent might disagree, this Opinion should motivate lawyers to timely close out matters, promptly convert current clients to former clients, and document everything to avoid this doctrine altogether.
Rule 1.16(b)(1) and other Professional Conduct Rules don’t include the “hot potato” doctrine because a lawyer’s motive for invoking Rule 1.16(b)(1) is simply not relevant, regardless of any perceived disloyalty. The predominant question under Rule 1.16(b)(1) is whether withdrawing from a representation materially adversely impacts the client’s interests in the matter the lawyer withdrew from and not whether the lawyer will be adverse to that client in a different and unrelated matter after the representation has terminated.