2002-01

Imputed Disqualification of Law Firms When Nonlawyer Employees Change Firms

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Imputed Disqualification of Law Firms When Nonlawyer Employees Change Firms

QUESTION:

In formal opinions RO-91-01 and RO-91-28, the Disciplinary
Commission of the Alabama State Bar held, in substance,
that conflicts of interest resulting from nonlawyer
employees changing law firms can be overcome by building
a “Chinese wall” to screen the newly hired employee from
involvement with any matter on which the employee worked
while employed at his or her old firm. In recent years,
however, an increasing number of jurisdictions have
concluded that such screening procedures are ineffective
when a nonlawyer employee has obtained confidential
information concerning the matter in litigation.
Consideration of the positions taken by these jurisdictions
calls into question the factual and ethical validity of the
rationale upon which these two opinions were predicated and
the Disciplinary Commission has, therefore, determined that
the conclusions reached therein should be reconsidered.

ANSWER:

A nonlawyer employee who changes law firms must be held
to the same standards as a lawyer in determining whether
a conflict of interest exists. A firm which hires a
nonlawyer employee previously employed by opposing counsel
in pending litigation would have a conflict of interest
and must therefore be disqualified if, during the course
of the previous employment, the employee acquired
confidential information concerning the case.

DISCUSSION:

In some jurisdictions the “Chinese wall” cure for conflicts
resulting from changing firms has been applied to lawyers
as well as nonlawyers. The Alabama Supreme Court, however,
has taken the position that the “Chinese wall” concept
should not apply to practicing lawyers. In Roberts v.
Hutchins,
572 So.2d 1231 (Ala. 1990), the Court held,
by way of dicta, that the “Chinese wall” could not provide
an effective screen to attorneys in private practice but
should apply only to government or other publicly employed
attorneys. 572 So.2d 1231, 1234 at n. 3.

More significantly, in 1990 the Alabama State Bar proposed,
and the Alabama Supreme Court adopted, the Alabama Rules
of Professional Conduct, which became effective January
1, 1991. Rule 1.10(b) of the Rules of Professional Conduct
governs conflicts of interest on the part of a firm which
employs an attorney previously employed by opposing counsel
in ongoing litigation and provides, in substance, that an
attorney with confidential information about a former
client has a conflict of interest which precludes
representation by the firm. The rule makes no mention of,
or provision for, any type of “Chinese wall” screening
process.

Based upon the above, the Office of General Counsel and the
Disciplinary Commission have consistently held that such
conflicts on the part of an attorney cannot be cured or
overcome by erection of a “Chinese wall” or any other
type of screening procedure. The Disciplinary Commission
refused, however, to disallow the “Chinese wall” concept
in addressing conflicts of interest which can result when
a nonlawyer changes law firms.

In recent years, various jurisdictions have begun to
question the effectiveness of screening procedures when
a nonlawyer employee who changes firms is in possession
of confidential information concerning the matter in
litigation. One of the first jurisdictions to reject
screening and to hold nonlawyer employees to the same
standard as lawyers was the U.S. District Court for the
Western District of Missouri. In Williams v. Trans
World Airlines, Inc.,
588 F. Supp. 1037 (W. D. Mo.
1984), the court made the following statement:

“Nonlawyer personnel are widely used by
lawyers to assist in rendering legal services. Paralegals,
investigators, and secretaries must have ready access to
client confidences in order to assist their attorney
employers. If information provided by a client in
confidence to an attorney for the purpose of obtaining
legal advice could be used against the client because a
member of the attorney’s nonlawyer support staff left the
attorney’s employment, it would have a devastating effect
on both the free flow of information between the client
and the attorney and on the cost and quality of legal
services rendered by an attorney. Every departing
secretary, investigator, or paralegal would be free to
impart confidential information to the opposition without
effective restraint. The only practical way to assure
that this will not happen and to preserve public trust
in the scrupulous administration of justice is to subject
these ‘agents’ of lawyers to the same disability lawyers
have when they leave legal employment with confidential
information.” 588 F. Supp. at 1044.

Subsequently, as more states began to adopt the Model Rules
of Professional Conduct, or some variation thereof, more
and more jurisdictions concluded that Rule 5.3(a)&(b)¹
when read in conjunction with Rule 1.10(b)² requires
that nonlawyer employees be held to the same standards
as attorneys with regard to client confidentiality and
conflicts of interest resulting from changing firms.
Typical of the jurisdictions which employed this analysis
is the opinion of the Supreme Court of Nevada in
Ciaffone v. District Court, 113 Nev. 1165, 945 P.2d
950 (1997). The Nevada Supreme Court concluded as follows:

“When SCR 187 [ARPC Rule 5.3] is read in
conjunction with SRC 160 (2) [ARPC 1.10 (b)], nonlawyer
employees become subject to the same rules governing
imputed disqualification. To hold otherwise would grant
less protection to the confidential and privileged
information obtained by a nonlawyer than that obtained
by a lawyer. No rationale is offered by Ciaffones which
justifies a lesser degree of protection for confidential
information simply because it was obtained by a nonlawyer
as opposed to a lawyer. Therefore, we conclude that the
policy of protecting the attorney-client privilege must
be preserved through imputed disqualification when
a nonlawyer employee, in possession of privileged
information, accepts employment with a firm who represents
a client with materially adverse interests.”
945 P.2d at 953.

The Nevada Supreme Court characterized the “Chinese wall”
approach as having been “roundly criticized for ignoring
the realities of effective screening and litigating that
issue should it ever arise.” The court cited as an example
of such criticism an article in the Georgetown Journal
of Legal Ethics, viz.:

“For example, one commentator explained that
a majority of courts have rejected screening because of the
uncertainty regarding the effectiveness of the screen, the
monetary incentive involved in breaching the screen, the
fear of disclosing privileged information in the course of
proving an effective screen, and the possibility of
accidental disclosures. M. Peter Moser, Chinese Walls:
a Means of Avoiding Law Firm Disqualification When a
Personally Disqualified Lawyer Joins the Firm,
3 Geo.
J. Legal Ethics 399, 403, 407 (1990).” 945 P.2d at
953.

There are numerous other decisions which reach the same or
similar conclusions, e.g., Cordy v. Sherwin
Williams,
156 F. R. D. 575 (D.C. N.J. 1994);
MMR/Wallace Power & Industrial, Inc. v. Thames
Associates,
764 F. Supp. 712 (D. Conn. 1991);
Makita Corp. v. U.S., 17 C. I. T. 240, 819 F. Supp
1099 (CIT 1993); Glover Bottled Gas Corp. v. Circle M.
Beverage Barn, Inc.
, 129 A.D.2d 678, 514 N.Y.S. 2d 440
(1987); Smart Industries v. Superior Court, 179
Ariz. 141, 876 P.2d 1176 (1994); Koulisis v.
Rivers
, 730 So.2d 289 (Fla. Dist. App. 1999); Daines
v. Alcatel
, 194 F. R. D. 678 (E. D. Wash. 2000) and
Zimmerman v. Mahaska Bottling Co., 270 Kan. 810, 19
P.3d 784 (2001).

In Zimmerman, supra, the Supreme Court of Kansas
pointed out that disqualification is not inevitable in
every instance.

“Our holding today does not mean that
disqualification is mandatory whenever a nonlawyer moves
from one private firm to another where the two firms are
involved in pending litigation and represent adverse
parties. A firm may avoid disqualification if (1) the
nonlawyer employee has not acquired material and
confidential information regarding the litigation or (2) if
the client of the former firm waives disqualification and
approves the use of a screening device or Chinese wall.”
19 P.3d at 793.

For the reasons stated above, the Disciplinary Commission
of the Alabama State Bar is of the opinion that a nonlawyer
employee who changes law firms must be held to the same
standards as a lawyer in determining whether a conflict of
interest exists. A firm which hires a nonlawyer employee
previously employed by opposing counsel in pending
litigation would have a conflict of interest and must
therefore be disqualified if, during the course of the
previous employment, the employee acquired confidential
information concerning the case. However, as indicated
in Zimmerman, supra, the client of the firm may
waive disqualification and approve the use of a screening
device or Chinese wall. (NOTE: This opinion reverses RO’s 1991-01 AND 1991-28).

2/13/02

¹Rule 5.3(a)&(b) provides as follows:

“With respect to a nonlawyer employed
or retained by or
associated with a lawyer:

(a) a partner in a law firm shall make
reasonable efforts to
ensure that the firm has in effect
measures giving reasonable
assurance that the person’s conduct is
compatible with the
professional obligations of the lawyer;

(b) a lawyer having direct supervisory authority
over the nonlawyer shall make reasonable efforts to
ensure that the person’s conduct is compatible with
the professional obligations of the lawyer.”

²Rule 1.10(b) provides as follows:

“When a lawyer becomes associated with
a firm, the firm may
not knowingly represent a person in the same or a
substantially
related matter in which that lawyer, or a firm with
which the
lawyer was associated, had previously represented a
client
whose interests are materially adverse to that
person and about
whom the lawyer had acquired information protected
by Rules
1.6 and 1.9(b) that is material to the
matter.”

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