Next month the ABA House of Delegates will take up Report 109, which recommends amending MR 1.10 so that the conflict of properly screened lawyer would not be imputed to other lawyers in the conflicted lawyer's firm. I favor the proposal and want to add some conceptual (economic) arguments to those generally advanced for it, as well as a suggestion regarding the comments.
1. Imputation implicates two types of costs
Former clients have the right not to have former lawyers use their information to their disadvantage. That is a basic agency principle that would exist if MR 1.9 and 1.10 were repealed tomorrow. Nothing in the report changes it.
This agency principle makes relevant two types of costs to clients--harm from misuse of information and the cost of policing against such misuse. The current imputation rules are best understood as trying to minimize the second of these costs. (Tort actions, including disgorgement remedies, and substantive rules such as 8.4 are more directly aimed at misuse.)
As with any area of law, I will argue, the best rule is that which produces the highest yield--which is to say the greatest amount of cost-justified protection. The best way to understand the proposed change is that it seeks to lower the costs of policing by substituting a set of procedures and compelled disclosure for an absolute prohibition.
2. Current rules are deliberately overbroad, and are themselves costly
The current strategy is to minimize policing costs by adopting deliberately overbroad rules. MR 1.9 substitutes the substantial relationship test for direct inquiry into a lawyer's knowledge, thus economizing on the cost of investigation (including forcing clients to disclose confidences to protect them) at the price of disqualifying some lawyers who might not actually have acquired material confidences. MR 1.10 imputes this broad prohibition to other lawyers even though there are no doubt many cases in which screening would work perfectly well (as it does for former government lawyers and, so far as anyone can tell, in the states that allow screening now.)
The current prophylactic rules lessen the burden on clients of policing their rights in information but these rules create costs of their own. Because the rules are deliberately overbroad, in some cases there will be no benefits to offset the costs of the rules. (In other words, in some cases the rules will create costs even though there is no material risk of harm to a former client.) In those cases the rules will generate net losses. That is not an accident, but a predictable result of the current strategy.
The best way to understand the proposed amendment is that it seeks to lower the cost of enforcing a former client's confidentiality right by adopting a more tailored set of policing rules to complement the substantive prohibition on misuse (which is a constant regardless whether the amendment passes).
3. There is reason to believe the most relevant clients would favor cost-minimizing rules
MR 1.9 is most relevant to clients with multiple matters--one in which a lawyer represents the client and a later one substantially related to the first. (Sometimes the problem is adversity in the same matter, as with the well-known Brennans case from the 5th Circuit, but I do not think that is very often the problem.) I see no particular reason to think such clients are more likely to want to disqualify a former lawyer than to want to hire a lawyer the current rules would disqualify. There are, in other words, costs to imputation as well as screening and the key is to minimize the sum of these costs.
By definition, from an ex ante perspective (not knowing whether a client would be a former client worried about information or a prospective client wanting to hire a firm with an imputation problem) a rational client should favor the rule that (i) protects its information; at (ii) the least cost, including the opportunity cost of not be able to hire the counsel of its choice.
(Note that ex post the client's matter is over and the lawyer has moved on to other things; the client therefore bears little if any cost if it refuses a waiver even if there is very little risk that it will be harmed by misuse of information and even if its refusal creates net costs for others (which it does not bear). Waiver decisions are therefore not very reliable proxies for judging the social costs of the current rules.)
(Proper analysis would also count the costs the current rule imposes on lawyers who cannot get work at firms that would screen them but are unwilling to take on disqualifying conflicts. Such costs seem likely to fall mostly on junior lawyers, who move fairly frequently, and who can least afford to bear them. I am skeptical that a reduction in this cost would be passed on to clients in the form of reduced fees, however, so I discount it for present purposes.)
4. The proposed rule probably has lower net costs than the current rule.
Because the current rules are deliberately overbroad common sense suggests costs might be lowered with a well-judged approach that tailors the rules more precisely to the risks the rules guard against. At first the amendment might not seem very tailored, because it rejects an inquiry into how extensive or important the screened lawyer's knowledge is, but it is comparatively tailored in this sense: The screening procedures it identifies are more directly tied to use and disclosure than the deliberately overbroad rule it would amend. For that reason, so long as screens are effective and they will lower the opportunity cost of losing counsel a client wants without increasing the risk of misuse.
What about policing costs? The proposed rule requires a screening firm to disclose what it is doing and update the disclosure at periodic intervals. If such reports are reliable they should avoid any increase in policing costs--like the securities laws they should minimize the cost of inquiry by compelling disclosure.
That only works if such disclosure are reliable, however. I therefore think it is best to conceive of the proposed disclosures as creating a duty of candor to the former client. Here, as elsewhere, the law should make them reliable by attaching severe penalties to material misstatements or omissions in such disclosures and by making explicit what I think is implicit now--a self-reporting (to the former client) obligation for any breach of the screen.
In concrete terms I would like the commentary to make clear that material misstatements or omissions in such disclosures count as misconduct under 8.4(a) and (c), and I would like to see judges inquire into whether any such misstatements or omissions justify fee forfeiture by analogy to the principles of Restatement 37. (I say by analogy because I would forfeit part or all of the fee from the screened matter not the former client's matter.)
With such measures in place, the proposed amendment should lower the cost of policing the information rights of former clients without increasing the risk of misuse. The proposal therefore should be considered client-friendly from the most important perspective--that of a rational client assessing rules without knowing which side of a rule it would be on.
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Update:
The above analysis may overstate the incremental reduction in policing costs because the current rules provide incentive for lawyers to notify clients and make representations about safeguarding information in order to obtain a waiver. The comparison might be better stated as being between the disclosure compelled by the proposed rule and the disclosure needed to obtain assent under the current rule, rather than as between disclosure and a prohibition.
As noted, however, from the ex post perspective there is little reason for former clients to assent to representation they would rationally approve ex ante, without knowing which side they would be on. It follows that the proposed rule likely minimizes net costs even if we view the current rule structure as more (or as much of) a disclosure regime than a prohibition.
DM