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ETHICS OPINION 389-1950
NUMBER 389 1950
Question. A and B formed a corporation to conduct a business. While A was the one who put in all of the money, he left the business in sole charge of B, who actively conducted the same, A or his nominee received 60 percent of the corporate stock and B or his nominee received 40 percent of the stock.
The corporation had several small legal matters in which I acted as counsel. A few years after the commencement of the business, B was sent to me by A, and the following story was told to me: B had, in conjunction with a third party and with corporation moneys, gone into a venture in the same general field in which the corporation was engaged, without the knowledge of A. In this venture B and the third party divided all profits. The corporation was used to render certain services to this venture, and was paid for these services, but the profits were taken by B. It was not until B and the third party had a falling out that B did go to A and tell him about the venture.
A instructed me to commence suit against the third party for an accounting, B claiming that there was still some moneys owing. A and B had agreed that, at the conclusion of this suit, they would adjust the matter between them and come to an agreement relative to the secret profits obtained by B. B gave me all the information on which to proceed with the action, and I did bring an action against the third party in B’s name, as plaintiff, for an accounting, claiming a joint venture. The suit came to trial and was determined in favor of the third party, the Court indicating at the conclusion of the trial that if any arrangement existed, it was between the corporation and the third party and not between B and the third party.
Since the conclusion of this suit, other differences have arisen between A and B. I am representing A in these differences and B has secured other counsel. I have been instructed by A to commence suit against B to recover, on behalf of the corporation, the secret profits received by B by virtue of his dealings with the third party. I wish to emphasize that all of the information I have as to these dealings was obtained from B, but only after he had divulged them to A, Also, this information is now a matter of record in the Supreme Court suit, and the writings used as evidence have all been marked as exhibits. In other words, the matter was not confidential when it came to me, and since then has become public record.
I wish to add that I had represented A for a number of years prior to the time that he formed his association with B in the corporation. When the differences arose between A and B, after the law suit involving the third party had been adversely determined, B first secured other counsel and A thereupon called upon me to represent him in these differences with B.
Is there anything improper in my now representing A in any matter in which he is involved with B, or in representing the corporation in any suit it may have against B?
Answer. In the opinion of the Committee, the attorney who has represented one client in a litigation should not accept employment against him in any subsequent phase of the same litigation or in any litigation growing out of or involving matters covered by the original litigation, unless the first client expressly consents. See Canon 6 and our former answers in Opinions 157, 202, and 243. It appears from the question that all the information which the attorney has as to the dealings between the parties was obtained from B, his client in the previous litigation, only after B had divulged same to A, whom the attorney is now asked to represent, and that this information is now a matter of record in the former action. This does not alter the situation (see our answer in Opinion 157 and Canon 37). In any confidential interview between attorney and client there may be many intangible factors which would not appear in a formal court record or would not be brought out in a discussion of the same facts between two laymen.
It also appears that A has been for a long time a client of the attorney, and that it was A who suggested to B that he retain the attorney to bring the suit against the third party, A having expected to benefit thereby. The fact remains, however, that the suit was brought in the name of B and that A was not a party to the suit and that B gave the attorney all the information on which to proceed with the action. In our opinion these facts do not take the case out of the established rule.
Regardless of the fact that A suggested the employment of the attorney or of A’s interest in the result of this litigation, the attorney, having accepted employment to represent B and having obtained from B a full disclosure of the facts, may not subsequently take action against B on behalf of A based on the facts so disclosed any more than he could accept employment based on such facts from the original adverse party. To permit such employment would, as stated in our answer in Opinion 157, “tend to impair the confidence which a client has a right to repose in his attorney and thus to destroy one of the essentials of the professional relationship.” Canon 6 is not limited to subsequent employment by the adversary in a completed litigation. It applies to subsequent employment “by others in matters adversely affecting any interest of the client with respect to which confidence has been reposed.”
The Committee is of the opinion that there could be no question as to the right of the attorney to represent A in the litigation against B if, prior to B’s disclosure of the facts of the prior controversy to the attorney, it had been agreed between B and the attorney that the attorney would have that right. Consequently, the committee considers the question to be whether or not, on the facts stated in the question, such an agreement, though not expressed, would be inferred. Such a question is not one of ethics, and the Committee is authorized to answer only questions of ethics.
However, the Committee feels that such agreements should not be left to inference, but should be clearly expressed and, preferably, reduced to writing. The importance of leaving not the slightest basis for even a suspicion that an attorney has violated the confidence reposed in him by a client, or has been lacking in the highest good faith toward one who was his client, requires, in the opinion of the Committee, that a lawyer should not take a case against a party on whose behalf the lawyer previously acted as attorney, where such case involves or arises out of the same matter as the prior litigation, unless such possible conflict was made clear to the former client be lore he disclosed his case to the attorney, and the client, with full knowledge, agreed that in the event of such a subsequent litigation the attorney would be free to represent the adversary.