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MARYLAND STATE BAR ASSOCIATION, INC.
COMMITTEE ON ETHICS
ETHICS DOCKET NO. 1989-21
Conflict of Interest: Former Client,; Defining former client in real estate settlement
Your lettter poses the following facts:
You presently represent plaintiff, a building contractor, against three defendnats who contracted with plaintiff to perform renovations to their jointly owned home. The defendants have filed an action against the plaintiff in a companion suit which you characterize as being essentially a counter-suit. Both actions are pending.
Following the filing of the suits, counsel for the defendants wrote to you and noted his clients; objections to your continued representation of the plaintiff in light of your firm's previous representation of a bank in a real estate clsing in which the defendants were the borrowers. Although not expressly articulated by opposing counsel, the assertion of your prohibitive conflict of interest insofar as defendants are concerned appears to be predicated upon an assumption tht your firms represented the defendants as the borrowers and tht the funds received from the settlement were used to finance the work done by the plaintiff in the home remodeling/collection action. You have also advised that your fees for the settlement were paid from the borrowers' funds at settlement.
Rule 1.9 of the Maryland Rules of Professional Conduct states that ""[a] lawyer who has formerly represented a client in a matter shalll not thereafter . . . represent another person in the same or a substantially related matteer which tht person's interests are materially adverse to the interests of the fomre client unless the former client consents after consultation . . . ."" Several threshold determinations must be made prior to applying the Rule 1.9 prohibition to the instant set of facts.
First, a determination must be made concerning the similarity of the matter in which the former client was represented and the matter presently pending. Most courts have utilized the ""substantial relationship"" test to determine the propriety of the successive representation. The ""substantial relationship"" test presume that secret or confidential disclosures were made in the course of the prior representation and that such information would or could be used adversely to the former client. See e.g., Wilson P. Abraham Construction Corp. v. Armco Steel Corp., 559 F.2d 250 (5th Cir. 1977). In determination whether a substantial relationship exists, the score and subject matter of the former and presnet representations must be examined. It must be decided both whether the lawyer represented the former client and whether the present representation involved matters adverse to those at issue in the previous representation. See Novo Terepeutisk Laboratorim v. Baxter Travenil Laboratories, 607 F.2d 186 (7th Cir, 1979).
Although the funds received by the defendants at the settlement in which your firm acted as attorney for the bank were sued in the remodeling performed by the plaintiff in the present action, and, therefore, the matters involved in the prior and present representation are similar, it is not likely that any information obtained as a result of the prior ""representation"" would or could be used adversely against the defendants in the present context. Therefore, it is unlikely that the matters involved are the ""same or substantially related"" as required by Rule 1.9(a). Further, there is a real
question as to whether the defendants or the bank was the ""client"" in the real estate settlement. In an opinion of the Committee on Ethics, docket 78-22, this Committee was asked to opine concerning matters related to this issue. Although the specific questions answered by the Committee in Opinion 78-22 were not precisely on point with those raised herein, the Committee opined that the payment of fees by the borrowers for review of documents for a real estate settlement on behalf of a bnak was permissible as long ans the lawyer obtained the consent of the client after full disclosure. See former DR 5-107 (A) (an attorney shall not accept compensation for his legal services from one other than his client, except with the consent of his client, except with the consent of his client after full disclosure); compare Rule 1.8(f) (a lawyer shall not accept compensation for his services from one other than the client except with the client's consent and a determination that the lawyer's independence of professional judgment will not be impaired). In such contexts, the Committee clearly decided that the bank, and not the borrowers, was the client and that ""[t]he attorney is not necessarily bound to represent the one who pays his fee."" Docket 78-22.
For the above stated reasons, the Committee believes that you are not prohibited from continuing to represent the building contractor in the collection matter since the homeowner-defendants are not former clients nor are the matters the ""same or substantially related"" pursuant to Rule 1.9 of the Code of Professional Conduct.
References: Ethics Dockets 1978-22 and 1979-22
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