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NEW YORK COUNTY LAWYERS ASSOCIATION
Committee on Professional Ethics
QUESTION NO. 675
TOPIC: CONFIDENTIAL INFORMATION; FORMER LAWYER SERVING AS PARTIAL ARBITRATOR FOR ADVERSARY
DIGEST: A lawyer may serve as a partial arbitrator for a party whom the lawyer previously represented in the same or a substantially related matter only with the consent of both parties.
CODE: EC 4-6, DR 4-101(A), DR 4-10l(B), EC 5-20, DR 5-105(C).
May a lawyer who previously represented a partnership serve on an arbitration panel hearing a dispute brought by certain partners in the partnership (“Group 1”) against other partners in the firm (“Group 2”), where the dispute involves the dissolution of the partnership, and both groups of partners have not consented to such service?
A lawyer, L, previously provided legal services to an accounting partnership which is in the process of being dissolved. Under the terms of the partnership agreement, disputes in connection with the dissolution are to be heard by a panel of three arbitrators two of whom are “partial” arbitrators chosen by the disputants, and one of whom is an “impartial” arbitrator chosen by the two partial arbitrators. Group 1 would like to name L as its partial arbitrator. Group 2 is likely to object to such service.
Are the Members of Group 2 Former Clients?
The ultimate question presented here is whether the lawyer has any duty of confidentiality or loyalty to the members of Group 2. We are told that the lawyer previously represented the partnership. Ordinarily, a lawyer retained by a juridical entity represents the entity and not its constituent members. See EC 5-18 (“A lawyer employed or retained by a corporation or similar entity owes his allegiance to the entity and not to a stockholder, director, officer, employee, representative, or other person connected with the entity.”) However, where the lawyer’s dealings with the entity’s constituents are such that the constituents reasonably believe the lawyer represents them, or the lawyer promises confidentiality to the constituents, a court may find a lawyer-client relationship or a duty of confidentiality. See, e.g. Rosman v. Shapiro, 653 F. Supp. 1441 (S.D.N.Y. 1987)(where corporation was owned by two individuals, it was reasonable for each to believe that the corporate counsel was his individual attorney), Brennan’s, Inc. v. Brennan’s Restaurants, Inc., 590 F.2d 168 (5th Cir. 1979) (representation of a closely held corporation owned by two branches of a family constituted joint representation of the two families), Westinghouse Electric Corp. v Kerr-McGee Corp., 580 F.2d 1311 (7th Cir. 1978)(court finds fiduciary duty to members of trade association to whom confidentiality was assured)..
Whether the lawyer represented only the partnership or could be deemed to have represented the individual partners as well is a question of fact which we are not qualified to determine. If the lawyer represented only the partnership, then only the partnership may waive any right to the lawyer’s loyalty and confidentiality. However, if the lawyer is deemed to have represented the individual partners as well as the partnership, the analysis is far more complicated. Without implying that the lawyer necessarily represented the individual partners, the remainder of this opinion assumes that such was the case.
Serving as an Arbitrator
Normally, it is not unethical for a lawyer to serve as an arbitrator for one party even though he or she also serves as a lawyer for that party. EC 5-20 states:
A lawyer is often asked to serve as an impartial arbitrator or mediator in matters which involve present or former clients. He may serve in either capacity if he first discloses such present or former relationships.
In N.Y. State 448 (1976), the ethics committee of the State Bar Association held that, where the law provides for two partisan arbitrators and one “neutral” arbitrator, service on the panel by a lawyer for one of the parties is not unethical:
Since a lawyer who undertakes to serve on an arbitration panel for the purpose of representing the interests of one of the disputants cannot be considered “impartial” within the meaning of EC 5-20, and the Code is otherwise silent on such matters, we conclude that the proposed representation would not be unethical.
This position has been upheld as a matter of law by the Appellate Division. In State Wide Insurance Co., Inc. v. Klein, 106 A.D.2d 390, 482 N.Y.S.2d 307 (2d Dept. 1984), the Appellate Division refused to overturn one party’s designation of his lawyer as a partisan arbitrator even though the lawyer had personal knowledge of facts relating to the controversy.
Nevertheless, the facts presented in this case are different from those presented in N.Y. State 448 and State Wide Insurance, since L’s personal knowledge of facts relating to the controversy may be derived from confidences and secrets imparted by members of Group 2. DR 4-101 (B) provides that, “[e]xcept when permitted under DR 4-10l(C), a lawyer shall not knowingly . . . reveal a confidence of secret of his client [or] use a confidence or secret of his client for the advantage of himself or of a third person, unless the client consents after full disclosure”. EC 4-6 points out that the lawyer’s obligation to preserve the confidences and secrets of the client continues after the termination of employment. Accordingly, if L possesses confidences and secrets of Group 2, he could not use that information for the benefit of Group 1 without the consent of Group 2.
Under DR 4-101(A), a “confidence” includes information protected by the attorney-client privilege under applicable law. While this Committee does not opine on matters of law, we note that information imparted in the course of a representation by clients who are jointly represented by the same lawyer is generally not privileged as between the joint clients in subsequent litigation between them. Revised Uniform Rules of Evidence, Rule 502(d)(5)(1974); Proposed Federal Rules of Evidence 503(d)(5). See generally, C. McCormick, Evidence § 91 (E. Cleary 3d ed. 1984). Nevertheless, such information would constitute a “secret” within the meaning of DR 4-101(A), since it was gained in the course of the professional relationship, and use or disclosure would likely to be detrimental to Group 2.
Since service as an arbitrator would put the lawyer in a position to use “secrets” of Group 2, we believe that, if the lawyer is found to have represented the individual members of Group 2, the lawyer may not serve as an arbitrator appointed by Group 1 without the consent of Group 2.
We also believe the principles of Canon 5 are relevant to this case, even though L would serve as an arbitrator rather than as a lawyer for Group 1. Under DR 5-105(C) and a long line of cases in New York, L would be prohibited from representing Group 1 against Group 2 (former clients) in a matter substantially related to the prior representation of Group 2 without the consent of both clients. See T.C. Theatre Corp. v. Warner Bros. Pictures, Inc., 113 F. Supp. 265 (S.D.N.Y 1953). The reason for this prohibition is that, when the matters are substantially related, the lawyer is presumed to have confidences and secrets of the former client that would be useful in representing the second client.
For the reasons set forth above, the question is answered in the negative.
February 9, 1990