The Risk Manager, Fall 2011

The most sensitive time in client intake procedures is when a lawyer first consults with a prospective client to determine the nature of the requested representation. In addition to gaining enough information to evaluate whether the matter warrants taking, the lawyer must also obtain enough information to do a conflict of interest check. If the prospective client is declined, getting too much information exposes the lawyer to a disqualification motion if the lawyer later represents a party adverse to the former prospective client in the same or substantially related matter.

Fortunately for Kentucky lawyers the 2009 revision of the Kentucky Rules of Professional Conduct included new rule SCR 3.130 (1.18) Duties to Prospective Client. Rule 1.18 is one of those rules that in addition to establishing ethics standards also provides useful practical guidance. It is a must read for all lawyers, especially those who are new to the profession. Key provisions of the Rule include:

  • Providing guidance on who is and is not a prospective client.
  • Establishing that the fiduciary duties of confidentiality and avoidance of conflicts of interest apply to prospective clients.
  • No matter how brief the consultation, any information learned by a lawyer can only be used or revealed as Rule 1.9, Duties to Former Client, allows.
  • A conflict of interest is created when the lawyer receives information that could be “significantly harmful” to the former prospective client.
  • Comment 5 to the Rule permits, with the prospective client’s informed consent, conditioning consultation with the understanding that information revealed to the lawyer will not preclude the lawyer from representing a different client in the matter.
  • Waiver of a conflict of interest is permissible with the written informed consent of the affected client and the former prospective client.
  • Prospective client conflicts of interest are imputed to other members of a firm, but screening is permissible to overcome the disqualification.


When is information “significantly harmful?”

Rule 1.18 lacks a definition for the “significantly harmful” standard for determining when information learned from a declined prospective client creates a conflict of interest. We know of no Kentucky authority on this issue, but a recent Wisconsin ethics opinion offers this helpful analysis:

Wisconsin Formal Ethics Opinion EF-10-03: Conflicts arising from consultations with prospective clients; significantly harmful information (12/17/ 2010).

Information may be “significantly harmful” if it is sensitive or privileged information that the lawyer would not have received in the ordinary course of due diligence; or if it is information that has long-term significance or continuing relevance to the matter, such as motives, litigation strategies, or potential weaknesses. “Significantly harmful” may also be the premature possession of information that could have a substantial impact on settlement proposals and trial strategy; the personal thoughts and impressions about the facts of the case; or information that is extensive, critical, or of significant use.

The opinion includes these instructive examples of significantly harmful:

  • Sensitive personal information: A court disqualified a law firm from representing the wife in a child custody proceeding because the father had previously consulted with, but chose not to retain, a lawyer in the firm…. During the father’s consultation with the lawyer, the father gave the lawyer a copy of his journal, told the lawyer facts that were not in the journal, and disclosed his concerns about the children and his former wife. He even acted on advice he received from the lawyer during the conference. The Arkansas Supreme Court concluded that a prospective client would not know whether the information disclosed during the consultation “could be significantly harmful,” and further concluded that disqualification was warranted based on finding that the information was “significantly harmful.” Sturdivant v. Sturdivant, 367 Ark. 514, 241 S.W.3rd 740 (2006).
  • Premature possession of the prospective client’s financial information: Such information could have a substantial impact on settlement proposals and trial strategy and therefore be significantly harmful. Artificial Nail Technologies, Inc. v. Flowering Scents, LLC, 2006 WL 2252237(D., Utah) (unpublished opinion).
  • Settlement position: Likewise, the percentage of settlement that the prospective client is willing to accept and the concessions that the prospective client is willing to make could be significantly harmful. ADP, Inc. v. PMJ Enterprises, LLC., 2007 WL 836658 (D.N.J.) (unpublished opinion).
  • Litigation strategies: Furthermore, a prospective client’s personal thoughts and impressions regarding the facts of the case and possible litigation strategies are significantly harmful, even though the lawyer claims that when he read and responded to the e-mail, he was not aware of and did not open the e-mail attachments that contained the information. Chemcraft Holdings Corp. v. Shayban, 2006 WL 2839255 (N.C. Super) (unpublished opinion).
  • Information that could be used to the detriment of the prospective client: Any information that could be reasonably used to the detriment of the prospective client, such as information that would be useful in impeaching the testimony of the prospective client, is by definition, information that could be significantly harmful.


Avoiding former prospective client malpractice claims:

As we have previously advised in this newsletter:
A lawyer’s worst nightmare is to discover that a prospective client the lawyer orally declined did not understand this and believed that he was a client of the lawyer – sometimes reasonably so. Typically, after the statute of limitations has run, the prospective client will inquire about the status of his case. Upon learning that the lawyer has done nothing on it, a malpractice claim soon follows. To avoid this risk always use letters of nonengagement for declined representations that are best sent by certified mail, return receipt requested. Former prospective clients with a complaint or claim never receive nonengagement letters sent by regular mail. A typical letter:

  • Thanks the prospective client for making the personal contact, calling, or coming into the office.
  • Includes the date and subject matter of the consultation.
  • Provides clearly that representation will not be undertaken.
  • Repeats any legal advice or information given -- making sure that it complies with the applicable standard of care.
  • Advises that other legal advice be sought.
  • Advises that there is always a potential for a statute of limitations or notice requirement problem if the matter is not promptly pursued elsewhere. (Providing specific statute of limitations times should be avoided because of the limited information typically received in a preliminary consultation. If, however, it appears that a limitations period will expire in a short period of time, the declined prospective client should be informed of this concern and urged to seek another lawyer immediately.)
  • Avoids giving an exact reason for the declination, why the claim lacks merit, or why other parties are not liable.
  • Returns any original documents or property the prospective client may have provided during the interview.
  • Encourages the person to call again.

We have also cautioned about the malpractice risk of negligent referral of prospective clients as follows:

Many lawyers do not appreciate that declining a matter and referring a prospective client to another lawyer may result in malpractice liability. This is true even though the referring lawyer receives no fee and has no further participation in the representation. A preliminary consultation with a prospective client is sufficient to create a duty to exercise ordinary care and skill when referring that person to another lawyer. The applicable standard of care is based on the nature of the declined representation.

Often it will be enough to confirm that the recommended lawyer is licensed to practice law in Kentucky. Licensure gives rise to a presumption that the lawyer is competent and possesses the requisite character and fitness. If the declination is because the matter requires special skill or knowledge, the referring lawyer must be careful to ascertain that the suggested lawyer has the necessary competence. If the matter requires immediate action, the referring lawyer should advise that the new lawyer be consulted expeditiously. Recommending the right lawyer without cautioning that prompt action is necessary can also be a negligent referral.