By Ronald C. Minkoff [Originally published in NYPRR May 2008]
When is a “client” not really your client? The answer: When the client is considered a “secondary,” “accommodation,” or “vicarious” client. Though they are often used interchangeably by the courts, these terms actually have different meanings. A “secondary” or “accommodation” client is one who has an insubstantial relationship to the lawyer — the lawyer represents her either in some nominal capacity or as an accommodation to a long-established “primary” client. For conflicts of interest purposes, this “client” is treated as if she is not and never was the lawyer’s client. A vicarious client, on the other hand, is a client whom the lawyer is representing through another client or, put another way, is “a member of an organization or entity that is being represented by the attorney.” [Ives v. Guilford Mills, Inc., 3 F.Supp.2d 191, 202 (S.D.N.Y. 1998).] This type of client is entitled to at least some protection under the conflicts rules, but the degree of protection is not the same as for a traditional client.
The concepts have different doctrinal bases — the first under Canon 4 of the New York Code of Professional Responsibility (attorney-client confidentiality), and the second under Canon 5 (conflicts of interest) — and different origins in the case law. Nevertheless, a lawyer’s ability to pin an “accommodation” or “vicarious” label on a client helps him significantly in defending against the “client’s” motion to disqualify him on conflict grounds.
Secondary or Accommodation Clients
Allegaert v. Perot: The concept of a “secondary” client was introduced more than 30 years ago in Allegaert v. Perot, 565 F.2d 246 (2d Cir. 1977). The conflict of interest analysis in that case is now outmoded, but it still exercises considerable influence on New York federal and state courts.
In Allegaert, the trustee in bankruptcy of duPont Walston Inc. (Walston), a defunct Wall Street brokerage firm, sought to disqualify two law firms, Weil Gotshal & Manges (WG&M) and Leva, Hawes (Leva), who were representing different claimants in the bankruptcy. Walston claimed that both firms had previously represented it. At the outset, WG&M and Leva had both represented entities controlled by H. Ross Perot; WG&M had represented another brokerage, duPont Glore Forgan (DGF), and Leva had represented Perot’s main business, Electronic Data Services (EDS). When DGF and Walston ran into financial trouble, Perot sought a merger to preserve their business for EDS. With Walston represented by its long-time counsel, Shearman & Sterling (Shearman), a “realignment” transaction took place, under which both brokerages retained their separate identities and formed a joint venture. [Allegaert, at 248-49.] After the re-alignment, Shearman continued as Walston’s main outside counsel. At the same time, WG&M and Leva also represented Walston on a variety of matters, including a class action lawsuit that involved similar allegations to those in the Trustee’s lawsuit.
The district court denied the Trustee’s disqualification motion, and the Second Circuit affirmed. Recognizing that Walston was now, at best, a former client of WG&M and Leva, the Second Circuit based its conflicts analysis on Canon 4 of the New York Code, because the Code at the time did not include DR 5-108, the provision which now governs former client conflicts. Under its Canon 4 analysis, the Court ruled that the law firms could be disqualified only if they had obtained confidential information from Walston. Ordinarily. This would be presumed from a “substantial relationship” between the current and former representations. [Allegaert, 565 F.2d at 250.] But the Court made clear that the “substantial relationship” test would not apply at all unless Walston could show “that the [law firms were] in a position where [they] could have received information which [their] former client [Walston] might reasonably have assumed [they] would withhold from their present client[s].” [Id.]
The Court concluded that Walston had failed to make this showing “[b]ecause Walston necessarily knew that information given to [WG&M and Leva] would certainly be conveyed to their primary clients in view of the realignment agreement.” [Id.] “Integral to our conclusion that [WG&M and Leva] were not positioned to receive information intended to be withheld from DGF is the law firms’ continuous and unbroken legal relationship with their primary clients.” [Id. at 251.] Moreover, the court noted, Walston had a primary lawyer of its own, Shearman, which continued to advise Walston “at every step.” [Id. at 250.]
In other words, although WG&M and Leva had represented Walston, and had done so on matters substantially related to the Trustee’s lawsuit, they would not be disqualified because Walston was only their “secondary” client, and could not expect them to keep client information they received from Walston confidential from their “primary” clients, DGF and EDS.
Application of ‘Secondary Client’ Label
Even after the advent of specific “former client” conflict rules (DR 5-108 in New York and Model Rule 1.9 in other jurisdictions), with their emphasis on a lawyer’s duty of loyalty, courts have relied on Allegaert to declare immaterial for conflicts purposes the relationship between a lawyer and a “secondary” client. For example, in Kempner v. Oppenheimer & Co., 662 F. Supp. 1271, 1278 (S.D.N.Y. 1987), the court permitted a law firm which had represented both a brokerage firm and its individual brokers to continue to represent the brokerage even after a conflict arose between the individuals and the firm, because the individuals initially had failed to disclose the true facts and the brokerage, with whom the law firm had its “primary” relationship, “had no expectation that [the two former brokers’] interests would become adverse.” In In re Rite Aid Corp. Securities Litigation, 139 F.Supp.2d 649, 658-59 (E.D. Pa. 2001), on facts similar to Kempner, the court denied disqualification after concluding that the corporation was the law firm’s “primary client,” that the corporation had retained the law firm on the individual employees’ behalf, and that the law firm had had no direct communications with the individuals. See also Rocchigiani v. World Boxing Counsel, 82 F.Supp.2d 182, 187-89 (S.D.N.Y. 2000), refusing to disqualify law firm which previously had represented both plaintiff and defendant, since plaintiff understood that defendant was the lawyer’s “primary client,” that the lawyer would continue to represent plaintiff, and that plaintiff could seek advice from his own lawyer.
In Kempner, Rite-Aid and Rocchigiani, the courts held that the “secondary” client was not entitled to any protection from the conflicts rules. Similar results have been reached in insurance cases. In New York Marine & General Insurance Co. v. Tradeline (L.L.C.), 186 F.R.D. 317, 319 (S.D.N.Y. 1999), the court concluded that the lawyer had given the plaintiff, a secondary underwriter, only “vicarious or attenuated representation,” since the lawyer’s principal client, the lead underwriter, had conducted the investigation and directed all legal strategy. Although the plaintiff had paid a percentage of the legal fees and attended “three or four meetings” with the lawyer and other underwriter representatives, it had never communicated with the lawyer one-on-one, and thus could not be considered the lawyer’s client for conflicts purposes.
Similarly, in Commercial Union Insurance Co. v. Marco International Corp., 75 F.Supp.2d 108, 111 (S.D.N.Y. 1999), the court refused to disqualify the insurance company’s law firm from suing Marco, even though that same firm was representing Marco as named plaintiff in a subrogation lawsuit to recover the loss from a third party. The court stated:
“The subrogation case, although brought in Marco’s name, is Commercial’s alone. Marco has no material pecuniary or other interest in the subrogation suit. Its role in the suit is limited to providing documents and testimony as required by the cooperation clause of the policy. Moreover, Marco did not retain [the lawyer] to prosecute the suit, it pays none of [the lawyer’s] fees, and it has no control over the prosecution, settlement or dismissal of the matter.” [Id.]
The “accommodation” or “secondary” client concept, which strips a named client of all conflict of interest protection in certain situations, was adopted in Comment (i) to Section 132 of the Restatement (Third) of the Law Governing Lawyers. This Comment notes that, with the informed consent of both clients, a lawyer might undertake representation of another client as an accommodation to the lawyer’s regular client. The Comment goes on to state:
“If adverse interests later develop between the clients, even if the adversity relates to the matter involved in the common representation, circumstances might warrant the inference that the ‘accommodation’ client understood and impliedly consented to the lawyer’s continuing to represent the regular client.” [Id.]
With its emphasis on “implied consent” in construing a breach of the duty of loyalty, this Comment shows that the “accommodation client” concept has traveled far from its origin in Allegaert and the duty of confidentiality. Indeed, Allegaert is often cited for the proposition that a client represented jointly with another client may not seek to disqualify mutual counsel when that counsel seeks to represent the co client in an intramural dispute. This is because the client cannot reasonably expect anything she says to mutual counsel to remain confidential from the co-client [see, e.g., U.S. Football League v. National Football League, 605 F. Supp. 1448, 1452 N.7 (S.D.N.Y. 1985)].
This proposition has encountered some criticism of late because it gives too little weight to the duty of loyalty in the conflicts analysis. [See, e.g., In re I Successor Corp., 321 B.R. 640, 649-50 (Bankr. S.D.N.Y. 2005); Secs. Investor Protection Corp. v. R.D. Kushnir & Co., 246 B.R. 582, 588-89 (N.D. Ill. 2000); see also Felix v. Balkin, 49 F.Supp.2d 260, 270 (S.D.N.Y. 1999).] In Felix, the court denied a motion to disqualify although it acknowledged that the Allegaert rule would normally apply to clients the lawyer once had represented jointly. The count found that the lawyer had not done enough to warn the clients of the risks inherent in joint representation.
Limitations on Concept
The Restatement Comment discussed above is rarely cited in cases, and the handful of cases that do cite it have involved a narrow set of facts. More typical of the cases is Universal City Studios, Inc. v. Reimerdes, 98 F.Supp.2d 449 (S.D.N.Y. 2000), a later decision by the same court that decided Commercial Union. In Reimerdes, a law firm represented Scholastic, Inc. and Time-Warner in a lawsuit claiming that the Harry Potter books infringed the plaintiffs’ copyright. The firm then undertook to represent a defendant being sued by Time-Warner in a second, separate lawsuit for unrelated violations of the Digital Millenium Copyright Act. In defending against Time-Warner’s motion to disqualify in the second suit, the firm argued that Time-Warner was a “secondary client” in the Harry Potter action, since Scholastic had all the direct dealings with counsel and made all litigation decisions, while Time-Warner had its own counsel. The court rejected this argument and distinguished Commercial Union by noting that Time-Warner, as the owner of the copyright on the first four Harry Potter books, “ha[d] substantial interests at stake,” had a role in reviewing legal filings, and had the right to control the law firm (a right not available to the insured in Commercial Union under its subrogation agreement). [Id. at 452-53.]
Similar factors have been used to reject the “secondary client” argument in other cases. [See, e.g., Atrotos Shipping Co. v. Swedish Club, No. 02 Civ. 416 (RPP), 2002 WL 1041221 at 4-5 (S.D.N.Y. May 23, 2002), insurance company is not an “attenuated” client, even though principal client has right to make all decisions under policy, because insurance company still plays active role in the litigation and has significant financial interests at stake; British Airways, PLC v. Port Authority, 862 F. Supp. 889, 896 (E.D.N.Y. 1994), representation of defendant under lease/indemnification agreements with plaintiff, in which plaintiff agreed to pay any damages and controlled litigation, did not result in defendant’s being “vicarious client” of the law firm, because defendant had a direct relationship with the plaintiff’s law firm and had a right to “veto or alter any [legal] documents submitted on its behalf.”]
In sum, the “secondary client” label attaches only in rare instances. These occur when the named client has literally no financial stake in the outcome, no involvement in the representation, and/or has a “primary” lawyer of its own.
Glueck v. Jonathan Logan, Inc. The concept of a vicarious, or indirect, client finds its origins in Glueck v. Jonathan Logan, Inc., 653 F.2d 746 (2d Cir. 1981). There, Glueck, formerly an executive at Jonathan Logan, Inc. (Logan), sued Logan for breach of his employment contract. Logan immediately moved to disqualify Glueck’s attorneys, Phillips, Nizer, Krim & Ballon (PNKB), on the ground that PNKB had long been the attorneys for the Apparel Manufacturers Association (Association). A division of Logan was a member of the Association, and the division’s president was an executive vice-president of the Association who often met with PNKB lawyers to discuss strategy.
The district court granted the motion to disqualify, and the Second Circuit affirmed using an analysis based on the Canon 5 conflicts rules. The Court distinguished between two types of attorney-client relationships: a “traditional” one (i.e., an attorney-client relationship “in all respects”) and a non-traditional one, in which there is no direct attorney-client relationship but there exist “sufficient aspects of an attorney-client relationship ‘for purposes of triggering inquiry into the potential conflict involved in [PNKB’s] role as plaintiff’s counsel in this action.’” [Glueck, 653 F.2d 746, 748-49.] PNKB’s relationship with Logan was deemed to fall into this second category, since the firm represented Logan only “by virtue of its membership in the Association.” [Id. at 749.]
The Court then ruled that in a “traditional” attorney-client relationship, the strict prohibition against representing adverse interests found in DR 5-105(A) and (B) applies, and disqualification is almost automatic. [Id. at 748-49.] But in a non-traditional, vicarious setting, disqualification is required only if there is a “substantial relationship” between the work the lawyer is doing for the organization and that which is being done for the individual member. [Id. at 749-50.] Because Glueck’s employment issues “might well arise in the course of collective bargaining sessions conducted by [PNKB] for the Association,” and because PNKB might learn of “Logan’s policies and past practices bearing on the subject of Glueck’s termination” in preparing for those sessions, the “requisite relationship” was found to exist, and disqualification was warranted. [Id. at 750.] [See Clear Channel Spectacolor Media L.L.C. v. Times Square JV LLC, 85 N.Y.S.2d 57, 16 Misc.3d 1141(A), N.Y. Sup. Ct. 2007), using the same analysis, after finding that one of the participants in a joint venture which law firm represents is a “vicarious client” of the firm.]
Application of ‘Vicarious Client’ Label
The Glueck “vicarious client” label has been pinned on clients in other cases involving associations. [See Chemical Bank v. Affiliated FM Ins. Co., No. 87 Civ. 0150 (VLB), 1994 WL 141951 at 4 (S.D.N.Y. April 20, 1994), bank deemed a “vicarious client” of law firm where firm represented a group of corporate holders and brokers of a certain kind of life insurance policy, and bank was a member of that group; but see, U.S. v. ASCAP, 129 F.Supp.2d 327, 337-38 (S.D.N.Y. 2001), ASCAP member held not to be a “vicarious client” of firm representing ASCAP; court noted recent trend in cases showing that “being a member of an unincorporated association no longer makes one a client of the association’s attorneys.”]
Other courts have gone even further, using the Glueck analysis to determine whether the vicarious client label may be applied to:
• 1.52 F.Supp.2d 276, 284-88 (S.D.N.Y. 2001) — law firm for a state agency represents the agency, not the State as a whole;
• Partnerships: Ives v. Guilford Mills, Inc., 3 F.Supp.2d 191, 203 (N.D.N.Y. 1998), partner is a “vicarious client” of lawyer representing partnership; but see Dembitzer v. Chera, 728 N.Y.S.2d 78, 285 A.D.2d 525, (2d Dept. 2001), coming to opposite conclusion; and
• Firms that assist the lawyer’s client in litigation pursuant to a cooperation agreement: Blue Planet Software, Inc. v. Games Intl., Inc., 331 F.Supp.2d 273, 276-77 (S.D.N.Y. 2004), although lawyer had no traditional attorney-client relationship with assisting company, he learned confidences and secrets of that company, which must be viewed as a “vicarious client” for conflict purposes.
In any event, the “vicarious client” label is rarely applied, and even then only in situations where the lawyer had traditional attorney-client communications with, or obtained confidential information from, the purported “vicarious client.” [See, Blue Planet, supra; Ives, supra; Papyrus Technology Corp. v. New York Stock Exchange, Inc., 325 F.Supp.2d 270, 277 (S.D.N.Y. 2004), a lawyer is deemed to have “’represented a client’ if the lawyer has obtained or had access to confidences or secrets of the former client.”]
Still, the “vicarious client” label, like the label for a “secondary” or “accommodation” client, has become a valuable weapon in resisting claims of conflicts. To use it, a lawyer has to wade through confused, and confusing, cases which conflate the labels and often get them wrong. But careful textual analysis, and attention to the facts of your specific case, can result in salvaging a representation which otherwise would have been doomed under the strict terms of the New York Code and the Model Rules.
Ronald C. Minkoff is the head of the Professional Responsibility Group at Frankfurt Kurnit Klein & Selz, P.C. He thanks Pavani Thagirisa, a former associate at the firm, for her assistance in researching this article.
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