When is a client not really your client?
The answer: when the client is considered a "secondary," "vicarious" or "accommodation" client. Though often used interchangeably by courts, these terms actually have different meanings. A "secondary" or "accommodation" client is one who has an insubstantial relationship to the lawyer, because 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 who 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 not the same as a traditional client.
We originally wrote this article back in 2008. But while not much has changed in the case law, the underlying ethical rules have changed. More importantly, the question keeps coming up, so a new look at these principles is in order.
These situations have different doctrinal histories – the first under Canon 4 of the old New York Code of Professional Responsibility (attorney-client confidentiality, now addressed by Rule 1.6 of the New York Rules of Professional Conduct (the "RPCs"), and the second under Canon 5 (conflicts of interest, now addressed by RPC 1.7, 1.8 and 1.9) – and different origins in the case law. Nevertheless, a lawyer's ability to place an "accommodation" or "vicarious" label on a client helps significantly in defending against that client's motion to disqualify on conflict grounds in a subsequent case. But placing that label on a client is not easy.
Secondary or Accommodation Clients
Allegaert v. Perot
The concept of a "secondary" client was introduced more than 45 years ago in Allegaert v. Perot, 565 F.2d 246 (2d Cir. 1977), a case whose analysis is now outmoded but still retains 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 claimants in the bankruptcy but who Walston claimed had previously represented it. From the outset, WG&M and Leva had both represented entities controlled by the late billionaire 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"). DGF and Walston both had been in financial trouble, and Perot had sought a merger to preserve their lucrative business for EDS, a payroll services company. With Walston represented by its long-time counsel, Shearman & Sterling ("Shearman"), a "realignment" transaction had taken place, under which both brokerages had retained their separate identities and formed a joint venture. Id. at 248-49. After the re-alignment, Shearman had continued as Walston's main outside counsel, while WG&M and Leva had also represented Walston on a variety of matters, including in 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 had to base its conflicts analysis on Canon 4 of the New York Code, pertaining to confidentiality, because the Code at the time did not yet include a conflict rule about former clients – first DR 5-108 and now RPC 1.9. Under its Canon 4 analysis, the Court ruled that the law firms could be disqualified only if they had obtained confidential information from Walston, something which would normally be presumed if there was 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 – a standard, by the way, that would lead to disqualification under current RPC 1.9(a) – 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.
The Application of the "Secondary Client" Label
Even after the advent of specific "former client" conflict rules (as noted, first DR 5-108, then RPC 1.9), with their emphasis on whether the current and earlier matters in question are "the same or substantially similar:, courts have relied on Allegaert to declare insignificant 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 individual brokers to continue to represent the brokerage even after a conflict arose with the individuals, since 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 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 lawyer's "primary client," that 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. It is important to note that in all of these cases, as well as Allegaert, the supposedly "secondary" clients were deemed to have no expectation of confidentiality for their own communications, either because they were in a joint venture with the "primary" client, were co-defendants with it in a case involving vicarious liability, explicitly understood that the lawyer representing them had a long-standing relationship with it, and/or had their own individual lawyers. Indeed, in some situations the lawyer did not communicate at all with the "secondary" client. Factual settings like these do not arise every day.
Similar results have been reached in the insurance context. 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
Again, it is significant that in both New York Marineand Marco, the "primary" client's attorney barely communicated with the "secondary" clients, if they communicated at all, and controlled the legal strategy. Moreover, the main liability risk – if not the entire risk – fell on the "primary" client..
The Restatement Comment
The "accommodation" or "secondary" client concept, which strips a named client of all conflict of interest and confidentiality protections 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" to a breach of duty of loyalty – i.e., that the "primary" client's lawyer could turn against his former "secondary" clients -- this Comment shows that the "accommodation client" concept has travelled far from its origin in Allegaert and the duty of confidentiality. Indeed, although Allegaert is often cited for the proposition that a client represented jointly with another client may not seek to disqualify the mutual counsel when that counsel seeks to represent the co-client in an intramural dispute, because the client could not expect anything she said to the 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 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) (denying motion to disqualify despite acknowledging that Allegaert rule would otherwise apply to clients that lawyer once had represented jointly; court finds that lawyer did not do enough to warn clients of risks of joint representation, including risk that lawyer for joint clients could, in the event of a conflict, represent one client against the other).
Limitations on the Concept
Moreover, 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 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 plaintiff's 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 (which the insured in Commercial Union did not 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 not an "attenuated" client, even though 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 being "vicarious client" of the law firm, since 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"). The reader can see the sharp contrast in the role and stake of the supposedly "secondary client" in these cases as compared to those where the accommodation client principle was applied.
In sum, the "secondary client" label attaches only in rare instances, where 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.
Vicarious Clients
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 (the "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 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 what is now RPC 1.7(a) applies, and disqualification is almost automatic. Id. at 748-49; see RPC 1.7(a) (conflict exists if lawyer represents "differing interests"). 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 same analysis, after finding that one of participants in joint venture which law firm represents is a "vicarious client" of the firm).
Application of the "Vicarious Client" Label
The Glueck "vicarious client" label has been stuck 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 policies, 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 notes 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 state agencies [Brown & Williamson Tobacco Corp. v. Pataki, 152 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 Dep't 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 Int'l, Inc., 331 F. Supp. 2d 273, 276-77 (S.D.N.Y. 2004) (although he had no traditional attorney-client relationship with assisting company, lawyer 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 that of "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 factual detail of your specific case, can result in salvaging a representation which otherwise would have been doomed under the strict terms of the New York RPCs.
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