Academic journal article Harvard Law Review

Proving Breach of Former-Client Confidentiality

Academic journal article Harvard Law Review

Proving Breach of Former-Client Confidentiality

Article excerpt

A telecommunications company hires a law firm to help it calibrate its bid for an FCC license. To provide full legal advice, the firm learns confidential information about the company's structure, business model, and strategy. Eventually, the representation ends. Soon, the company is repeatedly outbid for subsequent licenses by a rival telecom company--missing opportunities for financial gain at every turn. The company is outraged to learn that its rival has been getting legal advice from the same law firm. The company fears that the law firm is exploiting the confidential information it learned from previously representing the company. The company suspects that this breach of confidentiality has directly caused it to lose bids and other market opportunities. (1)

The law firm has undoubtedly violated Model Rule of Professional Conduct 1.9. Rule 1.9(a) prohibits an attorney "who has formerly represented a client in a matter" from subsequently "representing] another person in the same or a substantially related matter in which that person's interests are materially adverse to the interests of the former client." (2) One goal of Rule 1.9, which every state has adopted, (3) is to protect the former client's confidential information.

Emboldened by the violation of Rule 1.9, the telecommunications company brings a legal malpractice suit against its former firm, alleging that the firm committed a breach of confidentiality. In effect, the company seeks to use the violation of Rule 1.9 to help prove that the law firm misused its confidences. In the breach-of-confidentiality suit, the company's alleged damages are the profits it lost from missing out on the subsequent FCC licenses. The elements of the breach-of- confidentiality claim are: (1) the firm had a duty not to misuse the confidential information of its former client, the company; (2) the firm breached that duty by misusing confidences; and (3) the breach caused the company (4) to suffer an injury. (4)

How should the company have to prove the element of breach within the broader claim of breach of confidentiality? On the one hand, breach is an essential element of the company's claim, so the company should have to present proof that the law firm actually misused the company's confidential information. On the other hand, proving the breach element might force the company to disclose the very information it wishes its former law firm had kept confidential. It would be a hollow victory if the company could protect its confidences only by divulging them in open court. In addition, proving that the firm actually misused its confidential information is extremely hard--not least because of the attorney-client privilege that now protects the communications between the firm and its new client. Given these competing considerations, how should a court in this malpractice suit allow the former-client company to meet its burden as to the breach element?

This is a multimillion-dollar question. Conflicts of interest are a significant source of legal-malpractice litigation. (5) In the past three decades, at least fifteen settlements or verdicts based on a law firm's conflict of interest exceeded $20 million, and another thirteen were between $3 million and $20 million. (6) These figures include only publicly reported settlements, (7) and they leave out the law firm's (often astronomical) defense costs, bruised reputation, and lost time and energy spent reaching a settlement. At a time when "[l]aw firms die with extreme ease and astonishing speed," (8) few firms can afford to take this kind of hit.

Liability for conflict-of-interest malpractice hits the profession from top to bottom. In the past decade, titans such as Cravath, Simpson Thacher, and Covington & Burling have faced suits from former clients over conflicts of interest. (9) More often, the lawyers facing conflict-of-interest suits are solo practitioners whose clients can barely afford legal services. …

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