Former Client's Affiliate Becomes the Opponent
Your firm previously acted for Northline Ltd. on a labour restructuring, gaining detailed information about its plant-level management and its collective bargaining strategy. That matter closed two years ago. Now a new client, Cascade Inc., wants the firm to act against Northline's wholly owned subsidiary, which operates the same plant, in a wrongful dismissal action by a plant manager. The firm's conflicts database lists Northline but not the subsidiary. The partner who led the Northline matter has since left the firm. The new client is unaware of the prior retainer.
1. Is there a conflict, and how should the firm assess it?
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A duty of loyalty and confidentiality can extend to a former client's affiliates where the firm received information relevant to the new matter and the affiliates are closely connected. The firm must ask whether it possesses confidential information from the Northline retainer that is relevant to the dismissal action, and whether a reasonable member of the public would perceive a risk that the information could be used against the subsidiary.
The fact that the relationship ended two years ago and the lead partner left does not by itself eliminate the duty; the firm's knowledge does not leave with the lawyer. The firm should search the old file, identify what was learned about plant management and bargaining strategy, and assess overlap with the dismissal claim. If relevant confidential information exists, the firm must decline or seek informed consent from both clients.
2. If the firm concludes the information is relevant, what are its options, and what role does consent play?
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The firm's primary option is to decline the Cascade retainer. If it wishes to act, it must obtain informed consent from Northline, as the former client whose confidences are at risk, after full disclosure of the nature of the new matter and the potential use of information. Consent from Cascade alone is insufficient.
If Northline refuses consent, the firm cannot act against the subsidiary. A screening arrangement is generally not enough to cure a conflict involving the firm itself, as opposed to a lateral lawyer, because the firm's institutional knowledge is imputed. The firm should also consider whether the subsidiary's interests are so aligned with Northline's that they should be treated as one client. If the firm declines, it must do so promptly to avoid prejudicing Cascade.