Opinion ID: 3015057
Heading Depth: 4
Heading Rank: 1

Heading: each affected client gives informed consent,

Text: confirmed in writing, after full disclosure and consultation ... [w]hen the lawyer represents multiple clients in a single matter, the consultation shall include an explanation of the common representation and the advantages and risks involved; (2) the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client; (3) the representation is not prohibited by law; and (4) the representation does not involve the assertion of a claim by one client against another client represented by the lawyer in the same litigation or other proceeding before a tribunal. NJ RPC 1.7(b). Comments to the ABA version of this rule explain the policies underlying a rule against concurrent conflicts of interest. Absent consent, a lawyer may not act as an advocate in one matter against a person the lawyer represents in some other matter, because a conflict that materially limits a lawyer’s representation of her client, even absent direct adversity may hinder a lawyer’s ability to “recommend or advocate all possible positions” for her clients. Annotated Model Rules of Professional Conduct 109 (5 th ed.). As the New Jersey rule specifies, the lawyer’s own interests should not be permitted to have an adverse effect on, or otherwise materially limit, the representation of a client. A lawyer effective on January 1, 2004. The previous version of Rule 1.7 did not address situations where a lawyer’s responsibilities to former clients impaired the current representation and it did not use the “significant risk language”; instead it mentioned situations where the representation of a client “may be materially limited” by a lawyer’s other responsibilities. These changes do not affect our disposition of the case because Gilbert would have been acting under a concurrent conflict under either version of the rule. 20 cannot allow a related business interest to affect his representation, for example, by referring clients to an enterprise in which the lawyer has an identified financial interest. See id. In addition to the standards established by professional ethics, attorneys retained in bankruptcy proceedings are also required to meet the restrictions imposed by section 327 of the Bankruptcy Code.13 Subsection (a) restricts retention of lawyers and other professionals to those who do not hold or represent an interest adverse to the estate and are disinterested. Subsection (e) permits employment of an attorney “for a specified special purpose,” so long as the attorney does not hold or represent “any interest adverse to the debtor or to the estate with respect to the matter” on which he is to be employed. The “special purpose” 13 Section 327(a) states: “ Except as otherwise provided in this section, the trustee, with the court's approval, may employ one or more attorneys, accountants, appraisers, auctioneers, or other professional persons, that do not hold or represent an interest adverse to the estate, and that are disinterested persons, to represent or assist the trustee in carrying out the trustee's duties under this title.” 11 U.S.C.A. § 327(a). Section 327(e) addresses professionals employed for a “specified special purpose” and provides that “The trustee, with the court's approval, may employ, for a specified special purpose, other than to represent the trustee in conducting the case, an attorney that has represented the debtor, if in the best interest of the estate, and if such attorney does not represent or hold any interest adverse to the debtor or to the estate with respect to the matter on which such attorney is to be employed.” 11 U.S.C.A. § 327(e). Section 327 applies to a debtor in possession as well as a trustee. United States Trustee v. Price Waterhouse, 19 F.3d 138 (3d Cir. 1994). 21 must be unrelated to the reorganization and must be explicitly described in the application. 3 Collier on Bankruptcy (15 th ed.) ¶ 327.04[9][d]. To put the matter in focus we will review Gilbert’s activities in chronological order. In September 2002, when it had existing co-counsel agreements with Weitz in several asbestos matters, Gilbert represented Congoleum in settlement negotiations with Weitz to resolve the claims of two of its own clients,14 Cook and Arsenault, whose mesothelioma claims were then in trial. Congoleum settled the cases for cash, plus a secured claim against funds that Congoleum hoped to recover from its excess insurers.15 In November 2002, Gilbert became co-counsel with Weitz in two other asbestos bankruptcy cases. In February 2003, Congoleum retained Gilbert for the purpose of negotiating the pre-packaged chapter 11 reorganization. The retainer called for negotiations with “key asbestos bodily injury claimants’ counsel” as well as arriving at the “terms of a ‘pre-packaged’ plan of reorganization . . . reviewing and commenting on the plan of reorganization . . . [and] assisting or consulting with Congoleum and its bankruptcy counsel on a strategy for confirmation of the pre-packaged plan.” For most of 2003, Gilbert, Weitz and Rice worked on the terms of an agreement to settle Congoleum’s current asbestos related injury claims. The settlement agreement they ultimately drafted provided for screening of each participating claimant by Kenesis, a process that was in effect during the prepetition period. At the same time, Gilbert was assisting the Dughi firm in the coverage litigation in the New Jersey state court. 14 It appears that Gilbert acted as co-counsel with Weitz for these two individuals in their claims against another bankrupt asbestos company. 15 We note a striking disparity between the combined settlement of $16 million, which included fully secured assignments of insurance proceeds Messrs. Cook and Arseneault received, and the partially unsecured $100,000 settlement that others with mesothelioma claims would receive under the settlement agreement’s disease matrix. 22 Weitz represented many individuals who presented claims against Congoleum and who were screened by Kenesis and who were also clients of Gilbert as co-counsel. Before the insurers’ appeal reached the District Court, Gilbert produced in the New Jersey coverage action a list of claimants that it represented as co-counsel with Weitz. This list contains the names of approximately 15,000 individuals; the insurers estimated 10,000 of those individuals have claims against Congoleum. Neither Gilbert nor Congoleum have denied that there is an overlap of claimants.16 In at least three other asbestos claimant cases, Gilbert and Weitz had agreed to charge the individuals they jointly represented a 10% contingency fee “on any and all insurance proceeds recovered . . . [by the claimant] in connection with their claims against [the asbestos defendant] and its insurers.” The insurers here assert that that same fee arrangement is present in cases against Congoleum. Gilbert has not denied that assertion despite demands that it disclose the details of its fee sharing arrangements with Weitz. Thus Gilbert represented Congoleum and actively participated in the claimants’ settlement negotiations while simultaneously representing some of those claimants, albeit assertedly only in insurance matters. In negotiating the settlement agreement and plan terms with Weitz and Rice pre-petition, Gilbert, as counsel for Congoleum, had a duty to limit the company’s responsibility on such key features as the disease matrix, exposure to asbestos from Congoleum products, if any, and the extent of actual injury. Although the settlement agreement required the claimants to release Congoleum, Gilbert admitted in the coverage action in state 16 In a deposition in the New Jersey coverage action, Scott Gilbert, a partner in Gilbert, was asked if any of the claimants he represented as co-counsel with Weitz in the Robert A. Keasbey case were also suing Congoleum. Scott Gilbert replied that he was unsure how many claimants overlapped and had never attempted to determine if there was an overlap. In subsequent deposition testimony he would only “assume” that Gilbert represented clients in other bankruptcies that had claims against Congoleum, including Messrs. Cooke and Arsenault. 23 court that the release was a limited one and applied only if proceeds were recovered from the insurance companies. If that attempt failed, then Congoleum would be liable to the individual claimants for the amount of the settlements, thus pitting Congoleum against the individual claimants Gilbert represents as co-counsel with Weitz. Congoleum’s interests called for a reduction in the number of claims approved that would likely be included in a settlement package presented to the insurers. The insurers cited major deficiencies in the validity of some claims approved by Kenesis. To the extent that the claims were not valid, it was Gilbert’s responsibility in representing Congoleum to see that they were rejected, even though it would be adverse to Gilbert’s interests if those claims were pursued individually or were excluded from a “package” offered to the insurers in settlement. This was not a potential, but an actual conflict. To legitimize the alleged conflicts, Gilbert relies on waivers both from Congoleum and clients the firm represented as co-counsel with Weitz. However, Gilbert did not contact the claimants; instead it relied upon Weitz to secure those waivers. As discussed above, in several earlier asbestos bankruptcy proceedings, Weitz executed engagement letters for Gilbert’s work as co-counsel. In those agreements, Weitz waived “all present and future conflicts of interest on behalf of” the individual clients the firms jointly represented and agreed to advise the clients of the information contained in the engagement letters including Gilbert’s disclosure of its representation of tort defendants. Gilbert has not disclosed an engagement letter with Weitz for claimants in the Congoleum case, although it has not denied that one exists. The record does not establish that Weitz had the authority to issue waivers on behalf of the thousands of individual claimants it represented. In addition, the record does not include the information, if any, that Weitz furnished to the individuals nor does it indicate whether they were given the opportunity to object 24 to Gilbert’s representation.17 Although concurrent conflicts may be waived by clients under the New Jersey and ABA Rules of Professional Conduct, the effect of a waiver, particularly a prospective waiver, depends upon whether the clients have given truly informed consent. Given the complexities of the bankruptcy proceeding and the “many hats” worn by Gilbert throughout the pre- and postpetition process, we cannot conclude that the purported waivers Gilbert received from Weitz “on behalf of” the individual clients constituted informed, prospective consent. See Baldasarre v. Butler, 625 A.2d 458 (N.J. 1993) (concluding that informed consent was not sufficient in a complex commercial real estate transaction); In re Matter of Edward J. Dolan, 384 A.2d 1076, 1082 (N.J. 1978) (“[T]his Court will not tolerate consents which are less than knowing, intelligent and voluntary.”); In re Lanza, 322 A.2d 445 (N.J. 1974) (concluding that attorney should have first explained . . . all the facts and indicated in specific detail all of the areas of potential conflict that foreseeably might arise.”). We conclude that Gilbert did not receive effective waivers from the claimants it represented and, therefore, acted in violation of the Rules of Professional Conduct.