UPON THE REQUEST OF A MEMBER OF THE SOUTH CAROLINA BAR, THE ETHICS ADVISORY COMMITTEE HAS RENDERED THIS OPINION ON THE ETHICAL PROPRIETY OF THE INQUIRER’S CONTEMPLATED CONDUCT. THIS COMMITTEE HAS NO DISCIPLINARY AUTHORITY. LAWYER DISCIPLINE IS ADMINISTERED SOLELY BY THE SOUTH CAROLINA SUPREME COURT THROUGH ITS COMMISSION ON LAWYER CONDUCT.
Ethics Advisory Opinion 97-03
Lawyer A serves as an arbitrator, mediator, or other intermediary in various forms of alternative dispute resolution. Lawyer A also is a partner of a law firm that, from time to time, may represent parties participating in the same dispute resolution in which Lawyer A acts as an intermediary. As a partner in the law firm, Lawyer A would share in any legal fees earned by the firm in connection with the representation.
Questions:
(1) May Lawyer A serve as an intermediary in any dispute resolution in which Lawyer A's law firm represents one of the participants?
(2) Would Lawyer A's ability to serve as an intermediary in a matter in which the law firm is involved as counsel be different if Lawyer A were only an associate of the law firm, instead of a partner?
(3) If Lawyer A may not otherwise participate as an intermediary because of the law firm's participation as counsel in the matter, can the problem be cured by the consent of the participants after full disclosure?
Summary:
A lawyer may not serve as an intermediary in a matter in which the lawyer's law firm appears as counsel for one of the participants. It does not matter whether the intermediary is a partner or only an associate of the law firm. Consent cannot cure the conflict of interest when the intermediary's law firm actually represents one of the parties to the dispute.
Opinion:
The questions presented raise issues not directly within the scope of the Rules of Professional Conduct. A lawyer serving in the role of an intermediary is not engaged in the practice of law while acting as the intermediary. Moreover, the ethical obligations of an arbitrator may be more nearly analogous to those of a judge, than of a member of the Bar. Nevertheless, because of the increased role of lawyers as intermediaries in various forms of alternative dispute resolution and the Bar's need for guidance on these important issues, the Committee accepts the opportunity to assist members of the Bar engaged in these activities.
The first issue is whether a lawyer who is a partner in a law firm can ever serve as an intermediary in a matter in which the law firm is counsel to one of the participants. Rule 2.2 of the South Carolina Rules of Professional Conduct "does not apply to a lawyer acting as arbitrator or mediator between or among parties who are not clients of the lawyer." Comment, SCRPC 2.2. Because we are considering in this opinion the situation in which the intermediary is not acting as lawyer for all of the parties, Rule 2.2 is of no assistance. Nor does the Code of Judicial Conduct clearly apply. Justice White noted in concurrence in Commonwealth Coatings Corp. v. Continental Casualty Co., 393 U.S. 145 (1968), that "[t]he Court does not decide today that arbitrators are to be held to the standards of judicial decorum of Article III judges, or indeed of any judges."
South Carolina Rule of Professional Conduct 1.12, however, is instructive. That rule prohibits a lawyer from negotiating for employment with any person who is serving as counsel "for a party in a matter in which the lawyer is participating personally and substantially as a judge . . . or arbitrator." Rule 1.12(b). If a lawyer-arbitrator may not negotiate for employment with a law firm appearing as counsel in the matter, it should follow that a lawyer-arbitrator should not already be a partner of a law firm appearing in the matter.
Moreover, even if no ethical rule would preclude the intermediary from serving in the situation described, Rules of Professional Conduct 1.7 and 1.10 prevent the law firm from appearing before one of its own lawyers serving as an intermediary. Under SCRPC 1.7, the intermediary could not simultaneously serve as lawyer for one of the parties. As an intermediary, the lawyer would have responsibilities to non-clients that would materially limit the lawyer's ability to simultaneously represent one of the parties. Under Rule 1.10(a), the entire firm is, therefore, imputedly disqualified from the matter. "While lawyers are associated in a firm, none of them shall knowingly represent a client when any one of them practicing alone would be prohibited from doing so by Rules 1.7 . . ." SCRPC 1.10(a),1
On the basis of these authorities, we conclude that, at least without consent of the parties, Lawyer A's firm may not appear as counsel in a dispute resolution in which Lawyer A serves as an intermediary. Although the conflict is arguably more obvious when Lawyer A is a partner who could benefit financially from the outcome of the disputed matter, it would not matter if Lawyer A were only an associate of the law firm. A sufficient conflict of interest would remain to preclude Lawyer A's participation. This conclusion based upon the lawyer's duties under the Rules of Professional Conduct is consistent with the language of ethical guidelines generally applicable to intermediaries.
Standards of conduct for professionals in the ADR process are more general in nature, but typically prohibit any partiality on the part of the mediator or arbitrator. For example, Standards of Professional Responsibility issued by the Society of Professionals in Dispute Resolution require impartiality, meaning "freedom from favoritism or bias either by word or by action." SPIDR Ethical Standards of Prof. Resp. (June 1986). "The neutral must refrain from entering or continuing in any dispute if he or she believes that participation as a neutral would be a clear conflict of interest and any circumstances that may reasonably raise a question as to the neutral's impartiality."
The United States Supreme Court, in Commonwealth Coatings Corp. v. Continental Casualty Co., 393 U.S. 145 (1968), overturned an arbitration award when one of the arbitrators, who was an engineer, had a significant, ongoing business relationship with one of the parties and had failed to disclose that relationship to the parties at the outset. Cf. Schmitz v. Zilveti, 20 F.3d 1043 (9th Cir. 1994) (arbitrator held to have a duty to investigate whether his law firm formerly represented one of the parties to the proceeding).2
The remaining issue, then, is whether, despite the conflict, Lawyer A could participate as an intermediary with the informed consent of the parties.
The United State Supreme Court in Commonwealth Coatings suggested that it was imposing "the simple requirement that arbitrators disclose to the parties any dealings that might create an impression of bias." Justice White, in his concurrence, observed further that, simply because arbitrators are not held to the rules applied to judges, does not mean they are free to engage in "outright chicanery . . . . But it does mean that arbitrators are not automatically disqualified by a business relationship with the parties before them if both parties are informed of the relationship in advance." 393 U.S. at 150.
The existence of an unrelated business relationship between the intermediary and one of the parties, as in Commonwealth Coatings, however, differs in significant degree from a situation in which the intermediary's current law firm represents one of the parties and is appearing as legal counsel in the matter before the intermediary. Standard III of the ABA Standards of Practice for Lawyer Mediators in Family Disputes, for example, requires a mediator to "disclose to the participants any biases or strong views relating to the issues." However, if the mediator has represented one of the parties, there is no provision for disclosure and consent. The standard in the latter situation is absolute. "[T]he mediator shall not undertake the mediation."
Also, SCRPC 1.12, which bars a lawyer-arbitrator from negotiating for employment with counsel for a party, contains no provision for wavier and consent in that circumstance. Nor does the conflict under Rule 1.7 appear subject to waiver in this situation. Accordingly, we think the better rule is that the appearance of partiality cannot properly be waived by the parties when the intermediary is a member of a law firm representing one of the participants.
We do not address in this opinion the issues of whether a lawyer may serve as intermediary in matters in which a party is either a former client of the intermediary's law firm or is a current client is an unrelated matter.
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1The ABA Standards of Practice for Lawyer Mediators in Family Disputes also require that "[t]he mediator cannot act as lawyer for either party or for them jointly and should make that clear to both parties." ABA Standards of Practice for Lawyer Mediators in Family Disputes, Standard I, Commentary to Para. H (1984).
2In Al-Harbi v. Citibank, N.A., 85 F.3d 680 (D.C. Cir. 1996), the D. C. Circuit recently held that no "evident partiality" could be found simply because the former law firm of a lawyer-arbitrator had represented a participant in unrelated matters. The arbitrator in that case did not know of the representation, and the court stressed that the arbitrator was not affiliated with the firm at the time of the arbitration. The court held explicitly that "there is no duty on an arbitrator" to investigate whether the arbitrator's former law firm had represented a party in an unrelated matter. Id. at 683. While the court distinguished the Ninth Circuit decision, the facts of this case are sufficiently different from the issue being considered by the Committee that it offers little guidance on the arbitrator's responsibility when a current client is involved.
In reaching this conclusion, the Committee also is cognizant of a decision by the Fourth Circuit in People's Security Life Ins. Co. v. Monumental Life Ins. Co. 991 F.2d 141 (4th Cir. 1993), that an arbitration award could not be overturned on the grounds of "evident partiality" even though a lawyer who had signed the initial complaint in the matter had joined the law firm of the arbitrator during the pendency of the arbitration. In that case, however, the lawyer who joined the firm no longer represented a party when the arbitration began and did not join the law firm until after the arbitration began. Moreover, the arbitrator was not aware of any of these circumstances. That case, therefore, is distinguishable from Lawyer A's situation in which the intermediary's law firm is currently and actively involved in the disputed matter.