Victoria Rey

St. John’s University School of Law

American Bankruptcy Institute Law Review Staff

In In re MMA Law Firm, the United States Bankruptcy Court for the Southern District of Texas (the “Court”) held that the duty to maintain confidentiality extends to prospective clients.[1] In this chapter 11 case, MMA Law Firm, PLLC (“Debtor”) successfully moved to disqualify Okin Adams Bartlett & Curry, LLP (“Okin Adams”) from representing the Official Committee of Unsecured Creditors (“UCC”). This disqualification was warranted because Okin Adams possessed confidential information about the Debtor obtained during pre-petition discussions when the Debtor was considering the firm for representation.[2] This information could have been used to the detriment of the Debtor since the UCC was an adverse party in the bankruptcy.[3] Okin Adams argued that no conflict existed because the pre-petition communications between the firm and Debtor were not confidential. The firm claimed they had no duty to maintain the confidence of prospective clients who did not retain them and suggested that prospective clients should be aware of the risks of disclosing confidential information before paying a retainer.[4] The Court considered the Fifth Circuit’s approach to ethical issues, the ethical obligations attorneys owe former prospective clients in federal court, and the elements of Model Rule 1.18 to conclude that Okin Adams should be disqualified from representing the UCC.[5]

This case illustrates the challenge of balancing an attorney’s possession of an opposing party’s confidential information with the potential harm of denying a client the right to be represented by their chosen attorney.[6] In determining whether to disqualify counsel, a court must consider “whether a conflict has (1) the appearance of impropriety in general, or (2) a possibility that a specific impropriety will occur, and (3) the likelihood of public suspicion from the impropriety outweighs any social interests which will be served by the lawyer’s participation in the case.”[7]

The Court also assessed the ethical obligations owed to former prospective clients in its disqualification analysis. While the Fifth Circuit and the Texas Disciplinary Rules of Professional Conduct have not directly addressed this issue,[8] courts may refer to the Model Rules.[9] According to Model Rule 1.18, even without a formal client-lawyer relationship, a lawyer who has received information from a prospective client must not use or disclose that information and may not represent a client with materially adverse interests in a related matter if that information could be significantly harmful.[10] However, under Model Rule 1.18(d), representation may be permissible despite having confidential information if the lawyer takes reasonable steps to avoid exposing more disqualifying information, is screened from participation in the matter, does not share in the fee, and promptly notifies the prospective client in writing.[11] Here, because Okin Adams testified that no duty was owed to prospective clients and did not invoke this exception, Model Rule 1.18(d) does not apply.[12] Therefore, Okin Adams owed a duty to the Debtor as its prospective client to maintain the confidence of its learned information.[13]

Applying the elements of Model Rule 1.18, the Court found that Okin Adams must be disqualified if: (1) the UCC’s interests were materially adverse interests to the Debtor’s, (2) the case was the same or substantially related to the matter for which the Debtor sought representation, and (3) Okin Adams received harmful information about the Debtor.[14] The first two elements were clearly met, as the parties had opposing goals of repayment and discharge, and this bankruptcy case involved the same matter for which the Debtor sought to retain Okin Adams’ representation.[15]Regarding the third element, significant harmful information was exchanged between Debtor’s representative Zach Moseley and Matthew Okin, including a text message exchange detailing Moseley’s litigation strategy against Debtor’s largest unsecured creditor and two hours of phone calls discussing litigation strategies and claims related to the Debtor.[16] Okin faced a clear conflict of loyalty, as he was obligated to protect Moseley’s confidential information while also needing to disclose it to the creditor.[17] Thus, Okin Adams violated Model Rule 1.18.[18]

            Disqualification is not a mechanical process and requires careful consideration to ensure ethical compliance.[19]Here, the Court held there was more than just an appearance of impropriety; there was a genuine conflict of loyalty that necessitated disqualification.[20] The need to uphold public trust in lawyers when seeking services outweighed Okin Adams’ interest in remaining on the case.[21] Accordingly, Debtor’s motion to disqualify was granted, and Okin Adams was disqualified from representing the UCC.