Beware the Hot Potato Doctrine!

(yes it is a real thing)

The best-named legal doctrine ever, applies “where a law firm dropped an existing client to avoid conflicts that would prevent it from taking on a more lucrative client.” In re Boy Scouts of Am., 2022 U.S. App. LEXIS 13926, *19,?_ F.4th _, 2022 WL 1634643 (3d Cir. May 24, 2022) (unfortunately the court saves “consideration of [the doctrine] for the future”).

Under the “‘hot potato’ doctrine—courts apply the more stringent Rule [of Professional Conduct] 1.7 standards even though representation has formally ended to discourage firms from dropping a client (like a hot potato) for self-interested reasons.” Id.

The Restatement of the Law Governing Lawyers, Third, also precludes hot potato termination:

“If a lawyer is approached by a prospective client seeking representation in a matter adverse to an existing client, the present-client con?ict may not be transformed into a former-client con?ict by the lawyer’s withdrawal from the representation of the existing client. A premature withdrawal violates the lawyer’s obligation of loyalty to the existing client and can constitute a breach of the client-lawyer contract of employment.”

The doctrine “is based on the rationale that ‘if the rule was otherwise, an attorney could always convert a present client into a ‘former client’ by choosing when to cease to represent the disfavored client.” Merck Eprova AG v. ProThera, Inc., 670 F. Supp. 2d 201, 209 (S.D.N.Y. 2009).

There is an exception, when a conflict is “thrust upon” a law firm. See NYC Bar Formal Opinion 2005-05. In those instances the law firm must decide which client to drop (or both). The Opinion provides: “In reaching this decision [on which client to drop], the overarching factor should be which client will suffer the most prejudice as a consequence of withdrawal.”

Model Rule 1.16(b)(1) prevents termination of a client if the result will be a “material adverse effect” but a lawyer may terminate a representation to take on a new adverse client, as long as it is not in the same/substantially related matter.

The Hot Potato Doctrine highlights the need for robust conflict systems, carefully crafted bespoke retainer agreements and turndown/termination letters.