Attorneys weigh in on ABA ‘hot potato’ doctrine opinion

An attorney may decline to accept an engagement for almost any reason.

But the calculus shifts after taking on a client. An attorney attempting to voluntarily terminate the attorney-client relationship could potentially violate the American Bar Association‘s Model Rule of Professional Conduct 1.16.

The ABA’s April 2 opinion, Formal Opinion 516, seeks to provide clarity on the voluntary termination of a client relationship by outlining what Rule 1.16(b)(1) means when it states that a lawyer can exit a client relationship voluntarily if “withdrawal can be accomplished without material adverse effect.”

Whether the opinion achieved this goal is up for debate, even amongst the ABA Standing Committee on Ethics and Professional Responsibility. Two members penned a dissent stating that the opinion “provides very helpful guidance” but is incomplete.

“[T]he portion seeking to argue why the ethics rules do not prohibit a lawyer from firing one client in order to sue another client is something that we fear will prove more harmful than helpful to lawyers,” committee members Brian Faughnan and Wendy J. Muchman wrote in their dissent.

While ABA opinions are not binding and Virginia’s rules on professional conduct remain the guiding light for the commonwealth’s lawyers, opinions on the new ABA opinion have been mixed.

While noting the opinion gives helpful examples and guidance, Richmond attorney Jim McCauley, who served as Virginia State Bar ethics counsel from 1995 to 2022, said “there are some things in the ABA opinion that are troublesome.”

“The opinion suggests in one part that a material adverse effect could be created if the client endures additional expense in having to hire another lawyer,” McCauley said. “If that was the acid test, nearly every lawyer would be precluded from terminating the representation, because almost always as a lawyer fires their client, and the client has to get a new attorney, there is going to be additional expense.”

“Life happens and for any number of reasons, the lawyer or the client can choose to end the relationship.”

— Jeffrey Hamilton Geiger, Richmond

Richmond attorney Jeffrey Hamilton Geiger said the opinion added little to the existing guidance.

“ABA Opinion 516 tries to offer clarity by equating a ‘material adverse effect’ to a harm or expense from the withdrawal that would be ‘significant,’” Geiger said. “Other than giving us a synonym for ‘material,’ I don’t think that adds much.”

Geiger added that in these cases, lawyers start from a baseline that they owe their clients a duty of loyalty. “But that loyalty is not limitless,” Geiger said. “Life happens and for any number of reasons, the lawyer or the client can choose to end the relationship.”

Formal Opinion 516

The ABA’s opinion states that while clients can drop a lawyer at any time with or without cause, “getting out of a matter can be a lot harder than getting in” when the roles are reversed, under the provisions of Rule 1.16.

Beyond the times when an attorney is required to end a relationship with a client by rule, Rule 1.16(b)(1) states a lawyer is permitted to voluntarily seek an end to representing a client only if “withdrawal can be accomplished without material adverse effect on the interests of the client.”

However, the rule doesn’t spell out what is a “material adverse effect” is. Formal Opinion 516 attempts to resolve the issue.

“The opinion concludes that a material adverse effect is one which, despite a lawyer’s efforts to remediate negative consequences, will significantly impede the forward progress of the matter, significantly increase the cost of the matter and/or significantly jeopardize the client’s ability to accomplish the objectives of the representation,” the majority opinion states.

The opinion goes on to provide multiple examples of circumstances where withdrawal will likely have a “material adverse effect” on the now-former client, including a delay in finding a substitute lawyer which “may result in scuttling a deal or reducing its value.”

“Where the timing is objectively important to the client, significant delay can itself be a material adverse effect even if the representation can otherwise be completed successfully,” the opinion states.

The opinion adds that a material adverse effect could occur when a client has to get a new attorney, highlighting that the original attorney “has unique abilities or unique knowledge that cannot be replicated in the allotted time or at all” and that clients could incur “significant additional expense” in retaining new counsel.

“Rule 1.16 tells us that the withdrawal can’t have a material adverse effect on the first client’s interests,” University of Richmond School of Law Professor Jim Gibson said. “So, if getting a new attorney would cost the client significantly more or delay important objectives — a particular concern in the transactional context — the attorney may be stuck.”

McCauley, who said he holds a narrower interpretation of “material adverse effect,” said this specific example could muddy the waters for attorneys.

“When you begin to hang your hat on broad terms like that, and you don’t define them, then you’re not really providing effective guidance to lawyers.”

— Jim McCauley, Richmond

“If you go off with the notion that the client would incur the substantial expense as a material adverse effect, then you get into questions of where you draw the line,” McCauley said. “What is a substantial expense? How much more does a client have to incur in legal fees or costs to create a material adverse effect?”

McCauley added that ethics committees probably wouldn’t want to address that head-on. “I think when you begin to hang your hat on broad terms like that, and you don’t define them, then you’re not really providing effective guidance to lawyers,” McCauley said.

‘Hot potato’ doctrine

Formal Opinion 516 also addresses the “hot potato” doctrine, as outlined in Picker International Inc. v. Varian Associates Inc., which prevents attorneys from withdrawing from representing a client in favor of another more lucrative client.

“Just because a better case comes in shouldn’t mean that you can drop a ‘less lucrative’ client to avoid a conflict,” Geiger said. “Why? Because we owe loyalty to our clients.”

The ABA’s formal opinion, noting that the “hot potato” doctrine is not a part of the professional conduct rules, states that attorneys who terminate representation for this reason “have sometimes been disqualified from representing the new client.”

The opinion adds that while courts may elect to disqualify those who violate the “hot potato” doctrine, “it does not necessarily follow” that it is a violation of the Rules of Professional Conduct.

But the opinion’s dissent calls the majority’s addressing of the doctrine “incomplete.”

“The opinion fails to address the breadth of precedent on the ‘hot potato’ doctrine, and we are concerned that by seeming to dismiss this judicial doctrine as involving a handful of outlier cases, the opinion may mislead lawyers about the law,” the dissent states.

Geiger said an ABA committee majority seems to adopt “a narrow view of the ‘hot potato’ doctrine.”

“In its view, a law firm can drop a client in favor of another client so long as the withdrawal does not cause significant harm,” Geiger said. “And if the harm is significant, the ABA Committee suggests that the firm can help the client find a new lawyer or refund some of the fees paid.”

Geiger agreed with the dissent in that “your now former client will probably think that your withdrawal and subsequent representation against it is significantly harmful.”

McCauley said the dissent is lodging that dropping a client like a “hot potato” is in itself a material adverse effect.

“The committee could say that if you do the ‘hot potato’ withdraw, you are voluntarily withdrawing by creating a material adverse effect on your current client because you are doing your current client harm,” McCauley said. “That is a material adverse effect, and therefore you need to find some other ground to terminate the representation, and often that’s not available.”

Gibson, who teaches a professional responsibility course, said “there may be less here than meets the eye.”

“The ABA is telling us that, contrary to the view of some courts, Rule 1.16 allows attorneys to drop one client like a ‘hot potato’ because they want to represent another client instead,” Gibson said. “But only under certain circumstances, and those circumstances are very limited.”

Virginia rules

Virginia Rule of Professional Conduct 1.16 governs how attorneys should handle declining or terminating representation.

One notable area where Virginia’s rules differ from the ABA model rules is the addition of paragraph (e) to Rule 1.16. The rule states that all original, client-furnished documents and originals of official documents are the client’s property and thus follow the client to the new attorney.

“I think Virginia has probably the best guidance in the country for attorneys in regard to disposition of the file when they’ve been terminated by the client or when they terminate the representation,” McCauley said.

Virginia’s rule on voluntary withdrawal, Rule 1.16(b), states like the ABA rule that an attorney can withdraw if there is no material adverse effect on the client. The rule also permits withdrawal in cases where the client has used the lawyer’s services to perpetuate a crime, has failed to fulfill obligations or if representation will incur “an unreasonable financial burden” on the attorney.

In considering the Virginia rules, as well as the “hot potato” doctrine, Geiger said attorneys should proceed with caution even with the perceived narrowing of the “hot potato” doctrine by the ABA.

“Whether from a standpoint of ethics or professional liability, I recommend strongly that a lawyer think long and hard before dropping a client in order to represent another client,” Geiger said. “While you can argue that the reason for the withdrawal should not matter, your loyalty to your client does.”

Gibson said that attorneys may also need to account for rules variances from court to court.

“In the litigation context, an attorney’s ability to drop a client is not just a matter of the ethical rules; it is also about the court’s control over its own docket,” Gibson said. “So even if the rules allow a ‘hot potato’ scenario, a court might not.”