NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
The opinion of the court was delivered by
NUGENT, J.A.D.
In this automobile negligence action, plaintiffs appeal from an order denying their motion to disqualify Pomeroy, Heller & Ley, LLC,1 from representing defendant Phillip Adamo, the Pomeroy firm having defended ACE American Insurance Company against Adamo's third-party complaint seeking a declaration of insurance coverage under an ACE policy. Having considered the arguments of the parties in light of the record and applicable legal principles, we conclude the Pomeroy firm's representation of Adamo is a concurrent conflict of interest that cannot be waived. Accordingly, we reverse.
I.
The ethics issue we must decide arose out of an insurance coverage dispute in two automobile negligence actions, one involving serious personal injury, the other involving wrongful death. Early one July morning in 2010, while under the influence of alcohol, eighteen-year-old Adamo lost control of the Mercedes-Benz he was driving and crashed into a house. One of the passengers died as a result of injuries sustained in the accident, and the other passenger was severely injured.2
The Mercedes-Benz was a courtesy car the dealer had loaned to Adamo's mother while she was having her car repaired.3 The car was owned by a company named NJ-DM, Inc. NJ-DM, Inc. and the dealer that provided the courtesy car were insured under a policy issued by ACE American Insurance Company.
Adamo's mother had insurance on the car being repaired. When the injured passenger and the decedent's estate filed personal injury and wrongful death actions, her insurance company retained Romando, Zorulnik, Sherlock & Demille (Romando Zorulnik) to defend her and her son. Romando Zorulnik filed a third-party complaint against the owners of the Mercedes-Benz and ACE seeking a judgment declaring Adamo and his mother were entitled to coverage under the ACE policy. ACE retained Wilson, Elser, Moskowitz, Edelman & Dicker (Wilson Elser) to defend the coverage action. The defense was unsuccessful.
Following oral argument on motions and cross-motions for summary judgment on the ACE coverage issue, the court entered summary judgment in favor of Adamo and his mother, declaring they were insured under the ACE policy.4 Two weeks later, the Pomeroy firm entered an appearance as co-counsel on behalf of ACE and promptly filed a motion for reconsideration. The trial court denied ACE's reconsideration motion and thereafter we denied ACE leave to file an interlocutory appeal.
During argument on the reconsideration motion, Pomeroy zealously advocated that the court had erred. In advocating on behalf of ACE, Pomeroy asserted he thought he had a "very reasonable" chance of getting the trial court's decision reversed on appeal. Pomeroy suggested lawyers who represent plaintiffs generally tend to target a deep pocket, and the experienced lawyers representing the plaintiffs in this action would likely do so with respect to the ACE $1,000,000 policy. That would in turn likely lead to a verdict well in excess of the $300,000 insurance on Adamo's mother's car; consequently, if the ACE coverage declaration were reversed on appeal, there would be an excess verdict. Pomeroy further suggested plaintiffs' claims had a greater chance of settling if the parties knew with finality the amount of insurance coverage available to compensate the plaintiffs in the two actions. The court was unpersuaded and denied the motion.
Thereafter, in opposition to plaintiffs' motion for counsel fees as the "successful claimants," the Pomeroy firm submitted an opposing letter stating in relevant part:
Additionally, while plaintiffs characterize themselves as "successful claimants" against ACE (despite their claims having been expressly dismissed), plaintiffs are well aware that the coverage issue will be the subject of an appeal as of right following the conclusion of this matter. The coverage issues involved in this matter represent an issue of first impression under New Jersey law, and, respectfully, the decision of [the trial court] should be reversed. As such, plaintiffs' status as "successful claimants," notwithstanding their adjudicated lack of status as claimants, may well be short-lived, and an award of counsel fees at this time would, for the reason alone, be entirely inappropriate.
Four months after the court denied ACE's reconsideration motion, the Pomeroy firm filed a substitution of attorney on behalf of ACE, thus discontinuing Wilson Elser's participation in the matter. By then, the declaratory judgment had been entered against ACE, its motion for reconsideration had been denied, and its motion for leave to file an interlocutory appeal had been denied.
Shortly thereafter, Pomeroy contacted Adamo's criminal defense attorney and personal counsel. According to a certification filed by that attorney, Pomeroy
advised that the insurance interests he represented had requested that he assist directly in the representation of Mr. Adamo given the trial court's determination that the ACE layers of coverage extended to Mr. Adamo and provided him with full coverage. [Pomeroy] advised that this would also involve his ultimate withdraw from the case as counsel for the ACE layers but that he would remain as counsel of record for the ACE layers because all of the coverage issues between the ACE layers and Mr. Adamo had been decided for the purposes of any further activities at the trial level.
The attorney arranged a meeting between Pomeroy, Adamo's mother, and Adamo's mother's boyfriend. Following that meeting, Pomeroy and Adamo's attorney met with Adamo. Adamo agreed to have Pomeroy defend him in the civil actions. Adamo's mother and her boyfriend were also in agreement with Pomeroy's representation of Adamo.
Adamo signed a written waiver of any conflict of interest. Pomeroy then substituted in as co-counsel in the civil actions. Three weeks later, the Pomeroy firm filed a cross-motion seeking the summary judgment dismissal of plaintiffs' punitive damage claims against Adamo. More than six months after filing that motion, the Pomeroy firm filed another substitution whereby Romando Zorulnik withdrew as Adamo's counsel.5 The Pomeroy firm also filed a substitution of attorney designating Pomeroy as trial counsel. Two months after doing so, the Pomeroy firm withdrew as counsel for ACE.
After the Pomeroy firm became sole defense counsel for Adamo, plaintiffs filed a motion to disqualify the Pomeroy firm.6 The Pomeroy firm cross-moved to file opposition under seal because the opposition included attorney-client communications. The trial court granted the motion. The trial court determined that Adamo "fully understands the situation [and] fully understands his rights . . . as does his mother." Satisfied that Adamo had made a knowing waiver of any conflict, and had been counseled by his personal attorney, the court denied the motion. We granted plaintiffs leave to file this interlocutory appeal.
II.
Plaintiffs argue the Pomeroy firm had a concurrent conflict of interest while representing both ACE and Adamo. Plaintiffs contend the conflict continues, and they point to Pomeroy's confident assertion he would likely have the trial court's declaratory judgment action reversed on appeal. Plaintiffs also assert Pomeroy cannot effectively represent Adamo in settlement negotiations that might involve a contribution by ACE. For those reasons, plaintiffs maintain Adamo cannot waive the Pomeroy firm's concurrent conflict of interest.
Adamo, through the Pomeroy firm, argues there is no conflict of interest. Although Adamo concedes the Pomeroy firm at one point represented both him and ACE, he argues by then
the coverage issue between ACE and Adamo had been fully adjudicated in the lower court and ACE's interlocutory appeal had been rejected. The interest of ACE and Adamo at that point were not adverse — they were aligned, with both having the identical interest in resolving the matter with the least financial impact possible.
Adamo also argues that to the extent there was a concurrent conflict of interest, it was perhaps only by the strict letter of R.P.C. 1.7, "since ACE had no further role to play with respect to litigating the coverage issue." Lastly, Adamo asserts that if a conflict did exist, he could and did waive it.
ACE argues Pomeroy's advocacy on its behalf is irrelevant to a future appeal because the Pomeroy firm no longer represents ACE. ACE also argues there is no conflict because even if ACE is paying the Pomeroy firm, the Pomeroy firm's allegiance is now solely to Adamo.
When reviewing a motion to disqualify an attorney, a court must "balance competing interests, weighing the `need to maintain the highest standards of the profession' against `a client's right freely to choose his counsel.'" Dewey v. R.J. Reynolds Tobacco Co., 109 N.J. 201, 218 (1988) (quoting Gov't of India v. Cook Indus., Inc., 569 F.2d 737, 739 (2d Cir. 1978)). The "determination of whether counsel should be disqualified is, as an issue of law, subject to de novo plenary appellate review." City of Atlantic City v. Trupos, 201 N.J. 447, 463 (2010).7
To consider the need to maintain the highest standards of the profession, we turn first to the Rules of Professional Conduct. R.P.C. 1.7 prohibits a lawyer from representing a client if there exists a concurrent conflict of interest:
(a) Except as provided in paragraph (b), a lawyer shall not represent a client if the representation involves a concurrent conflict of interest. A concurrent conflict of interest exists if:
(1) the representation of one client will be directly adverse to another client; or
(2) there is a significant risk that the representation of one or more clients will be materially limited by the lawyer's responsibilities to another client, a former client, or a third person or by a personal interest of the lawyer.
(b) Notwithstanding the existence of a concurrent conflict of interest under paragraph (a), a lawyer may represent a client if:
(1) each affected client gives informed consent, confirmed in writing, after full disclosure and consultation, provided, however, that a public entity cannot consent to any such representation. When 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.
Here, Pomeroy had a concurrent conflict before he withdrew as counsel for ACE. Adamo's interest in coverage under ACE's policy was directly adverse to ACE's; Adamo had sought coverage, ACE had denied coverage. Those interests did not change when the trial court entered judgment in favor of Adamo and his mother. As Pomeroy himself suggested during oral argument on his reconsideration motion, plaintiffs' claims were likely to result in a verdict in excess of the $300,000 insurance coverage on Adamo's mother's car. Adamo needed the coverage under the ACE policy. Implicit in Pomeroy's zealous advocacy on behalf of ACE was that he was not going to recommend ACE contribute toward settlement; explicit in Pomeroy's zealous advocacy on behalf of ACE was he was going to appeal the trial court's decision. Nothing in the record suggests either party's position changed when, while counsel of record for ACE, Pomeroy undertook Adamo's defense.
Adamo contends the Pomeroy firm's simultaneous representation of him and ACE was not a conflict because the firm's appearance on behalf ACE after entry of the declaratory judgment "was simply a `placeholder' type formality"; ACE was no longer an active participant in the litigation. This contention overlooks the reality that the majority of civil cases settle before trial and even when they do not, settlement negotiations are ongoing.8
In this case, it was in Adamo's best interest to settle, and settlement was unlikely without participation from ACE. While representing both parties, the Pomeroy firm could not credibly advise ACE, one of its clients, to make a substantial contribution toward settlement on behalf of Adamo, its other client, particularly in view of the Pomeroy's previous adamant position the ACE policy provided no coverage for Adamo. And if plaintiffs chose to communicate a settlement demand that included contribution by ACE, who would they communicate it to? The Pomeroy firm, ACE's attorneys of record? If so, how would the Pomeroy firm evaluate such a settlement demand for ACE while representing both Adamo, who likely wanted the case settled, and ACE, upon whose behalf the firm had represented that an appeal would be taken from the trial court's decision?
"R.P.C. 1.7 is rooted in the concept that `[n]o man can serve two masters,' Raymond L. Wise, Legal Ethics 272-73 (1970), and it has been suggested that employment should be declined if there is a question whether the representation will create an adversity of interest between two clients." State ex rel. S.G., 175 N.J. 132, 139 (2003).
Before the Pomeroy firm withdrew from representing ACE, the firm clearly had a concurrent conflict of interest. We conclude the Pomeroy firm continued to have a concurrent conflict of interest after it withdrew from representing ACE. We further conclude the evidence does not demonstrate Adamo knowingly waived the conflict and in any event, the conflict could not be waived.
Adamo's and ACE's interests remained adverse after the Pomeroy firm withdrew from representing ACE. It remained in Adamo's best interest to settle the case. ACE's only position of record — espoused by the Pomeroy firm during earlier proceedings — was its intention to appeal. For these reasons and those we have previously noted, "there is a significant risk that the representation of [Adamo] will be materially limited by [the Pomeroy firm's] responsibility to . . . a former client," namely, ACE. R.P.C. 1.7(a)(2). In view of the Pomeroy firm's previous representation of ACE, it cannot now advocate the reasons ACE should make a good faith effort to settle plaintiff's claims, including avoiding a bad faith claim.
We have acknowledged "that the `triadic relationship [of] insurer, insured, and counsel' creates difficult ethical problems." Montanez v. Irizarry-Rodriguez, 273 N.J.Super. 276, 286 (1994) (quoting Lieberman v. Empl'rs Ins. of Wausau, 84 N.J. 325, 338 (1980)). We do not suggest that simply because a difficult ethical problem arises, a defense attorney retained by an insurance company cannot ethically defend the insured. We merely hold, consistent with R.P.C. 1.7(a), that when representation of an insured by an attorney retained by the carrier poses a significant risk that the representation will be materially limited by the lawyer's responsibilities to the carrier, there is a disqualifying conflict.
In Bartels v. Romano, 171 N.J.Super. 23, 29 (App. Div. 1979), we recognized that "[a]n attorney owes his client an unswerving allegiance. The fact that the attorney is assigned by the insurance company does not alter the basic lawyer-client relationship, or the duty owed by lawyer to client." However, we further noted that under the precursor to our current Rules of Professional Conduct, "[i]f an attorney finds that the discharge of his duty to named insured brings him into conflict with the duty owed to the insurance company which engaged him, he cannot and should not continue to represent both." Ibid.
Adamo suggested at oral argument before us the Pomeroy firm's representation of him is no different from that involved in the typical "triadic relationship [of] insurer, insured and counsel." Lieberman, supra, 84 N.J. at 338. That is simply not so. First, in the typical "triadic relationship," the attorney retained by the insurance company has not zealously advocated that there is no coverage. Second, even if in the typical triadic relationship,
if the trial will leave the question of coverage unresolved so that the insured may later be called upon to pay, or if the case may be so defended by a carrier as to prejudice the insured thereafter upon the issue of coverage, the carrier should not be permitted to control the defense.
[Burd v. Sussex Mut. Ins. Co., 56 N.J. 383, 389 (1970).]
Here, it is evident from the Pomeroy firm's statements during the coverage proceedings that "trial will leave the question of coverage unresolved so that the insured may later be called upon to pay." Ibid.
Of course here, ACE did not initially seek to control the defense of Adamo. But according to the appellate record and Adamo's criminal defense and personal attorney's certification, Pomeroy sought to represent Adamo after
the insurance interests he represented had requested that he assist directly in the representation of Mr. Adamo given the trial court's determination that the ACE layers of coverage extended to Mr. Adamo and provided him with full coverage. He advised that this would also involve his ultimate withdrawal from the case as counsel for the ACE layers but the he would remain as counsel of record for the ACE layers because all of the coverage issues between the ACE layers and Mr. Adamo had been decided for the purposes of any further activities at the trial level.9
Lastly, we do not agree Adamo gave "informed consent, confirmed in writing, after full disclosure and consultation," to the Pomeroy firm's representation. Nothing in the confidential appendix establishes that anyone explained to Adamo the precise nature of the Pomeroy firm's ongoing conflict, namely, its lawyers could not zealously and effectively advocate on behalf of Adamo that ACE make a substantial contribution toward settlement of the claims against Adamo. Absent explanation of the ongoing and future implications of the Pomeroy firm's previous representation of ACE, particularly during ongoing settlement negotiations, Adamo's consent could not have been informed and made after full disclosure of the conflict.10 For the foregoing reasons, we reverse the trial court's order denying plaintiffs' motion to disqualify the Pomeroy firm from representing Adamo.
Reversed.
