Managing Conflicts of Interest
Managing Conflicts of Interest
The failure to identify a conflict of interest initially or to resolve the issue in a manner that satisfies all ethics requirements -- These issues often lie at the heart of many legal malpractice suits. Some attorneys erroneously perceive conflicts of interest as a “big firm” problem. However, some of the more troubling and expensive claims involve a conflict between the personal interest of an individual lawyer and the interest of the client, or a lawyer who represents two clients in the same transaction. Conflicts of these two types are of concern to every lawyer in a law practice of any size.
Violations of the conflict of interest rule can expose attorneys to a disqualification motion and the risk of a legal malpractice claim from one or both of the affected clients. Proper identification of a conflict of interest is a key to preventing ethical errors as well as professional liability claims that may result from an unidentified or unaddressed conflict. By screening each and every representation carefully to determine whether it actually or potentially conflicts with the interests of other clients of the firm, an attorney can take an important step toward avoiding claims resulting from conflicts.
Recognize When a Conflict Can Arise
The most common types of conflicts of interest arise when a lawyer accepts a representation adverse to the interests of a former client, or concurrently represents multiple clients having adverse interests. However, conflicts can arise in many other situations:
· Attorney’s business transactions with a client;
· Acquisition by the attorney of an ownership, possessory, security, or other pecuniary interest adverse to a client;
· Attorney’s personal or business relationship with another party interested in the representation or transaction;
· Attorney’s professional or personal relationship with the attorney for another party; or
· Attorney’s activities as an advocate in a jury trial in which the attorney will be called to testify as a witness.
In the first three cases, the Model Rules of Professional Conduct prohibit the attorney from accepting or continuing such representation unless the attorney first obtains the informed written consent of all affected clients. In the latter two cases, the clients should be informed of the conflict in writing and consent may be required. In fact, the only circumstance in which representation of conflicting interests is absolutely prohibited arises when the attorney or the firm represents multiple clients adverse to one another in a contested proceeding. Most jurisdictions recognize that multiple representation of actual or potentially conflicting interests is customary so long as the clients knowingly and intelligently have given their written consent to the representation.
Develop a Consistent Approach
The ABA/BNA Lawyers’ Manual on Professional Conduct suggests there are questions that routinely should be addressed in determining whether a lawyer’s representation of a client will conflict impermissibly with the representation of a former client (items noted in italics have been added to illustrate how conflicts between a client’s interest and a lawyer’s personal interest may be addressed):
· Was there ever an attorney-client relationship between the lawyer and a party who might seek disqualification? Is the client truly a former client of the lawyer’s?
· Are the interests of the current and former clients (or the lawyer’s personal interest) adverse?
· Is there a substantial relationship between the two representations (or between the client’s interests and the lawyer’s personal interest)?
· Has the former client consented to the current representation or waived objection to it?
· Is the presumption that the lawyer gained confidential information from the former client rebuttable in this jurisdiction?
· Has the presumption of shared confidences been rebutted?
Disclose Conflicts of Interest
The Model Rules prohibit attorneys from representing clients with conflicting interests unless the attorney first obtains the informed written consent of all affected clients. Prior to obtaining the client’s consent in writing, the responsible attorney should discuss the actual or potential conflict with the clients before presenting them with a written consent form. During that discussion, the attorney should outline the following items:
· The points to be covered in the written consent;
· All facts and circumstances that give rise to the conflict;
· The potential adverse effect on the clients;
· The fact that the attorney is required ethically to give this advice;
· The client should consider seeking independent legal counsel regarding the adverse representation; and
· Ethical rules require that the client’s written consent to the adverse representation be obtained.
During this conversation, the attorney will have an opportunity to gauge the effect that the disclosure has on each client and to respond to any concerns or questions that the client might have.
Assuming that the clients are not troubled by the adverse representation, the attorney’s advance explanation that ethical rules require obtaining their written consent will go a long way toward allaying their concern about signing such a consent form. If such consent is not forthcoming, however, the firm should decline the representation.
Obtain Informed Written Consent
The question remains regarding when a client is “informed” sufficiently to consent to the firm’s representation of a client whose interests are adverse to those of another client or former client. The term “informed” is defined in the Model Rules as follows: “Informed” means full disclosure to the client of the circumstances and advice to the client of any actual or reasonably foreseeable adverse effects of those circumstances upon the representation. Thus the firm must, at a minimum, disclose to the client:
· The circumstances that give rise to the actual or potential conflict; and
· A description of any actual or reasonably foreseeable adverse effects of those circumstances upon representation of the client.
If the potential conflict arises out of the joint representation of co-parties in litigation, the disclosure also should include the fact that no attorney-client privilege exists as between the joint clients. In light of the severity of legal malpractice claims arising from conflicts of interest, the loss of a client, and the fees a firm must disgorge in the event of a conflict of interest, many lawyers advise their clients to seek independent legal advice regarding the conflict of interest when seeking a waiver.
Consider Imputed Disqualification
The disqualification of one lawyer in a law firm may be imputed to the other lawyers in a firm or group to require their disqualification as well. Attempts by the firm to screen the disqualified lawyer from participation in the client’s representation sometimes prevent the firm’s disqualification. While many federal courts accept screening in certain circumstances, state courts appear more reluctant to recognize ethical screens. Some state courts have adopted a clear-cut rule in private-to-private employment switches: where an attorney is disqualified because he formerly represented a client and therefore possesses confidential information regarding the adverse party, vicarious disqualification of the entire firm is compelled as a matter of law. Even if the attorney had been screened from day one, the entire firm still would have to be disqualified.
Address Each Situation Individually
Each conflict must be evaluated and addressed individually. Key to a valid waiver is an accurate description of the nature and circumstances of the conflict, the potential adverse effect of the conflicting interests on the client, and written documentation of the client’s waiver of the conflict, accompanied by a discussion with the client of these issues.
This article is intended to inform the reader of potential liability exposures for attorneys. This article reflects general principles only and does not render legal advice. Readers should consult legal, financial, insurance and other advisors if they have specific concerns. Neither the Los Angeles County Bar Assoc-iation nor Aon and its affiliates assumes any responsibility for how the information in this article is applied in practice or for the accuracy and completeness of the information. Reproduction without written permission is prohibited.
This article, which originally appeared in the Aon Attorneys’ Advantage Risk Management Newsletter, The Quarter Hour, is reprinted with the permission of Aon Attorneys’ Advantage and is made available to the County Bar Update by Aon Direct Insurance Administrators, administrators of the LACBA Sponsored Aon Insurance Solutions Program.
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