April 2008 • Vol. 28 No. 4 | An E-Publication of the Los Angeles County Bar Association

Proper Conflict Disclosures for Joint Clients

By Robert K. Sall, member, LACBA Professional Responsibility and Ethics Committee. He is with The Sall Law Firm in Laguna Beach, with practice emphasis in legal malpractice cases and fee disputes, and may be reached at rsall@Sall-Lawoffice.com. The opinions expressed are his own.

Rule 3-310 of the California Rules of Professional Conduct tells us certain conflicts may be waived by informed written consent of the client following written disclosure of the relevant circumstances and the reasonably foreseeable adverse consequences.

Lawyers often neglect conflict disclosures when undertaking to represent joint clients because of the misperception that no conflict exists when persons share a common goal. Yet, there is always the risk that individual minds may differ. Because the lawyer owes equal duties to each of the joint clients, there is inevitably a potential conflict. In that situation, Rule 3-310(C)(1) and (2) require an appropriate written disclosure and the clients’ informed written consent before undertaking a joint representation. 

Where the lawyer receives instructions from one joint client directly contrary to the instructions of the other client, the lawyer is hamstrung by conflicting loyalties. A conflict exists when duty requires the lawyer to advocate for one client that which duty to the other client requires the lawyer to resist. This potential should be addressed from the outset in a disclosure letter informing the clients that the situation may arise and describing how the lawyer will respond. A client is less likely to complain about a lawyer’s actions if informed in advance how the situation would be handled.

The prudent lawyer will structure a customized letter that describes in plain words the relevant circumstances, the reasonably foreseeable areas of conflict, and how the lawyer will act if such conflicts develop. Outlining the issues in advance is the key to drafting a good disclosure. Rarely is it a good idea to use a form letter. Such disclosures should be carefully adapted to suit the circumstances of the particular clients.

In its Formal Opinion 1999-153, the State Bar’s Standing Committee on Professional Responsibility and Conduct set forth six areas of potential disclosure to joint clients, including: (1) the possibility of receiving conflicting instructions; (2) the possibility of conflicting objectives; (3) the possibility that the attorney may be asked to advocate inconsistent legal positions; (4) the possibility that the clients may have inconsistent expectations of confidentiality; (5) whether a pre-existing relationship exists with one of the clients; and (6) the possibility of conflicting demands for the original file at the conclusion of the representation. (For potentially applicable rules, see Cal. R. of Prof’l Conduct 3-100; 3-310 (A),(B),(C),(D), and (F); 3-500; 3-600; 3-700(D); and Bus. & Prof. Code §6068(e).)

In addition to the factors in the COPRAC opinion, other areas of potential conflict among joint clients include disputes over the obligation to pay the lawyer’s fees; what will happen if one client does not pay his or her share; and the risks imposed by the joint client exception to attorney-client privilege (Evid. Code §962). One of the clients may provide the lawyer information he or she does not want disclosed to the other client. How will the lawyer handle this situation? Can the lawyer keep secrets? 

Joint client disclosure is even more problematic when representing a large group. There, the lawyer should establish a protocol for how group communications will be handled. How will you deal with the probability that some group members will not agree to the direction taken by the majority? This is foreseeable and should be dealt with up front. 

The joint clients may have unasserted legal rights against one another. Take the scenario of a single law firm jointly representing both an employer and its employee in defense of a lawsuit. The employee may have a Labor Code Section 2802 right of indemnity. The employer may have defense that the employee acted without authorization outside the course and scope of employment. The lawyer cannot advise one client against the other. The clients should be informed of the limitations on what the lawyer can do. For questions regarding their own individual rights or obligations, they may need independent counsel. 

Joint clients often develop conflicting goals that did not originally exist. The employee may get fired or leave for a new job. Two defendants may have different views regarding the amount to be offered in settlement or how much each of them should pay. Likewise, two plaintiffs may have vastly different views about how a successful recovery should be divided. Aggregate settlements are subject to special treatment under Rule 3-310(D), requiring the informed written consent of all clients.

Before drafting the conflict letter, it is helpful for lawyers to prepare a list of thought-provoking questions. Examples of such questions might be: 

Is one client going to foot the legal bill? 

What will the lawyer do if that client stops paying fees for the other client? 

Is it foreseeable that one client may file bankruptcy, and if so, what is the impact on the other? 

What is the lawyer’s role if one of the clients can’t pay an adverse judgment or can’t afford to pursue an appeal? 

How will the clients determine a sharing ratio as to the obligation to pay a settlement or the division of any recovery? 

How will the lawyer respond when one client provides information he or she does not want revealed to the other client? 

What will the lawyer do when he or she receives conflicting instructions? 

Remember that conflict disclosures come in two stages, one as to potential conflicts existing at inception of representation and another as to actual conflicts of interest that develop later. Under Rule 3-310(C)(1) and (2), an attorney may neither accept nor continue conflicting representation without providing written disclosure and obtaining informed consent. An actual conflict of interest arising during the representation is a significant development that must be communicated under Rule 3-500.

Many lawyers and their clients would benefit from spending more time on the conflict letter, not merely seeing it as a chore. The letter is a real opportunity to educate clients and to be certain they really understand the risks.

 




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