GPSolo Magazine - October/November 2005
Conflicts of Interest
A lawyer or law firm cannot be successful without clients, and the ability to obtain and retain clients is crucial to any practice. Conflict of interest issues can limit a lawyer’s or firm’s ability to take on new clients or to continue with existing ones, and thus they must be carefully considered. On the one hand, being too sensitive to potential conflicts can unduly limit a practice and cause friction among lawyers in a firm. On the other hand, not viewing conflicts seriously enough can lead to loss of clients, returns of fees, and discipline and liability for malpractice or breach of fiduciary duty. Finding the proper balance in this area is crucial.
Conflicts of interest appear in an infinite variety of situations and are frequently fact-specific, yet they often are difficult to identify. According to the Restatement of the Law Governing Lawyers, a conflict of interest exists “if there is a substantial risk that the lawyer’s representation of the client would be materially and adversely affected by the lawyer’s own interests or by the lawyer’s duties to another current client, a former client, or a third person.” The key is whether the lawyer’s exercise of independent professional judgment is likely to be unduly influenced by other interests. In making that determination, it is often helpful to ask yourself a question like, Because of the presence of an interest, am I likely to do or be tempted to do something different from what a truly independent lawyer—one who did not have this interest—would do in the same circumstances? If the answer is yes, it is fair to say there is a conflict.
But that is only the beginning of the analysis. It is also important to keep in mind that, when addressing conflicts and potential conflicts, the focus must not only be on the lawyer but also on clients and the community. Although the Model Rules of Professional Conduct look, in part, to the role of the reasonable lawyer in resolving conflicts, such a focus is helpful but not sufficient. Lawyers should consider as well the “reasonable” client and the appearance of impropriety, even though that standard no longer is formally part of the rules. If clients, third parties, and observers of the legal system are not confident that lawyers are exercising independent professional judgment, the potential exists for damage to both existing lawyer-client relationships and perceptions of the legal system itself.
Although the Model Rules and case law address conflicts, these sources often provide little guidance for resolving conflicts in the real world. Commentaries to the Model Rules, however, do set out a methodology for analyzing conflicts of interest that should be the starting point for resolving potential problems. Comment 2 to Rule 1.7, resolution of a conflict of interest problem, requires that the lawyer follow a four-step analysis: Clearly identify the client or clients; determine whether a conflict of interest exists; decide whether representation may be undertaken despite the conflict; and, if so, consult with the affected clients and obtain informed consent. Each of these steps will be analyzed below.
Who Is the Client?
In order to clearly identify your client or clients, ask yourself a few of these simple questions: Who is it I am representing? Have I actually undertaken representation, or am I dealing with a prospective client? Is the client an individual, or the entity for which that individual works? Is it the insured or the insurance company paying the bill? Am I representing one party to the transaction, both parties, or the entity they are forming? At times, these questions can be complicated, but knowing whose interests are paramount is crucial.
Is There a Conflict?
Figuring out whether you have a conflict is often the most difficult step. As noted previously, you must determine whether external interests—your own or those of other clients or third persons—are likely to impact your exercise of independent professional judgment. Information is the key to this analysis. Lawyers must have access to good information regarding their own interests (investments, etc.) and the interests of their families, other clients, and relevant third parties. This can be difficult enough for a single lawyer but is even more difficult for lawyers in firms because they must have access to this information for partners, associates, and staff members as well.
It is surprising how many lawyers play ostrich when it comes to conflicts, simply ignoring potential problems. Others assume that they remember all past and current clients and can anticipate conflicts from memory. Both approaches are dangerous; even for lawyers in solo or small firm practice, relying on memory is simply not adequate. All lawyers should adopt and use conflict-checking systems appropriate to the size and type of their practice. Conflict-checking software can be run in conjunction with case management and time and billing software, making it relatively easy to check for potential problems.
Although conflict-checking systems are crucial, any system is only as good as the data entered into it. Develop a procedure for everyone who enters data into any relevant systems to follow, to help ensure all necessary categories are covered. In addition to obvious entries—clients, opposing parties, expert witnesses—cover the possibility of future conflicts as well, periodically entering sources such as insurance companies, potential beneficiaries of estates, key officers and employees of corporations and subsidiaries, and close relatives of attorneys and firm employees. Be thorough and include alternative spellings and known former names from the start.
Additionally, you must have workable systems for human follow-up when potential conflicts are identified. Informal discussions may be sufficient for small offices, but, even here, you must document that the potential conflict was discussed and resolved. In larger firms, a system involving e-mails, forms, or memos that document input from all relevant sources may be necessary. Whatever the final format, be sure to designate one or more individuals to be responsible for ensuring and documenting that a full conflict check was performed before work starts on any new client’s case.
Wherever a lawyer’s ability to recommend or carry out an appropriate course of action for a client may be materially limited by the lawyer’s other responsibilities or interests, a conflict of interest may exist. Although conflicts are often unique and fact-specific, some common conflicts can be identified. One obvious is conflicts created by the lawyer’s own interests. Do a lawyer’s personal beliefs present a conflict when they disagree with a client’s objectives? Can a lawyer take a “piece of the action”—for example, an interest in a business being formed—as part of the fee? What if the opposing party or attorney is a close personal friend of the lawyer or the lawyer’s spouse? These situations present potential conflicts but do not necessarily preclude representation.
Another category of conflicts often arises as a result of current or past representation of other clients. A lawyer cannot represent both sides in a contested matter or sue a current client, even in an unrelated matter; but the lawyer can, with appropriate care, represent multiple parties with similar interests. Representation of co-plaintiffs or co-defendants is common, although particular caution is needed in criminal cases. Representing clients who merely compete with one another does not present a legal conflict, but practical considerations may dictate that the lawyer decline such representation. Similarly, most issue or positional conflicts—arguing one legal position in Case A and a contrary position in Case B—are permissible, although the clients may not be happy with the situation.
Former clients can also pose conflict challenges for an attorney. Although the duty of loyalty diminishes significantly once representation is concluded, some degree of residual loyalty prevents a lawyer from attempting to “undo” what was accomplished for the client. But the duty of confidentiality continues after the representation is over and arguably remains forever. Even though you may no longer have any recollection of the matter, the law presumes that you do. As a result, lawyers are prohibited from representing materially adverse to (which includes suing) a former client in a substantially related matter.
Thousands of pages have been written trying to define “substantially related.” Comment 3 to Rule 1.9 provides some guidance. Matters are “substantially related” if they “involve the same transaction or legal dispute” or if there is “a substantial risk that confidential factual information . . . obtained in the prior representation would materially advance the client’s position in the subsequent matter.” Comment 3 gives as an example a lawyer who represented and thus learned extensive private financial information about a businessperson; that lawyer may not then represent the person’s spouse in seeking a divorce. Similarly, a lawyer who represented a shopping center in securing environmental permits cannot thereafter represent neighbors seeking to oppose rezoning based on environmental considerations, but may defend a tenant of the center in resisting eviction for nonpayment of rent.
The possibility of conflicts must be considered before representation is actually undertaken because discussions with prospective clients about substantially related matters may lead to conflict problems. If the lawyer obtains too much information in an initial consultation, that information can be used to conflict out both the lawyer and the firm. Under Model Rule 1.18 (added in February 2002 by the ABA as part of the Ethics 2000 revisions, although few states have yet adopted it), where a lawyer has obtained information that could be “significantly harmful” to a prospective client, that lawyer is disqualified from representing materially adverse to that person in a substantially related matter, nor may the lawyer’s firm represent the client without jumping through significant hoops. To avoid problems, obtain only minimum information necessary to help decide whether to take a case, and be sure to document these conversations and enter prospective and declined clients into your conflict-checking system.
As noted previously, conflicts may be created by personal interests or representations of or information possessed by the lawyer’s partners, associates, law clerks, office staff, and of counsel attorneys. Conflict checking that includes all of these players is essential. Additionally, run a conflict check before hiring any new staff member. Lawyers engaged in office sharing must also tread carefully to avoid disclosure of or access to client confidences. Failure to do so may lead to imputation of conflicts.
Changes in clients’ affiliations or mergers may lead to conflicts and must be monitored. Conflicts may be created when companies merge or engage in takeovers, for example, or where families change through divorce and remarriage. Initial conflict checks will not always avoid conflicts brought about by unanticipated changes, and monitoring and updating are necessary.
Can I Represent Despite the Conflict?
The existence of a conflict or potential conflict does not always mean you cannot undertake or continue representation, but it does require you to take certain steps before doing so. Initially, determine whether the conflict is one of the few that absolutely prohibits representation under any circumstances. For example, a lawyer cannot represent both sides in the same or related litigation. Most conflicts can be waived—but the fact that you legally can undertake representation doesn’t necessarily mean you should.
In assessing whether to seek consent to a potential conflict, review the practical and business issues as well as legal and ethical considerations. How will seeking consent and engaging in potentially conflicted representation affect your relationship with your current and future clients? How likely is it that problems will develop? If they do, will they affect your practice and reputation? Consent may seem like a good idea when it allows the representation and appears to make everyone happy, but if a real likelihood of future difficulties exists, you may well be simply delaying the inevitable. Not facing up to this eventuality could lead to disqualification and, worse, an angry former client, no fee, and a bar complaint.
How Should I Go About Obtaining Informed Consent?
If you reasonably believe you can provide competent and diligent representation despite the conflict, and you decide to go forward and obtain consent, keep several points in mind. First, be careful not to inadvertently disclose confidential information to other clients while seeking their permission to proceed. Second, ensure that you receive informed consent, which requires that you communicate “adequate information and explanation about the material risks of and reasonably available alternatives to” the conflicted representation. This explanation must include the effect of joint representation on confidentiality, both between commonly represented clients and with regard to others outside the relationship. Third, be sure to obtain the necessary consent in writing. Whether your jurisdiction has or has not adopted the requirement of written consent, never undertake conflicted repre-sentation without having a disclosure document signed by the client. You would never allow a client to rely on anything less—uphold the same standard in your own practice.
The extent to which lawyers will confront potential conflicts of interest is influenced by the size, type, and location of practice. For example, lawyers in specialized practice areas, or serving tight-knit ethnic communities, or practicing in small towns are more susceptible to conflicts owing to the interrelationships among their constituencies. But key strategies can help all lawyers avoid conflicts that can damage their reputations and lead to liability or discipline.
Lawyers must take conflicts seriously. They must be aware of interests that could impair their current or future independent professional judgment and should regularly use thorough conflict-checking systems before taking on all representations. In most cases, even where potential conflicts are identified, attorneys have a range of choices to resolve those conflicts; the ultimate course of action will often depend on the lawyer’s degree of risk adversity, the nature of the community, and law firm economics.
Managing conflicts requires staying on top of the situation, gathering and using relevant information, and not letting personal relationships or the desire for income cloud your better judgment. A lawyer cannot have a practice completely free of conflicts; they are inherent in the practice of law. But, using appropriate procedures, a lawyer can prevent those conflicts from interfering with a successful practice.
Ellen Yankiver Suni is the dean and Marvin Lewis Rich Faculty Scholar and Professor of Law at the University of Missouri-Kansas City School of Law. She currently co-teaches interdisciplinary courses and workshops as part of UMKC School of Law’s program, Entrepreneurial Lawyering: Solo and Small Firm Practice, which prepares students and lawyers for solo and small firm practice. She can be reached at firstname.lastname@example.org.