Model Rule 1.7

Reporter's Explanation of Changes

TEXT:

1. Change caption to "Conflict of Interest: Current Clients"

Rule 1.7 does not purport to define or regulate all types of conflicts but rather only those that arise with respect to current clients. The proposed change will more accurately reflect the limited scope of this Rule. No change in substance is intended.

2. Create single paragraph defining "conflict of interest"

The relationship between current paragraphs (a) (directly adverse conflicts) and (b) (material limitation conflicts) is not well understood. Lawyers frequently become confused attempting to determine what constitutes a "directly adverse" conflict when it may not matter because, even when not "directly adverse," the representation may still involve a conflict under paragraph (b)'s "material limitation" standard.

In addition, present paragraph (a) is conceptually confusing since, in most "directly adverse" conflicts, common representation is likely to affect both the relationship with the current client and the representation of the new client. For example, when the lawyer seeks to represent a new client suing an existing client represented by the lawyer in an unrelated matter, current paragraph (a) looks to the effect of the new representation on the existing client, while paragraph (b) applies to the effect of the existing relationship on the representation of the new client. Thus, most cases involving directly adverse conflicts need to be analyzed under both paragraphs (a) and (b). There appears to be no reason why both conflicts cannot be analyzed under a single paragraph that defines and prohibits the representation unless informed consent is properly obtained.

Under the proposed new structure, paragraph (a) sets forth the basic prohibition against representation involving currently conflicting interests, including the definition of a conflict of interest. Conflict of interest is defined to include both directly adverse conflicts and material limitation conflicts.

Unlike present paragraph (b), in which a conflict exists if the representation "may be" materially limited by the lawyer's interests or duties to others, proposed paragraph (a)(2) limits conflicts to situations in which there is "a significant risk" that the representation will be so limited. This proposed change is not substantive but rather reflects how current paragraph (b) is presently interpreted by courts and ethics committees.

Proposed paragraph (a)(2) specifically identifies "former clients" as nonclients to whom the lawyer may owe duties, as distinct from "other persons" to whom the lawyer may owe duties, such as those arising from the lawyer's role as fiduciary or corporate director. These changes are proposed to make it easier for lawyers to recognize these conflicts when they arise.

The introductory phrases in both paragraphs (a) and (b) are designed to clarify the relationship between the two paragraphs.

The purpose of these proposed changes is to clarify the text and to better educate lawyers regarding the complex subject of conflict of interest. No change in substance is intended.

3. Create single paragraph on consentability and informed consent

The proposed Rule makes clear that in certain situations a conflict may not be waived by the client. That is, the representation may not go forward even with the client's consent. Unlike the current Rule, the proposed Rule contains a single standard of consentability and informed consent, applicable both to directly adverse and material-limitation conflicts. This standard is set forth in a separate paragraph, both to reflect the separate steps required in analyzing conflicts (i.e., first identify potentially impermissible conflicts, then determine if the representation is permissible with the client's consent) and to highlight the fact that not all conflicts are consentable.

Under the current Rule, consentability turns on a determination that the conflict will "not adversely affect the representation." The difficulty with this standard is that in order to determine that a conflict exists in the first place, the lawyer must have already determined that the lawyer's duties or interests are likely to "materially limit" the representation. There is a difference between "material limitation" and "adverse affect on" the representation, but the difference is subtle. As a result, lawyers are understandably confused regarding the circumstances under which consent may be sought.

Paragraph (b) breaks down consentability into three components. The first and most common is modeled after the current Rule, in which the goal is to protect clients in situations where the representation is likely to be inadequate. The proposal is to replace the phrase "adverse effect on the representation" with an explicit statement of what that phrase was intended to mean, i.e., that it is unlikely that the lawyer will be able to provide "competent and diligent representation to each affected client." The terms "competent" and "diligent" are already defined and are generally well understood, thus providing a relatively clear standard that lawyers can apply in making the determination whether to go ahead and seek the client's consent. The term "reasonably" makes clear that, as under the current Rule, the consentability standard is an objective one.

Paragraphs (b)(2) and (b)(3) articulate situations in which courts and ethics committees have found certain conflicts to be nonconsentable, not only because they may be harmful to clients, but also because there are other interests, for example, the interests of courts, that need to be protected. Paragraph (b)(2) refers to representation "prohibited by law," that is, law other than the Rules of Professional Conduct. (For example, substantive law in some jurisdictions provides that the same lawyer may not represent more than one defendant in a capital case or both the buyer and seller in a real estate transaction.)

Paragraph (b)(3) describes conflicts that are nonconsentable because of the institutional interest in adequate development of each client's position when the clients are aligned directly against each other in the same litigation. Thus, these conflicts are nonconsentable even if the lawyer reasonably believed that the representation would be competent and diligent. It has been suggested that there may be similar institutional interests in separate representation in contexts outside litigation. Since it is not possible to describe such situations in language that preserves this paragraph's bright-line text, the Commission believes that these other situations can be adequately addressed under paragraphs (b)(1) and (b)(2).

Finally, paragraph (b)(4) substitutes "informed consent" of the client for "consent after consultation." It was felt that "consultation" did not adequately convey the requirement that the client receive full disclosure of the nature and implications of a lawyer's conflict of interest. The term "informed consent" was chosen because it already has a fairly well-accepted meaning in other contexts. That term, which is used throughout the Rules in place of "consent after consultation," is defined in Rule 1.0(e). In each Rule where the term is used, there will be a cross-reference in the Comment to the definition in Rule 1.0(e), as well as language in the Comment providing specialized guidance.

The purpose of these proposed changes is to clarify the text and better educate lawyers regarding the complex subject of conflict of interest. No change in substance is intended.

4. New requirement that informed consent be "confirmed in writing"

The Commission was urged to require some form of writing, for the benefit of both the lawyer and the client. Some states have done so, and experience indicates that the requirement is not overly burdensome or impractical.

Under the Commission's proposal, it is not necessary that the client's agreement be obtained in a writing signed by the client. Rather, the term "confirmed in writing" is defined by proposed Rule 1.0(b) to denote informed consent that is either given in writing by the person or a writing that a lawyer promptly transmits to the person confirming an oral informed consent. A writing is required in all instances, but the Comment allows for flexibility when there is not time to memorialize the consent before proceeding with the representation. See Comment [20].

COMMENT:

Conflict of interest doctrine is complicated, and the Commission believes that lawyers are in need of additional guidance. Therefore, the Commission is recommending substantial changes to the Comment to Rule 1.7. The changes are designed to clarify basic conflicts doctrine and to address a number of recurring situations. The proposed organization provides an introduction (Comments [1] through [5]), a general roadmap to conflicts analysis (Comments [6] through [22]) and finally an elaboration of conflicts involving litigation (Comments [23] through [25]), nonlitigation (Comments [26] through [28]), common representation (Comments [29] through [33]) and organizational clients (Comments [34] and [35]).

General Principles

Caption The caption has been changed to better reflect the subject of the following Comments.

[1] Comment [1] retains and modifies the first sentence of current Comment [1] but is otherwise new. It states the rationale for the basic prohibition of representation involving conflicts of interest - to avoid compromising loyalty and independent judgment. It then adds cross-references to Rules 1.8 and 1.9.

[2] This entirely new Comment outlines a four-step process for recognizing and resolving conflict-of-interest problems.

[3] This Comment incorporates much of the remainder of current Comment [1]. Changes in the first sentence reflect the dual requirements of paragraphs (a) and (b) that the lawyer recognize a conflict and decline representation unless the requirements of paragraph (b) have been met. The Comment adds a cross-reference to the Rule 5.1 Comment, which states the requirement that lawyers with managerial authority within a law firm make reasonable efforts to establish internal systems for determining conflicts of interest. The last sentence is identical to the last sentence in current Comment [2].

[4] This Comment incorporates much of current Comment [2]. Changes are designed to more clearly state the requirements of the Rule where a conflict arises after a representation has commenced and, in addition, to indicate the type of analysis required to determine whether a lawyer must withdraw from representing one of several clients represented concurrently by the lawyer or, in some cases, from representing all of them.

[5] This new Comment addresses the problem of conflicts that arise after a representation has commenced as a result of unforeseeable developments, such as a merger or acquisition by a corporate client. In the disqualification context, courts have often recognized that it is unreasonable to require the lawyer to withdraw from representing both clients and have permitted the lawyer to withdraw from one of the two representations in order to avoid the conflict (something that is ordinarily not permitted under the so-called "hot potato" doctrine). The Comment specifies that the lawyer may be permitted to withdraw from one of the representations in order to avoid the conflict. The Comment requires the lawyer to comply with Rule 1.16, including seeking court approval where necessary. The Comment further reminds lawyers that they continue to owe the now former client the duty to keep confidential any information gained during the course of the representation.

Identifying Conflicts of Interest: Directly Adverse

Caption The caption has been added to better reflect the following Comments.

[6] This Comment incorporates much of current Comment [3]. It addresses the conflicts defined in paragraph (a)(1), i.e., "directly adverse" conflicts. It provides the rationale for the Rule, addresses the question of whether the Rule applies when a lawyer will have to cross-examine a present client and explains how "directly adverse" conflicts also pose "material limitation" conflicts with respect to the lawyer's existing client.

[7] This new Comment explains how directly adverse conflicts may arise in some transactional matters.

Identifying Conflicts of Interest: Material Limitation

Caption The caption has been added to better reflect the following Comment.

[8] This Comment incorporates much of current Comment [4]. It addresses the conflicts defined in paragraph (a)(2), i.e., "material limitation" conflicts. The changes are designed to clarify the relationship between paragraphs (a)(1) and (a)(2) and to address the question of how likely the risk of harm must be before a conflict of interest is determined to exist.

Lawyer's Responsibilities to Former Clients and Other Third Persons

Caption The caption has been modified to better reflect the subject of the Comment.

[9] This new Comment explains the variety of ways conflicts arise other than from duties to existing or prospective clients, including a specification of some of the ways in which a lawyer's duties to third persons may interfere with the representation of present clients. It specifies that such third persons include former clients and provides a cross-reference to Rule 1.9. This Comment should help clarify that when there is a conflict between a prospective client and a former client, the representation may be undertaken only if the requirements of both Rules 1.7 and 1.9 are met.

Personal Interest Conflicts

Caption The caption has been added to better reflect the following Comments.

[10] This Comment addresses conflicts arising from a lawyer's self-interest and retains most of current Comment [6]. The sentence regarding fees has been deleted on the ground that conflicts between lawyers and prospective clients regarding fee arrangements are typically addressed not by "conflict of interest" rules but rather by Rule 1.5, which regulates fees directly. The third sentence is intended to incorporate ABA Formal Opinion 96-400, which addresses a lawyer negotiating for employment with opposing counsel, which might lead to a lawyer switching to the law firm opposing the lawyer's client in the middle of a representation. The last two sentences add cross-references to Rules 1.8 and 1.10.

[11] This new Comment addresses conflicts arising from a lawyer's family relationships, a topic that was previously addressed in Rule 1.8(i). (For a discussion of the reasons why the Commission is proposing to delete Rule 1.8(i) and address a lawyer's family relationships in the Rule 1.7 Comment, see the Reporter's Explanation on Rule 1.8.) This Comment explains how conflicts arise under Rule 1.7(b) when lawyers representing different clients are closely related. The cross-reference to Rule 1.10 reminds lawyers that these personal-interest conflicts ordinarily will not be imputed to members of the disqualified lawyer's firm.

[12] This new Comment provides a cross-reference to Rule 1.8(j), which prohibits lawyers from engaging in sexual relationships with clients in most circumstances.

Interest of Person Paying for a Lawyer's Service

[13] This Comment modifies current Comment [10] by eliminating the specific illustrations and explaining the relationship between Rules 1.7 and 1.8(f). The Commission is recommending a specific reference in Rule 1.8(f), Comment [12], to compliance with the requirements of Rule 1.7 when third-party payment involves a conflict of interest. The examples involving insurance defense and corporate constituents have been deleted on the grounds that these examples involve a number of complex questions that cannot adequately be addressed in this Comment.

Prohibited Representations

Caption The caption has been changed in order to highlight and then focus on the fact that there are some representations that are prohibited, even with the informed consent of the client.

[14] This Comment modifies current Comment [5] in order to more clearly articulate the fact that some conflicts are nonconsentable, meaning that the lawyer may not undertake the representation even with the client's informed consent.

[15] This new Comment addresses the standard by which consentability is determined under paragraph (b)(1), i.e., when the concern is for the client's own protection.

[16] This new Comment describes the standard by which consentability is determined under paragraph (b)(2), i.e., when the representation is prohibited by applicable law, and provides some examples.

[17] This new Comment describes the standard by which consentability is determined under paragraph (b)(3), i.e., when the clients are aligned directly against each other in the same litigation, and explains that the rationale is to protect institutional interests in vigorous development of each client's position.

Informed Consent

Caption The caption has been changed to reflect the substantive change in the text from "consent after consultation" to "informed consent."

[18] This new Comment explains what is required to meet the requirement that the lawyer obtain the client's informed consent and provides cross-references both to Rule 1.0(e) and to the more detailed paragraphs of this Comment on the implications of common representation.

[19] This new Comment addresses circumstances when it may be impossible to make the disclosures required to obtain consent.

Consent Confirmed in Writing

Caption The caption has been added to set off the new Comment.

[20] This new Comment addresses the new requirement under paragraph (b)(4) that the informed consent of the client be confirmed in writing. It states that it is not necessary in all instances that the writing be obtained or provided at the time the client gives informed consent. If it is not feasible to do so because of the exigencies of the circumstances, then the lawyer may confirm the consent in writing within a reasonable time thereafter.

Revoking Consent

Caption The caption has been added to set off the new Comment.

[21] This new Comment explains that, while a client may always revoke consent and terminate the lawyer's representation of the client, whether or not the revocation will preclude the lawyer from continuing to represent other clients will depend on the circumstances, including the nature of the conflict.

Consent to a Future Conflict

Caption The caption has been added to set off the new Comment.

[22] This new Comment addresses a question that has arisen frequently in practice, i.e., the effectiveness of consent to future conflicts. The Comment states that whether such consent is effective is determined by the test of paragraph (b), specifically whether the conflict is consentable and whether the client has given truly informed consent.

Conflicts in Litigation

[23] This Comment maintains current Comment [7] with only a few modifications reflecting textual changes.

[8] The Commission recommends deleting current Comment [8] because the material here is now addressed in Comment [6].

[9] The Commission recommends deleting current Comment [9] because the material here is now addressed in Comment [24].

[24] This new Comment replaces current Comment [9] on "positional conflicts." It focuses primarily, not on whether such conflicts are consentable, but rather on the more important and troubling question of whether the clients need to be consulted. The current Comment has been uniformly criticized for making too much of the distinction between trial and appellate courts. This Comment uses an analysis similar to that used for other conflicts, i.e., whether there is a significant risk that the lawyer's duties in one representation are likely to materially limit the lawyer's duties in the other representation. It must be kept in mind, however, that it may be difficult to detect some positional conflicts. Moreover, there is a need to avoid giving clients too much veto power over what types of representation a lawyer or law firm may handle.

[25] This new Comment addresses the application of paragraph (a)(1) to lawyers involved in class-action lawsuits.

Nonlitigation Conflicts

Caption The caption has been changed to reflect the emphasis in these Comments on nonlitigation conflicts.

[26] This Comment maintains current Comment [11] with a few modifications designed to clarify the application of conflict-of-interest doctrine to nonlitigation situations.

[27] This Comment maintains current Comment [13] with a few stylistic changes.

[28] This Comment maintains current Comment [12] with an expanded discussion of nonconsentability in the context of transactional representation. The expanded discussion is taken from the Comment to current Rule 2.2.

Special Considerations in Common Representation

These Comments are taken primarily from the Comment to current Rule 2.2, which the Commission is recommending be deleted on the grounds that the relationship between Rules 2.2 and 1.7 is confusing, the role of lawyer as "intermediary" has not been well understood and the Rule has not proved helpful in clarifying conflict-of-interest doctrine for lawyers. (See memorandum regarding proposed deletion of Rule 2.2.) The Commission believes that situations intended to be encompassed within Rule 2.2 can be adequately dealt with under Rule 1.7 and its Comment.

Caption The caption has been added to set off the new Comments.

[29] This new Comment combines Comments [4] and [7] to current Rule 2.2. "Intermediation" has been changed to "common representation." In addition, in keeping with the general standard of Rule 1.7(b)(1), the Comment states that common representation is improper, not only when impartiality "cannot" be maintained, but also when it is "unlikely" that the lawyer can do so. The Comment also makes clear that a lawyer may be required to withdraw from the representation entirely, depending upon the outcome of the analysis described in Comment [4].

[30] This Comment and Comment [31] are a modified version of Comment [6] to current Rule 2.2. The discussions of evidentiary privilege and the rule of confidentiality have been separated. This Comment addresses the privilege.

[31] This Comment is a modified version of the portion of Comment [6] to current Rule 2.2 that addresses the effect of the obligation of confidentiality on common representation. Unlike current Comment [6], this Comment gives more explicit guidance to lawyers, emphasizing that they should discuss confidentiality at the outset of the representation and that in most cases the common representation will be proper only if the clients have agreed that the lawyer will not maintain confidences between them.

[32] This Comment combines and substantially modifies Comments [8] and [9] to current Rule 2.2 and addresses the requirement of informed consent. It specifies that, when seeking to establish or adjust a relationship between clients, the lawyer must explain how such a role differs from the partisan role expected in other circumstances. It further requires the lawyer to explain the implications of the changed role on the client's responsibility for making decisions.

[33] This new Comment is a slightly modified version of Comment [10] to current Rule 2.2. The changes are stylistic.

Organizational Clients

Caption The caption has been added to set off the new Comments.

[34] This new Comment addresses the application of paragraph (a) to situations involving corporate or other organizational affiliates. The language is largely drawn from the conclusions of ABA Standing Committee on Ethics and Professional Responsibility Formal Opinion 95-390, although the Commission believes that there will be more situations in which the lawyer will be prohibited from undertaking representation than may have been reflected in that opinion.

[35] This Comment maintains current Comment [14] with modifications designed to reflect that, when problems arise with a lawyer-director, the lawyer may either resign as director or cease acting as the corporation's lawyer, and to advise the lawyer of the possible consequences of discussing matters at board meetings while the lawyer is present in the capacity of director.

[15] The Commission proposes to delete current Comment [15] and the associated caption because it addresses questions outside the disciplinary context.

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