Remarks of William T. Barker Re: Proposed Rule 1.7 - Public Discussion Draft - Center for Professional Responsibility


Remarks of William T. Barker, American Insurance Association

Suggested Revision to
Center for Professional Responsibility
Proposed Rule 1.7 - Public Discussion Draft

Ethics 2000 Commission

March 23, 1999

 

DEFERRAL OF CONSENT
IN EXIGENT CIRCUMSTANCES

Under the Commission’s proposal, representations subject to conflicts may not be undertaken without written informed consent of all affected clients. We agree this is a generally sound requirement. But it does present a recurring practical problem in liability insurance representations.

Insureds sometimes delay in forwarding the suit papers to the insurer. Claims representatives sometimes fail to promptly retain counsel after the suit papers are received. As a result, lawyers are frequently called upon to file an immediate appearance to prevent a default. In such circumstances, there may be no opportunity to communicate with the insured before the appearance is due, let alone to explore whether the insured has interests that might create a significant risk of material limitation in light of any potentially divergent interests of the insurer.

This revision to the Commission’s proposal adds a new comment 30A, which would permit provisional acceptance of the representation before the conflict issues are fully explored or resolved. Such representation would be limited to "protecting the prospective clients until the conflict issues can be identified and addressed." It would be permitted only if "there [is] no significant risk of material limitation of the lawyer's representation of any client prior to completion of this process and no significant risk of prejudice to any client if resolution of those issues ultimately requires the lawyer to withdraw from representation of one or both clients."

In essence, this recognizes the propriety of a limited representation, without consent, for an initial phase of the matter when there is no conflict in that phase. Treating that phase as if it were a separate matter avoids the practical problem without reducing the protection of any client.

With the proposed revisions, the Rule would read as follows. Deletions are in strikeout type and additions in italics.

CONCURRENT CONFLICT OF INTEREST: GENERAL RULE

(a) Except as provided in paragraph (b), a lawyer shall not represent a client if the representation involves a conflict of interest. A 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 duties to another client or to a former client or by the lawyer's own interests or duties to a third person.

(b) Notwithstanding the existence of a conflict of interest under paragraph (a), a lawyer may represent a client if each affected client gives informed consent in writing and

(1) the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client;

(2) the representation is not prohibited by law; and

(3) the representation does not involve the assertion of a claim by one client against another client represented by the lawyer in the same litigation.

Comment

Loyalty to a Client and Independent Judgment

[1] Loyalty and independent judgment are essential elements in the lawyer's relationship to a client. Concurrent conflicts of interest can arise from the lawyer's own interests or from the lawyer's responsibilities to another client, a former client, or a third person. Resolution of a conflict of interest problem under this Rule requires the lawyer to: 1) clearly identify the client or clients; 2) determine whether a conflict of interest exists; 3) decide whether the representation may be undertaken despite the existence of a conflict, i.e., whether the conflict is consentable; and 4) if so, consult with the clients affected under paragraph (a) and obtain their informed consent in writing. For specific rules regarding certain concurrent conflicts of interest, see Rule 1.8. For former client conflicts of interest, see Rule 1.9.

[2] A conflict of interest may exist before representation is undertaken, in which event the representation must be declined, unless the lawyer obtains the informed written consent of each client under the conditions of paragraph (b). To determine whether a conflict of interest exists, a lawyer must adopt reasonable procedures, appropriate for the size and type of firm and practice, to determine in both litigation and non-litigation matters the persons and issues involved and to determine whether there are actual or potential conflicts of interest. As to whether a client-lawyer relationship exists or, having once been established, is continuing, see Comment to Rule 1.3 and Scope.

[3] If a conflict arises after representation has been undertaken, the lawyer must withdraw from the representation, unless the lawyer obtains the informed written consent of each client under the conditions of paragraph (b). See Rule 1.16. Where more than one client is involved and the lawyer withdraws, whether the lawyer may continue to represent any of the clients is determined both by the lawyer's ability to comply with duties owed to the former client and by the lawyer's ability to represent adequately the remaining client or clients, given the lawyer's duties to the former client. See Rule 1.9.

Identifying Conflicts of Interest: Direct Adversity and Material

Limitation

[4] Loyalty to a client prohibits undertaking representation directly adverse to that client without that client's consent. Thus, absent consent, a lawyer may not act as an advocate in one matter against a person the lawyer represents in some other matter, even when the matters are wholly unrelated. The client being sued is likely to feel betrayed, and the resulting damage to the lawyer-client relationship is likely to impair the lawyer's ability to represent the client effectively. In addition, the client on whose behalf the adverse representation is undertaken reasonably may fear that the lawyer will pursue that client's case less effectively out of deference to the other client, i.e., that the representation may be materially limited by the lawyer's interest in retaining the current client. Similarly, a lawyer acts directly adversely to a client if it will be necessary for the lawyer to cross-examine a client who appears as a witness in a lawsuit against another client. On the other hand, simultaneous representation in unrelated matters of clients whose interests are only economically adverse, such as representation of competing economic enterprises in unrelated litigation, does not constitute a conflict of interest and thus does not require consent of the respective clients.

[5] Even where there is no direct adversity, a conflict of interest exists if there is a significant risk that a lawyer's ability to consider, recommend, or carry out an appropriate course of action for the client will be materially limited as a result of the lawyer's other responsibilities or interests. The conflict in effect forecloses alternatives that would otherwise be available to the client. The mere possibility of subsequent harm does not itself require disclosure and consent. The critical questions are the likelihood that a difference in interests will eventuate and, if it does, whether it will materially interfere with the lawyer's independent professional judgment in considering alternatives or foreclose courses of action that reasonably should be pursued on behalf of the client.

Consultation and Consent Prohibited Representations

[6] Ordinarily, clients may consent to representation notwithstanding a conflict. However, as indicated in paragraph (b) some conflicts are non-consentable, meaning that the lawyer involved cannot properly ask for such agreement or provide representation on the basis of the client's consent. When the lawyer is representing more than one client, the question of conflict consentability must be resolved as to each client.

[7] Consentability is typically determined by considering whether the interests of the clients will be adequately protected if the clients are permitted to give their informed consent to representation burdened by a conflict of interest. Thus, under paragraph (b)(1), representation is prohibited if in the circumstances the lawyer cannot reasonably conclude that the lawyer will be able to provide competent and diligent representation. See Rule 1.1 (competence) and Rule 1.3 (diligence). The concern is that a client who is asked to consent in such a matter, particularly one who is unsophisticated in retaining lawyers, may not be adequately informed or may not adequately appreciate the risks of the conflict. In determining whether a multiple client conflict is non-consentable, one factor to be considered is whether the representation will be provided by a single lawyer or by different lawyers in the same firm. Cf. Rule 1.10.

[8] Paragraph (b)(2) describes conflicts that are non-consentable because the representation is prohibited by applicable law. For example, in some states substantive law provides that the same lawyer may not represent more than one defendant in a capital case, even with the consent of the clients, and under federal criminal statutes, certain representations by a former government lawyer are prohibited, despite the informed consent of the former client. In addition, decisional law in some states limits the ability of a governmental client, such as a municipality, to consent to a conflict of interest.

[9] Paragraph (b)(3) describes conflicts that are non-consentable because of the institutional interest in vigorous development of each client's position when the clients are aligned directly against each other in the same litigation. Whether clients are aligned directly against each other within the meaning of this paragraph requires examination of the context of the litigation.

Informed Consent

[10] Informed consent requires that each affected client be aware of the relevant circumstances and of the material and reasonably foreseeable ways that the conflict could have adverse effects on the interests of that client. See Rule 1.4(c) (informed consent). The information required depends on the nature of the conflict and the nature of the risks involved. When representation of multiple clients in a single matter is undertaken, the information must include the implications of the common representation, including possible effects on loyalty and confidentiality, and the advantages and risks involved. See Comments [29] and [30] (effect of joint representation on confidentiality). Under some circumstances it may be impossible to make the disclosure necessary to obtain consent. For example, when the lawyer represents different clients in related matters and one of the clients refuses to consent to the disclosure necessary to permit the other client to make an informed decision, the lawyer cannot properly ask the latter to consent.

[11] Paragraph (b) requires the lawyer to obtain the informed consent of the client in writing. If it is not feasible to obtain the writing at the time the client gives informed consent, then the lawyer must obtain it within a reasonable time thereafter. The requirement of a writing does not supplant the need in most cases for the lawyer to talk with the client, to explain the risks and advantages, if any, of representation burdened with a conflict of interest, as well as reasonably available alternatives, and to afford the client an opportunity to raise questions and concerns. Rather, the writing is required in order to impress upon clients the seriousness of the decision the client is being asked to make and to resolve disputes or ambiguities that might later occur by virtue of there being no writing. The writing need not take any particular form; it should, however, include disclosure of the relevant circumstances and reasonably foreseeable risks of the conflict of interest, as well as the client's agreement to the representation despite such risks.

[12] Like any other client, a client who has given consent to a conflict may revoke the consent and terminate the lawyer's representation at any time. Whether revoking consent to the client's own representation precludes the lawyer from continuing to represent other clients depends on the circumstances, including the nature of the conflict, whether the client revoked consent because of a material change in circumstances, and whether material detriment to the other clients or lawyer would result.

[13] Whether a lawyer may properly request a client to waive conflicts that might arise in the future is subject to the test of paragraph (b). If the consent is general and open-ended (i.e., the client agrees to consent to any future conflict that might arise), then the consent ordinarily will be ineffective because it is not reasonably likely that the client will have understood the material risks involved. On the other hand, if the client is a sophisticated user of the legal services involved and agrees to consent to a particular type of conflict with which the client is already familiar, then the consent should be effective with regard to that type of conflict. For example, a bank that hires a lawyer to defend it in litigation might be willing to agree in advance to have the lawyer represent borrowers in loan transactions but not in resisting collection proceedings brought by the bank. The propriety of the client's consent must be determined not only at the time it is first given but also at the time when the waiver is sought to be implemented to determine if the circumstances at the time of the conflict are what were earlier expected.

Lawyer's Own Interests and Duties to Third Persons

[14] In addition to conflicts with other current clients, a lawyer's duties of loyalty and independence may be materially limited by duties owed to former clients under Rule 1.9, by the lawyer's own interests, or by the lawyer's duties to other persons, such as fiduciary duties arising from a lawyer's service as a trustee, executor, or corporate director.

[15] The lawyer's own interests should not be permitted to have an adverse effect on representation of a client. For example, if the probity of a lawyer's own conduct in a transaction is in serious question, it may be difficult or impossible for the lawyer to give a client detached advice. Similarly, a lawyer may not allow related business interests to affect representation, for example, by referring clients to an enterprise in which the lawyer has an undisclosed financial interest. See Rule 1.8 for specific rules pertaining to a number of personal interest conflicts, including business transactions with clients.

[16] Although most personal interest conflicts are consentable, some are not. For example, if the lawyer has a 50% ownership in a company the client wants to sue and the client's recovery is likely to affect significantly the value of the lawyer's investment, then the lawyer cannot reasonably conclude that the representation will be competent and diligent; therefore, under paragraph (b) the lawyer may not request the client to consent to the conflict.

[17] Lawyers are prohibited from engaging in sexual relationships with clients unless the sexual relationship predates the formation of the lawyer-client relationship. See Rule 1.8(k).

Interest of Person Paying for a Lawyer's Service

[18] A lawyer may be paid from a source other than the client, including a co-client, if the client is informed of that fact and consents and the arrangement does not compromise the lawyer's duty of loyalty or independent judgment to the client. See Rule 1.8(f). If acceptance of the payment from any other source presents a significant risk that the lawyer's representation of the client will be materially limited by the lawyer's own interest in accommodating the person paying the lawyer's fee or by the lawyer's duties to a payer who is also a co-client, then the lawyer must comply with the requirements of paragraph (b), as well as the requirements of Rule 1.8(f), before accepting the representation, including determining that the conflict is consentable and that the client has adequate information about the material risks of the representation.

Organizational Clients

[19] A lawyer who represents a corporation or other organization does not, by virtue of that representation, necessarily represent any constituent or affiliated organization, such as a parent or subsidiary. See Rule 1.13(a). Thus, the lawyer for an organization is not barred from accepting representation adverse to an affiliate in an unrelated matter, unless the circumstances are such that the affiliate should also be considered a client of the lawyer, or there is an understanding between the lawyer and the organizational client that the lawyer will avoid representation adverse to the client's affiliates, or the lawyer's obligations to either the organizational client or the new client are likely to limit materially the lawyer's representation of the other client.

[20] Unforeseeable developments, such as changes in corporate and other organizational affiliations, may create direct adversity conflicts in the midst of a representation, as when a company sued by the lawyer on behalf of one client is bought by another client represented by the lawyer in an unrelated matter. In these circumstances the lawyer may withdraw from one of the representations in order to avoid the direct adversity conflict. Ordinarily, the lawyer should withdraw from the representation of the client who will be least harmed by the lawyer's withdrawal. The lawyer must seek court approval where necessary and take steps to minimize harm to the clients. See Rule 1.16. The lawyer must continue to protect the confidences of the client from whose representation the lawyer has withdrawn. See Rule 1.6.

[21] A lawyer for a corporation or other organization who is also a member of its board of directors should determine whether the responsibilities of the two roles may conflict. The lawyer may be called on to advise the corporation in matters involving actions of the directors. Consideration should be given to the frequency with which such situations may arise, the potential intensity of the conflict, the effect of the lawyer's resignation from the board, and the possibility of the corporation's obtaining legal advice from another lawyer in such situations. If there is material risk that the dual role will compromise the lawyer's independence of professional judgment, the lawyer should not serve as a director or should cease to act as the corporation's lawyer when conflicts of interest arise.

Conflicts in Litigation

[22] Paragraph (b)(3) prohibits representation of opposing parties in the same litigation, regardless of the clients' consent. On the other hand, simultaneous representation of parties whose interests in litigation may conflict, such as coplaintiffs or codefendants, is not uncommon. A conflict may exist by reason of substantial discrepancy in the parties' testimony, incompatibility in positions in relation to an opposing party, or the fact that there are substantially different possibilities of settlement of the claims or liabilities in question. Such conflicts can arise in criminal cases as well as civil. The potential for conflict of interest in representing multiple defendants in a criminal case is so grave that ordinarily a lawyer should decline to represent more than one codefendant. On the other hand, common representation of persons having similar interests in civil litigation is proper if the requirements of paragraph (b) are met.

[23] Ordinarily a lawyer may take inconsistent legal positions in different tribunals at different times on behalf of different clients. The mere fact that advocating a legal position on behalf of one client might create precedent adverse to the interests of a client represented by the lawyer in an unrelated matter does not create a conflict of interest. A conflict of interest exists, however, if there is a significant risk that a lawyer's action in behalf of one client will materially limit the lawyer's effectiveness in representing another client in a different case; for example, when a decision favoring one client will create a precedent likely to seriously weaken the position taken on behalf of the other client. Factors relevant in determining whether the clients need to be advised of the risk include: where the cases are pending, whether the issue is substantive or procedural, the temporal relationship between the matters, the significance of the issue to the immediate and long-term interests of the clients involved, and the clients' reasonable expectations in retaining the lawyer. If there is significant risk of material limitation, then absent informed consent of the affected clients, the lawyer must refuse one of the representations or withdraw from one or both matters.

[24] When a lawyer represents or seeks to represent a class of plaintiffs or defendants in a class action lawsuit, unnamed members of the class are ordinarily not considered to be clients of the lawyer for purposes of applying paragraph (a)(1) of this Rule. Thus, the lawyer does not typically need to get the consent of such a person before representing a client suing the person in an unrelated matter. Similarly, a lawyer seeking to represent an opponent in a class action does not typically need the consent of an unnamed member of the class who the lawyer represents in an unrelated matter.

Non-Litigation Conflicts

[25] Conflicts of interest in contexts other than litigation sometimes may be difficult to assess. Relevant factors in determining whether there is significant potential for material limitation include the duration and intimacy of the lawyer's relationship with the client or clients involved, the functions being performed by the lawyer, the likelihood that disagreements will arise, and the likely prejudice to the client from the conflict. The question is often one of proximity and degree.

[26] For example, conflict questions may also arise in estate planning and estate administration. A lawyer may be called upon to prepare wills for several family members, such as husband and wife, and, depending upon the circumstances, a conflict of interest may be present, as when one spouse owns significantly more property than the other or has children by a prior marriage. In estate administration the identity of the client may be unclear under the law of a particular jurisdiction. Under one view, the client is the fiduciary; under another view the client is the estate or trust, including its beneficiaries. In order to comply with conflict of interests rules, the lawyer should make clear the lawyer's relationship to the parties involved.

[27] Whether a conflict is consentable depends on the circumstances. For example, a lawyer may not represent multiple parties to a negotiation whose interests are fundamentally antagonistic to each other, but common representation is permissible where the clients are generally aligned in interest even though there is some difference in interest among them. Thus, a lawyer may seek to establish or adjust a relationship between clients on an amicable and mutually advantageous basis; for example, in helping to organize a business in which two or more clients are entrepreneurs, working out the financial reorganization of an enterprise in which two or more clients have an interest, or arranging a property distribution in settlement of an estate. The lawyer seeks to resolve potentially adverse interests by developing the parties' mutual interests. Otherwise, each party might have to obtain separate representation, with the possibility of incurring additional cost, complication, or even litigation. Given these and other relevant factors, the clients may prefer that the lawyer act for all of them.

Special Considerations in Joint Representation

[28] In considering whether to represent clients jointly in the same matter, a lawyer should be mindful that if the joint representation fails because the potentially adverse interests cannot be reconciled, the result can be additional cost, embarrassment, and recrimination. Ordinarily, the lawyer will be forced to withdraw from representing all of the clients if the joint representation fails. In some situations the risk of failure is so great that joint representation is plainly impossible. For example, a lawyer cannot undertake common representation of clients where contentious litigation or negotiations between them are imminent or contemplated. Moreover, because the lawyer is required to be impartial between commonly represented clients, joint representation is improper when it is unlikely that impartiality can be maintained. Generally, if the relationship between the parties has already assumed antagonism, the possibility that the clients' interests can be adjusted by joint representation is not very good. Other relevant factors are whether the lawyer subsequently will represent both parties on a continuing basis and whether the situation involves creating or terminating a relationship between the parties.

[29] A particularly important factor in determining the appropriateness of joint representation is the effect on lawyer-client confidentiality and the attorney-client privilege. With regard to the evidentiary attorney-client privilege, the prevailing rule is that, as between commonly represented clients, the privilege does not attach. Hence it must be assumed that if litigation eventuates between the clients, the privilege will not protect any such communications, and the clients should be so advised.

[30] As to the duty of confidentiality, joint representation will almost certainly be inadequate if one client attempts to keep something in confidence between the lawyer and that client, which is not to be disclosed to the other client. This is so because the lawyer has an equal duty of loyalty to each client, and each client has the right to be informed of anything bearing on the representation that might affect that client's interests and to expect that the lawyer will use that information to that client's benefit. See Rule 1.4. The lawyer should, at the outset of the joint representation and as part of the process of obtaining each client's informed consent, advise each client that information will be shared and that the lawyer will have to withdraw if one client decides that some matter material to the representation should be kept from the other. In limited circumstances, it may be appropriate for the lawyer to proceed with the representation when the clients have agreed, after being properly informed, that the lawyer will keep certain information confidential. For example, the lawyer may reasonably conclude that failure to disclose one client's trade secrets to another client will not adversely affect representation involving a joint venture between the clients and agree to keep that information confidential with the informed consent of both clients.

[30A] A lawyer may be asked to represent multiple parties in a matter where prompt action is required (e.g. filing of an appearance to prevent a default). If there is not time to assess whether there may be a conflict or to obtain consent if one is apparent, the lawyer may nonetheless be able to undertake the representation for the limited purpose of protecting the prospective clients until the conflict issues can be identified and addressed. To act on this basis, there must be no significant risk of material limitation of the lawyer's representation of any client prior to completion of this process and no significant risk of prejudice to any client if resolution of those issues ultimately requires the lawyer to withdraw from representation of one or both clients. A similar situation can arise when a lawyer is asked to represent a single client, with a third party paying the fee, and the same rule applies.

[31] When seeking to establish or adjust a relationship between clients, the lawyer should make clear that the lawyer's role is not that of partisanship normally expected in other circumstances and, thus, that the clients may be required to assume greater responsibility for decisions than when each client is separately represented. Any limitations on the scope of the representation made necessary as a result of the joint representation should be fully explained to the clients at the outset of the representation. See Rule 1.2(c).

[32] Subject to the above limitations, each client in the joint representation has the right to loyal and diligent representation and the protection of Rule 1.9 concerning the obligations to a former client. The client also has the right to discharge the lawyer as stated in Rule 1.16.

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