Every lawyer knows that avoiding and addressing conflicts of interest are among our most important professional obligations.
We’ve all heard—some of us have lectured on—how conflicts of interest can get us in disciplinary trouble, aggravate malpractice claims, or (understandably) upset clients. Those are all scary, attention-grabbing topics.
We hear and read much less about the mechanics of checking for conflicts of interest. It’s not sexy. Still, it’s essential to the safe, ethical practice of law. (And besides, it’s not as boring as trust accounting. . . .)
That’s our topic today, both for the lawyer just starting out and setting up a conflict-checking system and for the established firm. After all, any human system can be improved.
Regular, routine, and effective conflict checking is necessary for all lawyers in private practice.
If you have a conflict, the core rules on conflicts of interest—American Bar Association (ABA) Model Rule of Professional Conduct 1.7 for concurrent conflicts and Model Rule 1.9 for former client conflicts—make it clear: You must stop work immediately, disclose the conflict appropriately, and address it, usually by obtaining a waiver (if that’s possible and the right people are given informed consent) or withdrawing. Continuing to represent a client in the presence of a conflict violates the rules.
This means that lawyers have a clear obligation to look for conflicts of interest both before taking on a new matter and whenever circumstances arise that require a new inquiry about conflicts (more about that second point later).
Comment [2] to Model Rule 1.7 makes clear that after a lawyer properly identifies a new client, the lawyer must “determine whether a conflict of interest exists.” Comment [3] goes further:
To determine whether a conflict of interest exists, a lawyer should 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. See also Comment to Rule 5.1. Ignorance caused by a failure to institute such procedures will not excuse a lawyer’s violation of this Rule.
That last sentence sounds serious, and properly so.
The reference to Mode Rule 5.1, the Rule on lawyer supervision by managing partners and others, is crucial. It requires those in charge of law practices—whether solos or managing partners—to “make reasonable efforts to ensure that the firm has in effect measures giving reasonable assurance that all lawyers in the firm conform to the Rules of Professional Conduct.” The Comment specifically mentions “policies and procedures . . . designed to detect and resolve conflicts of interest.”
So, any lawyer who doesn’t have a system for checking and addressing conflicts has already violated the Rules.
Let’s start with the purpose of conflict checking. The point is to answer these questions about each new matter:
Not all of these questions would necessarily reveal a disqualifying conflict, but the point is to enable a complete evaluation.
No good conflict check is possible without good data, readily available and searchable. Today, this means you need some sort of technology to build a conflict database.
Many practice management or billing systems include conflict-checking components. This only makes sense, given that most of the information needed to run a good conflict check ought to be captured to perform those functions. There is also free-standing conflict-checking software available. For that matter, a well-designed, well-maintained spreadsheet might be all the technology some offices need to house an effective conflicts database.
Selecting among those solutions is not our topic, but proper selection and implementation are crucial to running any good conflict check.
Think about what information you need to capture as to each matter:
The first four items above are absolutely required, as is information tying each entry to some sort of internal client and matter number.
The remaining types of information are useful, either to avoid the need to pull and review the actual client files (e.g., matter description) or to force the capture of this information at client intake (e.g., client officers).
One item above that may surprise some is “prospective clients.”
Remember, however, that it is entirely possible that a lawyer’s consultation with a potential client who does not become a client—what Model Rule 1.18 calls a “prospective client”—can disqualify the lawyer or the lawyer’s firm from taking on other matters related to the consultation.
In a well-run practice, lawyers should do their best not to discuss the substance of a prospective client’s matter, or get substantive information, before a conflict check is run. Once one is run, if the system captures the basic conflict information about the prospective client (designated as a prospective client), then that information can be later searched as a check against any conflict that might arise from another party to the same matter consulting with the firm.
Beyond that, you need policies and procedures that feed into, require the use of, and require the interpretation of the system’s data.
These certainly include a requirement that no new file can be opened without collecting good conflict information, running a conflict check, and analyzing the information to ensure there are no conflicts. The firm ought to be specific about what information must be collected—for example, information on corporate affiliates of both clients and adversaries, to the extent possible. Identifying key personnel associated with clients, such as key individual officers and owners, is also very helpful.
With the right output from a conflicts database, lawyers opening a file can, of course, review, analyze, and clear conflicts on their own matters. For several reasons, however, that may not be the best solution.
For years now, big firms with high volumes of new matters have been centralizing conflicts checking. They find the work more accurately and efficiently done by experienced personnel.
Perhaps more importantly, none of us is clear-eyed about our own matters. Typically, we each have a strong interest in clearing a conflict check on the sparkly new matter we want to get working on right away.
More than that, however, most of us are not conflicts experts.
Even without putting the entire responsibility of clearing all conflicts on one firm lawyer or staffer, even small firms can designate a secretary, paralegal, or billing clerk to do at least a first run at a conflict check rather than the busy lawyer interested in starting work on a new matter. If that screening reveals no hits, the new matter can be quickly green-lit.
If that screening identifies hits that need further checking or discussion, however, it can be flagged for lawyer review. You’d be surprised at how well “nonlawyers” can handle these tasks, and the responsibility is often one that a trusted assistant may appreciate being entrusted with. Before long, they may be able to take the entire burden of conflict checking off the hands of busy lawyers.
Any firm of more than a handful of lawyers should also seriously consider a policy that requires a lawyer other than the lawyer bringing in a new matter to approve its opening, including clearing any conflicts. Bigger firms require a practice group leader or a new business acceptance partner or committee to open all new files.
No one system fits all, but even a two-lawyer firm that requires a partner’s new matters to be opened by the other partner brings a little bit of objectivity to the process.
There’s nothing more important than client identity in this process. All lawyers need to know, and document carefully, who they are representing, and who they are not. That process should start when collecting information for a conflict check.
If you are representing only one real estate development entity of a major developer, then say so in your engagement letter, and say you are not representing the developer’s other 20 entities. If you are representing only the financial backer in the formation of a new business, not the sales guy or the inventor, say all that in writing to all of them. And then put all that information in the conflicts database.
Unless you and your partners have been good about doing this, later conflict checks are flawed before the new client even walks in the door.
If you take away from this article no other point, let it be this: Being rigorous in identifying who is (and who is not) your client, in writing, every time you open a new matter, and documenting that in the conflicts system is desperately important to avoiding conflicts.
One more thing: Many corporate clients now routinely use their own form engagement letters and outside counsel guidelines to bind lawyers to act as if they represent all their affiliates in any representation of any tiny (or huge) corporate family member. You may be comfortable with that or not. But this is only one of many reasons to be watchful for such efforts. Many of these client-identity provisions are negotiable. And if you agree to such a provision for the real estate developer in the example above, be sure to put all 21 entities’ names into your conflicts database as full-blown clients.
Written conflict waivers are now required in the overwhelming majority of U.S. jurisdictions.
What constitutes a well-written waiver to document informed consent to a conflict is not today’s subject. But obtaining and documenting waivers is a minor art form. A well-written waiver can spell the difference between lawyer discipline or malpractice liability and strong protection from either.
For that reason, the conflict-checking process should not be considered complete, and no conflict should be considered cleared, unless and until that documentation process is complete where a waiver is both possible and required.
The process is also important enough that the firm should have, ready at hand, both forms or samples of good waiver letters, as well as someone willing and able to oversee that process.
Consider seriously insisting, whether your ethics rules require it or not, that the client actually sign any conflict waiver. And make sure to get the signed waiver back. Some firms will not open a file that requires a conflict waiver until the waiver signed by the client is in the firm’s hands.
Some conflicts can be remedied by the use of ethical screens. Even where screens are not expressly mentioned in the rules, they can be a condition of a client’s consent to a conflict of interest.
Both the effectiveness of screens and their constructions are topics for another day. Still, as with conflict waivers, if a screen is required, whether by the rules or by the terms of a client’s consent, the process of clearing conflicts cannot be considered complete until that screen is erected and all the steps needed for its effectiveness completed. The firm’s policies and procedures need to require this.
Let’s revisit for a moment the last purpose of conflict checking identified above: identifying any other relationship of a new matter to the firm, its lawyers, or their past or present work that could give rise to a conflict.
Even the most sophisticated conflicts database cannot possibly capture all the information needed to do this analysis. For this reason, many small and large firms regularly circulate by email lists of prospective matters to all firm lawyers, or all firm personnel, in the hope that conflicts of interest that may otherwise slip through the system’s cracks are caught by attentive lawyers or others. A paralegal may realize that the firm was involved in a transaction that’s now being litigated, even though the parties’ names have changed. Or a lawyer may notice that a new client is a company related to one she’s suing.
Even apart from circulating a list of matters before they are opened, some firms circulate lists of new matters actually opened, perhaps weekly. After all, if some missed connection is spotted shortly after a matter is opened, a remedy is often possible. These lists have saved more than a few firms from real disasters. Besides, they’re a great informational tool alerting firm personnel to what others in the firm are doing.
Of course, a conflict check must be run before a new matter is accepted. But that’s not the end of the inquiry.
Whenever the facts change, and especially when a new party appears on the scene, a new conflict check must be run. When a new witness appears. When a co-party files a third-party complaint against a new party. When a new lender becomes involved in a transaction.
Every law practice needs a policy requiring a new conflict check when the situation changes and needs to sensitize both lawyers and staff to remind one another of the need to run one when the need arises.
While conflict checking may not be the most exciting part of your law practice, it’s vitally important. Setting up a conflict-checking system correctly and keeping it in tune are vital to the health and welfare of your practice.
