chevron-down Created with Sketch Beta.
October 18, 2011 Articles

Loyalty under Attack: The Pernicious Prospective Waiver

Any prospective waiver should be subject to challenge by the affected client if the client can make a reasonable argument that the client's consent now turns out to be uninformed.

By Lawrence J. Fox

Sometimes when we talk lawyer ethics, we immediately turn to the black letter of the rules, the text of the comments, and the wise counsel of bar opinions, then assume our best litigator posture to justify the conduct at issue. In that process, we often lose our focus on the values that lie behind the rules. Yet, it is those values, more than any comment, that should inform our professional conduct.

For this reason, any discussion of prospective waivers of conflicts of interest must start and end by never losing sight of the fact that what we are addressing is the fiduciary obligation of lawyers to be loyal to our clients; this bedrock commitment separates lawyers from investment bankers, insurance agents, or stockbrokers. As professionals, we are not only obliged, but should also be proud, to put the interests of our clients ahead of our own.

To reflect this fiduciary duty, our profession has adopted a fundamental rule. It provides that we shall not take a position directly adverse to a client. Period. No ifs, ands, or buts. There is no “you can take a position adverse in a transaction.” There is no “you can take a position directly adverse in an unrelated matter.” There is no “it’s OK for your law firm colleague to take a position directly adverse to your client.”

We could have drafted a loyalty rule that included any or all of those exceptions. But we did not. And that was clearly the right decision. Our willingness to embrace an expansive loyalty rule—with full imputation to all lawyers employed in the same practice setting—is designed to ensure that no client has cause to worry whether the lawyer will give less than full dedication to the client’s matter.

The corollary to this broad mandate of loyalty is a rule that permits a client to waive a conflict under certain conditions. But in creating this escape valve from the basic rule of loyalty, the profession again has proceeded with care, structuring the waiver process to protect the client.

First, no lawyer may even ask for a waiver until that lawyer determines that the undertaking of the multiple representations that the waiver would permit will not have an adverse impact on the affected representations. Too few lawyers recognize, although they must, that their mere seeking of a waiver can run afoul of the rules if an objective lawyer would conclude that the requirements of Rule 1.7(b)(1) of the Model Rules of Professional Conduct were not met.

Second, the details about the proposed conflicting representation must be disclosed to the affected clients. What parties are involved? How much money is at issue? What is the nature of the transaction or claim? Answering those questions partially fulfills the requirement in our rules that the client give informed consent to the lawyer’s undertaking the conflicted representation.

Third, the other half of the informed consent requirement is a full explanation to the clients of the risks and implications to the affected clients if the waiver were granted. While some have questioned how effectively a lawyer who hopes to secure a consent will provide full and fair disclosure in this respect, lawyers in fact recognize that the rules impose this important obligation on them and that their failure to undertake it conscientiously will result in a waiver that could be challenged later as subject to overreaching.

Fourth, the securing of the waiver must be confirmed in a writing, sent to the client, in which the ethical lawyer will provide a full description of the discussion the lawyer conducted with the client prior to seeking the waiver. This writing requirement not only makes concrete and reiterates an oral conversation but also protects the lawyer from a “forgetful” client.

Why this elaborate framework for waivers? Because the profession has determined that when our rules of loyalty are triggered—that is, when a conflict is identified—the clients and only the clients have complete autonomy to decide, if the conflict is in fact susceptible of being waived, whether a waiver should be granted. Indeed, it would be the height of unethical behavior if any lawyer ever took advantage of the lawyer’s position of prestige and power, even in the most subtle way, to pressure a client to grant a waiver.

It is against this backdrop that the issue of seeking of prospective waivers must be judged. What started as a trickle has now become a flood, as major law firms have embraced the practice of inserting into every retainer letter, often buried on page 5 in paragraph 16, a wholesale prospective waiver that would permit the law firm to take on any representation against the new client so long as the matters are not substantially related. No limitation as to matters that are not waivable under Rule 1.7(b)(1). No limitation as to time. No limitation as to matters not litigated. No limitation as to the subject matter of the adverse representation. No limitation as to the identity of the adverse party or parties who would be represented adverse to the client that is granting the prospective waiver.

Can such a waiver come close to being given with informed consent? Of course not. Let us list what the client doesn’t know. When will the consent be pulled out of the bottom drawer? How will the representation of the client have proceeded? Were additional matters undertaken? What confidential information will the client have shared with the waiver-snaring lawyer from the date the waiver was secured? Who is the adverse party? What is the nature of the adverse matter? A transaction? Litigation? Friendly or contentious? Treble damages? Reputation-destroying?

In short, no one could assert, consistent with the standard established by Rule 11 of the Federal Rules of Civil Procedure, that informed consent can be secured under such circumstances. To which the defenders of these prospective waivers respond, while that is true, the clients know what they don’t know. Therefore, they say, at least as to what the proponents broadly refer to as sophisticated clients, these consenting adults can give informed consent—that is, provide what is required to be obtained under the rule—because they recognize how uninformed they are!

Can one imagine a more Orwellian definition of informed consent? You’ve given informed consent because you are a sentient being who knows he or she is uninformed. The entire argument makes a mockery of the rules, in effect saying, not that these lawyers have obtained “informed consent” but that these lawyers are above the rules, that when one deals in the rarified air of AmLaw 100 law firms and their clients, there are no ethical boundaries. The rules of professional conduct—our profession’s sacred pact with our clients, carefully crafted and promulgated by our state supreme courts—are mere words on paper that can be contracted away on a wholesale basis because these rules are, frankly, a nuisance that requires these great law firms to turn away lucrative engagements they hate . . . hate to lose.

There are so many unflattering aspects to this prospective waiver epidemic that one can only record a few in this space. The first is the real reason these firms seek these waivers. It is because they don’t trust their clients. They are afraid that when an actual conflict arises, instead of giving instant permission to their lawyers to take on the new matter, these clients might, just might, take the time to evaluate the conflicting new matter and make an independent determination not to waive. Imagine that! Clients actually exercising the autonomy that the rules guarantee them. How can these firms allow that?

Of course, that is not the way these firms describe it. They assert they are protecting themselves from unreasonable clients who “hold up” their lawyers by arbitrarily informing their lawyers—for no good reason—that they prefer that their lawyers not undertake the proposed matter. The disparaging way these lawyers describe such noncompliant clients stands in stark contrast to how these lawyers felt when the now-recalcitrant clients first engaged the lawyers. Their rhetoric also reflects the very antithesis of the loyalty to clients to which our profession alleges it is committed.

Second, although they will never admit it, these firms do it to make more money. If one does not have to ask the client whether the lawyer can take on a conflicting matter, then there is no chance the client will not waive, and the new matter can be reeled in, adding whatever revenue the delicious new matter provides. The irony here is that it is precisely those lawyers who least need the money who snatch these wholesale prospective waivers to the greatest extent possible—in every engagement letter. In fact, it is the law firms at the very pinnacle of the law firm food chain who started this pernicious practice, raised it to a high art form, and defend it most vigorously today. One must ask why firms with profits per partner in the multiple millions feel the need to squeeze a few extra shekels of revenue per partner at the expense of wholesale destruction of the essences of client loyalty and informed consent. Though one might understand how a struggling neighborhood solo could grate at losing a prospective client to Rule 1.7(a)’s requirements, the securing of prospective waivers by globe girdling behemoths is inexplicable.

Third, one cannot ignore the arrogance and sense of entitlement that the justification of prospective waivers reflects. The proponents argue that they are so accomplished, their expertise and experience so difficult to replicate, their value added so outsized that to deny the rest of the client world an opportunity to feast at their troughs is a professional tragedy.

Imagine the ego of those who assert these propositions. Is it really true that, in a nation of almost 1 million practicing lawyers and almost 100 law firms with over 500 lawyers, that there is one, and only one, lawyer in any given area whose talent rises so far above the rest to lend any credibility to this argument? Of course not. But the proponents of prospective waivers always repeat the well-worn argument that they only seek prospective waivers to protect the client’s access to their Mike Schmidt of tax shelters, ignoring in the process not only that they are only talking about “protecting” prospective clients but also that those who pay the very dear price for this “protection” are their actual, present, fee-paying, flesh-and-blood clients who, but for the uninformed, unethical prospective waivers, the lawyers would be protecting to the full extent anticipated by our rules.

Given the foregoing, is there any place for prospective waivers? Of course there is. A classic example would be a prospective waiver from a bank client whom the lawyer is defending in employment discrimination cases. Asking that bank to grant a prospective waiver so that the lawyer’s firm can represent borrowers on loan transactions (but not lender liability suits) would certainly provide informed consent to a prospective category of matters that the sophisticated bank could waive in advance, even if the identity of the borrower, the loan amount, and the purpose of the loan are all unknown at the time the waiver is secured.

Yet, even then, the prospective waiver could not be viewed as ironclad. If subsequent unanticipated matters are taken on by the lawyer for the bank or if the bank, in the course of being represented by the lawyer on employment or other matters, shares confidential information with the lawyer relating to its lending practices, the prospective waiver would be no more than an invitation to further consultation and consent.

In short, the watchword for all waivers must be informed consent. This means that any prospective waiver, no matter how contrived, should be subject to challenge by the affected client if the client can make a reasonable argument that the client’s consent now turns out to be uninformed. This construct preserves the loyalty that lawyers owe clients, provides clients with the autonomy they deserve, and places the interests of clients properly ahead of the interests of the lawyers in enhancing the bottom line.


Keywords: litigation, ethics and professionalism, Rule 1.7(b)(1), FRCP 11, prospective waiver

Lawrence J. Fox is a partner with Drinker Biddle & Reath LLP in Philadelphia, Pennsylvania.

Copyright © 2011, American Bar Association. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or downloaded or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. The views expressed in this article are those of the author(s) and do not necessarily reflect the positions or policies of the American Bar Association, the Section of Litigation, this committee, or the employer(s) of the author(s).