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August 15, 2023 Scruples

“Finite Pie” Conflicts

The conflict arises when a lawyer represents two or more clients seeking to recover against a single, limited ‘pie’ or body of recoverable assets.

Michael Downey

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“Ethox,” Paradox said, “I want to represent two plaintiffs suing the same defendant. Both plaintiffs have serious injuries, and their claims are totally separate. We suspect the defendant has insurance, but we don’t know how much—and we don’t know what other assets may be available to satisfy both plaintiffs’ claims. Can we represent both plaintiffs?”

“It sounds like you are facing a ‘finite pie’ conflict,” Ethox responded.

“What’s that?” Paradox asked.

“A finite pie conflict arises when a lawyer represents two or more clients seeking to recover against a single, limited ‘pie’ or body of recoverable assets,” Ethox said.

“Ordinarily,” Ethox continued, “the representation of two plaintiffs with unrelated claims against a single defendant does not present a ‘direct adversity’ conflict under ABA Model Rule of Professional Conduct 1.7(a)(1). Thus, a lawyer can proceed with both claims without conflict waivers.

“If the claims are related,” Ethox warned, “then there may be an impairment of the representation under Rule 1.7(a)(2), which states that a lawyer has a concurrent conflict of interest when there is a significant risk that the lawyer’s representation of one client will be ‘materially limited’ by the lawyer’s obligation to another client or a former client.”

“So a lawyer cannot represent two plaintiffs suing the same defendant if the claims are related?” Paradox asked.

“Often a lawyer can,” Ethox answered, “but it is more likely the lawyer will need a conflict waiver to represent the two plaintiffs.”

“Why is that?” Paradox asked.

“Because the relatedness of the two plaintiffs’ claims increases the likelihood that obligations owed to one client materially limit the representation of the other client,” Ethox said. “For example, the lawyer may learn information from one plaintiff that would help the other plaintiff’s claim against the defendant. But the duty of confidentiality may limit the lawyer’s ability to use or share the information for the other plaintiff’s claim. Or the defendant may see the settlement of one plaintiff’s claim as setting the value of the other plaintiff’s claim. The relatedness of the two plaintiffs’ claims makes it more probable the lawyer will need to secure conflict waivers from both clients.”

Ethox added, “When the defendant has inadequate resources to pay both clients’ claims—that is, a ‘finite pie’—the lawyer would almost certainly have an impairment conflict under Rule 1.7(a)(2)—and perhaps also an adversity conflict under Rule 1.7(a)(1)—that would require client consent before the lawyer could proceed with each representation. In addition, there would likely be a point where the pie would be so limited and inadequate that the conflict would be nonwaivable.”

“How do you figure that?” Paradox asked.

“Think about the situation you described where a lawyer seeks to represent two plaintiffs against a single defendant,” Ethox answered. “For a lawyer to seek a waiver, Rule 1.7(b)(1) requires that the lawyer must reasonably believe the lawyer will be able to provide competent, diligent representation to each affected client. If both plaintiffs have very serious injuries and the defendant has very limited assets, it may be inappropriate for the lawyer to seek conflict waivers and pursue claims for both plaintiffs.

“Other facts may further complicate the situation,” Ethox added. “For example, if one plaintiff is situated to bring a claim sooner and thus more quickly exhaust the defendant’s limited resources, this may weigh against the lawyer’s seeking waivers and representing both plaintiffs on their claims.”

“So if we think the defendant has very limited resources,” Paradox sighed, “we must decline both cases?”

“Not necessarily,” Ethox responded. “It sounds like both are only prospective clients. So Rule 1.18 may allow you to represent at least one of the plaintiffs.”

Seeing Paradox’s concern, Ethox added, “Let’s grab lunch and discuss this in depth. Hopefully, we can work something out.”

“That sounds great,” Paradox smiled.

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Michael Downey

Legal Ethics Lawyer

The author is a legal ethics lawyer at Downey Law Group LLC, St. Louis.