Loyalty and Conflict: Lessons to Be Learned in Navigating Conflicts of Interest

The duty of loyalty is an essential component of the fiduciary duty that a lawyer owes to each of their clients. Loyalty and independent judgement are crucial in the lawyer-client relationship because they helps foster trust and confidence. One area where lawyers can fail in their duty of loyalty is in situations involving conflicts of interest. A conflict of interest arises when there is either direct adverseness or a significant risk that the lawyer’s representation of one client could materially and adversely affect the lawyer’s own interests or by their obligations to another current client, former client, or third party. See Model Rule of Prof’l Conduct 1.7.

For example, a conflict-of-interest issue arose in W. Sugar Coop. v. Archer-Daniels-Midland Co., 98 F. Supp. 3d 1074 (C.D. Cal. 2015). Here, a false-advertising lawsuit was filed by the sugar industry against the corn-refining industry over the marketing of high-fructose corn syrup as “corn sugar.” The plaintiffs were sugar-industry manufacturers, trade groups, and associations represented by Squire Sanders & Dempsey, LLP. The defendants were manufacturers, trade groups, and associations in the corn industry, among which was Tate & Lyle Ingredients Americas, Inc. In June 2014, the law firms of Patton Boggs LLP and Squire Sanders combined to form the new law firm of Squire Patton Boggs (SPB). The newly formed SPB continued to represent the plaintiffs in this case. However, the issue was that SPB now found itself opposed to Tate & Lyle, a defendant in the action, who was also a long-standing client of Patton Boggs.

From 1998 through 2014, Tate & Lyle had relied on lawyers at Patton Boggs for legal counsel on various matters. When Tate & Lyle informed SPB of this conflict, SPB explained that a paralegal had accidentally omitted their name from a list of potential conflicts. SPB then requested a conflict waiver from Tate & Lyle, assuring them that an ethical wall would be established. Tate & Lyle denied the waiver, requested that SPB withdraw from the case, and then moved to disqualify SPB from this action. In their motion, Tate & Lyle asserted that the merger of the two firms resulted in SPB concurrently representing adverse clients, which is against the rules involving conflicts of interest.

In analyzing Tate & Lyle’s motion for disqualification, the court explained that when a law firm concurrently represents two clients with conflicting interests, “disqualification follows automatically, regardless of whether the simultaneous representations have anything in common or present any risk that confidences obtained in one matter would be used in the other.” W. Sugar Coop. v. Archer-Daniels-Midland Co., 98 F. Supp. 3d 1074 (C.D. Cal. 2015) (citing People ex rel. Dep’t of Corp. v. SpeeDee Oil, 980 P.2d 371 (Cal. 1999)). This concurrent client conflict is imputed to the rest of the firm as well.

The issue of waiver also arose, as Tate & Lyle had signed an advance waiver of conflict when they executed the engagement letter with SPB in 1998. The court explained, however, that for an advance waiver of potential conflicts to be valid, it doesn’t need to specify the exact nature of the future conflict. Instead, the key question is whether the waiver was fully informed, which is ultimately a fact-specific inquiry. The court found that Patton Boggs’ advance waiver was too open-ended, failing to identify potential adverse clients or the nature of any potential conflicts covered by the waiver. Consequently, the court held that the waiver did not constitute a full and reasonable disclosure of potential conflicts, meaning that Tate & Lyle did not knowingly waive the conflict. Therefore, the court granted Tate & Lyle’s motion to disqualify Patton Boggs from the action.

W. Sugar Coop. shows the importance of having proper advance waivers in place with clients and ensuring that you are thoroughly checking for conflicts of interest. The duty of loyalty is a very important piece of the lawyer-client relationship and while infrequently at issue, needs to be on the forefront of lawyers’ minds when engaging with established or potential clients.