Model Rule 1.7

Reporter's Explanation of Changes

Ethics 2000 Commission Draft for Public Comment

March 23, 1999

TEXT:

1. Change caption to read "Concurrent Conflict of Interest: General Rule"

Rule 1.7 does not purport to define or regulate all types of conflicts but rather only those that are concurrent to a particular representation. The proposed change will more accurately reflect the limited scope of this Rule.

2. Creation of a single paragraph defining "conflict of interest"

The relationship between present paragraphs (a) (direct adversity conflicts) and (b) (material limitation conflicts) is not well understood. Lawyers frequently become confused attempting to determine what constitutes "direct adversity" when it may not matter because, even when not "directly adverse," the representation may still involve a conflict under paragraph (b)'s "material limitation" standard.

In addition, present paragraph (a) is conceptually confusing since, in most "direct adversity" conflicts, common representation is likely to affect both the relationship with the current client and the representation of the new client. For example, when the lawyer seeks to represent a new client suing an existing client represented by the lawyer in an unrelated matter, present paragraph (a) looks to the effect of the new representation on the existing client, while paragraph (b) applies to the effect of the existing relationship on the representation of the new client. Thus, most cases involving direct adversity need to be analyzed under both paragraphs (a) and (b). There appears to be no reason why both conflicts cannot be analyzed under a single paragraph that defines and prohibits the representation unless informed consent is properly obtained.

Under the proposed new structure, paragraph (a) sets forth the basic prohibition against representation involving currently conflicting interests, including the definition of a conflict of interest. Conflict of interest is defined to include both direct adversity conflicts and material limitation conflicts. (The Commission considered but rejected a proposal to eliminate the absolute prohibition on "direct adversity" conflicts.)

Unlike present paragraph (b), in which a conflict exists if the representation "may be" materially limited by the lawyer's interests or duties to others, proposed paragraph (a)(2) limits conflicts to situations in which there is "a significant risk" that the representation will be so limited. This proposed change is not substantive but rather reflects how present paragraph (b) is presently interpreted by courts and ethics committees.

Proposed paragraph (a)(2) specifically identifies "former clients" as non-clients to whom the lawyer may owe duties, as distinct from "other persons" to whom the lawyer may owe duties, such as those arising from the lawyer's role as fiduciary or corporate director. These changes are proposed to make it easier for lawyers to recognize these conflicts when they arise.

The introductory phrases in both paragraphs (a) and (b) are designed to clarify the relationship between the two paragraphs.

3. Creation of a single paragraph on consentability and informed consent

Unlike the present Rule, the proposed Rule contains a single standard of consentability and informed consent, applicable both to direct adversity and material limitation conflicts. This standard is set forth in a separate paragraph, both to reflect the separate steps required in analyzing conflicts (i.e., first identify potentially impermissible conflicts, then determine if the representation is permissible with the client's consent) and to highlight the fact that not all conflicts are consentable.

Under the present Rule, consentability turns on a determination that the conflict will "not adversely affect the representation." The difficulty with this standard is that in order to determine that a conflict exists in the first place, the lawyer must have already determined that the lawyer's duties or interests are likely to "materially limit " the representation. There is a difference between "material limitation" and "adverse affect on " the representation, but the difference is subtle. As a result, lawyers are understandably confused regarding the consentability standard.

Under the present proposal, paragraph (b) breaks down consentability into three components. The first and most common, is modeled after the present Rule, in which the goal is to protect clients in situations where the representation is likely to be inadequate. The proposal is to replace the phrase "adverse effect on the representation" with an explicit statement of what that phrase was intended to mean, i.e., that it is unlikely that the lawyer will be able to provide "competent and diligent representation to each affected client." The terms "competent" and "diligent" are already defined and are generally well understood, thus providing a relatively clear standard that lawyers can apply in making the determination whether to go ahead and seek the client's consent. The term "reasonably" makes clear that, as under the present Rule, the consentability standard is an objective one.

Paragraphs (b)(2) and (b)(3) articulate situations in which courts and ethics committees have found certain conflicts to be non-consentable, not only because they may be harmful to clients, but also because there are other interests, for example, the interests of courts, that need to be protected. Paragraph (b)(2) refers to representation "prohibited by law," that is, law other than the rules of professional conduct. (For example, substantive law in some jurisdictions provides that the same lawyer may not represent more than one defendant in a capital case.)

Paragraph (b)(3) describes conflicts that are non-consentable because of the institutional interest in adequate development of each client's position when the clients are aligned directly against each other in the same litigation. Thus, these conflicts are non-consentable even if the lawyer reasonably believed that the representation would be competent and diligent. It has been suggested that there may be similar institutional interests in separate representation in contexts outside litigation. Unless it is possible to describe such situations in language that preserves this paragraph's bright-line text, the Commission believes that these other situations can be adequately addressed under paragraphs (b)(1) and (b)(2).

Finally, paragraph (b) substitutes "informed consent" of the client for "consent after consultation." It was felt that "consultation" did not adequately convey the requirement that the client receive full disclosure of the nature and implications of a lawyer's conflict of interest. The term "informed consent" was chosen because it already has a fairly well-accepted meaning in other contexts. That term, which will then be used throughout the Rules in place of "consent after consultation," will be defined in Rule 1.4(c). In each Rule where the term is used, there will be a cross reference in the Comment to the definition in Rule 1.4(c), as well as language in the Comment providing specialized guidance, for example, in the contexts of conflicts and confidentiality.

4. New requirement of written informed consent

The Commission was urged to require some form of writing, for the benefit of both the lawyer and the client. Some states have done so (e.g., California, Washington, Wisconsin), and experience indicates that the requirement is not overly burdensome or impractical.

Following the California model, the Comment makes clear that the lawyer must obtain the client's written agreement to the representation, following written disclosure by the lawyer. A writing is required in all instances, but the Comment allows for flexibility when there is not time to memorialize the consent before proceeding with the representation.

COMMENT:

Conflict of interest doctrine is complicated, and the Commission believes that lawyers are in need of additional guidance. Therefore, the Commission is recommending substantial changes to the Comment to Rule 1.7. The changes are designed to clarify basic conflicts doctrine and to address a number of recurring situations. The proposed organization provides an introduction (Comments 1 - 3), a general roadmap to conflicts analysis (Comments 4 - 13), and finally an elaboration of different types of conflicts.

[1] Comment [1] retains and modifies the first sentence of present Comment [1] but is otherwise new. It states the rationale for the basic prohibition of representation involving conflicts of interest-to avoid compromising loyalty and independent judgment. It then outlines a four-step process for recognizing and resolving conflict of interest problems.

[2] This Comment incorporates much of the remainder of present Comment [1]. Changes in the first sentence reflect the dual requirements of paragraphs (a) and (b) that the lawyer recognize a conflict and decline representation unless the requirements of paragraph (b) have been met. Regarding the implementation of conflicts-checking procedures, the change from "should" to "must" clarifies that these procedures are not merely good practice but are necessary, even for sole practitioners, in order for lawyers to determine the existence of conflicts. It is not intended that a lawyer will be subject to discipline under this Rule for the mere failure to implement adequate conflicts checking procedures. Rather, this Comment serves to alert lawyers that such procedures are required in order to avoid undertaking representation in violation of this Rule.

[3] This Comment incorporates much of present Comment [2]. Changes are designed to more clearly state the different requirements of the Rule and, in addition, indicate the type of analysis required when a lawyer withdraws from representing one of several clients represented concurrently by the lawyer.

Identifying Conflicts of Interest: Direct Adversity and Material Limitation

[4] This Comment incorporates much of present Comment [3]. It addresses conflicts defined in paragraph (a)(1) of the proposed Rule, i.e., "direct adversity" conflicts. It provides the rationale for the Rule, addresses the question of whether the Rule applies when a lawyer will have to cross examine a present client, and explains how "direct adversity" conflicts also pose "material limitation" conflicts with respect to the lawyer's existing client.

[5] This Comment incorporates much of present Comment [4]. It addresses conflicts defined in paragraph (a)(2) of the proposed rule, i.e., "material limitation" conflicts. The changes are designed to clarify the relationship between paragraphs (a)(1) and (a)(2) and to address the question of how likely the risk of harm must be before a conflict of interest is determined to exist.

Prohibited Representations

The caption has been changed in order to highlight and then focus on the fact that there are some representations that are prohibited, even with the informed consent of the client.

[6] This essentially new Comment clearly articulates the fact that some conflicts are non-consentable, meaning that the lawyer may not undertake the representation even with the client's informed consent.

[7] This new Comment addresses the standard by which consentability is determined under paragraph (b)(1), i.e., when the concern is for the client's own protection.

[8] This new Comment describes the standard by which consentability is determined under paragraph (b)(2), i.e., when the representation is prohibited by applicable law, and provides some examples.

[9] This new Comment describes the standard by which consentability is determined under paragraph (b)(3), i.e., when the clients are aligned directly against each other in the same litigation, and explains that the rationale is to protect institutional interests in vigorous development of each client's position.

Informed Consent

The caption has been changed to reflect the substantive change in the text from "consent after consultation" to "informed consent."

[10] This new Comment explains what is required to meet the requirement that the lawyer obtain the client's informed consent and provides cross references both to Rule 1.4(c) and to the more detailed paragraphs of this Comment on the implications of joint representation.

[11] This new Comment addresses the new requirement under paragraph (b) that the informed consent of the client be obtained in writing. It states that it is not necessary in all instances that the writing be obtained at the time the client gives informed consent. If it is not feasible to do so because of the exigencies of the circumstances, then the lawyer may obtain the writing within a reasonable time thereafter.

[12] This new Comment explains that while a client may always revoke consent and terminate the lawyer's representation of the client, whether or not the revocation will preclude the lawyer from continuing to represent other clients will depend on the circumstances, including the nature of the conflict.

[13] This new Comment addresses a question that has arisen frequently in practice, i.e., the effectiveness of consent to future conflicts. The Comment states that whether such consent is effective is determined by the test of paragraph (b), specifically whether the conflict is consentable and whether the client has given truly informed consent.

Lawyer's Own Interests and Duties to Third Persons

At this point the Comment turns to address the application of the Rule to different types of conflicts, beginning with conflicts other than those arising from duties to other clients.

[14] This new Comment explains the variety of ways conflicts arise other than from duties to existing or prospective clients, including a specification of some of the ways in which lawyer's duties to third persons may interfere with the representation of present clients. It specifies that such third persons include former clients and provides a cross reference to Rule 1.9. This Comment should help clarify that when there is a conflict between a prospective client and a former client, the representation may be undertaken only if the requirements of both Rules 1.7 and 1.9 are met.

[15] This Comment addresses conflicts arising from a lawyer's self-interest and retains most of present Comment [6]. The sentence regarding fees is deleted on the ground that conflicts between lawyers and prospective clients regarding fee arrangements are typically addressed not by "conflict of interest" rules but rather by Rule 1.5, which regulates fees directly. The last sentence adds a cross reference to Rule 1.8, which contains a number of specific rules pertaining to lawyers' personal interest conflicts.

[16] This new Comment applies the concept of consentability to lawyers' personal interest conflicts and provides an example when such a conflict would be non-consentable.

[17] This new Comment provides a cross reference to proposed Rule 1.8(k), which prohibits lawyers from engaging in sexual relationships with clients in most circumstances.

Interest of Person Paying for a Lawyer's Service

[18] This Comment modifies present Comment [10] by eliminating the specific illustrations and explaining the relationship between Rules 1.7 and 1.8(f). The Commission is recommending a specific reference in 1.8(f) to compliance with the requirements of Rule 1.7 when third-party payment involves a conflict of interest. The examples involving insurance defense and corporate constituents have been deleted on the grounds that these examples involve a number of complex questions that are best addressed in the context of the Comment to Rule 1.8(f), where the Commission intends to include discussions of each situation.

Organizational Clients

The caption is new and recognizes the addition of two new Comments to a topic that has generated multiple inquiries since the adoption of the present Model Rules.

[19] This new Comment addresses the application of new paragraph (a) to situations involving corporate or other organizational affiliates. The language is largely drawn from the conclusions of ABA Formal Opinion 390, although the Commission believes that there will be more situations in which the lawyer will be prohibited from undertaking representation than may have been reflected in that opinion.

[20] This new Comment addresses the problem of direct adversity conflicts that arise after litigation has commenced as a result of unforeseeable developments, such as a merger or acquisition by a corporate client. In the disqualification context, courts have often recognized that it is unreasonable to require the lawyer to withdraw from representing both clients and have permitted the lawyer to withdraw from one of the two representations in order to avoid the conflict (something that is ordinarily not permitted under the so-called "hot potato" doctrine). The Comment specifies that withdrawal to avoid a conflict is permissible only under specific circumstances involving paragraph (a) conflicts. Further, the lawyer is not permitted to withdraw from whichever client the lawyer chooses but only from that client the lawyer believes would suffer the least harm. The Comment further reminds lawyers that they continue to owe the now former client the duty to keep confidential any information gained during the course of the representation.

[21] Comment [21] maintains present Comment [14] with only a single modification designed to reflect that, when problems arise with a lawyer-director, the lawyer may either resign as director or cease acting as the corporation's lawyer.

Conflicts in Litigation

[22] This Comment maintains present Comment [7] with only a few modifications reflecting textual changes.

[23] This new Comment replaces present Comment [9] on "positional conflicts." It focuses primarily, not on whether such conflicts are consentable, but rather on the more important and troubling question of whether the clients need to be consulted. The present Comment has been uniformly criticized for making too much of the distinction between trial and appellate courts. This Comment uses an analysis similar to that used for other conflicts, i.e., whether there is a significant risk that the lawyer's duties in one representation are likely to materially limit the lawyer's duties in the other representation. It must be kept in mind, however, that it may be difficult to detect some issue conflicts. Moreover, there is a need to avoid giving clients too much veto power over what types of representation a lawyer or law firm may handle.

[24] This new Comment addresses the application of paragraph (a)(1) to lawyers involved in class-action lawsuits.

Non-Litigation Conflict Situations

The caption has been changed to reflect the emphasis in these Comments on non-litigation conflicts.

[25] This Comment maintains present Comment [11] with a few modifications designed to clarify the doctrine.

[26] This Comment maintains present Comment [13] with a few stylistic changes and the addition of an illustration.

[27] This Comment maintains present Comment [12] with an expanded discussion of non-consentability in the context of transactional representation. The expanded discussion is taken from the Comment to present Rule 2.2, which the Commission is recommending be deleted on the grounds that the relationship between Rules 2.2 and 1.7 is confusing, the role of lawyer as "intermediary" has not been well understood, and the Rule has not proved helpful in clarifying conflict of interest doctrine for lawyers. (See memorandum regarding proposed deletion of Rule 2.2.) The Commission believes that situations intended to be encompassed within Rule 2.2 can be adequately dealt with under Rule 1.7 and its Comment.

Special Considerations in Joint Representation

These Comments are taken primarily from the Comment to Rule 2.2.

[28] This new Comment combines Comments [4] and [7] to Rule 2.2. "Intermediation" has been changed to "joint representation." In addition, in keeping with the general standard of Rule 1.7(b)(1), the Comment states that joint representation is improper, not only when impartiality "cannot" be maintained, but also when it is "unlikely" that the lawyer can do so.

[29] This Comment and new Comment [30] are a modified version of Comment [6] to Rule 2.2. The discussion of evidentiary privilege and the rule of confidentiality have been separated. This Comment addresses the privilege.

[30] This Comment is a modified version of the portion of Comment [6] to Rule 2.2 that addresses the effect of the obligation of confidentiality on joint representation. Unlike Comment [6], this Comment gives more explicit guidance to lawyers, emphasizing that they should discuss confidentiality at the outset of the representation and that in most cases the joint representation will be proper only if the clients have agreed that the lawyer will not maintain confidences between them.

[31] This Comment combines and substantially modifies Comments [8] and [9] to Rule 2.2 and addresses the requirement of informed consent. It specifies that, when seeking to establish or adjust a relationship between clients, the lawyer must explain how such a role differs from the partisan role expected in other circumstances. It further requires the lawyer to explain the implications of the changed role on the client's responsibility for making decisions.

[32] This new Comment is a slightly modified version of Comment [10] to Rule 2.2. The changes are stylistic.

Cross-References to Current Model Rule Comments:

[1] See proposed Comments [1] and [2].

[2] See proposed Comment [3].

[3] See proposed Comment [4].

[4] See proposed Comment [5].

[5] See proposed Comment [6].

[6] See proposed Comment [15].

[7] See proposed Comment [22].

[8] This Comment was deleted.

[9] This Comment was deleted.

[10] See proposed Comment [18].

[11] See proposed Comment [25].

[12] See proposed Comment [27].

[13] See proposed Comment [26].

[14] See proposed Comment [21].

[15] This Comment was deleted.