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Conflicts of Interest

Self Study Article & Self Assessment Test

presented by Richard E. Flamm, Esq.

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   §3.1 Introduction
   §3.2 Conflicts Between Current Clients
   §3.3 Direct Adversity Conflicts
   §3.4 Genesis of the Direct Adversity Rule
   §3.5 Closed File Conflicts
   §3.6 Conflicts Between Lawyer and Client
   §3.7 Lawyers Acting in Dual Roles
   §3.8 Parallel Representation
   §3.9 Conflict Detection and Avoidance

§3.1 Introduction

It has been said that lawyers have a duty to scrupulously avoid representing conflicting interests. In fact, in some jurisdictions lawyers are duty-bound to avoid placing themselves in a position where they may even appear to be doing so. But the ethical rules do not explain exactly what is meant by a "conflict of interest." As Justice Marshall pointed out in Cuyler v. Sullivan, "that term is one that is often used and seldom defined."

Courts, commentators, and the drafters of the nation's ethical codes have indiscriminately employed the phrase "conflict of interest" to describe a host of very different types of circumstances. For example, just as a lawyer may be said to be engaged in conflicted representation whenever he concurrently represents more than one client whose interests may diverge, the term has also been used to describe that situation where the duty of confidentiality a lawyer owes to a former client may impede the lawyer's ability to fulfill her duty of loyalty to a current client – or vice-versa. The term has also been used to refer to a wide variety of other situations, including the conundrum that arises when a lawyer's own interests impinge upon her duty of loyalty to a current client.

§3.2 Conflicts Between Current Clients

In a case where a lawyer may not be able to faithfully discharge the duty of undivided loyalty she owes a current client, because of her concurrent duty of loyalty to another client, she may be said to have an "open file" conflict. This type of conflict can arise in two fundamentally different ways. In one scenario, the lawyer represents one client in a manner that is adverse to the interests of another current client – typically in an unrelated matter. This type of conflict is sometimes called a "direct adversity" conflict or, more simply, "adverse representation."

In the other and far more frequent situation, a potential for conflict arises when counsel undertakes to simultaneously represent two or more clients with respect to the same matter, even though the interests of all of his clients are, or may become adverse. This type of conflict – which has been interchangeably referred to as dual, concurrent, or multiple representation – will be discussed in detail in Chapter Four.

§3.3 Direct Adversity Conflicts

Rule 1.7(a) of the ABA Model Rules of Professional Conduct provides that a lawyer shall not represent a client as an advocate if the representation will be directly adverse to another client the lawyer represents in some other matter. This is so even if the other matter is wholly unrelated, unless the lawyer reasonably believes the representation will not adversely affect the relationship with the other client, and each client consents after disclosure or consultation. The Model Rules were adopted by the ABA in 1983. Since then it has generally been agreed that it is ethically improper for a lawyer to assume a position that is inconsistent with the interests of a current client, on behalf of another client he represents in a different matter, without the informed consent of all concerned. This is so even when the representations are completely unrelated, and the lawyer has no confidences that could be used to the complaining client's detriment.

Some courts have sought to qualify this prohibition by holding that, in order for representation adverse to a current client to constitute a disqualifying conflict of interest, such representation must be "directly adverse" to the interests of another client – as opposed to being merely "generally adverse." The term "directly adverse" is, however, somewhat nebulous and factually dependent.

Of course, bringing a lawsuit against a current client would constitute an act of direct adversity. In fact, this type of conflict is considered to be so blatantly improper that Nineteenth Century Pennsylvania Supreme Court Justice George Sharswood – one of the nation's pre-eminent early commentators on the subject of legal ethics – wrote that it "ought, like parricide in the Athenian law, to be passed over in silence in a code of professional ethics."

In one of the earliest of the modern cases to address this species of conflict, Grievance Committee v. Rottner, a firm that had filed a collection suit on behalf of one client agreed to sue that client – on behalf of another firm client – in a wholly unrelated matter. The firm attempted to defend against a subsequent disciplinary complaint by pointing out that the two suits had nothing in common, but Connecticut's highest court flatly stated that a lawyer may not accept representation that is adverse to a person it is presently representing, whether the matters are related or not.

Representation adverse to the interests of a current client is forbidden not only in litigated matters, but in transactional ones; and in instances where counsel engages in representation that is less directly adverse to the complaining client's interests than suing it would be; as where the client is either not a named party, or not the party whose interests are most directly adverse. In recent years, the direct adversity rule has sometimes been invoked in an attempt to bar counsel from taking such actions as agreeing to testify as an expert witness for an adverse party, or represent a client's business competitor in unrelated matters.

§3.4 Genesis of the Direct Adversity Rule

The concept that a lawyer must not simultaneously represent parties who are opposed in interest is not a novel one. It can be traced back at least as far as the biblical Book of Matthew, which decrees that "no one can serve two masters, for either he will hate the one and love the other, or he will be devoted to the one and despise the other."

This edict has long been applied to lawyers. Certainly, by the beginning of the Seventeenth Century it was well settled that a lawyer could not concurrently represent parties who had opposing interests. The rationale for these early holdings was that a client who learns that her lawyer is simultaneously representing an adversary – even with respect to a matter wholly unrelated to the one for which counsel was retained – cannot long be expected to sustain the level of confidence and trust in counsel that is one of the foundations of the professional relationship. Courts have also voiced concern about the possibility that the loyalty a lawyer owes to one current client might cause him to temper his representation of another client.

§3.5 Closed File Conflicts

Since a lawyer is duty-bound to maintain her former client's confidential information – as well as to vigorously, even zealously pursue her current client's interests – it can readily be seen that, in a situation where a lawyer who possesses a former client's confidences is in a position to disclose or use that information to benefit a current client, a conflict of interest may arise. In addition, while lawyers may not owe former clients the same degree of loyalty they owe current clients, a former client is ordinarily entitled to expect that her lawyer will remain loyal to her interests with respect to those matters on which the lawyer previously represented her. For these reasons, lawyers in California and some other jurisdictions are forbidden from doing anything that would injuriously affect a former client with respect to a matter on which the lawyer represented that client, whether such actions would involve the use of any confidential information received from the former client or not.

The type of conflict which is said to arise when a lawyer may be in a position to adversely use a former client's confidences for the benefit of a current client – or take other improper actions that would adversely impact upon a former client's interests – is occasionally referred to as a "closed file" conflict. This type of conflict accounts for a very high percentage of the disqualification decisions which have been reported in the jurisprudence.

§3.6 Conflicts Between Lawyer and Client

Just as a lawyer may not allow the interests of one current client to impede his duty of loyalty to another, he may not permit his own interests to constrain the exercise of his independent judgment on behalf of a current client. Should counsel fail to heed this admonition, the court may disqualify him, or order other sanctions.

Of course, virtually every representation is burdened by the lawyer's personal interests to some degree. For this reason, not every interest is deemed to warrant disqualifying counsel. On the contrary, to be disqualifying the lawyer's interest must usually be a pecuniary one. Nevertheless, there are times when interests that are not pecuniary – such as a lawyer's desire to curry favor with a prospective employer, avoid exposure to malpractice liability, or forestall a government investigation into his own wrongful conduct – may be found to justify disqualifying counsel.

Some ethical rules – such as ABA Model Rule 1.8(j) and its Model Code counterpart, DR 5-103(A) – prohibit lawyers from acquiring proprietary interests in litigation. Pursuant to those rules, a lawyer's acquisition of even a relatively small interest in a litigation, or a party to it, may result in disqualification of the lawyer who possesses that interest – and perhaps his firm as well. Disqualification may also sometimes be ordered in a situation where counsel enters into a media rights contract with a criminal defendant, or is the object of a motion in which sanctions against both lawyer and client have been sought.

In some cases a lawyer may be permitted to represent a client, despite having a pecuniary interest in the client's matter. To avoid violating the ethical prohibition, and being disqualified, it is incumbent upon counsel to fully disclose the nature of that interest, as well as its possible adverse effect on the client. Counsel must then obtain the client's informed consent to continue to represent the client, despite the conflict.

§3.7 Lawyers Acting in Dual Roles

A conflict of interest may sometimes arise in a situation where a lawyer acts in dual roles; as where a lawyer simultaneously serves as both a private attorney and a legislator. A dual role conflict may also arise in a situation where a lawyer both represents an entity client and serves on its board of directors or trustees.

It is not uncommon for lawyers to be invited to serve on the boards of the clients they represent, and it has generally not been deemed to be unethical for them to do so. But such a dual role is fraught with potential perils, including an increased likelihood that the lawyer will be disqualified from representing the corporation in litigation.

§3.8 Parallel Representation

A conflict concern may arise in a situation where a lawyer attempts to concurrently represent different plaintiffs in different matters against a single defendant who has limited assets out of which to satisfy an adverse judgment. The few courts that have analyzed whether such "parallel representation" constitutes a disqualifying conflict have reached different conclusions. In some cases the conflict inherent in this type of situation was deemed to be too speculative to warrant the drastic measure of disqualifying counsel from representing one set of plaintiffs. But other courts have arrived at the opposite conclusion.

§3.9 Conflict Detection and Avoidance

A lay person has no duty to ferret out possible conflicts of interest, or other ethical misconduct, and state his lack of consent thereto. On the contrary, the obligation to identify and disclose all potential conflicts rests squarely on counsel.

Law firms commonly attempt to discharge this duty by performing what is commonly referred to as a "conflicts check." There is no bright line test for what must be done in order to perform an adequate check. At a minimum, however, the procedure will usually involve running a computer search before accepting a representation, employing available technology, to ascertain whether the firm represents – or previously represented – any clients who may have an interest adverse to the prospective client in the new matter. Many firms will also circulate a document – commonly referred to as a "new case memorandum" – to all firm employees.

Courts have sometimes criticized law firms for failing to adopt adequate conflict avoidance procedures. Even when such measures are undertaken in good faith, however, they will not disclose every possible conflict. By way of example, changes in a client's mode of internal operation that are unknown to the lawyer can create a conflict potential that a firm's conflict avoidance mechanisms may be unable to diagnose.

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