Conflicts of Interest

AuthorJeffrey Wilson
Pages135-141

Page 135

Background

Conflicts of interest arise in several different environments. A conflict may arise when the personal interests of someone in a position of trust clashes with the person's professional interests. A conflict may also arise when a person has different professional responsibilities and those responsibilities collide. A person who has these types of competing interests may have difficulty in fulfilling professional obligations.

Examples of professionals that may face conflicts of interest are numerous, although such conflicts generally arise in some professions more than others. For instance, judge may have personal interests that could be affected by the outcome of a case. Likewise, an attorney or law firm may have interests that conflict with the interests of a client. Similar problems may arise in the fields of accounting, stock analysis, education, and business, as well as federal employment. Elected officials also face conflicts of interest in fulfilling their duties and are subject to rules of ethics that regulate how the officials must handle these conflicts.

Handling Conflicts of Interest

A person who faces a conflict of interest may not be able to avoid the conflict. In such an instance, the person may be required to take certain steps by law or may need to follow certain practices in order to avoid any appearance of impropriety. The following are some of the means by which conflicts of interest may be handled, either by law or as good professional practice:

Duty of Loyalty: In partnership law, for example, a partner is bound by a duty of loyalty, which forbids the partner from personally engaging in a business transaction to the detriment of the partnership.

Fairness: Some laws, such as those governing conflicts of interest within corporations, require that transactions involving such conflicts are fair.

Full Disclosure: Many professionals, such as lawyers and government officials, are required by law to give full, written disclosure of any conflicts of interest.

Recusal: Decision-makers, such as judges or members of government agencies, may

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choose to recuse themselves in situations where the subject of a decision involves a conflict of interest.

Third-Party Evaluations: In some situations, such as where majority shareholders in a corporation decide to buy out minority shareholders, a neutral third party may be used to determine a fair market price for the minority shares.

Field of Law
Lawyers

A lawyer's relationship with a client is based largely on trust and confidence, such that the lawyer can provide the best possible representation of the client. Because of the nature of this relationship, a lawyer may frequently encounter a conflict of interest with the client. One instance may occur when one of the lawyer's clients has an interest that clashes with an interest of another client.

The American Bar Association's (ABA) Model Rules of Professional Conduct, which have been adopted by the majority of states, forbid or restrict lawyers from representing a client if a conflict exists. Under the Model Rules, a "concurrent conflict of interest" exists when: (1) the lawyer's representation of one client will be directly adverse to another client; or (2) the lawyer's representation of one or more clients runs a significant risk of being materially limited by the attorney's representation of another client, a former client, or a third person.

The Model Rules allow a lawyer to represent a client notwithstanding a conflict of interest when each of the following four criteria are met: the lawyer reasonably believes that he or she can still provide competent and diligent representation in spite of the conflict; the lawyer's representation of the client is not prohibited by law; the representation does not involve an instance where a claim by one of the lawyer's clients is brought against another of the lawyer's clients in the same litigation or other proceeding before a tribunal; and each affected client provides consent in writing after being informed of the conflict.

Under the Model Rules, a lawyer may neither engage in a business practice with a client nor acquire an ownership, possessory, security, or other pecuniary interest that is adverse to the client. The exception to this rule applies when the terms of the transaction are reasonable and fair to the client and are fully disclosed in writing; the client is advised in writing that he or she should seek the advice of independent legal counsel regarding the transaction; and "the client gives informed consent, in a writing signed by the client, to the essential terms of the transaction and the lawyer's role in the transaction, including whether the lawyer is representing the client in the transaction."

Lawyers are also limited from engaging in specified conduct that would involve conflicts of interest. These types of conduct include the following:

Using information relating to the representation of a client to the disadvantage of the client unless the client gives informed consent.

Soliciting any substantial gift from a client, including a testamentary gift, unless the client is related to the lawyer.

Negotiating an agreement that gives the lawyer literary or media right to a portrayal or accounted based on information relating to the representation.

Providing financial assistance to a client in connection with pending or contemplated litigation, except that a lawyer may advance court costs on behalf of a client or pay the court costs and expenses of an indigent client.

Accepting compensation for representing a client from someone other than the client, unless the client gives informed consent, the payment of compensation does not interfere with the lawyer's independence of professional judgment or with the lawyer-client relationship, and the...

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