CHAPTER 1 - 1-8 CONFLICTS OF INTEREST

• Jurisdiction: United States

1-8 Conflicts of Interest

1-8:1 Introduction

The duty of conflict-free loyalty is a fundamental requisite in both criminal³¹⁷ and civil representation.³¹⁸ A conflict exists when "an attorney may be considered to be laboring under an impaired duty of loyalty, and thereby be subject to conflicting interests, because of interests or factors personal to him that are inconsistent, diverse or otherwise discordant with the interests of his client."³¹⁹ Conflicts jurisprudence arises out of the duty of loyalty, and the literature of loyalty is deep and rich.³²⁰

Much is written and much more litigated on conflicts.³²¹ A full treatment of this subject is beyond the scope of this book. It is the authors' experience that very few conflict claims are presented as attorney grievances. A review of Grievance Committee decisions for 10 years revealed only a few cases of disciplinary orders for conflicts violations. When one considers that during this period there were in excess of 12,000 grievance complaints filed, it becomes clear that conflicts make up only a small part of the total disciplinary docket.

Most conflicts jurisprudence is found in the context of conflicts claims raised either as a weapon in litigation or as a defense to claims for attorneys' fees. Despite the admonition found in the commentary to Rule 1.7, "Conflict Charged by an Opposing Party," that conflicts issues raised tactically during litigation should be "viewed with caution" as they may be a "technique of harassment," there are many more reported cases involving conflicts in the context of litigation than there are cases involving conflicts raised as ethics complaints.³²²

There are four basic conflicts rules; those dealing with present clients which are addressed by Rule 1.7,³²³ former client conflicts, including potential clients with whom the attorney may have had some discussions not leading to retention which are addressed by Rule 1.9,³²⁴ conflicts with present or former clients imputed to members of a lawyers firm as discussed in Rule 1.10,³²⁵ and conflicts arising out of special relationships with clients as found in Rule 1.8.³²⁶

1-8:2 Concurrent Conflicts with Present Clients

Concurrent conflicts are the most common and, perhaps, the easiest to identify and avoid. A lawyer may not represent a client if the representation is directly adverse to another client.³²⁷ In addition, a lawyer may not represent a client if there is a significant risk that the lawyer's representation of a client will be materially limited by responsibilities to another present client, a former client, a third person or by a personal interest of the lawyer.³²⁸

Determining the nature of the concurrent conflict requires analysis of whether its source is the client, who may be directly adverse to another client (the "direct adversity" conflict)³²⁹ or out of the lawyer's duty of loyalty to others, such as former clients, third parties or the lawyers own self-interests³³⁰ any or all of which may materially limit the lawyer's ability to give conflict-free service to her client (the "material limitation" conflict). For some purposes, the distinction between a direct and a material limitation conflict may not be a matter of concern. Indeed, the Restatement recognizes all such conflicts as the same, defined as any circumstance that would create a risk that the lawyer's representation of the client would be "materially and adversely affected."³³¹

Conflicts of interest have been described as that which impedes an attorney's paramount duty of loyalty to his client. It is clear that an attorney would be hard pressed to be loyal to two clients who were directly adverse to each other in a particular matter. If the matter was in litigation, Rule 1.7(b)(3) would prohibit it completely. A more difficult question is presented when the clients are represented in a nonlitigation matter, such as a sale of real estate from one client to another or when the lawyer represents both clients, but in different matters, and then is asked to represent one against another in a new case or is asked to represent a new client adverse to an existing client but in a new matter. Such a case resulted in discipline in Grievance Committee of the Hartford Bar v. Rottner.³³²

In Rottner, a law firm that had previously both advised and represented a client with regard to several matters and which was presently representing the client in a lawsuit brought on the client's behalf accepted a brief from a new client and instituted suit against their client in a collection case. The firm felt that since different lawyers in the firm represented the parties in both cases, and the firm did not represent both sides of either case, there was no conflict. The Supreme Court, however, upheld a reprimand against the managing partner. In doing so, it adopted a rule that it said should be "rigidly followed" prohibiting such conduct. The court's rationale was eloquently stated:

When a client engages the services of a lawyer in a given piece of business he is entitled to feel that, until that business is finally disposed of in some manner, he has the undivided loyalty of the one upon whom he looks as his advocate and his champion. If . . . he is sued and his home attached by his own attorney, who is representing him in another matter, all feeling of loyalty is necessarily destroyed, and the profession is exposed to the charge that it is interested only in money.³³³

Note that in Rottner there was neither a discussion with the existing client of the potential conflict by the firm nor a waiver or consent by the client. Under the present iteration of the rules, the conflict might well be consentable with appropriate disclosures, discussions and waivers.³³⁴ However, though the rule regime has changed since Rottner was decided, the policy considerations remain. Such a course of action may well be unwise even though theoretically possible.

If two clients are working cooperatively on a matter, a lawyer might represent both, even if their interests are not completely congruent, as long as the proper informed consents are in place and it is clear that they are not engaged in a purely distributive or "zero-sum" transaction where one can only benefit at the expense of the other. In other transactions, even if the lawyer felt he could somehow play both sides of the game honestly, the stakes might be such that others would think he was (or might be) "pulling his punches" and favor one client over. The inherent tension in such a situation would make such representation impossible.³³⁵

As noted in the waiver discussion below, some conflicts, such as representing persons on both sides of a matter in litigation or pending before a tribunal, cannot be waived.³³⁶ In other instances, the decision whether the representation is proper will hinge on whether the lawyer "reasonably believes" that he can offer full, complete, loyal and conflict-free service to both clients and both clients give informed consent.³³⁷ The test before the Grievance Committee or a court would be whether a reasonable lawyer would have reached the same conclusions as the lawyer in question.

Though the present rule makes the test "actual conflict" rather than the "appearance of impropriety,"³³⁸ some courts have nevertheless sanctioned or disqualified attorneys where a potential conflict was significant enough to warrant such action "to dispel any appearance of impropriety."³³⁹ The frequency with which this test continues to appear in conflicts jurisprudence may well reflect that though "appearance of impropriety" is no longer in the lawyers' ethics code it remains in the judges' minds.

1-8:3 Material Limitation Conflicts

While direct conflicts are relatively straightforward, material limitation conflicts can be very subjective. They arise when circumstances exist that suggest that a lawyer's loyalties are too divergent to allow him to fully and adequately represent the interests a client. An attorney may be considered to be laboring under an impaired duty of loyalty, and thereby be subject to conflicting interests, when interests or factors personal to him that are inconsistent, diverse or otherwise discordant with the interests of his client.³⁴⁰ Rule 1.7(a)(2) identifies four instances where divided loyalties may become an issue: when the lawyer's loyalty may be compromised by a responsibility to another client, a former client, a third person or the lawyer's own interests.

A lawyer who previously represented a party in a criminal prosecution may not be able to represent another person involved in that case in an unrelated matter.³⁴¹ Other clients, present or former, may create positional conflicts, that is, the lawyer may be limited in taking a position for one client in a particular matter because the position that she advocates may be adverse to the interests of another client. The commentary to the rule identifies one instance of a positional conflict as being when advancing the interests of a client would create a precedent which might be adverse to another client's interests.

If there is clearly established law, and the lawyer is merely arguing the application of the law to the facts of the case, there would be no conflict. While an individual client may not care, or may actually welcome the fact that his lawyer has taken the opposite side of a case in the past, as this may make the lawyer a better advocate, an institutional client may well feel betrayed. Because of the possibility of adverse economic consequences if the institutional client withdraws its business, would the lawyer be likely to (or be perceived as likely to) less aggressively advocate her client's position?

Third-person conflicts may be created by business, political or social relationships the lawyer has with others who may either be impacted by the success of the lawyer's representation of a particular client or who may find the lawyer's position on behalf of a client abhorrent.

A lawyer's own...