Chapter 19 - § 19.2 • ANALYSIS

• Jurisdiction: Colorado

§ 19.2 • ANALYSIS

§ 19.2.1—Attorney Discipline Cases In Colorado Involving Quiet Title Actions

In a 1980 Colorado attorney discipline case,¹ a client engaged a lawyer to file a quiet title action. The lawyer told the client that he had filed the action. In fact, he had not. The lawyer then told the client that he had "cleared" the title to the property. In fact, the title "contained a flaw and was clouded by a quitclaim deed."² The lawyer's failure to quiet title to the property prevented it from being sold. The Colorado Supreme Court suspended the lawyer for six months for neglect, misrepresentation, and conduct prejudicial to the administration of justice in violation of the Colorado Code of Professional Responsibility equivalents of Colo. RPC 1.3, Colo. RPC 8.4(c), and Colo. RPC 8.4(d), respectively.

In a 1986 Colorado attorney discipline case,³ an attorney filed a quiet title action in the name of the agents of a corporation he formed to stake a gold mining claim. Three of the agents were his clients. The fourth was the lawyer himself, who was an equal shareholder in the company and became a third-party defendant in the lawsuit. The trouble started when the lawyer made disparaging remarks about one client's former wife.

The Colorado Supreme Court found that the lawyer violated disciplinary rules in the former Code of Professional Responsibility dealing with conflicts of interest, lawyers as witnesses, and delivering property to clients. He failed to fully advise his clients about the effect on his professional judgment of his financial interest in the mining company and of his potential liability as a third-party defendant. At a time when it was "obvious" that he ought to be called as witness at trial, the lawyer provided legal advice and ghostwrote pleadings in the quiet title action signed by another lawyer on behalf of the company and by ostensibly pro se parties on behalf of themselves as individual parties. Improperly asserting a retaining lien, the lawyer refused a shareholder access to company records until the company paid off a $10,000 promissory note for his legal fees. The note was not yet due and, as secretary of the corporation, the lawyer was obligated to make records available to shareholders. The court suspended the lawyer for 60 days.

§ 19.2.2—Conflicts Of Interest

Colo. RPC 1.7 contains the general rule governing conflicts of interest between and among current clients. Paragraph (a)(1) deals with "concurrent" conflicts of interest in which the interests of one client are directly adverse to those of another client. Paragraph (a)(2) deals with more subtle or latent conflicts of interest. It states that another type of concurrent conflict of interest exists when "there is a significant risk that the representation of one or more clients will be materially limited by the lawyer's responsibilities to another client, a former client or a third person or by a personal interest of the lawyer."⁴ Representation is permissible only if "the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client," the representation is not "prohibited by law," the representation does not involve the assertion of a claim by one client against another client in the same case, and each client gives "informed consent, confirmed in writing."⁵ "'Informed consent' denotes the agreement by a person to a proposed course of conduct after the lawyer has communicated adequate information and explanation about the material risks of and reasonably available alternatives to the proposed course of conduct."⁶ "'Confirmed in writing,' when used in reference to the informed consent of a person, denotes informed consent that is given in writing by the person or a writing that a lawyer promptly transmits to the person confirming an oral informed consent. . . . If it is not feasible to obtain or transmit the writing at the time the person gives informed consent, then the lawyer must obtain or transmit it within a reasonable time thereafter."⁷

As is evident from the Rule, clients cannot consent to every conflict. In a 2007 formal opinion, the Colorado Bar Association Ethics Committee concluded that domestic relations clients cannot validly consent to the conflict of interest that arises when their lawyers sign, along with their clients, "collaborative law" agreements that prohibit the lawyers from representing their clients if the clients are unable to settle their affairs out of court. The lawyers' contractual duties and liabilities, so the theory goes, materially limit the representation of their respective clients.⁸

Among the Comment language added to Colo. RPC 1.7 in 2008 was a section entitled "Special Considerations in Common Representation." This section cautions lawyers that some common representations involve such a high risk of failure as to be impermissible, for example "where contentious litigation or negotiations between [the common clients] are imminent or contemplated,"⁹ or it is unlikely that the lawyer will be able to maintain impartiality due to an existing antagonistic relationship between them. The section further warns that if a common representation fails due to adverse interests, the lawyer ordinarily must withdraw from the representation of all parties.

At the outset, conflicts of interest in multiple representation may be nonexistent, unforeseeable, or theoretical at most. Client consent, in this situation, is of limited value. If, as frequently happens, the facts develop in such a way that the clients' anticipated testimony or preferred strategy places them at odds with each other, the clients' prior consent may be inadequate because the information that went with it was based on different or abstract facts. At this point, the lawyer must reevaluate the multiple representation to determine whether another round of consent is necessary and possible. Colo. RPC 1.16(a)(1) requires withdrawal — which in a matter in litigation means a request for permission to withdraw — if continued representation will result in violation of a rule of professional conduct, which in this context is probably Colo. RPC 1.7(a)(2).

In most such instances, the lawyer must withdraw from the representation of all clients.¹⁰ There are two reasons compelling a complete withdrawal. First, continuing to represent one client who is perhaps unexpectedly adverse to another may violate Colo. RPC 1.9(a), which prohibits a lawyer from representing a client in the "same or a substantially related matter" in which the client's interests are "materially adverse" to those of the former client. Second, even if Colo. RPC 1.9(a) bars continued representation of one client but not another (e.g., one client's interests may not be "materially adverse" to the other's), dropping one client in favor of another may violate the lawyer's duty of loyalty to the dropped client, "especially if it is in order to keep happy a far more lucrative client," and even if the dropped client consents.¹¹ This is called the "hot potato" rule or doctrine. A federal judge in Chicago described the exception to the hot potato rule as follows: "A lawyer's withdrawal from representing a client only renders the client a former client when: (1) it occurs at a time when the lawyer and the client had contemplated the end of the representation; and (2) the lawyer's primary motivation for terminating the relationship was not his desire to represent the new client."¹²

Conflicts of interest can have ramifications outside the attorney discipline process. In fact, a leading attorney disqualification decision arose from a quiet title action in Alabama involving mineral lands.¹³ In that case, the Taylor Coal Company intervened in the quiet title case, alleging a leasehold interest in the property through the plaintiff. Several years and appeals later, Taylor moved to disqualify the defendants' counsel on the grounds that he had issued two title opinions for Taylor regarding some of the land involved in the case. Adopting and applying the "substantial relationship rule" now reflected in ABA Model Rule and Colo. RPC 1.9(a), the Alabama Supreme Court denied the motion to disqualify, reasoning that although there was "no question" the current and former representations were substantially related, several of the lawyer's past and present clients had acquired knowledge of the same information during the course of the lawyer's representation of them.¹⁴ The Alabama Supreme Court was also sympathetic to the fact that the defendants' attorney was one of "about a dozen" lawyers in the entire county where the action was pending.¹⁵

Conflicts of interest can also result in a disgorgement or forfeiture of attorney fees.¹⁶ In a Minnesota case,¹⁷ an elderly woman owned a 320-acre farm. Her daughter and son-in-law acquired an interest in the property when they entered into a contract for deed with the mother that called for semi-annual payments. They borrowed heavily against the property, including a $400,000 mortgage loan that the daughter signed for herself and for her disabled mother using a power of attorney. The daughter and son-in-law defaulted on the loan and the property went into foreclosure.

Mother and daughter consulted the Somsen firm about the foreclosure. The Somsen firm concluded that both clients shared a common goal: save the farm. On the firm's advice, the mother partially revoked the power of attorney to the daughter and conveyed a power of attorney to State Bank & Trust limited to real estate transactions. The Somsen firm then undertook to represent State Bank in that capacity and, later, as the mother's conservator. The Somsen firm served a notice on the daughter canceling her contract for deed and filed a quiet title action against her, claiming that she breached her fiduciary duty to her mother when she borrowed against the property using the power of attorney. The firm also joined, as a party, the foreclosing lender...