Chapter 27 - § 27.2 • CONFLICTS OF INTEREST — IN GENERAL

• Jurisdiction: Colorado

§ 27.2 • CONFLICTS OF INTEREST — IN GENERAL

One of the most common and recurring ethical dilemmas facing a water lawyer today is conflicts of interest. It is important for the client to feel that the lawyer is providing representation with undivided loyalty, and that anything that may compromise such loyalty will be promptly addressed and resolved. It is the lawyer's duty to recognize and disclose to the client the existence of actual or potential conflicts of interest, although clients themselves should also be encouraged to bring forward any concerns they may have regarding conflicts. As is the case in other areas of representation, much misunderstanding can be avoided if the water lawyer addresses conflicts and potential conflict issues promptly, directly, and honestly.

§ 27.2.1—Concurrent Conflicts Of Interest (Conflicts With Current Clients)

Pursuant to Colo. RPC 1.7(a), a lawyer is generally prohibited from representing a client if the representation involves a concurrent conflict of interest. A "concurrent conflict of interest" exists if (1) the representation of one client will be directly adverse to another client, or (2) 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. "[The Rule] is designed to ensure that lawyers provide loyal representation and exercise independent judgment on their clients' behalf."³

Colo. RPC 1.7(b) provides that even when a concurrent conflict of interest exists, the lawyer can continue to represent the client if (1) the lawyer reasonably believes he or she can provide competent and diligent representation to each affected client, (2) the representation is not prohibited by law, (3) the representation does not involve the assertion of a claim by one client against another in the same litigation or other proceeding before a tribunal, and (4) each affected client gives informed consent in writing. Thus, the lawyer must

1) clearly identify the client or clients; 2) determine whether a conflict of interest exists; 3) decide whether the representation may be undertaken despite the existence of a conflict, i.e., whether the conflict is consentable; and 4) if so, consult with the clients affected . . . and obtain their informed consent, confirmed in writing.⁴

"Directly Adverse"

Directly adverse representation is prohibited. A lawyer cannot represent one client in litigation and another client opposing the first client in separate litigation. While this seems a simple conflict to identify and to avoid, it is not uncommon in a water law practice. There are hundreds or thousands of water rights in any one river basin, numerous rights diverting from a single stream, and increasingly innovative changes and augmentation plans, so a lawyer may well find that one client wishes to oppose an application filed by another client. The lawyer is generally prohibited from representing both clients in this situation.⁵ Also in the context of litigation, a lawyer may be prohibited from cross-examining a client who appears as a witness in another client's lawsuit, particularly if the witness-client's testimony will be damaging to the litigant-client.⁶

Likewise, a lawyer cannot represent adverse sides of a business transaction, such as buyer and seller. A water lawyer may find himself or herself representing clients who wish to enter into a transaction with each other — perhaps, for example, a client who is a shareholder of a ditch company wishes to sell shares to a water district client. The lawyer cannot represent both buyer and seller in such a transaction and should also carefully consider whether he or she can represent even one of the clients.

When direct adversity can be identified before representation of the second client is undertaken, the lawyer must decline to represent the second client. Sometimes, however, direct adversity arises after the lawyer has undertaken both representations and requires the lawyer to terminate representation of one of the clients. Continued representation of one of the clients, after terminating representation of the other, should be approached cautiously. While the Rules indicate that continued representation of one client might be possible with appropriate waiver and consent from the other, the lawyer's duty of loyalty to the now-former client must be given careful consideration.

If the lawyer continues to represent one of the clients, and ceases representation of the other, the latter becomes a "former client." Colo. RPC 1.9(c) addresses the lawyer's obligations to a former client and prohibits the lawyer from revealing or using information relating to the representation of a former client without the client's consent. See § 27.2.2. This can hinder the lawyer's ability to represent the remaining client.

"Materially Limited"

Comment [8] to Colo. RPC 1.7 explains that even if there is no "direct adverseness," a conflict exists if "there is a significant risk that a lawyer's ability to consider, recommend or carry out an appropriate course of action for the client will be materially limited as a result of the lawyer's other responsibilities or interests." The critical evaluation is "the likelihood that a difference in interests will [arise] and, if it does, whether it will materially interfere with the lawyer's independent professional judgment in considering alternatives or foreclose courses of action that reasonably should be pursued on behalf of the client."⁷

Positional or Issue Conflicts

Positional conflicts arise when a lawyer advocates one legal position on behalf of one client and a contrary position on behalf of another client. This type of conflict can be particularly troublesome for a water lawyer. First, the conflict may not exist when the representation is undertaken. Moreover, conflict-checking procedures do not necessarily identify this type of conflict. But because there are so few water courts, so many similar issues, and a direct appeal to the Colorado Supreme Court, water lawyers must be particularly cognizant of positional conflicts.

Advocating inconsistent legal positions is not ethically prohibited so long as the inconsistent legal positions are advocated in different tribunals, at different times, and on behalf of different clients.⁸ "The mere fact that advocating a legal position on behalf of one client might create precedent adverse to the interests of a client represented by the lawyer in an unrelated matter does not create a conflict of interest."⁹

A conflict of interest does exist if there is a significant risk that a lawyer's action on behalf of one client will materially limit the lawyer's effectiveness in representing another client in a different case. This conflict of interest arises when a lawyer advocates inconsistent legal positions and a decision favorable to one client may "create a precedent likely to seriously weaken the position taken on behalf of the other client."¹⁰ Comment [24] explains that

[f]actors relevant in determining whether the clients need to be advised of the risk include: where the cases are pending, whether the issue is substantive or procedural, the temporal relationship between the matters, the significance of the issue to the immediate and long-term interests of the clients involved and the clients' reasonable expectations in retaining the lawyer.

If there is a significant risk of material limitation, the lawyer must refuse one of the representations or withdraw from one, or both, matters.

Many Colorado water lawyers have concluded that it is inadvisable to advocate contrary legal positions, even if it may be ethically permissible. Since the water bar in Colorado is small, it is very likely that the lawyer's advocacy of contrary legal positions, even in different water courts, will be made known to the water judge. And with a direct appeal to the Colorado Supreme Court, advocacy of contrary legal positions on behalf of different clients in different water courts may well ultimately result in a precedent that benefits one client while in fact seriously weakening the position taken on behalf of the other client. However, if the lawyer unsuccessfully advocates a particular legal position on behalf of a client, and the matter is concluded, with or without an appeal, the lawyer is not automatically prohibited from later advocating a contrary position on behalf of a different client.

Representation of More than One Client in a Matter

Because water court cases are often complex and involve sophisticated engineering and modeling, they can be very costly. Potential opposers to a complex application frequently wish to band together to oppose the application and protect their respective water rights, while sharing the legal and engineering costs of the case. Less frequently, potential applicants similarly want to join together in an application. A lawyer must deal with potential conflicts when he or she undertakes joint representation of more than one client advocating a similar position in a particular matter. Comment [23] to Colo. RPC 1.7 recognizes that "common representation of persons having similar interests in civil litigation is proper if the requirements of [Colo. RPC 1.7] paragraph (b) are met." All of the clients must be advised of the risks and benefits of such representation and give informed consent (discussed in § 27.2.4). If a conflict develops between the clients, the attorney may be required to withdraw entirely from the representation, thereby causing more expense and delay in the process.

In 2018, the CBA Ethics Committee issued Formal Opinion 135 to further explain the lawyer's responsibility, when requested to represent more than one client in the same matter, to identify and address conflicts of interest between the potential clients and to obtain informed client consent to the joint representation.¹¹ The...