Conning the IADC Newsletters.

Recognizing that a wide range of practical and helpful material appears in the newsletters prepared by committees of the International Association of Defense Counsel, this department highlights interesting topics covered in recent newsletters and presents excerpts from them.

Causation Concepts and Conflicts of Interest

Writing in the March 2001 newsletter of the Professional Errors and Omissions Committee, Debra A. Winiarski of the professional liability department of D'Ancona & Pflaum, Chicago, issues a warning about jurors:

Defense counsel need to be aware of the animosity jurors may instinctively feel toward a lawyer alleged to have committed an "ethics" violation. This feeling will be played on heavily by the plaintiff's counsel and needs to be diffused. One of the ways to accomplish this is to gain an understanding of the place of the ethics rules in legal malpractice cases and the peculiar alteration of general legal malpractice principles that some courts have imposed in these types of cases. Armed with this knowledge and an understanding of the context in which this case law has developed, counsel will be in a position to attempt to convince the court to provide evidentiary rulings and jury instructions that do not unfairly prejudice the defendant.

Conflicts of interest

Lawyers are presented with conflict of interest issues essentially every time they contemplate representing a new client or an existing client on a new matter. There are two broad categories of conflicts that can arise--first, conflicts that arise by reason of representation of another client ("client conflicts"), and, second, those that arise between the client and the personal or business interests of the lawyer ("adverse interest conflicts").

As to client conflicts, while the rules vary from jurisdiction to jurisdiction, Rule 1.7 of the American Bar Association Model Rules of Professional Conduct generally provides that representation of a client cannot be undertaken if the representation is adverse to an existing client, without consent after full disclosure. Nor, under Rule 1.9, can representation be undertaken if it is adverse to a former client in the same or substantially related matter, unless the former client consents after disclosure.

As to adverse interest conflicts, Rule 1.8 generally prohibits lawyers from entering into a business transaction with a client, unless the client has consented after full disclosure, if the lawyer knows that he or she may have a conflicting interest with the client with respect to the transaction, or the client expects the lawyer to exercise the lawyer's professional judgment for the protection of the client. Rule 1.8 also prohibits specific transactions, including, among others, testamentary gifts, financial assistance to clients, settlement of claims against the lawyer by clients, and the acquisition of various business interests.

Huge headaches

While these might seem to be rather clear directives, conflicts questions pose huge headaches for many lawyers, especially in this age of intricate corporate interrelationships, the large size and multijurisdictional breadth of some law firms, as well as the increased movement of lawyers from firm to firm. Then, too, the rules themselves also are a source of confusion. For example, while they allow a representation adverse to a former client in the same or substantially related matter if there is consent after full disclosure, it is difficult to imagine circumstances in which a lawyer could undertake such a representation without fear of later being held to have violated the rule. Either the current or former client could allege lack of full disclosure and a prejudicial compromise of the relationship if the client is dissatisfied with the outcome of the representation.

Finally, while filled with admirable general goals, the conflict rules provide little in the way of specific guidance as to what a lawyer should do in any given situation. For instance, those precluding certain representations make the decision dependent on the lawyer's "reasonable belief" and the client's "consent" after "disclosure." Because of their vague and general nature and the manner in which they are used at trial--during both the evidence phase and the charging of the jury--the rules can be extremely prejudicial to the lawyer-defendant. Aided by the benefit of hindsight, the plaintiff's counsel will argue that the rules provide more specific prohibitions than they actually do and will then attempt to imply that the defendant exhibited willful or culpable behavior in defying the rules.

No basis for liability?

The plaintiff's counsel invariably will attempt to use the Rules of Professional Conduct in legal malpractice cases to establish the standard of care and the breach of that standard. But the "Scope" note to the ABA's Model Rules themselves provides:

Violation of a rule should not give rise to a cause of action nor should it create any presumption that a legal duty has been breached. The rules are designed to provide guidance to lawyers and to provide a structure for regulating conduct through disciplinary agencies. They are not designed to be a basis of civil liability. Despite this intent, most courts allow the rules to be used at trial. They have taken at least four different approaches to the admissibility of professional ethical standards.

At one end of the spectrum, some courts have held that, like statutes, the professional rules establish a definite standard of care, the violation of which constitutes negligence per se. Avianca Inc. v. Corriea, 705 F.Supp. 666 (D. D.C. 1989); Day v. Rosenthal, 217 Cal.Rptr 89 (Cal.App. 1985), cert. denied, 475 U.S. 1048 (1986). Like Avianca, Day involved conduct the court deemed "egregious." Conversely, the Washington Supreme Court held that the professional standards are not even admissible as proof of a breach of the duty of care. Hizey v. Camenter, 830 P.2d 646 (Wash. 1992).

Most courts, however, fall in the middle of the spectrum and allow the admission of the ethical guidelines as evidence of the standard of care owed to a client. Smith v. Haynsworth, Marion, McKay & Geurand, 472 S.E.2d 612 (S.C. 1996); Allen v. Lefkoff, Duncan, Grimes & Dermer, 453 S.E.2d 719 (Ga. 1995) (rules may be relevant if "intended to protect a person in the plaintiff's position or ... addressed to the particular harm suffered by the plaintiff"); Woodruff v. Tomlin, 616 F.2d 924 (6th Cir. 1980), cert. denied, 449 U.S. 888 (1981); Fishman v. Brooks, 487 N.E.2d 1377 (Mass. 1986); Olson v. Fraase, 421 N.W.2d 820 (N.D. 1988); McCann v. Davis, Malm & D'Agostine, 669 N.E.2d 1077 (Mass. 1996); Lazy Seven Coal Sales Inc. v. Stone & Hinds P.C., 813 S.W.2d 400 (Tenn. 1991).

Finally, some courts hold that a violation establishes a rebuttable presumption of legal malpractice. Lipton v. Boesky, 313 N.W.2d 163 (Mich. App. 1981).

Causation concepts

Malpractice cases based on ethics violations, like all other types of legal malpractice cases, must include proof that the alleged violation caused the plaintiff's damage. The elements of causation and damage are often the most difficult to establish in ethics violation cases, especially those arising from client conflicts. Some courts continue to apply a strict causation test and require the plaintiff to establish that "but for" the malpractice, the damage would not have occurred. See Crookham v. Riley, 584 N.W.2d 258 (Iowa 1998); Bowers v. Dougherty, 615 N.W.2d 449 (Neb. 2000).

A recent trend in some courts, however, is to use a less stringent test and require only that the plaintiff prove that the defendant's conduct was a "substantial factor" in bringing about the injury. See, e.g., Conklin v. Hannoch Weisman, 678 A.2d 1060 (N.J. 1996); John B. Gunn Law Corp. v. Maynard, 235 Cal.Rptr. 180 (Cal. App. 1987); Soderlund v. Alton, 467 N.W.2d 144 (Wis.App. 1991); Home Security of America v. Wellman, 587 N.W.2d 456 (Wis. App. 1998) (unpublished disposition, text at 1998 WL 753188); Spickler v. York, 566 A.2d 1385 (Me. 1989), Steeves v. Berstein, Shur, Sawyer & Nelson P.C., 718 A.2d 186 (Me. 1998).

Milbank and fiduciaries

Courts are more likely to apply a lenient causation test where fiduciary duties, including those involving conflicts of interest, are involved. For example, in Milbank, Tweed, Hadley & McCloy v. Boon, 13 F.3d 537 (2d Cir. 1994), the Second Circuit applied the substantial factor test in a breach of fiduciary case arising from an alleged conflict of interest. The court affirmed a jury's finding that the defendant Milbank had breached its fiduciary duties to a former client in continuing to represent that client's former agent in the same transaction. The client's former agent ultimately purchased the assets Milbank's former client had sought to purchase.

In explaining its application of the more lenient substantial factor test, the court stated:

An action for breach of fiduciary duty is a prophylactic rule intended to remove all incentive to breach--not simply to compensate for damages in the event of a breach. ... There is an even more compelling reason to apply a prophylactic rule to remove the incentive to breach when the...