Almost a year ago I wrote an overview column on conflicts of interest and included a promise of more detailed installments to come. In the meantime my attention was diverted by some shiny objects of an ethical sort, but I would now like to return to an exploration of conflicts of interest—this time looking in a more detailed way at current client conflicts of interest, governed by Indiana Rule of Professional Conduct 1.7. But first a disclaimer: conflicts of interest are complicated. Entire treatises have been written on the subject. At most, a column like this can help tune up your conflicts of interest radar. Once that radar sets off an alarm, get help from someone who really knows the subject matter.
Underlying Concerns About Loyalty and Confidentiality
Two important principles drive current-client conflict of interest rules. The first principle is confidentiality. Lawyers have a broad duty of confidentiality to their clients—essentially almost everything lawyers know is confidential. When a lawyer simultaneously represents more than one client in the same or related matters, even when they are not directly adverse, there is a risk that the lawyer might use confidential information of one client to another client’s advantage and to the first client’s disadvantage. To avoid that, Rule 1.7 prohibits lawyers from simultaneously representing different clients if there is a significant risk that the lawyer’s responsibilities to one client will be materially limited by the lawyer’s responsibilities to another client. Mind you, lawyers protect their client’s confidences in any event. But it is thought that the temptation to breach confidentiality will be too great if the lawyer has another client with adverse interests who could benefit from those confidences. Moreover, it is important that clients perceive their confidences to be secure, and they may not if the lawyer also represents a client with differing interests in a related matter.
The second principle is loyalty. Confidentiality could be viewed as a subset of loyalty, but loyalty entails much more. It is the loyalty principle that causes us to be concerned about current conflicts of interest arising from different client legal representations that have nothing to do with each other. Rule 1.7 forbids (absent client consent) a lawyer from representing one client in a matter against another client whom the lawyer represents in another matter, even when the two matters are entirely unrelated. In this circumstance, there is no confidentiality risk—the one client’s confidences will be of no value in the adverse matter because they are unrelated. Nonetheless, because clients need to have confidence and trust in their lawyers, we do not require them to accept being sued by their own lawyer, even in an unrelated matter.
Must this be so? Is it impossible for a lawyer to be an effective advocate for a client if that lawyer is adverse to that client in an unrelated matter on behalf of another client? The American view of loyalty-driven conflicts of interest is not anchored in natural law—it is a product of our unique legal culture. In fact, in the United Kingdom and the EU countries, the idea that a conflict of interest would rise from unrelated, albeit adverse, legal representations.
We may not be as far apart from our European sisters and brothers as it might seem at first glance. While our default position is that these are impermissible conflicts of interest, the broad availability of informed client consent often makes it possible for U.S. lawyers to do what European lawyers can do without client consent. If a lawyer were always off limits because that lawyer (or, more often, the lawyer’s firm) was adverse to the prospective client in an unrelated matter, client freedom to select counsel might suffer.
Imputation of Conflicts
I will discuss imputation of conflicts of interest from one lawyer to others in the same law firm in a later column. However, much of the following discussion will seem a bit unrealistic without understanding that as a general matter, for most conflict of interest purposes, all lawyers in a law firm are treated as a single lawyer. It may seem strange to suggest that a lawyer might unknowingly sue an existing client on behalf of another client, but it is not strange at all for one lawyer to unwittingly sue the client of another lawyer in the firm if conflicts are not checked.
Consentability of Conflicts
Not all conflicts of interest preclude representation of a client. In fact, many, and possibly most, conflicts of interest are consentable. I reserve for a later column a more detailed analysis of client (and former client) consent to conflicts of interest. For now, suffice it to say that client consent is often an option for resolving conflicts of interest as an alternative to having to lose an employment opportunity.
One of the threshold issues in dealing with conflicts of interest generally and current-client conflicts of interest in particular is identifying who the clients are. Lawyers constantly find themselves in situations where multiple individuals or entities might potentially believe that the same lawyer is representing their interests. Absent an unwaived or unwaivable conflict of interest of the multiple-client variety (more about that later), there is nothing to prevent a lawyer from representing multiple clients simultaneously in the same matter—it happens frequently. The real problem arises when the answer to the question, “Who is your client?” is “I’m not sure.” Ambiguity in client identity is the bane of conflicts of interest avoidance. It can arise in many guises: husband and wife, corporate family members, corporations and corporate agents, etc. There is no “right” answer beyond this: you must know the precise identity of your clients. More important, non-clients should not be allowed to think you are their lawyer if you aren’t. An engagement letter is the best place to clearly sort out client identity. It is the earliest and best opportunity for the lawyer to clarify who is and who is not a client.
Another issue that arises with some frequency in connection with determining client identity is whether the lawyer for a legal entity or another organization represents constituents of the organization in addition to the organization itself, including affiliated organizations, such as parents, subsidiaries or other corporate family members. Ordinarily, representing an entity does not, without more, create an attorney-client relationship with other associated or affiliated individuals or organizations. This is inevitably an area where client and lawyer expectations might, unless clarified, differ. If a corporate parent believes that its representation includes representation of the entire corporate family, it is far better to know that at the outset of the representation rather than later when a new engagement arises that would be adverse to an affiliate.
Direct Adversity Conflicts
I refer you to my earlier column for an overview of the types of current-client conflicts. It is important to keep in mind that, especially in the case of material limitation conflicts, it is not only other client interests that will raise conflict concerns. In addition, a lawyer’s fidelity to non-clients and to the lawyer’s own interests can sometimes create a significant risk that the lawyer’s representation of a client will be materially limited.
Direct adversity conflicts are usually easy to spot if you take the trouble to look for them—as you must. At the outset of any representation, a lawyer must check conflicts by querying a database or list of current and former clients and current and former adverse parties by asking whether the prospective client in the new matter is now or has ever been an adverse party and by asking whether any adverse party in the prospective new matter is now or has ever been a client. (We’ll leave the analysis of former-client conflicts that are identified by a conflicts search for a later discussion.) If that database query returns a hit that either the client in the prospective new matter is an adverse party in some other matter or that any adverse party in the prospective new matter is an existing client in some other matter, a direct adversity conflict of interest is presented.
Direct adversity conflicts can arise in any number of ways—most frequently when an existing client asks a lawyer to take on a new matter adverse to a person or entity that happens to also be a client in an unrelated matter. The client to whom the new matter will be adverse will be able to assert a direct adversity conflict: that client’s champion will have now become her nemesis—a betrayal of loyalty. Even though one client is willing to consent to being sued by her lawyer (more likely by another lawyer in the same firm), that is not the end of the inquiry. From the vantage point of the client in the new matter, there is a material limitation conflict. That client is entitled to know that the adverse party is also one of the lawyer’s clients because that client might be concerned that the lawyer will be a less-than-zealous advocate under the circumstances.
Material Limitation Conflicts
Material limitation conflicts are also generally easy to spot, but often difficult to analyze. The typical potential material limitation conflict is presented when more than one client would like to be represented by the same lawyer. Analyzing multiple-client conflicts requires the lawyer to ask whether his ability to fully serve any one of the clients will be compromised by the lawyer’s obligation to serve the interests of the others.
The interests of multiple clients are often perfectly or closely aligned and the prospect of a conflict of interest manifesting itself is remote. At other times, it should be readily apparent that the interests of different clients are likely to diverge. Clients are not always in the best position to distinguish one from the other. It is human nature for people who are interested in creating an enterprise together to myopically focus on commonalities, not differences. Moreover, the use of multiple lawyers might be seen as a way of over-emphasizing differences. Plus, the economics of creating a common enterprise will often not support the costs of multiple lawyers putting the deal together.
The would-be shared lawyer is in the delicate position of having to determine whether commonalities sufficiently outweigh differences to the point where a single lawyer can act on behalf of the entire group. There is often no easy answer. Lawyers need to be ruthlessly objective in deciding whether they can competently and diligently serve more than one master. Where it is clear that the lawyer cannot, he must turn down the engagement or limit his representation to a single client or a more closely aligned subset of the entire group. Other times, the alignment of interests is close to perfect, in which event the lawyer is free to undertake the multiple client representation. Prudence dictates that even in these cases, there be disclosures and informed client consent. Most often the situation is not clear one way or the other: common interests predominate, but there is some risk that interests will later diverge to destroy what appeared at the outset to be a united client front. When a conflict of client interest later manifests itself, the lawyer will the required to withdraw from the representation—probably on behalf of everyone unless some form of consent allows the lawyer to stay in on behalf of a subset of the original client group.
In every multiple-client situation, the lawyer should (and usually must) provide the clients a clear warning at the outset of the representation that a conflict of interest might later emerge, offer the option to the clients to have their own separate counsel, and secure the consent of each client if the shared representation is to go forward.
One piece of information that prospective multiple clients need to know is how confidential information will be handled. The clients need to know before agreeing to the shared representation that information from one client will be disclosed to, or at least accessible by, all of the clients. It is close-to impossible for multiple clients to consent to the non-disclosure of information among the several clients, because any such agreement is likely to so hamper the lawyer as to preclude him from being able to competently and diligently represent each of the clients. For this reason, any client consent to shared representation should inform the clients that one of the implications of a shared representation will be that information from one client will be accessible by all.
Non-Client Material Limitation Conflicts
While a client-focused view is the most logical lens through which to view current-client conflicts of interest, we should not lose track of the many ways in which the personal interests of lawyers or the interests of non-client third parties can create material limitation conflicts. The inquiry is always going to be whether non-client interests present a significant risk of materially limiting the representation of the client. For example, it is embedded in our lawyerly DNA to remain non-judgmental about our clients, but sometimes a client’s chosen course of action is so much at odds with a lawyer’s strongly held personal beliefs that the lawyer is unable to provide the client the type of warmly zealous and independent advice clients need.
Third party interests that are capable of creating conflicts of interest are usually those of former clients. This is the flip side of former client conflicts of interest that will be discussed in a future column. If a lawyer has represented a former client in a substantially related matter, that former client is free to consent to her former lawyer now being adverse. So far, so good. But what about the current client’s perspective? The current client might believe that the lawyer will be less-than-zealous pursuing a matter adverse to the former client and should be given the opportunity to reject the lawyer’s representation or provide informed consent.
“Thrust Upon” Conflicts
With an effective conflict checking system, lawyers should be able to identify most conflicts of interest in advance and avoid them or obtain client consent. There is a species of current client conflict that lawyers cannot anticipate. These are known as “thrust upon” conflicts. They typically arise when there has been a reconfiguration in the parties to a dispute that causes adversity when there previously was none. Here is one example: a lawyer represents a Client A in litigation against Client B. The lawyer also represents Client C, an unrelated client in unrelated matters. If Client C acquires Client B, the A versus B case will, in effect, become A versus C, presenting a direct adversity conflict from Client C’s perspective and a material limitation conflict from Client A’s perspective. There is often greater flexibility in dealing with thrust upon conflicts than would ordinarily be the case. The lawyer may be able to avoid disqualification from representing Client A at the behest of Client C because there was nothing the lawyer could have done to anticipate and avoid the conflict of interest. Avoiding disqualification might require the lawyer for Client A being screened from the lawyer for Client C. While Client C may not be able to force a disqualification, there will be nothing to prevent Client C from expressing its displeasure by taking its legal business elsewhere. And remember, even if Client C remains a client of the law firm, the lawyer must make sure Client A is okay being represented by a lawyer whose firm represents Client C in unrelated matters.
The “Hot Potato” Doctrine
What has become universally known as the “Hot Potato” Doctrine bridges the worlds of current and former client conflicts of interest. It works this way: Suppose a lawyer represents Client A in a matter of modest significance (and fee). Prospective Client B approaches the lawyer about suing Client A in an unrelated matter—a significant and potentially lucrative matter. Without client consent, the lawyer could not sue current Client A on behalf of Client B. Ah, but what if the lawyer terminated the representation of Client A thereby making Client A a former client? Problem solved, right? Client A, now a former client, may be sued in a substantially unrelated matter. Not so fast! The Hot Potato Doctrine will view this as an act of disloyalty to Client A and treat Client A as though it were still a current client for conflict of interest purposes and the lawyer may not sue Client A on behalf of Client B. The Hot Potato Doctrine is a case-law gloss on the Rules of Professional Conduct and cannot be found in the rules themselves.
Prior Work Conflicts
Another species of current-client conflict of interest is known as a “prior work conflict.” A prior work conflict arises when a lawyer continues to represent a client in a matter after an error in the lawyer’s past work for the client contributed to the client’s situation. This will not always present a conflict of interest, but it can if the continuing representation of the client will be materially limited by the fact that the lawyer committed the error. What the lawyer needs to look out for is when the course of the representation might be affected by the lawyer’s interest in downplaying his contribution to the client’s circumstances. The risk is that the lawyer’s self-interest will cause the lawyer to advise the client in ways that will minimize the lawyer’s responsibility. Prior work conflicts are difficult to self-diagnose. The lawyer thinks that he is helping the client solve a problem. But if one solution might be optimal for the client, but another will downplay the lawyer’s contribution to the client’s problem, the lawyer’s self-interest will likely impair the lawyer’s independent professional judgment.
Another branch of current conflicts of interest deals with taking conflicting positions on a legal question on behalf of unrelated clients. The idea is that a lawyer’s effectiveness is limited when he argues position X on behalf of one client at the same time he is arguing incompatible position Y on behalf of another. Ordinarily this will not create a conflict of interest. Lawyers are advocates and a lawyer’s position for a client in one case should not taint the lawyer’s advocacy for another client in another case. This isn’t always the case, though. If there is a realistic prospect that conflicting advocacy positions for different clients could hurt one or both client’s interests, a positional conflict arises. The most obvious example is when the same lawyer has two cases in the same tribunal (especially on appeal) and is arguing different sides of the same legal question in the two cases. How could each client not reasonably believe that the lawyer’s willingness to zealously advocate her position will be tempered by fear that prevailing on that position will harm the other client’s interests?
Positional conflicts of interest are notoriously difficult to spot because conflicts checking systems are geared to identify parties, not issues, in conflict. For this reason, it is imperative that there be good communications within law firms or practice-area departments about the cases that are active at any given time. It is the only real way to catch a positional conflict before it becomes an embarrassment to the firm.
As noted at the outset, this thirty-thousand foot view of current-client conflicts can accomplish little more than sensitizing lawyers to this branch of conflicts of interest. In future months, we will discuss former client conflicts of interest, specific varieties of current client conflicts—mostly described in Rule 1.8, imputation of conflicts, and informed client consent to conflicts of interest. If for no other reason than to keep your faithful author sane, I will intersperse these with columns discussing sexier legal ethics topics (if there are such things).