On Risk Management:
Docket control: Lower Your Risk of Conflict of Interest
By Kay G. Kenny
The Daily Record, February 5, 2001

Which of the following clients would you agree to represent?

1. A husband and wife who come to you for estate planning purposes;

2. Two long-time friends who seek joint representation in establishing a partnership to manufacture and sell a new product;

3. A brother and sister who ask for your assistance in contesting their other sister’s attempt to be appointed guardian of their elderly mother.

Surprisingly, each of the above scenarios could lead to serious ethical problems and potential malpractice exposure. Conflicts of interest generate an extraordinary number of malpractice claims.

Lawyers frequently find themselves immersed in a morass of conflicts, either because they fail to realize a relationship or duty has arisen (or could rise by implication), or because they do not recognize the divergence of interests between the various parties they are trying to serve.

Once in, it is difficult, if not impossible, to get out. The result can be significant losses. Lawyers servicing simple or more complex transactions may not take — or have — the time to distinguish between all the interests involved or potentially affected by what they do.

You can lower your potential for conflicts, and thereby reduce your potential for professional liability or malpractice claims, by tightening your conflicts checks and instituting a conflict of interest system into your daily office procedures.

This system may be influenced by the questions asked on your Lawyers Professional Liability Insurance Application:

1. Does your firm maintain a conflict of interest system to avoid potential conflicts?

2. Does the system identify potential conflicts between new and existing clients?

3. Are new client matters communicated to all attorneys to avoid potential conflicts?

4. What action is taken by the firm when a potential conflict of interest is identified?

Lowering the risk

There are several ways to lower your potential for conflicts:

Conduct a thorough initial conflict check. “Verbal memory” isn’t a system and it’s a dangerous excuse for not having a real system. A reliable conflict system is as important as a reliable calendaring system, yet it’s generally one of the weakest areas in most firms. As with your docket control system, standardize your conflicts check and make sure every member of the firm is following the same procedures.

Continue conflict check during the case. As new plaintiffs, defendants, relatives, board members, experts and key witnesses are added...most conflicts develop here, rather than from poor initial checks.

Set up procedures to short-stop problems from non-client third parties. This is one of the fastest-growing areas of malpractice, particularly in the areas of real estate and probate.

Advise any unrepresented parties, in writing, that you do not represent their interest, but are an advocate for your client and not a disinterested party. Keep a signed copy of this letter for your files. This is crucial for lawyers with volume closing practices who may not meet clients until closing. In such situations there is rarely any record of what was disclosed to whom.

Don’t automatically agree to represent “friendly parties,” whose legal needs arise out of other work you may be doing. For example, probate lawyers acting as personal representatives are often friends of the family and have a tendency to handle whatever problems arise during an estate. When a beneficiary has a problem, the lawyer helps out, leading the client to think the lawyer represents him or her as well as the estate. That’s not only misleading, it’s usually a direct conflict.

Focus on prevention

In general, you cannot legally represent both sides of a transaction, even with the consent of both parties. You can represent co-defendants with a potential conflict only so long as both parties understand and have full knowledge.

Again, make sure you get their consent in writing! Even then, problems can still arise because the waivers did not fully explore the extent of the conflicts.

The following are just a few other “actions” that create conflicts and can result in malpractice claims:

  • Becoming romantically involved with a client;

  • Investing in a client’s business or enticing a client into investing in your project or business opportunity;

  • Accepting stock from a corporation in lieu of fees — especially if the attorney has participated in the preparation of an IPO or corporate financial reports;

  • Personally guaranteeing a client’s obligations

  • Placing personal or firm finances behind surety bonds;

  • Preparing an IPO or corporate reports if you have a relative on the Board of Directors or with a major investment in the corporation;

  • Representing both a corporation and one or more of its officers.

    • Conclusion

    Never lose sight of your primary obligation as a professional — even when that obligation may go against your inclinations as a friend, or may eliminate the attraction of a “golden opportunity.” You expose yourself to a malpractice action if damage results to the client; and discipline under the Rules of of Professional Responsibility even if it doesn’t.

    Resources

    Legal Mutual Liability Insurance Society of Maryland - Application For Lawyers Professional Liability Insurance New Business MLPL-159, January 2000 & Renewal Application, MLPL-183, January 2000.
    "Loss Prevention Self Audit" - AIM, revised 1992.
    "Ten Ways to Decrease Stress & Avoid Legal Malpractice" - by Jeanne Trudeau Tate, Esq., The Risk Manager, FLMIC, Fall 1994.
    Risk Management For Attorneys: The Cutting Edge - CNA/PRO, October 1996.
    "Mutual Representations Create Conflicts Hazards" by Anne E. Thar, Esq., ISBA Mutual Insurance Company, June 1999.

    Kay G. Kenny is Assistant General Manager of the Legal Mutual Liability Insurance Society of Maryland. This is the seventh in a series of articles that includes claim prevention techniques, designed to minimize the likelihood of being sued for legal malpractice. The material presented does not establish, report or create the standard of care for attorneys, is not legal advice and does not represent a complete analysis of the topics. Readers should conduct their own appropriate research.

    Back to Risk Management


    The Legal Mutual Liability Insurance Society of Maryland is administered by Minnesota Lawyers Mutual.

    © 1998-2007 Legal Mutual Liability Insurance Society of Maryland. All Rights Reserved.