CONFLICTS ISSUES

By Thomas D. Murphy, Esquire, Murphy & Mood, P.C.

Conflicts of interest issues arise with increasing frequency, and conflicts have been a fertile area for legal malpractice claims. Whether they are actual or perceived, conflicts are not only easy for juries to grasp, but also tend to be extremely disliked. Therefore, it is important to recognize potential conflicts and to take steps to avoid or resolve them.

The basic principles relating to conflicts of interest are derived from and codified in Rules 1.7 through 1.10 of the Rules of Professional Conduct. Broadly speaking, these Rules deal with three basic types of conflicts

1. Conflicts between one client and another (Rule 1.7)

2. Conflicts between current and former clients (Rule 1.9)

3. Conflicts between the interests of a client and a lawyer's business or personal interests (Rule 1.8)

Rule 1.7 generally prohibits a lawyer from representing a client either in a matter adverse to another client or whenever the representation may be materially limited by the lawyer's responsibilities to another client, to a third person or by the lawyer's own interests. The representation may be undertaken if

1. The lawyer "reasonably" --i.e., objectively--believes the representation will not be adversely affected, and

2. The client consents after full consultation.

Similarly, Rule 1.9 prohibits a lawyer from representing a client against a former client in the same or substantially related matter. Again, the representation may be permitted if the former client consents after consultation.

Rule 1.8 contains a list of prohibited transactions. Among the most important is that a lawyer may not enter into a business transaction with a client unless the transaction is fair and equitable and the client is advised to seek independent counsel.

The following are common circumstances that have given rise to legal malpractice claims:

• Representing multiple shareholders of a closely held corporation or multiple partners of a partnership;
• Representing a corporate officer as well as a corporation;
• Representing both a union and a union officer;
• Representing both general partners and limited partners of a limited partnership;
• Representing both a husband and a wife in estate planning matters;
• Participating in the business affairs of a client or investing with a client;
• Drafting a will or other instrument that conveys a benefit to the lawyer;
• Representing both the personal representative and beneficiaries in an estate matter;
• Representing a client in a transactional or litigation matter adverse to a former client;
• Representing a client whose interests are directly or indirectly adverse to those of another client;
• Representing multiple clients in litigation --for example, representing multiple plaintiffs in a personal injury action, such as a driver and a passenger, where one of the parties may have contributed to the accident, or, on the defense side, representing multiple defendants where the defendants dispute facts that might determine liability; and
• Representing multiple parties in a property sale.

Of course, not every possible or perceived conflict will result in an actual conflict or a potential legal malpractice claim. Many activities falling within the categories listed above are perfectly permissible. However, because conflicts of interest pose such significant risks of claims, careful attention needs to be paid to the possibility of such conflicts. Here are a few pointers for avoiding conflicts (and malpractice claims):

1. Know and follow the rules governing conflicts.

2. Be sensitive to actual or potential conflicts, and be cautious about taking on matters that might raise conflicts, no matter how good you think your relationship is with your client or clients.

3. Be sure your office has a system for checking for conflicts which is comprehensive and which is maintained up to date.

4. If there is a potential conflict, be certain that you have a reasonable and objective belief that your representation of the client will not be adversely affected by your representation of another client or by your own interests.

5. Fully and carefully disclose and explain, in writing, the nature of the conflict to your potential client(s) and obtain consent, also in writing.

6. Be sure your file is documented to show your consideration and resolution of any conflict issues.

7. Seek advice from the State Bar, your local Bar or some other independent, objective and experienced source.

8. If in doubt, decline the representation.

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