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Conflicts of Interest Issues
by Robert W. Hesselbacher, Jr., Wright, Constable & Skeen, LLP
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
- Conflicts between one client and another (Rule 1.7)
- Conflicts between current and former clients (Rule 1.9)
- 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
- The lawyer "reasonably" -- i.e., objectively -- believes
the representation will not be adversely affected, and
- 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 typical 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):
- Know and follow the rules governing conflicts.
- 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.
- Be sure your office has a system for checking for conflicts which
is comprehensive and which is maintained up to date.
- 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.
- Fully and carefully disclose and explain, in writing, the nature
of the conflict to your potential client(s) and obtain consent, also
in writing.
- Be sure your file is documented to show your consideration and resolution
of any conflict issues, and preserve at least that portion of your
file.
- Seek advice from the State Bar, your local Bar or some other independent,
objective and experienced source.
- If in doubt, decline the representation.
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