Best Practices for Avoiding Client Conflicts of Interest in Business Cases
The Rules of Professional Conduct prohibit a lawyer from representing a client if the representation will be – or is likely to be – directly adverse to another client.
The rationale of the rule is simple: a lawyer owes a duty of absolute loyalty to the client.
In the litigation context, conflicts of interest are relatively easy to identify. But in a business practice, conflicts are not always clear.
Every firm should have a written procedure for identifying and avoiding conflicts of interest. All employees should be given a copy of the procedure and trained in it. The specific details will depend on the nature and size of your practice.
Following are some general guidelines for establishing your firm’s procedure:
1. The Starting Point: Rule 1.7
Rule 1.7 Conflict of Interest: Current Clients
(a) Except as provided in paragraph (b), a lawyer shall not represent a client if the representation involves a concurrent conflict of interest. A concurrent conflict of interest exists if:
(1) the representation of one client will be directly adverse to another client; or
(2) the representation of one or more clients may be materially limited by the lawyer's responsibilities to another client, a former client, or a third person, or by a personal interest of the lawyer.
(b) Notwithstanding the existence of a concurrent conflict of interest under paragraph (a), a lawyer may represent a client if:
(1) the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client;
(2) the representation is not prohibited by law;
(3) the representation does not involve the assertion of a claim by one client against another client represented by the lawyer in the same litigation or other proceeding before a tribunal; and
(4) each affected client gives informed consent, confirmed in writing.
2. Specific Rules for Specific Cases
Rule 1.7 provides the general rule on conflicts of interest. Specific case situations are addressed in Rule 1.8.
3. General Guidelines for Your Policy
It might be difficult for a lawyer whose own client is involved in a matter with another client of the firm to exercise unbiased, disinterested judgment regarding how a conflict of interest should be evaluated and resolved. For this reason, it is best to have a disinterested lawyer review any proposal by an interested lawyer to permit the firm to jointly represent clients – even if both clients consent to the joint representation.
It is also critical to put in writing both (a) the disclosure to both clients of the implications of joint representation and (b) the client’s consent to the joint representation.
Decisions of joint representation should be reviewed by the department coordinator or manager of the attorney involved in the matter, unless this person is also involved. Approval should continue up the “chain of command” until a fully disinterested person is reached.
Both the involved attorney and the consenting coordinator/manager should sign off on the joint representation – if the decision is to proceed in this fashion.
The policy need apply only to actual conflicts and not potential ones. An example of a potential conflict is preparing an estate plan for an employee of a corporate client when no dispute presently exists between them.
Sometimes the distinction between actual and potential conflicts is unclear. If there is any doubt, the involved attorney should consider the conflict an actual one and proceed up the ladder of approval as outlined above.
There is no way to identify and address every type of conflict situation that might arise. Attorneys are therefore expected to use their best judgment in assessing and reviewing each situation. When in doubt, get a second opinion.
Err always on the side of assuming at least a potential conflict of interest.
4. Illustrative Examples
a) Representation of a husband and wife (or other family group) in an estate or personal planning matter will generally constitute a potential, not an actual, conflict. However if: (1) the spouses cannot agree on a mutually acceptable plan, or of (2) one spouse requests that certain information be kept confidential from the other, or (3) one spouse independently asks for something that might be contrary to the interests of the other, then an actual conflict arises.
b) Representation of two or more entrepreneurs in the formation or purchase of a business venture generally will be deemed a potential conflict when the ownership interests will be substantially proportionate. However, an actual conflict will arise if one party (or one faction) is to own a majority interest and the other will own a minority.
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