Identifying and Avoiding Conflicts of Interest: A Guide for Lawyers, Study notes of Law

Download Identifying and Avoiding Conflicts of Interest: A Guide for Lawyers and more Study notes Law in PDF only on Docsity! How to Identify and Avoid Conflicts of Interest Dawn M. Evans February 2011 One of the most fundamental concepts in a client-lawyer relationship is the lawyer’s loyalty to the client. Hand in hand with loyalty is the notion that communications with the client are and will remain confidential, so that the client is free to share any and all information necessary to the lawyer’s understanding of the client’s circumstances, desires, and goals in the representation and the lawyer can, in return, provide advice and counsel for the client’s ears alone in order to facilitate the client’s informed decisionmaking. The purpose of the conflicts of interest rules is to assure that both loyalty and confidentiality are protected by steering the lawyer clear of circumstances that would give even an appearance that the sanctity of the relationship with a client is jeopardized by potential fealty to others – including the lawyer’s own differing interests. 1. Identifying the client and the status of the client Although the Michigan Rules of Professional Conduct (MRPC) are replete with usage of the word “client”, it is a term that is undefined, which means that it has been left to case law to sort out what constitutes a “client” and, more particularly, what establishes a client-lawyer relationship, the existence of which triggers obligations for the lawyer that are mandated by the MRPC. Some light is shed on the creation of the client-lawyer relationship in the commentary to Rule 1.0, which notes, “Most of the duties flowing from the client-lawyer relationship attach only after the client has requested the lawyer to render legal services and the lawyer has agreed to do so. But there are some duties, such as that of confidentiality under Rule 1.6, that may attach when the lawyer agrees to consider whether a client-lawyer relationship shall be established. Whether a client-lawyer relationship exists for any specific purpose can depend on the circumstances and may be a question of fact.” Stated in its simplest terms, where the client has requested the lawyer to render legal services and the lawyer has agreed to do so, a client-lawyer relationship is established. The payment of fees is not dispositive of whether a relationship has been established. A lawyer may, by agreement with the client, limit the scope and objectives of the representation. Rule 1.2(b) and commentary. And where someone other than the client is paying the lawyer’s fees, the lawyer can only accept payment by the nonclient where the client consents after consultation, the paying party does not interfere in the lawyer’s exercise of professional judgment or with the client-lawyer relationship, and the lawyer maintains the client’s confidences and secrets. Rule 1.8(f). Even where no client-lawyer relationship is established, however, if the person imparts information that would qualify as a “confidence” or “secret” were a client-lawyer relationship to exist – which may include the provision of such information to a legal assistant under circumstances where the “client” reasonably believes the communication is being given confidentially – the lawyer has an obligation to maintain confidentiality about the information, in the absence of permission from the client to impart the information to third parties. RI-48. Rule 1.6(b). Beyond identification of whether someone is a client, for purposes of conflict of interest analysis, it must be determined whether the client is a current or former client. Ideally, that status is readily determinable from a review of the client-lawyer agreement setting forth the subject matter of the representation and goals the attainment of which will mark the conclusion of the matter – such as execution of a settlement agreement or entry of a judgment. In the absence of clearly identifying criteria in a contract, the lawyer should consider what a reasonable person would believe as to whether the representation were ongoing or completed in deciding whether the client is current or former. More challenging is the situation where the lawyer has represented the client over a period of years on a number of related or unrelated matters such that the client’s perspective may be that the lawyer is his or her lawyer on an ongoing basis. The reasonableness of taking such a viewpoint may be dependent upon the length of the association and the frequency of representation. 2. Current Client and Prospective Client Conflicts The basic rule addressing conflicts between current and prospective clients delineates circumstances where the respective interests are “directly adverse”1 and situations where the representation of the existing client is “materially limited”2 by the lawyer’s responsibilities to another client, a third person, or the lawyer’s own interests. Rule 1.7(a) and (b). The rule as worded proscribes representation in both circumstances but provides an ability to consent around the conflict. Notwithstanding an articulated ability to obtain client consent, the commentary to the rule makes it clear that there are times when a prudent lawyer would not seek to do so. For example, the commentary notes, “Paragraph (a) [of Rule 1.7] prohibits representation of opposing parties in litigation.” [Emphasis added.] Making this consistent with the rule as worded, a lawyer simply could not “reasonably believe” that the representation of one party would not adversely affect the relationship with the other client who is the opposing party. 1 (a) A lawyer shall not represent a client if the representation of that client will be directly adverse to another client, unless: (1) the lawyer reasonably believes the representation will not adversely affect the relationship with the other client; and (2) each client consents after consultation. 2 (b) A lawyer shall not represent a client if the representation of that client may be materially limited by the lawyer’s responsibilities to another client or to a third person, or by the lawyer’s own interests, unless: (1) the lawyer reasonably believes the representation will not be adversely affected; and (2) the client consents after consultation. When representation of multiple clients in a single matter is undertaken, the consultation shall include explanation of the implications of the common representation and the advantages and risks involved. 2 parent, child, sibling, or spouse, except where the client is related to the donee4. Rule 1.8(c). • Making or negotiating an agreement for literary or media rights to a portrayal or account based in substantial part on information relating to the representation prior to the conclusion of the representation. Rule 1.8(d) 2. Proscribed Transactions (with exceptions): • Entering into a business transaction with a client where the lawyer knowingly acquires an ownership, possessory, security, or other pecuniary interest adverse to the client unless: (1) the transaction and terms on which the lawyer acquires the interest are fair and reasonable to the client and are fully disclosed and transmitted in writing to the client in a manner that can be reasonably understood by the client; (2) the client is given a reasonable opportunity to seek the advice of independent counsel in the transaction; and, (3) the client consents in writing thereto. Rule 1.8(a). • Providing financial assistance to a client in connection with pending or contemplated litigation except: (1) a lawyer may advance court costs and expenses of litigation, the repayment of which shall ultimately be the responsibility of the client; and, (2) a lawyer representing an indigent client may pay court costs and expenses of litigation on behalf of the client. Rule 1.8(e). • Entering into an agreement to prospectively limit the lawyer’s liability for malpractice unless: it is permitted by law and the client is independently represented in making the agreement. Rule 1.8(h)(1). • Settling a claim for malpractice with an unrepresented client or former client without: 4 This is placed in the “nonconsentable” category because there is no way to have a client consent to the lawyer’s preparation of an instrument by which the client gives a substantial gift to the lawyer or a close relative of the lawyer’s. The exception – familial relationship between the client and the lawyer – takes preparation of such a document out of what’s proscribed by the rule. 5 first advising the person in writing that independent representation is appropriate in connection with the proposed settlement. Rule 1.8(h)(2). • Acquiring a proprietary interest in the cause of action or subject matter of the litigation except that the lawyer may: (1) acquire a lien granted by law to secure the lawyer’s fee or expenses; and, (2) contract with a client for a reasonable contingent fee in a civil case, as permitted by Rule 1.5 and MCR 8.121. Rule 1.8(j). • Participate in an aggregate settlement of claims of or against clients or, in a criminal case, an aggregate agreement as to guilty or nolo contendere pleas unless: each client consents after consultation, including disclosure of the existence and nature of all the claims or pleas involved and of the participation of each person in the settlement. 5. Loyalty to Client MRPC 1.6 articulates a lawyer’s obligation to maintain confidences and secrets, except under very narrow circumstances delineated in the rule. MRPC 3.3, amended January 1, 2011, discusses in part circumstances where a lawyer’s obligations of candor to the court trump the duty to maintain the client’s confidences and secrets, requiring the lawyer in those circumstances to take steps to rectify matters. MRPC 1.8 contains a more generalized statement about the lawyer’s obligation not to harm a client by the use of information. Paragraph (b) says, “A lawyer shall not use information relating to the representation of a client to the disadvantage of the client unless the client consents after consultation, except as permitted or required by Rule 1.6 or Rule 3.3.” [Emphasis added.] There is no language in the commentary explaining what is meant by either phrase. Another provision in MRPC 1.8 addresses the circumstance where someone other than the client pays for the lawyer’s services. Paragraph (f) prohibits the lawyer from accepting compensation for representation from someone other than the client unless: (1) the client consents after consultation; (2) there is no interference with the lawyer’s independence of professional judgment or with the client-lawyer relationship; and (3) information relating to the representation of a client is protected as required by Rule 1.6. 6 6. Imputed Conflicts The entire concept of conflicts of interest moves from linear to multidirectional once lawyers are practicing in law firms, moving between firms, going from government service to private practice, and going from the bench to the bar. Some disqualifications arising from those circumstances are imputed to the entire firm. Others can be addressed by screening the affected lawyer from participation in the work and in the fee generated by the work. A. Absolute – firm disqualified Each member of a firm is disqualified5 where any one of them presently in the firm would be disqualified due to the applicability of: the general conflict of interest rule pertaining to direct adversity of the would-be clients (Rule 1.7); the prohibition against drafting wills or instruments conveying gifts where the lawyer or a close relative is the recipient (Rule 1.8(c)); the former client general conflict of interest rule (Rule 1.9(a)); or the requirement to withdraw as an intermediary. (Rule 2.2) Rule 1.10. B. Screening and notice can remedy disqualification under limited circumstances6 Where a lawyer joins a firm, the newly-joined firm is disqualified from knowingly representing a person in the same or a substantially related matter in which the new lawyer or the new lawyer’s former firm was disqualified under Rule 1.9(b)7 unless the disqualified lawyer is: 5 While it should be noted that Rule 1.10(d) provides that disqualifications prescribed in that Rule may be waived under the conditions set forth in Rule 1.7, there are circumstances where a lawyer would not reasonable in believing that the contemplated representation would not adversely affect the relationship with the other client – such as representing opposing parties. In those situations, obtaining a waiver might not be a sufficient way of immunizing against the perceived conflict. 6 The fact that the rules provide for screening and notice as a means of diffusing the impact of a conflict should not be viewed as a green light to utilize that methodology except in rare instances, because if anything goes awry during the entirety of the representation from the client’s standpoint, the fact that a conflict ever existed will loom largely at the end of the day and may prompt the filing of a grievance or pursuit of a malpractice action, both of which could have been avoided had the lawyer not gone forward with the representation. 7 (b) Unless the former client consents after consultation, a lawyer shall not knowingly represent a person in the same or a substantially related matter in which a firm with which the lawyer formerly was associated has previously represented a client (1) whose interests are materially adverse to that person, and 7 (2) written notice is promptly given to the appropriate tribunal in order to enable it to ascertain whether there has been compliance with the provisions of the rule (Rule 1.12(c)). 7. Addressing a Discovered Conflict Depending upon the nature of the conflict and timing of its discovery, a lawyer may have the ability to cure a conflict by obtaining appropriate consents from the affected persons after making a complete disclosure of the nature and extent of the conflict. In other circumstances, the conflict will be such that a representation should not be undertaken. If the representation has commenced, the lawyer may be required to withdraw as required by Rule 1.16(a)10. In doing so, the lawyer must take reasonable steps to insure protection of the client’s interests, such as giving reasonable notice to the client, allowing time for employment of other counsel, surrendering papers and property to which the client is entitled, and refunding any advanced payment of fee that has not been earned. Rule 1.16(d). 8. Preventative Measures to Avoid Conflicts The importance of implementing policies designed to identify conflicts before a representation commences – and, most especially, before the lawyer has been made privy to confidences and secrets that may impact the ability to proceed with pre-existing representations – cannot be overemphasized. Where conflicts are discovered after more than one client with adverse interests exists within the same firm or practice, the lawyer’s ability to extricate him or herself from the situation in a way that neither adversely impacts either client nor places him or herself in jeopardize of malpractice or professional responsibility exposure is very limited. A few simple steps at the front end of the process can help the lawyer avoid conflicts: First, establish a protocol that buffers the lawyer from engaging in any conversation that is arguably attorney-client privileged until a conflicts check has been made. This means utilizing support staff for initial contact. If this is unavoidable in a particular circumstance because the would-be client insists on speaking with the lawyer before making an appointment, the lawyer should be certain not to seek any information and should head off any attempts by the would-be client to impart any information that would qualify as “secret” or even a “confidence” as those terms are used in Rule 1.6. Second, insure that the would-be client identifies opposing parties, opposing counsel, and the names of any key witnesses before contact with the lawyer. These names should be cross-checked against the existing client base – which hopefully permits for the identification of witnesses and lawyers, in addition to parties. The reason for the inclusion of opposing counsel is to make certain to cover any lawyers with whom the lawyer was formerly associated. A written form should be utilized to obtain this information and it 10 Except where the lawyer is ordered to continue representation notwithstanding good cause for termination of the representation pursuant to Rule 1.16(c), a lawyer shall withdraw from representation if the representation will result in a violation of the Rules of Professional Conduct or other law. Rule 1.16(a) 10 11 should inform the would-be client of the reason for obtaining the information, making clear that the identification of persons is not to be construed as conveying confidential or secret information. If any conflicts are identified, the most prudent course is to decline the representation even where a rule allows for consent after consultation, waiver, or screening and notice. Where the lawyer chooses to utilize one of the methodologies to diffuse the conflict, any waivers or consents should be in writing. Optimally, the client should acknowledge having been afforded the opportunity to consent with another lawyer about the appropriateness of waiving the conflict. Third, assuming that no conflicts are identified, have a written fee agreement that describes with specificity the matter in which the lawyer agrees to represent the client – including what final steps will signify completion of the representation. This information will be used to assist the lawyer in determining when a client becomes a former client, and whether a later matter is substantially related to the earlier representation. If all systems fail and a conflict between two current clients is later discovered, the lawyer should immediately evaluate what steps can be taken to minimize the harm to each client, make full disclosure to each client about what has occurred, and take whatever steps can be taken to insure that each client’s interests are preserved as their matters proceed.