Attorneys Should Avoid Conflicts of Interest
By Harry J. Lew
Conflicts of interest are the leading cause of attorney malpractice lawsuits. Yet they fall off the radar screens of attorneys who believe their conflicts will never land them in hot water.
Conflicts of interest are the boogieman of the legal profession. Why? Because for years they have been the leading cause of attorney malpractice lawsuits, which in turn create difficulties for lawyers in practice across the country.
For instance, according to a 2019 survey from Virginia-based insurance broker Ames & Gough, seven of 11 malpractice insurers said that conflicts were either the first or second most common cause of attorney malpractice litigation. The Ames & Gough survey, in its ninth year, has reported similar findings in prior editions.
Despite this, conflicts of interest fall off the radar screens of attorneys who believe they’ll never fall prey to one. This sense of invulnerability leads lawyers and their firms to not implement conflict identification systems, which raise red flags to help attorneys identify and manage conflicts. Worse, even when red flags are waving, attorneys often begin a conflicted engagement without disclosing it to the client and securing the person’s written consent. Perhaps they believe that conflicts aren’t material and that malpractice litigation will never happen to them.
Consequently, as an attorney who has better things to do than to get sued for malpractice, you should strive to better understand conflicts of interest so you can protect against potential claims. Helping you achieve this goal will be the focus of this article.
Conflicts of interest defined
So what are conflicts of interest? Legal ethics experts define them as situations in which outside influences erode the quality or scope of the advice an attorney provides to a client. These influences have an insidious and compromising effect on a lawyer’s ability to exercise sound judgment and to work in the client’s best interests.
Because conflicts compromise a lawyer’s judgment, they cut to the core of the attorney/client relationship. An attorney without sound judgment will struggle to provide quality legal advice and may find it difficult to remain loyal to the client.
Conflicts can spark bad outcomes for attorneys embroiled in them, ranging from professional discipline, losing a disqualification motion by the other side’s attorney, and getting fired by the client or your firm. And the coup de grace: If you end up being disciplined, your malpractice insurer might boost your premiums to reflect the higher claim risk you pose. Clearly, getting mired in a conflict of interest dispute is something to avoid, if possible.
How to do so? The best strategy is to become skilled at recognizing conflicts and managing them so they don’t become problematic. Your starting point should be reading the ABA Model Rules of Professional Conduct, along with the specific rules your state bar has promulgated. The ABA’s Rule 1.7 lays down guidance regarding conflicts between current clients. You’ll want to read the actual text, but it boils down to this. Taking on a client whose interests bump up against one of your current clients or that lowers your ability to serve the current client is a case of conflict. However, you might still proceed with the case if you reasonably believe that:
- You can provide competent representation to each client.
- Your representation isn’t illegal.
- You’re not representing two parties who oppose each other in litigation or some other proceeding.
- Each client has provided informed consent, in writing.
ABA Rule 1.8 deals primarily with attorney self-dealing. For example, it prohibits:
- Attorneys investing in client-involved businesses.
- Being compensated in client stock instead of fees.
- Loaning money to clients.
- Selling property to or buying property from a client.
If you insist on embarking in business deals with clients, the ABA recommends that you strive to make a fair and reasonable transaction, provide full and understandable disclosure of the deal terms (in writing), encourage clients to seek independent legal representation, and get the client sign-off in writing.
ABA Rule 1.9 addresses conflicts that arise when you bring on a new client whose interests are adverse to those of a former client in the same or substantially related matter. The key goal: to preserve the confidentiality of the prior client.
Since the current client’s case may involve confidential information from the former one, you must not proceed with the representation without disclosing the conflict to the former client and securing that person’s informed consent in writing.
Rule 1.10 lays down guidelines regarding imputing conflicts of interest. It basically says that when you have multiple lawyers in a firm, if one has a conflict as defined by rules 1.7 or 1.9, then all the attorneys have a conflict, with the exception of a number of cases the rule lays out.
Finally, the ABA provides a number of specialized conflict of interest proscriptions that address current and former government employees (Rule 1.11), former judges and current law clerks (Rule 1.12), lawyers with organizations as clients (Rule 1.13), and prospective clients (Rule 1.18).
By reviewing the ABA conflict rules, as well as those your state bar has formulated, you will become more sensitive to potential conflict situations. Granted, model rules tend to be blunt instruments that may not be useful when applied to real-life situations. Nonetheless, they will sharpen your ability to recognize a conflict when you encounter one in your practice and to deal with it responsibly.
The goal, of course, is to stay out of hot water. For example, you don’t want to be like the California attorney who represented an older woman with cognitive issues who was being victimized financially by a man. The state’s adult protective services division moved to begin a guardian-conservator proceeding, during which the attorney represented her. At the same time, the attorney began representing the woman’s abuser, drafting a will for the woman assuring that all her assets would go to him. The state’s Supreme Court ended up reprimanding the attorney for his grossly conflicted behavior. In its ruling, the court wrote, “(the attorney) imprudently drafted and executed the March 2011 will for the older woman, giving all of her estate to the very person whom the department was trying to protect her from. We find this conduct by a (state) lawyer to be deeply troubling.”
Identifying conflicts of interest
The initial defense against such a fiasco is to not enter the legal field if your personal greed outstrips your desire to deal responsibly with conflicts of interest. The second is to conduct robust conflict searches prior to bringing on a new client. Using paper forms or computer applications, a conflict search should begin prior to the initial consultation where a prospective client discloses all relevant names (married, maiden, prior marital), opposing parties, associated people, and other entities).
Next, at the initial meeting, the potential client should provide more detailed information to feed the firm’s conflict (or case management) database. This computer application should have fields that describe all parties involved in the firm’s cases. For example, for litigation cases, the system should store the names of plaintiffs and defendants the firm has represented, all insureds and insurers, guardian ad litems, spouses, all expert witnesses, lay witnesses, co-counsels, and opposing counsels.
Once the prospective client has provided his or her data, you or the person who performs conflict reviews at your firm should cross-check the new client’s information against the master client list, the list of former clients, information about your firm’s attorneys, and other fields in the database.
Once the conflict review is completed, summarize the results in a memo and share it with all attorneys in your firm, with the goal of surfacing any additional problems.
Assuming you find one or more conflicts, the question becomes what to do. Experts suggest not ignoring or glossing over them. A better strategy is to seek the advice of a “disinterested” attorney outside your firm and to collaborate within the practice on a conflicts-of-interest review policy. According to Minnesota Lawyers Mutual, issues to consider include:
- Is it possible to secure legitimate consent from the client?
- Will the client’s consent be “informed”?
- Assuming consent is obtained, can one attorney reasonably serve all client interests?
- If you decide not to represent the client, will the person be able to retain another attorney?
- Is the matter on the table simple from a legal perspective (and low-risk) or complex (and high-risk)
After discussing these and other questions, you should decide whether or not to add the person (or firm) to your firm’s client list. If you decide to, then it’s time to secure the person’s (or firm’s) informed consent regarding the conflict. Provided in writing, the disclosure should provide the following information:
- The legal service(s) to be delivered
- The nature of the conflict
- The parties affected by the conflict
- Who you will represent and not represent
- The scope of your representation to each party
Then the letter should state that the clients have been asked to seek legal representation before signing the conflict waiver. Finally, the client should sign the letter indicating that he or she is willing to waive the conflict.
Now, some conflicts may be so severe that it’s impossible to represent the client. In that case, you’ll need to decline representation. This involves sending a non-engagement letter, which should include the following points:
- Full explanation of why representation isn’t possible
- Statement that statutes of limitation or other deadlines may affect the case going forward (but don’t provide specific dates)
- Recommendation that the person consult with another attorney
Developing this letter will only take a few minutes, yet it can powerfully inoculate you against situations in which initial discussions with a prospective client create the impression you agreed to represent the person, even though you may have later backed off. If the prospective client’s case turned south during this period, you might be tagged with negligence even though in your mind you didn’t represent the person. Sending a non-engagement letter nips potential malpractice claims in the bud.
Although the prior discussion suggests that conflict management is a black-and-white affair, nothing could be further from the truth. That’s because many other factors enter into a go vs. no-go decision. For example, a young attorney may wish to proceed conservatively in order to not jeopardize career prospects within a firm. Or an attorney might want to accept a conflicted matter because the client is a major employer in the community and important not to alienate in the future. Or perhaps the firm as a whole is risk-averse and inclined to deny all engagements with the slightest whiff of conflict, even though in reality the malpractice risk is slim.
Whatever the reality at your firm, working hard to identity potential conflicts of interest and then to disclose them to clients is the best way to protect your practice against claims based on alleged conflicts of interest. Making a modest effort at the outset will go a long way toward preventing the conflict-of-interest malpractice claims that have bedeviled attorneys and their insurers for many decades. Isn’t it time you got serious about preventing conflicts of interest in your firm?
This article should not be considered legal advice. If you are involved in a conflict of interest that may become a malpractice insurance claim, please inform your insurance company as soon as possible.
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