[F]irms... are putting such language in their standard engagement letters with more and more frequency.

Transcription

1 F E A T U R E S Playing Both Sides? Navigating the Murky Waters of Advance Conflict Waivers Angela R. Elbert and Sarah G. Malia 1 I. Introduction Imagine a scenario wherein your firm has a thriving plaintiffs class action practice in addition to representing numerous corporations in various real estate, tax and corporate transactions. Your firm has a standard engagement letter that it requires all of its clients to sign that gives them notice of the plaintiffs class action practice and requires new clients to both acknowledge this practice and sign a blanket advance waiver allowing your firm to sue its clients as part of this practice without any further notice or consent required by them. The engagement letter further states that the new client agrees not to seek disqualification of your law firm should the client find themselves being sued by your firm. This engagement letter was signed by the General Counsel of your firm s client ABC Company, your firm did some real estate and tax work for ABC and then your firm took on a plaintiffs class action case wherein it represents a class of shareholders of ABC and sued ABC and its board of directors relating to its alleged former practice of backdating stock options. In the class action case, ABC has now filed a motion to disqualify your firm from representing the plaintiffs. Does the signed advance waiver keep your firm in the case? The unsettling response, unfortunately, is maybe. Not surprisingly, there is no definitive answer to this question. It is possible that this type of hypothetical conflict of interest can be ethically addressed by the use of advance or prospective waivers such that your firm can represent both clients. What is certain is that with the creation of more and more mega, multi-office law firms, making the issue of conflicts a much more difficult one to navigate from an ethical standpoint and also from a business relationship standpoint, firms across-the-board are certainly putting such language in their standard engagement letters with more and more frequency. This article looks to the ABA Model Rules of Professional Conduct and the comments thereto, ethics opinions, case law from around the country, and scholarly articles and debates in its consideration of whether and in what circumstances advance waivers will or may be found enforceable. While the answer is not clear, these resources certainly provide guidance for how to best succeed and Angela R. Elbert is a partner at Neal Gerber Eisenberg in Chicago, IL. Sarah G. Malia is an associate at Neal Gerber Eisenberg in Chicago, IL. [F]irms... are putting such language in their standard engagement letters with more and more frequency. show that this is a developing issue for attorneys and business persons around the country that lawyers will need to be cognizant of as this area of the law continues to develop. II. ABA Model Rules of Professional Conduct The version of the Model Rules of Professional Conduct first issued in 1983, and amended numerous times with major substantive amendments in 2002, has been adopted in some form in 47 states, the District of Columbia and the U.S. Virgin Islands. 2 These same states have adopted Model Rule 1.7 either in a form identical to that set out in the Model Rules or in some revised form with its intent intact. Rule 1.7 of the Model Rules sets out the requirements related to conflicts of interest and current clients. Courts considering the issue of conflicts of interest have attempted to weigh the lawyer s duty of loyalty to his or her client, the economic interests of the lawyer, and the public s interest in the availability of legal services, and in doing so often turn directly to Model Rule 1.7 and the comments thereto for guidance in determining the validity of advance or prospective waivers of such conflicts. The text of Model Rule 1.7, as most recently amended in 2002, 3 states as follows: (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) there is a significant risk that the representation of one or more clients will 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 14 THE PROFESSIONAL LAWYER

2 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. 4 The language of Section (b) of Rule 1.7 sets out circumstances under which an attorney may represent a client notwithstanding a concurrent conflict of interest. 5 Of the four criteria set out in Section (b), perhaps the most ambiguous and most contested requirement is found at Section (b)(4), which requires that each affected client gives informed consent, confirmed in writing. Legal scholars, ethics committees and courts have debated what is required to satisfy the requirement of informed consent, and whether a client can give informed consent prior to the existence of a conflict of interest. It is a topic of much disagreement. Comment 18 to Model Rule 1.7 states that [i]nformed consent requires that the affected client be aware of the relevant circumstances and of the material and reasonably foreseeable ways that the conflict could have adverse effects on the interests of that client. See Rule 1.0(e). The information required depends on the nature of the conflict and the nature of the risks involved. When representation of multiple clients in a single matter is undertaken, the information must include the implications of the common representation, including possible effects on loyalty, confidentiality and the attorney-client privilege and the advantages and risks involved. 6 Informed consent denotes the agreement by a person to a proposed course of conduct after the lawyer has communicated adequate information and explanation about the material risks of and reasonably available alternatives to the proposed course of conduct. 7 One of the major changes in the 2002 amendments was the addition of Comment 22 to Model Rule 1.7, which directly addresses the issue of consent to future conflict, and makes the validity of such consent dependent upon the extent to which the client reasonably understands the material risks that the waiver entails. Comment 22 more specifically makes a lawyer s request for an advance waiver from a client subject to the criteria set forth in Section (b) of Model Rule 1.7. The comment makes clear that informed consent is at the heart of the issue of the enforceability of advance waivers. Comment 22 states as follows: Legal scholars, ethics committees and courts have debated what is required to satisfy the requirement of informed consent.... Whether a lawyer may properly request a client to waive conflicts that might arise in the future is subject to the test of paragraph (b). The effectiveness of such waivers is generally determined by the extent to which the client reasonably understands the material risks that the waiver entails. The more comprehensive the explanation of the types of future representation that might arise and the actual and reasonably foreseeable adverse consequences of those representations, the greater the likelihood that the client will have the requisite understanding. Thus, if the client agrees to consent to a particular type of conflict with which the client is already familiar, then the consent ordinarily will be effective with regard to that type of conflict. If the consent is general and open-ended, then the consent ordinarily will be ineffective, because it is not reasonably likely that the client will have understood the material risks involved. On the other hand, if the client is an experienced user of the legal services involved and is reasonably informed regarding the risk that a conflict may arise, such consent is more likely to be effective, particularly if, e.g., the client is independently represented by other counsel in giving the consent and the consent is limited to future conflicts unrelated to the subject of the representation. In any case, advance consent cannot be effective if the circumstances that materialize in the future are such as would make the conflict noncontestable under paragraph (b). 8 Accordingly, pursuant to Comment 22 to Rule 1.7, an advance or prospective waiver is more likely to be deemed valid in the following situations: comprehensive explanation of type of future representation that might arise and risks that may be involved; client is an experienced user of the legal services involved, particularly if client is independently represented by other counsel in giving consent; and/or consent is limited to future conflicts unrelated to the subject of the current representation. According to Comment 22, if the consent is general and open-ended, then the consent ordinarily will be ineffective, because it is not reasonably likely that the client will have understood the material risks involved. III. Ethics Opinions The issue of the validity of advance or prospective waivers is one that has been analyzed by courts around the country as well as by state ethics boards in hypothetical advisory opinions and decisions in attorney disciplinary proceedings. On this legal ethics issue, courts have often turned to ethics opinions from state ethics boards as well as those from the American Bar Association, rather than solely relying on case law, in making determinations as to the validity of advance waivers under the particular facts put before them. State ethics opinions typically arise in one of two situations: (1) where an attorney is accused of professional misconduct, and a state ethics board issues an opinion related to disciplinary proceedings around such misconduct, or (2) where an individual has posed a hypothetical ethics dilemma and has requested that the state ethics board issue an advisory opinion on the matter to provide guidance to attorneys within the state. ABA ethics opinions are drafted based upon the receipt of requests for advisory opinions by the ABA Standing Committee on Ethics, and the THE PROFESSIONAL LAWYER 15

3 Committee s determination based upon developments in the law, that an advisory opinion would be prudent. The opinions set forth below, while illustrating that courts and ethics panels have come down on both sides of the advance waiver issue, also set out factors that attorneys should consider for purposes of attempting to draft and obtain valid and enforceable advance or prospective waivers from clients. Perhaps the most cited ethics opinion to date related to advance or prospective waivers is ABA Formal Opinion , which has recently been superseded by ABA Formal Opinion , discussed at length below. ABA Formal Opinion , which came before the 2002 amendments and addition of Comment 22, originally set out the factors that an attorney must consider in attempting to craft a valid advance waiver. Said factors include: (1) whether the future unrelated matter is adequately identified; (2) whether the party giving the waiver is adequately sophisticated; (3) whether their waiver is based upon adequate information; (4) whether the waiver is recent enough; and (5) in some cases, whether the waiving party had an opportunity to seek independent counsel s advice on giving the waiver. As will be demonstrated below, since its release in April 1993, the facts set out in Formal Opinion have been cited repeatedly by courts and state ethics panels considering prospective or advance waivers. 9 ABA Formal Opinion directly addresses the validity of advance waivers and states that [c]onsistent with the mandate of Model Rule 1.7, a lawyer may ask for, and a client may give, a waiver of objection to a possible future representation presenting a conflict of interest that in the absence of the waiver the lawyer would be disqualified from undertaking. 10 However, the Committee states that, such a waiver must meet all the requirements of a waiver of a contemporaneous conflict of interest, and if the waiver is to be effective with respect to a future conflict, it must contemplate that particular conflict with sufficient clarity so the client s consent can reasonably be viewed as having been fully informed when it was given. 11 The Committee notes that the Model Rules do not approve of such arrangements solely on the basis that they are consensual, but also on the basis that certain protections are provided for clients willing to enter into such arrangements. 12 The Opinion sets out the requirements to which a lawyer must adhere in order to increase the likelihood that his or her client s waiver will be deemed a valid advance waiver. 13 The Model Rules require that the lawyer still must make a judgment under Model Rule 1.7 as to whether, if the previous representation continues, it will be adversely affected by undertaking the new representation to which it is contemplated that the prospective waiver may apply. 14 This independent judgment is made both at the time of seeking the advance waiver, and again at the time that any conflict arises. 15 [T]he Model Rules do not approve of such arrangements solely on the basis that they are consensual.... Moreover, the Committee points out that [t]he closer the lawyer who seeks a prospective waiver can get to circumstances where not only the actual adverse client but also the actual potential future dispute are identified, the more likely it will be that a prospective waiver is consistent with the requirement of the Model Rules that consent be attended by a consultation that communicates information reasonably sufficient to permit the client to appreciate the significance of the matter in question. 16 Finally, the Committee stresses the importance that an advance waiver be in writing, as courts, in evaluating a waiver, will look primarily to the language and construction of the waiver to determine its validity. 17 For a consent to be interpreted as validly waiving the client s right to exclusive representation, [l]anguage in a contract of release... would have to be positive, unequivocal and inconsistent with any other interpretation. 18 The Opinion concludes: that in the view of the Committee, it is not ordinarily impermissible to seek such prospective waivers; that the mere existence of a prospective waiver will not necessarily be dispositive of the question whether the waiver is effective; that such waiver will ordinarily be effective only in circumstances in which the lawyer determines that there is no adverse effect on the first representation from undertaking the second representation; and that the particular future conflict of interest as to which the waiver was invoked was reasonably contemplated at the time the waiver was given. 19 The Committee further concludes that a lawyer relying on an advance waiver must be prepared to demonstrate that the lawyer reasonably believed the existing representation would not be adversely affected by the subsequent representation, that the subsequent representation was reasonably contemplated by the waiver document, and that the subsequent representation will not result in disclosure or use of information imparted by the client in the representation existing at the time of the waiver, or any subsequent representation of that client. 20 Due to the addition of Comment 22 to Model Rule 1.7 and changes to the language of Rule 1.7 in the 2002 amendments to the Model Rules, as of May 11, 2005, the ABA has withdrawn ABA Formal Opinion , and has issued in its place, Formal Opinion Formal Opinion stands for many of the same propositions contained in Formal Opinion , and Formal Opinion incorporates the bulk of the conclusions of Formal Opinion into Formal Opinion but expands the ABA s opinion as to the scope of advance or prospective waivers that will likely be held valid by holding that Model Rule of Professional Conduct 1.7 permits effective informed consent to a wider range of future conflicts than would have been possible under the Model Rules prior to their amendment. 22 In so holding, the ABA looks to the language of Comment 22 of the 2002 amendments to the ABA Model Rules of Professional Conduct, which was non-existent at the time of the issuance of Formal Opinion Formal Opinion THE PROFESSIONAL LAWYER

4 436 states that [t]he Comment... support[s] the likely validity of an open-ended informed consent if the client is an experienced user of legal services, particularly if, for example, the client has had the opportunity to be represented by independent counsel in relation to such consent and the consent is limited to matters not substantially related to the subject of the prior representation. Thus Opinion is no longer consistent with the Model Rules. 23 The broadening of scope set forth in Formal Opinion is consistent with what appears to be a general trend toward more liberality in the approval of advance or prospective waivers. Formal Opinion recognizes this trend as reflected in the ABA s 2002 amended Model Rules and specifically Comment 22 to amended Model Rule The trend in the area of advance or prospective waivers indicates that an advance waiver obtained from a sophisticated or independently represented client may be more open-ended than one obtained from an unsophisticated client, and that a waiver obtained from such a client is more likely to be found valid in any circumstance. Ethics opinions from many states hold similarly to the ABA Formal Opinions discussed above. In a recent New York City opinion, ABCNY Formal Opinion , the question was posed Under what circumstances may a law firm ethically request that a client prospectively waive objection to the law firm s subsequent representation of another client adversely to the first client? 25 The opinion concluded that future conflicts may be waived when appropriate disclosures are made about the relevant implications, advantages and risks so the client can make an informed decision and a disinterested lawyer would believe that the firm can competently represent all parties affected (both at the time of the signing of the advance waiver and at the time when the actual conflict comes up). Such waivers are more likely to be upheld for substantially related matters when they involve a sophisticated client where client secrets are adequately safeguarded and are limited to transactional matters not starkly disputed or litigation where the same law firm is not on both sides. This opinion also contains helpful guidance on drafting advance waivers under several scenarios, including sample language to include in each of these instances. 26 In D.C. Opinion 309 (2001), 27 the ethics committee responded to the question whether advance waivers of conflicts of interest are permissible, and if so, whether there are requirements for such waivers additional to, or different from, those prescribed by Rules 1.7 and 1.9 for waivers generally? 28 Relying on case law and ethics opinions from around the country, ABA Formal Opinion , and opinions of legal commentators, the ethics committee found that advance waivers must comply with the requirements of informed consent and that Such waivers are more likely to be upheld for substantially related matters when they involve a sophisticated client.... advance waivers that are given by clients having independent counsel presumptively are valid, even if general in character, but that advance waivers will not be valid, even if reviewed by counsel where the two matters at issue are substantially related to one another. 29 In N.Y. County Opinion 724 (1998), 30 the ethics committee responded to the following hypothetical question: Is it ethical for a lawyer to seek from an existing or prospective client a waiver of conflicts of interest that may arise in the future? 31 Following the approach of ABA Formal Opinion and applying DR of the New York Lawyer s Code of Professional Responsibility, the committee held that a lawyer may ethically seek a prospective waiver of a potential future conflict, and if an actual conflict develops, the enforceability of the advance waiver will depend on whether the nature of the subsequent representation was reasonably contemplated in the waiver itself, and will take into account the sophistication and capacity of the person or entity giving consent. 32 In Cal. Opinion (1989), 33 the State Bar of California Standing Committee on Professional Responsibility and Conduct responded to the following question related to a matter that was proceeding through litigation at the time the question was posed to the committee: Is it ethically proper for an attorney to require a potential client to execute a blanket waiver of the client s right to disqualify the attorney in any other matter, based on a breach of the attorney s duty to maintain confidences and/or to avoid the conflicts of interest? 34 The pending matter involved a request by lead counsel in the case that another attorney assist as local counsel. The attorney requested to serve as local counsel represented a number of clients whose interests were presently or potentially adverse to lead counsel s client. The attorney requested to serve as local counsel was willing to assist in the trial, but only if lead counsel s client would waive its right to disqualify local counsel in any matter in which local counsel represented a party adverse to lead counsel s client, and regardless of whether confidential information received by local counsel would be relevant to the subsequent representation. 35 The committee held that if a client is informed of the potential risks that are foreseeable at the time of the consent, no rule of professional conduct is violated by the attorney s requiring the client s advance waiver; however, the committee noted that a court retained the right to disqualify counsel, despite an advance blanket waiver, if the continued representation of the client would seriously compromise the integrity of the judicial process or the fairness of the particular proceeding. 36 Finally, in L.A. County Opinion 471 (1992), 37 the Los Angeles County Bar Association Professional Responsibility and Ethics Committee addressed the fol- THE PROFESSIONAL LAWYER 17

5 lowing factual circumstances: Pursuant to an employment separation agreement, a corporation agreed to defend and indemnify an employee if a lawsuit was brought against the employee for conduct committed during the course and scope of his employment with the corporation. A lawsuit was filed against the corporation and an employee, and the corporation s law firm agreed to defend the employee, provided the employee agreed that in the event the corporation disputed its defense and indemnity obligations or decided to sue the employee, the law firm could withdraw from representing the employee and continue representing the employer. The question presented to the committee was whether it would be unethical for the law firm to seek the employee s advance consent to its continued representation of the corporation in a suit arising out of the same transaction in the event it withdrew from representing the employee. 38 Relying on the California Rules of Professional Conduct, California ethics opinions and multiple California cases, the committee held that when a law firm proposes to jointly represent co-defendants in a lawsuit with potentially conflicting interests, it is not improper for the law firm to seek advance consent to its later representing one client against the other client in litigation arising out of the same transaction, provided (1) the lawyer can jointly represent both clients competently, and (2) both clients give informed written consent. 39 IV. Case Law A review of the leading cases on the issue of advance or prospective waivers points to the debate that exists around the validity of advance waivers in courts around the country, and further evidences the trend toward allowing more open-ended advance consents from sophisticated and independently represented clients. The overwhelming majority of circumstances in which courts are forced to consider the issue of the validity of advance waivers arise in cases where one party in a litigation matter brings a motion to disqualify opposing counsel due to a perceived conflict of interest arising from counsel s representation of both the moving party (in another matter or transaction) and the moving party s opponent in some respect. A review of these cases makes clear that courts have tended to look at specific factors, many of which are compiled in ABA Formal Opinion , and which are expressly incorporated into ABA Formal Opinion , in ruling on the validity of advance or prospective waivers. A. Cases Upholding Advance Waivers A review of the leading cases... further evidences the trend toward allowing more open-ended advance consents.... For example, beginning with the most recent cases to discuss the issue, the following cases have considered the validity of particular advance waivers and have found these particular advance waivers to be valid: In St. Barnabas Hosp. v. New York City Health & Hosp. Corp., 40 the New York Appellate Division, in a litigation matter, gave effect to an advance waiver even when it failed to mention litigation as a potential future conflict. The court noted that the plaintiff had delayed in filing its motion to disqualify for 14 months, and that the plaintiff was a sophisticated, institutional client (a hospital) and when it signed the advance waiver, the client was fully aware of the firm s representation of the defendant in matters concerning another hospital, in matters identical to those at issue in the subject lawsuit. 41 In light of the facts, the firm s representation of the defendant created no appearance of impropriety as the plaintiff was fully informed of all of the facts. 42 In Rymal v. Baergen, 43 the Michigan Court of Appeals upheld the validity of an advance waiver under circumstances where the attorney only agreed to provide limited representation to the client (filing an answer and affirmative defenses) and conditioned its continued representation on the fact that counsel would have to cease representation of the client if a conflict arose with the interests of counsel s previous client. 44 Counsel required that the client agree in writing that if a conflict arose, counsel could continue to represent his earlier client notwithstanding that he may have received information subject to the attorney-client privilege. 45 The court held the advance waiver valid where the attorney fully explained the nature of the representation that would be provided to each of the parties should a conflict arise, the written agreement anticipated the possibility of the conflict that eventually arose, and the client was aware of the history and nature of the potential conflict between himself and the other client. 46 In West Contra Unified Sch. Dist. v. RDS Architects, 47 the California Court of Appeal approved an advance waiver of a potential future conflict where it found that the attorney s client was adequately informed of the nature of the potential conflict. 48 The case involved an attempt by a school district and an architect to obtain additional funding from the State of California for a school redevelopment project that was halted midway due to lack of funding. 49 The attorney involved informed the architect that since her firm almost exclusively represented school districts, she would not be able to provide any services to the architect that would create a conflict with the district, and a waiver provision was included in the signed fee agreement. 50 Shortly into the representation, the architect threatened to sue the district if they were unable to obtain additional funds, and the attorney promptly withdrew from her representation of the architect, informing it that a conflict of interest had arisen. 51 In holding the architect s advance waiver valid in the face of a later motion to disqualify, the court noted that a party urging the disqualification of an attorney bears the burden of showing that it was not fully informed of the consequences of the waiver when it signed the waiver. The opposing party 18 THE PROFESSIONAL LAWYER

6 must then show that it communicated information reasonably sufficient to allow its client to appreciate the significance of the matter. 52 In Visa U.S.A., Inc. v. First Data Corp., 53 the Northern District of California approved an advance waiver in a case involving a law firm with offices in multiple cities whose San Francisco office represented Visa. 54 Before the instant law suit was filed, First Data sought representation by the firm s Silicon Valley office in an unrelated Delaware patent infringement action. 55 At the time of accepting this representation, the firm informed First Data that it could not represent First Data in the Delaware patent infringement case unless First Data agreed to permit it to represent Visa in any future disputes, including litigation, which might arise between First Data and Visa. 56 The court approved the written waiver noting that the statement in the waiver that it included litigation was clear, and that the signer was sophisticated. 57 The court further stated that an advance waiver of potential future conflicts is permitted under California law, even if the waiver does not specifically state the exact nature of the future conflict. 58 The only inquiry that need be made is whether the consent was fully informed. Factors that may be considered include the breadth of the waiver, the temporal scope of the waiver (i.e. whether it waived a current conflict or whether it was intended to waive all conflicts in the future), the quality of the conflicts discussion between the attorney and client, the specificity of the waiver, the nature of the actual conflict (whether the attorney sought to represent both clients in the same dispute or in unrelated disputes), the sophistication of the client, and the interests of justice. 59 In the case of In re Rite Aid Corp. Securities Litigation v. Grass, 60 the Eastern District of Pennsylvania, in a class action against Rite Aid and several of its executives, denied a motion to disqualify the law firm, relying, in part, upon an engagement letter sent to the client. 61 The General Counsel of Rite Aid retained the law firm to represent Rite Aid and one of the executives. 62 The firm then sent the executive an engagement letter setting out the specific scenario that if a conflict developed between Rite Aid and the executive, the firm would be forced to withdraw from representing the executive and instead would continue on behalf of Rite Aid. 63 Subsequent to this engagement letter, a conflict did develop, and the firm ceased representing the executive and continued on behalf of Rite Aid and the executive moved to disqualify the law firm, which again was denied by the court. 64 [a]llowing for advance, informed consent has significant advantages to both clients and lawyers alike.... In General Cigar Holdings, Inc. v. Altadis, S.A., 65 the Southern District of Florida held an advance waiver valid where in the engagement letter, the law firm agreed to provide joint representation to two cigar manufacturers in an antitrust and trademark suit brought by the manufacturers against the Massachusetts Attorney General, but requested advance consent to future representation of its initial client General Cigar Holdings, Inc. in matters not substantially related to those in which the law firm was currently representing the clients jointly. 66 In approving the validity of the waiver, the court noted that the letter was reviewed by outside counsel and the sophisticated and knowledgeable representatives of the client. 67 The court further noted that [a]llowing for advance, informed consent has significant advantages to both clients and lawyers alike, especially where large firms and sophisticated clients are involved. 68 In Elonex I.P. Holdings, Ltd. v. Apple Computer, Inc., 69 the District Court of Delaware, in a case involving a motion to disqualify an attorney in a patent infringement action who represented the moving party in an unrelated patent infringement action, approved an oral advance waiver, noting that there was a strong inference that the waiver was granted for more than transactional purposes, that the waiver expressly noted the likely subject matter in dispute (a future patent infringement action), and that the firm could reasonably serve both client s interests as matters were unrelated and clients interests were only generally adverse. 70 In Zador Corp. v. Kwan, 71 the California Court of Appeal held an advance waiver valid, in a case involving an attorney s continued representation of one client in a real estate matter, where the clients were formerly jointly represented by the attorney, because the client consented to the attorney s continued representation of a separate client notwithstanding any adversity that may develop. 72 The court noted that the consent form at issue was detailed, that the client studied it for 20 minutes before signing the consent, 73 and that the client subsequently reaffirmed his waiver at the time that the conflict arose. 74 In Fisons Corp. v. Atochem N.A., Inc., 75 the Southern District of California held that an advance waiver executed by a knowledgeable and sophisticated client was sufficient where the client was made aware of the possible adverse affects of the dual representation when the attorney agreed to undertake to represent the client only if the attorney were to be allowed to continue representation of the other client, and where the client s advance consent specifically excepted certain fact specific representations that may arise between the parties from the consent. 76 In Elliott v. McFarland Unified School Dist., 77 the California Court of Appeal found that a Joint Powers Agreement between counsel and various school districts stating that in the event that two or more parties hereto are unable to resolve a legal issue between or among them without legal proceedings, the party or parties in contra-position to that of legal counsel employed as set THE PROFESSIONAL LAWYER 19

7 forth herein on the legal issue involved shall secure its/their separate legal counsel at its/their own expense. was sufficient to establish a valid advance consent by each school district to the continued representation of other districts when a conflict might arise. 78 In Interstate Properties v. Pyramid Co. of Utica, 79 the Southern District of New York held that where a client granted its express permission for the firm to continue to act as general counsel for the plaintiff, the law firm limited its involvement with the client to developments in which the plaintiff had no potential or actual interest as a competitor or partner and there was no possibility that confidential information might have been acquired from the client during its relationship with firm, a written waiver executed by the client s general partner resolved any dispute as to whether informed consent existed in that it showed that the client was fully aware of the potential conflicts arising from the joint representation. 80 The court noted that the client s contentions that its waiver was not voluntary were belied by the client s two-year delay in asserting any impropriety in the waiver. 81 In Unified Sewerage Agency of Washington County v. Jelco Corp., 82 the Ninth Circuit Court of Appeals, applying Oregon law, held that the requirement of informed consent was satisfied and an advance waiver was deemed valid where: the client was aware of the long-standing relationship between the firm and the other client; the client agreed to representation by the firm under the terms that said representation would not inhibit the firm in representing its longstanding client; and the firm alerted counsel for the client as the potential conflict arose and asked whether the client wished to continue its retainer of the firm. 83 B. Cases Invalidating Advance Waivers In the following cases, courts found the advance waivers at issue to be invalid generally based upon a failure of the attorney to provide information adequate to constitute informed consent by the client: Most recently, in Avocent Redmond Corp. v. Rose Electronics, et al., 84 the Western District of Washington invalidated a purported advance waiver found in the engagement letter entered into between the law firm and its client. The Court held that the prospective waiver applied only to unrelated matters, and the defendants failed to demonstrate that the litigation before the Court was not substantially related to the work previously done by the law firm. Moreover, the Court found that, even had the prospective waiver applied to the issues in the case, only Avocent Corporation agreed to waive prospective conflicts, and the agreement could not be construed as a waiver of said conflicts by Avocent s affilliates and subsidiaries, including plaintiff Avocent Redmond Corp. The court disqualified the firm based on this failure to secure a second, more specific waiver at the time that the conflict arose. In Ulico Cas. Co. v. Wilson, Elser, Moskowitz, Edelman & Dicker ( Wilson Elser ), 85 the New York State Court held that the law firm s retainer did not permit it to undertake the representation of other clients in establishing business ventures which competed with that of its current client. Wilson Elser s retainer letter provided that it would not be barred from taking other employment of a similar or other legal character by reason of its employment for Ulico, it s client. The Court found that this provision fell short of the full and complete disclosure which would have been necessary to support a finding of informed consent 86 to Wilson Elser s assistance of another company in transferring Ulico s business to a competitor. 87 In McKesson Information Solutions v. Duane Morris, 88 a Georgia trial court vacated an earlier ruling that disqualified the law firm of Duane Morris ( DM ) based on conflicts and allowed DM to continue to represent plaintiff notwithstanding its representation of a sister company of the defendant in an unrelated matter. In the initial order, the court found that DM s engagement letter, signed by the client, which included a blanket advance waiver and a limitation that DM s engagement was limited to the particular entity that they represented and did not include parent and affiliated entities was inadequate and thus invalid because it is not a knowing waiver that identifies the specific adverse clients and details of adverse representation. 89 The judge s opinion ignored ABA Op and relied upon Worldspan L.P. v. The Sabre Group Holdings, Inc. 90 (discussed below). In the most recent ruling, the court vacated the prior ruling based upon new facts that showed that the other representation was now over, there was no conflict based on the former client rules and therefore that the issue was moot. While it did not reverse its earlier ruling invalidating the signed advance waiver, the court did state at the end of its second opinion the Court finds that to bar an attorney from representing a client who may have some distant interest in conflict with another current or former client, especially in an era of flourishing companies and multi-office law firms, in inherently unreasonable. 91 In In re: Congoleum Corp, 92 the Third Circuit held that a firm which represented an insured in bankruptcy in negotiating settlement arrangements with asbestos injury claimants, who were represented by attorneys who were co-counsel with the firm in insurance coverage matters involving those same claimants, had an actual, concurrent conflict of interest. The Court reversed the order approving the retention of the firm holding that this conflict was not properly waived where the firm did not receive effective waivers from the claimants it represented, where it relied upon cocounsel to obtain such waivers from the individual claimants. The record contained no evidence of any information that was provided to the claimants or any indication of the claimants waiver. 20 THE PROFESSIONAL LAWYER

8 In Concat L.P. & Chelator, L.L.C. v. Unilever, P.L.C., 93 the Northern District of California held that where a standard boilerplate prospective waiver executed by the client was insufficient to demonstrate informed consent by the client where it was extremely broad, intended to cover almost any eventuality, had an unlimited temporal scope, there was no evidence of any discussion of the waiver even though it expressly stated that the firm would not engage in representation in a substantially related matter, and involved a client with a high degree of sophistication. The law firm would have had to obtain a second, more specific waiver when the conflict arose in order to create a valid waiver. 94 The court disqualified the firm based on this failure to secure a second, more specific waiver at the time that the conflict arose. 95 In Goss Graphics Sys., Inc. v. Man Roland Druckmaschinen Aktiengesellschaft, 96 the Northern District of Iowa held that a law firm and its client entered into an advance waiver agreement in 1997 relating to one matter, and a separate advance waiver agreement in 1999 relating to a later matter. The 1997 letter was broad enough to allow the law firm to oppose the client in an unrelated litigation matter. The 1999 letter was less broad. The parties disagreed as to whether the later letter superseded the earlier, and the court resolved the matter by disqualifying the firm. 97 In Worldspan, L.P. v. Sabre Group Holdings, Inc., 98 the Northern District of Georgia held that a standard engagement letter sent by a firm to its clients did not provide sufficient evidence of informed prospective consent to simultaneous dual representation that was undertaken five years after the letter was sent. 99 The letter did not specify the nature of the potential adverse representation (future directly adverse litigation) and was too remote in time (five years after consent) to constitute informed consent. 100 The letter did, however, expressly indicate that the law firm represented a number of airlines that could have interests adverse to Worldspan, a computer airline reservations provider, but failed to indicate those clients with whom the conflict eventually arose. 101 In In re Suard Barge Servs., Inc., 102 the Eastern District of Louisiana held that an advance waiver was invalid where the attorney failed to disclose to the client the actual or potential conflict that could arise because such conflict was uncertain at the time that the attorney discussed it with the client. 103 The purported standing consent to occasionally represent clients who were adverse to the attorney s client was invalid because the consent was executed decades before and was related to different entities. 104 The court noted that any standing consent must be exceedingly explicit and cannot arise merely from a failure of the client to object to the adverse representation. 105 In Schwartz v. Industrial Valley Title Ins. Co., 106 the Eastern District of Pennsylvania held that an advance waiver given in 1993 in a related but separate action was not effective to waive a conflict related to an action commenced in 1996 due to the attorney s failure to inform his client of the nature of the possible adverse litigation. 107 VI. Conclusions The court noted that any standing consent must be exceedingly explicit.... There is unquestionably a debate around the country as to whether and to what extent advance waivers will be upheld as valid. While courts have come down both for and against the validity of advance waivers, the case law and ethics opinions make clear that there are certain precautions a lawyer or a law firm should take in all jurisdictions in the drafting and obtaining of an advance waiver that will greatly increase the likelihood that the waiver will later be upheld as valid. While advance waivers are clearly not per se unethical or invalid, it is important to note that, depending upon the facts, any number of things can result in such a waiver being unenforceable. The key issues will be: whether the future matter and risks associated with such matter are adequately identified; whether the party giving the waiver is adequately sophisticated; whether the waiver is recent enough; and whether the waiving party had independent counsel s advice on giving the waiver. The advance waiver will have a much greater likelihood of surviving the scrutiny of the courts or ethics boards in the event of a challenge to that waiver if a lawyer can demonstrate that the future matter has been identified with adequate specificity; if the party giving the waiver is sophisticated (and may even have general corporate counsel representing its interests) and has been provided with as much information regarding the potential conflict as is available (including expressly indicating that the conflicting representation may involve litigation); and if the waiver is recent or has been updated as circumstances regarding the potential conflict have evolved. Further, ABA Formal Opinion illustrates what seems to be the general trend toward accepting more open-ended advance waivers from sophisticated and independently represented clients. While it is still wise for an attorney to draft an advance waiver in the most detailed way possible at the time of the execution of the waiver, if ABA Formal Opinion is illustrative of the modern trend, attorneys working with sophisticated, and independently represented clients will likely face less stringent standards in attempting to enforce an advance or prospective waiver than those attorneys working with unsophisticated clients. The other thing that is clear is that lawyers and law firms have and are relying upon advance waivers as part of their daily practice. Even if they are not completely reliable and THE PROFESSIONAL LAWYER 21

9 iron-clad in all instances, they do address the parties expectations on the front end and provide an opportunity to address business conflict issues as well as the ethical conflict issues. Endnotes 1. The authors would like to recognize the following scholars for their thoughtful and thorough work on this issue: William Freivogel, Lawrence J. Fox, All s O.K. between Consenting Adults: Enlightened Rule on Privacy, Obscene Rule on Ethics, 29 HOFSTRA L. REV. 701 (Spring 2001); Jonathan J. Lerner, Honoring Choice by Consenting Adults: Prospective Conflict Waivers as a Mature Solution to Ethical Gamesmanship a Response to Mr. Fox, 29 HOFSTRA L. REV. 971 (Summer 2001); Richard W. Painter, Advance Waiver of Conflicts, 13 GEO. J. LEGAL ETHICS 289 (Winter 2000). Opinions expressed in this article are those of the authors and are not necessarily those of Neal Gerber Eisenberg LLP, its attorneys or its clients. 2. California, Maine and New York have not yet adopted the ABA Model Rules of Professional Conduct. California has adopted its Rules of Professional Conduct, Rule Maine follows neither the Model Rules nor Model Code, but incorporates the substance from both. New York has adopted its Code of Professional Responsibility, of which, Rule DR Conflict of Interest; Simultaneous Representation sets forth the rules of professional responsibility related to conflicts of interest. California, Maine and New York are in the process of revising their rules, and currently propose to do so in the form set forth by the ABA Model Rules of Professional Conduct. 3. Moreover, the 2002 amendments to the Model Rules of Professional Conduct have already been adopted in 34 states and the District of Columbia. Of the remaining states, ten have circulated proposed rules and are nearing the end of their procedures for adoption, five have committees that have not yet issued a report and one state (Alabama) is not considering the recent revisions. See 4. MODEL RULES OF PROF L CONDUCT R. 1.7 (2007). 5. While an attorney may be able to avoid a conflict of interest through a client s advance waiver, it is important to note, that a conflict of interest may be unwaivable where there is a significant risk that a lawyer s action on behalf of one client will materially limit the lawyer s effectiveness in representing another client in a different case; for example, when a decision favoring one client will create a precedent likely to seriously weaken the position taken on behalf of the other client. MODEL RULES OF PROF L CONDUCT R. 1.7, Comment 24. That issue is beyond the scope of this article. 6. MODEL RULES OF PROF L CONDUCT R. 1.7, COMMENT MODEL RULES OF PROF L CONDUCT R. 1.0(e). 8. MODEL RULES OF PROF L CONDUCT R. 1.7, COMMENT See e.g., DC Opinion 309 (2001); NY County Opinion 724 (1998); Elonex I.P. Holdings, Ltd. v. Apple Computer, Inc., 142 F. Supp. 2d 579, (D. Del. 2001). 10. ABA Committee on Ethics & Professional Responsibility, Formal Opinion Id. 12. Id. 13. Id. 14. Id. 15. Id. 16. ABA Formal Op , quoting MODEL RULE OF PROF L CONDUCT R ABA Formal Op ABA Formal Op , citing In re Boone, 83 F. 944, 956 (N.D. Cal. 1897). 19. ABA Formal Op Id. 21. ABA Committee on Ethics & Professional Responsibility, Formal Opinion , n ABA Formal Op Id. 24. Id. 25. ABCNY Formal Opinion (Feb. 17, 2006). 26. Id. 27. D.C. Opinion 309 (2001). 28. Id. 29. Id. 30. N.Y. County Opinion 724 (1998). 31. Id. 32. N.Y. County Opinion Cal. Opinion (1989). Among the proposals for revised rules in California, there is no current proposal regarding Rule Id. 35. Id. 36. Id. 37. Id. 38. L.A. County Opinion Id. 40. St. Barnabas Hosp. v. New York City Health & Hosp. Corp., 7 A.D. 3d 83, (N.Y. App. Div. 2004). 41. Id. at Id. at Rymal v. Baergen, 686 N.W.2d 241, 267 (Mich. Ct. App. 2004). 44. Id. at Id. 46. Id. at West Contra Unified Sch. Dist. v. RDS Architects, No. A106513, 2004 Cal. App. LEXIS 11726, *14-18 (Cal. App. Dec. 27, 2004). 48. Id. at * Id. at * Id. at * Id. at * Id. at * Visa U.S.A., Inc. v. First Data Corp., 241 F. Supp. 2d 1100, (N.D. Cal. 2003). 54. Id. at Id. at Id. at Id. at Id. at Id. at THE PROFESSIONAL LAWYER