RULE 1.7 CONFLICT OF INTEREST: GENERAL RULE

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1 Disqualification of Counsel in Litigation Jonathan E. Hawkins Krevolin Horst, LLC One Atlantic Center 1201 West Peachtree Street, NW Suite 3250 Atlanta, Georgia I. Rules of Professional Conduct Addressing Conflicts of Interest. RULE 1.7 CONFLICT OF INTEREST: GENERAL RULE a. A lawyer shall not represent or continue to represent a client if there is a significant risk that the lawyer's own interests or the lawyer's duties to another client, a former client, or a third person will materially and adversely affect the representation of the client, except as permitted in (b). b. If client informed consent is permissible a lawyer may represent a client notwithstanding a significant risk of material and adverse effect if each affected client or former client gives informed consent, confirmed in writing, to the representation after: 1. consultation with the lawyer, pursuant to Rule 1.0(c); 2. having received in writing reasonable and adequate information about the material risks of and reasonable available alternatives to the representation, and 3. having been given the opportunity to consult with independent counsel. c. Client informed consent is not permissible if the representation: 1. is prohibited by law or these Rules; 2. includes the assertion of a claim by one client against another client represented by the lawyer in the same or substantially related proceeding; or 3. involves circumstances rendering it reasonably unlikely that the lawyer will be able to provide adequate representation to one or more of the affected clients. The maximum penalty for a violation of this Rule is disbarment. RULE 1.8 CONFLICT OF INTEREST: PROHIBITED TRANSACTIONS a. A lawyer shall neither enter into a business transaction with a client if the client expects the lawyer to exercise the lawyer's professional judgment therein for the protection of the client, nor shall the lawyer knowingly acquire an ownership, possessory, security or other pecuniary interest adverse to a 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 which can be reasonably understood by the client; 1

2 2. the client is advised in writing of the desirability of seeking and is given a reasonable opportunity to seek the advice of independent counsel in the transaction; and 3. the client gives informed consent, in a writing signed by the client, to the essential terms of the transaction and the lawyer's role in the transaction, including whether the lawyer is representing the client in the transaction. b. A lawyer shall not use information gained in the professional relationship with a client to the disadvantage of the client unless the client gives informed consent, except as permitted or required by these Rules. c. A lawyer shall not prepare an instrument giving the lawyer or a person related to the lawyer as parent, grandparent, child, grandchild, sibling, or spouse any substantial gift from a client, including a testamentary gift, except where the client is related to the donee. d. Prior to the conclusion of representation of a client, a lawyer shall not make or negotiate an agreement giving the lawyer literary or media rights to a portrayal or account based in substantial part on information relating to the representation. e. A lawyer shall not provide financial assistance to a client in connection with pending or contemplated litigation, except that: 1. a lawyer may advance court costs and expenses of litigation, the repayment of which may be contingent on the outcome of the matter; or 2. a lawyer representing a client unable to pay court costs and expenses of litigation may pay those costs and expenses on behalf of the client. f. A lawyer shall not accept compensation for representing a client from one other than the client unless: 1. the client gives informed consent; 2. there is no interference with the lawyer's independence of professional judgment or with the client-lawyer relationship; and 3. information relating to representation of a client is protected as required by Rule 1.6. g. A lawyer who represents two or more clients shall not participate in making an aggregate settlement of the claims for or against the clients, nor in a criminal case an aggregated agreement as to guilty or nolo contendere pleas, unless each client gives informed consent, in a writing signed by the client. The lawyers disclosure shall include the existence and nature of all claims or pleas involved and of the participation of each person in the settlement. h. A lawyer shall not make an agreement prospectively limiting the lawyer's liability to a client for malpractice unless permitted by law and the client is independently represented in making the agreement, or settle a claim for such liability with an unrepresented client or former client without first advising that person in writing that independent representation is appropriate in connection therewith. i. A lawyer related to another lawyer as parent, grandparent, child, grandchild, sibling or spouse shall not represent a client in a representation directly adverse to a person whom the lawyer has actual knowledge is represented by the other lawyer unless his or her client gives informed consent regarding the relationship. The disqualification stated 2

3 in this paragraph is personal and is not imputed to members of firms with whom the lawyers are associated. j. A lawyer shall not acquire a proprietary interest in the cause of action or subject matter of litigation the lawyer is conducting for a client, except that the lawyer may: 1. acquire a lien granted by law to secure the lawyer's fees or expenses as long as the exercise of the lien is not prejudicial to the client with respect to the subject of the representation; and 2. contract with a client for a reasonable contingent fee in a civil case, except as prohibited by Rule 1.5. The maximum penalty for a violation of Rule 1.8(b) is disbarment. The maximum penalty for a violation of Rule 1.8(a) and 1.8(c)-(j) is a public reprimand. RULE 1.9 CONFLICT OF INTEREST: FORMER CLIENT a. A lawyer who has formerly represented a client in a matter shall not thereafter represent another person in the same or a substantially related matter in which that person's interests are materially adverse to the interests of the former client unless the former client gives informed consent, confirmed in writing. b. 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 had previously represented a client: 1. whose interests are materially adverse to that person; and 2. about whom the lawyer had acquired information protected by Rules 1.6 and 1.9(c), that is material to the matter; unless the former client gives informed consent, confirmed in writing. c. A lawyer who has formerly represented a client in a matter or whose present or former firm has formerly represented a client in a matter shall not thereafter: 1. use information relating to the representation to the disadvantage of the former client except as Rule 1.6 or Rule 3.3 would permit or require with respect to a client, or when the information has become generally known; or 2. reveal information relating to the representation except as Rule 1.6 or Rule 3.3 would permit or require with respect to a client. The maximum penalty for a violation of this Rule is disbarment. RULE 1.10 IMPUTED DISQUALIFICATION: GENERAL RULE a. While lawyers are associated in a firm, none of them shall knowingly represent a client when any one of them practicing alone would be prohibited from doing so by Rules 1.7: Conflict of Interest: General Rule, 1.8(c): Conflict of Interest: Prohibited Transactions, 1.9: Former Client or 2.2: Intermediary. 3

4 b. When a lawyer has terminated an association with a firm, the firm is not prohibited from thereafter representing a person with interests materially adverse to those of a client represented by the formerly associated lawyer unless: 1. the matter is the same or substantially related to that in which the formerly associated lawyer represented the client; and 2. any lawyer remaining in the firm has information protected by Rules 1.6: Confidentiality of Information and 1.9(c): Conflict of Interest: Former Client that is material to the matter. c. A disqualification prescribed by this rule may be waived by the affected client under the conditions stated in Rule 1.7: Conflict of Interest: General Rule. The maximum penalty for a violation of this Rule is disbarment. II. Duty of Loyalty. Loyalty is an essential element in the lawyer s relationship to a client. See Rule 1.7, Comment 1. Such loyalty is impaired when a lawyer cannot consider, recommend, or carry out an appropriate course of action for the client because of the lawyer s competing responsibilities or interests. See Rule 1.7, Comment 4. Generally, loyalty to a client prohibits undertaking representation directly adverse to that client without that client s informed consent. See Rule 1.7, Comment 4. The duty of loyalty ordinarily prevents a lawyer from acting as advocate against a person the lawyer represents in some other matter, even if it is wholly unrelated. Id. If an attorney determines that an impermissible conflict of interest exists before representation is undertaken, the representation should be declined. Rule 1.7, Comment 1. A lawyer s personal or economic interests should not be allowed to have an adverse effect on representation of a client. Rule 1.7, Comment 6. Thus, a lawyer must not represent or continue to represent a client if there is a significant risk that the lawyer s own interests or the lawyer s duties to another client, or a third person will materially and adversely affect the representation of the client, unless the client consents to the representation. See Rule 1.7(a); see also Ga. Rule 1.16(a)(1)( [A] lawyer shall not represent a client, or where representation 4

5 has commenced, shall withdraw from the representation of a client if... the representation will result in violation of the Georgia Rules of Professional Conduct or other law. ). Client consent is not permissible, however, if the representation... involves circumstances rendering it reasonably unlikely that the lawyer will be able to provide adequate representation to one or more of the affected clients. Rule 1.7(c)(3); see also Registe v. State, 287 Ga. 542, 547 (2010). There is and can be no question that it is highly improper for an attorney to represent both sides of an issue. Corvair Furniture Mfg. Co. v. Bull, 125 Ga. App. 141, 145 (1971); see also Thompson v. State, 254 Ga. 393, 396 (1985)( [A] lawyer should not represent clients with conflicting interests. ); Registe, 287 Ga. at 547. There is likewise no dispute that an attorney is an officer of the court, and. This high office as an attorney incapacitates the attorney from representing different interests which are adverse in the sense that they are hostile, antagonistic or in conflict with each other. Young v. Champion, 142 Ga. App. 687, 689 (1977). The mere potential of inadequate representation that is caused by a split of loyalties is a harm that the conflict of interest rules were designed to protect. Paul v. Smith, Gambrell & Russell, 267 Ga. App. 107, 111 (2004). III. Motions to Disqualify. The lawyer undertaking a client representation has the primary responsibility of resolving questions of conflict of interest. See Ga. R.P.C. 1.7, Comment 15. However, where a conflict is such as clearly to call into question the fair or efficient administration of justice, opposing counsel may properly raise the question. Id. ( In litigation, a court may raise the question when there is reason to infer that the lawyer has neglected the responsibility. ); see 5

6 also Bernocchi v. Forcucci, 279 Ga. 460, 463 (2005). An objection raised by opposing counsel should be viewed with caution, however, for it can be misused as a technique of harassment. Rule 1.7, Comment 15. The burden is on opposing counsel to show substantiation of an alleged conflict of interest. See Bernocchi, 279 Ga. at 463. When the fact that an attorney represents conflicting interests comes to the attention of the court before which the cause is pending, the court is required to prevent the attorney from continuing so to act. See Young, 142 Ga. App. at The test in such cases is not the actuality of conflict, but the possibility that conflict may arise. Id. A possible conflict, however, does not itself always preclude the representation. See Rule 1.7, Comment 2. The critical questions are the likelihood that a conflict will eventuate and, if it does, whether it will materially interfere with the lawyer s independent professional judgment in considering alternatives or foreclose courses of action that reasonably should be pursued on behalf of the client. Rule 1.7, Comment 2. A motion to disqualify must be made with reasonable promptness after a party discovers the facts which lead to the motion. See Yates v. Dublin Sir Shop, 260 Ga. App. 369, 372 (2003). If a party fails to make a reasonably prompt motion to disqualify, he may waive the conflict. Georgia Baptist Health Care Sys., Inc. v. Hanafi, 253 Ga. App. 540, 541 (2002). A court will consider the length of the delay in light of the circumstances of the particular case, which include when the movant learned of the conflict; whether the movant was represented by counsel during the delay; why the delay occurred; and whether disqualification would result in prejudice to the nonmoving party. Georgia Baptist, 253 Ga. App. at 542. The court must then weigh these factors against the seriousness of the alleged conflict and the extent to which the 6

7 public s confidence in the administration of justice would be eroded if the motion was denied. See Georgia Baptist, 253 Ga. App. at 542. IV. Disqualification is Not Favored. Georgia courts have recognized that the right to counsel is an important interest which requires that any curtailment of the client s right to counsel of choice be approached with great caution. See Martinez v. Housing Auth. of DeKalb County, 264 Ga. App. 282, 287 (2003). Because disqualification has an immediate adverse effect on a client by separating her from her counsel of choice, courts are generally reluctant to grant motions to disqualify opposing counsel. See Clough v. Richelo, 274 Ga. App. 129, 132 (2005). Disqualification also results in expense and delay that are costly both to the client and to the administration of justice. Georgia Baptist, 253 Ga. App. at 541. A client whose attorney is disqualified may suffer the loss of time and money in finding new counsel and may lose the benefit of its longtime counsel s specialized knowledge of its operations. Bernocchi, 279 Ga. at 462. Even when made in the best of faith, motions to disqualify inevitably cause delay. Clough, 274 Ga. App. at 132. For these reasons, disqualification of counsel is an extraordinary remedy and should be granted sparingly. See Bernocchi, 279 Ga. at 462. When determining whether to disqualify counsel, a trial court should consider the particular facts of the case, balancing the need to ensure ethical conduct on the part of lawyers against the litigant s right to freely choose counsel. See Martinez, 264 Ga. App. at 287. Whether an attorney should be disqualified from representing a client in a judicial proceeding rests in the sound discretion of the trial judge. See Duvall v. Bledsoe, 274 Ga. App. 256, 258 (2005); see also Life Care Centers of Am. v. Smith, 298 Ga. App. 739, 745 (2009). 7

8 V. Specific Situations. A. Successive representation. As a general rule, a lawyer is disqualified from representing a party against a former client in a matter that is substantially related to the lawyer s prior representation. See Rescigno v. Vesali, 306 Ga. App. 610, 612 (2010); Registe, 287 Ga. at 547. A subsequent case may be deemed substantially related to a former case where material and logical connections exist between the two. Rescigno, 306 Ga. App. at 612. Comments to Rule 1.9 add that matters are substantially related if they involve the same transaction or legal dispute or if there otherwise is a substantial risk that confidential information as would normally have been obtained in the prior representation would materially advance the client s position in the subsequent matter. See Rule 1.9, Comment 3. The mere fact that an attorney possesses general financial information about a former client imputable to another attorney in her firm does not mandate disqualification. Rescigno, 306 Ga. App. at 612. If a lawyer while with one firm acquired no knowledge or information relating to a particular client of the firm, and that lawyer later joined another firm, neither the lawyer individually nor the second firm is disqualified from representing another client in the same or a related matter even though the interests of the two clients conflict. Rule 1.9, Comment 5. But if one attorney in a law firm has an actual conflict of interest, a court will impute that conflict to all the attorneys in the firm, subjecting the entire firm to disqualification. Rescigno, 306 Ga. App. at 612. B. Shareholder and Partnership Disputes. 8

9 Attorneys are generally not allowed to represent both corporate entities and their shareholders, members, or partners in disputes among shareholders. See, e.g., MacKay v. Pierce, 446 N.Y.S.2d 403, 86 A.D.2d 655, 655 (1982)(disqualifying counsel from representing both corporate defendant and officers and directors of corporate defendant); In re Entm t, Inc., 225 B.R. 412, 423 (Bankr. N.D. Ill. 1998)( Corporate counsel should refrain from taking part in any controversies or factional differences among shareholders as to control of the corporation, so that he or she can advise the corporation without bias or prejudice. ). In such situations, the corporate entity and disputing shareholders should have separate counsel. C. Lawyer as Witness. RULE 3.7 LAWYER AS WITNESS a. A lawyer shall not act as advocate at a trial in which the lawyer is likely to be a necessary witness except where: 1. the testimony relates to an uncontested issue; 2. the testimony relates to the nature and value of legal services rendered in the case; or 3. disqualification of the lawyer would work substantial hardship on the client. b. A lawyer may act as advocate in a trial in which another lawyer in the lawyer's firm is likely to be called as a witness unless precluded from doing so by Rule 1.7 or Rule 1.9. The maximum penalty for a violation of this Rule is a public reprimand. The purpose of Rule 3.7 is to prevent an attorney from being in the awkward position of acting as both a witness and an advocate at trial. See Clough, 274 Ga. App. at 137. Indeed, combining the roles of advocate and witness can prejudice an opposing party and can involve a conflict of interest between lawyer and client. See Rule 3.7, Comment 1. Problems that might arise include: 9

10 The possibility that, in addressing the jury, the lawyer will appear to vouch for his own credibility; the unfair and difficult situation which arises when an opposing counsel has to cross-examine a lawyer-adversary and seek to impeach his credibility; and the appearance of impropriety created, i.e., the likely implication that the testifying lawyer may well be distorting the truth for the sake of his client. See Clough, 274 Ga. App. at 137. There is also a high likelihood of juror confusion about which role the lawyer is serving during the trial. Id. Comment 2 to Rule 3.7 notes that a witness is required to testify on the basis of personal knowledge, while an advocate is expected to explain and comment on evidence given by others. Rule 3.7, Comment 2. Thus, a fact-finder may not be clear whether a statement by an advocate-witness should be taken as proof or as an analysis of the proof. Id. Whether an opposing party is likely to suffer prejudice due to a lawyer witness depends on the nature of the case, the importance and probable tenor of the lawyer s testimony, and the probability that the lawyer s testimony will conflict with that of other witnesses. Rule 3.7, Comment 4. Even if there is risk of such prejudice, in determining whether the lawyer should be disqualified, a court must give due regard to the effect of disqualification on the lawyer s client. Id. The party moving to disqualify a lawyer under Rule 3.7 has the burden of showing that the lawyer is likely to be a necessary witness by demonstrating that the lawyer s testimony is relevant to disputed, material questions of fact and that there is no other evidence available to prove those facts. See Clough, 274 Ga. App. at 133. Even if a lawyer is likely to be a necessary witness at trial, Rule 3.7 may not preclude a lawyer from representing a client prior to trial. See Clough, 274 Ga. App. at 138; but see General Mill Supply Co. v. SCA Svcs., Inc., 697 F.2d 704,

11 (6 th Cir. 1982). When an attorney is disqualified under Rule 3.7, his status is not automatically imputed to other lawyers in his office. See McLaughlin v. Payne, 761 S.E.2d 289, 293 (Ga. 2014). D. Attorney as Party. Serious possibilities for conflict of interest are present when the attorney is also a party in the case. See Cherry v. Coast House, Ltd., 257 Ga. 403, 405 (1987). Thus, an attorney who is a party to a case should not represent a co-party. Id. 11