CONFLICTS OF INTEREST MODEL RULE 1.7
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1 CONFLICTS OF INTEREST MODEL RULE 1.7 1
2 RULE CONFLICT OF INTEREST: CURRENT CLIENTS (a) Except as provided in paragraph (b), a lawyer shall not represent a client if the representation involves a concurrent conflict of interest. A concurrent conflict of interest exists if: (1) the representation of one client will be directly adverse to another client; or (2) 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. 2
3 RULE 1.7 CONFLICT OF INTEREST: CURRENT CLIENTS... a lawyer may represent a client if: (1) the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client; (2) the representation is not prohibited by law; (3) the representation does not involve the assertion of a claim by one client against another client represented by the lawyer in the same litigation or other proceeding before a tribunal; and (4) each affected client gives informed consent, confirmed in writing. 3
4 4 CONDITIONS WHEN CONFLICTS ARE CONSENTABLE : LAWYER REASONABLY BELIEVES HE CAN STILL DO IT NOT OTHERWISE ILLEGAL NOT ADVERSE PARTIES IN SAME PROCEEDING INFORMED, WRITTEN CONSENT FROM CLIENTS 4
5 RULE REVIEW (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. 5
6 RULE 1.7 REVIEW... a lawyer may represent a client if: (1) the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client; (2) the representation is not prohibited by law; (3) the representation does not involve the assertion of a claim by one client against another client represented by the lawyer in the same litigation or other proceeding before a tribunal; and (4) each affected client gives informed consent, confirmed in writing. 6
7 RULE 1.7 HISTORY & BACKGROUND The comment was amended in 2002 to address some recurring fact settings and to encompass concerns formerly addressed by Model Rule 2.2 (Intermediary). (Rule 2.2 was deleted in 2002). Much of the former Rule 2.2 survives in Rule 1.7 s Comments [26] through [28] (nonlitigation conflicts) and Comments [29] through [33] (special considerations in common representation). 7
8 RULE STANDING TO SEEK DISQUALIFICATION The general rule is that only a former or current client has standing to bring a motion to disqualify counsel on the basis of a conflict of interest. In re Yarn Processing Patent Validity Litig., 530 F.2d 83 (5th Cir. 1976) (often cited in standing cases) 8
9 RULE STANDING TO SEEK DISQUALIFICATION A nonclient may seek disqualification only if there is an ethical breach [that] so infects the litigation... that it impacts the moving party s interest in a just and lawful determination of her claims. Colyer v. Smith, 50 F. Supp. 2d 966 (C.D. Cal. 1999). Jamieson v. Slater, No. CV PHX-SMM, 2006WL (D.Ariz. Nov. 27, 2006) (plaintiff had standing to move to disqualify opposing counsel, who was himself a codefendant and whose actions while representing his codefendants were subject of plaintiff s suit; notwithstanding codefendants waiver of conflict, lawyer s interest in justifying what he did while representing them would undoubtedly cloud his ability to examine their alternatives) 9
10 RULE STANDING TO SEEK DISQUALIFICATION Doe v. Lee, 178 F. Supp. 2d 1239 (M.D. Ala. 2001) (plaintiff suing psychologist for disclosing her confidential records lacked standing to seek disqualification of defense counsel on grounds that counsel would have to cross-examine his own wife, who was potential material witness) Bernocchi v. Forcucci, 614 S.E.2d 775 (Ga. 2005) (nonclient movant must show violation of the rules which is sufficiently severe to call in question the fair and efficient administration of justice ). 10
11 RULE DISQUALIFICATION NOT INEVITABLE A violation of Rule 1.7(a) does not always result in disqualification, particularly if the firm has implemented a screen and the complaining party cannot show it was harmed. See, e.g., Hempstead Video, Inc. v. Vill. of Valley Stream, 409 F.3d 127 (2d Cir. 2005); Bayshore Ford Truck Sales, Inc. v. Ford Motor Co., 380 F.3d 1331 (11th Cir. 2004). 11
12 RULE COMMENT [3] A conflict of interest may exist before representation is undertaken, in which event the representation must be declined, unless the lawyer obtains the informed consent of each client under the conditions of paragraph (b). 12
13 RULE COMMENT [3] To determine whether a conflict of interest exists, a lawyer should adopt reasonable procedures, appropriate for the size and type of firm and practice, to determine in both litigation and nonlitigation matters the persons and issues involved. 13
14 RULE COMMENT [4] If a conflict arises after representation has been undertaken, the lawyer ordinarily must withdraw from the representation, unless the lawyer has obtained the informed consent of the client under the conditions of paragraph (b). 14
15 RULE COMMENT Where more than one client is involved, whether the lawyer may continue to represent any of the clients is determined both by the lawyer's ability to comply with duties owed to the former client and by the lawyer's ability to represent adequately the remaining client or clients, given the lawyer's duties to the former client. 15
16 RULE 1.7 COMMENT 5 [5] Unforeseeable developments, such as changes in corporate and other organizational affiliations or the addition or realignment of parties in litigation, might create conflicts in the midst of a representation, as when a company sued by the lawyer on behalf of one client is bought by another client represented by the lawyer in an unrelated matter. 16
17 RULE 1.7 COMMENT 5 Depending on the circumstances, the lawyer may have the option to withdraw from one of the representations in order to avoid the conflict. The lawyer must seek court approval where necessary and take steps to minimize harm to the clients. 17
18 RULE 1.7 HOT-POTATO RULE A law firm trying to take on a matter that presents a conflict under Rule 1.7 may not simply drop a client to be free to take on a more attractive one. Violation of the socalled hot-potato rule normally results in disqualification. See, e.g., Flying J. Inc. v. TA Operating Corp., No. 1:06-CV-30TC, 2008WL (D. Utah Mar. 10, 2008) (collecting cases); El Camino Res., Ltd. v. Huntington Nat l Bank, 623 F. Supp. 2d 863 (W.D. Mich. 2007). 18
19 RULE 1.7 HOT-POTATO RULE Courts are more forgiving if the conflict was unforeseeable and arose through no fault of the law firm as, for example, when a conflict is created by a corporate merger or acquisition. See Model Rule 1.7, cmt. [5]. This is sometimes referred to as the thrustupon exception to the hot-potato rule. See, e.g., Carlyle Towers Condo. Ass n, Inc. v. Crossland Sav., FSB, 944 F. Supp. 341 (D.N.J. 1996) (conflict created by defendant s merger with parent corporation of subsidiary for which plaintiff s law firm had done transactional work did not require disqualification; firm had promptly withdrawn from representation of subsidiary) 19
20 SIMULTANEOUSLY REPRESENTING CLIENTS INVOLVED IN DIFFERENT SUITS OVER RELATED MATTERS Simultaneous representation of clients involved in different lawsuits can give rise to a conflict if the suits involve related matters. Rembrandt Techs., LP v. Comcast Corp., No. 2:05CV443, 2007 WL (E.D. Tex. Feb. 8, 2007) (disqualifying law firm from simultaneously prosecuting patent infringement case for one client and representing potential infringer on other matters); Andrew Corp. v. Beverly Mfg. Co., 415 F. Supp. 2d 919 (N.D. Ill. 2006) (without consent, law firm may not render noninfringement opinion for one client if patent belongs to another client) 20
21 RULE IDENTIFYING CONFLICTS OF INTEREST: DIRECTLY ADVERSE [6] Loyalty to a current client prohibits undertaking representation directly adverse to that client without that client's informed consent. 21
22 RULE IDENTIFYING CONFLICTS OF INTEREST: DIRECTLY ADVERSE [6] Thus, absent consent, a lawyer may not act as an advocate in one matter against a person the lawyer represents in some other matter, even when the matters are wholly unrelated. 22
23 RULE IDENTIFYING CONFLICTS OF INTEREST: DIRECTLY ADVERSE [6] The client as to whom the representation is directly adverse is likely to feel betrayed, and the resulting damage to the client-lawyer relationship is likely to impair the lawyer's ability to represent the client effectively. 23
24 FEELINGS OF BETRAYAL 24
25 FEELINGS OF BETRAYAL 25
26 RULE IDENTIFYING CONFLICTS OF INTEREST: DIRECTLY ADVERSE [6] Similarly, a directly adverse conflict may arise when a lawyer is required to cross-examine a client who appears as a witness in a lawsuit involving another client, as when the testimony will be damaging to the client who is represented in the lawsuit. 26
27 RULE IDENTIFYING CONFLICTS OF INTEREST: DIRECTLY ADVERSE [6] On the other hand, simultaneous representation in unrelated matters of clients whose interests are only economically adverse, such as representation of competing economic enterprises in unrelated litigation, does not ordinarily constitute a conflict of interest and thus may not require consent of the respective clients. 27
28 RULE IDENTIFYING CONFLICTS OF INTEREST: DIRECTLY ADVERSE [6] On the other hand, simultaneous representation in unrelated matters of clients whose interests are only economically adverse, such as representation of competing economic enterprises in unrelated litigation, does not ordinarily constitute a conflict of interest and thus may not require consent of the respective clients. 28
29 RULE IDENTIFYING CONFLICTS OF INTEREST: DIRECTLY ADVERSE [7] Directly adverse conflicts can also arise in transactional matters. For example, if a lawyer is asked to represent the seller of a business in negotiations with a buyer represented by the lawyer, not in the same transaction but in another, unrelated matter, the lawyer could not undertake the representation without the informed consent of each client. 29
30 RULE DIRECT ADVERSITY IN NONLITIGATION CONTEXT (CMT 7) Comment [7] points out that direct adversity can also arise in transactional matters. See, e.g., Iowa Supreme Court Bd. of Prof l Ethics & Conduct v. Wagner, 599 N.W.2d 721 (Iowa 1999) (may not represent both buyer and seller in residential real estate transaction). Even so, outside the litigation context the lawyer is far more likely to encounter material-limitation conflicts under Rule 1.7(a)(2), discussed below, than direct-adversity conflicts under Rule 1.7(a)(1). 30
31 IDENTIFYING CONFLICTS OF INTEREST: MATERIAL LIMITATION [8] Even where there is no direct adverseness, a conflict of interest exists if there is a significant risk that a lawyer's ability to consider, recommend or carry out an appropriate course of action for the client will be materially limited as a result of the lawyer's other responsibilities or interests. 31
32 IDENTIFYING CONFLICTS OF INTEREST: MATERIAL LIMITATION [8] For example, a lawyer asked to represent several individuals seeking to form a joint venture is likely to be materially limited in the lawyer's ability to recommend or advocate all possible positions that each might take because of the lawyer's duty of loyalty to the others. The conflict in effect forecloses alternatives that would otherwise be available to the client. 32
33 IDENTIFYING CONFLICTS OF INTEREST: MATERIAL LIMITATION [8] The mere possibility of subsequent harm does not itself require disclosure and consent. 33
34 IDENTIFYING CONFLICTS OF INTEREST: MATERIAL LIMITATION [8] The critical questions are the likelihood that a difference in interests 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. 34
35 IDENTIFYING CONFLICTS OF INTEREST: MATERIAL LIMITATION In re Shay, 756 A.2d 465 (D.C. 2000) (conflict materially limited lawyer s representation of couple in estate planning when lawyer knew at time wills drafted that husband, unbeknownst to wife, was actually married to another person) In re Toups, 773 So. 2d 709 (La. 2000) (assistant district attorney representing husband in divorce case should have withdrawn after client s wife filed criminal complaint against husband) 35
36 LAWYER'S RESPONSIBILITIES TO FORMER CLIENTS AND OTHER THIRD PERSONS [9] In addition to conflicts with other current clients, a lawyer's duties of loyalty and independence may be materially limited by responsibilities to former clients under Rule 1.9 or by the lawyer's responsibilities to other persons, such as fiduciary duties arising from a lawyer's service as a trustee, executor or corporate director. 36
37 PERSONAL INTEREST CONFLICTS [10] The lawyer's own interests should not be permitted to have an adverse effect on representation of a client. 37
38 PERSONAL INTEREST CONFLICTS For example, if the probity of a lawyer's own conduct in a transaction is in serious question, it may be difficult or impossible for the lawyer to give a client detached advice. 38
39 PERSONAL INTEREST CONFLICTS Similarly, when a lawyer has discussions concerning possible employment with an opponent of the lawyer's client, or with a law firm representing the opponent, such discussions could materially limit the lawyer's representation of the client. 39
40 PERSONAL INTEREST CONFLICTS In addition, a lawyer may not allow related business interests to affect representation, for example, by referring clients to an enterprise in which the lawyer has an undisclosed financial interest. 40
41 PERSONAL INTEREST CONFLICTS [11] When lawyers representing different clients in the same matter or in substantially related matters are closely related by blood or marriage, there may be a significant risk that client confidences will be revealed and that the lawyer's family relationship will interfere with both loyalty and independent professional judgment. 41
42 PERSONAL INTEREST CONFLICTS As a result, each client is entitled to know of the existence and implications of the relationship between the lawyers before the lawyer agrees to undertake the representation. Thus, a lawyer related to another lawyer, e.g., as parent, child, sibling or spouse, ordinarily may not represent a client in a matter where that lawyer is representing another party, unless each client gives informed consent. 42
43 PERSONAL INTEREST CONFLICTS [12] A lawyer is prohibited from engaging in sexual relationships with a client unless the sexual relationship predates the formation of the client-lawyer relationship. See Rule 1.8(j). 43
44 PERSONAL INTEREST CONFLICTS Even in the absence of the specific prohibition (Rule 1.8j), however, courts have had no trouble applying Rule 1.7 or its Model Code predecessor to lawyer-client sexual relationships. See, e.g., Horaist v. Doctor s Hosp. of Opelousas, 255 F.3d 261 (5th Cir. 2001); In re Ryland, 985 So. 2d 71 (La. 2008); Attorney Grievance Comm n v. Hall, 969 A.2d 953 (Md. Ct. Spec. App. 2009); cf. In re Anonymous, 699 S.E.2d 693 (S.C. 2010) (sex with client s wife is per se violation of Rule 1.7 ) 44
45 PERSONAL INTEREST CONFLICTS A lawyer s financial interests may conflict with a client s interests. See In re Evans, 902 A.2d 56 (D.C. 2006) (when lawyer whose title company was insuring real estate in loan transaction learned that actual owner was unprobated estate of borrower s deceased mother-in-law, lawyer initiated probate proceeding on borrower s behalf to transfer title to her but did not explain his own financial interest in facilitating closing) 45
46 PERSONAL INTEREST CONFLICTS ABA Formal Ethics Op (2004) (advancing bail on behalf of accused client may pose conflict if amount of bail is material to lawyer) ABA Formal Ethics Op (2002) (discussing propriety of lawyer taking security interest in client s property to guarantee payment of fees). 46
47 PERSONAL INTEREST CONFLICTS Professional interests that are not purely financial can also materially limit a representation. See Jamieson v. Slater, No. CV PHX- SMM, 2006 WL (D. Ariz. Nov. 27, 2006) ( [The lawyer s] position as both a codefendant and counsel to the remaining defendants is so egregiously untenable that... any informed written consent to the concurrent conflicts of interest identified here would be ineffective. ) 47
48 PERSONAL INTEREST CONFLICTS In re Allsep, 541 S.E.2d 245 (S.C. 2001) (lawyer who represented client in foreclosure proceedings against real estate owners failed to advise client that real estate owners lawyer concurrently represented him in ongoing matter) 48
49 PERSONAL INTEREST CONFLICTS ABA Formal Ethics Op (2008) (discussion of role of ethics counsel within law firm and duties to clients versus duties to law firm); ABA Formal Ethics Op (1997) (not necessarily improper for two lawyers to represent adverse interests at same time that one lawyer represents the other; each lawyer must evaluate whether relationship could materially limit representation of third-party client, but disclosure of their relationship is prudent ) 49
50 PERSONAL INTEREST CONFLICTS ABA Formal Ethics Op (1994) (lawyer usually need not withdraw from representation just because opponent files grievance against him or her, but if lawyer s interest in avoiding discipline could materially limit representation, lawyer first must reasonably conclude representation will not be adversely affected and then must seek client s consent) 50
51 INTEREST OF PERSON PAYING FOR A LAWYER'S SERVICE [13] A lawyer may be paid from a source other than the client, including a co-client, if the client is informed of that fact and consents and the arrangement does not compromise the lawyer's duty of loyalty or independent judgment to the client. 51
52 INTEREST OF PERSON PAYING FOR A LAWYER'S SERVICE [13] If acceptance of the payment from any other source presents a significant risk that the lawyer's representation of the client will be materially limited by the lawyer's own interest in accommodating the person paying the lawyer's fee or by the lawyer's responsibilities to a payer who is also a co-client, then the lawyer must comply with the requirements of paragraph (b) before accepting the representation, including determining whether the conflict is consentable and, if so, that the client has adequate information about the material risks of the representation. 52
53 PROHIBITED REPRESENTATIONS [14] Ordinarily, clients may consent to representation notwithstanding a conflict. However, as indicated in paragraph (b), some conflicts are nonconsentable, meaning that the lawyer involved cannot properly ask for such agreement or provide representation on the basis of the client's consent. When the lawyer is representing more than one client, the question of consentability must be resolved as to each client. 53
54 PROHIBITED REPRESENTATIONS [15] Consentability is typically determined by considering whether the interests of the clients will be adequately protected if the clients are permitted to give their informed consent to representation burdened by a conflict of interest. Thus, under paragraph (b)(1), representation is prohibited if in the circumstances the lawyer cannot reasonably conclude that the lawyer will be able to provide competent and diligent representation. 54
55 PROHIBITED REPRESENTATIONS [16] Paragraph (b)(2) describes conflicts that are nonconsentable because the representation is prohibited by applicable law. For example, in some states substantive law provides that the same lawyer may not represent more than one defendant in a capital case, even with the consent of the clients, and under federal criminal statutes certain representations by a former government lawyer are prohibited, despite the informed consent of the former client. 55
56 PROHIBITED REPRESENTATIONS [16] In addition, decisional law in some states limits the ability of a governmental client, such as a municipality, to consent to a conflict of interest. 56
57 PROHIBITED REPRESENTATIONS [17] Paragraph (b)(3) describes conflicts that are nonconsentable because of the institutional interest in vigorous development of each client's position when the clients are aligned directly against each other in the same litigation or other proceeding before a tribunal. Whether clients are aligned directly against each other within the meaning of this paragraph requires examination of the context of the proceeding... 57
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