Even experienced and well-meaning attorneys can suddenly find themselves in representations that present conflicts of interests. Vigilance and a game plan are key to preventing these conflicts from becoming a bar disciplinary action or a malpractice claim.
In a recent study published by Law 360, the most frequently cited cause of malpractice errors was conflicts of interest.
The ABA Model Rules of Professional Conduct do not define the phrase but do provide guidance when dealing with potential conflicts between current clients, former clients, other members of the firm and a client, attorneys who are or were public officers, attorneys who served as government employees, attorneys who served as third-party neutrals and so on.
Despite the guidelines, distinguishing between what constitutes a conflict of interest and what does not can be challenging. Malpractice claims can arise from attorneys failing to adequately recognize conflict situations and address them appropriately. The ability to spot and address conflicts early on is invaluable.
Some conflicts are easy to spot. Common conflict-of-interest scenarios are:
Simultaneous representation of both sides in a divorce proceeding.
Simultaneous representation of both sides of a sales transaction.
Representation of a current client against a former client.
Other scenarios can be more problematic; many develop over the course of time.
One example out of Oklahoma involved successive representation of relatives in different areas of law. An attorney was retained by a client to represent her in a criminal matter. The attorney advised the client that he also represented the client’s mother in a guardianship case involving minor grandchildren two years prior. The guardianship involved the grandmother attempting to obtain guardianship of the client’s children. The attorney believed that the mother had abandoned the guardianship proceeding. The attorney, however, never withdrew from the guardianship, which was still pending. The attorney received a waiver from the client but not from the mother. The attorney advised the client that he would not pursue the guardianship action.
Sometime later, the client’s mother inquired about the guardianship. The mother received a letter from a staff person that the guardianship was on hold and then disclosed that the client had been arrested for indecent exposure. The Oklahoma Supreme Court found that it should have been readily apparent that any information that this attorney learned from the client would be helpful to the client’s mother in the guardianship case and detrimental to the client in the same guardianship case. State ex rel. Oklahoma Bar Ass’n v. McGee, 48 P.3d 787, (Ok. 2002).
Same firm, different offices
The Ohio courts have found a conflict of interest exists when separate attorneys located in different offices of the same law firm represent adverse parties in unrelated matters. In Carnegie Companies, Inc. v. Summit Properties, Inc., 918 N.E. 2d, 1052 (Ohio 2009), the would-be buyer, Carnegie Companies, sued the would-be seller, Summit Properties, seeking return of its deposit after a land deal went south. Carnegie later moved to disqualify the law firm representing Summit because the law firm was representing Carnegie in an unrelated transaction at the time, even though Carnegie’s president was aware of the firm’s representation of Summit during the sale negotiations.
The evidence revealed Carnegie President Paul Besses had been negotiating the purchase of land in Twinsburg, Ohio, directly with the law firm, which served as Summit’s lawyer. At the same time, another executive with Carnegie retained another firm attorney in another office to review aspects of a land deal in Marietta, Ohio. This attorney had previously done work for Carnegie, and this is why he was used on the Marietta deal. It was not until after the Twinsburg deal fell apart and the firm filed suit on behalf of Summit that Carnegie sought to disqualify the law firm.
Carnegie’s president admitted he was aware of the duel representation but objected only after the firm sued Carnegie and alleged fraud. The court found that Carnegie was a client of the law firm at the time the litigation between it and Summit began, therefore lawyers from the firm could not ethically represent Carnegie’s opponent in this litigation without Carnegie’s consent. Based on these findings, the trial court disqualified the firm. The Court of Appeals affirmed the trial court’s disqualification of the law firm because the firm was found to be engaged in simultaneous representation of two clients with directly adverse interests.
Business transactions with clients
Business transactions with clients or former clients also can result in conflicts of interest. In Iowa Supreme Court Board of Professional Ethics & Conduct v. Michael W. Fay, 619 N.W.2d 321, (Ia. 2000), a Cedar Rapids attorney was disciplined for leasing a building to a client and then seeking to evict her when she stopped making rent payments. The attorney had represented the client in various matters for several years prior to entering into a lease agreement with her. Fay held a life estate in a home owned by his daughter. The home was located in a high-traffic residential area of the city. The house was zoned for residential use but was in need of repairs. Fay and the client agreed the client would lease the home as her residence and also operate her interior-design business from the home.
Fay told the client he believed business use of the house would qualify under the home-occupancy exception to the city zoning ordinance. Fay believed he was not representing the client relative to the lease transaction, but he agreed to pursue a zoning change or a variance at his expense if the city officials did not approve the business use of the house under the exception. A standard form lease agreement was signed. Shortly after moving into the house, city officials began to question the operation of the business from the house. They also discovered numerous code violations within the interior of the house. The client notified Fay of the problems, and he initiated discussions with the city on the client’s behalf. The client became dissatisfied with the developments, however, and eventually contacted another attorney. The client stopped paying the monthly rent. Fay responded by serving the client with a notice for eviction.
The Board of Professional Ethics and Conduct brought an action against Fay for engaging in a business transaction with a client without disclosing the existence of a conflict of interest. The Supreme Court noted business transactions between lawyers and clients are limited when the lawyer and client have “differing interests” in the transaction and when “the client expects the lawyer to exercise professional judgment [in the transaction] for the protection of the client . . .” When these circumstances are present, a lawyer must refrain from entering into the transaction unless the client has consented after full disclosure by the lawyer. The Supreme Court found a client under the rule means not only an existing attorney-client relationship but also a person “who regularly rel[ies] on an attorney for legal services … on an occasional and ongoing basis.”
As these examples demonstrate, attorneys can quickly find themselves in conflict situations. A conflict of interest can occur in any area of law. The best way to avoid a possible conflict of interest from the beginning is to represent only one party. Otherwise, the attorney may be faced with being required to withdraw, or worse, be faced with a bar disciplinary action or a malpractice claim.
Teresa Niederwimmer is vice president – claims at The Bar Plan, where she oversees both lawyers’ professional liability and bond claims. Prior to joining The Bar Plan, Niederwimmer was an associate with Seibel & Eckenrode, defending medical-malpractice actions in Missouri and Illinois state courts and federal courts. She earned her law degree from the University of Missouri School of Law in 1998. She is a member of The Bar Association of Metropolitan St. Louis, the St. Louis County Bar Association, the Women Lawyers’ Association of Greater St. Louis and Phi Alpha Delta Law Fraternity.