Wisconsin Lawyer: Preventing Conflict-of-Interest Obstacles:

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    Preventing Conflict-of-Interest Obstacles

    Although Wisconsin attorneys are rarely disciplined for violating conflict-of-interest rules, representing clients whose interests conflict can result in loss of clients and harm to reputation and thus should be avoided.

    Dean R. Dietrich

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    Question

    Conflicts of interest seem to be a topic of discussion at seminars all the time, yet I do not see many reports of discipline involving conflicts of interest. Is this really something to be concerned about?

    Answer

    Conflicts of interest are very difficult issues that every lawyer must be aware of and pay close attention to. It may be that discipline only arises in the most egregious of situations in which a lawyer has a conflict of interest, but the potential for a lawyer to be disqualified from representing a client because of a conflict of interest is a very real consideration. The accompanying article thoroughly discusses disqualification motions and the steps lawyers should take to avoid being disqualified from representing a client.

    SCR 20:1.7 is the principal professional conduct rule that addresses conflicts of interest. SCR 20:1.7 (a) is simple in its terms but complex in its application. The rule provides as follows:

    (a) Except as provided in par. (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.

    The potential for conflicts of interest under this rule arises both in the setting in which there is direct adversity in the representation of two clients and in the setting in which the interest of the lawyer is affected by some type of conflicting duty owed to l) another client, 2) a former client, 3) a third party, or 4) the lawyer’s personal interests.

    Dean DietrichDean R. Dietrich, Marquette 1977, of Ruder Ware, Wausau, is past chair of the State Bar Professional Ethics Committee.

    Conflicts of interest and related disqualification motions are addressed most frequently in litigation matters, but conflicts of interest are as common and important in nonlitigation types of representation. Although the sanction of a motion to disqualify is not a concern in nonlitigation settings, certainly there is potential for disciplinary action by the Office of Lawyer Regulation and, perhaps more important, for the lawyer’s reputation to be harmed if clients learn about conflicts of interest. Conflicts in nonlitigation settings are much more easily waived than litigation conflicts, but it is often difficult for the lawyer to recognize when he or she should attempt to obtain a waiver.

    In corporate transaction settings, lawyers must be sensitive to conflicts of interest not only as they may relate to another client involved in the transaction but also as they may relate to the interests of another client, even though that client is not a part of the transaction. For example, a lawyer should not represent Client B in a business transaction in which Client B is obtaining the ownership of a major supplier for Client A, who the lawyer already represents, and Client A and Client B directly compete for business. The acquisition of the major supplier by Client B may result in Client A suffering a significant business decline, and therefore, the interests of Client A and Client B are adverse. Even if there is not direct adversity, the lawyer is subject to significant embarrassment if Client A finds out that the lawyer assisted Client B in acquiring ownership of Client A’s major supplier.

    Determining whether an actual conflict of interest (or a direct adversity) exists is not simple and requires the lawyer to think beyond the narrow focus of the corporate transaction so as to identify other parties of interest with whom a conflict of interest could arise. A good conflict-checking system will help lawyers figure out what parties are involved and what interests may exist.

    Avoiding conflicts of interest is an important aspect of client representation. Loyalty to the client is a cornerstone of the client-lawyer relationship and should not be ignored or compromised.




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