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Vol. 74, No. 7, July 2001
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Conflicts of interest are inherent part of law practice
Controlling Conflicts of Interest
Reality and rules often diverge when it comes to this thorny ethics and
liability issue.
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Ann
Massie Nelson is a regular contributor to Wisconsin Lawyer and
communications director at Wisconsin Lawyers Mutual Insurance Co.
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by Ann Massie Nelson
INDEPENDENT JUDGMENT IS A core value that distinguishes lawyers from
competitors seeking a share of the professional services market, according
to lawyers debating the multidisciplinary practice issue. Unlike investment
advisers, accountants, or other consultants, lawyers must carefully avoid
or resolve conflicts of interest, in accordance with the Rules of Professional
Conduct for Attorneys (SCR 20).
Realistically, conflicts of interest in law practice are nearly impossible
to avoid. "When I listen to ethics speakers talk about conflicts of interest,
it all seems so clear cut: 'Paper everything and get waivers.' In the
daily grind of answering the phone, getting work out, and collecting fees,
the issue doesn't come out so black and white," says Thomas R. Schumacher,
who practices in the Baldwin office of Bakke Norman S.C.
Besides breaching the ethics rules, conflicts of interest add zest to
otherwise lackluster legal malpractice claims. "A conflict of interest,
in and of itself, is not malpractice. However, a client who perceives
a conflict of interest may question the lawyer's judgment and more closely
scrutinize the legal work," says Sally E. Anderson, claims counsel at
Wisconsin Lawyers Mutual Insurance Co. (WILMIC).
A conflict of interest also can force withdrawal from representation,
forfeiting revenue and prejudicing the client's interests.
Although independent judgment may be a selling point for the profession,
anecdotal evidence suggests the public - and even some lawyers - do not
fully understand the concept. "One attorney accused of negligence recently
testified that he handled the representation, 'except when I had a conflict.
Then my partner did,'" Anderson relates.
Consider the following recommendations from Schumacher and Anderson for
dealing with conflicts of interest.
Recognize Conflicts of Interest
Conflicts of interest rarely present themselves as textbook examples.
Well-meaning attorneys often don't see stealthy conflicts until the representation
progresses past the point at which they can withdraw without harm to one
or more of the parties.
Conflicts of interest occur when:
- The interests of past clients are adverse to present clients' interests.
"My experience is that once you have represented somebody on a matter,
whether it was five months or five years ago, you're still their lawyer,"
Schumacher says.
- Present clients' interests are adverse to those of other present
clients of the firm.
- Multiple clients have a common goal but different interests, for
example, the buyer and seller in a real estate purchase.
- An attorney answers questions asked by a pro se party to the action.
- The firm hires employees from another law firm or merges with a
firm that has represented clients with adverse interests.
- The lawyer stands to gain personally from the outcome of the representation,
other than a standard contingent fee.
- Lawyers or staff have personal or business relationships with clients
or related parties the firm represents.
Determine Whose Interests
You Represent
Who is your client? What are your client's interests? Would your client
agree with your answers? How about the people you don't represent? The
person paying the bill? If these questions sound easy, consider the following
fact situation.
The local banker calls you. Sitting in his office are two parties to
a real estate transaction who have drafted their own contract. The banker
needs the contract put in legal form to take to his loan committee that
afternoon. You prepare the standard form agreement from materials the
banker provided and send it to the banker. The bank collects your fee
at the closing and mails you a check.
A year later, the buyer discovers the seller materially misrepresented
the property and calls you for advice. Who is your client?
"You can't decide after the fact who your client is," Schumacher says.
If you are uncertain, ask a trusted colleague who is not connected with
the representation to review your situation and give you his or her opinion.
Explain Conflicts of Interest
to Clients
You may continue to represent clients - even if clients' interests compete
with other clients' or your own - under two conditions: 1) You reasonably
believe you can do so without harm to the interests of either client,
and 2) each client consents in writing after consultation.
The consultation is your opportunity to fully disclose the conflict of
interest and carefully explain the pros and cons of your continued representation.
Clients must give you their informed consent to permit you to proceed.
You, of course, are the informer, which arguably is a conflict of interest
in its own right. Document this consultation in a letter to each client.
"Many lawyers facing malpractice claims arising from conflicts say they
explained the problem and the client consented to the representation,
but the lawyers failed to put the consultation in writing and get a signed
consent," Anderson explains.
Get a Written Waiver from
All Parties Involved
One client cannot speak for all. If that were the case, you wouldn't
be asking for a waiver. Send a written waiver to each client involved
and ask him or her to sign and return it to you. Carefully script the
waiver to address only the potential conflict of interest. Avoid downplaying
the potential conflict or sugarcoating the results you expect.
"Clients may interpret the waiver as your guarantee that everything will
turn out fine. They believe you wouldn't accept the representation unless
the outcome was going to be positive," Anderson says. "If something goes
awry, they think you must have made a mistake. Even the comment to the
ethics rule cautions attorneys to be mindful that, if the waiver fails,
the result can be additional cost, embarrassment, and recrimination."
A sample letter and waiver appear on the Milwaukee Bar Association's
Web site, www.milwbar.org/formletters/4.PDF.
Withdraw Gracefully
Sometimes, all the signs say "exit." When you must withdraw from representing
either or both parties, try to minimize the resulting disruption. "Our
philosophy is to provide solutions to clients' problems. We create problems
and additional expense for clients when they have to educate another attorney,"
Schumacher explains.
Confirm your withdrawal with a disengagement letter sent by certified
or registered mail. Briefly state the reasons for your withdrawal and
encourage the client to seek other counsel. Return all documents or offer
to send the file to your successor. Avoid giving specific legal advice
for which you may later be held liable.
Develop a Standard Procedure
for Identifying Conflicts of Interest
You won't catch every conflict before it crosses your threshold, but
you can avert many problems by developing - and using - a procedure for
checking for conflicts of interest. Do not rely on your memory, firm billing
records, or the search feature of your word processing software to detect
conflicts of interest.
In developing your procedure, you might:
- Create a form for collecting information from new clients and from
existing clients with new matters. A form provides a convenient and
consistent way to record the names of all parties involved, including
spouses, former spouses, children, children's spouses, employers, partners,
directors and officers, shareholders, employees, insurance companies,
financial institutions, creditors, and government agencies.
- Assign responsibility to one firm member to circulate information
about new clients and new matters. Verify that all members of the firm
and your staff have reviewed the information; don't assume that no response
means no conflicts exist.
- Establish a timeline for checking potential conflicts. Ideally,
you will check for conflicts of interest before you have met with clients,
heard their life story, and inadvertently disqualified your firm from
representing another client.
- Write a model letter for attorneys to use in declining representation
due to conflicts of interest.
- Review the conflicts checking procedure with every person in the
firm to cultivate awareness and understanding.
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