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    Wisconsin Lawyer
    September 08, 2010

    Ethics: Determining “Directly Adverse” Representation

    The concept of “directly adverse” applies when addressing a concurrent conflict of interest and when a lawyer is considering whether to ask a client for a waiver of a conflict of interest. Whether these interests are directly adverse highly depends on the nature and circumstances of the different representations. The State Bar’s Ethics Hotline can help you determine if a conflict of interest exists.

    Dean R. Dietrich

    Wisconsin LawyerWisconsin Lawyer
    Vol. 83, No. 9, September 2010

    Question

    I know that determining if one client is directly adverse to another client is an important consideration when assessing if a conflict of interest exists. What does directly adverse mean?

    Answer

    Dean   Dietrich

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

    A December 2005 Wisconsin Lawyer article entitled “Determining Adverse Representation” discussed the concept of directly adverse under the former Rules of Professional Conduct and the then pending (now effective) Rules of Professional Conduct in Wisconsin. Wisconsin SCR 20:1.7 very closely echoes ABA Model Rule 1.7 language except for the requirement in the Wisconsin rule that a written waiver of a conflict must be signed by the client. The concept of directly adverse applies when addressing a concurrent conflict of interest and when a lawyer is considering whether to ask a client for a waiver of a conflict of interest. Thus, the information in the December 2005 article is still germane to analyzing whether an attorney has a conflict of interest when the interests of one client are directly adverse to the interests of another client. It is always good, however, to review the concept of direct adversity to assist lawyers in recognizing whether a conflict exists.

    A recent article from the ALAS Loss Prevention Journal provides guidance to Wisconsin lawyers. In the article “Direct Adversity Under ABA Model Rule 1.7: What Are the Limits?” author Arnold A. Pagniucci stated as follows:

    “The comments to Model Rule 1.7 shed more light on the meaning of ‘direct adversity.’ Comment [6] provides that ‘representation in unrelated matters of clients whose interests are only economically adverse, such as representation of competing enterprises in unrelated litigation,’ is not a directly adverse representation and does not create a conflict. Thus the representation of a company in the negotiation of a contract with a supplier is not directly adverse to a client that is a competitor of that company, even though the contract may have an economic impact on the competitor.

    “So where should a lawyer draw the line between a prohibited representation that is directly adverse and a permitted representation that is only indirectly adverse? The more straightforward examples of direct adversity, in litigation or in a business negotiation, have an element of confrontation or direct communication that helps inform the decision. It is more likely that a representation will be considered to be directly adverse if the lawyer is sitting at a table across from a client in a negotiation, than if the lawyer is not in the room or has no other direct contact or communication with the other client or its lawyer.”

    The concept of directly adverse also is addressed in the comment to the new Model Rule. The comment provides:

    “Loyalty to a current client prohibits undertaking representation directly adverse to that client without that client’s informed consent. 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. The client 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…. 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 would be damaging to the client who is represented in the lawsuit. 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.”

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    The comment goes on to address directly adverse conflicts in nonlitigation matters:

    “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.”

    An ethics opinion from the American Bar Association Committee on Professional Ethics (ABA Formal Opinion 05-434 “Lawyer Retained by Estate to Disinherit Beneficiary that Lawyer Represents on Unrelated Matters”) also addressed the notion of direct adversity. In that opinion, the ABA Committee stated the following:

    “There may be direct adversity even though there is no overt confrontation between the clients, as, for example, where one client seeks the lawyer’s advice as to his legal rights against another client whom the lawyer represents on a wholly unrelated matter. Thus, for example, a lawyer would be precluded by Rule 1.7 (a) from advising a client as to his rights under a contract with another client of the lawyer….”

    Another source is the Restatement of The Law, The Governing Lawyers. This treatise offers the following guidance:

    “‘Adverse’ effect relates to the quality of the representation, not necessarily the quality of the result obtained in a given case. The standard refers to the incentives faced by the lawyer before or during the representation because it often cannot be foretold what the actual result would have been if the representation had been conflict-free. Restatement (Third) of Law: Conflicts of Interest § 121 (2000).

    “c(ii). ‘Materially’ adverse effect. Materiality of a possible conflict is determined by reference to obligations necessarily assumed by the lawyer (see § 16), or assumed by agreement with the client either in the retainer agreement (see § 19) or in the course of the representation (see § 21). An otherwise immaterial conflict could be considered material if, for example, a client had made clear that the client considered the possible conflict a serious and substantial matter. Restatement (Third) of Law: Conflicts of Interest § 121 (2000).

    “e. A subsequent client with interests ‘materially adverse’ to the interests of a former client. A later representation is prohibited if the second client’s interests are materially adverse to those of the former client (see § 121, Comments c(i) (adverseness & c(ii) (materiality)). The scope of a client’s interests is normally determined by the scope of work that the lawyer undertook in the former representation. Thus, a lawyer who undertakes to represent a corporation with respect to the defense of a personal-injury claim involving only issues of causation and damages does not represent the corporation with respect to other interests. The lawyer may limit the scope of representation specifically for the purpose of avoiding a future conflict (see § 16). Similarly, the lawyer may limit the scope of representation of a later client so as to avoid representation substantially related to that undertaken for a previous client. Restatement (Third) of Law: Conflicts of Interest § 132 (2000).

    Conclusion

    The notion of direct adversity is something that lawyers must be aware of and sensitive to when considering conflicts of interest. Perhaps the best guidance is for the lawyer to imagine being in the shoes of one client and how she might react when learning that her lawyer is representing the other client. If that would be a surprise to the client, it is probably time to investigate whether a conflict of interest exists.


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