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.
Wisconsin Lawyer