What is a conflict of interest?
A conflict of interest occurs when a lawyer provides legal advice to a person or entity that has interests that are adverse to another current or former client of the lawyer. More specifically, a conflict of interest is present where the circumstances of a particular case present a substantial risk that the lawyer’s representation of the client would be materially and adversely affected by the lawyer’s own interests or by the lawyer’s duties to another current client, a former client, or a third person. Recent rule changes also require a lawyer to avoid conflicts of interest relating to potential clients.
Conflicts of interest can arise in a number of circumstances, which include but are not limited to:
- Concurrent representation of clients with adverse interests: Occurs when a lawyer simultaneously represents two clients with adverse interests; or
- Successive representation of clients with adverse interests: Occurs when a lawyer successively represents a current client with adverse interests to a former client; or
- Conflicts resulting from lawyer’s receipt of confidential information outside attorney-client relationship: Occurs when an attorney receives confidential information outside an attorney-client relationship concerning a party who is adverse to the attorney’s current client in a particular matter; or
- Conflicts resulting from lawyer’s relationships with non-clients: May occur when a lawyer’s relationship with a client is adverse to his/her relationship with a person or entity where there is an expectation that the attorney owes a duty of fidelity to the latter.
Attorneys are required by the Rules of Professional Conducti to ensure they do not enter a situation in which there is a conflict of interest. Best practices are for every law firm (from the solo firm to the large firm with dozens or hundreds of attorneys) to establish and maintain a standard procedure to check for conflicts of interest. The ABA Model Rules applicable to the avoiding conflicts of interest include Rules 1.6, 1.7, 1.8, 1.10, 1.11, and 1.18 (“Model Conflict Rules”).
The rules prohibiting conflicts of interest vary from state to state. Most states have adopted each of the Model Conflict Rules. ii Other states have adopted most of the Model Conflict Rules but not all of them. Each state’s bar association enforces its rules through disciplinary proceedings, and if a lawyer is found to have violated a conflict of interest rule he or she may be privately reprimanded, publically admonished, placed on probation, suspended, or even disbarred. iii
Each of the nation’s major malpractice insurance carriers require attorneys seeking malpractice insurance to complete an application process in which the carrier requires the applicant lawyer to verify, usually under penalty of perjury, that the attorney utilizes some method to avoid conflicts of interest. An ABA Law Practice Journal article recently noted the frequency of conflict of interest malpractice claims:
Conflicts of interest [malpractice] claims deserve special attention…This step-by-step guide discusses how an attorney should go about ensuring compliance with the Rules of Professional Conduct in his or her jurisdiction to avoid conflicts of interest. This article focuses on compliance with Model Rules 1.6, 1.10 and 1.18 as these rules deal with the common situation where a potential client contacts an attorney and the attorney must make a fast, informed decision as to whether a conflict of interest may exist.
There are basically two types of conflicts malpractice claims, the first of which arises when conflicts occur between multiple current or past clients represented by the same lawyer or firm. The second type arises when a lawyer has a personal interest in the matter. Since they regularly act for multiple clients or entities, real estate and corporate commercial lawyers experience more conflicts claims than other areas of law. Litigators, however, seem better able to recognize conflicts and have a relatively lower rate of conflicts claims. To avoid conflicts of interest, make sure your firm has procedures in place for checking conflicts at the earliest possible point in time. This should, ideally, involve an electronic system that includes not only client names, but also individuals and entities related to the client, including corporations and affiliates, officers and directors, partners, trade names and the like. This will flag more real and potential conflicts.
Unfortunately, even when firm systems do catch conflicts, decisions are sometimes made to overlook those conflicts, either to please the client (at the client’s request to avoid the extra fees) or to keep the matter for the firm because of the fees it will generate. But, of course, these decisions often come back to haunt firms and can lead to complex and costly malpractice claims.
Note, too, that another hot button issue is a rise in conflicts relating to the lateral hirings of partners and associates. Unfortunately, such conflicts are often addressed very late in the process, when the transfer is all but done. At this late stage, all have such a strong desire to complete the transfer that potential conflicts are often ignored or overlooked. But beware: An all-too-frequent result is that the firm will have to part with two clients—an existing client and one that came to the firm with the new lawyer—and in this case, the firm faces the potential of two malpractice claims. iv
Step One – Research Your Options
There are a number of options available to lawyers to establish a procedure to check for conflicts of interest. The lawyer or firm should have an effective means to record and categorize contacts with potential clients and those clients that hire the firm.
The Paper Option. Surprisingly, some lawyers utilize paper index cards or spreadsheets and handwrite the applicable information of a client or potential client. If such a list is created, the index cards or spreadsheet should be organized by the last name of the client or potential client. This archaic method should only be used as a last resort as it is extremely time consuming and difficult to ensure accuracy.
Computer Programs. Many of the programs available to help lawyers avoid conflicts of interest are traditional “software” programs that must be installed on a computer or laptop to function. Usually, these systems are older but can be effective. There may be downsides to these types of programs. Most of these installed programs only allow for a limited number of users on a network that must be installed on each user’s computer. Plus, the program cost depends on the number of users. These programs have a tendency to become outdated quickly and typically need to be updated on an annual basis. Additionally, the installation of a network system is often too difficult for an attorney to setup and maintain.
Creating Your Own. Attorneys often develop their own program to help them identify conflicts of interest. Creating a conflict avoidance program has its benefits and drawbacks. The primary benefit is that there is usually no initial cost. Lawyers often create programs in Microsoft Office products like Word, Excel, and Access. However, the opportunity cost (i.e. the time) to create such a program can be significant. Additionally, these methods tend to be far less effective than programs designed by professionals and conflicts of interest that should have been identified are often missed.
All-In-One Systems. A significant number of conflict check systems available to buy are included in broad firm-management programs that include the capability to track a lawyer’s time, billing, calendaring, and manage tasks. These programs can be wonderful, but expensive. Often the portion of the all-in-one system designated to help identify conflicts of interest is an afterthought and is not truly effective for a variety of reasons, including most attorneys and staff members of a given firm may not be allowed access to the system.
Cloud-Based Systems. The newest, most useful and simplest tools to avoid conflicts of interest are systems that do not need to be installed on a computer and have been created solely for the purpose of assisting a lawyer or firm identify conflicts of interest. There are very few cloud-based systems designed only to help attorney’s record, track and check for conflicts of interest.
Step Two – Select a Program or Create Your Own
There are a number of factors to consider when selecting a conflict check program or creating a program for yourself. Consider asking yourself the following questions before you create or buy a program:
- Does the conflict checking method accurately and intuitively check for conflicts?
- Does the method comply with your state’s professional rules of conduct for checking for conflicts?
- Is the client conflict checking method affordable?
- Is the program time efficient?
- Does the client conflict checking program work from anywhere at any time?
- Can all the attorneys and staff in the firm use the system at one time?
- Does the program allow a lateral moving attorney to input his or her conflict database into the system?
- Can the system provide customizable reports?
- Does the program work quickly when new clients call?
- Can my old data be easily imported into the client conflict check system?
If you have the capability to create a system that accomplishes all these tasks, do it. If you purchase a third party system to help you identify conflicts of interest, make sure the program meets the above-requirements at an affordable cost. Be careful of the fine print when looking at different options. Many of the programs available provide a “per user” license fee, which can add up. While a new law firm may only employ one or two attorneys at the inception of the firm, over time the firm will hopefully grow larger. The conflict check system should be able to adapt to additional users over time at an affordable cost.
Step Three – Allow Access to the System for Everyone in the Firm
Every lawyer in a law firm is “imputed” the knowledge of all the other partners and associate attorneys in the firm. v Therefore it is essential that the entire firm have access to the client conflict check system and that all attorneys input all relevant information concerning potential clients they speak with and the actual clients they represent. Ideally, the client conflict check system allows the firm’s support staff (including paralegals, legal secretaries and clerks) access to the program to input relevant information about a potential client to ensure the attorney’s compliance.
To avoid problems that occur when an attorney makes a lateral move from one firm to another firm, the attorney’s complete conflict of interest history should be uploaded, if possible, into the new firm’s database.
Step Four – Use the Program
Establishing a conflict of interest software solution and ensuring all attorneys in a firm have access to the software is only the beginning. The best practice to check for conflicts is to research a potential conflict before the attorney even speaks to a potential client and especially before anyone in the firm begins to discuss details of the client’s matter. This is accomplished by adhering to a procedure of consulting the firm’s conflict check system immediately upon receiving enough details from a potential client to conduct the check for a conflict of interest. This is usually satisfied by obtaining the full name of the potential client and the full names of any parties or entities opposing the client, any attorneys involved, and any experts involved in the matter.
Step Five – Ensure Accuracy of Information
Accuracy is key in utilizing any system for conflicts checks. If incorrect information is input into the program then the results are useless. Double check that the spelling of client names, other interested persons and other relevant information are accurate. Utilizing powerful and modern software to identify conflicts is essential to identifying a potential conflict of interest; however, the program is only as good as the data that is input into the system. Thus, the attorney should still analyze the details of any matter to verify if an actual conflict exists.
The firm’s entire staff should be familiar with the conflict check system utilized by the firm and should be tasked with utilizing the system when being contacted or contacting new clients. The firm’s conflict check system should be reliable and enable concurrent use by multiple users to ensure a failure to identify a conflict is not caused by an inaccessible conflict checking system.
The firm’s conflict check system should be able to store enough information about the client and the client’s matter to enable the lawyer to quickly and easily evaluate whether or not there is a potential or actual conflict. The type and amount of information necessary will vary by area of practice and case by case; therefore, it is essential the firms’ conflict check system is flexible enough to accommodate each case’s needs. The members of a firm and its staff should be provided an outline of what information should be input into the system for every case. It is also essential that the attorney or the firm’s staff consistently input the data necessary for an efficient evaluation of potential conflicts.
By Matthew Mesnik, Esq. and David Wilkinson, Esq.
David Wilkinson is a principal at Wilkinson & Finkbeiner, LLP, a family law firm located in California and Massachusetts, and Matthew Mesnik is a Senior Associate Attorney at the same firm. Due to the absence of an affordable, efficient program to identify conflicts of interest the authors developed their own system (www.clientconflictcheck.com).
iii Findlaw (Thomsen Reuters) provides a complete list of each state’s lawyer’s disciplinary agency. (See http://hirealawyer.findlaw.com/choosing-the-right-lawyer/researching-attorney-discipline.html).
iv Pinnington, Dan. Law Practice, July/Aug. 2010, Vol. 36, No. 4, pg. 29.
v ABA Model Rule 1.10.