Overview of Conflicts that Confront the Lawyer

By: Cheryl Smith Fisher

Identifying Conflicts of Interest
While this may seem simple, many attorneys get themselves in trouble by not seeing conflicts when they arise. It's hard to say "no" to a paying client, especially a long-term client. It is important, however, to keep in mind that the failure to promptly identify and deal with an incipient conflict between two clients usually results in the loss of two clients; the failure to identify and deal with a conflict between you and your client can result in no fee for work done.

As will be developed further below, those are the two basic types of conflicts. Canon 5 provides that "a lawyer should exercise independent professional judgment on behalf of a client". The conflict between the lawyer's interests and the client's interests is generally dealt with by DR 5-101, 102, 103, 104 and 110, and conflicting interests between the client and others to whom the attorney owes some duty or with whom the lawyer is in relationship with, is dealt with in the remainder of Canon 5.

A simple review of the disciplinary rules in Canon 5 is usually sufficient to place the conflict.

DR 5-101 covers conflicts between the lawyer and the client.

DR 5-101 [1200.20] Refusing Employment When the Interests of the Lawyer May Impair Independent Professional Judgment.

A. Except with the consent of the client after full disclosure, a lawyer shall not accept employment if the exercise of professional judgment on behalf of the client will be or reasonably may be affected by the lawyer's own financial, business, property, or personal interests, unless a disinterested lawyer would believe that the representation of the client will not be adversely affected thereby and the client consents to the representation after full disclosure of the implications of the lawyer's interest.

This is fairly straightforward. A lawyer is prohibited from accepting any employment in which the lawyer's judgment will or may be affected by virtually any of the lawyer's own interests, unless the client consents after full disclosure. An appropriate analysis would be:

1. Does the lawyer have any financial, business, property, or personal matters which will be affected by the matter?
2. Is it at least reasonably possible that these interests will affect the lawyer's judgment?
3. Nonetheless, would a disinterested lawyer believe that the representation of the client would not be affected by the conflict?
4. Will the client agree to have the lawyer represent her even after the lawyer has fully counseled the client on the nature of the conflict and the way it could affect the representation?

DR 5-102 covers the situation where a particular lawyer becomes a fact witness, putting his own reputation on the line for a client.

DR 5-102 [1200.21] Lawyers as Witnesses

A. A lawyer shall not act, or accept employment that contemplates the lawyer's acting, as an advocate before any tribunal if the lawyer knows or it is obvious that the lawyer ought to be called as a witness on behalf of the client, except that the lawyer may act as an advocate and also testify:

1. If the testimony will relate solely to an uncontested issue.
2. If the testimony will relate solely to a matter of formality and there is no reason to believe that substantial evidence will be offered in opposition to the testimony.
3. If the testimony will relate solely to the nature and value of legal services rendered in the case by the lawyer or the lawyer's firm to the client.
4. As to any matter, if disqualification as an advocate would work a substantial hardship on the client because of the distinctive value of the lawyer as counsel in the particular case.

It is probably easiest to examine this by reviewing the four circumstances under which a lawyer can testify:

1. uncontested issues;
2. unopposed matters of formality;
3. nature and value of legal services; or
4. if disqualification would cause the client "substantial hardship".

DR 5-102(C) bars an entire firm from taking a case if any other party may call any lawyer in the firm to give testimony that might harm the client.

C. Neither a lawyer nor the lawyer's firm shall accept employment in contemplated or pending litigation if the lawyer knows or it is obvious that the lawyer or another lawyer in the lawyer's firm may be called as a witness other than on behalf of the client, and it is apparent that the testimony would or might be prejudicial to the client.

This situation, where the lawyer's testimony may be harmful, is much broader than 102 (A). B bars the entire firm, if any lawyer in the firm may (not ought) be called. Section A only applies where the lawyer-witness is serving as an advocate before a tribunal, while B applies to accepting employment in contemplated or pending litigation. Unlike Section A with its four exceptions, Section B has no exceptions.

DR 102 is easy to apply when the conflict caused by the lawyer's being a witness is clear at the outset, but how about when it comes along after employment? DR 5-102 C & D cover that eventuality, and the result is once again mainly influenced by whether or not the testimony is harmful to the client. If it is not harmful, the lawyer should withdraw if it is obvious that she should be called, but the 4 exceptions of 102 (A) apply. If it will be harmful there are no exceptions.

C. If, after undertaking employment in contemplated or pending litigation, a lawyer learns or it is obvious that the lawyer ought to be called as a witness on a significant issue on behalf of the client, the lawyer shall not serve as an advocate on issues of fact before the tribunal, except that the lawyer may continue as an advocate on issues of fact and may testify in the circumstances enumerated in DR 5-102 [1200.21] (B)(1) through (4).

D. If, after undertaking employment in contemplated or pending litigation, a lawyer learns or it is obvious that the lawyer or a lawyer in his or her firm may be called as a witness on a significant issue other than on behalf of the client, the lawyer may continue the representation until it is apparent that the testimony is or may be prejudicial to the client at which point the lawyer and the firm must withdraw from acting as an advocate before the tribunal.

DR5-105 deals with Client/Client conflicts.
When faced with a particular factual situation, there is simply no substitute for examining each section closely. As with other conflict sections, the applicable rules vary depending on whether the conflict arises before or after the representation begins. The essential rule is:

A lawyer shall decline proffered employment if the exercise of independent professional judgment in behalf of a client will be or is likely to be adversely affected by the acceptance of the proffered employment, or if it would be likely to involve the lawyer in representing differing interests, except to the extent permitted under DR 5-105 [1200.24] (C).

Section B deals with the discovery of an actual or likely conflict after representation has begun, and requires that the multiple representation not continue unless the tests of Section C are satisfied.

B. A lawyer shall not continue multiple employment if the exercise of independent professional judgment in behalf of a client will be or is likely to be adversely affected by the lawyer's representation of another client, or if it would be likely to involve the lawyer in representing differing interests, except to the extent permitted under DR 5-105 [1200.24] (C).

Section C permits a conflicted multiple representations to continue only if: 1) a disinterested lawyer would believe that the lawyer could competently represent the interest of each client; and 2) each client consents after full disclosure.

C. In the situations covered by DR 5-105 [1200.24] (A) and (B), a lawyer may represent multiple clients if a disinterested lawyer would believe that the lawyer can competently represent the interest of each and if each consents to the representation after full disclosure of the implications of the simultaneous representation and the advantages and risks involved.

Section D prohibits every lawyer in a firm from accepting or continuing employment if any lawyer is disqualified under DR 5-101(A), DR 5-105, DR 5-108 or DR 9-101 (B). Section E requires a law firm to maintain a conflict checking system.

The down side of violating this provision is harsh. Take a lesson from Weil Gotshal, who represented Leslie Fay's Audit committee, independent accountants and two directors prior to and while they represented the corporation in a Chapter 11 Bankruptcy proceeding. Once the court figured this out, they were removed from all new matters and directed to bring new counsel up to speed without charge. The firm also had to pay about $800,000 in costs and legal fees arising out of the inquiry their conflict caused. In re Leslie Fay Companies, Inc. 175 BR 525 (SDNY 1994).

So let's look at the exceptions. If a reasonable lawyer believes that one lawyer could not adequately represent each client then the conflict is "non-consentable" and the clients' consent cannot be sought. While we usually think of this question in the context of representing multiple defendants or plaintiffs, it also applies when you are representing a client in one matter and not in another. In one case, the court found that a lawyer could not sue a client he was representing on other matters, even with his consent. Sapienza v. New York News, 481 F.Supp. 676, (SDNY1979). Ultimately, each attorney must make the decision of whether he should stay in the cases. Some of the factors to be considered in the context of litigation of different cases are:

• "the existence of any legal or factual argument that is potentially helpful in one action, yet possibly detrimental in the other,"
• "any interest of the lawyer in the adverse party,"
• "any financial interest that the lawyer has with respect to the adverse party, such as, for example, the possibility of future employment by that party."
• "the nature of the litigation,"
• "the type of information to which the lawyer may have had access,"
• "whether the client is in a position to protect his interests or know whether he will be vulnerable to disadvantage as a result of the multiple representation,"
• "the questions in dispute."

"Even if it is obvious at the outset that the lawyer can adequately represent the interests of both clients, "the lawyer must evaluate the situation throughout the course of the litigation." N.Y. County Lawyers' Ass'n Op. 704 (1995). NB. While we usually think of conflict situations arising in the context of litigation, you should keep in mind that conflicts tend to be more complex in transactions than in litigation. In transactions, clients move in and out of the deal, change interests and alliances. DR 5-108 deals with a conflict of interest with a former client. Except for the use of confidences and secrets, which we'll deal with below, consent is required from the former client whenever the lawyer gets involved in representing another person 1) in the same or substantially related matter; and 2) in which that person's interests are materially adverse to the interests of the former client. In order to determine the lawyer's duty, you must first determine if the person in question is a client, former client, or never a client. Under 5-105 a lawyer owes the greatest duty to a current client, the next, under 5-108, to a former client and has no duty to someone who was never a client. It is vitally important to any analysis to decide who is what. This is particularly true because 5-108 is a rule of personal disqualification while 5-105 is a rule of vicarious disqualification and implicates an entire firm. 5-108 can become a rule of vicarious disqualification if a lawyer whose former partners or associates represented the former client cannot show that she did not receive any confidential information. If she can show that she did not receive confidential information, then the person is not her former client and his consent is not required. Kassis v. Teacher's Ins. & Annuity Ass'n, 243 A.D.2d 191 (1st Dept. 1998). Oddly enough, it is even difficult to determine if someone was actually ever a client. Suppose you are stopped while mowing the lawn and asked off-the-cuff legal advice by a neighbor in his dispute with Microsoft? Do you have to turn down the million-dollar retainer offered by Bill Gates the next day? If in the course of your conversation the neighbor disclosed confidential information you may well have to. And yes, life isn't fair. The Lawyer/Client Relationship DR 5-103, Avoiding Acquisition of Interest in Litigation. Section A prohibits a lawyer from acquiring a proprietary interest in a client's case. Attorneys' charging and retaining liens are accepted, as are reasonable contingency agreements in civil cases. Section B is what is left of the historical prohibition against champerty and maintenance, or , "a lawyer shall not advance or guarantee financial assistance to the client." There are exceptions for pro bono cases and for advancing expenses of litigation, so long as the client remains liable. DR 5-104, requires a lawyer to limit his business relationships with a client if they have differing interests and if the client is expecting the lawyer to act like his lawyer, that is exercise professional judgment for the client's protection. The client can consent to the conflict, but would any sensible lawyer put herself in that position? Keep in mind that this section covers loans between a lawyer and a client, investments by a lawyer in a client's business, and investments by both a lawyer and a client in a third person's business. Any lawyer headed into this situation better get a written consent with full disclosure in writing. When Confidentiality Conflicts With Personal Responsibilities While confidentiality has its own Canon, Canon 4, it is impossible to discuss conflicts without noting the effect which confidentiality has on the analysis. Generally, if confidences and secrets have passed between a client and attorney there is simply no way out of a conflict situation. For example, even the relatively narrow scope of protection given to former clients under DR 5-108A becomes much broader when confidences and secrets have been exchanged. The general rule is that secrets (information not generally known which the client does not want disclosed or would embarrass him or is likely to be detrimental to him), and confidences (information which meets the 4 C's test: Confidential Communication between Client and Counsel) may not be disclosed. The only exceptions are those found in the Code, and they are few. A lawyer may use a confidence or secret for the advantage of the lawyer or a third party only with the consent of the client after full disclosure, but even consent is not sufficient if the use will disadvantage the client. DR 4-101(B). Other than the required by law or court order exceptions the only other exceptions are that a lawyer may reveal confidences and secrets to the extent necessary to prevent the commission of a crime and to collect his fee or defend himself and his office from charges of misconduct. And that is all. The Code also permits an attorney to "implicitly" make disclosure when necessary to correct false opinions or representation made previously.

RECENT CASES CONCERNING CONFLICTS, DISQUALIFICATIONS

AND WITHDRAWALS

 

A. Simultaneous RepresentationSummers vs. Port Authority of New York and New Jersey. _____ Misc.3d. ______, N.Y.L.J. 11/3/2005 (Supt. Ct. NY Co. 2004). The trial attorney hired by insurance company to represent insured and who later represented insured's co-defendant permitted to withdraw after insurance company informed him that they would no longer indemnify co-defendant.Franklin High Income Trust vs. APP Global, Ltd., 5 Misc.3d. 1032 (a) (Supt. Ct., NY Co. 2004). Where plaintiff-corporation is managed by third party defendant, attorney's conflict in representing both plaintiff and third party defendant cannot be waived.In re: David D., 6 Misc.3d. 1088(A) (Fam. Ct., Suffolk Co. 2004). Substitution of attorney retained by parents of defendant warranted where parents of perpetrator were also that of his victim.People vs. Jean-Baptiste, ___ Misc.3d. ___, N.Y.L.J. 8/2/2004 (Civ. Ct. Queens Co. 2004). Assigned counsel disqualified where attorney was simultaneously representing a potential prosecution witness in an unrelated criminal matter.Blake vs. Race,_____F. Supp.2d. ____, N.Y.L.J. 1/19/2005 (E.D.N.Y. 2005). Law firm representing co-defendant police officers disqualified from also representing non-party ADA whose testimony might be later required and whose interest in protecting his professional license might vary from defendant's interests.Flaherty vs. Filardi, ___ F.Supp.2d. ___, 2004 WL 1488213 (S.D.N.Y. 2004). Law firm permitted to represent co-defendants in a copyright infringement suit where both defendants chose to "pursue a unified defense".B. Sequential RepresentationBlue Planet Software, Inc. vs. Games Int'l, LLC, 331 F.Supp.2d. 273 (S.D.N.Y. 2004). In an action over the IP rights to the video game Tetris, Plaintiff's attorney disqualified as a result of his prior representation of Nintendo of America, Inc., when attorney had access to confidential records belonging to current plaintiff's predecessor.Hempstead Video vs. Valley Stream, ___F.3d. ___, 2005 WL 1274244, Second Circuit. (1) Second Circuit test to find that "of counsel" relationship not necessarily enough to disqualify lawyer and (2) Plaintiff's single unsolicited telephone call to attorney who later became partner at law firm representing defendants seeking advice about an unrelated proceeding did not warrant disqualification of law firm. C. Moving LawyersPeople vs. McCrone, 12 A.D.3d. 848 (3d Dept. 2004). Defendant who chose to be represented by attorney who disclosed his future employment as ADA was not denied effective assistance of counsel. N.N vs. R.N.,_____ Misc.3d. ___, N.Y.L.J. 9/24/2004 (Sup.Ct., NY Co. 2004). "Chinese wall" would adequately shield new associate at plaintiff's law firm where associate had previously worked for defendant's former counsel and had spent some time performing primarily administrative tasks on behalf of defendant.Edwards vs. Gould Paper Corp. Long Term Disability Plan, 352 F.Supp.2d. 376 (E.D.N.Y. 2005) Attorney and his law firm disqualified from representing plaintiff in an ERISA claim where attorney spent six years defending life and disability insurance companies-including defendant- in actions substantially similar to plaintiff's claim. See also, Lott vs. Morgan Stanley Dean Witter & Co. Long-Term Disability Plan, ___ F.Supp.2d. ___, 2004 WL 2980193 (S.D.N.Y 2004) Compare, Battagliola vs. Nat'l Life Ins. Co., ___ F.Supp.2d ___, 2005 WL 101353 (S.D.N.Y. 2005). Where conflicted attorney joined firm during the last month of discovery, did not work on the case, and could be adequately screened from any future participation, individual attorney was disqualified but law firm allowed to continue representation.D. Lawyers as WitnessesGiannicos vs. Bellevue Hosp. Medical Ctr., ___ Misc.3d. ___, 2005 WL 277311 (Sup. Ct., NY Co. 2005). Though attorney's "observations of client's demeanor, physical characteristics and mental capacity" do not fall under the protection of attorney-client privilege, subpoena to compel such testimony from attorney quashed where plaintiff could obtain such information elsewhere.NYC Medical & Neurodiagnostic, PC vs. Republican Western Ins. Co., 6 Misc.3d. 275 (Civ. Ct. Kings Co. 2004). DR 5-102 does not require the disqualification of a law firm where the testimony of a non-lawyer employee of that law firm is required at trial. U.S. vs. Schlesinger, 335 F.Supp.2d. 379 (E.D.N.Y. 2004). Where government alleges defendant had previously hired attorney to write letters intended "in furtherance of a mail fraud conspiracy", attorney may be a potential witness or have a personal stake in the outcome of the case sufficient to warrant disqualification.U.S. vs. Locascio, ___ F.Supp.2d. ___, 2004 WL 3186298 (E.D.N.Y. 2004). Defense counsel disqualified where his law partner's prior representation of prosecutor's witness would likely necessitate former counsel's testimony as to defendant's good faith reliance on advise of counsel. E. Other Conflicts and DisqualificationsPeople vs. Episnal, 10 A.D.3d. 326 (1st Dept. 2004). Judge erred in discharging assigned defense counsel for not being ready for trial when attorney had already nurtured a relationship with his client and offered his readiness if the matter could be rescheduled.U.S. vs. Yannotti, 358 F.Supp.2d. 289 (S.D.N.Y. 2004). Attorney's: (1) familial connection to his clients' supervisor in a crime family, (2) alleged presence at a shooting incident at issue in the trial, and (3) prior representation of two government witnesses AND co-defendant presented a conflict of interest sufficient to warrant disqualification.

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