Every lawyer, whether engaged in litigation or transactional work, must have a working knowledge of the law relating to conflicts of interest to properly deal with conflicts situations when they arise, as they very likely will. Failure to have such an understanding can result in disqualification, imposition of a civil sanction, fee disgorgement, malpractice liability, professional discipline, not to mention loss of business.
Although conflict rules vary depending on the jurisdiction, at bottom they address similar concerns. A fair, one sentence overview is set forth in S121 of the Restatement (Third) of the Law Governing Lawyers (2000):
A conflict of interest is involved if there is a substantial risk that the lawyer's representation of a 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.
Some Important Concepts
Conflicts rules generally implicate two fundamental ethical duties owed to clients: the duty of loyalty and the duty to maintain confidentiality. A lawyer whose loyalty to client "A" is in any way compromised by his relationship with client "B," or on account of some other external factor, has a conflict which must be addressed. Moreover, a lawyer cannot adequately resolve a conflict if to do so would involve the unauthorized revelation of confidential information obtained from another client, or the unauthorized use of such information adversely to the other client.
While many conflicts are consentable, whether a conflict may be waived depends on several factors - principally, whether there has been full disclosure and informed consent, but also the nature of the conflict itself, the timing of the request for a waiver, and whether the conflict involves a current or former client. Obviously, an attempt to procure the waiver of a nonconsentable conflict will likely fail, and New York is governed by an objective (disinterested lawyer) standard in regard to whether a conflict is amenable to waiver.1
"Imputed disqualification" requires the disqualification of an entire law firm or law department because of a conflict involving one of its lawyers.2 This rule not only applies to law firm partners and associates: it also encompasses lawyers practicing in a firm "of counsel," as well as "affiliated" firms.3
"Screening," or the creation of an ethical wall, is a law firm invention employed to ameliorate the harsh effect of an individual lawyer's conflict imputed to an entire firm, and allows a law firm to continue with a representation. Unlike many jurisdictions, courts in New York have not approved "screening"4 except in the context of "revolving door" conflicts where government lawyers are moving to private practice or vice versa.5
Finally, all law firms and practicing lawyers in New York must now maintain an effective conflicts checking system. The failure to do so in and of itself violates the disciplinary rules.6
Types of Conflicts
There are essentially three broad categories of conflict of interest: personal interest conflicts; multiple client conflicts; and third party conflicts. An understanding of the different types of conflicts will greatly assist in their identification and proper resolution.
This article is reprinted with permission from the September 30, 2004, issue of The New York Law Journal.
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This publication has been prepared by Hinshaw & Culbertson LLP to provide information on recent legal developments of interest to our readers. It is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. |