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special / Legal Ethics

Conflicts of interest, current clients [Rule 1.7]

NEW RULES OF PROFESSIONAL CONDUCT

On May 10, the California Supreme Court approved a new set of Rule of Professional Conduct. The new rules become effective Nov. 1. Among the new rules is Rule 1.7, Conflict of Interest: Current Clients. This rule makes changes to the rule governing conflicts involving current representations. But don't be alarmed. Most of the changes are both commonsensical and they largely incorporate familiar concepts from California case law.

This article highlights some of the changes but is not comprehensive. Every lawyer is well advised to read Rule 1.7 and its comments and the entirety of the new Rules of Professional Conduct.

Informed written consent required for direct adversity or significant risk of material limitation: The existing conflict rule in California, Rule 3-310, covers conflicts arising from current representations and conflicts arising out of former representations. The new rule separates these distinct circumstances giving rise to conflicts into separate rules. This makes sense because the interests these conflict rules aim to protect are distinct: In current client conflicts the principal ethical duty at issue is a lawyer's duty of loyalty and independent judgment. See new Rule 1.7, Comment 1. Where a conflict arises due to a lawyer's former representation, the ethical duty at issue is usually the duty of confidentiality.

Another difference in the new rules is that Rule 3-310 operates by identifying particular circumstances and requiring informed written consent when those circumstances are present. For example, consent is required to represent joint clients with potential or actual conflicting interests or to take on as a client the adversary of an existing client. Rule 3-310(C). Rule 1.7, by contrast, describes general principles that create conflicts. First, the rule requires informed written consent when a lawyer is directly adverse to a client (more on the meaning of direct adversity below). That change codifies existing case law. Flatt v. Superior Court, 9 Cal. 4th 275 (1994).

In addition, the new rule prohibits a lawyer from representing a client without informed written consent if there is a significant risk that the representation will be materially limited by the lawyer's responsibility or relationship with another client, a former client, a third party or by the lawyer's own interest. Although this part of the rule is new in California, the concept of material limitation is precisely what animates requirements in the existing rules that the lawyer disclose to a client when he or she has a relationship with a witness, a party in the matter, someone else who would likely be substantially affected by the outcome of the matter or has a personal interest in the matter. Rule 3-310(B). The reason the current rule requires such disclosure is because such relationships or interests may create a risk that the lawyer's representation will be materially limited. As a result, the major change here is the shift from disclosure to informed written consent.

And we still have disclosure rules too: Many relationships that required disclosure under the existing conflict rule will fall under the "material limitation" provision of Rule 1.7 and require the attorney to obtain the client's informed written consent. However, relationships with witnesses or parties in the same matter that do not present a significant risk of material limitation must still be disclosed as must certain familial or intimate relationships with another party's lawyer.

This disclosure obligation is a difference from ABA Model Rule 1.7 that could catch lawyers, particularly non-California lawyers, by surprise.

Additional changes in the new rule: Rule 1.7(d) identifies three circumstances in which representation is simply prohibited. First, the lawyer may not take on a representation identified in Rule 1.7 unless the lawyer reasonably believes he or she will be able to provide competent and diligent representation. Second, the lawyer may not take on a representation that is prohibited by law. Third, the lawyer may not take on a representation that involves asserting a claim on behalf of one client against another client in the same litigation or other proceeding before a tribunal. That concept that direct adversity in the same proceeding is unconsentable exists in the current rules as a comment and in California case law; it has now become a part of the rule.

The comments to Rule 1.7 also bear some discussion.

Defining direct adversity: Comment 1 defines direct adversity, the key concept in Rule 1.7(a). In addition to the most obvious example, representing a client adverse to another client in litigation or a transaction, the comment notes that "direct adversity" may arise when a lawyer represents more than one client in a matter where those clients' interests actually conflict, or when a lawyer represents client A adverse to B and then accepts B as a client in a separate matter adverse to C. Indirect adversity will not require consent under 1.7(a), however the lawyer must also consider whether the indirect adversity creates a significant risk of a material limitation under 1.7(b). An example of indirect adversity is a lawyer representing an insurance company and at the same time pursuing a lawsuit against a party who is an insured of that insurance company. See ABA Op. 05-435.

Positional conflict does not require consent: Comment 6 provides that ordinarily taking inconsistent positions in different cases on behalf of different clients constitutes neither direct adversity nor a material limitation conflict requiring consent. This is an important note given the addition of the more flexible "material limitation" conflict to our rules. However, the comment also notes that under some circumstances, taking different positions might materially limit the lawyer's advocacy. For example, advocating for a result favoring client A will create a precedent likely to seriously weaken the position taken on behalf of client B may create a significant risk of material limitation on the lawyer's representation. For example, in that scenario, there could be a risk that the lawyer might not raise certain arguments or might raise but not fight as forcefully for a result desired by client A if that result would negatively impact client B.

Advance consent not precluded: Comment 9 notes that the rule does not preclude informed written consent to a future conflict and identifies factors that will contribute to the effectiveness of an advance waiver. These include the fact that the waiver provides a specific explanation of the conflict and likely consequences and the sophistication of the client giving consent.

Material chance may trigger new disclosure and consent: Comment 10 provides that a material change in circumstances may trigger a requirement to make new disclosures and where applicable obtain new consent. The comment further provides that in some circumstances, the lawyer may have the option to withdraw from one or more representations to cure the conflict. Ordinarily, a lawyer cannot cure a conflict by withdrawing. The comment does not describe the type of circumstances that would permit withdrawal to cure a conflict, leaving that to the courts. Some courts have recognized the concept of allowing lawyers to withdraw to cure conflicts that are "thrust-upon" a lawyer by, for instance, the actions of others. See, e.g., Truck Ins. Exchange v. Fireman's Fund Ins. Co., 6 Cal. App. 4th 1050 (1992).

#297

Ben Armistead


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