Practical Tips for Avoiding Conflicts of Interest

Conflicts of interest are a consistent source of legal malpractice claims. In a study of TLIE’s claims between 1996 and 2001, 16.4% of all claims reflected an allegation of conflict of interest, with 22.5% of all losses and defense costs involving a conflict of interest.

In this Article, we provide some tips to help avoid running afoul of the Texas Disciplinary Rules of Professional Conduct (“Texas Rules”). Before continuing, some readers may like to read our summary of the Texas Rules pertaining to conflicts of interest here.

Implement a formal conflict checking system. This is essential regardless of firm size. There are several software options on the market. Or, you can design your own searchable database in any word processing program. A database is critical as “the faintest ink is more powerful than the strongest memory.” You can find a list of items to consider including in the firm conflict database here.

Don’t act in haste or try to go it alone. When in doubt, contact the State Bar and request their advice.

Watch for the Inadvertent Client. Attorneys try to avoid joint representation problems by agreeing to represent one party and documenting that the other party has been advised to seek independent counsel. Despite this documentation, if the attorney continues to interact with this individual by answering questions, she may have unintentionally established an attorney-client relationship. Remember to never answer any legal questions from the non-client. Instead, advise them to seek independent counsel.

Write the Non-Engagement Letter. When declining representation, it’s advisable to write to the prospective client confirming that the attorney will not be representing him. The letter should confirm that the firm received no confidences (or received only limited confidences) and has returned any documents the prospective client provided.

Don’t assume a waiver is the end all be all. Not to rain on the parade, but disclosure and consent can still fail to protect an attorney from malpractice claims. The dispute may center around whether the lawyer reasonably believed that the representation of each client would not be materially affected by the conflict. Additionally, there are often questions regarding the sufficiency and clarity of the disclosure. And, juries frequently side with clients on the issue of sufficiency and adversity.

Take the Extra Steps When Taking On a Joint Representation. If an attorney can ethically represent multiple parties and believes a joint representation is prudent, she should proceed with care to discuss: (1) the implications of agreeing to a joint representation; (2) how both potential and any actual conflicts will affect the representation; (3) how confidentiality works in a joint representation, and (4) obtain their agreement to sharing confidential and privileged information between or among them (and memorializing the agreement in writing). Additionally, the attorney may consider advising each of them to seek independent outside advice as to whether they should agree to a joint representation.

Recommendations for Engagement Letters:

Identify Precisely Who Is (and who is not the client). Ambiguity about who exactly is represented may arise in a variety of common situations–where only some family members are represented in a family matter; estate matters when the testator or executor is represented, but not the beneficiaries. In these types of situations, it’s advisable to spell out the scope of the attorney-client relationship. Proper identification of the client can help defeat a motion for disqualification or a claim that a prohibited conflict of interest influenced the lawyer’s representation.

Conflict disclosure and consent. While this can be part of a separate writing, and might be necessary at any phase of representation, it is often important at the outset of representation to obtain disclosure and consent to conflicts.

Multiple Clients. If the representation involves multiple clients, it’s advisable that the letter should: (1) address potential adversity between the jointly represented clients; (2) include provisions for the clients’ consent to the joint representation, with the letter to be signed by each of the clients; (3) explain that, unless otherwise agreed, confidential information will be shared among the clients; (4) explain what will happen in the event of future adversity among the clients, including withdrawal.

Termination of the Engagement. Consider adding provisions for establishing when the representation will be deemed to have ended (“unless previously terminated, my firm’s representation will end when my firm sends you a final bill for services in this matter”), and setting forth your firm’s policies on record retention. Establishing an end point for the representation helps to establish the point at which the client becomes a former client for conflicts analysis purposes, as well as when the statute of limitations begins to run.

Get the Client’s Signature. While most engagement letters and conflict waivers are not required to be signed under the Texas Rules, the best practice is to have the client sign. For engagement letters, have procedures in place to: (1) remind the client to return the executed copy; and (2) monitor that any required consents have been obtained prior to the firm commencing work on the matter. If you do not require the client’s signature on the letter, it’s advisable to send a copy via a time-stamped method such as e-mail or fax.

Final Note: These tips can help you avoid some of the more common conflict pitfalls. Should you have a question about a given situation, please review applicable rules and case law. And, contact TLIE if you need assistance regarding a conflict-of-interest claim.

By Lauren Bianchini