Conflicts of interest are the “silent killers” of legal malpractice. A 1999 ABA study of legal malpractice claims indicates that conflict of interest was the primary alleged error in only 5.12% of legal malpractice claims. TLIE’s statistics indicate, however, that conflicts often are alleged in conjunction with other errors. 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 involved a conflict of interest.
Conflicts of interest are often treated harshly by the judicial system. Trial advocates for clients frame conflicts as issues of loyalty, and juries can react severely to perceived betrayal. As a result, conflict claims can exacerbate any small mistakes, or even close calls, made by an attorney.
This article makes basic practical suggestions regarding avoidance of conflicts of interests through systematic practices. While following these practices cannot guarantee avoidance of conflicts, they can increase awareness of conflicts and minimize their impact.
Formulate policies first
Before a firm creates conflicts of interest avoidance procedures, the firm’s goals in creating the system should be considered. Almost every lawyer and firm wants to avoid the fallout from grievances and malpractice claims, but other considerations are important for a workable system. Lawyers want to have a conflict system that is not too burdensome or expensive, and want to be able to give potential clients quick responses to requests for representation. “Conflicts” to be addressed by a system may well exceed the scope considered in analyzing liability exposure and disciplinary risk. A firm may wish to avoid certain types of representation to concentrate on a particular kind of expertise. A system designed to help avoid conflicts can serve other firm goals such as avoiding risky types of practice and clients who are likely to be dissatisfied.
Develop Necessary Information
One of the basic purposes of a good conflict system is to provide information sufficient to analyze whether a potential conflict exists. Analyzing potential conflicts of interests requires knowing the relationships among parties. The information needed to identify relevant relationships can come from several sources.
Client knowledge. An interview of the client prior to acceptance of a matter can establish critical information regarding potential conflicts. Such information includes the exact name of the potential client and the relationships the client has that are relevant to analyzing conflicts and potential conflicts. In order to avoid later conflicts based on the potential client’s disclosure of privileged information, the information obtained for initial conflict checks should be the minimal information necessary. In some cases, client knowledge may be incorrect and should be verified early in representation. As errors are discovered, potential conflicts need to be re-examined. As a matter develops, new relationships may need to be analyzed.
Firm knowledge. Firm knowledge can come from a variety of sources within the firm, including files concerning previous representations and the general knowledge of firm members. Such knowledge can be made more accessible through searches of databases maintained by a law firm and memoranda circulated among firm members prior to accepting a new matter.
Critical to the establishment of an appropriate firm database are rules designed to assure that information is entered into the database at appropriate times and to assure that reports of relationships are prepared. One effective method to enforce conflict checking is for the accounting department to prevent billing on a matter until database entries are made and reports reviewed. This method should not, however, mean that conflict checking should be considered an accounting task. In a firm audit, TLIE discovered that an insured used its accounting system to check conflicts. Many types of relationships that could result in conflicts were not entered. Rather than entering all adversaries in litigation matters, “et. al” was entered. In transactional matters, adverse parties were not entered at all.
Attorneys often think narrowly about the type of information that can assist in avoiding conflicts. Most firms understand that the database should include clients and adversaries, but fail to understand the importance of other relationships. For example, a lawyer’s own investments could create a serious conflict of interest with a new client. It could be embarrassing, and possibly expensive, for a firm to undertake representation adverse to a business interest owned by another firm member. The inset below provides a list of types of relationships that a firm should consider including in its database.
Items to consider including in firm conflict databases
- attorneys and staff of the firm
- prior law firms of attorneys and staff of the firm
- business and organizational interests of attorneys and staff
- clients
- clients of attorneys and staff at prior law firms
- persons declined as clients
- adverse parties
- co-plaintiffs or co-defendants
- witnesses and experts
- persons named in wills and transaction documents
- subject matter of representation
- known allies and competitors of either clients or adverse parties
- known relatives of anyone listed in the database
- corporate parents or subsidiaries of entities in the database
- trade names of entities in the database
- directors and officers of entities in the database
- partners or known shareholders of entities in the database
- third parties financing representation, such as insurers
- known employees of entities in the database
- attorneys for any party in the database
Conflict database software should support flexible input and reporting. Soundex and wildcard search options help avoid errors in spelling. The software should allow creation of categories considered critical by the firm, not just client and adversaries. Case management software often provides powerful conflict database searching and reporting capabilities. Larger firms may need to consider specialized conflict software capable of integrating case management information utilized in various sections of the firm.
While a solo practitioner has little need for a new matter memoranda, having a database is still critical. Reliance on memory alone is foolhardy. Even an attorney with a perfect memory today may not have such a perfect memory tomorrow. Also, if a solo later joins a firm, having a database of prior clients will make conflict checking processes much easier.
New matter memoranda provide a way to tap information about relevant relationships that has not been entered into a firm database. As with the client knowledge gained, the new matter memoranda should require as little confidential information as possible, but provide firm personnel with enough information about proposed representation to allow an initial analysis of potential conflicts. As new information is obtained about other relationships, the names of the related parties should be circulated as well.
Deadlines for review of new matter memoranda should be considered. Some sources recommend review of new matter sheets by all firm personnel within 24 hours, but far more common is a policy which assumes no conflict if a response is not sent within a short period of time. Unfortunately, timely attention to new matter memoranda is hard to achieve.
Extrinsic knowledge. In certain circumstances, the risk posed by conflicts of interest may justify research regarding relationships between a client and other persons related to the firm. A representative of a large public corporation may be unaware of critical relationships that can affect conflict analysis, such as the identity of subsidiaries and constituents. Many firms are now conducting some level of extrinsic research on their clients prior to accepting representation.
Analyze and Respond to Information
A proper conflict of interest system should address how attorneys should respond to potential conflicts of interest. Depending on the nature of the potential conflict, further analysis by a conflicts committee or ethics counsel may be appropriate. For potential conflicts in matters that the firm decides to accept, written disclosure to the client and consent from the client should be required. Disclosure and consent, however, should be viewed with a skeptical eye.
Too often, lawyers view the ethics rules as simply another legal issue that they can toss aside with well reasoned legal arguments accompanied by disclosure and consent. Unfortunately, a legalistic approach often fails to consider the possible role of a lay jury in analyzing the conflict. Being on the cutting edge of conflict analysis is a dangerous place to be. Even meticulous written disclosure and consent may be judged by juries in hindsight, and few attorneys can fathom every problem that might arise.
The disciplinary rules do not always require written disclosure and consent. In legal malpractice claims, without a written disclosure and consent a lawyer may find that the client recalls that no disclosure was made or consent obtained. Juries often get to decide such fact issues, and often find in favor of clients.
Disclosure to the client should include the advantages and disadvantages of multiple representation. One of the most common reasons for entering into multiple representation is frequently ignored in disclosures, to the detriment of attorneys. Multiple representation reduces legal fees. Disclosures should indicate to the client that saving legal fees is an advantage, but should also indicate that if the attorney must later withdraw when a potential conflict becomes untenable that the legal fees incurred could be substantial.
When a firm member believes a conflict has become untenable, procedures should give the attorney support for taking appropriate actions. Review by a conflict committee or ethics counsel should be mandatory. Withdrawal from the case should be undertaken as soon as possible after identification of an untenable conflict.
Feedback and Education
Conflicts systems are useless if firm personnel do not understand and use the system. It is critical that firms educate lawyers and assistants on how to use the system and why it is important. When errors are detected in the system, the firm must have clear to bring errors to the attention of management. Lawyers should be educated on new developments in conflict issues, and changes in systems may be necessary as conflict law changes.