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The Truth About Conflict Waivers

Conflicts

The term “conflict waiver” enters the vocabulary of many lawyers very early in their career.  There is often a form for such waivers developed by other lawyers in the firm, or gleaned from CLE presentations or form books.  Unfortunately, conflict waivers are not well understood by much of the profession.  Neither the disciplinary rules nor the Restatement of Law Governing Lawyers ever use the term “conflict waiver.”  This article will discuss both the theory and effect of conflict documentation, and suggest best strategies for drafting such documentation.

Disclosure and Consent:  What is Required

A conflict is defined by the Restatement Section 121 as a substantial risk that representation of the client would be affected by the lawyer’s own interests or the lawyer’s duty to third parties, including other clients.  This is a fair summary of the definition found in most state disciplinary rules.  Both the disciplinary rules and the Restatement of Law Governing Lawyers indicate that lawyers must disclose the risks associated with conflict issues and get client consent to proceed in the face of such risks.  The lawyer must also reasonably believe that he or she will be able to provide adequate representation to all clients given the risks, or the representation cannot proceed. See Restatement Section 122(2) and Texas Rule 1.06(c)(1).

Disclosure and consent, a “conflict waiver,” is not effective if the risks of representation are not adequately disclosed to all of the clients, the clients do not consent, or the lawyer does not reasonably believe that adequate of representation of the client can occur.

The Effect of Informed Consent

Assuming the lawyer has made adequate disclosure and has obtained client consent to representation, the lawyer may proceed with representation until such time as the lawyer becomes aware of additional facts that impact the risks.  Restatement Section 122, Comment f.  At that point, the lawyer must reanalyze the conflict.  If the lawyer can reasonably believe he can continue to provide adequate representation to both clients, she or he must make appropriate revised disclosures and obtain additional consent from the client.

If the lawyer cannot form a reasonable belief that she or he can provide adequate representation at this point, he or she must withdraw from all of the conflicting representation, with the possible exception of accommodation clients that will be discussed below.

Regardless of whether new circumstances have arisen, a client is permitted to withdraw consent to the lawyer’s continued involvement.  Withdrawal of consent is considered justified, despite previous informed consent, and may require the lawyer to withdraw in the following situations:

  1. A material change in the factual basis of the client’s original consent;
  2. The lawyer’s failure to represent the client loyally; or
  3. A co-client materially breaches an implied term of consent, such as sharing information with third parties.

A lawyer cannot simply choose to represent one client and drop the other if the situation has deteriorated to the point where the lawyer can no longer provide adequate representation to both clients.  In such situations, the lawyer will have confidential information related to the representation that helps one client against the other. Such a situation can also result in a breach of loyalty claim by the client.  Restatement Section 132, comment c.

The Reality of Waiver Effects

Disclosure and consent is part of the lawyer’s ongoing ethical duties to clients, rather than a liability to be waived.

Throughout representation of clients, one key for judging the lawyer’s behavior is whether the lawyer reasonably believed that they could adequately represent the client.  While the lawyer is not required to know facts that they could not know, in legal malpractice cases an expert witness hired by the plaintiff will evaluate the lawyer’s conduct.  An expert can second guess whether the lawyer should have realized that the lawyer could not adequately represent the client in the face of the conflict situation, or should have realized the need to investigate the matter further.  The expert gets to voice their opinion with the benefit of hindsight. A lay jury, unlikely to include lawyers, then gets to judge the lawyer’s action based on the expert testimony.

Because disclosure and consent is an ethical requirement, a conflict waiver is quite unlike other waivers that a lawyer encounters.  A conflict waiver does not insulate the lawyer from a malpractice or breach of fiduciary duty claim, because advance waiver of such claims is generally prohibited.  Restatement Section 54(2), Texas Rule 1.08(g).  A conflict waiver affords no protection if the disclosure of risks or consent was incomplete. A conflict waiver does not mean that the lawyer can forget about any new facts that come to light or changes of circumstances during representation that impact the risks of continued representation. What matters ethically, and thus for liability purposes, is whether the lawyer’s disclosure was adequate, and the lawyer was able to represent the client effectively despite the conflict issues.

One might say that there is no statute of frauds for a conflict waiver.  The recitation of facts and disclosure of risks in the document is not binding on the client.  If the lawyer has omitted material facts or risks, the waiver will not be binding.  Oral explanations of the waiver and its affect may serve to invalidate the informed consent of the client.  It is not uncommon for lawyers to make light of conflict waivers, or to provide undue reassurance to a client when questioned about the impact of a conflict waiver.

Exceptions 

There are two significant exceptions to the analysis given above.

Under both the Restatement and Texas law, accommodation clients may fall in a special territory.  An accommodation client is one that the lawyer anticipates will be represented only once, in connection with representation of a long term client of the lawyer.  The accommodation client must realize that the other client is the primary client of the lawyer.  With an accommodation client, the lawyer must still determine that they reasonably believe that they can represent the interests of both clients.  If the lawyer comes to the conclusion they cannot represent the interests of both, they can withdraw and continue to represent only the original, primary client.

From a malpractice standpoint, reliance on accommodation client status is dangerous for lawyers.  The motivation of the lawyer is admitted: serving the primary client rather than the accommodation client.  Experts can point to this admitted motivation as a reason that the lawyer did not come to a reasonable belief they could adequately represent both clients. Any documentation noting the risk to the accommodation client serves to emphasize that the lawyer sided with the primary client.

Advance conflict waivers for future conflicts are an exception to the analysis offered in the previous section of this article.  To the extent that the disciplinary rules allow such waivers, they are only effective if the client is sophisticated. Restatement Section 122, Comment d. Such waivers should only be considered when representing large corporate clients with general counsel in relatively minor matters where corporate secrets or fundamental financial stability are unlike to be affected by the representation. For example, a firm might seek such a waiver to represent a national corporation on collection matters when they are general counsel to a competitor of the national corporation.

Rules for Conflict Disclosures and Consents

Given this analysis, we suggest the following rules for developing conflict disclosure and consent documentation.  To aid you in drafting disclosures and consents, we are providing a form to consider. This form is based on one suggested by the Michigan Bar Association. All forms should be modified for individual situations as necessary, and with disclosures and consents the modifications often need to be significant.

  1. Put it in writing. The ABA Model Rules require written disclosure and consent in writing.  Even though the Texas rules don’t require a writing, it is a good idea.  In a malpractice claim your client may remember what you said differently than you do, and the jury gets to decide who is telling the truth.
  2. Gather information.  Make sure you have all the information you need to analyze conflict issues.  Checks of your law firm’s conflict database are important, as is the notification of and feedback from other members of the law firm about potential difficulties.  Additional research and questioning of clients may be required to fully understand the potential risks of the representation to the clients.
  3. Analyze. Make sure that you can adequately represent the interests of all the clients involved. While drawing bright lines is difficult, two situations are clearly addressed by the disciplinary rules:
  • Lawyer cannot represent adverse parties in litigation
  • Lawyers cannot represent parties when law forbids multiple representation, such as two capital murder suspects in the same murder.
  1. Avoid adverse representation of an existing client. Do not represent one existing client adversely to another, even if the cases are not substantially related.  The Restatement labels this a breach of duty of loyalty to which civil liability may attach, even though the Texas disciplinary rules label it as merely something to avoid.
  2. Disclose risks and obtain consent. Specifically disclose the risks of the multiple representation.  Too often, lawyers use very vague wording about the risks, or omit this step entirely.  These risks fall in the following general categories, and perhaps others:
  • Contingent, optional, and tactical considerations
  • Courses of action that would be foreclosed or made more difficult by the conflict
  • Effect on confidentiality of information
  • Effect of any client withdrawing consent to the conflict, including the possibility that the lawyer might be unable to represent any of the clients
  1. Include all necessary clients. Make disclosures to all of the clients involved.  Lawyers sometimes focus only on a new client, never obtaining consent from an existing client.
  2. Monitor for changes.  Re-evaluate the situation as the representation progresses.  Avoid thinking that conflict analysis is over after initial conflict documentation is finished.
  3. React to changes. Make new conflict disclosures and obtain new consents if the situation materially changes, provided that you still reasonably believe you can represent the client.
  4. Act consistently. Avoid words and actions that make disclosure and consent seem like minor aspects of the representation.
  5. Reconsider whether you should walk away. Conflict waivers are often not worth the effort.  The best course of action in many cases is to decline the representation rather than try to paper around it.