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Do You Have Adequate Procedures for Identifying and Dealing with
Conflicts of Interest?
by Thomas P. Sukowicz
(County Bar Update, April 2005, Vol. 25, No. 4)
The conflicts most likely to lead to litigation with clients, loss of business, or
even professional discipline include those:
-- where the new client is adverse to a current client in the same matter;
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adverse to a current client in the same matter;
-- where the new client is adverse to another current client in a separate matter;
-- where the new client is adverse to a former client in the same or a substantially
related matter;
Within the context of these prohibitions, most difficulties with clients seem to
arise out of one of the following situations:
-- when there is a significant disparity in the relative merits of the clients' cases;
-- when the clients have different goals, ideas, or attitudes toward the legal
matter at hand; or
In each of these situations, it would be easy for one client to perceive that the
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lawyer favored the other client at the first client's expense. Thus, a complaint,
claim, or bar grievance is more likely to occur when one or more of these factors
is present.
Conflicts of interest are best dealt with at the outset of the engagement rather
than at some later point during the engagement. If an actual or potential conflict
can be identified and dealt with at the beginning by obtaining the client's
informed consent to the representation notwithstanding the conflict, or by
declining to accept the engagement, the client is less likely to feel betrayed by the
lawyer and less likely to make a claim.
To identify and deal with conflicts effectively, the following policies and
procedures are recommended.
General Policy
As conflicts of interest pose serious threats to the firm, the firm should have a
written policy that no client or matter will be accepted or handled by the firm or
its attorneys without a thorough check for conflicts of interest. The procedure
for checking for conflicts should include a consideration of the following kinds
of conflicts:
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f) business conflicts with existing clients
g) positional conflicts
The firm should designate a partner or committee to deal with issues involving
conflicts of interest and to oversee the administration of the policies and
procedures regarding conflicts; if it is an individual partner, the firm should also
designate a back-up to handle conflicts issues when the partner primarily
responsible is not available.
The firm's conflicts policy should provide that no client or matter that presents
an actual or potential conflict of interest will be accepted or handled by the firm
or its attorneys without the prior approval of a partner or committee designated
by the firm for that purpose.
The firm should maintain in its computer a data base of all former and current
clients. When a prospective client or case is being considered, the name of the
new client, the adverse party, and other related parties should be run through the
firm's data base of former and current clients.
h) adverse party
j) adverse counsel
The firm should have a written policy regarding financial and entrepreneurial
arrangements between firm attorneys and firm clients. The policy should either:
a) absolutely prohibit any such arrangements between firm lawyers and firm
client, or
b) require the prior consent of the firm and the client to any such arrangements
after full disclosure of the terms of the arrangements and the conflict of interest
involved.
-- No such invitation can be accepted by any attorney of the firm without the
prior approval of the managing partner and another partner designated by the
firm to consider such matters.
-- Unless the firm is satisfied that the holding of such board membership or
office is not likely to create a conflict of interest for the firm in its representation
of the organization or its other clients, or jeopardize the firm in any way, and that
the corporation involved is providing at no cost to the firm and to the attorney
appropriate Directors' and Officers' liability insurance and indemnities in an
amount satisfactory to the managing partner and another partner designated by
the firm to consider such matters, the firm will not approve and will not permit
the holding of such membership or office.
Investments in and with clients may create conflicts of interest and appearances
of conflicts of interest that should be avoided. The inherent conflict involved in
transactions with clients is recognized by ABA Model Rule 1.8(a), which
prohibits the lawyer from entering into a business transaction with a client or
knowingly acquiring an ownership, possessory, security, or other pecuniary
interest adverse to a client unless:
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-- the transaction and terms on which the lawyer acquires the interest are fair and
reasonable to the client and are fully disclosed and transmitted in writing to the
client in a manner that can be reasonably understood by the client;
The firm should have a written policy regarding investing in or with firm clients.
The policy should either:
b) require the prior consent of the managing partner of the firm and the written
consent of the client after full disclosure of the terms of the investment and the
conflict of interest involved, and after the client is advised in writing to seek the
advice of independent counsel.
This article is intended to inform the reader of potential liability exposures for
attorneys. This article reflects general principles only and does not render
legal advice. Readers should consult legal, financial, insurance and other
advisors if they have specific concerns. Neither the Los Angeles County Bar
Association, Aon and its affiliates, nor the author assumes any responsibility
for how the information in this article is applied in practice or for the accuracy
and completeness of the information. Reproduction without written permission
is prohibited. This article is made available by Aon Direct Insurance
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Administrators, administrators of the LACBA Sponsored Aon Insurance
Solutions Program, to the LACBA members. www.aonsolutions.com
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