Conflicts of interest continue to represent one of the greatest liability risks for law firms and lawyers. Despite repeated warnings, many firms still fall prey to conflicts issues that result in disqualification, loss of clients, bar complaints, lawsuits, and reputational damage. So why does this risk persist in the face of known dangers? As one expert notes, conflicts present an inherent dilemma – by acknowledging them, lawyers lose business and revenue. This bias can blind even the most ethical lawyer.
Fortunately, proper risk management procedures, systems, and training can overcome this natural tendency toward conflicts complacency. This blog post examines common conflicts scenarios and best practices law firms should implement to avoid conflicts incidents.
Direct Adversity with Current Clients
One prevalent conflict involves directly adverse litigation against current clients. Broad advance conflict waivers in engagement letters provide false comfort. Courts increasingly invalidate these waivers, particularly in litigation against clients. Even with a narrowly tailored waiver, no reasonable lawyer should accept a matter directly adverse to an existing client. The breach of loyalty and trust likely exceeds any waiver’s scope.
Material Limitations Involving Current Clients
More subtle “material limitation” conflicts also plague firms. These situations arise when concurrent representations limit advocacy for one client due to duties owed to another client. Suppose a firm represents multiple plaintiffs injured in a train accident. The engineer, as an employee, has interests adverse to passengers alleging the railroad’s vicarious liability for the engineer’s negligence. The firm faces difficult tradeoffs in defending the engineer while advancing negligence claims dependent on his conduct. No reasonable lawyer would believe they could adequately represent all plaintiffs under the circumstances. Careful intake screening and counselling on conflicts can prevent firms from overextending representation in these joint client matters.
Former Clients: Substantial Relationship and Material Adversity
Lawyers also owe limited loyalty duties to former clients. Representing a current client against a former client on a substantially related matter almost always constitutes an improper conflict. For instance, a lawyer assisted a company on trademark protection for years. Then the lawyer attacked the company’s trademark registration for another client. The confidential knowledge and relationship with the former client should have barred the adverse representation, absent informed consent.
Lawyers as Their Own Worst Enemy
Personal conflicts also create substantial risks, such as:
– Business transactions with clients
– Inappropriate financial assistance to clients
– Limiting malpractice liability
– Gifts and bequests from clients
– Sexual relations with clients
– Acquiring interests adverse to clients
– Literary/media rights deals
– Settling malpractice claims with unrepresented clients
– Accepting fees or direction from third parties
Rigorous self-assessment, screening, and written conflict waivers become essential in these situations rife with bias issues.
Overall, while not exhaustive, monitoring for conflicts in these common areas represents a solid starting point. On a regular basis, law firm leadership should critically evaluate their conflict-checking systems, procedures, training, and documentation using self-assessment tools. Identifying and addressing any vulnerabilities before an incident occurs reduces significant risk exposure. Though identifying conflicts may feel like a loss in the moment, avoiding conflicts of interest serves clients’ interests – and the long-term interests of lawyers seeking to build trust through fidelity to professional duties.
For more information on Liberty’s Lawyers Professional Liability Solutions, please reach out to DJ Mckenna, Division Manager (Lawyers Professional Liability), The Liberty Company Insurance Brokers.