LEGAL ETHICS OF MULTIPLE PARTY REPRESENTATION KEITH SELLEN OFFICE OF LAWYER REGULATION

AGENDA ESSENTIAL CONSIDERATIONS – MODEL RULE 1.7 – ARE YOUR MOTIVATIONS ACCEPTABLE – CAN YOU FULFILL YOUR DUTIES TO EACH CLIENT – ANTICIPATING CONFLICTS OF INTEREST – CONFLICTS IN A LITIGATION SETTING – CONFLICTS IN A NON-LITIGATION SETTING

AGENDA CONCURRENTLY REPRESENTING CLIENTS WITH CONFLICTING INTERESTS – SITUATIONAL ADVANTAGES AND DANGERS – WHEN IS IT PERMISSIBLE? PROHIBITED? – ADVANCE WAIVERS: ENFORCEABILITY AND DRAFTING TIPS – MODEL RULE 2.2: LAWYER AS INTERMEDIARY

MODEL RULE 1.7 Four-Step Method for Resolving Conflict of Interest Problems [Rule 1.7, Comment 2] – Clearly identify the client or clients – Determine whether a conflict of interest exists – Decide whether the representation may be undertaken despite the existence of a conflict – If so, consult with affected clients and obtain their informed consent confirmed in writing

STEP 1: IDENTIFY CLIENT(S) Not a matter of the Model Rules, but of Agency Law Legal Standard: Restatement of the Law Governing Lawyers, §14 A person manifests intent to the lawyer that the lawyer provide legal services, and The lawyer manifests consent to do so, or The lawyer fails to manifest lack of consent and reasonably should know the person reasonably relies on the lawyer to provide services

STEP 1: IDENTIFY CLIENT(S) Organizations and Constituencies: Rule 1.13 – Organization, acting through duly authorized constituents – Rule 1.7 applies – Lawyer may have two roles: lawyer and constituent Organizations and Affiliates – Restatement of the Law Governing Lawyers, §121, comment d. – Lawyer for a corporation is not normally also considered to be the lawyer for an affiliate – Sometimes, however, a benefit or loss to an affiliate would have a direct, adverse impact on the corporate client

STEP 1: IDENTIFY CLIENT(S) Insurers – Insurer, Insured, or both – State Law or Ethics Rules govern Governmental Entities Prospective Clients – Rule 1.18 – Duties of confidentiality and loyalty are owed to a prospective client – These duties may materially limit representation of a current client

ANTICIPATING CONFLICTS Conflicts may exist before undertaking new representation [Comment 3] – Adopt reasonable screening measures, considering the size of firm, type of practice, and litigation and non-litigation matters – Identify the persons and issues involved before accepting the representation Conflicts may arise during representation [Comments 4 & 5] – Changes in corporate affiliations – Addition or realignment of parties in litigation

STEP 2: DETERMINE CONFLICTS Standard [Rule 1.7(a)(1)] – Representation of one client – Will be directly adverse to another client Examples [Comments 6 & 7] – Advocating for one client against another client, even in unrelated matters – Cross-examining a client who appears as a witness adverse to a represented client – Cf: Representing clients with competing economic enterprises in unrelated litigation – Representing a seller in business negotiations with a buyer who is represented in an unrelated matter

STEP 2: DETERMINE CONFLICTS Standard [Rule 1.7(a)(2)] – Significant Risk – That representation of one or more clients – Will be materially limited – By the lawyer’s responsibilities to another client, a former client, a third person, a personal interest of the lawyer Responsibilities that may be materially limited – Loyalty – Confidentiality – Communication – Independent Advice

STEP 2: DETERMINE CONFLICTS Examples of Material Limitation Conflicts [Comments 8 through 13] Forming a joint venture Former clients, Fiduciary roles [Trustee, Executor, Corporate Director] Personal interests – Lawyer’s conduct in question – Possible employment with opponent – Related business interests Personal relationships Sexual relationships Person paying fees on behalf of a client

STEP 2: DETERMINE CONFLICTS Conflicts in Litigation [Comments 23 & 25] Representing opposing parties in the same litigation Representing co-plaintiffs or co-defendants – Discrepancies in parties’ testimony – Incompatibility of positions – Different possibilities of settlement or liability – Class representation: Unnamed members not normally considered under 1.7(a)(1)

STEP 2: DETERMINE CONFLICTS Conflicts in Litigation [Comment 24] Inconsistent legal positions ordinarily ok, if – Different tribunals – Different times – Different clients Material limitation conflict if – Decision for one client – Will create a precedent – Weakening a position of another client

STEP 2: DETERMINE CONFLICTS Non-Litigation Conflicts [Comment 26] Material Limitation Considerations – Duration and intimacy of lawyer’s relationship with the client or clients involved – Functions being performed by the lawyer – Likelihood that disagreements will arise – The likely prejudice that would result

STEP 2: DETERMINE CONFLICTS Non-Litigation Conflicts [Comments 7 & 8] Direct Adversity: May not represent both Buyer & Seller in a transaction Material Limitation: Formation of Joint Ventures, Consider: – The likelihood that a difference in interests will arise, and – Whether a difference would materially interfere with the lawyer’s professional judgment

STEP 2: DETERMINE CONFLICTS Non-Litigation Conflicts Material Limitations [Comments 27 & 28] – Preparing wills for family members – Confusion regarding the identity of the client: estate or personal representative – Negotiations involving clients – Antagonistic versus generally aligned interests – Organizing a business for clients – Arranging a property distribution in settlement of an estate

STEP 2: DETERMINE CONFLICTS Non-Litigation Conflicts Organizations and Affiliates [Comment 34] – Client does not ordinarily include parent or subsidiary – Expectations of the client may prevail Material limitations may still exist – Potential Adverse Effects – Protecting Confidences and Privileges

STEP 2: DETERMINE CONFLICTS Non-Litigation Conflicts -Organizations Lawyer also a Constituent [Comment 35] – Advice on actions of the constituency, e.g. board of directors – Advice regarding applicability of attorney-client privilege Considerations – Frequency of situations – Intensity of conflict – Effect of resignation from board – Possibility of obtaining other counsel – Recusal from one or other role

STEP 3: DECIDE WHETHER REPRESENTATION IS PERMISSIBLE Are your motivations appropriate Standard: Rule 1.7(b)(1) through (4) May provide competent and diligent representation to each affected client Representation is not prohibited by law No assertion of a claim by one client against another client in the same litigation Each client gives informed consent, confirmed in writing

STEP 3: DECIDE WHETHER REPRESENTATION IS PERMISSIBLE May you provide competent and diligent representation to each affected client? Loyalty Considerations [Comment 6] – Effects of advocating against a client – Feelings of betrayal – Potential damage to attorney-client relationship Consequences of these effects

STEP 3: DECIDE WHETHER REPRESENTATION IS PERMISSIBLE May you provide competent and diligent representation to each affected client? Confidentiality & Communication Considerations [Comments 6, 30, 31] – Cross-examining a client – Attorney-client privilege may not be protected – Duty of confidentiality may conflict with duty to use information to pursue interests of the other client – Requests by one client in common representation not to disclose relevant information to the other client

STEP 3: DECIDE WHETHER REPRESENTATION IS PERMISSIBLE May you provide competent and diligent representation to each affected client? Independent Advice [Comments 1 & 8] – Independent judgment essential to attorney- client relationship – The lawyer must be able to consider, recommend, and carry out all possible courses of action that would benefit each client – Cannot foreclose alternatives that would otherwise be available

STEP 4: OBTAIN INFORMED CONSENT Informed Consent Definition: Rule 1.0(e) Agreement by a person To a proposed course of conduct After the lawyer has communicated Adequate information and explanation About the material risks And the reasonably available alternatives Each client must consent [Comment 18]

STEP 4: OBTAIN INFORMED CONSENT Inform each of the implications of common representation Disclosures necessary for informed consent may require the other client’s consent [Comment 19] Disclose the affects of joint representation on loyalty Disclose the affects on confidentiality [Comment 31] – Right to be informed – Use of information for benefit of each – Advice that all relevant information will be shared – Withdrawal may be required Advise that the attorney-client privilege may not attach [Comment 30]

STEP 4: OBTAIN INFORMED CONSENT Document consent in writing Executed by or provided to client – WI requires client signature At the time or within a reasonable time after consent The writing serves to document informed consent in the event of subsequent disputes

CONCURRENTLY REPRESENTING CLIENTS WITH CONFLICTING INTERESTS SITUATIONAL ADVANTAGES AND DANGERS WHEN IS IT PERMISSIBLE? PROHIBITED? ADVANCE WAIVERS: ENFORCEABILITY AND DRAFTING TIPS MODEL RULE 2.2: LAWYER AS INTERMEDIARY

SITUATIONAL ADVANTAGES Avoid costs of separate representations [Comment 19] Potential to resolve intra-client disputes, without the need for separate representation, by developing mutual interests [Comment 28]

SITUATIONAL DANGERS Inability to keep information confidential or to preserve the attorney-client privilege [Comment 19, Comment 30] The potential that consent will be revoked by one client [Comment 21] Potential that the resolution of intra-client disputes will later fail [Comment 28] Potential that joint representation will fail, resulting in additional cost, embarrassment, and recrimination [Comment 29] Lawyer will be forced to withdraw from representing both clients [Comment 29]

WHEN PERMISSIBLE? PROHIBITED? Rule 1.7(b)(1) through (4) May provide competent and diligent representation to each affected client Representation not prohibited by law No assertion of a claim by one client against another client in the same litigation Each client gives informed consent, confirmed in writing

WHEN PERMISSIBLE? PROHIBITED? Providing competent and diligent representation Centra, Inc. v. Estrin, 538 F.3d 402 (6th Cir. 2008) – Lawyer’s firm represented Centra in a project to build a bridge connecting the Cities of Detroit and Windsor – Lawyer represented the City of Windsor, which was opposed to the building of the bridge – Centra sued the lawyer for breach of contract, breach of fiduciary duties, and malpractice – District Court found implied consent because Centra knew of the lawyer’s adverse representation – Court of Appeals reversed: Conflict was not consentable – Reasonable lawyer would not conclude it could represent both clients – Clients’ interests were fundamentally antagonistic

WHEN PERMISSIBLE? PROHIBITED? The representation is not prohibited by law [Comment 16] Some states prohibit joint representation of defendants in a capital case Some representations by former government officials are prohibited by law Some states do not allow a government entity to consent to a conflict of interest

WHEN PERMISSIBLE? PROHIBITED? No assertion of a claim by one client against another client in the same litigation Ex Parte Osbon, 888 So.2d 1236 (Ala. 2004) – Divorce Case – Lawyer subpoenaed opponent’s mental health records – Lawyer’s partner responded on behalf of mental health agency – Conflict was not consentable – Lawyer was disqualified from representation

WHEN PERMISSIBLE? PROHIBITED? No assertion of a claim by one client against another client in the same litigation Vinson v. Vinson 588 S.E.2d 392 (Va. Ct. App. 2003) – Lawyer’s fee agreement said he represented both husband and wife in a divorce – Husband moved to set aside an MSA favorable to the wife and to disqualify the lawyer – Lawyer represented wife on the motions – Court affirmed sanctions for costs against the lawyer

WHEN PERMISSIBLE? PROHIBITED? Each client gives informed consent, confirmed in writing [Centra, Inc. v. Estrin, 538 F.3d 402 (6th Cir. 2008)] District Court found implied consent Court of Appeals reversed Knowing Estrin represented Windsor was insufficient information A lawyer has a duty of full disclosure Full disclosure requires communication of the nature of the conflict, and an understanding of the reasons why it may be desirable for each to have independent counsel

WHEN PERMISSIBLE? PROHIBITED? Each client gives informed consent Iowa Disciplinary Board v. Clauss, 711 N.W.2d 1 (2006) – Lawyer represented both creditor and debtor – Both consented with a three sentence waiver – Purpose was to pursue debtor’s unrelated claims – Lawyer recovered substantial funds for the debtor and received his fees – Lawyer did not provide any funds to the creditor – Court found the consent insufficient

WHEN PERMISSIBLE? PROHIBITED? Specific Circumstances Not permissible when not possible to make the disclosure necessary to obtain informed consent [Comment 19] May be permissible to take inconsistent legal positions with informed consent [Comment 24] Not permissible in negotiations when interests are fundamentally antagonistic [Comment 28]

WHEN PERMISSIBLE? PROHIBITED? Specific Circumstances May be permissible when interests in negotiations are generally aligned [Comment 28] Not permissible where one client asks the lawyer not to disclose relevant information to the other [Comment 31] May be permissible if clients agree in advance the lawyer will keep certain information confidential [Comment 31]

ADVANCE WAIVERS Client must be informed of the reasonably foreseeable ways the conflict could have adverse effects Client must understand the material risks that the waiver entails The more comprehensive the waiver, the more likely it is effective The more experienced and sophisticated the client, the more likely the waiver is effective Independent representation regarding the waiver is helpful Advanced consent is ineffective when a non- consentable conflict arises

ADEQUATE ADVANCE WAIVER Visa v. First Data, 241 F.Supp. 2d 1100 (N.D. Cal., 2003) Defendant First Data moved to disqualify the firm representing Visa on grounds that firm also represented First Data in other matters When First Data sought to retain the firm, the firm required a prospective waiver to allow the firm to represent Visa in any future dispute Visa had been a long standing client of the firm

ADEQUATE ADVANCE WAIVER The court upheld the waiver The waiver identified the future adverse client The waiver informed First Data that the representation could include litigation Adverse representation would be permitted only where the firm did not possess confidential information of First Data that related to the transaction The firm would implement a screen, and did so

INADEQUATE ADVANCE WAIVER Worldspan, L.P. v The Sabre Group, Inc, 5 F.Supp. 2d 1356 (N.D. Ga., 1998) Firm began representing Worldspan in 1992 and continued to do so Firm obtained a prospective waiver in 1992 Worldspan consented to prospective representation of adverse clients – If unrelated to work done for plaintiff – If confidential information is not used to disadvantage of plaintiff Firm informed plaintiff of potential adverse clients at time of waiver

INADEQUATE ADVANCE WAIVER Court found the prospective waiver insufficient and disqualified the firm from representing The Sabre Group The passage of time required informed consent to be exceedingly explicit Current litigation [1998] involved directly adverse litigation, which the waiver did not disclose Current litigation involved a client the firm was not representing at the time of consent

LAWYER AS INTERMEDIARY Model Rule 2.2 was deleted Rule 1.7 applies Multiple Parties in Negotiation [Comment 28] May not represent parties with fundamentally antagonistic interests May be permissible with informed consent where clients are generally aligned May be permissible with informed consent to establish or adjust a relationship between clients on an amicable and mutually advantageous basis

LAWYER AS INTERMEDIARY Comments 32 & 33 Lawyer must clarify the non-partisan role and greater responsibility of the clients Lawyer must disclose any limitations on the scope of the representation required by the joint representation Each client is entitled to loyal and diligent representation