Conflicts of interest are inherent part of law practice
Controlling Conflicts of Interest

Reality and rules often diverge when it comes to this thorny ethics and liability issue.

Ann Massie Nelson is a regular contributor to Wisconsin Lawyer and communications director at Wisconsin Lawyers Mutual Insurance Co.

by Ann Massie Nelson

INDEPENDENT JUDGMENT IS A core value that distinguishes lawyers from competitors seeking a share of the professional services market, according to lawyers debating the multidisciplinary practice issue. Unlike investment advisers, accountants, or other consultants, lawyers must carefully avoid or resolve conflicts of interest, in accordance with the Rules of Professional Conduct for Attorneys (SCR 20).

Realistically, conflicts of interest in law practice are nearly impossible to avoid. "When I listen to ethics speakers talk about conflicts of interest, it all seems so clear cut: 'Paper everything and get waivers.' In the daily grind of answering the phone, getting work out, and collecting fees, the issue doesn't come out so black and white," says Thomas R. Schumacher, who practices in the Baldwin office of Bakke Norman S.C.

Besides breaching the ethics rules, conflicts of interest add zest to otherwise lackluster legal malpractice claims. "A conflict of interest, in and of itself, is not malpractice. However, a client who perceives a conflict of interest may question the lawyer's judgment and more closely scrutinize the legal work," says Sally E. Anderson, claims counsel at Wisconsin Lawyers Mutual Insurance Co. (WILMIC).

A conflict of interest also can force withdrawal from representation, forfeiting revenue and prejudicing the client's interests.

Although independent judgment may be a selling point for the profession, anecdotal evidence suggests the public - and even some lawyers - do not fully understand the concept. "One attorney accused of negligence recently testified that he handled the representation, 'except when I had a conflict. Then my partner did,'" Anderson relates.

Consider the following recommendations from Schumacher and Anderson for dealing with conflicts of interest.

Recognize Conflicts of Interest

Conflicts of interest rarely present themselves as textbook examples. Well-meaning attorneys often don't see stealthy conflicts until the representation progresses past the point at which they can withdraw without harm to one or more of the parties.

Conflicts of interest occur when:

• The interests of past clients are adverse to present clients' interests. "My experience is that once you have represented somebody on a matter, whether it was five months or five years ago, you're still their lawyer," Schumacher says.
• Present clients' interests are adverse to those of other present clients of the firm.
• Multiple clients have a common goal but different interests, for example, the buyer and seller in a real estate purchase.
• An attorney answers questions asked by a pro se party to the action.
• The firm hires employees from another law firm or merges with a firm that has represented clients with adverse interests.
• The lawyer stands to gain personally from the outcome of the representation, other than a standard contingent fee.
• Lawyers or staff have personal or business relationships with clients or related parties the firm represents.

Determine Whose Interests You Represent

Who is your client? What are your client's interests? Would your client agree with your answers? How about the people you don't represent? The person paying the bill? If these questions sound easy, consider the following fact situation.

The local banker calls you. Sitting in his office are two parties to a real estate transaction who have drafted their own contract. The banker needs the contract put in legal form to take to his loan committee that afternoon. You prepare the standard form agreement from materials the banker provided and send it to the banker. The bank collects your fee at the closing and mails you a check.

A year later, the buyer discovers the seller materially misrepresented the property and calls you for advice. Who is your client?

"You can't decide after the fact who your client is," Schumacher says. If you are uncertain, ask a trusted colleague who is not connected with the representation to review your situation and give you his or her opinion.

Explain Conflicts of Interest to Clients

You may continue to represent clients - even if clients' interests compete with other clients' or your own - under two conditions: 1) You reasonably believe you can do so without harm to the interests of either client, and 2) each client consents in writing after consultation.

The consultation is your opportunity to fully disclose the conflict of interest and carefully explain the pros and cons of your continued representation. Clients must give you their informed consent to permit you to proceed. You, of course, are the informer, which arguably is a conflict of interest in its own right. Document this consultation in a letter to each client.

"Many lawyers facing malpractice claims arising from conflicts say they explained the problem and the client consented to the representation, but the lawyers failed to put the consultation in writing and get a signed consent," Anderson explains.

Get a Written Waiver from All Parties Involved

One client cannot speak for all. If that were the case, you wouldn't be asking for a waiver. Send a written waiver to each client involved and ask him or her to sign and return it to you. Carefully script the waiver to address only the potential conflict of interest. Avoid downplaying the potential conflict or sugarcoating the results you expect.

"Clients may interpret the waiver as your guarantee that everything will turn out fine. They believe you wouldn't accept the representation unless the outcome was going to be positive," Anderson says. "If something goes awry, they think you must have made a mistake. Even the comment to the ethics rule cautions attorneys to be mindful that, if the waiver fails, the result can be additional cost, embarrassment, and recrimination."

A sample letter and waiver appear on the Milwaukee Bar Association's Web site, www.milwbar.org/formletters/4.PDF.

Withdraw Gracefully

Sometimes, all the signs say "exit." When you must withdraw from representing either or both parties, try to minimize the resulting disruption. "Our philosophy is to provide solutions to clients' problems. We create problems and additional expense for clients when they have to educate another attorney," Schumacher explains.

Confirm your withdrawal with a disengagement letter sent by certified or registered mail. Briefly state the reasons for your withdrawal and encourage the client to seek other counsel. Return all documents or offer to send the file to your successor. Avoid giving specific legal advice for which you may later be held liable.

Develop a Standard Procedure for Identifying Conflicts of Interest

You won't catch every conflict before it crosses your threshold, but you can avert many problems by developing - and using - a procedure for checking for conflicts of interest. Do not rely on your memory, firm billing records, or the search feature of your word processing software to detect conflicts of interest.

In developing your procedure, you might:

• Create a form for collecting information from new clients and from existing clients with new matters. A form provides a convenient and consistent way to record the names of all parties involved, including spouses, former spouses, children, children's spouses, employers, partners, directors and officers, shareholders, employees, insurance companies, financial institutions, creditors, and government agencies.
• Assign responsibility to one firm member to circulate information about new clients and new matters. Verify that all members of the firm and your staff have reviewed the information; don't assume that no response means no conflicts exist.
• Establish a timeline for checking potential conflicts. Ideally, you will check for conflicts of interest before you have met with clients, heard their life story, and inadvertently disqualified your firm from representing another client.
• Write a model letter for attorneys to use in declining representation due to conflicts of interest.
• Review the conflicts checking procedure with every person in the firm to cultivate awareness and understanding.

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