CONFLICTS OF INTEREST

Frequently Asked Questions

I’d like to volunteer, but my firm represents financial institutions, so conflicts of interest seem likely and there’s probably no point in even considering it.  Should I consider it?

Answer:  Yes. In the vast majority of cases, whether a conflict of interest exists and, if so, whether it will prevent you from engaging in a particular representation will require a careful evaluation of the ethics rules in light of the particular facts and circumstances presented. Of course, you are not permitted to represent a client in a litigation matter in which the opposing party is represented by you or another lawyer in your firm. See RPC 1.7(a)(1), (b)(3); RPC 1.10(a). Similar considerations would likely preclude you from representing the pro bono client in negotiating a workout of the loan transaction where the financial institution with adverse interests is being represented by another lawyer in your firm. But other conflicts of interest situations may well be consentable by the clients involved. Many law firms now have ethics counsel or conflicts committees that can assist you in analyzing your particular situation. So, please, don’t dismiss volunteering out of hand.

I understand that I’m not permitted to litigate against a financial institution that is represented by other lawyers in my firm in the same or a related matter. Would the conflict of interest rules preclude me from litigating against a financial institution where my firm had no role in the lending transaction at issue, the financial institution has separate counsel, and my firm continues to represent the financial institution in unrelated matters? What if my firm handles similar transactions and litigation matters for the adverse financial institution (but not this one)? 

Answer:  Under RPC 1.7(a)(1), a concurrent conflict of interest exists if “the representation of one client will be directly adverse to another client.” Litigating against a current client of your firm constitutes direct adversity, even if the contemplated matter is unrelated to the existing representation of the client. See RPC 1.7, cmt. [6] (“absent consent, a lawyer may not act as an advocate in one matter against a person the lawyer represents in some other matter, even when the matters are wholly unrelated”); RPC 1.10(a). An additional conflict of interest problem with litigating against current clients is that it may well require conducting discovery with and taking depositions of client personnel. See ABA Formal Ethics Op. 92-367. 

If there is an identifiable conflict of interest, how and under what circumstances is it permissible to represent the pro bono client?

Answer:  Notwithstanding the concurrent conflict of interest, representation is permitted if (a) the lawyer reasonably believes that competent and diligent representation can be provided to each affected client, and (b) each client gives informed consent, confirmed in writing. RPC 1.7(b)(1), (b)(4). See also RPC 1.0(e) (defining “informed consent”); RPC 1.7, cmt. [18] (discussing “informed consent” in the conflict of interest context). A lawyer must exercise caution when obtaining consent for litigating against current clients, even in unrelated matters, because of the duty of loyalty owed to both clients. See RPC 1.7, cmt. [15] (“Consentability is typically determined by considering whether the interests of the clients will be adequately protected if the clients are permitted to give their informed consent to representation burdened by a conflict of interest.”).

Nevertheless, the financial institution as a commercial entity with separate counsel is in a position to evaluate the relevant issues and give informed consent to your representation of the pro bono client in the unrelated matter. Assuming that you have concluded that you can reasonably provide competent and diligent representation to the pro bono client, and with full disclosure and a clear explanation of the risks involved, it would appear that the pro bono client can give informed consent as well.

How should I evaluate “positional” conflicts of interest?

Answer:  In evaluating conflicts of interest in this situation, you and your firm should also consider whether “positional” conflicts of interest will preclude the representation or require informed consent. One concern is whether the firm will actually be taking an adverse litigation position on a specific issue in pending litigation involving the financial institution. See RPC 1.7, cmt. [24]; ABA Formal Ethics Op. 93-377.

A related concern, implicated by the fact that your firm handles similar transactions for the financial institution client, is whether the firm will be taking positions in the unrelated pro bono matter that may later be detrimental to the interests of the financial institution client. See Geoffrey C. Hazard, Jr., W. William Hodes & Peter R. Jarvis, The Law of Lawyering, §10.10 & Illus. 10-1 (3d ed. 2009). Whether or not you determine that this latter concern will create an RPC 1.7(a)(2) “material limitation” conflict of interest from the standpoint of the financial institution and require its informed consent to that conflict, there would appear to be a significant risk that the firm will “pull punches” vis-à-vis the pro bono client in this situation based on its duty of loyalty to the financial institution client, requiring the pro bono client’s informed consent to the conflict at the very least.

Lawyers and law firms differ regarding their evaluation of positional conflicts, and you should make sure to carefully evaluate this issue in consultation with your firm’s ethics counsel, conflicts committee, or other managing lawyer. Note that positional conflicts of interest may be an issue where the financial institution that will be adverse in the litigation matter isn’t an existing client of the firm, but your firm handles similar matters on behalf of other financial institutions. It is also possible that your firm has dealt with unrelated matter and/or positional conflicts in its engagement agreements with the financial institution clients.

What conflicts of interest concerns arise if representation of the pro bono client will be limited to negotiating a workout or other negotiated resolution, with the representation expressly limited by excluding litigation or other formal dispute resolution that may be ultimately required?

Answer:  The analysis of the conflict of interest would be similar to that contained in the answer for the previous situation. As noted above, a concurrent conflict of interest exists under RPC 1.7(a)(1) if “the representation of one client will be directly adverse to another client.” Direct adversity conflicts aren’t limited to litigation matters; they can also arise in transactional representations. RPC 1.7, cmt. [7]. Because the interests of the two clients would be fundamentally opposed in the loan transaction, the workout situation likely presents a direct adversity conflict of interest. The direct adversity conflict of interest appears to be consentable by the financial institution client under RPC 1.7(b)(1) in light of the fact that it will be separately represented in the matter and that no litigation will be undertaken by you or your law firm against it. It is best if an independent lawyer, rather than lawyers at your firm, advise the financial institution regarding consenting to the conflict of interest.

In addition, a concurrent conflict of interest exists under RPC 1.7(a)(2) if there is a significant risk that the representation of one client will be “materially limited” by the lawyer’s responsibilities to another client or by a personal interest of the lawyer. Thus, even if negotiating the workout doesn’t constitute a direct adversity conflict, your firm’s representation of the financial institution in unrelated matters is likely to create a material limitation conflict of interest vis-à-vis the pro bono client, requiring that client’s informed consent.

Are any other ethical issues implicated?

Answer:  An important additional consideration in proceeding with a workout on behalf of the pro bono client that will stop short of litigation is whether this limitation on the scope of the representation is “reasonable under the circumstances” under RPC 1.2(c). “[T]he terms upon which representation is undertaken may exclude specific means that might otherwise be used to accomplish the client’s objectives,” and actions can be excluded from the scope of a representation “that the client thinks are too costly.” RPC 1.2, cmt. [6]. But you and your firm must evaluate, taking into account the particular facts of the pro bono client’s situation, whether undertaking to negotiate a workout of a loan transaction without being willing to follow through with a formal dispute resolution process will be in that client’s best interest and permit you to provide competent and diligent representation as required by the ethics rules. See RPC 1.7, cmt. [7]. In this situation, it would seem that the RPC 1.2(c) “reasonableness” analysis should also take into account the fact that the opposing financial institution that is your firm’s client in other matters will undoubtedly know that its law firm is extremely unlikely to engage in litigation against it. In other words, the RPC 1.2(c) “reasonableness” and RPC 1.7 conflict of interest evaluations appear to merge to some extent.

In any event, RPC 1.2(c) expressly requires that the pro bono client give “informed consent” to the limited scope representation. And the pro bono client must give informed consent to the conflict of interest under RPC 1.7(b)(4) as well. Depending on the circumstances and the complexity of the conflict of interest issues, you and your firm might consider providing the pro bono client with an opportunity to consult a disinterested lawyer (i.e., one who is not imputed with a conflict of interest relating to the firm’s representation of the financial institution) prior to deciding whether to give informed consent.