United States: Casual Advice Can Be Binding

Virtually all attorneys know that the Rules of Professional Conduct prohibit certain conflicts of interest. Yet, almost daily, the legal media report large settlements or verdicts involving legal malpractice claims premised on conflicts of interest. Why is that?

The economic pressures of the modern legal practice have pushed many attorneys to accept engagements close to the line between permissible and impermissible conflicts of interest. Some law practices assume that, if the anticipated fee is large enough, the conflict must be resolvable. Unfortunately, when such representations turn sour, the law firm or its insurer typically faces a payment to the former client.

For most attorneys, conflict of interest claims arise from unexpected circumstances rather than from situations in which an attorney skirted, or attempted to avoid, the clear application of the rules addressing conflicts. Below are the three most common circumstances from which unexpected conflicts issues materialize.

Unexpected Attorney–Client Relationships

Effective practice management involves clearly articulated file-opening procedures that include both client intake and the resolution of potential conflicts of interest.1 The most effective practice procedures begin with the important step of properly identifying the client.

Contrary to popular belief, not every attorney–client relationship begins with a prospective client who walks in the door and asks an attorney for legal services. Instead, attorney–client relationships can be implied from the facts and circumstances surrounding a pattern of communication between an attorney and someone else.2

In today's Internet world, these kinds of implied representations are becoming more and more frequent. Often they begin with a legal question about a particular circumstance. Other times, they start with an actual solicitation for legal advice.

In many instances, these requests for legal services and responses arise in a casual conversation through an in-person social interaction or a website rather than through a formal engagement of legal services memorialized in an engagement letter or a fee agreement. Nonetheless, if the inquiry involves the seeking and rendition of legal advice, it can result in an attorney–client relationship—at least for purposes of the attorney–client privilege.3 That alone can give rise to a conflict of interest given the protected nature of confidential information received from a potential or actual client.4

One illustration of just how such an informal communication can sneak up on a law firm involved a communication from a friend of an associate at the firm. The associate's friend asked how to force a landlord to return a security deposit. The associate replied with the appropriate citations to the law governing security deposits and the language needed for a legal demand. The associate's friend then forwarded the email to the landlord. As it turned out, the landlord was the law firm's largest client. The associate had not followed any of the law firm's conflict of interest identification and resolution procedures. Undoubtedly, if the associate had followed the rules, the conflict would have been easily identified and avoided. However, the rules were not followed, and the consequences were serious.

By requiring attorneys to identify the potential client(s) properly before providing any legal advice, the law practice can meet two conflict resolution goals. First, identifying the proper client will result in a determination of the number of proposed clients for each representation. Any time there is more than one client, effective intake procedures dictate that the law practice determine whether multiple representation issues might be implicated.5

Second, identifying the potential client increases the likelihood that the firm's intake procedures are followed. Effective conflict resolution procedures require consistent application and enforcement, particularly in the Internet age. The attorney must always adhere to the law firm's intake rules before providing legal advice to anyone, through any means of communication. Any other practice involves too much risk.

Some of this risk can be mitigated by modifying the footer on all emails to make clear that no attorney–client relationship exists in the absence of an executed engagement letter or fee contract. However, while this may provide some additional protection against a legal malpractice claim, it might not provide relief against a motion to disqualify or a grievance based on a conflict of interest.

Unexpected Clients

Theoretically, identifying clients prior to the rendition of legal services and strictly adhering to the law practice's intake rules should be sufficient to avoid a conflict of interest. The tough part for some attorneys, however, is the degree to which a single representation may involve more than a single client. When that happens, the matter is a multiple representation requiring all of the associated conflict resolution procedures.6

A good example of this involves representations in probate matters. One person may ask the attorney to represent the executor, estate, and beneficiary of an estate simultaneously. Or an attorney may be asked to represent both the president of a closely held corporation and the corporation itself.

In each situation, it might appear that all the potential clients are, in reality, a single person. Yet, for purposes of the conflict of interest resolution procedures, each separate capacity and each separate entity is a separate client.7 In such cases, the attorney must comply with the multiple representation conflict of interest resolution procedures, even though only one individual may be involved.8

If the interests of the various clients (as defined by capacity, as opposed to the individual holding the capacity) differ, then the law firm must obtain the appropriate consents to the multiple representation after full disclosure, in accordance with the rules.9 If the interests actually conflict, then the attorney must decline the representation of all but those potential clients that do not raise impermissible conflicts of interest.10

Non-Waivable Conflicts

Of course, there is no prohibition against a single attorney or law firm representing multiple clients in multiple capacities.11 Indeed, it happens every day. The key is to ensure that all applicable rules are met, including those requiring full disclosure and consent.12 The problem for some law firms, however, is the mistaken belief that the representation is permissible so long as all clients consent. This is not accurate.

There are some conflicts that are non-waivable and to which clients cannot therefore consent, even if they are willing to do so.13 Some are obvious. For example, an attorney cannot represent both the plaintiff and the defendant in the same lawsuit (although some have tried). In addition, an attorney cannot represent a buyer and a seller in the same transaction.14 In those circumstances, impermissible conflicts exist even if all clients consent to the representation.15

Conclusion: Always Follow the Rules

Conflict rules are not that complicated, although the risks of noncompliance are great. Do not give advice without following the rules.

That means that attorneys need to identify each client. If there is more than one client in a single matter, determine whether there are things that an attorney representing the clients collectively would do differently than multiple attorneys representing each client individually. If so, ensure that conflict and multiple representation procedures, including full disclosure and consent, are followed.

If there is an actual conflict (i.e., a non-waivable conflict), client consent becomes impossible. Therefore, it is of utmost importance to make that determination before taking on the representation.

Footnotes

1 Colo. RPC 1.7, cmt. [3] ("[A] lawyer should adopt reasonable procedures, appropriate for the size and type of firm and practice, to determine . . . the persons and issues involved.").

2 People v. Bennett, 810 P.2d 661, 664 (Colo. 1991) (citing People v. Morley, 725 P.2d 510, 517 (Colo. 1986) ("The relationship may be inferred from the conduct of the parties. The proper test is a subjective one, and an important factor is whether the client believes that the relationship existed.")).

3 Id.

4 Colo. RPC 1.7; Colo. RPC 1.18(b). However, not all persons who communicate information to a lawyer are entitled to protection under Rule 1.18. "A person who communicates information unilaterally to a lawyer, without any reasonable expectation that the lawyer is willing to discuss the possibility of forming a client-lawyer relationship, is not a 'prospective client' within the meaning of paragraph (a)." Colo. RPC 1.18, cmt. [2]. The proposed changes to Colo. RCP 1.18, cmt. [2] provide additional illustrations of when a person is considered a "prospective client" within the meaning of this Rule.

5 Colo. RPC 1.7. "Ignorance caused by a failure to institute such procedures will not excuse a lawyer's violation of this Rule." Id. at cmt. [3].

6 See id. at cmt. [29].

7 See Colo. RPC 1.13(g).

8 See id.

9 Colo. RPC 1.7(b)(4).

10 Liebnow ex rel Liebnow v. Boston Enters. Inc., 296 P.3d 108, 115-118 (Colo. 2013) (finding that Colo. RPC 1.7 expressly applies not only to attorney-client relationships but also to attorneys' relationships with third persons); Colo. RPC 1.7(a); see also Colo. RPC, 1.7, cmts. [14]-[17].

11 See People v. Cozier, 74 P.3d 531, 534 (Colo. 2003) (attorney represented all of the heirs of decedent, individually, and served as personal representative for decedent's estate).

12 Id.; Colo. RPC 1.7, cmt. [18] ("When representation of multiple clients in a single matter is undertaken, the information must include the implications of the common representation, including possible effects on loyalty, confidentiality and the attorney-client privilege and the advantages and risks involved."); id. at cmt. [14] ("When the lawyer is representing more than one client, the question of consentability must be resolved as to each client.").

13 Colo. RPC 1.7, cmt. [14] ("Ordinarily, clients may consent to representation notwithstanding a conflict. However, as indicated in paragraph (b), some conflicts are nonconsentable, meaning that the lawyer involved cannot properly ask for such agreement or provide representation on the basis of the client's consent.").

14 See People v. Odom, 829 P.2d 855, 856 (Colo. 1992); Powell v. McDowell, 718 P.2d 541, 545 (Colo. 1986).

15 See Colo. RPC 1.7 cmt. [15] ("[R]epresentation is prohibited if in he circumstances the lawyer cannot reasonably conclude that the lawyer will be able to provide competent and diligent representation."); id. at cmt. [16] ("Paragraph (b)(2) describes conflicts that are nonconsentable because the representation is prohibited by applicable law.").

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