Risk Update

Navigating Conflicts Complexities — Material Limitation Conflicts, Positional Conflicts, Business Conflicts

Michael J. Rossi, a partner at Conn, Kavanaugh, Rosenthal, Peisch & Ford, writes on: “Spotting and avoiding ‘material limitation’ conflicts of interest” —

  • “Even if two clients are not directly adverse, a conflict of interest may arise if a lawyer’s ability to represent a client is materially limited by the lawyer’s other responsibilities or personal interests. These ‘material limitation’ conflicts are a minefield and are not always apparent. This column provides some tips on how to avoid them.”
  • “Comment 8 [to Mass. R. Prof. C. 1.7] provides that a conflict of interest exists if there is a ‘significant risk that a lawyer’s ability to consider, recommend or carry out an appropriate course of action for the client will be materially limited as a result of the lawyer’s other responsibilities or interests.'”
  • “The Supreme Judicial Court observed in Maling v. Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, 473 Mass. 336 (2015), that the ‘critical inquiry’ in analyzing potential conflicts under the second prong of Rule 1.7 ‘is whether the lawyer has a competing interest or responsibility that will materially interfere with the lawyer’s independent professional judgment in considering alternatives or foreclose courses of action that reasonably should be pursued on behalf of the client'”
  • “Material limitation conflicts under Rule 1.7 tend to arise in a number of familiar scenarios. The most common is when a lawyer represents multiple clients in the same matter. If an attorney simultaneously represents an employer and an employee, for example, the lawyer’s ability to recommend a course of action to one client may be impacted by the lawyer’s duty of loyalty to the other. This is especially true when the employee is alleged to have committed misconduct that exposed the employer to a lawsuit.”
  • “Joint representation can also pose a problem when a lawyer represents more than one plaintiff in a personal injury case. The interests of joint clients may align at the outset of a case but diverge as the matter progresses, such as when one client wants to accept a settlement offer and the other wants to proceed to trial.”
  • “The mere possibility of a future conflict between joint clients does not require a lawyer to decline representation. In practice, lawyers often represent more than one client in a case. The critical question for a conflict analysis is the likelihood that a difference in interests will emerge and, if it does, whether it will materially interfere with the lawyer’s independent professional judgment.”
  • “The best approach when an attorney is asked to represent multiple clients is to (a) determine whether the clients’ interests are sufficiently aligned, such that the lawyer can adequately represent both of them, (b) disclose the special considerations for joint representation in the engagement letter, including the sharing of confidential information, and (c) be vigilant about changing circumstances in the case that may require the lawyer to withdraw as counsel for one or both clients.”
  • “A second scenario that is ripe for material limitation conflicts under Rule 1.7 is when tensions arise in the attorney-client relationship. If a lawyer makes a material mistake in the handling of a case, the lawyer has a personal interest in not getting sued for malpractice. That interest may interfere with the lawyer’s independent judgment in pursuing a course of action in the client’s best interest.”
  • “For example, an attorney who omits a key argument in a brief may be tempted to advise the client in a way that minimizes the mistake, rather than one that maximizes the client’s interests. When a lawyer believes his or her personal interests may be in conflict with a client’s interests, the lawyer should advise the client to seek independent legal advice before continuing the representation.”
  • “A third scenario that gives rise to material limitation conflicts is when a lawyer’s action on behalf of one client materially limits the lawyer’s effectiveness in representing another client. These so-called ‘positional’ conflicts often arise when lawyers in the same law firm argue different sides of a legal issue in unrelated matters. The ethical risk is two-fold. On one hand, attorneys may find themselves in the undesirable position of creating legal precedent that is adverse to a client’s interest. On the other hand, a lawyer may be reluctant to advance a particular argument for one client in order not to offend another client.”
  • “Positional conflicts are especially tricky because they are not detectable through the conflict check processes that most law firms use. Further complicating matters, the ethical rules on positional conflicts are vague.”
  • “Comment 24 to Rule 1.7 states that ‘[t]he mere fact that advocating a legal position on behalf of one client might create precedent adverse to the interests of [another] client in an unrelated matter does not create a conflict of interest.’ Only when the risk of a material limitation is significant must the lawyer refuse the representation or withdraw from one or both matters.”
  • “The scenarios discussed above are not exhaustive. Material limitation conflicts can also arise when a lawyer enters into a business transaction with a client (e.g., a promissory note for the payment of fees), when a lawyer has a personal relationship with opposing counsel, or when an attorney has strongly held political beliefs that bear upon the subject matter of a representation.”
  • “Material limitation conflicts are subtle and not always detectable through standard conflict check procedures. To avoid them, lawyers should ask themselves at all stages of an engagement whether their professional judgment might be compromised by competing interests, whether personal or professional. If there is any doubt, it is best to seek the advice of an in-house ethics partner or outside counsel.”