Conflicts of Interest: A Practical Roadmap McGuireWoods LLP Hypotheticals and Analyses T. Spahn (1/1/20) Master CONFLICTS OF INTEREST: A PRACTICAL ROADMAP Hypotheticals and Analyses* Thomas E. Spahn McGuireWoods LLP * These analyses primarily rely on the ABA Model Rules, which represent a voluntary organization's suggested guidelines. Every state has adopted its own unique set of mandatory ethics rules, and you should check those when seeking ethics guidance. For ease of use, these analyses and citations use the generic term "legal ethics opinion" rather than the formal categories of the ABA's and state authorities' opinions -- including advisory, formal and informal. ______________________ © 2020 McGuireWoods LLP. McGuireWoods LLP grants you the right to download and/or reproduce this work for personal, educational use within your organization only, provided that you give proper attribution and do not alter the work. You are not permitted to re-publish or re-distribute the work to third parties without permission. Please email Thomas E. Spahn ([email protected]) with any questions or requests. 124868322_1 Conflicts of Interest: A Practical Roadmap McGuireWoods LLP Hypotheticals and Analyses T. Spahn (1/1/20) Master TABLE OF CONTENTS Hypo No. Subject Page Adversity to Current Clients: General Rules 1 General Rule -- Adversity to Current Clients…………………………. 1 2 Conflicts Arising in the Course of a Representation………………... 4 Definition of "Client" 3 Government Entities………………………………………………………. 14 4 Partnerships………………………………………………………………… 20 5 Associations………………………………………………………………... 24 6 Insured/Insurance Company…………………………………………….. 28 7 Estates……………………………………………………………………….. 52 8 Bond Counsel………………………………………………………………. 56 Definition of "Client" in a Corporate Setting 9 Identifying the Client Within a Corporate Entity……………………... 57 10 Resolving Intra-Corporate Disputes……………………………………. 69 11 Identifying the Client Within a Closely Held Corporation………….. 74 12 Identifying the Client Within a Corporate Family: Outside Lawyers' Issues……………………………………………………………. 111 13 Identifying the Client Within a Corporate Family: In-House Lawyers' Issues……………………………………………………………. 134 i 124868322_1 Conflicts of Interest: A Practical Roadmap McGuireWoods LLP Hypotheticals and Analyses T. Spahn (1/1/20) Master Hypo No. Subject Page Definition of Adversity 14 Business Adversity……………………………………………………… 140 15 Adverse Financial Impact………………………………………………. 147 16 Discovery of Clients……………………………………………………... 150 17 Positional Adversity……………………………………………………... 169 Adversity in Joint Representation 18 Joint Representations: Basic Rules………………………………….. 173 19 Creditors……………………………………………………………………. 194 20 Opposite Sides of the Same Transaction…………………………….. 197 21 Opposite Sides of the Same Litigation………………………………... 209 Adversity to Former Clients: General Rules 22 General Rule -- Adversity to Former Clients………………………….. 216 23 Defining the End of a Relationship……………………………...……… 223 24 Irrelevance of the Time since the Representation Ended………….. 241 25 Irrelevance of the Representation's Duration………………………… 246 Applying The Former Client Information-Based Conflicts Analysis 26 Meaning of "Substantial Relationship"………………………………... 250 27 "Playbook" Information…………………………………………………... 260 Material Limitation Conflicts 28 Information-Caused Conflicts Not Involving Direct Adversity to 268 Current or Former Clients……………………………………………….. 29 Conflicts Caused by Information from Non-Clients………………… 274 ii 124868322_1 Conflicts of Interest: A Practical Roadmap McGuireWoods LLP Hypotheticals and Analyses T. Spahn (1/1/20) Master Hypo No. Subject Page Withdrawal from a Representation 30 Ability to Withdraw from a Representation At Any Time If There is 286 No Prejudice………………………………………………………………… 31 Ability to Withdraw if the Client Does Not Pay Invoices……………. 288 32 The "Hot Potato" Rule…………………………………………………….. 292 Consents 33 Permitted Disclosure When Seeking Consents……………………… 314 34 Revocability of Consents………………………………………………… 322 35 Prospective Consents…………………………………………………….. 327 Disqualification 36 Disqualification – Standards…………………………………………….. 370 37 Disqualification -- Process and Effect…………………………………. 384 iii 124868322_1 Conflicts of Interest: A Practical Roadmap McGuireWoods LLP Hypotheticals and Analyses T. Spahn (1/1/20) Master General Rule -- Adversity to Current Clients Hypothetical 1 You serve on a bar committee considering fundamental changes to your state's ethics rules. You have been asked to pick one of two basic conflicts rules that will govern a lawyer's adversity to a current law firm client. What basic conflicts rule should apply to a lawyer's adversity to a current law firm client? (A) A conflict exists only if lawyers at the firm are representing opposite sides in a transaction or in litigation. (B) A conflict exists whenever a lawyer becomes adverse to a current law firm client, even on a matter totally unrelated to the law firm's representation of that client. (B) A CONFLICT EXISTS WHENEVER A LAWYER BECOMES ADVERSE TO A CURRENT LAW FIRM CLIENT, EVEN ON A MATTER TOTALLY UNRELATED TO THE LAW FIRM'S REPRESENTATION OF THAT CLIENT. Analysis Lawyers' conflicts of interest rules often seem counterintuitive and much too severe. However, the ABA Model Rules and all but one state (Texas) apply a per se standard in the most common conflicts context. Direct Adversity The ABA Model Rules recognize what they call "a concurrent conflict of interest" if the representation of one client will be directly adverse to another client ABA Model Rule 1.7(a)(1). 1 124868322_1 Conflicts of Interest: A Practical Roadmap McGuireWoods LLP Hypotheticals and Analyses T. Spahn (1/1/20) Master Lawyers' duty of loyalty to their clients prohibits any lawyer in a law firm from taking a matter adverse to any current law firm client on any matter, even if the matter bears no relationship whatever to the law firm's work for that client. • ABA Model Rule 1.7 cmt. [6] ("[A]bsent 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."). • ABA Model Rule 1.7 cmt. [7] ("Directly adverse conflicts can also arise in transactional matters. For example, if a lawyer is asked to represent the seller of a business in negotiations with a buyer represented by the lawyer, not in the same transaction but in another, unrelated matter, the lawyer could not undertake the representation without the informed consent of each client.") • ABA LEO 1495 (12/9/82) (without consent, a lawyer may not be adverse to a current client even on a matter unrelated to that on which the lawyer is representing the client). The one jurisdiction taking a different position is (perhaps not surprisingly) Texas. That state follows the ABA Model Rules in prohibiting lawyers from representing opposite sides of the same litigated matter, but otherwise apparently allows lawyers to take matters adverse to current clients as long as the matters are not "substantially related" to the matter then being handled by the lawyer for that client. (a) A lawyer shall not represent opposing parties to the same litigation. (b) In other situations and except to the extent permitted by paragraph (c), a lawyer shall not represent a person if the representation of that person: (1) involves a substantially related matter in which that person's interests are materially and directly adverse to the interests of another client of the lawyer or the lawyer[']s firm; or (2) reasonably appears to be or become adversely limited by the lawyer[']s or law firm's responsibilities to 2 124868322_1 Conflicts of Interest: A Practical Roadmap McGuireWoods LLP Hypotheticals and Analyses T. Spahn (1/1/20) Master another client or to a third person or by the lawyer[']s or law firm's own interests. (c) A lawyer may represent a client in the circumstances described in (b) if: (1) the lawyer reasonably believes the representation of each client will not be materially affected; and (2) each affected or potentially affected client consents to such representation after full disclosure of the existence, nature, implications, and possible adverse consequences of the common representation and the advantages involved, if any. Texas Rule 1.06(a)-(c). Best Answer The best answer to this hypothetical is (B) CONFLICT EXISTS WHENEVER A LAWYER BECOMES ADVERSE TO A CURRENT LAW FIRM CLIENT, EVEN ON A MATTER TOTALLY UNRELATED TO THE LAW FIRM'S REPRESENTATION OF THAT CLIENT. N 3/12; B 8/14 3 124868322_1 Conflicts of Interest: A Practical Roadmap McGuireWoods LLP Hypotheticals and Analyses T. Spahn (1/1/20) Master Conflicts Arising in the Course of a Representation Hypothetical 2 You have represented the developer of a proposed office building for several years. The key zoning hearing will take place two weeks from now. One of your partners received a call this morning from a nearby landowner (whom your law firm represents on one unrelated matter). The landowner wanted to hire your firm to appear at the zoning hearing and oppose the development. Your partner knew enough to turn down the representation, but now you wonder what effect the landowner's actions will have on your long-standing representation of the developer. Without the other landowner's consent, may you represent the developer at the upcoming zoning hearing? (A) YES (B) NO (B) NO (PROBABLY) Analysis Lawyers normally check for conflicts when starting a new matter for a new client or an existing client. This obviously requires an accurate and complete