November 2018

The New Conflict of Interest Rule—It Touches Each New Client; Each New Matter

By Edward McIntyre

Attorney at Law 

On November 1, 2018, new and revised Rules of Professional Conduct become effective for all California lawyers. One, rule 1.7—that each of us will have to address, perhaps every day—is a complete revision of the current conflict of interest rule, rule 3-310.

Rule 1.7(a) prohibits the representation of a client if the representation is directly adverse to another client in the same or a separate matter—without the informed written consent of each client. So far, not a dramatic change.

Such direct adversity, however, includes not only acting as an advocate in one matter against a person the lawyer represents in some other matter, even when they are unrelated, but direct adversity can also arise, for example, when a lawyer cross-examines a non-party witness who is the lawyer’s client in another matter, if the examination is likely to harm or embarrass the witness. Similarly, direct adversity can arise in business transactions when a lawyer represents two or more partners in a partnership whose interests turn from amiable to conflicted.

Rule 1.7(b) prohibits the representation of a client—again without that client’s informed written consent—if the lawyer’s representation will be “materially limited by the lawyer’s responsibilities to or relationships with” (1) another client; (2) a former client; (3) a third person; or (4) by the lawyer’s own interests. This is wholly new; broad in scope; and will require a searching examination of a significant matrix of relationships and the exercise of substantial judgment for each new client and each new matter.

Paragraphs (a) and (b) apply to every type of representation, including the concurrent representation of multiple parties in litigation, or in a single transaction, or in some other common enterprise or legal relationship. For example, the formation of a partnership for several partners; or a corporation for several shareholders; or the preparation of a pre-nuptial agreement or joint or reciprocal wills for a husband and wife.

Thus, under rule 1.7 (b), even if there is no direct adversity—which is addressed by rule 1.7(a)—informed written consent is required 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, interests, or relationships, whether legal, business, financial, professional, or personal.

By way of example, a lawyer’s obligations to two or more clients seeking to form a joint venture may materially limit the lawyer’s ability to recommend or advocate all possible positions that each might take because of the lawyer’s duty of loyalty to the other client(s). Thus the critical questions are: what is the likelihood that a difference in interests exists or will arise and, if it does, whether it will foreclose courses of action that the lawyer should reasonably pursue or recommend on behalf of each client.

These are but a couple of examples. Quite obviously, the risk that a lawyer’s representation may be materially limited may also arise from present or past relationships between the lawyer, or another member of the lawyer’s firm, with a party, a witness, or another person who may be substantially affected by the resolution of the matter.

Even if no significant risk of a material limitation in the representation arises under rule 1.7 (b), rule 1.7(c) requires written disclosure—but not the client’s informed written consent—where the lawyer has or knows that another lawyer in the firm has a (1) legal; (2) business; (3) financial; (4) professional; or (5) personal relationship with or responsibility to a party or witness in the same matter—before the lawyer can represent the client. This is similar to the disclosure requirements of current rule 3-310 (B)

Finally, even if the lawyer complies with rule 1.7(a)-(c), rule 1.7(d) prohibits the representation unless the lawyer reasonably believes (1) that she or he will be able to provide competent and diligent representation; (2) the representation is not prohibited by law; and (3) the representation does not involve the assertion of a claim by one client against another represented by the lawyer in the same litigation or other proceeding before a tribunal. This provision is also new and expressly incorporates the competence rule (rule 1.1) and the diligence rule (rule 1.3) into the conflict of interest rule, as well as the dictates about unwaivable conflicts in Flatt v. Superior Court (1994) 5 Cal 4th 275.      

Not only does a conflict of interest analysis attend each new matter and each new client, but we have to bear in mind that the Rules of Professional Conduct are not solely focused on lawyer discipline. They also have a substantial role in defining “duty” for purposes of a lawyer’s claimed breach of fiduciary duty. Mirabito v. Liccardo (1992) 4 Cal.App.4th 41, 45-47.

While avoiding conflicts of interest has always been of critical importance, the need for adequate investigation, disclosures and consent prior to a representation—and throughout—has only been heightened under the new and revised rules.