Ethics in Brief

Ethics in Brief is designed to present ethical issues that practitioners might well face on a daily basis. It is a service of the Legal Ethics Committee of the San Diego County Bar Association.


Informed Written Consent vs. Advance Waiver 
A Conflict Check; a Costly Choice 

A major corporation that some 200 governmental entities had sued asked two partners in a large law firm to represent it — massive litigation; substantial piece of business. But a conflict check disclosed that another partner had represented a municipal entity on an as-needed basis in unrelated employment matters. That municipal entity was a plaintiff in the action in which they were asked to represent the corporate defendant. Then they looked at the firm’s engagement agreement that the municipal entity had signed and that they would present to the corporate defendant. It had an advance waiver provision:

Conflicts with Other Clients. [Law firm] has many attorneys and multiple offices. We may currently or in the future represent one or more other clients (including current, former, and future clients) in matters involving [corporate defendant]. We undertake this engagement on the condition that we may represent another client in a matter in which we do not represent [corporate defendant], even if the interests of the other client are adverse to [corporate defendant] (including appearance on behalf of another client adverse to [corporate defendant] in litigation or arbitration) and can also, if necessary, examine or cross-examine [corporate defendant] personnel on behalf of that other client in such proceedings or in other proceedings to which [corporate defendant] is not a party providedthe other matter is not substantially related to our representation of [corporate defendant] and in the course of representing [corporate defendant] we have not obtained confidential information of [corporate defendant] material to representation of the other client. By consenting to this arrangement, [corporate defendant] is waiving our obligation of loyalty to it so long as we maintain confidentiality and adhere to the foregoing limitations. We seek this consent to allow our Firm to meet the needs of existing and future clients, to remain available to those other clients and to render legal services with vigor and competence. Also, if an attorney does not continue an engagement or must withdraw therefrom, the client may incur delay, prejudice or additional cost such as acquainting new counsel with the matter.

The firm’s associate general counsel and its general counsel both agreed that this advance waiver, which the municipal entity had also signed, was sufficient. The firm did not have to obtain the informed written consent of either the municipal entity or the corporate defendant. No one sought the advice of outside counsel.

The litigation partners presented the engagement agreement to the corporate defendant’s general counsel; they did not reveal what their conflict check had turned up; she signed the agreement and the representation began.

Three weeks later, the municipal entity again engaged the employment partner for some additional work, about 12 hours of billed time until things erupted.

When the municipal entity learned of the conflict, it brought a successful motion to disqualify the law firm. The firm then sued its former client, the corporate defendant, for unpaid fees. The firm succeeded at arbitration and in a confirmation proceeding in superior court. The court of appeal, however, reversed.

The court held that the firm had violated Rule of Professional Conduct 3-310 that mandates each client’s informed written consent to both potential and actual conflicts of interest. “Written consent to all potential and actual conflicts in the absence of any knowledge about the existence of such conflicts cannot comply with the requirement of “informed written consent” in Rule 3-310(C). Because [law firm] failed to secure informed written consent to the conflict before or during its representation of [corporate defendant], the Agreement violated Rule 3-310.” The court also held that the firm’s “boilerplate” waiver provision was insufficient to save it and, thus, that its engagement agreement was illegal in violation of the public policy embodied in the ethics rule. Finally, the court held that the firm was entitled to no fees: it must disgorge what it had received and not get those fees awarded in arbitration — about $3.8 million in total for 16 months’ work. The court reinforced the line of authority that the consequence of an actual conflict is complete fee disgorgement; the lawyer is not entitled to a quantum meruit award.

Would the municipal entity and corporate defendant have consented to the representation? We’ll never know, but if each wanted the firm’s skills badly enough, perhaps. Would outside ethics counsel have given the same advice? Likely not. Do such waivers work? At best, only with the client’s fully informed consent. Sheppard, Mullin, Richter & Hampton, LLP V. J-M Mfg. Co., Inc. (2016) 244 Cal.App.4th 590 (January 29, 2016).

-- Edward McIntyre

**No portion of this summary is intended to constitute legal advice. Be sure to perform independent research and analysis. Any views expressed are those of the author only and not of the SDCBA or its Legal Ethics Committee.**