Duty of Loyalty and Conflict of Interest

Question 1

Duty of Loyalty

Answer 1

A lawyer owes his client the fiduciary duty of loyalty, which means that he must act in the client’s best interest and avoid conflicts. This duty requires that the lawyer not represent a client when a conflict of interest exists.

Additionally, a lawyer CANNOT engage in self-dealing OR act in his own interest rather than the client’s best interest.

Question 2

Conflicts of Interest: Concurrent Conflict

Answer 2

A concurrent conflict of interest exists if:

(a) the representation is directly adverse to another client; OR
(b) there is a significant risk that the lawyer’s representation will be materially limited due to his (i) personal interests or (ii) responsibilities to another present/former client or third- person.

Question 3

Conflicts of Interest: Concurrent Conflicts–exceptions

Answer 3

A lawyer MAY represent a client whose interests conflict if:
(1) he reasonably believes that he will be able to provide competent and diligent representation to the client;
(2) the representation is not prohibited by law;
(3) he’s not representing parties on opposite sides of the same litigation; AND
(4) each client affected by the conflict gives informed consent (CA = informed written consent; ABA =
informed consent, confirmed in writing).

Question 4

Concurrent Conflicts of Interest: What constitutes “informed consent?”

Answer 4

(CA = informed written consent; ABA =

informed consent, confirmed in writing).

Question 5

Concurrent Conflicts of Interest: Dual Representation in Criminal Cases:

Answer 5

A lawyer should normally DECLINE to represent multiple defendants in a criminal case because the potential for a conflict of interest is so grave.

Question 6

Concurrent Conflicts of Interest: California Lawyers Providing Written Disclosure

Answer 6

In CA, a lawyer must provide written disclosure (even if there is no significant risk that the representation will be limited) when the lawyer:

(a) has (or knows that another lawyer in the firm has) a legal, business, financial, professional, or personal relationship to a party or witness in the same matter; OR
(b) knows or reasonably should know that another party’s lawyer is a family member (spouse, parent, child, sibling), lives with, or is a client of the lawyer (or another lawyer in the firm) or has an intimate personal relationship with the lawyer.

Question 7

Former Client Conflicts–General Duty Owed

Answer 7

A lawyer owes his clients the fiduciary duty of loyalty, which requires that the lawyer not represent a client when a conflict of interest exists.

Question 8

Former Client Conflicts–Former Clients of the Lawyer

Answer 8

Unless a former client gives informed consent, a lawyer CANNOT thereafter represent another person in the same or a substantially related matter when the person’s interests are materially adverse to the interests of the former client.

Question 9

Former Client Conflicts–Former Clients of the Lawyer’s Firm

Answer 9

Unless a former client gives informed consent, a lawyer CANNOT knowingly represent a person in the same or a substantially related matter that the lawyer’s firm had previously represented a client:

(1) whose interests are materially adverse to that person; AND
(2) about whom the lawyer had acquired confidential information that is material to the matter.

Question 10

Former Client Conflicts–Using Former Client’s Information

Answer 10

A lawyer CANNOT use or reveal confidential information to the detriment of a former client.

Question 11

Former Client Conflicts–What’s the meaning of “informed consent?”

Answer 11

Informed written consent (CA) vs. Informed consent, confirmed in writing (ABA).

Question 12

Conflicts of Interests with/from Prospective Clients-General Restrictions

Answer 12

1. A lawyer CANNOT disclose confidential information received from a prospective client.
2. A lawyer CANNOT represent a client with materially adverse interests to a prospective client in the same or a substantially related matter if the lawyer received confidential information material to the matter from the prospective client.

Question 13

Conflicts of Interest with/from Prospective Clients–Exceptions to the General Restrictions

Answer 13

o Exception #1: If both the affected client and
prospective client give informed consent (CA = informed written consent; ABA = informed consent, confirmed in writing).

o Exception #2: When the lawyer with whom the prospective client consulted is timely screened from participation in the matter AND written notice is promptly given to the prospective client.

Question 14

Conflicts of Interest with/from Prospective Clients–Definition of a Prospective Client

Answer 14

In CA, a prospective client is someone who consults the lawyer for the purpose of hiring the lawyer OR securing legal services/advice.

Under the ABA, a prospective client is someone who consults with a lawyer about the possibility of forming a client-lawyer relationship with respect to a matter.

Question 15

Conflicts of Interest with/from Prospective Clients–People Excluded from Definition of Prospective Client

Answer 15

Excluded are those who communicate information:

(a) unilaterally without a reasonable expectation that the lawyer is willing to be retained;
(b) after the lawyer has stated an unwillingness or inability to consult [CA only];
(c) without a good faith intention to seek legal advice or representation [CA only];
(d) in response to advertising that merely describes the lawyer’s education, experience, areas of practice, and contact information, or provides legal information of general interest [ABA only]; OR
(e) for the purpose of disqualifying the lawyer [ABA only].

Question 16

Conflicts Imputed to Firm–In General

Answer 16

Generally, a conflict of interest is imputed to the entire law firm, and the entire firm is disqualified from the representation.

Question 17

Conflicts Imputed to Firm–Exceptions

Answer 17

However, the law firm will NOT be disqualified if:

(a) the conflict is purely personal and does not materially limit the representation; OR
(b) the lawyer is properly screed when: (i) the conflict arises out of association with the lawyer’s previous firm, (ii) the lawyer is timely screened and doesn’t receive a portion of the fee, (iii) written notice is given to the former client; and (iv) [CA only] the lawyer did not substantially participate in the matter at the prior firm.

Question 18

Conflicts of Interest–Former Government Lawyers

Answer 18

Former government lawyers (including prosecutors) who worked personally and substantially on a matter CANNOT work on that same matter at a private firm UNLESS the government agency consents in writing.

The conflict will NOT be imputed to the rest of the firm if: (1) the lawyer is timely screened and doesn’t receive a portion of the fee; AND
(2) prompt written notice is given to the government agency.

Question 19

Business Ownership by a Lawyer

Answer 19

A lawyer may own and operate a business separate from the practice of law. However, the lawyer must be careful to not engage in a business that would pose a conflict of interest with his clients.

Question 20

Business Transactions with a Client & Pecuniary Interests Adverse to the Client–Requirements for Permission

Answer 20

A business transaction between a lawyer and current client is only permitted if:

(1) all terms are fair and reasonable to the client;
(2) the terms are fully disclosed in writing;
(3) the client is advised to consult with outside counsel and is given reasonable opportunity to do so; AND
(4) the client consents in writing.

This rule also applies when a lawyer knowingly acquires an ownership, possessory, security, or pecuniary interest adverse to the client.

Question 21

Business Transactions with a Client & Pecuniary Interests Adverse to the Client–Exceptions to General Rule

Answer 21

This rule DOES NOT apply to:

(a) ordinary fee arrangements between a client and lawyer – except when accepting an ownership interest in a client’s business or other property as full/partial payment of legal fees;
(b) standard commercial transactions for products/services that the client generally markets to others; and
(c) to a charging lien given to secure payment of a contingency fee [CA only].

Question 22

Proprietary Interest in a Case–ABA

Answer 22

Under the ABA, A lawyer CANNOT acquire a proprietary interest (ownership interest) in the cause of action or subject matter of litigation the lawyer is conducting for a client UNLESS:

(a) acquiring a lien authorized by law to secure the lawyer’s fee or expenses; OR
(b) a contract for a contingency fee in a civil case.

Question 23

Proprietary Interest in a Case–CA

Answer 23

In CA, there is no direct counterpart to the ABA rule.

However, retaining liens are NOT allowed. Upon termination, the lawyer must release to the client all client materials and property (except for materials subject to a protective order, non-disclosure agreement, or statute/regulation).

Question 24

Use of Current Client’s Information to Client’s Disadvantage

Answer 24

A lawyer CANNOT use a client’s confidential information to the disadvantage of the client UNLESS:

(a) the client gives informed consent; OR
(b) the use is permitted by the relevant ethical rules.

Question 25

Soliciting Gifts from a Client

Answer 25

A lawyer CANNOT solicit a client to make a substantial gift (including a testamentary gift) to the lawyer or lawyer’s relative UNLESS the lawyer/recipient is related to the client.

Question 26

Preparing an Instrument that Gives Gift to Lawyer/Relative

Answer 26

A lawyer CANNOT prepare an instrument for the client giving the lawyer or lawyer’s relative a substantial gift UNLESS: (a) the lawyer/recipient of the gift is a related to the client; OR (b) [CA only] an independent lawyer advised the client and has provided a Certificate of Independent Review. “Related/Relative” means a close family relationship.

Question 27

Accepting Gifts from a Client

Answer 27

A lawyer MAY accept a gift from a client subject to the general standards of fairness and absence of undue influence (i.e. a simple gift such as a holiday present or token of appreciation).

Question 28

Acquisition of Client’s Literary/Media Rights–ABA

Answer 28

Prior to the conclusion of the representation, a lawyer CANNOT make/negotiate an agreement giving the lawyer literary or media rights to a portrayal or account (based in substantial part) on information relating to the representation.

Question 29

Acquisition of Client’s Literary/Media Rights–CA

Answer 29

No such rule exists

Question 30

Financial Assistance & Loans to Clients

Answer 30

A lawyer CANNOT provide financial assistance to a client, except in the following instances:

o (a) advancing litigation costs/expenses in contingency cases;
o (b) advancing an indigent client’s litigation expenses/costs;
o (c) paying a third-party from funds collected or to be collected with consent of the client [CA only]; OR
o (d) a personal loan to the client, after the lawyer is
retained, with a written promise to repay by the client, and compliance with relevant ethical rules (current client conflicts rule and business transactions with client rule) [CA only]. Under the ABA, loans to clients for personal expenses are never permitted.

• Under the ABA, this rule applies only in connection with pending or contemplated litigation. In CA, the rule applies in all situations.

Question 31

Payment of Legal Fees by a Third-Party

Answer 31

• A third-party MAY pay a client’s legal fees if:

(1) the client gives informed consent (in CA, informed written consent is required);
(2) there is no interference with the lawyer’s independence of professional judgment or the lawyer-client relationship; AND
(3) information related to the representation remains confidential.

• In CA, the informed written consent requirement DOES NOT apply to a lawyer rendering legal services on behalf of any public agency (or nonprofit organization) that provides legal services to the public or other public agencies.

Question 32

Serving on the Board of a Client’s Organization

Answer 32

• If a lawyer seeks to serve as a board member for a corporation/organization he represents, he must do so effectively AND without jeopardizing his ethical duties to the company as his client.
• A director who is also a lawyer of the company is held to a higher standard in their knowledge of company matters.

Question 33

Aggregate Settlements & Pleas

Answer 33

• If a lawyer represents multiple clients in a case, the lawyer MUST obtain informed written consent of each client before entering into an aggregate settlement of claims (in a civil case) OR guilty or nolo contendere pleas (in a criminal case).
• However, this rule DOES NOT apply to class action settlements subject to court approval.

Question 34

Limiting Liability to a Client–CA

Answer 34

In CA, a lawyer CANNOT contract to prospectively limit the lawyer’s liability to the client for malpractice.

Question 35

Limiting Liability to a Client–ABA

Answer 35

Under the ABA, a contract prospectively limiting the lawyer’s liability for malpractice is permitted if the client is independently represented in making the agreement.

Question 36

Settling a Claim for Legal Malpractice

Answer 36

Under both the ABA and CA, a lawyer CANNOT settle a claim (or potential claim) for professional malpractice liability, UNLESS the client is:

(a) represented by an independent lawyer for the settlement; OR
(b) advised in writing that the client may seek the advice of an independent lawyer and is given a reasonable opportunity to do so.

Question 37

Sexual Relations with Client

Answer 37

Under both the ABA and CA, a lawyer CANNOT have sexual relations with a current client UNLESS a consensual sexual relationship existed before representation.

o In CA, a lawyer’s spouse or registered domestic partner are specifically excluded from the definition of “current client”.

Question 38

Sexual Relations with Client when Client is an Organization

Answer 38

When the client is an organization, this rule also prohibits a lawyer for the organization (whether inside counsel or outside counsel) from having a sexual relationship with a constituent of the organization who supervises, directs, or regularly consults with that lawyer concerning the organization’s legal matters.

Question 39

Is a conflict of interest from a Sexual Relationship with a Client Imputed to the entire law firm?

Answer 39

No

Question 40

Representing an Organization–Lawyer’s Duty to Organization

Answer 40

A lawyer employed by an organization (i.e. a corporation or LLC) represents the organization acting through its duly authorized constituents (directors, officers, employees, owners). In this situation, the lawyer must act in the best interests of the organization.

Question 41

Representing an Organization–Lawyer duty while communicating with the Organization’s constituents

Answer 41

The lawyer representing the organization MUST explain the identity of the client when dealing with constituents that have adverse interests to the organization.

Question 42

Representing an Organization–Representing individual officers, directors, or managers concurrently with organization

Answer 42

A lawyer MAY also represent the officers, directors, or managers of the organization individually, BUT must:
(1) abide by applicable conflict of interest rules; AND (2) obtain consent to the dual representation (when such consent is required under the rules) by (a) an appropriate official of the organization – other than the person to be represented, or (b) the shareholders.

Question 43

Representing an Organization–Reporting Violations (Generally)

Answer 43

A lawyer MUST “report up” the actions of constituents within an organization under certain circumstances. Specifically, when a lawyer knows a constituent is acting in a manner that (1) violates the law or a legal obligation AND (2) that action is likely to result in substantial injury to the organization, the lawyer must report those actions up to a higher authority in the organization – including the highest authority if necessary.

However, the lawyer DOES NOT have to report up if he reasonably believes that it’s not in the best interest of the organization to do so.

Question 44

Representing an Organization–Reporting Violations (ABA)

Answer 44

Under the ABA: If the highest authority within the organization refuses to change course in a timely manner, the lawyer MAY report outside of the organization if:

(1) the action or refusal to act is clearly a violation of law; AND
(2) the lawyer reasonably believes the violation will result in substantial injury to the organization. When reporting outside the organization, the lawyer may only reveal confidential information to the extent necessary to prevent substantial injury.

o However, the above ABA rule DOES NOT apply when the lawyer is hired by the organization to investigate or defend against an alleged violation of law.

Question 45

Representing an Organization–Reporting Violations (CA)

Answer 45

In CA: If the highest authority within the organization refuses to change course, the lawyer CANNOT report outside of the organization, as that would violate the prohibition on sharing confidential information. The lawyer can continue to act in the best lawful interests of the organization or resign (if appropriate).