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INSIGHT: Preventing Conflicts of Interest in Complex Commercial Litigation

June 25, 2019, 8:01 AM

The basic rules of conflicts of interest are no secret to litigators. Trial lawyers must be vigilant for signs of latent or hidden conflicts not just when they take on new work, but throughout the representation.

Under the rules of professional conduct, lawyers may not take on a matter adverse to another client without first obtaining a waiver of conflicts of interest. A waiver is also needed to take on a matter adverse to a former client that is substantially related to work done for that former client. Some conflicts cannot be waived.

Checking conflicts on potential new matters happens every day at most law firms. But in complex litigation, conflicts that may not be apparent at the beginning of a case can arise later—after the lawyers on the case have stopped thinking about checking for them.

Begin at the Beginning

Even at the start of a new lawsuit, where no conflict exists, the seed of a potential conflict can be lurking below the surface where a lawyer represents more than one party in the same case. At first, the interests of joint plaintiffs or defendants represented by one firm are usually aligned. But inherent in many joint representations is a risk that diverging positions related to the lawsuit will develop later and create a conflict.

For example, lawyers representing co-defendants may find themselves stuck in neutral if one client wants to settle and the other does not. Pursuing the settlement for one client could prejudice the interests of the other. Also, the factual recollections of co-parties may diverge over time, sometimes to the point where the evidence of one undermines the claims or defenses of the other.

Latent conflict issues can sometimes be addressed in an engagement letter at the very beginning of the case, which alerts the clients that a conflict may later develop between them and that there are consequences if it does. Lawyers should consider disclosures to joint clients that the firm may have to withdraw from representing one or more joint clients if a conflict develops after the lawsuit has begun.

For this reason, an engagement letter can warn joint clients that one or more of them may need to engage other counsel at some point during the case.

Know Who Your Client Is

In complex litigation, named parties are often affiliated with entities that have no overt connection to the lawsuit, but have an interest in the outcome. Parent or other affiliated entities may control the litigant and decisions made on its behalf in the lawsuit. The clients named as parties in the litigation may not be the lawyer’s only clients. Lawyers should consider whether parent or affiliated entities with an interest in the litigation are also clients.

When running conflict checks at the beginning of a complex litigation, lawyers should consider whether to name the affiliated parties for conflicts purposes so that the firm has complete records identifying its clients.

In addition to corporate affiliates, constituents of parties to the lawsuit, who play a role the lawsuit, may also become clients. For example, employee deponents who are represented by the company’s law firm at their deposition can themselves become clients if the deponent may reasonably conclude that the company’s lawyers represent that deponent’s personal interests.

If an employee of the litigating party is terminated or becomes the subject of a claim as a result of deposition testimony, the lawyers who defended that deposition may themselves be the subject of claims that the lawyer failed to protect their interests. When the lawyer comes into contact with non-party individuals in these types of circumstances, it is generally a good idea to advise them that the lawyer’s client is the company and not the individual.

Bumps on the Road

In addition to clients and related parties in complex litigation, adverse parties and discovery targets may only surface well into the lawsuit. Lawyers who diligently do conflict checks at the beginning of the lawsuit often forget to do further checks as new parties become involved.

One of the most common latent conflicts of this type is the service of discovery subpoenas on third-parties who may be clients. Clients don’t appreciate being cross-examined by lawyers from their own law firm. Even document subpoenas can become contentious.

Before serving subpoenas on third-parties, let alone seeking to amend or add a new defendant to the case, lawyers should run conflict checks on new players to make sure that they are not clients of the firm. In some cases, firms may have agreed to client engagement terms that prohibit service of a subpoena on the client or their employees without a waiver. If the conflict cannot be waived, or the clients are unwilling, a separate law firm may need to be engaged to handle that part of the case.

The Final Destination

Getting from here to there in a complex lawsuit is never easy. But keeping an eye on potential conflict issues that can arise along the way will help prevent you and your firm from being the target of complex malpractice litigation down the road.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Author Information

Richard J. Rosensweig is a director at Goulston & Storrs in Boston, where he litigates attorney malpractice defense and corporate, business and securities cases.