This is part of the Ethics Committee’s regular series of Ethics Minutes for federal litigators and others— what to watch out for, what to do, and what not to do. Let us know what you think! Have an idea for a future Ethics Minute? Email our Committee Chair, Caroline Johnson Levine, at firstname.lastname@example.org!
The Curtain Rises
Law Firm is representing Public Entity in labor and employment matters. Public Entity has signed a representation agreement that includes an advance waiver allowing Firm to represent any other client “currently or in the future” in matters not substantially related to Public Entity’s representation in employment matters.
In the same timeframe, Public Entity, represented by a different law firm, sues a group of companies, including Company A, for fraud. A partner at Firm begins to represent Company A in the fraud case. The partner has Company A sign the same form of representation agreement that Public Entity did but does not notify either client of the conflict of interest created by the Firm’s representation of the clients adverse to each other in unrelated matters.
Company A finds out that Firm is representing Public Entity, fires Firm from its employment matters, and moves to disqualify Firm from representing Public Entity in the fraud litigation. The court grants disqualification, finding that the conflict waiver Company A signed was unenforceable because, without informed consent from both clients, it violated the ethics rules.
As icing on the cake, Company A fails to pay Firm nearly $1 million in legal fees, but in Firm’s suit against Company A for nonpayment, the court holds the representation agreement entirely unenforceable because, notwithstanding the broad conflict waiver, the undisclosed conflict violated the ethics rules, and the conflict disentitles Firm from receiving any compensation under the agreement. Firm is therefore limited to recovering only under the equitable doctrine of quantum meruit.
The Moral of the Story
Advance conflict of interest waivers may be enforceable in some scenarios but must also be measured against the ethics rules. As explained in DC Bar Ethics Opinion 309, “the term ‘advance waiver’ means one that is granted before the conflict arises and generally before its precise parameters (e.g., specific adverse client, specific matter) are known.”
Conflict of interest rules generally do not allow representing a party in one matter and simultaneously representing an adverse party in another unrelated matter unless the “informed written consent” of each party is received (American Bar Association Model Rule 1.7). Comment 18 provides that “Informed consent requires that each affected client be aware of the relevant circumstances and of the material and reasonably foreseeable ways that the conflict could have adverse effects on the interests of that client.” This rule is generally referred to as the “duty of loyalty” and applies even if the representations have nothing in common.
The scenario above is similar to a California Supreme Court decision (Sheppard, Mullin, Richter & Hampton LLP v. J-M Manufacturing Company, 6 Cal. 5th 59 (2018)). The court found the advance conflict waiver unenforceable because the firm did not disclose all relevant facts to the clients. The waiver put the clients on notice that a future conflict might exist, but failed to disclose a current conflict that actually existed, so there was no informed consent, the court said. The court made clear that failing to notify clients about current conflicts would render an advance conflict waiver unenforceable.
However, the court did not rule out the enforceability of advance conflict waivers in all circumstances. As the opinion and DC Bar ethics opinion make clear, attorneys should consider the specific facts of their situation before determining whether an advance conflict waiver serves as informed consent when representing adverse parties. Each client needs to be given the opportunity to make an informed decision about the representation.
“Ethics Minutes” are for your general information and do not constitute legal advice. The rules, ethics opinions, and disciplinary cases in particular jurisdictions vary, and might result in an outcome different from the scenarios that are described here.
About the Author
Nicole Kolinski is an attorney for the Architect of the Capitol Office of General Counsel. She serves on the FBA’s Ethics Committee and as a Capitol Hill Chapter Council member. The above reflects the views of the author and do not represent the position of the Architect of the Capitol, the legislative branch, or any government agency.
About the FBA
Founded in 1920, the Federal Bar Association is dedicated to the advancement of the science of jurisprudence and to promoting the welfare, interests, education, and professional development of all attorneys involved in federal law. Our more than 16,000 members run the gamut of federal practice: attorneys practicing in small to large legal firms, attorneys in corporations and federal agencies, and members of the judiciary. The FBA is the catalyst for communication between the bar and the bench, as well as the private and public sectors. Visit us at fedbar.org to learn more.