1. Law Firm Risk Management is a “Risky Business” CONFLICTS 101

2. Jennifer Schwendemann Director of Risk Management & New Business Intake

3. Conflicts 101 Learning Objectives:
Learn how and when to conduct a Conflict Search.
Learn the ethical rules that surround lateral hires, current and former clients.
Discover how to deal with outside counsel, business conflicts, and ethical walls.
Examine best practices for lateral attorney hires.
Customize your departing lawyer and lateral integration process to limit risk to your firm.

4. Conflicts 101 Why run a conflict search? How do you run a conflict?
What are the Rules to resolve conflicts?
What happens when we break the rules?

5. Why do a Conflicts Check?
THE RULES OF PROFESSIONAL RESPONSIBILITY
The General Rule
Lawyers are precluded from taking on representations adverse to existing clients, and sometimes former clients, unless clients consent, i.e. signed engagement letter with unrelated matter conflict waiver or a specific waiver

6. Why do a Conflicts Check?
BUSINESS CONFLICTS
Our clients expect loyalty. They don’t want us representing their competitors. They expect us to fulfill our commitment to them and zealously advocate for their interests, not their business competitors.

7. When do you run a conflicts search?
Before you do any new work.
When you are adding any new parties to an existing matter.
Whenever you seek to take third party discovery (issue a subpoena). (ABA Formal Opinion )
When you are responding to an RFP or planning a coordinated marketing pitch to a new client.
Lateral Hires

8. Conflicts of Interest: The Rules
Current Clients
Former Clients
Imputed Conflicts
Lateral Conflicts

9. Conflicts of Interest How Do You Run a Conflict Search
Need Accurate Information
Names
Addresses
Relationships
Need an Experienced / Trained Staff
Need Firm Management Support

10. Conflicts of Interest General Rule – Current Clients
ABA Model Rule 1.7
RULE 1.7: CONFLICT OF INTEREST: CURRENT CLIENTS
(a) Except as provided in paragraph (b), a lawyer shall not represent a client if the representation involves a concurrent conflict of interest. A concurrent conflict of interest exists if:
(1) the representation of one client will be directly adverse to another client; or
(2) there is a significant risk that the representation of one or more clients will be materially limited by the lawyer's responsibilities to another client, a former client or a third person or by a personal interest of the lawyer.
(b) Notwithstanding the existence of a concurrent conflict of interest under paragraph (a), a lawyer may represent a client if:
(1) the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client;
(2) the representation is not prohibited by law;
(3) the representation does not involve the assertion of a claim by one client against another client represented by the lawyer in the same litigation or other proceeding before a tribunal; and
(4) each affected client gives informed consent, confirmed in writing.

11. DC Rule 1.7
Requires a waiver where a current client’s specific position in a matter is directly adverse (like the ABA) to another client or where the representation will be adversely affected by representation of another client or financial personal interests.
Client must give informed consent, but not necessarily in writing, after receiving full disclosure, and the attorney must reasonably believe that she can provide competent, loyal and independent judgment. (R.1.7(c))

12. Conflicts of Interest Duties to Former Clients
ABA Model Rule 1.9 RULE 1.9: DUTIES TO FORMER CLIENTS (a) A lawyer who has formerly represented a client in a matter shall not thereafter represent another person in the same or a substantially related matter in which that person's interests are materially adverse to the interests of the former client unless the former client gives informed consent, confirmed in writing. (b) A lawyer shall not knowingly represent a person in the same or a substantially related matter in which a firm with which the lawyer formerly was associated had previously represented a client (1) whose interests are materially adverse to that person; and (2) about whom the lawyer had acquired information protected by Rules 1.6 (Rule dealing with Confidential information) and 1.9(c) that is material to the matter; unless the former client gives informed consent, confirmed in writing.

13. DC Rule 1.9 Rules of Professional Conduct: Rule 1.9-
Conflict of Interest: Former Client
A lawyer who has formerly represented a client in a matter shall not thereafter represent another person in the same or a substantially related matter in which that person's interests are materially adverse to the interests of the former client unless the former client gives informed consent.

14. What is “substantially related”?
Looking for cases that involve similar law and similar facts:
Same transaction or legal dispute.
A substantial risk that confidential factual information as would normally have been obtained in the prior representation would materially advance the clients position in the subsequent matter.
Substantially related: Lawyer represented Seller in selling parcel of land. Now Buyer wants Lawyer to sue Seller for fraud in connection with that sale.
Not substantially related: Lawyer represented Seller in selling parcel of land. Now Accident Victim wants Lawyer to sue Seller/Driver for auto accident across town.
Substantially related: A lawyer who represented a business person and learned extensive private financial information about that person may not represent that person’s spouse in a divorce action.
Not substantially related: Lawyer represents client in securing environmental permits to build a shopping center. Lawyer is not precluded from representing a tenant of the shopping center for eviction based on non-payment of rent.

15. What “Cures” a Conflict? Conflicts Waivers
Must be in writing, in most jurisdictions (not D.C.)
Full disclosure of facts and possible effects of conflict
Should obtain consent of new client before disclosing conflict to other client
An will suffice – confirming oral waiver is ok
Sophisticated user of legal services

16. Ethical Walls
Imaginary “wall” separating lawyers and files for one client or matter, from lawyers and files for another client or matter.
In most jurisdictions, can’t “cure” a conflict by itself – still need clients’ consent.
But may help persuade clients to consent.
Exceptions: if set up in timely manner, resolve conflicts for former government attorneys and non-lawyer staff.

17. What “Cures” a Conflict? Ethical Walls & Consent
Ethical Wall bars affected lawyer(s) from:
Communicating regarding the matter
Accessing any documents or files (hard or electric) for matter
Clients sometimes require or request these as conditions of their consent to waive conflicts
Except for conflicts involving government lawyers, generally firm can’t unilaterally set up a wall to “cure” a conflict – clients must still consent

18. Ethical Walls… continued
1. Ethical walls unilaterally set up by a firm do not resolve conflicts (except for former government employees, non-lawyers, and prospective client conflicts). See D.C. R.P.C (imputation of conflicts); D.C. Formal Ethics Op. No. 279 (1998). 2. From Op. No. 282 (1992), Fn. 1: “[A]n ‘ethical wall’ has only been discussed once in dicta by our Court of Appeals, and any inference that such a wall would lessen the strict imputed disqualification stated in Rule 1.10(a) was removed by the Court when it promulgated Comment [15] to Rule 1.10(a). Thus, the existence of an ‘ethical wall’ does not remove the obstacle of imputed disqualification presented by Rule 1.10(a).”

19. What happens if we fail to identify and resolve a potential conflict of interest?
Sanctions
Court Costs / Other Fees
Refund Fees
Malpractice Damages
Attorney Disciplinary Action
Lose Clients

20. Take Aways:
Always Run a Conflict – Have Experienced Staff; train your lawyers on the information needed to run a legitimate conflict.
Be Aware of Your Current & Former Clients
Ethical Walls Do Not Automatically Cure a Conflict
Failing to Identify Conflicts of Interest Can Lead to Harming a Firm or a Lawyers Reputation

21. Law Firm Risk Management is a “Risky Business” Advance Conflicts Issues

22. More Complicated Conflict Issues
Direct Adversity
“Substantially Related” matters
How to treat corporate families
Hot Potato Conflicts
Lateral Conflicts
Outside Counsel Guidelines
How to Resolve Conflicts
Advance Conflict Waivers

23. Direct Adversity - Same Litigation
General Rule: The same lawyer cannot represent opposing parties in the same litigation even if consent from both parties is given.
Exception:
No fault divorce – no alimony, custody, child support or property issues. A minority view that one lawyer can represent both parties if the parties consent to the joint representation.
DC rule 1.7 comment (6) anticipates such a situation
DC Opinion 143 (1984) and 243 (1993)

24. Direct Adversity Other Matters (continued…)
Can be adverse in matters other than same litigation if:
Both clients consent, and
Lawyer reasonably believes she can represent both clients competently and diligently
(ABA Model Rule 1.7(b); D.C. Rule 1.7(c))
The more similar the matters, the harder it may be to get consent and be competent and diligent

25. Corporate Client Conflicts
How many of you search or know if you search the corporate family tree of the parties submitted for a conflicts check?
Corporation A, a longtime firm client asks you to represent it in a major commercial suit against Corporation B. The conflicts search reveals that one of your partners is involved in a large real estate deal for Corporation C and Corporation C’s parent is Corporation B. May your firm sue corporation B while simultaneously representing its subsidiary, Corporation C, in an unrelated matter?

26. How to Treat Corporate Clients (continued…)
No Bright Line Test
Rule 1.7 comment (34) suggests it’s permissible
A lawyer who represents a corporation or other organization does not, by virtue of that representation, necessarily represent any constituent or affiliated organization, such as a parent or subsidiary. See Rule 1.13(a). Thus, the lawyer for an organization is not barred from accepting representation adverse to an affiliate in an unrelated matter; unless affiliate should be treated as client of representation likely to be impaired.
ABA Formal Opinion
Also rejecting a bright-line approach, ABA Formal Opinion (Jan. 25, 1995) held that “affiliates should not be considering a single entity for conflicts purposes based solely on the fact that one entity is a wholly- owned subsidiary of the other, at least when the subsidiary is not otherwise operationally integrated with the parent company.”
Probably fact-specific, depending on how “integrated” the affiliated companies are.
Do they share same legal counsel?
Financially Connected
Lesson: Try to limit the representation to the named entity – solely – the client not subs, parents, affiliates.

27. Hot Potato Conflicts “Hot Potato” Rule
Hypo: Representing a small client in New Client business matters comes in who wants to sue another Firm small client and multiple other parties for infringement matters. The new matter could lead to a lot of new work. The IP work is unrelated to the work the Firm does for the second client.
• Can’t disengage from a current client to “convert” it to a former client.
• “A firm may not drop a client like a hot potato, especially if it is in order to keep happy a far more lucrative client.” Picker Int’l, Inc. v. Varian Associates, Inc., 670 F. Supp. 1363, 1365 (N.D. Ohio 1987).
• Majority rule – a few jurisdictions have limited authority to the contrary (but generally the cases disagreeing with “hot potato” rule have been in the limited “thrust-upon” conflicts context).

28. Thrust-Upon Conflicts
Possible Exception: “Thrust-Upon” Conflicts • Firm may be able to “drop” one client where the conflict was “thrust upon” the firm by clients or others. E.g., Gould, Inc. v. Mitsui Mining & Smelting Co., 738 F. Supp (N.D. Ohio 1990); D.C. Formal Ethics Op. No. 272 (1997). • If conflict was created by a client merging with another client’s adverse party, firm has usually been allowed to drop one of the clients to “cure” conflict. • Same result where a client in one matter creates a conflict by joining (or being joined by another party) in a different matter adverse to firm’s other client. • Narrowly construed – it really has to be unforeseeable by firm, and no fault of firm.

29. Outside Counsel Guidelines
Increasing numbers of clients, especially large corporate clients, require firms to agree to client’s Guidelines or Contract
Several risk management issues can arise
Conflicts
May have to treat all affiliates as one
May not allow certain waivers
May tell how to get waivers/required forms
May include certain waivers
Data & document management – may impose IT or other security requirements
Be on the look out for “positional conflicts” clause

30. Prior Work Conflicts To Avoid Prior Work Conflicts
Sometimes litigation arises that is not only related to a previous matter, but also draws into question the nature or quality of the firm’s work on the previous matter. If the firm represents the same client in later litigation, there may be what is called a “prior work conflict” – a conflict that develops when the client and the law firm have different interests that may affect the attorney’s judgment in representing the client.
For example, if a firm represented a corporate client in a real estate deal with ABC, Inc. and after the matter is concluded a third party sues the corporate client, claiming they suffered economic damages as a result of the transaction between the client and ABC, the original transaction between the corporate client and ABC is the firm’s prior work. If the firm is asked to represent the corporate client in the lawsuit initiated by the third party, the situation could give rise to a conflict of interest because there is significant risk that the firm’s personal interest in avoiding liability could improperly influence the firm’s legal judgment in representing the client in the new matter. This is a violation of the Rules of Professional Conduct.
This situation also arises in the intellectual property world in matters where the firm opines that a new client’s trademark does not infringe upon another company’s mark. If the client relies upon the opinion and is later sued for infringement, and the firm represents the client in that infringement suit, the prior work, or the prior opinion, could be called into question, creating in a conflict situation with the client.

31. Lateral Conflicts A major risk of disqualification
Lateral hire brings his current and past clients with him, for conflicts purposes
Decide now far back to request past matters – 3 years
Need complete information from lateral
Need time to run and clear
If waivers needed, get them before lateral starts

32. Advance Conflict Waivers
Get the waivers up front, before a problem arises
Good to include in engagement letter
As detailed as possible, given that exact facts can’t be known – specifically mention possibility of litigation, for example
Enforceability may vary based on level of detail in waiver, sophistication of client, whether client has independent counsel (including in house counsel), etc.
ABA

33. Our Basic UMCW Conflicts Paragraph from Standard Engagement Letter
“Conflicts. As we have discussed, Husch Blackwell LLP has offices in a number of cities, and we represent many clients on a regional or national basis. It is possible that some of our present or future clients will have disputes with [CLIENT] during the time we are providing legal services. Therefore, as a condition to our undertaking this engagement, you have agreed that our firm may continue to represent or undertake in the future to represent existing or new clients whose interests are adverse to yours in matters, including litigation matters, that are not substantially related to the matters as to which we are representing you. You have agreed that the validity and enforceability of this unrelated matter conflict waiver is an essential condition to the firm’s willingness to accept this engagement, and the firm would not have accepted the engagement but for this waiver. Accordingly, you agree that, if the validity or enforceability of this waiver is ever challenged or revoked, we may withdraw from representing you and continue to represent our other clients even in matters directly adverse to [CLIENT]. We agree, however, that your prospective consent to conflicting representation shall not apply in any matter substantially related to a matter in which we have provided legal services to [CLIENT].”

34. Law Firm Risk Management is a “Risky Business” RISK MANAGEMENT BOOT CAMP

35. Agenda Client Communication Client Confidentiality Lateral Hire Issues
Departing Lawyer Issues

36. Client Communications
Engagement Letters
Disengagement Letters
Declination Letters
“I’m Not Your Lawyer” Letters

37. Engagement Letter: What Is It?
A communication to the client accepting responsibility for the case or the matter and outlining the terms of the representation.
A contract between the lawyer and the client setting forth the terms of the engagement.
A fee letter.
A document that manages client expectations, prevents complaints and defends claims!

38. Engagement Letter: Why Do You Send It?
Firm’s Protection!
Manages client expectations
Prevents complaints
Assists in defending claims
Ethical Rules
ABA Model Rule 1.5 (b) The scope of the representation and the basis or rate of the fee and expenses for which the client will be responsible shall be communicated to the client, preferably in writing, before or within a reasonable time after commencing the representation, except when the lawyer will charge a regularly represented client on the same basis or rate. Any changes in the basis or rate of the fee or expenses shall also be communicated to the client.
D.C. Rule 1.5(b) (“When the lawyer has not regularly represented the client”)

39. Engagement Letter: When Do You Send It?
Always when opening a new matter for a new client.
Recommended every time a new matter is being opened for an existing client, especially for major new cases/projects or work in different area of law.
May want to consider using an acknowledgement letter or confirmation.

40. Engagement Letter: How Do You Draft It?
Identify the client and possibly who is not the client
Identify the scope of representation, as well as any limitations
Conflict Waivers
Basis for acceptance of additional work
Fees/Cost/Billing Rates/Deposits
Reporting Obligations
Arbitration
Records Retention
Clarify authority and confidentiality issues
Withdrawal Issues
Client Signature

41. Engagement Letter: Who is the Client? Who is not the client?
An individual?
A Corporation, LLC, etc. or the principal?
The business after the shareholders form the corporation?
An association or its members?
A named couple?
An Employer or the Employee?
Affiliated companies, corporate parent, subsidiaries?
(Our work in connection with this engagement shall not be considered to create an attorney-client relationship between us and any other persons or entities related to the client; including parents, subsidiaries, shareholders, partners, members, joint members; thus, our sole client for this engagement is _____ ____________.)

42. Engagement Letter: What Should Be Included?
The scope of the representation
What will you be doing?
What won’t you be doing?

43. Engagement Letter: What Should Be Included?
Advance Unrelated Matter Conflict Waivers
An unrelated matter conflict waiver protects you!
ABA Formal Ethics Opinion Issued by The Standing Committee on Ethics and Professional Responsibility
Sophisticated client: User of legal services
Advised by independent counsel or in-house counsel
Matters not substantially related
Not abuse or misuse of confidential information

44. Engagement Letter: What Should Be Included?
Specific waivers/disclosures may be necessary
In the letter explain the potential conflict – “risks and alternatives.”
Ask for specific authority to proceed in light of the potential conflict.
Possibly, suggest a screen/Ethical Wall
Could be dangerous – may scare the client
Not always necessary
Does not cure the conflict unless client consents

45. Engagement Letter: What Should Be Included?
Fees Provisions:
Clearly set out firm fees
Clearly set out what the firm usually does to collect them (escape clause, work continuation)
Flat Fee or Retainer Agreement?
Who will pay the fees – if multiple clients or third party or payer
Incidental charges - No surprises
Alternative Fee Arrangements

46. Engagement Letter: What Should Be Included?
Records Retention
Put the client on notice of how long you will retain file
Will the files be destroyed after retention period
Language should include reference to electronic files
Some states allow lawyers to agree with clients in advance which items in their file the lawyer will return, discard or save once the representation is concluded – N.Y. City Ethics Opinion DC Rule

47. Engagement Letter: Special Situations
Joint Representations
Insurance Companies
Local Counsel
Serving as Arbitrator/Mediator
Serving as Expert Witness
Lobbying
Pro Bono

48. Outside Counsel Guidelines or Client Retention Letter vs
Outside Counsel Guidelines or Client Retention Letter vs. Engagement Letter
The Traps
Review the conflicts clause
Unintended representation of parent, subsidiaries or affiliated companies
Billing caveats and requirements
Reporting requirements
Confidentiality requirements (HIPAA, HITECH) includes accessibility of client work product, right to audit security systems and regulations that impact clients

49. Reluctance to Send Engagement Letter?
Too long
Afraid client will alter
Call the prospective client
Explain why letter is important
Set up time to answer questions
Use it as an opportunity to improve client relations up front
Consider

50. Disengagement Letter: Why Do We Send Them?
Many of a lawyer’s duties and responsibilities to a client terminate with the conclusion of the representation. If the status of the matter is unclear, then the firm’s continuing obligations are unclear.
Future conflicts may be avoided in subsequent representations if the matter is unrelated and the representation properly terminated.

51. Disengagement Letter: Why Do We Send Them?

52. Disengagement Letter & Conclusion of Representation
Client – friendly – marks end of matter but also asks for new business.
Very important for:
Ending the duty to give ongoing advice
Starting clock on when a claim could be filed
Clearing future conflicts of interest
Prepare one when:
You transfer all matters to new counsel or departing attorney
You return all files to client
You are closing the matter because no engagement letter was received.

53. Declination Letter: Thank You But No Thank you How Do You Draft it?
State clearly the matter under consideration and nature and extent of investigation into the matter.
State clearly that the matter is not being accepted.
State declination does not reflect an opinion on the merits.
State documents, if received, are being returned and itemized.
Remind them they may be facing deadlines.

54. I’m Not Your Lawyer Letters
It may be useful and sometimes necessary to advise unrepresented parties in multi-party transaction that you do not represent, and therefore owe no duty to such parties.
Example:

55. Lateral Hires & Departing Lawyers A Revolving Door

56. Lateral Hires: A Revolving Door
Establish a Process
Identify Conflicts
Due Diligence
Integration

57. Lateral Hires: A Revolving Door Establish a Process with Rules
Background check – evaluate disciplinary issues, other concerns; confirm basic facts (schools, admissions)
All offers contingent on conflicts clearing
Address any business conflicts before lateral starts (consider client quality analysis)
Risk Management Training – meet immediately to let the Lateral know how new firm handles New Business Intake; educate them to Risk Management policies, introduce Loss Prevention Team
Integration Plan

58. Lateral Hires: A Revolving Door Conflicts
Decide how far back to go (rec. at least 3 years)
Require complete party and matter information
Require enough lead time to clear
If waivers needed, require that they be in place before lateral starts
Have any ethical walls in place on Day 1

59. Lateral Hires: A Revolving Door Due Diligence
Background check
criminal
state licensures
law school verification
Check References
Be sure Lateral’s Practice Plan fits with firm’s
Work with your firm’s L&E representative

60. Lateral Hires: A Revolving Door Integration
Set up weekly and then monthly meetings with lateral
Make sure the lateral attends firm meetings and functions
Verify lateral is using firm systems – DM, RM, Docket
Review pro formas
Make sure lateral’s matters are properly staffed
Check to see if other attorneys are working on lateral’s matters and vice versa

61. Departing Lawyers: A Revolving Door Essential Steps
Establish a team of key people
Notification to clients
Risk Management concerns

62. Departing Lawyers: A Revolving Door Establish A Team of Key People
Department or Practice Group Head
Information Technology Liaison
Human Resources Liaison
Risk
Records
Administration
Accounting Representative

63. Departing Lawyers: A Revolving Door Notification to Clients
Departing attorney has fiduciary obligations to clients and firm.
ABA Formal Opinion
Firm has fiduciary duty to clients, must treat partner fairly.
Clients always get to choose who represents them.
Joint letter usually looks better, is more fair.

64. Departing Lawyers: A Revolving Door Risk Management Concerns
Ask the Question – any claims or circumstances to report?
Check the Docket
Transition of Work
No Client Left Behind
Disengagement Letters

65. Client Confidentiality
ABA Model Rule 1.6(a) states general rule: “A lawyer shall not reveal information relating to the representation of the client” absent the client’s express or implied consent.

66. Client Confidentiality
Don’t discuss client matters with anyone not an employee or member of the firm.
Be sensitive to other confidentiality issues created by visitors in the office.
Elevators
Bathrooms
Other Public Places

67. Action Items
Consider requiring signed Engagement Letters from ALL your clients.
Document when the work for a client is concluded.
Establish a thorough process and identify a trained team to deal with lateral hires and departing lawyers.
Educate your staff about protecting a client’s confidences.

68. Jennifer Schwendemann
Contact Information
Jennifer Schwendemann
Director of Risk Management & New Business Intake
190 Carondelet Plaza, Suite 600
Clayton, Missouri 63105
Phone:
Facsimile:
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