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Cox: Implement a system of checks to avoid conflicts of interest

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Loyalty and independence of judgment are essential to the effective representation of a client. A conflict of interest may make it impossible to exercise these essentials, or it may create an appearance that is injurious to the health of the lawyer-client relationship. While a violation of the Indiana Rules of Professional Conduct does not equate to legal malpractice, courts are entitled to look to the rules for guidance in considering whether there has been a breach of the lawyer’s duty of care. And, an actual conflict can inflate the jury’s perspective of a malpractice claim when the claim itself could have been easily defended. Trial advocates for clients frame conflicts as issues of loyalty, and juries can react severely to perceived betrayal. As a result, claims of conflict of interest can exacerbate even a small mistake or a “close call” made by the attorney.

Conflicts of interest are not the exclusive headache of large, urban, multi-office law firms. Conflicts arise within law practices of every size and geographic location. Moreover, conflicts of interest spawn an alarming number of disciplinary grievances, disqualification motions and legal malpractice claims. For these reasons, it is essential for every practitioner to implement a conflicts-checking system and procedures that are uniformly followed.

Practitioners cannot pretend to rely exclusively upon attorney memory to check conflicts. The number of clients, adverse parties and interested nonparties with whom attorneys become involved throughout their careers is staggering and invariably underestimated. Also, in today’s world, both individual clients and business entities tend to have more complex relationships (extended families, business subsidiaries, etc.); we cannot rely on our cluttered brains to keep it all straight. While lawyers in smaller firms tend to think they can keep a conflicts-checking system in their head, they’re wrong. A system must be established either on paper or in the firm’s computer system. An actual system is critical.

Any effective conflicts-checking system must be implemented and used firm-wide. One staff person in the office should be responsible for maintaining the system because centralization increases accountability and compliance. Consider one backup conflicts clerk in the event the primary conflicts clerk becomes indisposed. The essentials of any conflicts-checking system include: (1) a firm-wide data bank; (2) a procedure for opening new files; and (3) a procedure for the ongoing checking of conflicts in open or existing files. No new matter should be opened until a conflicts check has been completed and the data entered into the system. While it may be tempting to bypass a preliminary conflicts check if immediate action is required, this temptation must be resisted.

Declined prospective clients should be routinely entered into the conflicts databank when the declined client communicates confidential information during the initial meeting which could create a subsequent conflict. Rule 1.18 imposes a confidentiality obligation upon information imparted by prospective clients. This is true even though an attorney-client relationship may never be established. However, it goes without saying that limited but important information must be gathered in order to perform the preliminary conflict of interest check.

For open files, any new parties or interested nonparties which become known to counsel during representation should be checked against and added to the data bank to monitor any actual or potential conflicts which arise subsequent to the initiation of representation.

The conflicts-checking system is only as good as the information that it contains. Creating a conflict-checking system and maintaining it should be viewed as an ongoing and permanent commitment to securing client trust. Effective conflicts can be checked only if there is a thorough, well-maintained list of client names; if the conflict-checking procedure is part of the firm routine; and everyone in the firm is trained on the system and procedures.

The conflicts-checking system does not have to be high tech. Indeed, it could be as simple as a word document or an index card filing system. The best conflict-checking system is one that will work and that the members of the firm will find easy to use and maintain. There is nothing inherent in a computer-based conflicts program that makes it superior to a well-maintained manual system except for the speed of a thorough conflicts check within a computer-based program. Because of this efficiency, computer-based conflicts program are often more likely to be used on a routine basis, and there is less likelihood of overlooking a single name buried in a large database.

Conflicts of interest are subtle, and there are no hard-and-fast rules to avoid many conflict problems. The rules that do exist are not absolute; they contain conditions, exceptions and discretionary factors. These circumstances make it imperative that each lawyer considering a new matter or representation invest the time and energy necessary to (1) collect the necessary information to perform a conflicts check, (2) oversee the proper performance of a conflicts check, and (3) review and analyze any potential conflicts.

Practical tips for checking conflicts

It is evident that clearly and accurately identifying one’s client is essential to identifying a conflict. But identifying one’s client may be easier said than done. Take, for instance, the situation where the lawyer is asked to represent a closely held corporation with a limited number of shareholders. Is the client the board, the president, shareholders, a general partner or a limited partner? Determine and clearly define (and make sure you understand) who the client is and who you are (and are not) representing.

Clearly define and memorialize in either a letter or in a retainer agreement the exact nature and scope of the representation. Then, work only within the scope of the representation. If additional work outside the scope of the representation is requested, analyze whether any conflicts exist in providing that representation; and, if the representation is undertaken, modify the engagement letter or retainer agreement accordingly.

If representation proceeds despite conflicts based upon client consent, be forewarned that anything less than full disclosure prior to obtaining client consent may result in a malpractice action.

Attorney involvement with corporate clients in any capacity other than as legal counsel is risky and should be avoided. The number of lawsuits filed against officers and directors has increased substantially in recent years, and attorneys and their law firms risk noncoverage in most instances. Attorneys in these situations often maintain that their situations are “different” and that their relationships with their corporate clients are bulletproof. Keep in mind that most attorney-directors who have been sued have had the same confidence in their client relationships.

Prospective lateral hires should provide the firm with a listing of all files that he or she has worked on during the previous two years, as well as a list of files that he or she intends to bring to the firm as active files. This information is critical to check for potential conflicts of interest which could jeopardize existing relationships of both the firm and the prospective hire.

Try to always follow the “one client, one lawyer” rule. It is risky to represent multiple plaintiffs or multiple defendants in litigation, for instance. Be wary if you are asked to represent two parties, such as a divorcing couple, an estate and its beneficiaries, or a buyer and seller who announce “we agree to the property settlement and we just want you to write the agreement.” Avoid representing all parties in a transaction. The “I was only the scrivener” defense rarely works, and both sides can sue the attorney for malpractice.

Refrain from doing business with your clients. Doing business with your clients creates the perception that the attorney has an advantage and the dealings are unfairly weighted in the attorney’s favor.

Refrain from changing the terms of your service or fee agreement. Changes of this nature risk the perception that the client is at a disadvantage and the attorney took advantage to line his pockets.

Avoid continued representation after a conflict develops. This is easier said than done. This is a “sleeper” issue, because even in firms where conflicts are routinely checked at the beginning of the representation, they are sometimes forgotten or ignored as facts unfold by way of discovery and pleading amendment. Make sure the firm has a procedure in place to catch subsequent activity in a case.

The most sophisticated conflicts-check system will be worthless as a risk-management tool if, once identified, conflicts of interest are dismissed as insignificant or if the firm’s course of action is not documented. If an actual or potential conflict of interest is identified, check, read and analyze the applicable Rules of Professional Conduct. Discuss the conflict with a disinterested attorney either within the firm or another member of the bar whose judgment is trusted. An objective analysis is critical, especially when the involved attorney is feeling pressure to accept representation. If you are on the fence as to whether a conflict of interest really does exist, consider advising your prospective client of the relationship you have discovered in your search and let the prospective client decide whether the connection is too close for comfort.•

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Dina M. Cox is an attorney with Lewis Wagner LLP in Indianapolis. She focuses her practice on professional liability defense, drug and medical device/products liability defense, consumer class-action defense, insurance coverage, and insurance bad faith defense litigation. The opinions expressed are those of the author.

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  1. From back in the day before secularism got a stranglehold on Hoosier jurists comes this great excerpt via Indiana federal court judge Allan Sharp, dedicated to those many Indiana government attorneys (with whom I have dealt) who count the law as a mere tool, an optional tool that is not to be used when political correctness compels a more acceptable result than merely following the path that the law directs: ALLEN SHARP, District Judge. I. In a scene following a visit by Henry VIII to the home of Sir Thomas More, playwriter Robert Bolt puts the following words into the mouths of his characters: Margaret: Father, that man's bad. MORE: There is no law against that. ROPER: There is! God's law! MORE: Then God can arrest him. ROPER: Sophistication upon sophistication! MORE: No, sheer simplicity. The law, Roper, the law. I know what's legal not what's right. And I'll stick to what's legal. ROPER: Then you set man's law above God's! MORE: No, far below; but let me draw your attention to a fact I'm not God. The currents and eddies of right and wrong, which you find such plain sailing, I can't navigate. I'm no voyager. But in the thickets of law, oh, there I'm a forester. I doubt if there's a man alive who could follow me there, thank God... ALICE: (Exasperated, pointing after Rich) While you talk, he's gone! MORE: And go he should, if he was the Devil himself, until he broke the law! ROPER: So now you'd give the Devil benefit of law! MORE: Yes. What would you do? Cut a great road through the law to get after the Devil? ROPER: I'd cut down every law in England to do that! MORE: (Roused and excited) Oh? (Advances on Roper) And when the last law was down, and the Devil turned round on you where would you hide, Roper, the laws being flat? (He leaves *1257 him) This country's planted thick with laws from coast to coast man's laws, not God's and if you cut them down and you're just the man to do it d'you really think you would stand upright in the winds that would blow then? (Quietly) Yes, I'd give the Devil benefit of law, for my own safety's sake. ROPER: I have long suspected this; this is the golden calf; the law's your god. MORE: (Wearily) Oh, Roper, you're a fool, God's my god... (Rather bitterly) But I find him rather too (Very bitterly) subtle... I don't know where he is nor what he wants. ROPER: My God wants service, to the end and unremitting; nothing else! MORE: (Dryly) Are you sure that's God! He sounds like Moloch. But indeed it may be God And whoever hunts for me, Roper, God or Devil, will find me hiding in the thickets of the law! And I'll hide my daughter with me! Not hoist her up the mainmast of your seagoing principles! They put about too nimbly! (Exit More. They all look after him). Pgs. 65-67, A MAN FOR ALL SEASONS A Play in Two Acts, Robert Bolt, Random House, New York, 1960. Linley E. Pearson, Atty. Gen. of Indiana, Indianapolis, for defendants. Childs v. Duckworth, 509 F. Supp. 1254, 1256 (N.D. Ind. 1981) aff'd, 705 F.2d 915 (7th Cir. 1983)

  2. "Meanwhile small- and mid-size firms are getting squeezed and likely will not survive unless they become a boutique firm." I've been a business attorney in small, and now mid-size firm for over 30 years, and for over 30 years legal consultants have been preaching this exact same mantra of impending doom for small and mid-sized firms -- verbatim. This claim apparently helps them gin up merger opportunities from smaller firms who become convinced that they need to become larger overnight. The claim that large corporations are interested in cost-saving and efficiency has likewise been preached for decades, and is likewise bunk. If large corporations had any real interest in saving money they wouldn't use large law firms whose rates are substantially higher than those of high-quality mid-sized firms.

  3. The family is the foundation of all human government. That is the Grand Design. Modern governments throw off this Design and make bureaucratic war against the family, as does Hollywood and cultural elitists such as third wave feminists. Since WWII we have been on a ship of fools that way, with both the elite and government and their social engineering hacks relentlessly attacking the very foundation of social order. And their success? See it in the streets of Fergusson, on the food stamp doles (mostly broken families)and in the above article. Reject the Grand Design for true social function, enter the Glorious State to manage social dysfunction. Our Brave New World will be a prison camp, and we will welcome it as the only way to manage given the anarchy without it.

  4. When I hear 'Juvenile Lawyer' I think of an attorney helping a high school aged kid through the court system for a poor decision; like smashing mailboxes. Thank you for opening up my eyes to the bigger picture of the need for juvenile attorneys. It made me sad, but also fascinated, when it was explained, in the sixth paragraph, that parents making poor decisions (such as drug abuse) can cause situations where children need legal representation and aid from a lawyer.

  5. Some in the Hoosier legal elite consider this prayer recommended by the AG seditious, not to mention the Saint who pledged loyalty to God over King and went to the axe for so doing: "Thomas More, counselor of law and statesman of integrity, merry martyr and most human of saints: Pray that, for the glory of God and in the pursuit of His justice, I may be trustworthy with confidences, keen in study, accurate in analysis, correct in conclusion, able in argument, loyal to clients, honest with all, courteous to adversaries, ever attentive to conscience. Sit with me at my desk and listen with me to my clients' tales. Read with me in my library and stand always beside me so that today I shall not, to win a point, lose my soul. Pray that my family may find in me what yours found in you: friendship and courage, cheerfulness and charity, diligence in duties, counsel in adversity, patience in pain—their good servant, and God's first. Amen."

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