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Multiple Clients Pose Conflict
Risk
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How do you think the trial judge will rule on these two motions? In Gilbert v. National Corporation for Housing Partnerships (1999) 71 Cal. App. 4th 1240, a trial judge in San Francisco granted the defendant's motion in limine and disqualified plaintiff's counsel on the eve of trial. The First District affirmed the disqualification of plaintiff's counsel. The appellate court held that the attorney's continued representation of all of the employees created a conflict of interest. The court held that the plaintiff's attorney could not adequately counsel the employees about the parameters of the confidentiality agreement the two employees had agreed to as part of their settlements. The court emphasized that an attorney has the duty "to protect each of his or her clients in every possible way." An attorney violates this duty when he assumes "a position adverse or antagonistic to the client without the latter's free and intelligent consent, given with full knowledge of all the facts and circumstances." The First District in Gilbert followed the California Supreme Court's decision in the controversial case, Flatt v. Superior Court (1995) 9 Cal. 4th 275. There, the court reversed the trial and appellate courts' denial of the attorney's summary judgment on the grounds he did not owe a duty to advise a former client of the statute of limitations for causes of action that may arise against the attorney's existing client. The Supreme Court held on factually narrow grounds that, when an attorney has an unwaivable duty not to represent the second client in light of a conflict, the duty of loyalty owed to the existing client precludes giving any advice about the applicable statute of limitations to the client. In Flatt, Daniel met with attorney Flatt about his attorney's conduct. Daniel disclosed confidential information to Flatt and turned over documents. About a week later, Flatt returned the documents and advised Daniel she could not represent him in an action against the other lawyer because Flatt's firm represented the lawyer in an unrelated matter. Daniel sued Flatt, claiming she failed to advise him of the statute of limitations. The Supreme Court, emphasizing Flatt's duty of loyalty to the existing client, held that "[s]o inviolate is the duty of loyalty to an existing client that not even by withdrawing from the relationship can an attorney evade it." The Flatt court reasoned that "an attorney is precluded from assuming any relations which would prevent him from devoting his entire energies to his client's interests." The rule was designed to protect the honest practitioner from putting himself in a position where he may be required to choose between conflicting duties. The Flatt court pointed out that it was essential that the attorney determine whether a conflict of interest exists and immediately advise the new client that the ongoing representation precludes undertaking an attorney-client relationship. The attorney cannot cavalierly breach the duty of loyalty owed to her existing client by giving advice to another that could be harmful to the existing client. Justice Kennard, in dissent, was critical of the majority's analysis, which divided up clients: existing and new. Justice Kennard ignored the attorney's duty of loyalty in simply pointing out that the attorney owed a duty of care to all of her clients. Obviously, the problems in Flatt could have been avoided had the law firm conducted a conflict check before the meeting. These cases illuminate how difficult California Rule of Professional Conduct 3-310 is to apply in real life. Under Rule 3-310(C) a lawyer "shall not, without the informed written consent of each client: Accept or continue representation of more than one client in a matter in which the interests of the clients actually conflict." Clients come in pairs (husband and wife), in groups (partners), as teams (seller and agent), and as part of a larger entity (officer and corporation). Joint representation contemplates that none of the clients can claim a privilege for communication made in the course of the relationship. (Evidence Code section 962.) Lawyers representing multiple clients need to constantly guard against acquiring secret information from one client that can't be disclosed to another. For multiple clients, the "conflict" issue seldom concerns duty of confidentiality. The contemporaneous multiple client situation focuses on the lawyer's duty of loyalty. Frequently, clients ask the attorney to undertake positions, as in the Gilbert case, that are adverse to another client. In Forrest v. Baeza (1997) 58 Cal. App.4th 65, the court emphatically disallowed a lawyer's attempt to represent a majority shareholder accused of embezzling and the corporation, holding that the interests of the corporation and the shareholder were adverse. The Forrest court disallowed the majority shareholder's attempt to consent to the dual representation finding the consent was "meaningless." (See also Metro-Goldwyn-Mayer v. Tracinda Corporation (1995) 36 Cal. App. 4th 1832) (law firm disqualified from representing former shareholders based on duty of loyalty owed to present and former clients). The consequences of failing to recognize and deal with conflicts are drastic. They include disqualification, exposure for malpractice, attorney discipline, and disgorgement of legal fees. A violation of Rule 3-310 can prove to be a complete defense to a lawyer's legal fees. In Jeffrey v. Pounds (1977) 67 Cal. App. 3d 6, the court denied the lawyer legal fees for representing adverse clients. What can attorney Smith do to avoid an ethical violation when these eager clients walk into his office? First, consider referring out the other employees to experienced colleagues. Second, pay attention to what the clients are saying as many actual conflicts are obvious in the first interview. Third, if attorney Smith is going to represent these three clients, obtain an informed written consent from each of them. The case of Zador v. Kwan (1995) 31 Cal. App. 4th 1285 illustrates the type of disclosure necessary when a lawyer is asked to represent multiple clients with potentially adverse interests. The following critical points were disclosed in the initial disclosure letter signed by both clients:
In Zador, an actual conflict developed when it was discovered that one of the clients had secretly profited from the failed real estate venture. The attorneys promptly disclosed the conflict, and one client retained another lawyer. That client unsuccessfully attempted to disqualify the law firm from representing the other client. The Sixth District held that the client had consented to the law firm's continued representation of the other client "notwithstanding any adversity" that developed. The consent form was detailed. The clients knowingly gave their consent. Attorney Smith could have avoided a disqualification motion on the eve of trial by referring the third client out to one of his colleagues. The failure to recognize conflicts, disclose to clients the significance of those conflicts, and obtain the informed written consent of multiple clients with competing interests can be disastrous for the lawyer. The consent must be meaningful, and as such, the disclosure letter is very critical. Even the best group of clients may become enemies along the way and the lawyer is often caught in the middle. |
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When
does an attorney have too many clients? Two employees
of Rock Company consult with attorney Smith about their complaints.
They retain attorney Smith to represent them in claims for discrimination
and harassment against the company. Attorney Smith has the two
employees sign separate retainer agreements. Smith files a complaint
against Rock Company for discrimination and hostile environment.
The case is mediated. The two employees agree to settlements with
confidentiality provisions. Subsequently, a third employee hires
Smith to prosecute a discrimination claim against Rock Company.
The third employee files a complaint, alleging wrongful termination,
discrimination, and retaliation. In pre-trial matters, Smith identifies
the two settling plaintiffs to testify about their grievances.
The attorneys for Rock Company file a motion in limine to exclude
attorney Smith from calling these two witnesses. Rock Company
also moves to disqualify attorney Smith.March 2001