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When in-house lawyers talk about conflict of interest, it used to be that they were discussing their own internal conflict questions, such as: Can I represent our subsidiary’s interests at the same time as the parent company’s? Can I appropriately receive options as part of my compensation, invest in company stock, or sit on the board without risking conflict questions later? Can I help the COO with that pressing personal legal matter she has come to me to discuss? While those topics are interesting and relevant, this article isn’t about internal conflict matters. Today’s corporate counsel are more uncertain how to handle the growing crisis in understanding and minimizing their outside counsel’s conflicts problems. At your most trusted outside firms, lawyers are making daily decisions about whether they believe that a new representation or a new lawyer or partner working your matter would adversely impact your client — which is not dissimilar to the foxes guarding the henhouse. Some in-house counsel yawn over this issue. They trust their firms to manage their conflict policies in the clients’ best interests and know that their outside counsel’s duty of undivided loyalty as a fiduciary is unquestioned at law, and believe their firms adhere to the highest standards of professional responsibility. All of that may be true, but it’s virtually irrelevant. The conflict rules are completely out of sync with conflict concerns in the 21st century business climate — just as law firms’ conflicts-checking systems are no match for today’s pace of business. So as an in-house counsel, what are your concerns about conflicts of interest at your outside firms, and how should you talk with your outside counsel about covering them? Let’s sort your concerns into a few categories. Then you can deal accordingly with the problems and the firms that “shake out.” There are several major categories of conflicts. (I’ll talk about general conflict rules, but the rules change a bit from state to state, as will the interpretation of the rules by authorities in each jurisdiction.) Current-Client Conflicts. This is the core rule that everyone knows: American lawyers and law firms (there may be an exception in Texas) may not represent one current client adversely to another current client on any matter unless, at a minimum, both clients consent to the conflict after full disclosure. (There are some kinds of current-client conflicts that even a mutual waiver by sophisticated clients cannot overcome.) To state it differently, current clients can generally veto their counsel from opposing them on any matter, regardless of whether it is related or unrelated to the work that is being done for the vetoing client. Generally, the entire firm is subservient to this general rule, even if only one lawyer has the conflict — with the possible exception of the lawyer who is working for an adverse client and changes jobs to join the new firm. In that case, the firm may (in some jurisdictions) avoid disqualification by erecting ethical screens or “fire walls.” It is not clear, as a general rule, whether a firm’s representation of one member of a corporate family constitutes representation of all related or affiliated corporations or entities. Former-Client Conflicts. These rules are more favorable to firms. Former clients can veto the firm’s new representation in only two situations: matter-specific and information-specific cases. Yet in either situation, the firm may request a waiver from the former client, which — if granted — will allow the firm to proceed. Matter-specific conflicts involve the lawyer representing an adverse party on an issue sufficiently related to a matter the lawyer previously handled for the former client. Information-specific conflicts exist when a lawyer learned confidential information in the course of the previous client’s representation that could be used adversely to the former client in a present matter for another client. Watch out: It is not unheard of for a firm to try to “fire” a current client (making them a former client) to clear the way to accept a more attractive new representation that would be adverse and potentially unwaivable under the current-client rules. This is even more likely to happen when two firms are considering a merger and a direct conflict would exist between one of the first firm’s smaller clients and a mother lode client of the second firm. Generally, attempts by firms to fire clients for this reason fail when protested, but the smaller clients that get dumped are left feeling pretty darned bitter. Personal or Business Conflicts.These are conflicts between the client and the lawyer’s own personal or business interests. Most conflicts of this type that you are likely to confront will be waivable in most jurisdictions. Examples include lawyers who are on the client’s board of directors, lawyers who own stock or do substantial business with a client and its potential adversary, and so on. Other. Of the rarer types of conflicts, the one most likely to be increasingly pertinent to your regular course of business is issue or positional conflicts: that is, when a lawyer represents, on behalf of one client, a position adverse to the position or business opportunities of another client. The parties themselves are not in conflict, just their positions. There is little actual law here, but this area is heating up for some kinds of clients and some kinds of boutique firms. Advance Waivers. This is one of the toughest issues confronting an increasing number of lawyers and clients, especially new clients. Firms with expertise in a very specific area of law, say in emerging high-tech intellectual property, are increasingly likely to require new clients to sign an advance waiver that will allow the firm to represent competitors in the future. The firm may promise to erect walls within their offices to protect you as much as possible in the event they wish to exercise the waiver, but they explicitly require you to give up your veto power over whether the firm can counsel competing clients or interests before they’ll take you on as a new client or move you as an existing client into a new area of representation. The law is still evolving on advance waivers, with bar legal opinions moving back and forth on the merits of each case presented. Most clients hate them because they cannot anticipate exactly what they are waiving since by definition the waiver covers future activities. But for firms with expertise in some niche practices, this is becoming a standard practice. Each client must decide how to handle an advance waiver based on its issues and the firm that’s requesting the waiver. Many clients sign waivers in the hope that, should a serious conflict arise, the firm will be barred under the professional rules from enforcing the covenant. The jury’s still out on whether this is a reliable presumption. So what’s reasonable to request and what’s impractical to expect? I don’t know of a single firm that doesn’t run a good-faith conflict check; I also don’t know of one that has a flawless or even a highly accurate client conflict database system. Given the increasing mobility of lawyers between practices, a volatile market for clients and their businesses, and the merger-acquisition craze of law firms, even an outstanding system will never be capable of recording all the conflicts problems awaiting your client. It’s just one of the risks associated with the provision of legal services today. Here are some suggestions for approaching these issues in a realistic fashion. First, remember that most firms that request a waiver don’t do so with a sense of total greed or inappropriate disloyalty in their hearts: They’re just doing business. You can agree to disagree on the odd case, but if you regularly disagree about how they interpret your client’s interests or you doubt their professionalism, you shouldn’t be working with them. Second, never refuse to even consider a waiver request of a specific matter, on principle. And don’t expect your firm to change their conflict system dramatically at your request: They’re more likely to change clients unless you are an “entity-defining” client. On the other hand, remember that while governed by rules, the conflict clearance process is often largely a negotiation between firms and clients over what the client can afford to let go unchallenged and where they must take a stand. To conduct a negotiation over such issues as granting a waiver, you need to assess the relevant factors: � Which matters are of greatest concern to your client and which are giveaways? � Which firms are “must haves” for your client? � What is your “walk away” point on any given matter? � Is your business significant enough to make demands for special treatment? � How long-standing is your relationship with the firm? � Do you have special ties with your relationship partner? � Are your firms boutique practices that work in an industry where accepting your demands will foreclose them from major avenues of anticipated revenues? Or are they a multiservice firm for your client? � Do your firms regularly represent your competitors, and if so, to what extent and on what kinds of matters? Most of all, you should become an educated consumer about your major firms’ conflict policies and concerns. How do they assess conflicts? Ask them to explain their conflict system, how it’s kept accurate, and what it flags and doesn’t flag. Then, educate your relationship partners about what’s important to you and your client. Don’t expect that your firms automatically understand your concerns; they likely believe that they are already sufficiently acting in your interests. Not having this conversation is exposing your client to risk. RESOURCES If you’re a member of the American Corporate Counsel Association and you’d like to learn more, see Peter Jarvis’ new online treatise on conflicts concerns at www.acca.com/advocacy/conflicts.html. Nonmembers may want to contact the Association of Professional Responsibility Lawyers, a network of lawyers whose practice specialty is representing legal professionals on matters of professional responsibility. Anthony Davis, a partner at Moye Giles in Denver and New York City, is APRL’s president and can hook you up with ethics practice experts. Check out APRL at www.aprl.net. A Web site run by legal ethics consultant Bill Freivogel, www.freivogelonconflicts.com, is a treasure trove of professional responsibility information, forms and advice on conflicts issues. Susan Hackett is senior vice president and general counsel of the American Corporate Counsel Association. The author gratefully acknowledges the assistance of Peter Jarvis of Stoel Rives in preparing this article.

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