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You are a summer associate. You have no clients of your own — heck, you’re not even officially a lawyer yet. You don’t have to worry about conflict issues because they are for partners, right? So why should you read this article? The answer is that all lawyers and prospective lawyers have to be concerned about conflicts of interest. For example, conflicts concerns can arise when a family friend talks to you about retaining your law firm, or because of confidential information you have as the result of a former job, or because of the client information you learn at your job this summer. So what exactly are the conflicts of interest that lawyers need to avoid? A good starting place is The Lawyer’s Code of Professional Responsibility for New York, known as the “Code.” Although New York is in the midst of an overhaul of its ethics rules and may even adopt the format of the ABA Model Rules of Professional Conduct that you probably studied in law school, until that happens, New York lawyers need to know and adhere to the Code. The Code is made up of nine “Canons,” or general principles governing lawyers’ conduct. Under each Canon are Ethical Considerations, which are aspirational, and Disciplinary Rules, which must be followed. Canon 5 of the Code states: “A Lawyer Should Exercise Independent Professional Judgment on Behalf of a Client.” The considerations and rules under Canon 5 enumerate various types of conflicts that lawyers are to avoid. � First, there are conflicts caused by a lawyer’s own financial, business, property or personal interests. DR 5-101. For example, assume that your father will receive a big real estate commission, but only if your client goes through with the purchase of a piece of property. At your father’s suggestion, you have been retained to negotiate the sales contract on behalf of the buyer. On the one hand, your client wants to have as much flexibility as possible to be able to back out of the sale if problems arise, but on the other hand, you want the sale to go through so your father earns a big commission. You have a conflict. � Second, conflicts can arise because a lawyer may have to a be a witness. DR 5-102. If you worked for one of your firm’s clients before law school, your former employer may have helped you land your summer associate job. While at your prior job, let us postulate that you attended a meeting that is now at issue in a lawsuit your firm is handling. If your recollection is at odds with the client’s theory of the case, lawyers at your firm will not, as a practical matter, be able to discredit your testimony. You have created a conflict for your new employer, the law firm. � Third, conflicts are created when a lawyer is involved in a transaction with a client. DR 5-104. Let’s say your elderly aunt asks you and your firm to draft her will. She wants to leave half of her property to you and make you trustee for the other half, which she wants to go to your younger cousin — the one who is irresponsible and you really never got along with. You are engaged in a transaction with a client and your personal interest may be in conflict with that of your client. � Fourth, conflicts can result from a law firm’s simultaneous representation of several clients whose interests conflict. DR 5-105. Unless you are in the general counsel’s office of a corporation, chances are that you and the lawyers with whom you work will have multiple clients. If you are asked to negotiate and draft the financing documents for a bank making a loan to a company your firm represents in patent litigation, you and your firm have a conflict of interest. It does not matter that the two representations are completely unrelated and that the law firm has no confidential information from its patent work that would be useful to the bank client in finalizing the loan. � Fifth, conflicts can exist between a lawyer’s work for current clients and his representation of former clients. DR 5-108. For example, you can create a conflict of interest if you helped draft anti-takeover provisions for a client of the firm where you summered and then work at a different law firm that is asked to represent a party that has launched a hostile takeover of the client of your former firm. Who said you can’t be stung by a dead bee? � Sixth, conflicts may appear between what a corporate officer directs counsel to do and what that lawyer believes is in the best interest of her client, the corporation. DR 5-109. For example, what should you do if you are directed by the inside counsel to delete from a prospectus the description you drafted of a massive environmental liability claim that you believe is material? You have a conflict that needs to be resolved. � Finally, there are potential conflicts that you probably will not have to worry about at this stage in your career. There are conflicts that can arise from acquiring an interest in your client’s litigation, DR 5-103, negotiating an aggregate settlement that covers more than one client, DR-106, accepting payment for the fees owed by your client from someone other than that client, DR 5-107, being a member of a not-for-profit legal services organization serving people who have interests that are adverse to those of your law firm’s clients, DR 5-110, having sexual relations with a domestic relations client and coercing a client to have relations with you, DR 5-111. Having identified that a conflict exists, what do you do next? Some potential conflicts can be resolved by disclosure, others by a waiver and still others only by declining the assignment or opportunity. While it is impossible to cover conflicts comprehensively in a short article like this one, reviewing examples of the conflicts just mentioned should help you identify situations that can give rise to conflicts and give you a sense of how to resolve them. In the first instance, consult your law firm’s rules manual and find the section outlining the firm’s procedures for avoiding and resolving conflicts. If that is no help, ask a partner at your firm for guidance. If all else fails, call the ethics hotline maintained by the Association of the Bar of the City of New York (212-382-6700) and ask what to do. What you should not do is rely on suggestions from friends outside of your law firm or fellow summer associates. They are likely to be as much in the dark as you are and you may reveal client confidences that you are required to maintain. CONFLICTS WITH YOUR PERSONAL INTERESTS The issue of whether a lawyer may serve as both an attorney and a broker in the same transaction has been addressed by several ethics committees. There is a clear conflict between the personal financial interests of the lawyer and the interests of the client. This will make it difficult for the lawyer to give the advice the client needs. N.Y. County Lawyers’ Ass’n Comm. on Prof’l Ethics, Op. 685 (1991) (a lawyer may not act as both lawyer and real estate broker in the same transaction, as the lawyer has an economic interest in closing the transaction and earning the brokerage fee). The fact that the broker is the father of the lawyer and not the lawyer himself does not avoid the conflict. See N.Y. State Bar Ass’n Comm. on Prof’l Ethics, Op. 738 (2001) (it is improper under DR 5-101 for an attorney to refer a real estate client to a title abstract company in which the attorney’s spouse has an ownership interest). THE ADVOCATE-WITNESS RULE The so-called “advocate-witness” rule was at one time even stricter than it now is, barring any participation by a law firm in an action where one of its lawyers was to be called as a witness. The rule, in its current incarnation, keeps lawyers from representing clients in litigation where the lawyer will be both trying the case and testifying as a witness on a contested issue or examining one of the lawyers from her firm about testimony that is prejudicial to the client. The reason for the rule is that it is unfair to require a lawyer to have to cross-examine opposing counsel, and virtually impossible for a lawyer to cross-examine her colleague. A jury also may have trouble separating the lawyer’s role of advocate from that of witness. In the example of the hapless summer associate who will have to be impeached, her status as a witness may well result in the disqualification of her firm, unless there is some reason that no one wants to call her as a witness. See Lamborn v. Dittmer, 873 F.2d 522, 531-32 (2d Cir. 1989) (where plaintiff’s counsel’s testimony regarding a central issue in the case is at odds with plaintiff’s key argument, counsel should have been disqualified under DR 5-102(b)). TRANSACTING BUSINESS WITH A CLIENT Clients are often friends, either because the attorney-client relationships started as the result of a friendship or because the attorney’s role as trusted counselor engendered a friendship. In fact, that is one of the aspects of law that is most rewarding. It also can result in business proposals from the client to the lawyer — offers to take a piece of a transaction or to accept appointment as a fiduciary or to be designated as a beneficiary under a will. A lawyer, however, is required to put the role of attorney first. The lawyer must avoid any use of his position as counselor to influence the client to favor the lawyer with a business proposal that is good for the lawyer, but not the client. A transaction with a client must be fair and reasonable for the client, it must be set forth in a clear writing, the client must be told to seek advice on the matter from another, independent lawyer, and the conflict must be described to the client and the client must consent to it in writing. A lawyer may not receive literary or media rights from the client until after the engagement is concluded — so put aside thoughts of writing books about your famous cases for now. The rules on how a lawyer should address the situation of a client wanting to name the lawyer as a beneficiary and fiduciary in a will are well developed. An attorney may draft a will in which he is named both executor and beneficiary only in limited and extraordinary circumstances, such as where there is a close familial relationship between lawyer and testator, or where the bequest is small or in lieu of legal fees and fiduciary commissions. N.Y. State Bar Ass’n Comm. on Prof’l Ethics, Op. 610 (1990). Thus, because of the family relationship, the summer associate is not disabled from helping on his aunt’s will. However, it still may not be a good idea, because when the attorney-draftsman of a will is a legatee, an inference arises that the attorney used undue influence to secure the bequest. In re Will of Putnam, 257 N.Y. 140 (1931). In fact, probate of a will has been denied where an attorney-draftsman was the sole legatee. In re Delorey, 141 A.D.2d 540, 529 N.Y.S.2d 153 (2d Dept. 1988). REPRESENTING MULTIPLE CLIENTS One of the most difficult things about running a large law firm is avoiding conflicts of interest caused by representing one client that becomes involved in a dispute or transaction with another firm client. In fact, law firms are required to have in place systems to prevent such conflicts. DR 5-105(E). Some of the conflicts do not even feel like they should create any issues. Representing an underwriter trying to raise money for a client does present a conflict, even though the law firm is helping the client raise funds. The underwriter, with the assistance of its counsel, negotiates with the issuer about the disclosure to be made and a variety of other issues. As in most commercial transactional settings, representing a party that is sitting across the table from another client presents a conflict for the law firm. See Ass’n of the Bar of the City of N.Y. Comm. on Prof’l & Judicial Ethics, Formal Op. 2001-2 (2001) (a lawyer may not represent a client in a matter that is adverse to the interests of another client, even if the dual representations are wholly unrelated; the rule is triggered whenever a lawyer simultaneously represents two clients in matters involving “differing interests,” regardless of the context in which those differing interests arise). Fortunately, most such conflicts are waivable if the clients involved are sophisticated and the law firm does not seek to represent both sides in the same matter. Corporate clients also are usually fairly reasonable about granting waivers. Although most waivers need not be in writing in New York, many firms have the policy of always documenting them. There are, however, some conflicts that are not susceptible to cure by waiver. For example, ethics committees have cautioned about the use of waivers when a conflict involves one client suing another. See, e.g., N.Y. County Lawyers’ Ass’n Comm. on Prof’l Ethics, Op. 671 (1989); N.Y. County Lawyers’ Ass’n Comm. on Prof’l Ethics, Op. 620 (1974) (it is highly “unlikely that a lawyer who is suing a current client can exercise the kind of zeal demanded by Canon 7 and EC 7-1″ of the Code). What lawyer, for example, would relish the pursuit of sanctions for discovery abuses when the sanctions will be sought from a valued firm client? One of the many problems with avoiding conflicts is the fact that a disqualification situation can arise from the mere request for representation, accompanied by the sharing of confidential information by the prospective client. See Ass’n of the Bar of the City of N.Y. Comm. on Prof’l & Judicial Ethics, Formal Op. 2001-1 (2001) (information communicated before an attorney-client relationship has been formed may preclude representation adverse to a prospective client, even on behalf of an existing client). The prospective client has the right to expect that the lawyer from whom counseling is sought will not disclose the confidences. EC 4-1. Thus, you as a summer associate should be careful before discussing retaining your firm with a family friend. If you later find out that your firm is already involved — but on the other side — your well-intentioned actions can require your firm to withdraw from representing its client. Before seeking any legal work, you should check your law firm’s policies and also advise any prospective clients not to tell you anything confidential until after your firm has cleared conflicts and agreed to take on the matter. CONFLICTS WITH FORMER CLIENTS In a memorable scene in “To Have and Have Not,” Humphrey Bogart repeats Walter Brennan’s question to the villain about whether he has ever been stung by a dead bee. Law firms all know that you can be — work for a former client can result in a firm’s disqualification. If the new matter is the same or substantially related to the work for the former client, the law firm needs a waiver from the former client before it can take on the new assignment. The Code provision is designed to protect the continued confidentiality of client information, even after the assignment is over. While the lawyer may promise not to use the information from the former client, there is no way for the former client to assure itself that the lawyer has not done so. Although this conflict is waivable, as a general matter, former clients are more reluctant to grant waivers than current ones are. While there is little you can do about it, you should keep in mind that your summer assignments could bar a different firm that you work for in the future from taking on an assignment. Conflicts that one lawyer has may be imputed to all of a firm’s attorneys. DR 5-105(D). Such conflicts are most likely to arise if you decide to change the nature of your practice. For example, if you work for a plaintiffs’ class action firm for the summer, you may find that some large corporate firms are reluctant to give you an offer because of conflicts concerns. The conflict with a past client described above is from a real case where a law firm helped prepare a company’s “shark repellants” to ward off unwanted takeovers. After a passage of time, the firm was retained to represent a corporation trying to acquire the law firm’s former client in an unfriendly takeover. The court disqualified the law firm from trying to help breach the defenses that it had set in place. Murray Ohio Mfg. Co. v. AB Electrolux, CIV. No. 01:88-0387, 1998 WL 106865, at *2 (M.D. Tenn. 1988). THE ORGANIZATION IS YOUR CLIENT The Code makes clear that when a lawyer represents a corporation, she does not represent its constituent parts — its directors, officers, employees or shareholders — unless, of course, she specifically has agreed otherwise. In fact, the lawyer, when dealing with one of these constituencies (for example, an employee in connection with an internal investigation) must explain that she is the lawyer for the corporation alone if there appears to be a conflict of interest between the corporation and the employee. If a lawyer is aware that someone within the corporation is violating his duties to it or violating the law in a way that the violation will be imputed to the corporation or will otherwise injure it, the lawyer must take action. Section 307 of the Sarbanes-Oxley Act of 2002, 15 U.S.C. �7245 and Part 205 of the SEC rules promulgated thereunder, 17 CFR Part 205, were intended to reinforce this principle. A lawyer must consider what type of action is called for in light of the circumstances, but the Code offers four possible options: asking the bad actor to reconsider, suggesting that the opinion of another lawyer be sought on the matter and presented to an appropriate authority within the organization, referring the matter to a higher authority within the organization or, under certain circumstances and if all else fails, resigning. Sarbanes-Oxley’s requirement of reporting up within the corporation is consistent with that of the Code. The Act comes into play when a lawyer is aware of evidence that a material securities law violation or breach of fiduciary duty or similar law has occurred. Sarbanes-Oxley also permits disclosure of the violation under certain circumstances, as does the Code. See DR 4-101. New York has not yet decided what would happen if the Code does not permit disclosure, but Sarbanes-Oxley would. The Bar for the State of Washington, however, has announced that any disclosure, even if permitted by Sarbanes-Oxley, that is not countenanced by its ethics rules may subject the lawyer to discipline. See Wash. State Bar Ass’n, Interim Formal Ethics Opinion on Effect of Sarbanes-Oxley Regulations (Adopted by Board of Governors 7/26/02), available at http://www.wsba.org/lawyers/ethics/formalopinion.doc (“[t]o the extent that the SEC Regulations authorize but do not require revelation of client confidences and secrets under certain circumstances, a Washington lawyer should not reveal such confidences and secrets unless authorized to do so under the RPCs [rules of professional conduct]“; “a Washington attorney cannot as a defense against an RPC violation fairly claim to be complying in ‘good faith’ with the SEC Regulations … if (s)he took an action that was contrary to this Formal Opinion”). The lawyer told to exclude material information from a prospectus can not just simply follow that directive. In the first instance, the lawyer should discuss the matter with his supervisor at the law firm. Assuming that there is agreement that disclosure is required, the next step would be to try to persuade the officer who directed the withholding of the information of the error of his ways. If this fails, then an appropriate member of the law firm should make a report to the corporate authority designated to address such matters, probably the general counsel. Eventually a report might have to be filed with the board of directors or some subset of it, if a satisfactory answer from the general counsel is not received. Long before this time, attorneys within your law firm designated to deal with Sarbanes-Oxley issues would undoubtedly have assumed responsibility for guiding you to assure that you and your firm have complied with the Code and Sarbanes-Oxley. IN CONCLUSION Conflicts are sometimes not intuitively obvious and conflicts of interest issues can be complicated. Lawyers at all levels need to be aware of the conflicts rules, because dealing with situations that can give rise to conflicts is a daily part of an attorney’s practice. From this brief survey of the area, you hopefully have a better idea of what to look out for and when to seek guidance. David G. Keyko is litigation partner in Pillsbury Winthrop’s New York office and a member of the firm’s professional responsibility committee. Andrew C. Smith, a litigation associate in the firm’s New York office, assisted in the preparation of this article.

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