Disciplinary Commission publishes advisory opinion on conflicts of interest

The Indiana Supreme Court Disciplinary Commission has issued an advisory opinion focused on when attorneys must decline to represent a client or withdraw from a current representation due to a conflict of interest.

In short, the commission wrote that attorneys should decline to represent a client or withdraw from a current matter “when their advocacy is or will be materially limited by duties owed to another or by self-interest.”

When an attorney can “reasonably provide competent and diligent representation despite a conflict,” a waiver must be obtained from all affected clients “unless waiver of the conflict is otherwise prohibited by law or Rule.”

The Disciplinary Commission recommended lawyers review Indiana Rules of Profession Conduct 1.7, 1.8, 1.9 and 1.18.

“While realized and potential conflicts inevitably arise in one’s practice, attorneys must be diligent to avoid damaging the interests of those to whom they owe a duty,” the commission wrote. “To that end, it is vitally important that attorneys have a thorough conflicts check procedure in place.

“Conflicts analysis is nuanced and fact specific,” it continued. “Attorneys should carefully evaluate who the actors are and what interests are at stake in a matter. Thought should be given as to how potentially far-reaching the effects of the representation are to avoid damaging the interests of someone to whom the attorney owes a duty but who may not even be a party to the instant matter.”

In its July 2022 advisory opinion, the commission posed four hypothetical “ethical minefields.”

The first hypothetical situation concerns duties to prospective clients.

In that scenario, the commission presented a hypothetical dissolution case in which a wife comes to a law office seeking help and offers material information to an attorney. Ultimately the lawyer isn’t retained, but three weeks later the husband hires the lawyer to represent him in the dissolution proceeding.

In that situation, the Disciplinary Commission wrote that the lawyer is prohibited from representing the husband because the facts could significantly harm the other party. However, it did provide scenarios where changes in single facts could allow the lawyer to represent the husband.

The second hypothetical presents a scenario in which four individuals who form a limited liability company, each owning 25% shares, insist that a lawyer represent each of them individually and agree to waive all conflicts. However, it quickly appears that one of the individuals, individual A, will contribute the lion’s share of monetary funding to start the LLC.

“Lawyer could represent all four members in the formation of this corporation if the conditions of Rule 1.7(b) are satisfied,” the commission wrote. “However, before seeking a waiver, Lawyer should consider whether the interests of all four members are indeed aligned and whether Lawyer can truly provide competent and diligent representation to each of the four perspective clients. … If Lawyer is comfortable that all four individuals’ interests are truly aligned, Lawyer could seek a written informed consent waiver from each and proceed.

“However, if Lawyer is concerned that A’s competence is compromised by either ignorance of the situation or undue influence from the others, or even if A privately expressed concerns to Lawyer about the fairness of the situation, the conflict is likely not waivable,” it continued. “Client A cannot provide informed consent when A is not capable of understanding the risks posed by the joint representation, and Lawyer cannot advocate for Client A to be treated fairly without detrimentally affecting the interests of the other three.”

In the third hypothetical, the Disciplinary Commission gave the example of a lawyer who served as a client’s go-to for all legal questions and representation needs for many years. One day, the client approached the lawyer with an offer: The lawyer would provide legal services to the client’s business, Widget Corp., for two years in exchange for 5,000 shares of stock in Widget Corp. The lawyer accepted the offer and agreed to continue representing the client in his individual capacity in addition to representing Widget Corp.

The commission pointed to Rule 1.8 in that scenario, and to the case of In re Davis, 740 N.E.2d 855 (Ind. 2001).

“Prior to accepting Client A’s offer, Lawyer must ensure that the terms of the transaction are fair to Client A, advise A in writing to retain independent counsel, give A an opportunity to follow that advice, and ultimately receive Client A’s informed consent in writing to the essential terms of the of the offer,” the commission wrote.

In the final hypothetical, the commission gave an example of a conflict that might arise during representation.

Specifically, a lawyer has represented Client A, a bricklayer, for years and is currently representing Client A in contract negotiations with a supplier. The lawyer was just hired by Client B, a homeowner, for a potential lawsuit against Client B’s builder due to water seeping into Client B’s home.

After Client B’s suit against the builder is filed, the builder files a third-party complaint against Client A claiming that all damage to the home is due to faulty bricklaying. Client A calls the lawyer and asks him to represent Client A in Client B’s lawsuit.

“Initially it should be noted that a thorough conflicts check, which flushed out all potential defendants at the outset of representation, would have disclosed the potential conflict and allowed the attorneys to take appropriate action,” the commission wrote. “Lawyer clearly cannot represent both A and B in the matter as their interests are materially adverse, and Lawyer’s pursuit of damages against builder will negatively affect A. Rule 1.7(a)(1); (b)(3).

“Additionally, Lawyer will also likely have to withdraw from representing B in the lawsuit because of Lawyer’s concurrent representation of A in a pending matter, even though the matters are unrelated,” it continued. “… Before deciding to seek a waiver to continue to represent Client B, Lawyer should consider the potential damage to the relationships Lawyer has with each client and determine whether Lawyer can continue to represent B aggressively and competently in the lawsuit while maintaining a preexisting duty of loyalty to A.

“… The hypotheticals above represent only a few examples when conflict can arise,” the commission concluded. “The Rules of Professional Conduct and associated Comments are extremely instructive and should be carefully reviewed when attorneys are confronting conflicting issues.”