August 1998
Ethics And The Law
Setting Up and Maintaining a System to Check for Conflicts of Interest
by Barrie Althoff, WSBA Chief Disciplinary Counsel
Opinions expressed herein are the author's and are not official or unofficial WSBA positions.
Conflicts of interest can easily arise in a busy law practice. The Supreme Court's Rules of Professional Conduct (RPCs) set out the minimum standards to avoid discipline in conflict-of-interest situations. The rules give no guidance, however, as to how to detect and avoid conflicts.
Purpose of Conflicts Rules
The conflicts rules are, to a large extent, intended to help you maintain your duty of loyalty to your client and your duty to protect and preserve the confidences and secrets of your clients and former clients.
The RPC 1.7 and 1.9 prohibitions on representing adverse parties prevent adverse representations, helping you to protect and preserve confidential information. The RPC 1.8 prohibition of certain transactions with clients assures that your self-interests will not interfere with your loyalty to your client. The RPC 3.7 prohibition on representing a client where you or someone in your firm is likely to be a necessary witness protects both the client and you from wasting resources in a case where you are likely to be disqualified for engaging in the incompatible roles of advocate and witness. Similarly, RPC 1.10 (dealing with imputed conflicts in a law firm), RPC 1.11 (dealing with successive government/private employment), and RPC 1.12 (relating to former judges, arbitrators and mediators), help you avoid breaches of confidential information and loyalty and wasting resources.
Purpose and Design of a Conflicts-Checking System
A conflicts-checking system, by helping you detect and avoid situations wherein the conflicts rules may apply, helps you implement and satisfy your duties of loyalty to your clients and your duty to preserve their confidences and secrets. You can detect and avoid conflicts of interest, however, only if you establish and maintain an effective conflicts- checking system. Your memory is not an adequate substitute.
A conflicts-checking system should be designed to detect possible conflicts which exist before you undertake a representation and those which may arise during the course of the representation. You should check your system for conflicts when a potential client first contacts you, immediately after you first consult with the new client and have learned the names of other persons and entities involved in the representation, and periodically during the course of the representation (for example, when any new party enters the case or transaction).
At the time of the first contact with a potential client, you should explain to the client your need to comply with the ethics conflict-of-interest rules. Even before the client describes the situation, ask the client to name the persons involved in the matter for which consultation is being sought. If the matter is simple, this can be done over the telephone. If it is more complex, you may want to ask the potential client to complete (before meeting with you) a "New Client Information Form" which would include all the persons involved in the potential representation. You can send the form to the potential client in advance of the meeting, or provide it while the potential client is waiting in your reception room. If have an Internet home page, you can keep the form there for the potential client to download or print out. If you do so, however, also advise the potential client not to return the completed form to you via the Internet, due to concerns of possible loss of confidentiality and attorney-client privilege.
If you can check your conflicts system immediately on receipt of the preliminary list of names, you should be able to identify most conflicts and avoid the disclosure of any confidential information from the potential client. Obtaining such a list in advance is not always practicable, however. In that case, you should ask the potential client to do his or her best to describe his or her legal problem to you without disclosing confidential information. You should promptly thereafter run a conflicts check and determine whether you can represent the potential client.
The Heart of the System: Names and Relationships
The heart of a conflicts-checking system is a complete, organized and accessible list of client and former client names and of persons associated with them. Your initial source of information for names would include your current client lists, new or potential client intake sheets or checklists, ongoing conflict-check requests, and your litigation docket. The complete list would include your own name, the names of your partners (if any) and of your office staff, of spouses and close relatives. It would also include names of your own clients and those of your partners, of persons who have consulted you or your partners for possible representation (regardless of how brief that consultation may have been), and of persons who may otherwise be involved in the representation, litigation or transaction.
When dealing with corporate, governmental, nonprofit or other entity clients, you need to consider the RPC conflict rules and determine who your client is so that you can determine whether a potential conflict exists. For example, are you being asked to represent the entity as a whole, or just a subsidiary, or the officers or directors as a group, or just individually, or just one of them, or are you being asked to represent one or more dissident shareholders? In the context of litigation, your list would include the names of the plaintiffs, defendants, third parties, and, as appropriate, of witnesses and expert witnesses, of insurers/insureds, of spouses, guardians, opposing counsel, employers/employees, and so on.
In business transactions, your list might include the names of business partners, controlling or principal shareholders, officers and directors and key employees, affiliated and subsidiary corporations or entities, company auditors, underwriters, etc. If the transaction involves the purchase or sale of property, you might include the names of buyers and sellers as well as brokers, lenders, debtors, insurers, accountants, investment bankers, and others that might be involved in the transaction.
In a marriage dissolution or family law case, you would likely include spouse (and perhaps former spouses), children, and perhaps grandparents and siblings. In cases of estate planning or probate, you would include the names of your client, and, as appropriate, the client's spouse, guardian, children, personal representative, heirs and devisees. In a criminal law case, besides the name of your client, you would likely include witnesses, the victim, and co-defendants and their counsel.
You should also include in your list the names of any persons to whom you have sent non-engagement letters. For example, if you are asked by two persons to represent them in forming or dissolving a business venture, and you determine to represent only one of them due to potential conflicts of interest, the names of both your client and the other person should be included in your conflicts system. Similarly, if a couple seeking an "amicable" marriage dissolution consults you, you would normally represent only one spouse, yet your conflicts system should include both spouses' names listed and the relationship of the other to your client. Likewise, if one spouse or partner consults you for a possible marriage or partnership dissolution, but decides not to pursue the dissolution at that time, that person's name (as well as the name of the marriage or business partner) should be entered into your system so that if at a later date the other spouse or partner contacts you you would know there may well be a conflict with the first spouse or partner.
Your system can be only as good and complete as the information you provide it. You, your staff and your partners must be careful to enter into the conflicts system all relevant names on an ongoing basis. Your new-client checklist should have on it a place to confirm that a conflicts check has been made. When entering information into, or doing a conflicts check on, your system, care should be taken to spell names correctly and to consider possible spelling variants in names (for example, "Ann" or "Anne"; or "McPherson," "MacPherson" or "Macphearson"; or "Thomson," "Thompson" or "Tomsin"; or the use of a maiden name rather than a married name.
Operating the System
One person who is very organized and attentive to detail should be primarily responsible for both entry of data into the system, and for actually making the conflicts check by retrieving the data from the system. The same person should also prepare file memoranda confirming that the conflicts check has been done. While it is probably more efficient to have a nonlawyer be primarily responsible for this task, an attorney should closely supervise.
Each time the system is checked, the check should be documented by a signed and dated file memorandum. The memo should include what names were checked, who checked them, at whose request the check was done, and when the checking was done. The memo may be kept either in a separate conflicts-check file or (preferably) in the client matter file.
When the system detects a possible conflict of interest, you need to review the possible conflict under the RPCs to determine if the apparent conflict is in fact an actual conflict. If a conflict does exist, you should determine if it is a conflict your clients can waive by consenting, usually in writing and after consultation with you and a full disclosure of all the facts, to your representation. You also need to decide whether you want to continue the representation even if the clients are willing to waive the conflict. Like the recital of "facts" told by many new clients, upon your further investigation the "facts" of the conflict may be deeper or more troublesome than your initial investigation discovered. If it is a conflict that can be waived by your clients after consultation, be sure to document that waiver and consultation as to all clients involved. This can be done in separate agreements, or as part of your engagement letter with the new client. Depending on the stage of the relationship with the individual, you may need to either decline the representation or withdraw from it. Where the conflict involves the same matter (and not just common clients), quite probably you will need to withdraw from representing all parties. In either case, you should promptly send a nonengagement or disengagement letter. If you have been representing a person but find you need to withdraw because of a conflict that should have been apparent to you from the beginning, it is likely that you will need to refund all or a portion of any legal fees that you may have collected from the client.
You would be wise to regularly circulate a list of new clients and engagements within your firm to all staff. Even the best systems are only systems and may fail to detect the unusual conflict of which you, your partners or your staff may be aware. For example, a lawyer leaving employment should normally keep a list of his or her past clients, as well as present clients, and when starting new employment compare the new employer's client list with his or her own list to identify any possible conflicts. You should also check the system any time you add a new employee (whether a lawyer or support staff) to your office, and ask that employee to review the conflict list to identify any possible conflicts based on the employee's prior employment.
Conflicts Checking System Should be Appropriate for Your Practice
The RPCs do not require any specific form of conflicts-checking system. The adequacy of your conflicts-checking system will depend on the nature and extent of your practice and of your firm. What is fully adequate for a sole practitioner will likely be wholly inadequate for a large law firm, while the complexity of a system needed for a large firm will likely be wholly inappropriate and wasteful for a sole practitioner.
A conflicts-checking system can be either maintained on a computer or can be a manual/paper index-card system. If you are a sole practitioner, or your firm has a very limited number of clients, a paper-based conflicts system may be adequate, although it is not recommended. Such a system may be as simple as a box of cross-referenced index cards. One card, for example, could have at the top the name of the client or potential client, and on the bottom a list of conflict names (other parties involved) and relationships of the person to your client. A separate card then could be made for each of the possible conflict names, and all cards could be kept in alphabetical order, thus permitting a single search for any name. Such a system becomes very burdensome, however, as your practice grows and will eventually have to be transferred to a computer-based system. Further, a paper-based system cannot easily be duplicated and archived, so that any loss or destruction of office records would likely also destroy your entire conflicts-checking system.
A computer-based conflicts-checking system is far preferable to a paper-based system. The system can be a simple word-processing document, an electronic spread-sheet, a database or a specific conflicts-checking system. Although you can maintain an adequate conflicts-checking system using a computer word-processing or spreadsheet program, you will generally find that a computer database program, or, better yet, a program designed specifically for conflict checks, is preferable. Such programs permit great flexibility in accessing, searching, organizing, expanding, printing, and archiving the relevant information. If placed on networked computers, such computer programs can usually be accessed by more than one person at a time, allowing immediate conflicts updates and checks.
Almost any computer database program will be adequate for a conflicts-checking system provided that it permits entry and maintenance of a large number of records. For ease of use you may want to have the program integrated into your other computer software, including your case management software. Upon identifying a possible conflict, you could then retrieve the name and location of the relevant file to examine, the name of the attorney in the office who is handling the matter, and, if the matter involves litigation, the current stage of the proceedings. If the computer program you use for your conflicts-checking system is written for Microsoft Windows, you will likely be able to integrate the information with your other Windows-based programs. Like any files created and maintained on a computer, your conflicts-checking system's information files should be regularly backed up or archived and a copy stored in a fireproof safe or offsite.
Conclusion
A conflicts-checking system is essential. With a good system in place and maintained, you should be able to detect and avoid most conflicts of interest. Failure to detect and avoid conflicts can lead to dissatisfaction by potential clients, clients and former clients, unpaid billings, and possibly to your disqualification in the particular matter. It can also result in malpractice actions and disciplinary proceedings. Thus, you need to know the conflicts rules and how to satisfy them. A carefully implemented and maintained conflicts-checking system will help you to do so.
