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Outside counsel for a corporate client may not freely go along with restrictions that the company wants to impose as a condition of waiving conflicts of interest involving the lawyer's other clients, according to a Jan. 28 opinion from the Michigan bar's ethics committee (Michigan State Bar Comm. on Professional and Judicial Ethics, Informal Op. RI-358, 1/28/13).
The opinion reviews what is ethically required for a lawyer to determine whether she can limit the scope of a prospective or current client's representation to accommodate conditions placed on the granting of a waiver of conflicts by a current client.
The committee advised that the lawyer may limit the representation as demanded by the corporate client only if she is able to:
• clearly understand the limitations to be imposed;
• reasonably determine that she will be able to provide competent representation within the limitations;
• reasonably determine that neither representation will be adversely affected; and
• obtain informed consent from each client.
The lawyer must not agree to a limitation the corporate client demands if it would preclude her from disclosing to the other client information necessary to pursue the objectives of the representation, the committee made clear.
In the scenario presented to the committee, a lawyer is outside counsel for a leading bank on some matters, but she is not the bank's primary outside counsel.
In other aspects of her practice, the lawyer represents borrowers, bankruptcy debtors, and secured creditors. Accordingly, she sometimes needs to seek a conflict waiver from the bank and another client or prospective client.
The bank's in-house counsel is insisting that, as a condition to the bank's waiver of any conflict of interest, the lawyer must agree that she will not take an “adversarial” position to the bank; assist the other client in challenging a security interest, claiming priority over the bank's security interest, or pursuing a lender liability claim against the bank; or represent the other client in litigation involving the bank. The lawyer asked the committee whether the ethics rules permit her to go along with these conditions.
The opinion sets out a multiple-step process for lawyers to follow in determining whether they can limit a prospective or current client's representation to accommodate another client's conditions for granting a conflict waiver.
The lawyer also asked if the bank's in-house counsel may ethically demand these conditions, but the committee declined to answer that question.
The opinion applies the Michigan Rules of Professional Conduct, which have not been comprehensively updated in the last decade. See 27 Law. Man. Prof. Conduct 266.
The committee advised that to ethically limit the scope of her representation of a client by accepting the bank's conditions, the lawyer must satisfy several requirements. First, she must find out what the bank means by the terms used in the conditions, such as taking an “adversarial” position to the bank.
Next, the lawyer must reasonably determine that she will be able to provide competent representation to the other client if those conditions are in effect, as required by Rule 1.1 (competence) and Rule 1.2(b) (“lawyer may limit the objectives of the representation if the client consents after consultation”).
The lawyer also must reasonably determine that her relationship with the bank will not be adversely affected, as required by Rule 1.7(a), and she must reasonably determine that her representation of the other client will not be adversely affected, in keeping with Rule 1.7(b).
Moreover, the panel continued, the lawyer must obtain informed consent from both the bank and the other client. But to secure that consent, she must first obtain each client's authorization to disclose whatever confidential information must be shared to receive informed consent from them.
Having obtained consent to disclose information as required by Rule 1.6 (confidentiality), the lawyer must then consult with each party as a predicate to securing effective consent.
For example, the committee advised, the lawyer must explain the conditions requested by the bank, and she must make plain that the client will have to be referred to independent counsel, with possible delays and additional legal fees, if it turns out to be in the client's interest to take a position adversarial to the bank, challenge a security interest, assert a security interest, assert a lender liability claim, or litigate against the bank.
The committee cautioned the lawyer not to agree to a limitation that would preclude her from telling the other client information necessary to pursue the objectives of that representation.
The lawyer must remain free, the panel said, to advise the other client about any facts and issues adverse to the bank that she discovers while representing the other client, and, as appropriate, to withdraw from the representation and refer the client to other counsel.
Copyright 2013, the American Bar Association and The Bureau of National Affairs, Inc. All Rights Reserved.
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