Spotlight on Ethics: Unwaivable Conflicts of Interest

By Kevin Mohr

Editor’s Note: A version of this article appeared in the Ethics Column of the Update of the Los Angeles County Bar in 2012. It has been updated in consideration of the new Rules of Professional Conduct that became effective on November 1, 2018.

Is there such a thing as an unwaivable conflict of interest in California? California’s new Rules of Professional Conduct (“New Rules”) became effective on November 1, 2018. Two fundamental principles guided the drafters of the New Rules as they relate to conflicts of interest. First, the conflicts rules should not alter the law as it has been developed over decades through case law. Second, the rules should generally permit a lawyer to represent clients with interests that potentially or actually conflict, so long as the lawyer has adequately disclosed to the clients the risks and foreseeable adverse consequences of a conflicted representation, and following the disclosure, the clients provide their written consent. In at least one respect, however, those maxims were in conflict: Although California’s Rules of Professional Conduct (“Rules”) since their inception have explicitly permitted clients to consent to conflicted representations,¹ the conflicts of interest case law has consistently held that in certain situations a lawyer could not represent multiple clients even where the clients were willing to retain the same lawyer. As this brief article explains, the New Rules adhere to the drafters’ guiding principles by incorporating the case law on unwaivable conflicts of interest into the language of the New Rules themselves.

There are two general categories of conflict of interest situations that are considered unwaivable. First, there are conflicts that cannot be waived because an informed consent cannot be obtained. This situation can arise either because the lawyer is unable to provide a disclosure sufficient to render the clients’ consent informed or the client is incapable of consenting. A second category includes three conflict situations under which a client’s consent to a conflict would be deemed ineffective even when a lawyer can make adequate disclosure about the conflicted representation’s risks and consequences and the affected clients are willing to consent to that representation. Each category is recognized in the New Rules and is discussed in turn.

Category I: Informed Consent Cannot Be Obtained Because (1) Confidentiality Duties Preclude Disclosure or (2) Client Lacks Capacity to Consent

The first general category of unwaivable conflicts of interest focuses on the ability of the lawyer to obtain the informed consent of all affected clients to a conflicted representation. The California Rules generally permit a lawyer to represent multiple clients with conflicting interests so long as all the clients have provided their informed written consent. For example, if an employee and employer have been sued based on the act of the employee, the two can retain the same lawyer even if their interests conflict so long as the lawyer has “communicated and explained” the “material risks” and “foreseeable adverse consequences” of the clients being jointly represented, and the clients both agree. CRPC 1.0.1(e).² However, there are two situations where an informed consent cannot be obtained.

1.           Disclosure Precluded by Confidentiality Owed to Another. This kind of unwaivable conflict goes to the very foundation underlying an effective conflict consent – that a client who has received adequate disclosure concerning the conflict at issue can make an informed decision whether to permit the conflicted representation to go forward. Under CRPC 1.0.1(e), “informed consent” means “a person’s agreement to a proposed course of conduct after the lawyer has communicated and explained (i) the relevant circumstances and (ii) the material risks, including any actual and reasonably foreseeable adverse consequences of the proposed course of conduct,” which in the case of a conflict would be the conflicted representation. Thus, whether the client consent is “informed” will depend on the quality or adequacy of the disclosure. What constitutes adequate disclosure in turn depends on the specific facts and circumstances.

It should be apparent that if a lawyer is precluded from providing a client with an adequate disclosure because the lawyer is prohibited by the lawyer’s duty of confidentiality owed to another client, a former client, or a third person, the client will be unable to provide an informed consent. This concept is explicitly recognized in the New Rules. See CRPC 1.7, cmt. [7].

2.           Inability of Client to Consent. This situation presents the opposite side of the coin from a lawyer’s inability to make an adequate disclosure. Even if a lawyer were able to fully “communicate[] and explain[]” the risks and consequences of the conflicted representation, “informed consent” under CRPC 1.0.1(e) still requires that the client agree. Although diminished capacity presents a broad spectrum of abilities, a client with significantly diminished capacity might be unable to comprehend a lawyer’s disclosure concerning the risks associated with a conflicted representation and consequently would be unable to give informed consent to the representation.³

Category II: Although Lawyer Can Make an Adequate Disclosure and Client is Willing to Agree, Conflicted Representation is Precluded Because: (1) Competent Representation Cannot Be Provided To Both Clients; (2) Representation Is Prohibited By Law; or (3) Adverse Interests Of Clients Are Advanced In The Same Matter Before A Tribunal.

The second general category of unwaivable conflicts involves conflict situations where a lawyer is prohibited from representing multiple clients even if the lawyer is able to provide adequate disclosure and the client is willing to consent. These three situations have been recognized in California case law or statutes for many years and have now been codified in the Rules, specifically CRPC 1.7(d).

1.           Lawyer Does Not Reasonably Believe That The Lawyer Can Competently Represent All Affected Clients. The duty to provide competent representation to each and every client of the lawyer cannot be waived. CRPC 1.8.8(a) provides: “A lawyer shall not: (a) Contract with a client prospectively limiting the lawyer’s liability to the client for the lawyer’s professional malpractice.” CRPC 1.7(d)(1) provides that representation under CRPC 1.7 (current client conflicts) is permitted only if the informed written consent of all affected clients is obtained “and (1) the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client.” (Emphasis added.) Paragraph (d)(1) requires both (i) the informed written consent of each affected client and (ii) the lawyer to “reasonably believe” the lawyer can provide each client with competent and diligent representation.

It is important to recognize that the rule requires an objective belief; not the lawyer’s subjective belief. “Reasonable belief” is a defined term in the rule and “when used in reference to a lawyer means that the lawyer believes the matter in question and that the circumstances are such that the belief is reasonable.” CRPC 1.0.1(i). “Reasonable” itself is defined and “when used in relation to conduct by a lawyer means the conduct of a reasonably prudent and competent lawyer.” CRPC 1.0.1(h). “Reasonably prudent” is a term we were all introduced to in first semester law school as the epitome of an objective standard. Finally, “belief” is also a defined term and means “that the person involved actually supposes the fact in question to be true.  A person’s belief may be inferred from circumstances.” In other words, a lawyer cannot simply argue that the lawyer truly or honestly believed the lawyer could provide competent representation to all the clients. The belief necessary to satisfy the rule is that of a reasonably prudent lawyer and must be based on the facts and circumstances of the representation. Courts in other jurisdictions have reached the same conclusion in interpreting their counterparts to CRPC 1.7(d)(1).⁴

CRPC 1.7(d)(1) does not change the law in California. California courts have long recognized that consent by itself is not sufficient where a conflicted representation will prevent a lawyer from competently representing all the clients. For example, Klemm v. Superior Court⁵ recognized this rule. Although the Klemm court held the lawyer, who represented a divorced couple who were both opposed to the government’s claim for child support, need not be disqualified because the client’s interests did not conflict, it stated:

As a matter of law a purported consent to dual representation of litigants with adverse interests at a contested hearing would be neither intelligent nor informed. Such representation would be per se inconsistent with the adversary position of an attorney in litigation, and common sense dictates that it would be unthinkable to permit an attorney to assume a position at a trial or hearing where he could not advocate the interests of one client without adversely injuring those of the other.⁶

Although the court’s concern with the undivided loyalty owed each client is evident, the infirmity in representing adverse interests in such situations can be characterized as rendering the lawyer incapable of providing competent representation to both, the advancement of one client’s position being to the disadvantage of the other.⁷

2.           The Representation is Prohibited by Law. CRPC 1.7(d)(2) provides that representation under CRPC 1.7 is permitted only if the informed written consent of all affected clients is obtained “and . . . (2) the representation is not prohibited by law.” This prohibition is straightforward; lawyer’s are sworn to uphold the law. See Bus. & Prof. C. §§ 6067; 6068(a). For a lawyer to engage in a representation prohibited by law would be a continuing violation of the lawyer’s oath regardless of client consent. An example of such a representation is found in Business and Professions Code § 6131, which provides former prosecutors are prohibited from consulting with the defense in a matter in which they were personally involved as prosecutors.⁸

3.           The Representation Involves The Assertion Of A Claim By One Client Against Another Client Represented By The Lawyer In The Same Litigation Or Other Proceeding Before A Tribunal. CRPC 1.7(d)(3) provides that representation under CRPC 1.7 is permitted only if the informed written consent of all clients is obtained “and . . . (3) the representation does not involve the assertion of a claim by one client against another client represented by the lawyer in the same litigation or other proceeding before a tribunal.” Notwithstanding the informed written consent of the clients, a lawyer is not permitted to continue a representation where “in the same litigation” or “other proceeding” before a “tribunal,”⁹ the lawyer represents a client that files a claim against another client that the lawyer represents in the same proceeding. Although CRPC 1.7(d)(3) might be viewed as simply a special circumstance of a lawyer not being able to provide competent representation to all clients as required by paragraph (d)(1), discussed above, the policy underlying the rule is the preservation of the integrity of the tribunal and, by extension, the judicial system. That concept was recognized in State Compensation Ins. Fund v. Drobot, 192 F. Supp. 3d 1080 (C.D. Cal. 2016), which stated: “[t]he paramount concern must be to preserve public trust in the scrupulous administration of justice and the integrity of the bar.” Accordingly, “[t]he important right to counsel of one’s choice must yield to ethical considerations that affect the fundamental principles of our judicial process.” 192 F. Supp. 3d at 1087-88 (quoting People ex rel. Dept. of Corps. v. SpeeDee Oil Change Systems, Inc. (1999) 20 Cal.4th 1135, 1145.) Or, to put it in the words of the Klemm court, in an adversarial system whose integrity and effectiveness depends in large part on parties being represented by loyal advocates similarly knowledgeable and skilled, permitting the same lawyer to advance directly adverse positions in a contested matter before a tribunal would be, in Klemm’s words, “unthinkable.”¹⁰

The foregoing discussion shows that although the California Rules of Professional Conduct generally provide lawyers with the ability to obtain a client’s informed consent to waive a conflicted representation, there are situations when a lawyer is precluded from seeking such a waiver. Lawyers will be well served to familiarize themselves with these situations.

Kevin Mohr is a professor at Western State College of Law, Irvine, California and a founding member of the CLA’s Ethics Committee. He served as consultant to the State Bar’s Rules Revision Commission, which drafted the new Rules of Professional Conduct approved by the Supreme Court effective November 1, 2018. The opinions expressed are his own.

Footnotes

1. Rule 7 of the 1928 California Rules of Professional Conduct provided: “A member of The State Bar shall not represent conflicting interests, except with the consent of all parties concerned.” (Emphasis added.)
2. Most conflicts rules providing for a client’s consent to a conflicted representation require that the client’s consent be in writing, i.e., they require “informed written consent.” See, e.g., CRPC 1.7, CRPC 1.8.1, 1.8.6, 1.8.7, 1.9, 1.11, 1.18. To obtain “informed written consent,” both the disclosure required by CRPC 1.0.1(e) and the client’s consent must be in writing. CRPC 1.0.1(e-1).
3. An analogous situation was presented in Forrest v. Baeza, 58 Cal. App. 4th 65 (1997). There, the court held in a shareholder derivative suit that a lawyer may not represent both a closely held corporation and the directors/shareholders accused of wrongdoing. It would not be possible for the lawyer to obtain informed consent to representing both interests. The court reasoned that “where the only shareholders of the corporations are also the directors involved in the controversy, to allow the shareholders to consent on behalf of the corporation would render [the rule] meaningless.” Id. at 76.
4. See, e.g., Paladino v. Skate Safe (N.Y.Sup.Ct. 2010) 28 Misc.3d 1227(A), 958 N.Y.S.2d 62; Franson v. City and County of Honolulu (D.Hawaii 1/25/2017) 2017 WL 372976; Johnson v. Clark Gin Serv., Inc. (12/1/2016) 2016 WL 7017267; Malibu Media, LLC v. Doe (M.D. Penn. 10/25/2016) 2016 WL 6216142; Mitsui O.S.K. Lines v. Continental Shipping Line, Inc. (D.N.J. 9/20/2006) 2006 WL 8457532. All of these courts interpreted rule provisions identical to the language of CRPC 1.7(d).
5. Klemm v. Superior Court, 75 Cal. App. 3d 893 (1977).
6. Id. at 899.
7. See also Gilbert v. National Corporation for Housing Partnerships, 71 Cal. App. 4th 1240, 1254 (1999); L.A. County Bar Assn. Ethics Op. 471 (12/21/92), available at https://www.lacba.org/docs/default-source/ethics-opinions/archived-ethics-opinions/ethics_opinion_471.pdf [Last visited 4/11/2020]
8. See CRPC 1.9, cmt. [1]; CRPC 1.11, cmt. [10]. See also People v. Fayed, _ Cal.5th _, No. S198132, at 91 (4/2/2020) (court raises concerns with prosecutor having joined firm of defendant’s lawyers on appeal.)
9. “Tribunal” is a defined term in the Rules and “means: (i) a court, an arbitrator, an administrative law judge, or an administrative body acting in an adjudicative capacity and authorized to make a decision that can be binding on the parties involved; or (ii) a special master or other person* to whom a court refers one or more issues and whose decision or recommendation can be binding on the parties if approved by the court.” Because the rule limits tribunal to a body that can make decisions that are “binding” on the parties involved, it does not appear to include non-binding mediations.
10. Klemm, 75 Cal. App. 3d at 899.