Dealing with Outside Counsel’s Conflict of Interest, Part II – The Relationship’s Over, Let’s Litigate

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Alice’s outside law firm had ignored her letter alerting it to a serious conflict of interest. In fact, when the firm’s “risk management” partner called, all he seemed to want was to keep her company’s legal work.

Alice’s COO wanted strong action .“Well, I hate to do this,,” Alice muttered, “But I guess a lawsuit or ethics complaint will get their attention.” Alice e-mailed legal ethics counsel, requesting a call later that day.

Part I of this article – Still Talking – dealt with the first three of eight considerations for corporate counsel when analyzing and responding to outside counsel’s conflict of interest.

Sometimes outside counsel do not back down from a conflict of interest, even when the conflict is quite evident and serious. They may insist in continuing representations that involve significant potential violations of counsel’s fiduciary duties of loyalty and confidentiality, as well as blatant violations of the ethics rules.

When that happens, corporate counsel may consider options described in this two-part series. As the first three considerations were covered in Part I, this articles begins with IV.

Consideration IV – Terminate the Conflicted Firm. Normally one consequence of a serious conflict of interest is that the affected client terminates the conflicted firm. This may occur promptly instead of the warning letter (Consideration II). More often, however, the client terminates the conflicted firm later in the process, after the two sides fail to reach a resolution or accommodation.

Although the law firm’s representation of that client ends with termination, the firm must continue to protect the client’s interests, including turning over client files and property.

Terminating a law firm is often the most psychologically challenging step for a client. It can also be quite difficult as it involves finding new counsel and moving matters from the conflicted firm. This process may take significant time and resources, and result in harmful delays to pending legal matters.

In light of such burdens, it may be helpful for corporate counsel to keep five things in mind. First, the corporate client is likely not demanding anything extraordinary from the conflicted firm, which must either ameliorate or terminate the conflicted representation..Under Missouri Supreme Court Rule 4-1.16(a)(1), a lawyer must withdraw from a representation when the representation results in a violation of the Missouri Rules of Professional Conduct. Included among such prohibited representations are those where the lawyer has a conflict of interest. Rule 4-1.7(a) opens with the pronouncement that, except with informed client consent, “a lawyer shall not represent a client if the representation involves a concurrent conflict of interest.” Mo. S. Ct. R. 4-1.7(a). Other conflict rules place similar obligations on conflicted counsel.

Second, the terminated law firm likely has significant responsibility for determining its fate. Often law firms that receive warning letters will apologize, end conflicted relationships, and readily refund fees and accept other limitations to avoid more serious consequences from a conflict interest.

Third, the client controls a lawyer-client relationship, which is a fiduciary relationship. The client is the principal and the lawyer is the agent/fiduciary, which means that the client can terminate the lawyer at any time. In fact, when a client terminates a lawyer, the lawyer must withdraw. See Mo. S. Ct. R. 4-1.16(a)(3) (mandating a lawyer’s withdrawal when the lawyer is discharged).

Fourth, because a lawyer is an agent/fiduciary, a terminated lawyer continues to owe certain duties to the client after termination. Rule 4-1.16(d) references these duties when it states:

Upon termination of representation, a lawyer shall take steps to the extent reasonably practicable to protect a client's interests, such as giving reasonable notice to the client, allowing time for employment of other counsel, surrendering papers and property to which the client is entitled and refunding any advance payment of fee or expense that has not been earned or incurred. The lawyer may retain papers relating to the client to the extent permitted by other law.

Fifth, terminating a conflicted relationship is often necessary if a client intends to pursue further remedies against a firm. Often courts see a failure to terminate outside counsel as a sign that corporate counsel and their employer are not really serious about the injuries caused by a conflict.

Sometimes it might be impractical to terminate a firm, even though termination is often an important step before filing a motion to prevent that counsel from representing an adversary. For example, a particular matter may require immediate attention, or lawyers at the conflicted firm may be the only ones who can properly handle a matter.

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