Spotting and Avoiding “Material Limitation” Conflicts of Interest

Conn Kavanaugh

Some conflicts of interest are easy to spot.  Most lawyers recognize, for example, that a lawyer cannot act as an advocate in one case against a person the lawyer represents in another case, even if the matters are unrelated.  But the conflict inquiry does not end there.  Even if two clients are not directly adverse, a conflict of interest may arise if a lawyer’s ability to represent a client is materially limited by the lawyer’s other responsibilities or personal interests.  These “material limitation” conflicts are a minefield and are not always apparent.  This article provides some tips on how to avoid them.  

Concurrent Conflicts Under Mass. R. Prof. C. 1.7

Rule 1.7 of the Mass. Rules of Professional Conduct governs a lawyer’s duty to avoid conflicts among the lawyer’s current clients.  The rule covers two scenarios.  First, it provides that a lawyer shall not represent a client if the representation will be directly adverse to another client.  Second, it states that a lawyer shall not represent a client if “there is a significant risk that the representation…will be materially limited by the lawyer’s responsibilities to another client, a former client or a third person or by a personal interest of the lawyer.”    

The Comments to Rule 1.7 and some appellate case law flesh out the rule.  Comment 8 provides that a conflict of interest exists if there is a “significant risk that a lawyer’s ability to consider, recommend or carry out an appropriate course of action for the client will be materially limited as a result of the lawyer’s other responsibilities or interests.”  The Supreme Judicial Court observed in Maling v. Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, 473 Mass. 336 (2015), that the “critical inquiry” in analyzing potential conflicts under the second prong of Rule 1.7 “is whether the lawyer has a competing interest or responsibility that will materially interfere with the lawyer’s independent professional judgment in considering alternatives or foreclose courses of action that reasonably should be pursued on behalf of the client” (internal quotations and citations omitted).    

Examples of Material Limitation Conflicts

Material limitation conflicts under Rule 1.7 tend to arise in a number of familiar scenarios.  The most common is where a lawyer represents multiple clients in the same matter.  If a lawyer simultaneously represents an employer and an employee, for example, the lawyer’s ability to recommend a course of action to one client may be impacted by the lawyer’s duty of loyalty to the other.  This is especially true where the employee is alleged to have committed misconduct that exposed the employer to a lawsuit.  Joint representation can also pose a problem where a lawyer represents more than one plaintiff in a personal injury case.  The interests of joint clients may align at the outset of a case but diverge as the matter progresses, such as when one client wants to accept a settlement offer and the other wants to proceed to trial.  

The mere possibility of a future conflict between joint clients does not require a lawyer to decline representation.  In practice, lawyers often represent more than one client in a case.  The critical question for a conflict analysis is the likelihood that a difference in interests will emerge, and, if it does, whether it will materially interfere with the lawyer’s independent professional judgment.

The best approach when a lawyer is asked to represent multiple clients is to (a) determine whether the clients’ interests are sufficiently aligned, such that the lawyer can adequately represent both of them, (b) disclose the special considerations for joint representation in the engagement letter, including the sharing of confidential information, and (c) be vigilant about changing circumstances in the case that may require the lawyer to withdraw as counsel for one or both clients.   

A second scenario that is ripe for material limitation conflicts under Rule 1.7 is when tensions arise in the attorney-client relationship.  If a lawyer makes a material mistake in the handling of a case, the lawyer has a personal interest in not getting sued for malpractice.  That interest may interfere with the lawyer’s independent judgment in pursuing a course of action in the client’s best interest.  For example, a lawyer that omits a key argument in a brief may be tempted to advise the client in a way that minimizes the mistake, rather than one that maximizes the client’s interests.  

When a lawyer believes his or her personal interests may be in conflict with a client’s interests, the lawyer should advise the client to seek independent legal advice before continuing the representation.   

A third scenario that gives rise to material limitation conflicts is when a lawyer’s action on behalf of one client materially limits the lawyer’s effectiveness in representing another client.  These so-called “positional” conflicts often arise when lawyers in the same law firm argue different sides of a legal issue in unrelated matters.  The ethical risk is two-fold.  On one hand, lawyers may find themselves in the undesirable position of creating legal precedent that is adverse to a client’s interest.  On the other hand, a lawyer may be reluctant to advance a particular argument for one client in order not to offend another client.     

Positional conflicts are especially tricky because they are not detectable through the conflict check processes that most law firms use.  Further complicating matters, the ethical rules on positional conflicts are vague.    

Comment 24 to Rule 1.7 states that “[t]he mere fact that advocating a legal position on behalf of one client might create precedent adverse to the interests of [another] client in an unrelated matter does not create a conflict of interest.”  Only when the risk of a material limitation is significant must the lawyer refuse the representation or withdraw from one or both matters.  Factors to consider in determining the risk of a positional conflict include where the cases are pending, whether the issue is substantive or procedural, the temporal relationship between the matters, and the clients’ reasonable expectations in retaining the lawyer.  This language leaves a lot of room for interpretation.  

A related hazard when it comes to positional conflicts is when a lawyer is asked to serve a subpoena for documents or testimony in a pending matter on a company that, while not otherwise involved in the litigation, is a client of the lawyer’s firm.  If the lawyer is hesitant to do so, whether for business or ethical reasons, the lawyer’s interests are in conflict with the client’s interests.  

The scenarios discussed above are not exhaustive.  Material limitation conflicts can also arise when a lawyer enters into a business transaction with a client (e.g. a promissory note for the payment of fees), when a lawyer has a personal relationship with opposing counsel, or when a lawyer has strongly held political beliefs that bear upon the subject matter of a representation.  Recognizing the circumstances in which material limitation conflicts often arise is the best way to avoid them.   

Addressing Potential Material Limitation Conflicts

Most material limitation conflicts under Rule 1.7 can be waived.  The rule provides that notwithstanding a concurrent conflict of interest, a lawyer may represent a client if (1) the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client, (2) the representation is not prohibited by law, (3) the representation does not involve the assertion of a claim by one client against another client in the same litigation or proceeding, and (4) each affected client gives informed consent, confirmed in writing.  “Informed consent” is defined as a client’s agreement to a proposed course of conduct after the lawyer has communicated adequate information about the material risks and alternatives.  Waivers may need to be updated as a matter evolves.  

Practitioners should also be mindful of the ethical rules on imputation when analyzing material limitation conflicts.  Under Mass. R. Prof. C. 1.10, conflicts of interest generally are imputed to all members of a law firm.  However, when a lawyer cannot represent a client due to a conflict arising from the lawyer’s personal interests, the disqualification does not extend to other lawyers, so long as the lawyer’s personal conflict “does not present a significant risk of materially limiting the client’s representation by the remaining lawyers in the firm.”   

Material limitation conflicts are subtle and not always detectable through standard conflict check procedures.  To avoid them, lawyers should ask themselves at all stages of an engagement whether their professional judgment might be compromised by competing interests, whether personal or professional.  If there is any doubt, it is best to seek the advice of an in-house ethics partner or outside counsel.           

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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