TOPIC: Limiting the scope of an attorney�s representation to avoid client conflicts.
DIGEST: The scope of a lawyer's representation of a client may be limited in order to avoid a conflict that might otherwise result with a present or former client of the lawyer. The lawyer must remain cognizant, however, of her duty of undivided loyalty to both clients and her duty to maintain the confidences and secrets of both clients.
CODE PROVISIONS: DR 5-105.
QUESTION: May a conflict of interest be avoided by limiting the scope of a lawyer's representation of a client?
Over the last two decades, the client rosters of many law firms have grown dramatically, spurred on by a burgeoning demand for legal services, a market shift where clients that once turned to a single law firm for all their legal needs now routinely retain several law firms, and an increase in law firm size, resulting both from mergers and internally generated expansion. Although this growth may be a bellwether of the economic health of the legal profession, it also heralds the likelihood that law firms will increasingly encounter situations where one client will be adverse to another client of the firm. Given the broad reach in New York of the duty of loyalty imposed by Canon 5, this can, and often does, result in clients being deprived of one of the most important rights accorded by our judicial system � the right to select the attorney of their choice. See, e.g., Richardson-Merrel, Inc. v. Koller, 472 U.S. 424, 441 (1985) (Brennan, J., concurring) ("A fundamental premise of the adversary system is that individuals have the right to retain the attorney of their choice to represent their interests in judicial proceedings.").
In New York and almost all jurisdictions except Texas, a lawyer is precluded, at least prima facie, from representing one client in a matter directly adverse to another current client, even though the representation of the other client is in an entirely unrelated matter. As a result of the strict application of this rule, a client may confront many situations where a lawyer, who does not have a conflict at the inception of an engagement, subsequently develops a conflict with another client. Situations where this can occur abound, in both litigation and transactional contexts.
In one common litigation situation, a law firm may agree to defend a corporate client in a lawsuit which does not appear to pose a conflict with any other client of the law firm. As fact development proceeds, an amendment to the complaint is filed adding as a defendant an additional party, such as the company�s accounting firm, which is also a client of the attorney�s firm in unrelated matters. At this juncture, an actual conflict still may not exist if the positions of the client company and its accounting firm appear to be united in interest or are not directly adverse. But if facts develop that suggest the client company may possess a cross-claim against the accounting firm, or vice versa, a conflict may emerge that could impact the lawyer�s ability ethically to continue its representation of the corporate client. In this context, the question arises whether the law firm can ethically avoid the conflict by limiting the scope of the engagement for the corporate client to exclude any involvement in the aspect of the matter that is adverse to the accounting firm. Absent the ability of the lawyer to limit the engagement, the Code requires the attorney to withdraw from her representation of the corporate defendant. See DR 5-105(B) [22 N.Y.C.R.R. ��1200.24].
Of course, conflicts are by no means limited to the litigation realm. "Adversity of position in litigation is not a necessary precondition for the existence of a direct conflict. If, for example, two businesses were competing for the same Government contract, and each engaged the same lawyer to prepare bids, Rule 1.7(a) would surely be applicable." In this same vein, an attorney representing a client in mergers and acquisitions practice also may face conflicts that are not foreseen � or even foreseeable � at the time the engagement commences. Such an attorney may be representing a company in an auction in which the company itself or one of its subsidiaries is to be sold. Only after the auction is commenced does another client of the attorney (or her firm) emerge as a potential buyer of the auctioned company. Continuing to represent the auctioned company could place the attorney in a position of direct adversity to the interests of the newly emerged bidder if the attorney were required to negotiate with her own client. Absent consent or the ability to unilaterally limit the scope of the attorney�s representation of the target, the attorney could be required to withdraw from her representation of the target. See DR 5-105(B) [22 N.Y.C.R.R. ��1200.24].
We conclude that a representation may be limited to eliminate adversity and avoid a conflict of interest, as long as the lawyer�s continuing representation of the client is not so restricted that it renders her counsel inadequate and the client for whom the lawyer will provide the limited representation consents to the limitation. In obtaining consent from the client, the lawyer must adequately disclose the limitations on the scope of the engagement and the matters that will be excluded. In addition, the lawyer must disclose the reasonably foreseeable consequences of the limitation. In making such disclosure, the lawyer should explain that separate counsel may need to be retained, which could result in additional expense, and delay or complicate the rendition of legal services.
A Lawyer May Limit the Scope of the Engagement
to Eliminate a Conflict with Another Client�������������
Under the Code, a lawyer shall neither undertake nor continue the concurrent representation of several clients if doing so would likely involve the lawyer in representing differing interests. DR 5-105(A),(B) [22 N.Y.C.R.R. ��1200.24]. Absent informed consent, the Code also prohibits a lawyer from representing a person in the same or a substantially related matter in which that person's interests are materially adverse to the interests of a former client. DR 5-108(A) [22 N.Y.C.R.R. ��1200.27]. The sine qua non, then, for the triggering of these proscriptions is the adverse nature of the lawyer's engagement, and where there is no adversity to a present or former client, these proscriptions do not apply. At bottom, the attorney-client relationship is consensual. Accordingly, we see no reason why the client cannot limit the scope of the lawyer's representation to eliminate an adversity between another client and the lawyer, and thereby avoid any conflict.
Our conclusion is fortified by the Restatement of the Law Governing Lawyers, which specifically approves limiting the scope of a lawyer�s representation to avoid conflicts: