CONFLICTS WAIVER SURVIVAL GUIDE FOR CORPORATE COUNSEL Prepared for the

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arhodes@hinshawlaw.com





CONFLICTS WAIVER SURVIVAL
GUIDE

FOR CORPORATE COUNSEL



Prepared for the

HNBA Annual Corporate Counsel Conference

March 13
-
16, 2013




By

Allison

Rhodes, Hinshaw & Culbertson LLP

Jessica Osborne, Hinshaw & Culbertson LLP



i

-

Conflicts Primer

TABLE OF CONTENTS

TABLE OF CONTENTS
................................
................................
................................
.................
i

I.

INTRODUCTION

................................
................................
................................
..............

1

II.

THE BASIC CONFLICTS RULES
................................
................................
....................

1

A.

Attorneys as Fiduciaries
................................
................................
................................
.......
1

1.

The Risk of Discipline

................................
................................
................................
....

1

2.

The Risk of Disqualification

................................
................................
...........................

2

3.

The Risk of Actions for Damages
................................
................................
...................

2

4.

Disgorgement of Fees

................................
................................
................................
.....

2

B.

Current
-
Client Conflicts


A Revie
w

................................
................................
..................
3

1.

Simultaneous Adverse Relationships Are Generally Prohibited

................................
....

3

2.

The Prohibition Generally Applies to the Entire Firm
................................
....................

4

3.

The “Hot
-
Potato” Rule and Thrust
-
Upo
n Conflicts
................................
........................

4

4.

Some Current
-
Client Conflicts Cannot Be Waived

................................
........................

6

5.

Corporate Families

................................
................................
................................
..........

7

C.

The Former
-
Client Conflicts Rules
................................
................................
......................
7

1.

Form
er Clients Have More Limited Powers

................................
................................
...

7

2.

Matter
-
Specific Conflicts

................................
................................
................................

8

3.

Information
-
Specific Conflicts

................................
................................
.......................

8

4.

The Firm Unit Rule Applies to Former
-
Client Conflicts

................................
................

8

5.

Conclusion: Former Clients Are Not Without Potential Recourse

................................

9

D.

Personal or Business Conflicts
................................
................................
.............................
9

1.

Doing Business with Clients

................................
................................
...........................

9

2
.

Lawyers on Client Boards
................................
................................
.............................

10

3.

Other Personal Conflicts

................................
................................
...............................

10

E.

Common Corporate Counsel Issues, inside and out.

................................
.........................
10

1.

Fiduciary Duties May Go Beyond Ethical Obligati
ons

................................
................

10

2.

Be Careful About Disciplinary Threats

................................
................................
........

10

3.

Conflicts in Corporate Investigations

................................
................................
...........

10

4.

Circumstances Change

................................
................................
................................
..

12


ii

-

Conflicts Primer





III.

ETHICAL S
CREENS AND WALLS

................................
................................
..............

12

IV.

WHAT OUTSIDE COUNSEL SHOULD KNOW WHEN DRAFTING AND SENDING
A WAIVER TO IN
-
HOUSE CLIENT CONTACT

................................
.........................

13

A.

Warning: Conflicts Waiver Letters Are Not a Panacea

................................
.....................
14

B.

Defining Informed Consent

................................
................................
...............................
15

C.

Specific Components of Effective Conflicts Waivers

................................
.......................
15

1.

Document Consent Contemporaneously
................................
................................
.......

15

2.

Get the Client’s Wa
iver in Writing

................................
................................
...............

15

3.

If It’s Important, Spell It Out

................................
................................
........................

16

4.

Clearly Identify the Consent Sought

................................
................................
.............

16

5.

Clearly Identify Why the Client Should Care

................................
...............................

17

6.

When Applicable, Discuss Joint Defense Privilege Issues

................................
...........

18

7.

Obtain Consent From All Necessary Parties or Persons
................................
...............

19

V.

WHAT SHOULD IN
-
HOUSE COUNSEL BE THINKING ABOUT WHEN
REVIEWI
NG A WAIVER REQUEST?

................................
................................
..........

19

A.

Is the Waiver Likely To Be Enforceable?
................................
................................
..........
19

B.

What Kind of Work Is To Be Done?

................................
................................
.................
19

1.

Business Matters

................................
................................
................................
...........

19

2.

L
itigation

................................
................................
................................
.......................

20

3.

What Is Being Waived

................................
................................
................................
..

20

C.

Who Will Do the Work?

................................
................................
................................
....
21

D.

Is Confidential Information at Risk?
................................
................................
..................
21

E.

How Related or Unrelat
ed Is the Work?

................................
................................
............
21

VI.

ADVANCE WAIVERS: ENFORCEABLE, UNENFORCEABLE AND ARE YOU
KIDDING ME?
................................
................................
................................
.................

21

VII.

CONCLUSION

................................
................................
................................
.................

26






1

-

Conflicts Primer





I.

INTRODUCTION

What are the basic conflict
s
-
of
-
interest rules?
How should you draft
a request for a waiver

and if
you get one s
hould you agree? Should you bargain over the scope of the requested waiver? Will
the requested waiver be enforceable? Just who do these lawyers think they are and why are t
hey
doing this to you? And what risks do you run if you say “yes”
?

The purpose of this
paper

is to
provide some background information and some rules of the road for this evolving
,

but essential
corner of legal practice. Although there is no one right o
r wrong answer for all
lawyers

in all
circumstances, there are better or less well
-
informed decisions.


Our goal is to assist corporate
in
-
house
counsel
and their outside counsel counterparts
in
understanding and making decisions about conflicts waivers.

If you have any questions or
suggestions about how to make this paper better or more useful, please let us know. We hope
that this document will evolve over time.


This paper contains citations to the American Bar Association
Model
Rules of Professional

Conduct (
“ABA Model Rule”)
,

to the Restatement (Third) of the Law Governing Lawyers
(2000) (“Restatement”), and to selected cases and ethics opinions. No attempt is made, however,
to provide a detailed look at the conflicts rules of all jurisdictions
.


II.

THE

B
ASIC CONFLICTS RULES


A.

Attorneys as Fiduciaries


The relationship between client and attorney is a fiduciary relationship, and the duty of loyalty is
at the heart of that relationship. Lawyers generally owe their clients a duty of “undivided
loyalty
.” Restatement §

121 cmt. b. To borrow from another time and another context, this
duty
requires more of lawyers than
the
“morals of the marketplace.”
Meinhard v. Salmon
, 248 N.Y.
458, 464,

163 N.E. 548 (1928) (Cardozo, J.).


The principal purpose of fo
rmal conflict
-
of
-
interest rules such as the RPCs is to codify those
aspects of the duty of loyalty
,

the violation of which
can lead to attorney discipline
. Despite the
fact that

discipline often seems remote to many lawyers, f
ailure to properly manage a c
onflict of
interest can result in a variety of
other
very unpleasant consequences.



Why we should care….


1.

The Risk of Discipline


Every
American jurisdiction has black
-
letter conflicts rules. Although the rules or their
interpretation can and do vary fro
m one jurisdiction to the next, lawyers are regularly disciplined
for conflicts violations when a particular jurisdiction’s rules have been violated.






2

-

Conflicts Primer






2.

The Risk of Disqualification


Motions to disqualify lawyers on conflicts grounds from cases that th
ey, and their clients in those
cases, would very much like them to handle are an everyday occurrence.
See, e.g., Farris v.
Fireman’s Fund Ins. Co.,

119 Cal
.

App
.

4th 671, 14 Cal
.

Rptr
.

3d 618 (2004);

Cal Pak Delivery,
Inc. v. United Parcel Service,
52 Cal
.

App
.

4th 1, 60 Cal
.

Rptr
.

2d 207 (1997);
Edwards v. Gould
Paper Corp. Long Term Disability Plan
, 352 F
.

Supp
.

2d 376 (EDNY 2005).

The point here is
not when such motions should be granted or whether such motions are favored or disfavored.


The point i
s that a motion for disqualification can be expensive, time
-
consuming and
embarrassing and that such a motion is one of the potential negative consequences of inadequate,
inaccurate or i
ncomplete conflicts analysis. Of course, and as always seems to be th
e case, a
conflict generated in the transaction department of a
f
irm can result in disqualification from a
lucrative matter in the litigation department.


3.

The Risk of Actions for Damages


Lawyers who violate the duty of undivided loyalty

in other words, l
awyers who represent a
client without an adequate conflicts waiver or under circumstances in which a conflict could not
be waived

frequently get sued and frequently lose. In fact, traditional legal malpractice in the
form of bad legal advice need not be s
hown. It can be sufficient for the plaintiff
-
dissatisfied
client to prove a breach of the duty of loyalty and that but for this breach, the client would not
have been injured in one or more respects.
See

Ronald E. Mallen & Jeffrey M. Smith

with
Allison R
hodes
,
L
EGAL
M
ALPRACTICE
ch. 15
-
18 (2013
). There are times when noncompliance
with the disciplinary rules alone will not provide a plaintiff with a viable damage
s

claim.
Northwestern Life Insurance Co. v Rogers,

573 N
.
E
.
2d 159, 163 (Ohio 1989). Neverthe
less,
conflict of interest cases can be difficult to defend and damages can at times be significant.


4.

Disgorgement of Fees


Attorneys who represent clients under circumstances in which an un
-
waived or inadequately
waived conflict is present may be barred

from collecting further fees and may, in fact, have to
disgorge all fees received from the time at which the conflict first arose. Judge Learned Hand
made this argument over half a century ago:


Certainly by the beginning of the Seventeenth Century it
had become a common
-
place that an attorney must not represent opposed interests; and the usual
consequence has been that he is debarred from receiving any fee from either, no
matter how successful his labors. Nor will the court hear him urge, or let him
p
rove, that in fact the conflict of his loyalties has had no influence upon his
conduct; the prohibition is absolute and the consequence is a forfeiture of all pay.



Silberger v
.

Prudence Bonds Corp.
, 180 F
.
2d 917 (2d

Cir
.

1950).


The prevailing rule in
many
American jurisdictions at this time is that the disgorgement of all

3

-

Conflicts Primer





fees is not automatic and that the court must apply a
ll facts and circumstances
. On the other
hand, it is also clear that actual injury to the client is not a necessary precondition
to a
disgorgement claim.
See generally

Restatement § 37

(stating the general rule and collecting
cases);
Kidney Assoc. of Oregon, Inc. v
.

Ferguson
, 843 P2d 442, 447 (Or 1992) (same);
Maritans
GP Inc. v
.

Pepper, Hamilton & Scheetz
, 602 A
.
2d 1277, 1285 (Pa
.

1992) (noting that courts
throughout the country have ordered the disgorgement of fees paid or the forfeiture of fees owed
to attorneys who have breached their fiduciary duties to their clients by engaging in
impermissible conflicts of interests).


Of par
ticular note: legal malpractice policies generally provide no coverage for disgorgement
claims since such claims are, in effect, fee disputes.


Although the conflicts rules are not identical in all American jurisdictions, they are similar in
many respec
ts. A fair one
-
sentence overview is provided in
the
Restatement §

121:


A conflict of interest is involved if there is a substantial risk that the lawyer’s
representation of [a] client would be materially and adversely affected by the
lawyer’s own interes
ts or by the lawyer’s duties to another current client, a former
client, or a third person.


B.

Current
-
Client Conflict
s



A Review


1.

Simultaneous Adverse Relationships Are Generally Prohibited


The core of the current
-
client conflicts rules can be simply st
ated: except as noted below,
American lawyers and law firms may not represent one current client adversely to another
current client on any matter unless, at a minimum, both clients consent to the conflict after full
disclosure.
See, e.g.,

ABA Model Rule

1.7; Restatement §§ 121
-
22, 128
-
31. In other words,
current clients generally have veto power that allows them to prevent their current counsel from
opposing them on any matter, whether it is related or unrelated to the work that is being done for
that c
lient.

The conflict waiver letter is the veto slip, use it wisely.


To the authors’ knowledge, the only

other

American exception to th
e

general rule
that lawyers
and law firms may not represent one current client adverse to another current client

is

Texas
.
Read literally,

Texas RPC 1.06
allows

a Texas lawyer
to

ethically represent one current client
adversely to another current client without disclosure to or consent from either client if the
matters are unrelated

and it reasonably appears a conflict will

not arise
. Of course, this does not
mean that the clients must accept such a dual relationship; the client is free, even in Texas, to
terminate an attorney
-
client relationship at any time and for any reason. Tex
as

RPC 1.15. The
effect of this Texas rul
e may also be limited if the work that a Texas lawyer is doing for one or
both clients involves other jurisdictions. For example, a Texas firm that wanted to represent
Current Client A adversely to Current Client B in litigation in State

X would likely fi
nd that the
State

X conflicts rules applied to State X litigation and that out
-
of
-
state Texas lawyers who were
appearing pro hac vice were therefore disqualified. The same would be true, of course, if the
Texas firm appeared in the litigation through loca
l members of its State X office.



4

-

Conflicts Primer





2.

The Prohibition Generally Applies to
the
Entire
Firm


The reference above to the disqualification of “lawyers and law firms” is, of course, intentional.
Pursuant to what is sometimes called the “firm unit rule,” all lawy
ers presently at a firm are
typically disqualified due to a current
-
client conflict if any lawyer is disqualified

as the conflict
of one
attorney in
a firm is
generally
imputed to
all attorneys associated with the firm
.
See, e.g.,

ABA Model Rule

1.10(a);
Restatement §

123. This includes not only partners and associates but
also “of counsel” attorneys and even some contract attorneys who have regular relationships with
particular firms. Restatement §

123 cmt. c(ii); ABA Formal Op.

00
-
420 (“of counsel” law
yers
are not temporary lawyers but are part of firm); ABA Formal Op.

94
-
388;
Cinema 5, Ltd. v.
Cinerama, Inc.
, 528 F.2d

1384 (2d Cir. 1976).

See also

Hempstead Video Inc., v
.

Incorporated
Village of Valley
,

409 F.3d 127 (2d Cir. 2005)

(discussing
except
ion to
imputed disqualification
based on of
-
counsel relationship of tainted lawyer)
.

On the other hand,

an imputed conflict
leading to the disqualification of one law firm may not require the disqualification of separate
law firm serving as co
-
counsel on
a matter so long as there is only a small actual risk of
confidential client information spreading from the primarily
conflicted

law firm to the second
firm.
Baybrook Homes, Inc. v. Banyan Construction & Development, Inc.
,

991 F
.
Supp.

1
440
(M.D.

Fla.

1
99
7
);

First Small Business Inv. Co. of California v. Intercapital Corp. of Oregon,
108 Wash.2d 324, 738 P.2d 263 (1987).




One

exception to the firm unit rule as applied to current
-
client conflicts exists in the context of
lawyers who change jobs. In some
jurisdictions, “screens” or “ethical walls” allow firms to
avoid disqualification if, but only if, the conflict is a result of work done by a laterally hired
lawyer before he or she joined his or her present firm. This subject is addressed further in
Sect
ion III below.



Other countries may have other rules. Whether, or to what extent, American conflicts rules will
apply to the multinational conflicts of multinational law firms remains to be seen. This issue is
presently the subject of much debate within

various commissions of the ABA studying, among
other things, whether the conflict of interest imputation rule in all US jurisdictions should appl to
multi national law firms with offices in countries where conflicts of interest do not impute to the
entire

firm. Should those firms be permitted to rely on the non imputation rules of the European
jurisdiction even though it is the US lawyers that are the source of the conflict?


3.

The “Hot
-
Pot
a
to” Rule

and Thrust
-
Upon Conflicts



The former
-
client conflicts
rules are more generous to law firms than the current
-
client conflicts
rules. This makes sense: the duty of undivided loyalty that lawyers owe to current clients should
be broader than the duty owed to former clients.


On any number of occasions, law fir
ms have attempted to fire current clients in the middle of
handling a matter in an attempt to turn those clients into former clients for conflicts purposes.
These attempts, which generally do and should fail, have given rise to what is called the “hot
-
pot
ato” rule: a firm cannot drop a client like a hot potato simply because a more desirable client
comes along.
See, e.g.
,

Restatement §

132, Reporter’s notes to cmt. c;
In re Rite Aid Corp. Sec.
Litig.
, 139 F. Supp.

2d 649, 658 n.15 (E.D. Pa. 2001)

(citing

general rule and enforcing a

5

-

Conflicts Primer





prospective agreement to retain one client over the other)
;
Universal City Studios, Inc. v.
Reimerdes
, 98 F
.

Supp
.

2d 449, 452 (S.D.N.Y. 2000). This rule applies also when the conflict is
a result of a merger of two previousl
y independent law firms.
See, e.g.,

Picker Int’l, Inc. v.
Varian Assocs.
, 869 F.2d 578, 581 (Fed. Cir. 1989). In fact, conflicts waivers are required once
law firm merger negotiations reach an advanced stage. ABA Formal Op. 96
-
400.


The hot
-
potato rule
has two potential exceptions and one limitation. One potential exception
applies when a conflict is not a result of anything that a lawyer or firm may have done. Suppose
for example that Adverse Party A in
Matter A acquired a firm’s clien
t in Matter B an
d sought to
use that new client relationship to di
squalify the firm from
M
atter A.


Some court
s

and some
jurisdicti
ons have addressed such “thrust
-
upon” conflicts to allow a lawyer to drop the
manipulative client and maintain at least one of the relationsh
ips
. Each state deals differently (if
at all) with t
hrust
-
upon conflicts
.

Thrust
-
upon conflicts are direct
ly addressed in DC RPC 1.7(d)
as follows:


If a conflict not reasonably foreseeable at the out
set of representation arises . . .
after the represent
ation commences, and is not waived

. . .
, a lawyer need not
withdraw from any representation unless the conflict also arises under paragraphs
(b)(2), (b)(3), or (b)(4).


In N.Y. City Bar Op. 2005
-
05 (2005), The NY

C
ity

Bar A
ssociation opined that a lawyer
is
permitted to withdraw from one and not the other representation under certain circumstances.
First, the conflict must be truly unforeseeable; second, the conflict must be truly no fault of the
lawyer (e
.
g.
,

conflicts other than those discovered late du
e to an inadequate conflicts check); and
finally, the conflict must be waiveable. If these criteria are met, the lawyer may continue to
represent the clients after performing a balancing test of the potential prejudice to one or both
clients and the sourc
e or fault of the conflict. The full text of this well reasoned opinion is
available at www.nycbar.org/Ethics/eth200505.htm.

California has yet to
address the question of
“thrust
-
upon” conflicts directly, though an exception similar to that articulated i
n the DC rule has
been discuss
ed in case law, but not applied.

See State Farm Mut. Auto Ins v. Federal Ins. Co.,
72
Cal.
App. 4th 1422 at 1432, 86 Cal.
Rptr.

2d 20 (1999).


The second possible exception is that lawyers with a clear primary client and an e
qually clear
secondary or accommodation client may sometimes be allowed to fire the accommodation client
and continue with the primary client.
See, e.g.,
Restatement §

132 cmt. i.
As a practical matter,
however, the accommodation client is unlikely to be
a business entity. It is more likely to be,
say, a middle
-
level manager whose business entity
-
employer has allowed its counsel to defend
the manager as well as the entity in a case in which both were accused of wrongdoing. In such
circumstances, the busi
ness entity would also be very well advised not to rely solely on the
accommodation client theory but to seek a formal conflicts waiver from the middle
-
level
manager as well.
See

Home Care Indus. v. Murray
, 154 F. Supp. 2d 861 (D. N.J. 2001);
Universal Ci
ty Studios
, 98 F. Supp. 2d at 453.

In re Rite Aid Corp. Sec. Litig.
, 139 F. Supp. 2d at
659
-
60 (enforcing prospective agreement to maintain primary client in face of conflict).


The
hot
-
potato rule applies only to current
-
client relationships. If a client

is already a former
client at the time that the firm takes on an adverse matter, the hot
-
potato rule does not apply.

6

-

Conflicts Primer





Whether a client is a current or former client depends,
inter alia
, upon the client’s subjective
belief in or the reasonableness of that
belief under the circumstances.
See, e.g., Oxford Systems,
Inc. v. CellPro, Inc.
, 45 F. Supp. 2d 1055 (W.D. Wash. 1999). For the cases discussing the often
difficult dividing line between current and former clients, see also Restatement §

14 and sources
cited therein.


4.

Some Current
-
Client Conflicts Cannot Be Waived


There are some conflicts between current clients that the law regards as so severe that they
cannot be waived. Thus
ABA Model Rule

1.7(a)
(2)

prohibits simultaneous representation if
"there i
s a significant risk that the representation of one or more clients will be materially limited
by the lawyer's responsibilities to another client

. . . .
” Similarly,
ABA Model Rule

1.7(b)
(1)

prohibits simultaneous representation if the lawyer cannot “reas
onably believe[

]
that the lawyer
will be able to provide competent and diligent representation to each affected client
.”
See also

Restatement §

122(2)(c) (simultaneous representation prohibited if,
inter alia
, “it is not
reasonably likely that the lawyer

will be able to provide adequate representation to one or more
of the clients”).


The nonwaivable
-
conflicts rules are not written or interpreted the same way in
all jurisdictions.

Under the existing NY Disciplinary Rules,
the
questions of

waiveability is

described as the “disinterested lawyer” test.
NY
DR 5
-
105(c) and 5
-
101 require a lawyer to
determine if a “disinterested lawyer” would believe that the representation will not be impeded
by the conflict. Absent an affirmative answer to this question, the
lawyer is prohibited from
seeking a waiver. Examples of situations that have not passed the disinterested lawyer test
include:



Franklin High Income Trust v. APP Global Ltd.
,

N.Y.L.J. July 7, 2004
(NY County Supreme Ct.) (Herman Cahn, J.). Waiver reject
ed by court, and law
firm disqualified,
sua sponte

by court where firm represent
ed

plaintiff, Fund, as
well as third
-
party defendant, Fund Advisors,
and

defendant company asserted
that the Fund Advisor was primarily responsibl
e

for the failed investment du
e to
poor Fund management. The Court reasoned that it would not be obvious to a
disinterested lawyer that one lawyer can represent both clients given the high
likelihood of eventual direct conflict.


Sapienza

v. New York News, Inc.,

481 F.

Supp. 676 (S.D
.N.Y. 1979).
Disqualification of a lawyer who brought an antitrust suit against a current client
while simultaneously representing that client in a similar
matter (different parties)
in a different court.


In setting aside the waiver, the Court found that
it was not
obvious that the lawyer could adequately represent both clients in their respective
matters, despite their consent.


NY City Bar Op
.

2004
-
2 (2004). Simultaneous representation of corporation and
its officers in a criminal investigation by the g
overnment will often, though not
always, fail the disinterested lawyer test.


In some jurisdictions
,

a lawyer or law firm cannot ethically represent both a buyer and a seller in
a real estate transaction even if both clients consent after full disclosure.

See, e.g.,

In re Johnson
,

7

-

Conflicts Primer





707 P
2d 573 (O
r.

1985). In others, a lawyer can do so if, and only if, the transaction is not too
complex.
See, e.g.,

Baldasarre v. Butler
, 625 A.2d 458 (N.J. 1993).
S
till
in
others, such
representations may be permissible if

competent clients
consent
, if the differences between them
are not too sharp, and if the work will
not
require extensive advice to the clients.
See

Restatement §

122 illus. 10, 11;
see also

California

RPC 3
-
310 (broadly allowing such
representations upon

informed written consent). Although some states have disciplinary
decisions or ethics opinions on this subject, there is presently no general and universal agreement
among American lawyers about how this set of lines should be drawn.
See, e.g.,

Peter

R.

Jarvis

& Bradley

F. Tellam, “Conflicts About Conflicts,” Prof. Law. 22, 23 (May 1996).



The buyer
-
seller, lender
-
borrower, or landlord
-
tenant kind of dichotomy presents fixed
-
sum
games in which “more” for one client typically means “less” for the other.

Suppose, however,
that several current or would
-
be clients simultaneously ask a single lawyer or law firm to
represent all of them in putting together a corporation or other business entity through which
they will do business together. In this type of s
ituation, the adversity that is present in a straight
buy
-
sell situation may as a practical matter be reduced, if not overcome, by the joint interests that
the would
-
be incorporators or partners will have in putting together a profitable business. It
shou
ld come as no surprise, therefore, that the general answer to the question of whether a single
lawyer or law firm may represent multiple would
-
be incorporators or partners is “yes, qualified.”
If the interests are wholly consistent, simultaneous represen
tation may in fact be permissible
even without a formal conflicts waiver. If the interests of the proposed multiple clients are too
adverse, a single lawyer or firm cannot represent them all even if all consent. And in all
situations in between (which, i
n our view, is about all of them), simultaneous representation is
permitted only on the basis of informed consent from all the clients. Comment 12 to
ABA
Model Rule

1.7 puts the matter as follows:


For example, a lawyer may not represent multiple parties
to a negotiation whose
interests are fundamentally antagonistic to each other, but common representation
is permissible where the clients are generally aligned in interest even though there
is some difference of interest among them.


5.

Corporate Families



Does a firm’s representation of one member of a corporate family constitute representation of all
related or affiliated corporations or entities? The answer is “it depends.”
See, e.g.,

ABA Formal
Op. 95
-
390, Cal
. State Bar Formal

Op. 1989
-
113, 1989 WL 25
3261. The deciding factors are
such issues as whether the entities operate as one or different businesses, whether the entities
share counsel,
whether they have a unity of interests in the representation at issue
and the like
.
See, e.g.,

Certain Underw
riter's at Lloyds of London v. Argonaut Ins. Co.,
264 F.

Supp.

2d 914
(N.D.

Cal.2003).


C.

Th
e Former
-
Client Conflicts Rules


1.

Former Clients Have More Limited Powers


Former clients also have veto power, but it is limited to two situations. In addition, for
mer

8

-

Conflicts Primer





clients can always waive conflicts
, while as noted
above
, current clients

can

not
.
See generally

ABA Model Rule

1.9; Restatement §

132. The two types of situations in which former
-
client
conflicts waivers are required have sometimes been referred to
as “matter
-
specific” and
“information
-
specific.”
See In re Brandsness,
299 Or 420, 702 P
2d 1098 (1985)
. In many cases,
matter
-
specific and information
-
specific conflicts will both be present. In many other cases,
neither one will be. The point for pres
ent purposes is only that the presence of either one
requires a conflicts waiver from both the former client and the current client before a lawyer or
law firm can proceed.


2.

Matter
-
Specific Conflicts


A matter
-
specific conflict exists, and a conflicts wai
ver is required, if the transaction or litigation
that a lawyer or law firm proposes to handle adversely to a former client is the same as or
sufficiently related to the transaction or litigation that the lawyer previously handled for that
client. For exa
mple, a lawyer who represents the seller in a real property transaction cannot
subsequently represent the buyer in litigation against the seller relating to that contract even if it
could be shown that the lawyer learned no pertinent confidences or secrets

from the seller at the
time of the former representation.
See, e.g.,

Collatt v. Collatt
, 782 P2d 456 (Or

Ct App 1989).


Not surprisingly, there is some dispute in the case law concerning how closely two matters must
be related before a conflicts waiver

is required.
See, e.g.,

Portland Gen. Elec. Co.

v. Duncan,
Weinberg, Miller & Pembroke, P.C.
, 986 P2d 35 (Or Ct App 1999)
;

Am. Heritage Agency v.
Gelinas
, 774 A.2d 220 (Conn. App. Ct. 2001). For other cases on this subject, see Restatement
§

132.


3.

In
formation
-
Specific Conflicts


An information
-
specific former
-
client conflict exists if, during the course of work on a prior
matter, a lawyer or firm learned confidential client information that could be used adversely to
the former client in the present
matter.
See, e.g.,

In re Brandsness
, 702 P
2d 1098 (Or

1985)
(identifying information
-
specific category);
Jessen v. Hartford Casualty Insurance Co.,

111 Cal.

App.

4th 698, 3 Cal.

Rptr.

3d 877 (2003) (court applied the "substantial relationship" test to
det
ermine if information material to the evaluation, prosecution, settlement, or accomplishment
of the prior representation was also material to the evaluation, prosecution, settlement, or
accomplishment of the current representation
for purposes of determini
ng whether insured's
lawyer must be disqualified because he was previously an associate in a law firm that frequently
represented the opposing party
);
OSB Formal Op.

1991
-
17, 1991 WL 279158 (giving examples)
.

Not surprisingly, there is also disagreement w
ithin the case law on this issue regarding how clear
the proof must be.


4.

The Firm Unit Rule Applies to Former
-
Client Conflicts


There is no general distinction between current
-

and former
-
client conflicts when it comes to the
firm unit rule. The need to
disqualify a single lawyer will result in the need to disqualify an
entire firm.
See, e.g.,

ABA Model Rules

1.9, 1.10(a); Restatement §§

123, 132. In some cases,
however, ethical screens or walls may help a firm avoid disqualification due to a former
-
cli
ent

9

-

Conflicts Primer





conflict of a laterally hired lawyer. Disqualification may also be avoided if all attorneys who
have worked on the matter giving rise to the former
-
client conflict have left the firm. These
points are discussed in Section

III below.


5.

Conclusion: For
mer Clients Are Not Without Potential Recourse


Even when a company must concede that it is a former and not a current client of a law firm, this
does not mean that it is powerless to prevent that law firm from acting adversely to it. In at least
some cir
cumstances, for example, a careful review of the confidential client information
communicated to the former law firm may permit the
argument

that information could be used
adversely to the company in the present matter and that the law firm must therefore
be
disqualified.


In other circumstances, the relationship between the present and former matters may be enough.
However, at least some courts have held that disqualification may not be available even in a
matter
-
specific context if the law firm can pro
ve that it did not acquire any pertinent client
confidences and secrets.
See, e.g., Christensen v. United States Dist. Court
, 844 F.2d 694 (9th
Cir. 1988). Interestingly enough, this does not necessarily mean that the lawyers in that firm are
not subject

to discipline for proceeding in such circumstances even if they are not disqualified.


D.

Personal or Business Conflicts


The duty of loyalty can be violated not only by conflicting obligations owed to multiple current
or former clients
,

but also by conflic
ts between a single client’s interests and the lawyer’s own
personal or business interests. In some jurisdictions, all or nearly all such conflicts would appear
to be waivable. In others, some conflicts of this type cannot be waived. These conflicts are

generally dealt with in
ABA Model Rule

1.7(b) and
Rule

1.8;
see also

Restatement §§

125
-
27.



1.

Doing Business with Clients


Suppose, for example, that a corporate client wishes to compensate a lawyer through the issuance
of stock to the lawyer. Subject
to the applicable limitations on excessive or unreasonable fees,
such an alternative payment relationship is generally permissible as long as the deal is fair and
the lawyer provides a sufficient explanation of the pros and cons.
ABA Model Rule

1.8(a);
se
e
also

ABA Formal Op. 00
-
418; Restatement §

126.

Other financial transactions with clients
similarly must be not only

fair and reasonable, but
also must

occur with the informed consent of
the client.
See also
Matter of Gold
,

240 A.D.2d. 74, 668 N.Y.S. 2d

605 (1
st

Dep’t 1998)
(attorney arranged for a $57,000 loa
n

from clients to himself and

his wife, and prepared loan
documents, however, the terms of the loan were neither fair nor reasonable, the lawyer failed to
inform his clients of the advisability of s
eeking independent counsel, and did not obtain written
consent despite the apparent conflict);
Matter of Pollack
, 238 A.D.2d. 1, 664 N.Y.S. 2d 772 (1
st

Dep’t 1997) (attorney solicited $10,000 loan from client
,

but failed to disclose the extent of his
finan
cial difficulties, in violation of NY DR 5
-
104 (A)).




10

-

Conflicts Primer





2.

Lawyers on Client Boards


Personal or business conflicts can also arise when a lawyer or member of a lawyer’s firm also
occupies a position on a client’s board of directors. In this type of situation,

the conflict arises
because the lawyer’s or firm’s duties
,

as lawyers
,

may conflict with the individual lawyer
-
director’s duties as director. Once again, such conflicts are likely to be waivable after full
disclosure.
See, e.g.,

ABA Formal Op. 98
-
410.


3.

Other Personal Conflicts


This is not an exhaustive list of personal or business conflicts. For example, personal conflicts
can also occur when married or otherwise related lawyers

ar
e on
opposing

sides of a matter. In a
transactional setting
,

counsel s
hould be mindful that a personal interest conflict exists
when the
lawyer is to be paid by someone other than the client
.
See
In re

Jord
a
n

III,

299 A.
D
.2d. 34
(2002) (New York law
yer disbarred for repeated representation of real estate buyers while legal

fees were being paid by the brokers and sellers without the informed consent of the client).

Also
,
s
ee generally

ABA Model Rule

1.8.


E.

Common Corporate Counsel Issues, inside and out.


1.

Fiduciary Duties May Go Beyond Ethical Obligations



First, the conf
licts rules do not necessarily provide the full measure of a lawyer’s duties to a
client. A lawyer or firm could conceivably be held civilly liable for breach of fiduciary duty
even though a violation of the formal ethical rules may not be present. Conve
rsely, there are also
times when a lawyer will be subject to discipline even though the client would have no private
cause of action.
See

Owens v. McDermott, Will & Emery
, 736 N.E.2d 145 (Ill. App. Ct. 2000).


2.

Be Careful About Disciplinary Threats


Alt
hough the
ABA Model Rules

as such no longer contain a specific “threatening prosecution”
rule equivalent to former
ABA
DR 7
-
105, extortion is still prohibited. In some jurisdictions, a
threat to file a bar complaint may violate either the general law agai
nst extortion or a surviving
variant of the “threatening prosecution” rule.
See, e.g.,

Wash. Rev. Code

9A.56.110 (“Extortion
means knowingly to obtain or attempt to obtain by threat property or services of
the
owner

.

.

.

.”); California

RPC 5
-
100
.


3.

Con
flicts in Corporate Investigations

a.

Joint
-
Defense Conflicts


On a sheer numbers basis, the incidence of joint
-
defense conflicts waiver problems is far less
than the incidence of current
-
client, former
-
client, and personal or business conflict problems.
Ne
vertheless,
in the present era of corporate investigations,
the issue is important enough to
deserve separate mention, because it can provide a trap for the unwary that ought to be
considered as part of an overall conflicts waiver process.


11

-

Conflicts Primer






Suppose that tw
o unrelated corporations are named as defendants in litigation and that they
decide to be separately represented but to share privileged information on the basis of a joint
-
defense agreement. Suppose that a great deal of information is shared on this basi
s but that the
interests of the two corporations subsequently diverge. Can the lawyers for each of the corporate
clients continue to represent “their” client even though they now have information subject to the
joint
-
defense privilege? The answer is “per
haps not.”
See, e.g.,

ABA Formal Op. 95
-
395;
City
of Kalamazoo v. Mich. Disposal Serv.
, 151 F. Supp. 2d 913 (W.D. Mich.

2001);
United States v.
Anderson
, 790 F. Supp. 231 (W.D. Wash. 1992). Clients who enter into joint
-
defense
agreements should consider
whether, for example, they want to include a provision that allows
each party to the agreement to continue to be represented by its counsel in the event of a
breakup.

At least

one court has found that joint
-
defense agreements can be implied from the
shari
ng of confidential information and the disclosu
re made under the implied joint
-
defense
agreement could become the basis to disqualify one of the attorneys who participated in the joint
defense.
In re Skiles
, 102 S.W.3d 323 (Tex.

App.

2003).

But
See

Unite
d States v. Stepney
, 246
F. Supp. 2d 1069, 1079
-
80 (N.D. Cal.
2003) (“Joint defense agreements . . .
cannot extend
greater protections than the legal privileges on which they rest.”).


b.

Entity Representation


As a general proposition, a lawyer who represe
nts a corporation is deemed to represent only the
corporation and not its officers, directors, shareholders, or employees as such. In the event of a
falling out between the corporation and one or more of its officers, directors, shareholders, or
employees,

the lawyer is therefore free to represent the corporation.
See
,
e.g.
,
Meehan v. Hopps
,
144 Cal. App.

2d 284, 301 P.
2d 10 (1956);
In re Banks
, 283 Or 459, 469, 584 P2d 284 (1978);
See

Commodity Futures Trading Comm’n v. Weintraub
, 471 US 343, 105 S Ct 1986
, 85 L Ed2d
372 (1985).
See

also

former ABA
EC 5
-
18 (“A lawyer employed or retained by a corporation or
similar entity owes his allegiance to the entity and not to a stockholder, director, officer,
employee, representative, or other person connected with t
he entity”);
In re Kinsey
, 294 Or 544,
556 n
.

4, 660 P2d 660 (1983) (citing and quoting
ABA
EC 5
-
18 with approval).



Representation of a corporation that is wholly owned by a single family or individual
may be seen by some courts as a per se representatio
n of the shareholders.
See
,
e.g.
,

In re Banks
,
283 Or 459
;

In re Brownstein
, 288 Or 83, 86

87, 602 P2d 655 (1979).

If the lawyer leads the
shareholders to believe that each of them is a client, however, it seems quite likely that a court
would hold that a
ll are clients.

See Atlas Partners

II,

Limited
Partnership
, v. Brumberg, Mack
e
y
& Wall, PLC
,

2006 WL 42332 (W.D.Va 2006).

An attorney
-
client relationship can, of course,
be created with officers, directors, shareholders, or employees if the lawyer does
legal work for
them.
ABA Model Rule

1.13(d)

(e).

Suppose, for example, that a lawyer is in the process of
assisting an employee with a personal matter when the company president asks the lawyer’s help
in dismissing that employee due to an alleged theft of

company property. The lawyer then has a
conflict of interest and will be unable to proceed without, at a minimum, disclosure and consent.
See

National Texture Corp. v. Hymes
, 282 NW2d 890 (Minn 1979);

In re Banks
, 283 Or 459
.



Finally, it should be note
d that, for at least some purposes, representation of an incorporated

12

-

Conflicts Primer





trade association may per se constitute representation of the association’s members.
See
,
e.g.
,

Glueck v. Jonathan Logan, Inc.
, 653 F
.
2d 746, 748

750 (2d Cir
.

1981);
Westinghouse Elec.
C
orp. v. Kerr
-
McGee Corp.
, 580 F
.
2d 1311, 1318

1319 (7th Cir
.

1978).


Also, an
d

perhaps obviously,
a lawyer

(in
-
house or outside) should not represent an

entity o
r

any
of its members if the lawyer is herself a target
or potential target
of the investigatio
n.
See Chang
v
.

Chang
,

190 A.
D.
2
d

311, 597 N.Y.S. 2D 692 (1
st


Dep’t 1993) (attorney
violated
NY
DR 5
-
101 (A)

(conflict

of interest) by representing the shareholders of a closely held family
corporation in an action alleging self
-
dealing and conversion of

corporate funds where the
attorney had personally represented the corporation in all of the challenged transactions and was
himself a defendant accused of participating in the scheme to loot and defraud the corporation
)
.



4.

Circumstances Change


Finally,
and because the nature or degree of a conflict of interest may change over time as
circumstances or client interests may change, conflicts waivers will sometimes need to be
repeated or renewed. It is also possible that what was once a waivable situation w
ill become one
in which the conflict cannot be waived.
See, e.g.,

In re Johnson
, 707 P.2d 573;
See

Restatement
§

121 cmt. 9; N.Y.C.L.A. Op. 724, 1998 WL 39561. Both corporate counsel and outside counsel
must therefore remain alert as events unfold
.

III.

ETH
ICAL SCREENS AND WALLS


Suppose that a law firm wishes to recruit a government lawyer but that government lawyer is
then working for the government adversely to the law firm’s corporate client. In most if not all
American jurisdictions, the law firm can h
ire the government lawyer and even make him or her a
partner without disqualification, as long as he or she is appropriately screened from any
involvement in the matter.
See, e.g.,

ABA Model Rule

1.11.



In some American jurisdictions,
and now pursuant to

ABA Model Rule 1.10,
there are also
black
-
letter rules that allow screening when a lawyer moves from one private place of
employment to another.
See, e.g.
,

Wash
ington RPC 1.10(b); Oregon

RPC 1.10
, (I);
Pennsylvania

RPC 1.10(b). In addition, some other s
tates may allow screening for private
-
lawyer moves by case law.
See, e.g., Clinard

v. Blackwood
, 46 S.W. 3d 177 (Tenn. 2001).
Panther v. Superior Ct. of San
Diego 123 Cal. Rptr. 2d 599 (rev
.

granted, 2002) (screening may
be an effective defense to a disq
ualification motion for firm switching conflicts);
Kassis v
.

Teachers Insurance and Annuity
Ass’n
.,
93 N.Y. 2d 611, 695 N.Y.S. 2d 519 (1999) (though
screening is theoretically possible, when a lawyer was either heavily involved in the matter or if
the firm

at issue is so small that screening m
a
y not be realistic, disqualification is required)
.


When, on the other hand, all lawyers at a firm who have worked on a matter or acquired
confidences and secrets about a matter have left the firm, screening is unnece
ssary and the
lawyers remaining at the firm will not be disqualified.
See, e.g.
,

ABA Model Rule

1.10(b);
Restatement §

124.


13

-

Conflicts Primer





IV.

WHAT
OUTSIDE COUNSEL SHOULD KNOW WHEN DRAFTING AND
SENDING A WAIVER TO IN
-
HOUSE CLIENT CONTACT


This section reviews some of the
ma
tters that
lawyers and law firms
should think about
when
they ask current, former, or prospective clients for conflicts waivers.
C
orporate counsel
should
be
better informed about the thought processes of their outside lawyers

so that

they may be better
ab
le to respond effectively to the positions taken by those lawyers.


Of course, the principal motivator behind most law firm conflicts waiver requests, like the
principal motivator behind most corporate behavior, is the profit motive. On the other hand,
la
wyers do not think solely, or necessarily logically, about short or long
-
term profit
maximization per se any more than businesses do. In addition, law firms, like many other
organizations, have their bureaucratic sides. The result is that the typical law

firm approach to
conflicts waivers is a combination of perceived self
-
interested business judgment, legitimate
concern for client welfare, attorney disciplinary rules, other perceived rules of thumb, and the
all
-
too
-
human tendency on some occasions to act

without thinking things all the way through.


To begin with, lawyers who request conflicts waivers typically do not
and should not
view the
making of those
requests as acts of disloyalty. T
ypically in the circumstances in which they are
asking for waiver
s, their clients will not be unduly prejudiced and may in fact be
benefited

by
saying “yes.”


Consider, for example, the following more or less standard unrelated
-
matter current
-
client
conflicts waiver: Mega
-
Law Firm
Transaction

Partner does
transaction

w
ork for
Transaction

Client. Potential Litigation Client now wishes to be defended by Mega
-
Law Firm Litigation
Partner in wholly unrelated litigation brought by
Transaction

Client against Potential Litigation
Client through other counsel. When
Transaction

Partner and Litigation Partner decide to seek
conflicts waivers from their respective clients, they will probably note the lack of factual and
legal relationship between the
transaction

and litigation matters as well as the different lawyers
handling the
two matters as reasons to believe that Mega
-
Law Firm will be able zealously to
represent both clients in their respective matters without any undue harm or prejudice to either
one. They may also think that this is clearly a case of “no harm, no foul” sinc
e if Mega
-
Law
Firm is not allowed to represent Litigation Client, that company will simply hire other counsel
who will handle the matter roughly as well as Mega
-
Law Firm would have handled it.


In fact,
Transaction

Partner and Litigation Partner may take
their thought process further and
come to the conclusion that
Transaction

Client really brought this problem on itself by not using
Mega
-
Law Firm for all of its work. They may also believe that
Transaction

Client is lucky to
have access to highly skilled
Transaction

Partner at all, given that
Transaction

Client’s lack of
loyalty to the firm is clear from its division of work. Finally, and depending upon the size of the
various matters, they may conclude that if they cannot get consent to represent Potenti
al
Litigation Client, they will have to stop representing
Transaction

Client as soon as the hot
-
potato
rule allows. In part, this is a kind of “live and let live” approach: since clients want to split their
work, they should allow their lawyers to do so
as well.


Suppose, however, that there is a clear relationship between the work that a lawyer wishes to do

14

-

Conflicts Primer





for and against a client. Suppose, for example, that Mega
-
Firm Corporate Partner sees an
opportunity to represent Buyer and Seller in a jurisdiction

that allows such representations or to
represent Joint Venturer A and Joint Venturer B in the formation and operation of Joint Venture
under circumstances in which the conflict can be waived. In this case, the thought process will
likely start with the s
ophistication of the clients and their ability to decide key deal and legal
points for themselves, especially if they have corporate in
-
house counsel to assist them.
Corporate Partner may then consider that it is the clients, and not Corporate Partner, wh
o have
asked for this joint relationship and that their reasons for doing so are to save legal costs while
getting the deal done quickly. Whether correctly or incorrectly, Corporate Partner may also
conclude that he or she is uniquely qualified to make hi
s or her way through this particular
transactional minefield while keeping everyone reasonably happy. Finally, Corporate Partner
may conclude that if matters appear to be falling apart as work on the transaction continues, the
parties can always retain ne
w or additional counsel at that time.


These examples all involve specific matters for which a conflicts waiver is necessary at a
particular point in time. The process may not be all that different, however, when a firm asks at
the outset of its represent
ation of a client for a blanket waiver of all conflicts on all unrelated
matters. In this case, the firm may also believe that its has unique prestige or skills that it will
not be able to maintain at the very highest skill levels if it cannot get most o
r all of the clients it
wishes to have. Firms in this kind of situation may also feel that the rule of undivided loyalty is
an unnecessarily and overly broad rule that is simply unworkable as applied to modern life.


We do not mean to suggest that most la
w firms give little or no thought to the possible effects on
their clients of seeking a conflicts waiver. In fact, our experience suggests that for every
conflicts waiver request that is actually made to a client, there are several that could have been
ma
de but were not

whether due to the belief that it would sour one or more important client
relationships or to a concern that the firm’s work for one or more clients may in fact be
compromised.


A.

Warning: Conflicts Waiver Letters Are Not a Panacea


Conflict
s waiver letters

even good ones

are not a cure
-
all.


As noted above, some conflicts cannot be waived. In these and in other instances, courts may
hold that is simply unreasonable for a lawyer to believe that she can adequately represent the
interests of e
ach client.


In addition, a waiver letter that is adequate at one point in time can become inadequate. This can
happen either if new facts or contentions by affected parties change in a way that renders the
prior disclosure and resultant waiver legally in
sufficient, or if a previously waiveable conflict
turns into a nonwaiveable conflict.


Nevertheless, it often is better to be safe than sorry. A conflicts waiver letter that is insufficient
for disciplinary purposes may nonetheless be sufficient to defeat

or at least minimize a civil
damage action or disqualification motion.



15

-

Conflicts Primer





To our knowledge, no one has yet been disciplined for writing a conflicts waiver letter that was
too clear or for writing such a letter and obtaining client consent when no consent wa
s necessary.


B.

Defining Informed Consent


In order to be effective, a client’s waiver of a conflict must be based on what is sometimes called
the full disclosure of material facts or must, in other words, constitute informed consent. The
definition of “i
nformed consent” contained in ABA Model Rule 1.0(e) is a good place to start:


"Informed consent" denotes the agreement by a person to a proposed course of
conduct after the lawyer has communicated adequate information and explanation
about the material r
isks of and reasonably available alternatives to the proposed
course of conduct.


For present purposes, two points are essential
:

The lawyer generally must take affirmative steps to raise conflicts
issues with potentially affected clients and is generally
ill
-
advised
to say nothing or to assume that even the most sophisticated of
clients knows all it needs to know.

A conflicts waiver letter should do more than just provide an
overview of the facts giving rise to the conflict. It should also
address the plu
sses and minuses of granting consent from the
client’s point of view. As is further explained below, this will
typically include at least some reference to the potential effect of
the conflict on the attorney’s zealousness or eagerness on behalf of
the cl
ient as well as some reference to the potential effect of the
conflict on client confidentiality.


We now turn to the more specific requirements of effective conflicts waivers.


C.

Specific Components of Effective Conflicts Waivers


1.

Document Consent Contempor
aneously


There are times when an attorney must begin work on a matter without delay and when the
documentation of the oral consent that should itself precede the commencement of work will be
somewhat postponed. If such a situation exists, so be it. Nev
ertheless, in the absence of a crisis
situation or even if a crisis does exist, it is unwise to allow too much time to pass between the
onset of a conflict and the documentation of a conflicts waiver.
See In re Jeffery
, 321 Or 360,
371, 898 P2d 752 (1995)

("consent" document signed by clients "fell short in form, because the
written consent was not obtained at the time the accused undertook the dual representation");
but
see In re Brandt/Griffin
, 331 Or 113, 10 P3d 906 (2000) (four
-
day delay is still
conte
mporaneous).

2.

Get the Client’s Waiver in Writing


Even if the disciplinary rules of a jurisdiction do not expressly require it

(and most do)
, the
clearly better and safer practice is to provide clients with written waiver letters (either by regular

16

-

Conflicts Primer





mail or
email) and to obtain the client’s contemporaneous written consent (again, either by
regular mail or email).


If regular mail is used, the better practice is to enclose an extra copy of the letter to the client
with a space for the client’s signature so t
hat the client can sign and return it. On the other hand,
a faxed signature should work just as well, and so too should a return acknowledgement by
email.


The obvious benefit to the lawyer is that the client’s signature makes it difficult if not impossib
le
for the client to assert that it was not made aware of the need to consider the conflict or did not
understand the conflict. This is especially so if the letter asks the client to let the lawyer know of
any questions that the client would like the lawy
er to address prior to the client reaching a
decision.


3.

If
It’s Important, Spell It Out


As a general proposition, it is fair to say that more disclosure must be made to a less
sophisticated client than to a sophisticated client.
See, e.g.
,


Restatement
§

122. It can be
dangerous, however, to rely too much on client sophistication as a substitute for consent that is
truly and unambiguously informed.

See Financial General Bankshares, Inc. v. Metzger
, 523 F.
Supp. 744, 760 (D.D.C. 1981).


When it comes to

conflicts waivers, the applicable yardstick for measuring client sophistication
is unlikely to be the client’s sophistication about the client’s own business. It is likely to be the
client’s sophistication about attorney
-
client and multiple
-
client confli
cts. Many sophisticated
businesspeople, and even sophisticated in
-
house counsel, are unsophisticated about attorney
-
client and multiple
-
client conflicts.


A non
-
substantive letter that effectively says nothing more than “I, the lawyer, asked for your
cons
ent and you, the client, gave it” leaves it open for the client or the bar to assert that the
lawyer failed to discuss key issues with the client at all or to explain one or more issues
adequately to the client.


4.

Clearly Identify the Consent Sought


Confli
cts letters must be adapted to their specific circumstances. If, for example, consent is
being sought to represent a current client against a former client, the letter should identify the
current and former clients and should clearly state that the attorn
ey proposes to represent one
against the other in a particular type of matter (e.g., negotiation of a contract, the pursuit of a
collection action, the filing of marital dissolution proceedings).


If what is involved is a conflict between a personal inter
est of the lawyer and the client, the
lawyer’s personal interest should clearly be identified.

If what is involved is a joint business transaction between attorney and client, the letter should
clearly identify the proposed participants, their proposed rol
es, the nature of the business to be
undertaken and the like. It is risky to assume that the client knows all of these things and will
always remember having known them if a dispute subsequently arises.


17

-

Conflicts Primer






If consent is sought to negotiate on behalf of one c
lient against another but not to litigate, the
letter should so state. If, on the other hand, consent is sought both to negotiate and to litigate, the
letter should again so state.


If one of the conditions of the waiver is that the particular lawyers or
particular offices of a firm
that work for a client on one matter will not work adversely to it on another matter, the letter
should so state.


When a blanket waiver is sought, the lawyer should be especially careful to delineate its intended
scope in the
disclosure and consent letter. See Restatement §

122 cmt d. On the other hand, a
lawyer who is inclined to ask for a blanket waiver should also consider whether a less broad (but
potentially more reasonable and enforceable) waiver may be better than an un
limited one. For
example, it may be that what the lawyer truly needs from a client is a blanket waiver as to
conflicts of a particular type with a particular adverse party. In addition to making the waiver
appear more reasonable and appropriate to a subs
equent judge, jury or disciplinary board, this
narrower scope may also increase the likelihood that the client will give the requested consent.


5.

Clearly Identify Why the Client Should Care


There have been times in the past when lawyers who have sought o
ur services in the preparation
of conflicts waiver letters have told us not to include certain subjects on the ground that if those
subjects are included, the client will not consent. We submit that if such an subject appears to
be present, it is essenti
al that it be included in the waiver. If the client truly is hesitant or
squeamish, it is best to know in advance.


Spelling out the nature of the potential adverse risks to the client in writing forces both the
lawyer and the client to think about them.
If the risks, once placed on paper, do not look
palatable or like something that a client should be willing to accept, the attorney should seriously
consider whether discretion may be the better part of valor. If, on the other hand, the attorney is
subsequ
ently called to account for the adequacy of disclosure and consent, a detailed letter is
likely to be of greater assistance than a terse one.


In the case of a representation adverse to a current or former client, at least two issues should
always be discu
ssed.


One is zealousness: Is there a risk that the zealousness of an attorney's involvement on behalf of
one client may be adversely affected by the interests of the attorney on behalf of the attorney's
other current or former clients? Even if the lawyer

is convinced that there is no such risk,
however, this subject should be raised so that the client can review it to his or her own
satisfaction.


Another potential risk that should be addressed in the context of a current or former
-
client
disclosure and
consent letter is the risk of adverse use of client confidences and secrets. If,
because of a prior or concurrent representation, the attorney would be in a position to use
confidences or secrets of one client adversely to that client, any disclosure proce
ss that fails to
identify this particular risk and the particular confidences or secrets involved is likely to be held

18

-

Conflicts Primer





invalid. Even if the attorney is convinced, however, that there is no material risk of an adverse
use of client confidences or secrets, i
t is better to call the issue to the client's attention and let the
client consider it.


In fact, these two basic issues

zealousness and the risk of adverse use of client confidences or
secrets

should probably be raised and discussed in all, or almost all,

disclosure and consent
letters.


There are also some more specific risks or considerations that are appropriately discussed in
various situations. In the event of a personal or business conflict between attorney and client, it
is important to describe h
ow, in practice and in principle, the attorney's specific interest could or
might affect the attorney's exercise of independent professional judgment on behalf of the client.
See, e.g.
, ABA Formal Op. 00
-
418 (2000) (addressing stock
-
for
-
fee conflicts). Th
is matter
should be called to the client's attention even if the attorney is convinced that there is no material
risk. If the lack of any need for concern by the client is indeed obvious, the client will
presumably agree.


Although no one can predict the
future, it is often advisable to refer to the possibility that
additional conflicts may arise at a later time and to describe the possible effects of those
conflicts. The letter could explain, for example, that if the interests of two jointly represented
d
efendants in a civil case subsequently diverge, the lawyer may have to withdraw from
representing both and the clients will then be stuck with the bother and expense of obtaining new
counsel.
See, e.g.
, OSB Formal Op. 2005
-
158. Similarly, much the same po
int should be made if
a lawyer proposes to represent two or more would
-
be incorporators in forming a corporation.
The letter should state that if the parties come to disagree in the future, the lawyer will not be
able to take sides and advocate for one cl
ient’s interests in opposition to another client’s
interests.


Depending upon the circumstances, it may be appropriate to recommend that the client whose
consent is sought consult independent counsel or even to insist upon such consultation. As a
practica
l matter, such a recommendation should help a lawyer establish that she really did
attempt to make the importance of the matter clear to the client before the client consented. And
if the client actually consults another lawyer, the likelihood that the wa
iver will be upheld will
probably be significantly increased.


6.

When Applicable, Discuss Joint Defense Privilege Issues


Pursuant to attorney
-
client privilege law in most if not all American jurisdictions, the attorney
-
client privilege applies somewhat di
fferently when an attorney has several clients in a matter
than when the attorney has only one. In the former instance, communications by one of the
clients to or from the attorney are privileged as against the rest of the world but are not privileged
as b
etween the clients. In other words, and at least absent an express agreement to the contrary,
the attorney in such a situation cannot refuse to disclose to one client matters that are material to
that client's representation and that are conveyed to the at
torney by another client. In addition,
the privilege is likely to be of no help if the jointly represented clients subsequently have a
falling
-
out and sue each other.
See, e.g.,
Rice, Attorney
-
Client Privilege in the United States §
5:17 (2004);
Matter o
f Bevill, Bresler & Schulman Asset Management,
805 F.2d 120 (3rd Cir.

19

-

Conflicts Primer





1986);
Hunydee v. U.S.,
355 F.2d 183 (9th Cir. 1965)
.


These possibilities are unlikely to be intuitively obvious to a great many clients. Attorneys in
such situations should therefore

be sure to explain these concepts in writing and in a way that
clients will understand them.


7.

Obtain Consent From All Necessary Parties or Persons


In conflict situations concerning multiple former or current clients, for example, consent must be
sought f
rom all the clients

those that the lawyer will be representing in a matter and those that
the lawyer will be opposing. Even if a lawyer already has a "blanket waiver" from the client
whom the lawyer intends to oppose, the lawyer will still need to obtain
a waiver from the client
whom the lawyer plans to represent, and the same is true in reverse.

V.

WHAT SHOULD IN
-
HOUSE COUNSEL BE THINKING ABOUT WHEN
REVIEWING A WAIVER REQUEST?


When outside counsel decide whether to request a conflicts waiver, they should ty
pically
consider three things: whether it is ethical to do so, whether they are likely to get the consent
that they seek, and whether the benefits of making the request outweigh the potential burdens.
The questions that
in
-
house
corporate counsel should
ask when faced with a conflicts waiver
request are essentially the same. For present purposes, however, we have broken down these
questions into seven overlapping but distinguishable parts
.


A.

Is the Waiver Likely To Be Enforceable?


It goes without saying

that an attempt to waive a nonwaivable conflict will likely be held
ineffective. Even if a conflict is theoretically waivable, however, there are right ways and wrong
ways for a law firm to obtain the waiver.


As should be clear by now, a conflicts waive
r will be effective only if based upon sufficiently
complete lawyer disclosure or, in other words, informed client consent. This means that there
will be times when a too
-
cursory discussion by a lawyer of the downsides of a conflicts waiver
may lead to th
e waiver being held ineffective. In addition, the effectiveness of a conflicts waiver
may be undercut by a significant change in the pertinent facts.
See, e.g.,

ABA Formal Op. 93
-
372;
see also Hasco, Inc. v. Roche
, 700 N.E.2d 768 (Ill. App. Ct. 1998) (wa
iver construed more
narrowly than law firm concluded);
Gen. Cigar Holdings, Inc. v. Altadis, S.A.
, 144 F. Supp. 2d
1334 (S.D. Fla. 2001) (upholding waiver);
Elonex

I.P. Holdings, Ltd. v. Apple Computer, Inc.
,
142 F. Supp. 2d 579 (D. Del. 2001) (same).


B.

Wha
t Kind of Work Is To Be Done?


1.

Business Matters


Conflicts waivers are much more readily given in business matters than in litigation.
Presumably, this is because both sides to a potential deal begin by wanting to see the deal

20

-

Conflicts Primer





completed and neither side

is likely to wish to impose extra burdens by making the other side
change counsel unless there is some real reason to do so. This makes sense and is a legitimate
tactical consideration.


Some parties business deals push this to another level and assert
that the devil they know may be
better than the devil they don’t know and that a lawyer on the opposite side of a matter who is
beholden to them in some other way will be more likely to be fair to them than a total stranger.
We are not sure that this anal
ysis makes sense. In the transaction in question, the law firm’s
obligations
will be to the opposing party, if that is not clear to the lawyer in this transaction,
it
might not be clear

to the lawyer in the

next transaction whe
n
you

are the client
.


2.

Litig
ation


Unlike parties who hope to do business together, parties to litigation sometimes think that they
can gain by placing as many obstacles in an opponent’s path as possible. Whether this strategy
works very often

whether the litigation opponent that i
s forced to get new counsel will really
give up or even fight less hard, for example

is often open to question. In many cases,
opponents just seem to dig in and fight harder.


There are valid strategic reasons why a client may wish to consent to being sue
d by its own
lawyer in particular cases. If, for example, a client wishes to make use of Lawyer X at Firm X, it
may be the case that Firm X would be unwilling to let Lawyer X work for the client unless the
client is willing to let Firm X represent opposin
g parties in certain kinds of litigation unrelated to
the work of Lawyer X. Nor, of course, must all litigation be fought as “the war to end all wars.”
If, for example, there is hope for an early settlement, it might be more appropriate to approach
the m
atter as more in the nature of a business deal.


It may also be the case that the type of matter is as important as whether the matter does or does
not involve litigation per se. For example, a client can reasonably conclude that it will allow a
firm to
represent opposing parties in small
-

or medium
-
sized breach
-
of
-
contract actions or
actions for which the client is full
y

insured but not in dollar actions or in actions in which fraud
is alleged.


3.

What Is Being Waived



A client should also bear in mind th
at it can determine how much consent to give. A client can,
for example, allow a law firm to oppose it in attempting to negotiate a particular transaction or
the resolution of an existing dispute but not allow the law firm to litigate against it if the
tr
ansaction or negotiated resolution subsequently falls apart. Because consent need not be given,
it can be given conditionally. In fact, in
-
house counsel may wish to look with greater favor upon
conflicts waiver requests that are made with additional prot
ections “built in” before a request is
made for them. This point is addressed further below.


Similarly, a waiver might be given for work adverse to particular entities in the corporate
enterprise
,

but not others.
See

ABA Formal Op. 95
-
390; Cal.
State Ba
r Formal
Op.

1989
-
113,
1989 WL 253261. Most simply put, the client controls the scope of the waiver.


21

-

Conflicts Primer






C.

Who Will Do the Work?


Although a client’s right to insist upon the disqualification of one lawyer at a firm typically
allows the client to insist upon
the disqualification of an entire firm, many clients are reasonably
and understandably less concerned about conflicts waivers when the lawyers who will work for
them and the lawyers who will work against them are not the same individuals. Moreover, a
brig
ht
-
line distinction of this type can save everyone from potential embarrassment or difficulties
at a later time.


A client has a right to condition its consent on outside counsel’s agreement to use different
lawyers for and against that client or to take o
ne or more particular steps to, for example, protect
against the adverse use of the client’s confidential information.


D.

Is Confidential Information at Risk?


This question has two parts. One is
simply whether the work that a lawyer or firm has done or

is
presently doing for a client has given the lawyer confidential client information (
i.e.,

client
confidences and secrets) that the lawyer would be in a position to use adversely to that client in
the matter for which the waiver is sought.
See

ABA Mode
l Rule

1.6; ABA Formal Op. 93
-
372.
The other is whether, if such a risk does theoretically exist, the client is nonetheless satisfied that
protective measures can be taken, such as using different personnel or bringing in another firm to
handle particular

issues, to ensure that this risk will not become a reality. There are relatively
few situations in which conflicts waivers should be given if corporate counsel cannot be satisfied

here.


E.

How Related or Unrelated Is the Work?


This question is implicit i
n several of the prior questions. Clients are understandably and quite
properly more willing to grant conflicts waivers for work that is altogether unrelated to the work
that a lawyer or firm is doing for them than for work that may be related in some way

whether
because the same kinds of issues are involved, because the same lawyers or company personnel
are involved, or because there is overlapping confidential client information.


VI.

ADVANCE WAIVERS: ENFORCEABLE, UNENFORCEABLE AND ARE
YOU KIDDING ME?


The
use and approval of advance waivers is an evolving area

and in
-
house counsel is
increasingly seeing requests for broader and arguably more outrageous advance waivers
everyday. At the same time, outside counsel is feeling increased pressure by law firm
man
agement and politically powerful partners to insist on advance waivers in order to protect
future business. The development has sharply divided the
thought leaders in the professional
responsibility field and created tension between in
-
house counsel and t
heir firm counterparts.
Setting aside the policy considerations, this discussion will focus on the components of an
advance waiver and the limits of enforceability, which arguably should translate to a limit on the

22

-

Conflicts Primer





types of advance waivers outside counsel

should be seeking and that in
-
house counsel should
consider signing.


As with any waiver, an advance waiver of a conflict of interest is only enforceable to the extent
the disclosure is adequate. This can be difficult because it requires, to so
me degree
, that the
attorney
predict
the specifics of
future adversity. Law firms frequently use provisions in
engagement agreements to anticipate future conflicts and provide for a waiver. An important
consideration is the extent to which the future conflict can

be identified and whether the adverse
consequences to the client to the client were anticipated and explained.

Some practice areas and
types of conflicts are more susceptible to prediction and, therefore, more appropriate for advance
waivers.


The effec
tiveness of disclosures to clients exist on a broad spectrum. Generally speaking, the
disclosure given to the client at the time of waiver must provide an adequate bas
is for the future
consent. This is the essence of
informed

consent.
An appropriate adv
ance waiver letter

should
explain the types of representation the lawyer or the law firm may take that would be adverse to
the client in the future. The lawyer should also explain the likelihood or reasonably foreseeable
consequences that such adverse rep
resentations could create against the current client. The more
specific the lawyer is to the current client, the more likely the advance waiver will be upheld.

Examples of advance waivers are helpful. Set out first is an example of a simple joint
represe
ntation style advance waiver common in employment litigation matters:


Due to the overriding issues presented in this litigation, we have further agreed
that, to the extent possible, Firm will continue to represent ______ defendants,
even if our continued
representation of you becomes impossible. Specifically, by
signing the letter you agree that, if a conflict of interest should develop that would
prevent Firm from continuing to represent both defendants, you are prospectively
waiving said conflict and ag
reeing that Firm can continue to represent, to the
extent permitted by law, solely the _______ defendants.

Please review these issues and then let me know whether, notwithstanding the
potential for conflict that I have described, you are willing to have me

represent
you. In fact, I would also recommend that each of you consider seeking
independent counsel to assist you in deciding whether or not to consent. You do
not have to do so if you do not wish to, however. Whether or not you consult such
counsel is

up to you.

A broader form of advance waiver is also possible when the disclosure is complete. For
example, an early “advance waiver” case came from California in 2003 where the parties had the
benefit of detail, and thus an enforceable waiver.

In this c
ase, the plaintiff, Visa U.S.A., Inc.
(“Visa”) had a longstanding relationship with the law firm Heller Ehrman White & McAuliffe
(“Heller”). Visa was engaged in a commercial transaction with First Data Corp. (“First Data”)
for processing Visa transactions

by First Data. First Data was involved in unrelated patent
litigation in Delaware and sought to retain Heller. Heller sought to waive future conflicts
through the engagement letter which stated:


Our engagement by you is also understood as entailing you
r consent to our

23

-

Conflicts Primer





representation of our other present or future clients in “transactions,” including
litigation in which we have not been engaged to represent you and in which you
have other counsel, and in which one of our other clients would be adverse to

you
in matters unrelated to those that we are handling for you. In this regard, we
discussed [Heller’s] past and on
-
going representation of Visa U.S.A. and Visa
International (the latter mainly with respect to trademarks) (collectively, “Visa”)
in matter
s which are not currently adverse to First Data. Moreover, as we
discussed, we are not aware of any current adversity between Visa and First
Data. Given the nature of our relationship with Visa, however, we discussed the
need for the firm to preserve its

ability to represent Visa on matters which ay
arise in the future including matters adverse to First Data, provided that we
would only undertake such representation of Visa under circumstances in which
we do not possess confidential information of yours r
elating to the transaction,
and we would staff such a project with one or more attorneys who are not
engaged in your representation. In such circumstances, the attorneys in the two
matters would be subject to an ethical wall, screening them from communica
ting
from [sic] each other regarding their respective engagements. We understand
that you do consent to our representation of Visa and our other clients under
those circumstances.

In enforcing this waiver in a later disqualification attempt, t
he court no
ted that determination of
whether a disclosure is effectively made depends on the facts of each case. The factors
considered “include the breadth of the waiver, the temporal scope of the waiver, the quality of
the conflicts discussion between the attorney

and the client, the specificity of the waiver, the
nature of the actual conflict, the sophistication of the client, and the interests of justice.”
Visa
U.S.A., Inc. v. First Data Corp.
, 241 F.Supp.2d 1100, 1106
-
1107 (2003).


On the far side of the spectr
um are

disclosures
that
will not be effective for a number of reasons.
In a lesson on detail, 2010 District of Utah decision resulted in the disqualification

the law firm
of Winston & Strawn LLP from representing Pfizer in litigation with Brigham Young Un
iversity.
The court held that the advance waiver in the 2001 engagement letter between BYU and Winston
did not apply to the specific conflict which had arisen in the case
.

The following language was
contained in the letter:


Advance Patent Waiver: As yo
u may know, universities frequently hold patents in
the products and inventions developed at such universities. Winston & Strawn
LLP currently represents multiple pharmaceutical and other companies with
respect to patent and intellectual property matters
(collectively, ‘Other Clients’),
including litigation (the ‘Patent Matters’). Winston & Strawn LLP is not
currently representing any Other Clients in matters adverse to the University.
Because of the scope of our patent practice, however, it is possible

that Winston
& Strawn LLP will be asked in the future to represent one or more Other Clients
in matters, including litigation, adverse to the University. Therefore, as a
condition to Winston & Strawn LLP’s undertaking to represent you in the BYU
Matters,

you agree that this firm may continue to represent Other Clients in the
Patent Matters, including litigation, directly adverse to the University and hereby
waive any conflicts of interest relating to such representation of Other Clients.


24

-

Conflicts Primer





The phrase “Other

Clients” was defined to mean, “companies that Winston currently represents
‘with respect to patents and intellectual property matters.’”
The court found that the

waiver only
applied to clients represented regarding patent and intellectual property matter
s
as of the date

of
the agreement. Winston argued that the advance patent waiver should cover all “existing clients”
in matters relating to intellectual property and patents, including litigation. The court disagreed,
noting that when evaluating waivers
courts should look primarily to the language and
construction of the waiver to determine its validity. For a consent to be interpreted as validly
waiving the client’s right to exclusive representation, “[l]anguage in a contrat of release… would
have to b
e positive, unequivocal and inconsistent with any other interpretation.” The court
applied the rule that if the terms of a waiver are not explicit, the client should not be held to the
terms of the document. Accordingly, the law firm was disqualified.
Brigham Young University
v. Pfizer, Inc.
, 2010 WL 3855347 (D. Utah 2010) (not published in F.Supp.2d).


Another example of an ineffective waiver
came in

a 2006 Georgia case. This case demonstrates
the effect the application of jurisdiction specific profes
sional responsibility rules can have on a
waiver that may otherwise be effective. The Georgia court disqualified counsel from
representation in a matter involving three subsidiaries of one parent company. The firm
represented two plaintiffs against one s
ubsidiary and also represented two of the subsidiaries in
connection to a bankruptcy proceeding in Pennsylvania. The firm’s engagement letter to the
corporation contained the following language:


Given the scope of our business and the scope of our client

representation
through our various offices in the United States and abroad, it is possible that
some of our present or future clients will have matters adverse to [the
corporation] while we are representing [the corporation]. We understand that
[the corp
oration] has no objection to our representation of parities with interests
adverse to [the corporation] and waive any actual or potential conflict of interest
so long as those other engagements are not substantially related to our services to
[the corporat
ion].

Applying Georgia Rules of Professional Conduct 1.7, the court found that the firm’s advance
waiver was inadequate “because it is not a knowing waiver that identifies the specific adverse
clients and details of adverse representation.”
McKesson Infor
mation Solutions, Inc. v. Duane
Morris,
LLP, Fulton Cnty. (Ga.) Super. Ct. Civ. No. 2006CV121110. The court specifically
noted that the engagement letter did not name ”particular parties or circumstances under which
adverse representation would be underta
ken.”
McKesson
. This lack of detail did not provide the
corporation with enough information to weigh the risks associated with future adverse
representation.


So there is not doubt about the flux that is the law in this area, t
he Northern District of Tex
as
recently

(February 2013)

upheld an advance waiver that likely would have failed under the
McKesson

decision. In
Galderma Laboratories, L.P. v. Actavis Mid Atlantic LLC
, the district
court stated
that the

ABA Model Rules support general, open
-
ended waiv
ers and permit
informed consent to a wider range of conflicts than recognized under previous Rules. The court
further determined that the ability to use such general open
-
ended waivers depends on the client
and the client’s ability to give informed consen
t to such a waiver.



25

-

Conflicts Primer





Galderma is a worldwide corporation engaging in the research, development, and
manufacturing of dermatological products. While Galderma has an in
-
house legal
department, it regularly engages outside counsel for a wide
-
range of matters
. In
2003, Galderma retained Vinson & Elkins, LLP to handle employment related
issues. During the course of that representation, Galderma, through other law
firms, filed an unrelated case against Actavis Mid Atlantic. Vinson represented
Actavis
and defe
nded Galderma’s
disqualification

motion on the grounds of the
following advance waiver language:


W
e understand and agree that it is not an exclusive agreement, and you are free
to retain any other counsel of your choosing. We recognize that we shall be
d
isqualified from representing any other client with interest materially and
directly adverse to yours (i) in any matter which is substantially related to our
representation of you and (ii) with respect to any matter where there is a
reasonable probability
that confidential information you furnished to use could be
used to your advantage. You understand and agree that, with those exceptions,
we are free to represent other clients, including clients whose interests may
conflict with ours in litigation, busin
ess transactions, and other legal matters.
You agree that our representing you in this matter will not prevent or disqualify
us from representing clients adverse to you in other matters and that you consent
in advance to our undertaking such adverse repre
sentations.

Galderma argued the waiver was ineffective because it did not provide enough detail to inform
Galderma of the risks involved and, therefore, Galderma did not give informed consent. The
court disagreed. The court found that the 2002 amendment
s to the Model Rules permit waiver of
a wider range of conflicts and no longer require specific reference to particular parties or types of
matters in a waiver to be effective. Noting that specificity in a waiver will assist the attorney in
creating an ef
fective waiver, such detail is no longer required for certain clients. The court

also
noted
that the sophistication of the client is relevant in determining th
e adequacy of the
disclosure.
The court found Galderma to be a highly sophisticated client, who
se in
-
house
counsel reviewed and signed the engagement letter. The court found that Galderma gave
informed consent, as it understood the implications of an advanced conflict waiver.
Galderma
Laboratories v. Actavis Mid Atlantic LLC
, No. 3
-
12
-
cv
-
2038
-
K (N
.D. Tex. February, 2013).


The
Galderma

decision is a move away from the majority.
Galderma

specifically criticized the
decision of the District of New Jersey in
Celgene Corp. v. KV Pharmaceuticals Co.,

No. 07
-
4819, 2008 WL 2937415 (2008), which held tha
t the waiver must contain specific details
regarding other parties, legal matters anticipated and risks to the client. It is important to note
that the
Galderma
court anticipates that the general open
-
ended waiver will only be effective for
clients with a

heightened level of sophistication in both the client’s professional field and in use
of legal services. For a company seeking to utilize large firms for specific and specialized
matters, the use of such b
road waivers will likely grow in
-
house counsel mu
st be sensitive to the
fact that her review of the advance waiver will infer a level of sophistication that may bind the
organization, even in the face of an ill conceived decision.



26

-

Conflicts Primer





VII.

CONCLUSION

Both corporate and outside counsel are human beings, and conf
licts waivers often come down to
a matter of personal relationships. That is as it should be. As we hope we have shown, however,
more is at stake than the personalities of the particular individuals involved. Both client interests
and the substantive ru
les of conflicts law should be considered before a decision is made.


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APPENDIX


Selected ABA Model Rules


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Selected ABA Model Rules of Professional Conduct (2004). Please note: these
are the ABA’s present model rules and are not necessarily in force as w
ritten
below in any particular jurisdictions. In addition, the interpretation of these rules
can differ from jurisdiction to jurisdiction.


RULE 1.7


CONFLICT OF INTEREST: CURRENT CLIENTS


(a)

Except as provided in paragraph (b), a lawyer shall not represent
a client if the
representation involves a concurrent conflict of interest. A concurrent conflict of interest
exists if:

(1)

the representation of one client will be directly adverse to another client; or

(2)

there is a significant risk that the representation of o
ne or more clients 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.

(b)

Notwithstanding the existence of a concurrent conflict of interest under paragraph
(a), 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 represented by the lawyer in the same litigation or other proceeding
before a tribunal; and

(4)

each affected client gives informed consent, confirmed in writing.


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RULE 1.8

CONFLICT OF INTEREST:

C
URRENT CLIENTS: SPECIFIC RULES

(a)

A lawyer shall not enter into a business transaction with a client or knowingly acquire an
ownership, possessory, security or other pecuniary interest adverse to a client unless:

(1)

the transaction and terms on which the lawyer
acquires the interest are fair and
reasonable to the client and are fully disclosed and transmitted in writing in a
manner that can be reasonably understood by the client;

(2)

the client is advised in writing of the desirability of seeking and is given a
reaso
nable opportunity to seek the advice of independent legal counsel on the
transaction; and

(3)

the client gives informed consent, in a writing signed by the client, to the essential
terms of the transaction and the lawyer's role in the transaction, including wh
ether
the lawyer is representing the client in the transaction.

(b)

A lawyer shall not use information relating to representation of a client to the
disadvantage of the client unless the client gives informed consent, except as permitted or
required by these R
ules.

(c)

A lawyer shall not solicit any substantial gift from a client, including a testamentary gift,
or prepare on behalf of a client an instrument giving the lawyer or a person related to the
lawyer any substantial gift unless the lawyer or other recipient

of the gift is related to the
client. For purposes of this paragraph, related persons include a spouse, child, grandchild,
parent, grandparent or other relative or individual with whom the lawyer or the client
maintains a close, familial relationship.

(d)

Pri
or to the conclusion of representation of a client, a lawyer shall not make or negotiate
an agreement giving the lawyer literary or media rights to a portrayal or account based in
substantial part on information relating to the representation.

(e)

A lawyer sha
ll not provide financial assistance to a client in connection with pending or
contemplated litigation, except that:

(1)

a lawyer may advance court costs and expenses of litigation, the repayment of
which may be contingent on the outcome of the matter; and

(2)

a la
wyer representing an indigent client may pay court costs and expenses of
litigation on behalf of the client.


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(f)

A lawyer shall not accept compensation for representing a client from one other than the

client unless:

(1)

the client gives informed consent;

(2)

there is

no interference with the lawyer's independence of professional judgment
or with the client
-
lawyer relationship; and

(3)

information relating to representation of a client is protected as required by Rule
1.6.

(g)

A lawyer who represents two or more clients shall
not participate in making an aggregate
settlement of the claims of or against the clients, or in a criminal case an aggregated
agreement as to guilty or nolo contendere pleas, unless each client gives informed
consent, in a writing signed by the client. Th
e lawyer's disclosure shall include the
existence and nature of all the claims or pleas involved and of the participation of each
person in the settlement.

(h)

A lawyer shall not:

(1)

make an agreement prospectively limiting the lawyer's liability to a client for
malpractice unless the client is independently represented in making the
agreement; or

(2)

settle a claim or potential claim for such liability with an unrepresented client or
former client unless that person is advised in writing of the desirability of seekin
g
and is given a reasonable opportunity to seek the advice of independent legal
counsel in connection therewith.

(i)

A lawyer shall not acquire a proprietary interest in the cause of action or subject matter of
litigation the lawyer is conducting for a client,

except that the lawyer may:

(1)

acquire a lien authorized by law to secure the lawyer's fee or expenses; and

(2)

contract with a client for a reasonable contingent fee in a civil case.

(j)

A lawyer shall not have sexual relations with a client unless a consensual sex
ual
relationship existed between them when the client
-
lawyer relationship commenced.

(k)

While lawyers are associated in a firm, a prohibition in the foregoing paragraphs (a)
through (i) that applies to any one of them shall apply to all of them.

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RULE 1.10

IMP
UTATION OF CONFLICTS OF INTEREST:

GENERAL RULE

(a)

While lawyers are associated in a firm, none of them shall knowingly represent a client
when any one of them practicing alone would be prohibited from doing so by Rules 1.7
or 1.9, unless

(1)

the prohibition is b
ased on a personal interest of the disqualified lawyer and does
not present a significant risk of materially limiting the representation of the client
by the remaining lawyers in the firm; or

(2)

the prohibition is based upon Rule 1.9(a) or (b) and arises out
of the disqualified
lawyer’s association with a prior firm, and

(i)

the disqualified lawyer is timely screened from any participation in the
matter and is apportioned no part of the fee therefrom;

(ii)

written notice is promptly given to any affected former client
to enable the
former client to ascertain compliance with the provisions of this Rule, which shall
include a description of the screening procedures employed; a statement of the
firm's and of the screened lawyer's compliance with these Rules; a statement th
at
review may be available before a tribunal; and an agreement by the firm to
respond promptly to any written inquiries or objections by the former client about
the screening procedures; and

(iii)

certifications of compliance with these Rules and with the screen
ing
procedures are provided to the former client by the screened lawyer and by a
partner of the firm, at reasonable intervals upon the former client's written request
and upon termination of the screening procedures.

(b)

When a lawyer has terminated an associa
tion with a firm, the firm is not prohibited from
thereafter representing a person with interests materially adverse to those of a client
represented by the formerly associated lawyer and not currently represented by the firm,
unless:

(1)

the matter is the sam
e or substantially related to that in which the formerly
associated lawyer represented the client; and

(2)

any lawyer remaining in the firm has information protected by Rules 1.6 and
1.9(c) that is material to the matter.

(c)

A disqualification prescribed by this
rule may be waived by the affected client under the
conditions stated in Rule 1.7.


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(d)

The disqualification of lawyers associated in a firm with former or current government
lawyers is governed by Rule 1.11.


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RULE 1.11

SPECIAL CONFLICTS OF INTEREST FOR

FORME
R AND CURRENT GOVERNMENT

OFFICERS AND EMPLOYEES

(a)

Except as law may otherwise expressly permit, a lawyer who has formerly served as a
public officer or employee of the government:

(1)

is subject to Rule 1.9(c); and

(2)

shall not otherwise represent a client in conn
ection with a matter in which the
lawyer participated personally and substantially as a public officer or employee,
unless the appropriate government agency gives its informed consent, confirmed
in writing, to the representation.

(b)

When a lawyer is disqualif
ied from representation under paragraph (a), no lawyer in a
firm with which that lawyer is associated may knowingly undertake or continue
representation in such a matter unless:

(1)

the disqualified lawyer is timely screened from any participation in the matte
r and
is apportioned no part of the fee therefrom; and

(2)

written notice is promptly given to the appropriate government agency to enable it
to ascertain compliance with the provisions of this rule.

(c)

Except as law may otherwise expressly permit, a lawyer havin
g information that the
lawyer knows is confidential government information about a person acquired when the
lawyer was a public officer or employee, may not represent a private client whose
interests are adverse to that person in a matter in which the info
rmation could be used to
the material disadvantage of that person. As used in this Rule, the term "confidential
government information" means information that has been obtained under governmental
authority and which, at the time this Rule is applied, the g
overnment is prohibited by law
from disclosing to the public or has a legal privilege not to disclose and which is not
otherwise available to the public. A firm with which that lawyer is associated may
undertake or continue representation in the matter onl
y if the disqualified lawyer is timely
screened from any participation in the matter and is apportioned no part of the fee
therefrom.

(d)

Except as law may otherwise expressly permit, a lawyer currently serving as a public
officer or employee:

(1)

is subject to Ru
les 1.7 and 1.9; and


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(2)

shall not:

(i)

participate in a matter in which the lawyer participated personally and
substantially while in private practice or nongovernmental employment, unless
the appropriate government agency gives its informed consent, confirmed in

writing; or

(ii)

negotiate for private employment with any person who is involved as a
party or as lawyer for a party in a matter in which the lawyer is participating
personally and substantially, except that a lawyer serving as a law clerk to a
judge, other a
djudicative officer or arbitrator may negotiate for private
employment as permitted by Rule 1.12(b) and subject to the conditions stated in
Rule 1.12(b).

(e)

As used in this Rule, the term "matter" includes:

(1)

any judicial or other proceeding, application, reque
st for a ruling or other
determination, contract, claim, controversy, investigation, charge, accusation,
arrest or other particular matter involving a specific party or parties, and

(2)

any other matter covered by the conflict of interest rules of the appropri
ate
government agency.


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RULE 1.12

FORMER JUDGE, ARBITRATOR, MEDIATOR

OR OTHER THIRD
-
PARTY NEUTRAL

(a)

Except as stated in paragraph (d), a lawyer shall not represent anyone in connection with
a matter in which the lawyer participated personally and substanti
ally as a judge or other
adjudicative officer or law clerk to such a person or as an arbitrator, mediator or other
third
-
party neutral, unless all parties to the proceeding give informed consent, confirmed
in writing.

(b)

A lawyer shall not negotiate for emplo
yment with any person who is involved as a party
or as lawyer for a party in a matter in which the lawyer is participating personally and
substantially as a judge or other adjudicative officer or as an arbitrator, mediator or other
third
-
party neutral. A l
awyer serving as a law clerk to a judge or other adjudicative
officer may negotiate for employment with a party or lawyer involved in a matter in
which the clerk is participating personally and substantially, but only after the lawyer has
notified the judg
e or other adjudicative officer.

(c)

If a lawyer is disqualified by paragraph (a), no lawyer in a firm with which that lawyer is
associated may knowingly undertake or continue representation in the matter unless:

(1)

the disqualified lawyer is timely screened from

any participation in the matter and
is apportioned no part of the fee therefrom; and

(2)

written notice is promptly given to the parties and any appropriate tribunal to
enable them to ascertain compliance with the provisions of this rule.

(d)

An arbitrator select
ed as a partisan of a party in a multimember arbitration panel is not
prohibited from subsequently representing that party.


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RULE 3.7

LAWYER AS WITNESS

(a)

A lawyer shall not act as advocate at a trial in which the lawyer is likely to be a necessary
witness u
nless:

(1)

the testimony relates to an uncontested issue;

(2)

the testimony relates to the nature and value of legal services rendered in the case;
or

(3)

disqualification of the lawyer would work substantial hardship on the client.

(b)

A lawyer may act as advocate in a t
rial in which another lawyer in the lawyer's firm is
likely to be called as a witness unless precluded from doing so by Rule 1.7 or Rule 1.9.