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Client Consent to Conflicts of Interest

This is the eighth of a series of articles, based on a chapter from the 2015 edition of Lawyers’ Professional Responsibility in Colorado by attorney Michael T. Mihm, discussing the current law of conflicts of interest as it applies to Colorado lawyers. It draws upon the Colorado Rules of Professional Conduct; the former Colorado Rules of Professional Conduct, effective through December 31, 2007 (former Colorado Rules or former Colo. RPC); Colorado appellate decisions; ethics opinions; the ABA Model Rules of Professional Conduct; the Restatement (Third) of the Law Governing Lawyers (Restatement); and other resources.

The rules do not always prohibit lawyers from representing clients with conflicting interests. The rules permit a lawyer to undertake or continue a representation under certain circumstances if the lawyer fully informs each affected client of the nature and risks of the conflict and each affected client consents to waive the conflict.

There are many reasons that clients may wish to consent to a conflict of interest. For example, the conflict of interest may concern an insignificant matter not central to the representation. A client may wish to procure the services of a particular lawyer, and may need to consent to secure the lawyer’s representation. Restatement § 122, cmt. [b]. In a lawsuit involving multiple plaintiffs or defendants, clients may wish to avoid the costs entailed in retaining separate lawyers for each of the aligned parties. Id.

The key in obtaining effective consent to a conflict of interest is that the lawyer must fully inform each affected client of the possible adverse consequences of the conflict, and each client must agree to waive the conflict. But, even if the lawyer fully informs each of the affected clients and each client agrees to waive the conflict, each client’s informed consent still may not be enough in certain circumstances.

General Rule Of Client Consent Or Waiver

Colo. RPC 1.7 prohibits a lawyer from representing clients with conflicting interests, except when certain criteria are fulfilled under Colo. RPC 1.7(b).

The former Colo. RPC 1.7(a) seemed to provide an exception for representing clients with directly conflicting interests if the lawyer reasonably believed the representation would not adversely affect the relationship with the other client and each client consented after consultation. Note that there were three elements to the exception: first, the lawyer must have “reasonably believed” that the representation would not “adversely affect” the relationship with the other client; second, each affected client must have been consulted about the conflict; and third, each affected client must have consented to the conflict.

The former Colo. RPC 1.7(b)’s exception for representing clients when the lawyer’s representation might be “materially limited” by competing interests was similar to Colo. RPC 1.7(a)’s exception:

(b) A lawyer shall not represent a client if the representation of that client may be materially limited by the lawyer’s responsibilities to another client or to a third person, or by the lawyer’s own interests, unless:

(1) the lawyer reasonably believes the representation will not be adversely affected; and

(2) the client consents after consultation. When representation of multiple clients in a single matter is undertaken, the consultation shall include explanation of the implications of the common representation and the advantages and risks involved.

Former Colo. RPC 1.7(b) (emphasis added). The former Colo. RPC 1.7(b)’s exception contains the same three elements as Colo. RPC 1.7(a)’s exception. However, Colo. RPC 1.7(b) elaborated on the lawyer’s obligation to consult with the affected clients when the lawyer contemplated common representation of multiple clients in a single matter, e.g., multiple defendants or plaintiffs in litigation or multiple parties to a business transaction.

The current version of the Colorado Rules of Professional Conduct (effective January 1, 2008) devotes the entirety of Rule 1.7(b) to discussing a client’s consent to a conflict of interest:

(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.

The current Rule 1.7 clarifies, rather than substantively changes, the requirements for obtaining consent to a conflict of interest. Rule 1.7(b)’s requirement that a lawyer obtain in writing the client’s consent to the conflict of interest, while implied by former Rule 1.7 or suggested by good practice, is now made explicit.

While Colorado’s former Rule 1.7(a) appeared to permit a lawyer to represent clients who were directly adverse to each other if the criteria of Rule 1.7(a)(1) and (2) were met, as a practical matter it would be extremely rare that a lawyer could ever fulfill such requirements. Indeed, it would be almost impossible to properly represent directly adverse clients in either a business transaction or in litigation. See, e.g., People v. Chew, 830 P.2d 488 (Colo. 1992); People v. Koeberle, 810 P.2d 1072 (Colo. 1991). And, with the inclusion of former Rule 1.7(c) in the Colorado Rule, the Rules Committee of the Colorado Supreme Court emphasized that representation with direct adversity is almost never permitted. Rule 1.7(b) makes explicit what, as a practical matter, has long been the rule in Colorado: that a lawyer can never obtain an effective client consent to a conflict of interest where there is direct adversity, at least in the context of litigation. Colo. RPC 1.7(b)(3) and cmt. [6]; see also ABA Model Rule 1.7(b)(3).

The Restatement (Third) of the Law Governing Lawyers also provides that a lawyer may represent conflicting interests in certain circumstances, provided that there is informed consent:

§ 122. Client Consent to a Conflict of Interest

(1) A lawyer may represent a client notwithstanding a conflict of interest prohibited by § 121 if each affected client or former client gives informed consent to the lawyer’s representation. Informed consent requires that the client or former client have reasonably adequate information about the material risks of such representation to that client or former client.

(2) Notwithstanding the informed consent of each affected client or former client, a lawyer may not represent a client if:

(a) the representation is prohibited by law;

(b) one client will assert a claim against the other in the same litigation; or

(c) in the circumstances, it is not reasonably likely that the lawyer will be able to provide adequate representation to one or more of the clients.

The Comment to Restatement § 122 notes that the client has veto power over the lawyer’s representation of conflicting interests:

In effect, the consent requirement means that each affected client or former client has the power to preclude the representation by withholding consent.

Restatement § 122, cmt. b. Restatement § 122 closely tracks the concepts outlined in Colo. RPC 1.7(b).

Colo. RPC 1.8 (prohibited transactions between a lawyer and a client) allows a lawyer to enter into a transaction with a client under certain circumstances when (1) the client is fully informed about the nature of the conflicting interests, and (2) the terms are fair and reasonable to the client. Colo. RPC 1.8(a). Colo. RPC 1.8 also requires the client’s consent to the conflict of interest to be in writing. Colo. RPC 1.8(a)(3).

Colo. RPC 1.9 (conflicts of interests with former clients) permits a lawyer, under certain circumstances, to represent a new client with interests adverse to those of a former client provided, however, that the lawyer obtains the informed consent of both clients.

The Colorado and federal appellate decisions addressing client waivers of lawyers’ conflicts of interest most often arise in the context of criminal cases. The cases tend to have a similar fact pattern: a criminal defendant waives his or her lawyer’s conflict of interest, is convicted, and appeals the conviction arguing ineffective assistance of counsel arising from the conflict. On appeal, the appellate court focuses on whether the client was fully informed of the conflict and made an uncoerced decision. Most often, the convicted client loses the appeal.

For example, in a case in which a criminal defendant’s lawyer began dating the prosecutor after the client’s trial and conviction but before sentencing, the client appealed his conviction on the grounds of ineffective assistance of counsel arising from his lawyer’s conflict of interest. The lawyer had disclosed his new romance to both the client and the trial court. The trial court had held a hearing, and the client had waived the conflict despite being closely questioned by the court. People v. Preciado-Flores, 66 P.3d 155, 167-68 (Colo. App. 2002). The court of appeals affirmed the conviction. The court held that a defendant in a criminal case may waive a conflict of interest if the defendant is fully informed of the conflict and agrees to it. Id. at 167-68. The court found that a waiver is voluntary, knowing, and intelligent when the defendant is aware of and understands the various risks and pitfalls, has the rational capacity to make a decision on the basis of this information, and states clearly and unequivocally a desire to proceed regardless of those dangers. Id. The record must affirmatively show that the trial court fully explained the nature of the conflict and the difficulties defense counsel faced in effective advocacy for the defendant. Id. A waiver is not knowing and intelligent, however, when a defendant gives pro forma answers to the court’s pro forma questions. Id. The trial court is required to elicit the defendant’s narrative response on the record, stating his or her understanding of the right to conflict-free representation and a description of the conflict at issue. Id. A waiver is valid even though the defendant might receive representation less effective than that provided by conflict-free counsel. Absent an abuse of discretion, the trial court’s determination that a waiver is valid will not be disturbed on review. Id. at 167.

Of course, while the client’s waiver may withstand scrutiny for purposes of appealing a criminal conviction, it may not withstand scrutiny of the lawyer’s conduct in a disciplinary proceeding. There are some conflicts that simply cannot and should not be waived, as will be discussed in the next section.

When The Client May Not Properly Consent To The Conflict

As the ethics rules have evolved, it has become more and more clear that a client may not properly consent to a conflict of interest if the client’s interests might be materially injured by the consent, even if the client is fully informed of the consequences.
The Colorado Supreme Court has been proactive about protecting the interests of clients from the adverse effects of conflicts of interest, even when clients were willing to consent to the conflicts. The former Colo. RPC 1.7 included a provision that was part of the comment to the former ABA Model Rule. The court incorporated the comment directly into the former Rule 1.7 as section (c):

(c) For purposes of this Rule, a client’s consent cannot be validly obtained in those instances in which a disinterested lawyer would conclude that the client should not agree to the representation under the circumstances of the particular situation.

Former Colo. RPC 1.7(c).

The Colorado Rules Committee noted that the reason for incorporating the Comment directly into the Colorado Rule was for added protection of the client. Former Colo. RPC 1.7, committee cmt. (“The rule adopted is identical to [former] Model Rule 1.7 except for section (c), which the Committee felt was necessary in order to provide more protection for a client whose consent is sought as a way of resolving a conflict of interest between the lawyer and client.”). The supreme court’s published decisions bear out that its prime concern, when considering client waivers of conflicts, is to protect the client.

The current ABA Model Rule 1.7 and the current Colo. RPC 1.7 make even more explicit that there are some circumstances under which a client may never properly consent to the conflict of interest. Specifically, the Rules allow lawyers to represent fully informed clients who have consented to conflicts only when (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; and (3) the representation does not involve the assertion of a claim by one client against another client represented by the lawyer in the same litigation or other proceeding before a tribunal. Colo. RPC 1.7(b); see also ABA Model Rule 1.7(b).

The first limitation is the more difficult to analyze. This is the circumstance where the lawyer’s ability to provide effective representation to one client is somehow materially impaired because of responsibilities to another client. The Committee Comment to Colorado Rule 1.7(b)(1), citing Rule 1.1 (competence) and Rule 1.3 (diligence), states that the representation is prohibited if “in the circumstances the lawyer cannot reasonably conclude that the lawyer will be able to provide competent and diligent representation.” Colo. RPC 1.7, cmt. [15]; see also ABA Model Rule 1.7, cmt. [15]. The emphasis, again, is on protecting the client.

The second limitation — that the consent to the conflict is ineffective if the representation is prohibited by law — seems self-evident. Examples of this type of conflict would be, in some states, a statute that prohibits a criminal defense lawyer from representing multiple clients in a capital case. Colo. RPC 1.7, cmt. [16]; see also ABA Model Rule 1.7, cmt. [16].

The third limitation also seems self-evident: lawyers should not represent clients who are asserting claims against each other in litigation. The Comment notes that these sorts of conflicts are “nonconsentable” because of “institutional interest in vigorous development of each client’s position when the clients are aligned directly against each other in the same litigation or other proceeding before a tribunal.” Colo. RPC 1.7, cmt. [17]; see also ABA Model Rule 1.7, cmt. [17].The Comment notes that whether the clients are directly adverse in litigation is not always obvious: “[w]hether clients are aligned directly against each other within the meaning of this paragraph requires examination of the context of the proceeding.” Id. Indeed, while this exception to the client’s ability to consent seems self-evident, in litigation it can be very tricky where a lawyer’s joint clients might have or should assert cross-claims against each other, or in circumstances where the jury may be required to apportion fault among a lawyer’s multiple clients, and it is in the interest of each client to minimize the apportionment of fault. C.R.S. § 13-21-111.5.

The Comment to § 122 of the Restatement also identifies circumstances under which a lawyer may not properly obtain the client’s consent. In addition to the circumstances identified in Rule 1.7, the Comment to § 122 notes that a consent to the conflict will not be effective if (1) the client inadequately understands the nature and severity of the conflict (Restatement § 122, cmt. g(i)); (2) the client lacks the capacity to consent for some reasons (Restatement § 122, cmt. c); or (3) the consent is in any way coerced (Restatement § 122, cmt. b).

In summary, a Colorado lawyer with a conflict of interest likely cannot represent a client, even after full disclosure, informed consent, and a written waiver, when the lawyer’s conflict might prove harmful to the client.

Informed Consent Requirement
Colo. RPC 1.7(b) generally permits clients to consent to a lawyer’s representation with conflicts of interest when “each affected client gives informed consent, confirmed in writing.” Colo. RPC 1.7(b)(4). This exception raises the issue of what constitutes “informed consent.”

Adequate Disclosure for Informed Consent

The revisions to Colorado’s Rules specifically define “informed consent”:

Rule 1.0: Terminology

(e) “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 risks and reasonably available alternatives to the proposed course of conduct.

Colo. RPC 1.0(e); see also ABA Model Rule 1.0(e). Comment [18] to Rule 1.7 elaborates on the requirement for an informed consent and full disclosure:

Informed consent requires that each affected client be aware of the relevant circumstances and of the material and reasonably foreseeable ways that the conflict could have adverse effects on the interests of the client. See Rule 1.0(e) (informed consent). The information required depends on the nature of the conflict and the nature of the risks involved. When representation of multiple clients in a single matter is undertaken, the information must include the implications of the common representation, including possible effects on loyalty, confidentiality and the attorney-client privilege and the advantages and risks involved.

Colo. RPC 1.7, cmt. [18]; see also ABA Model Rule 1.7, cmt. [18].

The Restatement also discusses the nature of the disclosures necessary to obtain an informed consent from the client:

§ 122. Client Consent to a Conflict of Interest

(1) A lawyer may represent a client notwithstanding a conflict of interest prohibited by § 121 if each affected client or former client gives informed consent to the lawyer’s representation. Informed consent requires that the client or former client have reasonably adequate information about the material risks of such representation to that client or former client.

Restatement § 122 (emphasis added). The Comments to Restatement § 122 explain in some detail that in a multiple-client situation, the information normally should address:

• The interests of the lawyer and/or other clients giving rise to the conflict;
• Contingent, optional, and tactical considerations and alternative courses of action that would be foreclosed or made less readily available by the conflict;
• The effect of the representation or the process of obtaining other clients’ informed consent upon confidential information of the client;
• Any material reservations that a disinterested lawyer might reasonably harbor about the arrangement if such a lawyer were representing only the client being advised; and
• The consequences and effects of a future withdrawal of consent by any client, including, if relevant, the fact that the lawyer would withdraw from representing all clients.

Restatement § 122, cmt. c(i).

The lawyer is responsible for ensuring that each client has the necessary information to make a fully informed consent to a conflict of interest. Id. A lawyer who does not personally inform the client assumes the risk that the client is inadequately informed and that the consent is invalid. Id. A lawyer’s failure to inform the client might also bear on the motive and good faith of the lawyer. Id.

Circumstances when Adequate Disclosure Is Prohibited

A purpose of the conflict-of-interest rules is to protect the confidences and secrets of clients. Thus, a lawyer’s obligation to maintain the secrets and confidences of a client may prevent the lawyer from making the disclosures necessary to obtain an informed consent from other clients.

A lawyer is prohibited from disclosing information about one client or prospective client to another if the necessary information is confidential. Former Colo. RPC 1.7, cmt. [6], “Consultation and Consent”; Restatement § 122, cmt. c(i). The affected clients may consent to the disclosure of confidential information, but a lawyer must also consider whether the client should, in fact, disclose such confidential information. It also might be possible for a lawyer to explain the nature of undisclosed information in a manner that provides a client with an adequate basis for informed consent, while still maintaining the confidences of the other client. Restatement § 122, cmt. c(i). However, if a lawyer cannot provide adequate disclosure to the client from whom he or she is requesting the consent without disclosing confidential information about another client, the lawyer may simply be unable to obtain a valid consent to the conflict and must decline the representation. Id.

Restrictions On Obtaining Consent

Even if a lawyer obtains an adequate informed consent to a conflict of interest from all affected clients, the lawyer may still be precluded from undertaking the representation. The Colorado Supreme Court, applying DR1-102(A)(6) and DR6-101(A)(3) of the former Code of Professional Responsibility, suggested that when a lawyer purports to represent two or more clients in a matter, the lawyer must not favor the interest of one client over the other. See, e.g., People v. Bollinger, 681 P.2d 950 (Colo. 1984) (lawyer censured for assuring real estate buyers that he would represent their interests as well as those of his seller-client, but when problem later arose between seller and earlier lien holder that resulted in foreclosure, lawyer failed to inform the buyers or help them solve the problem).

When a lawyer represents multiple plaintiffs in litigation, a fee agreement that deprives each client of the right to individually determine whether to settle the client’s claim is unenforceable, and the lawyer may be disqualified because of a conflict of interest. Abbott v. Kidder Peabody & Co., 42 F. Supp. 2d 1046 (D. Colo. 1999).

In short, some conflicts simply may not be waived. See, e.g., Grogan v. Taylor, 877 P.2d 1374, 1383 (Colo. App. 1993) (“[W]e hold that, under Colorado Rules of Professional Conduct Rule 1.7, the conflict of interest between Grogan and his attorneys is not waivable and that Grogan’s consent to continued representation by these attorneys in this proceeding cannot be validly obtained.”).

Imputed Conflicts of Interest
Positional or "Issue" Conflicts

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