This is the third 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.
If you think you have a legal malpractice claim against your lawyer or a law firm, whether in Colorado or another state, contact Michael T. Mihm at (303) 592-5900.
Loyalty To The Client
The touchstone behind all of the conflict of interest rules is loyalty to the client. Colo. RPC 1.7, cmt. [1], “General Principles”; ABA Annotated Model Rules, cmt. [1], “General Principles,” p. 107. The Colorado Supreme Court has stated that a lawyer is required to “maintain a paramount duty of loyalty to the client.” People ex rel. Peters v. Dist. Court, 951 P.2d 926, 929-30 (Colo. 1999) (emphasis added); Colo. RPC 1.7, cmt. [1], “General Principles” (“Loyalty and independent judgment are essential elements in the lawyer’s relationship to a client.”). Comment [1] to Rule 1.7 of the Colorado Rules of Professional Conduct emphasizes this concern: “Loyalty and independent judgment are essential elements in the lawyer’s relationship to a client.” The Colorado Bar Association’s Ethics Committee recognized many years ago that “a lawyer’s prime concern should be ensuring that . . . loyalty to . . . clients is not diluted by the interest of other clients.” Syllabus, CBA Ethics Committee Formal Opinion 57 (March 21, 1981). And, finally, the Restatement (Third) of the Law Governing Lawyers recognizes that the first policy concern underlying the rules prohibiting conflicts of interest is loyalty to the client:
The prohibition against lawyer conflicts of interest reflects several competing concerns. First, the law seeks to assure clients that their lawyers will represent them with undivided loyalty. A client is entitled to be represented by a lawyer whom the client can trust. Instilling such confidence is an objective important in itself.
Restatement § 121, cmt. b, pp. 245-57.
While it is clear that the law seeks to promote a lawyer’s loyalty to the client, what is less clear is what constitutes disloyalty to the client. The authorities seek to provide a structure for analyzing conflicts of interest and, thus, disloyalty.
The Comment [8] to Colo. RPC 1.7 observes:
a conflict of interest exists if there is a significant risk that a lawyer’s ability to consider, recommend or carry out an appropriate course of action for the client will be materially limited as a result of the lawyer’s other responsibilities or interests.
See also former Colo. RPC 1.7, cmt. [8] (“As a general proposition, loyalty to a client prohibits undertaking representation directly adverse to that client without that client’s consent.”); former Colo. RPC 1.7, cmt. [3], “Loyalty to a Client” (“Loyalty to the client is . . . impaired when a lawyer cannot consider, recommend or carry out an appropriate course of action for the client because of the lawyer’s other responsibilities or interests.”); accord Code of Professional Responsibility, DR-5-105(A) (“A lawyer shall decline proffered employment if the exercise of his independent professional judgment in behalf of a client will be or is likely to be adversely affected by the acceptance of the proffered employment, or if it would be likely to involve him in representing differing interests . . . .”).
The Comment [5] to the former Colo. RPC 1.7 identified several questions a lawyer should ask when analyzing the lawyer’s duty of loyalty in the context of conflicts of interest:
- What is the likelihood that a conflict will develop?
- If a conflict does develop, will it materially interfere with the lawyer’s independent professional judgment in considering an alternative course of action?
- Will a conflict foreclose a course of action that the lawyer should reasonably pursue on behalf of a client?
- Does the client wish to accommodate the interests involved?
There are, in essence, four general circumstances in which prohibited conflicts of interest arise: first, and most obviously, conflicts in which clients are directly adverse to each other in a transaction or litigation; second, conflicts in which the lawyer’s own personal or financial interests may impair the lawyer’s ability to represent the client and, thus, may adversely affect the client; third, conflicts in which clients may not be directly adverse to each other, but there is a risk that the lawyer’s duty of loyalty to another client may impair the lawyer’s ability to effectively represent the new client and, thus, adversely affect either the new client or another client or both; and fourth, conflicts in which the lawyer’s duties to a third person may significantly impair the lawyer’s ability to effectively represent the client and, thus, adversely affect the client. See CBA Ethics Committee, Formal Opinion No. 57 (March 21, 1981), for a similar list of such situations.
The overriding concerns in each of these four circumstances are (1) loyalty to the client, and (2) protecting the client’s confidences and secrets. Closely related is concern about maintaining a lawyer’s professional independence. The conflicts that arise in each of these circumstances, to some degree, impair a lawyer’s ability to effectively represent the client, create a risk that a client will be adversely affected by the conflict, and compromise a lawyer’s professional independence.
Colorado’s Conflict Of Interest Rule
Colorado’s general conflict of interest rule is set out in Rule 1.7 of the Colorado Rules of Professional Conduct:
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 one 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.
Paragraph (a)(1) of Colo. RPC 1.7 pertains to a lawyer representing clients with directly conflicting or adverse interests, such as representing opposing parties in litigation, negotiations, or business transactions. Colo. RPC 1.7, cmts. [6] and [7], “Identifying Conflicts of Interest: Directly Adverse.”
The issues in paragraph (a)(2) are more subtle than in paragraph (a)(1). Paragraph (a)(2) pertains to a lawyer simultaneously representing parties who, while perhaps on the same side of a matter, may have conflicting or divergent interests. Paragraph (a)(2) also refers to possible conflicts with the lawyer’s own interests. Paragraph (a)(2) differs from paragraph (a)(1) in that its focus is the extent to which the quality of the lawyer’s representation is likely to be limited by competing interests, either other clients’ interests or the lawyer’s own interests. Restatement § 121, cmt. c(i), p. 247 (“‘Adverse’ effect relates to the quality of the representation, not necessarily the quality of the result obtained in a given case.”).
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