Managing the Hazards of Representing Multiple Clients
American Bar Association Section of Labor & Employment Law
2005 Annual Meeting Michael J. Leech Talk Sense Mediation 101 North Wacker Drive, Suite 2010 Chicago, IL 60606 (312) 250-8123 [email protected]
2
INTRODUCTION
Representing multiple clients in the same matter presents opportunities
and risks. When representation of multiple clients takes place, the benefits seem
so manifest that anyone questioning the wisdom of it is regarded with suspicion.
Yet circumstances may later demonstrate that it was a very bad idea indeed.
The attorney who represents multiple clients actually usually benefits
only indirectly:
• An employer can economize on legal costs by disregarding the
ethical problem. The attorney who agrees avoids the risk that a
lawyer less sensitive to legal niceties that seem unimportant to the
company will be selected. Holding onto the business is assured.
• Employees bringing a multi-party action who engage one attorney
obtain both economic and tactical litigation advantages. The
attorney benefits indirectly through the clients’ recovery.
If the decision turns out badly, the attorney may be visited with very
unpleasant consequences: disqualification, professional disciplinary action,
inability to collect fees for work already performed, repayment of fees previously
paid, malpractice liability and adverse publicity. If all lawyers thought about
was their own best interests, representation of multiple clients would be rare.
The paper reviews the more typical situations in the practice of labor and
employment law in which an attorney is called upon to represent multiple
clients. The benefits and professional risks are catalogued. The paper then
3
introduces risk management approaches that may be employed to minimize the
risk of adverse consequences.
CAUTIONARY POINT: WHO IS A CLIENT IS OPEN TO DISPUTE
A number of the situations reviewed below do not actually appear to the
lawyer to involve representation of multiple clients at all. For purposes of civil
liability, however, the prima facie showing of an attorney-client relationship is
made out by the client testifying that one exists or existed. Unless the lawyer can
prove otherwise, anyone who claims to be a client, is a client. Such claims
sometimes are bogus, but often are the product of genuine misunderstanding.
Such misunderstandings may create problems for the lawyer, so it is incumbent
on attorneys to prevent them and document it.
I. MULTIPLE CLIENTS ON THE EMPLOYER SIDE
A. INDIVIDUAL DEFENDANT JOINED TO SUIT AGAINST EMPLOYER
Joint representation is the rule, rather than the exception, where an
individual employed by the defendant employer (generally a manager) is named
as a defendant in the lawsuit. Joint representation problems can also arise when
counsel of record for the employer defends the deposition of a manager or other
employee, if the character of the relationship has not been made clear to the
corporate employee, resulting in a perception of general representation.
1. BENEFITS OF JOINT REPRESENTATION
The obvious benefit to the employer is economic: the cost of having two
lawyers defend the same action can be double what it costs to have just one of
them doing the job. Even if the attorneys cooperate extensively, the requirement
4
that each exercise independent judgment on behalf of the client ensures a
significant amount of duplicated effort. For the individual defendant, the cost of
defending a significant employment suit can be debilitating. The prospect of
recovering that cost through indemnity rights somewhere down the road is not
attractive because litigation can last for years. Joint representation looks like a
good deal to the individual defendant, and it usually is.
A less obvious but equally important benefit for the employer is that a
single lawyer provides some tactical advantages. The individual defendant is
much less likely to enter into a separate settlement with the plaintiff after the
individual defendant’s employment ends. Such a settlement could include
provision for the individual defendant’s cooperation with the plaintiff in the
litigation against the employer. Since the employer is usually the deep pocket, it
has a strong interest in avoiding that.
Discussions about testimony and strategy can be held between the
attorney, the individual defendant and the employer and protected from
discovery by the attorney-client privilege. The same benefit may exist when the
manager has not been sued. When there is separate representation, a joint
defense agreement would be required for the privilege to be applicable.
2. RISKS OF JOINT REPRESENTATION
Conflicts of interest that were not evident at the outset can arise during
the course of the litigation in several ways. When a corporate officer, director or
employee of a corporation is sued, indemnification for liability and defense costs
5
by the corporation is permitted under corporate law, and in some circumstances
mandated. Indemnification is prohibited where the individual defendant acted in
bad faith without an intent to serve the interests of the corporation, as
determined in a separate proceeding after the litigation ends.
Corporate law permits the corporation to advance legal costs to the
individual defendant, or to refuse to do so. If it does provide a defense, the
corporation is required to obtain an undertaking in writing to repay the legal
expenses if, at the conclusion of the proceedings, it is determined that
indemnification was not proper. Although this formality is often disregarded, it
highlights an inherent problem with multiple representation in employment
cases. Evidence establishing that the individual defendant actually was a
wrongdoer may surface in discovery or at trial. If it does, the attorney
representing both the corporate and individual defendant can become conflicted
because of the indemnification implications.
A conflict can arise where the manager has done no wrong. A contested
employment decision concerning the manager will raise a conflict problem. The
manager may be fired or demoted for reasons unrelated to the lawsuit.
Information that the manager has given to the attorney about the disputed
events that is reported to management may trigger or affect an employment
decision. Another conflict.
Defenses asserted by the employer at the pleading stage can create a
conflict of interest. The employer may wish to have the option to distance itself
6
from the actions of the individual manager in order to avoid respondeat superior or
punitive damage liability. Success could impose loss of indemnity and an
obligation to repay defense costs on the manager, or defeat insurance coverage.
The decision to keep that option open is inconsistent with joint representation,
and joint defense limits the defenses that the employer may plead.
Another serious problem for both the employer and the manager
defendant is the sharing of information between the attorney and the clients.
Where the attorney represents both, either is entitled to any confidential
information related to the representation obtained by the attorney from the other.
If the attorney is consulted by management about the potential firing of the
manager, the manager has a right to know it. But it is likely against the
company’s interests to disclose it. Similarly, if the manager spills the beans to the
attorney about something that could result in firing of the manager, the
employer is entitled to that information. But it would certainly be viewed as
prejudicial to the interests of the manager. The attorney is simultaneously
obligated to disclose the information to a client and to withhold it from that
client. This is Catch-22. The attorney must withdraw from representing either
client.
There is a large downside when a conflict develops after joint
representation has been undertaken. The employer will incur substantial
additional expense unless the attorney can continue to represent it after ceasing
to represent the manager. Whether that is possible will depend on the precise
7
circumstances. But the employer runs the risk that somewhere down the line, it
will have to hire an entirely new legal team and bring it up to speed, an
expensive proposition. If the original lawyer is found to be at fault for the
problem, that expense could be shifted to the attorney.
B. INVESTIGATIONS OF CORPORATE WRONGDOING
The black letter law is that the attorney retained to conduct a corporate
investigation represents the corporation, not the employees or even the
executives. The situation in which outside counsel is asked to conduct an
investigation is often one that presents this problem in its most difficult form: a
claim of wrongdoing by a high-ranking executive. Counsel may be interviewing
people previously represented as individual defendants, for personal matters or
as witnesses. These people will view the lawyer as “my attorney.”
Interviewees must be put on notice of who the attorney does and does not
represent or a different perception could arise. The lawyer could face a suit
claiming that confidential information was provided that would not have been
disclosed. The attorney may be accused of abusing the interviewee’s trust to
obtain information used to help top management or the board to brand him as a
scapegoat.
But this may not be enough. Under RPC Rule 1.7, a “concurrent conflict of
interest” exists if the obligations of the lawyer to the employer may be
“materially limited” by duties to another client or by the personal interest of the
lawyer. Current (Rule 1.8) or former (Rule 1.9) representation of an interviewee
8
could create such a conflict, particularly where the lawyer has previously been
confided in by the interviewee on the subject of the investigation. The “personal
interest” of the lawyer in future or continuing assignments from the interviewee
may be enough on its own to create a concurrent conflict.
To permit representation where there is a concurrent conflict, the
requirements of RPC Rule 1.7(b) must be satisfied. Two of them can be
problems: (1) the lawyer must be able to provide “competent and diligent”
representation (i.e. independent professional judgment); and (2) the interviewee
or target must give informed written consent. The lawyer’s ability to exercise
independent judgment is a subjective matter, open to dispute. The adequacy of
informed written consent is subject to challenge with the benefit of hindsight if
things go badly.
C. EMPLOYMENT AGREEMENTS OF CEO’S AND GENERAL COUNSEL
Someone has to draft the employment agreements of the CEO and general
counsel. If you represent the corporation in other matters, this assignment is
fraught with conflict. The record must be clear that the attorney is representing
the corporation and not the individuals responsible for doling out legal business
or the attorney is exposed to conflict charges from both sides. There should be a
designated member or committee of the board of directors that is responsible for
making decisions for the corporation.
The same conflict of interest problem discussed above (respecting
corporate investigations) can arise here as well. The lawyer who is assigned
9
legal business by the CEO or general counsel may be operating under a
concurrent conflict of interest that must be effectively waived, and waiver may
be problematic.
II. MULTIPLE CLIENTS ON THE EMPLOYEE SIDE
A. CO-PARTIES IN LAWSUITS
1. THE BENEFITS OF MULTIPLE REPRESENTATION
The benefits for employee-plaintiffs from joining their actions and being
represented by a single attorney (which are not necessarily the same decision,
but in practice tend to be so) are considerable. The incremental cost of
representation for a second or fifth or tenth individual asserting a related claim
are small, so both the legal work and litigation costs can be shared, reducing the
per-plaintiff cost of proceeding.
Just as important is the strength of numbers and the benefit of synergy. A
multi-plaintiff claim will get the attention of management because the stakes of
the case are multiplied. Just as unions are able to wrest more favorable wages
and working conditions from employers through collective bargaining,
employee litigants may stand to obtain superior settlements.
Employee-plaintiffs may legitimately be witnesses in each others’ cases as
well. This can be a two-edge sword, as the defense would be able to argue bias
quite readily. But the plaintiff’s attorney can also prepare each plaintiff to testify
with the benefit of attorney-client privilege.
The strong cases may enhance the weaker cases if the same jury will hear
both. It may be more difficult to persuade a jury that multiple employees were
10
“bad apples” than just one employee. Mutual moral support among the litigants
can make the lawyer’s job easier as well. But for the conflict problems,
representation of multiple plaintiffs by one lawyer would be a no-brainer. But
the problems are considerable.
2. RISKS OF JOINT REPRESENTATION
The first risk results from the fact that in accepting a group of clients, the
attorney is less likely to pick and choose among potential clients. When an
attorney does not screen clients carefully, there is a substantially increased risk
that the attorney will represent a problem client. The other clients may have less
and less ability to keep the problem client under control as time goes on if they
all formerly worked together and have now been terminated.
Problem clients are a headache for all lawyers. They have unreasonable
expectations. They do not pay bills. They either do not return calls or they call
constantly. They second-guess the attorney. They do not follow instructions.
They complain incessantly. They demand that the attorney engage in unethical
conduct. They make horrible witnesses. They file ethics complaints and
malpractice actions. These traits actually tend to go together. You don’t want a
problem client, and any group may harbor one or more.
Even if all the clients are reasonable and in accord at the start of the
representation, genuine conflicts in the objectives of the litigation can easily
develop as the life circumstances of the clients change. Financial problems may
lead one client to push for a quick, cheap settlement while other clients insist on
11
an aggressive negotiating stance. Some clients may be uncomfortable with the
litigation process and wish to avoid a trial while others may relish the prospect
of the day in court.
Testimony may give rise to conflicts. A client who testifies favorably for
another client may be impeached by a prior inconsistent statement written
during the employment. Some clients will be impeached while others will make
good witnesses. The stories clients tell may vary from each other. One client’s
claim may become susceptible to summary judgment while another’s does not.
New information may give rise to conflicts, by creating a “zero-sum
game” among the clients. Two co-plaintiffs terminated in a reduction in force
who claim age discrimination may end up, after discovery, each claiming that
they should have received the same position that was given to a younger
employer. Even if there is a legal possibility that both could prevail, only one of
them could be better suited for a particular job, so there may be direct legal
adversity between their claims.
Conflicts are almost certain to arise at the settlement stage. Ninety percent
of all cases settle. One client will be interested in settling at all costs to gain a
sure recovery, another will want to hold out for top dollar even if it means going
to trial. These differences may result from economics or personality differences.
The lawyer is inevitably in the middle, and taking sides creates malpractice
exposure.
12
These problems may be exacerbated by the defendant, deliberately or not,
during negotiations. Employers usually want to settle all the claims or none.
This puts the plaintiffs in a position of dividing up scarce settlement dollars
among themselves, a sure-fire recipe for conflict. A recalcitrant client who
opposes settlement may veto everyone’s recovery unless a larger portion of the
settlement is allocated to him or her.
Having the defendant make separate offers to each plaintiff can make
things worse. Unless each employee thinks the relative value of the claims is
precisely the same as the employer does, one employee will object to and be
offended by the offer.
When the employer offers to settle some but not all claims, the situation is
also problematic. The employer will generally want to settle the stronger claims
and try the weaker ones. This puts pressure on the clients with stronger claims
to refuse settlement for the benefit of the remaining clients. If the claims the
employer does not offer to settle are weak, the attorney may resist settlement to
avoid having to proceed and have a greater risk of not being compensated for the
work.
Woe betide the lawyer who simply makes the decision for the clients.
RPC Rule 1.8(g) provides that “A lawyer who represents two or more clients
shall not participate in making an aggregate settlement of the claims…unless
each client gives informed consent, in a writing signed by the client. The
lawyer’s disclosure shall include the existence and nature of all the claims…and
13
of the participation of each person in the settlement.” Moreover, the attorney
who participates in the decision-making process among the clients stands in a
position to be accused of advancing the interests of one client against those of the
other, which can become the basis for a malpractice claim. Especially if the
attorney is pushing settlement to ensure that a fee is paid.
The fee-shifting element often present in employment cases appears to
present additional conflict possibilities. Typically, the fee recovery is paid to the
attorney and the damage recovery goes to the plaintiff. Offers of settlement that
require a reduced fee or are premised on waiver of fees are typically viewed by
employee’s counsel as creating a conflict of interest between attorney and client.
While this creates a business dilemma for the attorney, it does not create a legal
conflict. The U.S. Supreme Court held in Evans v. Jeff D., 475 U.S. 717, 730-739,
106 S.Ct. 1531, 1539-1543, 89 L.Ed.2d 747 (1986) that both the damage and the fee
claim belong to the employee-plaintiff. The fee arrangement between attorney
and client is a separate contractual agreement which may provide, within the
bounds of the law, whatever fee the two agree upon. Attorneys representing
employees have the ability, then, to prevent this kind of problem by addressing it
in the agreement they enter into with the client.
B. CLASS ACTIONS
There is inherent potential for conflict of interest between class
representatives and the classes they (and counsel) represent. These conflicts are
managed, as a practical matter, during the class certification process. Defense
14
counsel typically argue aggressively that any potential conflict constitutes a
reason why no class should be certified. Conflicts preclude class certification.
Class counsel has a peculiar legal relationship with the class members:
fiduciary duties do limit class counsel’s actions, for instance, by prohibiting use
of the class action claim as a means to gain leverage. Even before class
certification, the class attorney cannot offer to give up class certification in return
for an enhanced recovery for the class representative. At the same time, RPC
Rule 1.8, Comment 13, indicates that in connection with settlement, class counsel’s
obligations are limited to compliance with “applicable rules regulating
notification of class members and other procedural requirements designed to
ensure adequate protection of the entire class.” Thus, the court’s role in
regulating the process alleviates the risks faced by the class action plaintiff’s
attorney. Thus, class members objecting to a settlement may not disqualify class
counsel from representing the class representative because counsel is arguing
that the settlement should be approved. But such disqualification would be
required if the class representatives themselves took opposing positions on the
settlement. Lazy Oil Co. v. Witco Corp., 166 F.3d 581 (3d Cir. 1999); In Re Corn
Derivatives Antitrust Litigation,748 F.2d 157 (3d Cir. 1984).
III. RISK MANAGEMENT
Risk management means assessing risks and benefits consciously and
making intelligent decisions about conduct based on that assessment. Risks
must be identified, quantified and evaluated with an eye to both the potential
15
harm and the available tools to minimize risk. To borrow from Donald
Rumsfeld, risk management means getting complete information on the “known
knowns,” using clinical experience to assess the “known unknowns” and
operating with an awareness that there could be “unknown unknowns” out
there.
A. FIRST STEP: MAKE EXPERT COUNSEL AVAILABLE
Risk management requires that attorneys and firms engage legal counsel
to treat their own legal risks as they recommend that clients treat them. Find
someone with expertise in the law and experience with similar situations. Get
preventative counsel and take steps to minimize risk. Bring problems that do
arise to the attention of counsel as soon as they arise, confront the problems and
resolve them. Not “physician, heal thyself,” but “counsel, get counsel.”
Today large firms increasingly select, from among their ranks or from an
outside source, an in-house counsel to address legal problems arising from the
law of lawyers. Conflict problems, including those resulting from representation
of multiple clients in a single matter, are bread and butter for these counselors.
One benefit of this approach is that the designated in-house attorney may be able
to sustain an attorney-client privilege for discussions with an attorney having a
problem. Historically, courts have taken a dim view of privilege claims by law
firms concerning their internal decision-making.
Large and mid-range firms should have at least a designated lawyer to
handle ethics concerns, or perhaps an ethics committee. Ethics consultants
16
should provide an opportunity for lawyers in the firm, especially associates, to
seek confidential help that will not result in reports to managing lawyers who
are not personally involved in the problem. There may be consequences for the
associate from the problem, but the ethics lawyer will not be reporting it. The
purpose is to encourage associates to get help with problems at a time when they
can still be managed, rather than attempt to resolve them personally in the hope
that they will not be detected.
Mid-range firms, small firms and individual practitioners should have
expert outside ethics counsel available for ongoing consultation when problems
arise. Such counsel will have methods for successfully dealing with problems
that persons not experienced in representing lawyers would not know. This also
encourages early detection of potential problems. Almost all ethics and
malpractice problems can be solved with relatively little difficulty if they are
identified and expert help is sought early in the game. Lawyers who do not seek
help typically do things that only exacerbate the problem. Some who would not
otherwise consider doing so commit far more serious legal wrongs in a vain
effort to make the original problem go away or to conceal it.
B. A RISK MANAGEMENT MENTALITY
The first step in risk management is a determination to manage the ethical
problems that will necessarily arise in any law practice. This entails selecting
clients carefully and being prepared to decline problematic assignments.
Lawyers and law firms need systems to identify conflicts, retainer agreements or
17
engagement letters that address foreseeable problems, forms and checklists for
conflict-sensitive situations, educational programs for attorneys and policing of
compliance with legal mandates.
When problems arise, counsel experienced in the law governing lawyers
is a necessity. Problems must be analyzed and alternative courses that will
minimize risk, and an assessment of the extent of risk that is acceptable made,
with actions taken accordingly. Regular review of the chosen course of action in
light of subsequent events must also be undertaken.
C. OBSTACLES TO RISK MANAGEMENT
We have met the enemy and he is us. The three greatest obstacles to risk
management lie within the lawyer: arrogance, ignorance and fear.
Lawyers display arrogance in recklessly disregarding ethical problems,
recognizing only the most obvious problems. Denial is not just a river in Africa.
Or we rely on a low risk of detection and wishful thinking to disregard obvious
risks where compliance with legal standards seems inconvenient. Risk
management challenges us to look for the problems, analyze them, and if they
are problems, address them immediately and not just hope they will go away.
Lawyers exhibit ignorance when they do not attend programs like this
one, or when they do not apply the lessons of such programs to their firm and
their practice when the ABA meeting is over. The Rules of Professional Conduct
presently in effect were adopted by the ABA in 2002, and while many principles
are carried over from prior ethical rules, every lawyer has a duty to be up-to-date
18
on the rules generally and specifically in the jurisdiction(s) and legal fields in
which one practices. If you are not aware of the problems that could attend
representation of multiple clients, you forfeit the opportunity to prevent or
minimize risk through appropriate fee agreements, notices and disclosures.
Ignorance presents problems particularly for lawyers who operate outside
their primary area of practice. “Dabbling” outside one’s principal field of
concentration accounts for a majority of all losses from malpractice claims. An
object lesson may be found in the current issue of the ABA Journal, James W.
McElhaney, “Be Careful In The Woodshed,” August 2005, at 24-5. When you are
out of your element, until you have sufficient experience to understand the
lessons only experience can teach, associate with competent counsel sufficiently
schooled in the practice area or you may live to regret it. Attempting to become
competent in a new area on one’s own is difficult and uncertain, and few lawyers
have the time available that is required to accomplish by reading and attending
seminars what typically is learned through years of working with real cases.
Fear is paralytic. Fear of the client’s reaction to candid disclosure prompts
lawyers to disregard the duty to obtain informed consent. Fear exposing an error
to a client, to partners or to the court leads lawyers to ignore or even conceal
problems rather than get the help that could readily solve them. At best,
opportunities to mitigate or eliminate the problem are squandered; at worst, the
more serious ethical problem of misleading a client or court occurs. A casual
19
review of recent disciplinary cases demonstrates that lawyers often incur more
serious discipline from not owning up to a problem than from the problem itself.
D. CLIENT SELECTION
A poor choice of client holds a risk of malpractice claims and ethical
complaints—as well as headaches in court, potential disqualification and the
burden of dealing with a difficult relationship. Red flags indicating likely
problem clients include:
• the client who was previously represented by another attorney who expresses dissatisfaction with that attorney.
• the client whose expectations are unreasonable, even after the lawyer’s explanation of the realities.
• the client whose first stated concern is the cost of the representation, or who seeks to bargain over the fee quoted (except for large corporate clients and insurance carriers, who regularly bargain about rates).
• the client who asserts knowledge of the applicable law and challenges the attorney’s assessment of the issues or outcome probabilities.
• the client who lies to you, especially if it is repeated or concerns an important matter.
• the client who suggests unethical or illegal conduct, or implies an understanding that such conduct can be gotten away with a lawyer’s knowledge of the “tricks” of the trade.
• the client who cannot focus on or who will not answer honestly and completely the lawyer’s hard questions about the case.
• the client who claims to know the value of the case and who suggests an unreasonable sum.
• the client whose story appears to be contradicted by the available documentation on multiple points, or who otherwise appears to be unreliable.
20
It is possible for the client to be a perfectly reasonable client despite one of
the above signs. But it is unlikely. However attractive the assignment may
appear, you will likely to live to regret a decision to accept it. Aside from the
hazards described above, at 10, this client or assignment will inevitably consume
a substantial amount of time, energy and emotion that could be put to better use
elsewhere.
E. DISTINGUISH CLIENT FROM NON-CLIENT
The first step for avoiding problems with multiple clients is to ensure that
you have only the clients you think you have. This requires a minimum of brain
power to figure out; the problem is with having the discipline to ask the question
with each new assignment. It is as simple as asking “Who is my client?” and
“Who is not my client?” at the start of each situation and documenting the
answer. Anyone who might have a different perception must be notified in
writing that they are not a client. This can be accomplished in a one paragraph
letter or a separate paragraph in a longer letter.
Many lawyers are reluctant to restate this obvious fact because of the
questions it could provoke. Bringing up the problem could lead to someone
retaining an attorney who will complicate matters, or suspecting an adverse
relationship with the actual client lies ahead. Usually, this problem does not
materialize or is easily resolved. If there is a real problem, it is easier to deal with
if it is out on the table than to have it fester.
1. INSURANCE CARRIERS
21
The attorney hired to represent an employer by an EPLI carrier does not
represent the insurance company, but the insured. The attorney assigned by the
insurance carrier must take no action that benefits the carrier at the expense of
the insured. The defense attorney is not permitted to advise either the insurance
company or the insured on the question of what is or is not covered, or to
participate in the resolution of a coverage dispute.
The attorney may be required to report regularly to the insurance
company, whose money is on the line, in compliance with the insured’s duty to
cooperate in the defense of the case. If there is no reservation of rights letter, the
carrier is entitled to control the defense, but if there is, most jurisdictions permit
the insured to hire additional counsel of its own choosing—at the carrier’s
expense—to control the defense. This is to ensure that no steps are taken in the
litigation to defeat coverage or otherwise benefit the insurance carrier at the
insured’s expense.
The client needs to be informed that the insurance carrier is paying the
expense of the defense, but that the attorney’s first loyalty is owed to the client.
If the insurance carrier controls the defense and is entitled to information about
the case for decision-making purposes, it is wise to notify the client of that as
well.
2. CORPORATE OFFICERS, DIRECTORS AND EMPLOYEES
Notice of the lawyer’s position as counsel for the company and not the
individual should be given in writing whether one is performing an
22
investigation, drafting a contract or performing any other assignment in which
confidential personal information (as opposed to corporate information) is likely
to be disclosed to the lawyer. This is a simple disclosure and can be a silver
bullet when someone the lawyer does not represent claims otherwise. The letter
should make clear that the attorney’s obligation is to serve the interests of the
corporation.
The letter should also address the fact that communications with the
individual may be privileged from persons outside the corporation when the
individual deals with the attorney in his or her role as a representative of the
company. It should remind the individual of the obligation to maintain
confidentiality of such discussions on the corporation’s behalf. It should advise
the individual that while the information provided is confidential as to outsiders,
the attorney will disclose such information to appropriate persons within the
company.
Where there is joint representation of corporate and individual
defendants, more is required. Here the objective is to satisfy the requirements of
informed consent, which is a challenging task. Informed consent with respect to
a conflict of interest actually requires both an oral explanation (in most instances)
with an opportunity for the client to get answers to questions and for consent to
be “confirmed in writing,” which requires at a minimum that the attorney put
something in writing to the client.
23
First, the risks of multiple representation must be outlined, as well as the
benefits. The discussion above provides some ideas for subjects to consider
addressing, depending on the particular case. The more thorough the disclosure,
the more likely it is that the disclosure and consent will be found adequate. In
particular, the possibility of a conflict because of future events should be
emphasized, and the client asked to contact the lawyer whenever the client
perceives a possible conflict.
Second, it is wise to address what will happen if a conflict does develop.
Counsel should advise the individual defendant that representation of the
corporate defendant will continue should a conflict develop, but representation
of the individual will cease. Counsel should also advise what the usual rules are
for disclosure between defendant-clients, and that they are being modified to
permit counsel to discuss matters related to the case that are not discussed with
the individual defendant. In addition to telling the individual defendant that the
company will have access to whatever information is confided to the attorney,
the individual defendant should be advised that only information directly
pertinent to the case against the individual defendant will be disclosed. It should
also be stated that if the attorney is consulted by management concerning
possible adverse action affecting the individual defendant’s employment, this
would give rise to a conflict requiring the attorney to cease representing the
individual defendant. Management must be notified that the joint representation
24
will preclude consultation with the attorney about possible adverse employment
actions against the individual defendant.
3. PROSPECTIVE CLIENTS
Where the attorney about to represent multiple plaintiffs in an
employment case begins the representation, the risks (and benefits) of multiple
representation must be disclosed, consent to the multiple representation secured,
and confirmation provided in writing. The matter should be discussed in a
meeting with all prospective clients present, and then followed up with a letter
or retainer agreement requiring signature from each client before the attorney
undertakes to pursue the clients’ claims. The risks and benefits described above
should be laid out in simple, understandable terms with examples. Consider
using a “FAQ” Question and Answer format to provide specific illustrations.
The clients should also be asked to address at the outset the fundamental
problems that will come up in settlement. The subject of expectations and
positions on settlement must be discussed to determine whether the plaintiffs
already have conflicts that preclude joint representation. If so, it may be possible
to divide them into groups and find counsel to represent each group.
One way to address the problems with settlement is to encourage the
clients to reach agreement among themselves, without involvement by the
lawyer and before the attorney undertakes to prosecute an action, about how
settlement decisions will be made and how settlement proceeds will be divided.
The clients may determine the allocation of settlement proceeds among them, on
25
a percentage, formula or some other basis. They may also determine whether to
agree that a settlement will be accepted with less than unanimous consent, or if
the general rule requiring all clients to consent will be applicable.
There is an argument that such an arrangement could violate RPC Rule
1.8(g) that each client give and sign off in writing on an informed consent to the
settlement. That rule requires disclosure of the existence and nature of all claims
and each person’s participation in the settlement. It could be read to mean that
each client must consent to settlement of her own claim at the time settlement
occurs. Because the rule is addressed to an attorneys’ conflict of interest, rather
than to create a substantive rule limiting the clients’ right to agree in advance to a
settlement, this seems unlikely. It is critical is that the attorney not participate in
the discussions leading to the arrangement among the clients beyond suggesting
the need for such an agreement and the subjects to be covered. The attorney
should ensure that the agreement is in writing and signed by all clients, but
should not draft the agreement. Ideally, each would be represented by a
separate attorney in developing such an agreement, but clients are rarely willing
to go to this expense.
Scamardella v. Illiano, 126 Md.App. 76, 727 A.2d 421 (1999) suggests an
alternate solution to the problem. In that case, an aggregate settlement was
reached on condition that the allocation among the clients be left for them to
determine together. Failing agreement, the matter was to be submitted to the
court to determine the proper allocation. The court noted it was within a trial
26
court’s discretion to allocate settlement proceeds among plaintiffs. It observed
that this approach effectively postponed the divisive, conflict-ridden question of
allocation until after settlement was achieved. In that case, however, the
plaintiffs had recovered the insurance policy limits and agreed that the
settlement total was the most that could be recovered in the case. Where this
circumstance is not present, settlement without allocation of the proceeds
presents a more difficult question. But it may be possible to fashion an
agreement among the clients before the case begins (or later, even when
settlement is being negotiated) that relies on the court’s discretionary power to
allocate proceeds if all clients agree to the aggregate settlement. The fact that
such some agreement about how settlement will be handled has been reached
and reduced to writing in advance can do much by itself to minimize conflict
when settlement is on the table.
The safest course is to secure independent counsel for each client (or client
group) to participate in decisions on both the settlement and the allocation of
settlement proceeds. It should not be difficult for an employment lawyer to find
other attorneys who do employment work to represent the clients for this limited
purpose, either at the outset of the case or when settlement is imminent. This is
not the custom in the employee’s bar, but perhaps it should be.
F. INFORMED CONSENT AND THE LIMITED VALUE OF WAIVER
Informed consent normally may be accomplished orally. There are two
problems with this approach in multiple client situations. First, the client will
27
often not remember the discussion the same way as the attorney does after the
passage of time and development of an adverse interest. Second, for conflicts of
interest, the rules mandate that informed consent be “confirmed in writing.”
Settlement of cases in which multiple clients are represented require yet a higher
standard: the written confirmation must be signed by the client.
The problem with informed consent generally is that when a case arises, it
is unlikely that the description of risks to the client will be directly on point with
the situation that has occurred. If the scenario was identified, it is unlikely to
have been addressed in all the detail that actually occurs sufficient to have
warned the client that the exact situation that has occurred could happen and all
of the potential adverse consequences. Failing such an exhaustive and prescient
informed consent, the sufficiency of the informed consent will be open to
challenge. Aware of this inherent problem, it still pays to try to provide
sufficient disclosure of risks. The lawyer simply cannot assume that the
disclosure of risks and consent will always be found to be sufficient.
Because of this problem, there is a temptation to make the disclosure
emphatic and one-sided. This is a mistake. An informed consent document is a
trial exhibit for a malpractice trial or disciplinary hearing. It is not wise to draft a
description of risks that is so strong that no one in their right mind would
consent. Instead, the risks should be highlighted (boldface type or red ink), but
should be included in a discussion of the benefits of joint representation. This
clarifies the trade-offs and highlight’s the client’s choice to accept a risk in order
28
to secure a corresponding benefit, reducing the chances that a jury will conclude
that the lawyer “tricked” the client.
G. ETHICAL SCREENS (CHINESE WALLS)
What used to be called a “Chinese Wall” is now referred to as an “ethical
screen.” The ethical screen addresses a law firm problem, not a lawyer problem
or conflict of interest problem. Historically, disqualification of one lawyer in a
firm from representation mandated disqualification of the entire firm.
Ethical screens require isolation of a lawyer from any participation in a
specific matter where the attorney would be conflicted through timely
procedures sufficient to ensure that information is not improperly shared,
including making files and other materials unavailable to the screened lawyer.
One problem with ethical screens is that by the time the need for a screen is
evident, information has often been imparted during the conflict check process.
What is important to know is that screens are not a sufficient solution to to
a conflict of interest problem except where the client agrees to use the tool and
waive conflicts as a result. Its application under the rules is limited to situations
involving lawyers moving from one firm to another, and in many jurisdictions, it
is not even sufficient in that situation.
H. WITHDRAWING AS COUNSEL
An attorney-client relationship ends when the objective of the assignment
is completed or one of the parties terminates it. The end of the relationship is
important because the lawyer’s liability to the client for malpractice ceases at that
point. Liability for malpractice does not attach to events or consequences that
29
could still have been avoided at the time of termination. Where problems that
portend professional liability concerns arise, immediate termination of the
relationship may be the best course of action for the attorney. Indeed, once a
potential claim by the client is on the horizon, withdrawal is required because
every step the lawyer takes is subject to being challenged as a device to avoid
professional liability to the client (the lawyer’s interest) rather than zealous
representation (the client’s interest). Once a client asserts a claim, files a
professional complaint or starts talking about malpractice, it is both foolish and
improper to continue as counsel. The same is true if the attorney has committed
an error sufficient to create legitimate malpractice exposure, such as failing to file
suit within the limitations period. If the lawyer perceives a serious potential for
liability, even if the client has said nothing, a conflict is presented and
withdrawal appropriate.
If the case is in court, permission of the tribunal to withdraw is required.
Case law in recent years has made it clear that extended and repeated non-
payment of fees can justify withdrawal. Lawyers are expected to put up with a
certain amount of difficulty with clients, but a breakdown of the attorney-client
relationship it a sufficient basis for withdrawal. Where the client refuses to
consent to a settlement recommended by the lawyer, this can also justify
withdrawal. Washington v. Sherwin Real Estate, Inc., 694 F.2d 1081 (7th Cir. 1981).
The lawyer who withdraws still has certain obligations to the client: (1)
due notice of withdrawal; (2) reasonable time for the client to retain substitute
30
counsel; (3) delivering to the client all papers and property to which the client is
entitled; and (4) refunding any fee payment not already earned for work
performed.
I. RETAINER AGREEMENTS & ENGAGEMENT, NON-ENGAGEMENT, AND DISENGAGEMENT LETTERS
The retainer agreement (for employees’ counsel) and the engagement
letter (for management attorneys) is a vital tool for managing the attorney-client
relationship. The written description of the basis for the relationship clarifies
matters, prevents misunderstandings, and documents the terms of the
relationship, all at the time the attorney first undertakes representation. Some
subjects that should be covered are:
• Identification of who is and is not a client.
• Identification of the assignment or subject matter for which representation is undertaken, along with any limitations on the scope of representation (e.g., defense of counterclaims, appeals).
• Fee rates or contingent fee, terms of payment, adjustments to rates and who will pay the fees.
• Explanation of the impact of court-awarded fees on fee obligations, where applicable.
• Conflict waiver confirmation, including explanation of risks and benefits and client’s consent to representation despite conflict.
• Clarification of which information will be shared and which will not in multiple client representation.
• Description of any agreement among multiple employee clients concerning settlement decisions and allocation of proceeds, including disclosure that in the absence of a contrary agreement, each client must consent to settlement of his or her own claims and disclosure that in all instances, each must know what every other
31
client(s) will receive. This should also document the lawyer’s non-participation in the making of the agreement reached by the clients.
• Statement that material litigation decisions are made by the client and how decisions will be made in multiple client representation.
• Statement that attorney cannot guarantee results or outcomes.
• Clarification of the impact withdrawal of representation of one client will have on continued representation of other client(s), and which client the attorney will continue to represent if a conflict occurs.
• Mandated disclosures (in some states, for instance, legal malpractice insurance coverage information).
• Identification of the principal client contact attorney and of another attorney to contact with complaints if problems arise.
• Statement of client’s right to terminate at any time, and how fees will be handled in such circumstances.
• Circumstances, including those provided for by the rules, under which attorney may terminate the relationship. Consider permitting withdrawal if fees remain unpaid for some period of time or if the client provides or has provided the lawyer with inaccurate information.
• Discussion of attorney-client privilege, of how it should be maintained and how it can be lost. For employee’s counsel, a caution about accessing e-mail from work, including from personal e-mail accounts.
• Discussion of the need for client cooperation and input into decisions.
• Request for client’s signature on a copy of the agreement, and either an invitation to discuss any and all provisions or a description (with some specifics) of the discussion that has already occurred.
The retainer agreement or engagement letter is a critical element of risk
management for lawyers. Having the details of the relationship documented at a
32
time when the client is seeking representation is not only a useful risk
management tool. Other professionals have long used such agreements to spell
out clearly the scope of work and terms of payment. It is simply good business
and good client relations.
A “non-engagement” letter, which can be a one-paragraph form, should
be sent to anyone who might believe or later contend that s/he is a client of the
lawyer when that is not the case. This includes not only corporate employees, in
appropriate cases, but also individuals who have been interviewed by an
employee attorney where representation has been declined.
Finally, a disengagement letter documents that the subject matter of the
representation has been concluded as of a stated date, and that nothing more is
required of the attorney. This puts to rest any claims of continuing obligations of
the attorney after the completion of the matter for which representation was
provided.