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Colorado Legal Ethics
1.7:100 Comparative Analysis of Colorado Rule
Colo.RPC 1.7 is identical to the Model Rule, with the exception that the Colorado Rule adds a paragraph (c), which states: "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." This language is drawn from Comment  to MR 1.7.
The Comment to Colo.RPC 1.7 varies in three respects from the Comment to the Model Rule. First, Colorado Comment  omits language in Model Rule Comment  that a lawyer "should adopt reasonable procedures, appropriate for the size and type of firm and practice, to determine in both litigation and non-litigation matters the parties and issues involved and to determine whether there are actual or potential conflicts of interest." Second, Colorado Comment  expands the first sentence of Model Rule Comment  to emphasize that a consultation leading to a client's consent to a conflict must "involve[ ] full disclosure of the possible effect of such dual representation on the exercise of the lawyer's independent professional judgment on behalf of each client." Third, the second sentence of Colorado Comment  omits references in Model Rule Comment  to specific subsections of MR 1.7.
There is no direct counterpart in the Model Code to the provisions in paragraph (a) regarding representation of a client who is directly adverse to another client. DR 5-105(A) provided that 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. . ."
Colo.RPC 1.7(b), which generally addresses conflicts other than those arising out of a lawyer's representation of a client who is directly adverse to another client, incorporates several provisions of the Model Code. DR 5-105(A) provided that "[e]xcept with the consent of his client after full disclosure, a lawyer shall not accept employment if the exercise of his professional judgment on behalf of the client will be or reasonably may be affected by his own financial, business, property, or personal interests." EC 5-1 stated: "The professional judgment of a lawyer should be exercised, within the bounds of the law, solely for the benefit of his client and free of compromising influences and loyalties. Neither his personal interests, the interests of other clients, nor the desires of third persons should be permitted to dilute his loyalty to his client." DR 5-105(A), quoted above, probably also applied to certain situations now governed by Colo.RPC 1.7(b). DR 5-101(B) and DR 5-102, EC 5-9, and EC 5-10 addressed potential conflicts where the lawyer or another lawyer in the lawyer's firm might be called as a witness. DR 5-104(A) discussed conflicts arising out of a lawyer's entry into a business transaction with a client. EC 5-2, EC 5-3, and EC 5-11 further discussed the potential for a lawyer's self-interest to interfere with the lawyer's representation of the client. DR 5-105(C) permitted a lawyer to represent multiple clients "if it is obvious that he can adequately represent the interest of each and if each consents to the representation after full disclosure of the possible effect of such representation on the exercise of his independent professional judgment on behalf of each." DR 5-105(B), EC 5-14, EC 5-15, EC 5-16, EC 5-17, and EC 5-19 also addressed conflicts in the context of representation of multiple clients. DR 5-107(B) stated that a lawyer "shall not permit a person who recommends, employs, or pays him to render legal services for another to direct or regulate his professional judgment in rendering such services." EC 5-21, EC 5-22, and EC 5-23 related to potential conflicts of interest caused by the interests of third parties.
1.7:200 Conflicts of Interest in General
See generally Krob, "A Practical Approach to Conflicts of Interest," 26 Colo. Law. 87 (Sept. 1997).
Colo.RPC 1.7 is the general conflict of interest rule involving current clients. Colo.RPC 1.7(a) prohibits a lawyer from representing a client who is directly adverse to another client, unless two conditions are met. First, the lawyer must reasonably believe that the representation will not adversely affect the lawyer's relationship with either client. If so, then, second, each client must consent to the conflict after consultation. Colo.RPC 1.7(a) applies even if the matter in which the lawyer is representing Client A, who is directly adverse to Client B, is completely unrelated to the matter in which the lawyer represents Client B.
Colo.RPC 1.7(b) is the umbrella rule addressing conflicts, involving current clients, other than those in which one client is directly adverse to another client. The rule bars representation if the representation may be materially limited by the lawyer's own interests or the interests of another client or a third-party, again unless two conditions are satisfied. First, the lawyer must reasonably believe that the representation will not, in fact, be adversely affected. If so, then, second, the client to be represented must consent after consultation.
The primary purpose underlying Colo.RPC 1.7 is to ensure that the lawyer does not compromise the duty of loyalty, which is an essential element in the lawyer's relationship to a client." Colo.RPC 1.7 Comm. "To provide effective legal assistance, an attorney is obligated to maintain a paramount duty of loyalty to the client." People ex rel. Peters v. District Court, 951 P.2d 926, 930 (Colo. 1998). Subsection (a) of the Rule presumes that loyalty is impaired when a lawyer represents one client who is directly adverse to another client, without the clients' consent. Colo.RPC 1.7 Comm. Subsection (b) recognizes that "[l]oyalty to a client is also 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." Colo.RPC 1.7 Comm.; see also Allen v. District Court, 184 Colo. 202, 519 P.2d 351, 353 (1974) (applying conflict provision under Code: "It is of the utmost importance that an attorney's loyalty to his client not be diminished, fettered, or threatened in any manner by his loyalty to another client.").
Although Colo.RPC 1.7(a) and (b) address different circumstances, they set forth a similar conflict analysis. Under both subsections, the lawyer must first determine whether the conflict exists. If the lawyer will be representing a client who is directly adverse to another client, then there is a conflict under Colo.RPC 1.7(a); if the representation of a client may be materially limited by the lawyer's personal interests or obligations to third-parties or other clients, then there is a conflict under Rule 1.7(b). Each subsection then sets forth a standard that must be met before a lawyer may seek client consent to the conflict. Under subsection (a), the lawyer must reasonably believe that the representation will not adversely affect the relationship with either client; under subsection (b), the lawyer must reasonably believe that the representation will not be adversely affected. As used in Colo.RPC 1.7, "reasonably believe" requires just that ø a reasonable belief ø and not simply "a subjective belief that the representation [or relationship] will not be adversely affected." People v. Mason, 938 P.2d 133, 136 (Colo. 1997). Both rules then require client consent (if the conflict is waivable).
á Subsection (a) applies only if the lawyer's client will be "directly adverse" to another client, while subsection (b) applies in more circumstances, i.e., whenever the interests of the lawyer, another client, or a third-party might "materially limit" the lawyer's representation of a client.
á The lawyer may not seek consent to a conflict under subsection (a) unless the lawyer reasonably believes that the conflict will not adversely affect "the relationship" with either client, while the inquiry under subsection (b) is whether the conflict will adversely affect "the representation" of a client.
á If there is a conflict under subsection (a) the lawyer must seek the consent of both the client to be represented in the new matter and the existing client to whom the first client is adverse. Subsection (b) requires only the consent of the client whose representation could be materially limited by the lawyer's own interests or responsibilities to other clients or third-parties.
No Colorado decisions have discussed the meaning of "direct adversity" as those words are used in Colo.RPC 1.7(a). However, the Comment explains that "simultaneous representation in unrelated matters of clients whose interests are only generally adverse, such as competing economic enterprises," does not rise to the level of "direct adversity," does not establish a conflict under subsection (a), and does not require client consent. Colo.RPC 1.7 Comm. (In that situation, the lawyer would need to separately analyze whether the simultaneous representation of direct competitors in unrelated matters yields a conflict under Colo.RPC 1.7(b).) For the meaning of "materially limited" as that phrase is used in Colo.RPC 1.7(b), see Section 1.7:220.
CBA Formal Op. 58, Water Rights, Representation of Multiple Clients (March 21, 1981, revised Oct. 14, 1995) comprehensively addresses conflicts of interest in the context of representation of multiple clients in litigation concerning water rights from the same river system. The opinion concludes that the mere fact that multiple clients are claiming water rights in the same river system does not establish a conflict under either Colo.RPC 1.7(a) or (b). Rather, a conflict arises only where there is a "potential for real harm to another client, based on a realistic assessment of actual and likely future administration and factual conditions on the river." Id. Whether that "potential for real harm" exists depends, in turn, on "whether the water supply available under a decreed priority to one client will be [or is likely to be] impaired as a result of the endeavor of another client." Id. The opinion emphasizes the fact-intensive nature of these inquiries.
No Colorado decisions have addressed when a Colo.RPC 1.7(a) conflict "adversely affect[s] the relationship with the other client." For a discussion of when a Colo.RPC 1.7(b) conflict "adversely affect[s]" the representation of a client, see Section 1.7:220.
Colo.RPC 1.7 addresses potential as well as existing conflicts. The lawyer must evaluate the likelihood of a conflict developing in the future, as well as whether a conflict currently exists, when the lawyer takes on the representation. If there is a reasonable likelihood of a future conflict, the lawyer should determine whether the conflict is consentable and, if it is, should obtain the required consent. See Allen v. District Court, 184 Colo. 202, 519 P.2d 351, 353 (1974) (under the Code, Ò[i]f, from the facts presented at the hearing, it appears that a substantial conflict of interest exists, or will in all probability arise in the course of counsel's representation, the motion to withdraw should be granted.Ó) (emphasis added); CBA Formal Op. 47, Attorney Representation in Dissolution of Marriage (Feb. 26, 1972) (recognizing existence of conflict under predecessor to Colo.RPC 1.7(a) where "conflicting interests are involved or are potentially involved") (emphasis added).
Colo.RPC 1.7(b) recognizes that a lawyer's representation of a client may be adversely affected by (1) the lawyer's own interests, (2) the interests of another client, or (3) the interests of a third-party.
The Lawyer's Interests
"[A] lawyer's need for income should not lead the lawyer to undertake matters that cannot be handled competently and at a reasonable fee." Colo.RPC 1.7 Comm.
A lawyer's personal interests also may conflict with the representation of a client "[i]f the probity of a lawyer's own conduct in a transaction is in serious question." Colo.RPC 1.7 Comm.
"A lawyer may not allow related business interests to affect representation, for example, by referring clients to an enterprise in which the lawyer has an undisclosed interest." Colo.RPC 1.7 Comm. See also Section 1.8:220; People v. Mulvihill, 814 P.2d 805, 806-07 (Colo. 1991) (conflict existed under Code where attorney entered into consulting arrangement with law firm without disclosure to insurance company client, and attorney continued to refer client's cases to law firm for compensation for almost five years); People v. Robertson, 908 P.2d 96, 99 (Colo. 1995) (where lawyer borrowed money from client, lawyer's interest in business relationship created conflict under Colo.RPC 1.7(b)); People v. Silver, 924 P.2d 159, 162 (Colo. 1996) (lawyer had Colo.RPC 1.7(b) conflict where he was president of and lawyer for company organized by his wife and brother-in-law, which loaned funds to lawyer's clients); CBA Abstract Op. 96.96-13 (referral arrangement between "participating" attorneys and investment advisors "would create impermissible conflict" under Rule 1.7); CBA Abstract Op. 96.97-10 (lawyer recommended by broker for sale of dental practices, whose fees are guaranteed by the broker, "must carefully consult with the client and should analyze whether the proposed guaranty of fees and costs might adversely impact on the relationship with the client or on the attorney's independence and professional judgment" in violation of rule 1.7(b)).
In People v. O'Donnell, 955 P.2d 53 (Colo. 1998), the Colorado Supreme Court held that an attorney had a conflict of interest under the Code where his fee was tied in part to the size of the loans that he arranged for his clients, and he encouraged them to take out larger loans than they needed. "Because the respondent was to receive a percentage of the gross proceeds, his own financial interest could have affected his professional judgment." Id. at 55.
Similarly, in People v. Stevens, 883 P.2d 21, 22-23 (Colo. 1994), the Colorado Supreme Court accepted the parties' stipulation that the attorney's self-interest created a conflict under DR 5-101(A), the predecessor to Colo.RPC 1.7(b). There, the attorney advised the client regarding his ability to use certain contributions from his compensation plan, knowing that a portion of those funds would be used to pay the attorney her fee and to pay the attorney's employer its fees.
In People in Interest of J.A.M., 907 P.2d 725 (Colo. App. 1995), the Colorado Court of Appeals held that the guardian ad litem (the "GAL") for a minor child had a conflict under Colo.RPC 1.7(b) because she had entered into a contract of employment with the Department of Social Services shortly before a hearing during which the GAL joined in the Department's recommendation of termination of the mother's parental rights. Although the GAL stated that she had arrived at her recommendation on her own, "the independent judgment of the GAL could have been compromised by her employment with the Department." Id. at 726.
An attorney stipulated to having a conflict of interest under the Code when she represented a debtor corporation in a bankruptcy proceeding at the same time that she was representing the chief executive officer of the debtor corporation's parent company through an employment arrangement that she had with a Florida law firm that was a major creditor of her debtor client. People v. Farry, 909 P.2d 1096, 1097 (Colo. 1996).
In People v. Mason, 938 P.2d 133, 136-37 (Colo. 1997), the Colorado Supreme Court rejected the lawyer's argument that there was no Colo.RPC 1.7(b) conflict as a result of his acceptance of his client's cabin to satisfy unpaid attorneys' fees, where the cabin was the subject of the lawyer's then-current representation of the client: "the point is that the respondent's wish to keep the cabin for himself interfered with his duty to explain the possible strategies that [the client] could pursue." Id.; see also People v. Sigley, 917 P.2d 1253, 1255 (Colo. 1996) (lawyer representing client in a bankruptcy matter had personal conflict when he required the client to sign an agreement reaffirming the client's fee obligations, in order to avoid discharging the debt in bankruptcy, without advising the client of the conflict or that he should consult with independent counsel); People v. Hickox, 889 P.2d 47, 48-49 (Colo. 1995) (attorney had conflict under Code when he held a sheriff's sale of property seized on behalf of client, then had his fiancee purchase the property at less than its worth, with no notice to his client of his fiancee's involvement) (per curiam); People v. Schindelar, 845 P.2d 1146, 1148-49 (Colo. 1995) (multiple loans to lawyer by elderly client resulted in conflict under Code); People v. Razatos, 636 P.2d 666, 668, 670 (Colo. 1981) (lawyer who agreed with client's creditor that lawyer could keep portion of client's payments under promissory note that lawyer prepared had improper financial interest in transaction); id., 636 P.2d at 670 (where lawyer's failure to clearly document client's obligations in drafting of promissory notes was intended to confuse client and hide respondent's profit interest in the transaction, conduct established conflict between lawyer's and client's interest).
A lawyer who engages in sexual relations with a client will, with rare exceptions, violate Colo.RPC 1.7(b), because the sexual relationship creates a conflict between the interests of the client and the lawyer. See, e.g., People v. Barr, 929 P.2d 1325, 1326 (Colo. 1996). In People v. Zeilinger, 814 P.2d 808 (Colo. 1991), which applied the Code, the Colorado Supreme Court explained why an attorney always will have a conflict if he or she becomes sexually involved with a client in a family law matter: "Aside from the consequences on the respondent's own life and professional practice, engaging in a sexual relationship with a client undergoing a divorce may destroy chances of a reconciliation, and blind the attorney to the proper exercise of independent judgment. There is also a significant danger that when the division of property or the custody of minor children is contested, the attorney may himself become the focus of the dissolution or custody proceedings, be called as a witness, and thereby inflict great harm on the client." Id. at 810; see also People v. Boyer, 934 P.2d 1361, 1362-63 (Colo. 1997) (attorney's sexual relationships with clients deemed a conflict under DR 5-101(A): Òdespite clients' consent to intercourse, we have clearly held in the past and here reaffirm that a sexual relationship between lawyer and client during the course of the professional relationship is inherently and insidiously harmful.Ó); cf., People v. Bauder, 941 P.2d 282, 283 (Colo. 1997) (lawyer's solicitation of prostitution during telephone conversation with wife of client whom lawyer was representing in dissolution proceeding violated Colo.RPC 1.7(b)).
The Interests Of Another Client
A conflict exists where a lawyer will need to cross-examine a current or former client as an adverse witness in the course of representing a client. See, e.g., People v. Odom, 914 P.2d 342, 344 (Colo. 1996) (lawyer violated Colo.RPC 1.7(b) when he represented wife of client on charge of shooting husband-client, and lawyer would need to cross-examine husband-client, who was prosecution witness) (per curiam); see also Rodriguez v. District Court, 719 P.2d 699, 704 (Colo. 1986) (applying DR 4-101 and EC 4-6, "an inherent conflict arose" where public defender's former client became prosecution witness in case in which public defender was representing defendant, but public defender "might well be restricted in any examination of [former client] because of the duty to maintain the confidentiality of information received by [public defender]").
In CBA Formal Op. 46, Municipal Attorney Representation of Defendants (Feb. 2, 1971, revised May 18, 1996), the CBA Ethics Committee considered the ethical propriety of a lawyer's defense of clients in municipal court and in other litigation that might affect the interests of the municipality, when that lawyer also is employed as a municipal attorney or on retainer to represent the municipality. The Committee concluded that Colo.RPC 1.7(b), in conjunction with Colo.RPC 8.4(e) (which defines as professional misconduct a lawyer's statement or implication of an ability to influence improperly a judge or government official), precludes the municipal attorney from representing a criminal defendant who is being prosecuted in the municipal court. Rule 1.7(b) would be violated because "the lawyer will be materially limited by the obligations and responsibilities he or she owes to the municipality." Although the Committee also concluded that the interests of the government would be "antagonistic to the client's interests," it apparently did not consider the conflict under Colo.RPC 1.7(a), which precludes representation, absent consent, of one client who is directly adverse to another client. Moreover, the Committee did not indicate whether the Rule 1.7(b) conflict might be waivable; its silence on this issue, coupled with the express recognition that the remaining conflicts discussed in the opinion (summarized in the next sentence of this outline) may be consentable, suggests that the Committee viewed a municipal lawyer's conflict in representation of a criminal defendant in a municipal court prosecution not to be waivable. The Committee went on to opine that, with effective client consent, a lawyer for a municipality (a) may represent a criminal defendant in a non-municipal court case in which a municipal employee will appear as a prosecution witness, and (b) "in exceptional circumstances," may represent a party in litigation even if that representation may require the lawyer to take a position that could adversely affect the validity of a municipal law or ordinance.
CBA Formal Op. 48, Representation of Public Body, Conflict of Interest (June 3, 1972, revised May 18, 1997), considered whether an attorney representing a governmental entity could represent other clients before the governmental client or some other agency of the governmental client. The opinion addressed the specific fact-patterns of a lawyer for a special district who represents a district employee in a workerÕs compensation claim, and a county attorney who represents (a) an applicant for a liquor license, (b) a subdivider presenting a subdivision plat or in other matters before the board of county commissioners, or (c) a property owner through whose land the county wishes to acquire a road easement. After concluding that any of these representations would violate Colo.RPC 1.7(a) because the lawyer's client would be adverse to his or her governmental client, the Committee opined that the lawyer also would violate Colo.RPC 1.7(b): "[T]he lawyer will be materially limited by the obligations and responsibilities he or she owes to the governmental body."
In People v. Miller, 913 P.2d 23 (Colo. 1996), the Colorado Supreme Court accepted the parties' stipulation regarding, inter alia, multiple conflicts under the Code, including the arranging of loans between clients without disclosing the clients' differing interests. See also People v. Hansen, 814 P.2d 816 (Colo. 1991) (attorney violated Code by making multiple loans from funds in clients' estates to another client, despite clients' differing interests in those loans); People v. Cole, 760 P.2d 1108, 1110 (Colo. 1988) (attorney violated Code when he advised one client to invest in corporate client controlled by another individual client); CBA Abstract Op. 97.98-4 (in-house counsel for association may also defend individual association members in claims brought by third-parties, but "must consider, on a case-by-case basis, whether representation of the individual member gives rise to any conflict with the general duty of loyalty to the association," as well as "the potential conflicts arising out of representation of multiple individual members").
See CBA Formal Op. 58, Water Rights, Representation of Multiple Clients (March 21, 1981, revised Oct. 14, 1995), summarized in Section 1.7:210, regarding the impact of other water clients' interests on the representation of water rights claimants.
The Interests Of Third Parties
Colo.RPC 1.7(b) precludes an attorney from using the attorney-client relationship to benefit third parties, including family members and friends. In People v. DeRose, 945 P.2d 412, 414 (Colo. 1997), the Colorado Supreme Court held that the lawyer had a conflict when he invested his client's funds for the benefit of his friends and relatives, including through a loan to his daughter and the purchase of his son-in-law's parent's home. See also In re Tolley, 975 P.2d 1115, 1117 (Colo. 1999); CBA Formal Op. 87, Collaboration with Non-Lawyers in Preparation and Marketing of Estate Planning Documents (July 14, 1990, revised Dec. 14, 1991, addendum 1995) (noting the potential for a conflict where a lawyer's independent professional judgment could be affected by his or her collaboration with non-lawyers in the preparation and marketing of estate planning documents.)
Office-sharing arrangements may create conflicts under Colo.RPC 1.7(b), at least where the office-sharing attorneys' financial arrangements "can create a potential leverage to be used by one lawyer against the other." CBA Formal Op. 89, Office Sharing - Conflicts, Confidentiality, Letterheads and Names (Sept. 21, 1991). In that situation, or when the lawyers' personal relationships as a result of their office-sharing arrangement might materially interfere with one or both lawyers' representation of their respective clients, the attorneys should not proceed without the effective consent of both clients. For a discussion of imputation of conflicts due to office-sharing, see Section 1.10:103.
Colo.RPC 3.7(b), the imputation provision of the "lawyer as witness" rule, permits a lawyer to serve as an advocate at trial for a client even though 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." One situation contemplated by Rule 3.7(b) is that the lawyer-witness' testimony will be at odds with that of the client or other witnesses, or otherwise inconsistent with the client's theory of the case, and that the lawyer at trial will have to cross-examine and challenge the credibility of his or her colleague. See Colo.RPC 3.7 Comm. In that circumstance, the lawyer representing the client likely would have a conflict under Rule 1.7(b), based on the lawyer's interest in protecting his or her colleague from such an attack on his or her credibility. See generally CBA Formal Op. 78, Disqualification of the Advocate Witness (June 18, 1988, revised June 18, 1994 and May 10, 1997) (discussing intersection of Colo.RPC 3.7(b) and 1.7).
For a discussion of conflicts that arise when a lawyer's spouse or other relative represents a party who is adverse to the lawyer's client, see Section 1.8:1000.
The Colorado Rules, like the Model Rules, eliminated the "appearance of impropriety" standard of misconduct that appeared in the Code as Canon 9. See Gates Rubber Co. v. Bando Chemical Industries, Ltd., 835 F. Supp. 330, 336 (D. Colo. 1994) ("the appearance of impropriety . . . is an insufficient basis on which to rest disqualification"). Nevertheless, in at least one decision the Colorado Court of Appeals apparently has continued to consider the appearance of impropriety in its evaluation of conflicts. Thus, in People in Interest of J.A.M., 907 P.2d 725 (Colo. App. 1995), after the Court of Appeals held that the representation by a guardian ad litem ("GAL") of a minor at the same time that the GAL had accepted permanent employment with the Department of Social Services violated Colo.RPC 1.7(b), the court went on to state: "Furthermore, the conflict of loyalties inherent in the GAL's dual roles as a representative of the child's best interests and as an employee of the Department necessarily casts doubt on the fairness and impartiality of the legal system in the public eye." Id. at 726.
Generally speaking, only a current or former client has standing to assert a conflict of interest. Abbott v. Kidder Peabody & Co., 42 F. Supp. 2d 1046, 1049 (D. Colo. 1999). However, "[w]here the conflict is such as clearly to call in question the fair or efficient administration of justice, opposing counsel may properly raise the question. Such an objection should be viewed with caution, however, for it can be misused as a technique of harassment." Colo.RPC 1.7 Comm. Federal "case law gives an opposing party standing to challenge where the interests of the public are so greatly implicated that an apparent conflict of interest may tend to undermine the validity of the proceedings." Abbott v. Kidder Peabody & Co., 42 F. Supp. 2d 1046, 1050 (D. Colo. 1999) (citations omitted). In addition, courts may raise conflict issues in civil litigation "when there is reason to infer that the lawyer has neglected the responsibility." Colo.RPC 1.7 Comm. Courts have an affirmative duty to address potential conflicts arising out of multiple representation in criminal matters. Id.; see also Section 1.7:320.
However, there are exceptions to the general rule on standing. First, the trial court in a criminal matter has an affirmative duty to raise a perceived conflict of interest that could interfere with the defendant's constitutional right to effective assistance of counsel. See Section 1.7:320. Moreover, where a party is not competent to assert a conflict, the Colorado courts have considered motions to disqualify filed by other parties with an interest in the proceeding. See, e.g., People in Interest of J.A.M., 907 P.2d 725 (Colo. App. 1995) (without discussion of standing, granting mother's motion to disqualify four-year-old child's GAL, where mother's parental rights were at issue). In addition, relying on "the supervisory power of the trial court," in Gates Rubber Co. v. Bando Chemical Industries, Ltd., 835 F. Supp. 330, 334 (D. Colo. 1994), the federal district court opted to resolve a motion to disqualify filed by plaintiffs based on one of the defense counsel's former representation of another group of defendants, even though those former clients had consented to the representation.
Certain conflicts are not consentable. Under Colo.RPC 1.7(a), if the lawyer reasonably believes that representing a client who is adverse to another client will harm the relationship with either client, then the lawyer should not even seek the clients' consent to the conflict. Similarly, if the lawyer reasonably believes that a Colo.RPC 1.7(b) conflict will materially limit the representation of a client, then the lawyer should not seek the client's consent to that conflict. See Matter of King Resources Co., 20 B.R. 191, 204 (Bankr. D. Colo. 1982) (despite purported consents, attorney could not ethically represent multiple parties under Code: "There are certain factual situations where the conflicts of interests between parties are so critically adverse to one another so as not to permit the representation of multiple parties by an attorney, even with the consent of all parties made after full disclosure."); In re Quiat, 979 P.2d 1029, 1041-42 (Colo. 1999) (under Code, conflict was not consentable because "it was not obvious that Quiat could represent [multiple clients]"); People v. McDowell, 718 P.2d 541, 545 n.2 (Colo. 1986) (clients' consent to lawyer's representation of both buyer and seller in purchase and sale of company was ineffective where, "their consent was based on the respondent's assurances that he would protect their respective interests," but he failed to advise them "of the potential problems associated with multiple representation and the actual problems that quickly surfaced after the respondent undertook multiple representation . . .").
The consent provisions cannot be construed as having universal application. ÒIt cannot be employed to permit an attorney to represent both the plaintiff and the defendant in an adversary proceeding, nor can it be employed to permit an attorney to represent a fiduciary when the consent of the fiduciary to the conflicting interest of the attorney would constitute a breach of the fiduciary's duty." CBA Formal Op. 23, Representation of Guardian for Minor in Personal Injury Settlement (July 20, 1962, addendum 1995). In CBA Formal Op. 68, Conflicts of Interest: Propriety of Multiple Representation (April 20, 1985), the Committee recognized that a vulnerable spouse might not have "the emotional maturity and independence" to provide an objectively informed consent to a lawyer's representation of both spouses in a dissolution proceeding. Moreover, where the lawyer has previously represented one of the spouses, that fact must be part of the disclosures made during the consultation required by the conflicts rules.
The Colorado Rules' Terminology Section defines "consultation," required before a client may consent to a conflict, as "communication of information reasonably sufficient to permit the client to appreciate the significance of the matter in question." Where the conflict arises from the representation of multiple clients in a single matter, Colo.RPC 1.7(b)(2) requires the consultation to include "an explanation of the implications of the common representation and the advantages and risks involved." The Comment to Colo.RPC 1.7 recognizes that "there may be circumstances where it is impossible to make the disclosure necessary to obtain consent," for example, where one client will not consent to the disclosure or where it would not be in the client's best interests to consent to such a disclosure.
Colo.RPC 1.7(c) sets forth a "disinterested lawyer" standard for determining the effectiveness of a client's consent. The consent will be deemed invalid "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." See CBA Formal Op. 46, Municipal Attorney, Representation of Defendants (Feb. 20, 1971, revised May 18, 1996) (recognizing the difficulty of satisfying the "disinterested lawyer" standard for consent where a municipal lawyer wishes to take a position in representing another client that could adversely affect the validity of a municipal ordinance). In questionable cases, it will be prudent for the lawyer to require the client to obtain an independent lawyer's advice on the advisability of consenting to a conflict. See, e.g., Gates Rubber Co. v. Bando Chemical Industries, Ltd., 835 F. Supp. 330, 335-36 (D. Colo. 1994) (finding consent pursuant to advice of independent conflict-counsel to have been effective).
For a discussion of non-consentable conflicts in the context of insurance defense work, see CBA Formal Op. 91, Ethical Duties of Attorney Selected by Insurer to Represent Its Insured (Jan. 16, 1993), and Section 1.7:410.
1.7:250 Imputation of Conflict of Interest to Affiliated Lawyers [see 1.10:200]
There are three remedies or sanctions for violations of conflict of interest rules: (1) disqualification of individual attorneys or the firm as a whole; (2) disciplinary sanctions; and (3) civil remedies, including malpractice suits and forfeiture of fees.
Colorado state and federal courts take a hard look at motions to disqualify based on claimed conflicts of interest. A motion for disqualification must not be based on speculation or conjecture. See Kline Hotel Partners v. AIRCOA Equity Interests, Inc., 708 F. Supp. 1193, 1194 (D. Colo. 1989); People ex rel. Woodward v. District Court, 704 P.2d 851, 853 (Colo. 1985).
In a civil case, the burden of establishing the grounds for disqualification is on the moving party. Kline Hotel Partners v. AIRCOA Equity Interests, Inc., 708 F. Supp. 1193, 1194 (D. Colo. 1989); People ex rel. Woodward v. District Court, 704 P.2d 851, 853 (Colo. 1985). See Section 1.7:320 for the burdens of proof in resolving potential conflicts in criminal proceedings.
The disciplinary sanctions for conflicts of interest have ranged from private censure to disbarment. The appropriate discipline typically will depend on the number of independent rules violations involved, and the presence of aggravating and mitigating factors, in addition to the nature of the conflict itself.
Private censure is generally appropriate where a lawyer has engaged in "an isolated instance of negligence," People v. Sather, 936 P.2d 576, 579 (Colo. 1997). Thus, where an attorney has negligently accepted work that resulted in a conflict of interest, but has not caused harm or potential harm to clients, a private censure might be warranted. Compare: People v. Butler, 875 P.2d 219, 221 (1994) (referencing respondent's past discipline, including private censure for violating conflicts rules).
For conflicts resulting in public censure, see, e.g., People v. Stevens, 883 P.2d 21, 23-24 (Colo. 1994) (simultaneous representation of (a) individual and partnerships with actual or potential conflicting interests, and (b) wife of the individual and children with conflicting interests; court emphasized that conflicts arose due to negligent errors in judgment by respondent contract attorney, who performed legal work at behest of much more experienced attorney); People v. Gebauer, 821 P.2d 782, 784-85 (Colo. 1991) (representation of two estates after conflicts developed among and between the beneficiaries of the two estates) (per curiam); People v. Mulvihill, 814 P.2d 805, 807-08 (Colo. 1991) (rejecting recommendation of private censure and imposing public censure on attorney who secretly entered into consulting arrangement with law firm in exchange for referrals of cases for his insurance company client: "The potential conflict here is so obvious that it is impossible to believe that any attorney would not recognize it.") (per curiam).
For conflicts resulting in suspension, see, e.g., People v. Silver, 924 P.2d 159, 162-63 (Colo. 1996) (conflict resulting from concurrent representation of individual clients and lender to them, and from lawyer's position as president of lender, resulting in suspension of one year and one day); People v. Sigley, 917 P.2d 1253, 1255-56 (Colo. 1996) (attorney's requirement of reaffirmation agreement regarding attorneys' fees owed by client created conflict in attorney's representation of client in bankruptcy proceeding, resulting in thirty-day suspension); People v. Lopez, 796 P.2d 957, 960-61 (Colo. 1990) (representation of client when there was an obvious conflict of interest with client's business interest (as well as dishonest conduct), resulting in six-month suspension); People v. McDowell, 718 P.2d 541 (Colo. 1986) (simultaneous representation of buyer and seller in purchase and sale of a corporate business, without advising the clients of the potential problems inherent in such multiple representation, and of the actual problems that surfaced after the attorney undertook the representation, resulting in six-month suspension); People v. Underhill, 683 P.2d 349, 352-53 (Colo. 1984) (attorney's multiple violations of Code, including improper representation of buyers and sellers in sale of businesses and improper entry into business transactions with clients, resulting in suspension for one year and one day).
The Colorado Supreme Court has endorsed the ABA Standards for Imposing Lawyer Sanctions, including a provision that "in the absence of mitigating circumstances, disbarment is appropriate when, without the client's informed consent, the lawyer either 'engages in representation of a client knowing that the lawyer's interests are adverse to the client's with the intent to benefit the lawyer or another, and causes serious or potentially serious injury to the client,' or 'simultaneously represents clients that the lawyer knows have adverse interests with the intent to benefit the lawyer or another, and causes serious or potentially serious injury to a client.'" People v. Miller, 913 P.2d 23, 27 (Colo. 1996) (quoting ABA Model Standard 4.31). For cases in which attorneys have been disbarred ø generally based on egregious, self-serving conflicts in combination with other serious ethical violations ø see, e.g., People v. Vigil, 929 P.2d 1311, 1315 (Colo. 1996); People v. Bowman, 894 P.2d 761 (Colo. 1995).
In Matter of King Resources, 20 B.R. 191, 204 (Bankr. D. Colo. 1982), decided under the Code, the bankruptcy court denied an attorney recovery of any fees for his conflict-tainted work.
Of course, malpractice cases often are in the context of an alleged conflict of interest. See generally Section 1.1:300; Colorado AttorneyÕs Professional Liability Handbook, Chp. 10 (1999); sections 1.1:300, et seq.
Positional or issue conflicts may arise where a lawyer takes opposite positions on a particular issue on behalf of different clients in different matters. Depending on the issue and court or courts involved, an issue conflict may rise to the level of a conflict under Colo.RPC 1.7(b): "A lawyer may represent parties having antagonistic positions on a legal question that has arisen in different cases, unless representation of either client would be adversely affected." Colo.RPC 1.7 Comm. The Comment suggests that "it is ordinarily not improper to assert such positions in cases pending in different trial courts, but it may be improper to do so in cases pending at the same time in the appellate court." There are no Colorado decisions on the subject of positional conflicts.
Colo.RPC 1.8 identifies specific and recurrent conflict situations and sets forth specific requirements and prohibitions with respect to those situations. See Sections 1.8:200-1100. In addition to satisfying Rule 1.8, the conflict must be analyzed under Colo.RPC 1.7(b). See, e.g., Colo.RPC 1.8 Comm. (third-party payments for representation of client, addressed in Colo.RPC 1.8(f), "must also conform to the requirements of . . . Rule 1.7 concerning conflicts of interest"); id. (related and cohabiting lawyers are subject to both Colo.RPC 1.8(i) and Rule 1.7).
Colo.RPC 1.10(a) provides that conflicts under Rule 1.7 are imputed to all lawyers who are associated in a firm. Colo.RPC 1.10(c) permits a client to waive a disqualification under Rule 1.10 "under the conditions stated in Rule 1.7."
The Comment to Colo.RPC 1.11, which covers conflicts arising out of successive government and private employment, makes clear that a lawyer representing a government agency is subject to Rule 1.7 as well as to the more specific conflict rule.
Colo.RPC 1.13(e) provides that a lawyer who represents an organization also may represent the organizational client's directors, officers, members, shareholders, or other constituents, but only "subject to the provisions of Rule 1.7." If a conflict exists and Rule 1.7 requires client consent to the multiple representation, Colo.RPC 1.13(e) further states that "the consent shall be given by an appropriate official of the organization other than the individual who is to be represented, or by the shareholders."
Colo.RPC 1.16(a)(1) requires a lawyer to decline to represent a client or, where the representation has begun, to withdraw from representing the client, if the representation will result in a violation of any of the Colorado Rules or other law, including Colo.RPC 1.7.
Colo.RPC 1.17 permits the sale of a law practice under limited circumstances and subject to, according to the Comment, compliance with all applicable ethical rules, including the obligation under Rule 1.7 to avoid disqualifying conflicts and to secure client consent after consultation to waivable conflicts. The Comment discusses how the purchasing attorney or firm should address conflict screening on a practical level.
Colo.RPC 3.7, the lawyer-witness rule, generally limits disqualification to the individual attorney who will be a witness at trial, and does not impute that disqualification to all other attorneys associated in a firm with the lawyer-witness. However, Rule 3.7(b) states: "A lawyer shall not act as advocate in a trial in which another lawyer in the lawyer's firm is likely to be called as a witness unless the requirements of Rule 1.7 or Rule 1.9 have been met." In other words, if the testimony of the lawyer-witness will create a conflict under Colo.RPC 1.7, then the disqualification is imputed, and no lawyer in a firm with the testifying lawyer should act as an advocate at trial for the client. The Comment to Colo.RPC 3.7 explains, as an example, that "if there is likely to be substantial conflict between the testimony of the client and that of the lawyer or member of the lawyer's firm, the representation is improper" under Rule 1.7 and, therefore, the conflict is imputed to the entire firm under Rule 1.10.
Colo.RPC 6.3 and 6.4 address potential conflicts arising from, respectively, attorney membership in legal services organizations and participation in law reform activities. Both rules make clear that Rule 1.7 will limit the lawyer's involvement in some circumstances, for example "if participating in the decision or action [of a legal services organization] would be incompatible with the lawyer's obligations to a client under Rule 1.7." Colo.RPC 6.3(a); see also Colo.RPC 6.4 Comm ("In determining the nature and scope of participation in such [law reform] activities, a lawyer should be mindful of the obligations to clients under other Rules, particularly Rule 1.7.").
1.7:300 Conflict of Interest Among Current Clients (Concurrent Conflicts)
In CBA Formal Op. 57, Conflicts of Interest (March 21, 1981, addendum 1995) (discussing DR 5-105, the predecessor to Colo.RPC 1.7(b)), the Colorado Ethics Committee concluded that "[b]ecause of the nature of litigation and the fact that unforeseen conflicts may sometimes develop at trial causing hardship to both clients should a lawyer be forced to withdraw, a lawyer should rarely represent more than one client in a litigation setting." Even where the lawyer believes that multiple representation is permissible because the clients agree regarding trial tactics and strategy, the lawyer must consider whether their interests will diverge during settlement negotiations. Representation of multiple parties in civil litigation may violate both Colo.RPC 1.7(a) and 1.7(b). For example, where a lawyer represents two parties who are directly adverse, such as a husband and wife with conflicting interests in a dissolution proceeding, there is a Colo.RPC 1.7(a) violation and there often also will be a violation of subsection (b). See, e.g., People v. Meldahl, 200 Colo. 332, 615 P.2d 29, 30 (1980) (stipulated violation of DR 5-105(B)), where lawyer represented both husband and wife in uncontested divorce).
However, on two occasions the CBA Ethics Committee has declined to adopt a per se rule against representing both a husband and wife in a divorce matter. CBA Formal Op. 47, Attorney Representation in Dissolution of Marriage (Feb. 26, 1972) applied the Code to the representation of both a husband and wife in a dissolution matter. The Committee observed that the then-newly-adopted Uniform Dissolution of Marriage Act, "while softening the nature of divorce, or dissolution, does not eliminate the adversary nature of the proceedings insofar as property, support, custody, and spousal maintenance are concerned." Based on the fundamentally adverse nature of a dissolution proceeding, the Committee opined that in most cases, representation of both husband and wife will create a conflict. Although the Committee left the door open to representation of both parties "in some cases," it provided no examples of when such multiple representation would not create a conflict. In CBA Formal Op. 68, Conflicts of Interest: Propriety of Multiple Representation (April 20, 1985), the Committee revisited this issue and confirmed that multiple representation of spouses may be appropriate, albeit rarely: "the prior resolution of the material elements of a separation agreement is an essential requirement prior to accepting dual representation. Even where the parties have tentatively resolved such issues, the attorney must examine the results agreed upon to determine whether the spouses are overestimating their ability to proceed on an amicable basis." The Committee further emphasized the importance of effective consent, and the lawyer's obligation to assess each spouse's emotional ability to analyze the impact of multiple representation and to give a valid consent. See Section 1.7:240.
Even where the lawyer represents only one client in the litigation, but represents the client's adversary in a separate matter, there will be a conflict under Colo.RPC 1.7(a). See People v. Gonzales, 922 P.2d 933 (Colo. 1996) (lawyer stipulated to existence of conflict of interest under the Code when he represented a client in connection with an automobile accident at the same time that he represented the other driver in the accident in the filing of a Chapter 7 bankruptcy petition); People v. Stevens, 883 P.2d 21, 23 (Colo. 1994) (attorney had conflict where she represented individual in bankruptcy proceedings at same time that she represented partnerships in which individual was involved, where she knew or should have known that individual and partnerships had actual or potentially conflicting interests; attorney had separate conflicts in concurrently representing individual's wife and children in proceedings regarding the validity of individual's purported transfer of his interests in partnership interests to the children); People v. Aweniue, 653 P.2d 740, 741 (Colo. 1982) (lawyer had conflict where he simultaneously represented husband in bankruptcy proceeding and wife in dissolution action); see also People v. Fritze, 926 P.2d 574, 575 (Colo. 1996) (lawyer admitted that he had Colo.RPC 1.7(b) conflict when he represented homeowner, general contractor, other homeowners, and lender in mechanics' lien litigation, when those clients had actual or potentially differing interests).
Multiple representation of similarly situated parties may be permissible "if the risk of adverse effect is minimal and the requirements of Paragraph (b) are met." Colo.RPC 1.7(b) Comm. However, the comment cautions that "[a]n impermissible conflict may exist by reason of substantial discrepancy in the parties' testimony, incompatibility in positions in relation to an opposing party or the fact that there are substantially different possibilities of settlement of the claims or liabilities in question." Id. See, e.g., Abbott v. Kidder Peabody & Co., 42 F. Supp. 2d 1046, 1050-51 (D. Colo. 1999) (single firm could not represent group of 200 plaintiffs in non-class action, where levels of potential liability varied by plaintiff but representation agreement gave a steering committee control over all settlements).
1.7:315 Insured-Insurer Conflicts [see also 1.8:720]
See Section 1.7:410
The constitutional right of effective assistance of counsel in a criminal matter may be violated "by representation that is intrinsically improper due to a conflict of interest . . ." People v. Castro, 657 P.2d 932, 943 (Colo. 1983), citing, inter alia, Holloway v. Arkansas, 435 U.S. 475 (1978); see also People v. Martinez, 869 P.2d 519, 524-25 (Colo. 1994); People v. Edebohls, 944 P.2d 552, 556 (Colo. App. 1996). "'The need for defense counsel to be completely free from a conflict of interest is of great importance and has a direct bearing on the quality of our criminal justice system.'" People ex rel. Peters v. District Court, 951 P.2d 926, 930 (Colo. 1998), quoting Allen v. District Court, 184 Colo. 202, 519 P.2d 351, 352-53 (1974).
Thus, where a trial court is on notice of a conflict in a criminal matter, the court has a duty to inquire into the propriety of the continued representation. People v. Edebohls, 944 P.2d 552, 556 (Colo. App. 1996). This is in contrast to the rule in civil matters, where the court generally has no duty to raise a conflict issue.
Conflicts of interest can arise in a number of ways in criminal practice:
á "A conflict of interest exists when defense counsel has been charged with a crime and is susceptible to prosecution, during the pendency of the representation of his or her client, by those responsible for the client's prosecution." Id.
á The Colorado Supreme Court found an impermissible conflict where defense counsel was simultaneously representing the district attorney in a legal challenge to an electors' petition to recall him from office and in a criminal prosecution accusing him of overspending his budget., People v. Castro, 657 P.2d 932, 944-45 (Colo. 1983).
á The representation of co-defendants in the same case creates a conflict of interest. Id. at 943 n.9 (dictum).
á "[A] lawyer who represents two defendants may be precluded by his position from fully exploring plea negotiations on behalf of one of the defendants that would involve cooperating with the prosecution. Or at sentencing a lawyer may find it difficult to argue for a light sentence on behalf of one defendant when the consequence may be a heavier sentence for the other defendant." CBA Formal Op. 57, Conflicts of Interest (March 21, 1981, addendum 1995).
á The CBA Ethics Committee found a high potential for conflicts where an attorney accepted criminal defense appointments at the same time that his spouse was the supervisor of the local patrol personnel. CBA Abstract 95/96-2.
Although a criminal defendant may waive his or her right to conflict-free representation, the burden is on the prosecution to establish an effective waiver, which "will not be presumed from a silent record." People v. Castro, 657 P.2d 932, 944 (Colo. 1983). Rather, "[a] valid waiver is shown only if the prosecution establishes that the defendant was aware of the conflict and its likely effect on the attorney's ability to offer effective representation and that the defendant thereafter voluntarily, knowingly and intelligently relinquished his right to conflict-free representation." Id. at 945-46. Defense counsel "should inform the client of the nature of the conflict and, in plain terms, describe the specific ways in which the conflict may affect the attorney's ability to effectively represent the defendant at various stages of the pending litigation." Id. at 946 n.10. "The defense attorney should then place on record the potential conflict of interest and further advise the court that as complete a disclosure as possible has been made to the defendant." Id. Moreover, "[a]fter a defendant has consulted with either defense counsel or independent conflict advisement counsel, the trial court should then seek from the defendant a narrative response, on the record, indicating his or her understanding of the right to conflict-free representation and a description of the conflict at issue." People v. Edebohls, 944 P.2d 552, 556 (Colo. App. 1996). In Rodriguez v. District Court, 719 P.2d 699 (Colo. 1986), the Supreme Court remanded the case for further proceedings even though defense counsel advised their client of the nature of the conflict and the effect the conflict would have on the representation and even though the defendant then submitted a written waiver of the conflict; because the trial judge "did not independently determine from questioning the petitioner whether his waiver was made voluntarily, knowingly, and intelligently," the appellate court could not determine whether the waiver was effective. Id. at 708-09.
For examples of ineffective waivers, see, e.g., People v. Castro, 657 P.2d 932, 946 (Colo. 1983) (only information given to defendant was the fact that his defense counsel also was representing the district attorney in unrelated matters but that defendant should expect no special favors from the prosecution as a result of the conflict); People v. Edebohls, 944 P.2d 552, 557 (Colo. App. 1996) (inquiries by trial judge, without benefit of defense counsel or conflict-advisement counsel, without explanation of defendant's right to conflict-free representation or nature of conflict and its impact on his case, was insufficient to support defendant's waiver).
In CBA Formal Op. 57, Conflicts of Interest (March 21, 1981, addendum 1995), the CBA Ethics Committee advised generally on the subject of representation of multiple clients under DR 5-105, the predecessor to Colo.RPC 1.7(b). Where the representation does not involve litigation, the lawyer's consultation with the client must explain the advantages and risks of common representation. The Ethics Committee advised: "One of the risks of representing clients with differing interests which should be explained to the clients before undertaking the representation is the possibility that at some later point a serious conflict may develop which would require the lawyer to withdraw from representing either of the clients in the matter."
Real Estate Transactions
CBA Formal Op. 68, Conflicts of Interest: Propriety of Multiple Representation (April 20, 1985) observes that in a real estate transaction, "the positions of purchaser and seller are inherently susceptible to conflict." Nevertheless, the opinion concludes that an attorney might be able to represent both parties if they already "have substantially agreed on all of the material terms of the agreement," including the price, time and manner of payment, status of title upon transfer, whether any personal property is to be included, status of any present leases or tenancies, amount of earnest money deposit and the consequences of either party's default. This opinion discusses the attorney's obligations in obtaining consent to the representation of the buyer and seller, and identifies and offers practical solutions to conflict issues that might arise during the representation. Cf. CBA Formal Op. 17, Preparation of Legal Documents in Real Property Sale (Jan. 20, 1961, addendum 1995) (under Canons, impermissible conflict where lawyer prepared legal documents to be used by both seller and buyer in connection with sale of real property).
Purchase And Sale Of A Business
In CBA Formal Op. 68, Conflicts of Interest: Propriety of Multiple Representation (April 20, 1985), the CBA Ethics Committee stated that "[t]he representation of both the buyer and the seller in a business transaction has been characterized as one of the clearest cases of improper representation of conflicting interests." The conflicts arise because of the many legal decisions that must be made in the course of selling and buying a business, and the necessary implications of those decisions on the parties to the sale. Nevertheless, the Committee declined to adopt a per se rule against such common representation, instead emphasizing that "an attorney who undertakes dual representation in the context of a sale of a business must do so aware of the heavy burden that he or she must meet." The Colorado Supreme Court has looked unkindly on lawyers who represented the buyer and seller in the sale of a business. See, e.g., People v. Underhill, 683 P.2d 349, 350-51 (Colo. 1984) (attorney who represented buyer and seller in sale of business, without advising them of possible conflicts, violated the Code predecessor to Colo.RPC 1.7); People v. Razatos, 636 P.2d 666, 670 (Colo. 1981) (improper representation of both buyer and sellers of business inventory); People v. Cole, 760 P.2d 1108, 1110 (Colo. 1988) (simultaneous representation of minister, minister's company, minister's congregant, and congregant's estate in connection with congregant's investment of funds in minister's company); see also CBA Formal Op. 29, Representation of Seller, Buyer or Borrower by Lawyer for Financial Institution (Jan. 18, 1964) (absent effective client consent, attorney may not represent buyer or seller referred to lawyer by long-time bank client whom lawyer is representing in loan involving buyer and seller).
Formation Of A Business Entity
CBA Formal Op. 68, Conflicts of Interest: Propriety of Multiple Representation (April 20, 1985), recognizes the many potential conflicts that an attorney faces in representing clients who are drafting a partnership agreement. At this stage, the lawyer often represents one or more of the partners, and the lawyer must be sure that the remaining partners fully understand that fact and accept its implications. Moreover, if the clients and non-clients expect the attorney to be representing the to-be-formed entity as well as some or all of the partners, all partners must be fully advised of advantages and risks and must agree to the multiple representation. The validity of their consent will turn in part on the parties' sophistication in business and legal matters.
The Colorado Supreme Court held in People v. Gebauer, 821 P.2d 782, 783 (Colo. 1991) (per curiam), that an attorney had a conflict under the Code where he simultaneously represented two estates in the separate administration of those estates, even though the beneficiaries of the two estates had differing interests arising from a disputed inter vivos transfer of property from one decedent to the other. See also People v. Robertson, 908 P.2d 96, 99 (Colo. 1995) (attorney's representation of multiple beneficiaries with differing interests in deceased's estate violated Colo.RPC 1.7(a) and (b)).
In a relatively old CBA Ethics Opinion, issued under the Canons of Professional Ethics, the Ethics Committee opined that an attorney who prepared a title opinion for a lending institution and then acquiesced in the lender's sale of that title opinion to the buyer at the closing, became a lawyer for the buyer as well as the lender, and faced an unwaived conflict: "Canon 6 forbids a lawyer from representing conflicting interests, except in those situations where a full disclosure of the facts is made to the parties concerned. It can only be assumed that a complete disclosure of the conditions upon which the lawyer was retained by the lending institution and the limited scope and purpose of the title opinion was not personally made by the lawyer to the customer of the lending institution." CBA Formal Op. 12, Title Opinion for Lending Institution, Disclosure to Customer (March 26, 1960).
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1.7:400 Conflict of Interest Between Current Client and Third-Party Payor
1.7:410 Insured-Insurer Conflicts [see 1.7:315 and 1.8:720]
In several opinions, the CBA Ethics Committee has addressed the conflict issues inherent in the relationship between a lawyer selected by an insurance company, the insured client of the lawyer, and the insurance company.
In 1962 the CBA Ethics Committee concluded that under the then-applicable conflict rules, a lawyer could not represent the guardian of a minor when the attorney was selected or employed by the insurance company with whom a damage settlement for injuries sustained by the minor has been negotiated: "It is patently apparent that the attorney was attempting to represent incompatible interests. He could not conceivably be considered as appearing before the court even as an impartial person advocating the fairness of the settlement agreement, when he was initially selected or employed by the insurance company to represent the guardian." CBA Formal Op. 23, Representation of Guardian for Minor in Personal Injury Settlement (July 20, 1962, addendum 1995).
The CBA Ethics Committee addressed the subject of insured and insurer conflicts more generally in CBA Formal Op. 43, Duty to Insured (Dec. 13, 1969, addendum 1995). There, the Committee relied on Canon 5 of the Code, ABA ethics opinions, and non-Colorado decisions to conclude that only the policyholder ø and not the insurance company that had selected and would pay the fees of the attorney ø was the lawyer's client: "Although the contract of insurance may give the insurance company the right to select the lawyer who will control the incidents of litigation, the insured has not contracted away the right to the undivided loyalty of his attorney." Id.
In 1993, the CBA Committee supplemented Formal Opinion 43 through CBA Formal Op. 91, Ethical Duties of Attorney Selected by Insurer to Represent Its Insured (Jan. 16, 1993). The later opinion confirms that insurance defense counsel represents the insured, not the carrier, and that the lawyer must represent the policyholder "with undivided fidelity." Id. The lawyer's duty to the insured includes a duty to avoid conflicts under Rule 1.7 and to maintain independent judgment notwithstanding the lawyer's relationship with the carrier. Id. The lawyer must be particularly sensitive to potential conflicts where there are multiple covered and non-covered claims or a reservation of rights to deny coverage: "The existence of a coverage question should not be allowed to interfere with the lawyer's duty to exercise independent professional judgment on behalf of the insured." Id. Whether a coverage issue results in a conflict requires a case-by-case analysis. "If the attorney determines that the interests of the insured and insurer 'will be directly adverse to one another' or that the lawyer's representation of the insured 'may be materially limited' by the lawyer's responsibilities to the insurance company, the lawyer would be prohibited from representing both the insured and the insurer and should recommend that both retain separate counsel on the coverage issue." Id. The potential conflict increases where the attorney is retained by a carrier on numerous cases or is employed by the carrier as "outside in-house counsel." Depending on the facts in a given case, the lawyer may have a duty to disclose to the insured client the extent of his or her relationship with the insurance company; that relationship may not impact the lawyer's duty of undivided loyalty to the policyholder. Id.
At the same time, Opinion 91 recognizes that the lawyer has obligations to the insurance company on behalf of the insured arising out of the insurance contract and, where applicable, the Rules of Professional Conduct. Id. Most obviously, because under the insurance contract the insurer generally controls the defense, including the selection and payment of counsel, the attorney must attempt to comply with the carrier's instructions and limitations; however, if the limits on cost or approach are unreasonable and threaten unreasonably to compromise the lawyer's representation of the insured, the attorney must so advise the insurer or (if the insurer declines to take the requested action and incur the related fees and costs) the policyholder. Id.
Opinion 91 concludes that some conflicts between insured and insurer are consentable but others are not. In particular, a lawyer may not simultaneously advise an insurance company regarding its coverage obligations and represent the insured in a third-party case. Id. However, a lawyer who previously advised the insurance company on coverage issues and concluded that there was coverage for some or all claims may be able to later defend the insured, provided that the prior work will not materially limit the lawyer's representation of the insured, that the lawyer discloses his prior work for the carrier, and that both the company and the policyholder consent after consultation. Id.
1.7:420 Lawyer with Fiduciary Obligations to Third Person [see 1.13:520]
[The discussion of this topic has not yet been written.]
See Section 1.7:220.