End-of-life notice: American Legal Ethics Library
As of March 1, 2013, the Legal Information Institute is no longer maintaining the information in the American Legal Ethics Library. It is no longer possible for us to maintain it at a level of completeness and accuracy given its staffing needs. It is very possible that we will revive it at a future time. At this point, it is in need of a complete technological renovation and reworking of the "correspondent firm" model which successfully sustained it for many years.
Many people have contributed time and effort to the project over the years, and we would like to thank them. In particular, Roger Cramton and Peter Martin not only conceived ALEL but gave much of their own labor to it. We are also grateful to Brad Wendel for his editorial contributions, to Brian Toohey and all at Jones Day for their efforts, and to all of our correspondents and contributors. Thank you.
We regret any inconvenience.
Some portions of the collection may already be severely out of date, so please be cautious in your use of this material.
Delaware Legal Ethics
1.7 Conflict of Interest: Current Clients
1.7:100. Conflict of Interest: General Rule
The DLRPC 1.7 is identical to Model Rule 1.7.
DLRPC 1.7 refines DR 5-105(A) by requiring that if a lawyer has an interest in the representation, the client must: (1) give consent and (2) the lawyer’s personal interest may not reasonably appear to adversely affect the representation. See also DR 5-105(C) (relating to adequate representation); EC 5-5 (a lawyer “should not accept proffered employment if his personal interests or desires will, or there is a reasonable probability that they will, affect adversely the advice to be given or services to be rendered the prospective client”).
Other relevant Model Code provisions related to DLRPC 1.7 and the lawyer’s interest in the representation include: (1) DR 5-101(A) which provides 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 reasonable may be affected by his own financial business, property, or personal interests;” and (2) DR 5-105(A) which provides that a lawyer “shall decline proffered employment if the exercise of his independent professional judgment on 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 be adversely affected by the acceptance of the proffered employment, or if it would be likely to involve him in representing differing interest, except to the extent permitted under DR 5-105(C).”
Additionally, DLRPC 1.7 clarifies DR 5-105(C) which provides that “a lawyer may represent multiple clients if it is obvious that he can adequately represent the interests 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.” DLRPC 1.7 requires that the representation not be materially limited by the lawyer’s other interests.
Lastly, DLRPC also addresses the concern expressed in DR 5-107(B) which provides 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.”
1.7:200. Conflicts of Interest in General
The threshold issue in determining a conflict of interest is whether or not an attorney-client relationship exists. Kabi Pharmacia AB v. Alcon Surgical, Inc., 803 F. Supp. 957, 961 (D. Del. 1992).
The basis of DLPRC 1.7, as stated in Comment , is that “loyalty and independent judgment are essential elements in the lawyer’s relationship to a client.” A conflict of interest may occur if the lawyer has responsibilities to: (1) another client; (2) a third person; (3) a former client; or (4) if the lawyer has a personal interest in the representation. DLRPC 1.7 cmt. 1.
Additionally, the Sixth Amendment right to effective assistance of counsel guarantees legal representation that is "free from conflicts of interest or divided loyalties." Lewis v. State, 757 A.2d 709, 714 (Del. 2000) (citing United States v. Acty, 77 F.3d 1054, 1056 (8th Cir. 1996) (quoting Dawan v. Lockhart, 31 F.3d 718, 720-21 (1994)). But, a defendant can “waive his right to the assistance of an attorney unhindered by a conflict of interests." Lewis v. State, 757 A.2d 709, 714 (citing Holloway v. Arkansas, 435 U.S. 475, n. 5 (1978)).
Comment  to DLPRC 1.7 establishes that “loyalty to a current client prohibits undertaking representation directly adverse to that client without that client’s informed consent.” Examples of “material adverse effects” include: (1) if a lawyer “acts as an advocate in one matter against a person the lawyer represents in another other matter” in related or unrelated matters; and (2) if a lawyer is representing one client in a law suit and cross examines another client with contrary interests in the same matter. DLRPC 1.7 cmt. 6. These situations may materially limit the lawyer’s effective representation, and negatively effect client loyalty and the attorney-client relationship because the clients have adverse interests.
For example, a Delaware lawyer was privately admonished for drafting a new will excluding the husband (who filed for a divorce from the wife) as a beneficiary. The lawyer represented the husband and wife in several legal matters, and did not gain consent from both parties. Private Admonition—Board Case No. 102, 1996.
Comment  states that if the client’s interests are only “economically adverse,” then consent may not be required. DLRPC 1.7 cmt. 6.
Comment  establishes that the lawyer must get informed consent if the lawyer is asked to “represent the seller of a business in negotiations with a buyer represented by the lawyer,” even if the lawyer represents the buyer in an unrelated matter. DLRPC 1.7 cmt. 7.
A conflict arises if the lawyer’s ability to “act with reasonable diligence,” as stated in DLPRC 1.3, is “materially limited” because of the lawyer’s other responsibilities or personal interests. DLRPC 1.7 cmt. 8. (a lawyer asked to represent multiple clients in forming a joint venture may be materially limited from advocating all potential positions of each client).
According to Comment , the lawyer should determine: (1) what is the likelihood that a difference in interest will arise; and (2) if an adverse interest arises, would it “materially interfere” with the lawyer’s ability to pursue all reasonable courses of action for a particular client. DLRPC 1.7 cmt. 8.
A Delaware lawyer was privately admonished for agreeing to represent a landlord and a tenant in a zoning violation charge without disclosing the possibility of a conflict. There was a likelihood that a difference in interest would arise because in a similar case with similar charges against the same landlord, the municipality agreed to drop the charges against the tenants if they testified against the landlord. Private Admonition—Board Case No. 53, 1993.
A lawyer may not act in a way that is directly adverse to a client, without that client’s informed consent. A conflict arises if the lawyer’s representation is materially limited because of the lawyer’s other responsibilities and interest. In Melson v. Michlin, the lawyer entered into a business contract with the client. See § 500 (Conflict of Interest Between Current Client and Lawyer’s Interest). The court discussed the consequences of a conflict of interest subsequently arising out of the business transaction and divided the consequences into: 1) foreseeable conflicts; and 2) conflicts that were not foreseeable. Melson v. Michlin, 223 A.2d 338, 334 (Del. 1966). First, if a reasonably prudent lawyer would have foreseen the subsequent conflict, then the contract is “voidable as adverse at outset.” Id. Second, “if the subsequent conflict of interest was not reasonably foreseeable, the attorney must either:” (1) withdraw; or (2) surrender the adverse interest. Id. If the attorney proves that the transaction was fair at conception, then the subsequent transaction does not necessarily make the transaction voidable. Id.
Comment  of DLPRC 1.7 explains 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 persons and issues involved” and whether a potential conflict of interest exists. Failure to implement “reasonable procedures” will not excuse a lawyer from disciplinary action under DLPRC 1.7. DLRPC 1.7 cmt. 3.
A Delaware lawyer was given a “private admonition with extensive conditions” for negligently failing to detect and avoid the conflict of interest when simultaneously representing a buyer and seller in a real estate transaction. Private Admonition—Board Case No. 23, 1991.
Comment  of DLPRC 1.7 explains how a lawyer can resolve a conflict of interest by obtaining consent. The four step approach to gaining client consent is: (1) “clearly identify the client or clients;” (2) decide if a conflict exists; (3) “decide whether the representation may be undertaken despite the existence of a conflict;” and (4) if after step (3) the lawyer determines the conflict is consentable, then the lawyer must: (a) consult with the clients affected by the conflict; and (b) obtain their consent, confirmed in writing. DLRPC 1.7 cmt. 2.
Generally if a conflict arises after the lawyer begins representation, then the lawyer must obtain consent of the client(s) to continue representation. DLRPC 1.7 cmt. 4. In some circumstances, if a lawyer is representing more than one client and a conflict arises, the lawyer must determine if representing either client, or both clients, would affect the lawyer’s duties owed to either, or the lawyer’s ability to represent both clients adequately. DLRPC 1.7 cmt. 4. This conflict may be non-consentable.
Comment  states that the “question of consentability must be resolved as to each client,” if the lawyer is representing multiple clients and a conflict arises. In order to determine whether a conflict is consentable the lawyer must determine whether or not “the interests of the clients will be adequately protected if the clients are permitted to give their informed consent” and if the lawyer would be able to provide “competent and diligent” service. DLRPC 1.7 cmt. 14. See DLRPC 1.1 (Competence); DLRPC 1.2 (Diligence).
Even if the client gives informed consent to the representation, a lawyer is prohibited from representing the client if the lawyer cannot competently and diligently represent the client. DLRPC 1.7 cmt. 15. Additionally, a lawyer may not represent a client if the representation is prohibited by law. DLRPC 1.7 cmt. 16.
The lawyer is also prohibited from representing two clients whose positions are directly against each other “in the same litigation or other proceeding before a tribunal.” DLRPC 1.7 cmt. 17. The lawyer must look to the “context of the proceeding” to determine if the clients are “aligned directly against each other.” Id. A lawyer may represent two clients whose positions are “aligned directly against each other” in a mediation if the lawyer “reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client.” Id.
Under DLPRC 1.7, to avoid the imputation of a conflict of interest [See DLPRC 1.10], a Delaware law firm can “isolate the disqualified lawyer from other lawyers in the firm” only as a “prospective procedure” to be utilized when the “disqualifying attorney first arrives” at the new firm. Queen's Quest Condominium Council v. Sea Coast Builders, Inc., 605 A.2d 580 (Del. Super. Ct. 1992)
In State v. Acierno, the client, Acierno, moved to disqualify the firm who represented him and lawyer Alberta H. Marta when the land at issued was rezoned. The firm also represented other clients who had an ownership interest in the same land. The firm was not disqualified because: 1) Acieno did not identify the nature of the confidential information that he did not want disclosed; and 2) the client had not shown that the challenged representation would prejudice the fairness of the proceeding. State v. Acierno, 1991 Del. Super. WL 89798 (Nov. 20, 1992).
In Cardoni v. Power Int'l, a plaintiff-employee brought a motion to disqualify the law firm that was representing the defendant-employer. A member of the defense counsel’s firm sat on the defendant company’s Board, helped draft the contract in dispute, was involved in the decision to terminate the employee, and could be called as a witness. Nevertheless, the court denied the employee’s motion to disqualify the firm because opposing counsel would have the opportunity to cross-examine the attorney, and the attorney was not a necessary witness because other members of the Board had knowledge of the contract. The “appearance of impropriety” did not merit disqualifying the firm. The court found that bias was a question for the jury. Cardoni v. Power Int'l, 1990 Del. Super. LEXIS 105 (Mar. 27, 1990).
An attorney may be disqualified “for failing to avoid even the appearance of impropriety,” which includes a failure to represent the client with “undivided loyalty.” International Business Mach. Corp. v. Levin, 579 F.2d 271, 283 (3rd Cir. 1978).
In Appeal of Infotechnology, Inc., the Delaware Supreme Court set forth the elements that a non-client litigant must prove if the non-client wants to challenge another lawyer’s conduct outside of a disciplinary proceeding. The non-client must prove, by clear and convincing evidence, that: (1) a conflict exists; and (2) show how the conflict will prejudice the fairness of the proceedings. Appeal of Infotechnology, Inc., 582 A.2d 215, 221(Del. 1990).
In Lee v. Peay, a law firm prepared a deed for Greene and Peay in which there was a mistake. The mistake was not noticed until the estate tried to sell the property. In this case the plaintiff, Greene’s son, asserted a one-half interest in the property. The law firm that drafted the deed for Greene and Peay subsequently represented the estate in the action. The son, a non-client, unsuccessfully claimed that there was a conflict of interest. The Court found that the son did not meet the elements set forth in Appeal of Infotechnology, Inc. (as stated above). Also, since the attorney who supervised the deed was deceased, and no other employee of the firm was involved in the deed preparation, the firm’s representation of the estate did not give rise to a Rule 1.7 violation. Lee v. Peay, 1996 Del. Super. WL 658884 (Oct. 15, 1996).
In Schell v. Stryzs, a mother’s lawyer “acted in an advisory capacity” to her son in a visitation proceeding. The father attempted to assert a conflict of interest claim because of the dual representation. The Court held that the father had no standing to assert a Rule 1.7 conflict claim because the father was not claiming a breach of loyalty to himself. DLRPC 1.7 focuses on the duty toward the client. Schell v. Stryzs, 561 A.2d 467 (Del. 1989).
Furthermore, according to Flaig v. Ferrara, a plaintiff cannot use a conflict of interest claim against her attorney as a legal standard to demonstrate a breach of duty, but the client can use the conflicts claim to “support or show” that the lawyer breached a common law civil duty. Flaig v. Ferrara, 1996 Del. Super. LEXIS 169 (April 15, 1996).
DLRPC 1.7(a)(2) states, a “lawyer shall not represent a client if “there is a significant risk that the representation of one or more clients will be materially limited by the lawyer’s responsibilities to another client, a former client, or a third person or by a personal interest of the lawyer.”
In a Delaware Supreme Court case, In Re Maguire, an employer filed a petition to terminate the employee’s temporary total disability benefits. The employee, Joyner, retained counsel to represent him. After counsel reviewed Joyner’s files he concluded that Joyner would not prevail at the hearing. Without informing Joyner, counsel contacted the employer and consented to the termination of benefits. Joyner did not intend to relinquish his claim which counsel subsequently reopened. Counsel failed to discuss the conflict with his client and was disciplined for a Rule 1.7 violation. In re Maguire, 725 A.2d 417, 423-24 (Del. 1999).
If the lawyer can effectively argue both sides of the same legal question without compromising the interests of one client over the other, then there is no positional conflict.
Comment  states, a lawyer may ordinarily “take inconsistent legal positions in different tribunals at different times on behalf of different clients.” But, a conflict of interests exists if “there is a significant risk that a lawyer’s action on behalf of one client will materially limit the lawyer’s effectiveness in representing another client in a different case…” DLRPC 1.7 cmt. 24.
The lawyer should advise the client of a potential positional conflict. Some factors to consider are: (1) “where the cases are pending;” (2) “whether the issue is substantive or procedural;” (3) “the temporal relationship between the matters;” (4) “the significance of the issue to the immediate and long-term interests of the clients involved;” and (5) “the client’s reasonable expectations in retaining the lawyer.” Id.
According to Williams v. State, a positional conflict arises when “two or more clients have opposing interests in unrelated cases.” Williams v. State, 805 A.2d 880, 881 (Del. 2002). In this case, the attorney was not permitted to be appellate counsel in a capital murder appeal pending in the same court in which he was handling another capital murder appeal. The one capital case could set harmful precedent for the other. The situation could compromise the lawyer’s ability to give effective counsel. Id.
In In Re Beng, the attorney prepared a client’s will. After the client’s death, the lawyer advised the will’s beneficiary of potential possible legal challenges against the will that the lawyer prepared. The advice to the beneficiary violated Rule 1.7(b) because he gave the beneficiary advice of “possible actions to upset the intent” of the will. In the Matter of A Member of the Bar of the Supreme Court of Delaware: John H. Benge, Jr., 783 A.2d 1279, 1285 (Del. 2001).
“A lawyer representing an organization may also represent any of its directors, officers, employees, members, shareholders or other constituents, subject to the provisions of Rule 1.7. If the organization's consent to the dual representation is required by Rule 1.7, 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.”
DLRPC 6.3 (Membership in legal services organization):
“A lawyer may serve as a director, officer or member of a legal services organization, apart from the law firm in which the lawyer practices, notwithstanding that the organization serves persons having interests adverse to a client of the lawyer. The lawyer shall not knowingly participate in a decision or action of the organization: (a) if participating in the decision or action would be incompatible with the lawyer's obligations to a client under Rule 1.7; or (b) where the decision or action could have a material adverse effect on the representation of a client of the organization whose interests are adverse to a client of the lawyer.”
DLRPC 6.4 (Law reform activities affecting client interests):
Comment  states: “Lawyers involved in organizations seeking law reform generally do not have a client-lawyer relationship with the organization. Otherwise, it might follow that a lawyer could not be involved in a bar association law reform program that might indirectly affect a client. See also Rule 1.2(b). For example, a lawyer specializing in antitrust litigation might be regarded as disqualified from participating in drafting revisions of rules governing that subject. In determining the nature and scope of participation in such activities, a lawyer should be mindful of obligations to clients under other Rules, particularly Rule 1.7. A lawyer is professionally obligated to protect the integrity of the program by making an appropriate disclosure within the organization when the lawyer knows a private client might be materially benefited.”
300. Conflict of Interest Among Current Clients (Concurrent Conflicts)
To avoid a conflict of interest among current clients, a lawyer should consider a number of issues when deciding whether to represent multiple clients. Also, the lawyer must inform the “commonly represented clients” that the attorney-client privilege “does not attach,” and that communications between the lawyer and the clients are not protected. DLRPC 1.7 cmt. 30.
In a patent infringement case, Kabi Pharmacia AB v. Alcon Surgical, Inc., the law firm was disqualified from representing the defendant-corporation because the plaintiff-corporate entities claimed the firm was concurrently representing the corporate entities in a related patent infringement case. The law firm alleged that the corporation was a “former client,” but could not present evidence of the “nonexistence of an attorney-client relationship.” Kabi Pharmacia AB v. Alcon Surgical, Inc., 803 F. Supp. 957, 961 (D. Del. 1992). The Court found that representing the corporation was “directly adverse” to the plaintiff-corporate entities. Id. The corporate entities did not consent to the concurrent relationship. If the firm had consulted the plaintiff for consent, the consent would have been null because the firm could not have reasonably believed that the concurrent representation would not be adverse. Id. at 963.
DLRPC 1.7(a)(2) identifies the inherent risk in representing one or more clients whose interests in litigation may be “materially limited” by the interests of a coplaintiff. See DLRPC 1.7 cmt. 23. A lawyer must not represent coplaintiffs if their “interests in litigation may conflict.” Id. Comment  states that if a lawyer is representing a client in a class action suit, the unnamed members are not considered when evaluating conflicts of interest. DLRPC 1.7 cmt. 25.
DLRPC 1.7(b)(3) prohibits representation of “the assertion of a claim by one client against another client represented by the lawyer in the same litigation or other proceeding before a tribunal,” regardless of consent. DLRPC 1.7(b)(3).
Comment  states “the potential for conflict of interest in representing multiple defendants in a criminal case is so grave that ordinarily a lawyer should decline to represent more than one codefendent.” DLRPC 1.7 cmt. 23.
Under the Delaware Superior Court Criminal Rule 44(c), the trial judge must determine whether a potential conflict exists that would preclude dual representation of co-defendants by the same lawyer. Del. Super. Ct. Crim. R. 44(c). The defendants are not required to raise the potential conflict, nevertheless the trial judge must advise the defendants of their right to separate representation to ensure an effective assistance of counsel. Id.
In criminal cases, a conflict of interest can give rise to both an ethical and constitutional violation. For example, in Lewis v. State, the Court found that Lewis’ Sixth Amendment right to have “effective assistance of an appointed conflict-free trial attorney was violated.” Lewis v. State, 758 A.2d 709, 711(Del. 2000). The codefendants had different evidence against them, and dissimilar legal interests. The assistant public defender’s duel representation of the codefendants caused a conflict of interest. Defendant Lewis did not consent to the potential conflict. Id.
Additionally, in State v. Anderson, the defendant claimed that his counsel was ineffective because the prosecutor’s witness had a claim of ineffective counsel against the defendant’s appointed lawyer. In representing Anderson, the defendant counsel did not commit a prejudicial error or professional error. The Court found the defendant’s claim lacked merit. State v. Anderson, 2000 Del. Super. LEXIS 147 (March 24, 2000).
In Stokes v. State, the appellant argued that one lawyer representing him along with a co-defendant at the preliminary hearing in a criminal case was a “presumptive conflict of interest” under Rule 1.7 because they had adverse interests. The Court held that there was no conflict that would warrant a new trial because the defendants had separate trials and different lawyers at their trials. Stokes v. State, 574 A.2d 264 (Del. Super. Ct. 1990).
In United States v. Cooper, where codefendants were family members and not identically charged on all counts of the indictment, the defendants could not waive a potential conflict of interest. United States v. Cooper, 672 F. Supp. 155, 158 (D. Del. 1987). In order to zealously represent each client’s position, the attorney may have been required to raise arguments as to the lesser culpability of one defendant client against the interest of another client. Also, the attorney may have been required to cross examine one defendant client to support the defense of another. Id. In this case, the Court found that a single attorney could not comply with Rule 1.7(b) and remain loyal to each client. Id.
In Crippen v. State, the defendant claimed that he was provided ineffective assistance of counsel at sentencing because of a conflict of interest. The defendant carried the burden of proving that “his counsel’s representation fell below an objective standard of reasonableness and that, but for counsel’s professional errors, there is a reasonable probability that the outcome of the proceedings would have been different.” Crippen v. State, 803 A.2d 427 (Del. 2002). See Strickland v. Washington, 466 U.S. 668, 688 (1984).
In Crippen, the defendant’s claim lacked record support and was not specific enough to receive a favorable ruling on an ineffective counsel due to conflict of interest claim. Crippin v. State, 803 A.2d at 427. The defendant’s claim that “the prosecutor engaged in misconduct by withholding exculpatory evidence and by presenting false evidence that led to an enhanced sentence” was without merit. Id.
In non-litigation matters, if one client’s position is directly adverse to another, or there is risk of “material limitation,” then the lawyer may be prohibited from representing the client. According to Comment , some relevant factors in determining whether there is a “material limitation” in a non-litigation matter include: 1) “the duration and intimacy of the lawyer’s relationship with the client or clients involved;” 2) “the functions being performed by the lawyer;” and 3) “the likelihood that disagreements will arise and the likely prejudice to the client from the conflict.” DLRPC 1.7 cmt. 26.
Comment  explains the possibility of a conflict in estate planning because a lawyer may have to prepare wills for several different family members. Also, a potential conflict exists in estate administration because the lawyer may have a difficult time identifying the client. Under Comment  in order to avoid discipline the lawyer should “make clear the lawyer’s relationship to the parties involved.” DLRPC 1.7 cmt. 27.
Comment  states that “a lawyer may not represent multiple parties to a negotiation whose interests are fundamentally antagonistic to each other.” But, if a lawyer is helping to organize a business, the lawyer could attempt to “resolve potentially adverse interests by developing the parties’ mutual interests.” DLRPC 1.7 cmt. 28.
In Craft Builders, Inc. v. Taylor, the lawyer represented both buyer and seller in a contract to purchase land. The lawyer acted properly because: 1) there was “full disclosure and protection for both parties;” 2) the original agreement was done in the presence of both parties;
3) “extension agreements were written after considerable discussion with both parties;” and 4) the lawyer “withdrew completely when they [the parties] reached the parting of the ways.” Craft Builders, Inc. v. Taylor, 254 A.2d 233, 236 (Del. 1969).
In a derivative action case, In Re M&F World Wide Corp. Shareholders Litigation, a motion to disqualify the plaintiff’s law firms was denied. In Re M&F World Wide Corp. Shareholders Litigation, 799 A.2d 1164 (Del. 2002). A derivative suit is a “representative action,” therefore, the law firms were not representing individual stock holders, but MFW and its public stock holders. Id. at 1173. Those who objected, who opposed the settlement agreement, faced no prejudice since plaintiff’s counsel disclosed that there was dissention among the plaintiffs and helped the court implement a process whereby the dissenters’ views could be presented. Id. at 1178.
Comment  provides that “the lawyer for an organization is not barred from accepting representation adverse to an affiliate in an unrelated matter, unless the circumstances are such that the affiliate should also be considered a client, there is an understanding between the lawyer and the organizational client that the lawyer will avoid representation adverse to the client’s affiliates, or the lawyer’s obligations to either the organizational client or the new client are likely to limit materially the lawyers representation of the other client.” Accordingly, a lawyer who represents an organization does not necessarily represent all affiliated organizations, such as a subsidiary. DLRPC 1.7 cmt. 34.
If a lawyer is an organization’s lawyer and a member of its board of directors, then the lawyer should withdraw from either position if “there is a material risk that the dual role will compromise the lawyer’s independence of professional judgment.” DLRPC 1.7 cmt. 35. The lawyer should inform the organization or corporation that communications are only protected by the attorney-client privilege when the lawyer is acting as the lawyer, and not as the director. Id.
In a derivative suit against a corporation, a shareholder non-client party did not have standing to allege a conflict of interest against counsel, who had represented both the directors and corporation together in the past. In this case the counsel represented the corporation, and both parties waived the conflict of interest. The shareholder could gain standing by showing clear and convincing evidence of “a personal determent or misconduct which taints the fairness of the proceedings.” Sisson v. Szeto, 1994 Del. Ch. LEXIS 230 (October 28, 1994).
1.7:400. Conflict of Interest Between Current Client and Third Party Payor
Comment  states that a lawyer may be paid by a third party payor if “the client is informed of the fact and consents and the arrangement does not compromise the lawyer’s duty of loyalty or independent judgment to the client.” The lawyer must comply with 1.7(b) if acceptance of the payment from a third party payor “presents a significant risk that the lawyer’s representation of the client will be materially limited by the lawyer’s own interest” or by the lawyer’s responsibilities to the third party payor. DLRPC 1.7 cmt. 13.
In Shephard v. Reinoehl, there was an auto collision between a police officer’s car and Louise Pauly’s car. A minor child passenger in Pauly’s car died, and the parents of the deceased child joined Pauley as third party defendants. Pauley’s insurance company designated counsel to represent her on this claim and Pauley retained an attorney for representation on the other claims. Pauley did not want the insurance company’s lawyer to represent her in defending a third party claim. Pauley wanted to be represented by a single lawyer, and claimed she could be prejudiced if a disagreement arose between her hired counsel and counsel engaged by the insurance company. The Court decided that there was no apparent conflict of interest and the insurance company was permitted to designate counsel in the third party claim based on the terms of the policy. Shephard v. Reinoehl, 2000 Del. Super. LEXIS 242 (March 29, 2000).
Comment  explains that a “lawyer’s duties of loyalty and independence may be materially limited” by responsibilities or fiduciary obligations “arising from a lawyer’s service as trustee, executor or corporate director.” DLRPC 1.7 cmt. 9.
1.7:500. Conflict of Interest Between Current Client and Lawyer’s Interest
Comment  states that the “lawyer’s own interest should not be permitted to have an adverse effect on representation of a client.” The comment gives several examples, such as: (1) if the lawyer is involved in a transaction with a client; (2) if the lawyer seeks employment with the client’s opponent or law firm; or (3) if the lawyer has an undisclosed financial interest in the client referral process. DLRPC 1.7 cmt. 10.
A Delaware lawyer was privately admonished for referring a private client to a business entity in which he was legal counsel and had a fifty percent ownership interest. The client signed a letter of engagement that recognized the lawyer’s interest, but the lawyer violated DLPRC 1.5 because the lawyer did not adequately represent the client when the client became dissatisfied with the business entity. Private Admonition—Board Case No. 37, 2000.
In State v. Melendez, the Defendant failed to establish that he “suffered actual prejudice” because he did not show the potential conflict that he alleged caused him to plead guilty. The defendant also did not prove that this counsel did not act as a zealous advocate. Here, the Defendant entered a guilty plea in his capital murder trial. Then, counsel realized that he [counsel] was an acquaintance of a victim’s mother. Counsel explained to the Defendant the “conflict of interest,” but the Defendant wanted counsel to continue representing him. The trial record showed that the trial counsel’s affidavits, preparation, and diligence indicated that counsel was a zealous advocate. Additionally, the trial record reflected that the defendant thanked and complimented counsel during the sentencing hearing. State v. Melendez, 2003 Del. Super. LEXIS 409 (Dec. 19, 2003).
In real estate settlements, or other circumstances in which parties agree to use the same attorney, the lawyer has a “heavy burden” of “full disclosure and full protection of both parties.” Holley v. Jackson, 158 A.2d 803, 808 (Del. Ch. 1959). In Holley v. Jackson, a real estate settlement lawyer owned the real estate company. The lawyer had a personal interest adverse to the plaintiff because the lawyer had an interest in the commission to be generated upon plaintiff’s payment of the sales price. The plaintiff also hired the lawyer to do a title search and obtain title insurance on the same property. The lawyer should have disclosed his interest to the plaintiff. Id.
In Riley v. State, the Defendant claimed he had differences of opinion with his counsel. The Defendant intended to present a false alibi and false testimony to the Court. Counsel wrote a letter to the State Ethics Committee for advice. The Defendant claimed that his right to counsel was violated and that counsel’s representation gave rise to a conflict because counsel refused to present the perjured evidence. The Court held that counsel’s refusal to offer perjured testimony was ethically required and did not violated the Defendant’s right to counsel. Riley v. State, 2004 Del. LEXIS 397 (June, 19, 2004). See also Shockley v. State, 565 A.2d 1373 (Del. 1989) (the right to counsel does not include the right to assistance in illegal activity).
Comment  states, “A lawyer is prohibited from engaging in sexual relationships with a client unless the sexual relationship predates the formation of the client-lawyer relationship.” DLRPC 1.7 cmt. 12.
Additionally, if lawyers on opposing sides are related by blood or marriage, the lawyer’s relationship with opposing counsel might “interfere with both loyalty and independent professional judgment.” DLRPC 1.7 cmt. 11. The lawyer must disclose if they are a parent, child, sibling or spouse of opposing counsel. The conflict can be waived with informed consent. This conflict is not imputed to the firm. Id.