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.
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Illinois Legal Ethics
1.7:100 Comparative Analysis of Illinois Rule
IRPC 1.7 is identical to MR 1.7 except for paragraph structure, and the ABA term "consultation" has been replaced by the Illinois defined term "disclosure." The comparable Rule in the Illinois Code was Rule 5-105.
The terminology section of the Illinois Rules of Professional Conduct sets out the definition of "reasonably believes" as found in IRPC 1.7(a)(1) and 1.7(b)(1). Note that the "reasonable belief" standard requires that the lawyer actually believes the representation will not adversely affect the relationship with the other client, and the circumstances are such that the belief is a reasonable one. Thus, "reasonable belief" as provided for in IRPC 1.7(a)(1) and (a)(2) is both a subjective and objective standard.
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1.7:200 Conflicts of Interest in General
Rule 1.7(a) specifically addresses concurrent representation of clients with directly adverse interests. Rule 1.7(b) is broader in scope and prohibits an attorney from representing a client when his responsibilities to another client, a third party or his own interests may adversely affect the representation of the client. The general policy underlying Rule 1.7 is articulated in SWS Fin. Fund A., et el. v. Salomon Bros. Inc., 790 F. Supp. 1392, 1400 (N.D. Ill. 1992). In SWS Fin. Fund, the United States District Court for the Northern District of Illinois discussed the professional values protected by Rule 1.7:
There are basically two purposes behind Rule 1.7. First, it serves a prophylactic to protect confidences that a client might have shared with his attorney . . . The second purpose behind Rule 1.7 is to safeguard loyalty as a feature of the lawyer-client relationship. A client should not wake up one morning to discover that his lawyer whom he had trusted to protect his legal affairs, has sued him—even if the suit is utterly unrelated to any work the lawyer had ever done for his client. Id.
Thus, Rule 1.7 serves to safeguard both the duty of confidentiality and the duty of loyalty that a lawyer has towards a client.
Although disqualification of an attorney for a conflict of interest is a drastic measure, some concurrent conflicts call for this measure. For example, in Alex Munoz Gen. Contractor v. MC3D, Inc., 1998 WL 831806 (N.D. Ill 1998), the court found a classic Rule 1.7(a) violation that warranted disqualification of defendant's counsel. In this case, Alex Munoz General Contractor ("AMGC"), the plaintiff, argued that it was a current client of the defendant's law firm, Stein, Ray and Conway. Although Stein, Ray acknowledged signing documents on behalf of AMGC in a prior related lawsuit, the law firm denied the existence of a meaningful attorney-client relationship. The court rejected this argument and found that AMGC was a current client of Stein, Ray and that the subject matter of the current representation was substantially related to the matter which involved the representation of AMGC. Accordingly, the court found that disqualification was appropriate under the circumstances. See id. at *3-*4.
Moreover, the conflict of interest rules apply equally to large multi-branch law firms. In Westinghouse Elec. Corp. v. Kerr-McGee Corp., 580 F.2d 1311 (7th Cir. 1978), the defendants in an anti-trust suit moved to disqualify Westinghouse's Chicago-based law firm, Kirkland and Ellis, on the grounds that Kirkland and Ellis had engaged in concurrent representation of adverse parties. Kirkland asserted that no conflict existed because it constructed a "Chinese wall" between the Chicago-based attorneys representing Westinghouse and the D.C. based attorneys representing the adverse party. The court rejected the argument that the law firm's size had any bearing on the application of conflict of interest rules: "[ ] there is no basis for creating separate disqualification rules for large firms even though the burden of complying with ethical consideration will naturally fall more heavily upon their shoulders." Id. at 1321.
For a general overview of concurrent representation refer to R. David Donoghue, Conflicts of Interest: Concurrent Representation, 11 GEO. J. LEGAL ETHICS 319 (Winter 1998). For a more extensive discussion on the Basic Prohibition of Conflicts of Interest, refer to section 201 of the Restatement (Third) of Law Governing Lawyers (Proposed Final Draft No. 1 1996).
IRPC 1.7 was designed to prevent parties from retaining attorneys who will not zealously represent their interests. As stated above, Rule 1.7 protects the duty of loyalty an attorney owes his client. The existence of a conflict of interest whereby a single attorney is concurrently representing adverse parties or interests has a detrimental affect on the attorney-client relationship, public confidence in the legal profession and the integrity of judicial proceedings. Violations of the conflicts of interest rules give rise to the probability that a trial may be tainted. See SK Handtool Corp. v. Dresser Ind., Inc., 619 N.E.2d 1282, 1289 (1st Dist. 1993).
However, IRPC 1.7(b) allows for simultaneous representation of clients with similar interests if the risk of adverse effect on the lawyer's representation is minimal and the client consents. The Restatement (Third) of the Law Governing Lawyers identifies factors relevant in determining when there is a substantial risk that a lawyer's actions will materially and adversely affect the representation of the lawyer's other client. See Restatement (Third) of the Law Governing Lawyers § 209 cmt. f (Proposed Final Draft No. 1 1996). Those factors include "whether the issue is before a trial court or an appellate court; whether the issue is substantive or procedural; the temporal relationship between the issues; the practical significance of the of the issue to the immediate and long-run interests of the clients involved; and the client's reasonable expectations in retaining the lawyer." Id. Thus, an impermissible conflict may arise because of substantial discrepancies in the parties testimony, incompatibility in position in relation to an opposing party, or the possibility of substantially different settlements of claims or liabilities. See Restatement (Third) of the Law Governing Lawyers § 209 cmt. d of Reporter's Note (Proposed Final Draft No. 1 1996).
Whether a current attorney-client relationship exists between the attorney and the adverse party is a threshold question for determining whether or not a conflict of interest exists under Rule 1.7. The attorney-client relationship typically arises in the context of agency, but the existence of the relationship is not dependent on the payment of fees or the execution of a formal contract. In fact, the attorney-client relationship can result in the absence of mutual assent. See Westinghouse Elec. Corp. v. Kerr-McGee Corp., 580 F.2d 1311, 1317 (7th Cir. 1978). Rather, a fiduciary relationship may result because of the nature of the work performed and the circumstances under which confidential information is divulged. Id. at 1320.
The Seventh Circuit Court of Appeals has established a two-part inquiry to determine whether an attorney-client relationship has been established. The party seeking to establish the relationship must show (1) he "submitted confidential information to a lawyer; and (2) that he did so "with the reasonable belief that the lawyer was acting as the party's attorney." See Bridge Prod., Inc. v. Quantum Chem. Corp., 1990 WL 70857, *3 (N.D. Ill 1990). In Quantum, the plaintiff, Bridge Products, sought to hire a new attorney at the beginning of its suit against Quantum. Bridge met with Chicago-based law firm, Sidley & Austin to discuss the possibility of Sidley taking over Bridge's representation. See id. at *1. At the meeting with Sidley, Bridge discussed the status of the litigation, their view of trial strategy, their discussions with their previous counsel about settlements and other privileged information. See id. Bridge did not ultimately hire Sidley & Austin, but several months later Quantum sought to replace their attorney and decided to hire Sidley & Austin. See id. at *2. The court granted Bridge's motion to disqualify Sidley & Austin from representing Quantum under the two-part analysis set forth above. The court found that confidential information was conveyed to Sidley at the initial meeting between Bridge and Sidley and Bridge reasonably believed that an attorney-client relationship was formed. See id. at *3-*4. Thus, the predicate requirement of demonstrating an attorney-client relationship to establish a conflict of interest was fulfilled even though the relationship was not a fiduciary one. Disqualification was therefore appropriate. See id. at *7.
Furthermore, law firms in different states that advertise their affiliation are treated as the same law firm for conflict of interest purposes. In Mustang Ent., Inc. v. Plug-In Storage Sys., Inc., 874 F. Supp. 881 (N.D. Ill 1995) supplemented by 1995 WL 55226 (N.D. Ill 1995), the defendant, Plug-In moved to disqualify the plaintiff's attorney Hill, Steadman & Simpson. Hill, Steadman is a Chicago-based law firm affiliated with Bachman & LaPointe, a New Haven, Connecticut firm. Plug-In had retained Bachman & LaPointe since 1991 as its patent counsel. See id. at 883. Plug-In alleged that Bachman obtained confidential information during its representation of Plug-In that created a conflict of interest since it's affiliated law firm, Hill, Steadman represented its opposing party, Mustang. The court granted the motion to disqualify on the grounds that Hill, Steadman, plaintiff's counsel, could not properly engage in concurrent representation of both Mustang and Plug-In since their positions were directly adverse to each other. Thus, Bachman & LaPointe, as an affiliate of Hill, Steadman, was equally prohibited from representing Mustang because the firms were considered one for the purposes of conflicts. See id. at 886-88.
Another crucial factor in determining whether there is an impermissible conflict of interest under rule 1.7 is whether the attorney-client relationship is current, or has been terminated. As articulated by the court in SWS Fin. Fund A., et al v. Salomon Bros., Inc., 790 F. Supp. 1392, 1398 (N.D. Ill. 1992), an established lawyer-client relationship does not terminate easily. The court identified several circumstances that would indicate that an attorney-client relationship had dissolved. First, the relationship may terminate by the express statement of either the attorney or the client. Second, behavior inconsistent with the continuation of the representation may indicate that the relationship has terminated, such as the client filing a grievance against the lawyer with the local bar association. Third, the relationship may terminate due to a lapse in time even where there are no express statements or acts by either party. See id. at 1398-99 (citations omitted).
Under Rule 1.7(a), an attorney may engage in concurrent representation of clients if the attorney reasonably believes that the representation will not adversely affect the relationship with the other client, and each client consents to the representation. In Lavaja v. Carter, 505 N.E. 2d 694 (2nd Dist. 1987), the court held that with informed consent, a lawyer could concurrently represent plaintiffs suing on a promissory note and a third party defendant against whom defendants claimed fraudulent inducements. In Lavaja, the court acknowledged that such an arrangement was not ideal, but nonetheless, concluded that the attorney exercised independent professional judgment on behalf of his client and the clients consented to the representation after full disclosure. See id. at 326, 700.
Moreover, a court may commit reversible error by disqualifying an attorney where no "actual conflict" exists and valid waivers have been executed. In Miller v. Norfolk & Western Railway Co., 538 N.E.2d 1293 (4th Dist. 1989), the Illinois Appellate Court reversed the trial court's disqualification of plaintiff's counsel. The plaintiff sued Norfolk and Western Railway for property damage allegedly caused by a structure owned by the railway. Norfolk filed a third-party complaint against the Village of Forrest for contribution. Norfolk sought to have plaintiff's counsel disqualified, because plaintiff's counsel also represented the Village of Forrest on other matters. The trial court granted the motion but the Illinois Appellate Court reversed the lower court's decision finding that no actual conflict existed and that valid waivers were executed by the plaintiff and the village. The court also found that the plaintiff and the Village were only potential adversaries because of Norfolk's third-party complaint. See id.
In a criminal defense case, where multiple defendants are represented by the same counsel, the right to consent to a conflict of interest, and therefore to retain the attorney of one's choice, is balanced against a court's interest in conducting a criminal trial that will lead to a just result. See United States v. Wheat, 486 U.S. 153 (1988). This scenario is illustrated in United States v. Dempsey, et. al., 724 F. Supp. 573 (N.D. Ill. 1989), which involved a racketeering case in which four defendants engaged four members of a single law firm to represent them. The court determined that because of the differing extent of the charges against the defendants, as well as, the differing degrees of alleged participation in the illegal activities, a genuine conflict of interest existed among the defendants, which would compromise the fairness of the proceedings. The court, therefore, was not required to honor the defendants' waiver of the conflict. Consequently, the court required each defendant to retain separate counsel. See Dempsey, 724 F. Supp. at 578. The court based its decision on its duty to protect the integrity of the court from the appearance of unfairness, as well as, to prevent future attacks over the adequacy of the waiver or the fairness of the proceedings. See id. at 580. Cf. United States v. Bailin, 731 F. Supp. 865 (N.D. Ill. 1990) (multiple defendants' waivers to conflict of interest were allowed where "knowing and intelligent" consent was given by defendant and no actual recognizable conflicts, real or potential, could be identified.) See also ISBA Advisory Opinion No. 94-21 (March 1995), 1995 WL 874709 (not improper per se for an attorney to represent a city as defendants in personal injury suit and to sue the city in a zoning case if both clients consent after full disclosure).
In certain circumstances, consent to a conflict of interest may be prohibited as a matter of law. The Restatement (Third) of the Law Governing Lawyers identifies situations where a client may not consent to a conflict. See Restatement (Third) of the Law Governing Lawyers § 202 ct. g (P.F.D. No. 1 1996). Although Illinois case law has not addressed each and every one of these scenarios, an attorney should show extreme caution in engaging in concurrent representation in the following examples. The Restatement suggests that representing two or more defendants with conflicting interests in a capital case may be prohibited as a matter of law. Illinois case law has recognized a per se conflict of interest where an attorney actually sacrifices the representation of one client for the sake of another client. See, e.g., People v. Hanson, 652 N.E.2d 824 (5th Dist. 1995); People v. Lee, 649 N.E.2d 457 (1st Dist. 1995). However, where a defendant and co-defendant are represented by the same attorney and neither defendant objects to the joint representation, no per se conflict exists. Instead, the defendant must demonstrate an actual conflict of interest and how it adversely affected the lawyer's performance. See People v. Williams, 563 N.E.2d 431 (1990).
The Restatement also identifies situations in civil litigation where a non-consentable conflict may arise. For example, where a lawyer attempts to represent two clients with likely claims against each other; or where the lawyers seeks to represent both parties in a contested child support hearing; or where a lawyer represents a shareholder-director as plaintiff and defendant. See id. See also Illinois Mun. League Risk Mgmt. Ass'n v. Seibert, 585 N.E.2d 1130 (4th Dist. 1992); See also 1.7:410 Insured-Insurer Conflicts
Following the comment to ABA Model Rule 1.7, the Restatement suggests a test for determining the consentability of a conflict of interest. The test is as follows: "when a disinterested lawyer would conclude that the client should not agree to the representation under the circumstances, the lawyers involved cannot properly ask for such an agreement or provide representation on the basis of the client's consent . . ." Notwithstanding, the possibility that a lawyer may face a per se conflict of interest in certain circumstances, as a general rule, after full disclosure, a client may waive the lawyer's conflict since concern for client autonomy generally calls for respecting a client's informed consent." See Restatement (Third) of the Law Governing Lawyers § 202 ct. g (P.F.D. No. 1 1996). For a more in depth discussion refer to Restatement (Third) of the Law Governing Lawyers §202 (Proposed Final Draft No. 1 1996).
1.7:250 Imputation of Conflict of Interest to Affiliated Lawyers [see 1.10:200]
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There are three remedies or sanctions for violations of conflict of interest rules, including attorney disqualification, disciplinary proceedings and civil remedies (e.g., malpractice suits and defenses for non-payment of legal fees). Rules of legal ethics do not, however, establish an independent cause of action in tort. See Skorek v. Przybylo, 628 N.E.2d 738 (1st Dist. 1993). See SWS Financial Fund A v. Saloman Bros., 790 F. Supp. 1392, 1400 (N.D. Ill. 1992). (Attorney disciplinary proceedings and civil remedies are discussed above in 1.2:240-250 and 1.1:380.)
An attorney who labors under a conflict of interest exposes him or herself to disciplinary action and, in rare circumstances, a legal malpractice action. For example, the ARDC recommended the suspension of an attorney who simultaneously represented a defendant and a state's witness against the defendant in a criminal proceeding. See In the matter of Casandra B. Watson 90 CH 358. The hearing panel found that the untenable position she put herself in by engaging in the concurrent representation and the consequences to her clients warranted a 4 month suspension. See id. Additionally, where proof of the elements of a malpractice action are established, a lawyer who has labored under a conflict of interest may be found liable for legal malpractice. The Restatement (Third) of the Law Governing Lawyers reminds that where a plaintiff can show negligence, causation and damages, a lawyer's representation of conflicting interests can result in a finding of malpractice. See Restatement (Third) of the Law Governing Lawyers § 201 ct. f (P.F.D. No. 1 1996).
Disqualification, however, is the most frequently sought remedy for a conflict of interest. Some courts prefer to deal with 1.7 violations through attorney disciplinary hearings and civil actions against attorneys as opposed to granting disqualification motions. As noted by the court in SWS Fin. Fund, disciplinary proceedings and civil actions against attorneys impose costs only on the attorney who has violated the rules whereas sanction of disqualification subjects innocent third parties to substantial costs. See SWS Fin. Fund, 190 F. Supp. at 1400. Further, courts are reluctant to grant disqualification motions because this remedy damages the attorney-client relationship by prohibiting a party from retaining the counsel of his or her choice. See SK Handtool, 619 N.E.2d at 1289. Courts, therefore, view disqualification as a drastic measure to be employed cautiously. See id.
The court in SWS Fin. Fund, instructs that before granting a disqualification motion "the court must also inquire into whether [the client's] expectations of loyalty were so cavalierly trampled that disqualification is warranted as a sanction." See SWS Fin. Fund, 790 F. Supp. at 1402. Many courts have taken this position because they recognize that motions for disqualification of counsel are frequently used as a strategic tactical weapon in litigation with the primary purpose being to delay the proceedings or harass the other parties to the suit. See Schwartz v. Cortelloni, 685 N.E.2d 871, 877 (1997). See also SK Handtool Corp, 619 N.E.2d at 12. Furthermore, the Illinois Supreme Court has rejected the argument that "the appearance of impropriety standard" justifies disqualification of an attorney where a potential conflict of interest exists. See Schwartz v. Cortelloni, 685 N.E.2d at 878-79. In construing a Rule 1.9 conflict of interest, the Schwartz court found that an attorney should not be disqualified solely on the basis of an appearance of impropriety. Such a standard is "simply too weak and too slender a reed" upon which to order disqualification. See id.
Disqualification motions require a two-part analysis. First, the court must determine whether an ethical violation has occurred. If an ethical violation has occurred, the court must then determine whether disqualification is appropriate. The burden is on the moving party to present facts showing that disqualification is an appropriate measure. Courts have noted that unless there is a "substantial basis for believing that actual, rather than merely potential, conflicts of interest are afoot." See Cruz v. County of DuPage, 1997 WL 370194 *4 (N.D. Ill 1997) quoting Guillen v. City of Chicago, 956 F. Supp. 1416, 1421 (N.D. Ill. 1997). Furthermore, as a general rule, a party has no standing to seek disqualification of opposing counsel unless the conflict is such that it calls into question the fair or efficient administration of justice. See Blanchard v. Edgemark Fin. Corp., 175 F.R.D. 293, 305 (N.D. Ill 1997).
A court may not sua sponte disqualify an attorney without first determining whether a conflict actually exists and whether the clients prefer to continue with the dual representation. The Seventh Circuit Court of Appeals held in Phillips Med. Sys. Int'l B.V. v. Bruetman, 8 F.3d 600, 606 (7th Cir. 1993) that the district court erred in disqualifying the defendant's attorneys. The attorneys represented both Bruetman and his corporations in a RICO lawsuit. The judge was concerned that Bruetman and his corporations might have conflicting interests and sua sponte disqualified the attorneys. The Seventh Circuit reversed this decision finding that the lower court was obligated to first determine whether an actual conflict existed and whether the minority shareholders preferred to continue with the dual representation. See id.
For a more extensive discussion of "Client Consent to a Conflict of Interest", refer to section 202 of the Restatement (Third) of the Law Governing Lawyers (Proposed Final Draft No. 1 1996).
There appears to be no Federal or State judicial decisions or Illinois state bar association opinion on the subject.
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1.7:300 Conflict of Interest Among Current Clients (Concurrent Conflicts)
Conflicts of interest frequently arise where counsel represents both a municipality and its employees in civil rights actions. Due to the serious potential for conflict in these situations the Second Circuit Court of Appeals has created an almost absolute prohibition on dual representation of a municipality and its employees. See Dunton v. Suffolk Cty., 729 F.2d 903 (2nd Cir. 1984).
While recognizing the potential for conflicts in these situations, the Seventh Circuit Court of Appeals has rejected an absolute prohibition on the dual representation of a municipality and its employees. See Ross v. United States, 910 F.2d 1422 (7th Cir. 1990). See also Smith v. Martin, 819 F. Supp. 733, 736-37 (N.D. Ill 1992). The Seventh Circuit and its lower federal courts have consistently held that multiple representation always carries the risk of conflict but "vague and general inconsistencies of position giving rise to hypothetical conflicts in the mind of an opposing party will not justify so drastic a measure as disqualification." Clay v. Doherty, 608 F. Supp. 295, 302 (N.D. Ill. 1985). See also Coleman v. Frierson, 607 F. Supp. 1566 (N.D. Ill. 1985).
The Illinois Appellate Court in Ivy v. Illinois State Police, 636 N.E.2d 738 (1st Dist. 1994), found that the attorney who represented the Illinois State Police and an individual police officer labored under a conflict of interest that rendered the police officer's legal representation inadequate. Ivy involved an appeal from an administrative ruling in which a state police office was dismissed for civil rights violations. The court determined that the police officer did not have adequate legal representation at the administrative hearing, due to the fact that the officer's attorney was also representing other defendants in the same proceeding. The court concluded that "the officer's lack of control over the defense of the civil law suit precluded him from attempting to show the possibility of antagonistic defenses among the three defendants." Id. at 20, 744. This, combined with other grounds, prompted the court to reverse and remand the case for further review.
For additional discussion of "Representing Parties with Conflicting Interests in Civil Litigation" refer to section 209 of the Restatement (Third) of the Law Governing Lawyers (proposed Final Draft No. 1 1996). For more discussion specifically on conflicts of interest arising from concurrent representation of municipalities and police officers refer to Nicole G. Tell, Representing Police Officers and Municipalities: A Conflict of Interest for a Municipal Attorney in a §1983 Police Misconduct Suit, 65 Fordham L. Rev. 2825 (May 1997).
1.7:315 Insured-Insurer Conflicts [see also 1.8:720]
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IRPC 1.7 is also applicable in the criminal context. As in civil litigation, the rule serves to protect confidential information, strengthen the client-attorney relationship, facilitate the court's goal of assuring fairness, and minimize the cost of legal assistance. Additionally, conflicts arising in the criminal context are measured against the Sixth Amendment standard providing for effective assistance of counsel. Although joint representation is not a per se constitutional violation, a defendant may be denied effective assistance of counsel if his attorney represents a co-defendant with adverse interests. See, e.g., Glasser v. United States, 315 U.S. 60 (1942); Holloway v. Arkansas, 435 U.S. 475 (1978).
Multiple representation of clients in criminal proceedings always presents the potential for conflicts of interest. The Restatement (Third) of the Law Governing Lawyers identifies circumstances where such conflicts may materialize through the multiple representation of co-defendants. For example, an actual conflict results where one co-defendant is offered favorable treatment in exchange for testimony against the other co-defendant. See People v. Johnson, 265 N.E.2d 869 (1970) (holding conflict of interest existed where attorney represented co-defendants, one of whom received immunity and testified against the other). See also Restatement (Third) of Law Governing Lawyers § 210 Reporter's Notes (Proposed Final Draft No. 1 1996).
A conflict can also arise where individual defendants have different perceptions of the incident leading to the prosecution such that establishing a consistent and common position among the defendants would prove impossible. This situation often results in an attorney compromising one defendant's defense to accommodate the other co-defendant's defense. In People v. Lee, 271 Ill. App. 3d 1093, 649 N.E.2d 457 (1st Dist. 1995), counsel represented three co-defendants in a drug case. The evidence adduced at trial indicated that one of the defendants and his wife, a co-defendant, were visiting the third co-defendant's home when the police executed a search warrant of the house and arrested all three occupants. The State argued that the defendant and his wife resided at the home of the third co-defendant which was the only evidence connecting the couple to the drugs. At the post-conviction hearing, the third co-defendant testified that she informed trial counsel that the couple did not reside at the house and were only visitors. This testimony was corroborated by testimony from the building manager. The court found an impermissible conflict because the lawyer could not challenge the state's evidence that the couple resided at the home without implicating the actual owner of the house. See id. at 1097, 460. See also Griffin v. McVicar, 84 F.3d 880 (7th Cir. 1996) (impermissible conflict where attorney presented defense that was favorable to one co-defendant but detrimental to the other).
Another example of the risk counsel undertakes in jointly representing clients with potentially conflicting defenses is seen in People v. Hanson, et al., 652 N.E.2d 824 (5th Dist. 1995). Hanson involved three co-defendants who were convicted of various felony offenses under the Illinois environmental Protection Act. The defendants were employees of the same corporation. The attorney representing all of the defendants, also represented the corporation employing the defendants in the related civil suit. The court held that the attorney's representation constituted a per se conflict of interest, that require reversal of convictions. The court reasoned that "the possibility [the attorney] succeeded in protecting the corporation from all civil and criminal liability, at the expense of the conviction of the individual defendants in this case, is too serious to allow the defendant's conviction to stand." Id. at 341-42, 831. See also In re Cassandra Watson, 90 Ill. Atty. Reg. & Disc. Comm. CH 358.
Other impermissible conflicts may arise in the multiple representation of clients where witnesses who might be favorable to one defendant might be unfavorable to his co-defendant. or where an attorney might stress certain facts in argument that although favorable to one client's position may be unfavorable to the other. See Restatement (Third) of the Law Governing Lawyers § 210 ct. c and Reporter's Notes (Proposed Final Draft No. 1 1996).
Nonetheless, co-defendants may make a knowing waiver of a conflict of interest. But a defendant must accept the consequences of a conviction after executing a waiver of the conflict. For example, in United States v. Bradshaw, 719 F.2d 907 (7th Cir. 1983), the court found that the defendant knowingly waived his right to independent counsel and where no actual conflict existed he was not denied effective assistance of counsel. Moreover, under Illinois state law when a defendant fails to object to joint representation, he may not raise the issue and gain relief after a conviction unless he can show "actual conflict of interest and how it adversely affected [the] lawyer's performance." People v. Williams, 563 N.E.2d 431 (1990).
The Illinois Supreme Court recognizes that conflicts of interest arising in the criminal context are particularly serious because a client's liberty may be at stake. See In re Schneider, 456 N.E.2d 2, 5 (1983). In fact, the court in Schneider disbarred an attorney in part because he represented two defendants with conflicting interests thereby compromising his duty of loyalty to each client. See id. The court stated that although the attorney had engaged in other misconduct, his concurrent representation of clients with adverse interests independently warranted disbarment. See id.
For more extensive discussion of "Conflicts of Interest in Criminal Litigation," refer to section 210 of the Restatement (Third) of the Law Governing Lawyers (Proposed Final Draft No. 1 1996).
Rule 1.7 may also be applicable in non-litigated matters. Although most case law dealing with Rule 1.7 involves conflicts arising in litigation, the Illinois State Bar Association has rendered several advisory opinions considering conflicts of interest in non-litigated matters. For example ISBA Advisory Opinion No. 86-15 (May 13, 1987) (1987 WL 38373) discusses the issue of whether it is permissible for an attorney to represent both a buyer and a seller in a real estate transaction. The opinion concludes that generally, the interests of a buyer and a seller in an arms-length transaction can not be adequately represented by a single attorney. The opinion does not state, however, that a single attorney could never represent both a buyer and seller in a real estate transaction:
[ ] we are not prepared to say categorically in the present instance that an attorney can never, under any circumstances, adequately represent the interests of both the buyer and seller in a real estate transaction. We do, however, believe such instances to be extremely rare. Whether the lawyer can adequately represent both such interests in a particular transaction must to some degree be dependent upon the facts of that transaction. Id.
The ISBA addressed an analogous situation in Advisory Opinion No. 89-01. The committee was asked to determine whether an attorney could concurrently represent a business broker and the seller and buyer of a business in the same transaction. The committee determined that the seller and buyer could not be adequately represented by the same attorney particularly when the attorney was hired by a third party, the business broker. Accordingly, such an arrangement would violate the rules of professional conduct. See also ISBA Advisory Opinion No. 90-31 (May 15, 1991) (1991 WL 735040) (addressing the potential for conflict where an attorney represents both the lender and borrower in a real estate transaction.) For additional discussion of "Multiple Representation in Non-Litigated Matters," refer to section 211 of the Restatement (Third) of the Law Governing Lawyers (proposed Final Draft No. 1 1996).
Majumdar v. Lurie, 653 N.E.2d 915 (Ill.
The plaintiff’s first argument in his malpractice suit was that the attorney negligently failed to inform him of his duties as an officer and director of the corporation. However, at the time of the alleged failure to advise, plaintiff and attorney did not yet have an attorney-client relationship. Rather, the attorney represented the corporate entity with which the plaintiff was associated. The court held that, as a result, there was no conflict of interest (and hence, no malpractice) because the attorney did not owe the plaintiff any fiduciary duty, as his only duty was to the corporate entity alone, and not to any of its officers or directors individually. The plaintiff’s second argument was that after the attorney assisted plaintiff in forming his own medical corporation, the attorney negligently failed to advise him to resign as an officer and director of the other corporation. The plaintiff further argued that this failure to advise was a result of the attorney’s concurrent representation of the corporation and the plaintiff. Consequently, the court held that the trial court erred in dismissing plaintiff’s complaint, as a genuine conflict of interest existed which could support a claim of legal malpractice.
A recent Illinois case illustrates how the rapid growth of multi-national corporations and law firms increases the risk of conflict of interest violations. Reuben H. Donnelley Corp. v. Sprint Publishing & Advertising, Inc., 1996 WL 99902 (N.D. Ill. Feb. 29, 1996), involved a motion to disqualify the national law firm Jones, Day, Reavis and Pogue from representing the Donnelley Corporation in litigation against Central Telephone Company of Illinois. Central Telephone was a subsidiary of Sprint Publishing and Advertising. Sprint argued that Jones, Day was precluded from representing Donnelley because the firm was also currently representing another subsidiary of Sprint, United Telephone of Ohio, in a separate, unrelated matter. Sprint, a company with some 250 subsidiaries, claimed that the two affiliated corporations should be characterized as one client. As a consequence of this reasoning, Jones, Day would not be able represent Donnelley against Central Telephone without creating a conflict of interest with United Telephone, a present client. The court, however, rejected this argument and concluded that two affiliated corporations do not necessarily constitute one client, based solely upon the fact that they are subsidiaries of the same parent. Instead, the court focused on the extent to which the two affiliates were connected. By emphasizing the fact that the two affiliates had neither overlapping boards of directors nor shared management structures, the court concluded that the companies were separate legal entities that operated in different states. Consequently, the court determined that United Telephone and Central Telephone were not a “single unit” that could be characterized as one client for under Rule 1.7. Id. at *3. C.F. ABA Formed Opinion 95-390. See also ISBA 95-15 (parent corporation lawyer’s representation of plaintiff suing a subsidiary of that corporation on a matter not related to the lawyer’s work for the parent not prohibited per se) and Redding, Suing a Current Client, 10 Georgetown J. Leg. Ethics 487 (1997).
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]
The tripartite relationship among defense lawyer, insured, and insurer requires a delicate balance of rights and duties. In Illinois, a lawyer hired by an insurance company to defend in an action against the insured owes fiduciary duties to two clients: the insurer and the insured. The lawyer-client relationship between the insured and the lawyer hired by his insurer imposes upon the lawyer the same professional obligations that would exist had the lawyer been personally retained by the insured. Nandorf, Inc. v. CNA Ins. Co., 479 N.E.2d 988, 991 (Ill. App. Ct. 1st Dist. 1985). The Illinois Supreme Court recognizes two situations in which a conflict of interest requires an insurer to pay for a lawyer chosen by its insured: those involving coverage and those involving limits of coverage. The first situation arises under IRPC 1.7(a) when an insurer is obligated to defend two or more of its insureds who have adverse interests. For instance, in Murphy v. Urso, 430 N.E.2d 1079 (Ill. 1981), the passenger sued the driver and the owner of the vehicle for injuries she sustained in a car accident. The court determined that the insurer's interest conflicted with the owner's and the driver's interests because it would have been more advantageous for the owner to argue that he had not given the driver permission to drive the vehicle, while it was in the interest of the driver to argue that he was an agent of the owner. Id. at 1079. The court thus ruled that the insurer was required to pay for an independent lawyer chosen by the driver to represent him. Id. at 1084.
The second situation arises under IRPC 1.7(b) when there is a substantial risk that the claims against the insured will not be fully covered by the insurer. A lawyer employed by an insurer can resolve such a conflict by full disclosure to and consent by the insured. For example, in Illinois Mun. League Risk Mgmt. Assoc. v. Seibert, 585 N.E.2d 1130 (Ill. App. Ct. 4th Dist. 1994), the plaintiff brought an action against a police officer seeking compensatory and punitive damages. Id. at 1132. The insured was covered against claims arising out of the performance of his job, but was not insured against malicious conduct or punitive damages. Id. If the insured were found to have committed willful and malicious acts that justified punitive damages, he - not the insurer - would be liable for the damages. Although the original complaint did not allege punitive damages, the insurer notified the insured that a potential conflict may arise if punitive damages were subsequently alleged. Id. at 1134. However, when the complaint was later amended to include punitive damages, the insurer failed to notify and obtain the insured's consent to its continued representation by the lawyer that the insurer had chosen. Id. at 1135. Accordingly, the court ruled that a conflict of interest existed between the insurer and the insured and held that the insurer was obligated to pay the reasonable fees for a lawyer chosen by the insured to defend the claims against him. Id. at 1139.
Likewise, in Nandorf, Inc. v. CNA Ins. Co., 479 N.E.2d 988 (Ill. App. Ct. 1st Dist. 1985), a shop owner, the insured, was sued in a false imprisonment case. The plaintiff sought compensatory and punitive damages. Although the insurer was defending the insured against both the compensatory and punitive claims, the insurer notified the insured that it would be responsible for any award of punitive damages. Id. at 990. Thereafter, the insured hired his own lawyer to monitor the insurer's defense against the punitive claims. Id. Despite the insured's requests, the insurer refused to relinquish control of the litigation and to reimburse the insured for its expenses in retaining independent counsel. Id. The court ruled that because the insurer had not obtained the insured's consent to defend under a reservation of rights, the insurer's obligation to defend could only be satisfied by reimbursing the insured for its expense of independent counsel. Nandorf, 479 N.E.2d at 992. A conflict of interest does not exist and an insurer is not required to pay for an independent lawyer if the insurer has contractually limited to the scope of the insurance policy. In Village of Lombard v. Intergovernmental Risk Mgmt. Agency, 681 N.E.2d 88 (Ill. App. Ct. 2nd Dist. 1997), the court ruled that no conflict of interest exists in cases where an insurer contractually limits the scope of its indemnity obligations. Id. at 90. There, the insured sought a declaratory judgment that the insurer was obligated to defend against both compensatory and punitive damages using an independent lawyer so as to avoid a conflict of interest. The court rejected the insured's claim because the insurer disclaimed any liability for punitive claims in an amendment to the coverage contract to which the insured had previously agreed. Id. at 93. Because the insurer had expressly limited the scope of its coverage, the court ruled that the insurer had no obligation to defend against punitive damage claims. Id. at 94-95, 1012-13.
In addition to making the appropriate disclosures sufficient to inform the insured of the limitation of the lawyer's representation and to inform the insured of the insurer's contractual right to control the defense, a lawyer must also obtain the insured's informed consent prior to settling a claim. For instance, in Rogers v. Robson, Masters, Ryan, Brumund and Belom, 479 N.E.2d 1365 (Ill. App. Ct. 3d Dist. 1979), a physician was defended by a lawyer selected and paid for by his malpractice insurer. Throughout the litigation, the insured informed the lawyer that he would not consent to a settlement. Id. Without the insured's knowledge or consent, the lawyer settled the claim. Id. The court held that the lawyer failed to properly disclose the potential conflict and failed to obtain the physician's consent to the lawyer's continuing representation and was therefore liable to the physician because the lawyer owed a fiduciary duty to the insured even when the insurer pays for the defense. Rogers, 479 N.E.2d 1366. The Restatement echoes the concern about insurance representations. The Restatement suggests, ". . . when there appears to be no substantial risk that a claim against an insured will not be fully covered," consent by the insured-client to an informative letter at the outset of the representation is all that should be required. Restatement (Third) of the Law Governing Lawyers §134, cmt. f (2000). The Restatement tacitly realizes that there may be situations where there is a question of coverage. Thus, when a lawyer is retained to defend the insured, and such a question does arise, the lawyer may not reveal adverse confidential information about the client to the insurer concerning that question without the explicit informed consent of the client. Id.
A lawyer must not permit compliance with guidelines of an insurer relating to legal services to materially impair her independent professional judgment in representing an insured. The interests of the insurer and the insured may diverge if the insurer has a paramount interest in controlling or reducing its defense costs and the insured's interest is to receive the best possible defense. ABA Comm. On Ethics and Professional Responsibility, Formal Op. 01-421 (2001).
A lawyer must not permit compliance with guidelines and other directives of an insurer relating to a lawyer's services or to materially impair the lawyer's independent professional judgment in representing an insured. ABA Comm. On Ethics and Professional Responsibility, Formal Op. 01-421 (2001) (Ethical Obligations of Lawyer Working Under Insurance Company Guidelines and Other Restrictions). Due to increased litigation expenses, some insurers have devised guidelines to monitor the services and fees of lawyers they hire to defend their insureds. Id. Some of these guidelines go beyond describing the rights and duties of the insured, insurer, and defense lawyers and give the insurer the right to control the defense to a degree that the lawyer's professional judgment in rendering legal services may be compromised. Id.
The principle announced in Rogers - that an lawyer who was hired by an insurer to represent an insured owes a fiduciary duty primarily to the insured - is reiterated in ISBA Advisory Op. 89-17 (1990) (1990 WL 709688). The ISBA Opinion involved the issue of whether it is appropriate for a non-lawyer administrator hired by the insurer to determine the quantity of clerical or paralegal support that will be provided to an insured by the lawyer. The Opinion states: "The lawyer must use his judgment in determining the level of clerical or paralegal support and all other aspects of representation must be determined by the lawyer as is properly necessary to represent the insured . . . . The representation is limited by the terms of the [insurance] policy, but the lawyer's client is still the insured, not the [insurer]."
A lawyer may not reveal information relating to representation of a client in the absence of the client's informed consent, except for disclosures that are impliedly authorized in order to carry out the representation. ABA Comm. On Ethics and Professional Responsibility, Formal Op. 01-421 (2001). Informing the insurer about the litigation through periodic status reports, detailed billing statements and other information is usually required by the contract between the insurer and the insured and is appropriate in Illinois where the insurer and the insured are both considered clients in the absence of a conflict.
A lawyer must protect the confidential information. According to the Restatement, the lawyer representing the insured has an lawyer-client relationship with the insured, and any communications between the lawyer and representatives of the insurer concerning such matters as progress reports, case evaluations, and settlements should be regarded as privileged information and immune from discovery by the claimant. Restatement (Third) of the Law Governing Lawyers §134, cmt. f (2000).
1.7:420 Lawyer with Fiduciary Obligations to Third Person [see 1.13:520]
ISBA Advisory Opinion No. 96-06 (October 1996) (1996 WL 637495) involved a situation where an attorney represented a child and the child's parents in a personal injury claim against a friend of the child's parents. The parents were responsible for the payment of the attorney's fees. The parents instructed the attorney to limit the amount of damages sought, due to the personal relationship between parents and defendant. The opinion states that a conflict of interest clearly existed, in that the attorney's representation of the parent limited his ability to represent the child. If the attorney adhered to the parent's request, he would be limiting the potential award for the child. Consequently, the attorney was required to disclose the conflict, which was not waiveable because of the attorney's own view that compliance with the parent's instructions would adversely affect the child's representation. Thus, unless the parents withdrew the restriction, the attorney would be forced to wither withdraw from representing one or both clients, or recommend an guardian ad litem be appointed for the child. See also ISBA Advisory Opinion No. 88-5 (Feb. 9, 1989) (a lawyer serving on the Board of Directors of a lending institution has a fiduciary obligation to the institution and may have a personal interest in the institution, therefore, he may not represent a competing lending institution without consent of both institutions).
For additional discussion of a "Lawyer with Fiduciary or Other Legal Obligation to a Third Party," refer to section 216 of the Restatement (Third) of the Law Governing Lawyers (Proposed Final Draft No. 1 1996).
The Illinois State Bar Association has promulgated numerous opinions dealing with conflicts of interest between a current client and the attorney's own interests. ISBA Advisory Opinion 86-14 (May 13, 1987) (1987 WL 38372) involved the issue of whether an attorney who is on the Board of Directors of a not-for-profit corporation may serve as legal counsel for that corporation. The opinion states that the attorney may serve concurrently as a director and as legal counsel to the corporation as long as he recuses himself from any vote dealing with his employment. The opinion goes on to state, however, that the attorney should advise the corporation that his joint role as director and legal counsel could result in the loss of the attorney-client privilege in some contexts. Furthermore, the attorney should be particularly vigilant with regard to not allowing his business role as director affect his role as attorney for the corporation. ISBA Advisory Opinion No. 93-8 (January 21, 1994) concerned a potential conflict of interest where a State's Attorney obtained interest in a land trust which leased space to former law partners who might be adversaries in criminal cases. The opinion found no conflict so long as the attorney disclosed to affected clients. See also ISBA Advisory Opinion No. 94-30 (____________) (lawyer with full time law partner who is also full-time police officer may not sue municipality which employs the police officer/partner). See also ISBA Advisory Opinion No. 88-5 (Feb. 9, 1989) (a lawyer serving on the Board of Directors of a lending institution has a fiduciary obligation to the institution and may have a personal interest in the institution, therefore, he may not represent a competing lending institution without consent of both institutions).
For more discussion of "Lawyer's Personal Interest Affecting Representation of a Client," refer to section 206 of the Restatement (Third) of the Law Governing Lawyers (Proposed Final Draft No. 1 1996).