Session A: ETHICS: How to Identify and Address Client Conflict

No set of ethical issues bedevils practitioners as often as those raised by client conflicts. An attorney's duty of loyalty is absolute, but conflicts are not always easy to spot, and many conflicts are waivable. Added complications arise in administrative settings, where generic issues are often discussed alongside actively litigated matters. This discussion will address the intricacies of these issues.

Moderator: Amanda Conner, Managing Director, American Electric Power

Speaker:

Kate Belinski, Partner, Ballard Spahr

William L. Anderson, Partner, Crowell Morning

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American Bar Association – Model Rules of Professional Conduct https://www.americanbar.org/groups/professional_responsibility/publications/model_rules_of_professional_conduct/rule_1_7_conflict_of_interest_current_clients/comment_on_rule_1_7/ Rule 1.7 Conflict of Interest: Current Clients - Comment Client-Lawyer Relationship General Principles [1] Loyalty and independent judgment are essential elements in the lawyer’s relationship to a client. Concurrent conflicts of interest can arise from the lawyer’s responsibilities to another client, a former client or a third person or from the lawyer's own interests. For specific Rules regarding certain concurrent conflicts of interest, see Rule 1.8. For former client conflicts of interest, see Rule 1.9. For conflicts of interest involving prospective clients, see Rule 1.18. For definitions of “informed consent” and “confirmed in writing,” see Rule 1.0(e) and (b). [2] Resolution of a conflict of interest problem under this Rule requires the lawyer to: 1) clearly identify the client or clients; 2) determine whether a conflict of interest exists; 3) decide whether the representation may be undertaken despite the existence of a conflict, i.e., whether the conflict is consentable; and 4) if so, consult with the clients affected under paragraph (a) and obtain their informed consent, confirmed in writing. The clients affected under paragraph (a) include both of the clients referred to in paragraph (a)(1) and the one or more clients whose representation might be materially limited under paragraph (a)(2). [3] A conflict of interest may exist before representation is undertaken, in which event the representation must be declined, unless the lawyer obtains the informed consent of each client under the conditions of paragraph (b). To determine whether a conflict of interest exists, 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. See also Comment to Rule 5.1. Ignorance caused by a failure to institute such procedures will not excuse a lawyer's violation of this Rule. As to whether a client-lawyer relationship exists or, having once been established, is continuing, see Comment to Rule 1.3 and Scope. [4] If a conflict arises after representation has been undertaken, the lawyer ordinarily must withdraw from the representation, unless the lawyer has obtained the informed consent of the client under the conditions of paragraph (b). See Rule 1.16. Where more than one client is involved, whether the lawyer may continue to represent any of the clients is determined both by the lawyer's ability to comply with duties owed to the former client and by the lawyer's ability to represent adequately the remaining client or clients, given the lawyer's duties to the former client. See Rule 1.9. See also Comments [5] and [29]. [5] Unforeseeable developments, such as changes in corporate and other organizational affiliations or the addition or realignment of parties in litigation, might create conflicts in the midst of a representation, as when a company sued by the lawyer on behalf of one client is bought by another client represented by the lawyer in an unrelated matter. Depending on the circumstances, the lawyer may have the option to withdraw from one of the representations in order to avoid the

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conflict. The lawyer must seek court approval where necessary and take steps to minimize harm to the clients. See Rule 1.16. The lawyer must continue to protect the confidences of the client from whose representation the lawyer has withdrawn. See Rule 1.9(c). Identifying Conflicts of Interest: Directly Adverse [6] Loyalty to a current client prohibits undertaking representation directly adverse to that client without that client’s informed consent. Thus, absent consent, a lawyer may not act as an advocate in one matter against a person the lawyer represents in some other matter, even when the matters are wholly unrelated. The client as to whom the representation is directly adverse is likely to feel betrayed, and the resulting damage to the client-lawyer relationship is likely to impair the lawyer’s ability to represent the client effectively. In addition, the client on whose behalf the adverse representation is undertaken reasonably may fear that the lawyer will pursue that client's case less effectively out of deference to the other client, i.e., that the representation may be materially limited by the lawyer’s interest in retaining the current client. Similarly, a directly adverse conflict may arise when a lawyer is required to cross-examine a client who appears as a witness in a lawsuit involving another client, as when the testimony will be damaging to the client who is represented in the lawsuit. On the other hand, simultaneous representation in unrelated matters of clients whose interests are only economically adverse, such as representation of competing economic enterprises in unrelated litigation, does not ordinarily constitute a conflict of interest and thus may not require consent of the respective clients. [7] Directly adverse conflicts can also arise in transactional matters. For example, if a lawyer is asked to represent the seller of a business in negotiations with a buyer represented by the lawyer, not in the same transaction but in another, unrelated matter, the lawyer could not undertake the representation without the informed consent of each client. Identifying Conflicts of Interest: Material Limitation [8] Even where there is no direct adverseness, a conflict of interest exists if there is a significant risk that a lawyer’s ability to consider, recommend or carry out an appropriate course of action for the client will be materially limited as a result of the lawyer's other responsibilities or interests. For example, a lawyer asked to represent several individuals seeking to form a joint venture is likely to be materially limited in the lawyer’s ability to recommend or advocate all possible positions that each might take because of the lawyer’s duty of loyalty to the others. The conflict in effect forecloses alternatives that would otherwise be available to the client. The mere possibility of subsequent harm does not itself require disclosure and consent. The critical questions are the likelihood that a difference in interests will eventuate and, if it does, whether it will materially interfere with the lawyer's independent professional judgment in considering alternatives or foreclose courses of action that reasonably should be pursued on behalf of the client. Lawyer's Responsibilities to Former Clients and Other Third Persons [9] In addition to conflicts with other current clients, a lawyer’s duties of loyalty and independence may be materially limited by responsibilities to former clients under Rule 1.9 or by the lawyer’s responsibilities to other persons, such as fiduciary duties arising from a lawyer's service as a trustee, executor or corporate director. Personal Interest Conflicts

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[10] The lawyer’s own interests should not be permitted to have an adverse effect on representation of a client. For example, if the probity of a lawyer's own conduct in a transaction is in serious question, it may be difficult or impossible for the lawyer to give a client detached advice. Similarly, when a lawyer has discussions concerning possible employment with an opponent of the lawyer’s client, or with a law firm representing the opponent, such discussions could materially limit the lawyer’s representation of the client. In addition, 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 financial interest. See Rule 1.8 for specific Rules pertaining to a number of personal interest conflicts, including business transactions with clients. See also Rule 1.10 (personal interest conflicts under Rule 1.7 ordinarily are not imputed to other lawyers in a law firm). [11] When lawyers representing different clients in the same matter or in substantially related matters are closely related by blood or marriage, there may be a significant risk that client confidences will be revealed and that the lawyer’s family relationship will interfere with both loyalty and independent professional judgment. As a result, each client is entitled to know of the existence and implications of the relationship between the lawyers before the lawyer agrees to undertake the representation. Thus, a lawyer related to another lawyer, e.g., as parent, child, sibling or spouse, ordinarily may not represent a client in a matter where that lawyer is representing another party, unless each client gives informed consent. The disqualification arising from a close family relationship is personal and ordinarily is not imputed to members of firms with whom the lawyers are associated. See Rule 1.10. [12] A lawyer is prohibited from engaging in sexual relationships with a client unless the sexual relationship predates the formation of the client-lawyer relationship. See Rule 1.8(j). Interest of Person Paying for a Lawyer’s Service [13] A lawyer may be paid from a source other than the client, including a co-client, if the client is informed of that fact and consents and the arrangement does not compromise the lawyer’s duty of loyalty or independent judgment to the client. See Rule 1.8(f). If acceptance of the payment from any other source presents a significant risk that the lawyer's representation of the client will be materially limited by the lawyer's own interest in accommodating the person paying the lawyer's fee or by the lawyer's responsibilities to a payer who is also a co-client, then the lawyer must comply with the requirements of paragraph (b) before accepting the representation, including determining whether the conflict is consentable and, if so, that the client has adequate information about the material risks of the representation. Prohibited Representations [14] Ordinarily, clients may consent to representation notwithstanding a conflict. However, as indicated in paragraph (b), some conflicts are nonconsentable, meaning that the lawyer involved cannot properly ask for such agreement or provide representation on the basis of the client's consent. When the lawyer is representing more than one client, the question of consentability must be resolved as to each client. [15] Consentability is typically determined by considering whether the interests of the clients will be adequately protected if the clients are permitted to give their informed consent to representation burdened by a conflict of interest. Thus, under paragraph (b)(1), representation is prohibited if in

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the circumstances the lawyer cannot reasonably conclude that the lawyer will be able to provide competent and diligent representation. See Rule 1.1 (competence) and Rule 1.3 (diligence). [16] Paragraph (b)(2) describes conflicts that are nonconsentable because the representation is prohibited by applicable law. For example, in some states substantive law provides that the same lawyer may not represent more than one defendant in a capital case, even with the consent of the clients, and under federal criminal statutes certain representations by a former government lawyer are prohibited, despite the informed consent of the former client. In addition, decisional law in some states limits the ability of a governmental client, such as a municipality, to consent to a conflict of interest. [17] Paragraph (b)(3) describes conflicts that are nonconsentable because of the institutional interest in vigorous development of each client’s position when the clients are aligned directly against each other in the same litigation or other proceeding before a tribunal. Whether clients are aligned directly against each other within the meaning of this paragraph requires examination of the context of the proceeding. Although this paragraph does not preclude a lawyer’s multiple representation of adverse parties to a mediation (because mediation is not a proceeding before a “tribunal” under Rule 1.0(m)), such representation may be precluded by paragraph (b)(1). Informed Consent [18] Informed consent requires that each affected client be aware of the relevant circumstances and of the material and reasonably foreseeable ways that the conflict could have adverse effects on the interests of that client. See Rule 1.0(e) (informed consent). The information required depends on the nature of the conflict and the nature of the risks involved. When representation of multiple clients in a single matter is undertaken, the information must include the implications of the common representation, including possible effects on loyalty, confidentiality and the attorney-client privilege and the advantages and risks involved. See Comments [30] and [31] (effect of common representation on confidentiality). [19] Under some circumstances it may be impossible to make the disclosure necessary to obtain consent. For example, when the lawyer represents different clients in related matters and one of the clients refuses to consent to the disclosure necessary to permit the other client to make an informed decision, the lawyer cannot properly ask the latter to consent. In some cases the alternative to common representation can be that each party may have to obtain separate representation with the possibility of incurring additional costs. These costs, along with the benefits of securing separate representation, are factors that may be considered by the affected client in determining whether common representation is in the client’s interests. Consent Confirmed in Writing [20] Paragraph (b) requires the lawyer to obtain the informed consent of the client, confirmed in writing. Such a writing may consist of a document executed by the client or one that the lawyer promptly records and transmits to the client following an oral consent. See Rule 1.0(b). See also Rule 1.0(n) (writing includes electronic transmission). If it is not feasible to obtain or transmit the writing at the time the client gives informed consent, then the lawyer must obtain or transmit it within a reasonable time thereafter. See Rule 1.0(b). The requirement of a writing does not supplant the need in most cases for the lawyer to talk with the client, to explain the risks and advantages, if

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any, of representation burdened with a conflict of interest, as well as reasonably available alternatives, and to afford the client a reasonable opportunity to consider the risks and alternatives and to raise questions and concerns. Rather, the writing is required in order to impress upon clients the seriousness of the decision the client is being asked to make and to avoid disputes or ambiguities that might later occur in the absence of a writing. Revoking Consent [21] A client who has given consent to a conflict may revoke the consent and, like any other client, may terminate the lawyer’s representation at any time. Whether revoking consent to the client's own representation precludes the lawyer from continuing to represent other clients depends on the circumstances, including the nature of the conflict, whether the client revoked consent because of a material change in circumstances, the reasonable expectations of the other client and whether material detriment to the other clients or the lawyer would result. Consent to Future Conflict [22] Whether a lawyer may properly request a client to waive conflicts that might arise in the future is subject to the test of paragraph (b). The effectiveness of such waivers is generally determined by the extent to which the client reasonably understands the material risks that the waiver entails. The more comprehensive the explanation of the types of future representations that might arise and the actual and reasonably foreseeable adverse consequences of those representations, the greater the likelihood that the client will have the requisite understanding. Thus, if the client agrees to consent to a particular type of conflict with which the client is already familiar, then the consent ordinarily will be effective with regard to that type of conflict. If the consent is general and open-ended, then the consent ordinarily will be ineffective, because it is not reasonably likely that the client will have understood the material risks involved. On the other hand, if the client is an experienced user of the legal services involved and is reasonably informed regarding the risk that a conflict may arise, such consent is more likely to be effective, particularly if, e.g., the client is independently represented by other counsel in giving consent and the consent is limited to future conflicts unrelated to the subject of the representation. In any case, advance consent cannot be effective if the circumstances that materialize in the future are such as would make the conflict nonconsentable under paragraph (b). Conflicts in Litigation [23] Paragraph (b)(3) prohibits representation of opposing parties in the same litigation, regardless of the clients’ consent. On the other hand, simultaneous representation of parties whose interests in litigation may conflict, such as coplaintiffs or codefendants, is governed by paragraph (a)(2). A 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. Such conflicts can arise in criminal cases as well as civil. 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 codefendant. On the other hand, common representation of persons having similar interests in civil litigation is proper if the requirements of paragraph (b) are met. [24] Ordinarily a lawyer may take inconsistent legal positions in different tribunals at different times on behalf of different clients. The mere fact that advocating a legal position on behalf of one

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client might create precedent adverse to the interests of a client represented by the lawyer in an unrelated matter does not create a conflict of interest. A conflict of interest exists, however, 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; for example, when a decision favoring one client will create a precedent likely to seriously weaken the position taken on behalf of the other client. Factors relevant in determining whether the clients need to be advised of the risk include: where the cases are pending, whether the issue is substantive or procedural, the temporal relationship between the matters, the significance of the issue to the immediate and long-term interests of the clients involved and the clients’ reasonable expectations in retaining the lawyer. If there is significant risk of material limitation, then absent informed consent of the affected clients, the lawyer must refuse one of the representations or withdraw from one or both matters. [25] When a lawyer represents or seeks to represent a class of plaintiffs or defendants in a class-action lawsuit, unnamed members of the class are ordinarily not considered to be clients of the lawyer for purposes of applying paragraph (a)(1) of this Rule. Thus, the lawyer does not typically need to get the consent of such a person before representing a client suing the person in an unrelated matter. Similarly, a lawyer seeking to represent an opponent in a class action does not typically need the consent of an unnamed member of the class whom the lawyer represents in an unrelated matter. Nonlitigation Conflicts [26] Conflicts of interest under paragraphs (a)(1) and (a)(2) arise in contexts other than litigation. For a discussion of directly adverse conflicts in transactional matters, see Comment [7]. Relevant factors in determining whether there is significant potential for material limitation include the duration and intimacy of the lawyer's relationship with the client or clients involved, the functions being performed by the lawyer, the likelihood that disagreements will arise and the likely prejudice to the client from the conflict. The question is often one of proximity and degree. See Comment [8]. [27] For example, conflict questions may arise in estate planning and estate administration. A lawyer may be called upon to prepare wills for several family members, such as husband and wife, and, depending upon the circumstances, a conflict of interest may be present. In estate administration the identity of the client may be unclear under the law of a particular jurisdiction. Under one view, the client is the fiduciary; under another view the client is the estate or trust, including its beneficiaries. In order to comply with conflict of interest rules, the lawyer should make clear the lawyer's relationship to the parties involved. [28] Whether a conflict is consentable depends on the circumstances. For example, a lawyer may not represent multiple parties to a negotiation whose interests are fundamentally antagonistic to each other, but common representation is permissible where the clients are generally aligned in interest even though there is some difference in interest among them. Thus, a lawyer may seek to establish or adjust a relationship between clients on an amicable and mutually advantageous basis; for example, in helping to organize a business in which two or more clients are entrepreneurs, working out the financial reorganization of an enterprise in which two or more clients have an interest or arranging a property distribution in settlement of an estate. The lawyer seeks to resolve

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potentially adverse interests by developing the parties’ mutual interests. Otherwise, each party might have to obtain separate representation, with the possibility of incurring additional cost, complication or even litigation. Given these and other relevant factors, the clients may prefer that the lawyer act for all of them. Special Considerations in Common Representation [29] In considering whether to represent multiple clients in the same matter, a lawyer should be mindful that if the common representation fails because the potentially adverse interests cannot be reconciled, the result can be additional cost, embarrassment and recrimination. Ordinarily, the lawyer will be forced to withdraw from representing all of the clients if the common representation fails. In some situations, the risk of failure is so great that multiple representation is plainly impossible. For example, a lawyer cannot undertake common representation of clients where contentious litigation or negotiations between them are imminent or contemplated. Moreover, because the lawyer is required to be impartial between commonly represented clients, representation of multiple clients is improper when it is unlikely that impartiality can be maintained. Generally, if the relationship between the parties has already assumed antagonism, the possibility that the clients' interests can be adequately served by common representation is not very good. Other relevant factors are whether the lawyer subsequently will represent both parties on a continuing basis and whether the situation involves creating or terminating a relationship between the parties. [30] A particularly important factor in determining the appropriateness of common representation is the effect on client-lawyer confidentiality and the attorney-client privilege. With regard to the attorney-client privilege, the prevailing rule is that, as between commonly represented clients, the privilege does not attach. Hence, it must be assumed that if litigation eventuates between the clients, the privilege will not protect any such communications, and the clients should be so advised. [31] As to the duty of confidentiality, continued common representation will almost certainly be inadequate if one client asks the lawyer not to disclose to the other client information relevant to the common representation. This is so because the lawyer has an equal duty of loyalty to each client, and each client has the right to be informed of anything bearing on the representation that might affect that client's interests and the right to expect that the lawyer will use that information to that client's benefit. See Rule 1.4. The lawyer should, at the outset of the common representation and as part of the process of obtaining each client’s informed consent, advise each client that information will be shared and that the lawyer will have to withdraw if one client decides that some matter material to the representation should be kept from the other. In limited circumstances, it may be appropriate for the lawyer to proceed with the representation when the clients have agreed, after being properly informed, that the lawyer will keep certain information confidential. For example, the lawyer may reasonably conclude that failure to disclose one client's trade secrets to another client will not adversely affect representation involving a joint venture between the clients and agree to keep that information confidential with the informed consent of both clients. [32] When seeking to establish or adjust a relationship between clients, the lawyer should make clear that the lawyer's role is not that of partisanship normally expected in other circumstances and, thus, that the clients may be required to assume greater responsibility for decisions than when each client is separately represented. Any limitations on the scope of the representation made

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necessary as a result of the common representation should be fully explained to the clients at the outset of the representation. See Rule 1.2(c). [33] Subject to the above limitations, each client in the common representation has the right to loyal and diligent representation and the protection of Rule 1.9 concerning the obligations to a former client. The client also has the right to discharge the lawyer as stated in Rule 1.16. Organizational Clients [34] A lawyer who represents a corporation or other organization does not, by virtue of that representation, necessarily represent any constituent or affiliated organization, such as a parent or subsidiary. See Rule 1.13(a). Thus, 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 of the lawyer, 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 lawyer's representation of the other client. [35] A lawyer for a corporation or other organization who is also a member of its board of directors should determine whether the responsibilities of the two roles may conflict. The lawyer may be called on to advise the corporation in matters involving actions of the directors. Consideration should be given to the frequency with which such situations may arise, the potential intensity of the conflict, the effect of the lawyer’s resignation from the board and the possibility of the corporation’s obtaining legal advice from another lawyer in such situations. If there is material risk that the dual role will compromise the lawyer’s independence of professional judgment, the lawyer should not serve as a director or should cease to act as the corporation’s lawyer when conflicts of interest arise. The lawyer should advise the other members of the board that in some circumstances matters discussed at board meetings while the lawyer is present in the capacity of director might not be protected by the attorney-client privilege and that conflict of interest considerations might require the lawyer’s recusal as a director or might require the lawyer and the lawyer’s firm to decline representation of the corporation in a matter.

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Ethics Opinion 356

Absence of Conflict of Interest When Lawyer Cannot Identify Affected Clients and Nature of Conflict; Applicability of “Thrust Upon” Exception Where Lawyer Cannot Seek Informed Consent.

• Where a lawyer considers representing a client in a specific and discrete matter, and, at the commencement of that matter, knows that an identifiable second client, whether unrepresented or represented by separate counsel, will take a position adverse to the potential client, Rule 1.7(b)(1) requires the lawyer to disclose the conflict of interest and seek the informed consent of all potentially affected clients before undertaking the representation of the potential client. If the lawyer cannot identify the nature of the conflict or a specific client or clients who will take such an adverse position, however, there is no conflict of interest under Rule 1.7(b)(1) and the lawyer may undertake the representation of the potential client without seeking the consent of another client or clients.

• Where a lawyer is engaged in the confidential representation of a client and a second client thrusts a conflict of interest upon the lawyer that was not reasonably foreseeable, under Rule 1.7(b)(1), the lawyer’s obligation to maintain confidentiality prevents her from obtaining informed consent of the second client under Rule 1.7(d), but she need not withdraw from the representation of the first client, unless there is also a conflict under Rule 1.7(b)(2)-(4).

Applicable Rules

• Rule 1.6 (Confidentiality of Information)• Rule 1.7 (Conflict of Interest: General Rule)

InquiryThe Committee has received an inquiry from a lawyer practicing in a highly specialized industry. One of her current clients, Client A, sought her advice in connection with its proposed acquisition of Company X. The transaction was subject to regulatory approval, and Client A, which is a foreign company, anticipated that its bid would generate scrutiny and opposition from the business and political communities. As a consequence, Client A asked the lawyer to keep the proposed bid confidential until the bid was formally announced.

The lawyer recognized that it was possible—and even likely—that one or more of her other industry clients might also bid to acquire Company X. The lawyer also believed that once Client A’s bid became public, one or more of her other clients might intervene to oppose regulatory approval of Client A’s bid. Importantly, the lawyer asserts that her industry experience was the only basis for her assumption that other industry companies might seek to acquire Company X or oppose Client A’s bid, although she could not identify which of her clients, if any, might take either position.

As the inquiring lawyer explains, only a few lawyers practice in this specialized industry and those lawyers routinely represent multiple industry clients. Thus, if she had declined to represent Client A, other industry lawyers likely would confront similar dilemmas. Accordingly, the lawyer agreed to represent Client A in connection with its proposed transaction and worked intensely for several weeks to prepare its bid. Shortly before Client A was to announce its bid, another of the lawyer’s industry clients, Client B, announced that it would submit a bid to acquire Company X. Client B uses the inquiring lawyer’s services in other unrelated matters, but retained a different lawyer to represent it in connection with this proposed acquisition. Once Client A’s bid is made public, Clients A and B will either compete directly for the right to acquire Company X, intervene with the regulator to prevent one another from obtaining regulatory approval for their respective bids, or both.

The inquiring lawyer believes that Client A lacks sufficient time to retain another lawyer, given the timing necessary for Client A to submit a successful bid. Further, the lawyer’s representation of Client A remains confidential because Client A’s bid has not yet been made public. Accordingly, she cannot disclose her representation of Client A to Client B.

The lawyer has submitted two inquiries to this Committee. First, the lawyer asks whether her agreement to represent Client A violated Rule 1.7(b)(1) of the District of Columbia Rules of Professional Conduct (“D.C. Rules”). With respect to her second inquiry, the lawyer notes that although Client B’s announcement of a competing bid creates a conflict of interest that can be waived by the informed consent of Clients A and B, the confidential nature of her representation of Client A prevents her from seeking such consent from Client B. The lawyer asks whether the Rules therefore require her to withdraw from her representation of Client A or whether she can continue to represent Client A without seeking Client B’s informed consent.

DiscussionI. Absence of Conflict of Interest When Lawyer Cannot Identify Affected Clients and Nature of Conflict.

The first inquiry is whether a lawyer may undertake the representation of a client in a specific matter when the lawyer has reason to believe that another client will take a position adverse to that client in that matter, but cannot identify the nature of the conflict or the specific clients who might be affected.

Rule 1.7 aims to safeguard the duty of loyalty to one’s client. To that end, Rule 1.7(b)(1) directs that:

Except as permitted by paragraph (c) below, a lawyer shall not represent a client with respect to a matter if:

(1) that matter involves a specific party or parties and a position to be taken by that client in that matter is adverse to a position taken or to be taken by another client in the same matter even though that client is unrepresented or represented by a different lawyer.

The Rules provide an exception to this prohibition, however, when “each potentially affected client provides informed consent to such representation after full disclosure of the existence and nature of the possible conflict and the possible adverse consequences of such representation” and the lawyer reasonably believes that she can provide competent and diligent representation to each potentially affected client. D.C. Rule 1.7(c). Absent such disclosure and informed consent, the lawyer may not undertake the proposed representation.

Generally, the application of Rule 1.7(b)(1) is straightforward. The present inquiry, however, requires us to assess a lawyer’s obligations when the proposed representation of one client (Client A) may lead to taking a position adverse to another client, but the lawyer cannot identify the nature of the conflict or all potentially affected clients. We conclude that under those circumstances, there is no conflict of interest under Rule 1.7(b)(1) and the lawyer may undertake the representation of Client A.

Rule 1.7(b)(1) does not explicitly address this question, but the text of the rule suggests that to be prohibited, a conflict must be clear, specific and not based on mere speculation. To obtain consent to a conflict of interest under Rule 1.7(b)(1), a lawyer must disclose to each potentially affected client “the existence and nature of the possible conflict and the possible adverse consequences of such representation.” D.C. Rule 1.7(c) (1). The first part of this rule— i.e., that the lawyer must disclose the conflict to each potentially affected client – assumes that the lawyer can, in fact, identify a specific client before she has an obligation to disclose the conflict and obtain informed

consent from the appropriate parties. The second part of the rule— i.e., that the lawyer must disclose the existence and nature of the conflict and adverse consequences— assumes that the lawyer knows, or reasonably should know, that a specific client will, in fact, take a position adverse to another specific client before any obligation to disclose is triggered. We therefore read Rule 1.7(b)(1) to prohibit only those representations in which the lawyer can identify (i) the nature of the conflict and (ii) the specific client or clients who might be affected.

That the inquiring lawyer’s speculation was ultimately proven correct does not alter our reading of the rule or the basis for our conclusion. In the present inquiry, the lawyer’s industry experience was the only basis for her belief that other industry companies—including, perhaps, one of her clients—might seek to acquire Company X. (For purposes of this opinion, we accept and rely upon the inquiring lawyer’s representation that her belief that one or more of her other clients might also bid to acquire Company X was not based on confidential information from any of her clients but solely on her industry expertise and experience.) The sophisticated industry lawyer may have a more nuanced, specific and detailed view of potential conflicts than the outside objective observer. But Rule 1.7(b)(1)’s prohibition cannot depend upon whether a lawyer’s speculation about specific industry events, which are often based on unpredictable business judgments, is proven correct. Such expertise and instinct may serve clients well in transactional negotiations and litigation strategy, but it does not inform the test of what constitutes a conflict of interest under Rule 1.7(b)(1).

A lawyer’s obligations under Rule 1.7(b)(1) are clear when specific, identifiable clients take or will take adverse positions in a specific matter, but the lawyer’s representation of one client is confidential. Where a lawyer’s “obligation to one or another client … precludes making such full disclosure to [a potential new client]” to obtain a waiver, “that fact alone precludes undertaking [a new] representation.” D.C. Rule 1.7, cmt. [27]; see D.C. Legal Ethics Op. 309 (2001) (noting, in the context of advance waivers, that “if the lawyer cannot disclose the adversity to one client because of her duty to maintain the confidentiality of another party’s information, the lawyer cannot seek a waiver and hence may not accept the second representation”); D.C. Legal Ethics Op. 276, n. 5 (1997) (noting that situations may arise in which the lawyer’s confidentiality obligations preclude disclosure of relevant results of a conflicts check to the parties to a mediation and finding that in such cases, “the lawyer/mediator would have no choice but to resolve the problem by withdrawing as mediator without further comment”).[1] (/bar-resources/legal-ethics/opinions/opinion356.cfm#ftn1)

But the mere possibility, or even likelihood, of adversity between two clients does not create a conflict of interest under Rule 1.7(b)(1). “A conflict of interest is involved if there is a substantial risk that the lawyer’s representation of the client would be materially and adversely affected by the lawyer’s … duties to another current client … .” Restatement (Third) of the Law Governing Lawyers § 121 (2000). As the Restatement notes, however, “[t]here is no conflict of interest … unless there is a ‘substantial risk’ that a material adverse effect will occur… . The standard requires more than a mere possibility of adverse effect.” Id. cmt. c(iii).[2] (/bar-resources/legal-ethics/opinions/opinion356.cfm#ftn2) Cf. D.C. Legal Ethics Op. 265 (concluding, in context of positional conflicts under Rules 1.7(b)(2) – (4), that “[t]he mere possibility that a result in one representation will affect the outcome of another is not enough to trigger a conflict as to which waiver must be sought”). Simply put, if the lawyer cannot know which clients to talk to and what conflicts to disclose, then there is no conflict of interest under Rule 1.7(b)(1).

Our reading of Rule 1.7(b)(1) is also in accord with our policy of protecting the ability of clients to obtain lawyers of their own choosing. See, e.g., D.C. Legal Ethics Ops. 241; 181 (“[W]e are hesitant to announce views that … prevent or unduly hinder clients from obtaining legal representation from attorneys of their own choosing who may have formed new associations.”); D.C. Rule 5.6, cmt. [1] (noting that “[a]n agreement restricting the right of partners or associates to practice after leaving a firm not only limits their professional autonomy but also limits the freedom of clients to choose a lawyer”). In a specialized industry served by few lawyers, those lawyers will

often represent multiple business competitors. Such representations increase the likelihood that a lawyer may undertake a representation for one client that later turns out to be adverse to plans of another client that had not been disclosed or perhaps not even formulated when the representation began. Sophisticated clients retaining their counsel of choice may be aware that such issues are likely to arise and, nevertheless, accept the risks of such issues in exchange for the benefits of her expertise. We do not read the rules to discourage that freedom of choice by clients. Accord D.C. Legal Ethics Op. 181.

The inquiring lawyer in this case did not obtain advance waivers from either Client A or B. As a general matter, it would have been prudent to do so, although her failure to do so did not violate the Rules. Where lawyers anticipate frequent conflicts between their clients, it is advisable to seek advance waivers. See D.C. Rule 1.7, cmts. [31] – [32]. Such waivers are particularly apt in a specialized industry, generally populated by sophisticated clients. See D.C. Legal Ethics Op. 309 (2001); see also Lauren Nicole Morgan, Note, Finding Their Niche: Advance Conflicts Waivers Facilitate Industry-Based Lawyering, 21 Geo. J. Legal Ethics 963, 980 (2008) (noting public policy considerations favoring the use of prospective waivers).

II. Applicability of “Thrust-Upon” Exception When Lawyer Cannot Obtain Informed Consent.

The second inquiry is whether the lawyer must withdraw from the representation of Client A if the confidential nature of that representation precludes her from seeking the informed consent of Client B. In addressing this question, we assume that the conflict of interest at issue was not reasonably foreseeable, as explicitly required by Rule 1.7(d).

Rule 1.7(c) articulates an exception to the prohibition in Rule 1.7(b)(1) if a lawyer has obtained the informed consent of each potentially affected client after full disclosure of the existence and nature of the conflict. See D.C. Rule 1.7 & cmt. [27]. In the present case, however, the lawyer cannot disclose the conflict because her representation of Client A must remain confidential until after Client A has announced its bid. Rule 1.6 governs the confidentiality of a client’s information, and identifies limited exceptions to the “fundamental principle … that the lawyer holds inviolate the client’s secrets and confidences.” See D.C. Rule 1.6, cmt. [4]. For purposes of this opinion, we assume that none of these exceptions applies and so the lawyer is prohibited from disclosing the fact of her representation of Client A.

Rule 1.7(d) addresses situations in which a lawyer represents multiple clients in unrelated matters and an unforeseen adversity—commonly referred to as a “thrust–upon” conflict—arises between the clients. The rule states:

If a conflict not reasonably foreseeable at the outset of representation arises under paragraph (b)(1) after the representation commences, and is not waived under paragraph (c), a lawyer need not withdraw from any representation unless the conflict also arises under paragraphs (b)(2), (b)(3), or (b)(4).

D.C. Rule 1.7(d).

For the inquiring lawyer, the principle of confidentiality prohibits disclosure of her representation of Client A, but without full disclosure, she cannot obtain informed consent to continue that representation. See D.C. Rules 1.6, 1.7(c). Under these circumstances, does Rule 1.7(d) require the lawyer to withdraw from the representation of Client A? We conclude that it does not. Where a conflict is thrust upon a lawyer, pursuant to Rule 1.7(d), and the confidential nature of a representation precludes the lawyer from seeking informed consent for that representation pursuant to Rule 1.7(c), the lawyer need not withdraw from the representation at issue unless the conflict also arises under Rule 1.7(b)(2)-(4).

The structure of Rule 1.7(d) informs our reading of the rule. The key requirement in that Rule is that the thrust-upon conflict was “not reasonably foreseeable at the outset of the representation.” D.C. Rule 1.7(d). This element, set forth in the first phrase of Rule 1.7(d), establishes a predicate for application of the thrust–upon exception. If this predicate has been established, the lawyer must make a full disclosure to each potentially affected client, but the clients’ waiver of the thrust-upon conflict is not determinative. Even if Client B (who has created the thrust-upon conflict) will not waive the conflict, Rule 1.7(d) does not require the lawyer to withdraw from the representation. The structure of Rule 1.7(d) therefore reflects that although the lawyer generally must seek the informed consent of the second client (Client B, in this case), the result of her efforts— i.e., whether the second client (Client B) agrees to waive the conflict—does not, standing alone, preclude her continued representation of the first client (Client A). In our view, this approach reflects a considered policy judgment underlying Rule 1.7(d). Consistent with that policy, we believe that Rule 1.7(d) does not require withdrawal where a lawyer cannot seek the second client’s waiver.

“The Rules of Professional Conduct … are rules of reason,” D.C. Rules, Scope [1], and we employ a “common sense” approach to questions concerning the professional conduct of lawyers. SeeD.C. Legal Ethics Op. 272 (1997); AmSouth Bank v. Drummond Company, Inc., 589 So.2d 715 (Ala. 1991). Rule 1.7(d) provides that the lawyer need not withdraw from any representation if the thrust-upon conflict “is not waived.” A common sense reading of the phrase “is not waived” necessarily includes those circumstances in which the conflict is not waived because a waiver cannot be sought without violation of the Rules. Our conclusion assumes that the inquiring lawyer does not have a conflict under Rule 1.7(b)(2) – (4). If there is a conflict under Rule 1.7(b)(2) – (4), however, the thrust-upon exception does not apply and the lawyer must withdraw from at least one of the representations. See D.C. Rule 1.7(d).[3] (/bar-resources/legal-ethics/opinions/opinion356.cfm#ftn3)

[1] (/bar-resources/legal-ethics/opinions/opinion356.cfm#ftnref1) The inquiring lawyer must, of course, consider any other prohibitions to undertaking the representation, including the prohibitions in Rule 1.7(b)(2) – (4).

[2] (/bar-resources/legal-ethics/opinions/opinion356.cfm#ftnref2) “In the modern view, a conflict of interest exists whenever the attorney–client relationship or the quality of the representation is ‘at risk,’ even if no substantive impropriety – such as a breach of confidentiality or less than zealous representation— in fact eventuates. The law of lawyering then proceeds by assessing the risk and providing an appropriate response.” GEOFFREY A. HAZARD, JR. & W. WILLIAM HODES, THE LAW OF LAWYERING § 10.4 (3d ed. 2001) (emphasis in original). See also MONROE H. FREEDMAN & ABBE SMITH, UNDERSTANDING LAWYERS’ ETHICS at 269 (3d ed. 2004) (noting that “the term conflict of interest refers to a situation where there is a reasonable possibilitythat you will not be able to fulfill all of the legitimate demands on your time, attention, and loyalty”) (emphasis in original).

[3] (/bar-resources/legal-ethics/opinions/opinion356.cfm#ftnref3) In this regard, we emphasize that throughout her representation of Client A, the lawyer has an ongoing obligation not to disclose or use Client B’s confidential information. See D.C. Rule 1.6. If the preservation of that confidentiality would adversely affect her representation of Client A, she cannot continue the representation of Client A unless Client A consents. See D.C. Rule 1.7(b)(2) – (4).

November 2010

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Ethics Opinion 309

Advance Waivers of Conflicts of Interest

Advance waivers of conflicts of interest are not prohibited by the Rules of Professional Conduct. Such waivers, however, must comply with the overarching requirement of informed consent. This means that the less specific the circumstances considered by the client and the less sophisticated the client, the less likely that an advance waiver will be valid. An advance waiver given by a client having independent counsel (in-house or outside) available to review such actions presumptively is valid, however, even if general in character. Regardless of whether reviewed by independent counsel, an advance waiver of conflicts will not be valid where the two matters are substantially related to one another.

Applicable Rules

• Rule 1.6 (Confidentiality of Information)• Rule 1.7 (Conflict of Interest: General Rule)• Rule 1.9 (Conflict of Interest: Former Client)• Rule 1.10 (Imputed Disqualification: General Rule)• Rule 2.2 (Intermediary)

InquiryThe Ethics Committee has been asked whether advance waivers of conflicts of interest1 (/bar-

resources/legal-ethics/opinions/opinion309.cfm#footnote1) are permissible and, if so, whether there are requirements for such waivers additional to, or different from, those prescribed by Rules 1.7 and 1.9 for waivers generally.2 (/bar-resources/legal-ethics/opinions/opinion309.cfm#footnote2) For purposes of this opinion, the term “advance waiver” means one that is granted before the conflict arises and generally before its precise parameters (e.g., specific adverse client, specific matter) are known.3

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DiscussionThe practice of law in this country has changed markedly in the century since the ABA Canons of Professional Ethics were promulgated. As was the case then, many lawyers practice in relatively small firms, or as solo practitioners, in a single geographic location. Increasingly, though, law firms have hundreds or even thousands of lawyers, with multiple offices across the country and around the globe. In such firms, individual partners or associates may not even know one another, let alone the identities of the clients their colleagues represent or the details of the matters their colleagues are pursuing for such clients.

Moreover, the manner in which clients—particularly commercial clients—use lawyers is quite different than in the past. The days when a large corporation would send most or all its legal business to a single firm are gone. Today,

when corporate clients with multiple operating divisions hire tens if not hundreds of law firms, the idea that, for example, a corporation in Miami retaining the Florida office of a national law firm to negotiate a lease should preclude that firm’s New York office from taking an adverse position in a totally unrelated commercial dispute against another division of the same corporation strikes some as placing unreasonable limitations on the opportunities of both clients and lawyers.

ABA Formal Op. 93-372 (1993) (“ABA Opinion”), in American Bar Association, Formal and Informal Ethics Opinions, 1983-1998, at 167-68. This means, for example, that if the law firm hypothesized in the ABA Opinion is looking out for its own interests, it might decline the Miami representation. This in turn would deny the client’s choice of a lawyer and would reduce its potential choice of lawyers generally.

One alternative is to let clients waive such conflicts if they view such waivers as being in their interest. This approach has been recognized as proper at least since the promulgation of the ABA Canons of Ethics in 1908. See American Bar Association, Opinions on Professional Ethics 22 (1967) (text of Canon 6); D.C. Code of Professional Responsibility, Disciplinary R. 5-101(A) (1991 ed.).4 (/bar-resources/legal-ethics/opinions/opinion309.cfm#footnote4) The District of Columbia Rules of Professional Conduct (“D.C. Rules”) prescribe the conflicts of interest that prevent a lawyer from accepting and, in some instances, continuing, a representation. D.C. Rules 1.7, 1.9. Where the conflict involves two current clients, a lawyer5 (/bar-resources/legal-ethics/opinions/opinion309.cfm#footnote5) may not advance adverse positions on behalf of those clients in the same matter. D.C. Rule 1.7(a). That conflict is not waivable. See id., comments [2]-[4], [6].

Rule 1.7(b) sets out four types of current-client conflicts that may be overcome by a waiver. These are conflicts in which—

(1) in a matter involving a specific party or parties, the position to be taken by the lawyer’s client is adverse to the position taken by another client of the lawyer in that matter, even though the other client is represented by a different lawyer; (2) the representation “will be or is likely to be adversely affected by [the lawyer’s] representation of another client”; (3) “representation of another client [of the lawyer] will be or is likely to be adversely affected by such representation”; or (4) “the lawyer’s professional judgment on behalf of the client will be or reasonably may be adversely affected by the lawyer’s responsibilities to or interests in a third party or the lawyer’s own financial, business, property, or personal interests.”

Conflicts under subparagraphs (2), (3), and (4) of Rule 1.7(b) sometimes are referred to as “punch-pulling” conflicts because they address situations where a lawyer’s commitment to the adverse client, or to some personal situation related to the representation, arguably might tempt her to “pull her punches” on behalf of her client.

“The difference between Rule 1.7(a) and Rule 1.7(b) is that in the former, the lawyer is representing multiple interests in the same matter, while in the latter the lawyer is representing a single interest, but a [current] client of the lawyer who is represented by different counsel has an interest adverse to that advanced by the lawyer.” D.C. Rule 1.7, comment [1] (emphasis added).

Where a former client is involved, a conflict exists only if the adversity arises in a matter that is the same as, or substantially related to, the matter in which the lawyer formerly represented that client. D.C. Rule 1.9; see Brown v. D.C. Bd. of Zoning Adjustment, 486 A.2d 37 (D.C. 1984) (en banc); In re Sofaer, 728 A.2d 625 (D.C. 1999) (decided under Rule 1.11).

As noted above, a conflict under Rule 1.7(a) may not be waived. See D.C. Rule 1.7, comments [2]-[4], [6]. A conflict under Rule 1.7(b) may be waived, however, “if each potentially affected client consents to such representation after full disclosure of the existence and nature of the possible conflict and the possible adverse consequences of such representation.” D.C. Rule 1.7(c). “Consent is “a client’s uncoerced assent to a proposed course of action, following consultation with the lawyer regarding the matter in question.” D.C. Rules, Terminology, ¶ [2]. In turn, “consultation” means “communication of information reasonably sufficient to permit the client to appreciate the significance of the matter in question.” Id. ¶ [3]. A waiver must be predicated upon disclosure

sufficient to allow the client to make “a fully informed decision” and to make the client “aware of the possible extra expense, inconvenience, and other disadvantages that may arise if an actual conflict of position should later arise and the lawyer be required to terminate the representation.” D.C. Rule 1.7, comment [19]; see In re James, 452 A.2d 163, 167 (D.C. 1982) (requiring “a detailed explanation of the risks and disadvantages to the client”).

A conflict of interest under Rule 1.9 (former client) also may be waived. D.C. Rule 1.9, comment [3]. Such a waiver is valid “only if there is disclosure of the circumstances, including the lawyer’s intended role in behalf of the new client.” Id.6 (/bar-resources/legal-ethics/opinions/opinion309.cfm#footnote6) That is, the Rules require that a client who is asked to waive an actual or potential conflict have an adequate appreciation of what protection she is giving up. This requirement is subjective, meaning that more explanation may be required to satisfy the Rules’ consent and consultation criteria where a less sophisticated client is involved than where a more sophisticated client is being asked to waive its rights. See D.C. Rule 1.7, comment [20]; ABA Opinion at 170.

We know of no District of Columbia Court of Appeals decision that expressly permits or prohibits advance waivers of conflicts of interest.7 (/bar-resources/legal-ethics/opinions/opinion309.cfm#footnote7) The D.C. Rules are silent on whether a client may give an advance waiver as to itself, though a comment to Rule 1.7 permits an organization client to “give consent to the lawyer in advance to engage in representations adverse to an affiliate, owner or other constituent of the client . . . so long as the requirements of Rule 1.7(c) can be met.” D.C. Rule 1.7, comment [17]. Similarly, this committee has not addressed the issue directly, though we have expressed doubt about the enforceability of advance waivers, “especially where the client is not a sophisticated consumer of legal services,” D.C. Ethics Op. 265 (1996), and doubt whether advance waiver of a client’s right to accept a confidential settlement could have been the product of informed consent, D.C. Ethics Op. 289 (1999). Nevertheless, we do not write on a clean slate: The American Bar Association’s Committee on Ethics and Professional Responsibility, the Restatement of the Law Governing Lawyers, the ABA’s Ethics 2000 Commission,8 (/bar-resources/legal-ethics/opinions/opinion309.cfm#footnote8) various courts, bar associations in other United States jurisdictions, and at least one respected academic figure have said that while advance waivers are not per se improper, they will be sustained only where the client can be said to have given informed consent.

The ABA Opinion, for example, observes that “‘[u]nlike the client issuing a specific waiver, the client issuing a prospective waiver cannot know what confidences he will in the future disclose or in what adverse representations the attorney may engage.’” ABA Opinion at 171 (quoting Note, Prospective Waiver of the Right to Disqualify Counsel for Conflicts of Interest, 79 Mich. L. Rev. 1074, 1082 (1981)). Accordingly, that opinion states that a prospective waiver probably will not stand unless it identifies the opposing party or at least a class of potential opponents, as well as giving the client sufficient information to appreciate “the nature of the likely matter and its potential effect on the client.” Id. at 171. The ABA Opinion also cautions that a waiver of conflicts does not constitute a waiver of confidentiality, see infra n. 10, and suggests strongly that any advance waiver be in writing, ABA Opinion at 172-73.

The ABA Opinion also requires that when a conflict arises, the lawyer revisit the judgment(s) she made originally about the propriety of the waiver. Id. at 171. This does not apply literally in the District of Columbia because the ABA Model Rules of Professional Conduct (“Model Rules”) require that the lawyer “reasonably believe[] the representation will not adversely affect the relationship with the other client” in addition to requiring that the clients consent after consultation. Model Rule 1.7(a). The D.C. Rules, on the other hand, permit a lawyer to seek a waiver even though the representation reasonably may be expected to affect adversely the relationship with the other client. D.C. Rule 1.7(b)(2)-(3), 1.7(c). We nevertheless believe that a prudent lawyer in this jurisdiction should revisit the issue when a conflict actually arises, so as to ensure that adequate disclosure will be made to the new client from whom a contemporaneous waiver of conflicts is being sought, see ABA Formal Op. 99-415, and that the lawyer is satisfied that she will be able to

represent both clients adequately.

The Restatement does not rule out advance conflict waivers but says that they are

subject to special scrutiny, particularly if the consent is general. A client’s open-ended agreement to consent to all conflicts normally should be ineffective unless the client possesses sophistication in the matter in question and has had the opportunity to receive independent legal advice about the consent.

On the other hand, particularly in a continuing client-lawyer relationship in which the lawyer is expected to act on behalf of the client without a new engagement for each matter, the gains to both lawyer and client from a system of advance consent to defined future conflicts might be substantial. A client might, for example, give informed consent in advance to types of conflicts that are familiar to the client. Such an agreement could effectively protect the client’s interest while assuring that the lawyer did not undertake a potentially disqualifying representation.

Restatement of the Law Governing Lawyers, § 122, comment d (2000).

The Restatement adds that if, between the time a prospective waiver is given and the time a conflict arises, “a material change occurs in the reasonable expectations that formed the basis of a client’s informed consent, the new conditions must be brought to the attention of the client and new informed consent obtained.” Id. Presumably, by “material change” the comment means something short of the change that itself creates the conflict, else there could be no advance waivers.

The changes in the Model Rules recommended by the ABA Ethics 2000 Commission include a comment on the subject of advance conflict waivers. Commission on Evaluation of the Rules of Professional Conduct, Report to House of Delegates (May 2001 rev.) (“Ethics 2000 Report”), prop. Model Rule 1.7, comment [22], available at www.abanet.org/cpr/e2k-report_home.html.9 (/bar-resources/legal-ethics/opinions/opinion309.cfm#footnote9) The general test of such a waiver is “the extent to which the client reasonably understands the material risks that the waiver entails.” Id. This in turn depends on the completeness of the explanation of possible conflicts and the “actual and reasonably foreseeable adverse consequences” of such conflicts. Id. Therefore, consent to a type of conflict with which the client is familiar is more likely to be effective than a general or open-ended consent. Id. Thus,

if the client is an experienced user of the legal services involved and is reasonably informed regarding the risk that a conflict may arise, such consent is more likely to be effective, particularly if, e.g., the client is independently represented by other counsel in giving consent and the consent is limited to future conflicts unrelated to the subject of the representation.

Id. The Commission’s comment on “informed consent” echoes this theme:

In determining whether the information and explanation provided are reasonably adequate, relevant factors include whether the client or other person is experienced in legal matters generally and in making decisions of the type involved, and whether the client or other person is independently represented by other counsel in giving the consent. Normally such persons need less information and explanation than others, and generally a client or other person who is independently represented by other counsel in giving the consent should be assumed to have given informed consent.

Id., Rule 1.0, comment [6] (emphasis added).

Most courts that have considered this issue have ruled along the lines set out by the ABA Opinion, the Restatement, and the proposal of the Ethics 2000 Commission. Advance conflict waivers have been sustained where the potential adverse party was known and identified, the client giving the waiver was sophisticated, and the waiver had been reviewed by the client’s in-house counsel. E.g., United Sewerage Agency v. Jelco Inc., 646 F.2d 1339 (9th Cir. 1981); Fisons Corp.

v. Atochem North Amer., Inc., 1990 U.S. Dist. LEXIS 15284, 1990 WL 180551 (S.D.N.Y. 1990); Interstate Properties v. Pyramid Co. of Utica, 547 F. Supp. 178 (S.D.N.Y. 1982). The Fisons court stated that where the waiving client is sophisticated, notification of the potential conflict itself is sufficient to satisfy the requirement. Fisons Corp., 1990 WL 180551, at *5. Moreover, at least one court has held that an advance waiver may be implied where the objecting client, including its in-house counsel, had extensive knowledge of the law firm’s longtime representation of the other client. City of Cleveland v. Cleveland Elec. Illuminating Co., 440 F. Supp. 193 (N.D. Ohio 1976), aff’d mem., 573 F.2d 1310 (6th Cir. 1977).

On the other hand, advance waivers have been struck down where they are unduly general and unsophisticated clients are involved. Correspondence with the objecting client’s nonlawyer employees (claims adjusters), for example, was held insufficient to constitute “consultation” or “full disclosure.” Florida Ins. Guaranty Ass’n, Inc. v. Carey Canada, Inc., 749 F. Supp. 255 (S.D. Fla. 1990); see Marketti v. Fitzsimmons, 373 F. Supp. 637 (W.D. Wisc. 1974) (where client a labor union local, mere knowledge of second representation insufficient to constitute waiver). Similarly, an open-ended release of the lawyer from “all rights, burdens, obligations, and privileges which appertain to his [former] employment,” coupled with consent for the lawyer to “engage his services pro and con, as he may see fit,” was held (notwithstanding the relative sophistication of the client) grossly insufficient to justify the lawyer’s subsequent activity—including disclosure of confidential information—adverse to the former client. In re Boone, 83 F. 944 (N.D. Calif. 1897). Instead, said the court, the release would be effective only if it were “positive, unequivocal, and inconsistent with any other interpretation.” Id. at 956. A more recent decision held that a general advance consent covering all unrelated matters is insufficient to waive adversity in litigation unless it expressly refers to “litigation.” Worldspan, L.P. v. Sabre Group Holdings, Inc., 5 F. Supp. 2d 1356 (N.D. Ga. 1998).

[F]uture directly adverse litigation against one’s present client is a matter of such an entirely different quality and exponentially greater magnitude, and so unusual given the position of trust existing between lawyer and client, that any document intended to grant standing consent for the lawyer to litigate against his own client must identify that possibility, if not in plain language, at least by irresistible inference including reference to specific parties, the circumstances under which such adverse representation would be undertaken, and all relevant like information.

Id. at 1360; see Hasco, Inc. v. Roche, 700 N.E.2d 768 (Ill. App. 1998) (narrow construction of advance waivers). But see Zador Corp. N.V. v. Kwan, 31 Cal. App. 4th 1285, 1300-01, 37 Cal. Rptr. 2d 754, 763 (Cal. App. 1995) (construing general waiver, given in joint representation context, to include litigation).

At least two major local bar associations have opined that advance waivers of conflicts are permissible, particularly where the waiving client is sophisticated. N.Y. County Lawyers’ Ass’n Ethics Op. 724 (1998); Los Angeles County Bar Ass’n Formal Op. 471 (1994). The New York County opinion adopts the ABA Opinion’s recommendations regarding disclosure of potential adverse clients (or types of clients) and types of adverse representations, adding that the lawyer also should disclose the steps to protect the client (e.g., erection of an ethical wall) that will be taken should a conflict arise. The ultimate issue, the opinion states, is whether “the subsequent conflict should have been reasonably anticipated by the original client based on the disclosures made and the scope of the consent sought.” Taking cognizance of the subjective nature of informed consent, the New York County opinion observes that for

a sophisticated client, such as a large corporation with in-house counsel, the adequacy of disclosure will be put to a less stringent test than if the client were a small business, an individual unsophisticated with respect to legal matters, a child or an incapacitated person. . . . .Indeed, a “blanket” waiver of future conflicts involving adverse parties may be informed and enforceable depending on the client’s sophistication, its familiarity with the law firm’s practice, and the reasonable expectations of the parties at the time consent is obtained. For example, a subsequent representation may be said to have been reasonably contemplated by a sophisticated client, advised by in-house counsel, who is familiar with a law firm’s multi-disciplinary practice and wide variety of clients.

Finally, a prominent academic recently has suggested a “bright line” standard under which even a broad advance conflict waiver generally should be enforced “if it is unambiguous and the client is independently represented by another lawyer, including in-house counsel, at the time the waiver is given.” Richard W. Painter, Advance Waiver of Conflicts, 13 Geo. J. Legal Ethics 289, 312 (2000) (“Painter”); accord Brian J. Redding, Suing a Current Client: A Response to Professor Morgan, 10 Geo. J. L. Ethics 487, 497-99 (1997). Professor Painter suggests using solely the “independent representation” criterion rather than coupling it to the “sophisticated client” criterion suggested by the

Restatement. Painter, at 327. His approach avoids the uncertainty inherent in making the validity of the waiver depend on a subjective judgment of whether a client is “sophisticated.” Id.

Professor Painter also suggests that the “substantially related” criterion that applies where a former client is involved, see D.C. Rule 1.9; Brown, 437 A.2d 37, should be part of the test of which conflicts can be waived in advance. Painter, at 321.

Although loyalty and confidentiality concerns are heightened when a lawyer is concurrently representing clients with adverse interests, the sweeping prohibition of concurrent conflicts rules can sometimes be intolerable. Many lawyers respond by not taking on a new client who might in the future have interests adverse to current clients, knowing that once they begin representing a client, they will not be permitted to represent other clients in matters where the first client’s interests are adverse. . . . .Although the risk of adverse use of confidential information is increased by a waiver that imposes the substantial relationship test on concurrent conflicts, information learned in an unrelated representation is generally of limited value and the client is furthermore still protected by separate prohibitions on disclosure or adverse use of client information (Model Rules 1.6 and 1.8(b)).

Id.

ConclusionsThus the modern view—held by the courts, the American Bar Association, local bar associations and the American Law Institute—is that advance waivers of conflicts of interest are permissible, within certain limits and subject to certain client protections. We conclude that the D.C. Rules are consistent with that view and that they permit advance waivers under Rules 1.7 and 1.9. See United Sewerage Agency, 646 F.2d at 1349-50. “Clients who are fully advised should be able to make choices of this kind if they wish to do so.” Id. at 1350.

Such waivers, however, are permissible only if the prerequisites of the D.C. Rules—namely “full disclosure of the existence and nature of the possible conflict and the possible adverse consequences of such representation”—are satisfied. See D.C. Rule 1.7(c). As noted above, the client must have “information reasonably sufficient to permit the client to appreciate the significance of the matter in question,” D.C. Rules, Terminology, ¶ [3], and to allow the client to make “a fully informed decision” with awareness “of the possible extra expense, inconvenience, and other disadvantages that may arise if an actual conflict of position should later arise and the lawyer be required to terminate the representation.” D.C. Rule 1.7, comment [19]; see In re James, 452 A.2d at 167 (requiring “detailed explanation of the risks and disadvantages to the client”). Ordinarily this will require that either (1) the consent is specific as to types of potentially adverse representations and types of adverse clients (e.g., a bank client for whom the lawyer performs corporate work waives the lawyer’s representation of borrowers in mortgage loan transactions with that bank) or (2) the waiving client has available in-house or other current counsel independent of the lawyer soliciting the waiver.

Further, the lawyer must make full disclosure of facts of which she is aware, and hence cannot seek a general waiver where she knows of a specific impending adversity unless that specific instance also is disclosed. See D.C. Rule 1.7, comment [19]; City of El Paso v. Salas-Porras, 6 F. Supp. 2d 616, 625-26 (W.D. Tex. 1998). A corollary of this rule is that if the lawyer cannot disclose the adversity to one client because of her duty to maintain the confidentiality of another party’s information, the lawyer cannot seek a waiver and hence may not accept the second representation. D.C. Rule 1.7, comment [19] (“If a lawyer’s obligation to one or another client or to others or some other consideration precludes making . . . full disclosure to all affected parties, that fact alone precludes undertaking the representation at issue”).

A conflict arising from the lawyer’s appearance on both sides of the same matter is, as noted above, nonwaivable. D.C. Rule 1.7(a) & comment [1]. Because of the greatly increased potential for misuse of client confidences—inadvertently or otherwise—advance waivers should exclude from their coverage not only the same matter but also any substantially related matter. See Painter, at 321. For this reason, advance waivers ordinarily will not come into play in former-client situations under Rule 1.9 because disqualification under that rule extends only to matters that are the same as, or substantially related to, the initial matter.

Further, although the D.C. Rules do not require that waivers be in writing, D.C. Rule 1.7, comment [20], we join the ABA Committee on Ethics and Professional Responsibility in recommending that—for the protection of lawyers as

well as clients—advance waivers be written. See ABA Opinion at 173. We note in this connection that the ABA Ethics 2000 Commission has proposed that the Model Rules require all waivers to be written. Ethics 2000 Report, prop. Model Rule 1.7(b)(4) & prop. comment [20].

Finally, any decision to act on the basis of an advance waiver should be informed by the lawyer’s reasoned judgment. For example, a prudent lawyer ordinarily will not rely upon an advance waiver where the adversity will involve allegations of fraud against the other client or is a litigation in which the existence or fundamental health of the other client is at stake.

In accordance with the foregoing, a client not independently represented by counsel (including in-house counsel) generally may waive conflicts of interest only where specific types of potentially adverse representations or specific types of adverse clients are identified in the waiver correspondence. A client that is independently represented by counsel generally may agree to waive such conflicts even where the specificity requirements set out in the preceding sentence are not satisfied.10 (/bar-resources/legal-ethics/opinions/opinion309.cfm#footnote10)

Appendix

Sample Advance Waiver of Conflicts of InterestBelow is a sample of text for an advance waiver of conflicts of interest. The committee does not view this text as authoritative or exclusive:

“As we have discussed, the firm represents many other companies and individuals. It is possible that during the time we are representing you, some of our current or future clients will have disputes or transactions with you. [For example, although we are representing you on __________, we have or may have clients whom we represent in connection with ________________.] You agree that we may continue to represent, or undertake in the future to represent, existing or new clients in any matter, including litigation, even if the interests of such other clients in such other matters are directly adverse to yours, so long as those matters are not substantially related to our work for you.”

September 2001

1. Waivers of conflicts of interest, which are the principal subject of this opinion, are different from waivers of confidentiality. See infra note 10.

2. D.C. Rule 1.8 addresses conflicts of interest arising from certain types of transactions. This opinion does not address waivers of such conflicts.

3. We accordingly view a conflict waiver given as part of an agreement for representation by a single lawyer of multiple clients, see D.C. Rules 1.7(c), 2.2, as more in the nature of a current than an advance waiver.

4. “Giving effect to a client’s consent to a conflicting representation might rest either on the ground of contract freedom or on the related ground of personal autonomy of a client to choose whatever champion the client feels is best suited to vindicate the client’s legal entitlements.” Charles Wolfram, Modern Legal Ethics § 7.2.2, at 339 (1986).

5. Because a conflict of interest under Rule 1.7 or 1.9 is imputed to a lawyer’s entire firm, D.C. Rule 1.10(a); D.C. Ethics Op. 279 (1998), “lawyer” in this discussion comprehends not only the individual lawyer but her entire firm. Thus, if one lawyer in a law firm is disqualified by reason of Rule 1.7 or Rule 1.9, the entire firm is disqualified. D.C. Rule 1.10(a); see D.C. Rule 1.7, comment [23]; D.C. Rule 1.9, comment [3]; D.C. Ethics Op. 279 (1998).

6. Where the former client is the government, issues of disqualification, imputation, and waiver are governed by Rule 1.11 rather than Rule 1.9. D.C. Rule 1.9, comment [3].

7.A 1994 decision expressly declined to rule that an advance waiver by an individual member of a business partnership of a lawyer’s representation of the partnership as well as the individual partners is binding as a matter of law. Griva v. Davison, 637 A.2d 830, 846 (1994). The statement was dictum, however, and in any event is consistent with this opinion.

8. The Ethics 2000 Commission formally is known as the Commission on Evaluation of the Rules of Professional Conduct.

9. The Commission’s recommendations will not become part of the Model Rules until and unless they are adopted by the ABA House of Delegates. The House of Delegates began consideration of the proposals at its August 2001 meeting but did not complete the effort and is scheduled to resume consideration of the report at its February 2002 meeting. ABA Stands Firm on Client Confidentiality, Rejects “Screening” for Conflicts of Interest, 70 U.S.L.W. 2093, 2095 (Aug. 14, 2001). Comment [22] was considered expressly at the August 2001 meeting but a proposed amendment that would have altered or deleted it was not adopted. Id. at 2094

10. Waivers permitting the adverse use or disclosure of confidential information, see D.C. Rule 1.6(c)-(d), may not be implied from waivers of conflicts of interest. Because of their considerable potential for mischief, waivers of confidentiality require particular scrutiny and may be invalid even when granted by sophisticated clients with counsel (in-house or outside) independent of the lawyer seeking the waiver. See Westinghouse Elec. Corp. v. Gulf Oil Corp., 588 F.2d 221, 229 (7th Cir. 1978) (expressing doubt as to the efficacy of “a vague, general” advance waiver of confidentiality); In re Boone, 83 F. 944 (prohibiting waiver of confidentiality requirement). But see ABA Formal Op. 99-415 (1999) (suggesting that a more flexible standard may apply where the waiving client is sophisticated or has in-house counsel); Brian J. Redding, The “Confidential Information” Conflict—Is It Time for the ABA to Rethink its Position on Waiver?, Prof. Law., Winter 1999, at 10 (same). As with conflicts of interest, see supra note 3, we view the waivers of confidentiality that commonly are found in joint and “intermediary” representation situations, see D.C. Rules 1.7, 2.2, as constituting current, rather than advance, waivers.

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Ethics Opinion 344

Conflicts of Interest for Lawyers Engaged in Lobbying Activities that Are Not Deemed to Involve the Practice of Law

The District of Columbia Rules of Professional Conduct regulate “lobbying activity” by lawyers who practice law in the District of Columbia. The conflicts rules for lobbying matters are as follows:

• Rule 1.7(a) prohibits one lawyer or law firm from advancing opposing positions, in the same lobbying matter. This conflict cannot be waived.

• Lobbying representations are not subject to Rule 1.7(b)(1) because such representations are not “matters involving a specific party or parties,” a phrase which excludes lobbying, rulemaking and other matters of general government policy.

• Rules 1.7(b)(2), (b)(3) and (b)(4) prohibit lobbying representations if:

• The proposed representation is likely to be adversely affected by another representation;• Another representation is likely to be adversely affected by the proposed representation; or• The lawyer-lobbyist’s professional judgment reasonably may be adversely affected by the lawyer’s

responsibilities to or interests in a third party, or the lawyer’s own financial, business, property, or personal interests.

Typically apparent in “punch-pulling” situations where the lawyer’s zealousness in one representation may arguably be compromised by representations of other clients or by other interests of the lawyer, these conflicts can be waived in some circumstances through informed consent from the affected clients. See Rule 1.7(c).

Because nonlawyers may engage in lobbying activity, lawyers and their associates may remove such activities from the conflicts provisions of the Rules of Professional Conduct through strict compliance with the regulations of D.C. Rule 5.7 for “law-related services.” To do so, however, the lobbying client must receive clear notice that the services are not legal services and that the usual protections accompanying a client-lawyer relationship do not apply.

Applicable Rules

• Rule 1.0(h) (Terminology: Definition of “Matter”)• Rule 1.6 (Confidentiality of Information)• Rule 1.7 (Conflicts of Interest: General)• Rule 1.10 (Imputed Disqualification General Rule)• Rule 1.11 (Successive Government and Private or Other Employment)• Rule 5.3 (Responsibilities Regarding Nonlawyer Assistants)• Rule 5.4 (Professional Independence of a Lawyer)• Rule 5.7 (Responsibilities Regarding Law-Related Services)

InquiryThe Committee on Unauthorized Practice of Law of the District of Columbia Court of Appeals (the “UPL Committee”) recently issued an opinion concluding that “U.S. legislative lobbying does not constitute the practice of law under Rule 49, and Rule 49 does not require individuals engaged in such lobbying to be members of the D.C. Bar.” Unauthorized Practice of Law Opinion 19-07, Applicability of Rule 49 to U.S. Legislative Lobbying (Dec. 17, 2007) [hereinafter the “UPL Opinion”]. In the wake of that opinion, the Legal Ethics Committee has received an inquiry about the obligations of a lawyer-lobbyist who is a member of the D.C. Bar. The inquirer asked whether a lawyer has a conflict of interest under Rule 1.7 when she lobbies Congress in favor of a special tax

break for her Client X even though she knows the break will directly disadvantage the lawyer’s other client, Client Y.

The specific holding of the UPL Opinion was that “U.S. legislative lobbying does not constitute the practice of law within the meaning of Rule 49(b).” For purposes of its opinion, the UPL Committee defined the phrase “U.S. legislative lobbying” in a way that “does not necessarily include all activities” related to congressional matters.[1] (/bar-resources/legal-ethics/opinions/opinion344.cfm#ftn1) The UPL Opinion is narrowly drawn – activities outside the scope of this definition may constitute the practice of law.[2] (/bar-resources/legal-ethics/opinions/opinion344.cfm#ftn2)

Having defined an area that does not involve the practice of law, the UPL Opinion confirms that nonlawyers may establish offices in the District of Columbia for the purpose of “U.S. legislative lobbying.” Similarly, lawyers licensed in other jurisdictions, but not in the District of Columbia, may act as “U.S. legislative lobbyists” from offices in the District of Columbia. UPL Opinion, at 3-4.

Non-D.C. lawyers lobbying from the offices of law firms in the District of Columbia “must make clear that they are not engaged in the general practice of law in the District of Columbia.” Id. at 4. This is so because Rule 49 prohibits persons not licensed in D.C. to “hold [themselves] out” as being authorized to practice law in D.C.[3] (/bar-resources/legal-ethics/opinions/opinion344.cfm#ftn3) As the UPL Opinion notes, “[i]dentifying an individual as a lawyer in a D.C. law firm generally implies that the individual is authorized to practice law in the District of Columbia.” UPL Opinion at 4. Consistent with the approach used for several other limited practice exceptions to Rule 49, the UPL Opinion suggests certain disclaimers and notices on business cards, websites and correspondence that will avoid any impermissible holding out. Id. at 4-5.

The UPL Committee specifically declined to address “whether or to what extent (a)legislative lobbyists may be subject to the professional obligations of lawyers or (b)communications between lobbyists and clients may be protected by the attorney-client privilege.” UPL Opinion at 6. Like the UPL Committee, we also decline to address the applicability of the attorney-client privilege to communications between clients and lawyer-lobbyists.[4] (/bar-resources/legal-ethics/opinions/opinion344.cfm#ftn4)

The immediate question before us is how Rule 1.7 on conflicts of interest applies to cases in which a lawyer undertakes a lobbying activity as a legal representation. The principles stated in this Opinion regarding conflicts of interest apply to lobbying activities related to both legislative matters and executive branch rule-making matters. Implicit in the immediate question is the applicability of Rule 1.7 to lobbying services that do not themselves involve the practice of law but are provided by lawyers or nonlawyers affiliated with law firms.

Although the inquiry before us involves only lobbying before Congress, the established understanding of the phrase “involving a particular party or parties” means that the principles discussed in this opinion also apply to conflict-of-interest questions faced by lawyers who lobby other legislative bodies, or who lobby administrative agencies or executive branch officials on legislation, rulemaking or other matters of general policy. The Rules of Professional Conduct do not distinguish between lobbying at the federal level and lobbying at the state or local level.

Discussion

At one level, the inquiry asks whether lawyer conduct rules apply when non-legal lobbying services are performed. As discussed in Part I below, the D.C. Rules of Professional Conduct regulate “lobbying activity” when undertaken by lawyers. Specific conflict-of-interest rules apply to such activities. Part II discusses the ability of lawyers and law firms to take certain steps to avoid the application of those conflict rules to lobbying and other “law-related services” under the District of

Columbia’s new Rule 5.7. Absent strict compliance with the requirements of Rule 5.7, the conflicts rules will apply to lobbying activities by D.C. lawyers, law firms, and their lobbying associates, partners and affiliates.

I. Prohibited Conflicts of Interest in Lobbying Activities Governed by the Rules of Professional Conduct

The Rules of Professional Conduct regulate a lawyer’s “lobbying activity.” Rule 1.0(h) defines “matter” to

mean[ ] any litigation, administrative proceeding, lobbying activity, application, claim, investigation, arrest, charge or accusation, the drafting of a contract, a negotiation, estate or family relations practice issue, or any other representation, except as expressly limited in a particular rule.

(emphasis added).[5] (/bar-resources/legal-ethics/opinions/opinion344.cfm#ftn5) The last clause of this definition is critical because, as discussed below, lobbying matters are effectively excluded from the operation of one of the prohibitions of Rule 1.7, specifically subsection (b)(1). But lobbying matters remain subject to the rest of the prohibitions, specifically subsections (a), (b)(2), (b)(3) and (b)(4) of Rule 1.7.

Rule 1.7 governs conflicts among current clients of the lawyer or law firm. It divides such conflicts into two broad categories, those that may be waived and those that cannot be waived. Rule 1.7(a) defines a situation in which a proposed representation is absolutely prohibited, even if all potentially affected clients are willing to consent. Rule 1.7(b) defines four situations in which a representation is only conditionally prohibited. Representations governed by Rule 1.7(b) may be undertaken if each potentially affected client provides informed consent and the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each client. See Rule 1.7(c).

A. Rule 1.7(a) – Representation Absolutely Prohibited.

Rule 1.7(a) provides that “a lawyer shall not advance two or more adverse positions in the same matter.” This prohibition cannot be waived by the affected clients. It applies to lobbying activities by virtue of the underlying definition of “matter.” Indeed, the Peters Committee, which recommended the current formulation of the rules on these issues, specifically concluded that lobbying opposite sides of the same issue should be prohibited:

[T]he Committee rejected the concept that lobbying should be totally excluded from the reach of Rule 1.7 and expressly included lobbying in the definition of “matter” proposed in the Terminology section of the Rules. As a result, Rule 1.7(a) applies to lobbying activities and prevents a lawyer from lobbying for one position for one client in the same matter in which the lawyer (or the lawyer's firm, seeRule 1.10(a)) is lobbying for a conflicting position on behalf of a second client.

Peters Report at 18. Although ABA Model Rule 1.7 and D.C. Rule 1.7 “state the position differently, both rules prohibit the lawyer from advancing two adverse positions in the same matter or proceeding, even with the client’s consent. [D.C.] Rule 1.7(a) states the position succinctly: ‘A lawyer shall not advance two or more adverse positions in the same matter.’”[6] (/bar-resources/legal-ethics/opinions/opinion344.cfm#ftn6)

The pending inquiry before the Committee does not involve Rule 1.7(a) because the lawyer-lobbyist has not been asked to advocate opposite sides of the same lobbying issue. Instead, she has been asked to pursue a tax break for Client X even though she knows that the tax break will

directly disadvantage another client (Client Y) whom the lawyer (or the firm) is not representing in that particular lobbying matter.

B. Rule 1.7(b) – Representation Conditionally Prohibited.

Rule 1.7(b) defines four conflicts situations in which a representation is prohibited unless each potentially affected client gives informed consent and the other requirements of Rule 1.7(c) are satisfied. As discussed below, the first of the four does not apply to lobbying matters. The remaining three do.

1. Rule 1.7(b)(1) – Adversity to Another Client in a Matter Involving A Specific Party or Parties.

Rule 1.7(b)(1) provides:

[A] lawyer shall not represent a client with respect to a matter if... that matter involves a specific party or parties and a position to be taken by that client in that matter is adverse to a position taken or to be taken by another client in the same matter even though that client is unrepresented or represented by a different lawyer.

Rule 1.7(b)(1) (emphasis added).

The inquirer did not say whether the lawyer expects the other client to lobby against the tax break she will be seeking for the first client. If the other client’s active participation were expected in the lobbying matter, the representation of the first client would involve the lawyer taking a position known to be adverse to another client’s position in the same matter.

However, that alone is not enough to create a conflict under Rule 1.7(b)(1) because of the limitation of that rule to “matter[s] involv[ing] a specific party or parties.” That phrase is a term of art, which, for the reasons discussed below, has the effect of removing lobbying representations from the operation of Rule 1.7(b)(1).

Part (a) explains why the limitation of Rule 1.7(b)(1) to “matter[s] involv[ing] a specific party or parties” effectively excludes lobbying representations. Part (b) summarizes the history of revisions that led to the current rule, a history which confirms the conclusion in Part (a).

a. Meaning of Phrase“Matter Involving A Specific Party or Parties.”

The key to the analysis is the meaning of the phrase “matter involv[ing] a specific party or parties.” The phrase appears in only two places in the Rules of Professional Conduct: Rule1.7(b)(1) and Rule 1.11, which deals with the ability of a lawyer to represent clients after leaving government service for private practice. As discussed in Part (i) below, the phrase has a black-letter law meaning for purposes of Rule 1.11, a meaning that preceded incorporation of the phrase into Rule 1.7(b)(1) and that excludes lobbying matters from the conflicts rule. Under established principles of statutory and regulatory construction, the phrase must have the same meaning in each rule where it appears, as discussed in Part (ii). While there is some arguably inconsistent language in one of the comments to Rule 1.7, the text of the rules controls over the comments, as discussed in Part (iii).

i. Meaning of the Phrase “Matter Involving a Specific Party or Parties” in Rule 1.11.

Rule 1.11(g) confines the operation of the rule to a “matter involving a specific party or parties.” “‘Matter’ is defined in paragraph (g) so as to encompass only matters that are particular to a specific party or parties. The making of rules of general applicability and the establishment of

general policy will ordinarily not be a ‘matter’ within the meaning of Rule 1.11.” Rule 1.11, Comment [3] (emphasis added).

This interpretation comes from the well-established understanding of the meaning of an analogous phrase in 18 U.S.C. §207, which imposes certain restrictions on the work that may be performed by former government employees and officials after they leave government service. Some of those restrictions apply only to a “matter... involv[ing] a specific party or specific parties.” 18 U.S.C. §207(a)(1)(C) & (a)(2)(C). “Legislation or rulemaking of general applicability and the formulation of general policies, standards or objectives, or other matters of general applicability are not particular matters involving specific parties.” Post-Employment Conflict of Interest Restrictions, 73 Fed. Reg. 36,168, at 36,193 (June 25, 2008) (to be codified at 5C.F.R. §2641.201(h)(2)) [hereinafter “Federal Post-Employment Conflict of Interest Restrictions”].[7] (/bar-resources/legal-ethics/opinions/opinion344.cfm#ftn7)

In Opinion 297, we considered whether a former government lawyer’s participation in a negotiated rulemaking precluded him from subsequent representations involving those rules. We concluded that, because the former government lawyer’s work on a negotiated rulemaking did not involve a particular party or parties, “successive representation is not per se prohibited by Rule 1.11(a) and (g) where the initial representation is in connection with a rulemaking of general applicability.” D.C. Ethics Op. 297 (2000).

ii. The Phrase “Matter Involving a Specific Party or Parties” Must Have the Same Meaning in Rule 1.7(b)(1) As It Has in Rule 1.11

The phrase “matter involving a specific party or parties” cannot have one meaning in Rule 1.11 and a different meaning in Rule 1.7(b)(1). As a general principle of construction, “a particular term should be assumed to have a consistent definition throughout a statute.” Dupont Circle Citizens Ass’n v. District of Columbia Board of Zoning Adjustment, 749 A.2d 1248, 1263 n.12 (D.C. 2000) (citing Carey v. Crane Serv. Co., Inc., 457 A.2d 1102, 1108 (D.C.1983)). Application of that principle compels the conclusion that Rule 1.7(b)(1) excludes legislative lobbying matters.

Moreover, the phrase had a clear meaning in the context of former government lawyers long before it was ever added to Rule 1.7. Where the lawmaker “borrows terms of art in which are accumulated the legal tradition and meanings of centuries of practice, it presumably knows and adopts the cluster of ideas that were attached to each borrowed word in the body of learning from which it was taken.” 1618 Twenty-First Street Tenants’ Ass’n v. Phillips Collection, 829 A.2d 201, 202 (D.C. 2003) (quoting Bates v. District of Columbia Bd. Of Elections & Ethics, 625 A.2d 891, 894 (D.C. 1993)) (additional citations omitted).

Applying those principles here, the phrase “matter involv[ing] a specific party or parties” must be given the same meaning for purposes of Rule 1.7(b)(1) as it has for Rule 1.11 and the progenitor of Rule 1.11, 18 U.S.C. §207. Given the well-established meaning of that phrase for purposes of Rule 1.11 and 18 U.S.C. §207, Rule 1.7(b)(1) does not apply to lobbying representations involving legislation, rulemaking or other matters of general policy.

iii. The Text of Rule 1.7(b)(1) Controls Over Any Inconsistent Language in the Comments to Rule 1.7.

The analysis thus far has focused only on the text of Rule 1.7(b)(1), Rule 1.11, and the established meaning of the phrase “matter involving a specific party or parties” as used in Rule1.11 and its predecessors. Rule 1.7 has a comment which, if read in isolation, could suggest a greater duty under Rule 1.7(b)(1) when the lawyer knows or has some way of discovering that another client is likely to oppose or disagree with the result being sought through the lawyer’s lobbying efforts.[8] (/bar-resources/legal-ethics/opinions/opinion344.cfm#ftn8) Such a reading cannot be reconciled with the limitation of Rule 1.7(b)(1) to a “matter involv[ing] a specific party or parties” because that

phrase takes lobbying matters and other matters of general policy out of the rule. The use of the word “party” was intended to limit the scope of Rule 1.7(b)(1) to those situations that involve particular clients participating in a pending or threatened adjudicative proceeding, a negotiation of a contract, or other discrete and isolatable transactions between identifiable and specific persons.[9] (/bar-resources/legal-ethics/opinions/opinion344.cfm#ftn9) To the extent that the comment suggests otherwise, the language of the rule must control. As explained in Paragraph[6] of the Scope section of the Rules, “[t]he Comments are intended as guides to interpretation, but the text of each Rule is controlling.”

Thus, whether the lawyer knows or has a way of knowing that other clients may have different views of the lobbying issue is irrelevant for purpose of Rule 1.7(b)(1) because Rule 1.7(b)(1) does not regulate lobbying matters or other matters of general policy.

b. The Legislative History of Rule 1.7(b)(1) Confirms That the Court of Appeals Adopted a Bright Line Test to Eliminate Substantial

Uncertainties that Lawyer-Lobbyists Would Otherwise Face.

When the District of Columbia Bar recommended the initial adoption of Rule 1.7, it rejected the ABA’s Model Rule 1.7. As explained by the Bar Committee’s report:

[T]he ABA draft... is so confusingly organized and ambiguously worded that it gives little guidance to lawyers trying to understand it or conform to it. Although the ABA drafters state in their notes that their draft is intended to codify standards that have evolved in application of the preexisting disciplinary rule and the “appearance of impropriety” test, those standards are not self-evident from a reading of the proposed language. Instead, members of the Bar would be forced to parse ambiguous phraseology and even perform research concerning case law and D.C. Bar Legal Ethics Committee interpretations before they could get a clear idea of what this basic rule means.

Proposed Rules of Professional Conduct and Related Comments, Showing the Language Proposed by the American Bar Association, Changes Recommended by the District of Columbia Bar Model Rules of Professional Conduct Committee, and Changes Recommended by the Board of Governors of the District of Columbia Bar at 67 (Nov. 19, 1986) [hereinafter the “Jordan Report”].

Both the Jordan Committee and its successor, the Peters Committee, devoted extensive resources to consideration of what the rules should be in the context of lobbying, where the potentially affected or interested players are not readily apparent at the outset, and where the active players and positions shift and change over time. It was at the Peters Committee’s recommendation that, in November of 1996, the District of Columbia Court of Appeals adopted the current general definition of “matter,” which includes “lobbying activity... except as expressly limited in a particular rule,” and the current formulation of Rule 1.7(b)(1), whichapplies only to a “matter involv[ing] a specific party or parties.”

The Peters Committee explained that it had “attempted to fashion in amended Rule 1.7 detailed, ‘black letter’ guidance to the Bar regarding conflicts of interest.” Peters Report at 11. The Committee limited Rule 1.7(b)(1) to matters involving specific parties because “it is not practical – and may well harm the interests of a new client – for a lawyer asked to represent that client in lobbying activities to take affirmative steps to obtain disclosure from other clients asto whether they have (or will have) an adverse position in the matter.” Peters Report at 18.

Accordingly, the Committee has limited the obligations set out in Rule 1.7(b)(1) to situations involving “a specific party or parties.” Because situations that may arise under Rule 1.7(b)(1) are numerous, the Committee has not attempted to define those

matters that involve “a specific party or parties,” but has left that definition to case-by-case development.

Id.

This bright line rule eliminates the need for lawyer-lobbyists to look to Rule 1.7(b)(1) for guidance on conflicts in lobbying matters. However, they must still consider potential conflicts under subsections (b)(2), (b)(3) and (b)(4). Such conflicts may exist when they know that another client strenuously objects to or will be seriously harmed by a lobbying result they are hired to pursue.

2. Rule 1.7(b)(2), (b)(3) and (b)(4) – Waivable Conflicts Rules that Do Apply to Lobbying Matters.

Rules 1.7(b)(2), (b)(3) and (b)(4) do apply to lobbying activities because, unlike Rule 1.7(b)(1), they contain no language that clearly limits their scope to adjudications and other discrete and isolatable transactions between identifiable persons. Rules 1.7(b)(2) and (b)(3) are mirror images of each other. Under the former, a lawyer may not represent a client with respect to a matter (including “lobbying activity” under Rule 1.0(h)) if “such representation will be or is likely to be adversely affected by representation of another client.” Under the latter, the lawyer may not undertake the representation if “representation of another client will be or is likely to be adversely affected by such representation.”

Rule 1.7(b)(4) looks beyond the potential effects of one client representation on another client representation. It asks if “the lawyer’s professional judgment on behalf of the client will be or reasonably may be adversely affected by the lawyer’s responsibilities to or interests in a third party or the lawyer’s own financial, business, property, or personal interest.”

Collectively, these three rules all apply to circumstances in which an objective observer would doubt the lawyer’s incentive to be a zealous advocate. For that reason, they are often referred to as the “punch-pulling” conflicts rules because the lawyer might be tempted to “pull her punches” on behalf of one client so as not to harm the interests of another. D.C. Ethics Op.309 (2001). AccordD.C. Ethics Op. 317 n.6 (2002).[10] (/bar-resources/legal-ethics/opinions/opinion344.cfm#ftn10)

The Peters Report specifically identified “punch-pulling” as a potential obstacle to a lobbying representation:

[W]hile the Committee believed it appropriate to narrow Rule 1.7(b)(1), the Committee recommends no change to Rules 1.7(b)(2) through 1.7(b)(4). Rule 1.7(b)(1) implements a general duty of loyalty and, where it applies, prohibits representation whether or not that representation would in fact have any adverse impact on another client. The remainder of Rule 1.7(b), however, defines situations where the representation of a client would likely be compromised by representation of another client. If, for example, a lawyer knows that there is a riskthat he or she would “pull punches” for client Ain a lobbying matter to avoid angering large client B represented solely in a litigation matter, then representation of client A is not proper whether or not client B will appear in the lobbying matter.

Peters Report at 18.

The inquiry before the Committee does not supply enough information to determine whether a “punch-pulling” issue exists here. Certainly, the lawyer should consider discussing with her lobbying client (Client X) the fact that she knows her other client (Client Y) will be harmed by the tax credit to be sought in the lobbying. If the lawyer-lobbyist perceives a basis for a concern that her zealousness on Client X’s behalf might be impaired by her knowledge of Client Y’s position, Rule 1.7(c) requires her to satisfy herself that she can provide competent and diligent representation to X in these circumstances, and to obtain an informed consent from X, the client whose representation might be affected by Y’s expected involvement. In some cases, Y’s consent might also be required because of a potential adverse effect of the proposed lobbying

representation on the ongoing representation of Y.[11] (/bar-resources/legal-ethics/opinions/opinion344.cfm#ftn11)

3. Imputation of Conflicts of Interest.

Under Rule 1.10, while lawyers are associated in a law firm, none of them may knowingly represent a client when any one of them practicing alone would be precluded from doing so by Rule 1.7. This rule imputing each lawyer’s conflicts to all other lawyers in the firm applies to lobbying representations and lobbyists employed by a law firm. However, a conflict will not be imputed when “the prohibition of the individual lawyer’s representation is based on an interest of the lawyer described in Rule 1.7(b)(4) and that interest does not present a significant risk of adversely affecting the representation of the client by the remaining lawyers in the firm.” Rule 1.10(a)(1).

II. Avoiding Application of the Conflict Provisions to Lobbying and Other “Law-Related Services”

Lawyers and law firms must take steps to assure that the nonlawyers associated with them abide by the Rules of Professional Conduct.[12] (/bar-resources/legal-ethics/opinions/opinion344.cfm#ftn12) Moreover, lawyers themselves are governed by some of the Rules of Professional Conduct even when they act in a nonlawyer capacity.[13] (/bar-resources/legal-ethics/opinions/opinion344.cfm#ftn13) Because clients who procure legal services are entitled to certain protections that do not typically apply to the provision of nonlegal services (such as confidentiality and avoidance of conflicts), the rules effectively require the lawyer to abide by all of the Rules of Professional Conduct, including the conflicts rules, when the client may reasonably believe that legal services are involved. Rule 5.7 addresses these issues for lawyer-lobbyists and their staff by setting forth a lawyer’s “Responsibilities Regarding Law-Related Services.”[14] (/bar-resources/legal-ethics/opinions/opinion344.cfm#ftn14)

Despite the name, “law-related services” are not legal services. They are not legal services because they “are not prohibited as unauthorized practice of law when provided by a nonlawyer.” Rule 5.7 (b). Such services are deemed to be “law-related” because they “might reasonably be performed in conjunction with and in substance are related to the provision of legal services.” Id.

The comments to Rule 5.7 identify “legislative lobbying” as a “law-related service.” Rule 5.7, Comment [9]. Indeed, the reference to “legislative lobbying” in the comments to Rule5.7 played a central role in the UPL Committee’s conclusion that U.S. legislative lobbying does not involve the practice of law. See UPL Opinion at 3.[15] (/bar-resources/legal-ethics/opinions/opinion344.cfm#ftn15)

When a lawyer or law firm provides both legal and nonlegal services, there is a risk that the client will be confused about the protections to which the client is entitled as part of the services. “The recipient of the law-related services may expect, for example, that the protection of client confidences, prohibitions against representation of persons with conflicting interests, and obligations of a lawyer to maintain professional independence apply to the provision of law-related services” when such is not the case. Rule 5.7, Comment [1].

To protect such expectations, Rule 5.7(a)(1) requires lawyers to abide by all of the Rules of Professional Conduct when the “law-related services” are provided “by the lawyer in circumstances that are not distinct from the lawyer’s provision of legal services to clients.” Rule 5.7(a)(2) requires application of all of the Rules of Professional Conduct if the services are provided “in other circumstances by an entity controlled by the lawyer individually or with others if the lawyer fails to take reasonable measures to assure that [the recipient of the services] knows that the services are not legal services and that the protections of the client-lawyer relationship do not exist.” (emphasis added).

“The burden is upon the lawyer to show that the lawyer has taken responsible measures under the circumstances to communicate the desired understanding.” Rule 5.7, Comment [7]. “A sophisticated user of law-related services, such as a publicly held corporation, may require a lesser explanation than someone unaccustomed to making distinctions between legal services and law-related services, such as an individual....” Id.[16] (/bar-resources/legal-ethics/opinions/opinion344.cfm#ftn16) When the lawyer has not severed the connection in the client’s mind between the “legal” and “nonlegal” services, “the lawyer must take special care to heed the proscriptions of the Rules addressing conflict of interest....” Id., Comment [10] (emphasis added).

One book describes Model Rule 5.7 (the text of which is identical to D.C. Rule 5.7) as a way of “opting out” of the Rules of Professional Conduct for lobbying matters.[17] (/bar-resources/legal-ethics/opinions/opinion344.cfm#ftn17) It warns that, “[f]or the lawyer-lobbyist who practices in a traditional law firm setting and provides lobbying services to his clients in that setting, it seems clear that the Model Rules would apply to that lawyer's lobbying activities.”[18] (/bar-resources/legal-ethics/opinions/opinion344.cfm#ftn18) We agree that the burden falls on the lawyer-lobbyist to show that she has taken reasonable measures under the circumstances to communicate to the client that she is not acting as the client’s lawyer.[19] (/bar-resources/legal-ethics/opinions/opinion344.cfm#ftn19) “The lawyer must also take ‘special care’ to keep the provision of any legal services separate from the law-related services, in order to minimize the risk of confusing the client.”[20] (/bar-resources/legal-ethics/opinions/opinion344.cfm#ftn20)

Conclusion

Most of the conflict rules apply to lawyer-lobbyists engaged in lobbying. Lawyer-lobbyists in the District of Columbia who hold themselves out as lawyers may not advance opposing positions in the same lobbying matter even with consents from all of their lobbying clients. Moreover, the lawyer-lobbyist must also ensure that she is not placing herself in a position where she might have to pull her punches on behalf of one client so as to protect the interests of another. Such conflicts can be waived with informed consent from the affected clients, provided that the lawyer reasonably believes that he or she can provide competent and diligent representation. Absent special circumstances, all of these restrictions also apply to other lobbyists in the same law firm, even if those other lobbyists are not themselves lawyers.

Lawyer-lobbyists are not, however, generally subject to Rule 1.7(b)(1) in the conduct of lobbying activities. This rule is confined to “matter[s] involv[ing] a specific party or parties,” a phrase that excludes lobbying, rulemaking and other matters of general government policy. As a result, Rule 1.7(b)(1) does not prohibit a lawyer-lobbyist from advancing a position in a lobbying matter that may be opposed in that same lobbying matter by another client of the lawyer-lobbyist (or of the lawyer-lobbyist’s law firm) where the other client is unrepresented in the lobbying matter or is represented by a different lobbyist who is not associated with the lawyer-lobbyist’s firm.

Finally, Rule 5.7 provides guidance for lawyers and law firms who wish to establish a law-related lobbying practice that is not governed by the conflicts provisions of the Rules of Professional Conduct. To do so, however, the lobbying client must receive clear notice that the services are not legal services and that the usual protections accompanying a client-lawyer relationship do not apply.

Published July 2008

1. [Return to text] (/bar-resources/legal-ethics/opinions/opinion344.cfm#ftnref1) According to the UPL Committee,

[t]his Opinion uses the term “U.S. legislative lobbying” to refer to any activities to influence, through contacts with members of Congress and their staffs, the passage or defeat of any legislation by the

U.S. Congress, as well as other congressional actions such as ratification of treaties and confirmation of nominees. Such activities may include, but are not limited to: oral, written, and electronic communications with members of Congress, congressional committees, and congressional staff with regard to the formulation, modification, or adoption of federal legislation; preparation and planning activities, research, and other background work in support of such contacts; and development of legislative strategy and tactics. The term does not necessarily include all activities that have a relationship with congressional actions. For example, advising a client about how legislative testimony might affect pending or prospective criminal or civil litigation before a court may constitute the practice of law.

UPL Opinion at 1-2 (emphasis added). The UPL Opinion also “does not address lobbying of the executive branches of the U.S. or D.C. governments, including federal and D.C. departments and administrative agencies.” Id. at 7 (noting that unauthorized practice of law questions respecting such representations are addressed in subsections (c)(2) and (c)(5) of Rule 49).

2. [Return to text] (/bar-resources/legal-ethics/opinions/opinion344.cfm#ftnref2) While the UPL Opinion does not address whether individuals “may use the District of Columbia as a base for lobbying legislative bodies other than the U.S. Congress,” it notes that “some of the principles addressed in this Opinion may apply in that context.” UPL Opinion at 8.

3. [Return to text] (/bar-resources/legal-ethics/opinions/opinion344.cfm#ftnref3) Holding out, for purposes of Rule 49, means:

to indicate in any manner to any other person that one is competent, authorized, or available to practice law from an office or location in the District of Columbia. Among the characterizations which give such an indication are “Esq.,” “lawyer,” “attorney at law,” “counselor at law,” “contract lawyer,” “trial or legal advocate,” legal representative,” “legal advocate,” and “judge.”

Rule 49(b)(4).

4. [Return to text] (/bar-resources/legal-ethics/opinions/opinion344.cfm#ftnref4) The applicability of the attorney-client privilege is a question of law outside the scope of our jurisdiction. Lawyer-lobbyists should be aware, however, that there is case law to the effect that the attorney-client privilege does not apply to communications between a client and a lawyer who is acting solely or primarily as a lobbyist. See, e.g., In re Grand Jury Subpoenas Dated March 9, 2001, 179 F.Supp. 2d 270, 285 & 289-91 (S.D.N.Y. 2001) (noting, however, that “the inquiry is fact-specific”). The lawyer’s ethical obligation to preserve client “confidences and secrets” is broader than the attorney-client privilege. Under Rule 1.6(b), lawyers must also protect unprivileged “secrets,” which the rules define as “other information gained in the professional relationship that the client has requested be held inviolate, or the disclosure of which would be embarrassing, or would be likely to be detrimental to the client.”

5. [Return to text] (/bar-resources/legal-ethics/opinions/opinion344.cfm#ftnref5) The D.C. Court of Appeals added this definition to the Rules in November 1996, after receiving and considering a number of recommendations from the Bar. See Proposed Amendments to the District of Columbia Rules of Professional Conduct (as adopted by the Board of Governors March 8, 1994) [hereinafter “Peters Report”]. As discussed in more detail below, one purpose of the recommended changes was to revise and clarify the rules on conflicts of interest in the lobbying context. See id. at 3-4 & 17-18.

6. [Return to text] (/bar-resources/legal-ethics/opinions/opinion344.cfm#ftnref6) William V. Luneburg & Thomas M. Susman, The Lobbying Manual: A Complete Guide to Federal Law Governing Lawyers & Lobbyists §27-3.6.2.1, at 501 (3d Ed. 2005) (providing the following example of a “nonconsentable” conflict in the lobbying context: “Handgun Control, Inc. calls to retain you to

lobby for an extension of the assault weapon ban; the NRA calls the next day to hire you to lobby against an extension.”)

7. [Return to text] (/bar-resources/legal-ethics/opinions/opinion344.cfm#ftnref7) This final rule release replaces a similar rule which provided that a matter involving a specific party or specific parties “typically involves a specific proceeding affecting the legal rights of the parties or an isolatable transaction or related set of transactions between identifiable parties. Rulemaking, legislation, the formulation of general policy, standards or objectives, or other action of general application is not such a matter. 5C.F.R. §2637.201(c)(1) (2007) (emphasis added). See also Laker Airways Ltd. vs. Pan American WorldAirways, 103 F.R.D. 22, 34 (D.D.C. 1984) (“In short, a government attorney may participate in legislative or other policy-making activity without precluding his subsequent representation of private parties affected by such rules or policies”). There is authority “that certain rulemakings, although rare, may be so focused on the rights of specifically identified parties as to fall within the ambit of section 207(a) even though most rulemaking proceedings are of general applicability beyond the scope of [that section].” Federal Post-Employment Conflict of Interest Restrictions, 73 Fed. Reg. at 36,176 (citations omitted) (emphasis added). But cf. id. at 36,193 (to be codified at 5 C.F.R. §2641.201(h)(2), Example 5) (giving an example where even a rulemaking that has an immediate effect on only three or four companies nevertheless constitutes a rulemaking of general applicability). Private relief legislation may also involve specific parties. See Office of Government Ethics Advisory Opinions 83 x 7 and 06 x 9.

8. [Return to text] (/bar-resources/legal-ethics/opinions/opinion344.cfm#ftnref8) Comment [19] to Rule 1.7 provides as follows:

Lawyer’s Duty to Make Inquiries to Determine Potential Conflicts

[19] The scope of and parties to a “matter” are typically apparent in on-the-record adversary proceedings or other proceedings in which a written record of the identity and the position of the parties exists. In Rule 1.7(b)(1), the phrase “matter involving a specific party or parties” refers to such situations. In other situations, however, it may not be clear to a lawyer whether the representation of one client is adverse to the interests of another client. For example, a lawyer may represent a client only with respect to one or a few of the client’s areas of interest. Other lawyers, or non-lawyers (such as lobbyists), or employees of the client (such as government relations personnel) may be representing that client on many issues whose scope and content are unknown to the lawyer. Clients often have many representatives acting for them, including multiple law firms, nonlawyer lobbyists, and client employees. A lawyer retained for a limited purpose may not be aware of the full range of a client’s other interests or positions on issues. Except in matters involving a specific party or parties, a lawyer is not required to inquire of a client concerning the full range of that client’s interests in issues, unless it is clear to the lawyer that there is a potential for adversity between the interests of clients of the lawyer. Where lawyers are associated in a firm within the meaning of Rule 1.10(a), the rule stated in the preceding sentence must be applied to all lawyers and all clients in the firm. Unless a lawyer is aware that representing one client involves seeking a result to which another client is opposed, Rule 1.7 is not violated by a representation that eventuates in the lawyer’s unwittingly taking a position for one client adverse to the interests of another client. The test to be applied here is one of reasonableness and may turn on whether the lawyer has an effective conflict checking system in place.

9. [Return to text] (/bar-resources/legal-ethics/opinions/opinion344.cfm#ftnref9) As expressed in the recent amendment of the federal regulations, “only those particular matters that involve a specific party or parties fall within the prohibition of section 207(a)(1). Such a matter typically involves a specific proceeding affecting the legal rights of the parties or an isolatable transaction or related set of transactions between identified parties, such as a specific contract, grant, license, product approval application, enforcement action, administrative adjudication, or court case.” Federal Post-Employment Conflict of Interest Restrictions, 73 Fed. Reg. at 36,193 (to be codified at 5 C.F.R. §2641.201(h)(1)).

10. [Return to text] (/bar-resources/legal-ethics/opinions/opinion344.cfm#ftnref10) Comment [7] to Rule 1.7 explains:

The underlying premise is that disclosure and informed consent are required before assuming a representation if there is any reason to doubt the lawyer’s ability to provide wholehearted and zealous representation of a client or if a client might reasonably consider the representation of its interests to be adversely affected by the lawyer’s assumption of the other representation in question. Although the lawyer must be satisfied that the representation can be wholeheartedly and zealously undertaken, if an objective observer would have any reasonable doubt on that issue, the client has a right to disclosure of all relevant considerations and the opportunity to be the judge of its own interests.

11. [Return to text] (/bar-resources/legal-ethics/opinions/opinion344.cfm#ftnref11) While the notion of “punch-pulling” captures most of the circumstances regulated by Rules 1.7(b)(2) through (4), there may be others as well. One of these is a situation involving an “issue” or “positional conflict,” such that the lawyer’s effectiveness in a matter being handled for one client would be adversely affected by the result being sought on behalf of another client as, “for example, when a decision favoring one client will create a precedent likely to seriously weaken the position being taken on behalf of the other client.” Rule 1.7, Comment [13]; D.C. Ethics Op. 265 (1996). Nothing in the pending inquiry suggests that the proposed lobbying representation seeking a tax credit implicates any positional conflict issues.

12. [Return to text] (/bar-resources/legal-ethics/opinions/opinion344.cfm#ftnref12) See Rule 5.1 (Responsibilities of Partners, Managers, and Supervisory Lawyers); Rule 5.3 (Responsibilities Regarding Nonlawyer Assistants); Rule 5.4(b) (requiring – as part of the District of Columbia’s unique rule allowing nonlawyer partners in law firms – that the nonlawyers abide by the Rules of Professional Conduct).

13. [Return to text] (/bar-resources/legal-ethics/opinions/opinion344.cfm#ftnref13) For example, Rule 8.4(c) makes it professional misconduct to “engage in conduct involving dishonesty, fraud, deceit, or misrepresentation.” Under that rule, “[a] lawyer is held to a high standard of honesty, no matter what role the lawyer is filling, acting as lawyer, testifying as a witness in a proceeding, handling fiduciary responsibilities, or conducting the private affairs of everyday life.” In re Jackson, 650 A.2d 675, 677 (D.C. 1994).

14. [Return to text] (/bar-resources/legal-ethics/opinions/opinion344.cfm#ftnref14) Rule 5.7 was added to the District of Columbia’s Rules of Professional Conduct in 2007.

15. [Return to text] (/bar-resources/legal-ethics/opinions/opinion344.cfm#ftnref15) We do not address whether and to what extent lobbying services other than “U.S. legislative lobbying”– as that phrase is used in the UPL Opinion – may qualify for treatment as a “law-related service” for purposes of Rule 5.7. Since the definition of “law-related service” requires a determination that the service is “not prohibited as the unauthorized practice of law when provided by a nonlawyer,” an essential predicate issue is outside the scope of our jurisdiction. See supra notes 1 & 2.

16. [Return to text] (/bar-resources/legal-ethics/opinions/opinion344.cfm#ftnref16) See also Rule 5.7, Comment [8] (“Under some circumstances the legal and law-related services may be so closely entwined that they cannot be distinguished from each other, and the requirement of disclosure and consultation imposed by paragraph (a)(2) of the rule cannot be met. In such a case a lawyer will be responsible for assuring that both the lawyer’s conduct and, to the extent required by Rule 5.3, that of nonlawyer employees in the distinct entity that the lawyer controls complies in all respects with the Rules of Professional Conduct.”).

17. [Return to text] (/bar-resources/legal-ethics/opinions/opinion344.cfm#ftnref17) Luneburg & Susman, supra note 6, §27-2.3.2, at 490. The cited edition of the book pre-dates the adoption in 2007 of Rule 5.7 by the District of Columbia, a later event that supersedes some of the analysis in the current edition of the book. See id. §27-2.3.3, at 491.

18. [Return to text] (/bar-resources/legal-ethics/opinions/opinion344.cfm#ftnref18) Id. at 490.

19. [Return to text] (/bar-resources/legal-ethics/opinions/opinion344.cfm#ftnref19) Id. at 491.

20. [Return to text] (/bar-resources/legal-ethics/opinions/opinion344.cfm#ftnref20) Id.

July 2008

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Rules of Professional Conduct: Rule 1.7--Conflict of Interest: General Rule

  (a) A lawyer shall not advance two or more adverse positions in the same matter.   (b) Except as permitted by paragraph (c) below, a lawyer shall not represent a client with respect to a matter if:       (1) That matter involves a specific party or parties and a position to be taken by that client in that matter is adverse to a position taken or to be taken by another client in the same matter even though that client is unrepresented or represented by a different lawyer;       (2) Such representation will be or is likely to be adversely affected by representation of another client;       (3) Representation of another client will be or is likely to be adversely affected by such representation;       (4) The lawyer’s professional judgment on behalf of the client will be or reasonably may be adversely affected by the lawyer’s responsibilities to or interests in a third party or the lawyer’s own financial, business, property, or personal interests.   (c) A lawyer may represent a client with respect to a matter in the circumstances described in paragraph (b) above if       (1) Each potentially affected client provides informed consent to such representation after full disclosure of the existence and nature of the possible conflict and the possible adverse consequences of such representation; and       (2) The lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client.   (d) If a conflict not reasonably foreseeable at the outset of representation arises under paragraph (b)(1) after the representation commences, and is not waived under paragraph (c), a lawyer need not withdraw from any representation unless the conflict also arises under paragraphs (b)(2), (b)(3), or (b)(4). 

Comment

   [1] Rule 1.7 is intended to provide clear notice of circumstances that may constitute a conflict of interest. Rule 1.7(a) sets out the limited circumstances in which representation of conflicting interests is absolutely prohibited even with the informed consent of all involved clients. Rule 1.7(b) sets out those circumstances in which representation is barred in the absence of informed client consent. For the definition of “informed consent,” see Rule 1.0(e). The difference between Rule 1.7(a) and Rule 1.7(b) is that in the former, the lawyer is representing multiple interests in the same matter, while in the latter, the lawyer is representing a single interest, but a client of the lawyer who is represented by different counsel has an interest adverse to that advanced by the lawyer. The application of Rules 1.7(a) and 1.7(b) to specific facts must also take into consideration the principles of imputed disqualification described in Rule 1.10. Rule 1.7(c) states the procedure that must be used to obtain the client’s informed consent if representation is to commence or continue in the circumstances described in Rule 1.7(b). Rule 1.7(d) governs withdrawal in cases arising under Rule 1.7(b)(1).

Representation Absolutely Prohibited – Rule 1.7(a)   [2] Institutional interests in preserving confidence in the adversary process and in the administration of justice preclude permitting a lawyer to represent adverse positions in the same matter. For that reason, paragraph (a) prohibits such conflicting representations, with or without client consent.   [3] The same lawyer (or law firm,seeRule 1.10) should not espouse adverse positions in the same matter during the course of any type of representation, whether such adverse positions are taken on behalf of clients or on behalf of the lawyer or an association of which the lawyer is a member. On the other hand, for purposes of Rule 1.7(a), an “adverse” position does not include inconsistent or alternative positions advanced by counsel on behalf of a single client. Rule 1.7(a) is intended to codify the result reached in D.C. Bar Legal Ethics Committee Opinion 204, including the conclusion that a rulemaking whose result will be applied retroactively in pending adjudications is the same matter as the adjudications, even though treated as separate proceedings by an agency. However, if the adverse positions to be taken relate to different matters, the absolute prohibition of paragraph (a) is inapplicable, even though paragraphs (b) and (c) may apply.

   [4] The absolute prohibition of paragraph (a) applies only to situations in which a lawyer would be called upon to espouse adverse positions for different clients in the same matter. It is for this reason that paragraph (a) refers to adversity with respect to a “position taken or to be taken” in a matter rather than adversity with respect to the matter or the entire representation. This approach is intended to reduce the costs of litigation in other representations where parties have common, non-adverse interests on certain issues, but have adverse (or contingently or possibly adverse) positions with respect to other issues. If, for example, a lawyer would not be required to take adverse positions in providing joint representation of two clients in the liability phase of a case, it would be permissible to undertake such a limited representation. Then, after completion of the liability phase, and upon satisfying the requirements of paragraph (c) of this rule, and of any other applicable Rules, the lawyer could represent either one of those parties as to the damages phase of the case, even though the other, represented by separate counsel as to damages, might have an adverse position as to that phase of the case. Insofar as the absolute prohibition of paragraph (a) is concerned, a lawyer may represent two parties that may be adverse to each other as to some aspects of the case so long as the same lawyer does not represent both parties with respect to those positions. Such a representation comes within paragraph (b), rather than paragraph (a), and is therefore subject to the consent provisions of paragraph (c).   [5] The ability to represent two parties who have adverse interests as to portions of a case may be limited because the lawyer obtains confidences or secrets relating to a party while jointly representing both parties in one phase of the case. In some circumstances, such confidences or secrets might be useful, against the interests of the party to whom they relate, in a subsequent part of the case. Absent the informed consent of the party whose confidences or secrets are implicated, the subsequent adverse representation is governed by the “substantial relationship” test, which is set forth in Rule 1.9.   [6] The prohibition of paragraph (a) relates only to actual conflicts of positions, not to mere formalities. For example, a lawyer is not absolutely forbidden to provide joint or simultaneous representation if the clients’ positions are only nominally but not actually adverse. Joint representation is commonly provided to incorporators of a business, to parties to a contract, in formulating estate plans for family members, and in other circumstances where the clients might be nominally adverse in some respect but have retained a lawyer to accomplish a common purpose. If no actual conflict of positions exists with respect to a matter, the absolute prohibition of paragraph (a) does not come into play. Thus, in the limited circumstances set forth in Opinion 143 of the D.C. Bar Legal Ethics Committee, this prohibition would not preclude the representation of both parties in an uncontested divorce proceeding, there being no actual conflict of positions based on the facts presented in Opinion 143. For further discussion of common representation issues, including intermediation, see Comments [14]-[18].

Representation Conditionally Prohibited – Rule 1.7(b)   [7] Paragraphs (b) and (c) are based upon two principles: (1) that a client is entitled to wholehearted and zealous representation of its interests, and (2) that the client as well as the lawyer must have the opportunity to judge and be satisfied that such representation can be provided. Consistent with these principles, paragraph (b) provides a general description of the types of circumstances in which representation is improper in the absence of informed consent. The underlying premise is that disclosure and informed consent are required before assuming a representation if there is any reason to doubt the lawyer’s ability to provide wholehearted and zealous representation of a client or if a client might reasonably consider the representation of its interests to be adversely affected by the lawyer’s assumption of the other representation in question. Although the lawyer must be satisfied that the representation can be wholeheartedly and zealously undertaken, if an objective observer would have any reasonable doubt on that issue, the client has a right to disclosure of all relevant considerations and the opportunity to be the judge of its own interests.   [8] A client may, on occasion, adopt unreasonable positions with respect to having the lawyer who is representing that client also represent other parties. Such an unreasonable position may be based on an aversion to the other parties being represented by a lawyer, or on some philosophical 

or ideological ground having no foundation in the Rules regarding representation of conflicting interests. Whatever difficulties may be presented for the lawyer in such circumstances as a matter of client relations, the unreasonable positions taken by a client do not fall within the circumstances requiring notification and informed consent. Clients have broad discretion to terminate their representation by a lawyer and that discretion may generally be exercised on unreasonable as well as reasonable grounds.   [9] If the lawyer determines or can foresee that an issue with respect to the application of paragraph (b) exists, the only prudent course is for the lawyer to make disclosure, pursuant to paragraph (c), to each affected client and enable each to determine whether in its judgment the representation at issue is likely to affect its interests adversely.   [10] Paragraph (b) does not purport to state a uniform rule applicable to cases in which two clients may be adverse to each other in a matter in which neither is represented by the lawyer or in a situation in which two or more clients may be direct business competitors. The matter in which two clients are adverse may be so unrelated or insignificant as to have no possible effect upon a lawyer’s ability to represent both in other matters. The fact that two clients are business competitors, standing alone, is usually not a bar to simultaneous representation. Thus, in a matter involving a specific party or parties, paragraphs (b)(1) and (c) require notice and informed consent if the lawyer will take a position on behalf of one client adverse to another client even though the lawyer represents the latter client only on an unrelated position or in an unrelated matter. Paragraphs (b)(2), (3), (4) and (c) require disclosure and informed consent in any situation in which the lawyer’s representation of a client may be adversely affected by representation of another client or by any of the factors specified in paragraph (b)(4).

Individual Interest Conflicts   [11] The lawyer’s own interests should not be permitted to have an adverse effect on representation of a client. For example, if the probity of a lawyer’s own conduct in a transaction is in serious question, it may be difficult or impossible for the lawyer to give a client detached advice. Similarly, when a lawyer has discussions concerning possible employment with an opponent of the lawyer’s client, or with a law firm representing the opponent, such discussions could adversely affect the lawyer’s representation of the client. See D.C. Bar Legal Ethics Committee Opinion No. 210 (defense attorney negotiating position with United States Attorney’s Office). In addition, 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 financial interest.SeeComment [34] for specific commentary concerning affiliated business interests; Rule 1.8 for specific Rules pertaining to a number of individual attorney’s interest conflicts, including business transactions with clients; Rule 1.8(j) for the effect of firm-wide imputation upon individual attorney interests.   [12] For the effect of a blood or marital relationship between lawyers representing different clients, see Rule 1.8(h). Disqualification arising from a close family relationship is not imputed.SeeRule 1.8(j).

Positional Conflicts   [13] Ordinarily a lawyer may take inconsistent legal positions in different forums at different times on behalf of different clients. The mere fact that advocating a legal position on behalf of one client might create precedent adverse to the interests of a client represented by the lawyer in an unrelated matter does not, without more, create a conflict of interest. A conflict of interest exists, however, if there is a significant risk that a lawyer’s action on behalf of one client in a given matter, as referred to in Rule 1.7(b), will adversely affect the lawyer’s effectiveness in representing another client in the same or different matter; for example, when a decision favoring one client will create a precedent likely to seriously weaken the position being taken on behalf of the other client. Factors relevant in determining whether the clients need to be advised of the risk include: where the matters are pending, the temporal relationship between the matters, the significance of the issue to the immediate and long-term interests of the clients involved, and the clients’ reasonable expectations in retaining the lawyer. If there is significant risk of material limitation, then, absent informed consent of the affected clients, the lawyer must refuse one of the representations or 

withdraw from one or both matters, subject to the exception provided in Rule 1.7(d). See D.C. Legal Ethics Committee Opinion No. 265.

Special Considerations in Common Representation   [14] In considering whether to represent multiple clients in the same matter, a lawyer should be mindful that if the common representation fails because the potentially adverse interests cannot be reconciled, the result can be additional cost, embarrassment and recrimination. In some situations, the risk of failure is so great that multiple representation is plainly impossible. For example, a lawyer cannot undertake common representation of clients where contentious litigation or negotiations between them are imminent or contemplated. Moreover, because the lawyer is required to be impartial between commonly represented clients, representation of multiple clients is improper when it is unlikely that impartiality can be maintained. Generally, if the relationship between the parties has already assumed antagonism, the possibility that the clients’ interests can be adequately served by common representation is not very good. Other relevant factors are whether the lawyer subsequently will represent both parties on a continuing basis and whether the situation involves creating or terminating a relationship between the parties.   [15] A particularly important factor in determining the appropriateness of common representation is the effect on client-lawyer confidentiality and the attorney-client privilege. With regard to the attorney-client privilege, the prevailing rule is that, as between commonly represented clients, the privilege does not attach. Hence, it must be assumed that if litigation eventuates between the clients, the privilege will not protect any such communications, and the clients should be so advised.   [16] As to the duty of confidentiality, continued common representation will almost certainly be inadequate if one client asks the lawyer not to disclose to the other client information relevant to the common representation. This is so because the lawyer has an equal duty of loyalty to each client, and each client has the right to be informed of anything bearing on the representation that might affect that client’s interests and the right to expect that the lawyer will use that information to that client’s benefit.SeeRule 1.4. The lawyer should, at the outset of the common representation and as part of the process of obtaining each client’s informed consent, advise each client that information relevant to the common representation will be shared, and explain the circumstances in which the lawyer may have to withdraw from any or all representations if one client later objects to continued common representation or sharing of such information. In limited circumstances, it may be appropriate for the lawyer to proceed with the representation when the clients have agreed, after being properly informed, that the lawyer will keep certain information confidential. For example, the lawyer may reasonably conclude that failure to disclose one client’s trade secrets to another client will not adversely affect representation involving a joint venture between the clients and agree to keep that information confidential with the informed consent of both clients.   [17] When seeking to establish or adjust a relationship between clients, the lawyer should make clear that the lawyer’s role is not that of partisanship normally expected in other circumstances and, thus, that the clients may be required to assume greater responsibility for decisions than when each client is separately represented. Any limitations on the scope of the representation made necessary as a result of the common representation should be fully explained to the clients at the outset of the representation. See Rule 1.2(c).   [18] Subject to the above limitations, each client in the common representation has the right to loyal and diligent representation and the protection of Rule 1.9 concerning the obligations to a former client. The client also has the right to discharge the lawyer as stated in Rule 1.16.

Lawyer’s Duty to Make Inquiries to Determine Potential Conflicts   [19] The scope of and parties to a “matter” are typically apparent in on-the-record adversary proceedings or other proceedings in which a written record of the identity and the position of the parties exists. In Rule 1.7(b)(1), the phrase “matter involving a specific party or parties” refers to such situations. In other situations, however, it may not be clear to a lawyer whether the representation of one client is adverse to the interests of another client. For example, a lawyer may represent a client only with respect to one or a few of the client’s areas of interest. Other lawyers, 

or non-lawyers (such as lobbyists), or employees of the client (such as government relations personnel) may be representing that client on many issues whose scope and content are unknown to the lawyer. Clients often have many representatives acting for them, including multiple law firms, nonlawyer lobbyists, and client employees. A lawyer retained for a limited purpose may not be aware of the full range of a client’s other interests or positions on issues. Except in matters involving a specific party or parties, a lawyer is not required to inquire of a client concerning the full range of that client’s interests in issues, unless it is clear to the lawyer that there is a potential for adversity between the interests of clients of the lawyer. Where lawyers are associated in a firm within the meaning of Rule 1.10(a), the rule stated in the preceding sentence must be applied to all lawyers and all clients in the firm. Unless a lawyer is aware that representing one client involves seeking a result to which another client is opposed, Rule 1.7 is not violated by a representation that eventuates in the lawyer’s unwittingly taking a position for one client adverse to the interests of another client. The test to be applied here is one of reasonableness and may turn on whether the lawyer has an effective conflict checking system in place.

Situations That Frequently Arise   [20] A number of types of situations frequently arise in which disclosure and informed consent are usually required. These include joint representation of parties to criminal and civil litigation, joint representation of incorporators of a business, joint representation of a business or government agency and its employees, representation of family members seeking estate planning or the drafting of wills, joint representation of an insurer and an insured, representation in circumstances in which the personal or financial interests of the lawyer, or the lawyer’s family, might be affected by the representation, and other similar situations in which experience indicates that conflicts are likely to exist or arise. For example, a lawyer might not be able to represent a client vigorously if the client’s adversary is a person with whom the lawyer has longstanding personal or social ties. The client is entitled to be informed of such circumstances so that an informed decision can be made concerning the advisability of retaining the lawyer who has such ties to the adversary. The principles of disclosure and informed consent are equally applicable to all such circumstances, except that if the positions to be taken by two clients in a matter as to which the lawyer represents both are actually adverse, then, as provided in paragraph (a), the lawyer may not undertake or continue the representation with respect to those issues even if disclosure has been made and informed consent obtained.

Organization Clients   [21] As is provided in Rule 1.13, the lawyer who represents a corporation, partnership, trade association or other organization-type client is deemed to represent that specific entity, and not its shareholders, owners, partners, members or “other constituents.” Thus, for purposes of interpreting this rule, the specific entity represented by the lawyer is the “client.” Ordinarily that client’s affiliates (parents and subsidiaries), other stockholders and owners, partners, members, etc., are not considered to be clients of the lawyer. Generally, the lawyer for a corporation is not prohibited by legal ethics principles from representing the corporation in a matter in which the corporation’s stockholders or other constituents are adverse to the corporation. See D.C. Bar Legal Ethics Committee Opinion No. 216. A fortiori, and consistent with the principle reflected in Rule 1.13, the lawyer for an organization normally should not be precluded from representing an unrelated client whose interests are adverse to the interests of an affiliate (e.g.,parent or subsidiary), stockholders and owners, partners, members, etc., of that organization in a matter that is separate from and not substantially related to the matter on which the lawyer represents the organization.   [22] However, there may be cases in which a lawyer is deemed to represent a constituent of an organization client. Such de facto representation has been found where a lawyer has received confidences from a constituent during the course of representing an organization client in circumstances in which the constituent reasonably believed that the lawyer was acting as the constituent’s lawyer as well as the lawyer for the organization client. See generally ABA Formal Opinion 92-365. In general, representation may be implied where on the facts there is a 

reasonable belief by the constituent that there is individual as well as collective representation. Id.The propriety of representation adverse to an affiliate or constituent of the organization client, therefore, must first be tested by determining whether a constituent is in fact a client of the lawyer. If it is, representation adverse to the constituent requires compliance with Rule 1.7. See ABA Opinion 92-365. The propriety of representation must also be tested by reference to the lawyer’s obligation under Rule 1.6 to preserve confidences and secrets and to the obligations imposed by paragraphs (b)(2) through (b)(4) of this rule. Thus, absent informed consent underRule 1.7(c), such adverse representation ordinarily would be improper if:   (a) the adverse matter is the same as, or substantially related to, the matter on which the lawyer represents the organization client,   (b) during the course of representation of the organization client the lawyer has in fact acquired confidences or secrets (as defined in Rule 1.6(b)) of the organization client or an affiliate or constituent that could be used to the disadvantage of any of the organization client or its affiliate or constituents, or   (c) such representation seeks a result that is likely to have a material adverse effect on the financial condition of the organization client.   [23] In addition, the propriety of representation adverse to an affiliate or constituent of the organization client must be tested by attempting to determine whether the adverse party is in substance the “alter ego” of the organization client. The alter ego case is one in which there is likely to be a reasonable expectation by the constituents or affiliates of an organization that each has an individual as well as a collective client-lawyer relationship with the lawyer, a likelihood that a result adverse to the constituent would also be adverse to the existing organization client, and a risk that both the new and the old representation would be so adversely affected that the conflict would not be “consentable.” Although the alter ego criterion necessarily involves some imprecision, it may be usefully applied in a parent-subsidiary context, for example, by analyzing the following relevant factors: whether (i) the parent directly or indirectly owns all or substantially all of the voting stock of the subsidiary, (ii) the two companies have common directors, officers, office premises, or business activities, or (iii) a single legal department retains, supervises and pays outside lawyers for both the parent and the subsidiary. If all or most of those factors are present, for conflict of interest purposes those two entities normally would be considered alter egos of one another and the lawyer for one of them should refrain from engaging in representation adverse to the other, even on a matter where clauses (a), (b) and (c) of the preceding paragraph [22] are not applicable. Similarly, if the organization client is a corporation that is wholly owned by a single individual, in most cases for purposes of applying this rule, that client should be deemed to be the alter ego of its sole stockholder. Therefore, the corporation’s lawyer should refrain from engaging in representation adverse to the sole stockholder, even on a matter where clauses (a), (b) and (c) of the preceding paragraph [22] are not applicable.   [24] If representation otherwise appropriate under the preceding paragraphs seeks a result that is likely ultimately to have a material adverse effect on the financial condition of the organization client, such representation is prohibited by Rule 1.7(b)(3). If the likely adverse effect on the financial condition of the organization client is not material, such representation is not prohibited by Rule 1.7(b)(3). Obviously, however, a lawyer should exercise restraint and sensitivity in determining whether to undertake such representation in a case of that type, particularly if the organization client does not realistically have the option to discharge the lawyer as counsel to the organization client.   [25] The provisions of paragraphs [20] through [23] are subject to any contrary agreement or other understanding between the client and the lawyer. In particular, the client has the right by means of the original engagement letter or otherwise to restrict the lawyer from engaging in representations otherwise permissible under the foregoing guidelines. If the lawyer agrees to such restrictions in order to obtain or keep the client’s business, any such agreement between client and lawyer will take precedence over these guidelines. Conversely, an organization client, in order to obtain the lawyer’s services, may in the original engagement letter or otherwise give informed consent to the lawyer in advance to engage in representations adverse to an affiliate, owner or other constituent of the client not otherwise permissible under the foregoing guidelines so long as 

the requirements of Rule 1.7(c) can be met.   [26] In any event, in all cases referred to above, the lawyer must carefully consider whether Rule 1.7(b)(2) or Rule 1.7(b)(4) requires informed consent from the second client whom the lawyer proposes to represent adverse to an affiliate, owner or other constituent of the first client.

Disclosure and Consent   [27] Disclosure and informed consent are not mere formalities. Adequate disclosure requires such disclosure of the parties and their interests and positions as to enable each potential client to make a fully informed decision as to whether to proceed with the contemplated representation. If a lawyer’s obligation to one or another client or to others or some other consideration precludes making such full disclosure to all affected parties, that fact alone precludes undertaking the representation at issue. Full disclosure also requires that clients be made aware of the possible extra expense, inconvenience, and other disadvantages that may arise if an actual conflict of position should later arise and the lawyer be required to terminate the representation.   [28] It is ordinarily prudent for the lawyer to provide at least a written summary of the considerations disclosed and to request and receive a written informed consent, although the rule does not require that disclosure be in writing or in any other particular form in all cases. Lawyers should also recognize that the form of disclosure sufficient for more sophisticated business clients may not be sufficient to permit less sophisticated clients to provide informed consent. Moreover, under the District of Columbia substantive law, the lawyer bears the burden of proof that informed consent was secured.   [29] The term “informed consent” is defined in Rule 1.0(e). As indicated in Comment [2] to that rule, a client’s consent must not be coerced either by the lawyer or by any other person. In particular, the lawyer should not use the client’s investment in previous representation by the lawyer as leverage to obtain or maintain representation that may be contrary to the client’s best interests. If a lawyer has reason to believe that undue influence has been used by anyone to obtain agreement to the representation, the lawyer should not undertake the representation.   [30] The lawyer’s authority to solicit and to act upon the client’s consent to a conflict is limited further by the requirement that the lawyer reasonably believe that he or she will be able to provide competent and diligent representation to each affected client. Generally, it is doubtful that a lawyer could hold such a belief where the representation of one client is likely to have a substantial and material adverse effect upon the interests of another client, or where the lawyer’s individual interests make it likely that the lawyer will be adversely situated to the client with respect to the subject-matter of the legal representation.   [31] Rule 1.7 permits advance waivers within certain limits and subject to certain client protections. Such waivers are permissible only if the prerequisites of the rule – namely “full disclosure of the existence and nature of the possible conflict and the possible adverse consequences of such representation” – are satisfied. Under the Rules’ definition of “informed consent,” the client must have “adequate information and explanation about the material risks of and reasonably available alternatives to the proposed course of action.” See Rule 1.0(e). Ordinarily this will require that either (1) the consent is specific as to types of potentially adverse representations and types of adverse clients (e.g., a bank client for whom the lawyer performs corporate work waives the lawyer’s representation of borrowers in mortgage loan transactions with that bank) or (2) the waiving client has available in-house or other current counsel independent of the lawyer soliciting the waiver.   [32] Rule 1.7(a) provides that a conflict arising from the lawyer’s advancing adverse positions in the same matter cannot be waived in advance or otherwise. Although an advance waiver may permit the lawyer to act adversely to the waiving client in matters that are substantially related to the matter in which the lawyer represents that client, lawyers should take particular care in obtaining and acting pursuant to advance waivers where such a matter is involved.

Withdrawal   [33] It is much to be preferred that a representation that is likely to lead to a conflict be avoided before the representation begins, and a lawyer should bear this fact in mind in considering whether 

disclosure should be made and informed consent obtained at the outset. If, however, a conflict arises after a representation has been undertaken, and the conflict falls within paragraph (a), or if a conflict arises under paragraph (b) and informed and uncoerced consent is not or cannot be obtained pursuant to paragraph (c), then the lawyer should withdraw from the representation, complying with Rule 1.16. Where a conflict is not foreseeable at the outset of representation and arises only under Rule 1.7(b)(1), a lawyer should seek informed consent to the conflict at the time that the conflict becomes evident, but if such consent is not given by the opposing party in the matter, the lawyer need not withdraw. In determining whether conflict is reasonably foreseeable, the test is an objective one. In determining the reasonableness of a lawyer’s conduct, such factors as whether the lawyer (or lawyer’s firm) has an adequate conflict-checking system in place, must be considered. Where more than one client is involved and the lawyer must withdraw because a conflict arises after representation has been undertaken, the question of whether the lawyer may continue to represent any of the clients is determined by Rule 1.9.

Imputed Disqualification   [34] All of the references in Rule 1.7 and its accompanying Comment to the limitation upon a “lawyer” must be read in light of the imputed disqualification provisions of Rule 1.10, which affect lawyers practicing in a firm.   [35] In the government lawyer context, Rule 1.7(b) is not intended to apply to conflicts between agencies or components of government (federal, state, or local) where the resolution of such conflicts has been entrusted by law, order, or regulation to a specific individual or entity.

Businesses Affiliated With a Lawyer or Firm   [36] Lawyers, either alone or through firms, may have interests in enterprises that do not practice law but that, in some or all of their work, become involved with lawyers or their clients either by assisting the lawyer in providing legal services or by providing related services to the client. Examples of such enterprises are accounting firms, consultants, real estate brokerages, and the like. The existence of such interests raises several questions under this rule. First, a lawyer’s recommendation, as part of legal advice, that the client obtain the services of an enterprise in which the lawyer has an interest implicates paragraph 1.7(b)(4). The lawyer should not make such a recommendation unless able to conclude that the lawyer’s professional judgment on behalf of the client will not be adversely affected. Even then, the lawyer should not make such a recommendation without full disclosure to the client so that the client can make a fully informed choice. Such disclosure should include the nature and substance of the lawyer’s or the firm’s interest in the related enterprise, alternative sources for the non-legal services in question, and sufficient information so that the client understands that the related enterprise’s services are not legal services and that the client’s relationship to the related enterprise will not be that of a client to attorney. Second, such a related enterprise may refer a potential client to the lawyer; the lawyer should take steps to assure that the related enterprise will inform the lawyer of all such referrals. The lawyer should not accept such a referral without full disclosure of the nature and substance of the lawyer’s interest in the related enterprise. See also Rule 7.1(b). Third, the lawyer should be aware that the relationship of a related enterprise to its own customer may create a significant interest in the lawyer in the continuation of that relationship. The substantiality of such an interest may be enough to require the lawyer to decline a proffered client representation that would conflict with that interest; at least Rule 1.7(b)(4) and (c) may require the prospective client to be informed and to give informed consent before the representation could be undertaken. Fourth, a lawyer’s interest in a related enterprise that may also serve the lawyer’s clients creates a situation in which the lawyer must take unusual care to fashion the relationship among lawyer, client, and related enterprise to assure that the confidences and secrets are properly preserved pursuant to Rule 1.6 to the maximum extent possible. See Rule 5.3.

Sexual Relations Between Lawyer and Client   [37] The relationship between lawyer and client is a fiduciary one in which the lawyer occupies the highest position of trust and confidence. Because of this fiduciary duty to clients, combining a 

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professional relationship with any intimate personal relationship may raise concerns about conflict of interest, impairment of the judgment of both lawyer and client, and preservation of attorney-client privilege. These concerns may be particularly acute when a lawyer has a sexual relationship with a client. Such a relationship may create a conflict of interest under Rule 1.7(b)(4) or violate other disciplinary rules, and it generally is imprudent even in the absence of an actual violation of these Rules.   [38] Especially when the client is an individual, the client’s dependence on the lawyer’s knowledge of the law is likely to make the relationship between lawyer and client unequal. A sexual relationship between lawyer and client can involve unfair exploitation of the lawyer’s fiduciary role and thereby violate the lawyer’s basic obligation not to use the trust of the client to the client’s disadvantage. In addition, such a relationship presents a significant risk that the lawyer’s emotional involvement will impair the lawyer’s independent professional judgment. Moreover, a blurred line between the professional and personal relationships may make it difficult to predict the extent to which client confidences will be protected by the attorney-client privilege, because client confidences are protected by privilege only when they are imparted in the context of the client-lawyer relationship. The client’s own emotional involvement may make it impossible for the client to give informed consent to these risks.   [39] Sexual relationships with the representative of an organization client may not present the same questions of inherent inequality as the relationship with an individual client. Nonetheless, impairment of the lawyer’s independent professional judgment and protection of the attorney-client privilege are still of concern, particularly if outside counsel has a sexual relationship with a representative of the organization who supervises, directs, or regularly consults with an outside lawyer concerning the organization’s legal matters. An in-house employee in an intimate personal relationship with outside counsel may not be able to assess and waive any conflict of interest for the organization because of the employee’s personal involvement, and another representative of the organization may be required to determine whether to give informed consent to a waiver. The lawyer should consider not only the disciplinary rules but also the organization’s personnel policies regarding sexual relationships (for example, prohibiting such relationships between supervisors and subordinates).

Short-Term Limited Legal Services   [40] For the application of this rule and Rules 1.9 and 1.10 when the lawyer undertakes to provide short-term limited legal services to a client under the auspices of a program sponsored by a nonprofit organization or court, see Rule 6.5(a).

Rule One Table of Contents

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Rules of Professional Conduct: Rule 1.9--Conflict of Interest: Former Client

A lawyer who has formerly represented a client in a matter shall not thereafter represent another person in the same or a substantially related matter in which that person’s interests are materially adverse to the interests of the former client unless the former client gives informed consent.

Comment

   [1] After termination of client-lawyer relationship, a lawyer may not represent another client except in conformity with the Rule. The principles in Rule 1.7 determine whether the interests of the present and former client are adverse. Thus, a lawyer could not properly seek to rescind on behalf of a new client a contract drafted on behalf of the former client. Similarly, a lawyer who has defended a client against charges brought by a regulatory agency concerning a transaction may not later represent another client in a private lawsuit against the client involving the same transaction, absent the first client’s informed consent. For the definition of “informed consent,” seeRule 1.0(e).   [2] The scope of a “matter” for purposes of this rule may depend on the facts of a particular situation or transaction. The lawyer’s involvement in a matter can also be a question of degree. When a lawyer has been directly involved in a specific transaction, subsequent representation of other clients with materially adverse interests clearly is prohibited. On the other hand, a lawyer who recurrently handled a type of problem for a former client is not precluded from later representing another client in a wholly distinct problem of that type even though the subsequent representation involves a position adverse to the prior client. Similar considerations can apply to the reassignment of military lawyers between defense and prosecution functions within the same military jurisdiction. The underlying question is whether the lawyer was so involved in the matter that the subsequent representation can be justly regarded as a changing of sides in the matter in question. Rule 1.9 is intended to incorporate District of Columbia and federal case law defining the “substantial relationship” test. See, e.g., Brown v. District of Columbia Board of Zoning Adjustment, 486 A.2d 37 (D.C. 1984) (en banc); T.C. Theatre Corp. v. Warner Brothers Pictures, 113 F. Supp. 265 (S.D.N.Y. 1953), and its progeny.   [3] Matters are “substantially related” for purposes of this rule if they involve the same transaction or legal dispute or if there otherwise is a substantial risk that confidential factual information as would normally have been obtained in the prior representation would materially advance the client’s position in the subsequent matter. For example, a lawyer who has represented a businessperson and learned extensive private financial information about that person may not then represent that person’s spouse in seeking a divorce. Similarly, a lawyer who has previously represented a client in securing environmental permits to build a shopping center would be precluded from representing neighbors seeking to oppose rezoning of the property on the basis of environmental considerations; however, the lawyer would not be precluded, on the grounds of substantial relationship, from defending a tenant of the completed shopping center in resisting eviction for nonpayment of rent. Information that has been disclosed to the public or to other parties adverse to the former client ordinarily will not be disqualifying. Information acquired in a prior representation may have been rendered obsolete by the passage of time, a circumstance that may be relevant in determining whether two representations are substantially related. In the case of an organizational client, general knowledge of the client’s policies and practices ordinarily will not preclude a subsequent representation; on the other hand, knowledge of specific facts gained in a prior representation that are relevant to the matter in question ordinarily will preclude such a representation. A former client is not required to reveal the confidential information learned by the lawyer in order to establish a substantial risk that the lawyer has confidential information to use in the subsequent matter. A conclusion about the possession of such information may be based on 

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the nature of the services the lawyer provided the former client and information that would in ordinary practice be learned by a lawyer providing such services.   [4] Disqualification from subsequent representation is for the protection of clients and can be waived by them. A waiver is effective only if there is disclosure of the circumstances, including the lawyer’s intended role in behalf of the new client. The question of whether a lawyer is personally disqualified from representation in any matter on account of successive government and private employment is governed by Rule 1.11 rather than by Rule 1.9.   [5] With regard to disqualification of a firm with which a lawyer is associated, see Rules 1.10; for former government lawyers, see Rule 1.11; for former judges and law clerks, see Rule 1.11. 

Rule One Table of Contents

Go to...

244 Cal.App.4th 590 (2016)

198 Cal. Rptr. 3d 253

SHEPPARD, MULLIN, RICHTER & HAMPTON, LLP, Plaintiff and Respondent,

v.

J-M MANUFACTURING COMPANY, INC., Defendant and Appellant.

No. B256314.

January 29, 2016.

Court of Appeals of California, Second District, Division Four.

*596 Greines, Martin, Stein & Richland, Kent L. Richland, Barbara W. Ravitz and Jeffrey E. Raskin for

Defendant and Appellant.

596

Gibson, Dunn & Crutcher, Kevin S. Rosen, Theane Evangelis and Heather L. Richardson for Plaintiff and

Respondent.

OPINION

COLLINS, J.—

INTRODUCTION

Appellant J-M Manufacturing Company, Inc. (J-M), appeals from a judgment in favor of its former attorneys,

Sheppard, Mullin, Richter & Hampton, LLP (Sheppard Mullin). Sheppard Mullin sought recovery of attorney

fees relating to litigation in which Sheppard Mullin represented J-M. Sheppard *597 Mullin was disqualified

from that litigation because, without obtaining informed consent from either client, Sheppard Mullin represented

J-M, the defendant in the litigation, while simultaneously representing a plaintiff in that case, South Tahoe

Public Utility District (South Tahoe), in unrelated matters. J-M argued that its engagement agreement with

Sheppard Mullin was unenforceable because it was illegal and it violated the public policy embodied in the

Rules of Professional Conduct, Rule 3-310 (Rule 3-310),[1] which bars simultaneous representation of adverse

clients. J-M argued that as a result of Sheppard Mullin's violation, J-M did not owe Sheppard Mullin outstanding

attorney fees and Sheppard Mullin should return to J-M all attorney fees paid pursuant to the agreement.

597

The trial court ordered the case to arbitration based on the parties' written engagement agreement. A panel of

three arbitrators found that the agreement was not illegal, denied J-M's request for disgorgement of fees paid,

and ordered J-M to pay Sheppard Mullin's outstanding fees. The trial court confirmed the award and J-M

appealed, arguing that the trial court enforced an illegal contract in violation of public policy.

Under California law, because J-M challenged the legality of the entire agreement, the issue of illegality was for

the trial court, rather than the arbitrators, to decide. The undisputed facts establish that Sheppard Mullin

violated the requirements of Rule 3-310 by simultaneously representing J-M and South Tahoe. Sheppard

Mullin failed to disclose the conflict to either J-M or South Tahoe, and it failed to obtain the informed written

consent of either client to the conflict. The representation of both parties without informed written consent is

contrary to California law and contravenes the public policy embodied in Rule 3-310. Because Sheppard

Mullin's representation of J-M violated Rule 3-310 and public policy, the trial court erred by enforcing the

contract between the parties and entering judgment on the arbitration award based on that contract. We

therefore reverse the judgment.

J-M also seeks disgorgement of all fees paid to Sheppard Mullin. Sheppard Mullin, on the other hand, argues

that under principles of quantum meruit, it is entitled to attorney fees despite its violation of the Rules of

Professional Conduct. We follow established California law and find that Sheppard Mullin is not entitled to fees

for the work it did while violating Rule 3-310, which exemplifies the inviolate duty of loyalty an attorney owes a

client. Because the point at which the actual conflict arose is unclear from the record, however, we remand for

a factual finding on that issue.

*598 FACTUAL AND PROCEDURAL BACKGROUND598

We take portions of our factual history from the declarations submitted to the arbitration panel, which are in the

record on appeal.

A. The underlying litigation: the Qui Tam Action

In 2006, a qui tam action was initiated against J-M and Formosa Plastics Corporation U.S.A. on behalf of

approximately 200 real parties in interest, including the United States, seven states, and other state and local

government entities. (U.S. v. J-M Manufacturing Co., Inc. (C.D.Cal., case No. 5:06-cv-00055-GW-PJW) (Qui

Tam Action).) J-M manufactures polyvinyl chloride (PVC) pipe. The Qui Tam Action alleged that J-M falsely

represented to its customers that the PVC pipe products it sold conformed to applicable industry standards for

water works parts. It also alleged that, contrary to this representation, J-M was aware of numerous tests

proving that its PVC pipe regularly failed to meet the minimum longitudinal tensile-strength requirements. The

complaint demanded over $1 billion in damages.

Another law firm represented J-M in the initial phases of the Qui Tam Action. By February 2010, the complaint

was unsealed, and numerous governmental entities were filing notices of intervention. Camilla Eng, J-M's

general counsel, invited Sheppard Mullin attorneys Bryan Daly and Charles Kreindler to meet with her and J-M

chief executive officer Walter Wang to discuss replacing J-M's current counsel. They discussed the experience

of the Sheppard Mullin attorneys in qui tam actions and their proposed defense strategy. J-M retained

Sheppard Mullin shortly thereafter.

Sheppard Mullin represented J-M in the Qui Tam Action for 16 months, litigating motions, conducting

discovery, reviewing documents, and conducting an extensive internal investigation at J-M. It billed J-M nearly

$3.8 million for approximately 10,000 hours of work.

B. Conflict waiver provision

In March 2010, before J-M retained Sheppard Mullin, Daly and Kreindler ran a conflicts check to determine

whether Sheppard Mullin had represented any of the real parties in interest identified in the Qui Tam Action.

They discovered that Jeffrey Dinkin, a Sheppard Mullin labor-and-employment partner, had done work for

South Tahoe, one of the municipal intervenors in the Qui Tam Action. Dinkin stated in a declaration that he

began working with South Tahoe early in his career when he worked at a different firm. When he moved to

Sheppard Mullin in 2002, he brought South Tahoe with him as a client. South Tahoe signed an engagement

agreement with Sheppard *599 Mullin in 2002, and it renewed that agreement in 2006. The agreement had a

broad advance conflict waiver provision similar to the one in the J-M agreement, discussed below. Dinkin did

occasional, as-needed labor and employment work for South Tahoe between 2006 and November 2009.

599

When Sheppard Mullin's conflict check for J-M revealed that South Tahoe was a client, Daly and Kreindler

consulted with an assistant general counsel to Sheppard Mullin. That unidentified attorney informed them that

South Tahoe had "agreed to an advance conflict waiver and that Sheppard Mullin had done no work for [South

Tahoe] for the previous five months (since November 2009)." In addition, Daly and Kreindler discussed the

issue with Ronald Ryland, Sheppard Mullin's general counsel, "who analyzed [South Tahoe's] conflict waiver

and informed us that it allowed us to represent J-M in the Qui Tam Action."

Daly met with Eng for two hours on March 4, 2010, to discuss a draft engagement agreement. The draft

contained the advance conflict waiver provision that ultimately was included in the final engagement

agreement. It stated, "Conflicts with Other Clients. Sheppard, Mullin, Richter & Hampton LLP has many

attorneys and multiple offices. We may currently or in the future represent one or more other clients (including

current, former, and future clients) in matters involving [J-M]. We undertake this engagement on the condition

that we may represent another client in a matter in which we do not represent [J-M], even if the interests of the

other client are adverse to [J-M] (including appearance on behalf of another client adverse to [J-M] in litigation

or arbitration) and can also, if necessary, examine or cross-examine [J-M] personnel on behalf of that other

client in such proceedings or in other proceedings to which [J-M] is not a party provided the other matter is not

substantially related to our representation of [J-M] and in the course of representing [J-M] we have not obtained

confidential information of [J-M] material to representation of the other client. By consenting to this

arrangement, [J-M] is waiving our obligation of loyalty to it so long as we maintain confidentiality and adhere to

the foregoing limitations. We seek this consent to allow our Firm to meet the needs of existing and future

clients, to remain available to those other clients and to render legal services with vigor and competence. Also,

if an attorney does not continue an engagement or must withdraw therefrom, the client may incur delay,

prejudice or additional cost such as acquainting new counsel with the matter." (Second italics added.) We refer

to this as the "conflict waiver provision."

According to Daly, Eng carefully reviewed the entire draft agreement with him, and she "did not ask me any

questions or express any concern about the advance conflict waiver." Eng declared that Sheppard Mullin

attorneys never discussed the conflict waiver provision with her, nor did they explain it. Eng *600 also said the

Sheppard Mullin attorneys assured her there were no conflicts in representing J-M in the Qui Tam Action. J-M's

practice was to ensure that its outside attorneys had neither potential nor actual conflicts of interest. Although

Eng made a number of handwritten edits related to the fee provisions, and also edited the paragraph preceding

the conflict waiver provision, she did not edit the conflict waiver provision. She ultimately executed the

engagement agreement (the Agreement) on March 8, 2010, and sent it to Daly by e-mail.

600

C. South Tahoe raises the conflict of interest in the Qui Tam Action

Dinkin began actively working for South Tahoe again on March 29, 2010. Between March 2010 and May 2011,

Sheppard Mullin billed South Tahoe for 12 hours of work, including telephone conversations and work on

employment matters.

In March 2011, Day Pitney, counsel for South Tahoe in the Qui Tam Action, wrote a letter to Sheppard Mullin

asserting that Sheppard Mullin had a conflict as a result of its simultaneous representation of J-M and South

Tahoe. In response to the Day Pitney letter, Sheppard Mullin took the position that South Tahoe had agreed to

an advance conflict waiver in its engagement agreement with Sheppard Mullin and therefore no conflict

existed. Day Pitney's position was that there was an actual conflict. In April 2011, Day Pitney informed

Sheppard Mullin that South Tahoe planned to bring a motion to disqualify Sheppard Mullin from the Qui Tam

Action.

According to Eng's declaration submitted in the arbitration proceedings, she first heard about the conflict with

South Tahoe on April 20, 2011, which she asserts was about 50 days after Day Pitney first contacted

Sheppard Mullin about the conflict. Eng stated that Sheppard Mullin did not inform J-M that counsel for South

Tahoe had contacted Sheppard Mullin about a potential disqualification motion because of the conflict until

after the disqualification motion was filed.

Eng also stated that she first learned about the results of the March 2010 conflicts check on June 22, 2011,

when she read in Sheppard Mullin attorneys' declarations that the conflicts check had revealed South Tahoe as

a client. She declared that Sheppard Mullin never requested a conflict waiver from J-M in light of the South

Tahoe conflict, and had Sheppard Mullin requested it, J-M would have declined.

D. Sheppard Mullin is disqualified as counsel in the Qui Tam Action

South Tahoe's disqualification motion in the Qui Tam Action was heard on June 6, 2011. The district court

tentatively ruled that the advance waiver in *601 South Tahoe's engagement agreement with Sheppard Mullin

was invalid. In its tentative ruling, the court cited Rule 3-310(C)(3), which bars an attorney from representing

clients in adverse positions without the informed written consent of each client.[2] The court referred to the

engagement agreement letters between Sheppard Mullin and South Tahoe, and said that "the prospective

waivers contained within the 2002 and 2006 letters were ineffective to indicate South Tahoe's informed consent

to the conflict at issue here." The court added, "The Court cannot conclude that South Tahoe was in any way

close to `fully informed'" about the conflict with J-M.

601

The court rejected Sheppard Mullin's suggestion that it could drop South Tahoe as a client and remain counsel

for J-M in the Qui Tam Action, citing American Airlines, Inc. v. Sheppard, Mullin, Richter & Hampton (2002) 96

Cal.App.4th 1017, 1037 [117 Cal.Rptr.2d 685] (American Airlines v. Sheppard Mullin): "A lawyer may not avoid

the automatic disqualification rule applicable to concurrent representation of conflicting interests by unilaterally

converting a present client into a former client." The parties suggested bifurcating South Tahoe from the Qui

Tam Action, with separate counsel for J-M working on that portion of the case. The hearing was continued to

give the parties an opportunity to determine if that was a viable solution.

On June 9, 2011, Sheppard Mullin sent a letter to South Tahoe that began, "We write to address the long-

standing relationship between the [South Tahoe Public Utility] District and our Firm. We have been pleased to

provide labor advice to you for the last 9 years." Sheppard Mullin offered to "promptly pay to the District the

sum of $100,000" and to "provide up to 40 hours of free labor and employment legal advice and services." In

return, Sheppard Mullin asked that South Tahoe "consent to the Firm's continued representation of J-M in the

pending federal district court action and any other state or federal action that the District and J-M may be

involved in." South Tahoe declined on June 16, 2011. On July 1, Sheppard Mullin increased its offer to

$250,000 and 40 hours of employment work in exchange for a conflict waiver. South Tahoe's response is not in

the record, but it appears that the offer was rejected. Meanwhile, J-M rejected the proposal to bifurcate South

Tahoe from the Qui Tam Action with separate counsel defending that portion of the case.

On July 14, 2011, the district court granted South Tahoe's motion to disqualify Sheppard Mullin.

*602 E. The present action602

After Sheppard Mullin was disqualified, J-M took the position that J-M was not required to pay Sheppard Mullin

any fees that were outstanding at the time of the disqualification. J-M also demanded that Sheppard Mullin

return all fees relating to the Qui Tam Action that J-M had already paid.

In June 2012, Sheppard Mullin filed an action against J-M for specific performance, breach of contract, account

stated, services rendered, and quantum meruit. It sought approximately $1.3 million as payment for services

rendered to J-M in the Qui Tam Action and related matters. It also sought specific performance of the

arbitration provision in the Agreement. J-M cross-complained for breach of contract, an accounting, breach of

fiduciary duty, and fraudulent inducement. It also sought disgorgement of fees previously paid to Sheppard

Mullin.

Sheppard Mullin petitioned for an order compelling arbitration. J-M opposed arbitration, partly on the basis that

the entire Agreement containing the arbitration provision was illegal and void as against public policy because

Sheppard Mullin's conflict of interest between J-M and South Tahoe violated Rule 3-310(C)(3). J-M argued that

the court was required to determine whether the contract was enforceable before sending the case to

arbitration, because "the Court has an independent duty to ensure that it does not use its power to enforce an

illegal contract."

The trial court granted Sheppard Mullin's motion to compel arbitration. The court noted that the parties

"contract[ed] out of the procedural requirements of the Federal Arbitration Act (FAA) . . . by providing that

California law applies to disputes arising out of the subject retainer agreement." The court rejected J-M's

argument that the contract was unenforceable based on illegality, instead interpreting J-M's arguments as

arising under the doctrine of fraudulent inducement: "[J-M] argues that circumstances unbeknown to it at the

time of signing the agreement, i.e. [Sheppard Mullin's] alleged conflict of interest, caused the entire retainer

agreement to be unenforceable. Thus, [J-M] knew what it was signing, but [Sheppard Mullin] allegedly induced

such consent by fraudulent means. . . ." The court found that J-M had alleged fraud in the inducement, and the

issue should be presented to the arbitrator. J-M's petition for writ of mandate challenging this ruling was

denied.

F. Arbitration

Pursuant to the terms of the arbitration provision, the arbitration was conducted before a panel of three

arbitrators. The parties stipulated that J-M waived any challenge to the value or quality of Sheppard Mullin's

work in *603 the Qui Tam Action and any claim for costs (fees included) associated with replacing Sheppard

Mullin in the Qui Tam Action.

603

The arbitrators' final award considered the claimed ethical violation and "fraudulent concealment of the

conflict." The arbitrators found "that the better practice would have been [for Sheppard Mullin] to disclose the

full South Tahoe situation to J-M, and seek J-M's waiver of it." But the arbitrators concluded that they need not

decide whether Sheppard Mullin's failure to seek such a waiver constituted an ethical violation, and for

purposes of their analysis assumed that the ethical violation occurred. The arbitrators rejected J-M's claim for

fraudulent concealment, based on their finding that Sheppard Mullin honestly and in good faith believed that no

conflict existed when it undertook J-M's representation in the Qui Tam Action.

The arbitrators found the assumed ethical violation did not require automatic fee disgorgement or forfeiture.

Instead, they engaged in an equitable weighing of whether the ethical violation was serious or egregious. The

arbitrators concluded that Sheppard Mullin's conduct was not so serious or egregious as to make disgorgement

or forfeiture of fees appropriate. They also found that Sheppard Mullin's representation of South Tahoe

involved a matter that was unrelated to the subject of the J-M representation, and therefore the conflict did not

pervade the whole relationship with J-M or go to the heart of Sheppard Mullin's representation of J-M.

The arbitrators awarded Sheppard Mullin $1,118,147 in unpaid fees, pre-award interest of $251,471, and

interest of $302 per day from January 8, 2014, until the date of the award against J-M. They awarded no

recovery to J-M from Sheppard Mullin.

G. Petitions to confirm or vacate the award

Sheppard Mullin petitioned the trial court to confirm the arbitration award; J-M petitioned the court to vacate the

award, again arguing that Sheppard Mullin violated Rule 3-310(C)(3), and sought an order requiring Sheppard

Mullin to disgorge the fees it received from J-M. The trial court confirmed the award. It found the arbitrators did

not exceed their powers in that the Agreement was not illegal or void and the arbitration award did not violate

public policy or a statutory right. The court concluded that a violation of Rule 3-310 did not render the entire

retainer agreement illegal, void, or unenforceable. It reasoned that whether an attorney should be entitled to

attorney fees despite the existence of an ethical violation was at the heart of the determination made by the

arbitrators, and that the court could not disrupt the legal and factual findings of the arbitrators.

The court entered judgment confirming the arbitration award on March 18, 2014. This timely appeal by J-M

followed.

*604 DISCUSSION604

A. Standard of review

"On appeal from an order confirming an arbitration award, we review the trial court's order (not the arbitration

award) under a de novo standard." (Lindenstadt v. Staff Builders, Inc. (1997) 55 Cal.App.4th 882, 892, fn. 7 [64

Cal.Rptr.2d 484] (Lindenstadt).) This is "the standard of review that governs a trial court's review of an

arbitrator's decision where one of the parties claims that the entire contract or transaction underlying the award

is illegal." (Ibid., italics omitted.) This is such a case.

B. Where a party challenges an entire contract as illegal or in

violation of public policy, the question of enforceability is for the

court

A central issue in this case is the court's role where a party has alleged that an entire contract, rather than a

portion of a contract, is unenforceable because it violates public policy. Here, J-M has challenged the entire

Agreement—rather than just a portion—as unenforceable.[3] J-M argues that the trial court should not have

confirmed the arbitration award, because by doing so the court enforced a contract that violates California's

public policy as articulated in the Rules of Professional Conduct for attorneys.

Sheppard Mullin, on the other hand, argues that the arbitration award was properly confirmed because a

court's role in reviewing arbitration awards is extremely limited. Following arbitration, review is typically limited

to the grounds set forth in Code of Civil Procedure section 1286.2 (section 1286.2), which provides that an

arbitration award may be vacated only if the trial court makes particular findings, such as determining that the

award was procured by fraud or corruption, the rights of the parties were substantially prejudiced by the actions

of the arbitrators, or "the arbitrators exceeded their powers and the award cannot be corrected without affecting

the merits of the decision upon which the controversy submitted." (§ 1286.2.)

Determining whether federal or state law governs the Agreement is crucial to whether the court or the

arbitrators should have decided if the Agreement was enforceable, and therefore how we review that decision.

The trial court *605 held that this question was properly presented to the arbitrators, noting that Phillips v.

Sprint PCS (2012) 209 Cal.App.4th 758 [147 Cal.Rptr.3d 274] (Phillips) holds that a "challenge . . . that

contests the validity of the agreement as a whole, is decided by the arbitrator." (Id. at p. 774.) Phillips, however,

and the United States Supreme Court case upon which it relied, Buckeye Check Cashing, Inc. v. Cardegna

(2006) 546 U.S. 440 [163 L.Ed.2d 1038, 126 S.Ct. 1204] (Buckeye), were governed by the Federal Arbitration

Act (FAA; 9 U.S.C. § 1 et seq.), not California law. (See Phillips, supra, 209 Cal.App.4th at p. 764 [noting that

under the terms of the contract at issue, "the Federal Arbitration Act (FAA. . .), not California law, `govern[s] all

questions of whether a claim is subject to arbitration'"]; Buckeye, supra, 546 U.S. at pp. 445-446 [as a matter of

"substantive federal arbitration law," "the issue of the contract's validity is considered by the arbitrator in the

first instance"].)

605

However, the Agreement states that J-M "agrees that this agreement will be governed by the laws of California

without regard to its conflict rules." Where the parties agree that California law governs the contract, the FAA

does not apply. (Mastick v. TD Ameritrade, Inc. (2012) 209 Cal.App.4th 1258, 1264 [147 Cal.Rptr.3d 717]

(Mastick); see also Volt Info. Sciences v. Leland Stanford Jr. U. (1989) 489 U.S. 468, 470 [103 L.Ed.2d 488,

109 S.Ct. 1248] [California arbitration law is not preempted by the FAA where the parties have agreed that their

arbitration agreement will be governed by California law].) Cases applying the FAA, therefore, are not

controlling here.

Under California law, a challenge to the legality of an entire contract that contains an arbitration provision must

be determined by the trial court, not the arbitrator. "The power of the arbitrator to determine rights under a

contract is dependent upon the existence of a valid contract under which this right might arise, and the

question of the validity of the basic contract is essentially a judicial question, which cannot be finally

determined by an arbitrator." (1 Witkin, Summary of Cal. Law (10th ed. 2005) Contracts, § 450, p. 490, citing

Loving & Evans v. Blick (1949) 33 Cal.2d 603, 610 [204 P.2d 23] (Loving).) And if a party challenges the

enforceability of a contract after arbitration in a motion to vacate the arbitration award, the court should "review

[] the evidence de novo to determine whether the arbitration award was based on illegal agreements or

transactions." (Lindenstadt, supra, 55 Cal.App.4th at pp. 888-889.) "[A]ny preliminary determination of legality

by the arbitrator, whether in the nature of a determination of a pure question of law or a mixed question of fact

and law, should not be held to be binding upon the trial court." (Loving, supra, 33 Cal.2d at p. 609.)

Sheppard Mullin, arguing that limited judicial review applies, relies on Moncharsh v. Heily & Blase (1992) 3

Cal.4th 1 [10 Cal.Rptr.2d 183, 832 P.2d *606 899] (Moncharsh) and Ahdout v. Hekmatjah (2013) 213

Cal.App.4th 21, 33 [152 Cal.Rptr.3d 199] (Ahdout). These cases are not controlling, however, because they

address judicial review when a party has alleged that only a portion of an otherwise enforceable

contract—rather than the contract as a whole—is illegal or unenforceable.

606

The Supreme Court explored this distinction in Loving, supra, 33 Cal.2d 603. In that case, the Court held it was

error to confirm an arbitration award in favor of unlicensed contractors. The Court stated that "ordinarily with

respect to arbitration proceedings `the merits of the controversy between the parties are not subject to judicial

review' [citations] . . . . But . . . the rules which give finality to the arbitrator's determination of ordinary questions

of fact or of law are inapplicable where the issue of illegality of the entire transaction is raised in a proceeding

for the enforcement of the arbitrator's award." (Id. at p. 609.) The court went on to say that deference to the

findings of the arbitrators was not warranted in such circumstances: "When so raised, the issue [of illegality] is

one for judicial determination upon the evidence presented to the trial court, and any preliminary determination

of legality by the arbitrator, whether in the nature of a determination of a pure question of law or a mixed

question of fact and law, should not be held to be binding upon the trial court." (Ibid.; see also All Points

Traders, Inc. v. Barrington Associates (1989) 211 Cal.App.3d 723, 737 [259 Cal.Rptr. 780].)

The Supreme Court again emphasized this distinction in Moncharsh, which involved a challenge to only the

fee-splitting clause of the relevant agreement, rather than the entire agreement. (Moncharsh, supra, 3 Cal.4th

at p. 32 ["Moncharsh challenges but a single provision of the overall employment contract."].) Since only a

claim of partial illegality was raised, the court ruled that the issue of illegality was for the arbitrator to resolve.

(Id. at p. 30.) Indeed, the Moncharsh court said that if the parties had established that the entire contract was

illegal, the arbitration clause would not be enforceable: "[I]f an otherwise enforceable arbitration agreement is

contained in an illegal contract, a party may avoid arbitration altogether." (Id. at p. 29; see also Richey v.

AutoNation, Inc. (2015) 60 Cal.4th 909, 917 [182 Cal.Rptr.3d 644, 341 P.3d 438] ["Moncharsh noted that

judicial review may be warranted when a party claims that an arbitrator has enforced an entire contract or

transaction that is illegal."].)

Lindenstadt, supra, 55 Cal.App.4th 882 also held that the trial court, not the arbitrator, must determine the

legality of an entire contract. There, the court recognized the general rule that courts should not interfere with

arbitration awards, but noted that in Loving "the Supreme Court recognized a narrow exception to the general

rule" when a party challenged the legality of the entire contract. (Lindenstadt, supra, 55 Cal.App.4th at p. 889.)

In that *607 case, plaintiff Lindenstadt assisted defendant Staff Builders in locating home health care 607

businesses to acquire. Lindenstadt brought an action against Staff Builders seeking finder's fees for locating

several businesses; Staff Builders asserted that Lindenstadt was statutorily barred from seeking fees because

he acted as an unlicensed real estate broker. (Id. at pp. 885-886.) The case went to arbitration based on the

parties' contract, and the arbitrator concluded Lindenstadt was entitled to fees. (Id. at p. 887.) In its opposition

to Lindenstadt's motion to confirm the arbitration award, Staff Builders argued that the trial court was obligated

to undertake a de novo review of the evidence to determine whether the arbitration award was based on illegal

contracts or transactions. (Id. at p. 888.) The Court of Appeal agreed, saying that Lindenstadt "`cannot be

permitted to rely upon the arbitrator's conclusion of legality' ([Loving, supra, 33 Cal.2d] at p. 614) since `. . . it

would violate public policy to allow a party to do through arbitration what it cannot do through litigation'

(Ericksen, Arbuthnot, McCarthy, Kearney & Walsh, Inc. v. 100 Oak Street (1983) 35 Cal.3d 312, 316, fn. 2 [197

Cal.Rptr. 581, 673 P.2d 251])." (Lindenstadt, supra, 55 Cal.App.4th at pp. 892-893.) The Court of Appeal

remanded the case to allow the trial court to determine whether Lindenstadt acted as an unlicensed real estate

broker in each transaction at issue.

Ahdout, supra, 213 Cal.App.4th 21, also discussed the different standards of review of an arbitration award

depending on whether a party challenges an entire contract, or only a portion of a contract, as illegal or

unenforceable. Ahdout contrasted Loving, where the entire agreement was challenged, with Moncharsh, where

only a portion of the contract was challenged: "Whereas the building contract in Loving was rendered void in its

entirety by the contractor's lack of a license, the illegality alleged in Moncharsh affected only one provision of

an employment contract. . . ." (Ahdout, supra, at p. 36.) Ahdout recognized that the enforceability of the entire

contract was also challenged in Lindenstadt, and added, "Indeed, the court in Lindenstadt noted the language

in Moncharsh limiting the scope of Loving to cases where the entire contract or transaction was illegal." (Ibid.)

By comparison, Ahdout noted that "the alleged illegality in the instant case does not infect the entire contract."

(Ibid.) As a result, Ahdout found, review of the arbitrator's decision on the narrow grounds articulated in section

1286.2 was appropriate in that case, and "the exception enunciated in Loving and Lindenstadt, as considered

by Moncharsh, is not applicable." (Ahdout, at p. 36.) Here, judicial determination is required because, as in

Loving and Lindenstadt, J-M has challenged the legality of the contract as a whole.[4]

*608 J-M argued that the entire Agreement was unenforceable because Sheppard Mullin had a conflict of

interest when it simultaneously represented J-M in the Qui Tam Action and adverse party South Tahoe in other

matters. As stated in Loving, Moncharsh, Lindenstadt, and Ahdout, a challenge to the enforceability of a

contract as a whole, rather than a portion of an otherwise enforceable contract, must be decided by the court

rather than the arbitrator.[5] The trial court therefore erred by deferring to the arbitrators in determining the

enforceability of the Agreement.

608

C. Sheppard Mullin violated Rule 3-310

Turning to the substance of the case, we determine whether Sheppard Mullin's simultaneous representation of

J-M and South Tahoe violated Rule 3-310. As noted above, we consider this question de novo.

Rule 3-310(C)(3) provides that an attorney "shall not, without the informed written consent of each client . . . [¶]

. . . [¶] . . . [r]epresent a client in a matter and at the same time in a separate matter accept as a client a person

or entity whose interest in the first matter is adverse to the client in the first matter." (Italics added.) "`Informed

written consent' means the client's . . . written agreement to the representation following written disclosure . . .

." (Rule 3-310(A)(2).)

*609 J-M argues that the Agreement violated "the fundamental public policy embodied in rule 3-310(C) of the

Rules of Professional Conduct, which required J-M's informed written consent to any conflicting representation

by Sheppard." Sheppard Mullin, on the other hand, argues that the "Engagement Agreement's conflict waiver

was plainly legal." "Whether a contract is illegal or contrary to public policy is a question of law to be

determined from the circumstances of each particular case." (Jackson v. Rogers & Wells (1989) 210

609

Cal.App.3d 336, 349-350 [258 Cal.Rptr. 454]; see also Brisbane Lodging, L.P. v. Webcor Builders, Inc. (2013)

216 Cal.App.4th 1249, 1256-1257 [157 Cal.Rptr.3d 467]; Bovard v. American Horse Enterprises, Inc. (1988)

201 Cal.App.3d 832, 838 [247 Cal.Rptr. 340].)

Sheppard Mullin argues that J-M's "illegality argument rests entirely on disputed factual issues that are not

reviewable." Sheppard Mullin cites Loving to argue that illegality must be proved by "uncontradicted evidence."

(See Loving, supra, 33 Cal.2d at p. 610 [if "it appears to the court from the uncontradicted evidence that the

contract is illegal," the court should deny a petition to compel arbitration or enforce an arbitration award].)

Courts have rejected this interpretation of Loving. "[A] reading of Loving & Evans. . . to require uncontradicted

evidence of illegality is too formalistic. The court did not explicitly condition its holding on the existence of

uncontroverted evidence. Rather, the case merely stands for the proposition that the legality of the underlying

agreement should first be judicially determined." (Green v. Mt. Diablo Hospital Dist. (1989) 207 Cal.App.3d 63,

74 [254 Cal.Rptr. 689].)

Nonetheless, the essential facts are not in dispute. Sheppard Mullin partner Jeffery Dinkin did work for South

Tahoe before the parties entered into the Agreement. Sheppard Mullin's conflicts check revealed Dinkin's work

for South Tahoe before Sheppard Mullin gave the Agreement to J-M, but Sheppard Mullin concluded that there

was no reason to disclose this relationship to J-M. J-M signed the Agreement without knowing that Sheppard

Mullin represented South Tahoe in unrelated matters. The parties disagree about whether South Tahoe was a

"former" client or a "current" client at the time the Agreement was signed. However, it is undisputed that three

weeks after J-M signed the Agreement, Dinkin began working for South Tahoe again, so there is no question

that there was an actual conflict at that point. Sheppard Mullin was disqualified from the Qui Tam Action as a

result.

Sheppard Mullin argues that it proceeded as required by Rule 3-310(C)(3): "The conflict waiver in the

Engagement Agreement waives both current and future conflicts. Waivers of current and future conflicts are

commonplace and enforced by California and other courts." The conflict waiver provision in the Agreement

stated that Sheppard Mullin "may currently or in the future represent one or more other clients (including

current, former, and future *610 clients) in matters involving [J-M]." The Agreement allowed Sheppard Mullin to

engage in conflicting representations "provided the other matter is not substantially related to our

representation of [J-M] and in the course of representing [J-M] we have not obtained confidential information of

[J-M] material to representation of the other client." It continued, "By consenting to this arrangement, [J-M] is

waiving our obligation of loyalty to it so long as we maintain confidentiality and adhere to the foregoing

limitations."

610

What Sheppard Mullin ignores, however, is that Rule 3-310(C)(3) requires informed written consent. "Where . .

. a fully informed consent is not obtained, the duty of loyalty to different clients renders it impossible for an

attorney, consistent with ethics and the fidelity owed to clients, to advise one client as to a disputed claim

against the other." (Klemm v. Superior Court (1977) 75 Cal.App.3d 893, 898 [142 Cal.Rptr. 509].)

Here, the undisputed facts demonstrate that Sheppard Mullin did not disclose any information to J-M about a

conflict with South Tahoe. The Agreement includes a boilerplate waiver that included no information about any

specific potential or actual conflicts. Dinkin was working for South Tahoe while Sheppard Mullin was defending

J-M against South Tahoe in the Qui Tam Action. It strains credulity to suggest that the Agreement constituted

"informed written consent" of actual conflicts to J-M, when in fact Sheppard Mullin was silent about any conflict.

Even assuming Sheppard Mullin was not representing South Tahoe at the time it entered into the agreement

with J-M, Sheppard Mullin nonetheless began performing additional work for South Tahoe three weeks later. It

did not inform either client of this actual conflict. Because "waiver must be informed, a second waiver may be

required if the original waiver insufficiently disclosed the nature of a subsequent conflict." (Concat LP v.

Unilever, PLC (N.D.Cal. 2004) 350 F.Supp.2d 796, 820 (Concat), citing Visa U.S.A. Inc. v. First Data Corp.

(N.D.Cal. 2003) 241 F.Supp.2d 1100, 1106 (Visa); see also Rule 3-310(C)(3) [an attorney may not "accept"

new representation creating an actual conflict with an existing client without obtaining informed, written

consent]; Western Sugar Cooperative v. Archer-Daniels-Midland Co. (C.D.Cal. 2015) 98 F.Supp.3d 1074, 1082

(Western Sugar).)

In asserting its position that the waiver in the Agreement was sufficient, Sheppard Mullin relies on Zador Corp.

v. Kwan (1995) 31 Cal.App.4th 1285 [37 Cal.Rptr.2d 754] (Zador) and Visa, supra, 241 F.Supp.2d 1100 to

argue that its broadly worded future waiver was sufficient. These cases, however, demonstrate the appropriate

steps an attorney should take to obtain a client's informed written consent to a conflict pursuant to Rule

3-310—and thus highlight Sheppard Mullin's failure to do so.

*611 Zador, supra, 31 Cal.App.4th 1285 addressed informed waivers of potential future conflicts. In that case,

Zador Corporation purchased a parcel of property through its agent, C.K. Kwan. A subsequent conveyance of

the property gave rise to a claim by another party that he was entitled to an interest in the property, and he

sued Zador, Kwan, and another entity. Zador asked the law firm Heller, Ehrman, White & McAuliffe (Heller),

which had represented Zador's ownership for 10 years, to handle the lawsuit.

611

Kwan asked Heller to represent him as well. Heller made clear to Kwan that it was also representing Zador,

and presented Kwan with an agreement waiving and consenting to potential conflicts of interest. The

agreement explained that while there was no present, actual conflict between Zador and Kwan, actual conflicts

could arise if the interests of Zador became inconsistent with Kwan's interests. The agreement explained

possible risks if an actual conflict arose, including "`shared attorney-client loyalties'" and possible erosion of

attorney-client privilege, and stated that Heller would continue to represent Zador if its interests became

adverse to Kwan. (Zador, supra, 31 Cal.App.4th at p. 1289.) The agreement encouraged Kwan to seek

independent counsel regarding the "`import of this consent'" and asked him to agree not to seek disqualification

of Heller if an actual conflict arose. (Id. at p. 1290.) Kwan took 20 minutes to study the agreement and then

signed it. (Ibid.)

Two months later, Heller learned of a possible conflict between Kwan and Zador. Heller informed Kwan of the

possible conflict and recommended he retain independent counsel. Kwan reaffirmed his consent to Heller's

continued representation of Zador. In a confirming letter to Kwan, Heller memorialized this consent. Eventually,

however, Zador (through Heller) named Kwan as a cross-defendant. (Zador, supra, 31 Cal.App.4th at pp.

1291-1292.) Kwan then moved to disqualify Heller and the trial court granted the motion. (Id. at p. 1292.)

The Court of Appeal held that disqualification of Heller was not required because Kwan had provided informed

consent to Heller's continued representation of Zador in the event of a conflict. (Zador, supra, 31 Cal.App.4th at

p. 1295.) The court noted with approval that "The waiver and consent form was detailed." (Id. at p. 1300; see

id. at p. 1301.) The court pointed out that when adversity arose between Kwan and Zador, Kwan obtained

separate legal counsel but initially "reaffirmed his agreement to the consent form and to Heller's continued

representation of Zador." (Id. at p. 1301.) The order disqualifying Heller was therefore reversed. (Id. at p.

1303.)

The second case Sheppard Mullin cites, Visa, supra, 241 F.Supp.2d 1100, also involved a motion to disqualify

Heller in a case involving a potential *612 future conflict. First Data, which was developing a system to

processes credit card transactions, asked Heller to represent it in a patent infringement action pending in

Delaware. The parties recognized a possible future conflict with Visa, with whom Heller had a long-standing

relationship. Heller informed First Data that although it saw no current conflict in representing First Data in the

Delaware action, it would only agree to represent First Data if First Data agreed to permit Heller to represent

Visa in any future disputes, including litigation, that might arise between First Data and Visa. First Data agreed,

and signed an engagement letter that clearly stated these terms. (Visa, at p. 1102.)

612

About a year later, Visa sued First Data in California for trademark infringement and other claims. First Data

moved to disqualify Heller as counsel for Visa in the California case, arguing that Heller's violation of Rule

3-310(C) required automatic disqualification. (Visa, supra, 241 F.Supp.2d at p. 1104.)

The district court observed that an advance waiver of potential future conflicts, such as the one executed by

First Data and Heller, is permitted under California law, even if the waiver does not specifically state the exact

nature of the future conflict. (Visa, supra, 241 F.Supp.2d at p. 1105.) Citing Zador, the Visa court emphasized

that the "only inquiry that need be made is whether the waiver was fully informed," and noted that "[a] second

waiver by First Data in a non-related litigation would only be required if the waiver letter insufficiently disclosed

the nature of the conflict that subsequently arose between Visa and First Data." (Id. at p. 1106.)

Citing People ex rel. Dept. of Corporations v. SpeeDee Oil Change Systems, Inc. (1999) 20 Cal.4th 1135, 1145

[86 Cal.Rptr.2d 816, 980 P.2d 371] (SpeeDee Oil), Zador, supra, 31 Cal.App.4th 1285, and other authority, the

Visa court identified factors to be taken into account in evaluating whether full disclosure was made and the

client made an informed waiver, such as the breadth of the waiver, the temporal scope of the waiver, the

quality of the conflicts discussion between the attorney and the client, and the nature of the actual conflict.

(Visa, supra, 241 F.Supp.2d at p. 1106.) Applying these factors, the Visa court found that the waiver was

sufficient because Heller had identified the adverse client and disclosed as fully as possible the nature of any

potential conflict. Heller had also explained that in the event of an actual conflict, it would represent Visa in any

matters against First Data, including litigation. (Id. at p. 1107.) The court found that First Data signed the waiver

with fully informed consent to any conflict with Visa. (Id. at pp. 1108-1109.)

Zador and Visa stand in sharp contrast to the facts here. Unlike Heller in Zador and Visa, Sheppard Mullin did

not disclose the circumstances regarding a potential or actual conflict with South Tahoe to either J-M or South

*613 Tahoe. The Sheppard Mullin attorneys on the Qui Tam Action were aware the firm had a relationship with

South Tahoe, and even sought advice from firm counsel as to whether it had to be disclosed before J-M signed

the Agreement. The conflict waiver provision in the Agreement did not mention South Tahoe. Instead, it broadly

waived all current and future conflicts with any client: "Conflicts with Other Clients. Sheppard, Mullin Richter &

Hampton LLP has many attorneys and multiple offices. We may currently or in the future represent one or

more other clients (including current, former, and future clients) in matters involving [J-M]. . . . By consenting to

this arrangement, [J-M] is waiving our obligation of loyalty to it so long as we maintain confidentiality and

adhere to the foregoing limitations."

613

The facts here therefore are not analogous to Zador and Visa, because Sheppard Mullin (1) failed to inform

J-M about any potential or actual conflict with South Tahoe, and (2) did not obtain J-M's informed, written

consent to continued representation despite the actual conflict that occurred while Sheppard Mullin was

working for J-M and South Tahoe at the same time. Written consent to all potential and actual conflicts in the

absence of any knowledge about the existence of such conflicts cannot comply with the requirement of

"informed written consent" in Rule 3-310(C). Because Sheppard Mullin failed to secure informed written

consent to the conflict before or during its representation of J-M, the Agreement violated Rule 3-310.[6]

D. Rule 3-310 is an expression of public policy central to the

attorney-client relationship, the violation of which warrants finding

the Agreement unenforceable

Having found that Sheppard Mullin violated Rule 3-310, the next question is whether the violation renders the

parties' Agreement unenforceable. We find that it does.

A contract must have a lawful object or the contract is void. (Civ. Code, §§ 1550, subd. 3, 1596, 1598.) An

unlawful contract is not valid. (Civ. Code, §§ 1607, 1667.) A contract is unlawful if it is "1. Contrary to an

express provision of law; [¶] 2. Contrary to the policy of express law, though *614 not expressly prohibited; or,

[¶] 3. Otherwise contrary to good morals." (Civ. Code, § 1667; see also Civ. Code, §§ 1441 ["A condition in a

contract, the fulfillment of which is . . . unlawful . . . is void."], 1608 ["If any part of a single consideration for one

or more objects, or of several considerations for a single object, is unlawful, the entire contract is void."].)

614

Therefore, courts have long held that "[a] contract made contrary to public policy or against the express

mandate of a statute may not serve as the foundation of any action, either in law or in equity [citation], and the

parties will be left, therefore, where they are found when they come to a court for relief." (Tiedje v. Aluminum

Taper Milling Co. (1956) 46 Cal.2d 450, 453-454 [296 P.2d 554]; see also Kashani v. Tsann Kuen China

Enterprise Co. (2004) 118 Cal.App.4th 531, 541 [13 Cal.Rptr.3d 174].)

At issue in this case are the public policies embodied in the California Rules of Professional Conduct, which

"are not only ethical standards to guide the conduct of members of the bar; but they also serve as an

expression of public policy to protect the public." (Altschul v. Sayble (1978) 83 Cal.App.3d 153, 163 [147

Cal.Rptr. 716] (Altschul).) "The effective functioning of the fiduciary relationship between attorney and client

depends on the client's trust and confidence in counsel. (Flatt [v. Superior Court (1994) 9 Cal.4th 275,] 282,

285 [36 Cal.Rptr.2d 537, 885 P.2d 950].) The courts will protect clients' legitimate expectations of loyalty to

preserve this essential basis for trust and security in the attorney-client relationship. (Ibid.)" (SpeeDee Oil,

supra, 20 Cal.4th at pp. 1146-1147.) Sheppard Mullin breached this essential basis for trust and security as to

both J-M and South Tahoe.

A contract in violation of Rule 3-310(C) is against the public interest. "Rule 3-310 and conflict of interest rules

are designed to `assure the attorney's absolute and undivided loyalty and commitment to the client and the

protection of client confidences.' (1 Vapnek et al., Cal. Practice Guide: Professional Responsibility (The Rutter

Group 2007) ¶ 4:4, p. 4-3.)" (Sharp v. Next Entertainment Inc. (2008) 163 Cal.App.4th 410, 427 [78 Cal.Rptr.3d

37].) "It is well established that an attorney's duties to his client are governed by the Rules of Professional

Conduct, and that those rules, together with statutes and general principles relating to other fiduciary

relationships, `help define the duty component of the fiduciary duty which an attorney owes to his client.'

[Citation.]" (American Airlines v. Sheppard Mullin, supra, 96 Cal.App.4th at p. 1032.)

"The primary value at stake in cases of simultaneous or dual representation is the attorney's duty—and the

client's legitimate expectation—of loyalty, rather than confidentiality." (Flatt v. Superior Court, supra, 9 Cal.4th

at p. 284, italics omitted (Flatt).) The Supreme Court explained the *615 underlying public policy: "A client who

learns that his or her lawyer is also representing a litigation adversary, even with respect to a matter wholly

unrelated to the one for which counsel was retained, cannot long be expected to sustain the level of confidence

and trust in counsel that is one of the foundations of the professional relationship." (Id. at p. 285, italics

omitted.) Thus, "[t]he courts will protect clients' legitimate expectations of loyalty to preserve this essential basis

for trust and security in the attorney-client relationship. (Ibid.)" (SpeeDee Oil, supra, 20 Cal.4th at pp. 1146-

1147.) "`The paramount concern [is] to preserve public trust in the scrupulous administration of justice and the

integrity of the bar.'" (Fiduciary Trust Internat. of California v. Superior Court (2013) 218 Cal.App.4th 465, 485-

486 [160 Cal.Rptr.3d 216] (Fiduciary Trust), quoting SpeeDee Oil, supra, 20 Cal.4th at p. 1145.)

615

At oral argument, Sheppard Mullin cited Ahdout to argue that courts may consider only public policy as

expressly declared by the Legislature. As a result, Sheppard Mullin argued, the Rules of Professional

Conduct—adopted by the Board of Governors of the State Bar of California and approved by the Supreme

Court of California (Rule 1-100)—do not represent a statement of California public policy sufficient to render a

contract unenforceable. (See Ahdout, supra, 213 Cal.App.4th at pp. 38-39 ["The fact that [Business and

Professions Code] section 7031 reflects an explicit expression by the Legislature of its public policy objectives

sets this case apart from Moncharsh, which concerned alleged violations of the Rules of Professional Conduct

that are approved by the Supreme Court, not the Legislature."].) This is an incorrect reading of Ahdout, which

distinguished cases such as Moncharsh that discuss the Rules of Professional Conduct but did not hold that

such rules cannot serve as a valid expression of public policy.

Instead, "[t]here is no requirement that a contract violate an express mandate of a statute before it may be

declared void as contrary to public policy." (Altschul, supra, 83 Cal.App.3d at p. 162; see also Margolin v.

Shemaria (2000) 85 Cal.App.4th 891, 901 [102 Cal.Rptr.2d 502] ["Both legislative enactments and

administrative regulations can be utilized to further this state's public policy of protecting consumers in the

marketplace of goods and services."].) When determining whether a contract is unenforceable because it

violates public policy, courts may look to a variety of sources. "The public policy in question may sometimes be

based on statute (see, e.g., Wildman v. Government Employees' Ins. Co. (1957) 48 Cal.2d 31 [307 P.2d 359])

but does not necessarily have to be—it can be based on other policies perceived to be contrary to the public

welfare. (See Altschul[, supra,] 83 Cal.App.3d 153, 162 . . . [court refuses to enforce fee-for-referral

agreements among attorneys as contrary to public policy].)" (Rosen v. State Farm General Ins. Co. (2003) 30

Cal.4th 1070, 1081 [135 Cal.Rptr.2d 361, 70 P.3d 351] (conc. opn. of Moreno, J.); see also Cariveau v.

Halferty (2000) 83 *616 Cal.App.4th 126, 132 [99 Cal.Rptr.2d 417] ["Public policy, in the context of a court's

refusal to enforce a contract term, may be based on the policy expressed in a statute or the rules of a voluntary

regulatory entity, or may be implied from the language of such statute or rule."].) Thus, in the context of

determining whether a contract as a whole is illegal or against public policy and therefore unenforceable, a

determination of relevant public policy is not limited to an explicit expression of public policy by the Legislature.

616

Moreover, Sheppard Mullin's argument ignores the long line of cases relying on the Rules of Professional

Conduct to find contracts unenforceable. (See, e.g., Chambers v. Kay (2002) 29 Cal.4th 142, 161 [126

Cal.Rptr.2d 536, 56 P.3d 645] ["[B]ecause this court approved rule 2-200 under legislative authorization (see

Bus. & Prof.Code, § 6076), and because the rule binds all members of the State Bar (rule 1-100(A), 1st par.), it

would be absurd for this or any other court to aid Chambers in accomplishing a fee division that would violate

the rule's explicit requirement of written client consent and would subject Chambers to professional

discipline."]; Cotchett, Pitre & McCarthy v. Universal Paragon Corp. (2010) 187 Cal.App.4th 1405, 1417 [114

Cal.Rptr.3d 781] ["Fee agreements that violate the Rules of Professional Conduct may be deemed

unenforceable on public policy grounds."]; Bird, Marella, Boxer & Wolpert v. Superior Court (2003) 106

Cal.App.4th 419, 431 [130 Cal.Rptr.2d 782] [a fee agreement that violates Rule 4-200 is not valid and

enforceable]; McIntosh v. Mills (2004) 121 Cal.App.4th 333, 346 [17 Cal.Rptr.3d 66] ["In light of these public

interest concerns, and because there is no dispute here that the agreement at issue between McIntosh and

Mills clearly violates CPRC, rule 1-320(A), we conclude that the doctrine of illegality applies facially to their fee-

sharing agreement."]

As discussed in Flatt, SpeeDee Oil, American Airlines v. Sheppard Mullin, and Fiduciary Trust, the attorney's

duty of undivided loyalty that forms the basis of Rule 3-310 constitutes the very foundation of an attorney-client

relationship. The Agreement, which violated Rule 3-310(C), therefore violated an expression of public policy.

The trial court erred in holding that the Agreement was valid and enforceable.

E. As a result of Sheppard Mullin's violation of Rule 3-310, it is not

entitled to attorney fees

Sheppard Mullin argues that despite its violation of Rule 3-310, it is nonetheless entitled to its attorney fees for

its representation of J-M in the Qui Tam Action. However, when a conflict of interest is asserted as a "[d]efense

in the attorney's action to recover fees or the reasonable value of services[, a] violation of the fiduciary

obligation will defeat recovery." (1 *617 Witkin, Cal. Procedure (5th ed. 2008) Attorneys, § 104, p. 142.)

Sheppard Mullin's violation of Rule 3-310 precludes it from receiving compensation for services provided to J-M

in the Qui Tam Action.

617

"A lawyer engaging in clear and serious violation of duty to a client may be required to forfeit some or all of the

lawyer's compensation for the matter. Considerations relevant to the question of forfeiture include the gravity

and timing of the violation, its willfulness, its effect on the value of the lawyer's work for the client, any other

threatened or actual harm to the client, and the adequacy of other remedies." (Rest.3d Law Governing

Lawyers, § 37.)

California cases have drawn a line between cases involving serious ethical violations such as conflicts of

interest, in which compensation is prohibited, and technical violations or potential conflicts, in which

compensation may be allowed. Two seminal cases set out the governing principles. The first is Goldstein v.

Lees (1975) 46 Cal.App.3d 614 [120 Cal.Rptr. 253] (Goldstein), a case in which a law firm sought to recover

fees for legal services rendered. In the underlying case, a former corporate counsel represented a minority

shareholder and director in a proxy fight against the same corporation. Focusing on the fact that the attorney

knew confidential information about the corporation, the Court of Appeal held that former Rule 5 barred

recovery of attorney fees for the underlying action.[7] (Goldstein, at pp. 620, 623-624.) The court reasoned, "It is

settled in California that an attorney may not recover for services rendered if those services are rendered in

contradiction to the requirements of professional responsibility." (Id. at p. 618, citing Clark v. Millsap (1926) 197

Cal. 765, 785 [242 P. 918] ["`acts of impropriety inconsistent with the character of the profession, and

incompatible with the faithful discharge of its duties'" will prevent an attorney from recovering for services

rendered.].)

The second seminal case is Jeffry v. Pounds (1977) 67 Cal.App.3d 6 [136 Cal.Rptr. 373] (Jeffry). In that case,

a law firm represented a husband in a personal injury action, but also agreed to represent his wife in a

dissolution of marriage action she brought against him. The Court of Appeal found that the law firm had

breached former Rule 5-102(B),[8] which precluded an attorney from representing conflicting interests unless all

parties concerned provided informed written consent. The attorney did not obtain written consent of both *618

parties. (Jeffry, at p. 11.) The Jeffry court denied any fees to the firm for work performed after the conflict

arose. (Id. at p. 12.) The court emphasized that this conclusion was not based on an improper intent on the

part of the firm: "We do not charge [the firm] with dishonest purpose or deliberately unethical conduct." (Id. at p.

11.)

618

A number of cases have followed Goldstein and Jeffry. (See, e.g., Cal Pak Delivery, Inc. v. United Parcel

Service, Inc. (1997) 52 Cal.App.4th 1, 16 [60 Cal.Rptr.2d 207] [attorney not entitled to fees after he offered to

dismiss a class action in return for a personal payment to him of millions of dollars]; A.I. Credit Corp., Inc. v.

Aguilar & Sebastinelli (2003) 113 Cal.App.4th 1072 [6 Cal.Rptr.3d 813] [law firm not entitled to fees after it

helped a new client enforce a judgment against a former client by assisting the new client in locating and

pursuing the former client's assets].) Another case, Fair v. Bakhtiari (2011) 195 Cal.App.4th 1135 [125

Cal.Rptr.3d 765] (Fair),), noted that attorneys are not entitled to fees where the ethical violation is "one that

pervades the whole relationship." (Id. at p. 1150, italics omitted.) Fair affirmed the trial court's denial of

quantum meruit recovery where an attorney's conduct "constituted not merely a technical rule violation, but the

breach of Fair's fiduciary duty to" his clients. (Id. at p. 1151.)

As in Fair, the conflict here pervaded the entire relationship between Sheppard Mullin and J-M. Even if, as

Sheppard Mullin argues, it was not working for South Tahoe at the time the Agreement was signed, it

nonetheless began working for South Tahoe three weeks later, thereby representing adverse clients without

telling either client about the actual conflict. The violation caused Sheppard Mullin to be disqualified from

representing J-M in the Qui Tam Action—the very purpose for which J-M had hired it. It is clear, therefore, that

Sheppard Mullin's ethical breach went to the very heart of its relationship with J-M.

Sheppard Mullin cites Mardirossian & Associates, Inc. v. Ersoff (2007) 153 Cal.App.4th 257 [62 Cal.Rptr.3d

665], Slovensky v. Friedman (2006) 142 Cal.App.4th 1518 [49 Cal.Rptr.3d 60], and Sullivan v. Dorsa (2005)

128 Cal.App.4th 947 [27 Cal.Rptr.3d 547] to argue that "courts routinely award attorneys their fees despite

conflicts of interest that could lead to disqualification." These cases are distinguishable in that none of them

involved an actual conflict.

Sheppard Mullin also argues that fees should be allowed because J-M suffered no damage as the result of its

ethical violations and because the arbitrators found it acted in good faith. Given Sheppard Mullin's ethical

misconduct here, it is irrelevant whether J-M suffered damage. "It is the general rule in conflict of interest cases

that where an attorney violates *619 his . . . ethical duties to the client, the attorney is not entitled to a fee for

his . . . services. [Citations.]" (Cal Pak Delivery, Inc. v. United Parcel Service, Inc., supra, 52 Cal.App.4th at p.

14.) We note that the Fair court rejected a similar argument regarding lack of damage: "No authority cited by

619

Fair holds that proof the client was damaged by the attorney's breach of fiduciary duty or conflict of interest is

required to void the agreement between the two . . . where the breach is sufficiently serious." (Fair, supra, 195

Cal.App.4th at pp. 1153-1154.) Moreover, forfeiture of attorney fees is intended to be a deterrent, which is

invoked because the "damage that misconduct causes is often difficult to assess." (Rest.3d Law Governing

Lawyers, § 37, com. c, p. 272.) J-M's actual damages as result of Sheppard Mullin's breach are irrelevant.

The analysis does not change because Sheppard Mullin has alleged that it is entitled to fees under a quantum

meruit theory. In Huskinson & Brown v. Wolf (2004) 32 Cal.4th 453 [9 Cal.Rptr.3d 693, 84 P.3d 379]

(Huskinson), the Supreme Court acknowledged that quantum meruit recovery had been denied in cases of

ethical violations such as Sheppard Mullin's here. It observed that such cases "involved violations of a rule that

proscribed the very conduct for which compensation was sought, i.e., the rule prohibiting attorneys from

engaging in conflicting representation or accepting professional employment adverse to the interests of a client

or former client without the written consent of both parties." (Huskinson, 32 Cal.4th at p. 463, italics added,

citing Jeffry, supra, 67 Cal.App.3d 6, 12 and Goldstein, supra, 46 Cal.App.3d 614.) The same result was

reached in Fair, in which the Court of Appeal concluded that Fair's breach of fiduciary duty precluded recovery

of fees in quantum meruit: "[V]iolation of a rule that constitutes a serious breach of fiduciary duty, such as a

conflict of interest that goes to the heart of the attorney-client relationship, warrants denial of quantum meruit

recovery. [Citations.]" (Fair, supra, 195 Cal.App.4th at pp. 1161-1162.)

We have found that Sheppard Mullin's breach of the duty of loyalty set forth in Rule 3-310 was a violation of

public policy. A finding that Sheppard Mullin was nonetheless entitled to its attorney fees as if no breach had

occurred would undermine this same public policy. We therefore follow the reasoning of Goldstein and Jeffry

and hold that Sheppard Mullin is not entitled to its fees for the work it did for J-M while there was an actual

conflict with South Tahoe.

F. Disputed fact issue about when the actual conflict began

There is no question that starting from March 29, 2010, the date Dinkin resumed work on behalf of South

Tahoe while other Sheppard Mullin attorneys were representing J-M in the Qui Tam Action, there was an

actual *620 conflict in violation of Rule 3-310(C). At that point Sheppard Mullin "in a separate matter accept[ed]

as a client a person or entity [South Tahoe] whose interest in the first matter [the Qui Tam Action] is adverse to

the client in the first matter [J-M]." (Rule 3-310(C)(3).) Sheppard Mullin admits that in late March 2010 South

Tahoe "reemerged" as a client, and Dinkin stated in his declaration that he worked for South Tahoe in March,

April, June, October, and December 2010, and in January, February, and March of 2011.

620

There is a fact question, however, as to whether there was an actual conflict between the time J-M signed the

Agreement (Mar. 8, 2010) and when Dinkin resumed actively working for South Tahoe (Mar. 29, 2010).

Sheppard Mullin argues that South Tahoe was not a current client when the Agreement with J-M was signed

because Dinkin had not done any work for South Tahoe for five months before that. J-M argues that an actual

conflict nonetheless existed because Sheppard Mullin had an ongoing relationship with South Tahoe for many

years. Indeed, Dinkin stated in his declaration that he brought South Tahoe with him as a client when he joined

Sheppard Mullin in 2002. Also, in a June 9, 2011 letter to South Tahoe after the conflict came to light,

Sheppard Mullin stated, "We have been pleased to provide labor advice to you for the last 9 years."

Sheppard Mullin and South Tahoe executed engagement agreements in 2002 and 2006. The 2006

engagement agreement states, "Termination of Representation. You [South Tahoe] have the right to terminate

our representation of you at any time. Subject to our ethical obligation to give you reasonable notice to arrange

for alternative representation, we may terminate our representation of you at any time. Unless we agree to

render other legal services to the District, our representation will terminate upon completion of the Matter."

"Matter" is defined elsewhere in the contract as "general employment matters." The record reveals no

engagement agreements with South Tahoe post-dating this 2006 agreement. Dinkin stated in his declaration

that he "occasionally handled discrete individual matters and provided advice to South Tahoe" through

November 2009 based on the 2002 and 2006 agreements. Therefore, it is unclear whether Sheppard Mullin's

representation of South Tahoe was ongoing or if it terminated before the Agreement with J-M was signed.[9]

This is a fact question we will not determine in the first instance. We therefore remand for further proceedings

in the trial court to determine this question, and for the court to determine the amount of fees that Sheppard

Mullin must reimburse to J-M.

*621 DISPOSITION621

The judgment is reversed and the matter is remanded for further proceedings consistent with this opinion. J-M

is awarded its costs on appeal.

Willhite, Acting P. J., and Zelon, J.[*], concurred.

[1] All further references to a "Rule" refer to the Rules of Professional Conduct unless otherwise indicated.

[2] Rule 3-310(C)(3) states, "A member shall not, without the informed written consent of each client: ¶. . . ¶ . . . . Represent a

client in a matter and at the same time in a separate matter accept as a client a person or entity whose interest in the first

matter is adverse to the client in the first matter."

[3] In its opposition to Sheppard Mullin's petition to compel arbitration, J-M argued the Agreement was illegal and void as a

violation of public policy because of Sheppard Mullin's conflict of interest while it represented J-M. In its petition to vacate the

arbitration award, J-M again argued the Agreement was "void and unenforceable" because of Sheppard Mullin's violation of

Rule 3-310. On appeal, J-M argues that "the trial court erred in confirming the arbitration award, thereby enforcing an illegal

contract that contravenes . . . public polic[y]."

[4] Sheppard Mullin also argues that the public policy supporting arbitration compels us to affirm the arbitration award. We

recognize the "strong public policy in favor of arbitration as a speedy and relatively inexpensive means of dispute resolution."

(Ericksen, Arbuthnot, McCarthy, Kearney & Walsh, Inc. v. 100 Oak Street, supra, 35 Cal.3d at p. 322 (Ericksen).) But the

public policy supporting arbitration does not take precedence over the mandate that contracts comply with California's other

public policies. "`The laws in support of a general public policy and in enforcement of public morality cannot be set aside by

arbitration, and neither will persons with a claim forbidden by the laws be permitted to enforce it through the transforming

process of arbitration.'" (Loving, supra, 33 Cal.2d at p. 611, quoting Tandy v. Elmore-Cooper Live Stock Commission Co.

(1905) 87 S.W. 614, 618; see also Moncharsh, supra, 3 Cal.4th at p. 32 [allowing judicial scrutiny of an arbitral award when a

court is presented with "a clear expression of illegality or public policy undermining this strong presumption in favor of private

arbitration"].) The public policy supporting arbitration therefore does not limit the scope of judicial review of an allegedly

unenforceable contract.

[5] The trial court erred by characterizing J-M's illegality argument as an assertion based only on fraudulent inducement to be

determined by the arbitrators: "Defendant has attempted to characterize this case as one based upon illegality, rather than

fraudulent inducement. The Court is not convinced of this distinction. . . ." Indeed, there is a distinction. The Supreme Court

has held that under California law, "claims of fraud in the inducement of the contract (as distinguished from claims of fraud

directed to the arbitration clause itself) will be deemed subject to arbitration." (Ericksen, supra, 35 Cal.3d at p. 323.) But in so

holding, the court was careful to distinguish cases in which a defendant alleges the contract was illegal or in violation of

public policy. "Questions of public policy which are implicated by an illegal agreement, and which might be ill-suited for

arbitral determination, are not presented when garden-variety `fraud in the inducement,' related to performance failure, is

claimed." (Id. at p. 316, fn. 2.) Here, although J-M did assert garden-variety fraudulent inducement, it also placed the illegality

question squarely before the court. The trial court therefore erred in holding that J-M's illegality argument implicated only

fraud in the inducement to be determined by the arbitrators.

[6] Sheppard Mullin argues that finding the conflict waiver provision inadequate would "upend countless agreements between

lawyers and their clients and wreak havoc on the practice of law in this State." We disagree. We would not be the first court

to reject an uninformed, blanket advance waiver such as the one at issue in this case. (See, e.g., Concat, supra, 350

F.Supp.2d at pp. 801, 821; Lennar Mare Island, LLC v. Steadfast Ins. Co. (E.D.Cal. 2015) 105 F.Supp.3d 1100, 1115;

Western Sugar, supra, 98 F.Supp.3d at p. 1083.) Moreover, our holding is consistent with the purpose of the Rules of

Professional Conduct—to "protect the public and to promote respect and confidence in the legal profession." (Rule 1-100(A).)

[7] At the time, Rule 5 stated, "`A member of the State Bar shall not accept employment adverse to a client or former client, .

. . relating to a matter in reference to which he has obtained confidential information by reason of or in the course of his

employment by such client or former client.'" (Goldstein, supra, 46 Cal.App.3d at pp. 618-619.)

[8] Former Rule 5-102(B) (duty of loyalty) is a predecessor to current Rule 3-310, as is former Rule 4-101 (requiring counsel

to preserve the confidentiality of client matters). "The former rules governing attorneys' duties of confidentiality and loyalty

were thus consolidated into a single rule." (Flatt, supra, 9 Cal.4th at p. 288, fn. 5.)

[9] Even if South Tahoe was a former client at the time the Agreement was signed, Sheppard Mullin's failure to disclose the

relationship to J-M may have violated Rule 3-310(B)(1). As the parties have not briefed this issue, we will not address it here.

[*] Associate Justice of the Court of Appeal, Second District, Division Seven, assigned by the Chief Justice pursuant to article

VI, section 6 of the California Constitution.

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