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ETHICS

Greg Fayard is Counsel with Klinedinst PC’s Sacramento office. He may be contacted at gfayard@klinedinstlaw.com.

Why Avoiding Conflicts of Interest Matters by Greg Fayard

his article follows the article appearing in the September/October 2015 issue of this publication, which warns of the increasing importance of complying with Rule of Professional Conduct 3-310(C) when representing clients jointly. What are the potential adverse consequences of violating rule 3-310(C)? Answer: there are at least four potential consequences to the conflicted attorney. Disqualification. An attorney’s conflicted representation can result in disqualification.1 If the attorney cannot obtain informed written consent from the joint clients after the actual conflict is known, Rule of Professional Conduct 3-700(B) requires the attorney to withdraw as counsel for some—or perhaps all—of the joint clients, depending on the scope of the previously obtained consent.2 It is the possibility of a breach of confidence, not the fact of the breach that triggers disqualification.3 Disqualification may be proper even where the conflicted attorney did not obtain confidential information from the party seeking disqualification.4 “[T]he purpose of the rules against representing conflicting interests is not only to prevent dishonest conduct, but also to avoid placing the honest practitioner in a position where he may be required to choose between conflicting duties or attempt to reconcile conflicting interests.”5 Further, opposing a disqualification motion can be costly to the attorney. The attorney may question whether to charge the client for the defense of such a motion. Such a motion can be potentially embarrassing as well. How happy with the attorney is a client going to be after having to hire and pay new counsel to get up to speed in the middle of a case because the former attorney was disqualified or withdrew? Logic dictates that unhappy clients are less likely to pay their former attorneys’ bills and more likely to file Bar complaints or perhaps even malpractice actions. Disgorgement of Fees. Attorneys in private practice who represent adverse interests in the same matter run the risk of having their fees disgorged.6 The disgorgement remedy is not premised on penalizing the attorney; rather it acts as a refund for services not properly performed.7 Courts will consider equitable arguments that the attorney should retain the fees.8 Other courts apply a “no harm, no foul” approach to a request to disgorge fees due to an undisclosed conflict of interest, especially where the conflicted attorney immediately withdrew once the conflict evolved from a potential conflict to an actual one, and the client impliedly consented to the dual representation to limit costs.9 While an attorney’s

breach of a Rule of Professional Conduct may warrant a forfeiture of fees, forfeiture is not automatic and depends on the egregiousness of the violation.10 The absence of fraud or unfairness in the attorney-client relationship is also grounds for attorneys to keep their fees despite a technical rule 3-310 violation.11 Civil Liability. Violating a Rule of Professional Conduct does not by itself establish civil liability against the attorney; but it can be evidence in support of malpractice or breach of fiduciary duty.12 Avoiding the hassle and distraction of litigation brought by a former client is another reason—a big one—for avoiding conflicted representations. Discipline. Like any other Rule of Professional Conduct, attorneys can be disciplined for violating the conflict of interest rule.13 In In re Guzman,14 the attorney was disbarred for his misconduct in four distinct matters, encompassing a wide-range of acts including not advising his clients of a settlement, misappropriating client funds, improper solicitation, dismissing a lawsuit without client consent, and violating the conflict of interest rule. In two of the four matters which served as the basis of the State Bar Court’s disbarment order, the attorney represented joint clients without obtaining informed written consent from each client. In both cases, the attorney represented the driver and passengers in a car accident. A potential conflict of interest existed between the driver and passengers who were injured in the accident. 1

Zador Corp. v. Kwan (1995) 31 Cal.App.4th 1285, 1294.

2

Carroll v. Superior Court (2002) 101 Cal.App.4th 1423, 1428; Rules Prof. Conduct, rule 3-700.

3

Trone v. Smith (9th Cir. 1980) 621 F.2d 994, 998-999.

4

Woods v. Superior Court (1983) 149 Cal.App.3d 931, 936.

5

Id., citations omitted.

6

Mardirossian & Associates, Inc. v. Ersoff (2007) 153 Cal.App.4th 257, 278; Slovensky v. Friedman (2006) 142 Cal.App.4th 1518, 1535.

7

Cal Pak Delivery, Inc. v. United Parcel Service, Inc. (1997) 52 Cal.App.4th 1, 14, fn. 2.

8

Law Offices of Ivan W. Halperin v. Occidental Fin. Group (9th Cir. 1994) 40 F.3d 1059, 1061, 1063.

9

Class B Ltd. Partner Comm. v. Meyers Law Group, P.C., 2013 U.S. Dist LEXIS 124077 (N.D. Cal. 2013) *6, 8, 10-11, 13-15.

10 Pringle v. La Chapelle (1999) 73 Cal.App.4th 1000, 1005-1006. 11 Class B Ltd. Partner Comm. v. Meyers Law Group, P.C., supra, 2013 U.S. Dist LEXIS 124077, *15. 12 BGJ Associates v. Wilson (2003) 113 Cal.App.4th 1217, 1227; David Welch Co. v. Erskine & Tulley (1988) 203 Cal.App.3d 884, 890. 13 See Bus. & Prof. Code, § 6077. 14 State Bar Cases Nos. 11–O–17734 (11–O–18399; 12–O–12012; 12–O–13348), filed May 12, 2014. www.sacbar.org | November/December 2015 | SACRAMENTO LAWYER

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Profile for Sacramento County Bar Association

Sacramento Lawyer Magazine November/December  

Sacramento County Bar Association - Lawyer Magazine

Sacramento Lawyer Magazine November/December  

Sacramento County Bar Association - Lawyer Magazine