Maintaining a Conflict-Checking System
This article was published in the American Bar Association’s Law Practice Magazine, Volume 39 Number 6, November/December 2013.
An attorney may have been practicing 30 years or just hung out a shingle—it does not matter which—when a new client or a new matter walks in the door, there is a sense of pride and accomplishment. Information is taken, a conflict search is performed, and the representation that engendered good feelings one minute must be rejected in the next because of the existence of a nonwaivable conflict. Having to reject a matter because of a conflict of interest is one of the most frustrating experiences an attorney faces. It is far more frustrating, however, to be the subject of a civil claim or grievance as a result of the existence of a conflict of interest that was missed or ignored. The ABA Standing Committee on Lawyers’ Professional Liability issues a publication every four years intended to help attorneys reduce malpractice behavior by providing a “snapshot” of malpractice claims activity. In the most recent edition, Profile of Legal Malpractice Claims 2008–2011, it was reported that 4.28 percent of all malpractice claims are asserted because of errors that occur in the identification of conflicts. Anecdotally, the claims asserted against attorneys based upon the failure to properly analyze and resolve conflicts well exceeds this figure.
No single topic in the ABA Model Rules of Professional Conduct is more difficult to navigate than the determination as to whether a conflict exists between an attorney and a client or former client. Attorneys who believe that every conflict can be waived and that a signed waiver from a client immunizes the attorney or law firm from the consequences of a conflict of interest are sadly mistaken. When identifying and resolving conflicts, the attorney should always err on the side of caution. The consequences of failing to do so can be embarrassing, expensive and time-consuming. If the conflict is sufficiently egregious, it can even threaten the ability to practice law. From both an ethical and risk management vantage point, the development and implementation of an effective conflicts analysis program is critical to the successful management of a law firm.
To effectively analyze conflicts, the law firm must have in place a conflict-checking procedure. The ethics rules in some jurisdictions, such as New York, require law firms to maintain a conflicts check system and to have a policy in place that requires every attorney in the firm to search for conflicts at designated points during the engagement. While not spelled out as a specific provision in the ABA Model Rules of Professional Conduct, it is clear that before an attorney can fulfill his or her obligations under the conflict rules, a workable conflict-checking system must exist. In response to the New York requirement that the firm must implement a policy and require attorneys to use it, the New York City Bar released a comprehensive ethics opinion providing examples of what constitutes an effective procedure for identifying conflicts of interest. (Find Formal Op. 03, Checking for Conflicts of Interest (2003) at NYCbar.org.)
From the day an attorney begins to practice, he or she must maintain a record of clients and engagements. Given the technological options readily available, the Rolodex card file system prevalent 30 years ago is no longer an appropriate option. User-friendly conflicts software is optimal, but choosing the proper program is important. Talk to colleagues in various areas of practice, check out the vendor resource guides provided by the ABA and other bar associations, attend local trade shows, read reviews in magazines devoted to law office computer systems and consult with a professional to make sure that the law firm’s individual needs are met. Remember that any program chosen is an investment in the future of the firm. Ideally, the program you select should be able to integrate with other office systems, provide easy access to conflict data for everyone in the office and allow the ability to search for spelling variations. To facilitate analysis, it must be able to show the party’s relationship with the client.
If your firm has not implemented a program for conflicts analysis yet, start. Now. Don’t let the daunting nature of the task be an excuse for further postponement. Even if the firm is using a manual card file system, start a computerized system with the next engagement accepted by the office. Consider entering all open engagements into the new system on a rolling basis so that over a period of months the new software will provide an accurate return for all conflict searches on current clients. Of course, the prior system will also have to be checked for conflicts on former clients, but as time passes, a conflict search in the new system will eventually become the most relevant search.
While it is suggested that an effective conflict-checking system that integrates with other office systems is a worthy investment, don’t use tight finances as an excuse not to implement a conflict-checking procedure. A rudimentary, yet still effective, conflict-checking system can be set up using tables in any searchable word processing document or even in Microsoft Outlook.
Once the program has been selected, all potential retentions with new or existing firm clients (even if rejected) must be entered on standardized intake sheets and entered into the firm’s system. No matter how effective a conflict-checking system is, it depends entirely upon the quality of the information entered. Accuracy counts. A reasoned conflicts analysis can only be performed if this practice is rigorously and scrupulously maintained. At a minimum, the intake sheet, which should be modified to suit your practice areas, should contain the following information:
- the name, address and contact number of the client and any entities related to the client;
- the date of the intake;
- the nature of the representation;
- if the client is new, without established terms of compensation, the terms and conditions of the engagement;
- if the client is a new client, the identity of the person authorizing the engagement;
- the name, address and contact numbers of all parties involved in the representation; and
- the terms/names that should be included in a conflict search (and identifying the terms that must be searched should not be left to the discretion of a clerical employee).
What To Enter
To be able to identify conflicts in a meaningful way, the current and former names of every person or entity represented by the law firm must be entered, as well as that of every person or entity represented by “of counsel,” lateral hires and even suite members. Lateral hires and of counsel present special challenges. As lateral hires and of counsel are brought into the firm, care must be taken to incorporate the new attorney’s prior representations into the firm’s system—their conflicts are your conflicts. Attorneys seeking to change law firms must consider the impact a proper conflicts analysis may have upon a prospective employer or even the attorney’s current employer. Before even interviewing a candidate, the question of whether or not a conflict might preclude a law firm from hiring the attorney or face losing a significant client must be considered.
In addition to the identity of the clients, every person or entity involved in every matter the firm, its attorneys and of counsel have handled must be entered into the system. This includes the parties, related parties, attorneys, important witnesses and even experts. In the event a prospective client is rejected by the firm, the information on the prospective client must also be entered if confidential information was obtained from the prospective client. Any business entity in which any attorney at the firm serves as an officer or director, or has a significant ownership, or any municipality in which the attorney is formally involved—for instance, the planning board, board of trustees, zoning board of appeals, etc.—should be entered into the conflict system.
As each entry is made, the nature of the relationship (or role in the matter), the type of the representation in which the relationship between the law firm and the party arose and whether the matter is active or inactive must be included. For the purposes of conflicts analysis, it is important to keep accurate records of whether a matter is open or closed since the standard is different if the individual or entity is a current or former client.
When To Update
Attorneys are obligated to constantly update the conflict entries in every representation. As with the need to maintain the confidentiality of client secrets and confidences, attorneys also need the assistance of staff to identify times when the conflict entries need to be updated. At a minimum, automatic updates must be made whenever a new client or matter is accepted (or rejected); whenever an individual or entity’s name changes; whenever a new party, expert, witness or attorney is added to existing representations; and whenever the relationship of a party changes, e.g., adverse claims are asserted, businesses merge or split, divorces occur and the like.
When To Run The Search
Lawyers usually get it right when checking conflicts at the time an engagement commences, but the procedures tend to fall apart as the representation proceeds. A law firm practice of performing a conflicts check only at the intake does not comply with an attorney’s obligations under the Model Rules. Conflict checks should be performed before initial consultations; before a new client is accepted by the firm; before a new matter for an existing client is opened; whenever a new party, attorney, witness or expert enters the representation; and whenever the firm decides to interview a candidate for possible hire.
No one said this was easy. The suggestions in this article must be implemented before an attorney even begins the difficult process of effectively analyzing a conflict and deciding how an identified conflict should be resolved. Always address identified conflicts; do not take the ostrich approach. Conflicts ignored become much more difficult to resolve after a problem arises.
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