Conflicts of interest are anathema to lawyers. The Rules of Professional Conduct-written by lawyers- decree that they are to be avoided. But the Rules do not begin to address the many real-life conflicts that lawyers and law firms confront. Conflicts can arise from a law firm’s size and structure, a lawyer’s moral compass, and competing economic interests with clients to cite but a few examples.
A Vague Standard
Let’s begin with the Restatement of the Law Governing lawyers which states that a conflict of interest exists:
“if there is a substantial risk that the lawyer’s representation of the client would be materially and adversely affected by the lawyer’s own interests or by the lawyer’s duties to another current client, a former client, or a third person.”
This definition implies that a lawyer’s exercise of independent professional judgment must be preserved lest a conflict situation arise. That seems clear enough. But is it a subjective or objective standard? And how does one gauge whether a risk is “substantial” enough to trigger the potential for conflict? Also, how is the “materially and adversely affected” threshold determined?
Here’s a Seemingly Clear-Cut Case
The ongoing high-profile fraud trial of Sheldon Silver, an attorney and former New York State Assembly speaker, presents an egregious series of alleged conflicts. Mr. Silver is alleged to have received millions in remuneration by using his office to exert influence in a number of ways, all of which led to fattening his bank account. And sadly, he was not the only lawyer involved in this latest case alleging abuse of office by an official who happens also to be an attorney.
But even more noteworthy than the charges is the defense justification offered by Steven F. Molo, defense counsel. Mr. Molo stated:
“It’s impossible, absolutely impossible, for a member of the Assembly to do his or her job and go out, make laws, deal with people, do the job that a person in the Assembly does, and not have some form of conflict of interest.” (The New York Times “Quote of the Day”, Nov. 4, 2015)
One wonders how Mr. Molo passed the ethics portion of the New York State Bar Exam. And when was the last time a lawyer used the defense that conflicts of interest are necessary to do one’s job? This is especially nutty where, as here, the individual is a leading New York State lawmaker. The Silver trial provides extreme of lawyers handling conflict issues badly.
Conflicts and BigLaw
Large law firms offer many benefits, but avoiding conflict issues is not one of them. First, there is the internal politics emanating from conflicts involving existing and prospective clients. Each partner wants to have their client win the conflict battle-and the firm can generally represent just one. The winner is usually the partner with seniority (read larger book of business) or the client with larger fee potential. It’s a Darwinian struggle-and that’s just the internal side of it.
Conflict issues also have a significant impact on laterals as well as firm mergers. It can resemble a fumble pile-up with a lot of sharp elbows and clawing. Translation: resolution of conflict of interest issues often involves one’s livelihood, so it can get ugly.
Then there’s the problem of multiple offices and the structure of the firm. If the firm is “unified” in more than just the brand sense, then conflict rules can be an impediment to client development. This issue affects who comes to the firm, who stays, and who goes.
It also calls into question how large a firm can be without being perpetually embroiled in conflict questions, waivers, and other related economic/political tiffs.
Legal networks are one alternative to the “bigger is better” strategy currently pursued by many firms. Globalization and the perceived need by many firms to represent clients across the globe, paradoxically, exacerbate the impact of conflicts on firm expansion.
Swiss Vereins and Conflicts
Until recently, many thought the Swiss verein-a structure favored by some of the world’s largest law firms (as well as the Big Four)-provided shelter from the harshness of conflict rules. After all, each “member” firm in the verein had its own P&L and juridical independence.
But that was shattered in a recent conflict case involving Dentons. Ruling on a disqualification motion brought against Dentons by Gap (a client of one firm verein member and adverse party to another), the Chief Administrative Judge of the US International Trade Commission determined Dentons can’t have it both ways. He reasoned that since Dentons markets itself as a single, unified firm, its verein structure does not insulate it from conflict rules.
A quick postscript to the disqualification ruling. Dentons continues its global expansion, recently announcing its acquisition of Australian and Singapore-based firms. The move, announced last week, was designed to consolidate the firm’s position as the world’s biggest law firm as well as the dominant global law firm in the Pacific Rim.
Economic Conflicts with Clients
There is an inherent tension between the financial interests of the law firm (where PPP is the holy grail) and the client (pressured to reduce legal spend). In my mind, this has elevated to a conflict, though many lawyers would vehemently disagree with that assessment.
Is the client “materially and adversely affected” if a lawyer engages in dilatory motion practice, excess discovery, or unnecessary research? Justifications for work undertaken can surely be marshaled. But there is a divergence of interest where there is not an alignment of economic interest between firm and client.
A solution: transparent, fixed-price statements of work that the firm, its lawyers handling the matter, and clients all sign-off on before work is commenced. The statement of work recites who does the work, what tasks are performed, what the cost is, what the deliverables are, and what assumptions are being made as to reasonably foreseeable matter variables.
And that’s one reason why-at long last-“alternative” fee arrangements (fixed-price, caps, etc.) are now more mainstream. An alignment of financial incentive among the stakeholders in the legal delivery process will resolve even the whiff of conflict. And this is achieved by a delivery structure where the interests of lawyers, providers, and clients are aligned.
Lawyers sometimes face moral conflicts that call into question whether they can zealously represent a client. This happens more commonly among criminal defense attorneys than civil lawyers. Still, there are instances in civil practice where one’s moral compass and conscience dictate whether a conflict exists and how it is resolved.
I remember having such an issue as a young Assistant United States Attorney. I was asked to be part of the trial team in a landmark class action case that went all the way to the U.S. Supreme Court. I knew my participation would burnish my trial credentials but also had doubts whether I could zealously advance the Government’s case and still sleep at night. Such conflicts are not easy to resolve. In those instances it’s up to the lawyer to decide them based upon personal considerations.
Conflicts and Re-Regulation
The Legal Services Act of 2007 ushered in a re-regulation of rules proscribing legal conduct and practice. Lawyers and firms can now apply for “Alternative Business Structure” (ABS) licenses that permit them, inter alia, to share profits with non-lawyers, engage in inter-disciplinary practice, and accept institutional funding. While many in the U.S. decry this as law’s capitulation to business interests that will spawn economic conflicts that compromise zealous legal representation, such is not the verdict of consumers..
The UK is witnessing a proliferation of new service providers (so too in the States where the line between “engaging in the practice of law” and legal service providers is blurred). And the new entrants are driving down legal cost.
U.S. critics of ABS would do well to note that the purpose of the Legal Service Act is not to protect lawyers but to benefit the public. Re-regulation in the UK and other nations has promoted competition, catalyzed innovation, and served notice to the legal profession that it serves clients and the public, not lawyers.
The Brits acknowledged that the traditional legal delivery model was broken and in need of repair. That’s why the Legal Services Act of 2007 was passed. Is the traditional law firm partnership model not broken on this side of the pond?
The avoidance of conflicts is intended to protect clients and to ensure that their attorney can zealously represent them. But it’s not always that simple. Regulations, financial considerations, firm size and structure, and client willingness to waive conflicts are all part of the mix.
And when law firms become global giants, the conflict issue assumes even greater importance and complexity. The drive to establish a global presence collides with conflict avoidance. It’s a numbers game. And there’s where the real conflict resides.