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Tips For Young Lawyers

Practical Tips for Drafting Conflict Waivers
By:  Lindsey Griffin, Hermes Sargent Bates, LLP

As law firms continue to grow and lawyers seek to expand their client list, lawyers must remain acutely aware of and learn to effectively handle the ethical dilemma known as conflicts of interest. To balance the ethical duty to avoid conflicts of interest with the demand to build business, lawyers will often seek conflict waivers to represent clients who have a potential conflict of interest with current or former clients of the law firm.

The Texas Disciplinary Rules of Professional Conduct permit lawyers to represent clients despite a conflict of interest with a current or former client if the clients give informed consent. Rule 1.06 allows representation of current clients with a potential conflict of interest if the lawyer reasonably believes that the representation of each client will not be materially affected and “each affected or potentially affected client consents to such representation after full disclosure of the existence, nature, implications, and possible adverse consequences of the common representation and the advantages involved, if any.”[1]

Similarly, Rule 1.09 prohibits a lawyer from representing a client who has a conflict of interest with a former client of the lawyer or law firm without prior consent.[2] A former client’s waiver is effective only if each client consents after the lawyer has disclosed the relevant circumstances of the representation, including the lawyer or law firm’s past or proposed role on behalf of each of the clients.[3]

While neither rule currently requires the disclosure and consent to be in writing, the comments and common sense suggest the lawyer should seriously consider providing, at least, a written summary of the disclosure and consent to the client.[4]  Moreover, under the proposed amendments to the rules, which are scheduled to be voted on later this year, Rules 1.06 and 1.09 expressly require informed consent, confirmed in writing, in order for clients to waive a conflict. The proposed rules define informed consent as consent given after an explanation of the material risks of and reasonably available alternatives to the proposed representation. The proposed definition of confirmed in writing emphasizes that the writing should be provided at the time of consent or within a reasonable time thereafter.

Because the validity of a conflict waiver is an extremely fact intensive determination, under both the current and proposed rules, the answer to what constitutes informed consent will depend on the particular circumstances surrounding each representation. Specifically, the relevant circumstances include the client’s sophistication, the client’s understanding of the representation and the inherent risks, the scope of the conflicting representations, the client’s familiarity with the legal services provided by the firm, and whether the client is represented by outside counsel in giving consent.

The Texas Supreme Court, in upholding a verbal waiver of a conflict of interest confirmed in writing, provided an example of an effective conflict waiver. After the general counsel of the corporation verbally agreed to waive the potential conflict of interest by a defense attorney in a shareholder derivative suit based on the law firm’s prior representation of the corporation for a draft of an asset purchase agreement, the defense attorney followed up the oral conversation with a written summary.[5]  The written conflict waiver, signed by the corporation’s chief financial officer, disclosed the law firm’s proposed representation of the defendants in the shareholder derivative action, the subject matter of its prior representation of the corporation, the relevant time period, the attorney involved, how the prior representation ended, and the nature of the discussion with general counsel.[6]  Even though the general counsel chose not to consult outside counsel in agreeing to the waiver, the Supreme Court upheld the conflict waiver finding the corporation was adequately informed and knowingly waived the conflict.[7]

Although conflict waivers may inherently involve an element of risk, certain precautions can be taken to significantly increase the chance that a conflict waiver will be effective. First, you should, and under the proposed rules must, reduce the waiver to writing, preferably as the initial agreement or alternatively as a confirmation of a verbal agreement, and have both clients sign it. Second, you should ensure that each client affected by the representation agrees to and signs the waiver. Third, full disclosure means disclosure of all material aspects of the representation and any potential adverse effects to be guided by the factors in Rule 1.06(c)(2). Fourth, inform both clients that you are not representing them with respect to the decision of whether to sign the proposed conflict waiver, and recommend that they consult with outside counsel to evaluate the waiver. And finally, do not forget that if a disinterested lawyer would conclude that the representation of either client would be materially affected by the conflict, a conflict waiver is not appropriate and you should decline the representation. In short, good business development sense demands that you consider the long term consequences of failing to address conflicts of interest rather than simply focusing on the short term benefits of engaging a new client.

Ms. Griffin is an associate in the professional liability section at Hermes Sargent Bates, LLP in Dallas and can be reached at lindsey.griffin@hsblaw.com.

This article first appeared in the September issue of The Dicta and has been republished with the permission of the Dallas Association of Young Lawyers.

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