Ethics Opinon 1974-22

November 27, 1974

SUBJECT: CONFLICT OF INTEREST

I
QUESTION PRESENTED

An attorney represents three clients who either have, or are seriously considering, filing suits against the City of San Diego. The attorney has subsequently been requested by an insurance carrier of the City to represent them in an unrelated subrogation claim. May the attorney ethically represent the insurance company as well as his existing clients? If so, what procedure shall he follow to protect his clients and avoid the appearance of professional impropriety?

II
SUMMARY

Yes. The attorney may represent the insurance company as well as his existing clients, provided he gives all clients the opportunity to evaluate their needs for representation free of any potential conflict of interest, and he informs them that they may retain other counsel if they so desire. Thus, before an attorney may represent multiple clients, he should fully explain to each client the implications of the common representation and should accept or continue employment only if the clients consent in writing.

III
STATUTES AND CANONS

Rule 5-102 of the Rules of Professional Conduct of the State Bar of California is applicable to the question presented. It provides as follows:

(a) A member of the State Bar shall not accept professional employment without first disclosing his relationship, if any, with the adverse party, and his interest, if any, in the subject matter of the employment.

(b) A member of the State Bar shall not represent conflicting interests, except with the written consent of all parties concerned.

Canon 5 of the American Bar Association Code of Professional Responsibility which became effective January 1, 1970, is also applicable to the question presented. The disciplinary rules of Canon 5 provide as follows:

DR 5-105. Refusing to Accept or Continue Employment if the Interests of Another Client May Impair the Independent Professional Judgment of the Lawyer.

(A) A lawyer shall decline proffered employment if the exercise of his independent professional judgment in behalf of a client will be or is likely to be adversely affected by the acceptance of the proffered employment, except to the extent permitted under DR 5-105(C).

(C) In the situation covered by DR5-105(A), a lawyer may represent multiple clients if it is obvious that he can adequately represent the interests of each and if each consents to the representation after full disclosure of the possible effect of such representation on the exercise of his independent professional judgment of each.

Ethical Considerations of Canon 5 provide:

"EC 5-14. Maintaining the independence of professional judgment required of a lawyer precludes his acceptance or continuation of employment that will adversely affect his judgment on behalf of or dilute his loyalty to a client. This problem arises whenever a lawyer is asked to represent two or more clients who may have differing interests, whether such interests be conflicting, inconsistent, diverse, or otherwise discordant."

"ED 5-15. If a lawyer is requested to undertake or to continue representation of multiple clients having potentially differing interests, he must weigh carefully the possibility that his judgment may be impaired or his loyalty divided if he accepts or continues the employment. He should resolve all doubts against the propriety of the representation. A lawyer should never represent in litigation multiple clients with differing interests; and there are few situations in which he would be justified in representing in litigation multiple clients with potentially differing interests. If a lawyer accepted such employment and the interests did become actually differing, he would have to withdraw from employment with likelihood of resulting hardship on the clients; and for this reason it is preferable that he refuse the employment initially. On the other hand, there are many instances in which a lawyer may properly serve multiple clients having potentially differing interests in matters not involving litigation. If the interests vary only slightly, it is generally likely that the lawyer will not be subjected to an adverse influence and that he can retain his independent judgment on behalf of each client; and if the interests become differing, withdrawal is less likely to have a disruptive effect upon the causes of his clients."

"EC 5-16. In those instances in which a lawyer is justified in representing two or more clients having differing interests, it is nevertheless essential that each client be given the opportunity to evaluate his need for representation free of any potential conflict and to obtain other counsel if he so desires. Thus before a lawyer may represent multiple clients, he should explain fully to each client the implications of the common representation and should accept or continue employment only if the clients consent.

If there are present other circumstances that might cause any of the multiple clients to question the individual loyalty of the lawyer, he should also advise all of the clients of the circumstances."

"EC 5-19. A lawyer may represent several clients whose interests are not actually or potentially differing. Nevertheless, he should explain any circumstances that might cause a client to question his undivided loyalty. Regardless of the belief of a lawyer that he may properly represent multiple clients, he must defer to a client who holds the contrary belief and withdraw from representation of that client.

Canon 6 of the "old" American Bar Association Canons of Professional Ethics adopted in 1908 as amended states:

Adverse Influences and Conflicting Interests.

It is the duty of a lawyer at the time of retainer to disclose to the client all the circumstances of his relations to the parties, and any interest in or connection with the controversy, which might influence the client in the selection of counsel.

It is unprofessional to represent conflicting interests, except by express consent of all concerned given after a full disclosure of the facts. Within the meaning of this canon, a lawyer represents conflicting interests when, in behalf of one client, it is his duty to contend for that which duty to another client requires him to oppose.

The obligation to represent the client with undivided fidelity and not to divulge his secrets or confidences forbids also subsequent acceptance in matters adversely affecting any interest of the client with respect to which confidence has been reposed.


IV
FORMAL OPINIONS

Although no formal opinions exactly touch the circumstances of this case there are opinions which seem to indicate what conduct would be proper.

In A.B.A. Formal Opinion No. 247 (1942) the Committee on Professional Ethics of the American Bar Association considered a question involving Canon 6. It was held that an attorney could not investigate a night club shooting on behalf of one of the owner's liability insurers, obtaining the cooperation of the owner, and later represent the injured patron in an action against the owner and a different insurance company unless the attorney obtained the "express consent of all concerned given after full disclosure of the facts," since to do so would be to represent conflicting interests.

The Committee in Formal Opinion No. 282 (1950) has held that a lawyer employed by an insurance company which carries only collision insurance may defend the insured in a public liability action brought by a third party and also act for the insured and the collision insurance company in a cross-petition against the third party. However, again, the lawyer could not represent both parties without the express consent of all concerned given after a full and complete disclosure of the facts.

More recently, the Committee in Formal Opinion No. 331 (1972) considered a question involving Canon 5 and possible conflicts of interests where an attorney acted as an agent for title insurance companies and received compensation therefor.

The Committee held:

"It is apparent that if the lawyer is financially interested in a title company which will supply title insurance to his client, he must obtain consent of his client after making full disclosure to the client of the circumstances. If, however, the lawyer is performing legal services for both the title company and the client, the lawyer may represent both only if, first, it is obvious that he can adequately represent the interest of each, and secondly, both the title company and the client consent to the representation after the lawyer has fully disclosed the possible effect of such dual representation on the exercise of his independent professional judgment on behalf of each. He must not, of course, violate any other Code provision in his handling of the transaction."

V
INFORMAL OPINIONS

There are no informal opinions which are on point with the question presented here; however, Informal Opinion No. 760 (1964) seems to lend some light on the issue of conflict of interest. With regard to the clause in Canon 6 stating that a lawyer represents conflicting interests when "in behalf of one client, it is his duty to contend for that which duty to another client requires him to oppose" the Committee states that:

The test of inconsistency is not whether the attorney has ever appeared for the party against whom he now proposes to appear, but it is whether his accepting the new retainer will require him, in forwarding the interests of his new client, to do anything which will injuriously affect his former client in any matter in which he formerly represented him, and also whether he will be called upon, in his new relation, to use against his former client, any knowledge or information acquired through their former connection.

(Also see Morrow, J. In re Boone, 83 Fed.944, 952-953 (1897) quoted in Legal Ethics, P. 105.)

"Where there is no real conflict of interest, the Canon (6) does not apply, as where the two matters are wholly unrelated to one another; . . . but the fact that the conflict is rather remote is not necessarily decisive . . . in such cases it is always a question of honest judgment, in forming which the first client's wishes would, of course, be given great weight."

(See Legal Ethics, Pages 107-108.)

VI
ANALYSIS

It is the opinion of this writer that there exists a possibility of a conflict of interest, but it is believed that it is reconcilable by informing all of the clients of the conflict and obtaining their consent. Inasmuch as the suits of the three existing clients do not seem to be in any way related to the proffered subrogation suit, there would be no impropriety in representing both the three existing clients and also the insurance company. However, there exists the appearance of a conflict of interest in that the existing clients who are suing the city, might view it as improper for their attorney to be also representing the insurance carrier of the city.

Therefore, in order that the attorney's conduct conform to Canon 5, the attorney should decide whether or not he will be able to exercise his independent professional judgment in behalf of all clients without adversely affecting any client. Once he decides that he can, then he must fully disclose to each client, the possible effects of such representation and have each client consent thereto.

This opinion is advisory only. It is not binding upon the State Bar, the Board of Governors, its agents or employees.

EDITOR'S NOTE: The Opinion was reviewed August 23, 1976 and the body of the Opinion was changed to reflect some developments since the date of its issuance.

 

Disclaimer: This opinion was issued by the Legal Ethics Committee of the San Diego County Bar Association. It is advisory only and is not binding upon any member of the SDCBA, any other member of the State Bar of California, the State Bar of California or its Board of Governors, or any persons or tribunals charged with regulatory responsibilities. The SDCBA, its officers, directors, agents, and the Legal Ethics Committee members assume no responsibility or liability in rendering this opinion.