Conflicts of Interest: Take Heed and Avoid Jury Wrath


 

Tamera Westerberg | Partner
Biography

We have all heard about or know lawyers disqualified on the eve of trial for an unidentified conflict. Or, lawyers who spotted a conflict but forgot, or failed, to address it in time. Or, lawyers who underestimated the importance of the conflict they discovered.

This may come as a surprise, but disqualification from a case is not the only—or even the worst—issue that can arise from a conflict of interest. Conflicts raise a host of malpractice concerns that can dramatically affect a lawyer's reputation and practice.

The good news is, with a good, consistent, and thorough system, conflict of interest issues can be avoided. The bad news is, when conflicts aren’t resolved, or are ignored, and get to courts or juries, the results are seldom good.

Juries Loathe Conflicts

Legal malpractice insurers have researched the impacts conflicts of interest have on courts and juries hearing malpractice cases, including an increase in punitive damage claims nationwide. Their research suggests that the inclusion of a conflict of interest in a lawsuit—even just the specter of one—has the potential to elevate what otherwise might be a minor professional liability claim to one of greater risk for the lawyer and higher value for the plaintiff in the eyes of a jury.

Comments by mock jurors suggest they see conflicts as indicative of bad motives on the lawyer’s part, dirty dealing by lawyers, and a betrayal of the loyalty and trust people expect from lawyers and the legal profession. All of these, of course, have the potential to transform a straightforward negligence claim into something far more serious. In other words, conflicts matter to courts and jurors, a lot.

Courting Punitives

The Iowa Supreme Court upheld an award of punitive damages against a lawyer after he told prospective clients he had no conflicts in representing them regarding claims against a real estate agent, while concealing his relationship with that agent. In Wilson v. VandenBerg, 687 N.W.2d 575 (Iowa 2004), the Court found the attorney took only minimal action on the case after he was retained, determining that an obvious explanation was the lawyer’s desire not to damage his relationship with the specific agent or with other local realtors. While the attorney did ultimately admit to a conflict, which he claimed arose after he accepted the case, the Court determined that his failure to act on his clients’ behalf indicated he was conflicted from the beginning and should not have agreed to represent the clients in the first place.

The jury awarded $8.3 million in compensatory and another $27.2 million in punitive damages.

While the impact in VandenBerg was important, the dollar amount was small. The same cannot be said of Interclaim Holdings Ltd. v. Ness, Motley, Loadholt, Richardson & Poole, 298 F. Supp. 2d 746 (N.D. Ill. 2004). In this case, a jury awarded the plaintiffs $8.3 million in compensatory and $27.2 million in punitive damages.

The law firm in question was retained by Interclaim in a class action brought on behalf of victims of a fraudulent enterprise. The law firm entered into settlement negotiations with a third party without notice or consent from the clients, withdrew from representation of Interclaim on the basis of a conflict (created by the law firm’s participation in the disputed negotiations), and continued to pursue a settlement arrangement limiting the third party’s financial exposure to the firm’s remaining clients, all while earning a large fee for the firm.

While the firm claimed it relied on the advice of ethics experts in making the withdrawal decision, evidence presented at trial indicated the firm had not made full disclosures to the experts in seeking that advice. A jury found in favor of Interclaim on allegations of breach of fiduciary duty and breach of the parties’ retainer agreement.

Thoroughness Matters . . .

Even good, and good faith, attempts to avoid a conflict can go awry if the system isn’t implemented, maintained, and consistently followed. In Spur Prod. Corp. v. Stoel Rives LLP, 142 Idaho 41, 43, 122 P.3d 300, 302 (2005), Stoel Rives was retained to represent Spur in a dispute with a company called IKON. As the case proceeded, legal fees and costs mounted, ultimately leading the law firm to enter into an agreement with its client that it would withdraw from representation unless the client accepted a settlement from IKON and paid all outstanding debts by the completion of the mediation conference.

Unfortunately, the memo reached an attorney under an ethical screen resulting from the firm's conflict analysis.

Of course, that agreement raised ethical questions, and the firm circulated an internal memorandum about the situation. Among others, the memo reached the firm’s professional responsibility group, which included an attorney who had at one time represented a wholly owned subsidiary of IKON, and who was subject to an ethical screen as a result of the firm’s conflict analysis. The law firm ultimately prevailed on summary judgment on the negligence case because the client failed to show that the firm disclosed the agreement or the memo to IKON or its counsel. By then, however, the case had been decided by a trial court, appealed, remanded, and appealed again at significant cost and consternation to all involved.

. . . and Consistency Matters

These cases highlight the real problem when it comes to conflicts: implementing a good system is critical, but it only takes you so far. You also need to handle the information properly and thoroughly when you get it.

Lawyers shouldn’t fail to check conflicts, ignore conflicts, or—like the lawyer in VandenBerg—assume a known conflict really isn’t a problem. Fortunately, conflict checking is a fairly straightforward endeavor with a proper system in place. However, even the best conflict system can’t counteract a lawyer intent on ignoring the results. The risk for lawyers and law firms is recognizing the importance and taking action to prevent a malpractice claim or, at least, not make one worse.

The bottom line: don’t run conflicts sometimes. Run conflicts every time, without exception. And, if you find a conflict, deal with it early. Waiting only raises the risk (and the stakes), and makes it harder, if not impossible, to resolve later.

Defending Lawyers & Law Firms When it Matters Most

Wheeler Trigg O'Donnell defends lawyers and law firms against high-stakes professional liability claims. Our team has successfully represented lawyers and law firms in at least 12 states.

In the past three years alone, WTO has won for lawyers and law firms in the Colorado Supreme Court, the Tenth Circuit Court of Appeals, and numerous state district and appellate courts.

Recent victories include:

  • Won a complete defense verdict for a lawyer and law firm accused of malpractice in the handling of a sale of interests in the plaintiff's company.
  • Won an arbitration for a law firm client that sued its former client for unpaid fees and was countersued for malpractice. The arbitrator rejected the malpractice claims and awarded WTO's client its unpaid fees plus interest, as well as its legal fees and costs incurred in the arbitration.
  • Obtained Rule 12 dismissal for an AmLaw 200 firm facing claims exceeding $500 million in state court in Kentucky.
  • Won a complete defense verdict in a professional liability claim against a law firm and lawyer. The plaintiff alleged that WTO's client was negligent, yet the jury found that not only was our client not negligent, but that the alleged negligence didn't cause the claimed damages.
  • Won a unanimous opinion from the Colorado Supreme Court refusing to follow a more permissive rule adopted by most states and strongly upholding Colorado’s strict privity rule in determining whether non-clients may sue lawyers for malpractice or professional liability.
  • Won Tenth Circuit victory for a law firm client in protracted litigation arising out of a divorce and bankruptcy characterized as "the most complex [the divorce court] has seen in 25 years."
  • Won a complete defense jury verdict in a $12 million legal malpractice case. The jury found in favor of WTO's client on all claims and also awarded unpaid legal fees owed by plaintiffs.

We understand how personal these claims can be. We also appreciate that staying out of court may be a client’s ultimate goal. Whether you wish to resolve claims creatively and discreetly or defend them vigorously before judge and jury, WTO will help.

About Wheeler Trigg O'Donnell

Since 2004, Wheeler Trigg O’Donnell lawyers have won 140 trial verdicts and complex arbitrations and 76 significant appeals nationwide for our clients.

Established in 1998, WTO currently numbers 100 lawyers. The firm represents sophisticated clients in high-stakes civil trials, arbitrations, appeals, and related litigation, including class actions, mass torts, and multidistrict litigation.

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