Opinion ID: 2209446
Heading Depth: 2
Heading Rank: 1

Heading: Conflict of Interest Lacking Client Consent

Text: We begin with the Board's finding that respondent violated Rule 1.7(b)(4): a lawyer shall not represent a client with respect to a matter if: [t]he lawyer's professional judgment on behalf of the client will be or reasonably may be adversely affected by the lawyer's . . . own financial, business, property, or personal interests. While a client may consent to continued representation in such circumstances, such consent is contingent upon full disclosure of the nature and existence of the possible conflict and the possible adverse consequences of such representation. R. 1.7(c). No claim is made that such consent was obtained here. The evidence showed that during negotiations Warner-Lambert offered $225,000 to Traficonte and respondent as long as they promised to keep the fact and amount of payment confidential. If respondent had rejected the confidentiality requirement and had waived his fee instead, his clients still would have received the relief provided by the Settlement Agreement. [8] Nevertheless, respondent agreed to the secret fee payment. Respondent faced a classic conflict of interesthis interest in maximizing his fee versus his clients' interest in maximizing the amount paid to them. That it occurred in the midst of secret settlement negotiations meant the conflict was even more pronounced. Any settlement represents a total value figure that one party is willing to pay to end the controversy. Attorneys' fees, even though they may not be technically deducted from the amount paid to the litigants, represent an integral part of the overall amount that the settling party is willing to pay, and as such, they have a direct effect on the net amount that will ultimately be paid to the litigants. Bloyed v. General Motors Corp., 881 S.W.2d 422, 435-36 (Tex.Ct.App.1994), aff'd, 916 S.W.2d 949 (Tex.1996). See also Weinberger v. Great Northern Nekoosa Corp., 925 F.2d 518, 524 (1st Cir.1991) (there is . . . a conflict inherent in cases. . . where fees are paid by a quondam adversary from its own fundsthe danger being that the lawyers might urge a class settlement at a low figure or on a less-than-optimal basis in exchange for red-carpet treatment on fees.). Impermissible conflicts of interest have been identified when far fewer dollars were at stake. See In re Knust, 598 A.2d 434, 437 (D.C. 1991) (per curiam) (Appendix, Board Report) ($17,000); [9] In re James, 452 A.2d 163, 166-67 (D.C.1982) ($40,000), cert. denied, 460 U.S. 1038, 103 S.Ct. 1429, 75 L.Ed.2d 789 (1983). [10] Nevertheless, this conflict did not, by itself, preclude respondent (through Traficonte) from continuing and concluding the settlement negotiations. For if that were true, plaintiffs' lawyers would find it highly difficult, if not impossible, to engage in any settlement negotiations once the subject of attorney fees had been broached. That clearly is not the case. Rather, what was needed, and what was conspicuously lacking here, was client consent as outlined in Rule 1.7(c). Without such consent, clients would never have the opportunity to judge and be satisfied that their attorneys were providing them wholehearted and zealous representation. As the Board itself noted, [c]lient review and approval, and court review and approval of class actions settlements, provide a safeguard against attorneys selling their client interests short in order to gain advantage in their fees. Given the potential conflict between respondent's interest with respect to his possible fee and his clients' maximal satisfaction, the Board fairly concluded that his professional judgment on behalf of [his] client[s] . . . reasonably [would have been] adversely affected by . . . [his] own financial. . . interest. Client consent was therefore required. Respondent defends his conduct by arguing that no ethical violation occurred because there was no conflict of interest in actuality. According to respondent, he obtained full relief for his clients and cannot be accused of diverting to [himself], as fees, monies that would otherwise have gone to [his] clients. Indeed, respondent asks us to applaud rather than vilify him for obtaining remedies above and beyond what Magnuson-Moss plaintiffs could have received despite the attorneys' not signing up enough clients and not having any scientific evidence on their side. Put another way, respondent's argument appears to be that no conflict exists where an attorney in fact recovers the maximum relief that a client could recover. Respondent's theory, though, rests on two unsupportable foundations. First, the Board explicitly refused to say that respondent had obtained full relief, and we see nothing in the evidentiary record that would compel us to say otherwise. As the Board observed, [d]isciplinary proceedings are ill-suited to be mini-trials on the merits of the clients' potential claims. More importantly, even if respondent's clients did receive full relief in some objective sense through his actions, such a result is irrelevant in deciding whether respondent violated Rule 1.7(b)(4), or any other Rule of Professional Conduct. Obtaining the best possible outcome for one's clients is never a viable defense to charges of ethical misconduct; the ends do not justify the means. [11] See In re Fee, 182 Ariz. 597, 898 P.2d 975, 980 (1995); People v. Pautler, 35 P.3d 571, 580 (Colo.Discipl.2001); In re Mines, 523 N.W.2d 424, 427 (S.D.1994) (A practitioner of the legal profession does not have the liberty to flirt with the idea that the end justifies the means . . . . Certainly our Rules of Professional Conduct allow no such flirtation.). In our own jurisdiction, In re Shay, 749 A.2d 142 (D.C.2000) (per curiam), is also enlightening on this point. In Shay, the disciplined attorney represented a husband (J.C.) and wife (E.Y.). J.C., however, had never divorced his previous wife, a fact he confided in Shay with the understanding that she would not tell E.Y. Shay then drafted wills for J.C. and E.Y. without telling E.Y. about J.C.'s bigamy, because she was afraid that disclosure or even withdrawal from representation would result in no wills being drawn, which would leave E.Y. and her baby unprotected in the event of J.C.'s death. 756 A.2d 465, 476 (Appendix, Board Report). The Board took note of Shay's laudable intentions but then proclaimed: The conflict of interest rules do not permit a lawyer to be the judge of whether a . . . client should be kept in the dark about information that could compromise the lawyer's goal in pursuing the client's interests. The lawyer is a representative, not a principal, in client decisions and transactions. The lawyer has no right to make judgments about what is best for clients who are not fully informed about the facts and their options. Id. This is indeed the fundamental fallacy in respondent's position. It is the client, not the attorney, who decides whether full or acceptable relief has been obtained. The conflict of interest rule in the circumstances here is designed to assure that the attorney pursues the client's objectives as the client views them, unaffected by any personal interest of the attorney in the outcome. Of course an attorney is entitled to obtain reasonable compensation as a result of negotiations, but this must be done within the boundaries of undivided loyalty to client interests. Besides the Rule 1.7(b)(4) violation, the Board also found that respondent violated Rule 1.8(e), i.e., a third party may compensate an attorney only if: 1) the client consents after consultation; 2) there is no interference with the attorney's professional judgment or the attorney-client relationship; and 3) client confidentiality is protected. As the previous discussion makes clear, the fee settlement interfered with respondent's professional judgment and his relationship with his clients. This was unsurprising, given the problems inherent in a lawyer's accepting payment from an opposing party. See Zucker v. Occidental Petroleum Corp., 192 F.3d 1323, 1327 (9th Cir.1999), cert. denied, 529 U.S. 1066, 120 S.Ct. 1671, 146 L.Ed.2d 481 (2000) (A client who employs a lawyer to litigate against a third party has a legitimate interest in having his lawyer refrain from taking the third party's money in exchange for throwing the fight.); State ex rel. Nixon v. American Tobacco Co., 34 S.W.3d 122, 135 (Mo.2000) (The danger is that the lawyer's own interest will prevail over the client'sor to put it another way, that the lawyer might be unduly influenced by an oversized fee to recommend an inadequate settlement for the client.). Rule 1.8(e) protects against just such dangers, yet respondent failed to comply with its mandate. Respondent argues that no violation occurred because his clients indeed consented to the third-party fee arrangement. Respondent points to the following in the Contingent Fee Agreement as proof: I understand that any attorneys' fees for services rendered regarding the Class Action Claims: (a) will be contingent on a recovery from the defendants, (b) shall not exceed equal to the following agreed maximum percentage of the net amount collected by settlement or trial: 40%; and/or (c) will be approved and/or determined by a court; and/or (d) will be paid directly by the defendants to the attorneys and/or paid from the net amount recovered for the entire class. (emphasis added) As the Board observed, the provision is not a model of clarity. Its obscurity is fatal to respondent's contention. While clients are allowed to waive future conflicts of interest such as third-party compensation, for such a waiver to be effective . . . [it] must contemplate that particular conflict with sufficient clarity so that the client's consent can reasonably be viewed as having been fully informed when it was given. D.C. Bar Legal Ethics Comm., Opinion 289 (1999) ( quoting ABA Comm. on Ethics and Prof'l Responsibility, Formal Opinion 93-372 (1993)); see also D.C. Bar Opinion 309 (2001). We cannot say that the Contingent Fee Agreement outlined with sufficient clarity that Warner-Lambert might pay respondent (and his co-counsel) up to $225,000 and that when it did so, respondent would not disclose to his clients the fact or amount of payment. Therefore, the client consent obtained by respondent was inadequate to waive the conflict of interest here. [12]