Managing the Hazards of Representing Multiple Clients

American Bar Association Section of Labor & Employment Law

2005 Annual Meeting Michael J. Leech Talk Sense Mediation 101 North Wacker Drive, Suite 2010 Chicago, IL 60606 (312) 250-8123 Dmleech@talk-sense.com

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INTRODUCTION

Representing multiple clients in the same matter presents opportunities

and risks. When representation of multiple clients takes place, the benefits seem

so manifest that anyone questioning the wisdom of it is regarded with suspicion.

Yet circumstances may later demonstrate that it was a very bad idea indeed.

The attorney who represents multiple clients actually usually benefits

only indirectly:

• An employer can economize on legal costs by disregarding the

ethical problem. The attorney who agrees avoids the risk that a

lawyer less sensitive to legal niceties that seem unimportant to the

company will be selected. Holding onto the business is assured.

• Employees bringing a multi-party action who engage one attorney

obtain both economic and tactical litigation advantages. The

attorney benefits indirectly through the clients’ recovery.

If the decision turns out badly, the attorney may be visited with very

unpleasant consequences: disqualification, professional disciplinary action,

inability to collect fees for work already performed, repayment of fees previously

paid, malpractice liability and adverse publicity. If all lawyers thought about

was their own best interests, representation of multiple clients would be rare.

The paper reviews the more typical situations in the practice of labor and

employment law in which an attorney is called upon to represent multiple

clients. The benefits and professional risks are catalogued. The paper then

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introduces risk management approaches that may be employed to minimize the

risk of adverse consequences.

CAUTIONARY POINT: WHO IS A CLIENT IS OPEN TO DISPUTE

A number of the situations reviewed below do not actually appear to the

lawyer to involve representation of multiple clients at all. For purposes of civil

liability, however, the prima facie showing of an attorney-client relationship is

made out by the client testifying that one exists or existed. Unless the lawyer can

prove otherwise, anyone who claims to be a client, is a client. Such claims

sometimes are bogus, but often are the product of genuine misunderstanding.

Such misunderstandings may create problems for the lawyer, so it is incumbent

on attorneys to prevent them and document it.

I. MULTIPLE CLIENTS ON THE EMPLOYER SIDE

A. INDIVIDUAL DEFENDANT JOINED TO SUIT AGAINST EMPLOYER

Joint representation is the rule, rather than the exception, where an

individual employed by the defendant employer (generally a manager) is named

as a defendant in the lawsuit. Joint representation problems can also arise when

counsel of record for the employer defends the deposition of a manager or other

employee, if the character of the relationship has not been made clear to the

corporate employee, resulting in a perception of general representation.

1. BENEFITS OF JOINT REPRESENTATION

The obvious benefit to the employer is economic: the cost of having two

lawyers defend the same action can be double what it costs to have just one of

them doing the job. Even if the attorneys cooperate extensively, the requirement

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that each exercise independent judgment on behalf of the client ensures a

significant amount of duplicated effort. For the individual defendant, the cost of

defending a significant employment suit can be debilitating. The prospect of

recovering that cost through indemnity rights somewhere down the road is not

attractive because litigation can last for years. Joint representation looks like a

good deal to the individual defendant, and it usually is.

A less obvious but equally important benefit for the employer is that a

single lawyer provides some tactical advantages. The individual defendant is

much less likely to enter into a separate settlement with the plaintiff after the

individual defendant’s employment ends. Such a settlement could include

provision for the individual defendant’s cooperation with the plaintiff in the

litigation against the employer. Since the employer is usually the deep pocket, it

has a strong interest in avoiding that.

Discussions about testimony and strategy can be held between the

attorney, the individual defendant and the employer and protected from

discovery by the attorney-client privilege. The same benefit may exist when the

manager has not been sued. When there is separate representation, a joint

defense agreement would be required for the privilege to be applicable.

2. RISKS OF JOINT REPRESENTATION

Conflicts of interest that were not evident at the outset can arise during

the course of the litigation in several ways. When a corporate officer, director or

employee of a corporation is sued, indemnification for liability and defense costs

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by the corporation is permitted under corporate law, and in some circumstances

mandated. Indemnification is prohibited where the individual defendant acted in

bad faith without an intent to serve the interests of the corporation, as

determined in a separate proceeding after the litigation ends.

Corporate law permits the corporation to advance legal costs to the

individual defendant, or to refuse to do so. If it does provide a defense, the

corporation is required to obtain an undertaking in writing to repay the legal

expenses if, at the conclusion of the proceedings, it is determined that

indemnification was not proper. Although this formality is often disregarded, it

highlights an inherent problem with multiple representation in employment

cases. Evidence establishing that the individual defendant actually was a

wrongdoer may surface in discovery or at trial. If it does, the attorney

representing both the corporate and individual defendant can become conflicted

because of the indemnification implications.

A conflict can arise where the manager has done no wrong. A contested

employment decision concerning the manager will raise a conflict problem. The

manager may be fired or demoted for reasons unrelated to the lawsuit.

Information that the manager has given to the attorney about the disputed

events that is reported to management may trigger or affect an employment

decision. Another conflict.

Defenses asserted by the employer at the pleading stage can create a

conflict of interest. The employer may wish to have the option to distance itself

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from the actions of the individual manager in order to avoid respondeat superior or

punitive damage liability. Success could impose loss of indemnity and an

obligation to repay defense costs on the manager, or defeat insurance coverage.

The decision to keep that option open is inconsistent with joint representation,

and joint defense limits the defenses that the employer may plead.

Another serious problem for both the employer and the manager

defendant is the sharing of information between the attorney and the clients.

Where the attorney represents both, either is entitled to any confidential

information related to the representation obtained by the attorney from the other.

If the attorney is consulted by management about the potential firing of the

manager, the manager has a right to know it. But it is likely against the

company’s interests to disclose it. Similarly, if the manager spills the beans to the

attorney about something that could result in firing of the manager, the

employer is entitled to that information. But it would certainly be viewed as

prejudicial to the interests of the manager. The attorney is simultaneously

obligated to disclose the information to a client and to withhold it from that

client. This is Catch-22. The attorney must withdraw from representing either

client.

There is a large downside when a conflict develops after joint

representation has been undertaken. The employer will incur substantial

additional expense unless the attorney can continue to represent it after ceasing

to represent the manager. Whether that is possible will depend on the precise

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circumstances. But the employer runs the risk that somewhere down the line, it

will have to hire an entirely new legal team and bring it up to speed, an

expensive proposition. If the original lawyer is found to be at fault for the

problem, that expense could be shifted to the attorney.

B. INVESTIGATIONS OF CORPORATE WRONGDOING

The black letter law is that the attorney retained to conduct a corporate

investigation represents the corporation, not the employees or even the

executives. The situation in which outside counsel is asked to conduct an

investigation is often one that presents this problem in its most difficult form: a

claim of wrongdoing by a high-ranking executive. Counsel may be interviewing

people previously represented as individual defendants, for personal matters or

as witnesses. These people will view the lawyer as “my attorney.”

Interviewees must be put on notice of who the attorney does and does not

represent or a different perception could arise. The lawyer could face a suit

claiming that confidential information was provided that would not have been

disclosed. The attorney may be accused of abusing the interviewee’s trust to

obtain information used to help top management or the board to brand him as a

scapegoat.

But this may not be enough. Under RPC Rule 1.7, a “concurrent conflict of

interest” exists if the obligations of the lawyer to the employer may be

“materially limited” by duties to another client or by the personal interest of the

lawyer. Current (Rule 1.8) or former (Rule 1.9) representation of an interviewee

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could create such a conflict, particularly where the lawyer has previously been

confided in by the interviewee on the subject of the investigation. The “personal

interest” of the lawyer in future or continuing assignments from the interviewee

may be enough on its own to create a concurrent conflict.

To permit representation where there is a concurrent conflict, the

requirements of RPC Rule 1.7(b) must be satisfied. Two of them can be

problems: (1) the lawyer must be able to provide “competent and diligent”

representation (i.e. independent professional judgment); and (2) the interviewee

or target must give informed written consent. The lawyer’s ability to exercise

independent judgment is a subjective matter, open to dispute. The adequacy of

informed written consent is subject to challenge with the benefit of hindsight if

things go badly.

C. EMPLOYMENT AGREEMENTS OF CEO’S AND GENERAL COUNSEL

Someone has to draft the employment agreements of the CEO and general

counsel. If you represent the corporation in other matters, this assignment is

fraught with conflict. The record must be clear that the attorney is representing

the corporation and not the individuals responsible for doling out legal business

or the attorney is exposed to conflict charges from both sides. There should be a

designated member or committee of the board of directors that is responsible for

making decisions for the corporation.

The same conflict of interest problem discussed above (respecting

corporate investigations) can arise here as well. The lawyer who is assigned

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legal business by the CEO or general counsel may be operating under a

concurrent conflict of interest that must be effectively waived, and waiver may

be problematic.

II. MULTIPLE CLIENTS ON THE EMPLOYEE SIDE

A. CO-PARTIES IN LAWSUITS

1. THE BENEFITS OF MULTIPLE REPRESENTATION

The benefits for employee-plaintiffs from joining their actions and being

represented by a single attorney (which are not necessarily the same decision,

but in practice tend to be so) are considerable. The incremental cost of

representation for a second or fifth or tenth individual asserting a related claim

are small, so both the legal work and litigation costs can be shared, reducing the

per-plaintiff cost of proceeding.

Just as important is the strength of numbers and the benefit of synergy. A

multi-plaintiff claim will get the attention of management because the stakes of

the case are multiplied. Just as unions are able to wrest more favorable wages

and working conditions from employers through collective bargaining,

employee litigants may stand to obtain superior settlements.

Employee-plaintiffs may legitimately be witnesses in each others’ cases as

well. This can be a two-edge sword, as the defense would be able to argue bias

quite readily. But the plaintiff’s attorney can also prepare each plaintiff to testify

with the benefit of attorney-client privilege.

The strong cases may enhance the weaker cases if the same jury will hear

both. It may be more difficult to persuade a jury that multiple employees were

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“bad apples” than just one employee. Mutual moral support among the litigants

can make the lawyer’s job easier as well. But for the conflict problems,

representation of multiple plaintiffs by one lawyer would be a no-brainer. But

the problems are considerable.

2. RISKS OF JOINT REPRESENTATION

The first risk results from the fact that in accepting a group of clients, the

attorney is less likely to pick and choose among potential clients. When an

attorney does not screen clients carefully, there is a substantially increased risk

that the attorney will represent a problem client. The other clients may have less

and less ability to keep the problem client under control as time goes on if they

all formerly worked together and have now been terminated.

Problem clients are a headache for all lawyers. They have unreasonable

expectations. They do not pay bills. They either do not return calls or they call

constantly. They second-guess the attorney. They do not follow instructions.

They complain incessantly. They demand that the attorney engage in unethical

conduct. They make horrible witnesses. They file ethics complaints and

malpractice actions. These traits actually tend to go together. You don’t want a

problem client, and any group may harbor one or more.

Even if all the clients are reasonable and in accord at the start of the

representation, genuine conflicts in the objectives of the litigation can easily

develop as the life circumstances of the clients change. Financial problems may

lead one client to push for a quick, cheap settlement while other clients insist on

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an aggressive negotiating stance. Some clients may be uncomfortable with the

litigation process and wish to avoid a trial while others may relish the prospect

of the day in court.

Testimony may give rise to conflicts. A client who testifies favorably for

another client may be impeached by a prior inconsistent statement written

during the employment. Some clients will be impeached while others will make

good witnesses. The stories clients tell may vary from each other. One client’s

claim may become susceptible to summary judgment while another’s does not.

New information may give rise to conflicts, by creating a “zero-sum

game” among the clients. Two co-plaintiffs terminated in a reduction in force

who claim age discrimination may end up, after discovery, each claiming that

they should have received the same position that was given to a younger

employer. Even if there is a legal possibility that both could prevail, only one of

them could be better suited for a particular job, so there may be direct legal

adversity between their claims.

Conflicts are almost certain to arise at the settlement stage. Ninety percent

of all cases settle. One client will be interested in settling at all costs to gain a

sure recovery, another will want to hold out for top dollar even if it means going

to trial. These differences may result from economics or personality differences.

The lawyer is inevitably in the middle, and taking sides creates malpractice

exposure.

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These problems may be exacerbated by the defendant, deliberately or not,

during negotiations. Employers usually want to settle all the claims or none.

This puts the plaintiffs in a position of dividing up scarce settlement dollars

among themselves, a sure-fire recipe for conflict. A recalcitrant client who

opposes settlement may veto everyone’s recovery unless a larger portion of the

settlement is allocated to him or her.

Having the defendant make separate offers to each plaintiff can make

things worse. Unless each employee thinks the relative value of the claims is

precisely the same as the employer does, one employee will object to and be

offended by the offer.

When the employer offers to settle some but not all claims, the situation is

also problematic. The employer will generally want to settle the stronger claims

and try the weaker ones. This puts pressure on the clients with stronger claims

to refuse settlement for the benefit of the remaining clients. If the claims the

employer does not offer to settle are weak, the attorney may resist settlement to

avoid having to proceed and have a greater risk of not being compensated for the

work.

Woe betide the lawyer who simply makes the decision for the clients.

RPC Rule 1.8(g) provides that “A lawyer who represents two or more clients

shall not participate in making an aggregate settlement of the claims…unless

each client gives informed consent, in a writing signed by the client. The

lawyer’s disclosure shall include the existence and nature of all the claims…and

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of the participation of each person in the settlement.” Moreover, the attorney

who participates in the decision-making process among the clients stands in a

position to be accused of advancing the interests of one client against those of the

other, which can become the basis for a malpractice claim. Especially if the

attorney is pushing settlement to ensure that a fee is paid.

The fee-shifting element often present in employment cases appears to

present additional conflict possibilities. Typically, the fee recovery is paid to the

attorney and the damage recovery goes to the plaintiff. Offers of settlement that

require a reduced fee or are premised on waiver of fees are typically viewed by

employee’s counsel as creating a conflict of interest between attorney and client.

While this creates a business dilemma for the attorney, it does not create a legal

conflict. The U.S. Supreme Court held in Evans v. Jeff D., 475 U.S. 717, 730-739,

106 S.Ct. 1531, 1539-1543, 89 L.Ed.2d 747 (1986) that both the damage and the fee

claim belong to the employee-plaintiff. The fee arrangement between attorney

and client is a separate contractual agreement which may provide, within the

bounds of the law, whatever fee the two agree upon. Attorneys representing

employees have the ability, then, to prevent this kind of problem by addressing it

in the agreement they enter into with the client.

B. CLASS ACTIONS

There is inherent potential for conflict of interest between class

representatives and the classes they (and counsel) represent. These conflicts are

managed, as a practical matter, during the class certification process. Defense

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counsel typically argue aggressively that any potential conflict constitutes a

reason why no class should be certified. Conflicts preclude class certification.

Class counsel has a peculiar legal relationship with the class members:

fiduciary duties do limit class counsel’s actions, for instance, by prohibiting use

of the class action claim as a means to gain leverage. Even before class

certification, the class attorney cannot offer to give up class certification in return

for an enhanced recovery for the class representative. At the same time, RPC

Rule 1.8, Comment 13, indicates that in connection with settlement, class counsel’s

obligations are limited to compliance with “applicable rules regulating

notification of class members and other procedural requirements designed to

ensure adequate protection of the entire class.” Thus, the court’s role in

regulating the process alleviates the risks faced by the class action plaintiff’s

attorney. Thus, class members objecting to a settlement may not disqualify class

counsel from representing the class representative because counsel is arguing

that the settlement should be approved. But such disqualification would be

required if the class representatives themselves took opposing positions on the

settlement. Lazy Oil Co. v. Witco Corp., 166 F.3d 581 (3d Cir. 1999); In Re Corn

Derivatives Antitrust Litigation,748 F.2d 157 (3d Cir. 1984).

III. RISK MANAGEMENT

Risk management means assessing risks and benefits consciously and

making intelligent decisions about conduct based on that assessment. Risks

must be identified, quantified and evaluated with an eye to both the potential

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harm and the available tools to minimize risk. To borrow from Donald

Rumsfeld, risk management means getting complete information on the “known

knowns,” using clinical experience to assess the “known unknowns” and

operating with an awareness that there could be “unknown unknowns” out

there.

A. FIRST STEP: MAKE EXPERT COUNSEL AVAILABLE

Risk management requires that attorneys and firms engage legal counsel

to treat their own legal risks as they recommend that clients treat them. Find

someone with expertise in the law and experience with similar situations. Get

preventative counsel and take steps to minimize risk. Bring problems that do

arise to the attention of counsel as soon as they arise, confront the problems and

resolve them. Not “physician, heal thyself,” but “counsel, get counsel.”

Today large firms increasingly select, from among their ranks or from an

outside source, an in-house counsel to address legal problems arising from the

law of lawyers. Conflict problems, including those resulting from representation

of multiple clients in a single matter, are bread and butter for these counselors.

One benefit of this approach is that the designated in-house attorney may be able

to sustain an attorney-client privilege for discussions with an attorney having a

problem. Historically, courts have taken a dim view of privilege claims by law

firms concerning their internal decision-making.

Large and mid-range firms should have at least a designated lawyer to

handle ethics concerns, or perhaps an ethics committee. Ethics consultants

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should provide an opportunity for lawyers in the firm, especially associates, to

seek confidential help that will not result in reports to managing lawyers who

are not personally involved in the problem. There may be consequences for the

associate from the problem, but the ethics lawyer will not be reporting it. The

purpose is to encourage associates to get help with problems at a time when they

can still be managed, rather than attempt to resolve them personally in the hope

that they will not be detected.

Mid-range firms, small firms and individual practitioners should have

expert outside ethics counsel available for ongoing consultation when problems

arise. Such counsel will have methods for successfully dealing with problems

that persons not experienced in representing lawyers would not know. This also

encourages early detection of potential problems. Almost all ethics and

malpractice problems can be solved with relatively little difficulty if they are

identified and expert help is sought early in the game. Lawyers who do not seek

help typically do things that only exacerbate the problem. Some who would not

otherwise consider doing so commit far more serious legal wrongs in a vain

effort to make the original problem go away or to conceal it.

B. A RISK MANAGEMENT MENTALITY

The first step in risk management is a determination to manage the ethical

problems that will necessarily arise in any law practice. This entails selecting

clients carefully and being prepared to decline problematic assignments.

Lawyers and law firms need systems to identify conflicts, retainer agreements or

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engagement letters that address foreseeable problems, forms and checklists for

conflict-sensitive situations, educational programs for attorneys and policing of

compliance with legal mandates.

When problems arise, counsel experienced in the law governing lawyers

is a necessity. Problems must be analyzed and alternative courses that will

minimize risk, and an assessment of the extent of risk that is acceptable made,

with actions taken accordingly. Regular review of the chosen course of action in

light of subsequent events must also be undertaken.

C. OBSTACLES TO RISK MANAGEMENT

We have met the enemy and he is us. The three greatest obstacles to risk

management lie within the lawyer: arrogance, ignorance and fear.

Lawyers display arrogance in recklessly disregarding ethical problems,

recognizing only the most obvious problems. Denial is not just a river in Africa.

Or we rely on a low risk of detection and wishful thinking to disregard obvious

risks where compliance with legal standards seems inconvenient. Risk

management challenges us to look for the problems, analyze them, and if they

are problems, address them immediately and not just hope they will go away.

Lawyers exhibit ignorance when they do not attend programs like this

one, or when they do not apply the lessons of such programs to their firm and

their practice when the ABA meeting is over. The Rules of Professional Conduct

presently in effect were adopted by the ABA in 2002, and while many principles

are carried over from prior ethical rules, every lawyer has a duty to be up-to-date

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on the rules generally and specifically in the jurisdiction(s) and legal fields in

which one practices. If you are not aware of the problems that could attend

representation of multiple clients, you forfeit the opportunity to prevent or

minimize risk through appropriate fee agreements, notices and disclosures.

Ignorance presents problems particularly for lawyers who operate outside

their primary area of practice. “Dabbling” outside one’s principal field of

concentration accounts for a majority of all losses from malpractice claims. An

object lesson may be found in the current issue of the ABA Journal, James W.

McElhaney, “Be Careful In The Woodshed,” August 2005, at 24-5. When you are

out of your element, until you have sufficient experience to understand the

lessons only experience can teach, associate with competent counsel sufficiently

schooled in the practice area or you may live to regret it. Attempting to become

competent in a new area on one’s own is difficult and uncertain, and few lawyers

have the time available that is required to accomplish by reading and attending

seminars what typically is learned through years of working with real cases.

Fear is paralytic. Fear of the client’s reaction to candid disclosure prompts

lawyers to disregard the duty to obtain informed consent. Fear exposing an error

to a client, to partners or to the court leads lawyers to ignore or even conceal

problems rather than get the help that could readily solve them. At best,

opportunities to mitigate or eliminate the problem are squandered; at worst, the

more serious ethical problem of misleading a client or court occurs. A casual

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review of recent disciplinary cases demonstrates that lawyers often incur more

serious discipline from not owning up to a problem than from the problem itself.

D. CLIENT SELECTION

A poor choice of client holds a risk of malpractice claims and ethical

complaints—as well as headaches in court, potential disqualification and the

burden of dealing with a difficult relationship. Red flags indicating likely

problem clients include:

• the client who was previously represented by another attorney who expresses dissatisfaction with that attorney.

• the client whose expectations are unreasonable, even after the lawyer’s explanation of the realities.

• the client whose first stated concern is the cost of the representation, or who seeks to bargain over the fee quoted (except for large corporate clients and insurance carriers, who regularly bargain about rates).

• the client who asserts knowledge of the applicable law and challenges the attorney’s assessment of the issues or outcome probabilities.

• the client who lies to you, especially if it is repeated or concerns an important matter.

• the client who suggests unethical or illegal conduct, or implies an understanding that such conduct can be gotten away with a lawyer’s knowledge of the “tricks” of the trade.

• the client who cannot focus on or who will not answer honestly and completely the lawyer’s hard questions about the case.

• the client who claims to know the value of the case and who suggests an unreasonable sum.

• the client whose story appears to be contradicted by the available documentation on multiple points, or who otherwise appears to be unreliable.

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It is possible for the client to be a perfectly reasonable client despite one of

the above signs. But it is unlikely. However attractive the assignment may

appear, you will likely to live to regret a decision to accept it. Aside from the

hazards described above, at 10, this client or assignment will inevitably consume

a substantial amount of time, energy and emotion that could be put to better use

elsewhere.

E. DISTINGUISH CLIENT FROM NON-CLIENT

The first step for avoiding problems with multiple clients is to ensure that

you have only the clients you think you have. This requires a minimum of brain

power to figure out; the problem is with having the discipline to ask the question

with each new assignment. It is as simple as asking “Who is my client?” and

“Who is not my client?” at the start of each situation and documenting the

answer. Anyone who might have a different perception must be notified in

writing that they are not a client. This can be accomplished in a one paragraph

letter or a separate paragraph in a longer letter.

Many lawyers are reluctant to restate this obvious fact because of the

questions it could provoke. Bringing up the problem could lead to someone

retaining an attorney who will complicate matters, or suspecting an adverse

relationship with the actual client lies ahead. Usually, this problem does not

materialize or is easily resolved. If there is a real problem, it is easier to deal with

if it is out on the table than to have it fester.

1. INSURANCE CARRIERS

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The attorney hired to represent an employer by an EPLI carrier does not

represent the insurance company, but the insured. The attorney assigned by the

insurance carrier must take no action that benefits the carrier at the expense of

the insured. The defense attorney is not permitted to advise either the insurance

company or the insured on the question of what is or is not covered, or to

participate in the resolution of a coverage dispute.

The attorney may be required to report regularly to the insurance

company, whose money is on the line, in compliance with the insured’s duty to

cooperate in the defense of the case. If there is no reservation of rights letter, the

carrier is entitled to control the defense, but if there is, most jurisdictions permit

the insured to hire additional counsel of its own choosing—at the carrier’s

expense—to control the defense. This is to ensure that no steps are taken in the

litigation to defeat coverage or otherwise benefit the insurance carrier at the

insured’s expense.

The client needs to be informed that the insurance carrier is paying the

expense of the defense, but that the attorney’s first loyalty is owed to the client.

If the insurance carrier controls the defense and is entitled to information about

the case for decision-making purposes, it is wise to notify the client of that as

well.

2. CORPORATE OFFICERS, DIRECTORS AND EMPLOYEES

Notice of the lawyer’s position as counsel for the company and not the

individual should be given in writing whether one is performing an

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investigation, drafting a contract or performing any other assignment in which

confidential personal information (as opposed to corporate information) is likely

to be disclosed to the lawyer. This is a simple disclosure and can be a silver

bullet when someone the lawyer does not represent claims otherwise. The letter

should make clear that the attorney’s obligation is to serve the interests of the

corporation.

The letter should also address the fact that communications with the

individual may be privileged from persons outside the corporation when the

individual deals with the attorney in his or her role as a representative of the

company. It should remind the individual of the obligation to maintain

confidentiality of such discussions on the corporation’s behalf. It should advise

the individual that while the information provided is confidential as to outsiders,

the attorney will disclose such information to appropriate persons within the

company.

Where there is joint representation of corporate and individual

defendants, more is required. Here the objective is to satisfy the requirements of

informed consent, which is a challenging task. Informed consent with respect to

a conflict of interest actually requires both an oral explanation (in most instances)

with an opportunity for the client to get answers to questions and for consent to

be “confirmed in writing,” which requires at a minimum that the attorney put

something in writing to the client.

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First, the risks of multiple representation must be outlined, as well as the

benefits. The discussion above provides some ideas for subjects to consider

addressing, depending on the particular case. The more thorough the disclosure,

the more likely it is that the disclosure and consent will be found adequate. In

particular, the possibility of a conflict because of future events should be

emphasized, and the client asked to contact the lawyer whenever the client

perceives a possible conflict.

Second, it is wise to address what will happen if a conflict does develop.

Counsel should advise the individual defendant that representation of the

corporate defendant will continue should a conflict develop, but representation

of the individual will cease. Counsel should also advise what the usual rules are

for disclosure between defendant-clients, and that they are being modified to

permit counsel to discuss matters related to the case that are not discussed with

the individual defendant. In addition to telling the individual defendant that the

company will have access to whatever information is confided to the attorney,

the individual defendant should be advised that only information directly

pertinent to the case against the individual defendant will be disclosed. It should

also be stated that if the attorney is consulted by management concerning

possible adverse action affecting the individual defendant’s employment, this

would give rise to a conflict requiring the attorney to cease representing the

individual defendant. Management must be notified that the joint representation

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will preclude consultation with the attorney about possible adverse employment

actions against the individual defendant.

3. PROSPECTIVE CLIENTS

Where the attorney about to represent multiple plaintiffs in an

employment case begins the representation, the risks (and benefits) of multiple

representation must be disclosed, consent to the multiple representation secured,

and confirmation provided in writing. The matter should be discussed in a

meeting with all prospective clients present, and then followed up with a letter

or retainer agreement requiring signature from each client before the attorney

undertakes to pursue the clients’ claims. The risks and benefits described above

should be laid out in simple, understandable terms with examples. Consider

using a “FAQ” Question and Answer format to provide specific illustrations.

The clients should also be asked to address at the outset the fundamental

problems that will come up in settlement. The subject of expectations and

positions on settlement must be discussed to determine whether the plaintiffs

already have conflicts that preclude joint representation. If so, it may be possible

to divide them into groups and find counsel to represent each group.

One way to address the problems with settlement is to encourage the

clients to reach agreement among themselves, without involvement by the

lawyer and before the attorney undertakes to prosecute an action, about how

settlement decisions will be made and how settlement proceeds will be divided.

The clients may determine the allocation of settlement proceeds among them, on

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a percentage, formula or some other basis. They may also determine whether to

agree that a settlement will be accepted with less than unanimous consent, or if

the general rule requiring all clients to consent will be applicable.

There is an argument that such an arrangement could violate RPC Rule

1.8(g) that each client give and sign off in writing on an informed consent to the

settlement. That rule requires disclosure of the existence and nature of all claims

and each person’s participation in the settlement. It could be read to mean that

each client must consent to settlement of her own claim at the time settlement

occurs. Because the rule is addressed to an attorneys’ conflict of interest, rather

than to create a substantive rule limiting the clients’ right to agree in advance to a

settlement, this seems unlikely. It is critical is that the attorney not participate in

the discussions leading to the arrangement among the clients beyond suggesting

the need for such an agreement and the subjects to be covered. The attorney

should ensure that the agreement is in writing and signed by all clients, but

should not draft the agreement. Ideally, each would be represented by a

separate attorney in developing such an agreement, but clients are rarely willing

to go to this expense.

Scamardella v. Illiano, 126 Md.App. 76, 727 A.2d 421 (1999) suggests an

alternate solution to the problem. In that case, an aggregate settlement was

reached on condition that the allocation among the clients be left for them to

determine together. Failing agreement, the matter was to be submitted to the

court to determine the proper allocation. The court noted it was within a trial

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court’s discretion to allocate settlement proceeds among plaintiffs. It observed

that this approach effectively postponed the divisive, conflict-ridden question of

allocation until after settlement was achieved. In that case, however, the

plaintiffs had recovered the insurance policy limits and agreed that the

settlement total was the most that could be recovered in the case. Where this

circumstance is not present, settlement without allocation of the proceeds

presents a more difficult question. But it may be possible to fashion an

agreement among the clients before the case begins (or later, even when

settlement is being negotiated) that relies on the court’s discretionary power to

allocate proceeds if all clients agree to the aggregate settlement. The fact that

such some agreement about how settlement will be handled has been reached

and reduced to writing in advance can do much by itself to minimize conflict

when settlement is on the table.

The safest course is to secure independent counsel for each client (or client

group) to participate in decisions on both the settlement and the allocation of

settlement proceeds. It should not be difficult for an employment lawyer to find

other attorneys who do employment work to represent the clients for this limited

purpose, either at the outset of the case or when settlement is imminent. This is

not the custom in the employee’s bar, but perhaps it should be.

F. INFORMED CONSENT AND THE LIMITED VALUE OF WAIVER

Informed consent normally may be accomplished orally. There are two

problems with this approach in multiple client situations. First, the client will

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often not remember the discussion the same way as the attorney does after the

passage of time and development of an adverse interest. Second, for conflicts of

interest, the rules mandate that informed consent be “confirmed in writing.”

Settlement of cases in which multiple clients are represented require yet a higher

standard: the written confirmation must be signed by the client.

The problem with informed consent generally is that when a case arises, it

is unlikely that the description of risks to the client will be directly on point with

the situation that has occurred. If the scenario was identified, it is unlikely to

have been addressed in all the detail that actually occurs sufficient to have

warned the client that the exact situation that has occurred could happen and all

of the potential adverse consequences. Failing such an exhaustive and prescient

informed consent, the sufficiency of the informed consent will be open to

challenge. Aware of this inherent problem, it still pays to try to provide

sufficient disclosure of risks. The lawyer simply cannot assume that the

disclosure of risks and consent will always be found to be sufficient.

Because of this problem, there is a temptation to make the disclosure

emphatic and one-sided. This is a mistake. An informed consent document is a

trial exhibit for a malpractice trial or disciplinary hearing. It is not wise to draft a

description of risks that is so strong that no one in their right mind would

consent. Instead, the risks should be highlighted (boldface type or red ink), but

should be included in a discussion of the benefits of joint representation. This

clarifies the trade-offs and highlight’s the client’s choice to accept a risk in order

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to secure a corresponding benefit, reducing the chances that a jury will conclude

that the lawyer “tricked” the client.

G. ETHICAL SCREENS (CHINESE WALLS)

What used to be called a “Chinese Wall” is now referred to as an “ethical

screen.” The ethical screen addresses a law firm problem, not a lawyer problem

or conflict of interest problem. Historically, disqualification of one lawyer in a

firm from representation mandated disqualification of the entire firm.

Ethical screens require isolation of a lawyer from any participation in a

specific matter where the attorney would be conflicted through timely

procedures sufficient to ensure that information is not improperly shared,

including making files and other materials unavailable to the screened lawyer.

One problem with ethical screens is that by the time the need for a screen is

evident, information has often been imparted during the conflict check process.

What is important to know is that screens are not a sufficient solution to to

a conflict of interest problem except where the client agrees to use the tool and

waive conflicts as a result. Its application under the rules is limited to situations

involving lawyers moving from one firm to another, and in many jurisdictions, it

is not even sufficient in that situation.

H. WITHDRAWING AS COUNSEL

An attorney-client relationship ends when the objective of the assignment

is completed or one of the parties terminates it. The end of the relationship is

important because the lawyer’s liability to the client for malpractice ceases at that

point. Liability for malpractice does not attach to events or consequences that

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could still have been avoided at the time of termination. Where problems that

portend professional liability concerns arise, immediate termination of the

relationship may be the best course of action for the attorney. Indeed, once a

potential claim by the client is on the horizon, withdrawal is required because

every step the lawyer takes is subject to being challenged as a device to avoid

professional liability to the client (the lawyer’s interest) rather than zealous

representation (the client’s interest). Once a client asserts a claim, files a

professional complaint or starts talking about malpractice, it is both foolish and

improper to continue as counsel. The same is true if the attorney has committed

an error sufficient to create legitimate malpractice exposure, such as failing to file

suit within the limitations period. If the lawyer perceives a serious potential for

liability, even if the client has said nothing, a conflict is presented and

withdrawal appropriate.

If the case is in court, permission of the tribunal to withdraw is required.

Case law in recent years has made it clear that extended and repeated non-

payment of fees can justify withdrawal. Lawyers are expected to put up with a

certain amount of difficulty with clients, but a breakdown of the attorney-client

relationship it a sufficient basis for withdrawal. Where the client refuses to

consent to a settlement recommended by the lawyer, this can also justify

withdrawal. Washington v. Sherwin Real Estate, Inc., 694 F.2d 1081 (7th Cir. 1981).

The lawyer who withdraws still has certain obligations to the client: (1)

due notice of withdrawal; (2) reasonable time for the client to retain substitute

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counsel; (3) delivering to the client all papers and property to which the client is

entitled; and (4) refunding any fee payment not already earned for work

performed.

I. RETAINER AGREEMENTS & ENGAGEMENT, NON-ENGAGEMENT, AND DISENGAGEMENT LETTERS

The retainer agreement (for employees’ counsel) and the engagement

letter (for management attorneys) is a vital tool for managing the attorney-client

relationship. The written description of the basis for the relationship clarifies

matters, prevents misunderstandings, and documents the terms of the

relationship, all at the time the attorney first undertakes representation. Some

subjects that should be covered are:

• Identification of who is and is not a client.

• Identification of the assignment or subject matter for which representation is undertaken, along with any limitations on the scope of representation (e.g., defense of counterclaims, appeals).

• Fee rates or contingent fee, terms of payment, adjustments to rates and who will pay the fees.

• Explanation of the impact of court-awarded fees on fee obligations, where applicable.

• Conflict waiver confirmation, including explanation of risks and benefits and client’s consent to representation despite conflict.

• Clarification of which information will be shared and which will not in multiple client representation.

• Description of any agreement among multiple employee clients concerning settlement decisions and allocation of proceeds, including disclosure that in the absence of a contrary agreement, each client must consent to settlement of his or her own claims and disclosure that in all instances, each must know what every other

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client(s) will receive. This should also document the lawyer’s non-participation in the making of the agreement reached by the clients.

• Statement that material litigation decisions are made by the client and how decisions will be made in multiple client representation.

• Statement that attorney cannot guarantee results or outcomes.

• Clarification of the impact withdrawal of representation of one client will have on continued representation of other client(s), and which client the attorney will continue to represent if a conflict occurs.

• Mandated disclosures (in some states, for instance, legal malpractice insurance coverage information).

• Identification of the principal client contact attorney and of another attorney to contact with complaints if problems arise.

• Statement of client’s right to terminate at any time, and how fees will be handled in such circumstances.

• Circumstances, including those provided for by the rules, under which attorney may terminate the relationship. Consider permitting withdrawal if fees remain unpaid for some period of time or if the client provides or has provided the lawyer with inaccurate information.

• Discussion of attorney-client privilege, of how it should be maintained and how it can be lost. For employee’s counsel, a caution about accessing e-mail from work, including from personal e-mail accounts.

• Discussion of the need for client cooperation and input into decisions.

• Request for client’s signature on a copy of the agreement, and either an invitation to discuss any and all provisions or a description (with some specifics) of the discussion that has already occurred.

The retainer agreement or engagement letter is a critical element of risk

management for lawyers. Having the details of the relationship documented at a

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time when the client is seeking representation is not only a useful risk

management tool. Other professionals have long used such agreements to spell

out clearly the scope of work and terms of payment. It is simply good business

and good client relations.

A “non-engagement” letter, which can be a one-paragraph form, should

be sent to anyone who might believe or later contend that s/he is a client of the

lawyer when that is not the case. This includes not only corporate employees, in

appropriate cases, but also individuals who have been interviewed by an

employee attorney where representation has been declined.

Finally, a disengagement letter documents that the subject matter of the

representation has been concluded as of a stated date, and that nothing more is

required of the attorney. This puts to rest any claims of continuing obligations of

the attorney after the completion of the matter for which representation was

provided.