Advance Conflict Waiver = Unenforceable
Even the most experienced of professionals cannot predict the future. So, as a risk prevention measure, many of us turn to the next best thing by agreeing to clear contractual terms with our clients so as to eliminate confusion down the road. We spell out the terms and scope of our engagement and we identify the client’s responsibilities in an effort to avoid problems before they arise. We attempt to reach agreements today that may impact us tomorrow. According to the ABA, conflicts of interest are one of the most common legal malpractice claims so some attorneys may be tempted to seek a waiver of future conflicts in their engagement letters. This practice does not work. Consider for example the following case out of California.
The case stemmed from a Qui Tam action, in which Law Firm was hired to represent a manufacturing company, “J-M”. Law Firm conducted a conflicts check and determined that one of their attorneys at the firm previously worked for South Tahoe, another party in the Qui Tam action. According to the Firm’s general counsel, however, South Tahoe agreed to an advance conflict waiver, which would allow the Firm to represent J-M.
The Firm then drafted an engagement agreement for J-M which also contained an advance conflict waiver provision. The waiver provision contained the following language:
“We may currently or in the future represent one or more other clients (including current, former, and future clients) in matters involving [J-M]. We undertake this engagement on the condition that we may represent another client in a matter in which we do not represent [J-M], even if the interests of the other client are adverse to [J-M]” and “[b]y consenting to this arrangement, [J-M] is waiving our obligation of loyalty to it so long as we maintain confidentiality and adhere to the foregoing limitations.”
Later in the proceedings, an adverse attorney noticed the potential conflict of interest and moved to disqualify the Firm from representing J-M. The disqualification was granted.
After the disqualification, J-M took the position that it did not owe the Firm any outstanding fees and demanded return of all fees already paid related to the Qui Tam Action. On appeal, J-M challenged the legality of the entire engagement agreement based upon the advance conflict waiver. The court concluded that the engagement agreement contained only a boilerplate waiver and no information about specific potential or actual conflicts.
Furthermore, even though the Firm was not actively representing South Tahoe at the time the engagement agreement with J-M was executed, the Firm began work for South Tahoe shortly thereafter and never informed either client of the actual conflict at that time. Therefore, the Firm failed to disclose any conflict and failed to obtain informed written consent from either client.
The court also found that because the agreement violated the State Rules of Professional Conduct regarding an attorney’s duty of loyalty, it violated an expression of public policy and was therefore unenforceable.
This case is a good example of the strict application of the duty of loyalty an attorney owes to his client. An attorney has an obligation to make sure both affected clients know of the specific conflict and must obtain consent in writing before the representation can continue. Including vague, boilerplate waiver provisions in an engagement agreement does not satisfy an attorney’s duty to inform clients of actual conflicts and can render the entire agreement void if an actual conflict does arise.