Last month, the Illinois Appellate Court released an interesting case (from earlier this year) that addresses the consequences of agreeing to represent a client knowing that doing so would constitute a conflict of interest. As the title of this post suggests, that consequence was that the firm was not allowed to recover a $250,000 fee. Although there are some inconsistencies within the court’s reasoning, I think it reaches a correct result. The case is called In re Marriage of Newton and it is available here.
The story behind the case started when a husband consulted a lawyer about hiring the lawyer to represent him in his divorce. Having decided not to represent the husband, the attorney decided to represent his wife instead, who consulted the lawyer some time later. After the husband filed a motion to disqualify the wife’s attorney (and his firm), the court held some hearings, the results of which were appealed which led to more hearings and eventually, after about two years of litigation on the question, the lower court not only disqualified the firm but also ordered that it did not have a right to recover any fees. When the firm protested in court, the judge held the lawyers in contempt.
On appeal from the contempt order, the court believed that to discuss the validity of the contempt order it was also necessary to discuss the validity of the disqualification order and the order barring the recovery of fees.
Before we go any further, it should be noted that the fee issue was based on a specific statute that allows a wife to make her husband pay for her lawyer. This is an important fact because the firm in question was requesting that the party it supposedly betrayed pay for its fees. The court did not like that idea.
The court began its analysis by pointing out correctly that, an attorney-client relationship can be created based on the client’s belief that it has been created and does not require a formal handshake, or signing of a contract. For this reason, given the evidence adopted as true by the lower court, the court concluded that a professional relationship was established with the husband during the initial interview.
This is okay, but it omits the fact that the attorney clearly declined to accept the representation at the end of the interview. The case is better viewed as an example of the case of a prospective client under Rule 1.18, but since that rule did not exist at the time of the facts of the case, the court analyzes the issue under Rule 1.9 which is about the duty owed to former clients.
If the husband is a former client, then Rule 1.9 prohibits the lawyer (and 1.10 extends that to all other lawyers in his law firm) from taking on the representation of the wife in the divorce. Knowing this, the firm nevertheless agreed to represent her. (Note that during the evidentiary hearings the wife testified that the lawyer admitted to her he knew taking her case would create a conflict; but the lawyer denied saying this. The lawyer also denied having taken any notes during his meeting with the husband, but the husband asserted he did. The court did not give much credibility to the lawyer.
Thus, assuming as true that the attorney agreed to represent a client with full knowledge that doing so would create a conflict of interest, the court found that the agreement for services was null and void from its inception and thus did not give the lawyers the right to enforce it. Citing the principle that an attorney may not receive fees from the party he has wronged, the court held the lawyers were not entitled to the fees they claimed to have earned during the two years they represented the wife.
The firm argued that it should have been compensated for the work done for the client up to the time it was disqualified. The court disagreed, however, finding that the firm had not been litigating in good faith whether its representation of the wife constituted a conflict, because it had already admitted to her that it was. One thing is to say that the firm did not think there was a conflict and was willing to fight for two years to argue the point, and quite another to say that the firm knew there was a conflict but wanted to fight for two years to be allowed to keep the case anyway. The court saw the case more like the latter than the former.
For me the key to this case, which the court does not emphasize enough, is the fact that the lawyer/firm actually knew going in he/it was engaging in a conflict of interest. I have no problem finding that under those circumstances the firm should pay the price.
I do worry, however, that read more generally, the case can penalize a firm that is caught in conflict (not of its own fault). Take a case where two firms merge in the middle of the litigation creating a conflict in a case, or a case, like the famous Cunningham case used in many casebooks, where an offer to settle the case creates a conflict for the opposing firm. In such a case, I think it would be fair to allow the conflicted firm to withdraw and allow it to recover fees for the work already performed for the client before it realized it had a conflict including for the period of time during which the firm acted with a conflict but had not realized it yet.
In the end these two possible approaches open the question whether the notion of conflicts of interest should be seen as a sort of “strict liability” case where the fault of the firm does not matter. According to this approach, if there the firm acted with a conflict, the firm acted wrongly and should not recover its fees. According to the other view, if the firm acted with a conflict, it should be allowed to recover the fees for the services rendered until it is officially disqualified as long as the firm acted without knowledge or fault.
Of course, the question gets more complicated if it can be argued that the firm acted with the conflict because of its own negligence. I would say that such a case should be resolved just as if the firm acted intentionally (as in the case I am discussing here), because firms have a duty to use reasonable care to avoid conflicts.
One last point: I mentioned at the top that there are some inconsistencies in the analysis of the court and here it is. Having decided that the attorney created a professional relationship with the husband during an initial interview - even though the interview resulted in the lawyer rejecting the case - the court goes on to cite some older cases that hold that for there to be an attorney-client relationship there has to be a contract and a clear meeting of the minds. The expressions cited from these cases, clearly contradict the principle upon which the court based its decision.
The result of the case, however, it correct, it seems to me because the key is not whether a relationship was formed during that interview, but the fact that the attorney stated he knew taking on the new case would be a conflict and acted in a way that showed he did not care.
Fortunately, looking forward any future cases with similar facts would be decided using the new rule on prospective clients (Rule 1.18) which should make the analysis a bit more straightforward.
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