Potential conflicts: how to deal with them when they occur

One advantage of working as in-house counsel for a company is that, in theory at least, you have only a single client: the company itself. But, because of that fact, many in-house counsel become desensitized over time to potential conflicts of interest. 

This article identifies several scenarios in which in-house counsel may find himself in a conflict situation and offers practical tips on how to see potential conflicts coming and how to deal with them.

Imagine a scenario in which you previously worked for Microhard, a large computer hardware and software company. Five years ago you were lured away to accept a lucrative assistant general counsel position for rival Pear, Inc.

Now, years later, a dispute arises between Microhard and Pear over a cross-licensing agreement that you helped negotiate and draft while you were at Microhard. That situation may implicate the former client conflict rules embodied in Model Rule of Professional Conduct 1.9.

The general rule is that a lawyer may not represent a current client adversely to a former client if the matter is “substantially related” to work the lawyer performed for the former client.

The risk in our hypothetical situation is that the lawyer may be tempted to use confidential information obtained in the course of representing Microhard against it.

Even if you do not have specific confidential information about a given matter concerning a past employer, in some circumstances your general knowledge of a former client may be deemed to create a “playbook conflict.”

A playbook conflict arises when your past experience provides you with significant insight into the practices and internal workings of an organization, which, although not directly at issue in a particular matter, nonetheless constitutes confidential information that could be used against the former client.

For example, in depth knowledge of your former employer’s litigation practices, including its discovery and settlement strategies, could, in some circumstances, be an advantage over your former client flowing from your past representation.

In another scenario, suppose the company seeks your advice as to whether it may lawfully rescind stock options granted to senior management over a period of years. You yourself currently hold a number of the options. In this situation, you may have what is commonly referred to as a “material limitations” conflict.

Rule 1.7(b) prohibits a lawyer from representing a client in a matter in which the representation may be materially limited by another party’s interests or, as in this case, the lawyer’s own interests, unless the representation clearly would not be so limited and the client consents after full disclosure.

A material limitations conflict also can occur with respect to personal benefits arising as a result of external transactions. Suppose the company seeks your opinion about the potential acquisition of a competitor that would result in all company shareholders, including you, receiving a substantial number of shares in the competitor. Your potential for personal gain may represent a conflict under Rule 1.7(b).

Under Rule 1.13(a) of the model rules, in-house counsel represents the company, but companies can only act through individual officers and directors. What happens when those officers or directors are at odds with one another, or are engaged in a fight for control of the company?

In that situation, in-house counsel can continue to perform ministerial legal functions, such as preparation of meeting notices, recording corporate votes, etc., but must be careful to avoid taking sides in the dispute.

When thinking about the examples above and other potential conflicts of interest, general counsel must remember that conflicts of interest may be imputed to an entire corporate law department.

Under the rules, a corporate law department is under the same restraints as an attorney or law firm with respect to conflicts of interest. Accordingly, general counsel need to be aware of potential conflicts arising from all of the lawyers employed by the company and not just themselves.

The first step in effectively dealing with conflicts of interest is to identify them as early as possible. If you have not already done so, you should discuss with each lawyer in your department their past work experience so that you have at least a general understanding of the types of clients and matters they have worked for and on.

You also can make a habit of thinking about potential conflicts whenever you start a new matter. If your law department is particularly large and/or spread out over multiple offices, consider implementing a conflicts check policy and procedure similar to that commonly found in most law firms.

Checking for potential conflicts at the beginning of each new matter will add a little work to your already busy schedule, but a routine conflict check, whatever its form, will help prevent you from becoming desensitized to potential conflicts and may prevent what could be a big headache down the road.

If a conflict arises, do not try to wrestle with the conflict issue on your own. Seek advice from another in-house colleague or, if none are available or the circumstances warrant, outside counsel. Outside counsel experienced in issues involving conflicts can often provide relatively fast advice as to whether a potential conflict exists and/or whether the conflict is waivable.

If a conflict is found to exist but appears to be one that is waivable, insure that the corporate official who is asked to waive it has independent counsel to advise him with respect to the waiver. Whenever possible, the waiver should be in writing.

If it is determined that you have a non-waivable conflict that is not imputed to the entire department, take deliberate steps — and document those steps in writing — to wall yourself off completely and effectively from all communications and documents relating to the matter.

For example, you should not share an administrative assistant with any in-house attorney working on the matter. Documents on the company’s computer server should be made secure such that you cannot access them.

Though conflicts may not be so common, or as obvious, in an in-house setting as in a law firm, the rules apply with equal force. Be alert to the existence of possible conflicts and have internal procedures in place to address them.

Marshall D. Senterfitt and Richard M. Zielinski are members of Goulston & Storrs’ professional liability group and can be contacted at [email protected] and [email protected]. Potential conflicts: how to deal with them when they occur