I would like to thank John for inviting me to guest blog and for his mention of my recent article: The Sophisticates: Conflicted Representation and the Lehman Bankruptcy. I hope to blog on a variety of topics during my guest stint, but I will begin by explaining the genesis of my article, which is part of a larger project concerning the role of lawyers in the financial crisis, and attempt to answer the concern raised by John's post.
To the extent that conflicted representation under MR 1.7 is perceived to be a problem, I expect that most lawyers assume it is because unscrupulous attorneys sometimes dupe unsophisticated clients to accept ill-advised representations. As a number of scholars have suggested, regardless of MR 1.7, sophisticated clients may be able to determine whether a lawyer's duty to some other client or interest is likely to impact the representation and can dismiss the attorney if this is the case. Whether sophisticated clients should be able to opt out entirely from the protections of MR 1.7 and other rules was recently the subject of an interesting debate in the Yale Law Journal Online.
Whatever one's views on the capabilities of sophisticated clients generally, it is very hard for those of us who are interested in legal ethics to discern how conflicts actually affect individual representations. We are not privy to the day-to-day work that goes into a particular matter or whether that work is being impeded because of a lawyer's duty to some other client or the lawyer's own personal interest. Consequently, it is difficult to test the hypothesis that sophisticated clients are generally able to protect themselves from the effect of their lawyers' conflicts.
At the heart of my article is an account of the representation that Lehman Brothers received from a prominent New York law firm during the financial crisis. Because of the highly public nature of this representation, we know far more about this representation than the typical engagement (although there is certainly a great deal we do not know). Relying on publicly available sources, I claim that the representation was undermined by three distinct conflicts of interest. I then seek to answer why a sophisticated client like Lehman Bros. was unable to protect itself from these conflicts. I do not claim that there was any ethical wrongdoing, but I do believe we should be skeptical about the effectiveness of MR 1.7 and the alleged capacity of sophisticated clients to effectively gauge their attorneys' conflicts. At the very least, my hope is that the article sets out an interesting cautionary tale.
One possible objection to the case study is to point out, as John has, that many corporate clients want more flexibility to contract around default conflict of interest rules. Surely their views should be afforded great weight, regardless of what may have happened in a given representation.
I do not know to what extent in-house corporate counsel are dissatisfied with MR 1.7 or are seeking to lobby the ABA for more flexible conflict of interest rules. But I do worry that conflicts of interest are increasingly viewed by many lawyers only as an impediment to a client receiving the counsel of his or her choice (and the lawyer receiving a fee) as opposed to a potential threat to a lawyer's loyalty to his or her client. I explore some of the reasons that this may be in my article.
In addition, not all sophisticated clients are similarly situated. If MR 1.7(a)(1) were abolished tomorrow, it would not make a difference for a company such as Google or Microsoft that spends millions of dollars a year on legal fees and can, through sheer economic might, indirectly or directly dictate which representations its outside firm may take. Conversely, a relatively small company may need the protection of MR 1.7(a)(1) to ensure that its firm does not take a directly adverse representation against it when Microsoft or Google comes calling. In other words, I think we need to proceed carefully when considering proposals by groups claiming to speak on behalf of all in-house corporate counsel.