Law Firm Risk Management Blog discusses some new developments.
One of the developments is a Michigan ethics opinion on the propriety of letting a client set limits on what the lawyer can do for other clients. The same issue is raised by outside counsel guidelines (OCG). As framed by the Michigan committee the question is:
A lawyer has requested an opinion on the following issue:
May house counsel for a bank request1 and may an outside counsel accept a limited waiver of conflict of interest which prohibits the outside counsel from offering certain types of advice to or engaging in certain activities on behalf of another client?
The issue is presented in the following factual context:
A lawyer (the "outside counsel") represents a bank (the "Bank") on certain legal matters, but she is not the Bank’s primary outside counsel. She often represents the Bank in its fiduciary capacity as trustee for the lawyer’s clients.2 On other occasions she assists the Bank in the documentation of loan transactions, usually when primary outside counsel faces a conflict. The Bank is a current client and, because of its leadership in the market, is also a creditor in most of the sizeable bankruptcies in which the outside counsel is involved.
The outside counsel also represents, or may wish to represent, persons who have, or who may wish to have, lending relationships with the Bank; debtors who may seek a voluntary arrangement of creditors or bankruptcy relief; and creditors who compete for priority of security interests. Hence, the outside counsel from time to time seeks a waiver of conflict of interest from both the Bank and the person to whom the inquiring lawyer refers as the "Conflicting Client."3
The Bank’s house counsel has required that, as a condition to the Bank’s waiving of any conflict (even in unrelated matters or in matters involving different departments or different related entities), the outside counsel must agree that she will not:
- take an "adversarial" position to the Bank;
- assist the Conflicting Client in challenging a security interest;4
- assist the Conflicting Client in asserting a priority over the Bank’s security interest;
- assist the Conflicting Client in asserting a claim of lender liability against the Bank; or,
- represent the Conflicting Client in litigation with the Bank (collectively, "the Bank’s Conditions").
The question presented is whether an outside counsel, who periodically and currently represents the Bank5 and wishes to represent others whose interests might conflict with the Bank’s, may ethically do so with the Bank’s Conditions in place.