Ethical Considerations for the Construction Lawyer

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Robert P. Wise                                                                                                                                                                                         Facsimile: 969-5593
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ETHICAL CONSIDERATIONS FOR THE CONSTRUCTION LAWYER
_____________________________________________________

Robert P. Wise
Wise Carter Child & Caraway, P.A.
(c) 2000

A. Rules of Professional Conduct that Affect Construction Law Attorneys

Since construction litigation is often a multi-party event involving owners, contractors, subs, and materialmen, on down the line, along with their sureties, a lawyer may find that he is approached by several parties to the matter for representation, or approached by a potentially new client for representation against a former client. Therefore an attorney regularly handling construction cases must be particularly sensitive to conflicts of interest rules, rules regarding representation of a new client against a former client, client confidences and fee arrangements.

The attorney Rules of Professional Conduct (MRPC) are set forth in West's Mississippi Rules of Court, p. 327 et seq. (2000). The Ethics Opinions are available to read and print for free, and most importantly are indexed by topic, at the Mississippi Bar Association's web site at www.msbar.org/opindix.html . The Ethical Opinions are also available at www.mslawyer.com . The Mississippi Bar Association also publishes the ethics opinions as they come out in the Mississippi Lawyer.

We will start by looking at the rules and opinions concerning conflicts of interest.

B. Conflicts of Interest

(a) Simultaneous Representations But Different Actions

The Conflict of Interest rule, Rule 1.7 of the Rules of Professional Conduct, is not a flat out prohibition against the existence of conflicts. As always, legal life is a bit more complicated than that. Conflicts for example can be knowingly waived by the clients involved, but only if the lawyer himself reasonably believes there will be no objective adverse affect on the attorney's representation of each client by attempting to represent both. Rule 1.7 MRPC provides:

Rule 1.7 Conflict of Interest: General Rule

(a) A lawyer shall not represent a client if the representation of that client will be directly adverse to another client, unless the lawyer reasonably believes:

(1) the representation will not adversely affect the relationship with the other client; and

(2) each client has given knowing and informed consent after consultation. The consultation shall include explanation of the implications of the adverse representation and the advantages and risks involved.

(b) A lawyer shall not represent a client if the representation of that client may be materially limited by the lawyer's responsibilities to another client or to a third person, or by the lawyer's own interests, unless the lawyer reasonably believes:

(1) the representation will not be adversely affected; and

(2) the client has given knowing and informed consent after consultation. The consultation shall include explanation of the implications of the representation and the advantages and risks involved.

A Mississippi law firm provided an example of the conflicts questions that can arise when it wrote a letter asking that the Ethics Committee of the Mississippi Bar issue an ethics opinion, stating:

Our firm has been associated by another law firm to represent a corporation in a case involving breach of contract. We have been engaged in this representation for approximately one (1) year. Recently, an individual requested that our firm represent him in a personal injury action against the said corporation for which we are presently engaged in the breach of contract case. None of the facts in the respective cases have any similarity to which our firm would be privy in the breach of contract case which could be helpful in the negligence case.

Ethics Opinion No. 103 (MSB 1985).

So, the firm was making a distinction between representations involving contract and tort matters, asking if it could accept representation for an individual tort plaintiff against a company it was presently representing in an unrelated breach of contract case. The firm emphasized that the two matters did not involve overlapping confidential information.

The Ethics Committee said no: the simultaneous representations would create an impermissible conflict of interest . First it noted that even though the two matters were unrelated, the duty of loyalty to the client demands that the client not have to be concerned about who in the business organization the lawyer might come into contact with, or what he inadvertently might learn or be told in the course of the representation in one case that might be applicable in the other. The Committee also cited an earlier opinion (No. 69) in which it had held that an attorney may not act as special counsel for the city while at the same time representing a client against the city, even though the subject matter was unrelated. The Committee also noted that it was unfair to the clients to accept representation with a potential conflict. The Committee stated that, "[u]ndivided loyalty prohibits simultaneous representation in litigation."

(b) Simultaneous Representations: Same Side, Multi-Party Action

The Ethics Committee in Opinion No. 103 also addressed the conflicts that can develop in litigation involving numerous defendants, as may occurs in construction litigation, where the attorney attempts to represent more than one defendant. Often the interests of defendants have a potential to conflict where questions of causation and degrees of fault may develop. Cross claims between defendants may need to be filed. Although the conflict might not become apparent until a later stage of the litigation, the Committee noted it is better to decline multiple representations on the front end where potential for a conflict exists since a later withdrawal by the attorney from employment with one of the clients in the middle of the case could work a hardship on that client. Ethics Opinion No. 103 (MSB 1985).

(c) Subsequent Action: Different Parties

In another case an attorney for the plaintiff in a products liability case obtained a final settlement agreement from the four defendant corporations. Thereafter the four companies entered into a separate arbitration to determine how to split up the payment to the plaintiff among them based upon their degrees of fault. One of the four companies in the arbitration asked the attorney who had represented the plaintiff in the liability action to represent them in the arbitration. The matter was put to the Ethics Committee as to whether the attorney could accept the representation. Ethics Opinion No. 242 (MSB 1998). The Committee determined that the representation would not violate MRPC 1.7. First, the attorney took the precaution of having the plaintiff to the earlier liability action sign a waiver and consent as permitted by the rule. Second, the plaintiff was not a party to the arbitration proceeding that took place after the liability proceeding had concluded, so there were no simultaneous, conflicting representations. Since the plaintiff had settled the liability case, it was no longer adverse to the corporations in the arbitration. Third, although one of the other corporations in the arbitration objected to the representation claiming that the lawyer, having been involved in the underlying liability action, might have to be called as a witness, there was no violation of the lawyerwitness rule (MRPC 3.7).

The Committee noted that, "the lawyer witness rule has been historically subject to tactical abuse and should be subject to strict scrutiny." Applying strict scrutiny, the Committee found there was no basis to conclude from the mere fact that the attorney had been an advocate in the earlier action that he would be a "necessary party" to the arbitration. Accordingly, the Committee ruled the representation could proceed. Ethics Opinion No. 242 (MSB 1998).

(d) Subsequent Action: Representation Adverse to Former Client

May a lawyer take on a new client who wishes to sue the lawyer's former client? Rule 1.9 NWC governs the issue. The Ethics Committee has stated the issue bolls down to asking the following two questions:

1. Does the former representation have a substantial relationship to the matters involved in the present representation? and

2. Does the attorney have information from the former representation that can be used in the new matter against the former client?

See Spragins v. Huber Farm Service, Inc., 542 F. Supp. 166 (ND Miss 1982) which follows the rule in Duncan v. Merrill Lynch, Pierce, Fenner and Smith, 646 F. 2d 1020 (5th Cir. 1981).

Ethics Opinion No. 106 (MSB 1985). The Committee stated that if the answers are no to the two questions the attorney need not withdraw. "In fact, in disqualification notions, the burden is on the former client to prove the substantial relationship." Id. It is up to the former client, then, to prove with "specificity" the scope of the earlier representation and its connection to the present suit. Id. See also, Ethics Opinion No. 90(1984).

(e) Business Relationship With the Client

Another potential conflict with a client exists where the party enters into a business relationship with the client. The potential there for conflict is so rife it warrants a separate rule, Rule 1. 8 of the Rules of Professional Conduct. Rule 1. 8, entitled "Prohibited Transactions", spells out the limited circumstances in which the attorney can go into business with the client. For the attorney the prospect of going into business with a client (other than as a modest owner of publicly traded stock) is almost always a bad one because the attorney, being an attorney and therefore fiduciary, may be held to a high standard of accountability for his legal and business advise to either his client business partner or to a third party should the business go badly. In that event the lawyer may be uncomfortably in the thick of the business rather than having played the safer, more familiar role as an independent advisor. If the business goes wrong, some may pose the question by a formal court complaint whether the attorney rendered objective legal advise given his personal stake in the business, or whether the attorney put his own financial interests ahead of the business's interests in violation of his fiduciary duty as the attorney to the company. And we all know what happened to attorneys in the 1980s who were unfortunate enough to sit on the boards of banks or savings and loans. Whatever pay they garnered for sitting on the boards of their clients was certainly not worth it in light of what they had to go through when later sued by the Resolution Trust Commission. Legal malpractice insurers have become rightfully skittish about such business arrangements and inquire with their insureds annually whether such arrangements exist. The best rule for the attorney here is an easy one: don't take a significant personal stake in your client's business transactions ever!!

C. Attorney Fees

The question arises whether an attorney can obtain a proprietary interest in a case. The answer is yes, through a contingent fee arrangement meeting the requirements of Rule 1.5 MRPC. However, the attorney can not go further and actually join his client as a fellow plaintiff based on his receiving an assignment of a portion of the proceeds of the litigation through a contingent fee contract. Ethics Opinion No. 159 (MSB 1988).

An attorney certainly can take a contingency fee in a civil construction law case. By contrast, an attorney can not take a contingency fee in a domestic relations matter contingent on the securing of a divorce, or alimony or a property settlement. Nor can an attorney obtain a contingency fee from a defendant in a criminal case. Rule 1.5 (d) MRPC.

An arrangement for an hourly fee, while it must be communicated to the client early on, need not be in writing, although it is far preferable that the attorney confirm the fee arrangement in writing. However, a contingency fee arrangement absolutely must be writing according to Rule 1.5 (c) MRPC. The contingency fee arrangement must also state the method by which the fee is to be determined, including percentages and whether expenses are to be deducted before or after calculation of the contingent fee. Also, upon conclusion of the contingent fee matter the lawyer must provide the client with a written statement of the outcome of the matter, showing any remittance to the client and the method of its determination. Id.

The Ethics Committee has determined that a Mississippi lawyer may allow his client to pay his attorney's fees by credit card even though the credit card company would charge a small percentage of the transaction for collecting the account. Ethics Opinion No. 135 (MSB 1987). The attorney, though, can not increase his legal fee because of his participation with the credit card company. Id.

The Ethics Committee has also decided that Mississippi attorneys can charge the revolving interest charge of 1.5% per month on unpaid accounts. However, the attorney can not impose the interest charge without first advising the client that he intends to charge interest and obtaining the client's agreement to payment of interest on accounts that are delinquent for more than a specified period, say thirty days. Further, "The arbitrary imposition of interest charges on all outstanding uncollected accounts without the client's prior knowledge and consent would be improper." Ethics Opinion No. 100 (MSB 1985).

D. Lawyer Liability

The Mississippi Bar Association makes available a number of resources to Mississippi attorneys to assist them in meeting their ethical obligations toward their clients. For example, the MBA publishes Lawyer Trust Fund Guidelines and a Client Relations Handbook as well as a Professionalism Handbook. The Bar Association also sponsors annual ethics seminars. See www.msbar.org/professional responsibility.html .

The essence of avoiding lawyer liability is conscientious attention to the client's needs and open, honest relations with the client in all aspects of the legal representation.

E. Conclusion

There is a real potential for conflicts of interest to arise in attorney representation in construction litigation because of the multi-party nature of most construction cases. Clients can consent to conflicts, but the attorney can still not take a dual representation unless he reasonably believes the representations will not be adversely affected. A conflict presented by simultaneous representations is not resolved by the fact that the two representations concern totally different facts if the attorney and his firm are adverse to the client in one of the cases. It is better not to take on dual representations in a multi-party case, even if both clients are on the same side generally as co-defendants, if a real potential exists for conflicts to develop later on between clients' interests and cross claims might need to be filed at some point. A lawyer, though, can represent a new client against a former client if there is no relationship between the present and past actions and if the attorney has no information from the past representation that could be used in the current litigation. Attorneys should avoid going into business with the clients they represent. The attorney can accept a contingency fee in a construction law case, but the contingency fee contract must be in writing. The Mississippi Bar Association makes available a number of resources to attorneys to help them in understanding and meeting their ethical obligations toward their clients.