Bar Counsel |
Full DisclosureWhat it is, and isn't |
By Sylvia Stevens |
For the most part, the disciplinary rules are a set of 'don'ts.' Not all of the 'don'ts' are absolute, however. There are a variety of situations in which the disciplinary rules allow the client to consent to a matter provided the consent is premised on 'full disclosure.'1
DR 10-101(B) defines 'full disclosure' as 'an explanation sufficient to apprise the recipient of the potential adverse impact on the recipient of the matter to which the recipient is asked to consent.'
In matters involving conflicts of interest,2 full disclosure must include a recommendation that the recipient seek independent legal advice about whether consent should be given, and the disclosure must be 'contemporaneously' confirmed in writing.
Recently, in In re Brandt and Griffin, 331 Or 113, 10 P3d 906 (2000), the Oregon Supreme Court discussed the meaning of full disclosure for the first time in several years. Brandt and Griffin represented numerous clients with claims against The Stanley Works and its subsidiary, Mac Tools. Similar claims were being pursued around the country by other plaintiffs, and there was discussion of a 'global settlement.' As a condition of settlement, Stanley insisted that all of the plaintiffs' lawyers agree to be employed by Stanley in the future so that Stanley would not be subject to more of the same kind of litigation. Initially, all of the plaintiffs' lawyers refused to discuss Stanley's proposal, believing it violated DR 2-108(B).3 Subsequently, however, the plaintiffs' lawyers signed employment agreements with Stanley, which were given to a mediator to hold in escrow until all clients had agreed to the terms of the global settlement offer.
Brandt and Griffin then wrote to one of their clients stating, in part:
After we obtained [Stanley's] agreement to resolve our cases for a sum certain, [Stanley] made a separate offer to hire [our] law firms to work for [Stanley] in the future … Once we are retained by [Stanley] we will be unable to pursue claims like yours against [Stanley] … Because this situation may appear to create a conflict of interest, we recommend that you seek independent legal advice to determine if consent should be given.
The client was also informed that if he rejected the settlement, Brandt and Griffin would not represent him at trial. The client consulted with independent counsel and ultimately accepted the settlement offer.
The supreme court concluded that Brandt and Griffin violated DR 5-101(A).4 When the lawyers signed the employment agreement with Stanley before their client accepted the settlement offer their loyalty became divided and a conflict of interests existed. DR 5-101(A) required the lawyers to disclose their conflict of interest to the client, and DR 10-101(B) required them to give the client an explanation that was sufficient to apprise him of the potential adverse impact of that conflict on him and to recommend that he seek independent legal advice.
The court held that the lawyers' written disclosure was inadequate. The letter inaccurately states that the lawyers had not been retained by Stanley until after the settlement amount was agreed upon and that Stanley had made a separate offer to hire the lawyers. 'Rather than disclosing their conflict of interest, those statements suggested that there was no conflict.' 331 Or at 135-136. According to the court, the only parts of the letter that could arguably be viewed as disclosing a conflict were the statements that, upon being hired by Stanley the lawyers would not be able to represent the client, and that the situation 'may appear to create a conflict of interest.'
The lawyers' letter did not inform the client that the lawyers had already signed retainer agreements with Stanley and placed them in escrow. From that point forward, it was possible that the lawyers' relationship with Stanley motivated them to recommend to the client a settlement they would not otherwise have recommended and that was not as favorable to the client as it might have been if their loyalty was not divided. The letter also did not inform the client that the employment agreements between the lawyers and Stanley contained indemnity provisions ensuring that the lawyers would be fully protected in the event the client asserted a claim against them because of the conflict of interest. The potential adverse impact of the indemnity provisions (that the lawyers' interests would be aligned with Stanley and not the client) was not explained.
The court rejected the lawyers' argument that the letter in fact had made the client believe that his lawyers had 'switched sides' and 'betrayed him' during the settlement negotiations. The court also found it irrelevant that the client had been advised by his other lawyer of the adverse impact of Brandt and Griffin's conflict of interest:
DR 10-101(B) requires the explanation that the lawyer gives to the client to be sufficient to apprise the client of the adverse consequences of the lawyer's conflict. The rule does not direct us to examine the client's subjective understanding of the lawyer's explanations, whether or not enhanced by consultation with an independent lawyer…[T]he issues of the sufficiency of the disclosure and consultation with independent counsel are separate…DR 10-101(B) does not provide that advice from independent counsel may serve as a post hoc substitute for the lawyer's own disclosure. Moreover, the disclosure that the lawyer gives the client will affect the ability of independent counsel to assess the conflict and to advise the client. [331 Or at 137 (emphasis in original)
It has been suggested that Brandt and Griffin establishes a new, stricter standard for disclosure. However, in reaching its conclusion in Brandt and Griffin, the court reviewed its previous decisions regarding adequate disclosure, including those interpreting prior versions of the disciplinary rules. For instance, in In re Boivin, 271 Or 419, 424, 533 P2d 171 (1975), the court set out a standard for disclosing a multiple current client conflict:
To satisfy the requirement of full disclosure by a lawyer before undertaking to represent two conflicting interests, it is not sufficient that both parties be informed of the fact that the lawyer is undertaking to represent both of them, but he must explain to them the nature of the conflict of interest in such detail so that they can understand the reasons why it might be desirable for each to have independent counsel, with undivided loyalty to the interests of each of them.'
Later, in In re O'Byrne, 298 OR 535 548-549, 694 P2d 955 (1985), the court held that full disclosure of the differing interests between lawyer and client in a business transaction included telling the client 'what effects the differing interests may have upon the lawyer's ability to exercise his independent professional judgment.' In other words, the lawyer must disclose not only the lawyer's interest, but 'the nature of the conflict, the risks to the client, and the reasons for consulting independent counsel.' In re Germundson, 301 Or 656, 724 P2d 793, 796 (1986). Yet again, in In re McKee, 316 Or 114, 128, 849 P2d 509 (1993), looking at full disclosure of a multiple client conflict, the court held that it requires 'a full disclosure of the possible effect of multiple representation on the exercise of the lawyer's independent judgment on behalf of each client.' (Emphasis in original.)
The court's discussion in Brandt and Griffin was more pointed as to the facts that must be disclosed to the client, but it is hardly inconsistent with prior decisions regarding what constitutes full disclosure. The value of Brandt is that the court's analysis comes in the context of a full explanation of the complex facts of the that particular matter and how they must be laid out to the client to constitute adequate disclosure. The opinion also highlights the responsibility of the lawyer making the disclosure; that is, the adequacy of the disclosure is tested by what the lawyer says, not by what the client subjectively understands or by what the client is advised by independent counsel.
Although Oregon's disciplinary rules differ significantly in language from the ABA Model Rules on conflicts, the decision in Brandt and Griffin is consistent with the ABA Model Rules approach.5 Model Rule 1.7 allows lawyers to represent a client whose interests are adverse to another client, or when the lawyer's representation may be materially limited by the lawyer's own interests if the client consents 'after consultation.' 'When representation of multiple clients in a single matter is undertaken, the consultation shall include explanation of the implications of the common representation and the advantage and risks involved.' MR 1.7(b)(2). 'Consultation' is defined as the 'communication of information sufficient to permit the client to appreciate the significance of the matter in question.' ABA Model Rules, Terminology. The obligation to consult with a client is reinforced in Model Rule 1.4(b), which requires a lawyer to 'explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation.'
The ABA Ethics 2000 Commission has proposed a number of changes to the ABA Model Rules.6 Significant among the proposed changes is the deletion of the concept of 'consent after consultation,' to be replaced by 'informed consent,' generally in writing. In proposed new Rule 1.0(e) 'informed consent' is defined as 'agreement to a proposed course of conduct after the lawyer has communicated adequate information and explanation about the material risks of and reasonably available alternatives to the proposed course of conduct.'
This is all a lengthy way of saying that it does not appear that the court broke any new ground with its decision in Brandt and Griffin. Rather, it has clarified and provided a concrete example of what is and is not 'full disclosure.' The opinion reminds us that full disclosure requires an explanation not only of the existence and nature of the conflict, but the implications of it in sufficient detail to enable the client to determine the impact of the conflict on the representation. +
ENDNOTES
1. DR 2-107(A) (dividing fees among lawyers); DR 4-101(C)(1) (revealing confidences
and secrets); DR 5-101(A) (self-interest conflict); DR 5-104(A) (business transactions
with clients); DR 5-105(D) & (F) (conflicts between former and current clients);
DR 5-107 (settling claims of multiple clients); DR 5-108(A) (accepting compensation
from someone other than the client); DR 5-109 (public employment conflicts);
DR 6-102 (B) (agreements to arbitrate malpractice claims); and DR 7-101(D) (evaluations
for third persons).
2. DR 5-101, DR 5-104, DR 5-105, DR 5-107, DR 5-109 and, when a conflict may be present, DR 4-101.
3. DR 2-108(B) prohibits a lawyer in connection with the settlement of a controversy from entering into an agreement that restricts the lawyer's right to practice law.
4. DR 5-101(A) provides that: 'Except with the consent of the lawyer's client after full disclosure … a lawyer shall not accept or continue employment if the exercise of the lawyer's professional judgment on behalf of the lawyer's client will be or reasonably may be affected by the lawyer's own financial, business, property or personal interests.'
5. The Model Rules are in effect (with some variations) in 42 states, including Washington.
6. The proposals are expected to be voted upon by the ABA House of Delegates in August 2001.
Sylvia Stevens is assistant general counsel of the Oregon State Bar. She can be reached by phone at (503) 620-0222, ext. 359, or by e-mail at sstevens@osbar.org. The legal ethics assistance provided by the general counsel's office is not confidential, and no attorney-client relationship is established between callers and the general counsel's office.
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