Conflicts and the law of unintended consequences

The Recorder reports this morning on the rising number of law firm requests that clients sign broad advance waivers (or blanket waivers) that would allow the firms to act against those clients on future unrelated matters. Firms, looking to maximize the amount of business they can take on, are trying everything they can think of to get around conflict of interest rules. Clients, reasonably enough, won’t sign anything that could impair their interests down the road if they can help it.

Clients’ responses to these requests vary according to the size and leverage of both firm and client. Large clients routinely blow them off, because they can — the lawyers need their business more than the clients need these particular lawyers. Smaller clients have less leverage, so if they want to hire big firms, they pretty much have to live by the terms those firms dictate. I can see a couple of trends emerging from this, neither of which is good for large firms and both of which reflect the unintended consequences of size.

First, when a firm is so big that it has to go begging for the right to sue the client in future, the client will correctly diagnose this as a vulnerability that can be exploited. Instead of simply refusing these requests, clients will start calculating just how much (or little) they actually risk by granting such a waiver, and how much the firm has to gain by it. The client might then say to the firm, “Sure, we’ll grant you the waiver — and in return, you’ll knock 15% off all your fees and pick up the costs of a new extranet system.” Large firms’ vulnerability to conflicts is going to cost them at the bargaining table.

Secondly, smaller clients without the power to simply ignore these waiver requests have another reason to wonder whether it’s worth it to retain large firms. Clients already pay a lot more money for big-firm services, without compelling evidence that the quality of those services (not to mention value for money) is of a justifiably higher magnitude than what smaller firms charge. Now that these firms blandly assert their right to sue you later on, clients might really start doubting whether the status and brand power of a big name is worth it. This would be an excellent time for smaller firms to jump in and start pitching these clients on the many benefits of small.

But there’s another unintended consequence at work here, one that should concern lawyers no matter where they practise. Ever since a 2005 ABA ethics ruling that gave lawyers more latitude to seek advance waivers, this whole discussion seems to have moved from the ethical sphere (is it proper to do this?) to the business sphere (can we reach agreement with the client to do this?). That’s a problematic development all on its own.

The whole topic of conflicts of interest these days is being dealt with as a case-by-case consent-based business matter, rather than as an overarching rule of loyalty and best interests between lawyer and client. That’s all well and good for big firms, in the short run, if it helps bring in more business.

But we ought to remember that conflicts of interest rules are the flip side of solicitor-client confidentiality — the classic, fundamental aspect of legal retainers that rests on the critical promise of discretion by a lawyer to a client. You know, the one that our profession keeps saying sets us apart from ordinary service providers.

If you break the ethical foundation of conflicts rules, reducing them to a mere business matter, then you also break the foundation of solicitor-client confidentiality. And pretty soon, governments, regulators and the public might start questioning why, in the absence of the former, the legal profession should remain entitled to the latter. Lawyers should be proceeding a lot more cautiously here than we are.

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