Q: Dear Ethics Lawyer, Several years ago I documented and closed a business deal for a client. The other party is now using what it considers a loophole in the contract to refuse to make a substantial payment that would otherwise be due. The client has made it pretty clear that he considers the loophole to be my fault, but wants our firm to advise him on whether he should accept a compromise being offered by the other side to mitigate the loss, and if not, whether to pursue litigation. What issues does this present?
A: Malpractice allegations (or identification of circumstances that may give rise to them) present the likelihood of a “material limitation” conflict under Model Rule 1.7(a)(2), arising out of the lawyer’s or law firm’s self-interest in avoiding exposure. You must determine in this situation, based on an objective standard, whether you or your firm can provide independent judgment and competent representation in view of the nature of the allegation and possibility of exposure.
In some circumstances, the interests of the lawyer and client may be completely aligned in the mutual desire to prevent or mitigate the loss, and the law firm’s pre-existing knowledge of the matter and willingness to work with the client on fees may benefit the client; in others, the possibility of multiple outcomes that may favor or disfavor the client’s subsequent claim against the lawyer for any loss create difficult issues concerning the law firm’s motives and judgments. These must be examined and weighed, and if appropriate, dealt with in the context of a fully informed client consent, confirmed in writing. This is also a circumstance in which the client should be advised to obtain outside counsel concerning whether your firm should continue in the matter.