Can one lawyer represent both a general contractor and its surety in defending a payment bond claim, and when must the lawyer withdraw?

Plain-English summary

On a public project, a general contractor must obtain a payment bond from a surety to protect subcontractors and suppliers. A supplier brings a documented bond claim; the subcontractor disappears; and the contractor, who already paid the subcontractor in full, is obligated to pay again. The contractor tenders a defense for itself and the surety. The claimant sues the subcontractor, the contractor, and the surety as jointly and severally liable. The contractor has no valid defenses but wants to delay to avoid payment, and the question is whether one lawyer may represent both the contractor and the surety.

The opinion concludes the interests of the surety and the contractor will ordinarily be aligned in defending the claim, so joint representation is generally possible. But the lawyer has an independent duty to assert only valid (nonfrivolous) defenses and to avoid unnecessary delay under Rules 3.1 and 3.2, and should explain those duties to both clients at the outset. If the contractor insists on a course of conduct that would violate the Rules, the lawyer must withdraw from the joint representation and advise both clients to obtain separate counsel (Rule 1.7(b)).

The opinion also addresses a second conflict trigger: if a defensive action appropriate for the contractor would interfere with a legal duty the surety owes the claimant, such that the surety could face a bad-faith claim, a conflict arises. In that situation the lawyer must withdraw from representing both parties and may continue representing the contractor only with the surety's consent (Rule 1.9(a)).

In practice

Under the North Carolina rules as they stood at the time of the opinion, the analysis turns on the alignment of the two clients' interests and on the lawyer's own duties of candor and diligence. The opinion holds that joint representation of a contractor and its surety is ordinarily permissible, but the lawyer must assert only valid defenses and avoid unnecessary delay regardless of what the contractor wants.

Per the opinion, two events require withdrawal: the contractor insisting on conduct that would violate the Rules (such as delay solely to avoid payment), and a defense for the contractor that would expose the surety to a bad-faith claim. After withdrawal, the lawyer may continue for the contractor only with the surety's consent.

Common questions

Q: Can one lawyer represent both the general contractor and the surety on a bond claim?

A: Yes, ordinarily. The opinion concludes their interests are generally aligned in defending a payment bond claim, so joint representation is permissible subject to the lawyer's other duties.

Q: What if the contractor just wants to delay to avoid paying?

A: The lawyer may not pursue that. The opinion concludes the lawyer must assert only valid defenses and avoid unnecessary delay (Rules 3.1 and 3.2), and must withdraw if the contractor insists on a course that would violate the Rules.

Q: When does a conflict force the lawyer off both clients?

A: When a defensive action appropriate for the contractor would interfere with a duty the surety owes the claimant and could expose the surety to a bad-faith claim. The opinion concludes the lawyer must then withdraw from both.

Q: Can the lawyer keep representing the contractor after withdrawing?

A: Only with the surety's consent. The opinion applies Rule 1.9(a) to the lawyer's continued representation of the contractor against the former joint client's interest.

Background and rules framework

The opinion interprets the trial-conduct duties in Rule 3.1 (meritorious claims and contentions) and Rule 3.2 (expediting litigation), corresponding to Model Rules 3.1 and 3.2, together with the conflict rules in Rule 1.7(b) (conditions for, and withdrawal from, joint representation) and Rule 1.9(a) (duties to a former client), corresponding to Model Rules 1.7 and 1.9.

Citations and references

Rules of Professional Conduct:

• MR 3.1 / NC Rule 3.1 (only valid, nonfrivolous defenses)
• MR 3.2 / NC Rule 3.2 (avoid unnecessary delay)
• MR 1.7 / NC Rule 1.7(b) (joint representation; withdrawal)
• MR 1.9 / NC Rule 1.9(a) (duties to a former client)

See also

• NC State Bar 2004 FEO 3: Common Representation of a Lender and Trustee
• ABA Formal Op. 96-403: Insured Objecting to a Settlement Within Policy Limits
• ABA Formal Op. 08-450: Confidentiality With Multiple Clients in the Same Matter

Source

• Landing page: https://www.ncbar.gov/for-lawyers/ethics-and-governing-rules/ethics-opinions/opinions/2003-formal-ethics-opinion-1/

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

Inquiry:

In North Carolina, a general contractor working on a public project in excess of a certain amount must acquire performance and payment bonds executed by one or more surety companies. The payment bond serves to protect subcontractors and materialmen providing labor, equipment, materials, and supplies for use on public projects. If a general contractor fails to pay a subcontractor or a subcontractor fails to pay a supplier, either the subcontractor or the supplier may make a claim against the general contractor's bond. The surety will respond to a demand by requesting a proof or affidavit of claim with supporting documentation. The surety will also reserve its right to assert any defenses available to the general contractor. Without action by the general contractor to tender a defense, the surety will ordinarily pay the claim.

A supplier advances a payment bond claim for materials supplied to a subcontractor for use on a public project. The supplier has provided the surety with documentation including invoices and delivery tickets clearly indicating that the materials were delivered to the project. The subcontractor disappears. The general contractor has paid the subcontractor in full for the project. According to the law, this does not abrogate the payment bond claim, so the general contractor is obligated to pay twice. If the general contractor allows the surety to pay, the surety will look to the general contractor for indemnification.

The general contractor gives notice that it is tendering a defense on behalf of itself and the surety. Discussions between the surety and the claimant cease. The claimant files a complaint to perfect the bond claim. The complaint names the subcontractor, the general contractor, and the surety as defendants who are jointly and severally liable for the debt.

The surety has an obligation to the claimant, absent valid defenses, timely to resolve a payment bond claim. The general contractor does not have any valid defenses under the law, but wants to delay the proceeding to avoid payment. Under these circumstances, may one lawyer represent both the surety and the general contractor in defense of the claim?

Opinion:

Ordinarily, the interests of the surety and the general contractor will be aligned in defending a payment bond claim. However, the lawyer has an obligation to assert only valid defenses to the claims asserted and to avoid unnecessary delay in the proceedings. Rule 3.1 and Rule 3.2. The lawyer should explain these duties to both parties at the outset. If the general contractor insists upon a course of conduct that would violate the Rules of Professional Conduct, the lawyer must withdraw from the joint representation and advise both the general contractor and the surety to obtain separate counsel. See Rule 1.7(b).

Similarly, if the lawyer believes that an appropriate defensive action taken on behalf of the general contractor would interfere with a legal duty the surety owes to the claimant/supplier, such that the surety could be exposed to a bad faith claim, a conflict arises. In this situation, the lawyer must withdraw from the representation of both parties and may only continue with the representation of the general contractor with the consent of the surety. Rule 1.9(a).