Can a lawyer represent two clients in a chain of debt, a creditor of a seller and the buyer being sued by that seller, when one client may only be paid if the other loses?

Plain-English summary

A (a creditor) has a security interest in B's accounts receivable. B sold goods to C and kept a purchase-money security interest in those goods. A lawyer represents both A and C. The opinion asks, if B sues C for default, under what circumstances the lawyer may represent A, C, or both.

The opinion applies Oregon RPC 1.7. It explains that the question is whether a nonwaivable conflict, a waivable conflict, or no conflict at all is present, and that more facts would be needed for a definitive answer. If the lawyer knows or reasonably believes B has enough resources to pay A regardless of whether B prevails against C, no conflict exists, because the lawyer's representation of C would not be materially limited by the lawyer's responsibilities to A.

If B's resources are in doubt and there is a reasonable likelihood that A will be paid only if B prevails against C, a waivable conflict under RPC 1.7(a)(2) could be present, since the lawyer's representation of one client could be materially limited by responsibilities to the other. If the lawyer represents A to collect from B at the same time the lawyer represents C in defending B's claim, and it is reasonably clear A may be paid in full only if C pays B, a current-client conflict exists under RPC 1.7(a)(1): the lawyer would be representing one client whose interests are directly adverse to another client.

The opinion adds that even if the lawyer represents one of A or C only on unrelated matters, a conflict still exists if there is a significant risk that the representation of one client will be materially limited by the lawyer's responsibilities to the other under RPC 1.7(a)(2).

In practice

The opinion holds that the conflict analysis in a creditor-debtor-buyer chain turns on the financial dependency between the clients. Where the intermediate party (B) can pay the creditor (A) regardless of outcome, there is no material limitation and no conflict. Where payment to A depends on B prevailing against C, a waivable conflict can arise under RPC 1.7(a)(2). Where the lawyer would directly represent A against B while defending C against B and A's recovery depends on C paying B, the conflict is direct under RPC 1.7(a)(1). The opinion ties the lawyer's knowledge to RPC 1.0(h) and reasonable belief to RPC 1.0(l). Verify the current text of Oregon RPC 1.7 before relying on any specific point.

Common questions

Q: I represent both a creditor and a buyer. Can I keep both if the seller sues the buyer?

A: It depends on the money flow. The opinion concludes there is no conflict if the seller can pay the creditor regardless of the suit, a waivable conflict if the creditor is likely paid only if the seller wins, and a direct conflict if the lawyer is representing the creditor against the seller while defending the buyer and the creditor's recovery depends on the buyer paying.

Q: When is the conflict waivable versus not?

A: Per the opinion, a waivable conflict can arise under RPC 1.7(a)(2) when one client's payment is doubtful and depends on the outcome. A direct adversity under RPC 1.7(a)(1), where the lawyer represents one client directly against the other in the same dispute, is the kind of conflict the opinion treats as not consentable.

Q: Does it matter if I only handle unrelated matters for one of the two clients?

A: Yes, but not necessarily in your favor. The opinion concludes a conflict can still exist if there is a significant risk that representing one client will be materially limited by your responsibilities to the other under RPC 1.7(a)(2).

Background and rules framework

The opinion interprets Oregon RPC 1.7 (current-client conflicts), distinguishing direct adversity under RPC 1.7(a)(1) from material-limitation conflicts under RPC 1.7(a)(2), and uses the definitions of "knowingly" and "reasonable belief" in Oregon RPC 1.0(h) and (l). These correspond to Model Rules 1.7 and 1.0.

Citations and references

Rules of Professional Conduct:

• Oregon RPC 1.7 / Model Rule 1.7 (conflicts of interest, current clients)
• Oregon RPC 1.0(h), (l) / Model Rule 1.0 (terminology: knowledge, reasonable belief)

Cases:

• In re Griffith, 304 Or 575, 748 P2d 86 (1987)
• In re Bristow, 301 Or 194, 721 P2d 437 (1986)
• In re Vaile, 300 Or 91, 707 P2d 52 (1985)

Other opinions cited:

• OSB Formal Ethics Op. No. 2005-40 (debtor and creditors)

See also

• OSB Ethics Op. 2005-40: Debtor and Creditors in Bankruptcy
• OSB Ethics Op. 2005-66: Legal Aid Board Service and Adverse Representation

Source

• Landing page: https://www.osbar.org/ethics/toc.html
• Original PDF: https://www.osbar.org/_docs/ethics/2005-72.pdf