Can a lawyer already representing a subcontractor against a contractor also represent the homeowners suing that same contractor, when the contractor may not have enough assets to pay both?

Plain-English summary

An attorney represented a subcontractor against a contractor over payment for work on a new home, where the time to file a mechanic's lien had run and the contractor had been fully paid by the prospective clients. The homeowners (prospective clients) wanted to retain the attorney to sue the contractor for breach of contract and negligent construction. Their claims did not appear to involve the subcontractor's work, but the attorney was concerned the contractor might lack sufficient assets to satisfy judgments obtained by both the subcontractor and the homeowners. The attorney asked whether he could undertake the homeowners' representation.

The Committee analyzed the question under Rule 1.7, because the subcontractor was a current client. It concluded Rule 1.7(a)(1) (direct adverseness) did not presently apply: the attorney was not representing one client against the other, and there appeared to be no significant risk the claims overlapped. The contractor's asset sufficiency was uncertain because the claims were contingent and the ability to satisfy any judgments was not fully known.

The Committee then turned to Rule 1.7(a)(2), the material-limitation conflict. Quoting Comment 8, it explained that a conflict exists if there is a significant risk that the lawyer's ability to consider, recommend, or carry out an appropriate course of action for a client will be materially limited by other responsibilities or interests, with the critical questions being the likelihood that a difference in interests will eventuate and whether it would materially interfere with the lawyer's independent judgment. Given the attorney's concern about whether the contractor's assets could satisfy both clients' potential judgments, the Committee directed the attorney to evaluate that risk; if such a risk exists, a conflict exists and the attorney may proceed only by satisfying Rule 1.7(b).

Applying Rule 1.7(b), the Committee found the representation did not appear prohibited by law (1.7(b)(2)) or to involve one client asserting a claim against another in the same proceeding (1.7(b)(3)) at that time. It cautioned, however, that if the subcontractor and homeowners later reduced their claims to judgments and disputed who should recover first or how much, the attorney would be prohibited from representing one against the other on that issue. The ability to proceed therefore depends on the attorney's assessment that he can provide competent and diligent representation to both, and on each client's informed consent after being advised of the benefits and risks, including the possibility of inadequate assets and of needing new counsel if they dispute recovery between themselves.

In practice

Under this opinion, and under the South Carolina rule as it stood at the time, a lawyer may take on the homeowners' representation alongside the subcontractor only after analyzing the limited-asset concern under Rule 1.7(a)(2). The opinion holds that if a significant risk of material limitation exists, the lawyer may proceed only with a reasonable belief in competent and diligent representation of each client and each client's informed consent confirmed in writing, and that the lawyer should engage in ongoing conflict assessment, because a future dispute between the two clients over recovery would bar the lawyer from representing one against the other on that issue.

Common questions

Q: Is representing two clients against the same defendant automatically a conflict?

A: Not necessarily. The opinion concludes Rule 1.7(a)(1) direct adverseness did not apply because the lawyer was not representing one client against the other and the claims did not appear to overlap.

Q: How does a defendant's limited assets affect the conflict analysis?

A: The opinion concludes the concern about insufficient assets must be evaluated under Rule 1.7(a)(2); if there is a significant risk it would materially limit the lawyer's representation of either client, a conflict exists.

Q: If a conflict exists, can the lawyer still take both clients?

A: Yes, under Rule 1.7(b), if the lawyer reasonably believes he can provide competent and diligent representation to each and each client gives informed consent confirmed in writing.

Q: What happens if the two clients later dispute who recovers first?

A: The opinion concludes that if the clients reduce their claims to judgments and dispute priority or amount of recovery, the lawyer would then be prohibited from representing one against the other on that issue.

Background and rules framework

The opinion interprets Rule 1.7 (conflict of interest; current clients), distinguishing 1.7(a)(1) direct adverseness from 1.7(a)(2) material-limitation conflicts and applying the 1.7(b) conditions for consentable conflicts, with reference to Comments 8, 14, and 15. South Carolina's Rule 1.7 corresponds to ABA Model Rule 1.7.

Citations and references

Rules of Professional Conduct:

• MR 1.7 / SC RPC 1.7 (conflict of interest; current clients; material limitation; informed consent)

See also

• ABA Formal Op. 06-438: Aggregate Settlements
• ABA Formal Op. 08-450: Confidentiality With Multiple Clients in the Same Matter

Source

• Landing page: https://www.scbar.org/for-lawyers/quicklinks/legal-resources/ethics-advisory-opinions/ethics-advisory-opinion-19-05/
• Original PDF: https://www.scbar.org/media/00blqt04/19-05_eao_final.pdf

Original opinion text

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

ETHICS ADVISORY OPINION

19-05

UPON THE REQUEST OF A MEMBER OF THE SOUTH CAROLINA BAR, THE ETHICS ADVISORY COMMITTEE HAS RENDERED THIS OPINION ON THE ETHICAL PROPRIETY OF THE INQUIRER'S CONTEMPLATED CONDUCT. THIS COMMITTEE HAS NO DISCIPLINARY AUTHORITY. LAWYER DISCIPLINE IS ADMINISTERED SOLELY BY THE SOUTH CAROLINA SUPREME COURT THROUGH ITS COMMISSION ON LAWYER CONDUCT.

S.C.R. Prof. Conduct: 1.7

Factual Background: Attorney represents Subcontractor against Contractor regarding payment for work performed on a new home being built for Prospective Clients. The time for filing a mechanic's lien on behalf of Subcontractor has run and Contractor has received full payment from Prospective Clients for the new home.

Prospective Clients wish to retain Attorney to sue Contractor for breach of contract and negligently performed construction work. Prospective Clients' claims for breach of contract and negligently performed work do not appear, at this time, to involve the work of Subcontractor. Based on current information, Attorney is concerned that Contractor may not have sufficient assets to satisfy judgments that might be obtained by both Subcontractor and Prospective Clients.

Question: May Attorney undertake representation of Prospective Clients?

Summary: An attorney may represent both a subcontractor and homeowners against contractor for breach of contract and negligence provided that the attorney analyzes the prospective representation under Rule 1.7, SCRPC, and then considers whether the "material limitation" conflicts section in (a)(2) might apply.

The attorney also must evaluate the risk of future availability of assets and should engage in a course of ongoing assessment for conflicts of interest using section (b) of the Rule, particularly those that may arise if claims are reduced to judgments and the clients dispute the recovery amounts relative to one another.

Response: Subcontractor is a current client of Attorney. Therefore, the question of whether he may simultaneously represent Prospective Clients is governed by S.C.R. Prof. Conduct 1.7, which provides:

• Except as provided in paragraph (b), a lawyer shall not represent a client if the representation involves a concurrent conflict of interest. A concurrent conflict of interest exists if:

(1) the representation of one client will be directly adverse to another client; or (2) there is a significant risk that the representation of one or more clients will be materially limited by the lawyer's responsibilities to another client, a former client or a third person or by a personal interest of the lawyer.

• Notwithstanding the existence of a concurrent conflict of interest under paragraph (a), a lawyer may represent a client if:

• the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client;

• the representation is not prohibited by law;

• the representation does not involve the assertion of a claim by one client against another client represented by the lawyer in the same litigation or other proceeding before a tribunal; and

• each affected client gives informed consent, confirmed in writing.

Based on the facts presented, Rule 1.7(a)(1) is not presently applicable. Attorney is not being asked to represent Subcontractor against Prospective Clients or vice versa. As noted, there appears to be no significant risk that the claims of Prospective Client and the work of Subcontractor overlap such that Attorney would be called upon to attack the claim or work of either party. Further, while there is some concern regarding sufficiency of the Contractor's assets to satisfy the claims of Subcontractor and Prospective Clients, the claims are contingent and the ability of Contractor to satisfy any judgments is not fully known.

Rule 1.7(a)(2) involving "material limitation" conflicts may apply. Comment 8 outlines the general application of this rule:

Even where there is no direct adverseness, a conflict of interest exists if there is a significant risk that a lawyer's ability to consider, recommend or carry out an appropriate course of action for the client will be materially limited as a result of the lawyer's other responsibilities or interests. For example, a lawyer asked to represent several individuals seeking to form a joint venture is likely to be materially limited in the lawyer's ability to recommend or advocate all possible positions that each might take because of the lawyer's duty of loyalty to the others. The conflict in effect forecloses alternatives that would otherwise be available to the client. The mere possibility of subsequent harm does not itself require disclosure and consent. The critical questions are the likelihood that a difference in interests will eventuate and, if it does, whether it will materially interfere with the lawyer's independent professional judgment in considering alternatives or foreclose courses of action that reasonably should be pursued on behalf of the client.

Given Attorney's concern regarding the future availability of assets sufficient to satisfy any judgments he may obtain for Subcontractor and Prospective Clients, Attorney must evaluate the risk and whether that potential risk might materially limit his ability to represent either party. If he determines that such a risk exists, then a conflict exists and he may only undertake the representation of Prospective Clients if he complies with the consent requirements of Rule 1.7(b), which provides:

(b) Notwithstanding the existence of a concurrent conflict of interest under paragraph (a), a lawyer may represent a client if:

(1) the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client;

• the representation is not prohibited by law;

• the representation does not involve the assertion of a claim by one client against another client represented by the lawyer in the same litigation or other proceeding before a tribunal; and

• each affected client gives informed consent, confirmed in writing.

Based on the facts presented, it does not appear that the proposed representation is prohibited by law. Comment 14 to the rule describes the types of representations that fall within the proscription of 1.7(b)(2).

The proposed representation also does not appear to fall within the proscription of 1.7(b)(3) at this time. Comment 15 describes the situations covered by this provision. Should, in the future, Subcontractor and Prospective Clients reduce their claims to judgments and dispute who should recover first or how much each should recover relative to the other, Attorney would be prohibited from representing one against the other as to that issue.

Consequently, the ability to proceed with the representation depends upon Attorney's assessment whether he can provide competent and diligent representation to both Subcontractor and Prospective Client and whether they consent to the representation after being informed of the benefits and risks of joint representation, particularly of the possibility of inadequate assets and the possibility of needing new counsel should they dispute recovery between themselves.