Freivogel on Conflicts

Banks/Trust Departments

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A law firm represents a bank trust department in its capacity as executor of a decedent's estate.  Another client asks the firm to bring a lender liability action against the bank.  Would bringing such an action constitute direct adversity to a current client within the meaning of Rule 1.7(a)(1)?  We encounter this issue from time-to-time, but have seen little authority on it.

        One case that addresses the issue directly is Harrison v. Fisons Corp., 819 F. Supp. 1039 (M.D. Fla. 1993).  A law firm attempted to represent the defendant.  One of the plaintiffs was a bank in its capacity as guardian of a minor's estate.  The law firm represented the bank on unrelated matters.  The court held that the bank was a current client and that the law firm could not represent the defendant.  In re John F. Ervin Testamentary Trust, 2005 Mich. App. LEXIS 528 (Mich. App. Feb. 24, 2005), cites, and agrees with Fisons, but the opinion is very confusing.

        Another case that came close to saying that the bank/trust department situation was governed by Rule 1.7(a) was Ex parte AmSouth Bank, N.A., 589 So. 2d 715 (Ala. 1991).  Arnold & Porter was advising the bank on the use of interest rate swaps.  It was also representing Drummond Company on totally unrelated issues.  The bank then, in its capacity as trustee of a trust, represented by another law firm, sued Drummond.  Arnold & Porter, believing it had a conflict, withdrew from representing the bank, so it could represent Drummond in the suit.  The bank sought to disqualify Arnold & Porter, making a "hot potato" argument.  The court adopted the "thrust upon" exception and ruled that Arnold & Porter could continue to represent Drummond.  Note that the court did not rule on whether Arnold & Porter had a conflict in the first instance.  The court seemed to assume it.  Arnold & Porter clearly thought it was a conflict.

        The American College of Trust and Estate Counsel ("ACTEC"), in its Commentaries on the Model Rules, as to Rule 1.7, has taken the opposite view.  It states:

A lawyer who is asked to represent a corporate fiduciary in connection with a fiduciary estate should consider discussing with the fiduciary the extent to which the representation might preclude the lawyer from representing an adverse party in an unrelated matter. In the absence of a contrary agreement, a lawyer who represents a corporate fiduciary in connection with the administration of a fiduciary estate should not be treated as representing the fiduciary generally for purposes of applying Rule 1.7 with regard to a wholly unrelated matter. In particular, the representation of a corporate fiduciary in a representative capacity should not preclude the lawyer from representing an adverse party in connection with a wholly unrelated matter, such as a real estate transaction or labor negotiation or another estate or trust administration.?

        It cites no cases.  To go to the treatment of Rule 1.7 in the ACTEC Commentaries, click here.

        Not Quite on Point.  Va. Op. 1408 (1991).  The issue was whether a law firm could, with a waiver, oppose a bank’s real estate loan division in litigation, and, at the same time represent the bank’s commercial finance division in a bankruptcy matter.  The committee said the conflict could not be waived and the representation would be improper.

        California and Individual Fiduciaries. Stine v. Dell’Osso, 2014 Cal. App. LEXIS 936 (Cal. App. Oct. 17, 2014). For years we have puzzled over what it means to say that a lawyer for a fiduciary, hired to guide the fiduciary on trust/estate matters, represents the fiduciary only in his or her capacity as fiduciary. This opinion provides a bit of an answer. Basically, it says that, at least in California, the lawyer for the fiduciary may be adverse to the fiduciary on personal matters not related to fiduciary duties. Evidently, that helped resolve part of this case. The opinion is so fact-specific and California-centric, we will leave it to our California brethren to sort it out further.

        Michigan and Individual Fiduciaries. In re Sivers, 2014 Mich. App. LEXIS 2497 (Mich. App. Dec. 16, 2014). Daughter served as Mother’s conservator. At some point Daughter resigned, and Lawyer became conservator. In this proceeding Daughter seeks, among other things, to have Lawyer removed as conservator. One of her grounds was that Lawyer had previously represented Daughter in connection with this estate and had a conflict under Rule 1.9(a). One of the court’s holdings in this opinion was that as conservator Lawyer does not have a client and, therefore, does not have a conflict.

        Estate; Who Can Sue for Malpractice? Estate of Hudson v. Tibble, 2018 IL App (1st) 162469 (Ill. App. Feb. 16, 2018). Lawyer represented the original administrator of Estate. A successor administrator, who did not hire Lawyer, sued Lawyer for malpractice, on behalf of Estate. The trial court granted summary judgment for Lawyer on the basis that Lawyer never represented Estate, just the original administrator. In this opinion the appellate court reversed, holding that Estate could sue Lawyer.

        In re Mack Indus., LTD, 2019 WL 3822315 (N.D. Ill. Aug. 14, 2019). For conflicts purposes, the bankruptcy court ruled that the former lawyer for the debtor could be adverse to the trustee and the estate, which were never clients.

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