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Undisclosed Conflict of Interest – New Jersey

Author: LegalEase Solutions

QUESTION PRESENTED

 Whether, under New Jersey law, attorney fees are forgiven or reversed because of an undisclosed conflict of interest?

 SHORT ANSWER

No, but parties may sue and seek such relief from the court if their attorney violated his or her duties regarding conflicts under the New Jersey Rules of Professional Conduct. Professional conduct of attorneys in New Jersey is subject to these rules (the Rules, for short). The Rules prevent a lawyer from representing a client if it creates a conflict of interest with a former client or a concurrent client. If a lawyer violates or attempts to violate any of the Rules, the lawyer will be liable for professional misconduct. The New Jersey courts have allowed the aggrieved party in such an instance to sue the attorneys for malpractice in order to recover fees paid and collect the fees incurred in that malpractice action.  Further, the New Jersey Supreme Court has extended the ‘reasonable expenses’ standard employed in legal malpractice to professional misconduct cases.[1] Additionally, the Superior court has observed that forfeiture of fees is a “consequence which would secure the enforcement of conflict rules.”[2]

The instant case involves an allegation of undisclosed conflict of interest, which amounts to professional misconduct. Since New Jersey courts have allowed the aggrieved party to sue the attorney to recover fees paid and to collect the expenses, the party may sue the attorney for misconduct to recover the fees paid. There is no indication in the case law, however, that parties may resort to self-help, e.g. retaining the amounts owed without filing a lawsuit claiming their right to retain the fees.

RESEARCH FINDINGS

The Supreme Court of New Jersey has held that “[o]ne of the most basic responsibilities incumbent on a lawyer is the duty of loyalty to his or her clients. From that duty issues the prohibition against representing clients with conflicting interests.” Matter of Opinion No. 653 of Advisory Comm. on Prof’l Ethics, 132 N.J. 124, 129 (1993).

The New Jersey courts have observed that “RPC 1.7 reflects ‘the fundamental understanding that an attorney will give ‘complete and undivided loyalty to the client’ [and] ‘should be able to advise the client in such a way as to protect the client’s interests, utilizing his professional training, ability and judgment to the utmost.’”  J.G. Ries & Sons, Inc. v. Spectraserv, Inc., 384 N.J. Super. 216, 223 (App. Div. 2006) (quoting In re S.G., 175 N.J. 132, 139, 814 A.2d 612 (2003) and In re Dolan, 76 N.J. 1, 9, 384 A.2d 1076 (1978)).

The Superior Court observed in a case that “[forfeiture of fees] may be the risk attorneys accept when undertaking the joint representation of potentially adverse clients. It is a consequence which would secure the enforcement of conflict rules.” DeBolt v. Parker, 234 N.J. Super. 471, 485 (Ch. Div. 1988). Further, “[a] forfeiture rule would recognize the difficulty a client may experience when obliged to change counsel in the middle of litigation.” Id. “Finally, absent forfeiture, there is no risk in the decision to represent potentially adverse interests.” Id.

Thus, “[i]t is fairly well established that an attorney’s violation of the Rules of Professional Conduct (RPC) in connection with the representation of a client may jeopardize that attorney’s right to collect fees for services rendered.” Straubinger v. Schmitt, 348 N.J. Super. 494, 500 (App. Div. 2002)).

In Straubinger, the issue was “the proper apportionment of a contingent fee between two firms which succeeded one another during the course of a client’s case, the first of which firms had potential conflicts of interest arising out of its representation of another client in the same case.” Id., at 501. “The [trial] judge concluded [one firm] had done the bulk of the work on the case and thus awarded [that firm] two-thirds of the [] fee and [the other firm] one-third.” Id., at 500.

The Superior court observed that its “role is to resolve the counsel fee dispute and to consider and weigh any violations of the RPCs which may impact on the award of counsel fees.” Id., at 502. The court further held that “[i]n the case of violations of the RPCs which materially affect the value of the services to the client, there should be no hesitancy to deny fees.” Id., at 504. Also, “[t]he determination is a fact sensitive one requiring weighing the nature and extent of the violation against the value of the services rendered and reflecting those considerations in the award.” Id.  The court added that “[s]ince, in addition to work performed, the result achieved is a factor in considering an award of fees, RPC 1.5(a)(4), we conclude that the nature and length of [the firm’s] conflict should be a significant determinant of the amount to which [the firm] is entitled. Id., at 505.

Therefore, the court reversed “the award of fees as apportioned by the trial judge” and remanded “for a rehearing to determine the proper allocation of the fee”. Id. The court further directed the trial court to determine “[m]atters such as when the conflict arose and what impact it had on the services performed should be determined. Those considerations should then be reflected in the ultimate allocation.” Id.

In Dewey v. R.J. Reynolds Tobacco Co., 109 N.J. 201, 218 (1988), a case involving conflict of interest, the plaintiff was allowed to retain “[s]o much of the balance as would ordinarily be included in that firm’s fee.” Id., at 220.

Dewey is a tobacco product liability case where“[t]he appeal arises from Brown & Williamson’s [one of the defendant’s] motion to disqualify one of the two firms that represent plaintiff, because of that firm’s conflict of interest.” Dewey v. R.J. Reynolds Tobacco Co., 109 N.J. 201, 204 (1988).

The court held that they “would be constrained to order the disqualification of the [law] firm.” Id., at 218. But, the court further observed that “an order disqualifying counsel on the eve of trial would do more to erode the confidence of the public in the legal profession and the judicial process than would an order allowing the firm to continue its representation of the plaintiff.” Id., at 219.

Further, “[a] condition of [continuing] representation, however, is that it is to be furnished without compensation for any services to be rendered henceforth, particularly including any services in connection with trial or other final disposition of the matter.” Id.  Additionally, “[the firm] will be entitled to a fee for services performed up to the date of this opinion, calculated on any reasonable basis … So much of the balance as would ordinarily be included in that firm’s fee will be retained by plaintiff.” Id. at 220.

Suits in Malpractice

The courts have held that “[a]s professionals, attorneys are deemed responsible for their own acts, and … most clients have legal recourse against the attorney and his law firm for their actions.” Baldasarre v. Butler, 132 N.J. 278, 291-92 (1993).

“[T]he purpose of a legal malpractice claim is to put the client in as good a position as he or she would have been if the attorney had performed competently.” Packard-Bamberger & Co. v. Collier, 167 N.J. 427, 441(2001) (citing Saffer v. Willoughby, 143 N.J. 256, 269-71). Therefore, “a client may recover reasonable expenses and attorneys’ fees as consequential damages for attorney malpractice.” Packard, supra 167 N.J. at 432 (citing Saffer, supra, 143 N.J. at 272, 670 A.2d 527 (1996).

Thus, “‘[o]rdinarily, an attorney may not collect attorney fees for services negligently performed. In addition, a negligent attorney is responsible for the reasonable legal expenses and attorney fees incurred by a former client in prosecuting the legal malpractice action.’” In re Estate of Balgar, 399 N.J. Super. 426, 441 (Ch. Div. 2007) (quoting Saffer, supra, 143 N.J. at 272.)

Further, the New Jersey Supreme Court has held that “the same reasonableness standard [set out in Saffer] should govern attorney-misconduct cases.” Packard, supra, 167 N.J. at 444.[3]

Relevant statutes

NJ Rules of Professional Conduct

RPC 1.7 Conflict of Interest: General Rule

(a) 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.

RPC 8.4 Misconduct

It is professional misconduct for a lawyer to:

(a) violate or attempt to violate the Rules of Professional Conduct, knowingly assist or induce another to do so, or do so through the acts of another;

(c) engage in conduct involving dishonesty, fraud, deceit or misrepresentation;

CONCLUSION

The New Jersey courts have considered forfeiture of attorney fees as a means to secure the enforcement of conflict of interest rules. (DeBolt, supra, 234 N.J. Super. at 485). Further, the courts have allowed aggrieved party to recover attorney fees and expenses in professional misconduct cases. (Packard, supra, 167 N.J. at 444). Therefore, in the instant case, the aggrieved party may be entitled to retain the fees should they succeed in an action for professional misconduct. The aggrieved party does not, however, have the right to engage in self-help and merely retain the fees due without seeking such relief in court.

[1] Packard-Bamberger & Co. v. Collier, 167 N.J. 427, 444 (2001).

[2] DeBolt v. Parker, 234 N.J. Super. 471, 485 (Ch. Div. 1988).

[3] Saffer involved “a fee dispute between an attorney and a former client.” Saffer v. Willoughby, 143 N.J. 256, 260 (1996).