Are Differences Among the Attorney Conflict of Interest Rules Consistent with Principles of Behavioral Economics?

Georgetown Journal of Legal Ethics, The, Winter 2006 by Gross, Leonard E

I. INTRODUCTION

This article will examine whether the disparate treatment by the Model Rules of Professional Conduct ("Model Rules") of different types of conflicts of interest evidences unrealistic assumptions on the part of the framers of the Model Rules regarding lawyer and client behavior. The Model Rules and court decisions interpreting them treat different types of conflicts of interest differently. At one extreme, conflicts posed by a lawyer representing a client on a contingency fee basis do not even require disclosure.1 Moving in from this extreme, general conflicts of interest require disclosure and client consent confirmed in writing.2 In addition, the lawyer must reasonably believe that he can handle the case competently and diligently, the representation is not prohibited by law, and does not involve a claim by one client against another in the same litigation or other proceeding before a tribunal.3 Moving even further along the continuum, conflicts posed by a lawyer entering into business transactions with his client require that the terms be fair and reasonable and transmitted in writing, that the client be advised in writing to seek independent counsel, and that the client give informed written consent to the essential terms of the transaction, including the lawyer's role in the transaction.4 Some transactions are viewed as so problematic that they are absolutely forbidden, such as providing financial assistance to a client during pending or contemplated litigation, except for the advancement of court costs and expenses of litigation.5 Repayment of these costs and expenses may be contingent on the outcome of the matter or can be provided with no strings attached if the client is indigent.6 Likewise, prior to the conclusion of representation, a lawyer cannot negotiate an agreement giving the lawyer literary or media rights to an account based in substantial part on information relating to the representation.7 Finally, a lawyer cannot have sexual relations with a client unless a consensual relationship already existed between them when the client-lawyer relationship commenced.8

Such disparate treatment stems in part from the Model Rules' drafters' perception that some conflicts are more likely to cause a lawyer to take advantage of a client than others, and some conflicts make it more difficult to obtain informed consent than others. Still other conflicts may be permissible for policy reasons having nothing to do with the dangers posed by the conflict.9 This article will analyze whether such disparate treatment is warranted and what it says about the Model Rules' framers' assumptions concerning human behavior. If such disparate treatment cannot be justified, then we must ask whether the framers' assumptions were mistaken, or whether the conflict of interest rules are the product of a conscious or subconscious attempt to serve the interests of attorneys at the expense of their clients.

This article will explore principles of behavioral economics to determine whether the differences among the Model Rules governing conflicts of interest can be justified based on predictions about how lawyers and clients behave in such situations. Behavioral economics and social science literature would suggest that lawyers, like other humans, behave in a way to maximize their self-interest. However, some commentators have suggested that lawyers will behave in accordance with a higher "professional" mode. This article will examine empirical evidence regarding how lawyers and clients behave in conflict of interest situations. This article will analyze whether the general model of behavioral economics applies to lawyers or whether lawyers will adhere to a "professional" model even when it is not in their best interest to do so.

Finally, this article will provide some recommendations for changes in the rules to address what we know about the behavior of lawyers and clients in conflict of interest situations. It will address how the interests of lawyers and clients can be aligned, and also suggest enforcement devices which may potentially reduce the likelihood that lawyers will seek to advance their own interests at the expense of their clients. The best solution may be to have firms continue to move in the direction of having more objective and neutral decision-makers resolve conflicts of interest questions.

II. BEHAVIORAL ASSUMPTIONS UNDERLYING THE CONFLICT OF INTEREST RULES

Rule 1.7 of the American Bar Association's ("ABA") Model Rules states that a lawyer can represent a client with a conflicting interest if the lawyer reasonably believes he can competently and diligently represent the client and if he obtains the client's informed consent, which since the 2002 amendments, must be confirmed in writing.10 Because of the use of the term "reasonably believes," the lawyer's determination must be objectively reasonable.11 Rule 1.7 rests on the assumption that lawyers will disclose conflicts to their clients to obtain informed consent and that they will do so in a meaningful way so that the client will be able to make an intelligent decision as to whether to waive a conflict.12 However, social science literature suggests that a lawyer will rationalize his behavior as being ethical because of the innate human tendency to rationalize one's self-interest as being consistent with morality.13 Furthermore, he will attempt to persuade the client that he could effectively represent her despite any possible conflict. Finally, the client, who has already made a decision to trust the lawyer with her case, will be unlikely to question the lawyer's assertion that he could effectively represent her.