Conflict of Interest in Legal Representation
Attorney Karen represents both a construction company and its CEO, Mr. Petrosyan, in a dispute with a supplier. The supplier sued both the company and Mr. Petrosyan personally for breach of contract. During discovery, Karen learns that Mr. Petrosyan used company funds for personal expenses, which could expose him to personal liability and also harm the company's defense. Karen realizes that the interests of the company and Mr. Petrosyan may conflict. The company's board wants to settle, but Mr. Petrosyan refuses to settle because it would require admitting personal wrongdoing. Karen has not yet disclosed this conflict to either client. The supplier's lawyer has not raised the issue.
1. What are Karen's ethical obligations regarding the conflict of interest?
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Under the Armenian Advocates Law and the Code of Professional Ethics for Advocates, Karen has a duty of loyalty and confidentiality to both clients. A concurrent conflict of interest exists when representation of one client will be directly adverse to another client, or when there is a significant risk that the representation will be materially limited by responsibilities to another client. Here, the company and Mr. Petrosyan have divergent interests: the company may benefit from settling, while Mr. Petrosyan may face personal liability if he admits wrongdoing. Karen cannot represent both if their interests conflict. She must promptly disclose the conflict to both clients and obtain informed consent. However, if the conflict is non-consentable (e.g., directly adverse in litigation), she must withdraw from representing both. Given that the supplier sued both, their interests are directly adverse, so consent may not be possible. Karen should withdraw from representing both and advise them to seek separate counsel. She must also protect client confidences and not use information from one against the other.
2. If Karen continues to represent both, what are the potential consequences?
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If Karen continues to represent both without proper disclosure and consent, she violates professional ethics rules. Consequences may include disciplinary action by the Chamber of Advocates, such as reprimand, suspension, or disbarment. Additionally, the court may disqualify her from representing either party, and any judgment could be challenged due to ineffective assistance of counsel. The clients could sue Karen for malpractice if her conflict harmed them. Furthermore, confidential information obtained from one client could be used against the other, violating confidentiality. The supplier could move to disqualify Karen, arguing that the conflict taints the proceedings. Therefore, Karen must immediately address the conflict by withdrawing or obtaining proper consent if permissible. Given the direct adversity, withdrawal is the safest course.