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By Gary Schons

The California attorney general recently issued an opinion addressing both the attorney ethics and legal conflicts implications posed when an attorney who serves as an elected public official — in the case at hand, a city councilmember — has a client whose interests are adverse to the city. The attorney general concluded that the Rules of Professional Conduct applicable to attorneys erect an ethical prohibition to such representation resulting from conflicting fiduciary duties owed to client and city, respectively.

With respect to the state’s financial and common law conflict of interest laws, under most circumstances, the opinion said, representing a client with such an adverse interest would disqualify the office holder from participating in governmental decisions and contracts affecting the client under the Political Reform Act, Government Code Section 1090 — pertaining to conflicts in government contracting — and the doctrine of common law conflict of interest requiring undivided loyalty to the public entity.

The principle measure in the Rules of Professional Conduct dealing with representing adverse interests is Rule 3-310(C), which prohibits an attorney from representing clients whose interests are adverse. The rule contemplates two or more attorney-client relationships.

The attorney general concluded this rule did not apply to the circumstance of a simultaneous attorney-client relationship and the relationship between a council member and his or her municipality, which is not an attorney-client relationship. Rather, the attorney general found that the general ethics rule, Rule 1-100 of the RPC, which binds members to conform their conduct to “applicable law,” is the source of the attorney ethical limitation, which applies in this circumstance.

Attorneys have a duty of undivided loyalty to their client. This duty of loyalty is compromised when an attorney has a fiduciary relationship with a nonclient whose interest(s) are adverse to the client. The opinion noted that, in this context, it not does not matter that the attorney’s relationship with the nonclient is not an attorney-client relationship. The attorney general cited to case law which found that an ethical conflict of interest can arise from an attorney’s nonclient relationship that carries with it a duty of fidelity or is a fiduciary relationship.

Examples cited included a corporate directorship relationship as the nonclient relationship. When the attorney’s client’s interests clashed with those of the corporation, a disqualifying conflict arises. The California State Bar has issued opinions finding that an elected official has a duty of fidelity to his or her public entity, and as a consequence, a legal ethical conflict exists in both contract and litigation situations involving a city councilmember/attorney whose client’s interests are adverse to the city.

The attorney general concluded that such a conflict would exist even if the attorney was uncompensated (serving the client pro bono), as the duty of fidelity and loyalty to the client is not affected simply because the attorney is not compensated.

The attorney general then turned to “public integrity” conflicts provisions — the Political Reform Act and Government Code Section 1090, which regulate financial interests affected by “governmental decisions” and government contracts, respectively, and the doctrine of common law conflict of interest that applies to personal, nonfinancial loyalties and biases.

In the typical situation of representing a client for compensation, the attorney general concluded that the financial interest in the client is as a “source of income.” Under Government Code Section 87100 and the regulations of the Fair Political Practices Commission, this financial interest would disqualify the attorney/councilmember from making, participating in making or seeking to influence any decision of the city affecting the client. (Importantly, this would include governmental decisions unrelated to the purpose or subject matter of the attorney’s representation of the client. Thus, in such an instance, it would not be necessary that the interests of the public entity and the client were adverse.)

However, if the council member/attorney is performing services without compensation, that “source of income” financial interest would not exist, and there would be no disqualifying conflict under the act.

Government Code Section 1090, which covers financial interests in government contracts, would prohibit the city from making a contract with the client of a councilmember/attorney because the councilmember/attorney would have a “financial interest” in that contract, as the subject of the representation. The conflict would not only disqualify the attorney/councilmember, but the entire council and the city from entering into such a contract.

The attorney general concluded that this “financial interest” would exist even if the councilmember/attorney was providing services without compensation because of the potential economic benefit — prestige, publicity and good will — flowing to the attorney from representing the client.

Because Government Code Section 1090 is concerned solely with government contracts and is narrower in scope than the Political Reform Act, it would not apply to litigation between the city and the councilmember/attorney’s client, unless and until a settlement (a contract) were contemplated. Nor would it apply to the contract for services between the councilmember/attorney and the client, because that contract is not made in the councilmember/attorney’s official capacity. Likewise, merely corresponding with the city on the client’s behalf or representing the client in seeking a permit would not implicate Section 1090, as contract is not involved in those circumstances.

Finally, the attorney general considered the application of the doctrine of common law conflict of interest, which prohibits public officials from placing themselves in a position where their private, personal interests may conflict with their official duties — including undivided loyalty to the public entity and the requirement of disinterested skill, zeal and diligence (fairness) in carrying out the duties of the office.

Here, the attorney general concluded that the loyalty to the client would infect noncontractual situations, litigation or prelitigation, as well as permit applications and the like. Thus, the common law conflict would prohibit the councilmember/attorney from participating in any decision affecting the client’s interest(s) whether or not at odds with the city’s interests, including pro bono representation.

The attorney general’s conclusion regarding the legal ethics “conflict” arising under Rule 1-100 is the most significant finding reached in the opinion. That conclusion serves to illustrate the ethical conflict that can arise in a host of situations where an attorney has a fiduciary relationship, but not an attorney-client relationship, with a person or legal entity, including both public and private entities. Because it is an ethical norm under the Rules of Professional Conduct, it can serve as a basis for discipline by the State Bar of California. Thus, all attorneys need to pay heed to these types of relationships and factor them into the lawyer’s regular “conflicts check.”

The public integrity conflicts law analysis is fairly straightforward and unsurprising. Of note, however, is that the attorney general addresses these potential conflicts from the standpoint of an “adverse interest” between the client and the municipality, because that was the question presented for the attorney general to opine on. However, the conflict analysis is not dependent on there being an “adverse interest” between the client and the municipality, as the conflicts under the Political Reform, Government Code Section 1090 and the common law conflict provisions do not require such an “adverse interest.”

This article was originally published May 16, 2018 in Law360. Republished with permission.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio​​ Media Inc., or any of its​​ or their respective affiliates. This article is for general info​​rmation purposes an​​d is​​ ​​not ​​intended to be and​​ should not be taken as legal advice.

Gary Schons is no longer with BB&K. If you have questions about this decision please contact Michael Maurer.

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