The Trusted Adviser October 2009 | Volume 2 - Number 8

Update from ATG Administration

New Illinois Rules of Professional Conduct
by Charles Yordy, ATG Law Clerk

On July 1, 2009, the Illinois Supreme Court adopted the revised Illinois Rules of Professional Conduct (IRPC), which will take effect on January 1, 2010. Some of the adopted rules may specifically impact attorneys who provide services beyond legal representation, e.g., title insurance. Attorney/title agents in Illinois should be aware of the following rule changes.

Rule 1.7: Conflict of Interest: Current Clients

The old Rule 1.7 prohibits a lawyer from representing a client under two circumstances: (1) if such representation "will be directly adverse to another client"; or (2) if such representation "may be materially limited by the lawyer's responsibilities to another client or to a third person, or by the lawyer's own interests."IRPC 1.7(a), (b) (1990). The rule was satisfied if the lawyer both believes the representation will not adversely affect the parties protected by the rule and "the client consents after disclosure."Id.The rule further required that a lawyer disclose implications of common representation when representing multiple clients in a single (c).

The new Rule 1.7(a) prohibits a lawyer from representing a client when there is a "concurrent conflict of interest," defined as follows: (1) the representation "of one client when it will be directly adverse to another client"; or (2) creating a "significant risk that the lawyer's representation of one or more clients will be materially limited by the lawyer's responsibilities" to another or former client, or a third person, or limited by the lawyer's own interests. IRPC 1.7(a) (2009). This prohibition is excepted if four conditions are met: (1) the lawyer reasonably believes that the lawyer "will be able to provide competent and diligent representation to each affected client; (2) the representation is not prohibited by law; (3) the lawyer does not represent one client who is asserting a claim against the lawyer's other client in the same litigation or proceeding; and (4) "each affected client gives informed consent."IRPC 1.7(b) (2009).

The "concurrent conflict of interest" prohibits essentially the same behavior as the old rule: representing a client to the detriment of another client, or representing a client when the lawyer knows the representation may be compromised by other clients' or the lawyer's own interests. However, the new rule also specifically prohibits representation of a client who asserts a claim against another client represented by the lawyer in the same litigation or other proceeding before a tribunal.IRPC 1.7(b)(3) (2009). So, under the old rule, conceivably an attorney could represent adverse parties in litigation, with informed consent, but cannot under the new rules. Furthermore, to allow representation despite a concurrent conflict of interest, the new rule requires that "each affected client" must give informed consent. Therefore, if a lawyer adds a client whose interests may affect other clients, the lawyer is ethically obligated to get informed consent from both the new and the old clients.

More importantly, the new rule is accompanied by thirty-five comments that go into far more detail about the rule's implications.

Identifying and Mitigating Conflicts

A lawyer has an affirmative duty to determine when a concurrent conflict of interest exists.IRPC 1.7 Comment (Com) 3.A lawyer must "adopt reasonable procedures, appropriate for the size and type of firm and practice."Id.If a conflict arises and the lawyer's procedures fail to flag it, the lawyer is held responsible.Id.

Comment 2 provides a four-step process for resolving a concurrent conflict of interest: "1) clearly identify the client or clients; (2) determine whether a conflict of interest exists, 3) decide whether the representation may be undertaken despite the existence of a conflict, i.e., whether the conflict is consentable; and 4) if so, consult with the clients affected under [IRPC 1.7] paragraph (a) and obtain their informed consent." While a concurrent conflict of interest may be clear if it involves directly adverse representation (discussed in Comments 6 and 7), one that is merely "materially adverse" may be a judgment call. The rule puts the responsibility again on the lawyer to determine if such a conflict exists. "The mere possibility of subsequent harm does not itself require disclosure and consent. The critical questions are the likelihood that a difference in interests will eventuate and, if it does, whether it will materially interfere with the lawyer's independent professional judgment in considering alternatives or foreclose courses of action that reasonably should be pursued on behalf of the client." Com 8. A lawyer should specifically consider responsibilities to former clients, like fiduciary duties, when considering whether certain representation is materially Com 9.

A lawyer has a general responsibility to withdraw from representation when a concurrent conflict of interest arises, unless the lawyer can mitigate the conflict and comply with the exceptions provided by Rule 1.7(b) Com 4, 5. Such compliance of course requires the consent of the clients after disclosure, although in some circumstances, representation is barred even with client consent. If a "lawyer cannot reasonably conclude that the lawyer will be able to provide competent and diligent representation" then the lawyer cannot provide representation or seek a client's consent to the Com 14, 15.

Requirement of Informed Consent

The new IRPC defines "informed consent" as "the agreement by a person to a proposed course of conduct after the lawyer has communicated adequate information and explanation about the material risks of and reasonably available alternatives to the proposed course of conduct."IRPC 1.0(e) (2009). To facilitate informed consent under IRPC 1.7, a lawyer must make affected clients "aware of the relevant circumstances and of the material and reasonably foreseeable ways that the conflict could have adverse effects on the interests of that client&€¦. The information required depends on the nature of the conflict and &€¦ risks." In a matter where a lawyer represents multiple clients, "the information must include the implications of the common representation, including possible effects on loyalty, confidentiality and the attorney-client privilege and the advantages and risks involved." Com 18. Sometimes the necessary disclosure is tricky, because one client may refuse to disclose material information, e.g., financial figures, to another client. When the lawyer cannot obtain the necessary consent, the lawyer must refuse or withdraw from representation to avoid the conflict while the client or clients may seek alternative Com 19.

Furthermore, a client may revoke consent and end representation at any Com 21. Depending on the circumstances, revoking consent to representation and ending the relationship with the lawyer may affect the lawyer's ability to represent other clients.

A lawyer may seek a client's consent to future conflicts. Such consent is effective only if it satisfies the requirements of Rule 1.7(b). Therefore, "the more comprehensive the explanation of the types of future representation that might arise and the actual and reasonably foreseeable adverse consequences of those representations, the greater the likelihood that the client will have the requisite understanding." Com 22. A general statement of consent tends to be ineffective, while a specific statement of consent in a matter the client is familiar with is likely to succeed. Furthermore, even a well-meaning and diligently crafted advance consent ceases to be effective at any time that "circumstances materialize in the future&€¦as would make the conflict nonconsentable under [Rule 1.7(b)]."

Non-Litigation Conflicts

In a transactional legal situation, factors showing whether the material limitation conflict in Rule 7.1(a)(2) exists are "the duration and intimacy of the lawyer's relationship with the client or clients involved, the functions being performed by the lawyer, the likelihood that disagreements will arise and the likely prejudice to the client from the conflict. The question is often one of proximity and degree." Com 26. Situations that are "fundamentally antagonistic" tend to be unconsentable, e.g., representing clients on either side of a Com 28. However, clients with similar interests (even if not exactly identical) may be simultaneously represented by the same lawyer if the lawyer "seek[s] to establish or adjust a relationship between clients on an amicable and mutually advantageous basis."Id.

Rule 1.8: Conflict of Interest: Current Clients: Specific Rules

The old IRPC 1.8 described prohibited transactions and required, among other things, that a client consent after disclosure to engage in a business transaction with a lawyer. InARDC v Rukavina, No 07 CH 96, the hearing panel held that the issuance of a title insurance policy constituted a business transaction between lawyer and client. However, the method of a client's consent was not indicated.

The new IRPC 1.8 specifies that a lawyer must transmit to a client, in writing, the "transaction and terms on which the lawyer acquires the interest," in a manner that can reasonably be understood by the client. The lawyer's interest must be fair and reasonable to the client. Furthermore, the client must be "informed in writing that the client may seek the advice of independent legal counsel on the transaction, and [be] given a reasonable opportunity to do so."IRPC 1.8(a)(2) (2009). Then, the client must give informed consent "in a writing signed by the client, to the essential terms of the transaction and the lawyer's role in the transaction, including whether the lawyer is representing the client in the transaction." 1.8(a)(3).

Comment 1 indicates specifically that "[t]his rule applies to lawyers engaged in the sale of goods or services related to the practice of law, for example, the sale of title insurance." However, the original wording of Comment 1 said "see Rule 5.7." Rule 5.7 would have created rules surrounding "law related services." After much debate, Rule 5.7 was not adopted in Illinois and the reference to Rule 5.7 was dropped from Comment 1. Without Rule 5.7, there is some question as to whether the sale of title insurance does constitute a "business transaction" between a lawyer and a client. ATG is working with counsel, IRELA, and other interested groups to develop disclosures and protocols that will comport with the intent of the Committee and the Court.

IRPC 1.8 if adopted for title transactions would require changes to the method by which disclosure and consent are communicated. The lawyer must make two disclosures in writing: (1) the transaction and terms of the lawyer's interest; and (2) the availability of independent legal counsel to the client. Presumably both disclosures may be executed by the same instrument. Furthermore, informed consent must be separately communicated to the lawyer in a signed writing that should demonstrate the client's understanding of the "essential terms of the transaction and the lawyer's role." 1.8(a)(3). Again, whether IRPC 1.8 is applicable to the provision of title services is subject to ongoing debate.

ATG is currently drafting suggested language for a written disclosure to clients purchasing title insurance. That form will be distributed and discussed at ATG's Harold I. Levine Real Estate Institute program on November 5, 2009, in Chicago. (See below for details).

Rule 2.3: Evaluation for Use by Third Persons

In relevant part, the old Rule 2.3 allowed a lawyer to "undertake an evaluation of a matter affecting a client for the use of someone other than the client if: 1) the lawyer reasonably believes that making the evaluation is compatible with other aspects of the lawyer's relationship with the client; and 2) the client consents after disclosure." Therefore, with a client's consent and an honest belief that the lawyer's actions were in the client's best interests, a lawyer could represent a client while simultaneously acting on a separate matter that affected the client, such as issuing a title insurance policy.

The new IRPC 2.3 (2009) reads almost the same. However, the comments specifically add that often a lawyer "may be impliedly authorized to disclose information" when there is no risk to the client.IRPC 2.3, Com 5 (2009). Thus, only when such a risk exists must a lawyer obtain informed consent before conducting an evaluation for a third party.


The new IRPC operates much the same on Rules 1.7, 1.8, and 2.3, sometimes reading word-for-word like the old IRPC. However, the new rules have a great deal more specificity, created by the extensive comment sections. For lawyers practicing transactional law, the major difference is the heightened requirements of written disclosure and consent, including content prescribed by the rules. Additionally, the comments sections contain more language to clarify situations where the rules operate, but that language will no doubt be open for interpretation by further guidance.

EDITOR'S NOTE: For further information, attend ATG's2009 Harold I. Levine Real Estate Institute — Survive and Thrive: Preparing Your Practice for Changing Timesin Chicago on November 5, 2009. This full-day seminar (5.75 hours MCLE, including 2.00 Professional Responsibility credit) will cover the Illinois Rules of Professional Conduct in depth in addition to the HUD-1 Settlement Statement, Good Funds legislation, and other critical topics. SeeProgram Calendarfor details on this premier ATG Legal Education event.






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[Last update: 10-20-09]