November 30, 2015

Nine Point One Shades of Grey — Are You In Compliance?

The Law Club is performing its annual Ethics Revue next week on Tuesday and Wednesday at Lannie’s Clocktower Cabaret in Denver. This entertaining production features ethics vignettes in musical theater format. It’s the most fun you’ll ever have at an ethics CLE. To prove it, check out these photos from last year’s Ethics Revue. Don’t miss out – register today! Space is limited. Click here to register for Tuesday night and click here to register for Wednesday night.

Came in Like a Wrecking Ball - Law Revue - Nov. 2014

She came in like a wrecking ball.



The Hunger Games, ethics style.


Carnac the Magnificent - Law Revue - Nov. 2014

Carnac the Magnificent.



The Yale Team.


Finale - photo #2 - Law Revue - Nov. 2014

The grand finale. Congratulations on another successful performance!

Social Responsibility — Doing Good While Also Making Money And Protecting Owner Interests

BLI_2015Editor’s Note: The following article is excerpted from Herrick Lidstone’s materials for the 2015 Business Law Institute on October 28, 2015. Mr. Lidstone is leading a panel discussion about social responsibility in business. For discussion of the questions he raises below, attend the Business Law Institute. Register here or by clicking the links below.

By Herrick K. Lidstone, Jr.

There are a huge number of issues surrounding corporate/entity social responsibility. Even understanding what “social responsibility” is in this context has a divergent path. For the purposes of this discussion, it can be described as “Doing Good While Also Making Money And Protecting Owner Interests.”[1] This demonstrates the potential conflict – should an investor in a business entity (the owner) look to the entity to “do good” or merely to comply with legal requirements (do not pollute; do not violate the law) while making money for the owners (profit maximization). Should the owner have a say in the business entity’s choices?

Should an entity selling t-shirts worry about the workers in Bangladesh? Should an entity selling coffee worry about how it is grown and harvested? Should an entity selling beef burritos worry about how the cattle are slaughtered?

The legal landscape in which these questions must be considered has changed dramatically in the last five years. Consumer attitudes toward many of these issues have also changed. Some businesses are now extolling their social responsibility, while others apparently continue to consider that to be a secondary consideration, at best. Citizens United v. Federal Election Comm’n, 130 S. Ct. 876 (2010), interprets the Constitution to give business entities the right of free speech in political campaigns in a manner that is not necessarily answerable to the owners.[2] Has Burwell v. Hobby Lobby Stores, Inc., 134 S. Ct. 2751 (2014), done similarly for social responsibility and business philanthropy?

The following points are more than can be discussed at one sitting, but hopefully will form a basis for an interesting presentation.

  1. Does Hobby Lobby change the landscape for business enterprises to consider factors other than profit in making their business decisions?
  2. The duties of the Board of Directors after Hobby Lobby – can a for-profit corporation consider social responsibility even if it has the effect of reducing profits?
  3. Where investors are concerned, what is the role of disclosure regarding consideration of alternative constituencies?
  4. Should a for-profit corporation desiring to include a focus on social responsibility at the expense of profit expressly so state in its articles of incorporation or adopt a form such as (in Colorado) a public benefit corporation?
  5. Is there a religious and moral side to profit maximization and corporate social responsibility?
  6. Is there a difference between corporate social responsibility and social entrepreneurship?
  7. Are alternative entities important, and must they be carefully crafted?
  8. Is it a question of marketing?
  9. Where does “blind philanthropy” fit in?
  10. Once you have done it, can you go back?
  11. Is it the Millennials (born 1980-1995) versus the Baby Boomers (born 1945-1960)?
  12. Whither the future?

[1] Of course, the concept of “doing good” has potentially a variety of meanings depending on political, moral, religious, and other deeply held beliefs. This paper will not focus on the potentially contradictory definition of “good.” In the most controversial extreme, consider the “rights of the unborn” versus “freedom of choice” as a justification for abortion. This paper will leave the definition of “good” to others.

[2] In August 2011, the “Committee on Disclosure of Corporate Political Spending” filed a petition for rehearing with the Securities and Exchange Commission ( in which the committee asked “that the Commission develop rules to require public companies to disclose to shareholders the use of corporate resources for political activities.” Those rules still do not exist for 1934 Act reporting companies. The SEC does have rules prohibiting investment advisors from making political contributions to encourage political subdivisions to hire them as advisors. See 17 CFR § 275.206(4)-5.

Herrick K. Lidstone, Jr., Esq., is a shareholder of Burns Figa & Will, P.C. in Greenwood Village, Colorado. He practices in the areas of business transactions, including partnership, limited liability company, and corporate law, corporate governance, federal and state securities compliance, mergers & acquisitions, contract law, tax law, real estate law, and natural resources law. Mr. Lidstone’s work includes the preparation of securities disclosure documents for financing transactions, as well as agreements for business transactions, limited liability companies, partnerships, lending transactions, real estate and mineral property acquisitions, mergers, and the exploration and development of mineral and oil and gas properties. He has practiced law in Denver since 1978.


CLE Program: Colorado Business Law Institute

This CLE presentation will take place Wednesday, October 28, 2015 at the Grand Hyatt Denver Downtown. Live program only – click here to register or call (303) 860-0608.

Can’t make the live program? Click here to order the CD homestudy or click here for the MP3 audio homestudy.

Tenth Circuit: Cases Properly in Federal Court but Arising Under State Law Trigger Article III Protections

The Tenth Circuit Court of Appeals issued its opinion in In re Renewable Energy Development Corp.: Loveridge v. Hall on Friday, July 10, 2015.

Renewable Energy Development Corporation (REDCO) entered into Chapter 7 bankruptcy proceedings and attorney George Hofmann was appointed the bankruptcy trustee. Hofmann consulted with Summit Wind Power, LLC, to determine the value of REDCO’s wind leases on private properties, and eventually discovered that REDCO had failed to pay consideration for some of the leases. Hofmann concluded REDCO’s options were unenforceable and encouraged Summit to pursue its own leases with the private property owners, which it did. Later, Hofmann decided the property owners could not cancel their leases with REDCO in favor of Summit without first offering REDCO the opportunity to cure, so he asked Summit to forgo its leases, but Summit refused. Eventually Hofmann brought adversarial claims in bankruptcy on behalf of REDCO against his other client, Summit. Summit responded with state law claims against Hofmann and his firm for malpractice, breach of fiduciary duty, and more. Hofmann was replaced as REDCO’s bankruptcy trustee. Summit filed suit against Hofmann in federal district court, alleging diversity jurisdiction and the right to have the case resolved in an Article III court. Hofmann argued the case should be resolved in an Article I bankruptcy court, and the district court agreed, removing the case to the bankruptcy court but certifying its decision for immediate appeal.

The Tenth Circuit evaluated Article III jurisdiction under the test articulated in Stern v. Marshall, 131 S. Ct. 2594 (2011) and the public rights doctrine. The Tenth Circuit recognized the conflict between the public rights doctrine and bankruptcy cases, noting that the Supreme Court has suggested certain aspects of public rights may properly find resolution in Article I courts. The Tenth Circuit analyzed Stern‘s holding that when a claim is a state law action not necessarily resolvable by a ruling on the creditor’s claim in bankruptcy, it implicates private rights and thus cannot be finally resolved in bankruptcy court. The Circuit found this scenario present, since the Summit’s claims against Hofmann were far removed from the bankruptcy proceeding. The Tenth Circuit recognized that perhaps cases involving similar factual scenarios should create a new exception to Article III, but declined to issue such a rule. The Tenth Circuit also found that the bankruptcy court could hear the case but not decide the issues, acting as a sort of magistrate or special master, and then deferring to the district court for decisionmaking. The Tenth Circuit also found that the district court retained diversity jurisdiction over the case.

The Tenth Circuit remanded the case to district court.

Colorado Court of Appeals: Real Estate Broker Properly Disciplined by Commission for Conversion of HOA Funds

The Colorado Court of Appeals issued its opinion in In re Disciplinary Action Against the Real Estate Broker’s License of Bernard McConnell v. Colorado Real Estate Commission on Thursday, September 24, 2015.

Real Estate Commission Discipline.

In 2010 and 2011, while serving as president of the Pinecliff Homeowners Association (HOA), McDonnell wrote four checks totaling $10,000 on the HOA’s account payable to himself or his business. When the treasurer discovered one of these checks, McDonnell claimed he had written the check by mistake and repaid the HOA. When the treasurer’s term ended, McDonnell took custody of the HOA’s accounting records and refused to appoint a new treasurer.

The next year, an HOA board member called for a meeting to discuss accounting issues. McDonnell declined to attend and resigned. He then deposited the remaining $8,000 he had withdrawn for non-HOA purposes into the HOA bank account.

When the HOA board discovered the checks, they reported McDonnell to the police and the Colorado Real Estate Commission (Commission). No criminal charges were filed, but the Commission opened an investigation. The Commission charged McDonnell with four violations of the Colorado Real Estate Broker License Law. McDonnell appealed the Commission’s order sanctioning him on some of those counts.

The Court of Appeals first rejected McDonnell’s contention that the Commission did not have authority to sanction him for conduct that does not involve “selling, exchanging, buying, renting or leasing” real estate. The Court cited numerous provisions that allow the Commission to sanction a broker’s improper conduct outside of the real estate context, particularly when it speaks to the broker’s honesty, dignity, or moral character.

The Court also rejected McDonnell’s argument that CRS § 12-61-113(1)(g) (providing for sanctions for failure to properly account for funds) only applies to a licensee’s conduct involving real estate matters. The plain language of the section is clearly broader and not so limited.

McDonnell argued that CRS § 13-16-113(1)(g.5) (providing for discipline for conversion of funds of others and diverting funds of others without authorization) applies only to real estate transactions and that, even if it applies, his conduct was not conversion because he always intended to return the money. The Court disagreed, again holding that the section applies to more than just real estate transactions. Moreover, the Commission’s conclusion that McDonnell took the funds from the HOA without authorization and used them was amply supported in the record.

The Court further rejected McDonnell’s argument that CRS § 12-61-113(1)(t) (providing for discipline for any other conduct that constitutes dishonest dealing) only applies in the real estate context. It also rejected his argument that his actions did not rise to the level of dishonest dealing. Although “dishonest dealing” is not defined in Colorado statute or case Law, a court can determine the meaning of an undefined phrase of common usage by ascertaining its usual and ordinary meaning. Here, McDonnell’s misrepresentations and misappropriations demonstrate the ordinary meaning of a dishonest act.

The Court agreed with McDonnell that he could not be disciplined under CRS § 12-61-113(1)(n) (providing for discipline for incompetency or endangerment to the public). The administrative rule implementing this section provides an exhaustive list of grounds for unworthiness or incompetence, none of which were done by McDonnell and none of which apply outside of the real estate context. Accordingly, the Court affirmed the Commission’s conclusions as to three of the four counts, along with the Commission’s sanctions.

Summary and full case available here, courtesy of The Colorado Lawyer.

Tenth Circuit: Attorney Fee Award Appropriate as Sanction for Bad Faith Conduct

The Tenth Circuit Court of Appeals issued its opinion in Farmer v. Banco Popular of North America on Tuesday, June 30, 2015.

George Farmer, a licensed Colorado attorney, was personal representative of his father’s estate. Banco Popular demanded that Farmer pay off the entire amount of a $150,000 HELOC his late father obtained on his home. Eventually, Banco and Farmer reached a settlement agreement, where Banco would pay Farmer $30,000 and forgive some of the loan principal and Farmer would pay Banco  $137,380.94 in satisfaction of the HELOC. However, Farmer never signed the settlement agreement, and continued to vexatiously litigate terms of the agreement. Eventually, the dispute reached the Tenth Circuit, and the Circuit ordered the enforcement of the district court’s order for the parties to pay according to the terms of the settlement agreement. The Tenth Circuit admonished Farmer and directed the district court that it could exercise its authority in imposing punitive sanctions for further delays caused by Farmer.

When Banco returned to the district court to enforce the order, Farmer paid the $137,380.94, and Banco renewed its motion for attorney fees and costs under 28 U.S.C. § 1927. The district court awarded $41,461.76 in attorney fees and $11,617.77 in costs to Banco, excluding fees and costs related to Farmer’s first appeal, and Farmer appealed the district court’s order.

The Tenth Circuit first dismissed Farmer’s frivolous argument that the district court lacked subject matter jurisdiction over the matter following remand. Farmer’s first appeal was interlocutory, and the district court’s attorney fee judgment was a punitive sanction issued prior to final judgment. The district court thus retained jurisdiction over the matter on remand.

Farmer next argued that Banco waived its right to attorney fees in the settlement agreement. The Tenth Circuit, noting it doubted the parties anticipated the “tortuous” litigation that would follow, found the attorney fee and cost award was a punitive sanction and the court’s inherent power to fashion punitive sanctions for bad faith conduct was inherent and could not be waived by agreement of the parties. Reviewing the award itself for abuse of discretion, the Tenth Circuit found none. The tone and substance of Farmer’s motions suggested a deep disrespect for the court and its authority. Farmer’s conduct vexatiously multiplied the proceedings, implying bad faith. The Tenth Circuit found ample record justification for the punitive sanctions. Farmer requested the Tenth Circuit remand the matter to the district court for a detailed list of bad faith conduct pursuant to § 1927, but the Tenth Circuit declined to do so, finding that the district court’s sanctions were issued pursuant to its inherent authority and it need not list each instance of bad faith conduct.

The Tenth Circuit made slight reductions to the fee and cost award due to some of the fees and costs being performed for the appeal. The Circuit issued a final mandate that Farmer pay $40,246.76 in attorney fees and $10,577.77 in costs to Banco, and noted Banco could use any and all lawful means to ensure collection. The Tenth Circuit warned that “further prolongation of th[e] appeal” would result in the Tenth Circuit imposing its own sanctions on Farmer.

Colorado Court of Appeals: Maintenance Awards Exempt from Attorney Charging Liens

The Colorado Court of Appeals issued its opinion in In re Marriage of Dixon v. Samuel J. Stoorman & Associates PC on Thursday, July 16, 2015.

Charging Lien—Maintenance—Attorney Fees.

Samuel J. Stoorman & Associates PC (law firm) sought to enforce its lien against the maintenance payments that husband was obligated to pay to the law firm’s former client (wife). The law firm had represented wife in the dissolution action giving rise to husband’s maintenance obligation. The trial court determined that the maintenance payments were exempt from enforcement of the attorney’s lien.

On appeal, the law firm contended that the trial court erred in finding that the law firm’s attorney’s lien could not be enforced against husband’s spousal maintenance obligations. A charging lien automatically attaches to the fruits of the attorney’s representation of the client, to the extent of the attorney’s reasonable fees remaining due and unpaid. An attorney may immediately enforce the lien against the client once judgment in favor of the client is entered. Maintenance payments and obligations are exempt from enforcement of the charging lien. Accordingly, an attorney’s charging lien may not be enforced against a court-ordered spousal maintenance obligation or payment. The trial court’s denial of the law firm’s motion to enforce the lien against husband’s maintenance obligations to wife was affirmed. Nevertheless, the law firm’s position did not lack substantial justification because the question whether a charging lien may be enforced against spousal maintenance payments or obligations had not been decided at the time of the law firm’s motion. Consequently, the award of attorney fees and costs to husband was reversed and husband’s request for an award of attorney fees and costs incurred on appeal was denied.

Summary and full case available here, courtesy of The Colorado Lawyer.

Public Comment Period Open for Changes to Colorado Rules of Professional Conduct

The public comment period is now open for proposed changes to the Colorado Rules of Professional Conduct. Most of the proposed changes amend the Comments to the Rules. Some of the proposed changes are minor, such as updating cross-references or contemplating electronic communications, while others are extensive, such as changes regarding how much disclosure of client information is appropriate during conflict checks or use of lawyers and nonlawyers outside the firm.

Comments regarding the proposed changes may be submitted to Christopher Ryan, Clerk of the Supreme Court, via email, mail, or hand-delivery. Comments must be received no later than 5 p.m. on October 15, 2015. A public hearing will be held on November 4, 2015, at 2:30 p.m. in the Colorado Supreme Court courtroom, and anyone wishing to participate in the hearing must notify Mr. Ryan no later than October 26, 2015.

For a redline of the proposed changes, click here.

Application Period Open for Vacancies on U.S. District Court Committee on Conduct

The U.S. District Court for the District of Colorado announced on Monday, July 13, 2015, that it is seeking applications for three vacancies on its Committee on Conduct. The Committee on Conduct investigates and acts upon complaints against members of the U.S. District Court bar, considers applications for reinstatement or readmission, and addresses matters concerning attorney disability.

Eligible applicants for the committee vacancies must have practiced law for ten years or more and have no disciplinary record; be licensed to practice by the Colorado Supreme Court; have been a member in good standing of the U.S. District Court bar for at least five years with no disciplinary record; and possess experience that makes the applicant especially qualified to investigate matters governed by the U.S. District Court’s disciplinary rules.

Applicants must submit the application packet in PDF format to

Colorado Court of Appeals: Proof of “Case Within a Case” Not Required in All Legal Malpractice Actions

The Colorado Court of Appeals issued its opinion in Boulders at Escalante LLC v. Otten Johnson Robinson Neff & Ragonetti PC on Thursday, June 18, 2015.

Legal Malpractice—Negligence—Statute of Limitations —Legal or Proximate Causation—Case Within a Case.

Plaintiff is a real estate development company formed to develop townhomes in a subdivision in Durango. Defendant is a law firm that was hired to represent plaintiff in a lawsuit against it by its general contractor to foreclose the contractor’s mechanic’s lien. Defendant filed several compulsory counterclaims on behalf of plaintiff for breach of contract and negligence. Plaintiff was concerned the contractor would not be able to pay a judgment if plaintiff succeeded on the counterclaims and asked defendant to review the insurance policies it had obtained for the project to determine whether the policies would pay a judgment against the contractor.

In 2006, defendant told plaintiff there was $2 to $4 million of coverage to pay a judgment against the contractor. In 2009, after plaintiff had obtained new representation, plaintiff learned that the policies contained an exclusion precluding payment to plaintiff if it succeeded on its claims against the contractor. Plaintiff and the contractor eventually settled, dismissing the claims against each other with prejudice. No payments were made by either party.

In 2011, plaintiff filed this action, asserting defendant was negligent in incorrectly advising regarding the insurance coverage, leading to extensive losses, including legal fees and expenses in continuing the litigation. The jury found defendant was negligent and its negligence caused 82.5% of the damages suffered by plaintiff. Judgment entered for approximately $2.7 million, plus pre- and post-judgment interest.

On appeal, defendant argued the claim was barred by the two-year statute of limitations set forth in CRS § 13-80-102. Defendant argued that plaintiff’s claim accrued no later than February 2009, when plaintiff learned defendant’s advice regarding insurance coverage might be wrong, and the action wasn’t filed until April 1, 2011. The Court of Appeals disagreed. A cause of action for negligence accrues on the date both the injury and its cause are known or should have been known to the plaintiff by the exercise of reasonable diligence. Under the circumstances here, the question of when plaintiff knew or should have known that the advice was incorrect and that it was injured by that advice was properly a question resolved by the jury.

Defendant argued that in a legal malpractice action based on negligence, the plaintiff must prove a case within a case; namely, that the claim underlying the malpractice action would have been successful but for the attorney’s negligence. The Court disagreed. Here, the claimed injury does not relate to the outcome of the underlying matter, and therefore plaintiff did not need to prove a case within a case.

Defendant challenged whether its negligence caused plaintiff’s damages. The Court determined that the evidence was sufficient to establish that plaintiff proved its malpractice claim for damages based on the legal expenses it incurred because of defendant’s incorrect advice. But for this advice, plaintiff would not have continued incurring legal expenses in an attempt to prove its counterclaims. However, plaintiff should not have recovered damages based on the business losses it sustained. As a matter of law, defendant’s advice regarding the insurance coverage was not the legal, or proximate, cause of plaintiff’s claimed business losses. Although defendant could have reasonably foreseen that plaintiff would make business decisions based on defendant’s advice, the actual harm plaintiff suffered because of those business decisions was not within the scope of the risk created by defendant’s negligence. The case was remanded for a new trial, limited to determining the amount of damages plaintiff incurred in continuing to pursue its counterclaims against the contractor after receiving incorrect advice from plaintiff.

Summary and full case available here, courtesy of The Colorado Lawyer.

Colorado Court of Appeals: Secretary of State Breached Public Trust by Using Public Funds for Private Purposes

The Colorado Court of Appeals issued its opinion in Gessler v. Grossman on Thursday, May 7, 2015.

Breach of the Public Trust—Discretionary Fund Statute.

In August 2012, Colorado Secretary of StateGessler traveled to Florida to attend and present at a two-day program sponsored by the Republican National Lawyers Association (RNLA). The RNLA seminar ended during the day on August 25, and Gessler stayed an additional night at an increased hotel rate and at the state of Colorado’s expense. The next day, he traveled to a different Florida city to attend the Republican National Convention (RNC).

Gessler used his statutorily provided discretionary fund to pay the $1,278.90 in documented travel and meal expenses incurred at the RNLA seminar. In addition, he requested reimbursement of “any remaining discretionary funds” in his discretionary account. He did not provide any documentation, but ultimately received $117.99 as the result of the request.

Colorado Ethics Watch filed a complaint with the Independent Ethics Commission (IEC). It alleged that Gessler had made false statements on travel expense reimbursement requests and misappropriated funds for personal or political uses. The IEC found that Gessler spent $1,278.90 of his discretionary account primarily for partisan—and therefore personal—purposes, in violation of the discretionary fund statute’s requirement that the fund be used in pursuit of official business. Gessler similarly violated the statute by requesting and receiving the balance in his discretionary fund without any documentation. Together, these constituted a breach of the public trust for private gain, in violation of the public trust statute, CRS § 24-18-103. Gessler sought judicial review of the IEC’s findings based on several assertions, each of which the district court rejected in a thorough written opinion.

On appeal, Gessler argued that Colo. Const. art. XXIX, § 5 applies only to gifts, influence peddling, and standards of conduct and reporting requirements that expressly delegate enforcement to the IEC. The Court of Appeals disagreed, noting that § 5 gives the IEC authority “under any other standards of conduct and reporting requirements as provided by law.”

Gessler also argued that the public trust statute does not fall within the ambit of § 5 because it is “hortatory” only and does not provide a specific standard of conduct. The Court disagreed. It found that the statute sets forth specific standards of conduct. It also noted that Colo. Const. art. XXIX, § 6 provides an express remedy for violations of the public trust for private gain.

Gessler contended that the discretionary fund statute does not fall within the ambit of § 5. The Court rejected Gessler’s premise that Article XXIX excludes standards of conduct related to compensation. It also noted that even if compensation were excluded from the IEC’s jurisdiction, the discretionary fund statute does not constitute compensation. Discretionary funds are not received in return for services rendered but may only be used “in pursuance of official business.” It also rejected Gessler’s argument that he had unfettered discretion over the use of discretionary funds as leading to an absurd result, as well as rejecting Gessler’s claim that there is no specific standard of conduct for expenditure of the funds. The Court pointed to the requirement that those funds be used “in pursuance of official business.”

Gessler also argued that the IEC had construed its jurisdiction so broadly as to render § 5 vague and overbroad. The Court rejected this contention by noting it had construed § 5 so as to recognize the applicable limits to the IEC’s jurisdiction.

Gessler contended that if the IEC had jurisdiction, then its decision was arbitrary or capricious. The Court disagreed, finding substantial evidence in the record to support the IEC’s determination that Gessler improperly used his discretionary fund to attend the RNLA seminar and the RNC.

Finally, the Court rejected Gessler’s argument that he was denied procedural due process because he was not given advance and adequate notice of the standards of conduct he was accused of having violated. The Court found that Gessler had received ample notice of the claims asserted against him and, in any event, there was no support for any claim of prejudice to Gessler as a result of the notice he received. The judgment was affirmed.

Summary and full case available here, courtesy of The Colorado Lawyer.

The Colorado Lawyer: Conflicts Check—Just Do It

Editor’s Note: This article originally appeared in the January 2015 issue of The Colorado Lawyer. Reprinted with permission.

By J. Randolph Evans, Shari L. Klevens, and Lino S. LipinskyEvans-Klevens-Lipinsky

Authors’ Note
Readers’ comments and feedback on this series of “WhoopsLegal Practice Malpractice Prevention” articles are welcomed and appreciated. References in the articles to “safest courses to proceed,” “safest course,” or “best practices” are not intended to suggest that the Colorado Rules require such actions. Often, best practices and safest courses involve more than just complying with the Rules. In practice, compliance with the Rules can and should avoid a finding of discipline in response to a grievance or a finding of liability in response to a malpractice claim. However, because most claims and grievances are meritless, effective risk management in the modern law practice involves much more. Hence, best practices and safer courses of action do more; they help prevent and more quickly defeat meritless claims and grievances. Other than billing, there is virtually nothing that attorneys dread more than addressing potential conflicts of interest. After all, resolving conflicts issues requires and attorney to focus on why not to take on a new representation rather than how to get the business in the door. However, unidentified or unresolved conflict issues cost lawyers more—in both clients and money—than most attorrneys realize.

Legal publications are replete with articles about motions to disqualify, disciplinary cases, and legal malpractice claims based on an unidentified or unresolved conflict of interest. Even when successfully defended, conflict-based allegations cost lawyers time and money. When lawyers lose, the risks are serious. The attorney could be disqualified from representing the client, face discipline for violating the Rules of Professional Conduct, receive an unfavorable jury verdict, or be forced to pay punitive damages based on a finding of disloyalty. The Office of the Presiding Disciplinary Judge (PDJ) takes conflicts of interest violations very seriously.[1]

In addition, judges and juries may well disregard defenses to claims (such as the protections of independent professional judgment or “trial tactics”) based on a breach of the lawyer’s fundamental fiduciary duty of loyalty to the client. Unfortunately, in today’s fast-paced world, the path of least resistance when a new client walks in the door is to get started on the case without performing even a rudimentary conflicts check. When it comes to conflicts, however, haste really does make waste.

Rule 1: Identify Conflicts Before Representation

Conflicts do not get better with time and cannot simply be undone. Once a conflict-laden representation begins, one cannot simply give back the confidences and secrets and forget it ever happened. When the attorney–client relationship attaches under a cloud of a potential or actual conflict of interest, there is no going back to the way things were before. For this reason, the attorney must identify and resolve conflicts of interest before the attorney–client relationship begins. It is one of those areas where an ounce of prevention really is worth a pound (if not a ton) of cure.

Rule 2: Grant No Exceptions

With conflicts, systems aimed at 100% compliance are critical. Inevitably, it is that one representation that escaped the system that creates the most problems. Typically, the reasons for operating outside the conflicts process for one representation (the client is too important, the case is too complicated, the attorney is too rushed) are the same reasons the conflict analysis was so important for that representation. Hence, the single most important part of conflicts analysis is compliance without exception.

The challenge, then, is to address conflicts as painlessly as possible. The easier and faster the system is, the more likely it will be that every lawyer will “run conflicts” on every representation.

One last point on the “no exceptions” rule bears emphasis. Every new representation—even if it does not involve a new client—should be screened for conflicts. Conflicts screening should be done each time a new party becomes involved as a plaintiff, defendant, lender, buyer, or seller. Also note that, although computers make conflicts screening much easier, they are no substitute in the final conflicts analysis for involving lawyers in the process. Effective conflicts procedures involve both.

Spotting Actual and Potential Conflicts

Attorneys in Colorado must comply with Rules 1.7 and 1.8 of the Colorado Rules of Professional Conduct, which govern conflicts. There are two kinds of conflicts: actual conflicts and potential conflicts. The distinctions between each are worth noting.

Actual Conflicts

An actual conflict means that the conflict cannot be waived by disclosure or consent; the attorney simply cannot accept the representation. One type of actual conflict is direct adversity, which occurs when the needs of one client are directly adverse to the needs of another client. For example, a law firm cannot represent both a plaintiff and a defendant in the same lawsuit (although it has been tried). Effective conflicts systems identify direct adversity conflicts and make it impossible to open a matter when they arise.

Potential Conflicts

A potential conflict means that there is some issue that must be addressed before a lawyer can accept the representation. Typically, the issue is some form of consent or waiver from either the new client, another client, or a former client.

There are two types of potential conflicts: successive representations and multiple representations. Although they are different, the waiver is largely the same—full disclosure and consent. In both situations, the attorney must provide full disclosure to all of their clients and obtain their written consent before taking on the representation.

Successive representation. Successive representation conflict rules involve potential conflicts between a current (or prospective) client and a former client. Under the conflict rules, a lawyer cannot represent a new client in a matter substantially related to the representation of a former client without the former client’s consent after full disclosure.

Although there are many cases defining “substantially related,” the essence is whether the lawyer learned (or could have learned) confidential information from the old client that could be used in the new representation for the new client. If the answer is no—the lawyer did not and could not have learned confidences and secrets that could now be used—then the lawyer should be able to accept the new representation. If the answer is yes (and lawyers should assume the answer is yes when in doubt), then the lawyer should provide full disclosure to the former client and acquire his or her consent in writing before taking on the new representation.

Multiple representation. Multiple representation conflict rules involve potential conflicts arising out of the representation of more than one client. Many lawyers overcomplicate the analysis; it is actually pretty straightforward. If there is more than one client, then the multiple representation rules should be applied.

In most situations, the potential conflict is easy to spot—there is more than one client listed on the new matter form, so the rules have to be applied. However, sometimes the conflict is not so apparent. These situations can arise out of probate litigation (representing the executor, estate, and heirs); securities litigation (representing both the corporation and the directors/officers); domestic litigation (representing the parents and the children); and bankruptcies (representing multiple creditors).

Whenever there is more than one client, the lawyer should ask (1) Are there things I might do differently if I represented only one of the clients? and (2) Could changes down the road create adversity between the clients? If the answer to both questions is no, then there may be no conflict. Depending on the circumstances, the attorney may be able to accept the representation without further investigation. If the answer to either question is yes, then there is a potential conflict that requires a more thorough analysis. This analysis involves determining whether the lawyer can adequately represent the interests of all of the clients. If the answer to this question is no, then there is an actual conflict.

A simple way to establish whether there is an actual conflict is to determine if the clients’ interests are linked in any way. In a contested divorce proceeding, for example, no lawyer could advance one spouse’s interests without impacting the interests of the other spouse. Therefore, the representation of a wife and husband in a contested divorce proceeding is not permissible with or without consent.


Conflicts do not have to be complicated. They just require practice discipline and proper analysis. Before the representation begins, get the names and run the conflicts. Adopt the mantra “Just Do It!”


[1] See People v. Layton, No. 13PDJ036 (PDJ Sept. 25, 2013) (suspending an attorney in part due to violation of Colo. RPC 1.8(e), which prohibits an attorney from providing financial assistance to a client involved in pending litigation).

Randy Evans is an author, litigator, columnist and expert in the areas of professional liability, insurance, commercial litigation, entertainment, ethics, and lawyer’s law. He has authored and co-authored eight books, including: The Lawyer’s Handbook; Georgia Legal Malpractice Law; Climate Change And Insurance; Georgia Property and Liability Insurance Law; Appraisal In Property Damage Insurance Disputes; and California Legal Malpractice Law. He writes newspaper columns (the Atlanta Business Chronicle, the Recorder, and the Daily Report) and lectures around the world. He served as counsel to the Speakers of the 104th – 109th Congresses of the United States. He co-chairs the Georgia Judicial Nominating Commission. He serves on the Board of Governors of the State Bar of Georgia. He handles complex litigation throughout the world. He has been consistently rated as one of the Best Lawyers in America, Super Lawyer (District of Columbia and Georgia), Georgia’s Most Influential Attorneys, and Georgia’s Top Lawyers for Legal Leaders. Along with numerous other awards he has been named the “Complex Litigation Attorney of the Year in Georgia” by Corporate International Magazine, and Lawyer of the Year for Legal Malpractice Defense in Atlanta. He is AV rated by Martindale Hubble.

Shari Klevens is a partner in the Atlanta and Washington, D.C. offices of McKenna Long & Aldridge LLP. Shari represents lawyers and law firms in the defense of legal malpractice claims and advises and counsels lawyers concerning allegations of malpractice, ethical violations, and breaches of duty. In addition, Shari is the Chair of the McKenna’s Law Firm Defense and Risk Management Practice and is a frequent writer and lecturer on issues related to legal malpractice and ethics. Shari co-authored Georgia Legal Malpractice Law and California Legal Malpractice Law, which address the intricacies and nuances of Legal Malpractice law and issues that confront the new millennium lawyer. She also co-authored The Lawyer’s Handbook: Ethics Compliance and Claim Avoidance, which is an easy-to-use desk reference offering practical solutions to real problems in the modern law practice for every attorney throughout the United States.

Lino Lipinsky de Orlov is a litigation partner in the Denver office of McKenna Long & Aldridge, LLP.  He represents clients in all aspects of commercial litigation, mediation, arbitration, and appeals.  He has developed particular experience in complex business cases, particularly those involving creditor’s rights, real estate, trade secrets, and employment disputes.  Mr. Lipinsky also frequently speaks and writes on legal issues relating to technology, employment law, and ethics.   He is a member of the Colorado Bar Association’s Board of Governors and serves on the Board of the Colorado Judicial Institute.  He is a former President of the Faculty of Federal Advocates.  Among his honors, Chambers USA has recognized Mr. Lipinsky as one of Colorado’s leading general commercial litigators, and he has been included in The Best Lawyers in America.  He received his A.B. degree, magna cum laude, from Brown University and his J.D. degree from New York University School of Law, where he was a member of the New York University Law Review.


The opinions and views expressed by Featured Bloggers on CBA-CLE Legal Connection do not necessarily represent the opinions and views of the Colorado Bar Association, the Denver Bar Association, or CBA-CLE, and should not be construed as such.

Colorado Supreme Court: Attorney Did Not Violate Rule 1.16(d) Where Some of Non-Returned Flat Fee was Earned

The Colorado Supreme Court issued its opinion in In the Matter of Juliet Carol Gilbert on Monday, April 6, 2015.

Attorney Discipline—Quantum Meruit—Colo. RPC 1.16(d).

In this attorney discipline proceeding, the Supreme Court considered whether an attorney violated Colo. RPC 1.16(d) by failing to return all of an advance fee to her clients. Colo. RPC 1.16(d) requires attorneys to refund upon termination by a client any advance payment of fee that “has not been earned.”

In this case, the attorney’s flat fee agreement did not describe what payment, if any, the clients would owe the attorney if the representation ended early. The Hearing Board determined that the attorney had earned part of the advance fee under a quantum meruit theory by performing services for the clients, and that she did not violate the ethical rules by retaining this amount after her discharge.

The Supreme Court affirmed the Hearing Board’s order. Under the facts of this case, the attorney did not violate Colo. RPC 1.16(d) by failing to return the portion of an advance fee to which she was entitled in quantum meruit for services rendered for her clients.

Summary and full case available here, courtesy of The Colorado Lawyer.