---
title: "Conflict of interest"
chunk: 2/10
source: "https://en.wikipedia.org/wiki/Conflict_of_interest"
category: "reference"
tags: "science, encyclopedia"
date_saved: "2026-05-05T04:27:55.281412+00:00"
instance: "kb-cron"
---

==== Direct adversity to current client ====
An attorney owes the client undivided loyalty. The courts have described this principle as "integral to the nature of an attorney's duty". Without undivided loyalty, irreparable damage may be done "to the existing client's sense of trust and security – features essential to the effective functioning of the fiduciary relationship..." A key feature of the duty of loyalty is that an attorney may not act directly adverse to a current client or represent a litigation adversary of the client in an unrelated matter. The damage done is to the client's confidence that the lawyer is serving their interests faithfully. An example of a lawyer acting directly adverse to a client is when the lawyer sues the client. At the other end of the spectrum is when a lawyer represents business competitors of the client who are not adverse to it in a lawsuit or negotiation. Representing a client's business competitors in unrelated matters does not constitute direct adversity nor give rise to a loyalty conflict. As one state bar ethics committee has noted:

Direct adversity may arise in litigation when an attorney sues a client or defends an adversary in an action their client has brought. It may also arise in business negotiations, when a lawyer negotiates on behalf of an adversary against a current client, even if the matter is unrelated to any matter the lawyer is handling for the client. However, merely advocating opposite sides of the same legal issue does not give rise to direct adversity. Even if a lawyer's advocacy in an unrelated matter may make unfavorable law for another client, such effects are only indirect and not subject to the conflicts rules. There is no conflict in advocating positions that may be unfavorable to another client so long as the lawyer is not directly litigating or negotiating against that client.

===== Identity of the client – corporations =====
One of the most frequently arising questions in corporate practice is whether parent corporations and their subsidiaries should be treated as the same or different entities for conflicts purposes. The first authority to rule on this question was the California State Bar Ethics Committee, which issued a formal opinion ruling that parent corporations and their subsidiaries are to be considered distinct entities for conflicts purposes. The California committee considered a situation where an attorney undertook a representation directly adverse to the wholly owned subsidiary of a client, when the lawyer did not represent the subsidiary. Relying on the entity as client framework in Model Rule 1.13, the California committee opined that there was no conflict as long as the parent and subsidiary did not have a "sufficient unity of interests." The committee announced the following standard for evaluating the separateness of parent and subsidiary:

As one commentator has noted, "For a state ethics opinion, California Opinion 1989-113 has been unusually influential, both with courts there, with ethics committees elsewhere, and through the latter set of ethics committee opinions, with... recent decisions in other jurisdictions." The California opinion has been followed by ethics committees in such jurisdictions as New York, Illinois and the District of Columbia, and served as the basis of ABA Formal Ethics Opinion 95-390. The law in most jurisdictions is that parent corporations and their subsidiaries are treated as distinct entities, except in limited circumstances noted by the California ethics committee where they have a unity of interests.
The Second Circuit has adopted a variation of the California standard. In GSI Commerce Solutions, Inc. v. BabyCenter LLC, the court ruled that parent corporations and their subsidiaries should be treated as the same entity for conflicts purposes when both companies rely "on the same in-house legal department to handle their legal affairs." However, the court ruled that the lawyer and client can contract around this default standard. The court quoted with approval the opinion of the City of New York Committee on Professional and Judicial Ethics, which stated, "corporate family conflicts may be averted by ... an engagement letter ... that delineates which affiliates, if any, of a corporate client the law firm represents..."

===== Material limitation conflicts =====
A concurrent conflict will also exist when "there is a significant risk that the representation of one or more clients will be materially limited by the lawyer's responsibilities to another client, a former client or a third person or by a personal interest of the lawyer." Comment 8 to Model Rule 1.7 states, by way of example, that an attorney representing multiple persons forming a joint venture may be materially limited in recommending the courses of action that any jointly represented client may take because of the lawyer's duty to the other participants in the joint venture.
The Supreme Court of Minnesota found a material limitation conflict in In re Petition for Disciplinary Action Against Christopher Thomas Kalla. In Kalla, an attorney was disciplined for representing a borrower bringing suit against her lender for charging a usurious interest rate while simultaneously representing the mortgage broker who arranged the loan as a third-party defendant in the same lawsuit. Although neither client had brought an action against the other, the court found a material limitation conflict: "Advocating for Client A would potentially harm Client B, who was potentially liable for contribution. Kalla's ability to fully advocate for both was materially limited by Kalla's dual representation."

==== Consent to concurrent conflicts of interest ====

===== Consent to current conflicts =====
A concurrent conflict of interest may be resolved if four conditions are met. They are: