by Shawn P. Flaherty (Winter 2017)

From time to time, concerns have been raised about possible conflicts of interest for public pension fund professionals. This issue has been raised in the context of investment advisors, actuaries, financial professionals, as well as pension fund attorneys. While there may exist some situations where a per se conflict exists, in most instances a true legal conflict does not exist. For attorneys, the issue focuses on a review of Illinois state statutes.

Illinois Supreme Court Rule on attorney conflict of interest

This analysis begins with the Illinois Supreme Court Rule 1.7 for Attorney Conflicts of Interests which generally provides that “a lawyer shall not represent a client if the representation involves a concurrent conflict of interest.” A concurrent conflict of interest exists if: “(1) the representation of one client will be directly adverse to another client, or (2) there is a significant risk that the representation of one or more clients will be materially limited by the lawyer’s responsibility to another client, a former client or a third person or by a personal interest of the lawyer.” (Rule 1.7(a))

Rule 1.7 provides an exception when attorneys with concurrent conflicts of interest may continue to represent a client, if: “(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 representation does not involve the assertion of a claim by one client against another client represented by the lawyer in the same litigation or other proceeding before a tribunal; and (4) each affected client gives informed consent.”

When is there a concurrent conflict of interest?

 The rule is clear that an attorney or law firm cannot represent adverse sides in litigation, nor can an attorney or law firm represent both sides in certain transactional matters without informed consent of each client.

One example for a public pension fund is if a municipality or fire protection district decides to intervene in a disability application. The intervention on behalf of the municipal entity should be filed by a separate attorney, as neither counsel for the pension board nor the applicant can also represent the intervenor in the litigation without a conflict of interest.

Another possible conflict of interest pitfall exists when the pension board counsel represents the police or firefighters’ union and assists in the filing of labor grievance on behalf of a pension applicant with the municipal employer. Conflict or special counsel would be necessary in these cases and in some other cases where a concurrent conflict of interest is identified.

The fact that a single attorney or law firm represents two entities such as a fire protection district and its firefighter pension fund, or a municipality and its police pension fund, does not, in and of itself, create a concurrent conflict of interest. We are aware of such dual representation in several communities where the parties have coexisted without any conflict, and the clients benefit from the shared institutional knowledge that an attorney in such a position holds.

Likewise, an attorney or law firm could concurrently represent a pension board and an employee union from the same fire or police department without any automatic conflict of interest. While both of these instances holds the potential for a future concurrent conflict of interest, this relationship can continue indefinitely until an adverse situation arises. The same could be said for pension fund attorneys who represent statewide public pension fund associations who sometimes take legal or legislative positions adverse to the positions held by some of the association’s paid members.

What actions are needed if a concurrent conflict of interest is recognized?

 Actual conflicts of interest cannot be permitted by pension funds or their legal counsel. Potential conflicts of interest can be monitored. When a concurrent conflict of interest has been identified, the attorney is required to withdraw from representing either party to the dispute, and special or conflict counsel should be retained for the specific adverse matter which has been identified.

In the pension intervention setting, the pension board attorney should refrain from representing the municipality or fire protection district when he or she also represents the pension fund. Your pension board attorney should be prepared to provide you with a referral for conflict counsel to handle adverse actions that her or she cannot handle.

Conclusion

 The difference between an actual concurrent conflict of interest and the potential for a concurrent conflict of interest is immense. Any attorney or law firm representing a pension fund has a potential for a concurrent conflict of interest depending on the circumstances. The most important factor to analyze is whether both parties represented are involved in an adverse proceeding and whether the attorney can continue to fully and faithfully represent both parties given the adversity.