Knowingly Operating Under a Conflict is Not Dishonest Conduct – NH Supreme Court

In Appeal of David Stacy, 164 N.H. 706 (March 29, 2013), the New Hampshire Supreme Court appears to have split a very fine hair concerning a lawyer’s actions while subject to a known conflict of interest.  While the distinction drawn by the Court prevented a claimant from draining funds from the Public Protection Fund, it may spawn coverage litigation and raise questions about professional discipline that the Court failed to anticipate.

An earlier case before the Court set the stage for this ruling.  In Wyatt’s Case, 159 N.H. 285 (2009), the Court suspended an attorney for knowingly operating under a conflict of interest when he simultaneously represented the conservatorship estate of the petitioner, and the petitioner.  The petitioner made a claim against the attorney for the fees paid him during the period of the conflict, and then subsequently sought reimbursement from the Fund for the balance of the unrecovered fees and costs.

The Court noted that the Rule creating the Fund is consistent with the ABA’s Model Rule, pursuant to which public protection funds generally reimburse losses caused by the dishonest conduct of lawyers.  The Court found “dishonest conduct” meant wrongful acts in the nature of theft or embezzlement of money, or the wrongful taking or conversion of money, property, or other things of value.  The Court found, however, that “knowledge of a conflict of interest is not the equivalent of knowingly dishonest conduct,” and ruled that Wyatt’s actions were not conversion.  In so ruling, the Court protected the Fund and made it more difficult to recover against lawyers, but did it open up other questions?

For example, in making the precise distinction it did, the opinion could make for more confusion in coverage questions.  When is knowing conduct that involves a conflict going to be covered?  Equally important, how will the Attorney Discipline Office apply this standard in future claims of unethical behavior?  Only time will tell if the Appeal of Stacy is the last word on Attorney Wyatt’s actions, or the first of many decisions examining the consequences of knowingly operating under a conflict.

For more information on professional liability matters, contact attorney Bill Saturley at 603.410.1500 or a member of Preti Flaherty's Professional Liability Group.