Ethics Opinion 328
Personal Representation of Constituents of an Organization, Including Individuals Who Participate in an Organization’s Governance
An attorney representing a constituent of an organization personally, should make clear at the outset of the representation when he or she does not represent the organization as an entity. The lawyer should ensure that the client, as well as non-client constituents of the organization with whom the lawyer may interact, understand the lawyer’s role.
Further, in view of the pervasive nature of confidential information of the organization to which such a lawyer is likely to be exposed, in determining whether it is permissible to subsequently undertake matters that are adverse to the corporation, the lawyer must consider whether the organization is a "de facto client" for purposes of assessing potential conflicts of interest. The analysis is similar to that where a lawyer represents a subsidiary or other affiliate of a corporation.
Ideally, the lawyer should expressly address these issues with the client at the outset of the representation and incorporate the understanding in the retainer agreement.
- Rule 1.7 (Conflict of Interest: General Rule)
- Rule 1.8(e) (Conflict of Interest: Prohibited Transactions)
- Rule 1.9 (Conflict of Interest: Former Client)
- Rule 1.13 (Organizations as Clients)
With the recent heightened scrutiny and increasing accountability of persons who participate in corporate governance, and the resulting concerns among such persons as to their potential personal liability or other exposure to legal risk, such individuals may choose with greater frequency than in the past to retain independent counsel to protect their personal interests. Such persons could include board members, corporate officers, or groups of persons who serve on audit committees of the board of directors or other "special committees" of the board set up to ensure compliance with the directives of the Sarbanes-Oxley Act of 2002, 15 U.S.C. § 7201. These personal representations must be distinguished from those in which the lawyer has an organization as a client and, in carrying out that role, assists constituents of the organization in meeting their duties to the entity.1
We address here only personal representations in which individual organizational constituents may have interests which are potentially diverse from the interests of the organization as an entity.2 The inquiry is how such a lawyer should interact with the organization, both with regard to carrying out that representation and in assessing conflicts of interest in accepting new matters that may be adverse to the organization.
I. Establishing the Representation
Obviously, representation of an organization qua organization and representation of a constituent of an organization personally are not the same thing. Under Rule 1.13, when a lawyer represents an organization, the lawyer-client relationship is with the organization as an entity and not its constituents. Comment 13 to Rule 1.7 states in part: "As is provided in Rule 1.13, the lawyer who represents a corporation, partnership, trade association or other organization-type client is deemed to represent that specific entity, and not its shareholders, owners, partners, members or ’other constituents’." Conversely, when a lawyer represents a constituent personally, that will typically arise because of a perceived potential disparity of interest with the organization, and the representation will be of the constituent only.3
A lawyer’s failure to give sufficient consideration to the distinction between these two types of representation can by itself unwittingly cause a change in how the representation will be treated. For example, a lawyer’s receipt of sensitive information from an unwary constituent can result in a de facto representation of the constituent where that had not been intended by the lawyer. Comment 14 to Rule 1.7 states:
[T]here may be cases in which a lawyer is deemed to represent a constituent of an organization client. Such de facto representation has been found where a lawyer has received confidences from a constituent during the course of representing an organization client in circumstances in which the constituent reasonably believed that the lawyer was acting as the constituents lawyer as well as the lawyer for the organization client. See generally ABA Formal Opinion No. 92-365.
At the outset of a representation, therefore, the lawyer must determine which of these two types of representation he is being asked to undertake and then fully inform the prospective client of the distinction. The lawyer and prospective client should then reach a clear understanding as to which type of representation is desired.4 Failure to address this at the beginning of the representation can impair the lawyer’s ability to carry out the client’s goal. Having decided which type of representation to undertake, the lawyer’s conduct should then be consistent with that decision.
II. Carrying Out a Personal Representation
This Committee has previously addressed issues related to the implications of a lawyer’s representation of an entity for his or her obligations to related entities and persons. See D.C. Ethics Opinion 216 (1991) (Representation of Closely Held Corporation In Action Against Corporate Shareholder); D.C. Ethics Opinion 269 (1997) (Obligation of Lawyer for Corporation to Clarify Role in Internal Corporate Investigation); D.C. Ethics Opinion 305 (2001) (Ethical Considerations Arising From Representation of Trade Association).
In Opinion 269, we addressed a corporate lawyer’s obligations when conducting an internal investigation of a corporation. In a portion of that opinion, we also discussed the lawyer’s obligation when he or she represents a constituent of the corporation, but not the corporation itself:
Where such representation is of the constituent alone, that person is the lawyer’s sole client, just as the lawyer representing the corporation has that entity as his sole client. The lawyer has no attorney-client relationship with the person paying the lawyer’s fees, and the lawyer must take care that his activities on behalf of his client are not influenced by that person. Id. And as regards attorney-client confidentiality, that obligation is owed to the constituent-client only, and not to the person paying the lawyer’s fees. Id.
Thus, when representing a constituent who participates in an organization’s management, a lawyer should be sensitive to the false impression that because he has been welcomed into the inner sanctum of an organization, he is a "safe" person for non-client constituents to speak with and that his loyalty to the organization can be assumed. It is incumbent upon an attorney in that situation to make clear to other organization constituents who are not his client, before being asked to convey information that may constitute corporate confidences or secrets , that the lawyer’s interests may be separate from those of the entity.
All this does not mean, however, that a client-constituent’s potential adversity to an entity will always be as harsh or direct as the adversity of an outsider, for the adversity may be tempered by the constituent’s legal obligations to the entity. Thus, the lawyer, as the client’s agent, should bear in mind the hazards of assisting a client in violating any of the client’s obligations to the entity because that could increase, rather than lessen, the client’s potential liability. The client’s obligations may include, depending on various circumstances and applicable law, a duty to maintain trade secrets or other confidential information. "Whistle-blower" laws may or may not apply to various organizations and various circumstances. Thus, a lawyer for a constituent may carry some obligation to protect the interests of the organization because his client may have such obligations.
The lawyer should consider these factors and chart a course that is consistent with his client’s interests and the client’s legal duties to the organization.
III. Undertaking New Matters Adverse to the Organization
Finally, we address the extent to which a lawyer who represents, or has represented, an organization’s constituent on a personal basis properly can undertake new matters that are potentially adverse to the organization. In other words, we now discuss whether, for conflict of interest purposes, the lawyer should consider the organization as the client, even though the lawyer represented only the constituent.
Rule 1.7(b)(1) provides:
Except as permitted by paragraph (c) below, [related to consent] a lawyer shall not represent a client with respect to a matter if:
- That matter involves a specific party or parties, and a position to be taken by that client in that matter is adverse to a position taken or to be taken by another client in the same matter, even though that client is unrepresented or represented by a different lawyer. (Emphasis added.)
As discussed above, if the lawyer represents an organization’s constituent personally then the entity itself is not "another client" under Rule 1.7(b)(1) in a literal or automatic sense. The inquiry, however, must go deeper and examine the de facto relationships that arise out of the representation. Indeed, there are many apt analogies in converse situations, in which a lawyer’s representation of a large entity has been deemed to impact potential conflicts with constituents of the entity. We believe these situations are pertinent to an analysis of the present inquiry.
In addition, apart from the potential existence of a direct conflict under Rule 1.7(b)(1), a lawyer representing a constituent, and considering a new representation adverse to the organization, should also consider whether his or her representation creates a conflict under Rule 1.7(b)(2), 1.7(b)(3) or 1.7(b)(4).5 Comment 14 to Rule 1.7 frames the issue well:
The propriety of [undertaking a new] representation must also be tested by reference to the lawyer’s obligation under Rule 1.6 to preserve confidences and secrets and to the obligations imposed by paragraphs (b)(2) through (b)(4) of this rule. Thus, absent consent under Rule 1.7(c), such adverse representation ordinarily would be improper if:
(a) The adverse matter is the same as, or substantially related to, the matter on which the lawyer represents the organization client.
(b) During the course of representation of the organization client the lawyer has in fact acquired confidences or secrets (as defined in Rule 1.6(b)) of the organization client or an affiliate or constituent that could be used to the disadvantage of any of the organization client or its affiliate or constituents, or
(c) Such representation seeks a result that is likely to have a material adverse effect on the financial condition of the organization client.
Similarly, in Opinion 305, this Committee stated that representation of a trade association does not per se create an attorney-client relationship with all members of the trade association, but also does not per se preclude it. Instead, the surrounding circumstances, including the existence of disclosures of confidential information to the lawyer, must be assessed:
[D]etermining whether and to what extent the individual member has become a client requires careful examination of all of the circumstances of the firm’s relationship to and representation of the trade association." ABA Ethics Opinion No. 92-365. An attorney-client relationship may be formed in the absence of an express agreement, and is "not dependent on the payment of fees [or] . . . upon the execution of a formal contract." Westinghouse Elec. Corp. v. Kerr-McGee Corp. , 580 F.2d 1311, 1317 (7 th Cir.), cert. denied , 439 U.S. 955 (1978). What is most important is whether the member of the trade association disclosed confidential information to the association’s lawyer, and the surrounding circumstances and expectations. ABA Ethics Opinion No. 92-365. See also Westinghouse, 580 F.2d at 1319-1320; Glueck v. Jonathan Logan, Inc. , 653 F.2d 746, 749 (2d. Cir. 1981).
In ABA Formal Opinion No. 95-390, "Conflicts of Interest in the Corporate Family Context," the ABA stated:
[W]hen a lawyer is considering whether he can assume the representation adverse to a corporate affiliate of a client, he must consider not merely the terms of his engagement to that client but in addition whether the circumstances are such, that the affiliate has reason to believe, on the basis of the lawyer’s dealings with it, that it has a client-lawyer relationship with the lawyer.
When the constituent is a high-level official in the organization, it is significant that he may be embedded in the highest level of the decision-making process. Accordingly, it is likely that a lawyer representing such a constituent will be privy to information as to the organization as a whole and its finances, and may acquire knowledge of matters that are of great sensitivity to the organization.
Accordingly, in applying the test of accessibility to confidential client information, a lawyer representing such a constituent may find himself or herself privy to such knowledge. Given the cross-fertilization with upper management and the sensitivity of the issues likely to be encountered in such a representation, the organization may have a reasonable expectation that the lawyer will not be adverse to it in another matter. While again, the determination will be fact-dependent, the lawyer representing a highly placed constituent should be sensitive to such potential conflicts.
Finally, once the constituent represented personally has become a former client rather than a current client, Rule 1.9, rather than Rule 1.7, will apply.6 Here again, the test for whether the organization should be deemed a "former client" for purposes of this rule should be the same as for Rule 1.7 discussed above. In the case of a former representation, however, there will be the additional factor of whether the new matter is "substantially related" to the prior matter. See Comment 2 to Rule 1.9.
1. That the corporation or other entity is responsible for the payment of the la wyer’s fee is not determinative. Rule 1.8(e) provides as follows with respect to payment of fees from someone other than the client:
(e) A lawyer shall not accept compensation for representing a client from one other than the client unless:
(1) The client consents after consultation;
(2) There is no interference with the lawyer’s independence of professional judgment or with the client-lawyer relationship; and
(3) Information relating to representation of a client is protected as required by Rule 1.6.
2. Thus, we do not address circumstances in which a lawyer represents an organization, and in doing so, assists a constituent whose interests are identical to those of the organization.
3. On occasion, however, dual representation of an organization and a constituent can take place. Specifically, Rule 1.13(c) states:
A lawyer representing an organization may also represent any of its directors, officers, employees, members, shareholders, or other constituents, subject to the provisions of Rule 1.7. If the organization’s consent to the dual representation is required by Rule 1.7, the consent shall be given by an appropriate official of the organization other than the individual who is to be represented, or by the shareholders.
4. As noted above, in rare instances a dual representation may be appropriately intended and effectuated. These representations should similarly be defined in scope.
5. Those portions of the rule provide:
Except as permitted by paragraph (c) below,[related to consent] a lawyer shall not represent a client with respect to a matter if: . . .
(2) Such representation will be or is likely to be adversely affected by representation of another client;
(3) Representation of another client will be or is likely to be adversely affected by such representation; or
(4) The lawyer’s professional judgment on behalf of the client will be or reasonably may be adversely affected by the lawyer’s responsibilities to or interests in a third party or the lawyer’s own financial, business, property, or personal interests.
6. Rule 1.9 provides as follows: A lawyer who has formerly represented a client in a matter shall not thereafter represent another person in the same or substantially related matter in which that person’s interests are materially adverse to the interests of the former client unless the former client consents after consultation.