You have asked whether there is a conflict of interest preventing representation of two separate sets of clients in a series of suits arising from the same transaction or course of events. For the reasons set forth below, it is the opinion of the Committee that under the facts as presented, there may be a conflict of interest preventing you from representing either client in this litigation.
For a number of years, you represented both an individual ("the shareholder") and a business ("the old corporation") in which the individual was the 51% shareholder. In 1986, the old corporation sold essentially all of its assets to another corporation ("the new corporation") which was owned by an unrelated individual. Following the sale of the old corporation's assets to the new corporation, the old corporation continued in existence with the same shareholders and continued to be represented by you.
As part of the agreement in which the old corporation sold its assets to the new corporation, the old corporation's manager agreed to work for the new corporation for a period of six months to familiarize the new owner with the operation of the business. At that time, the old corporation's manager was the shareholder's girlfriend.
After four months, the new corporation fired the manager. The manager applied for unemployment compensation, which the new corporation contested on the ground that she was discharged for misconduct. The willful misconduct allegedly consisted of misappropriating to the account of the old corporation checks belonging to the new corporation and thereby inducing the new corporation to buy its assets.
Your original clients--the shareholder and the old corporation--requested that you represent the manager in unemployment compensation proceedings and paid all fees arising from that representation. In addition to representing the manager in unemployment compensation proceedings, you also represented the manager in a breach of contract action brought against the corporation in court and in a separate proceeding before the Pennsylvania Human Relations Commission asserting a claim of sexual harassment against the new owner.
The manager has prevailed in her unemployment compensation proceedings which appear to have ended. The manager also prevailed in the court proceedings involving breach of contract, but the new corporation appealed and that matter is now pending in the Court of Common Pleas. The Pennsylvania Human Relations Commission proceeding is also still pending as of this time.
Recently, the new corporation filed two actions. The first suit is brought against the old corporation and the shareholder involving claims relating to adjustments to obligations on accounts payable and receivable of the new and old corporations.
The second action is brought against the shareholder and the manager individually, accusing them of acting in concert to induce the new corporation to pay an inflated price for the assets of the old corporation by providing forged and fraudulent contracts, manipulating accounts to give the appearance of increased sales and receipts, and supplying false and inaccurate tax information concerning the old corporation.
You report that both the shareholder and the manager have testified "extensively" concerning the new corporation's allegations of fraudulent and forged contracts and that there are "no significant discrepancies" in their testimony.
You have been informed by another individual, who has been employed by both the old and new corporations, that the principal of the new corporation intends to place as much pressure as possible upon the manager, including threatening or actually bringing actual criminal charges against her, in order to pressure her into changing her testimony to support his claims with respect to the contract.
Inquirer has written to both the shareholder and manager advising them of the possibility of a conflict of interest and seeking their consent to his joint representation.
Rule 1.7(a) provides:
"A lawyer shall not represent a client if the representation of that client will be directly adverse to another client unless:
(1) The lawyer reasonably believes the representation will not adversely affect the relationship with the other client, and
(2) Each client consents after consultation.
It is the Committee's opinion that, even if the clients are willing to consent to this mutual representation, you cannot satisfy Rule 1.7(a)(l) due to the inherent conflict between the interests of the manager versus those of the shareholder and the old corporation.
It is likely to be in the manager's interest to explore the possibilities of an amicable resolution of the new corporation's claims, especially in view of the apparent fact that the new corporation intends to apply maximum pressure to the manager to elicit her cooperation. If the manager is being threatened with or actually subject to criminal prosecution, her interest would obviously be adverse to that of the shareholder and/or the old corporation, since it would be in the interest of the shareholder and/or the old corporation to discourage the manager from reaching a settlement with the old corporation in order to maintain their defense to its claims.
Having concluded that a conflict of interest prevents you from representing both the manager and the shareholder and old corporation, the question becomes whether at this time you should represent one of them alone. Since you already rendered legal services to each of these clients and apparently have been privy to confidential communications with each of them, you cannot be permitted to represent one client and not the other, consistent with the mandate of Rule 1.6 that the lawyer preserve client confidentiality. If you now represent one of these clients alone, you could not avoid having the benefit of confidential information, which may have been imparted to you in the course of the representation of the other clients.
Therefore, it is the conclusion of the Committee that you should not represent any of these clients and should withdraw as counsel to each of them with respect to these events. This conclusion is based upon the specific facts presented, and does not necessarily preclude a lawyer from representing one of two clients, in appropriate circumstances, where the consent of the departing client can be obtained.