In your letter, you seek professional guidance, based upon the following facts. You have represented a corporation for the past 15 years on various legal matters. Recently, a 50% shareholder of the corporation sued the other 50% shareholder for repayment of money which was allegedly owed to the corporation and/or to the shareholder. The action also claims mismanagement of the corporation and seeks a dissolution of the corporation.
You have asked whether you may continue to represent the corporation and the 50% shareholder-defendant. The question was presented to the Professional Guidance Committee at its meeting on March 21, 1988. In our opinion, the representation has potential problems, which are subject to the following considerations.
Effective April 1, 1988, lawyers in Pennsylvania will be governed by a new set of ethical standards, known as the Rules of Professional Conduct ("the Rules") (replacing the Code of Professional Responsibility ("Code"). Accordingly, our opinion will be based on the Rules, although the result would probably be the same under the Code.
Rule 1.13 of the Rules specifically addresses the representation of organizations as clients. Rule 1.13(e) provides:
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.
Rule 1.7 of the Rules sets forth the general rule on conflict of interest. It states:
(a) 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.
(b) A lawyer shall not represent a client if the representation of that client may be materially limited by the lawyer's responsibilities to another client or to a third person, or by the lawyer's own interests, unless:
(1) the lawyer reasonably believes the representation will not be adversely affected; and
(2) the client consents after full disclosure and consultation. When representation of multiple clients in a single matter is undertaken, the consultation shall include explanation of the implications of the common representation and the advantages and risks involved.
Based upon the foregoing, you must make the following assessments or undertakings:
(1) Is the representation of the corporation directly adverse to the shareholder-defendant? If so,
(2) Do you reasonably believe that the representation will not adversely affect the relationship with the shareholder-defendant? If you reasonably believe that, then,
(3) You must explain the risks and implications of the common representation and obtain the clients' consent to the common representation. In doing so, you must ask whether effective consent from the corporation can be obtained.
The foregoing considerations should then be applied to the following issues:
(1) Did you ever represent the 50% shareholder-plaintiff? If so, you must consider Rule 1.9, dealing with conflict of interest issues of former clients. It states:
A lawyer who has formerly represented a client in a matter shall not thereafter:
(a) Represent another person in the same or a substantially related matter in which that persons' interests are materially adverse to the interests of the former client unless the former client consents after a full disclosure of the circumstances and consultation; or
(b) Use information relating to the representation to the disadvantage of the former client except as Rule 1.6 would permit with respect to a client or when the information has become generally known.
(2) Will the 50% shareholder-plaintiff object to your representation based upon some or all of the issues raised by Rule 1.7 or Rule 1.9, such as improper consent by the corporation or improper use of confidential information. If so, your continued representation may be in jeopardy.
Conflict of interest issues are very fact sensitive, which often control the outcome of the issue. Your letter does not detail all of the facts. Accordingly, we suggest that you apply them to the issues we have raised. Any conclusion regarding continued representation will be based upon the answers to the issues raised. If further direction is needed after you apply those facts to the issues raised, don't hesitate to contact us.