Opinion 93-1
(April 1993)

The Inquirer has asked the Professional Guidance Committee ("Committee") to consider her proposed acceptance of employment with a medical management services company. She has been asked to represent, as in-house counsel, a medical management service company ("Corporation") which performs services for numerous health clinics in several states, two of which are in Pennsylvania. The Corporation maintains the payroll, accounts receivable, hiring, firing, personnel policies and other management functions for the clinics. Inquirer's job as in-house counsel for the Corporation would include the defense of the clinics in lawsuits against them, review and drafting of policies for the clinics, pursuit of litigation on behalf of the clinics, oversight of employment policies of the clinics and the handling of healthcare regulatory work for the clinic. Further, she would be handling the corporate matters for the Corporation. Although each clinic is separately incorporated, all have common shareholders, with the major shareholder of the Corporation being a shareholder in most of the clinics. The inquiry focuses on whether the work as in-house counsel to the Corporation as well as working for the clinics would violate the Rules of Professional Conduct ("Rules") and whether the fee arrangement would also be violative.

The facts as presented by Inquirer cause some concern regarding potential conflicts of interest relating to possible compromise of professional independence in this work arrangement and conflicts regarding the payment of fees. These conflicts may arise not only in work performed between the Corporation and clinic, but also as between clinic and clinic. The Committee concludes that the Inquirer can proceed with the outlined employment so long as the potential for conflicts is identified at the beginning of the relationship and dealt with if and when the situation arises.

I. Potential Conflicts of Interest - Issue of Client Loyalty

Rule 1.7 of the Rules addresses the general issue of conflicts of interest. Specifically, Rule 1.7(a) states:

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.

Further, Rule 1.7(b) states:

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 the explanation of the implications of the common representation and the advantages and risks involved.

There is the possibility that a conflict can arise as outlined by the aforementioned facts since Inquirer will be simultaneously serving as in-house counsel to the Corporation and advising the Corporation's clients, the clinics ("clinics" or "clinics/clients"). It would not be unreasonable to expect that occasions may arise where the representation of the Corporation itself, in the pursuit of its goals, may be adverse to the interests of some of the clinics. Some examples of potential conflicts may be: (1) a dispute in the interpretation of the contract between the Corporation and clinic(s); (2) a problem with a landlord for a clinic if the landlord wants the shareholders of the clinic, or shareholders of the Corporation to guaranty the clinic's lease obligations, and the proposed guarantor is unwilling to take on that obligation; or (3) the Corporation may want the clinic to make a business decision which the clinic may not believe is in its best interest. The Committee points out this potential for conflict of interest since loyalty is a crucial component of the attorney's relationship with its client. As the above Rule states, if Inquirer feels that a conflict would arise in the representation of the Corporation and one or more of the clinics/clients, or in representation of one clinic against another clinic, this problem should be addressed at that time by disclosing the factors which lead the Inquirer to that conclusion, explaining in detail the ramifications of the dual representation, and seeking and receiving consent from both clients. If the disclosure is given and consent received, the Inquirer is authorized under the Rules to proceed. This Committee notes that if a conflict does arise in the course of the employment, absent consent by the Corporation and clinic, Inquirer would be precluded from representing either party based upon Rule 1.7. Also, Inquirer will want to look to the caveats of confidentiality of Rule 1.6(a) and 1.6(d).

II. Professional Independence of a Lawyer - Compensation Issues

The Committee next raises the potential for a conflict if the Inquirer's compensation arrangement is not properly fixed. Rule 5.4 sets forth several proscriptions intended to address the compensation issue in an effort to preserve the independence of an attorney's judgment and ultimate work product. Two discreet proscriptions contained in the Rules may impact significantly upon this inquiry.

Rule 5.4(c) states as follows:

A lawyer shall not permit a person who recommends, employs or pays the lawyer to render legal service for another to direct or regulate the lawyer's professional judgment in rendering such legal services.

Arrangements should be made to insure that the professional independence of the Inquirer as legal advisor to the client/clinic is not compromised by the fact that the Corporation is paying for such services. Put another way, the Inquirer must be aware of the possibility that management at the Corporation may seek to influence or have input into the work performed by the lawyer for the client/clinic, giving rise to the issues of client loyalty. The Committee foresees no actual problem or compromise of Inquirer's professional independence as long as the Inquirer recognizes that her loyalty resides with the client and not with the third party payor when it comes to the provision of legal services. Another possible scenario which may bring this issue to the forefront would be if the client/clinic became involved in a legal dispute with the Corporation arising from its business relationship. This would involve a duty of loyalty to the client/clinic and may put the Inquirer in a possibly untenable position with respect to the Corporation. This issue, as all other potential conflict issues, may be properly addressed by having a carefully drafted employment agreement with the Corporation and/or the clients/clinics which would cover this potentiality.

Rule 1.8(f) also addresses an attorney's acceptance of compensation from a third party. This Rule states:

A lawyer shall not accept compensation for representing a client from one other than the client unless:

(1) the client consents after full disclosure of the circumstances and 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.

Once again, 1.8(f) should be handled consistently with the Rules in full disclosure to the clients and seeking and receiving waivers.

The Committee stresses that if the Inquirer's relationship is clearly defined in an employment agreement or other document with the Corporation and the clients/clinics, the issues above-raised would be addressed. The Committee felt compelled to raise the potential conflict of interest issues regarding an attorney's loyalty to its client and the issues of compensation as it impacts on attorney loyalty. These concerns should not prevent Inquirer from becoming in-house counsel to the Corporation while working with the clinics so long as potential conflict issues are disclosed to all interested parties and the required consents are obtained, and all parties are kept abreast of the situations as they arise.

The Committee directs you to two Opinions which were previously issued which may provide further insight and guidance. They are Guidance Inquiry 89-1 (March 1989) and Guidance Inquiry 88-26, copies of which are attached hereto.

   

The Philadelphia Bar Association's Professional Guidance Committee provides, upon request, advice for lawyers facing or anticipating facing ethical dilemmas. Advice is based on the consideration of the facts of the particular inquirer's situation and the Rules of Professional Conduct as promulgated by the Supreme Court of Pennsylvania. The Committee's opinions are advisory only and are based upon the facts set forth. The opinions are not binding upon the Disciplinary Board of the Supreme Court of Pennsylvania or any other Court. They carry only such weight as an appropriate reviewing authority may choose to give it.