Ethics Opinon 1978-11
Should an attorney continue to represent his clients (the heirs of Y and ABC, Inc.) under the following set of facts:
Some time in February of 1978, the attorney was contacted by an existing client, Mr. Y and requested to enforce an agreement between Mr. Y and Mr. X pertaining to payment of consultation fees. The attorney filed suit on behalf of Mr. Y naming Mr. X as the defendant. Sometime in July of 1978, Mr. Y passed away and the attorney is currently in the process of instituting a probate and substituting the executrix of Mr. Y's estate in the lawsuit as the party-plaintiff.
A potential conflict arises from the fact that the attorney has represented the principals of ABC, Inc. for some time and in fact handled its incorporation. Subsequent to the incorporation, ABC, Inc. needed additional capital and eventually sold shares to Mr. X. Recently (as of September, 1978), ABC, Inc. has retained the attorney to instigate a lawsuit against a Colorado corporation. Prior to the initiation of the lawsuit, this situation was fully explained to Mr. X who repeatedly assured the attorney that it posed no problem. Virtually 100% of the attorney's contact with ABC, Inc. is through its principals other than Mr. X and except for the attorney's knowledge that Mr. X has purchased shares, the attorney is not privy to any of Mr. X's other confidential affairs.
The problem arose when the attorney prepared a written waiver of conflict of interest for Mr. X who then had his defense counsel from the Y v. X suit send the attorney a letter informing him that Mr. X would not execute the waiver.
The attorney may continue to represent Y and ABC, Inc. in their respective lawsuits provided the dual representation does not prevent his representation of each of the clients with the absolute loyalty required of him and that the dual representation does not place him in a position where he could receive confidential information from each client which could be used to the advantage of the other.
To the extent that these criteria are not met, the conduct at best gives the appearance of ethical impropriety which would require withdrawal as a matter of prudence.
(a) California Rules of Professional Conduct.
Rules 4-101 and 5-102 apply to the problem described above:
"Rule 4-101. Accepting employment adverse to a client.
A member of the State Bar shall not accept employment adverse to a client or former client, without the informed and written consent of the client or former client, relating to a matter in reference to which he has obtained confidential information by reason of or in the course of his employment by such client or former client.
Rule 5-102. Avoiding the representation of adverse interest.
(A) A member of the State Bar shall not accept professional employment without first disclosing his relation, if any, with the adverse party, and his interest, if any, in the subject matter of the employment. A member of the State Bar who accepts employment under this rule shall first obtain the client's written consent to such employment.
(B) A member of the State Bar shall not represent conflicting interests, except with the written consent of all parties concerned."
(b) Case Authority.
In Black v. State Bar, 7 Cal.3d 676 (1972), the California Supreme Court upheld without analysis a State Bar disciplinary proceeding which found, among other things, that an attorney represented conflicting interests when he loaned $10,000.00 belonging to an estate for which he was the attorney to other clients without the administratrix' approval and without any authority. Other cases involving representation of adverse clients in unrelated actions are collected in 17 A.L.R. 3d 835, 849 (§ 13), as supplemented, and 31 A.L.R. 3d 715, 728 (§ 10), as supplemented.
No case has been found involving dual representation where a stockholder of a corporate client is a defendant in a case where the attorney for the corporation represents the plaintiff. However, the cases seem to be decided on whether (1) a client's feeling of loyalty is necessarily destroyed, (2) the attorney cannot represent the client with full fidelity or (3) the attorney is placed in a position where he could receive confidential information from each client which could be used to the advantage of the other. Where such circumstances are found, the dual representation is improper.
(c) A.B.A. Canons, Disciplinary Rules and Ethical Consideration.
A.B.A. Canon 5 provides, "a lawyer should exercise independent professional judgment on behalf of a client." Certain disciplinary rules and ethical considerations give guidance in the problem at hand:
"DR 5-105(A). A lawyer shall decline proffered employment if the exercise of his independent professional judgment in behalf of a client will be or is likely to be adversely affected by the acceptance of the proffered employment, except to the extent permitted under DR 5-105(C)."
"DR 5-105(B). A lawyer shall not continue multiple employment if the exercise of his independent professional judgment in behalf of a client will be or is likely to be adversely affected by his representation of another client, except to the extent permitted under DR 5-105(C).
"DR 5-105(C). In the situations covered by DR 5-105(A) and (B), a lawyer may represent multiple clients if it is obvious that he can adequately represent the interest of each and if each consents to the representation after full disclosure of the possible effect of such representation on the exercise of his independent professional judgment on behalf of each."
"EC 5-1. The professional judgment of a lawyer should be exercised, within the bounds of the law, solely for the benefit of his client and free from compromising influences and loyalties. Neither his personal interest, the interests of other clients, nor the desires of third persons should be permitted to dilute his loyalty to his client."
"EC 5-14. Maintaining the independence of professional judgment required of a lawyer precludes his acceptance or continuation of employment that will adversely affect his judgment on behalf of or dilute his loyalty to a client. This problem arises whenever a lawyer is asked to represent two or more clients who may have differing interests, whether such interests be conflicting, inconsistent, diverse, or otherwise discordant."
"EC 5-15. If a lawyer is requested to undertake or continue representation of multiple clients having potentially differing interests, he must weigh carefully the possibility that his judgment may be impaired or his loyalty divided if he accepts or continues the employment. He should resolve all doubts against the propriety of the representation . . . ."
"EC 5-18. A lawyer employed or retained by a corporation or similar entity owes his allegiance to the entity and not to a stockholder, director, officer, employee, representative or other person connected with the entity. In advising the entity, a lawyer should keep paramount its interests and his professional judgment should not be influenced by the personal desires of any person or organization . . . ."
"EC 5-19. A lawyer may represent several clients whose interests are not actually or potentially differing. Nevertheless, he should explain any circumstances that might cause a client to question his undivided loyalty. Regardless of the belief of a lawyer that he may properly represent multiple clients, he must defer to a client who holds the contrary belief and withdraw from representation of that client."
Moreover, the lawyer should avoid representation of a party in a suit against a client or former client, where there may be the appearance of a conflict of interest or a possible violation of confidence, even though this not be true in fact. See Informal Opinion Nos. 885 and 1016, A.B.A. Committee on Professional Ethics.
The problem at hand differs from the cited authorities in that there has never been any representation of X by the attorney. However, if the attorney, in his representation of Y and ABC, Inc., is hampered in exercising undivided loyalty to each client by the fact of X's shareholder interest in ABC, Inc., the lawyer may not ethically proceed to represent both.
Furthermore, the nature of X's participation in the business affairs of ABC, Inc., is unknown. The attorney's loyalty to Y might be impaired if X were the majority shareholder and chief executive officer of ABC, Inc., for example. Likewise, the attorney's ability to fully and adequately advise the corporation's chief executive officer (X) with respect to corporate matters involving its lawsuit might be impaired by the attorney's representation of Y.
Finally, the attorney himself has raised the spectre of a conflict in asking X to sign a written waiver, which X's counsel in the Y v. X lawsuit apparently is using as leverage to attempt to force the attorney to withdraw from representation of Y. This would appear to raise the appearance of improper conduct which ought to be avoided.
Thus, there is no conflict of interest in representing Y and ABC, Inc. Whether the dual representation will impair the undivided loyalty required to each client cannot be ascertained from the skeletal facts provided; these matters basically redown to the judgment of the attorney in determining whether to continue to represent both clients.
This opinion is advisory only. It is not binding upon the State Bar, the Board of Governors, its agents or employees.
Disclaimer: This opinion was issued by the Legal Ethics Committee of the San Diego County Bar Association. It is advisory only and is not binding upon any member of the SDCBA, any other member of the State Bar of California, the State Bar of California or its Board of Governors, or any persons or tribunals charged with regulatory responsibilities. The SDCBA, its officers, directors, agents, and the Legal Ethics Committee members assume no responsibility or liability in rendering this opinion.