MARYLAND STATE BAR ASSOCIATION, INC.
COMMITTEE ON ETHICS
ETHICS DOCKET NO. 1995-19
Conflicts: simultaneous representation of corporation and its majority stockholder
Your letter raises the question of whether lawyer ""X"" has a conflict of interest in representing a closely held corporation and its majority shareholder in litigation against the minority shareholder. Several years ago, ""A"" and ""B"", who were husband and wife, formed the corporation. ""A"", the husband, owns 45 percent of the stock and until recently was an officer and director of the corporation. He resigned his position as an officer and as a director in March of this year. ""B"", the wife, owns 55 percent of the stock and is president of the corporation. The corporation sells a unique and technically sophisticated product. ""A"" developed the technology and obtained the necessary patent for the production of this product.
The parties have become estranged and ""A"" has formed a new corporation, all of the stock of which is held in the name of ""C"", his sister. ""B"" contends that ""A"" is diverting the assets of the close],,, held corporation to the second corporation and has incurred debt in the name of the closely held corporation for the benefit of the second corporation. Furthermore, ""B"" contends that ""A"" has diverted the trade name and trade secrets of the closely held corporation to the second corporation. ""A"" is seeking to liquidate the closely held corporation and continue his activities in the second corporation.
""B"" has come to attorney ""X"" and has requested representation on behalf of herself as well as the closely held corporation. ""A"" has objected to this representation on the ground that the interests of ""B"" are ""separate and different"" from those of the closely held corporation and thus would constitute a conflict of interest.
You have advised the Committee that attorney ""X"" had never represented the closely held corporation, ""A"" or ""B"" prior to the current engagement. Accordingly, based on the facts which you have presented, the question of whether or not lawyer ""X"" has a conflict of interest in simultaneously representing a closely held corporation and ""B"" its majority shareholder, is governed by Rule 1. 13 of the Maryland Rules of Professional Conduct. Rule 1. 13(e) provides:
(e) 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.
The Committee believes that, based on the nature of the controversy as described in your letter, it would not appear the the proscriptions contained in Rule 1.7 are applicable, at least at this time; and; that consequently, there would be no conflict occasioned by Attorney X's simultaneous representation of the closely held corporation and the majority stockholder against the minority shareholder.