MARYLAND STATE BAR ASSOCIATION, INC.
COMMITTEE ON ETHICS
ETHICS DOCKET NO. 1995-22
Multiple Representation in Litigation; Determination of possible conflicts of interest; Former client
You relate the following facts:
1. Husband is the sole stockholder of a closely held Maryland Corporation created to hold a portion of his assets.
2. Attorney (a) of firm (A) has represented Husband and Wife on various tax and estate planning matters since the early 1980's.
3. In June of 1993, Husband suffered from an acute and chronic brain condition such that Wife and their five (5) adult children were informed Husband would require a guardian.
4. Firm (A) represented Child (1) by preparing and presenting a petition for guardianship of Husband in a guardianship case. Wife and Child (2) were appointed temporary co-guardians of Husband in July of 1993.
5. Also in July of 1993, Child (5) filed a lawsuit (type of suit not described except this suit is not a corporate derivative suit and does not seek money damages) against Husband, Husband's closely held corporation and the corporation's officers and directors, including Children (1, 2, 3, and 4).
6. On August 2, 1993, lawyers (a) and (b) of firm (A) met with Wife and Children (1, 2, 3, and 4) to discuss Child (5's) lawsuit and firm (A's) representation of all Defendants. Attorney (b) explored with them whether any conflicts of interest existed among Defendants and attorney (b) determined representation of the individual Defendants would not be adverse to Husband's corporation, and fi.irther, that representation of individual Defendants would not be adverse to the interests of any of the Defendants. These individual Defendants consented to representation by firm (A).
7. On August 6, 1993, the Board of Director's of the corporation removed Husband as President; installed Wife and Children (1,2,3, and 4) as all officers; indemnified corporate officers and directors named as Defendants in the lawsuit; and retained firm (A) to represent Husband's corporation in the corporate lawsuit.
8. In October of 1993, Child (3) expressed some concerns to attorney (b) about the way the corporation was being run, with particular concern about Child (1), who is a director and Vice President of the corporation, Attorney (b) informed Child (1) of the concerns raised by Child (3).
9. On November 4, 1993, Child (3's) new attorney entered his appearance; Child (3) having recently taken opposite positions in both the corporate and the guardianship proceeding.
10. A motion was filed in both cases attempting to disqualify law firm (A) due to prior representation of the parties presently in opposition.
11. Subsequently, after requests for appointment of a receiver was denied, the Court dismissed the corporate lawsuit with prejudice.
You inquire whether the attorneys of firm (A) have committed any ethical violations while continuing to represent Wife and Children (1, 2, and 4) as individuals in the guardianship and in their respective corporate capacities in the corporate lawsuit.
Secondly, you inquire whether this Committee's opinion and comments are affected by the denial of appointment of a receiver and eventual dismissal of the corporate lawsuit.
The guidelines under which the Ethics Committee provides it advisory function, prohibit the Committee from issuing opinions which ""pertain to past conduct which may become the subject of disciplinary proceedings or litigation"" or which regard the ""conduct of someone other than the person requesting the opinion"". However, the guidelines do permit the Committee to issue opinions ""upon the request of... a Court having jurisdiction over conduct which is the subject of the request."" The Committee has determined that it will issue an opinion; however, the Committee is not a fact finding body and cannot issue opinions based upon insufficient facts or those that require a factual determination by the Court.
The general rule regarding conflicts of interest, Rule 1.7 of the Rules of Professional Conduct, 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 consultation.
(c) The consultation required by paragraphs (a) and (b) shall include explanation of the implications of the common representation and any limitations resulting from the lawyer's responsibilities to another, or from the lawyer's own interests, as well as the advantages and risks involved.""
From the facts presented, it appears to this Committee that, at least, up to August 2, 1993, attorneys (a) and (b) of firm (A) complied with the mandates of Rule 1.7 by conducting the required consultation, making the determination that representation would not adversely affect the clients, and obtaining the consent of the clients regarding continuation of representation.
The Comment to Rule 1.7 entitled ""Conflict Charged by an Opposing Party"" states:
""Resolving questions of conflict of interest is primarily the responsibility of the lawyer undertaking the representation. In litigation, a court may raise the question when there is reason to infer that the lawyer has neglected the responsibility... Where the conflict is such as clearly to call in question the fair or efficient administration of justice, opposing counsel may properly raise the question. Such an objection should be viewed with caution, however, for it can be misused as technique of harassment.""
It is the consensus of this Committee that the facts provided are insufficient to conduct a complete analysis and proper application of the Rules of Professional Conduct. Therefore, the Committee is unable to render further opinions as requested regarding any other ethical violations from the fact statement presented. However, the Committee notes the following rules may be applicable to this inquiry:
1. This Committee believes Rule 1.13 may be applicable in analyzing the propriety of lawyer (b's) action of revealing information among clients when also representing the corporation. The facts relate that in October of 1993, while firm (A) represented the corporation, lawyer (b) informed Child (1-Vice President) of some concerns that Child (3-Secretary) had previously told lawyer (b) about the way the corporation was being run, with particular emphasis on the Vice President's performance. Rule 1.13 states:
""(a) A lawyer employed or retained by an organization represents the organization acting through its duly authorized constituents.
(b) If a lawyer for an organization knows that an officer, employee or other person associated with the organization is engaged in action, intends to act or refuses to act in a matter related to the representation that is a violation of a legal obligation to the organization, or a violation of law which reasonably might be imputed to the organization,, and is likely to result in substantial injury to the organization, the lawyer shall proceed as is reasonably necessary in the best interest of the organization. In determining how to proceed, the lawyer shall give due consideration to the seriousness of the violation and its consequences, the scope and nature of the lawyer's representation, the responsibility in the organization and the apparent motivation of the person involved, the policies of the organization concerning such matters and any other relevant considerations. Any measures taken shall be designed to minimize disruption of the organization and the risk of revealing information relating to the representation to persons outside the organization. Such measures may include among others:
(1) asking reconsideration of the matter;
(2) advising that a separate legal opinion on the matter be sought for presentation to appropriate authority in the organization; and
(3) referring the matter to higher authority in the organization, including, if warranted by the seriousness of the matter, referral to the highest authority that can act in behalf of the organization as determined by applicable law.
(c) When the organization's highest authority insists upon action, or refuses to take action, that is clearly a violation of a legal obligation to the organization, or a violation of law which reasonably might be imputed to the organization, and is likely to result in substantial injury to the organization, the lawyer may take further remedial action that the lawyer reasonably believes to be in the best interest of the organization. Such action may include revealing information otherwise protected by Rule 1.6 only if the lawyer reasonably believes that:
(1) the highest authority in the organization has acted to further the personal or financial interests of members of the authority which are in conflict with the interests of the organization; and
(2) revealing the information is necessary in the best interest of the organization.
(d) In dealing with an organization's directors, officers, employees, members, shareholders or other constituents, a lawyer shall explain the identity of the client when it is apparent that the organization's interests are adverse to those of the constituents with whom the lawyer is dealing.
(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.""
2. The fact that Child (3) has a new attorney entering an appearance on November 4, 1993 infers that Child (3) is a former client of attorney (b) and, therefore, Rule 1.9 became applicable. That rule 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 person's interests are materially adverse to the interests of the former client unless the former client consents after 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.
From the facts given it is clear the former client here (Child 3) will continue in the same litigation where attorney (b) continues to represent other clients. Also, there is no indication of consent by the former client. However, although the facts state the former client is taking ""opposite positions"" to the clients still represented by attorney (b), the facts do not reveal whether the remaining clients' interests are materially adverse to the interests of the former client. The determination of whether the interests of clients are materially adverse is to be made by attorney (b) utilizing the same principles of Rule 1.7 hereinbefore discussed.
Regarding the second distinct inquiry this Committee does not see the later denial of receivers nor dismissal of the corporate suit as being relevant to the issues of conflicts of interest presented in this situation.