Vol. 73, No. 11, November
2000
Ethics Considerations for Lawyer/Directors
There are many issues to consider when taking on the dual role of
attorney and director for a client. But with careful planning and
precautions, the dual role can effectively benefit a client.
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by Dean R.
Dietrich,
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Marquette 1997, of Ruder, Ware & Michler L.L.S.C., Wausau, is
chair of the State Bar Professional Ethics Committee. He acknowledges
the assistance of third-year law student Lance Trollop in preparing this
article. |
I serve as a member of the board of directors for a corporation that
also is a client of my law firm. Is this allowed? What are the risks of
losing the attorney-client privilege with this client?
Answer
There is no outright ban on acting as both legal counsel and
director for a client. Case law also supports the concept of acting as
both attorney and director or officer.1
However, the ethical issues to consider are similar to those for any
representation, such as maintaining confidentiality and avoiding
conflicts of interest.
1998 ABA opinion 98-410 (the ABA Opinion) described some potential
conflicts that should be considered when taking on the dual role of
attorney and director.2 For example, there
may be a conflict if the attorney is asked to represent the client in an
undertaking that the attorney opposed as director. In this situation,
the attorney must determine whether the representation is "materially
limited" by his opposition to the action under Model Rule 1.7(b). If the
attorney is disqualified under that rule, the conflict is imputed to the
rest of the firm under Model Rule 1.10(a). A second conflict may occur
if the attorney is asked to advise the corporation whether certain board
actions were legal. If the attorney took part in those actions, the
requirement of providing independent advice under Model Rule 1.7(b) may
be violated. A third conflict may arise regarding corporate actions
benefiting the attorney or her firm. For example, the corporation may
consider a merger or new service that requires substantial legal work.
This conflict is more a question of the attorney's ability to render
independent advice as a director rather than as an attorney.
The ABA Opinion made some useful suggestions to help a
lawyer/director avoid ethical violations and other problems. For
example, the lawyer should make sure the management and board of
directors understand that the legal representation is only of the
corporation and not of the individuals. The potential risks of conflicts
of interest must be explained as well. Also, the lawyer should excuse
himself as director when the relationship of the corporation with the
attorney or firm is under consideration, such as issues of performance
or payment. In addition, the lawyer's duties must be performed
diligently even when, as director, he disagreed with the course of
action (unless the representation would violate the Model Rules).
Another concern is the attorney-client privilege. The fact that an
attorney is also a director for the client does not drastically change
the traditional application of the attorney-client privilege for a
corporation. Essentially, the privilege applies to a legal service, but
not to any business statements or documents. However, it is often hard
to determine what is "legal" and what is "business" advice. This is even
more difficult when an attorney is a director, since she often is
providing regular business advice. Another complication is that the
party asserting the privilege has the burden of proving the
communication was of a legal nature.3 The
legal aspects of the advice must be dominant over the nonlegal aspects
for the privilege to apply. "To date, no clear test has been articulated
to determine when an attorney is acting in his or her legal capacity."4 Courts typically use a case-by-case
analysis.5
Not only may the dual role increase the likelihood that the
communication had a business component, it may cause some courts to
require a stronger showing of proof that it should be protected. For
example, one court held that when a lawyer also serves in a business
capacity, the corporation must clearly show the communication was in a
legal capacity for the privilege to be applied.6 Presented with a situation in which a lawyer
was a vice president of the client, another court also required clear
evidence that the information was given in a legal capacity.7
The ABA Opinion also offered some suggestions for lawyer/director
conduct at board meetings. First, if consulted for legal advice, make it
clear that the meeting concerns legal issues and avoid providing
business advice. Second, have another lawyer from the firm attend
meetings to provide any legal advice that is requested (this may not be
practical financially). Also, when legal advice is given, anyone not
essential to the legal advice should be excused from the room and the
minutes should identify when the lawyer gave advice on a legal matter.
In addition, minutes and notes regarding legal advice should be kept in
a separate file marked "attorney-client privilege."
The following guidelines would help maintain the attorney-client
privilege.
- Have a primary contact attorney at the law firm separate from the
lawyer/director to ease the burden of proving a communication was
predominantly legal.
- All legal responsibility should funnel through only one person in
the corporation to reduce the risk of accidental exposure.
- The corporation should use legal titles for legal personnel,
although a second nonlegal title, like vice president, should not
disqualify the privilege.
- Use stationery and letterhead demonstrating a legal capacity when
acting as an attorney.
- Confirm requests for legal advice with a letter stating it is a
legal assignment.
- Use legal introductory signals, such as "our legal opinion is" or
"under the law."
- Keep billings and files for legal work separate from those for
business work.
- Limit written legal advice only to legal advice and mark it with
"attorney-client privilege."
Clearly, there are many issues to consider when taking on the dual
role of attorney and director for a client. The main complication is the
protection of the attorney-client privilege. However, with careful
planning and precautions, the dual role can be effectively used to a
client's benefit.
To Read More About It
...
Professional Ethics Committee opinions may be found online at www.wisbar.org/ethop/.
In addition, Professional Ethics Committee opinions are available in
Wisconsin Ethics Opinions, published by State Bar of Wisconsin CLE
Books. Wisconsin Ethics Opinions includes the complete text of all
formal, informal, and memorandum opinions issued by the Professional
Ethics Committee since 1954, including opinions that have been
withdrawn. The book also includes the full text of the Rules of
Professional Conduct for Attorneys (SCR 20). For more information or to
order Wisconsin Ethics Opinions, call (800) 728-7788 or visit WisBar at
www.wisbar.org/cle/books/.
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Endnotes
1 See Niagra Fire Ins.
Co. v. Pepicelli, Pepicelli, Watts & Youngs P.C., 821 F.2d 216,
221-22 (3d Cir. 1987).
2 See ABA Comm. on Ethics and
Professional Responsibility, Formal Op. 98-410 (1998).
3 See Cuno Inc. v. Pall
Corp., 121 F.R.D. 198, 200 (E.D.N.Y. 1988); In re Sealed
Case, 737 F.2d 94, 99 (D.C. Cir. 1984).
4 Scott R. Flucke, The
Attorney-Client Privilege in the Corporate Setting: Counsel's Dual Role
as Attorney and Executive, 62 UMKC L. Rev. 549, 560 (1994).
5 See id. at 558;
In re Southern Indus. Banking Corp., 35 B.R. 643, 648 (Bankr.
E.D. Tenn. 1983).
6 See Teltron Inc. v.
Alexander, 132 F.R.D. 394, 396 (E.D. Pa. 1990).
7 See In re Sealed
Case, 737 F.2d at 99.
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