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.

by Dean R. Dietrich,

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.

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.

1. 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.
   
   
2. All legal responsibility should funnel through only one person in the corporation to reduce the risk of accidental exposure.
   
   
3. The corporation should use legal titles for legal personnel, although a second nonlegal title, like vice president, should not disqualify the privilege.
   
   
4. Use stationery and letterhead demonstrating a legal capacity when acting as an attorney.
   
   
5. Confirm requests for legal advice with a letter stating it is a legal assignment.
   
   
6. Use legal introductory signals, such as "our legal opinion is" or "under the law."
   
   
7. Keep billings and files for legal work separate from those for business work.
   
   
8. 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.

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.