CI-456

April 7, 1980

SYLLABUS

An attorney who is general counsel for a corporation may represent other entities in similar matters only if both the corporation and outside entities consent to the dual representation after full disclosure of all personal and financial conflicts that may arise.

Such an attorney may not represent outside entities where the corporate employer bills for or attempts to control or interfere with the representation.

References: DR-3-101(A), DR, 4-101(C), DR 5-101, DR-105(A) and (C), DR 5-107.

TEXT

You are general counsel for a corporation involved primarily in manufacturing and sales. The corporation has dealings with other similar entities that have asked your employer for your legal assistance because they are not large enough to employ in-house counsel. You ask whether it would be a violation of the Code of Professional Responsibility for you to assist such other entities. Further, you ask whether you may give such legal counsel when your employer will receive consideration for such services from the other entities and where it is a condition of your employment to provide such services.

The first question raised by your inquiry concerns the extent to which your dual representation of the corporation that employs you and other entities with which it deals would involve a conflict of interest under Canon 5.

If the proposed representation of other entities is wholly unrelated to their dealings with the corporation that employs you, such representation would probably be appropriate, as long as you disclose your own personal and financial interest on behalf of the corporation to the other entities. Dee DR 5-101 and 5-107(A).

However, to the extent that such proposed joint representation would involve dealings between your company and the other entities, you would be permitted to undertake such joint representation only if each client consents to it after full disclosure of the possible conflicts that exist or may arise. This would include, but not be limited to, the possibility of differing interpretations of the Uniform Commercial Code upon transactions between the two entities. Dee DR 5-105(C) and CI-199.

Another more subtle issue is posed by this joint representation. As you have represented your corporation in the past, you have obviously been the beneficiary of their confidences and secrets under DR 4-101(A). Therefore, DR 4-101(B_ would not allow you to reveal or even use the confidence or secret of this client for the advantage of any third party or the disadvantage of your employer. Insofar as your employer and another entity do business with each other, the kind of advice you give to the other could likely be colored by your past representation of the corporation of which you are general counsel. This may allow other entities to infer or on occasion to be the direct beneficiary of confidential information gained in your representation of the corporation. The use of this confidential information would be permissible only if your corporation consents after full disclosure by you. See DR 4-101(C)(1).

Should any differing interest ripen into a legal conflict in which your corporation and another entity you represent disagree, your former joint representation of each will create additional problems. Inasmuch as at that point you would have gained confidential information from both parties, you may be barred from further representation of either in the case of actual conflict between the parties. See DR 4-101(B) and (C).

The second part of your inquiry is answered in part DR 5-107. First, DR 5-107(A) prohibits you from accepting compensation for your legal services from someone other than the client except with the consent of the client after full disclosure. Thus, if the other entities were to consent to the arrangement after full disclosure of the possible effect it may have on your independent professional judgment, such employment could be allowed.

However, DR 5-107(B) also prohibits a lawyer from permitting another to direct or regulate his or her professional judgment in rendering such legal services. Thus, it must be made very clear to your current employer that should it really desire you to represent another entity, you will be ethically required to remain free of all direction or regulation of the service rendered to the other. This includes, but is not limited to, your freedom to arrange all conferences and contacts with the entity. Dee C-56 and C-110.

ABA Informal Opinion 973 recognizes another, and perhaps even more important, danger of exploitation of your services by your current employer. Your representation of other entities where your employer receives a profit for such services would involve the corporation in the unauthorized practice of law. Your participation in such an undertaking is absolutely forbidden by DR 3-101(A). See C-199. This means that you must not permit your employer "under the guise of reimbursement, to receive any greater amount from the (outside entity) than that actually required to reimburse it for its lawyer's services . . . ." Formal Opinion 98. Emphasis added.

ABA Informal Opinion 973 seems to agree that this Michigan guideline is consistent with the requirements of DR 3-101(A). However, that committee further indicated that the danger of unauthorized practice and lay interference remain whenever the corporate employer charges any amount for legal services its employee performs for others. In order to avoid this danger, the committee approved of the representation of the outside entities only where those entities place the lawyers on their own payroll on a part-time basis.

Accordingly, as long as you bill the outside entities directly for your services in a manner consistent with that set out in ABA Informal Opinion 973, and your employer agrees to refrain from any other kind of control over your services, whether you may than represent an outside entity depends upon:

1. Whether the exercise of your professional judgment on behalf of the other entity will be or reasonably could be affected by your own financial and personal interest as a full0time employee of the first corporation.
2. The extent to which confidential communications from either entity could be disclosed to the other or used against the other during the course of the multiple representation.

Each of these matters requires full disclosure of all of the actually existing and potential conflict due to each. This disclosure must be made to both entities and each must consent. In advising each entity the disclosure should be made to the board of directors and not alone to any director, officer, employee or representative.

Accordingly, it would be proper for you to represent both entities under the circumstances you have indicated only if your employer refrains from control over and billing for your services, and than only following full disclosure and consent of all of the actual and potential conflicts that may result. Insofar as these conflicts may exist, then the joint representation should be rightly declined either by you due to your inability to exercise independent professional judgment on behalf of either, or by either or both entity.