In-house counsel, who is your client? It’s the organization. That’s an easy one, right? It may be easy in theory, but it’s not always so straightforward in practice.
A corporate organization necessarily acts through its people, and, unlike outside counsel, in-house lawyers spend most of their days working closely with those people. That proximity can increase in-house counsel’s effectiveness and make work more enjoyable, but it can also lead to trouble. An organization’s owners, officers and employees (and sometimes the lawyer) may not fully appreciate exactly who it is the in-house lawyer represents. At some point, the interests of the organization and its constituents may diverge, causing one or more conflicts. To add to the complexity, many organizations have affiliate or subsidiary entities that have their own (and different) constituents.
In-house counsel owe a duty of loyalty to their client and must act in the best interests of the corporate entity. But what if the interests of one or more constituents are not aligned with those of the organization? What happens if those constituents think the lawyer is representing them?
There are times when in-house lawyers are asked to do legal work for individual officers or employees, or perhaps affiliate or subsidiary companies. Generally speaking, an organization’s in-house counsel may represent constituents, subsidiaries or affiliates of a corporate parent, while representing the parent. But if in-house lawyers are not careful, they could hamper their ability to represent the parent organization effectively or even represent it at all. Conflicts of interest could give rise to disqualification, to the required disclosure of otherwise privileged information, or even to personal liability.
Dangers of Dual Representation
The Georgia Rules of Professional Conduct allow a lawyer representing an organization to also represent one or more of its directors, officers, employees, members, shareholders or other constituents. See Rule 1.13(g). But to do so, the lawyer must reasonably believe she can adequately represent both the organization and the constituent. Specifically, the lawyer must satisfy herself that her duties to the organization will not be adversely affected by representing a constituent. Then the lawyer must clearly explain the impact of the dual representation and obtain written consent from both the organization and the constituent.
While the dual representation of an organization and one or more of its constituents may be allowed, it is generally not advisable. Even if an organization and its constituent’s interests are aligned in the beginning, those interests can quickly diverge creating a conflict of interest. One California case is instructive. See Yanez v. Plummer, 221 Cal. App. 4th 180 (2013).
In Yanez, an in-house lawyer represented an employee at a deposition in a lawsuit involving a workplace injury. The employee expressed to the in-house counsel his concern about keeping his job, because his deposition testimony would likely be unfavorable to the employer. The in-house lawyer told him that, as long as he told the truth, his job would be protected. The lawyer never alerted the employee to the conflict between the employee and the employer and never obtained written consent from the employer and employee to represent both of them. Ultimately, the employee was fired for dishonesty after his conflicting statements were highlighted by the in-house lawyer at deposition. The employee then sued the in-house lawyer for legal malpractice, breach of fiduciary duty and fraud. The appellate court reversed the trial court’s grant of summary judgment and allowed the employee’s claims to move forward.
In another case, an in-house lawyer was sued for breach of fiduciary duty arising out of advice he gave to two executives regarding their exercise of stock options. While the in-house counsel ultimately prevailed, the court recognized that the fiduciary relationship existed between the in-house counsel and the two executives. See Dinger v. Allfirst Fin., Inc., 82 Fed. Appx. 261 (3d Cir. 2003).
So What Should In-House Counsel Do?
As a general rule, in-house counsel should refrain from giving corporate constituents individual legal advice. Without that default rule, in-house lawyers may inadvertently create attorney-client relationships with their organization’s constituents, leading to a conflict down the road.
When dealing with an organization’s owner, officer or employee and there is a chance the constituent’s interest may be adverse to the interest of the organization, in-house lawyers must make their role clear and should give a so-called Upjohn warning. Lawyers should clearly inform the individual that they represent the organization, and not the individual personally. Lawyers should also inform the individual that he has a right to independent counsel. They should tell the constituent that their communications are protected by the attorney-client privilege, but the privilege belongs to the entity and their communications are not privileged from the entity. These disclosures should be documented in writing. If these warnings are not communicated, then in-house counsel run the risk of getting disqualified (or worse) if the corporation ever becomes adverse to the constituent.
When an in-house lawyer is asked to provide legal services to an affiliate entity, the lawyer should recognize the potential for conflicts. On occasion, the interests of parents and subsidiaries may diverge. In-house counsel should try to anticipate those situations and consider one or more of the following: obtaining written consent via Rule 1.7(b); obtaining advance conflict waivers; limiting the scope of representation; or retaining outside counsel. Failure to do so could lead to disqualification and the forced disclosure of privileged information.
Jonathan E. Hawkins is a partner in the Atlanta firm of Krevolin & Horst. He represents clients in numerous business sectors in high-stakes complex commercial litigation and serves as outside general, business, and ethics counsel to lawyers and law firms.