In representing lawyers and law firms of all sizes, there are many issues that present themselves with great frequency. Among those issues are the challenges of representing closely held corporate entities and the conflicts that may arise from actual or perceived representation of the organization’s constituent members. A typical situation involves a lawyer being asked by a client to form an entity, and then at some future point, being asked to represent either the company or the member in a dispute with other equity holders. These situations are fraught with peril that can easily lead to disqualification, disciplinary action or potential malpractice liability. This article examines conflicts of interest in the organizational setting and discusses potential consequences from a failure to spot and adequately address such conflicts.

The Organizational Client—Know Who You Represent!

ABA Model Rule 1.13(a) provides that “a lawyer employed or retained by an organization represents the organization acting through its duly authorized constituents.” The lawyer’s primary duty, therefore, is to the corporate entity and not to its directors, officers, employees or other constituents. See Brooklyn Navy Yard Cogeneration Partners v. Superior Court, 60 Cal. App. 4th 248, 254 (Cal. App. 1997) (“The attorney owes undivided allegiance only to the corporate entity which he or she represents rather than any affiliated persons or entities.”). Depending on the type of business entity and the jurisdiction, the representation of an organization itself may per se constitute representation of the individual constituents. This has increasingly been the case with respect to unincorporated business partnerships. See e.g., Wortham & Van Liew v. Superior Court, 188 Cal. App. 3d 927, 932 (Cal. App. 1987) (“the attorney for the partnership represents all the partners as to matters of partnership business”); Pucci v. Santi, 711 F. Supp. 916, 927 (N.D. Ill. 1989) (holding that a limited partnership’s attorney also represents the limited partners); but see, Richter v. Van Amberg, 97 F. Supp. 2d 1255, 1264 (D.N.M. 2000) (“Mere representation of a partnership does not, in and of itself, constitute representation of the individual partners.”).