Summary: The Disciplinary Rules do not, per se, prohibit in-house counsel from representing corporations affiliated with counsel's corporate employer. A pro rata share of the cost of an attorney's services may be allocated to the affiliated corporation, but an attorney's fees separately charged may not be paid to the corporation.
Facts: An attorney who is employed by a corporation as in-house counsel states that she contemplates providing legal services to another corporation which, though presently a wholly owned subsidiary of her employer corporation, will in the near future be issuing additional shares to third parties. The inquiry does not state whether the subsidiary will continue to be majority-owned by the attorney's employer. The attorney indicates that her services to the subsidiary would be billed through her employer corporation.
Discussion: The principal issues posed by the present inquiry involve conflicts of interest, client confidences and secrets, and division of fees with non-lawyers.
With respect to conflicts of interest, it seems that in-house counsel, in determining whether he or she may render legal services to a corporation controlling, controlled by, or under common control with, his or her corporate employer, must consider the application of DR 5-101, DR 5-107 and DR 5-105. DR 5-101(A) provides that:
Except with the consent of his client after full disclosure, a lawyer shall not accept employment if the exercise of his professional judgment on behalf of his client will be or reasonably may be affected by his own financial, business, property or personal interests.
Thus, if the fact that the attorney's full-time salary and employment are provided by one entity in the corporate structure will or reasonably may affect her judgment on behalf of another entity for which she is asked to perform legal services, this circumstance must be fully disclosed, and the consent of both clients obtained, before the attorney may proceed with the representation. In the same vein, DR 5-107(A) provides that, except with the client's consent after full disclosure, the attorney may not accept compensation for legal services from one other than the client. Regardless of such consent, DR 5-107(B) prohibits the attorney from permitting the entity which employs or pays the attorney to render legal services for another to direct or regulate the attorney's professional judgment in rendering such legal services. These rules seem to require no further elaboration in this case.
DR 5-105 addresses situations in which the interests of the respective clients, as distinguished from the interests of the attorney vis-a-vis a client, present potential or actual hazards to the attorney's exercise of independent professional judgment on behalf of each. Although clearly there will be matters in which in-house counsel for one corporation will be precluded by DR 5-105 from representing a related corporation or, in some cases, either corporation, we find nothing in the rule that would prohibit such counsel from representing subsidiaries or affiliates of his or her employer corporation in general. DR 5-105 provides, in pertinent part, as follows:
(A) A lawyer shall decline proffered employment if the exercise of his independent professional judgment in behalf of a client will be or is likely to be adversely affected by the acceptance of the proffered employment, or if it would be likely to involve him in representing differing interests, except to the extent permitted under DR 5-105(C).
(B) A lawyer shall not continue multiple employment if the exercise of his independent professional judgment in behalf of a client will be or is likely to be adversely affected by his representation of another client, or if it would be likely to involve him in representing differing interests, except to the extent permitted under DR 5-105(C).
(C) In the situations covered by DR 5-105(A) and (B), a lawyer may represent multiple clients if it is obvious that he can adequately represent the interest of each and if each consents to the representation after full disclosure of the possible effect of such representation on the exercise of his independent professional judgment on behalf of each.
Subject to our discussion of DR 4-101 below, we can derive no reason from DR 5-105 to preclude a parent company's in-house counsel from representing an affiliated company in its dealings with third parties. Nor, at least where there is identity in the ownership of the two companies or where one company is wholly owned by the other, do we perceive an ethical problem in counsel's acting for both in certain situations, e.g., in preparing a contract to which both will be parties. See ABA Informal Opinion 973 [August 26, 1967], in which the ABA committee said: "In such situations we would as a matter of reality and practicality ignore, for purposes of ethical considerations, the separate legal identities of the employer and the other corporation and consider them as one or at least consider each as the alter ego of the other." To the extent that there is a departure from such commonality of ownership interest, the attorney must make full disclosure to each entity and obtain the consent of each, and may then proceed with the multiple representation if it is "obvious" that the attorney can adequately represent the interests of each in the matter.
With respect to confidences and secrets, in-house counsel must be careful to apply DR 4-101 to the different possible situations he or she faces in representing affiliated corporations. In pertinent part, the rule provides that:
(B) Except when permitted under DR 4-101(C), a lawyer shall not knowingly:
(1) Reveal a confidence or secret of his client.
(2) Use a confidence or secret of his client to the disadvantage of the client.
(3) Use a confidence or secret of his client for the advantage of himself or a third person, unless the client consents after full disclosure.
(C) A lawyer may reveal:
(1) Confidences or secrets with the consent of the client or clients affected, but only after a full disclosure to them.
When representing a company other than his or her primary employer, the attorney and his or her employer should understand that the confidences and secrets of the affiliate may not, without the affiliate's consent after full disclosure, be revealed by the attorney to, or used for the benefit of, the employer. When representing an affiliate and the employer, both clients should be advised that their respective confidences and secrets gained by the attorney in the course of the representation may not be withheld from the other, unless the clients make some other arrangement. The clients' consent to the representation after such disclosure is a prerequisite to multiple representation by the attorney, and the necessity for such agreement is perhaps a factor to be considered by the attorney in determining whether it is "obvious" that he or she can adequately represent the interest of each under DR 5-105(C).
Permission to publish granted by the Board of Delegates on June 21, 1983.
As stated in the Rules of the Committee on Professional Ethics, this advice is that of a committee without official governmental status.