Summary: Lawyer represents a joint venture AB, consisting of A and B, in certain litigation and also represents A individually. Lawyer inquires whether she may represent third party C in a suit against B that is unrelated to the business of AB. Before taking C’s case, Lawyer must first determine whether, in the course of representing AB, she has either established an attorney-client relationship with B individually or has undertaken a fiduciary duty to B that would preclude suing B. If she represents B, or has such a fiduciary duty to B, Lawyer may not bring a suit against B on behalf of C without obtaining the consent of both B and C.
Next, Lawyer must consider whether bringing suit against B might impair her ability to represent AB in the pending litigation by undermining her ability to obtain B’s cooperation in the suit. Lawyer must also consider whether pursuing C’s claim might require attachment of B’s interest in AB and thus involve impermissible use of AB’s confidential information. Finally, Lawyer must consider whether C’s lawsuit against B might have such an impact on the financial interests of AB or A that her representation of C would be materially limited. If any of these possibilities seem likely, Lawyer cannot undertake the proposed representation without meeting the consent and reasonableness requirements of Rule 1.7(b)(1) and (2).
Facts: For a number of years Lawyer has represented Company A, a general contractor, in a variety of matters. Several years ago, Company A entered a joint venture with Company B, another general contractor, to build a single project. At some point thereafter, the joint venture became embroiled in disputes with the project owner, certain subcontractors, and others. The joint venture retained Lawyer to represent it in the disputes and in ensuing litigation initiated by the subcontractors. Lawyer does not represent, and has not represented, the joint venture in any other matters.
Recently, Lawyer has been engaged by Company C, a subcontractor, and asked to advise Company C about a possible claim that arises from a project on which Company B serves as the general contractor. That project is unrelated to the one undertaken by the joint venture. Lawyer states that she has not acquired any confidential information about the management and operations of Company B and specifically that she has no confidential information of Company B that is relevant to Company C's claims. She asks whether she may undertake the representation of Company C against Company B.
Discussion: The relevant provisions of the Massachusetts Rules of Professional Conduct are Rules 1.7 and 1.8(b). They provide:
Rule 1.7(a) A lawyer shall not represent a client if the representation of that client will be directly adverse to another client, unless:
(1) the lawyer reasonably believes the representation will not adversely affect the relationship with the other client; and
(2) each client consents after consultation.
Rule 1.7(b) A lawyer shall not represent a client if the representation of that client may be materially limited by the lawyer’s responsibilities to another client or to a third person, or by the lawyer’s own interests, unless:
(1) the lawyer reasonably believes the representation will not be adversely affected; and
(2) the client consents after consultation. When representation of multiple clients in a single matter is undertaken, the consultation shall include explanation of the implications of the common representation and the advantages and risks involved.
Rule 1.8(b) A lawyer shall not use confidential information relating to representation of a client to the disadvantage of the client or for the lawyer’s advantage or the advantage of a third person, unless the client consents after consultation, except as Rule 1.6 or Rule 3.3 would permit or require.
Lawyer must initially decide who her client is in the matters she is handling for the joint venture. A joint venture is a partnership. In Massachusetts, the prevailing view seems to be that an attorney for a partnership represents the partnership as an entity rather than the individual partners. Cacciola v. Nellhaus, 49 Mass.App. 746, 753 N.E.2d 133 (2000). See also Massachusetts Rules of Professional Conduct 1.13(a). Cacciola leaves open, however, the possibility that the attorney for a partnership may also represent or have a fiduciary duty to the individual partners in some cases, citing Schaeffer v. Cohen, Rosenthal, Price, Mirkin, Jennings & Berg, P.C., 405 Mass. 506, 513, 541 N.E.2d 997 (1989) and Johnson v. Superior Court, 28 Cal.App.4th 463, 476-77, 45 Cal.Rptr.2d 312 (1995). 733 N.E.2d at 137. See also De Vaux v. American Home Ins. Co., 387 Mass. 814, 818, 444 N.E.2d 355 (1983). (The Committee on Professional Ethics has taken a similar view in analogous circumstances. See our Opinion 92-2, where we concluded that, for conflicts purposes, representation of an executor should be regarded as an individual representation when the executor was the sole beneficiary of the estate.)
In deciding whether an attorney for a partnership is also attorney for the individual partners, the California opinion cited in Cacciola listed the following factors:
1. The size of the partnership.
2. The nature and scope of the attorney's engagement.
3. The kind and extent of the attorney's contacts with the individual partners.
4. The attorney's access to financial information relating to the individual partner's interests.
5. Whether the totality of the circumstances implies an agreement that the attorney will not accept other representations adverse to the individual partner's personal interests. 28 Cal.App.4th at 476-77.
If we apply these factors to Lawyer’s inquiry, the size of the joint venture favors the conclusion that the lawyer represents B individually. Lawyer is more familiar with the facts relating to the other factors and is in a better position that this Committee to apply them to the circumstances of this inquiry.
Cacciola also raises the possibility that even if Lawyer does not represent Company B, she may owe it a fiduciary duty that might preclude a lawsuit against Company B. The court quoted the trial judge’s recognition that
the Supreme Judicial Court has recognized (in dictum) that “an attorney for a partnership owes a fiduciary duty to each partner.” Schaeffer v. Cohen, Rosenthal, Price, Mirkin, Jennings & Berg, P.C., 405 Mass. 506, 513, 541 N.E.2d 997 (1989). In extending that principle to close corporations, the Schaeffer court cited Fassihi v. Sommers, Schwartz, Silver, Schwartz & Tyler, P.C., 107 Mich. App. 509, 309 N.W.2d 645 (1981). Schaeffer, supra at 513. Fassihi held that even in the absence of an attorney-client relationship, a shareholder in a closely held corporation may have a cause of action for breach of fiduciary duty against the lawyer for the corporation. Fassihi, 107 Mich. App. at 514-517. 49 Mass. App., at 750.
Whether Lawyer owes a fiduciary duty not to institute litigation against Company B is a matter of fact and law that Lawyer must consider.
We therefore advise that if Lawyer, after considering the factors indicated above, decides that she has an individual attorney-client relationship with Company B or owes a fiduciary duty to Company B, she may not proceed with the representation of Company C without first obtaining Company B's informed consent, even though the matters are unrelated. Mass. R. Prof. C. 1.7(a); The McCourt Companies v. FPC Properties, Inc., 386 Mass. 145 (1982).
Lawyer should consider three additional matters before undertaking the representation of Company C. First, she should consider whether representation of Company C as an adversary of Company B will interfere with her ability to represent the AB, the joint venture. Even if she concludes that Company B is not her client, she may need Company B’s active cooperation to complete her engagement as counsel for the joint venture. Second, she should consider whether representing Company C in its efforts to collect what Company B owes it might at some point make it desirable to attach or levy on Company B's rights in the joint venture. Her knowledge of the terms of the joint venture agreement and the joint venture's finances is confidential client information which may not be used to the advantage of a third party (here Company C) without the consent of her client, the joint venture. Mass.R.Prof. C. 1.8(b); See In the Matter of the Discipline of Two Attorneys, 421 Mass. 619 (1996)(lawyers violated Disciplinary Rules by using information obtained as counsel for a buyer to attach proceeds of sale on behalf of another client, who was a creditor of the seller.) If it appears likely that representation of Company C will involve levying on Company B's property interest in the joint venture, then Lawyer’s duty to maintain the joint venture's confidences and secrets may substantially interfere with the lawyer’s ability to represent Company C. See Mass.R.Prof.C. 1.7(b), comment (loyalty to client is impaired if the lawyer cannot recommend an appropriate course because of Lawyer's obligations to another client).
Third, she should consider whether it is likely that the proposed litigation on behalf of Company C against Company B might well have an adverse impact on the joint venture and on her other current client, Company A. If that were the case, then again she needs to ask herself whether her representation of Company C may, in the words of Rule 1.7(b) “be materially limited by [her] responsibilities to another client.”
If any of these three possibilities seem likely, Lawyer cannot undertake the proposed representation without meeting the consent and reasonableness requirements of Rule 1.7(b)(1) and (2).
This advice is that of a committee without official governmental status.
This opinion was approved by the Massachusetts Bar Association House of Delegates on September 29, 2004 for publication.