Summary: The ability of one of two equal shareholders of a corporation to hire and instruct an attorney on behalf of the corporation involves a question of law that is beyond the jurisdiction of the committee. A lawyer may not sue a former client on a matter substantially related to the prior representation of the former client without the consent of the former client after full disclosure.
Facts: A lawyer, L, was retained by two brothers, A and B, to form a realty trust and a corporation. A and B own equal shares of the corporation. L thereafter represented the corporation in the acquisition of a business and in the preparation of a lease whereby the corporation became a tenant of the realty trust. A runs the day-to-day affairs of the corporation. There has been a falling out between A and B. A now desires to retain L, both in A's name individually, in the name of the realty trust, and in the name of the corporation to commence litigation against B. L notes that all the work in connection with the formation of the realty trust and the corporation, and its acquisition of assets has already been completed. L inquires as to ethical problems he might face by A's request.
Discussion: 1. Representation of the corporation. Since A and B own 50 percent each of the corporation, the first question is whether L (or any lawyer for that matter) could obtain instructions to proceed on behalf of the corporation where A and B are not in agreement. The question as to whether the corporation is in a position to give instructions is a legal question, of course, and thus is beyond the purview of the committee. It might be that the corporation has been set up in such a fashion so that it is able to proceed even though the owners are in disagreement. If not, it would be appropriate for a receiver to be appointed for the corporation. The receiver could then decide how to proceed and there would be no ethical prohibition against L representing the receiver in any matter against B unless that matter was substantially related to L's past representation of B. In such a situation, L could represent the corporation against B only if B consented after full disclosure. The same discussion would also apply with respect to the realty trust, assuming equal ownership by A and B.
2. A v. B. With respect to representing A against B, there is no ethical prohibition against doing so, unless it involves a matter substantially related to L's former representation of B in the formation of the realty trust or corporation. See MBA Opinion 77-16 (attorney may not ethically represent a plaintiff in a claim for personal injuries where the attorney was previously retained by an insurance company to represent the same defendant in an action brought by a different plaintiff involving a substantially related claim). See also MBA Opinions 75-7 and 76-14.
Whether the proposed representation is substantially related is generally a question of fact and the information submitted by L does not enable the committee to answer this question in this case. If the matter is substantially related, then L is precluded from suing B in the absence of consent by B after full disclosure. See our Opinion No. 76-14.
Although reasonable people may differ, the committee believes it would be imprudent in either of the representations against B for L under any circumstances to request consent from B without informing B of the advisability of obtaining independent counsel with respect to such request. Compare MBA Opinion 82-1 (attorney should not obtain release from client for potential malpractice liability unless client consents after full disclosure and is advised to seek independent counsel).
Permission to publish granted by the Board of Delegates on May 12, 1983.
As stated in the Rules of the Committee on Professional Ethics, this advice is that of a committee without official governmental status.