The inquirer is currently serving in the role of general counsel to a corporation owned by five partners. Recently, four of the partners decided to fire the fifth partner. Inquirer worked most closely on a daily basis with the fired partner. Because of the abrupt nature and execution of the decision to fire the fifth partner, there is uncertainty as to how the transition will be handled. The president of the company has indicated to the inquirer that the inquirer will be expected to assume some of the fired partner's duties. This might entail the inquirer make business decisions for the company. It is most likely that these decisions would be on a day-to-day basis, and relatively small in scope, as the inquirer is not taking over the fifth partner's role or becoming a partner in the company.
The inquirer expresses concern regarding potential conflicts of interest that may arise in relation to the business decisions that she may have to make for the company. Specifically, the inquirer is concerned about the applicability of Pennsylvania Rules of Professional Conduct 1.7 and 1.8, since the inquirer will be handling nonlegal work for the company while also serving as general counsel. The inquirer is concerned that the addition of nonlegal duties to her job may constitute her entering into a business transaction with a client.
The inquirer asks if a waiver is required from the coporation, and if so, should it be a general waiver addressing the potential conflict inherent in the inquirer's dual role, or should it be done on an "as needed" basis when it appears that is a conflict between the inquirer's two roles? The inquirer also asks if it would make any material difference if her title was changed to something like "Director of Business and Legal Affairs."
Rule 1.8(a) applies to potential conflicts of interest that may arise when a lawyer enters into a business transaction with a client or acquires an ownership interest adverse to a client, and provides:
Rule 1.8(a) Conflict of Interest: Current Clients: Specific Rules
(a) A lawyer shall not enter into a business transaction with a client or knowingly acquire an ownership, possessory, security or other pecuniary interest adverse to a client unless:
(1) the transaction and terms on which the lawyer acquires the interest are fair and reasonable to the client and are fully disclosed and transmitted in writing in a manner that can be reasonably understood by the client;
(2) the client is advised in writing of the desirability of seeking and is given a reasonable opportunity to seek the advice of independent legal counsel on the transaction; and
93) the client gives informed consent in a writing signed by the client, to the essential terms of the transaction and the lawyer's role in the transaction, including whether the lawyer is representing the client in the transaction.
Comment (1) to Rule 1.8 states in relevant part that Rule 1.8 "does not apply to ordinary free arrangements between client and lawyer, which are governed by Rule 1.5, although its requirements must be met when the lawyer accepts an interest in the client's business or other nonmonetary property as payment of all or part of a fee."
Therefore, unless the inquirer is acquiring some partnership interest in the company, or is otherwise being compensated with nonmonetary property, the provisions of Rule 1.8(a) do not apply.
Rule 5.7, however, applies to a lawyer's obligations when providing nonlegal services to a client, and provides:
Rule 5.7 Responsibilities Regarding Nonlegal services
(a) A lawyer who provides nonlegal services to a recipient that are not distinct from legal services provided to that recipient is subject to the Rules of Professional Conduct with respect to the provision of both legal and nonlegal services.
(b) A lawyer who provides nonlegal services to a recipient that are distinct from any legal services provided to the recipient is subject to the Rules of Profsesional Conduct with respect to the nonlegal services if the lawyer knows or reasonably should know that the recipient might believe that the recipient is receiving the protection of a client-lawyer relationship.
(c) A lawyer who is an owner, controlling party, employee, agent, or is otherwise affliated with an entity providing nonlegal services to a reipient is suject to the Rules of Professional Conduct with respect to the nonlegal services if the lawyer knows or reasonable should know that the recipient might believe that the recipient is receving the protection of a client-lawyer relationship.
(d) Paragraph (b) or (c) does not apply if the lawyer makes reasonable efforts to avoid any misunderstanding by the recipient receiving nonlegal services. Those efforts must include advising the recipient that the services are not legal services and that the protection of a client-lawyer relationship does not exist with respect to the provision of nonlegal services to the recipient.
(e) The term "nonlegal services" denotes services that might reasonable be performed in conjunction with and in substance are related to the provision of legal services, and that are not prohibited as unauthorized practice of law when provided by a nonlawyer.
If there is any potential for confusion by the client as to whether services provided by the lawyer are legal or nonlegal, then Rule 5.7 requires that the lawywer providing the nonlegal services adhere to all of the requirements of the Rules of Professional Conduct in providing those services. Presumabley the inquirer and the corporation for whom she will be providing legal and nonlegal services will desire that the inquierer adhere to the requirements of the Rules of Professional Conduct, particularly Rule 1.6, Confidentiality of Information, Rule 1.7 Conflict of Interest: Current Clients, and Rule 2.1, Advisor (regarding a lawyer's exercise of independent judgment). This presumption is based on the fact that regardless of the nature of the specific services, as in-house consel, the conduct of the inquirer will have the imprimatur of being done by an attorney, and thus could be subject by others who scrutinize her conduct to the expectation that the highest ethical standards apply to all of her company functions.
However, the inquirer must also advise the client about the applicability of provisions of rule 1.13, Organization as Client, which requires internal reporting by a lawyer of violations of legal duties to the corporation by constituents of the corporation, Rule 3.3, Candor toward the Tribunal, Rule 4.1, Truthfulness in Statements to Others, and other applicable rules.
Also, even if the inquirer adheres to all of the requirements of the Rules of Professional Conduct in providing nonlegal services, it is important that the inquirer's client understands that the attorney-client privilege does not apply to communications other than those for which the primary purpose is the seeking or providing of legal advice, and therefore many of the inquirer's conversations with the constituents of the corporation may not be privileged. The inquirer has a duty to the client to explain how and when the privilege applies, to make it clear which communications may not be privileged, and to point out which nonlegal duties may be so distinct from legal duties that the protections of the Rules of Professional Conduct might not apply.
This duty of disclosure regarding the applicability of the Rules of Professional Conduct as well as the protection of the attorney-client privilege will be an on-going duty of the inquirer, principally because each situation will be dependent on its specific facts, but also because of the current uncertainty surrounding the exact role to be taken on by the inquirer. It will be prudent for the inquirer to disclose to the client now the potential issues, in writing, because that may help the company's constituents to decide how they wish to proceed. The disclosure should encourage the client to seek the advice of independent counsel regarding the advisability of having its general counsel serve in a nonlegal role as well.
Changing the inquirer's title will not affect the analysis - the issue is whether or not the inquirer is handling both legal and nonlegal duties. A more descriptive title may be helpful in clarifying the inquirer's role to the organization's constituents and others, however.
Finally, pursuant to Rule 1.13, Organization as Client, the inquirer is counsel to the company and not to its constituents. Thus, the inquirer must be mindful of the requirements of Rule 1.13 when dealing with potential issues involving disputes or disagreements between the remaining four partners or the fired partner and may wish to advise her client that such matters be handled by outside counsel.
CAVEAT: The foregoing opinion is advisory only and is based upon the facts set forth above. The opinion is not binding upon the Disciplinary Board of the Supreme Court of Pennsylvania or any other Court. It carries only such weight as an appropriate reviewing authority may choose to give it.