Johnson & Bell Shareholder and General Counsel, Joseph F. Spitzzeri, provides his analysis of a new ethics opinion directed to in-house corporate counsel.
In May 2017, the Illinois State Bar Association (“ISBA”) issued Ethics Opinion #17-05 relating to the ethical duties of in house corporate counsel. In essence, the opinion provides that an in-house corporate lawyer may provide legal services to multiple subsidiaries of the same corporate parent, but nevertheless must be mindful of the application of the Rules of Professional Conduct, particularly those addressing conflicts of interest and confidentiality.
Corporation’s employ lawyers as corporate employees to represent corporate interests in many different circumstances. The Illinois Rules of Professional Conduct impliedly acknowledge the propriety of corporations employing lawyers in-house. Current authority and jurisprudence also recognize and support the principle that in house corporate lawyers may represent a corporate parent as well as multiple corporate subsidiaries or affiliates of the same parent.
The Rules of Professional conduct apply with equal force to in house corporate lawyers. However, rules specifically tailored to in-house lawyers and intra-family corporate representation are few. The most problematic ethical issues revolve around client identity, conflicts of interest, and preserving client confidences.
Opinion 17-05 acknowledges that a foundational issue in the corporate context is determining who is the client? The Opinion notes that for the in-house lawyer, there is no one size fits all test for identifying the client. It may change depending on the circumstances of the representation. Is it the single corporate parent or is it the legally distinct individual subsidiaries? Recognizing subsidiaries as separate clients is acknowledged in Rule 1.13. For practical purposes, treating subsidiaries as distinct clients would seem the better practice if for no other purpose than to focus the in-house lawyer’s attention on identifying and addressing problematic legal and ethical issues.
With respect to conflicts of interests, when an in-house lawyer is called upon to provide legal services to a related corporate entity that is not the lawyer’s direct employer, the lawyer must be careful to recognize the potential for competing interests. Although impacted by client identification, the interests of intra-family corporate entities may or may not be considered aligned. If the interests are determined to conflict, an in-house lawyer can consider a number of actions to address and resolve the conflict. First and foremost is to obtain, if possible, the subsidiary’s and parent’s consent to the representation.. Counsel may also consider obtaining advance conflict waivers, limiting the scope of the representation to eliminate the potential conflict, or retaining outside counsel.
Opinion 17-05 notes that an even thornier issue than conflicts arises with respect to preserving confidentiality. Recognizing this dilemma, courts almost universally hold that intra-corporate information sharing does not implicate the disclosure rule. Attempting to maintain confidentiality between related corporate entities, but particularly between a subsidiary and a parent, tends to disregard corporate ownership and hierarchy.
Opinion 17-05 recognizes that Rule 1.6 allows a number of exceptions to confidentiality, all of which could be applicable in an in-house corporate setting. A subsidiary could likely provide informed consent for disclosure of its confidential information to the corporate parent or other subsidiaries. It might also be that disclosure of subsidiary “confidential” information is implied in the corporate parent - subsidiary relationship. Lastly, in situations involving subsidiary wrongdoing, Rule 1.6(b) would seem to allow an in house lawyer to reveal the information to the corporate parent because it may legally or financially impact the corporate parent. It should be noted, however, that even under such a liberal reading of Rule 1.6, there are situations in which maintaining a subsidiary’s confidential information remains problematic, such as when subsidiary insolvency or divestiture from the corporate parent may be at issue. In these situations, as with conflicts of interest, a prudent course for the in-house lawyer may be to memorialize in writing how confidential information will be treated, obtain advance consent for disclosure, or retain outside counsel.
In house corporate counsel must be aware of which hat he or she is wearing while performing legal work for multiple, related, corporations. Who is the client? Is there a conflict between the client and the in house lawyer’s direct employer? If not, is there a need to preserve client confidences to not run afoul of Rule 1.6. These three inquiries need to be made by in house counsel whenever he or she serves multiple corporate entities in the family tree – parent, subsidiary etc. Waivers or consent might be necessary at the outset of the engagement.
For additional information about this issue, please contact Joseph F. Spitzzeri via email or call 312-984-6683.