Opinion ID: 1948333
Heading Depth: 2
Heading Rank: 1

Heading: Dual Representation of an Entity and its Constituents

Text: The Code of Professional Responsibility and the Rules of Professional Conduct both warn against the dangers of a lawyer's multiple representation of conflicting or potentially conflicting interests. This case presents allegations of misconduct that occurred both before January 1, 1991, when the Code was in effect, and after that date, when the Rules became effective. We therefore must evaluate the allegations in connection with the provisions of the Code or of the Rules that applied at the time of each alleged breach of duty. See D.C.App.R.X, app. A, Editor's note (1993).
The Code is comprised, fundamentally, of nine Canons, which the drafters characterized as statements of axiomatic norms, expressing in general terms the standards of professional conduct expected of lawyers in their relationships with the public, with the legal system, and with the legal profession. MODEL CODE OF PROFESSIONAL RESPONSIBILITY preliminary statement at 2 (Final Draft 1969). The Canons contain the disciplinary rules (DRs). As a preface to each Canon and related disciplinary rules, the Code supplies several paragraphs of ethical considerations (ECs) which, according to the drafters, are aspirational in character and represent the objectives toward which every member of the profession should strive. They constitute a body of principles upon which the lawyer can rely for guidance in many specific situations. Id. (footnote omitted). Canon 5, A Lawyer Should Exercise Independent Professional Judgment on Behalf of a Client, reflects an ethical consideration of special relevance here. D.C. CODE OF PROFESSIONAL RESPONSIBILITY Canon 5 (1989). EC 5-18 stresses that [a] lawyer employed or retained by a corporation or similar entity owes his [or her] allegiance to the entity and not to any of its constituent members. [7] D.C. CODE OF PROFESSIONAL RESPONSIBILITY EC 5-18. This Ethical Consideration applies to the representation of partnerships as well as corporations and other organizations. See Quintel Corp., N.V. v. Citibank, N.A., 589 F.Supp. 1235, 1240 (S.D.N.Y.1984) (court recognized that limited partnership is similar entity to corporation for purposes of EC 5-18). The Code, therefore, expressly recognizes in EC 5-18 that a lawyer for an entity, including a partnership, represents the entity, not its constituents, and thus that conflicts potentially may arise if the lawyer also advises the entity's constituents individually. According to EC 5-18, supra note 7, in such case the lawyer may serve the individual only if the lawyer is convinced that differing interests are not present. How can a lawyer be convinced in a particular situation that dual representation of an entity and one or more of its constituents will not be unethical? A lengthy disciplinary rule under Canon 5, DR 5-105, provides the guidelines. [8] D.C. Bar Legal Ethics Comm.Op. 159 (1985) applies DR 5-105 in the context of a lawyer's dual representation of an association and one of its members: [T]he attorney cannot represent both the association and one of its members: (a) if the attorney's independent professional judgment in behalf of either the association or the member will be or is likely to be adversely affected by his [or her] representation of the other; or (b) if representing both the association and one of its members would be likely to involve him [or her] in representing differing interests. 113 Daily Wash.L.Rptr. 202 at 2120 (Oct. 18, 1985). The opinion then discusses the DR 5-105(C) exception: a lawyer may represent both an association and one or more of its members if it is obvious that the attorney 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 [or her] independent professional judgment on behalf of each. Id. Accordingly, an attorney may represent both a partnership and one of its partners, where such representation would be likely to involve . . . representing differing interests, only if (1) it is obvious that the attorney can adequately represent the interests of each and (2) each consents to the representation (3) after full disclosure. DR 5-105, supra note 8. See Unified Sewerage Agency v. Jelco, Inc., 646 F.2d 1339, 1345 (9th Cir.1981); Duca v. Raymark Indus., 663 F.Supp. 184, 190 (E.D.Pa.1986); Clay v. Doherty, 608 F.Supp. 295, 302 n. 5 (N.D.Ill. 1985). Clearly, therefore, there can be situations where, despite full disclosure and consent, dual or multiple representation will be ethically proscribed. If a reasonable observer perceives a likelihood of adverse effect under DR 5-105(B), then, by definition, the `obviously adequate' prong of the DR 5-105(C) test cannot be satisfied. Clay, 608 F.Supp. at 302 (footnote omitted). David & Hagner undertook dual representation of MFLP and of Ann and Michael Maiatico when the three partners organized MFLP on December 1, 1988. As to the period before 1991, while the Code of Professional Responsibility was in effect, there were two alleged improprieties based on deposition testimony and exhibits: (1) David & Hagner began counseling Ann and Michael Maiatico, individually, in July 1990, about using the Matomic lease as a way of eliminating MFLP's management role over the 1717 H Street property; and (2) three David & Hagner billing entries in 1989 concerned dissolution of deadlocked partnerships, apparently reflecting contacts with the Maiaticos. Griva contends that these instances evidenced the lawyers' representation of differing interests, which the Code prohibited in the absence of both clients' informed consent. Griva contends that she did not consent to the dual representation after full disclosure. [9] Appellees contend that Griva not only consented to the dual representation after full disclosure but also evidenced her informed consent by retaining her own personal attorneys to represent her in all MFLP matters. Much of the dispute is premised on Griva's contentionand appellees' refutationthat Griva remained a client of David & Hagner after MFLP was formed. There appears to be little, if any, dispute that before creation of MFLP (and even on occasion thereafter not involving MFLP), David & Hagner represented Griva, as well as her brother and sister, from time to time, and that the law firm represented all three siblings in the creation of MFLP, although Rose Griva used other counsel as well. As to the period after creation of MFLP, Griva claims she was a David & Hagner client because of its MFLP representation, especially because MFLP was so small that any law firm representing the partnership necessarily represented each partner individually. See Wortham & Van Liew v. Superior Court (Clubb), 188 Cal. App.3d 927, 233 Cal.Rptr. 725, 728 (Cal.Ct. App.1987) (attorney for partnership represents all the partners as to matters of partnership business); ABA Comm. on Ethics and Professional Responsibility, Formal Op. 361 (1991) (hereafter ABA Formal Op. 361) (In small partnership, as with closely held corporations, it is more difficult to distinguish between representation of the entity and of its individual owners.). Appellees contend, to the contrary, that David & Hagner (including Davison) never represented Griva after formation of MFLP. They proffer record evidence that, although David & Hagner represented Griva, along with her siblings, in matters involving their father's estate, Griva subsequently retained her own attorney, O'Conor, to represent her individually when David & Hagner organized MFLP, as well as to represent her in subsequent partnership affairs. Appellees then note that a lawyer's representation of a partnership does not necessarily mean the lawyer represents the individual partners. According to ABA Formal Op. 361 (interpreting the ABA Model Rules but applicable as a general proposition): An attorney-client relationship does not automatically come into existence between a partnership lawyer and one or more of its partners.... Whether such a relationship has been created almost always will depend on an analysis of the specific facts involved. ABA Formal Op. 361 (citations omitted). Thus, say appellees, the question whether a lawyer for a partnership also represents its individual partners is answered, not automatically, but by reference to all the facts and circumstances, including such factors as whether the lawyer affirmatively assumed a duty of representation to the individual partner, whether the partner was separately represented by other counsel when the partnership was created or in connection with its affairs, whether the lawyer had represented an individual partner before undertaking to represent the partnership, and whether there was evidence of reliance by the individual partner on the lawyer as his or her separate counsel, or of the partner's expectation of personal representation. Id. (footnote omitted). On this record, we agree to some extent with appellees. There is undisputed evidence that Griva retained attorney O'Conorin the words of his December 9, 1988 letter to David & Hagnerto be Griva's sole personal representative in all of her legal affairs (including, without limitation, with respect to any rights or obligations that she may have as a general partner of [MFLP] ). Thus, it is difficult to perceive how Griva continued, formally, as an individual client of David & Hagner once MFLP was organized. Under the circumstances, however, we need not answer that question, or even resolve whether there is a genuine issue of material fact as to whether Griva was formally a David & Hagner client by virtue of being a member of a partnership represented by that firm. Because of the particulars of the MFLP partnership agreement, it would appear that Griva, functionally, was a David & Hagner client. More specifically, the parties acknowledge that the unanimous consent provision in the partnership agreement, see supra note 1, gave Griva veto power over partnership action. Thus, Griva could deadlock MFLP when she disagreed with her brother and sister. In this sense Griva herself had the power to keep MFLP at odds with the wishes or interests of her brother and sister, with the result that, when David & Hagner confronted differences between Griva and the Maiaticos, the law firm effectively confronted differences between the deadlocked MFLP and the Maiaticos. Accordingly, rather than analyzing David & Hagner's dual representation as a potential conflict between Griva and her siblings, as though both Griva and the Maiaticos were clients of the firm, we may simply analyze the ethical issue as the dual representation of MFLP and the two Maiaticosthe result being that any conflict in fiduciary obligation reflected in those two representations would cover any possible conflict that might arise if Griva herself were an individual client of the firm. [10] After applying the ethical rules of DR 5-105, as properly interpreted in D.C. Bar Legal Ethics Comm.Op. 159, we conclude that there are genuine issues of material fact relating to conduct that occurred during the period before July 1, 1991 that preclude summary judgment here. Because Griva has not yet contested the point, see supra note 9, we assume for purposes of this appeal, with respect to the Matomic lease transaction and to the David & Hagner billing entries about dissolution of deadlocked partnerships, that it was obvious, DR 5-105(C), that David & Hagner could adequately represent the interests of both MFLP and the Maiaticos. This leaves two genuine issues of material fact: (1) whether David & Hagner fully disclosed to MFLP the scope of its representation of the Maiaticos in MFLP partnership matters; and, if so, (2) whether MFLP consented to David & Hagner's dual representation of the partnership and of Ann and Michael Maiatico.
As indicated earlier, the Code of Professional Responsibility gave way effective January 1, 1991, to new Rules of Professional Conduct. While the Rules impose ethical restraints on lawyers that typically are similar, or even virtually identical, to those prescribed by the Code, the Rules are considerably more detailed and, in a number of instances, prescribe ethical restraints that materially differ from those in the Code. It is important, therefore, to evaluate under the new Rules Griva's third major complaint: a David & Hagner billing entry showing that Davison conversed on April 4, 1991 with Ann Maiatico re dissolving MFLP. Like EC 5-18 and DR 5-105 under the Code, Rules 1.13 and 1.7, taken together, cover the situation when a lawyer wishes to represent both an entity and one or more of its constituent members. [11] ABA Formal Op. 361 discusses Rule 1.13 in the context of a lawyer who represents a partnership: [A] lawyer who represents a partnership represents the entity rather than the individual partners unless the specific circumstances show otherwise.... Representation of the partnership does not necessarily preclude the representation of individual partners in matters not clearly adverse to the interests of the partnership. Comment [8] to Rule 1.13 elaborates the responsibility of a lawyer for an organization, such as a partnership, when the lawyer perceives a possible conflict between the interests of the organization and of particular members: [12] There are times when the organization's interest may be or become adverse to those of one or more of its constituents. In such circumstances the lawyer shall advise any constituent, whose interest the lawyer finds adverse to that of the organization, of the conflict or potential conflict of interest, that the lawyer cannot represent such constituent, and that such person may wish to obtain independent representation. Care must be taken to assure that the individual understands that, when there is such adversity of interest, the lawyer for the organization cannot provide legal representation for that constituent individual, and that discussions between the lawyer for the organization and the individual may not be privileged. D.C. RULES OF PROFESSIONAL CONDUCT Rule 1.13 cmt. [8] (1993) (emphasis added). Accordingly, when a lawyer represents both a partnership and one or more of its partners individually, and a conflict arises between the partnership and a client-partner, the lawyer must inform the individual client-partners of the conflict and of the fact that their discussions may not be privileged from disclosure to the partnership. Further, the lawyer must explain to the client-partners that the lawyer no longer can represent them because that lawyer's loyalty must remain, above all, with the partnership. Rule 1.13(c), however, establishes an exception permitting such dual or multiple representation if it meets the requirements of Rule 1.7, the general rule governing conflicts of interest. [13] It is important to note at the outset that this court adopted a version of Rule 1.7 which substantially differs from the American Bar Association's Model Rule 1.7. [14] The legislative history of our Rule 1.7 reflects an intention to divide potential conflict of interest situations into three categories: (1) cases in which representation is absolutely forbidden, (2) cases in which dual representation is permissible after informed consent of all affected clients is obtained, and (3) cases in which dual representation is permitted without client consent. See Proposed Rules of Professional Conduct and Related Comments, Showing the Language Proposed by the American Bar Association, Changes Recommended by the District of Columbia Bar Model Rules of Professional Conduct Committee, and Changes Recommended by the Board of Governors of the District of Columbia Bar, at 68 (Nov. 19, 1986) (hereafter Legislative History). [15] The District of Columbia Bar Committee that initially reviewed the ABA Model Rules, see supra note 15, concluded that Model Rule 1.7 obscure[d] the difference[s] among these three categories, id., and, therefore, recommended modifications of Model Rule 1.7 which the Board of Governors of the Bar, and then this court, adopted. See supra note 13. The principal purpose of these changes was to state more clearly and unequivocally than ABA Model Rule 1.7 that there are circumstances in which representation is absolutely forbidden. Id. According to the Legislative History, at 68: The absolute prohibition provided in subparagraph (a) [of the D.C. Bar Committee's recommended Rule 1.7] is a codification of the absolute prohibition held to exist in case law decided under the appearance of impropriety test. See, e.g., Westinghouse v. Kerr-McGee, 580 F.2d 1311 (7th Cir.1978); Cinema 5 Ltd. v. Cinerama, Inc., 528 F.2d 1384 (2d Cir.1976). The standard stated in the Committee's proposal is, however, far preferable to the appearance of impropriety test because [the Committee's proposal] is stated in clear and objective terms. It is also preferable to the ABA draft because the ABA rule does not make clear in so many words that there are some types of representation that are, in fact, absolutely forbidden. Thus, this court's Rule 1.7(a) mandates an absolute prohibition of dual or multiple representation when the lawyer would represent clients with adverse position[s] in the same matter. See supra note 13. Client consent cannot cure such a conflict. [16] Rules 1.7(b) and (c), see supra note 13, set forth a second category of cases in which dual or multiple representation is permissible if the lawyer obtains consent from all affected clients after full disclosure of the conflict. The distinction between Rule 1.7(a) and Rule 1.7(b) is obscure, but Comment [4] provides some clarification: The absolute prohibition of paragraph (a) applies only to situations in which a lawyer would be called upon to espouse adverse positions in the same matter. It is for this reason that paragraph (a) refers to adversity with respect to a position taken or to be taken in a matter rather than adversity with respect to the matter or the entire representation.[ [17] ] D.C. RULES OF PROFESSIONAL CONDUCT Rule 1.7 cmt. [4]. Comment [6] under Rule 1.7 clarifies the types of conflicts to which the absolute prohibition of paragraph (a) applies: The prohibition of paragraph (a) relates only to actual conflicts of positions, not to mere formalities. For example, a lawyer is not absolutely forbidden to provide joint or simultaneous representation if the clients' positions are only nominally but not actually adverse. Joint representation is commonly provided to incorporators of a business, to parties to a contract, in formulating estate plans for family members, and in other circumstances where the clients might be nominally adverse in some respect but have retained a lawyer to accommodate a common purpose. If no actual conflict of positions exists with respect to a matter, the absolute prohibition of paragraph (a) does not come into play. D.C. RULES OF PROFESSIONAL CONDUCT Rule 1.7 cmt. [6] (emphasis added). [18] Based on the Rules, comments, and legislative history, we conclude that a law firm ethically can represent several individuals in creating a partnership after obtaining their informed consent pursuant to Rule 1.7(c). See id. Moreover, Rules 1.13(c) and 1.7(b) and (c) make clear that, with the informed consent of all affected clients, a law firm ethically can represent a partnership and one or more of its individual partners at the same timeincluding representation as to matters affecting the partnershipexcept when such dual or multiple representation would result in an actual conflict of positions, id., in which case the absolute prohibition of Rule 1.7(a) comes into play. We therefore must ask: on this record, are there genuine issues of material fact as to whether David & Hagner (including Davison) have violated Rules 1.13 and 1.7 in representing both MFLP and two of its partners individually? We conclude, clearly, that there are such genuine issues. Griva has not yet argued that Rule 1.7 absolutely prohibited David & Hagner from jointly representing her and MFLP. Accordingly, we assume for purposes of this appeal that the conversations between Davison and Ann Maiatico re dissolving MFLP, as described in the firm's billing entry for April 1, 1991, did not reflect an actual conflict of position between MFLP and the Maiaticos, within the meaning of Rule 1.7(a), that not only may have required disclosure to all MFLP partners, see D.C. RULES OF PROFESSIONAL CONDUCT Rule 1.13 cmt. [8]; ABA Formal Op. 361 at 15 (citing Wortham, 233 Cal.Rptr. 725, 233 Cal. Rptr. 725, and Fassihi v. Sommers, 107 Mich.App. 509, 309 N.W.2d 645 (1981)), but also may have necessitated automatic disqualification of David & Hagner from representing MFLP. Even if this billing entry, when fully explained, did not reflect a Rule 1.7(a) violation, however, there is a genuine dispute whether the particular interaction between Davison and Ann Maiatico fully complied with Rules 1.7(b) and (c) and 1.13, including the required full disclosure to Griva and her consent to the representationrequirements to which we now turn.