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End-of-life notice: American Legal Ethics Library

As of March 1, 2013, the Legal Information Institute is no longer maintaining the information in the American Legal Ethics Library. It is no longer possible for us to maintain it at a level of completeness and accuracy given its staffing needs. It is very possible that we will revive it at a future time. At this point, it is in need of a complete technological renovation and reworking of the "correspondent firm" model which successfully sustained it for many years.

Many people have contributed time and effort to the project over the years, and we would like to thank them. In particular, Roger Cramton and Peter Martin not only conceived ALEL but gave much of their own labor to it. We are also grateful to Brad Wendel for his editorial contributions, to Brian Toohey and all at Jones Day for their efforts, and to all of our correspondents and contributors. Thank you.

We regret any inconvenience.

Some portions of the collection may already be severely out of date, so please be cautious in your use of this material.


New Mexico Legal Ethics

1.13 Rule 1.13 Organization as Client

1.13:100 Comparative Analysis of New Mexico Rule

“A.      Generally.  A lawyer employed or retained by an organization represents the organization acting through its duly authorized constituents.

B.        Acting in best interest of organization.  If a lawyer for an organization knows that an officer, employee or other person associated with the organization is engaged in action, intends to act or refuses to act in a matter related to the representation that is a violation of a legal obligation to the organization, or a violation of law that reasonably might be imputed to the organization, and that is likely to result in substantial injury to the organization, then the lawyer shall proceed as is reasonably necessary in the best interest of the organization.  Unless the lawyer reasonably believes that it is not necessary in the best interest of the organization to do so, the lawyer shall refer the matter to a higher authority in the organization, including, if warranted by the circumstances to the highest authority that can act on behalf of the organization as determined by applicable law.

C.        Authority to reveal information.  Except as provided in Paragraph D of this rule, if:

            (1)        despite the lawyer’s efforts in accordance with Paragraph B the highest authority that can act on behalf of the organization insists upon or fails to address in a timely and appropriate manner an action, or a refusal to act, that is clearly a violation of law; and

            (2)        the lawyer reasonably believes that the violation is reasonably certain to result in substantial injury to the organization, then the lawyer may reveal information relating to the representation whether or not Rule 16-106 NMRA of the Rules of Professional Conduct permits such disclosure, but only if and to the extent the lawyer reasonably believes necessary to prevent substantial injury to the organization.

D.        Exception to authority to reveal information.  Paragraph C of this rule shall not apply with respect to information relating to a lawyer’s representation of an organization to investigate an alleged violation of law or to defend the organization or an officer, employee or other constituent associated with the organization against a claim arising out of an alleged violation of law.

E.         Notice of discharge or withdrawal.  A lawyer who reasonably believes that he or she has been discharged because of the lawyer’s actions taken pursuant to Paragraphs B or C of this rule, or who withdraws under circumstances that require or permit the lawyer to take action under either of those paragraphs, shall proceed as the lawyer reasonably believes necessary to assure that the organization’s highest authority is informed of the lawyer’s discharge or withdrawal.

D.        Identity of client.  In dealing with an organization's directors, officers, employees, members, shareholders or other constituents, a lawyer shall explain the identity of the client when the lawyer knows or reasonably should know that the organization’s interests are adverse to those of the constituents with whom the lawyer is dealing.

E.         Personal representation of officer or employee.  A lawyer representing an organization may also represent any of its directors, officers, employees, members, shareholders or other constituents, subject to the provisions of Rule 16-107 NMRA of the Rules of Professional Conduct.  If the organization's consent to the dual representation is required by Rule 16-107 NMRA of the Rules of Professional Conduct, the consent shall be given by an appropriate official of the organization other than the individual who is to be represented, or by the shareholders.”

1.13:101          Model Rule Comparison

NMR 16-113 and the current MR 1.13 are essentially identical.  Likewise, the New Mexico rule incorporates the ABA comment on the Model Rule in its Comment section.  Comments [1] to [5] discuss entity as the client, Comments [6] to [8] concern the relationship with other rules, Comment [9] relates to government agencies, Comment [12] discusses dual representation, and Comments [13] to [14] deal with derivative actions.

1.13:102          Model Code Comparison

While there is no direct counterpart to NMR 16-113 in the Disciplinary Rules of the Code, EC 5-18 is similar to NMR 16-113 by requiring a lawyer employed or retained by a corporation to serve the entity and not show allegiance specifically to any particular stockholder, director, officer, employee, representative, or other person connected with the corporation.  EC 5-18 further says a lawyer asked to represent an individual member of a corporation may do so only if the interests of the individual do not conflict with the interests of the corporation.

See also EC 5-24, DR 5-107(B), EC 5-16, EC 4-4, and DR 5-105(B), (C) & (D).

1.13:200 Entity as Client

NMR 16-113(A) states the general rule that a lawyer retained by an organization represents the organization, while recognizing that an organization by necessity must act “through its duly authorized constituents.”  Several cases address this principle.  See, e.g., Richter v. Van Amberg, 97 F. Sup.2d 1255 (D.N.M. 2000) (attorney’s representation of a partnership does not, in and of itself, constitute representation of the individual partners); Cole v. Ruidoso Mun. Schools, 43 F.3d 1373 (10th Cir. 1994) (although lawyer is obligated not to disclose information revealed by client’s constituents or employees, this does not mean that constituents of organizational client are clients of lawyer); and Delta Automatic Systems, Inc. v. Bingaman, 126 N.M. 717, 974 P.2d 1174 (1998) (sole shareholders of corporation were not the real clients in labor lawyer’s and law firm’s representation of corporation as to termination of union contract, and thus, shareholders could not personally bring legal malpractice action against them for alleged negligence in failing to obtain termination of union contract).

NMR 16-113(B) makes clear that the interest of the organization as a whole are a lawyer’s primary concern; likewise, a lawyer should follow whatever course of action would not interfere with the organization’s policies.  Accordingly, where a lawyer represents an organizational client, it is the organization to which the lawyer owes the duties of due care, competence, diligence and confidentiality, and not the individual constituents through which the organization necessarily acts.

A school principal’s belief that the school district’s law firm represented her individually when she consulted with its attorneys on personnel issues, and her actions on their advice, was not reasonable so as to establish an attorney client relationship.   Accordingly, the principal was not a former client of the law firm, meaning the law firm was not disqualified from representing the school district in the principal’s employment discrimination action brought against the school district.  Cole v. Ruidoso Mun. Schools, 43 F.3d 1373 (10th Cir. 1994) (observing principal consulted firm only for purpose of carrying out her duties, information principal communicated to firm on behalf of district was not principal’s protectable confidential information, and it was district which, as the client, held right to have those communications protected and to decide whether and to whom that information could be disclosed).

1.13:210          Lawyer with Fiduciary Obligation to Third Person

There appear to be no cases or advisory opinions related to fiduciary obligations owed to third parties under NMR 16-113.

1.13:220          Lawyer Serving as Officer or Director of an Organization

There appear to be no cases or advisory opinions related specifically to a lawyer serving as officer or director of an organization in the context of NMR 16-113.  See sections 1.7:240, 1.7:330, 1.7:340, and 1.7:400 supra

1.13:230          Diverse Kinds of Entities as Organizations

While both NMR 16-113 and MR 1.13 speak in terms of representation of an “organization,” the Comment makes clear that the rule applies to lawyer conduct in the context of governmental and other organizational entities. 

1.13:300 Preventing Injury to an Entity Client

Under NMR 16-113(B), if a lawyer representing an organization knows that an officer, employee, or other person associated with the organization which the lawyer represents is acting illegally, or intends to do so, and the likely result is “substantial injury to the organization,” the lawyer has an obligation to “proceed as is reasonably necessary in the best interest of the organization.”  The 2008 amendments to NMR 16-113 eliminated identification of various measures a lawyer may take to protect the best interests of the organization.  The current version of NMR 16-113 says the lawyer “shall” in appropriate circumstances “refer the matter to a higher authority in the organization.”

If the lawyer has also represented, or is currently representing, the officer, employee or other person in question, on personal matters, discharge of the lawyer’s obligations are required under NMR 16-113(B), but may conflict with the lawyer’s obligations to the officer or employee involved and who is also the lawyer’s client.

1.13:310          Resignation Versus Disclosure Outside the Organization

The 2008 amendments to NMR 16-113 eliminated Paragraph (C), which said a lawyer “may” withdraw if the organization continues to pursue violation of law that will likely result in serious injury to the organization.  Under current NMR 16-113, a lawyer’s ability to withdraw under appropriate circumstances is implied in Paragraph (E). 

1.13:400 Fairness to Non-Client Constituents Within an Entity Client

NMR 16-113(F) states “in dealing with an organization’s directors, officers, employees, members, shareholders or other constituents, a lawyer shall explain the identity of the client when it is apparent that the organization’s interests are adverse to those of the constituents with whom the lawyer is dealing.”  The Comment indicates similarly that when the interests of the organization and one or more of its constituents becomes adverse, the lawyer should advise the constituents of the conflict or potential for conflict of interest.  Furthermore, the lawyer must ensure that the constituents understand that the lawyer cannot represent them.

In Richter v. Van Amberg, 97 F. Supp. 2d 1255 (D.N.M. 2000), an attorney who represented a real estate development partnership was not required to disclose to one partner the statements of the managing partner that he felt deceived by the first partner’s taking of an undisclosed real estate commission, and that he wanted to dissolve the partnership in order to be relieved of paying the first partner any percentage of profits.  It was determined that the managing partner made such statements in seeking the attorney’s representation in a personal capacity, and thus had to consent to any disclosure; further, the attorney’s responsibility was to the partnership itself, acting through its managing partner.

 

1.13:500 Joint Representation of Entity and Individual Constituents

NMR 16-113(G) permits a lawyer to represent any of the constituents of an organization he or she is already representing, provided the representation conforms with the requirements regarding conflicts of interest stated in NMR 16-107.  Furthermore, to the extent the dual representation requires the organization’s consent, the consent must be given by an appropriate official or by the shareholders of the organization.  It may not be given by the individual who is proposed to be individually represented by the lawyer. 

In Richter v. Van Amberg, 97 F. Supp. 2d 1255 (D.N.M. 2000), the court considered whether an attorney for a partnership also owed a duty to one of the partners, based on the partner’s allegation that the attorney represented him.  The court determined there was no evidence to suggest that the attorney ever accepted representation of the partner that was separate and distinct from his representation of the partnership.  Further, the court continued, representation of an individual constituent of an organization cannot be inferred from representation of the organization.  See also Delta Automatic Systems, Inc. v. Bingaman, 126 N.M. 717, 974 P.2d 1174 (1998) (fact that labor lawyer and law firm had prepared wills for corporation’s sole shareholders and had represented them on business matters apart from the representation of corporation, did not establish that lawyer and law firm had special duty to the shareholders, as required for shareholders personally to bring action against lawyer and law firm for their alleged legal malpractice n failing to obtain termination of union contract).

1.13:510          Corporate Counsel’s Role in Shareholder Derivative Actions

The Comment to NMR 16-113 states that the shareholders or members of a corporation can compel directors to “perform their legal obligations in the supervision of the organization.”  The Comment adds that corporate counsel may face a conflict of interest in defending the organization, due to the lawyer’s responsibility to the organization and his relationship with the board which directs the organization.  In those situations lawyers are referred to NMR 16-107 regarding who should represent the directors and the organization.  There are no other New Mexico authorities on this subject.

1.13:530          Representing Government Client

While both NMR 16-113 and MR 1.13 speak in terms of representation of an “organization,” the Comment makes clear that the rule applies to lawyer conduct in the context of governmental and other organizational entities. 

The Comment to NMR 16-113 also indicates that a different balance may be needed in dealing with governmental organization clients, specifically regarding the maintenance of confidentiality and assuring that wrongful official acts are prevented or rectified.  There may be specific statutes and regulations that clarify what duties exist for lawyers employed by the government or in military service.  In some circumstances the client may be a specific agency, but it is generally the government as a whole.  Furthermore, a government lawyer may have more authority to question the conduct of his client than if the client was a private entity.