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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 engage 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 which reasonably might be imputed to the organization, and is likely to result in substantial injury to the organization, the lawyer shall proceed as is reasonably necessary in the best interest of the organization. In determining how to proceed, the lawyer shall give due consideration to the seriousness of the violation and its consequences, the scope and nature of the lawyer's representation, the responsibility in the organization and the apparent motivation of the person involved, the policies of the organization concerning such matters and any other relevant consideration. Any measures taken shall be designed to minimize disruption of the organization and the risk of revealing information relating to the representation to persons outside the organization. Such measures may include among others:

(1)   Asking reconsideration of the matter;

(2)   Advising that a separate legal opinion on the matter be sought for presentation to appropriate authority in the organization; and

(3)   Referring the matter to higher authority in the organization, including, if warranted by the seriousness of the matter, referral to the highest authority that can act in behalf of the organization as determined by applicable law.

C.   Terminating representation. If, despite the lawyer's efforts in according with Paragraph B, the highest authority that can act on behalf of the organization insists upon action, or a refusal to act, that is clearly a violation of law and is likely to result in substantial injury to the organization, the lawyer may resign in accordance with Rule 16-116.

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 it is apparent 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. If the organization's consent to the dual representation is required by Rule 16-107, 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 original version of MR 1.13 as adopted in 1983, are exactly the same. Likewise, the New Mexico rule incorporates the original ABA comment on the Model Rule in its comment section. New Mexico has not adopted the changes to MR 1.13 made by the ABA August 1993.

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

Under NMR 16-113(B), if a lawyer representing an organization knows that an officer, employee or other person associated with the organization 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," including reporting the conduct to a higher authority within 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.

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   Divers 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 rule specifies that the lawyer for the entity, in determining how to proceed in such a situation, must give "due consideration to the seriousness of the violation and its consequences, the scope and nature of the lawyer's representation, the responsibility in the organization and the apparent motivation of the person involved, the policies of the organization concerning such matters and any other relevant considerations."

The rule lists several measures that a lawyer can consider and/or undertake, namely: (1) asking reconsideration of the matter; (2) advising that a separate legal opinion on the matter be sought for presentation to appropriate authority in the organization; and (3) referring the matter to higher authority in the organization, including, if warranted by the seriousness of the matter, referral to the highest authority that can act in behalf of the organization as determined by applicable law.

1.13:310   Resignation Versus Disclosure Outside the Organization

NMR 16-113(C) provides that "If despite the lawyer's efforts in accordance with Paragraph B, the highest authority that can act on behalf of the organization insists upon action, or a refusal to act, that is clearly a violation of law and is likely to result in substantial injury to the organization, the lawyer may resign in accordance with" NMR 16-116. While under NMR 16-113(B) the lawyer should "minimize the risk of revealing information relating to the representation to persons outside the organization," NMR 16-106 permits the disclosure of normally confidential information in order to prevent a client from committing a criminal act which the lawyer believes will result in imminent death or substantial bodily harm, or substantial injury to the financial interest or property of another.

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

NMR 16-113(D) 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 states 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(E) 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.

1.13:520   Representing Client with Fiduciary Duties

 

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.