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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.

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Ohio Legal Ethics Narrative

I. Client-lawyer relationship

RULE 1.13 ORGANIZATION AS CLIENT

1.13:100 Comparative Analysis of Ohio Rule

1.13:101 Model Rule Comparison

Ohio Rule 1.13 differs from the Model Rule in the following respects:

In division (a), Ohio has deleted "duly authorized" prior to "constituents" in the first sentence. Two new sentences have been added: the first stating that a lawyer for an organization owes allegiance to the organization, not to its constituents or others connected with the organization. The second states that constituents "include its owners and its duly authorized officers, directors, trustees, and employees."

In division (b), first sentence, the following changes have been made: "or reasonably should know" has been added after "knows". The words "an officer, employee or other person associated with the organization is engaged in" have been deleted following "reasonably should know that" and in their place the words "its constituent's" have been substituted; "intended action" has been substituted for "intends to act"; "refusal" has been substituted for "refuses"; "in a matter related to the representation that is a violation of" has been deleted and in its stead "(1) violates" has been substituted; "(2) is" has been added prior to "a violation of law"; and the word "reasonably" has been deleted prior to "necessary". The second sentence of MR 1.13(b) has been deleted in its entirety and in its place a new sentence has been inserted; it states: "When it is necessary to enable the organization to address the matter in a timely and appropriate manner, the lawyer shall refer the matter to higher authority, including, if warranted by the circumstances, the highest authority that can act on behalf of the organization under applicable law."

Paragraphs (d) and (e) of the Model Rule have been deleted in their entirety.

Division (c) states that the "discretion or duty of a lawyer for an organization to reveal information relating to the representation outside the organization is governed by Rule 1.6(b) and (c)." In contrast, MR 1.13(c) provides that in certain specified circumstances a lawyer "may reveal information relating to the representation, whether or not Rule 1.6 permits such disclosure, but only if and to the extent the lawyer reasonably believes necessary to prevent substantial injury to the organization."

Division (d) is identical to Model Rule paragraph (f).

Division (e) is identical to Model Rule paragraph (g), except that the word "written" has been added before "consent" in the second sentence.

1.13:102 Ohio Code Comparison

The following section of the Ohio Code of Professional Responsibility is listed in the Correlation Table (Appendix A to the Rules) as related to Ohio Rule 1.13: EC 5-19.

1.13:200 Entity as Client

  • Primary Ohio References: Ohio Rule 1.13(a)
  • Background References: ABA Model Rule 1.13(a)
  • Ohio Commentary: Greenbaum, Lawyer's Guide to the Ohio Code of Professional Responsibility §§ 5.96, 5.113; Guttenberg & Snyder, The Law of Professional Responsibility in Ohio § 4.2(A)
  • Commentary: ABA/BNA § 91:2001, ALI-LGL §§ 96-97, Wolfram § 8.3

The material in this section is, in part, excerpted and adapted from Arthur F. Greenbaum, Lawyer's Guide to the Ohio Code of Professional Responsibility § 5.96 (1996).

Ohio Rule 1.13(a) states the generally recognized rule that a "lawyer employed or retained by an organization represents the organization acting through its constituents," and owes allegiance to the organization, not its constituents, who "include its owners and its duly authorized officers, directors, trustees, and employees." The reference to lawyers "employed" makes 1.13 applicable to in-house lawyers, as well as to retained outside lawyers. See ABA, Annotated Model Rules of Professional Conduct 203 (6th ed. 2007) (commentary) (“employed or retained”).

The comments make clear that the duties imposed by Rule 1.13 apply to unincorporated associations as well as corporations and that "[o]ther constituents" refers to those in organizations other than corporations holding positions equivalent to corporate officers, directors, employees and shareholders. Rule 1.13 cmt.[1]. Comment [2] states that, with respect to communciations to the organization's lawyer by a constituent in that person's organizational capacity, "the lawyer must keep the communication confidential as to persons other than the organizational client as required by Rule. 1.6." This does not mean that the constituent is a client of the lawyer. Rule 1.13 cmt. [2].

One by-product of the entity-as-client rule is that corporate counsel cannot assert blanket representation of a corporation and all of its current and former employees. See ABA, Annotated Model Rules of Professional Conduct 219 (5th ed. 2003) (commentary). An attempt to do so under the OHCPR was labeled "inappropriate" "bluster" in Bd. of Comm'rs on Grievances & Discipline Op. 2005-3, 2005 Ohio Griev. Discip. LEXIS 3, at *4 (Feb. 4, 2005). See sections 4.2:210 and 4.3:200 for further discussion of the applicability of the anti-contact rule in the organizational setting.

Similar to Rule 1.13(a), former OH EC 5-19 stated that a lawyer who was counsel to a corporation or similar entity owed allegiance to the entity and not to any of its individual constituents, such as directors, officers, or shareholders. The court in Hile v. Firman, Sprague & Huffman Co., L.P.A., 71 Ohio App.3d 838, 595 N.E.2d 1023 (Hancock 1991), quoted OH EC 5-19in the course of holding that the lawyers for the corporation during bankruptcy and liquidation proceedings were not liable to the corporate directors for alleged negligent failure to advise the directors of their potential personal responsibility under Ohio law (ORC 5739.33) for sales taxes owed by the corporation in the event of nonpayment by a dissolved corporation. For such liability to attach, there must be an attorney-client relationship between the directors and corporate counsel or the directors must be in privity with the corporation. Neither circumstance was present in Hile. See also discussion at sections 1.1:410 and 1.7:340.

And former OH EC 5-25 also reminded that a lawyer, when serving as counsel for a business corporation in which nonlawyer directors and officers make the business decisions, must decline to accept direction from such laypersons with respect to the exercise of his or her professional judgment. It went on to recommend a written agreement that defines the relationship between the lawyer and the organization and that provides for the lawyer's independence. The ethical consideration elaborated on the concept of independence in the context of a lawyer for a legal-aid office — a lawyer should not accept such employment unless the legal-aid board set broad policies only and did not interfere with the lawyer and the individual client served. This separation of business and legal decision-making noted in EC 5-25 is echoed, in the context of application of Rule 1.13(b), by Comment [3], which emphasizes that in the normal course business decisions made by constituents of the entity "must be accepted by the lawyer even if their utility or prudence is doubtful. Decisions concerning policy and operations, including ones entailing serious risk, are not as such in the lawyer's province." Ohio Rule 1.13 cmt. [3].

Although the entity is the client to which the lawyer owes the duty of loyalty, the entity "cannot act except through its officers, directors, employees, shareholders, and other constituents." Ohio Rule 1.13 cmt. [1]. See Jack A. Guttenberg & Lloyd B. Snyder, The Law of Professional Responsibility in Ohio § 4.2(A) (1992):

A corporation has many voices, all potentially claiming to articulate the true corporate desire. These people or groups claiming to speak for the corporation are the ones who interact with the corporate attorney. There is no clear consensus among commentators about which party speaks for the corporation. Commentators and corporate practitioners have asserted that a lawyer owes his loyalty to the shareholders, the board of directors, or management.

Id. at 96 (footnotes omitted). Most corporate attorneys view management as their client, id. at 96 n.16 (citing Eric Paul Sloter & Anita Mae Sorenson, Corporate Legal Ethics — An Empirical Study: The Model Rules, The Code of Professional Responsibility and Counsel's Continuing Struggle Between Theory and Practice, 8 J. Corp. L. 601, 686 n.509 (1983)). Guttenberg and Snyder find the formulation in what is now 2 Restatement (Third) of the Law Governing Lawyers § 96(1)(a) & (b) (2000), a bit more helpful:

an attorney employed or retained by a corporation represents the interests of the corporation as "defined by its responsible agents acting pursuant to the organization's decision-making procedures; and . . . the lawyer must follow instructions in the representation. . . , given by persons authorized so to act on behalf of the organization."

Guttenberg & Snyder (1998 Supp. at 21) (ellipses included, as quoted). This is generally consistent with Rule 1.13(a) (constituents include its "duly authorized" officers, directors, trustees, and employees). The fact remains that, whoever it is that speaks for the organizational client, a lawyer representing the entity does not, without more, represent any of the entity's constituencies, and the attorney representing only the organization does not owe a duty of care, diligence, or confidentiality to any of its constituents, including the board or management. Rule 1.13(a). See Guttenberg & Snyder (1998 Supp. 21-22) (citing what is now 2 Restatement (Third) The Law Governing Lawyers § 95 cmt. b (2000) and the Hile case, discussed above). Client identity problems may be particularly acute in the close corporation context. Guttenberg & Snyder § 4.2(A)(1), at 98; see ABA, Annotated Model Rules of Professional Conduct 204-06 (6th ed. 2007) (commentary). See, e.g., Toledo Bar Ass'n Op. 96-2 (n.d.), where, in a dispute regarding share reallocation between the two original 50% shareholders, it was opined that the corporation's lawyer, asserting that he represented the prospective majority shareholders in the transaction, cannot do so: "Since the client here is the corporate entity, the attorney should not represent either of the parties in a transaction between them." Id. at 1. Further as to close corporations, see 1.13:400.

Two cases under the former OHCPR explore confidentiality and/or privilege issues arising from the who-is-the-client question. In Shaffer v. OhioHealth Corp., 2004 Ohio 63, 2004 Ohio App. LEXIS 15 (Franklin), Shaffer, a former COO, sued his former company for wrongful termination. Prior to termination, and in his capacity as a corporate officer, Shaffer had sought the opinion of counsel for the company regarding the legality of proposed corporate contracts. Shaffer retained copies of these opinions and communications by counsel, and in the lawsuit the corporation sought a protective order with respect to these documents. Noting that ORC 2317.021 "acknowledges that corporations or companies, as legal entities, can only communicate with counsel through their employees or agents," id. at ¶ 10, the court of appeals concluded that

it can safely be said that, in cases where a corporation, partnership, or other collective entity is the client, the attorney-client privilege belongs to the company and not to its employees outside of their employment capacity. . . . Current corporate executives and managers, if endowed with appropriate authority by their employer, may on behalf of the corporation either assert or waive the attorney-client privilege. That authority, however, ends with the termination of employment or other revocation of authority. . . .

We accordingly find that the trial court erred when it held that, as a matter of law, the attorney-client privilege did not extend to documents and communications in the possession of appellee and obtained during his employment with Ohio Health Group, where these materials were provided by company legal counsel, the company was the legal client, and appellee received such communications or documents in his capacity as an employee of the company.

Id. at ¶¶  10-11 (citations omitted).

The second case is Stuffleben v. Cowden, 2003 Ohio 6334, 2003 Ohio App. LEXIS 5676 (Cuyahoga). Stuffleben was a legal malpractice action brought by a former majority shareholder in a company known as TSI. The defendant lawyers admitted to representing TSI, but denied ever having represented Stuffleben. Stuffleben sought the lawyers' files relating to the corporate representation; the law firm objected, claiming privilege, work product, and confidentiality. Since the trial court ordered production of the files based on what the putative client believed, without examining the reasonableness of that position, the court of appeals reversed. Moreover,

Stuffleben's argument that he is entitled to the documents requested because his interests are indistinguishable with [sic] the corporations [sic] contradicts basic corporate law. . . .

Ohio law has consistently held that "an attorney's representation does not make that attorney counsel to the corporate officers as individuals." . . . [citing, inter alia, former OH EC 5-19].

id. at ¶¶ 25, 26. The court further rejected Stuffleben's argument that the privilege "automatically arises between corporate counsel and the officers of the corporations in the context of closely-held corporations." Id. at ¶ 29. In distinguishing the close-corporation cases cited by appellee, the court noted that those cases were all disqualification cases, not privilege cases:

In the context of asserting a right to privileged information, especially when its assertion may be adverse to another who undoubtedly holds the privilege, i.e., the corporation, we refuse to extend the general holdings applicable to disqualification of counsel to the instant case. Rather we hold the trial court must narrowly construe the test for attorney-client privilege and apply it throughout the course of the alleged representation to determine whether Stuffleben is entitled to the requested discovery.

Id. at ¶ 30.

For further discussion of confidentiality concerns arising from the who-is-the-client issue, see Susan J. Becker, Jack A. Guttenberg & Lloyd B. Snyder, Ohio Law of Professional Conduct § 7.03 (2007-08 ed.); see also section 1.6:510 regarding corporate waiver of attorney-client privilege.

1.13:210 Lawyer with Fiduciary Obligation to Third Person

See discussion of fiduciary obligations of lawyers serving as corporate directors or as other trustees in section 1.13:220. The general rule is set forth in 2 Restatement (Third) of the Law Governing Lawyers § 135 (2000).

For discussion of the tangled state of affairs in Ohio regarding a lawyer representing a limited partnership's general partner (who has fiduciary duties to the limited partners), see section 1.13:520 below.

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

The material in this section is, in part, excerpted and adapted from Arthur F. Greenbaum, Lawyer's Guide to the Ohio Code of Professional Responsibility § 5.113 (1996).

There is no per se ethics prohibition against a lawyer serving as both a lawyer for an organization and as an officer or director of the organization. E.g., 2 Restatement (Third) of the Law Governing Lawyers § 135 cmt. d (2000). This is true whether the entity is publicly or closely held. See ABA Formal Op. 98-410, at 3 n. 4 (Feb. 27, 1998) (noting other risks that may be posed by dual relationship, "especially in the case of public companies"). Analogous to the lawyer/director, a lawyer at times both serves as a trustee or an organization and also provides the organization legal representation. As is the case with the lawyer/director, while conflicts may arise from performing these dual roles, it is not necessarily improper to do so. Kohn v. Mayflower Condominium Ass'n, No. 39213, 1979 Ohio App. LEXIS 9379 (Cuyahoga May 17, 1979).

While there is no per se prohibition, playing such a dual role is fraught with conflict-of-interest concerns. They are addressed in Ohio Rule 1.7 cmt. [19]; see section 1.7:340. Regarding the lawyer for the corporation also serving as officer or director, see 1 Geoffrey C. Hazard, Jr. & W. William Hodes, The Law of Lawyering § 17.5 n.3, at 17-63 (3d ed. Supp. 2004-2); Restatement § 135 cmt. d; Charles W. Wolfram, Modern Legal Ethics § 8.3.3 (1986). Although, the dual role generally is not forbidden, if the lawyer is unable to exercise independent professional judgment or if the obligations or interests of the lawyer as director are adverse to those as corporate counsel, the lawyer may not serve as counsel without the corporation's informed consent. See Ohio Rule 1.7 cmt. [19]; Restatement § 135 cmt. d. Serving in both capacities also may in certain circumstances compromise the lawyer's ability to assure his corporate client that its communications with counsel are privileged. Rule 1.7 cmt. [19]; Restatement § 135, reporter's note to comment d. See also Craig C. Albert, The Lawyer-Director: An Oxymoron?, 9 Geo. J. Legal Ethics 413 (1996) (recognizing the problems, but concluding that an ethical ban on a lawyer serving as director would be inadvisable); Simon M. Lorne, The Corporate and Securities Advisee, The Public Interest, and Professional Ethics, 76 Mich. L. Rev. 423, 491 (1978) (noting that management often views lawyer who serves on board as "inside" director, with mere appearance of independence).

The Board of Commissioners in Opinion 2008-2 weighed in on this subject with the following cautionary words in 2008:

A lawyer’s service on a board of directors of a corporation is fraught with potential conflicts of interest, but such service is not barred by the Ohio Rules of Professional Conduct.  Some lawyers serve in the dual role as corporate director and corporate counsel, while some lawyers serve as corporate director but not as corporate counsel.

Serving in a dual role as a corporate director and corporate counsel is cautioned because of the ethical challenges:  conflicts of interest calling into question the lawyer’s professional independence; confusion among other directors and management as to whether a lawyer’s views are legal advice or business suggestions; and concerns regarding protection of the confidentiality of client information, especially the attorney-client privilege.  See ABA Formal Opinion 98-410 (1998).  A common example of a conflict of interest calling into question a lawyer’s independent judgment would be if a lawyer director is called upon to advise the corporation in matters involving the actions of the directors.

But, serving as a corporate director and not as corporate counsel also raises ethical concerns.  For instance, conflicts of interest may arise between the lawyer’s duties as corporate directors and the lawyer’s duties in representation of clients.  Directors and management may rely on the views of the lawyer as legal advice rather than business advice, even though the lawyer is not serving as corporate counsel.  Concerns may arise regarding protection of confidential and privileged information particularly if other directors and managers look to the lawyer director for legal advice or if the lawyer director voluntarily or inadvertently offers legal advice as well as business advice or if the line between the lawyer director’s business advice and legal advice is so fine that it cannot be parsed as one or the other.

Bd. of Comm’rs on Grievances & Discipline Op. 2008-2, 2008 Ohio Griev. Discip. LEXIS 2 (June 6, 2008), at *2-4.

In Selama-Dindings Plantations, Ltd. v. Durham, 216 F. Supp. 104 (S.D. Ohio 1963), aff'd per curiam sub nom. Selama-Dindings Plantations, Ltd. v. Cincinnati Union Stock Yard Co., 337 F.2d 949 (6th Cir. 1964), the district court permitted, in a shareholder derivative action, the law firm that had traditionally represented the defendant corporation to represent both the corporation and the individual defendant-directors, even though one of those defendant-directors was a name partner in the firm. Neither the court nor the opposition raised any question about the lawyer's dual role as a director having fiduciary duties to the minority shareholders; the argument was whether in the derivative action the firm could represent both the corporation and the directors as defendants. See section 1.13:510. In affirming, the court of appeals likewise had nothing to say concerning the lawyer/director issue. See also section 1.13:520 for discussion of this case.

Although the corporation in Selama-Dindings was apparently publicly held, (see 337 F.2d at 949, referring to "[s]ubstantial numbers of the local shareholders"), the district court found that directors (which would include the lawyer/director) stand in a fiduciary relationship to the corporation and to the minority shareholders. See discussion at 1.6:650. This conclusion is in accord with numerous Ohio court decisions referring to the status of a corporate officer, director, or controlling shareholder as that of a fiduciary or trustee, irrespective of whether the entity is closely held or not. See, e.g., Crosby v. Beam, 47 Ohio St.3d 105, 108, 548 N.E.2d 217, 220 (1989) (suit against officers/directors/controlling shareholders; fiduciary duty is "heightened" in close corporation context); Tinter v. Lucik, 172 Ohio App.3d 692, 2007 Ohio 4437, 876 N.E.2d 1026 (close corporation case; fiduciary duty between shareholders, “particularly between majority and minority shareholders,” id. at para. 23, citing Crosby). This fiduciary status of the officer/director to others in the organization is an important consideration in assessing conflict issues arising from an entity's counsel serving on the board or as an officer.

Another problematic situation is posed when a lawyer, whether or not counsel to the entity, seeks to represent a client with interests adverse to those of the entity for which the lawyer serves as a trustee. Ohio State Bar Ass'n Formal Op. 31 (Nov. 26, 1979) addressed the role conflict that arises when a lawyer, who serves on the board of trustees of a university, is asked to represent someone in litigation involving the organization the board oversees. The opinion concluded that a lawyer/member of a university board of trustees could not represent an individual in a criminal proceeding involving university personnel or property (for example, a student accused of theft of university property or assault upon a university security guard), because it would violate former OH DR 5-101(A) and OH DR 5-105(A) & (D). Without explicitly saying so, the bar association apparently considered the lawyer to be acting in a legal rather than a purely personal capacity when acting as a trustee and, therefore, the proposed representation would create a conflict among current clients. If the opinion considered the lawyer as serving solely in a personal capacity, a conflict still might have been present, but it would have been a conflict with the lawyer's personal interests, not the interests of a competing client.

The latest word on this situation – and producing an answer different from that in Formal Opinion 31 – is Bd. of Comm’rs on Grievances & Discipline Op. 2008-2, 2008 Ohio Griev. Discip. LEXIS 2 (June 6, 2008).  The Board opined on whether a corporate board member who was not counsel for the entity could represent a client suing the corporation.  Not surprisingly, the answer was that he could not, because he has a material limitation conflict of interest under Rule 1.7(a)(2).  But the Board goes further and concludes that the conflict is not waivable “because the client and the corporation are directly adverse in the same proceeding” pursuant to 1.7(c)(2)Id. at *12.  Even though “[t]he corporation is not technically a client of a lawyer director who is not corporate counsel, . . . a lawyer director cannot isolate the fiduciary duties owed to the corporation from his professional duties as a lawyer.”  Id.  Said another way, despite the fact that the entity is not a client of the director, the Board nevertheless treats it as one for purposes of application of Rule 1.7(c)(2).  See further discussion of Opinion 2008-2 in section 1.7:240 at “Nonconsentable conflicts - In general” and section 1.10:500.

A similar problem may arise when a lawyer serves on the board of trustees of a legal-services organization. In this context, the lawyer's duty to his private clients may conflict with the interests of the clients of the legal-services organization. On the one hand, any potential conflict of interest is somewhat remote because trustees play no role in the day-to-day client decisions, but only set broad policy for the organization. On the other hand, such a position may allow the trustees to place subtle pressures on staff attorneys handling cases. In a 1978 opinion, the Ohio State Bar Association concluded that this was sufficient to trigger a DR 5-105 conflict, although under appropriate circumstances it could be cured by effective disclosure to and consent by the private and legal services clients. Ohio State Bar Ass'n Informal Op. 78-8 (Oct. 30, 1978). See generally 2 Restatement (Third) of the Law Governing Laywers § 135 cmt. e (2000). Ohio has not adopted MR 6.3, which deals with this topic, or its equivalent. The issue is to be treated, instead, under the basic conflicts rules, including Ohio Rule 1.7(a). See Ohio Rule 6.3, Note.

1.13:230 Divers Kinds of Entities as Organizations

Former OH EC 5-19 spoke to representation of "a corporation or similar entity." The Ohio Supreme Court expressly determined that this provision did not extend to partnerships in Arpadi v. First MSP Corp., 68 Ohio St.3d 453, 628 N.E.2d 1335 (1994) (limited partnership is not entity "similar" to corporation because partnership is aggregate of individuals, not separate legal entity). In that context, "the duty owed by an attorney to a partnership extends to the individual partners thereof," id. at 458, 628 N.E.2d at 1339, and abuse of that duty can give rise to malpractice liability to the partners.

It seems unlikely that the Arpadi no-entity rule survives under the Rules. The operative word now is "organization," not "corporation or similar entity," and it is clear from the comments that "unincorporated associations," such as a partnership, are organizations for Rule 1.13 purposes. See Ohio Rule 1.13 cmt. [1] ("[t]he duties defined in this rule apply equally to unincorporated associations"). Accord ABA Formal Op. 91-361 (July 12, 1991) (partnership is "organization" within meaning of MR 1.13; "a partnership is by definition an unincorporated association," id. at 2). Rule 1.13 cmt. [1], together with an amendment to ORC 1782.08(B) (now 1782.08(C)) (enacted in repudiation of this aspect of Arpadi holding and expressly stating that limited partnership is an "entity") and the 2006 enactment of ORC 1775.01(G)(2)(d) (limited or general partnership is an "entity"), should be more than sufficient to overcome Arpadi on the partnership/no-entity issue. See section 1.1:410 for further discussion of Arpadi, subsequent statutory changes that repudiate various aspects of the Arpadi decision (including the no-entity rule), and post-amendment cases that continue to cite Arpadi as good law.

The court in Sayyah v. Cutrell, 143 Ohio App.3d 102, 757 N.E.2d 779 (Brown 2001), looked to former OH EC 5-19 for support for its conclusion that the attorney for an incorporated homeowner's association did not have an attorney-client relationship with the members of the association for purposes of a malpractice suit by certain association members against the association's attorney. Since unincorporated associations are "organizations" under 1.13, the Sayyah result with respect to incorporated associations is a fortiori good law under the Rule. (On the related inquiry as to whether the association members were in privity with the association so as to permit suit by a nonclient (see generally section 1.1:410), the court held that the attorney had failed in his OH Civ R 56 obligation to present evidence, rather than conclusory assertions, of lack of privity and therefore reversed the trial court's grant of summary judgment on this issue.)

1.13:300 Preventing Injury to an Entity Client

  • Primary Ohio References: Ohio Rule 1.13(b)-(c)
  • Background References: ABA Model Rule 1.13(b)-(c)
  • Commentary: ABA/BNA § 91:2001, ALI-LGL § 96, Wolfram § 13.7

One of the duties a lawyer owes an organizational client is to protect that client when the lawyer knows or should know of substantial misconduct by constituents of the organization. In approaching this issue one must identify when the duty is triggered and what the duty entails. These matters are treated in Ohio Rule 1.13(b).

In terms of when the duty arises, three factors must be considered. First, the constituent conduct must involve either a violation of a legal obligation owed to the organization or a violation that might be imputed to the organization. Second, the misconduct must be sufficiently serious – defined in the Rule as conduct "likely to result in substantial injury to the organization." Third, the lawyer must have the requisite knowledge – here "knows or reasonably should know" – that the qualifying misconduct is intended or has occurred.

Assuming the duty attaches, the Rule specifies a tiered response. As an overarching standard, the lawyer should "proceed as is necessary in the best interest of the organization." In those circumstances in which it is "necessary to enable the organization to address the matter in a timely and appropriate manner," the lawyer must refer the matter to higher authority. This duty flows as well from the duty of communication. Ohio Rule 1.13 cmt. [3]. How far one is to take the issue up the ladder turns on the circumstances. If warranted, the lawyer should take the matter to the "highest authority that can act on behalf of the organization under applicable law." Even if the duty to report up the ladder does not attach, the lawyer retains the discretion to do so when matters of "sufficient importance" arise and doing so is in the "best interests of the organization." Ohio Rule 1.13 cmt. [4].

In assessing whether the circumstances warrant reporting up, Ohio Rule 1.13 cmt. [4] suggests that the lawyer consider such factors as the seriousness and consequences of the misconduct, the motivations and responsibility in the organization of the actor, and the organization's policies in handling such matters.

It is important to recognize that these provisions are very different from those stated in MR 1.13.

As stated in the Model Rules Comparison, Ohio has opted for a version of Rule 1.13 that "more closely resembles the substance of Model Rule 1.13 as it existed prior to its last revision by the ABA in August 2003." Thus, the Rule requires that the organization's lawyer communicate to the organization matters of material risk of which the lawyer is aware, but "does not include a provision of Model Rule 1.13 that imposes a 'whistle-blowing' requirement upon lawyers for organizations." Id. (Emphasis added.) As stressed in Ohio Rule 1.13 cmt. [6], "[d]ivision (c) makes clear that a lawyer for an organization has the same discretion and obligation to reveal information relating to the representation to persons outside the client as any other lawyer, as provided in Rule 1.6(b) and (c) (which incorporates Rules 3.3 and 4.1 by reference)." Comment [6] goes on to state that consultation with the client in the hope of obviating the need for disclosure, where practicable, is recommended, as is giving notice of intent to disclose where consultation is not practicable. The Rule itself simply provides that

[t]he discretion or duty of a lawyer for an organization to reveal information relating to the representation outside the organization is governed by Rule 1.6(b) and (c).

Ohio Rule 1.13(c). Although Comment [6] in its final version deleted language expressly stating that "there is no requirement that the lawyer report 'up-the-ladder' within the organization before revealing information as permitted by Rule 1.6(b) or required by Rule 1.6(c)," it appears that under the Ohio Rule up-the-ladder reporting and whistle-blowing still can operate independently of one another, unlike MR 1.13 where the whistle-blowing option is available only after failure to get results from reporting to higher, and highest, authority within the organization. See MR 1.13(c). Also relevant to this issue is language added to Ohio Rule 1.6 cmt. [14] as part of the final 2006 revisions: before making a 1.6(b)(1), (2), or (3) discretionary disclosure, "a lawyer for an organization should ordinarily bring the issue of taking suitable action" up the ladder. Under this formulation too, reporting up is recommended but not a prerequisite to the disclosure permitted by Ohio Rule 1.6(b).

It should be noted that the subdivisions of Rule 1.6(b) mentioned in Comment [14] that are most directly related to Rule 1.13(b) duties are 1.6(b)(2) and (3) – pursuant to which, respectively, the lawyer may disclose confidential information if the lawyer reasonably believes it necessary to prevent a crime by his entity client (or another person) ((b)(2)), or to mitigate substantial financial injury to another (e.g., constituents of the entity or members of the public) resulting from the entity’s commission of an illegal or fraudulent act in which the client has used the lawyer’s services ((b)(3)). In addition, one must consider Rule 1.6(b)(6), under which the lawyer may disclose information relating to the representation in order to comply “with other law or a court order.”  Also, a lawyer has the mandatory duty under Rule 3.3(b) to disclose (including, if necessary to remedy the situation, to the tribunal) confidential information under Rule 1.6(c) if her entity client, in an adjudicative setting, is known by the lawyer to intend to engage, is engaging, or has engaged in criminal or fraudulent conduct related to the proceeding. The mandatory duty is likewise applicable with respect to the obligation to disclose a material fact in order to avoid assisting the entity client in an illegal or fraudulent act. Rule 4.1(b).

One other comment is in order concerning the subject of whistle-blowing. Contrary to the Task Force's Model Rule Comparison reference, quoted above, to the Model Rule whistle-blowing "requirement," there is no Model Rule "requirement" – the disclosure provisions of MR 1.13(c) say that the lawyer "may" reveal the information when all internal efforts to cure have been unsuccessfully exhausted. In sum, under the Model Rules, whistle-blowing is an option tied to and permissible only after failed up-the-ladder reporting; under the Ohio Rule, the two are not necessarily tied together and whistle-blowing is optional or mandatory, depending on whether Rule 1.6(b) or (c), respectively, applies.

The duty to take constituent misconduct to higher authority also is worded differently in Ohio than it is in the Model Rules. In division (b), not only an Ohio lawyer who knows but also one who "reasonably should know" of such conduct is obligated to refer the matter up the ladder "[w]hen it is necessary to enable the organization to address the matter in a timely and appropriate manner." Ohio Rule 1.13(b). Under the Model Rule, the lawyer must refer the matter up the ladder "[u]nless the lawyer reasonably believes that it is not necessary in the best interest of the organization to do so." MR 1.13(b). See Ohio Rule 1.13 cmts. [3] (noting that "knowledge can be inferred from the circumstances, and a lawyer cannot ignore the obvious"), [4] (need to report to higher authority depends on "relevant considerations" there set forth and discussed above), & [5] (lawyer "must" refer matter to highest authority "if warranted by the circumstances").

For a thoughtful analysis of the interplay between the lawyer’s obligations under Rules 1.3 and 1.6 (and under Sarbanes-Oxley as well), see Robert W. Rapp & Fritz E. Berkenmueller, Business Lawyers and New Rules of Conduct, Ohio Law., July/Aug. 2007, at 13. Further as to Sarbanes-Oxley, see section 1.13:310.

For general discussion of these issues, see 1 Geoffrey C. Hazard, Jr. & W. William Hodes, The Law of Lawyering §  17.11 (3d ed. Supp. 2004-2); 2 Restatement (Third) of the Law Governing Lawyers §  96(2)-(3) & cmts. e-f (2000).

1.13:310 Resignation Versus Disclosure Outside the Organization

This subject is covered by the Model Rules in a provision not adopted in Ohio. Under MR 1.13, as amended in 2003, paragraph (c) provides that if the highest authority in the organization "insists upon or fails to address in a timely and appropriate manner" an act or omission that is "clearly" a violation of law, despite the lawyer's efforts under paragraph (b) (see section 1.13:300), and the lawyer believes 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 1.6 permits such disclosure, but only if and to the extent the lawyer reasonably believes necessary to prevent substantial injury to the corporation.

MR 1.13(c) (emphasis added). As discussed above in section 1.13:300, Ohio's different 1.13(c) disclosure provision apparently is not linked to a failed attempt to rectify by going up the ladder, as is the Model Rule's. See MR 1.13 cmt. [6].

MR 1.13(c) constitutes a major change from the prior version, pursuant to which the lawyer's only option under the circumstances presented in paragraph (c), if all else failed, was to resign. Withdrawal or resignation (including, presumably, "noisy" withdrawal) remains an option, however. See MR 1.13(e) & cmt. [8]. MR 1.13(e) further provides that if a lawyer's withdrawal (or discharge) flows from the lawyer's actions taken pursuant to MR 1.13(b) or (c), the lawyer "shall" proceed as necessary to assure that the entity's highest authority is informed of the discharge or withdrawal. Ohio has not adopted this requirement. The permissive disclosure authority contained in MR 1.13(c) bears more than a passing likeness to the SEC rules applicable to publicly traded companies under the Sarbanes-Oxley Act. See this section infra.

The authority to act under MR 1.13, unlike the comparable authority under MR 1.6(b)(2) and (3), is not dependent upon the lawyer's services having been used in furtherance of the violation, although the matter must be related to the lawyer's representation of the organization. MR 1.13 cmt. [6]. That comment also notes that – unlike Ohio, where disclosure under 1.13(c) is limited to that permitted or required by 1.6(b) and (c)MR 1.13(c) provides an "additional basis" for disclosure beyond that allowed in MR 1.6(b).

Note further that the permissive disclosure authorized by MR 1.13(c) may be made even if the information would otherwise be protected from disclosure by MR 1.6. In contrast, disclosure under Ohio Rule 1.13(c) is expressly limited to that permitted or required by Ohio Rule 1.6(b) or (c).

For example, under Ohio Rule 1.13(c), if an ongoing scheme of criminal fraud by a constituent could be imputed to the corporation and the corporation's lawyer is unsuccessful in getting the scheme shut down, with or without reporting up, Ohio Rule 1.6(b)(2) authorizes (but does not compel) the lawyer to disclose the necessary information, including information otherwise protected by the attorney-client privilege, to the appropriate authorities. See generally section 1.6:350. And, if a lawyer representing an organizational client in an adjudicative proceeding learns that the client intends to engage, is engaging, or has engaged in fraudulent conduct relating to the proceeding, the lawyer would be obligated to take reasonable steps to remedy the situation, including, if necessary, disclosure to the tribunal under Ohio Rule 3.3(b) of information otherwise protected by Rule 1.6. See Ohio Rule 1.6(c). While we found no court decisions applying the former OHCPR analog (OH DR 7-102(B)) where the client was an entity, there are at least two bar association opinions advising that the lawyer was obligated to disclose the entity's fraud. See Ohio State Bar Ass'n Informal Op. 87-10 (Sept. 17, 1987); Ohio State Bar Ass'n Informal Op. 75-8 (June 30, 1975). And cf. Office of Disciplinary Counsel v. Heffernan, 58 Ohio St.3d 260, 569 N.E.2d 1027 (1991) (lawyer disciplined under OH 7-102(B)(1) for failure to disclose past fraud on court by individual client). See discussion at section 3.3:610.

In the wake of Enron and similar fiascos, the legal landscape with respect to these issues was significantly altered by the passage of the Sarbanes-Oxley Act in the summer of 2002 (see 15 USC §§ 7201 et seq. (2002)) and by new SEC implementing regulations, which are still in the process of being finalized.

While this federal regulatory scheme is outside the scope of the subject matter of this treatise, § 307 of the Act (15 USC § 7245 (2002)) and implementing regulations thereunder at Part 205 of 17 CFR (2007) deal with the professional responsibilities of attorneys appearing before the Commission on behalf of an issuer.  A thoughtful overview of a litigator's duties under Sarbanes-Oxley is found in Dan K. Webb & Scott P. Glauberman, Up the Ladder: Litigator Responsibilities under the Sarbanes-Oxley Act, Litigation, Summer 2004, at 21.

1.13:400 Fairness to Nonclient Constituents Within an Entity Client

  • Primary Ohio References: Ohio Rule 1.13(d)
  • Background References: ABA Model Rule 1.13(f)
  • Ohio Commentary: Guttenberg & Snyder, The Law of Professional Responsibility in Ohio § 4.2(A)(1)
  • Commentary: ABA/BNA § 91:2001, ALI-LGL § 103, Wolfram § 13.7.5

Ohio Rule 1.13(d) directs a lawyer for an organization, in dealing with its constituents, to "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." See Rule 1.13 cmt. [10] (in dealing with such a constituent, lawyer should advise constituent of conflict or potential conflict, that lawyer cannot represent constituent, that constituent may wish to obtain independent representation, and that discussions between lawyer and constituent may not be privileged).

Guttenberg and Snyder speak to this issue in terms of avoiding inadvertent multiple representation of both the entity and one or more of its constituents. See Jack A. Guttenberg & Lloyd B. Snyder, The Law of Professional Responsibility in Ohio § 4.2(A)(1) (1992 & Supp. 1998). Thus, if the lawyer does not intend to represent the constituent in addition to the entity in the matter, this must be made clear to the constituent. Particularly where the relationship between the lawyer and the constituent is a close one, the member may think the entity lawyer is representing him or her as well. If it is not made clear that this is not so, an implied attorney-client relationship may be created. Id. at 99 & Supp. at 22; see Susan J. Becker, Jack A. Guttenberg & Lloyd B. Snyder, Ohio Law of Professional Conduct § 1.07[2] (2007-08 ed.); 1 Geoffrey C. Hazard, Jr. & W. William Hodes, The Law of Lawyering § 17.13, at 17-52 to 17-53 (3d ed. Supp. 2004-2).

While there is no state case law on point, a few Ohio federal cases deal with the issue. The guiding principle is the reasonable belief of the constituent as to whether he or she is being represented. See Berger McGill, Inc. v. Capozzoli (In re Berger McGill, Inc.), 242 B.R. 413 (Bank. S.D. Ohio 1999) (in adversary bankruptcy proceeding by debtor against creditor/controlling shareholder of debtor, pre-petition attorney-client relationship found to have existed between attorneys for corporation and corporation's controlling shareholder, given shareholder's reasonable belief that attorneys were representing him as well as corporation in series of transactions between corporation and shareholder substantially related to present action, where shareholder had not been told that lawyer was representing corporation only or that shareholder should obtain separate counsel; as a result, debtor's application to employ law firm was denied; in making such determination, state's ethics rules applicable). On the other hand, the shareholder's belief that an attorney-client relationship also existed with respect to a post-petition transaction was found to be not reasonable, since the lawyer did advise the shareholder both to obtain separate counsel and that the lawyer was representing only the corporation. Id. Compare Nilavar v. Mercy Health Syst.-W. Ohio, 143 F. Supp.2d 909 (S.D. Ohio 2001) (motion of plaintiff-shareholder to disqualify law firm representing defendants denied; evidence failed to show that plaintiff reasonably believed that law firm represented him individually in addition to the corporation in which he was a shareholder). See also Roger J. Au & Son, Inc. v. Aetna Ins. Co. (In re Roger J. Au & Son, Inc.), 64 B.R. 600 (Bankr. N.D. Ohio 1986) (disqualification of counsel for corporate debtor-in-possession; counsel simultaneously represented corporation's sole shareholder and principal officer, who was potential debtor of debtor-in-possession, thus giving rise to potentially adverse interests between the two. Result also supported by former OHCPR in that Code conditioned simultaneous representation on the absence of conflicting interests; this condition, coupled with admonition to avoid appearance of impropriety, suggested that court need not find actual evidence of ethical violation or actual conflict before disqualifying counsel).

See generally 2 Restatement (Third) of the Law Governing Lawyers § 103 cmt. e (2000).

The problem of who is the client is exacerbated when a close corporation is involved. Jack A. Guttenberg & Lloyd B. Snyder, The Law of Professional Responsibility in Ohio § 4.2, at 98 (1992). In such a situation, according to one court, where there are two shareholders with equal interests, "it is indeed reasonable for each shareholder to believe that the corporate counsel is in effect his own individual attorney." Id. at n.27 (quoting Rosman v. Shapiro, 653 F. Supp. 1441, 1445 (S.D.N.Y. 1987)). See 1 Geoffrey C. Hazard, Jr. & W. William Hodes, The Law of Lawyering § 17.14, at 17-58 (3d ed. Supp. 2004-2); 2 Restatement (Third) of the Law Governing Lawyers § 131 cmt. e, at 370 (2000) (conflict-of-interest problems in representing an organization "may be particulary acute in the case of close corporations"); Charles W. Wolfram, Modern Legal Ethics § 8.3.2, at 422 (1986).

These "acute" conflict-of-interest problems arising in the close-corporation context were discussed in some detail in the dissenting opinion in Sturm v. Sturm, 61 Ohio St.3d 298, 574 N.E.2d 522 (1991), a disqualification case that was decided by the majority on the ground that the conflict had been waived. Justice Brown disagreed and therefore addressed the question of the duty owed by an attorney representing a close corporation to two equal shareholders involved in a divorce dispute over corporate assets:

Cook [one of the equal shareholders] claims that the dual representation of the corporation and Sturm [the other equal shareholder; Cook's husband] constitutes a conflict of interest. . . .

* * * * *

The conflict-of-interest issue is complicated because the corporation here was a "close corporation." In such corporations, the distinction between corporate and individual representation may become blurred. [citing, inter alia, Rosman] . . . The apparent identity of interest between the shareholder and the close corporation may lead the shareholder to believe that corporate counsel is his own individual counsel.

* * * * *

. . . . Wilsman had a fiduciary duty to protect the interests of both shareholders. When Wilsman continued to represent the corporation, he therefore continued to represent Cook. The once identical interests of the corporation, Sturm, and Cook have now diverged. Particularly where the corporate assets are the focus of the divorce action, Wilsman cannot fulfill his duty to Cook and Sturm as corporate counsel, while representing either one of them individually. This conflict is sufficient to disqualify Wilsman from representing Sturm in the divorce proceeding.

Id. at 303, 304, 574 N.E.2d at 525, 526. See generally discussion in ABA, Annotated Model Rules of Professional Conduct 204 (6th ed. 2007) (commentary) (entity-as-client rule applies to closely held corporations just as it does to publicly-held corporations).

With respect to issues of confidentiality and attorney-client privilege arising from communications between an entity's employees and its counsel, see section 1.6:470.

1.13:500 Joint Representation of Entity and Individual Constituents

  • Primary Ohio References: Ohio Rule 1.13(e)
  • Background References: ABA Model Rule 1.13(g)
  • Ohio Commentary: Greenbaum, Lawyer's Guide to the Ohio Code of Professional Responsibility §§ 5.118, 7.63; Guttenberg & Snyder, The Law of Professional Responsibility in Ohio §§ 4.2(A)(1), 4.5
  • Commentary: ABA/BNA § 91:2601, ALI-LGL § 131, Wolfram § 13.7

Pursuant to Ohio Rule 1.13(e), the lawyer for an organization may represent any of its constituents, "subject to the provisions of Rule 1.7." If written consent is required by Rule 1.7, it "shall be given by an appropriate official of the organization, other than the individual who is to be represented, or by the shareholders." Id. See discussion at section 1.7:340. The Model Rule (MR 1.13(g)) and the commentary are consistent with this view. 2 Restatement (Third) of the Law Governing Lawyers § 131 cmt. e (2000) (dual representation permitted where no material adversity of interest exists; if adversity exists, consent of all affected clients required); 1 Geoffrey C. Hazard, Jr. & W. William Hodes, The Law of Lawyering § 17.14 (3d ed. Supp. 2004-2) (reiterating the Model Rule and Restatement positions).

If the entity lawyer decides to represent both the organization and one or more of its constituents in a matter, the better course is to make the arrangement explicit, after discussion with all involved clients concerning conflict-of-interest and confidentiality concerns. See Jack A. Guttenberg & Lloyd B. Snyder, The Law of Professional Responsibility in Ohio § 4.2(A)(1), at 98-99 (1992). As noted in section 1.13:400, if the lawyer does not intend to represent the constituent, this too should be made clear; otherwise, the lawyer may end up with a client by implication, together with the accompanying baggage of conflict-of-interest, confidentiality, and disqualification problems. Id. at 99. See, e.g., Berger McGill, Inc. v. Capozzoli (In re Berger McGill), 242 B.R. 413 (Bankr. S.D. Ohio 1999), discussed in section 1.13:400. See also Westinghouse Elec. Corp. v. Kerr-McGee Corp., 580 F.2d 1311 (7th Cir. 1978) (one office of law firm was representing Westinghouse in antitrust suit against, inter alia, oil companies, and another office found to be simultaneously representing in related matter nationwide trade association (American Petroleum Institute), members of which included oil-company defendants in antitrust action; lawyers representing API requested confidential information from oil companies with implication that information would be kept confidential, giving rise to reasonable belief by oil companies that law firm was representing both API and companies; reversing denial of motion to disqualify law firm in antitrust case, Seventh Circuit gave Westinghouse option of dismissing oil-company defendants or discharging law firm as its counsel). The Westinghouse case is also discussed at section 1.7:270.

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

A shareholder derivative action is a suit by shareholders on behalf of the corporation for harm to the corporation where the officers and directors of the organization have refused to act on the corporation's behalf. While the corporation is nominally a plaintiff, the corporation's interests often are in reality aligned with the officers and directors. Can counsel for the corporation represent both the corporation and the targeted corporate directors/officers in defense of a shareholder derivative action? The answer is that

[m]ost derivative actions are a normal incident of the organization's affairs, to be defended by the organization's lawyer like any other suit. However, if the claim involves serious charges of wrongdoing by those in control of the organization [as it typically does], a conflict may arise between the lawyer's duty to the organization and the lawyer's relationship with the board. In those circumstances, Rule 1.7 governs who should represent the directors and the organization.

Ohio Rule 1.13 cmt. [14] (bracketed material added).

See 2 Restatement (Third) of the Law Governing Lawyers §  131 cmt. g, at 371 (2000) (absent conclusion of disinterested directors that suit is baseless (in which case, with consent of all clients, lawyer may represent corporation and individual defendants), "[e]ven with informed consent of all affected clients, the lawyer for the organization . . . may not represent an individual defendant as well . . . ."). The Restatement notes that if the corporation's lawyer's advice was an important factor in the action of the officers and/or directors giving rise to the suit, it is appropriate for the corporation's lawyer to represent, "if any one," the defendant officers and/or directors, but only with the consent of the corporation, and the corporation should obtain new counsel. Id.

In Selama-Dindings Plantations, Ltd. v. Durham 216 F. Supp. 104 (S.D. Ohio 1963), aff'd per curiam sub nom. Selama-Dindings Plantations, Ltd. v. Cincinnati Union Stock Yard Co., 337 F.2d 949 (6th Cir. 1964), a derivative action, plaintiff sought to disqualify the corporation's traditional outside counsel from defending the corporation and the defendant directors in the action. One of the defendant directors was a name partner in the corporation's law firm. After noting that this director had abstained from voting in directors' meetings concerning retention of the firm and its counsel fees, the district court held that

it is not improper or illegal for a law firm to represent, in a shareholders' derivative suit, the corporate defendant and the individual directors when there is no conflict of interest and no breach of confidence or trust.

216 F. Supp. at 115 (even though the director/partner was the lead lawyer on the appeal). In affirming, the Sixth Circuit, finding that the issues involved primarily questions of fact, concluded that the trial court's findings were not clearly erroneous and that "no relevant rule of law was misapplied." 337 F.2d at 950.

Given Ohio Rule 1.13 cmt. [14], it seems reasonably clear that Selama-Dindings, which did involve "serious charges of wrongdoing [ultimately rejected by the court] by those in control of the corporation," is not good law today on the dual representation point. (Indeed, one of the charges involved erroneous information about the plaintiffs issued by the director/name partner of the law firm representing the corporation and the defendant directors in the case.) See Laws. Man. on Prof. Conduct (ABA/BNA) § 91:2608 (2000), noting that "[o]lder decisions" (citing Selama-Dindings, among others) tended to permit the dual representation, but that "[c]ourts have become more sensitive . . . to actual and potential conflicts of interests . . . . Increasingly, therefore, courts have granted motions for the disqualification of corporate counsel in derivative actions," in representing the corporation. Numerous federal and state cases so holding are cited, although these cases often permit corporate counsel to represent the individual defendant directors and/or officers. Id.

Selama-Dindings is further discussed at sections 1.13:220 and 1.13:520.

Theoretically at least, in a shareholder derivative suit, the plaintiff shareholders are suing on behalf of the corporation. Can a lawyer who has formerly represented the corporation represent the shareholder class? Can a lawyer who has previously sued the corporation on behalf of an employee do so? For differing views on these issues, compare Cleveland Bar Ass'n Op. 84 (Apr. 27, 1973) (plaintiff's counsel had represented corporation in past, but, since any recovery would go to corporation, any use of information from former representation would not be used "to the disadvantage of his [former] client" contrary to former OH EC 4-5), with In re Dayco Corp. Derivative Sec. Litig., 102 F.R.D. 624 (S.D. Ohio 1984) (prior representation of employee in suit against corporation not adverse to representation of plaintiffs in present derivative action because, as practical matter, derivative shareholder claim typically "antagonistic" to corporation and its management; disqualification motion denied in absence of showing of actual conflict of interest), discussed in section 1.9:220. These two opinions are also discussed at section 1.6:220. As Rule 1.13 cmt. [13] states, "[s]uch an action may be brought nominally by the organization, but usually is, in fact, a legal controversy over management of the organization."

See also Luce v. Alcox, 165 Ohio App.3d 742, 2006 Ohio 1209, 848 N.E.2d 552 (although disqualification of law firm representing majority shareholder/defendant was reversed for failure to meet other aspects of Dana [Dana Corp. v. Blue Cross & Blue Shield Mut., 900 F.2d 882 (6th Cir. 1990)] test, minority shareholder, suing both on own behalf and derivatively, satisfied first prong of Dana, inasmuch as law firm had represented NGT Corporation since its inception; "[c]onsequently, Luce [the minority shareholder], on behalf of NGT, has demonstrated a prior attorney-client relationship." Id. at ¶ 13.).

1.13:520 Representing Client with Fiduciary Duties

In Ohio, the law with respect to representation of a client having fiduciary duties to others is confusing at best. As set forth below, this is the result of (1) the Supreme Court's Arpadi decision; (2) the legislature's statutory response to that decision; and (3) subsequent case law, which to date has ignored the statutory provisions and continues to cite Arpadi as good law.

Unlike the majority of jurisdictions (see 1 Restatement (Third) of the Law Governing Lawyers §  51 reporter's note to cmt. h, at 373 (2000)), the Ohio Supreme Court has held that the duty of care of the lawyer for a limited partnership and its general partner, who or which has a fiduciary obligation to the limited partners, runs to the limited partners as well.  Arpadi v. First MSP Corp., 68 Ohio St.3d 453, 628 N.E.2d 1335 (1994), discussed in section 1.1:410. Arpadi also holds, in terms not restricted to the limited-partnership setting, that those persons to whom a fiduciary duty is owing are in privity with the fiduciary such that an attorney-client relationship established with the fiduciary extends to those in privity with the fiduciary regarding matters to which the fiduciary duty relates.  Id. at 454, 628 N.E.2d at 1336 (syllabus three). (In addition, the Supreme Court concluded that, unlike a corporation, a partnership is not a separate legal entity, but simply an aggregate of individuals.  This aspect is discussed in section 1.13:230 supra.)

The Ohio legislature seemingly repudiated syllabus three (at least in part) by subsequently enacting ORC 1339.18, which provides that an attorney for a fiduciary owes no duty of care to those to whom the fiduciary owes fiduciary obligations. (The definition of "fiduciary" in the statute is limited to a trustee of an express trust and an executor or administrator of a decedent's estate; it does not include a general partner of a limited partnership.) There is no such limitation, however, in the more recent enactment of ORC 1782.65, pursuant to which a lawyer performing services for a limited partnership or its general partner owes no duty to, incurs no liability or obligation to, and is not in privity with, the limited partners.

Despite ORC 1339.18 to the contrary, the rule set forth in Arpadi syllabus three continues to be cited and followed; see Brinkman v. Doughty, 140 Ohio App.3d 494, 499, 748 N.E.2d 116, 119-20 (Clark 2000) (citing and quoting Arpadi for proposition that attorney-client relation with fiduciary (executrix) extends to those to whom fiduciary duty owed (beneficiaries)).

The most recent and perhaps most interesting case delving into these issues is LeRoy v. Allen, Yurasek & Merklin, 114 Ohio St.3d 323, 2007 Ohio 3608, 872 N.E.2d 254.  One of the issues before the Court was whether, as the court of appeals held, a claim had been stated under the privity exception to the Scholler rule.  The court of appeals relied on Arpadi, in combination with Crosby v. Beam, 47 Ohio St.3d 105, 548 N.E.2d 217, in finding that the majority shareholder of a close corporation owed a fiduciary duty to the minority shareholders and that this duty was similar to the duty owed in Arpadi; therefore, in the Supreme Court's summary of the lower court's analysis, "the privity exception to Simon [and Scholler] was met as in Arpadi."  Id. at 26.  The Supreme Court reversed, holding as follows:

The major flaw in the court of appeals' reasoning is that Arpadi found privity in a partnership situation specifically only as to 'matters to which the fiduciary duty relates.' [citation omitted].  The claims of LeRoy and Miller, however, are not such claims.  A private transfer of stock does not, in and of itself, implicate any fiduciary duty on the part of a majority shareholder toward minority shareholders.

The transfer of stock that LeRoy and Miller challenge in this case is fundamentally different from the legal work at issue in Arpadi, in which the alleged legal malpractice that occurred was for legal representation specifically done regarding partnership matters.  The transfer of stock was a purely private matter, personal to [the majority shareholder], and was not done on behalf of [the corporation].  For that reason, the legal work done by defendants regarding that transfer does not implicate the fiduciary duties discussed in either Arpadi or Crosby, the privity exception of Simon is clearly inapplicable, and LeRoy and Miller failed to state a valid claim under that exception.

Id. at 27-28.

Thus the LeRoy Court found the Arpadi privity rule inapplicable on the "private transaction" facts presented, which the Court held did not implicate any fiduciary duty running from the majority shareholder to the nonclient minority.  Translating LeRoy to the Arpadi limited partnership context, there likewise would be no privity if the lawyering at issue involved a matter unrelated to the general partner's fiduciary duty to nonclient limited partners.  Conversely, if the lawyer acts for the general partner on a matter that does involve the general partner's fiduciary duty to other partners, privity and the resultant duty of care to nonclients would still lie under Arpadi.

Two other items of interest arise from the Court's opinion in LeRoy.  First, there is an intimation that all might not be well for the hallowed general rule, as set forth in Scholler and Simon, that, absent malice or privity, lawyers are not liable in malpractice to nonclients.  After discussing these two precedents and their holdings of no lawyer liability, the Court had this to say:

Because LeRoy and Miller do not challenge the general rule of attorney immunity set forth in Simon and Scholler as this case now stands, this appeal does not test the continuing validity of those precedents.  This case also does not present issues regarding whether additional exceptions to the general rule beyond those already recognized should exist.

Id. at 17.  Do these seemingly gratuitous references to "test[ing] the continuing validity of those precedents" and unspecified "additional exceptions" portend that the Court may be receptive to examining these issues anew?  Only time will tell.

The second and equally fascinating point is that there is no hint in the opinion that the Arpadi privity rule has been completely superseded by statute in any event.  To be sure, the earlier legislation (ORC 1339.18) purporting to repudiate a general reading of Arpadi syllabus three was limited to a fiduciary who is a trustee of an express trust or an administrator or executor of an estate, and the later 2006 enactments (ORC 1782.65, limited partnerships, and 1701.921(A), corporations), which are not so limited, were not in existence when the operative facts occurred in LeRoy.  Nevertheless, one would have thought these statutes might at least have generated an "oh, by-the-way" footnote.  But there is none, and a reader of LeRoy gains no greater knowledge of the legislative efforts to cut down Arpadi than does a reader of any of the earlier court appeals opinions relying on it, such as Brinkman v. Doughty, cited above.

Thus, as matters presently stand, the statutory provisions have yet to be applied by any court in any case, including the Supreme Court in LeRoy. This rather unusual set of circumstances is explored in further detail in section 1.1:410.

Finally, although by today's standards the case probably gives the wrong answer to the dual representation issues presented (see section 1.13:510), Selama-Dindings Plantations, Ltd. v. Durham, 216 F. Supp. 104 (S.D. Ohio 1963), aff'd per curiam sub nom. Selama-Dindings Plantations, Ltd. v. Cincinnati Union Stock Yard Co., 337 F.2d 949 (6th Cir. 1964), is one of the relatively few Ohio decisions involving corporate-representation issues in which it is recognized that the client/directors had fiduciary duties to others -- here in the shareholder derivative action context. In Selama the district court found that the law firm's representation of both the defendant corporation and defendant directors was not inappropriate in a derivative action brought by a corporation that owned the largest single segment of the defendant corporation's stock. The court held that, despite the rule under Ohio law that the directors owe a fiduciary duty to the minority shareholders, the law firm could nevertheless defend both the defendant directors (including one of the firm's name partners, who was the lead lawyer on the appeal to the Sixth Circuit) and the corporation in the suit, "where there is no conflict of interest and no breach of confidence or trust." 216 F. Supp. at 115.

The fiduciary-duty rule is also discussed in section 1.13:220.

1.13:530 Representing Government Client

The material in this section is, in part, excerpted and adapted from Arthur F. Greenbaum, Lawyer's Guide to the Ohio Code of Professional Responsibility §§ 5.118, 7.63 (1996).

Duties of government lawyers in general: Government attorneys, as members of the bar, usually are bound by the same basic ethical responsibilities as private attorneys, and Rule 1.13 cmt. [9] makes explicit that the "up-the-ladder" reporting duties under the Rule are applicable to governmental organizations. (An attempt by the Department of Justice in the late 1980s to exempt federal litigators from state ethics rules was opposed by the organized bar; the dispute ended in federal legislation confirming the applicability of such rules. 28 USC §  530B (2000). See discussion at section 4.2:220). Thus, Ohio attorneys who work for federal agencies have been disciplined under the Ohio disciplinary rules for misconduct committed in the course of government employment. Jack A. Guttenberg & Lloyd B. Snyder, The Law of Professional Responsibility in Ohio §  4.5, at 112 n.87 (1992). See Office of Disciplinary Counsel v. Gorman, 43 Ohio St.3d 166, 539 N.E.2d 1120 (1989) (former Assistant U.S. Attorney permanently disbarred; misuse for personal gain of position as prosecutor in investigation of check-kiting scheme).

Nevertheless, the unique position of government lawyers as representatives of the public impose on them a special duty "to seek justice," which requires a different orientation to the representation than that imposed upon a private practitioner. See State v. Keenan, 66 Ohio St.3d 402, 613 N.E.2d 203 (1993) (stressing that prosecutor's job is not to win cases but to see that justice is done). In civil or administrative actions, the government attorney, as with all attorneys, must not assert claims or defenses having no basis in law or fact, and must also avoid using his position or the power of the government to harass other parties or to produce unjust results. See Ohio Rules 3.1 and 4.4(a). The special duties of a government prosecutor are set forth in Ohio Rule 3.8. See sections 3.8:200-:900.

Overall, the government attorney must be especially scrupulous in following the ethics rules and other duties imposed upon him, for failure to do so corrupts the legal system and public confidence in the government as a whole. State v. Hunt, 97 Ohio App.3d 372, 377, 646 N.E.2d 889, 892 (Franklin 1994) (referring to former OH DR 7-103 and OH EC 7-13 in admonishing an assistant prosecutor that "[z]ealous prosecution of criminal cases is expected and admired; however, continually crossing the line [as this prosecutor had in a number of cases] corrupts our system of justice and will not be tolerated."). See generally Freeport-McMoRan Oil & Gas Co. v. FERC, 962 F.2d 45 (D.C. Cir. 1992) (describing the higher ethical standards to which government lawyers should be held).

On the issue of who is the client of an Ohio governmental lawyer, compare Arthur F. Greenbaum, Lawyer's Guide to the Ohio Code of Professional Responsibility § 5.118 (1996) (no clear guidance provided by Ohio law as to whether it is the government as a whole, a particular branch, an agency, or an individual official or office), with Jack A. Guttenberg & Lloyd B. Snyder, The Law of Professional Responsibility in Ohio § 4.5, at 112 (1992) (indicating that it is usually the state). Ohio Rule 1.13 cmt. [9] states that defining precisely who is the client in the governmental context is beyond the scope of the Rules.

For a discussion of multiclient conflicts and the government lawyer, see sections 1.7:310 and 1.7:320.