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Some portions of the collection may already be severely out of date, so please be cautious in your use of this material.


Pennsylvania Legal Ethics

1.13   Rule 1.13 Organization as Client

1.13:100   Comparative Analysis of Pennsylvania Rule

Primary Pennsylvania References: PA Rule 1.13
Background References: ABA Model Rule 1.13, Other Jurisdictions
Commentary:

1.13:101      Model Rule Comparison

The language of the PA-R 1.13 was taken verbatim from MR 1.13.

1.13:102      Model Code Comparison

There is no counterpart to this Rule in the Disciplinary Rules of the Code. EC 5-18 states that "A lawyer employed or retained by a corporation or similar entity owes his allegiance to the entity and not to a stockholder, director, officer, employee, representative, or other person connected with the entity. In advising the entity, a lawyer should keep paramount its interests and his professional judgement should not be influenced by the personal desires of any person or organization. Occasionally a lawyer for the entity is requested by a stockholder, director, officer, employee, representative, or other person connected with the entity to represent him in an individual capacity; in such a case the lawyer may serve the individual only if the lawyer is convinced that differing interests are not present." EC 5-24 states "Although a lawyer may be employed by a business corporation with non-lawyers serving as directors or officers, and they necessarily have the right to make decisions of business policy, a lawyer must decline to accept direction of his professional judgement from any layman." DR 5-107(B) provides that "A lawyer shall not permit a person who . . . employs . . . him to render legal services for another to direct or regulate his professional judgement in rendering such legal services."

1.13:200   Entity as Client

Primary Pennsylvania References: PA Rule 1.13(a)
Background References: ABA Model Rule 1.13(a), Other Jurisdictions
Commentary: ABA/BNA 91:2001, ALI-LGL 155, 156, Wolfram 8.3

1.13:210      Lawyer with Fiduciary Obligation to Third Person

[The discussion of this topic has not yet been written.]

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

Lawyer is permitted to act as corporate director of client. However, lawyer-director's law firm may not represent corporation in any suit in which directors are named as defendants. See Harrison v. Keystone Coca-Cola Bottling Co. (M.D. Pa. 1977).

1.13:230      Divers Kinds of Entities as Organizations

[The discussion of this topic has not yet been written.]

1.13:300   Preventing Injury to an Entity Client

Primary Pennsylvania References: PA Rule 1.13(b) & (c)
Background References: ABA Model Rule 1.13(b) & (c), Other Jurisdictions
Commentary: ABA/BNA 91:2001, ALI-LGL 155, Wolfram 13.7

1.13:310      Resignation Versus Disclosure Outside the Organization

[The discussion of this topic has not yet been written.]

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

Primary Pennsylvania References: PA Rule 1.13(d)
Background References: ABA Model Rule 1.13(d), Other Jurisdictions
Commentary: ABA/BNA 91:2001, ALI-LGL 163, Wolfram 13.7.5

When an entity and its individual members share the same interest vis-a-vis a third party in a particular matter or transaction, an attorney retained to protect that interest may owe the members the same professional obligations he owes the entity. Willig, Williams & Davidson v. Walter (E.D. Pa. 1993). The rule has given rise to the concept of the entity as the 'primary' client and its members as 'derivative' clients to whom an attorney owes a special duty. Willig, Williams & Davidson v. Walter (E.D. Pa. 1993). Corporate counsel who renders legal advice to an individual associated with the corporation upon matters personally concerning that individual ,however, may create a conflict of interest breaching his duty to both parties. In re United Utensils Corp. (Bankr. Ct. W.D. Pa. 1992). Because of the potential conflict, the lawyer, at a minimum, should clearly explain to the individual employee that he does not represent the individual employees but rather represents the entity only. Willig, Williams & Davidson v. Walter (E.D. Pa. 1993). But, in some situations the interests of the sole shareholder and the corporation may run hand in hand and present no conflict. In re United Utensils Corp. (Bankr. Ct. W.D. Pa. 1992).

Breach of fiduciary duty of one constituent to another

Where attorney for a corporation having three principals is aware that one of the principals has perpetrated fraud against the corporation, attorney may need to disclose to all three principals the involvement of any of the principals corporation if, in light of all circumstances, disclosure of the implicated principal's involvement is necessary to permit the client to make informed decisions about the representation. Phila. Eth. Op. 95-16 (1995). In disclosing information regarding the fraudulent acts of the principals of a corporation, the attorney should explain that his client is the corporation, not the individuals. Phila. Eth. Op. 95-16 (1995).

1.13:500   Joint Representation of Entity and Individual Constituents

Primary Pennsylvania References: PA Rule 1.13(e)
Background References: ABA Model Rule 1.13(e), Other Jurisdictions
Commentary: ABA/BNA 91:2601, ALI-LGL 156, 212, Wolfram 13.7

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

The question can arise whether counsel for the organization may defend both the directors and the corporation in a derivative action. Early Pennsylvania decisions adopted the position that at least in a breach of trust, such dual representation was permissible. Musheno v. Gensemer (M.D. Pa. 1995). See, e.g., Otis & Co. v. Pennsylvania R. Co. (E.D. Pa. 1945), aff'd. (3d Cir. 1946). However, more recent decisions have identified numerous problems with such representation. Musheno v. Gensemer (M.D. Pa. 1995). If a claim involves serious charges of wrongdoing by those in control of the organization, a conflict may arise between the lawyer's duty to the organization and the lawyer's relationship with the board. In those circumstances. PA-R 1.7 governs who should represent the directors and organization. Attorney representing a corporation and its board of directors in derivative action is disqualified from representing corporation, where complaint alleged fraud and self-dealing by directors, revealing clear divergences of interests between corporation and its directors. Musheno v. Gensemer (M.D. Pa. 1995); where serious charges have not been levelled against the individual defendants and where the plaintiffs alleged only a breach of fiduciary duty of care, not a breach of directors' duty of loyalty, independent counsel is not required. Musheno v. Gensemer (M.D. Pa. 1995). Independent counsel may not be required if the derivative claim is obviously or patently false. Bell Atlantic Corp. v. Bolger (3d Cir. 1993). Upon disqualification of attorney representing both corporation and its board of directors in derivative actions, court would decline to appoint counsel for corporation itself. Musheno v. Gensemer (M.D. Pa. 1995).

1.13:520      Representing Client with Fiduciary Duties

[The discussion of this topic has not yet been written.]

1.13:530      Representing Government Client

[The discussion of this topic has not yet been written.]