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Some portions of the collection may already be severely out of date, so please be cautious in your use of this material.


South Carolina Legal Ethics

1.13   Rule 1.13 Organization as Client

1.13:100   Comparative Analysis of SC Rule

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

1.13:101      Model Rule Comparison

South Carolina Rule 1.13 and its comments are identical to Model Rule 1.13.

1.13:102      Model Code Comparison

There was no counterpart to Rule 1.13 in the Code of Professional Responsibility, although EC 5-18 stated that lawyers representing entities owed professional duties to the entity rather than to shareholders, directors, or employees.

1.13:200   Entity as Client

Primary SC References: SC 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

A lawyer representing an organization such as a corporation does not necessarily represent the individual constituents of the organization, such as its officers or shareholders. See Rule 1.13. The South Carolina Bar Ethics Advisory Committee has noted, however, that a dual representation can arise. Courts "may look beyond legal form to ascertain . . . where there is a sole shareholder, whether that individual shareholder. . . may reasonably believe that the lawyer is acting for his interests as well as those of the entity." S.C. Bar Ethics Adv. Op. # 92-24. If an individual constituent of the organization may reasonably believe that the lawyer is serving also as counsel for the individual, normal conflict of interest rules would apply. See also S.C. Bar Ethics Adv. Op. # 85-30 (applying prior Code of Professional Responsibility).

Similarly, a lawyer for a partnership does not necessarily represent the partners individually. See S.C. Bar Ethics Adv. Op. # 91-24. However, individual attorney-client relationships can exist between the lawyer and partners of a client. Because of the greater likelihood of an individual working relationship with partnership counsel, a general partner may be more likely than a limited partner to view the lawyer as his or her individual counsel.

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

The South Carolina Bar Ethics Advisory Committee warned in 1984 that subtle pressures may be exerted upon a lawyer's independent judgment when the lawyer becomes too close to the management of a business. The committee also warned of potential conflicts when there is a "hand in hand relationship of counsel and director." S.C. Bar Ethics Adv. Op. # 82-21 (1984); see also S.C. Ethics Adv. Op. # 85-22. The comment to Rule 1.7 states a similar concern, although there is no per se bar on a lawyer serving as both a director and counsel to an organization. "If there is material risk that the dual role will compromise the lawyer's independence of professional judgment, the lawyer should not serve as a director." In addition to potential conflicts between the role of the lawyer as counsel for the entity and the personal interests of the lawyer as an officer or director of the entity, the lawyer must take care to ensure that the roles are not confused so as to result, for example, in a loss of attorney-client privilege.

A lawyer who enters into both a professional and business relationship with a client "does not lose his fiduciary responsibility as an attorney in a business context." In re Conway, 305 S.C. 388, 409 S.E.2d 357 (1991). In Conway, the lawyer served as president and counsel of a development company. Upon finding that the lawyer had misappropriated corporate funds, the court concluded that the "abuse of the trust placed in him as an attorney and as a corporate officer requires his removal from the profession." The court added that although a lawyer is not barred from entering into a business relationship with a client, the lawyer must "maintain the highest professional and ethical standards" in connection with any business dealings with the client. Id. at 393, 409 S.E.2d at 360.

1.13:230      Divers Kinds of Entities as Organizations

Rule 1.13 applies to the representation of corporations and partnerships, see S.C. Bar Ethics Adv. Op. # 91-24; S.C. Bar Ethics Adv. Op. # 92-24, as well as government agencies, see Rule 1.13, cmt., and other forms of entities such as limited liability companies. Although suggestions have been made also to analogize the representation of a fiduciary as the representation of an organizational client under Rule 1.13, see American Bar Association Section of Real Property, Probate & Trust Law, Counseling the Fiduciary, 28 Real Prop., Prob. & Tr. J. 825, 852 (1994), that view has never been addressed directly by the South Carolina courts. See S.C. Bar Ethics Adv. Op. # 93-34 (lawyer for estate has no ethical duty to advise surviving spouse of right to claim elective share).

1.13:300   Preventing Injury to an Entity Client

Primary SC References: SC 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 rules set forth clearly the view that a lawyer retained by an organization represents the entity "acting through its duly authorized constituents." Rule 1.13(a). The comment to Rule 1.13 suggests that a lawyer for an entity must accept as decisions of the client most decisions of the responsible individuals operating the entity. However, when the lawyer for the entity knows that an action of a constituent, such as an officer, is illegal and is likely to result in substantial injury to the client, the lawyer must take reasonable measures to protect the client. These measures may include seeking reconsideration of the contemplated illegal conduct or referring the matter to a higher authority within the organization. If those actions fail, the lawyer may resign. See Rule 1.13(b).

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

Primary SC References: SC 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

Recognizing the possible ambiguity regarding the identity of the client, Rule 1.13(d) requires that, when the interests of the entity become adverse to the interests of individual constituents with whom the lawyer is dealing, the lawyer should explain the identity of the client.

A lawyer must not assume, however, that simply because the lawyer is retained by the organization there is no duty owed also to individual constituents of the organization. Is it realistic, for example, for the lawyer representing a closely held corporation to assert that the lawyer did not also represent the principal shareholder individually? The answer is fact specific. In S.C. Bar Ethics Adv. Op. # 91-24, the South Carolina Bar Ethics Advisory Committee noted that the legal form of the entity does not necessarily determine who is the client. The lawyer hired to represent a partnership also may represent one or more partners individually. The issue often turns, not on the subjective understanding of the lawyer as to who should be the client, but upon the expectation of the would-be client. See Id.

In an opinion issued with several dissents, the ABA Standing Committee on Ethics and Professional Responsibility concluded that a lawyer representing one company may not be barred by conflict of interest rules from representing parties adverse to an affiliate of its client. The committee based its conclusion upon a finding that the "fact of corporate affiliation, without more, does not make all of a corporate client's affiliates into clients as well." ABA Formal Op. # 95-390.

1.13:500   Joint Representation of Entity and Individual Constituents

Primary SC References: SC 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 discussion of this topic has not yet been written.]

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 comment to Rule 1.13 applies its provisions to the representation of government agencies. It specifically acknowledges that a lawyer's authority to question the conduct of a governmental client may be greater than that of a lawyer for a private entity. See also S.C. Bar Ethics Adv. Op. # 94-18. The representation of one government agency does not necessarily create an attorney-client relationship with other state agencies. See S.C. Bar Ethics Adv. Op. # 94-28.