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Some portions of the collection may already be severely out of date, so please be cautious in your use of this material.

Kentucky Legal Ethics

1.13  Rule 1.13 Organization as Client

1.13:100   Comparative Analysis of Kentucky Rule

1.13:01 Model Rule Comparison

In 1989, the Kentucky Supreme Court adopted KRPC 1.13.  It contains the same language as MR 1.13, including the commentary thereto, with very limited exceptions.

1.1:102 Model Code Comparison

There was no counterpart to this Rule in the Disciplinary Rules of the Model Code. EC 5-18 stated 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 interest and his professional judgment should not be influenced by the personal desires of any person or organization. Occasionally, a lawyer for an 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 case the lawyer may serve the individual only if the lawyer is convinced that differing interests are not present." EC 5-24 stated that 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 judgment from any layman." DR 5-107(B) provided that a lawyer "shall not permit a person who . . . employs . . .  him to render legal services for another to direct or regulate his professional judgment in rendering such legal services."

1.13:200 Entity as Client

An organizational client is a legal entity, but it cannot act except through its officers, employees, shareholders and other constituents.  KRPC 1.13, Comment [1].  Therefore, a lawyer employed or retained by an organization represents the organization acting through these duly authorized constituents.  KRPC 1.13(a).  In regards to this representation, an attorney who is employed by a private corporation may not allow his name to be placed on the corporation's office door identifying him as a lawyer and may not allow his name to be listed in the corporation's building directory.  KBA E-185 (1978).

1.13:210   Lawyer with Fiduciary Obligation to Third Person

When one of the constituents of an organizational client communicates with the organization&'s lawyer in that person&'s organizational capacity, the lawyer has a fiduciary duty to that third person, and the communication is protected by Confidentiality of Information, supra, at 1.6KRPC 1.13, Comment [3].   Decisions that the organization&'s constituents make must ordinarily be accepted by the lawyer even if the lawyer disagrees.  KRPC 1.13, Comment [4].  This does not mean that constituents of an organizational client are the clients of the lawyer.  KRPC 1.13, Comment [3].  The lawyer may only disclose information that is explicitly or impliedly authorized by the organizational client in order to carry out the representation. KRPC 1.13, Comment [3]

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

  KBA E-293 (1984), KBA E-74 (1973), and KBA E-270 (1983) address the situation where a lawyer directs or operates a business separate from his practice of law. KBA E-293 asserts that the Code of Professional Responsibility makes no distinction between a lawyer acting in his or her cpacity as a lawyer and a lawyer who is concurrently engaged in another occupation and notes that lawyers are frequently asked to be members of corporations or to serve in leadership roles in charitable and civic activities. It refers to ABA Informal Opinion 775 which stated that an attorney does not necessarily violate the canons by engaging in a separate occupation (1) if the separate business is not necessarily the practice of law when conducted by a lawyer; (2) if it can be conducted in accordance with the canons; (3) if it is not used or engaged in such a manner as to directly or indirectly advertise or solicit legal matters for the lawyer; (4) if it will not inevitably serve as a feeder to his law practice; and (5) if it is not conducted in or from a lawyer&'s law office except where the volume of the law practice and business is so small that separate quarters are not economically feasible where, even in that situation, there is no indication on the office, letterhead or otherwise that the lawyer engages in any activity except the practice of law. 

1.13:230   Diverse Kinds of Entities as Organizations

In general this section applies to representation of formally constituted organizations. ALI-LGL §96, Comment [c].  Such organizations include for-profit and not-for-profit corporations, limited liability companies, unincorporated associations, general and limited partnerships, professional corporations, business trusts, joint ventures, and similar organizations.  ALI-LGL §96, Comment [c]. An organization client may also be an informal entity such as a social club or an informal group that has established an investment pool.  ALI-LGL §96, Comment [c].

1.13:300  Preventing Injury to an Entity Client

The lawyer is typically required to accept decisions of the constituents of an organization; however, when the lawyer knows that the organization may be substantially injured by the action of a constituent that is violation of law, the lawyer may ask the client to reconsider. KRPC 1.13(b); KRPC 1.13, Comment [4].  If that fails, or if the matter is sufficiently serious, the lawyer may need to seek the opinion of higher authority in the organization.  KRPC 1.13, Comment [4].  The lawyer should strive to follow the organizational policies set forth for how to handle such matters. KRPC 1.13, Comment [4].  At some point it may even be useful or essential to obtain an independent legal opinion. KRPC 1.13, Comment [4]

1.13:310   Resignation Versus Disclosure Outside the Organization

KRPC 1.13(b) directs that any measures taken should be designed to minimize disruption of the organization and the risk of revealing information relating to the representation to persons outside the organization.  These careful steps may include: (1) asking reconsideration of the matter; (2) advising that a separate legal opinion on the matter be sought; and (3) referring the matter to higher authority in the organization.  KRPC 1.13(b).  If, despite the lawyer&'s best efforts, the highest authority that can act on behalf of the organization insists upon violating the law, the lawyer may resign in accordance with [Confidentiality of Information, supra, at 1.6].

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

KRPC 1.13(d) provides that a lawyer shall explain the identity of the client to the organization&'s constituents when it is apparent that the organization&'s interests are adverse to those of the constituents with whom the lawyer is dealing.  The lawyer must take care to assure that the conflicting individual understands that, when there is adversity of interest, the lawyer for the organization cannot provide legal representation for that constituent individual, and that discussions between the lawyer for the organization and the individual may not be privileged.  KRPC 1.13, Comment [8].  In Innes v. Howell Corp., 76 F.3d 702 (6th Cir. 1996), the court found that potential personal liability of a corporation's president in an ongoing environmental litigation against a corporation did not establish any legal relationship between the president and corporation's attorney, even if the president was also named as a defendant in that proceeding.

1.13:500  Joint Representation of Entity and Individual Constituents

KRPC 1.13(e) permits a lawyer representing an organization to also represent any of the organization&'s directors, officers, employees, members, shareholders, or other constituents, subject to [Conflict of Interest: General KRPC, supra, at 1.7]. In some situations the lawyer must first receive the appropriate organizational consent for the dual representation.  See Innes v. Howell Corp., 76 F.3d 702 (6th Cir. 1996) (attorney for corporation does not automatically represent corporation's constituents in their individual capacities, even on same matters, but rather there must be clear consent).

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

KRPC 1.13 Comments [11] and [12] explain:

"Under generally prevailing law, the shareholders or members of a corporation may bring suit to compel the directors to perform their legal obligations in the supervision of the organization. Members of unincorporated associations have essentially the same right. Such an action may be brought nominally by the organization, but usually is, in fact, a legal controversy over management of the organization.

"The question can arise whether counsel for the organization may defend such an action. The proposition that the organization is the lawyer&'s client does not alone resolve the issue. Most derivative actions are a normal incident of an 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, 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."

There are no other Kentucky authorities that elaborate upon these principles.

1.13:520   Representing Client with Fiduciary Duties

In representing a fiduciary of an estate or trust, the lawyer&'s client is the fiduciary, and not the estate, trust, or beneficiaries.  The fact that a fiduciary has obligations to the beneficiaries does not in itself either expand or limit the lawyer&'s obligations to the fiduciary, nor does it impose on the lawyer obligations toward the beneficiaries that the lawyer would not have toward other third parties. The lawyer has a duty to advise parties who are involved with the estate or trust regarding the identity of the lawyer&'s client and the lawyer&'s obligations to that client.  In such a situation the lawyer may represent the fiduciary and the beneficiaries provided the lawyer obtains the consent of all parties after consultation. KBA E-401 (1998).

1.13:530   Representing Government Client

When the client is a governmental organization, since public business is involved, a different balance may be appropriate between maintaining confidentiality and assuring that the wrongful official act is prevented. KRPC 1.13, Comment [6]. In addition, duties of lawyers in these situations may be further governed by statutes and regulations. KRPC 1.13, Comment [6].  Defining the precise identity of the client and prescribing the lawyer&'s resulting obligations may be more difficult since the client is generally not a specific agency, but rather the government as a whole.  For example, in In re Advisory Opinion of Kentucky Bar Ass&'n, 613 S.W.2d 416 (Ky. 1981), the court held that an attorney who represents a police organization in grievances and other civil matters may not practice criminal law in the same jurisdiction.