ETHICS OPINION 549-1966 CONFLICTING INTERESTS

NUMBER 549

QUESTION

 

The direct question proposed is, Under the circumstances set forth below, can this firm properly represent A in an action to be brought by him against A Incorporated?

 

The facts are these About 30 years ago, A commenced a business with B, The business was organized in corporate form under the name “A Incorporated” A was the President and active manager, and B was the “money man.” They shared ownership of the common stock equally, but the money put up by B was by way of purchase of preferred stock. The business was successful, and the preferred stock has long since been retired Some 2 or 3 years ago B indicated to A that he would like to have B, Jr his son) enter the business, with the idea of eventually taking it over and operating it, Since A and B were not getting any younger and since A had no children, A was quite agreeable to this proposal, knowing that B has substantial assets with which to acquire A’s interest

 

Negotiations were commenced and in January of 1965, A sold his entire right, title, and interest in A Incorporated to B. In accordance with agreement whereby A was to remain President and director until the year 1968 at an agreed compensation, A continued to so act.

 

It soon became apparent that B and B, Jr, were anxious to discontinue A’s association with the Company, so that B, Jr could step in and take command While A was on vacation in Florida in January, 1966, we are informed by A that A Incorporated purported to hold a directors’ meeting, No notice was given to A, and he was removed from office as President. A was no longer permitted on the premises of A Incorporated There continues to be owing back salary to A, and substantial damages by reason of the breach of the employment agreement.

 

“This firm has represented A personally for many years and was retained by A to represent the company. It is, of course, acquainted with the affairs of the company, including its corporate records. At the present time, there are 2 or 3 small matters pending which are financially insignificant to the company, and in which we appear for it.

 

“In view of the fact that we felt that our loyalty properly lay with A, we informed B several times of our desire to be relieved as company counsel and to be substituted by counsel of his choice. Neither B nor the company has acted on our request. During the years, the firm has had its relationships entirely with A and the rare contacts with B or B, Jr., have not been significant. At the time of the breach, B and B, Jr., indicated that they would like us to continue to represent A Incorporated, but we made it clear immediately that this was impossible. We expect to move to be relieved of our assignments for the company.

 

“The question is ethically may we represent A in an action to recover back salary and pecuniary damages, in view of the fact that A Incorporated as well as B and B, Jr., and another will be named as defendants in the action”?

 

The following additional information was furnished by telephone by the writer of the above letter:

 

In connection with the transaction pursuant to which “A” sold his entire interest in A, Incorporated to “B”, the writer of the letter represented “A” “B” was represented by separate counsel who also acted for A Incorporated.

 

The writer of the letter has not asked “B” or A Incorporated to consent to his acting for “A” But believes that such consent might be forthcoming.

 

ANSWER.

 

While the firm continues to represent A Incorporated, it cannot properly counsel A as an adverse party, for such conduct would be in contravention of Canon 6, The controlling principle was originally stated by this Committee in answer to Question No. 350 and quoted with approval in answer to Question No. 450:

 

“Maintenance of public confidence in the Bar requires an attorney who has accepted representation of a client to decline, while representing such client, any employment from an adverse party in any matter even though wholly unrelated to the original retainer.”

 

After the firm has been relieved of its present retainer with A Incorporated, by reason of the proscription of Canon 37 it yet may not properly counsel A as an adverse party if the same would possibly require the utilization of information acquired pursuant to its professional relationship with A Incorporated. See opinions of this Committee Nos. 534 and 472.

 

Herein it is well to note the distinction between representation of one whose interests are in conflict with those of another client and representation of one whose interests are in conflict with those of a former client. In the first instance, mere identification of the parties as clients is sufficient to preclude an attorney from acting in a manner adverse to the interests of either; and, this result must obtain irrespective of the matters in issue or the possibility of a breach of confidence, In the second instance, it is only the possibility that the matters in issue will relate to information previously obtained which forbids representation of interests adverse to those of a former client.

 

On the basis of the facts stated this Committee is of the opinion that the firm may properly represent A in the proposed action in the event that it obtains the express consent of A Incorporated, B and B, Jr., to represent A in the proposed action and to utilize therein any information which it may have obtained by reason of its employment by A Incorporated, See opinion of this Committee No, 534 and drinker, Legal Ethics at pp. 120-122.

 

October 14, 1966