Can a lawyer represent a corporate subsidiary while suing its parent company in a separate, unrelated matter?

Plain-English summary

A firm asked whether a lawyer could represent a wholly owned subsidiary of a publicly traded parent and then institute separate litigation against the parent, where the parent and subsidiary are separate corporate entities, and what additional facts might create a conflict given that separate corporate identity would normally eliminate a conflict under Rule 1.7.

The Disciplinary Commission concluded the lawyer may represent the subsidiary while suing the parent in separate litigation if the subsidiary and parent are separate corporate entities; the lawyer may represent both in unrelated litigation if both have separate corporate identities, there is no risk that confidential information will be misused, and the subsidiary representation is not limited by the parent litigation. The opinion relied on Rule 1.13, which treats an organizational client as a legal entity, so the entity (not its officers, directors, employees, shareholders, or other constituents) is the client; on that view a parent owning 100% of a subsidiary's stock is still a shareholder and constituent of the subsidiary. The opinion cited California State Bar Ethics Opinion 1989-113 and its own RO-90-96, which held a firm could represent a plaintiff against an insurance company that was a subsidiary of a large corporation even though the firm represented other subsidiaries in unrelated litigation, so long as each subsidiary had its own corporate identity and there was no risk of misusing confidential information.

The opinion noted that the entity theory has more validity when applied to large, publicly held corporations, quoting Professor Wolfram's Modern Legal Ethics that in a sole-owner or closely held corporation the distinction between entity and shareholders can blur or merge. The Commission concluded a lawyer may sue a corporation that is a wholly owned subsidiary of an existing corporate client so long as the parent is not the alter ego of the subsidiary, citing also Maryland State Bar Ethics Opinion 87-19.

Currency note

This opinion was issued in 1992, before the 2002 Ethics 2000 revisions to the ABA Model Rules of Professional Conduct and Alabama's subsequent amendments to its Rules of Professional Conduct. Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule, deadline, or requirement mentioned here.

Common questions

Q: Can a lawyer sue a corporate parent while representing its subsidiary?

A: Per the opinion, yes, if the parent and subsidiary are separate corporate entities, there is no risk confidential information will be misused, and the subsidiary representation is not limited by the parent litigation.

Q: Why does separate corporate identity matter to the conflict analysis?

A: The opinion applied Rule 1.13's entity theory: the organization itself is the client, so a parent that owns the subsidiary's stock is a constituent of the subsidiary rather than the same client, provided the corporate identities are genuinely separate.

Q: Does the entity theory apply equally to small, closely held corporations?

A: The opinion stated the entity theory has more validity for large, publicly held corporations and that in a closely held or sole-owner corporation the line between the entity and its shareholders can blur; the parent must not be the alter ego of the subsidiary.

Background and rules framework

The opinion interprets Rule 1.7 (Model Rule 1.7, conflict of interest) and Rule 1.13 (Model Rule 1.13, organization as client) of the Alabama Rules of Professional Conduct, applying the entity theory of corporate representation to a parent/subsidiary structure.

Citations and references

Rules of Professional Conduct:

• Model Rule 1.7 / Ala. R. Prof. C. 1.7 (conflict of interest)
• Model Rule 1.13 / Ala. R. Prof. C. 1.13 (organization as client; entity theory)

Cases:

• In re Brownstein, 602 P.2d 655 (cited via Wolfram for treating a closely held corporation and its shareholders as inseparable for conflict purposes)

Other opinions cited:

• RO-90-96: firm may sue an insurance-company subsidiary while representing other subsidiaries in unrelated matters
• California State Bar Ethics Opinion 1989-113
• Maryland State Bar Ethics Opinion 87-19

See also

• AL Ethics Op. 1992-21: representing a new client adverse to a current client
• AL Ethics Op. 1991-08: a firm may not choose between conflicting present clients

Source

• Landing page: https://www.alabar.org/office-of-general-counsel/formal-opinions/1992-20/
• Original PDF: https://www.alabar.org/assets/2019/02/RO-92-20.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain; the linked PDF is authoritative.

The official PDF appends a reprint of RO-90-96; that attachment came through the scan too garbled to reproduce faithfully and is available in the linked source. Only the main opinion (RO-92-20) is reproduced below.

ETHICS OPINION

RO-92-20

QUESTION:

"By this letter, our firm requests a written opinion from the Alabama State Bar through its general counsel concerning the following question of conflict of interest in the context of corporate representation under the following facts:

May a lawyer represent a wholly owned subsidiary of a publicly traded parent company and then institute separate litigation against the parent company. For purposes of this question, the parent company and the wholly owned subsidiary are separate corporate entities. Further, what other facts or circumstances, if found to exist, would create a conflict of interest assuming that the separate corporate identities of these two corporate entities would normally, in and of itself, eliminate a conflict of interest under the general rule provided in Rule 1.7 of the Alabama Rules of Professional Conduct.

Our firm would appreciate your written opinion in this regard and is awaiting that written opinion before making its decision to undertake representation of a prospective client in an action against the parent or holding company referred to above which is a separate corporate entity from the firm's existing corporate client. Please let me know if any additional information would be of assistance or necessary in order for your office to provide its written opinion in this regard."

ANSWER:

You may represent a wholly owned subsidiary of a publicly traded corporation while, at the same time, instituting litigation against the parent company if the subsidiary and parent are separate corporate entities. You may represent both entities in unrelated litigation if both entities have separate corporate identities, there is no risk that confidential information will be misused, and your representation of the subsidiary is not limited by your litigation involving the parent.

DISCUSSION:

Rule 1.13 of the Alabama Rules of Professional Conduct recognizes that an organizational client is a legal entity and thus, the entity is the client as opposed to its officers, directors, employees, shareholders, or other constituents. Consequently, the parent corporation, even when it owns 100% of the stock of the subsidiary, is still a shareholder and constituent of the subsidiary. See California State Bar Ethics Opinion 1989-113 (7/6/90).

The Disciplinary Commission of the Alabama State Bar reached a similar conclusion in RO-90-96 (incorporated and made a part of this opinion) when it held that a law firm may represent a plaintiff in a suit against an insurance company that is a subsidiary of a large corporation, even though the firm represented other subsidiaries of the corporation in unrelated litigation, if each subsidiary has its own corporate identity and there is no risk that the firm will misuse confidential information.

From a practical standpoint, the entity theory has more validity when applied to large publicly held corporations. Professor Wolfram addressed this point in his Hornbook on Modern Legal Ethics, as follows:

"The position of the Code and the Model Rules, that the lawyer represents only the corporate entity, makes sense primarily in the setting of large, publicly held corporations. As corporate stock ownership is concentrated in fewer and fewer hands, the distinction between corporate entity and shareholders begins to blur. In the case of a sole-owner corporation, they may merge. Often a lawyer for such a corporation will provide personal legal services for corporate principals interchangeably with services to the corporate entity. In recognition of that common reality, one court has held that for conflict of interest purposes, a small and closely held corporation and its shareholders are to be treated as virtually identical and inseparable."

Wolfram, Modern Legal Ethics, West Publishing (1986) p.422, citing In re Brownstein 602 P.2d 655, 656-657.

Thus, a lawyer may represent a client in an action against a corporation that is a wholly owned subsidiary of an existing corporate client so long as the parent corporation is not the alter ego of the subsidiary. See also Maryland State Bar Ethics Opinion 87-19.

RWN/vf

9/22/92