Can a lawyer for dissenting shareholders or directors discuss pending litigation with members of a corporation's board when the corporation is represented by counsel who has not consented?

Plain-English summary

The Committee was asked whether it was improper for an attorney representing two corporate directors individually in a shareholder derivative action to discuss the pending litigation with other board members when the corporation was represented by both corporate counsel and separate litigation counsel who had not consented. The opinion concluded the communication violated DR 7-104(A)(1), the rule barring a lawyer from communicating about the subject of a representation with a party the lawyer knows to be represented by counsel, absent that counsel's consent or authorization by law.

On the facts, the attorney met with seven of the thirteen directors, including four "disinterested" directors who were eligible for and later appointed to the corporation's special litigation committee, without seeking consent from or notifying corporate or litigation counsel. The opinion reasoned that the corporation was an opposing party, so its officers and directors were also parties, except those who had chosen to be plaintiffs. Drawing on ABA Informal Opinion 1410 and on authority including Wright by Wright v. Group Health Hospital, the opinion treated as "parties" those constituents with authority to bind the corporation or whose statements could be imputed to it as admissions, and noted the three-factor test from Los Angeles County Bar Opinion 369 for identifying such persons. It also reviewed its own prior opinions (71-1, 72-2, 78-4, and 84-11) applying the rule to organizational constituents.

The opinion held it was irrelevant that the contact was initiated by a director rather than by the attorney, because the duty under DR 7-104(A)(1) falls on the attorney, not on a layperson who may not understand the rule. The opinion recognized that a board faction has the right to retain its own counsel, but found that principle did not control here, where four of the directors at the meeting were disinterested. Even if a non-client director wished to speak with the attorney, the opinion concluded the attorney was obligated to decline; the attorney should not have met with the board and instead should have advised that the board take up the matter with its own counsel.

Currency note

This opinion was issued in 1990, before the Alaska Bar Association's adoption of the 2009 revisions to the Alaska Rules of Professional Conduct (and before Alaska adopted the Rules of Professional Conduct at all; it applies the former Code of Professional Responsibility and refers to a version of the Model Rules then only pending before the Alaska Supreme Court). 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: Are a corporation's directors "parties" a lawyer cannot contact when the corporation is represented?

A: The opinion concluded that directors and officers with authority to bind the corporation, or whose statements could be imputed to it, are parties under DR 7-104(A)(1), so opposing counsel may not communicate with them without corporate counsel's consent.

Q: Does it matter if a board member asks the lawyer to meet?

A: No. The opinion held it was irrelevant that the contact was initiated by a director, because the duty not to communicate falls on the attorney, not on the layperson.

Q: Doesn't a dissenting faction of the board have the right to its own lawyer?

A: The opinion recognized that a board faction may retain its own counsel, but concluded that principle did not authorize the lawyer to meet with directors who were not his clients, including the disinterested directors present here.

Q: What should the lawyer have done?

A: The opinion concluded the lawyer should not have met with the board, and should have advised that the board take the matter up with its own counsel.

Background and rules framework

The opinion interpreted DR 7-104(A)(1) of the former Alaska Code of Professional Responsibility, the no-contact rule that is the analog of Model Rule 4.2, and noted that Model Rule 4.2's comment (essentially the same as the disciplinary rule) reaches persons with managerial responsibility and any other person whose act or omission may be imputed to the organization. It applied that framework to the directors of a corporate party in active litigation.

Citations and references

Rules of Professional Conduct (former Code; cf. Model Rules):

• DR 7-104(A)(1) (communication with a represented party) (cf. Model Rule 4.2)

Cases:

• Wright by Wright v. Group Health Hospital, 103 Wash. 2d 192, 691 P.2d 564 (Wash. 1984), defining "party" as employees with authority to bind the corporation
• United States v. Jamil, 546 F. Supp. 646 (E.D.N.Y. 1982), the rule applies regardless of who initiates contact
• Abeles v. State Bar, 9 Cal. 3d 603, 510 P.2d 719 (Cal. 1973), "party represented by counsel" defined broadly
• Korea Shipping Corp., 621 F. Supp. 164 (D. Alaska 1985)

Other opinions cited:

• ABA Informal Opinion 1410 (1978); Los Angeles County Bar Opinion 369 (1977); Illinois State Bar Opinion 85-12 (1986); Alaska Ethics Opinions 71-1, 72-2, 78-4, 84-11

See also

• Alaska Ethics Op. 91-1: Contacting Former Employees
• Alaska Ethics Op. 94-1: Contacting a Government Board
• ABA Formal Op. 06-443: Contacting Inside Counsel

Source

• Landing page: https://alaskabar.org/ethics-discipline/ethics-opinions/adopted-ethics-opinions-chronological/
• Original PDF: https://alaskabar.org/wp-content/uploads/90-1.pdf

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

ALASKA BAR ASSOCIATION
ETHICS OPINION 90-1
Attorney Representing Dissenting
Shareholders/Directors Communicating with Board
of Directors without Consent of Corporation's Attorney
The Committee has been requested to give an opinion as to whether it is
improper for an attorney who represents two corporate directors, in their
individual capacity, in a shareholder derivative action to discuss matters
relating to the pending litigation with other board members when the
corporation is represented by both corporate counsel and retained litigation
counsel who have not consented to the communication. It is the opinion of the
Committee that the communication is in violation of Disciplinary Rule 7104(a)(1) of the Code of Professional Responsibility.
Disciplinary Rule 7-104(A)(1) provides as follows:
During the course of his representation of a client, a lawyer shall
not:
(1) communicate or cause another to communicate on the subject
of the representation with a party he knows to be represented by a
lawyer in that matter unless he has prior consent of the lawyer
representing such party or is authorized by law to do so.
Attorney originally represented three dissenting shareholders who sued a
corporation, three board members, and a corporate employee, on their own
behalf and in the form of a shareholder's derivative suit, to set aside a
corporate transaction. Two of the plaintiffs and the daughter of a third plaintiff
were subsequently elected to the board of directors, along with other directors
who shared their view. At the time in question, the board was deeply and
approximately evenly divided on the propriety of the corporate transaction. The
lawsuit was active. The corporation had a corporate attorney, and had also
retained a separate litigation attorney to represent the corporation in the
lawsuit. The board had also created a special litigation committee to determine
what the corporation's position should be on the transaction in question. The
committee's membership consisted of all available disinterested directors.

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At a point when the litigation was very active, and important decisions
needed to be made quickly, the attorney met with seven of the thirteen
corporate directors. The attorney received a request to so meet from his client,
who was one of the corporate directors and a plaintiff in the derivative lawsuit.
This plaintiff/director was present at the meeting. The other six directors
present at the meeting consisted of the director/corporate president who was
the daughter of a plaintiff, an additional client/plaintiff/director, and four
disinterested directors who were eligible for and subsequently appointed to the
litigation committee. The attorney did not seek the consent of the corporate
counsel or the litigation counsel prior to the meeting, nor did the attorney
notify either one that the meeting would take place.1 The specific issue
presented by this opinion request is the extent to which corporate directors are
parties in litigation involving the corporation. A related question is how the
ethical conduct of the attorney is affected by the principle that factions of a
corporate board, such as dissenting directors or minority shareholders, have
the right to obtain legal counsel of their own choosing to advise them or to
represent their own interests.2
The corporation was an opposing party in the litigation. Therefore, so
were its officers and directors, except those who chose to be plaintiffs.
ABA Informal Opinion 1410 (2/14/78) states:
If the officers and employees that you propose to
interview could commit the corporation because of their
authority as corporate officers or employees or for some
other reason the law cloaks them with authority, then
they, as alter egos's of the corporation, are parties for
the purpose of DR 7-104(A)(1)...It accordingly, is the

1The Ethics Committee normally does not issue opinions with respect to past

conduct. An exception is being made here at the specific request of the Board
of Governors.
2In the situation under discussion, it is clear that the communication was on

the subject of the representation. Additionally, there is no dispute regarding
the attorney's knowledge that the corporation was represented by both a
corporate and a litigation attorney, and that no prior consent was obtained or
notice given to either with respect to the meeting.

opinion of this committee that no communication with
an officer or employee of a corporation with the power to
commit the corporation may be made by opposing
counsel unless he has the prior consent of the
designated counsel of the corporation, or unless he is
authorized by law to do so.
The comment to Model Rule 4.2, which is essentially the same as DR 7104(A)(1), states that the rule applies to communications with persons having a
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managerial responsibility on behalf of the organization, and with any other
person whose act or omission in connection with that matter may be imputed
to the organization.
The Committee has previously addressed inquiries raising somewhat
similar issues. In Alaska Bar Association Ethics Opinion No. 71-1, the
Committee advises that:
[A]attorneys may ethically communicate with employees
of a governmental entity, so long as that communication
is not made with employees of the entity who may
reasonably be thought of as representing the entity in
matters relating to the matter in controversy, and as
long as the lawyer reveals to the employee his identity
and representation and the connection between the
representation and the communication.
Alaska Bar Association Ethics Opinion No. 72-2 involved interviews
conducted by a member of the legal staff of the Alaska Department of Law with
members of the governing body of an Alaska community to determine whether
Alaska Legal Services had the authority to bring suits on the community's
behalf. That opinion concludes that there was no justification for the contact.
The opinion makes no distinction because members were contacted
individually rather than as a body.
In Opinion No. 78-4, the Alaska Bar Association Ethics Committee
interpreted DR 7-104(A)(1) to prohibit communication between a plaintiff's
attorney and a claims representative of a defendant's insurer. Finally, in
Ethics Opinion 84-11 the committee referred to Ethics Opinion 71-1 and the
comment to Rule 4.2 of the American Bar Association Model Rules of
Professional Conduct to determine that, under the factual circumstances
presented, an attorney could communicate with the Juneau Teleconference
Manager for the State of Alaska, without consent of State attorneys, because
that employee was not a person having a managerial responsibility; that acts or
omissions of that employee would not be imputed to the state agency or named
defendants for purposes of civil liability;

and the employee's statements would not constitute an admission on the part
of the organization.
A three-factor test was developed by the Los Angeles County Bar
Association in their Opinion 369 (11-13-77), to guide its members in the
determination of whether an "employee" is a "party" under Disciplinary Rule 7104(a)(1). The test adopted in that opinion is as follows:
1)
whether the person has authority to negotiate or
otherwise control corporate decisions regarding the
litigation; 2) whether the person's position is such that
an admission by him concerning the subject of the
interview would be binding on the corporation; and 3)
whether the person has access to confidential corporate
information relevant to the subject of the interview. If
these factors indicate the person is closely identified
with management, the opposing attorney must have the
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prior consent of the corporation's counsel to conduct
the interview.
Similarly, the Illinois Bar Committee, quoting from a 1984 Illinois appeals
case said:
. . . a corporate party constitutes only those top
management persons who have the responsibility of
making final decisions and those employees whose
advisory role is to top management, are such that a
decision would not normally be made without those
persons' advice or opinion or whose opinions in fact
form the basis of any final decision.
Illinois State Bar Association committee on professional responsibility,
Opinion 85.12 (4/4/86).
One of the most thorough and most recent discussions regarding the
interpretation of DR 7-104(A)(1) is found in
Wright by Wright vs. Group Health Hosp., 103 Wash 2nd 192, 691 P.2d 564
(1964). That case involved a motion by Plaintiff's attorney in a personal injury
case for a protective order declaring that he had the legal and ethical right to
interview ex parte both current and former employees of the defendant so long
as they were not management employees. In granting the protective order the
court noted the distinction between the attorney-client privilege which would
protect attorney communications with lower level employees from the ethical

rule prohibiting an attorney from communicating ex parte with another
represented party. The purpose for the latter rule is "to prevent situations in
which a represented party may be taken advantage of by adverse counsel." The
court also noted the policy conflict raised by DR 7-104(A)(1) where "[o]n the one
hand there is the need of the adverse attorney for information which may be in
the exclusive possession of the corporation and may be too expensive or
impractical to collect through formal discovery and on the other hand, the
corporation's need to protect itself for the traditional reasons justifying the
rule."
Following a discussion of the various cases and opinions dealing with the
rule, the court held as follows:
We hold the best interpretations of "party" in litigation
involving corporations is only those employees who have
the legal authority to "bind" the corporation in a legal
evidentiary sense, ie: those employees who have
speaking authority for the corporation. This
interpretation is consistent with the declared purpose of
the rule to protect represented parties from the dangers
of dealing with adverse counsel.
Id at 569. That language was included by the District Court for the State of
Alaska in the complaint of Korea Shipping Corp., 621 F.Supp. 164 and 167 (D.
Alaska 1985).
The rule grows out of a recognition that there is an
'imbalance in knowledge and skill' between lawyer and
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layman...(cites omitted). A related purpose of the rule is
to "preserve the proper functioning of the legal
profession" by insuring that in making decisions
relating to a dispute, a client has the benefit of the
advice of the legal experts he has employed to assist
him.
Discipline Rule 7-104(A)(1) is designed to preserve the integrity of the
client-lawyer relationship by protecting the represented party from the skill and
knowledge of the opposing lawyer. United States v. Jamil, 546 F. Supp. 646
(E.D.N.Y. 1982); Powell v. Alabama, 287 U.S. 45 (1932); In re Mussman, 111
N.H. 402, 286 A.2d 614 (1971). The rule is to prohibit lawyers from taking
advantage of persons who are represented by counsel. A layperson with
retained counsel is entitled at all times to the advice and guidance of that
person. In re Atwell,

115 S.W.2d 527 (,p/ 1938). The rule "shields the opposing party not only from
an attorney's approaches which are well intended but misguided."
Abeles v. State Bar. 510 P.2d 719, 108 Cal. Rptr. 359 (Calif. 1973).
The definition of a "party represented by counsel" is defined broadly for
the purpose of DR 7-104(A)(1) in conformity with the purpose of the rule.
United States v. Jamil, 546 F. Supp. 646 (E.D.N.Y. 1982),
United States v. Batchelor, 484 F. Supp. 812 (E.D. Pa. 1980). Where the
opposing party is a corporation, an officer or employee with authority to
commit the corporation is considered a party.
It is not relevant that the contact was not initiated by the attorney.
United States v. Jamil, 546 F. Supp. 646, 658 (E.D.N.Y. 1982), offers the
following explanation why, under DR 7-104 (A)(1), it is irrelevant who initiates
the contact:
. . . DR 7-104(A)(1). . . is not directed solely at
protecting the defendant's rights. The ethical rule is
also intended to enhance an entire profession's ability
to perform its essential functions effectively through the
protective screen it places around the client and the
attorney-client relationship. This relationship may arise
at any time; its existence does not depend upon the
state of the investigation or adversarial proceedings.
Once it is established, the attorney has assumed the
duty to zealously and competently replace the client and
he may be held accountable for faithful performance.
See ABA Canons of Professional Ethics Nos. 6, 7 and 9.
to assign him such broad responsibilities implies that
he will have some measure of control over developments
concerning his client, whether in the nature of
investigation, discovery, settlement or otherwise. No
attorney can insure that his client will not imprudently
sign a release, for example, or divulge privileged
information whether by reason of ignorance or
susceptibility to undue pressure. The Code supplies
the necessary restraint in order to make the attorney's
duty tenable by controlling the conduct of the
adversary's counsel.
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Thus the communication prohibition
remains operative even where a represented

party requests or agrees to communicate in the
absence of his own attorney with opposing counsel.
[citation omitted] [Emphasis added.]
It is clear that the duty of adhering to the Code of Professional
Responsibility falls squarely upon attorneys, and not upon their clients who
would have little or no understanding of the disciplinary rules or the rationale
behind them. To say that an attorney is excused from this strict rule of noncommunication when the adverse party approaches him only serves to
circumvent the purpose of the rule.
In Abeles v. State Bar, 9 Cal.3d 603, 510 P.2d 719, (Cal. 1973) an attorney
received a public reprimand for a violation of a parallel California discipline
provision. In that case, Stein was named as a plaintiff in his capacity as a
business partner. At the defendant's request, Stein met with Abeles, the
defendant's attorney. Stein told Abeles that he was not represented by the
attorney of record and, at Abeles' request, signed an Affidavit denying he had
authorized the filing of the action. Supra at 721. Stein later testified that he
thought he was not personally represented in the lawsuit. Abeles testified that,
because of previous work he had done, he thought Stein was his own client
and that the plaintiffs' attorneys had filed an action without Stein's consent.
The court found that:
A "party represented by counsel" includes a party who
has counsel of record whether or not that counsel was
in fact authorized to act for the party. If the quoted
words were interpreted to include counsel of record only
if such counsel was in fact authorized to act for the
party, harm could result to the attorney-client
relationship and to the administration of justice. Under
the latter interpretation an opposing attorney could deal
directly with a party who was known to the attorney to
have counsel of record, upon a subject of controversy
with impunity in some cases, even though the counsel
of record had actual authority to act for the party, since
it might be impossible to show that the opposing
attorney had knowledge of that authority and willfully
violated rule 12. [Supra at 723]

The Committee recognizes the principle that a "faction" on a board of
directors has every right to obtain legal counsel of its own choosing to
represent that faction's own interests. (See Evans v. Artek Systems Corp., 715
P.2d 788, 792-94 (2nd Cir. 1983);
Yablonski v. United Mine Workers of America, 448 F.2d 1175, 1181 (D.C. Cir.
1971); Financial General Bank Shares, Inc. v. Metzger, 523 F. Supp. 744, 76467 (D.D.C. 1981). In certain circumstances, persons affiliated with the
corporation will have interests which are adverse to those of the corporation
itself, and will need legal advice and representation from an attorney
sympathetic to their cause and whom they trust, rather than from attorneys
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aligned with and loyal to the corporation or a different faction on the board.
The fact that this principle exists, however, does not govern in this case. At the
time of the meeting, four of the directors were supposedly "disinterested"
directors who were subsequently appointed to the litigation committee.
Additionally, even if a non-client director desired to talk to the attorney,
the ethical obligation is on the attorney to refuse to discuss the case with the
non-client director.
In a situation such as present here, where a majority of the board
apparently wanted to meet with the attorney, the attorney should not have met
with the board. The board should have been advised to discuss the matter
with its attorneys and reached an appropriate resolution as to how the matter
should be handled. Such an approach fulfills the purpose of Disciplinary Rule
7-104(A)(1) in that it requires the board to seek the advice and guidance of its
counsel, and protects the board from being taken advantage of, either in an
intentionally improper or well-intended but misguided manner.
Approved by the Alaska Bar Association Ethics Committee on October 25,
1989.
Adopted by the Board of Governors on January 19, 1990.

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