After resigning as a corporation's counsel over the president's misconduct, can the lawyer represent stockholders suing the corporation?

Plain-English summary

A lawyer's partner had served as both counsel to and a director of two related corporations, A and B, with the same president and overlapping boards. While in those roles he became aware of conduct by the president harmful to both corporations that caused Corporation A to breach its contract with Corporation B. He disclosed his findings at a special directors' meeting and resigned as counsel and director of both. Directors and some minority stockholders then sought his advice, and minority stockholders of Corporation B wanted to take legal action against Corporation A and its president. The inquiry asked how far the firm could ethically participate.

The committee concluded that the lawyer may disclose to interested stockholders relevant facts he learned while a director, but that he or his firm should not give legal advice or act as attorney in legal action against a corporation he had served as counsel and director. It was especially of the view that the firm should not act in the contemplated derivative action. The committee allowed that the partner might perhaps act for stockholders in a suit directed against the president individually, but not against the corporation itself or its officers and directors, and even then careful consideration of confidential or privileged communications would be required. It found the third question, reconciling the director and counsel roles, too broad to handle and perhaps beyond its function, and approved the partner's prompt resignation upon recognizing the conflict.

Currency note

This opinion was issued in 1965, before The Florida Bar's adoption of the 2006 revisions to the Rules of Professional Conduct. It applied the former Canon 6 on adverse and conflicting interests. A lawyer's duties to a former client are now governed by Rule 4-1.9 of the Rules Regulating The Florida Bar, and the representation of organizations by Rule 4-1.13 (Model Rules 1.9 and 1.13). Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against the current rules before relying on any specific requirement mentioned here.

Common questions

Q: Could the lawyer represent the minority stockholders in a derivative action against the corporation?

A: No. The committee especially believed the partner or firm should not act as attorney in the contemplated derivative action against a corporation he had served as counsel and director.

Q: Could the lawyer share what he had learned with the stockholders?

A: The committee believed he could disclose to interested stockholders relevant facts coming to his knowledge while a director, but not act as attorney against the corporation.

Q: Was there any action the lawyer could take for the stockholders?

A: The committee allowed that he might perhaps act in a suit against the president individually, but not against the corporation or its officers and directors, and even then careful attention to confidential or privileged communications would be required.

Background and rules framework

The opinion applied the former Canon 6 on adverse and conflicting interests, in a setting complicated by the lawyer's dual role as corporate counsel and director. Duties to former clients are now addressed by Rule 4-1.9 of the Rules Regulating The Florida Bar, and the special problems of representing an organization by Rule 4-1.13; the Model Rule analogues are Rules 1.9 and 1.13. The conflict arose because the contemplated litigation ran against the very corporations the lawyer had served.

Citations and references

Rules of Professional Conduct:

• Canon 6 [Canons of Professional Ethics; see current Rules 4-1.9 and 4-1.13]

See also

• FL Bar Ethics Op. 68-16: Former Association Counsel Representing an Officer
• FL Bar Ethics Op. 66-22: Firm Conflict When the Opposing Lawyer Joins

Source

• Landing page: https://www.floridabar.org/etopinions/etopinion-65-59/
• Original PDF: https://www-media.floridabar.org/uploads/2017/04/FL-Bar-Ethics-Op-65-59.pdf

Original opinion text

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

FLORIDA BAR ETHICS OPINION
OPINION 65-59
October 18, 1965
Advisory ethics opinions are not binding.
A lawyer who resigns as counsel to a corporation after learning of improper conduct by the president harmful to some of the stockholders is ethically restricted in the extent to which he can act as an attorney in connection with controversies arising from the conduct of the president.
Canon: 6
Chairman Kittleson stated the opinion of the committee:
A member of The Florida Bar has requested the Committee's advice on the situation discussed below. One of his law partners has served as legal counsel to, and a director of, two corporations, Corporation A and Corporation B. As a result of a reorganization, Corporation A assumed certain of Corporation B's obligations and became the majority and controlling stockholder of Corporation B. The same person is president of both corporations, and the same persons constitute a majority of each corporation's board of directors. While serving as a director of and counsel to each corporation, his partner became aware of certain conduct on the part of the president that was harmful to both corporations and which resulted in a breach by Corporation A of its contract with Corporation B. At a special meeting of the directors of both corporations, his partner (speaking as a director) disclosed his findings pertaining to the president's conduct and then resigned as counsel to and director of both corporations. Since then, several directors of both corporations have been seeking legal counsel from the partner (or the firm) on the problem, and some of the minority stockholders of Corporation B have expressed a desire to take legal action against Corporation A and its president. The lawyer here is concerned about the extent to which his firm can ethically participate in the problems and controversies. Specifically, he seeks advice on these questions: (1) May his partner continue to give requested advice to stockholders and directors of the affected corporation where this advice would necessarily be based upon knowledge that he acquired as counsel to and a director of both corporations? (2) May his partner represent minority stockholders in a derivative action contemplated by them? (3) How can his partner reconcile his responsibilities as a director with his responsibilities as corporate counsel?
The Committee believes that this lawyer may disclose to the interested stockholders any relevant facts coming to his knowledge while a director of the affected corporation, but that he (or his firm) should not give legal advice or otherwise act as attorney in legal action against a corporation which he has served as counsel and director, under the circumstances discussed above. The Committee especially believes that the partner (or the firm) should not act as attorney in a derivative action, which is indicated as a remedy contemplated by the minority stockholders. The partner may, perhaps, act for stockholders in a suit directed against the president individually but not against the corporation itself or its officers and directors. Even here, careful consideration would be required on the subjects of confidential or privileged communications.

The Committee believes that the third question is too broad for the Committee to handle satisfactorily and is, perhaps, beyond the scope of the Committee's proper function.
The Committee believes that the best interests of the profession will be served if the partner and the firm refrain from further involvement, as lawyers, in the controversy. If they continue participation as lawyers, there is real risk of public misunderstanding; someone will feel that the partner is taking unfair advantage of knowledge acquired while in the service of the corporation. The matter is complicated by his two corporate hats, one as director and one as counsel.
The Committee approves the partner's action in resigning as director of and counsel to both corporations, promptly upon his recognizing the conflict.