Can a lawyer who is a principal in an entertainment management company also represent that company's clients through the law firm?

Plain-English summary

A lawyer is a principal in an entertainment management company. The committee was asked whether the lawyer, through the law firm, may represent clients who are also separately represented by the management company. The committee concludes the Code imposes no per se prohibition, but the conflict rules limit which matters the firm may handle.

The committee works through DR 1-106, which governs a lawyer's provision of non-legal services through a controlled entity. Notifying the client under DR 1-106 can waive application of the Disciplinary Rules to the non-legal services, but DR 5-101(A) continues to govern the legal services and bars the firm from offering non-legal services where doing so creates an impermissible conflict with the legal representation. So where the management company provides non-legal services to a firm client, the firm may continue the legal representation only if a disinterested lawyer would believe it will not be adversely affected and the client consents after full disclosure of the lawyer's interest in the management company.

Applying that, the committee draws on its broker line of opinions (and N.Y. State 752, 753, and 755): a lawyer cannot act as both lawyer and broker in the same transaction, because the broker's interest in closing the deal interferes with rendering independent legal advice. So while neither arrangement is barred per se, there will be particular transactions where it is improper for the firm to represent the client, and identifying them may turn on the dollar value and how the management company is compensated. The committee's example: the firm could not represent the client on a valuable endorsement agreement the management company is negotiating where the company's commission (perhaps ten percent of millions) dwarfs the legal fee, because the company's interest in closing would interfere with independent advice. Other services (estate planning, real property transactions where no one is acting as broker, and tax services) generally could be provided without violating DR 5-101. The committee also notes that if the management company and the client's business form a new entity, that formation is a business transaction subject to DR 5-104(A).

In practice

Under the New York Code as it stood at the time, the opinion holds that a lawyer-principal in a management company may represent the company's clients through the firm in some matters but must decline any transaction where the company's stake in closing the deal would impair the firm's independent legal judgment, a determination the committee ties to the deal's value and the company's compensation structure. The committee identifies commission-based, high-value transactions (its endorsement-agreement example) as the paradigm of an impermissible matter, while estate planning, non-brokered real property work, and tax services are generally permissible. Forming a joint entity with the client triggers the DR 5-104(A) business-transaction requirements.

Common questions

Q: Is it categorically improper for a lawyer to represent clients of a management company the lawyer owns?

A: No. The committee finds no per se prohibition, but DR 5-101(A) bars representation in matters where the management company's interest would adversely affect the lawyer's independent judgment, absent disinterested-lawyer approval and client consent.

Q: Which transactions are off-limits?

A: Those where the company's interest in closing the deal interferes with independent legal advice. The committee's example is a high-value, commission-based endorsement agreement the company is negotiating, where the commission dwarfs the legal fee.

Q: What matters can the firm generally still handle for those clients?

A: The committee lists estate planning, real property transactions where neither the lawyer nor the company is acting as broker, and tax services as generally permissible without violating DR 5-101.

Q: What if the management company and the client form a new business entity?

A: The committee states that forming such an entity is a business transaction subject to DR 5-104(A)'s requirements, and the firm's ability to handle resulting transactions is still controlled by DR 5-101(A).

Background and rules framework

The opinion applies New York's former Code of Professional Responsibility. DR 1-106 governs a lawyer's provision of non-legal (ancillary) services (analogous to Model Rule 5.7). DR 5-101(A) governs personal and business-interest conflicts (a facet of Model Rule 1.7), and DR 5-104(A) governs business transactions with a client (analogous to Model Rule 1.8(a)). The analysis builds on N.Y. State 752, 753, and 755 (2002) and the broker line of opinions.

Citations and references

Rules of Professional Conduct:

• MR 1.7 (personal and business-interest conflicts); NY DR 5-101(A)
• MR 1.8(a) (business transactions with a client); NY DR 5-104(A)
• MR 5.7 (responsibilities regarding non-legal services); NY DR 1-106

Other opinions cited:

• N.Y. State 752, 753, 755 (2002): non-legal services under DR 1-106 and the lawyer-broker limits
• N.Y. State 536 (1981); N.Y. State 619 (1991): lawyer cannot act as both lawyer and broker in the same transaction

See also

• NY State Bar Op. 1155: Dual practice as lawyer and financial planner
• NY State Bar Op. 1117: Lawyer as broker and attorney in the same deal
• NY State Bar Op. 1093: Dual practice with a foreign nonlawyer partnership

Source

• Landing page: https://nysba.org/ethics-opinion-784/