Can one lawyer represent both a corporation and its sole owner when a fraud claim is brought against the owner personally?
NY State Bar Ethics Opinion 868: Corporation and Its Sole Owner
Short answer: A lawyer may concurrently represent a corporation and its sole shareholder, director, and officer in prosecuting the corporation's damages claim while also defending that person against a related third-party fraud claim, because on these facts they do not have differing interests.
Disclaimer: This is an advisory ethics opinion. Advisory opinions are not binding; they interpret the New York State Bar Association's rules of professional conduct and are persuasive authority. This summary is for research purposes only and is not legal advice. Verify current rules before acting on any specific guidance.
About this page: The plain-English summary and Q&A below were written by Ezel based on the official opinion. We do not reproduce the opinion text on this page; follow the linked source for the official text, which controls.
Plain-English summary
The attorney represented a corporation in a civil action against a trucking company, alleging the trucker damaged the corporation's antique furniture in transit. The trucker's insurer concluded the claim was fraudulent (believing the antiques were already damaged before shipment), so the trucker filed a third-party claim against the corporation's president personally and referred the matter to the District Attorney for possible prosecution. The president, who is the sole shareholder, director, and officer, asked the attorney to keep representing the corporation and also to represent him personally as a third-party defendant and any criminal defendant.
The committee analyzed the inquiry under Rule 1.13(d), which lets a lawyer for an organization also represent its constituents subject to Rule 1.7, and Rule 1.7(a)(1), which creates a concurrent conflict if the representation involves "differing interests" as defined in Rule 1.0(f). It acknowledged the general principle that differing interests often arise when an organization and an officer are both accused of fraud, because the organization must investigate the officer's conduct, but held that principle has no practical application where the president is the organization's sole owner. If the fraud allegations were proven and the civil action went against the corporation, the financial consequence would pass through to the president as sole owner, so the corporation and president were united in interest in prosecuting the damages claim and opposing the fraud claim.
The committee added that separate counsel for the president would likely benefit the trucker and prejudice both, by losing the advantage of a single attorney shaping a unified strategy and potentially impeding the strategy of having the corporation accept responsibility in any civil settlement or criminal disposition. It cautioned that the conclusion is limited to these facts: it would not necessarily hold with additional shareholders, officers, or directors, and even with a single owner, differing interests may exist between the corporation and its creditors if the corporation is insolvent.
In practice
The opinion holds that, under Rules 1.7 and 1.13(d) as they stood at the time, a lawyer may concurrently represent a corporation and its sole shareholder-director-officer in prosecuting the corporation's property-damage claim while defending that individual against a related third-party fraud claim. The committee grounded the result in the absence of differing interests: because the sole owner bears the corporation's financial consequences, the two are united rather than adverse, and a single lawyer can shape one strategy. The committee expressly limited the holding to the single-owner facts, noting it would not necessarily apply if there were other constituents, and that insolvency could create differing interests between the corporation and its creditors.
Common questions
Q: Can the same lawyer represent both my company and me when we're both sued for fraud?
A: On these facts, yes, where you are the sole shareholder, director, and officer. The committee held that the corporation and its sole owner do not have differing interests under Rule 1.7, because the financial consequences pass through to the owner and they share a common strategy.
Q: Doesn't a fraud accusation usually create a conflict between a company and its officer?
A: Often, yes, but the committee held that principle has no practical application when the officer is the sole owner, because there is no separate corporate interest in investigating the officer.
Q: Would the answer change if the company had other shareholders or was insolvent?
A: Possibly. The committee limited its conclusion to the single-owner facts and noted that additional shareholders, officers, or directors, or an insolvent corporation (creating duties to creditors), could produce differing interests.
Background and rules framework
The opinion interprets New York Rule 1.13(d) (a lawyer for an organization may also represent its constituents, subject to Rule 1.7) and Rule 1.7(a)(1) (concurrent conflicts from "differing interests"), corresponding to ABA Model Rules 1.13 and 1.7, with "differing interests" defined in Rule 1.0(f).
Citations and references
Rules of Professional Conduct:
- MR 1.13 / NY Rule 1.13(d): a lawyer for an organization may also represent its constituents subject to Rule 1.7
- MR 1.7 / NY Rule 1.7(a)(1): concurrent conflict where the representation involves differing interests
- NY Rule 1.0(f): definition of "differing interests"
Cases:
- RSL Commc'ns PLC v. Bildirici, 649 F. Supp. 2d 184 (S.D.N.Y. 2009): directors of an insolvent corporation owe fiduciary duties to creditors
See also
- NY State Bar Ethics Op. 867: Representing Lender and Seller in a Home Sale
- NY State Bar Ethics Op. 874: Prosecutor-Defender Conflict
- NY State Bar Ethics Op. 871: Opposing a Former Client
Source
- Landing page: https://nysba.org/ethics-opinion-868/