My firm represented a company on permits for a real estate project. The company sold its assets to a new corporation with different owners, and some of the old company's disgruntled shareholders are threatening to challenge the sale. Can we now represent the new owner on the same permits?

Plain-English summary

Two inquiring attorneys had provided legal services to Corporation A regarding municipal and state environmental permits for a real estate development. Corporation A was sold to newly created Corporation B, owned by the same four principals, and the attorneys continued the permit work for Corporation B until the project was abandoned for financial reasons. Corporation B later conveyed its assets, including the real estate, to Corporation C, an existing entity with different principals and shareholders. Corporation C asked the same attorneys to represent it on the same permits for the same project. Two of Corporation B's disgruntled former principals objected to the sale to Corporation C and were expected to pursue litigation to void it.

The panel concluded the interests of Corporation C are not adverse to those of the former client, Corporation B, so there is no Rule 1.9 conflict, and the attorneys may represent Corporation C in obtaining the permits. Applying Rule 1.9, the panel found the proposed representation of Corporation C on the permits is the same or a substantially related matter to the prior representations of Corporations A and B, but the adversity in the brewing dispute runs between the two dissenting former constituents of Corporation B on one side and the remaining constituents and Corporation C on the other, not between Corporation B and Corporation C themselves. The panel also invoked Rule 1.13's principle that a lawyer for an organization represents the entity acting through its duly authorized constituents, noting the attorneys' prior attorney-client relationships ran to Corporation B itself, not to its individual constituents, so no attorney-client relationship existed with the dissenting individuals that could be adverse to the new representation.

In practice

The opinion holds that, under the Rhode Island rules as they stood at the time of the opinion, a lawyer who previously represented a corporation on a matter may represent the corporation's successor owner on the same matter without a Rule 1.9 conflict where the successor's interests are not adverse to the former corporate client's, even though disgruntled individual constituents of the former client oppose the underlying sale, because the lawyer's prior attorney-client relationship ran to the entity and not to those individual constituents under Rule 1.13.

Common questions

Q: If a company we represented sells its assets to a new owner, can we represent the new owner on the same matter?

A: According to this opinion, yes, so long as the new owner's interests are not adverse to the former corporate client's, even if the representation is the same or substantially related matter under Rule 1.9.

Q: Do objections from a former corporate client's individual shareholders create a conflict with representing the successor?

A: Not on these facts, according to the panel; the adversity ran between the dissenting shareholders and the successor and remaining constituents, not between the former corporate client and the successor, and the attorneys had no attorney-client relationship with the individual constituents under Rule 1.13.

Q: Who is the client when a lawyer represents a corporation?

A: Per Rule 1.13 as applied in this opinion, the lawyer represents the organization acting through its duly authorized constituents, not the individual constituents themselves.

Background and rules framework

The opinion applies Rule 1.9(a), (b) (Conflict of Interest: Former Client), quoted in full, which bars representing another person in the same or a substantially related matter where that person's interests are materially adverse to a former client's, absent consent, and bars using the former client's information to its disadvantage. It also relies on Rule 1.13(a) (Organization as Client), which the panel quotes for the principle that a lawyer for an organization represents the entity through its duly authorized constituents.

Citations and references

Rules of Professional Conduct:

• MR 1.9(a), (b) (Conflict of Interest: Former Client) / RI Rule 1.9(a), (b)
• MR 1.13(a) (Organization as Client) / RI Rule 1.13(a)

See also

• ABA Formal Op. 95-390: Conflicts of Interest in the Corporate Family Context
• ABA Formal Op. 520: Conveying Information to a Former Client or Successor Counsel
• RI EAP Op. 2005-08: No Rule 1.9 Conflict Representing Both Co-Trustees, and Detailed Engagement-Letter Disclosures Satisfy the Rules
• RI EAP Op. 2002-03: Former-Client Conflict Bars Representing Dissenting School Committee Members, Imputed to the Firm

Source

• Landing page: https://www.courts.ri.gov/attorney-resources/Pages/Ethics-Advisory-Panel-default.aspx
• Original PDF: https://www.courts.ri.gov/Opinions/EAP%202005-10.pdf

Original opinion text

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

Final

              Rhode Island Supreme Court Ethics Advisory Panel
              Opinion No. 2005-10 Requests No. 905 and No. 906
                          Issued November 10, 2005

Facts

    Two inquiring attorneys provided legal services to Corporation A relative to permits

necessary for the development of real estate owned by the corporation. One inquiring attorney
provided legal services relating to municipal permits; the other provided legal services relating to
state environmental permits. Corporation A was then sold to a newly created corporation,
Corporation B, which consisted of the same four principals and shareholders as Corporation A.
The inquiring attorneys then also provided legal services to Corporation B relative to the permits
for the original development project which Corporation B took over, but eventually abandoned
because of financial reasons.

   Subsequently, Corporation B conveyed its tangible and intangible assets to Corporation

C, an existing entity. The principals and shareholders of Corporation C are different from those
of Corporation B. Corporation C wishes to proceed with the original development project, and
has asked the inquiring attorneys to represent it relative to the necessary state and municipal
permits.

    Meanwhile, however, two of the principals/shareholders of Corporation B, disgruntled by

the decision to sell Corporation B's assets, have raised objections to the sale to Corporation C,
and will likely pursue litigation in an attempt to void the sale. The real estate being developed
which was the primary asset of Corporation B, was conveyed from Corporation B to Corporation
C by warranty deed. The deed was signed by an authorized representative of Corporation B.
The two disgruntled individuals have voiced opposition to the representation of Corporation C
by the inquiring attorneys.

Issue Presented

  The inquiring attorneys ask whether it would be a conflict of interest to represent

Corporation C in obtaining permits for the real estate development project.

Opinion

    The interests of Corporation C are not adverse to those of the former client, Corporation

B, and therefore there is no conflict of interest pursuant to Rule 1.9. The inquiring attorneys may
represent Corporation C in obtaining permits for the real estate development project.

Reasoning

    Two Rules of Professional Conduct apply to this inquiry: Rule 1.9 entitled "Conflict of

interest: Former client," and Rule 1.13 entitled "Organization as client." Rule 1.9 states:
Final 2005-10
Request 905 and 906
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          Rule 1.9. Conflict of Interest: Former Client. - A lawyer who has

formerly represented a client in a matter shall not thereafter:

                   (a) represent another person in the same or a
                   substantially related matter in which that person's
                   interests are materially adverse to the interests of the
                   former client unless the former client consents after
                   consultation; or

                   (b) use information relating to the representation to
                   the disadvantage of the former client except as Rule
                   1.6 or Rule 3.3 would permit or require with respect
                   to a client or when the information has become
                   generally known.

    In the instant inquiry the proposed representation of Corporation C relating to permits for

the real estate development project is "the same or a substantially related matter" in which the
inquiring attorneys represented Corporations A and B. However, in the dispute that has arisen
about the sale of Corporation B's assets, the interests of Corporation B are not adverse to those
of Corporation C. Rather, the adversity in this dispute runs between two dissenting constituents
of Corporation B and the remaining two constituents, and also between the two individual
dissenters and Corporation C.

   Rule 1.13 is instructive. In pertinent part it states:

           Rule 1.13. Organization as Client. –

                 (a) A lawyer employed or retained by an organization
                  represents the organization acting through its duly
                  authorized constituents. (Emphasis added.)

    The attorney-client relationships in the former representations ran between the

inquiring attorneys respectively and Corporation B. There existed no attorney-client
relationship between the inquiring attorneys and the individual constituents of
Corporation B.

            The Panel concludes that, insofar as the interests of Corporation C are not

adverse to those of the inquiring attorneys' former client Corporation B, there is no
conflict of interest pursuant to Rule 1.9. The Panel advises that the inquiring attorneys
may represent Corporation C relative to permits for the real estate development project.
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Request 905 and 906
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