Can in-house counsel for a group of affiliated companies do legal work for all the affiliates and let his employer bill each affiliate for his time?

Currency note

This opinion was issued in 1983, before Tennessee's adoption of the 2003 Rules of Professional Conduct, which replaced the former Code of Professional Responsibility. 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 Treat this page as historical context, not current guidance.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.

Plain-English summary

The Board considered whether in-house counsel to an affiliated group of companies (several limited partnerships and corporations, mostly owned by the same principals) could perform legal services for all the affiliates and let the company that directly employed him bill each affiliate for those services. Counsel drew a set salary from B Company; its accounting department allocated his time to each affiliate, B Company realized no profit on his legal work, and each affiliate bore the cost of his time on its projects.

The opinion recalled Formal Ethics Opinion 83-F-44, which prohibited in-house corporate counsel from letting the corporation bill its customers for his legal services as a violation of Disciplinary Rule 3-101(A) (aiding a non-lawyer in the unauthorized practice of law) and Disciplinary Rule 3-102(A) (sharing legal fees with a non-lawyer), and noted Disciplinary Rule 3-103 (no partnership with a non-lawyer for the practice of law) and the purpose, under Canon 3, of preventing the unauthorized practice of law. On these facts, it found no per se violation of those rules.

The opinion framed the real question as whether in-house counsel allows the employer or others to practice law through him, to regulate, direct, or control his professional judgment, or to intervene in the attorney-client relationship, and said there could be no categorical answer because it depends on the circumstances. To avoid impropriety, it stated, in-house counsel must exercise independent professional judgment for each client-affiliate (Canon 5), maintain a direct attorney-client relationship, devote complete loyalty to the client-affiliate and none to his direct employer, represent each client-affiliate zealously (DR 7-101(A)), preserve confidences and secrets (DR 4-101), make full disclosure of the possible effect of the representation on his independent judgment, and resolve all doubts against the propriety of representation, given the potential or actual conflict in every instance.

Common questions

Q: Can in-house counsel for affiliated companies do legal work for all of them and bill each for his time?

A: Yes, with safeguards. The opinion found "no per se violation" on these facts where the employing company allocates his salaried time to each affiliate without profit, so long as he keeps independent professional judgment and a direct attorney-client relationship with each affiliate.

Q: What must in-house counsel do to keep the arrangement proper?

A: The opinion stated he must "exercise independent professional judgment on behalf of each client-affiliate," have "a direct attorney-client relationship," not let his employer or anyone else "regulate, direct or control his professional judgment," devote "complete loyalty to the client-affiliate and no loyalty to his direct employer," and make full disclosure, resolving all doubts against representation.

Q: Why is the billing arrangement not improper fee-sharing or unauthorized practice?

A: The opinion distinguished Formal Ethics Opinion 83-F-44 (a corporation billing its customers for counsel's legal work) and found "no per se violation" of DR 3-101(A), DR 3-102(A), or DR 3-103 where the employer merely allocates the cost of counsel's salaried time among the affiliates he serves.

Background and rules framework

The opinion applied the unauthorized-practice and fee-sharing provisions of the Tennessee Code of Professional Responsibility (DR 3-101(A), DR 3-102(A), DR 3-103, and Canon 3) together with the independent-judgment, loyalty, zealous-representation, and confidentiality provisions (Canon 5, DR 7-101(A), DR 4-101), building on Formal Ethics Opinion 83-F-44. The modern correlates are Model Rule 5.4 (professional independence of a lawyer), Model Rule 1.13 (organization as client), and Model Rule 1.7 (conflicts of interest), noted here as navigational cross-references rather than rules the opinion itself applied.

Citations and references

Rules of Professional Conduct:

• DR 3-101(A) (aiding unauthorized practice), DR 3-102(A) (sharing fees with a non-lawyer), DR 3-103 (partnership with a non-lawyer), DR 7-101(A) (zealous representation), DR 4-101 (confidences and secrets), Canon 3, Canon 5, Tennessee Code of Professional Responsibility
• Model Rule 5.4 (professional independence), Model Rule 1.13 (organization as client), Model Rule 1.7 (conflicts of interest), modern correlates

Other opinions cited:

• Tennessee Formal Ethics Opinion 83-F-44, in-house corporate counsel may not let the corporation bill its customers for his legal services

See also

• ABA Formal Op. 03-430: Insurance Staff Counsel
• ABA Formal Op. 01-421: Insurer Litigation Guidelines
• ABA Formal Op. 01-424: In-House Lawyer Discharge Suit

Source

• Landing page: https://www.tbpr.org/ethic_opinions/83-f-52

Original opinion text

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

83-F-52 - In-House Counsel

BOARD OF PROFESSIONAL RESPONSIBILITY OF THE SUPREME COURT OF TENNESSEE

FORMAL ETHICS OPINION 83-F-52

Inquiry is made concerning the propriety of in-house counsel to an affiliated group of companies consisting of several corporations and partnerships performing legal services for all of the affiliates and allowing the corporation that directly employs him to bill the affiliate for the legal services performed.

In-house counsel is directly employed by B Company, a Tennessee limited partnership in which A Company, also a Tennessee limited partnership, is the general partner and majority interest holder. A Company is likewise a general partner and majority interest holder in two other limited partnerships, C and D. Furthermore, A holds controlling shares of the capital stock of two corporations, E Corporation and F Corporation.

The majority of the partners, both general and limited, in the A Company, measured both by individuals and by interests held, are principals in all the partnerships and corporations named above. In addition, there are other business activities which do not exist under the structural umbrella of A Company but which are owned, at least in part, by the principals or some of the principals in the firms named above.

In the course of his employment, in-house counsel is asked to perform legal work for all the firms described above. He receives a set salary from B Company. He keeps records of Time spent on various matters for the various firms and the accounting department of B Company then bills his time devoted to a project to the appropriate firm. B Company does not realize a profit from his legal work; rather, the cost or portion of his salary for time devoted to particular projects is borne by the appropriate affiliate firm.

Tennessee Formal Ethics Opinion 83-F-44 prohibits in-house corporate counsel from allowing the corporation to bill its customers for legal services performed by corporate counsel. The opinion holds that such a practice is in violation of Disciplinary Rule 3- 101(A) which prohibits a lawyer from aiding a non-lawyer in the unauthorized practice of law, and Disciplinary Rule 3-102(A) which prohibits a lawyer from sharing legal fees with a non-lawyer.

In addition to the above, Disciplinary Rule 3-103 provides that a lawyer shall not form a partnership with a non-lawyer if any of the activities of the partnership consist of the practice of law.

The purpose of the stated Rules is that a lawyer should assist in preventing the unauthorized practice of law. Canon 3.

There is no per se violation of these Rules based on the facts stated herein.

However, the real question to be addressed is, does in-house counsel allow B Company, or others, to practice law through his actions; or, to regulate, direct or control his professional judgment; or, to intervene in the attorney-client relationship.

There can be no categorical answer to this question, as the answer is dependent upon the various circumstances as they exist from time to time surrounding the delivery of legal services by in-house counsel to the affiliates. In order for there to be no impropriety, it is absolutely necessary that in-house counsel exercise independent professional judgment on behalf of each client-affiliate. Canon 5. He must have a direct attorney-client relationship with the client-affiliate in the delivery of his legal services and must not allow his direct employer, or anyone else, to regulate, direct or control his professional judgment. He should devote his complete loyalty to the client-affiliate and no loyalty to his direct employer. He is in the precarious position of having a potential, if not actual, conflict of interest in every instance. He is bound by Disciplinary Rules 7-101(A) to represent the client-affiliate zealously and 4-101 to preserve the confidences and secrets. There should be a full and complete disclosure of the possible effect of his representation on the exercise of his independent professional judgment and the client-affiliate should be given an opportunity to evaluate the need for representation free of any potential conflict and all doubts should be resolved against the propriety of representation.

This 12th day of August , 1983.

ETHICS COMMITTEE:

Edwin C. Townsend

W. J. Flippin

Henry H. Hancock

APPROVED AND ADOPTED BY THE BOARD