Can an in-house lawyer employed by one corporation also do legal work for its parent, subsidiary, and related companies?

Plain-English summary

The inquiry described Corporation A, which wholly owns or controls Corporations B, C, and D and owns fifty percent of Corporations Y and Z. Corporation A employs an attorney at a fixed salary as his only compensation, furnishes his office, and pays all overhead. The attorney performs legal services for each corporation; Corporation A controls his administrative workload but does not direct the performance of the legal work for the other corporations, and it charges each corporation the actual cost of the legal services rendered to it. The questions were whether the attorney practiced law through a lay intermediary in violation of Texas Canon 32, and whether he aided the practice of law by nonlawyers in violation of Texas Canon 43.

With reservations, the Committee answered both questions "No." It read Texas Canon 32 (ABA Canon 35) as designed to assure that a lawyer maintains a personal, direct, and responsible relationship with the client and does not allow his allegiance to be divided. Drawing on ABA Informal Opinion 679, the Committee said there is nothing inherently improper in a lawyer performing services for one party at the request and expense of another, provided it is clear to all that the lawyer's client, to whom he owes undivided fidelity, is the party for whom the services are rendered.

For subsidiary and controlled corporations, the Committee said the separate corporate entities could be disregarded as a practical matter because there is a common interest and, in effect, only one client; so it makes no difference which corporation employs the lawyer, pays him, or directs the work, and there is no intermediary problem under Canon 32 and no aiding of unauthorized practice under Canon 43. For merely related corporations (not parent, subsidiary, or controlled), the Committee defined the duty more precisely: the employer must not direct how the lawyer performs his duties or dictate his advice to the other corporation; it must be clear and agreeable to all that the lawyer's client in a given matter is the corporation for whom the services are performed; communications must be direct rather than routed through the general employer as intermediary; and the lawyer must preserve that corporation's confidences. Any conflict of interest between the general employer and the other corporation requires disqualification unless fully disclosed and expressly consented to by all concerned, citing Canon 6. On the unauthorized-practice question, the Committee found the risk "more imaginary than real," since the general employer was not holding itself out as a furnisher of legal services or exploiting the lawyer, but merely making his services available to the related corporations. The vote was 8-0.

Currency note

This opinion was issued in 1968, under the former Texas Canons of Ethics, which the Texas Disciplinary Rules of Professional Conduct replaced effective January 1, 1990. 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.

Common questions

Q: Can a lawyer employed by one company do legal work for its subsidiaries?

A: Yes. For subsidiary and controlled corporations the Committee treated the group as effectively one client, so it found no intermediary problem under Canon 32 and no aiding-of-unauthorized-practice problem under Canon 43.

Q: What safeguards did the opinion require for merely related (not controlled) corporations?

A: The general employer must not direct the lawyer's work or dictate his advice; the lawyer's client in a given matter must clearly be the corporation served; communications must be direct, not routed through the employer; and the lawyer must preserve that corporation's confidences.

Q: What happens if the employer and the served corporation have conflicting interests?

A: The Committee said the lawyer must disqualify unless the conflict is fully disclosed and all concerned expressly consent, citing Canon 6.

Background and rules framework

The opinion interprets former Texas Canon 32 and ABA Canon 35 (a lawyer's professional services not to be controlled or exploited by a lay intermediary) and Texas Canon 43 and ABA Canon 47 (not aiding the practice of law by nonlawyers), with the conflict point resting on Canon 6. The modern analogs are ABA Model Rule 5.4 (professional independence; third-party direction and payment), Model Rule 5.5 (unauthorized practice), and Model Rule 1.7 (concurrent conflicts).

Citations and references

Rules of Professional Conduct:

• MR 5.4 (professional independence of a lawyer), as the modern analog
• MR 5.5 (unauthorized practice of law), as the modern analog
• MR 1.7 (conflicts of interest), as the modern analog
• Texas Canons 32, 43, and 6; ABA Canons 35 and 47 (former canons)

Other opinions cited:

• ABA Informal Opinion 679 (services for one party paid by another)
• ABA Informal Opinion 973 (corporate counsel for related companies; the Committee drew on it but did not entirely agree)

See also

• TX Ethics Op. 359: Firm Representing a Savings and Loan and Its Title Insurer
• TX Ethics Op. 367: Former Prosecutor Joining a Defense Firm

Source

• Landing page: https://www.legalethicstexas.com/resources/opinions/opinion-343/
• Original PDF: https://tcle-web.s3.amazonaws.com/public/documents/Opinion_343.pdf

Original opinion text

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

QUESTION PRESENTED

Is such attorney practicing law through a lay intermediary in violation of Texas Canon 32?
Is such attorney aiding the practice of law by persons not members of the State Bar in violation of Texas Canon 43?

23 Baylor L. Rev. 878 (1972)

CORPORATE COUNSEL - LEGAL SERVICES FOR PARENT, SUBSIDIARY AND RELATED COMPANIES - INTERMEDIARIES - AIDING THE PRACTICE OF LAW BY NONLAWYERS
An attorney employed by one corporation may ethically render services for parent, subsidiary or other closely related corporations.

Canons 32, 43.
ABA Canons 35, 47.

Corporation A either wholly owns or controls Corporations B, C and D. It further owns fifty percent (50%) of the stock of Corporations Y and Z. Corporation A employs an attorney at a fixed salary which is his only compensation, furnishes his office and pays all overhead. The attorney performs legal services for each of the corporations. Corporation A exercises administrative and workload control over the attorney but does not direct or control the performance of the legal work for the other corporations. Corporation A charges the other corporations for the actual cost of the legal services rendered by the attorney to each corporation.

With some reservations, as hereinafter set forth, we answer both questions "No."

Texas Canon 32 and ABA Canon 35 provide that the professional services of an attorney shall not be controlled or exploited by any lay agency, personal or corporate, which intervenes between the attorney and his client, that an attorney's responsibilities and qualifications are individual, that he shall avoid all relations which direct the performance of his professional duties by or in the interest of an intermediary, that his relation to his client should be personal and that his responsibility shall be directly to the client. They further provide that an attorney may accept employment from an organization, such as an association, club or trade organization, to render legal services in any matter in which the organization, as an entity, is interested, but that such employment shall not include the rendering of legal services to the members of such organization in respect to their individual affairs.

Texas Canon 43 and ABA Canon 47 provide that an attorney shall not permit his professional services or his name to be used in aid of, or to make possible, the practice of law by nonlawyers, personal or corporate.

We believe the intent of Texas Canon 32 and ABA Canon 35 is to assure that an attorney will maintain a personal, direct and responsible relationship with his client and that his allegiance in performance of particular services will not be divided. As stated by the ABA Professional Ethics Committee in its Informal Opinion 679, there is nothing inherently improper, from the ethical standpoint, in a lawyer performing legal services for one party at the request of and with compensation by another party, provided that it is clear to all that the lawyer's client, to whom he owes undivided fidelity, is the party for whom the services are rendered. Thus, it is quite clear that a lawyer may be a general employee of one corporation and at the sane time ethically render legal services for other related corporations, provided certain safeguards are maintained.

In the situation of subsidiary and controlled corporations we may as a practical matter, in considering ethical questions, disregard the separate corporate entities. There is obviously a common interest and there is for all practical purposes only one client involved. Thus, in our opinion it makes no difference which corporation is the general employer of the lawyer, which corporation pays for his services, how costs are prorated or allocated, or which corporation directs performance of the services. In that situation, there simply is no problem of intermediaries under Canon 32 and no problem of aiding the unauthorized practice of law by the corporate employer under Canon 43.

In the situation of related corporations, which do not technically involve a parent, subsidiary or controlled corporation, the problems are somewhat more acute and the lawyer's duty must be somewhat more precisely defined. It is clear that he must be sure that his employer, unless its interests in the matter are identical, does not direct the manner in which he performs his duties or dictate the advice which he gives to the other corporation. He must be sure that it is clear and agreeable to both the employer and the other corporation that, having undertaken to perform legal services for the other corporation in a particular matter, his client in that matter is the corporation for whom the services are to be performed and that in such matter his undivided fidelity is owed to that corporation. There must be a direct and personal relationship with the corporation for whom he performs the services; communications between the lawyer and such corporation must be direct and not through the lawyer's general corporate employer as an intermediary. He must be certain that his services and advice to such corporation are in its interest and he must preserve its confidences inviolate. If there be a conflict of interest between his general corporate employer and the other corporation, then he must, of course, disqualify unless the conflict is fully disclosed and express consent for representation is given by all concerned. See Canon 6. If these safeguards are carefully maintained it is our opinion that there will be no violation of Texas Canon 32 or ABA Canon 35.

In both of these situations the possibility of the lawyer aiding his general corporate employer in the unauthorized practice of law inviolate of Texas Canon 43 and ABA Canon 47 is more imaginary than real. While it is not the function of this Committee decide what constitutes unauthorized practice of law, we are satisfied that under the facts presented in this inquiry the general corporate employer is not undertaking to furnish legal services to the other corporations; it is not holding itself out as a furnisher of legal services, and it is not exploiting the services of the lawyer. It is merely providing a convenient means whereby the lawyer's services can be made available to the related corporations as they have need for such services, and in these arrangements we see no real likelihood that the lawyer would be aiding his general corporate employer in the practice of law.

Compare ABA Informal Opinion 973, from which we have freely drawn but with which we do not entirely agree. (8-0.)

Tex. Comm. On Professional Ethics, Op. 343 (1968)