When a corporation's lawyer learns from an officer that the officer and other directors committed crimes against the company, must the lawyer tell the board, the shareholders, or the authorities, and is the conversation privileged?

Plain-English summary

An attorney retained by a corporation learned, from an officer who served as the corporation's liaison and whom the attorney had personally represented in the past, facts amounting to a criminal offense and a breach of duty to the corporation by that officer and other directors. The inquiry asked whether the attorney should report the facts to the board, to the stockholders, or to investigatory authorities, and whether the conversation was privileged.

The Committee said the crucial step is determining who the clients were. The corporation was clearly a client; the attorney's past personal representations of the officer did not make him a continuing client. If both the corporation and the officer were treated as clients, the answer was straightforward: they would be multiple clients with conflicting interests, so the attorney should withdraw from representing both (DR 5-105), and the revelation of a past crime would be privileged, giving him no duty or right to disclose the confidential communications (DR 4-101), citing Opinion 353.

If the corporation was the only client, the Committee answered the first two questions yes: the attorney's first duty is to zealously represent the corporation (EC 7-1), so the known facts should be revealed to the full board, including the directors not involved, and, because three directors were involved, to the stockholders. On reporting to authorities, the Committee answered no where the corporation itself may be criminally liable (citing Article 7.22 of the Penal Code) and the information involved past offenses; if there were no corporate criminal liability, that question would be answered yes. The fourth question, whether the conversation was privileged, was answered yes as to the corporation.

Currency note

This opinion was issued in 1977, under the former Texas Code of Professional Responsibility, which the Texas Disciplinary Rules of Professional Conduct replaced effective January 1, 1990. The duties of a lawyer who represents an organization are now governed by Texas Rule 1.12, confidentiality by Texas Rule 1.05, and conflicts among multiple clients by Texas Rule 1.06; the ABA analogs are Model Rules 1.13, 1.6, and 1.7. The framework for a lawyer's response to organizational wrongdoing has been revised substantially since this opinion. 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: Who was the lawyer's client under this opinion?

A: The Committee concluded the corporation was the client. It said the attorney's past personal representations of the officer did not make the officer a continuing client.

Q: Did the lawyer have to report the wrongdoing to the board and shareholders?

A: Per the opinion, if the corporation was the only client, yes. The Committee said the known facts should be revealed to the full board, including uninvolved directors, and, because three directors were involved, to the stockholders.

Q: Did the lawyer have to report the conduct to the authorities?

A: The Committee answered no where the corporation itself may be criminally liable and the information involved past offenses, citing DR 4-101. It said that if there were no corporate criminal liability, the answer would be yes.

Q: Was the officer's communication privileged?

A: The Committee answered yes as to the corporation.

Background and rules framework

The opinion interprets DR 5-105 on conflicts among multiple clients, DR 4-101 on confidences and secrets, and EC 7-1 on zealous representation, all from the former Texas Code of Professional Responsibility, applied to the entity-client setting where the natural person speaking to counsel is a corporate officer rather than the client. The Committee made the identity of the client the controlling question. The modern analogs are Texas Rules 1.12 (organization as a client), 1.05 (confidentiality), and 1.06 (conflicts), with ABA Model Rules 1.13, 1.6, and 1.7.

Citations and references

Rules of Professional Conduct:

• MR 1.13 (organization as client); MR 1.6 (confidentiality); MR 1.7 (conflicts of interest), as the modern analogs
• DR 5-105, DR 4-101, EC 7-1 (former Texas Code of Professional Responsibility)

Statutes:

• Article 7.22, Penal Code (corporate criminal liability)

Other opinions cited:

• Tex. Comm. on Professional Ethics, Op. 353 (1970): revelation of a past crime is privileged

See also

• TX Ethics Op. 412: Erroneous Legal Opinion for an Employee Organization
• TX Ethics Op. 389: Disclosing a Former Joint Client's Confidences and Perjury
• TX Ethics Op. 480: Duty to Disclose Concealed Trust to Bankruptcy Court

Source

• Landing page: https://www.legalethicstexas.com/resources/opinions/opinion-387/
• Original PDF: https://tcle-web.s3.amazonaws.com/public/documents/Opinion_387.pdf

Original opinion text

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

QUESTION PRESENTED

ATTORNEY'S DUTY WHERE CONFIDENTIAL COMMUNICATION OF CORPORATE CHIEF EXECUTIVE REVEALS CRIMINAL ACTIVITY AND BREACH OF DUTY BY CORPORATE OFFICER MADE TO RETAINED ATTORNEY FOR THE CORPORATION

An attorney was retained by a corporation. An officer of the corporation was the primary liaison between the corporation and retained counsel. The attorney had personally represented this officer in the past but was not retained by the officer. In investigating a claim of the corporation, this officer disclosed to the attorney facts amounting to a criminal offense and breach of duty to the corporation not only by the officer but by other directors of the corporation. (1) Should the attorney report the facts to the Board of Directors? (2) Should the attorney report the facts to the Stockholders? (3) Should the attorney report the facts to appropriate investigatory authority? (4) Was the conversation privileged?

DISCUSSION

Crucial to answering the questions is the determination of which persons or entities were clients of the attorney. Clearly the corporation was a client. However, past personal representations of the officer would not make him a continuing client.

If it be considered that both the corporation and the officer are clients, the answer is easy. They are multiple clients and the attorney's duties to each conflict and he should withdraw from representing both. DR 5-105. The revelation of a past crime is privileged and he has no duty or right to reveal the confidential communications to anyone. DR 4-101. Opinion 353 (July 1970)

If however, the corporation be considered the only client, the first 2 questions would be answered "Yes". The attorney's first duty is to zealously represent his client, the corporation. EC 7-1. Known facts should be revealed to the full directors, including those not involved and since 3 directors are involved, to the stockholders.

Since the corporation itself may be criminally liable, Art. 7.22 Penal Code and the information furnished involved past offenses the 3rd question is answered "No". DR 4-101. If there is no corporate criminal liability question 3 would be answered "Yes". The 4th question is answered "Yes" as to the corporation.

Tex. Comm. On Professional Ethics, Op. 387 (1977)