Can in-house counsel accept indemnification from a corporate employer under the company's articles or bylaws?

Currency note

The Virginia State Bar's committee note states that this opinion was overruled by Rule 1.8(h), which permits such indemnity agreements if the corporation is separately represented. The conclusion below is therefore not current guidance; it is preserved as the historical record of how the committee read the former rule.

This opinion was issued in 1990, under Virginia's former Code of Professional Responsibility (the disciplinary rule it cites), before the Virginia State Bar's adoption of the Rules of Professional Conduct effective January 1, 2000. Treat this page as historical context, not current guidance.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 inquiry asked whether a lawyer who practices for a corporate employer violates DR 6-102(A) if, during that employment, the lawyer may be indemnified under the employer's articles of incorporation or bylaws as permitted by Virginia law. DR 6-102(A) addressed a lawyer attempting to limit liability to a client for personal malpractice.

The committee, while recognizing that indemnification is statutorily available to corporate officers and employees, concluded that the plain language of DR 6-102(A) did not ethically permit a corporate attorney-employee to avail himself of such indemnification. It acknowledged the split between South Carolina Ethics Opinion 85-30 and District of Columbia Ethics Opinion 193, and was not persuaded by the D.C. view that indemnification is permitted because a sophisticated corporate employer has made a careful business judgment to waive its rights of redress against its employees. Affirming its prior LE Op. 1211 and LE Op. 877 and adopting the South Carolina opinion, the committee reasoned that reading DR 6-102(A) so broadly could be applied by analogy to sophisticated individual clients of private practitioners, doing inestimable damage to the protection the Code affords clients. It noted (citing LE Op. 1324 and Gunter v. VSB) that some acts are ethically improper for a bar member regardless of their legality.

The committee suggested that, if customary malpractice insurance is unavailable to corporate counsel, the proper avenue for a different result is a proposed rule change to the council, and it offered sample language (a proposed DR 6-102(B) barring negotiating or conditioning employment on prospective indemnification, and a proposed DR 6-102(C) permitting acceptance of prospective indemnification if the employer/client is independently represented). It cautioned that it might be improper for corporate counsel to sue to enforce such an indemnification agreement, and that enforceability raised legal questions beyond its purview.

Common questions

Q: Did this opinion allow in-house counsel to accept employer indemnification?

A: No. As decided in 1990, the committee concluded the plain language of DR 6-102(A) did not ethically permit a corporate attorney-employee to accept indemnification from the corporate employer. Note that the committee's later note states the opinion was overruled by Rule 1.8(h).

Q: What is the rule now, per the committee's note?

A: The committee note states the opinion was overruled by Rule 1.8(h), which permits such indemnity agreements if the corporation is separately represented.

Q: Why did the committee reject the indemnification at the time?

A: It reasoned that a broad reading of DR 6-102(A) could be extended by analogy to sophisticated individual clients of private practitioners, diluting the rule's protection of clients, and it declined to follow the District of Columbia's contrary "business judgment" reasoning.

Background and rules framework

The opinion interpreted former Virginia DR 6-102(A) (limiting liability to a client for malpractice). The subject is now addressed by Virginia Rule 1.8(h), which (per the committee note) permits an in-house indemnity agreement where the corporation is separately represented.

Citations and references

Rules of Professional Conduct:

• Former Virginia DR 6-102(A) (Code of Professional Responsibility)
• ABA Model Rule 1.8(h) (limiting liability; settling malpractice claims)

Cases:

• Gunter v. Virginia State Bar, 238 Va. 617 (1989), certain acts may be ethically improper regardless of their legality.

Other opinions cited:

• Virginia LE Op. 1211; LE Op. 877; LE Op. 1324.
• South Carolina Ethics Opinion 85-30 (adopted); District of Columbia Ethics Opinion 193 (not followed).

See also

• VA LEO 1838: In-House Counsel and a Sister Company
• VA LEO 1359: In-House Counsel as the Only Witness
• VA LEO 1457: Deposing a Corporate Constituent

Source

• Landing page: https://vsb.org/Site/about/rules-regulations/leo-opinions.aspx
• Original PDF: https://www.vsb.org/common/Uploaded%20files/LEOs/1364.pdf

Original opinion text

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

Committee Opinion
June 28, 1990
LEGAL ETHICS OPINION 1364

CORPORATE COUNSEL:
INDEMNIFICATION OF IN-HOUSE
COUNSEL BY CORPORATE
EMPLOYER.

You have requested that the Committee opine as to whether a lawyer who practices law on behalf of a corporate employer is in violation of Disciplinary Rule 6-102(A) [ DR:6-102] if, during the tenure of that employment, the lawyer may be indemnified pursuant to the corporate employer's articles of incorporation or bylaws as permitted by Virginia law. Following your discussion with the Committee on April 19, 1990, during its regularly scheduled meeting of May 17, 1990, the Committee reviewed the circumstances of your inquiry and considered at great length the arguments involved in the question you raised. Although the Committee recognizes the statutory availability of indemnification to corporate officers and employees, the Committee continues to be of the opinion that the plain language of DR:6-102(A) does not ethically permit a corporate attorney-employee to avail himself of such indemnification. Additionally, the Committee appreciates the conflict demonstrated between the conclusions reached in South Carolina Ethics Opinion 85-30 and District of Columbia Ethics Opinion 193. The Committee is not persuaded by the reasoning of the latter that such indemnification is permitted since the corporate employer, a "sophisticated business entity," has made a "careful 'business judgment’ that it prefers to waive its rights of legal redress against its employees." Rather, in affirming prior LE Op. 1211 and LE Op. 877, and in adopting South Carolina Opinion 85-30, the Committee's concern is that such a broad reading of DR:6-102(A) as you have requested would ultimately permit analogous application of the result to individual clients of a practitioner in private practice when those clients possess high levels of sophistication and business judgment. The Committee believes that such a dilution of the language of the rule does inestimable damage to the protection afforded a client by the Code of Professional Responsibility. In a recent opinion, the Committee, recognizing the reasoning of the Supreme Court of Virginia, found that certain acts are ethically improper when undertaken by a member of the bar, irrespective of the legality of such behavior. (See LE Op. 1324; Gunter v. VSB, 238 Va. 617, 621 (1989)) Since the Committee believes it is required to predicate its conclusions upon the plain language of DR:6-102(A), the Committee respectfully suggests that, if customary malpractice insurance is unavailable to corporate counsel, the appropriate avenue for reaching a different conclusion (which would permit corporate counsel to accept indemnification by their corporate employers) would be a proposal to the council for a change to the current rule. Such a change could more clearly delineate the ethical propriety of a corporate attorney accepting indemnification as permitted by the corporation's articles of incorporation, bylaws and statute.

Committee Opinion
June 28, 1990

The Committee offers the sample language below as a suggestion for Corporate Counsel § to consider proposing for council's adoption and submission to the Supreme Court of Virginia. DR:6-102 (B) A lawyer employed as in-house counsel to a corporation shall not negotiate or condition his or her employment upon the granting of prospective indemnification rights by the corporate employer/client. (C) A lawyer employed as in-house counsel to a corporation may accept prospective indemnification pursuant to the corporate employer's articles of incorporation or bylaws, as permitted by law, provided that the employer/client is independently represented in making the agreement. Although the Committee is of the belief that such language would render proper the corporate counsel's acceptance of indemnification, the Committee also believes that, under certain circumstances, it may be improper for corporate counsel to bring an action for breach of the indemnification agreement or any other agreement for the corporation's voluntary reimbursement of the corporate counsel's liability. In any case, the enforceability of such indemnification raises legal questions beyond the scope of the Committee's purview. Committee Opinion June 28, 1990 Legal Ethics Committee Notes. – This LEO was overruled by Rule 1.8(h), which permits such indemnity agreements if the corporation is separately represented.