Is it a conflict of interest for a lawyer to sue a corporation whose board of directors includes the lawyer's partner, and can screening, the partner's resignation, or withdrawal cure it?

Plain-English summary

Attorney B sits on the board of a Trust Company (which is represented by a different lawyer, Attorney A). Attorney C joined Attorney B's firm and represents remainder beneficiaries suing the Trust Company over trust administration. Attorneys B and C wrote the company's president and board asking that B be screened and excused from board discussion of the dispute. The committee was asked whether C's suit against the company is a conflict because his partner B is a director, and whether screening, B's resignation, or C's withdrawal cures it.

The opinion analyzes Rule 1.7 and the imputation rule, Rule 1.10(a), and starts with whether B himself could sue the company. There is no direct-adversity conflict under Rule 1.7(a)(1) because B is only a board member, not the company's counsel. But Rule 1.7(a)(2) applies: B's fiduciary duty to the company as a director creates a significant risk of materially limiting his representation of plaintiffs seeking damages from that same company, and his personal interest in defending board decisions could add to the conflict. The committee aligns with courts that have disqualified board-member lawyers (citing Berry, Allen, Graf, and Raley). Because B would be conflicted, Rule 1.10(a) imputes that conflict to his partner C.

On the cures: Rule 1.7(b) can cure the conflict if its requirements are met. The affected clients (the beneficiaries, since the company is not a client) must consent after consultation, memorialized in writing. Consent alone is not enough; the lawyer must reasonably believe he can provide competent, diligent representation. B's recusal from all board discussion and voting on the matter, if approved by the board after consulting its counsel, can reduce the risk to loyalty enough to support that belief and a consent cure. B's resignation from the board is likely but not guaranteed to cure the conflict, depending on whether corporate documents impose lingering post-service duties; combined with client consent, it can cure. C's withdrawal eliminates the conflict entirely. Finally, the committee notes a separate problem: by writing directly to the company's president and board (the entity's control group) about the litigation without Attorney A's consent, Attorney C implicated Rule 4.2's bar on contacting represented persons.

In practice

The opinion holds that, under the Virginia rules as they stood at the time, a lawyer whose partner serves as a director of the defendant corporation shares an imputed Rule 1.7(a)(2) conflict under Rule 1.10. Per the opinion, the conflict can be cured by written client consent supported by the director's recusal and screening (with board approval), and possibly by the director's resignation depending on any continuing fiduciary or confidentiality duties; withdrawal removes the conflict. The opinion also identifies a Rule 4.2 violation in contacting the represented corporation's control group without opposing counsel's consent.

Common questions

Q: Is it a conflict to sue a company whose board includes my law partner?

A: Yes. The opinion concludes the partner-director's fiduciary duty to the company creates a Rule 1.7(a)(2) conflict, and Rule 1.10(a) imputes it to the partner bringing the suit.

Q: Can screening or recusal cure the conflict?

A: The opinion states that the director's recusal from all discussion and voting on the matter, approved by the board after consulting its counsel, can reduce the loyalty risk enough to support a consent cure under Rule 1.7(b); screening and recusal alone do not cure it without client consent.

Q: Does the director resigning from the board fix the problem?

A: The opinion says resignation is likely but not guaranteed to cure the conflict, because corporate documents may impose lingering post-service duties of loyalty or confidentiality; combined with client consent, it can cure.

Q: Was writing to the company's board members itself a problem?

A: Yes. The opinion notes that contacting the company's president and board (its control group) about the litigation without the company lawyer's consent implicated Rule 4.2's prohibition on communicating with represented persons.

Background and rules framework

The opinion interprets Rule 1.7 (Model Rule 1.7), governing concurrent conflicts, with the material-limitation branch of Rule 1.7(a)(2) and the cure conditions of Rule 1.7(b). It applies the imputation rule, Rule 1.10(a) (Model Rule 1.10), to spread the partner-director's conflict to the firm, and Rule 4.2 (Model Rule 4.2) to the direct contact with the represented corporation's control group (Comment 4). It treats the director's fiduciary duty to the corporation as a matter of corporate law outside the committee's purview but central to the conflict.

Citations and references

Rules of Professional Conduct:

• Model Rule 1.7 / Virginia Rule 1.7(a)(2), (b) (concurrent conflicts; material limitation; cure)
• Model Rule 1.10 / Virginia Rule 1.10(a) (imputation of conflicts within a firm)
• Model Rule 4.2 / Virginia Rule 4.2 (communication with represented persons; entity control group)

Cases:

• Berry v. Saline Memorial Hospital, 322 Ark. 82, 907 S.W.2d 736 (1995), firm of former board member disqualified
• Allen v. Academic Games Leagues of America, Inc., 831 F. Supp. 785 (C.D. Cal. 1993), advisory-board member's firm disqualified
• Graf v. Frame, 177 W. Va. 282, 352 S.E.2d 31 (1986), board-of-regents member disqualified
• William H. Raley Co. v. Superior Court, 149 Cal. App. 3d 1042, 197 Cal. Rptr. 232 (1983), bank trustee's firm disqualified

Other opinions cited:

• Virginia LEO 1819 (when a board member is treated as providing legal advice to the entity)

See also

• ABA Formal Op. 497: Conflicts From Materially Adverse Interests
• VA LEO 1836: City Attorney and Multiple Constituents
• VA LEO 1890: Communications With Represented Persons

Source

• Landing page: https://vsb.org/Site/about/rules-regulations/leo-opinions.aspx
• Original PDF: https://www.vsb.org/common/Uploaded%20files/LEOs/1821.pdf

Original opinion text

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

Committee Opinion
January 11, 2006
LEGAL ETHICS OPINION 1821

POTENTIAL CONFLICT OF INTEREST
WHERE AN ATTORNEY IS SUING A
CORPORATE BOARD WITH A
MEMBER THAT IS A PARTNER OF THE
ATTORNEY.

You have presented a hypothetical situation in which Attorney A represents a Trust
Company, governed by a board of directors. Attorney B sits on the board. Attorney C
has now joined Attorney B’s firm. Attorney C represents several remainder
beneficiaries of a trust administered by Trust Company regarding their complaints
regarding the administration of that trust. Attorneys B and C wrote a letter to the
President of the Trust Company requesting that the President and other board members
screen Attorney B from any information or discussion of the dispute between Attorney
C’s clients and the Trust Company. The letter proposed that the board excuse Attorney B
from the board meetings when this agenda item would be discussed. Specifically, the
letter stated:
Completely screening Local Attorney [i.e., Attorney B] from all
information and discussion, if any, to or by members of the board of
directors of your company is consistent with the Rules of Professional
Conduct imposed on him and at the same time enables him to continue
to discharge his duties as a director of your company with respect to all
other matters.
Attorney C then filed the law suit against the Trust Company on behalf of the
remainder beneficiaries. Several members of the board have raised objections to this
arrangement with Attorney A, the board’s attorney.
With regard to this hypothetical scenario, you have asked the following questions:
1) Is it a conflict of interest for Attorney C to sue Trust Company if his partner,
Attorney B, serves on the board of directors of Trust Company?
2) If so, can the conflict be rectified by screening Attorney B from discussion and
information concerning the lawsuit?
3) If there is a conflict, can the conflict be eliminated by the resignation of Attorney B
from the board, or must Attorney C withdraw from his representation of the
beneficiaries?
The pertinent legal authority for resolving these questions is Rule 1.7, governing
concurrent conflicts of interest. Rule 1.7 states as follows:
(a) Except as provided in paragraph (b), a lawyer shall not represent a
client if the representation involves a concurrent conflict of interest. A
concurrent conflict of interest exists if:

Committee Opinion
January 11, 2006

(1) the representation of one client will be directly adverse to another
client; or
(2) there is significant risk that the representation of one or more
clients will be materially limited by the lawyer's responsibilities to
another client, a former client or a third person or by a personal interest
of the lawyer.
(b) Notwithstanding the existence of a concurrent conflict of interest
under paragraph (a), a lawyer may represent a client if each affected
client consents after consultation, and:
(1) the lawyer reasonably believes that the lawyer will be able to
provide competent and diligent representation to each affected client;
(2) the representation is not prohibited by law;
(3) the representation does not involve the assertion of a claim by
one client against another client represented by the lawyer in the same
litigation or other proceeding before a tribunal; and
(4) the consent from the client is memorialized in writing.
Your first question asks whether Attorney C has a conflict of interest in bringing this
action on behalf of a client against the Trust Company, when C’s partner, Attorney B, sits
on the Trust Company’s board. 1 Critical to evaluating this issue is the imputation effect
of Rule 1.10. Specifically, Rule 1.10 (a) states as follows:
While lawyers are associated in a firm, none of them shall knowingly
represent a client when any one of them practicing alone would be
prohibited from doing so by Rules 1.6, 1.7, 1.9 and 2.10(e).

1

The Committee stresses that the analysis in this opinion rests on the facts provided; the hypothetical
presents Attorney B as serving on the board but not representing the Trust Company. However, the
committee notes that even if B does not consider himself counsel for the Trust Company, if his actions and
statements gave fellow board members a reasonable impression that he was providing them with legal
advice and protecting the legal interests of the board and company, then Attorney B would find himself
with the duties and conflicts associated with legal representation. See LEO 1819. Those duties and
conflicts would include, among other things, the duty to maintain confidentiality as prescribed by Rule 1.6.
That duty of confidentiality, if owed to the Trust Company, could constitute a conflict of interest as a
“responsibility to a third person” under Rule 1.7, in addition to the other sources of conflict of interest
discussed in this opinion. However, as the limited facts presented do not include such a scenario, the
analysis in this opinion rested on the provided premise that Attorney B does not represent the board or the
Trust Company.

Committee Opinion
January 11, 2006
Therefore, the starting point for analysis of this question is actually whether Attorney B
could represent a party suing the Trust Company. If Rule 1.7 would preclude him from
taking such a case against the company upon whose board he serves, then Rule 1.10
would preclude all members of his firm, including Attorney C, from representing that
client in that matter. Accordingly, the Committee will first analyze whether Attorney B
could represent the remainder beneficiaries against the Trust Company.
Rule 1.7(a) establishes concurrent conflicts of interest in two types of situations. The
first is not applicable here; the representation of the beneficiaries would not be directly
adverse to another client of Attorney B. See Rule 1.7(a)(1). While the party adverse to
the remainder beneficiaries is the Trust Company, Attorney B serves only as a board
member and not as counsel to the company. Thus, Attorney B would not have a direct
adversity concurrent conflict.
It is the second type of concurrent conflict that is at issue here. Rule 1.7(a)(2)
establishes a concurrent conflict when certain kinds of interests of the attorney may
materially limit the representation. Here, “responsibility to a third person or personal
interest of the lawyer” results in this scenario from Attorney B’s fiduciary duty to the
Trust Company as a board member. Is there a “significant risk” that the fiduciary duty
will materially limit the representation of the claimant? The Committee thinks so. The
specifics of this fiduciary duty are determined by corporate law generally and the
company’s articles of incorporation specifically and thus those parameters are outside the
purview of this Committee. Nevertheless, this Committee assumes a general duty of
loyalty and protection would be part of that fiduciary duty, yet Attorney B would be
bringing a suit to collect money damages from the Trust Company. In the simplest of
terms, in one role, Attorney B would be seeking damages from the Trust Company, and
in another role, Attorney B would be working to avoid paying such damages as part of a
general goal of maximizing the assets/profits of the Trust Company. It is also possible
that Attorney B’s own personal interest could give rise to the conflict. If the subject
matter of the litigation is related to decisions that Attorney B has made personally as a
Board member, then he may have a natural inclination to defend the Board’s (and his
own) decision.
Courts have repeatedly found this tension between corporate fiduciary duty and the
duty to a client as the source of a conflict of interest. See, e.g., Berry v. Saline Memorial
Hospital, 322 Ark. 82, 907 S.W.2d 736 (Ark. 1995) (court disqualifies firm of former
hospital board member from representing patient against the Board); Allen v. Academic
Games Leagues of America, Inc., 831 F.Supp. 785 (C.D. Calif. 1993)(court disqualifies
firm of organization’s advisory board member from representation of party suing that
entity); Graf v. Frame, 177 W.Va. 282, 352 S.E.2d 31 (1986)(court disqualifies attorney
who serves on a university’s board of regents from representing persons with claims
against faculty members); William H. Raley Co. v. Superior Court, 149 Cal.App.3d 1042,
197 Cal.Rptr. 232 (1983)(court disqualifies firm of bank trustee from representation of
plaintiff adverse to the bank). In line with those authorities, and its own interpretation
of Virginia’s Rule 1.7, the Committee opines that it would be a concurrent conflict of

Committee Opinion
January 11, 2006
interest for Attorney B to represent the remainder beneficiaries against the Trust
Company.
As the Committee has determined that Attorney B would have a conflict of interest
with this representation, the Committee must look to Rule 1.10 to determine the effect of
that prohibition on Attorney C, his partner. As highlighted above, Rule 1.10(a) prohibits
an attorney from accepting a representation if any other member of his firm is precluded
from that representation. Therefore, as Attorney B would have conflict in representing
this plaintiff, so would Attorney C.
The Committee notes that Rule 1.7 does have a curative provision, allowing for the
“cure” of some conflicts. Rule 1.7(b) will allow a lawyer to continue with a
representation that met the definition of a concurrent conflict of interest under paragraph
(a) of the rule so long as each requirement of (b) is met. The second and third of your
questions ask just what might cure a conflict in the present scenario.
The first requirement in Rule 1.7(b) is that the affected client must provide consent
after consultation. In this instance, the “affected client” is the remainder beneficiaries, as
the company is not a client. For Attorney B to be able to represent these plaintiffs,
among other things, he must explain the consequences of the conflict to the plaintiffs and
the plaintiffs must then consent. Rule 1.7(b)(4) requires that the attorney memorialize in
writing that the consultation and consent occurred. Comment 10 to Rule 1.7 clarifies that
while best practice is to actually have the client provide the consent in writing, any
written memorialization (such as a note to the file) will suffice.
While consent is a requirement to cure this conflict, it is not alone sufficient. Assuming
the plaintiffs provide the consent after consultation, the additional requirements of Rule
1.7(b) must be met. Rule 1.7(b)(1) requires that the lawyer must reasonably believe he
can provide competent, diligent representation to the client. 2 Comment 1 to Rule 1.3
(“Diligence”) elaborates upon what is required:
A lawyer should pursue a matter on behalf of a client despite
opposition, obstruction or personal inconvenience to the lawyer, and
may take whatever lawful and ethical measures are required to
vindicate a client’s cause or endeavor. A lawyer should act with
commitment and dedication to the interests of the client and with zeal
in advocacy upon the client’s behalf.
As stated above, the Committee believes that Attorney B may not sue a company on
whose board he serves. That conflict is imputed to Attorney C by operation of Rule 1.10.
Question Two suggests Attorney B could recuse himself from all discussion and voting
on the matter as a possible cure to the conflict. While such recusal is not mentioned in
the rule itself, it certainly is a factor to consider in Rule 1.7(b)(1). In this instance, would
2

The Committee notes that the duty of competent, diligent representation is present for all clients,
regardless of the existence of a potential conflict. See Rules 1.1, 1.3.

Committee Opinion
January 11, 2006
recusal resolve the tension between the attorney’s fiduciary duty to the board and his
professional obligation to his clients? The Committee thinks that this is possible, if the
board has approved of the recusal strategy, after consultation with its attorney.
Presumably the Board would consider such matters as whether the litigation is “routine”
or “non-routine” in the course of the board’s business; whether the claim goes to matters
that have been determined by the board, or by lower level administrative staff; and
whether the claim involves matters on which Attorney B has voted or has been involved
in. Under the right circumstances, the risk of diluted loyalty to this client could be
significantly reduced. Attorney B’s recusal could be effective in two ways. First that
recusal would substantially reduce the opportunity for improper influence between
Attorney B and the board. Similarly, Attorney B’s recusal lessens the risk that Attorney
C would be improperly loyal to the corporation at the expense of his clients. Attorney
B’s recusal could facilitate the competent, diligent representation of the plaintiffs.
Rule 1.7(b) has two additional requirements for an effective conflict “cure”: that the
conduct is legal and that the representation not involve the assertion of a claim against
another client in the same proceeding. See Rule 1.7(b)(2) and (3), respectively. Nothing
in the facts suggests that Rule 1.7(b)(2) would in any way preclude curing this particular
conflict; illegality does not seem to be an issue here. The requirement of Rule 1.7(b)(3)
is similarly not a block to curing this conflict. The potential conflict of interest was not
between two clients, but instead between client interest and duty to a third person, namely
the board. Accordingly, the requirement of Rule 1.7(b)(3) does not impede a consent
cure to this conflict. If Attorney B and his board create a proper screen for him,
including recusal from all discussion of the matter, then Attorney C can properly seek
consent from his clients to cure what would otherwise be a conflict of interest preventing
that representation.
Question Three raises two other possible cures for Attorney C’s conflict. First, would
the resignation of Attorney B from the board cure the conflict for Attorney C? The
Committee opines that such an action is likely, but not guaranteed, to cure this conflict.
The end of Attorney B’s role as a board member presumably would end his fiduciary
duty to the Trust Company. As he never represented the company, Rule 1.9’s
requirements regarding duty of loyalty to former clients would not be triggered.
However, if the corporate documents establishing the specifics of the duties of Trust
Company board members included some duty to avoid adverse business actions
regarding the Trust Company for some period after board membership, then Attorney B’s
resignation would not necessarily cure this conflict. That lingering duty could possibly
create the sort of conflict already established for current board membership. Similarly, if
the corporate documents establish a duty to keep certain corporate information
confidential, that duty may also continue beyond the term of the attorney’s service on the
board. The factual scenario lacks sufficient detail to make that determination. The
Committee notes that absent any such fiduciary duty, Attorney B and, in turn, Attorney C
would not be precluded from this representation once Attorney B resigned. However, the
presence of any such duties would render Attorney B’s resignation alone ineffective in
curing this conflict. Nevertheless, as with the recusal option discussed with Question 2,

Committee Opinion
January 11, 2006
if this resignation were combined with proper consent from the plaintiffs, Attorneys B
and C could effectively cure this conflict.
The final suggestion in Question Three is that Attorney C withdraw from the
representation. If Attorney C withdraws from representing the plaintiffs, no conflict
would remain in need of a cure. The firm of Attorneys B and C would no longer have
any members representing a party against the Trust Company.
The Committee wants to respond to two points that, while not presented as a formal
question, were discussed in the materials provided with this request. The first issue is
whether the income beneficiaries would have cause to object to Attorney B’s firm
representing the remainder beneficiaries, whose interest are adverse to the income
beneficiaries. The implication is that Attorney B’s firm has a special connection to the
Trust Company, via Attorney B’s board membership, that could give Attorney B and C’s
firm an unfair advantage over the income beneficiaries. The Committee notes that
neither Attorney B nor Attorney C represents, nor has ever represented, the income
beneficiaries in this matter. Therefore, neither attorney has ethical obligations of loyalty,
competence or diligence with regard to the income beneficiaries. Accordingly, the
interest of those parties is not a factor in the analysis of the potential conflicts of interest
for Attorneys B and C.
Finally, the Committee wishes to note that there is an Attorney A in this scenario.
Attorney A represents the Trust Company. The facts suggest that Attorney B and C
together sent a letter to the company president and each board member regarding the
potential conflict of interest providing advice as to what would cure the conflict. The
facts do not include any contact by Attorney C with Attorney A, the company’s attorney,
prior to sending that letter regarding the litigation. Rule 4.2 requires that:
In representing a client, a lawyer shall not communicate about the
subject of the representation with a person the lawyer knows to be
represented by another lawyer in the matter, unless the lawyer has the
consent of the other lawyer or is authorized by law to do so.
With an entity client, like this company, a lawyer should treat anyone within the
entity’s “control group” as within the protection afforded by Rule 4.2. See Rule 4.2,
Comment 4. The company president and board members are without question within that
group. Attorney C should have only sent this letter regarding his client’s litigation
against the company if Attorney A had consented in advance to the communication.
This opinion is advisory only, based only on the facts you presented and not binding on
any court or tribunal.