Can a corporation's in-house lawyer do legal work for a commonly-owned sister corporation, and can the employer charge the sister company for it?

Plain-English summary

The opinion addresses a corporate group in which Corporation A and Corporation B are commonly owned by the same parent but do not own each other. A patent lawyer employed by Corporation A is asked to provide patent advice to Corporation B, and the questions are whether the lawyer may do so with Corporation A's consent and whether Corporation A may recoup the lawyer's time and fees from Corporation B. The committee identifies the principal issues as conflicts of interest, client confidences, division of fees with non-lawyers, and lay entities billing for legal services.

On the first question, the committee concludes that, while a lay corporation generally may not employ a lawyer to provide legal services to third parties, the patent lawyer may serve Corporation B directly, independently, and free of conflicts with Corporation A's consent, because as an active member of the Virginia State Bar he may represent clients other than his employer. It stresses that it must always be clear who the client is; the lawyer owes undivided loyalty and confidentiality to each corporation, communications with Corporation B must be direct and not shared with Corporation A without B's consent, and preserving B's confidences may require the lawyer to work off-site. Under Rule 1.8(f), the lawyer must exercise independent professional judgment free of Corporation A's interference, and a written agreement may help define the roles and address conflicts at the outset; Corporation A cannot direct the lawyer's loyalties or even the allocation of time between A and B.

On the second question, the committee applies LEO 480 and Rule 5.4(a) to conclude that Corporation A may charge Corporation B only a reimbursement for the actual cost of the legal work, including the costs of employing the lawyer for the services provided, but cannot make any direct or indirect profit. Using corporate counsel to generate profit for the employer would be fee splitting with a non-lawyer in violation of Rule 5.4(a), the central concern being interference by lay persons with the lawyer's independent judgment. The committee cites ABA Formal Opinion 95-392 to the same effect and notes that a lay corporation cannot itself bill or collect legal fees, which would be unauthorized practice.

In practice

Under the Virginia rules as they stood when the opinion issued, the committee holds that in-house counsel may provide legal services to a commonly-owned sister corporation with the employer's consent, provided the lawyer serves the sister directly and independently, keeps each client's confidences (which may require working off-site), and exercises independent professional judgment free of the employer's direction under Rule 1.8(f). The opinion holds that the employer may recover only its actual cost of employing the lawyer for the work, with no direct or indirect profit, because profit would be fee sharing with a non-lawyer barred by Rule 5.4(a), and that a lay corporation cannot itself bill or collect legal fees. It suggests a written agreement at the outset to define roles and address conflicts.

Common questions

Q: Can a company's in-house lawyer represent a commonly-owned sister company?

A: Yes, with consent. The opinion concludes the lawyer may serve the sister corporation directly, independently, and free of conflicts with the employer's consent, because as an active bar member he may represent clients other than his employer.

Q: Who does the in-house lawyer owe confidentiality to in that arrangement?

A: Each client separately. The opinion concludes the lawyer owes undivided loyalty and confidentiality to both corporations; communications with the sister must be direct and not shared with the employer without the sister's consent, which may require working off-site.

Q: Can the employer charge the sister company a markup for the lawyer's work?

A: No. The opinion concludes the employer may recover only its actual cost of employing the lawyer, with no direct or indirect profit; profiting from the lawyer's work would be fee sharing with a non-lawyer barred by Rule 5.4(a).

Q: Can the lay corporation bill the sister company directly for legal fees?

A: The opinion notes a lay corporation cannot bill or collect legal fees as such, because doing so would constitute the unauthorized practice of law; the charge must be limited to reimbursement of actual cost.

Background and rules framework

The opinion interprets Rule 5.4(a) of the Virginia Rules of Professional Conduct (Model Rule 5.4) on professional independence and the bar on sharing legal fees with a non-lawyer; Rule 1.6 (Model Rule 1.6) on confidentiality; Rule 1.7 (Model Rule 1.7) on concurrent conflicts; and Rule 1.8(f) (Model Rule 1.8(f)) on accepting compensation from someone other than the client. It applies Rule 1A:5 (Virginia corporate counsel), prior opinions LEO 480 and UPL Op. 211, ABA Formal Opinion 95-392, and Richmond Ass'n of Credit Men v. Bar Ass'n.

Citations and references

Rules of Professional Conduct:

• Model Rule 5.4 / Va. Rule 5.4(a) (no fee sharing with a non-lawyer)
• Model Rule 1.6 / Va. Rule 1.6 (confidentiality to each client)
• Model Rule 1.7 / Va. Rule 1.7 (concurrent conflicts)
• Model Rule 1.8(f) / Va. Rule 1.8(f) (compensation from a third party; independent judgment)
• Va. S. Ct. Rule 1A:5 (Virginia corporate counsel)

Cases:

• Richmond Ass'n of Credit Men v. Bar Ass'n, 167 Va. 327, 189 S.E. 153 (1937), lay corporation may not employ a lawyer to serve third parties

Other opinions cited:

• Va. LEO 480: employer may recover only actual cost, not profit, for in-house legal work
• Va. UPL Op. 211 (2006): corporate counsel need not have a separate office for pro bono clients
• ABA Formal Op. 95-392: corporation may recoup cost but not profit from in-house lawyers' work for others

See also

• ABA Formal Op. 497: Conflicts and Materially Adverse Interests
• VSB Ethics Op. 1843: Patent Lawyer in Partnership With a Non-Lawyer Patent Agent

Source

• Landing page: https://vsb.org/Site/about/rules-regulations/leo-opinions.aspx
• Original PDF: https://www.vsb.org/common/Uploaded%20files/LEOs/1838.pdf

Original opinion text

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

Committee Opinion
May 10, 2007
LEGAL ETHICS OPINION 1838

CAN AN IN-HOUSE COUNSEL FOR A
CORPORATION PROVIDE LEGAL
SERVICES TO A SISTER
CORPORATION AND CAN THAT
CORPORATION COLLECT
REIMBURSEMENT FOR THOSE
SERVICES FROM THE SISTER
CORPORATION?

In the facts you present, Corporation A is one of several privately held corporations in a
Group, all of which are directly or indirectly owned exclusively by a single corporate
entity. Corporation B is another member of the Group; Corporation A and Corporation B
do not own any part of each other, but are commonly owned by the same parent
company.
Patent Lawyer is employed by Corporation A to draft and prosecute patent applications
in order to patent protect the discoveries/inventions that Corporation A has acquired.
Corporation B has needs for legal advice regarding patent infringement and/or validity
regarding patents held by third parties.
Based upon these hypothetical facts you present the following questions for
determination by the Committee:
1.

Whether Patent Lawyer employed by Corporation A can provide legal
services to Corporation B with Corporation A’s consent?

2.

Whether Patent Lawyer’s time/fees can be recouped by Corporation A
from Corporation B for legal services rendered to Corporation B?

The principal issues here involve conflicts of interest, client confidences and secrets,
division of fees with non-lawyers and lay entities billing for the provision of legal
services. As a general proposition, a lay corporation may not employ a lawyer to provide
legal services to third parties such as customers of Corporation A. Richmond Ass’n of
Credit Men v. Bar Assoc., 167 Va. 327, 189 S.E.2d 153 (1937).
However, it seems clear that Patent Lawyer can provide legal services to Corporation B
as long as Patent Lawyer provides those services to Corporation B directly,
independently and free of any conflicts of interest and with the consent of Corporation A.
Since the lawyer in question is a regular, active member of the Virginia State Bar he is
authorized to practice law generally and may represent clients other than his employer,
Corporation A. 1 See UPL Op. 211 (2006) (Virginia lawyer serving as corporate counsel
does not need separate law office to provide legal services to pro bono clients). In the
1

Under Rule 1A:5, a lawyer acting under this hypothetical scenario as in-house counsel would be
authorized to represent these clients under Part I or Part II of the Rule.

Committee Opinion
May 10, 2007
facts you present, Corporation A has authorized the lawyer to provide legal services to an
affiliated entity, Corporation B. (See Rule 1A:5 Virginia Corporate Counsel & Corporate
Counsel Registrants (“Employer” includes: for-profit or a non-profit corporation,
association, or other business entity, including its subsidiaries and affiliates….)
While there is nothing inherently wrong with lawyers performing legal services for one
party at the request of another party, it must always be clear who the lawyer’s client is
and to whom counsel owes undivided loyalty and confidentiality. While the interests of
the two corporate clients may be identical, the lawyer owes undivided loyalty and
independent professional judgment to both. Communications between Corporation B and
the Patent Lawyer rendering the services must be direct and not shared with Corporation
A without Corporation B’s consent. If confidences of Corporation B are acquired by
Patent Lawyer while providing legal services, such confidences must be held inviolate.
Rule 1.6. Discharging this duty of confidentiality to Corporation B may require Patent
Lawyer to work off-site, at a physically separate office, rather than on the premises of
Corporation A. The lawyer must preserve the confidences of the subsidiary corporation
and may disclose them only with the informed consent of the subsidiary. Rule 1.6.
Patent Lawyer must be able to exercise independent professional judgment on behalf of
Corporation B free of any interference or direction from Corporation A. 2 Where a lawyer
is employed by multiple organizations, a written agreement may help define the
relationship between the lawyer and those organizations so as to prevent
misunderstanding in his respective roles and further define the scope of the
representation. 3

2

RULE 1.8
Conflict of Interest: Prohibited Transactions
(f) A lawyer shall not accept compensation for representing a client from one other than the client
unless:
(1) the client consents after consultation;
(2) there is no interference with the lawyer's independence of professional judgment or
with the client-lawyer relationship; and
(3) information relating to representation of a client is protected as required by Rule 1.6.

3

RULE 1.2
Scope of Representation
(a) A lawyer shall abide by a client's decisions concerning the objectives of representation, subject
to paragraphs (b), (c), and (d), and shall consult with the client as to the means by which they are to be
pursued. A lawyer shall abide by a client's decision, after consultation with the lawyer, whether to accept
an offer of settlement of a matter. In a criminal case, the lawyer shall abide by the client's decision, after
consultation with the lawyer, as to a plea to be entered, whether to waive jury trial and whether the client
will testify.
(b) A lawyer may limit the objectives of the representation if the client consents after consultation.
(c) A lawyer shall not counsel a client to engage, or assist a client, in conduct that the lawyer
knows is criminal or fraudulent, but a lawyer may discuss the legal consequences of any proposed course of
conduct with a client and may counsel or assist a client to make a good faith effort to determine the
validity, scope, meaning, or application of the law.
(d) A lawyer may take such action on behalf of the client as is impliedly authorized to carry out
the representation.

Committee Opinion
May 10, 2007
If the lawyer has other interests that may limit the representation, the lawyer must obtain
the client’s consent after consultation; provided, however, that independent of such
consent, the lawyer reasonably believes that he or she will be able to provide competent
and diligent representation to each affected client. 4
Patent Lawyer needs to be mindful of his duties of independent professional judgment
under Rule 1.8 (f)(2) when determining whether or not he can provide legal services to
Corporation A and Corporation B under such an arrangement. If Patent Lawyer finds
that he is compromising client confidences, diligence or independence in representing
either client corporation, the lawyer needs to address these issues in order to maintain his
representation of both clients. The most appropriate time to deal with this issue is at the
onset of the representation with a letter of representation that outlines who the lawyer
would continue to represent, if either, in the event of a conflict. Corporation A cannot
direct Patent Lawyer’s loyalties or representation of B, which may include even the
allocation of time spent between Corporation A and B in order for Patent Lawyer to
provide diligent and competent representation to both.
The second question regarding whether the time/fees involved in sharing Patent Lawyer
with Corporation B can be recouped by Corporation A is answered in LEO 480. 5 LEO
480 states that it is improper for a lawyer’s corporate employer or parent company to
charge and collect legal fees for work done by its corporate lawyer unless the fee is
simply a reimbursement to the corporate employer for the actual cost of the legal work
provided by the lawyer. The “actual cost” of the legal work can include the costs the
corporation incurs to employ the lawyer based upon the services provided; however,
there cannot be any direct or indirect profit for legal services provided. In other words,

(e) When a lawyer knows that a client expects assistance not permitted by the Rules of
Professional Conduct or other law, the lawyer shall consult with the client regarding the relevant limitations
on the lawyer's conduct.
4

RULE 1.7
Conflict of Interest: General Rule.
(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:
(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.
5

LEO 480 analysis was based on DR 3-102 which is substantially the same as Rule 5.4.

Committee Opinion
May 10, 2007
corporate counsel cannot be used to generate profits for an employer, as that would be
considered fee splitting with a non-lawyer and a violation of Rule 5.4(a). 6
Among the problems Rule 5.4 seeks to prevent, the most important is interference by
lay persons with a lawyer’s practice. The involvement of non-lawyers, such as corporate
employers, in the legal process is of concern because the lawyer’s independent
professional judgment can be impaired by the influence and control of non-lawyers who,
by definition, are not subject to the same ethical mandates regarding independence,
conflicts of interest, confidentiality, fees and other important provisions of the
profession’s code of conduct. “[F]ee splitting between lawyer and layman … poses the
possibility of control by the lay person , interested in his own profit, rather than the
client’s fate….” Emmons, Williams, Mires & Leech v. State Bar, 6 Cal. App. 3d 565,
573-74, 86 Cal. Rptr. 367, 372 (1970). ABA Formal Opinion 95-392 concluded that
while a corporation should be free to require its lawyers to reimburse its costs of
employing in-house counsel when the lawyers do work for others, a corporation may not
reap profits from the work of its in-house lawyers as that is part of the reasons Rule 5.4
was adopted. 7

6

RULE 5.4
Professional Independence Of A Lawyer
(a) A lawyer or law firm shall not share legal fees with a nonlawyer, except that:
(1) an agreement by a lawyer with the lawyer's firm, partner, or associate may provide for
the payment of money, over a reasonable period of time after the lawyer's death, to the lawyer's
estate or to one or more specified persons;
(2) a lawyer who undertakes to complete unfinished legal business of a deceased,
disabled, or disappeared lawyer may pay to the estate or other representative of that lawyer that
portion of the total compensation that fairly represents the services rendered by the deceased,
disabled or disappeared lawyer;

(3) a lawyer or law firm may include nonlawyer employees in a compensation or
retirement plan, even though the plan is based in whole or in part on a profit-sharing arrangement;
and
(4) a lawyer may accept discounted payment of his fee from a credit card company on
behalf of a client.
(b) A lawyer shall not form a partnership with a nonlawyer if any of the activities of the
partnership consist of the practice of law.
(c) A lawyer shall not permit a person who recommends, employs, or pays the lawyer to render
legal services for another to direct or regulate the lawyer's professional judgment in rendering such legal
services.
(d) A lawyer shall not practice with or in the form of a professional corporation or association
authorized to practice law for a profit, if:
(1) a nonlawyer owns any interest therein, except as provided in (a)(3) above, or except
that a fiduciary representative of the estate of a lawyer may hold the stock or interest of the lawyer
for a reasonable time during administration;
(2) a nonlawyer is a corporate director or officer thereof; or
(3) a nonlawyer has the right to direct or control the professional judgment of a lawyer.
7

In addition, Corporation A, a lay corporation, cannot bill or collect legal fees as such activity constitutes
the unauthorized practice of law. UPL Ops. 88, 91 and 94.

Committee Opinion
May 10, 2007

The Committee concludes that while Patent Lawyer may provide legal counsel to both
Corporation A and Corporation B, the lawyer must be mindful of his obligation to protect
each client’s confidences and secrets, properly address any conflicts issues between
Corporation A and Corporation B, and any funds collected from Corporation B for the
lawyer’s services can be no more than reimbursement to Corporation A for the actual
costs Corporation A incurs in employing that in-house counsel.
This opinion is advisory only and not binding on any tribunal.