Scruples. Corporate Family and Thrust-Upon Conflicts

• Author: Michael Downey
• Pages: 64-64

Published in Litigation, Volume 46, Number 2, Winter 2020. © 2020 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not

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Scruples

MICHAEL DOWNEY

The author is a legal ethics lawyer at Downey Law Group LLC, in St. Louis.

“If a client does something mid-represen-

tation that creates a conflict for another

client, do we have to terminate both rep-

resentations?” Paradox asked.

“What did the first client do to create the

problem?” Ethox responded.

“We defend ACME in cases alleging de-

fects in ACME’s rocket sleds. Other law-

yers at our firm represent Big Corporation,

which is acquiring patents from Inventors

LLC. We learned that ACME is acquiring

Inventors LLC,” Paradox said. “So now we

represent Big Corporation as buyer of pat-

ents and, through ACME, Inventors LLC as

the potential seller of those patents.”

“That may be a problem,” Ethox empa-

thized. “But the right thing to do here may

not be so clear-cut.”

“Why?” Paradox asked.

“Because we need to figure out whether

ACME’s acquisition of Inventors prevents

us from being adverse to Inventors,” Ethox

answered.

“The American Bar Association Formal

Opinion 95-390 states that a lawyer’s rep-

resentation of one corporate entity does not

automatically disqualify the lawyer from be-

ing adverse to all related corporations.

“ABA Model Rule 1.7 comment 34 states

that a lawyer who represents a corpora-

tion or similar entity does not necessarily

represent all corporate affiliates. Instead,

a disqualifying conflict exists only where

the circumstances are such that the affili-

ate should also be considered a client of

the lawyer, where the lawyer and client

have agreed that is how corporate family

conflicts will be handled, or where other

circumstances indicate the lawyer’s repre-

sentation adverse to the corporate affiliate

would likely be materially limited such that

there is a Rule 4-1.7(a)(2) conflict.”

“What agreement might a lawyer and cli-

ent have?” Paradox asked.

“Sometimes corporations use standard

engagement terms that say if a law firm

representing one corporate entity should

be deemed to represent all corporate affili

-

ates as if they were a single entity,” Ethox

answered. “Then all the corporate affiliates

would need to be considered clients for pur-

poses of analyzing conflicts.

“Other times, a law firm will include lan-

guage in its engagement agreement that it

represents only a specific corporation, and

not any of its affiliates. This should help the

lawyer avoid disqualification from matters

adverse to corporate affiliates.”

“I did not see any language like that,”

Paradox said. “So what types of circum-

stances create problems in a corporate fam-

ily conflict?”

“The inquiry is fact-driven,” Ethox an-

swered. “Is ownership the same? Are the

same corporate officers and in-house coun-

sel involved? Are they all officed at the same

location? Those types of issues. If two cor-

porate affiliates operate as one entity, then

a lawyer representing one corporate entity

will likely be prevented from taking a mat-

ter adverse to the other, without consent.”

“Inventors LLC was merging all its op-

erations, including in-house counsel, into

ACME,” Paradox said. “ACME’s lead patent

lawyer is also getting involved in the pat-

ent sale.”

“Then we probably need to consider the

corporate family conflict a problem,” Ethox

agreed. “The next issue is whether we can

get consent.

“Will ACME and Big Corporation allow

us to continue handling both representa-

tions—defending ACME in the rocket sled

cases while negotiating opposite ACME’s

subsidiary in the patent sale? Here, every-

one knows about the patent deal, so improper

client confidences should not be a problem.”

“What if we cannot get consents?”

Paradox asked. “Will we need to withdraw

from both representations?”

“Possibly. But the conflict that arose when

ACME purchased Inventors LLC is known

as a ‘thrust-upon’ conflict,” Ethox said, “be-

cause neither our firm nor Big Corporation

caused the conflict. Under Rule 1.7 comment

5, we may be forced to withdraw from only

one conflicted representation—here, prob-

ably the ACME representation—while con-

tinuing to handle the other.

“But let’s first see if we can get consent

from Big Corporation and ACME,” Ethox

counseled Paradox. “Both may be willing to

waive the conflicts, particularly if we agree to

create an ethics screen between the lawyers

working for ACME and those negotiating for

Big Corporation against Inventors LLC.” q

CORPORATE FAMILY

AND THRUST-UPON

CONFLICTS