§10.3 - The "Who Is The Client?" Question in Specific Organizational Contexts

• Jurisdiction: Washington

§10.3 THE "WHO IS THE CLIENT?" QUESTION IN SPECIFIC ORGANIZATIONAL CONTEXTS

This section discusses approaches for determining who is the client in several common organizational settings: corporations and corporate affiliates; partnerships and trade associations; governmental entities; estates and trusts; and insurance defense.

(1) Corporations and corporate affiliates

RPC 1.13(a) takes the "entity approach" to corporate representation: a lawyer representing a corporation is deemed to represent the corporation rather than its individual shareholders, directors, or officers. This is the same approach taken by Restatement (Third) of the Law Governing Lawyers §131 (2000) and ABA MODEL Rules of Prof'l Conduct r. 1.13. RPC 1.13 cmt. 1 notes that this principle applies equally to corporations and unincorporated associations, and the fact that a lawyer must necessarily deal with an entity through its "constituents" does not alter the fact that the entity itself is ordinarily the client. "Constituents" is defined broadly in RPC 1.13 cmt. 1 and includes officers, directors, employees, shareholders, and "positions equivalent" to those traditional categories.

At the same time, nothing in RPC 1.13 precludes joint representation of both the corporation and one of its "constituents." See RPC 1.13(g);

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Restatement (Third) of the Law Governing Lawyers sect;96 cmt. h (2000). In those instances, however, any dual representation is subject to the multiple client conflict rules of RPC 1.7 and, if it involves a situation where the corporation will be paying the constituent's legal expenses, RPC 5.4(c)

The distinction between an entity and its constituent members can have important practical consequences for both. In Commercial Development Co. v. Abitibi-Consolidated, Inc., No. C07-5172RJB, 2007 WL 4014992 (W.D. Wash. Nov. 15, 2007) (unpublished), for example, the court concluded that a law firm had represented both a corporation and one of its officers and found a resulting disqualifying conflict. RPC 1.13(f), therefore, imposes a duty on corporate counsel in such situations to explain to corporate constituents that corporate counsel represents the corporation only and not the constituents as individuals. See also RPC 4.3: "When the lawyer knows or reasonably should know that the unrepresented person misunderstands the lawyer's role in the matter, the lawyer shall make reasonable efforts to correct the misunderstanding." RPC 1.13 cmt. 11 notes that "[w]hether such a warning should be given by the lawyer for the organization to any constituent individual may turn on the facts of each case." These warnings—which are sometimes called "corporate Miranda warnings"— can be instrumental in proving later that the lawyer concerned was representing only the entity. See Youngs v. PeaceHealth, 179 Wn.2d 645, 676-77, 316 P.3d 1035 (2014) (Stephens, J., concurring in part and dissenting in part) (describing the role of such warnings under RPC 1.13). It can be equally important as a matter of evidentiary proof later to memorialize the warning contemporaneously in some fashion. See United States v. Ruehle,583 F.3d 600, 606 n.3 (9th Cir. 2009) (noting the difficulty of proof if the warning is not documented and the individual constituent denies that it was given).

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Note: In federal proceedings courts in the Ninth Circuit employ the "Bevill test" (named for In re Bevill, Bresler & Schulman Asset Mgmt. Corp.,805 F.2d 120 (3d Cir. 1986)) to determine whether a corporate constituent can claim an individual attorney-client privilege with corporate counsel. See United States v. Graf,610 F.3d 1148, 1159-62 (9th Cir. 2010); see also Grassmueck v. Ogden Murphy Wallace, P.L.L.C., 213 F.R.D. 567, 571-72 (W.D. Wash. 2003). Under the Bevill test, to establish an individual representation for purposes of applying the privilege, a corporate constituent must establish each of the following: (1) the constituent approached the corporation's attorneys for the purpose of seeking legal advice; (2) at that time, the constituent made it clear to the attorneys that legal advice was being sought in an individual rather than representative capacity; (3) the attorneys saw fit to represent the constituent personally, knowing a conflict could arise; (4) the constituent's conversations with the attorneys were in confidence; and (5) the substance of the conversations with the attorneys did not concern matters within the corporation or the general affairs of the corporation. Graf, 610 F.3d at 1161 (citation omitted). It is uncertain whether Washington state courts would apply the same rule under the statutory attorney-client privilege here.

Another difficult issue in the corporate setting is whether representation of one corporate affiliate will be deemed representation of an entire "corporate family" for purposes of evaluating conflicts of interest. The ABA Ethics Committee has concluded that representation of one corporate affiliate might, but will not necessarily, be considered representation of a broader corporate family:

It is the Committee's opinion that the Model Rules of Professional Conduct do not prohibit a lawyer from representing a party adverse to a particular corporation merely because the lawyer (or another lawyer in the same firm) represents, in an unrelated matter, another corporation that owns the potentially adverse corporation, or is owned by it, or is, together with the adverse corporation, owned by a third entity. The fact of corporate affiliation, without more, does not make all of a corporate client's affiliates into clients as well. Nonetheless, the circumstances of...