Updates on Certain Ethical Issues
LSI Commercial Real Estate Leases
November 4, 2008
Jonathan W. Hughes, Esq.
Howard Rice Nemerovski Canady
Falk & Rabkin
Overview
•
Who is your client?
•
Entity theory of representation
•
When is “duty to warn” triggered?
•
Representing constituents of a corporation
•
Ex parte ethics rules
Fiduciary Duties Owed to
Clients
• Undivided Loyalty
• Candor
• Communication
• Competence
• Confidentiality
• Zealousness
3
Always Know Who Your Client
Is
• You owe your fiduciary duties to your client and only your
client
• If don’t know who client is, hard to comply with your
fiduciary duties
• So — who is your client?
4
Good News
• You can decide
• You can control
• But if you don’t, likely to be sorry
What Are The Rules?
• Entity theory of representation: most states follow this
theory
• Entity theory: when you represent an entity, your client
is the entity, not its “constituents”
• Constituents: officers, directors, shareholders,
members, managers, and employees
6
California Rule 3-600(A)
In representing an organization, an attorney shall conform
his or her representation to the concept that the client is the
organization itself, acting through its [authorized
representatives] overseeing the particular engagement
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California Case Law Is Also
Clear
The corporation is the client, not the officers, directors,
shareholders or employees
Meehan v. Hopps,
144 Cal. App. 2d 284, 293 (1956);
Skarbrevik v. Cohen, England & Whitfield,
231 Cal. App. 3d 692, 704 (1991)
8
Not Even The Board Is Your
Client
• The client is the fictitious corporate entity
• The Board is just a group charged with managing the
entity
• You advise the Board, but you represent the entity
Skarbrevik v. Cohen, England & Whitfield,
231 Cal. App. 3d 692, 704 (1991)
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What About?
• Associations
• LLCs
• Partnerships
1
0
Associations
• Representation of homeowners association does not
include representation of the homeowners (Smith v.
Laguna Sur Villas Community Ass’n, 79 Cal. App. 4th
639, 644 (2000))
• However, court may find otherwise depending on the
facts (see Benge v. Superior Court, 131 Cal. App. 3d
336, 347-48 (1982), attorney-client privilege applied to
union members)
Partnerships
• You can specify who client is
• If you don’t: whether you represent the partnership or
individual partners will be decided on a case-by-case
analysis
Responsible Citizens v. Superior Court,
16 Cal. App. 4th 1717, 1731-33 (1993);
Buehler v. Sbardellati,
34 Cal. App. 4th 1527 (1995)
Partnerships
• Partnership v. limited partner
• Law murky
Johnson v. Superior Court,
38 Cal. App. 4th 463 (1995)
Be Clear About Who Is NOT
Your Client
• In your own mind
• In your dealings with others associated with the entity
you represent (Rule 3-600(D))
• In your dealings with third parties
• Create a written record — be sure it gets to the right
parties
HOW DOES RULE 3-600(D) WORK?
The “Duty To Warn” A Constituent That You Do
Not Represent Him Or Her
• Is there such a duty?
• When is it triggered?
California Rule
• Rule 3-600(D):
– When dealing with an organization’s directors,
officers, employees, members, shareholders or other
constituents
– an attorney shall explain the identity of the client for
whom the member acts
– whenever “it is or becomes apparent that the
organization’s interests are or may become adverse
to those of the constituents with whom the attorney is
dealing”
Practice Pointers for
Rule 3-600(D)
• Must explain who you represent
• Do not behave as if you represent constituents
• Do not give personal advice
• Other steps you can take
May Represent Constituent
Along With Organization:
Rule 3-600(E)
• Attorney representing an organization may also
represent its constituents
• BUT representation of constituents is subject to the
conflicts rules (Rule 3-310)
Representing Constituents of
Entity Client
• You need to analyze conflicts
• Actual or potential — Rule 3-310(C)(1)-(2)
If Conflict Waiver Is Required
• If the entity’s consent is required; consent shall be given
by someone other than the constituent to be
represented, or by the shareholder(s) or organization
members (Rule 3-600(E))
Who Is Paying Your Fees?
If someone other than the client is paying your fees, comply
with Rule 3-310(F):
• Disclose situation to client in writing
• Obtain client’s informed written consent
• Protect privileged and confidential information
• Don’t let payor interfere
• Application to joint client situation
CONTACTING REPRESENTED
PARTIES: CALIFORNIA EX PARTE
ETHICS RULES
California Rules of Professional
Conduct, Rule 2-100(A)
“While representing a client, a member shall not
communicate directly or indirectly about the subject of the
representation with a party the member knows to be
represented by another lawyer in the matter, unless the
member has the consent of the other lawyer.”
Purpose of “no contact” rule
• To protect a represented person from possible
overreaching by other lawyers in the matter
• To prevent interference in opposing party’s attorneyclient relationship
• To prevent the uncounselled disclosure of privileged
information
ABA Model Rule 4.2 Comment [1]
Not limited to litigation
• “As used in paragraph (A), ‘the subject of the
representation,’ ‘matter,’ and ‘party’ are not limited to a
litigation context.”
Rule 2-100 Discussion
If Rule 2-100 applies,
• Consent of the other lawyer is required
• Consent of the opposing party is not enough
Every kind of direct or indirect
communication is prohibited
• Speaking in person
• Letters
• Emails
• Phone calls
“Knows to be represented”-Actual knowledge required
• California Rule 2-100 not triggered unless attorney actually
knows the contacted party is represented
• If no reason to believe, no duty to inquire
• However, actual knowledge may be established by
circumstantial evidence where attorney has “reason to
believe” party is represented; can’t “clos[e] eyes to the
obvious”
Snider v. Superior Court,
113 Cal. App. 4th 1187, 1209, 1215-16 (2003);
ABA Rule 4.2, Comment [8]
A party includes
• Current officer, director or managing agent of corporation
• Current partner or managing agent of partnership
• Current association member or employee of entity
– where subject of communication is act or omission by person
that may be binding on or imparted to entity in connection with
matter in dispute, or
– whose statement may constitute an admission on behalf of the
corporation
Rule 2-100(B)
Current Corporate Officers or
Directors
Contact with corporate officers and directors of adverse
corporate party is improper
• Even if not in the “control group”
• Even if in dispute with corporation (see Mills Land &
Water Co. v. Golden West Refining Co., 186 Cal. App.
3d 116, 127-29 (1986), decided under former rule)
However, contact with dissident officer or director ok if
represented by separate counsel who consents
• It is “advisable and prudent,” however, to get consent of
corporate counsel, too
La Jolla Cove Motel & Hotel Apts., Inc. v. Superior Court,
121 Cal. App. 4th 773, 789-90 (2004)
Managing Agents
• Employees who “exercise substantial discretionary
authority over decisions that determine organizational
policy” are managing agents
Snider v. Superior Court,
113 Cal. App. 4th 1187, 1209 (2003)
Current Employees
Rule 2-100(B)(2): contact with employees is prohibited
• “If the subject of the communication is any act or
omission of such person in connection with the matter
which may be binding upon or imputed to the
organization for purpose of civil or criminal liability,” or
• If the employee’s statement constitutes “an admission on
the part of the organization”
Contact with current
employees also prohibited if
employee is
• Separately represented
• An officer
• A director
• A managing agent
Employees
However, mere fact corporation has in-house counsel not
enough to constitute “actual knowledge”
Former officers and employees
• Ok to communicate with unrepresented former
employees of a corporation without the consent of the
attorney representing the corporation. Continental Ins.
Co. v. Superior Court, 32 Cal. App. 4th 94, 118-19 (1995)
• But not ok to inquire about privileged communications.
State Farm Fire & Casualty Co. v. Superior Court,
54 Cal. App. 4th 625, 652 (1997)
Experts
• Not a “party” under Rule 2-100
• But not ok to contact opposing party’s experts without
counsel’s permission, even if expert was only
interviewed — and not retained — by opposing party
See Shadow Traffic Network v. Superior Court,
24 Cal. App. 4th 1067, 1084-85 (1994)
Direct communication among
parties themselves ok
“Rule 2-100 is not intended to prevent the parties
themselves from communicating with respect to the subject
matter of the representation, and nothing in the rule
prevents a member from advising the client that such
communication can be made.”
Rule 2-100 Discussion
Exceptions
Rule 2-100(C) permits communications with represented
party if:
• “with a public officer, board, committee, or body”
• “initiated by a party seeking advice or representation
from an independent lawyer of the party’s choice” or
• “otherwise authorized by law”
Consequences of violating
Rule 2-100
• State Bar discipline
• Possible disqualification
• Usually not vicarious disqualification of entire firm