Legal Ethics Opinion No. 1458
Conflict of Interest: Attorney Representing Partnership and One
Partner Against Other Two Partners
You have indicated that a partnership is composed of three
partners: "A", a lawyer; "B", who has a background in real
estate; and "C", who has a background in construction. The
partnership's sole asset is a commercial building which is rented
to tenants and you indicate that B and C are the managing
partners of the real property while A is a "silent partner", not
being involved in the daily management of the company or privy to
the checkbook or checks written on its account.
You further advise that, during the course of financial
difficulties in the partnership, one of several noteholders was
to take over and manage the property and collect rents. The
noteholder later called the entire note. In a subsequent suit,
the noteholder sued A and B individually, and the partnership.
Partner B suffered a default judgment with full knowledge of the
consequences to be taken against him. You indicate that Lawyer
advised partner B that he should seek independent counsel and
that Lawyer was unable to represent him. Lawyer represented A
individually in the suit and, since one of A's assets was his
partnership interest, Lawyer also undertook representation of the
partnership. Lawyer sought to establish an offset which would be
due in favor of the partnership and A by virtue of the monies
held by noteholder which had been collected but not accounted for
during the time the noteholder had managed the properties.
You indicate that B and C knew of Lawyer's representation of the
partnership, that they voiced no objections to the
representation, and that they signed, and forwarded, partnership
checks to Lawyer. You also indicate that B and C never met with
Lawyer or discussed any confidential matters related to
partnership business, or otherwise, with him. You also state
that A never indicated to Lawyer that he has any secret or
confidence which would adversely affect his relationship with
either the partnership or with B and C.
Furthermore, you indicate that, in attempting to establish what
the partnership assets were in order to make an offer to the
noteholder for settlement, A and Lawyer requested B and C to
produce the partnership checkbook for which a subpoena duces
tecum was issued. The checks returned pursuant to the subpoena
indicated that while substantial bills were owed to the
partnership's creditors, B and C wrote substantial checks to
themselves, or to other persons, for their own benefit, not
related to partnership business.
You indicate that the partnership may have a potential cause of
action against B and C for misappropriation of funds, including
conspiracy allegations and possible treble damages under Va. Code
18.2-500. You also state that any such funds recovered would be
placed in the partnership account for purposes of paying the
creditors as required by statute. Finally, you represent that
the creditors' claims would far exceed the amount of reasonably
anticipated recovery, even if treble damages were to be awarded.
You have asked that the committee opine as to several issues
related to Lawyer's representation of A and of the partnership.
The appropriate and controlling Disciplinary Rule related to your
inquiry is DR 5-105 which dictates that a lawyer must refuse to
accept or continue employment if the interests of another client
may impair the independent professional judgment of the lawyer.
Further guidance is available through Ethical Consideration 5-l8
which, in pertinent part, exhorts the lawyer to recognize that
(l) a lawyer employed or retained by a corporation or similar
entity owes his allegiance to the entity and not to a
stockholder, director, officer, employee, representative, or
other person connected with the entity, and (2) on occasions when
a lawyer for an entity is requested by a stockholder, director,
officer, employee, representative, or other person connected with
the entity to represent him in an individual capacity, the lawyer
may serve the individual only if the lawyer is convinced that
differing interests are not present.
For purposes of responding to your inquiries, the committee
assumes that, although partner A is identified as a lawyer,
partner A and Lawyer are two separate individuals. The committee
responds to your inquiries relative to the facts you have
presented as follows:
1. With regard to your inquiry as to whether Lawyer may
represent partner A in asking the court to appoint a
conservator of the partnership's assets in order to
bring suit in the name of the partnership against
partners B and C, the committee believes it is well
settled that partner A and the partnership are
considered to be separate legal entities. See LEO
#557. See also ABA Formal Op. 9l-36l (July l2, l99l).
Under the facts you have presented, which assert that
the interests of partner A and the partnership are not
adverse, the committee opines that it would not be
improper for Lawyer to represent partner A in asking to
have a conservator appointed in order to bring a suit
in the name of the partnership against partners B and
C. The committee specifically does not opine on the
legality of the partnership suing one of its partners.
2. As to whether Lawyer may represent the partnership
and/or partner A in a suit against partners B and C
when Lawyer has neither represented partner B or C
individually nor met with or received confidences as to
the partnership or otherwise from B or C, the committee
opines that such representation would not be improper
under DR 5-105. Thus, again assuming that the
partnership and partner A are not adverse, it would not
be improper for Lawyer to represent both in the suit
against partners B and C.
3. With regard to your inquiry as to whether Lawyer must
withdraw from representing the partnership and partner
A in the pending suit brought against them by the
noteholder, the committee believes whether or not
Lawyer is authorized to represent the partnership is a
question of law, the resolution of which is beyond the
purview of this committee. However, assuming that
Lawyer is authorized to represent the partnership and
assuming further that there is no conflict under DR
5-l05 in Lawyer representing both A and the
partnership, the committee believes it irrelevant that
partner B has chosen not to go forward since Lawyer
never represented B and therefore possessed no secrets
or confidences of B. Thus, the committee is of the
view that, because Lawyer never represented partner B,
rather advising him to seek outside counsel, Lawyer may
then continue representation of partnership and partner
A.
Committee Opinion
May 11, 1992
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