Legal Ethics Opinion 1499

Conflict of Interest-Multiple Representation: Corporate Attorney
Defending Corporation and Shareholders Against Suit Brought by

You have presented a hypothetical situation in which Attorney Z
is counsel for a Virginia corporation which consists of six
shareholders.  The attorney represents the corporation in most of
its legal affairs and acts as registered agent.

The six shareholders made a written agreement, which includes the
corporation as a party, shortly after its incorporation. The
agreement covers several areas such as the purchase of stock upon
the death of a shareholder.  One provision of the shareholder
agreement provides that "the shareholders agree that they shall
vote their shares and otherwise act so as to provide the
directors of the corporation shall be six in number".  The
agreement then enumerates the six shareholders as the named six

The agreement then provides provides "that the officers of the
corporation shall be Shareholder X as president and Shareholder Y
as vice president and secretary." Shareholder X never had a
separate contract for employment as president. 
Attorney Z was not counsel for any party at the time the
agreement was drawn or for incorporation.

Several years after the agreement, four of the six
shareholder/directors who hold 65% of the corporation's
outstanding stock, held a board of directors' meeting to replace
Shareholder X as president of the corporation.  The meeting was
properly called and conducted. The four shareholders present held
the view that Shareholder X needed to be removed, for cause, due
to management conflicts, financial problems and other problems.

Shareholder X may now sue the shareholders in their individual
capacities for permitting themselves as directors to remove him
as president.  If such a suit is brought against the shareholders
individually, it may or may not also name the corporation as a

You have asked the committee to opine whether, under the facts of
the inquiry, Attorney Z may represent  who also constitute the
majority of the board of directors that voted Shareholder X out
as president, while also representing the corporation.

The appropriate and controlling Disciplinary Rules related to
your inquiry are 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; and DR 4-l0l which requires a lawyer to preserve
the confidences and secrets of a client.  Further guidance is
available through Ethical Consideration 5-18 which, in pertinent
part, exhorts the lawyer to recognize that (1) 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.

You state that Attorney Z was not counsel for any party at the
time the shareholder agreement was drawn or for incorporation. 
Assuming that Attorney Z has neither represented Shareholder X
nor met with or received confidences as to the corporation or
otherwise from Shareholder X, the committee opines that
representation of the corporation and the four shareholders would
not be improper under DR 5-105.  Thus, under the facts you have
presented, which assume that the interests of the shareholders
and the corporation are not adverse, it would not be improper for
Attorney Z to represent all, even if X files suit and names all
as defendants.  See LEOs #384, #1458.

The committee cautions, however, that should any potential
adversity mature into an actual conflict between the shareholders
and the corporation, the dictates of DR 5-l05(B) and (C) would
req withdraw from representation of both the shareholders and the
corporate entity.

Committee Opinion
December 14, 1992