Speaker 1: I'm Drew Stevenson and this is a lecture for my professional responsibility class about conflicts of interest and organizational clients. Here we're talking about model rule 1.7 and specifically comments 34 and 35 to 1.7. There's special issues that arise when you are representing a corporate entity, whether a for-profit corporation or a nonprofit. So a lawyer who represents a a corporation or other organization does not, by virtue of that representation, necessarily represent any constituent or affiliated organization, such as a parent or subsidiary. So just to clarify for my students, this means that if you are representing a company and they have a parent corporation, you're not necessarily also representing the parent corporation. Or if you represent a parent corporation, it doesn't mean that you are also the lawyer for all of their subsidiaries, at least for purposes of conflicts of interest analysis. Now, we're going to talk about some possible exceptions in a moment. But if I could give an example, I want you to think about a large state university system like the University of Texas. So they have several campuses. There's the UT Austin campus and others around the state, it's possible that one of those campuses could hire you to do some legal work for let's say their business school or their English department or something like that. It doesn't necessarily mean that you are the lawyer for the entire statewide university system. It's going to depend on how much autonomy the local branches or the subsidiaries of an organization have. So a lawyer for an organization may represent a party adverse to an affiliate in an unrelated matter. In other words, conflicts aren't going to apply unless the circumstances are such that the affiliate should also be considered a client of the lawyer. So sometimes the relationship is so tight it's basically just another wing or local branch, but all of the decision-making is centralized, that it really is one entity for purposes of conflicts analysis. But that's the unless, and we're going to give the second unless here. There's no conflict issues with the different subsidiary parts of a corporate client unless there's an understanding between the lawyer and the organizational client that the lawyer will avoid representation adverse to the client's affiliates. So in other words, you could just agree contractually. So you decide that you're going to represent, let's say, the Texas Medical Center or a Texas Children's Hospital and they have different entities, again, around the state. They could just make it part of your engagement contract that you can't represent clients whose interests are adverse to any of their sort of subsidiaries or departments or other branches around the state. So in other words, you can contractually obligate yourself with regards to conflicts of interest to some extent. Okay, so let's move on. There's also no conflict if the lawyer's obligations to either the organizational client or the new client are likely to impose a material limitation on the lawyer's representation of the other client. And so as long as that's not true, then there wouldn't be a conflict of interest if necessarily between those two entities, which means you could represent another client whose legal interests are adverse to this other subsidiary or parent corporate or of the organization that you're not really representing right now. But if it's going to impose a material limitation on you, so for example it's somehow going to influence your decision making or your legal judgment or something like that, so when you're representing another client you don't want to do anything that is going to hurt another branch because it's related to this corporate client you're representing, then that would be an issue. Okay, let's talk about the board of directors. It's very common for lawyers to represent a corporation and also have a seat on the board of directors. And I hope you can see why this is often a good idea. The board is making decisions about policy and new product lines and investments or selling off assets. assets and it's kind of nice if you have the corporate lawyer right there to say you can't do that that's illegal or we wouldn't have to do that or it will be costly or we're gonna it's gonna change our insurance risk or something like that. So let's see the issue that comes up here. A lawyer for a corporation or other organization who is also a member of its board of directors should determine whether the responsibility of the two roles may conflict. The lawyer may be called on to advise the corporation in matters involving actions of the directors. And so the problem is that if you are actually a voting member of the board, you could have a conflict because there could be legal action, for example, they're trying to force someone off the board or have voted someone off the board and that person is suing to hold their position, something like that. It could be the CEO who's also a board member is being fired. And so now you have a problem, right? Are you representing the entity or are you representing the board? Generally speaking, your client is the entity. We're going to have a whole other rule that we do at the end of the course. That's just about how this works with the client as an entity, not necessarily for conflicts purposes, but understanding who is your client and the chain of command within a corporation and things like that. But please be aware that if you have this dual role, you are a voting board member for a corporation, sometimes maybe you set up the corporation. And it's very common that if you set up a corporation for a client, you help them with their incorporation documents, that they'll ask you to be one of their initial board members. and that's okay that you can have those two roles, but you should be aware that there could be times where you have to advise the board about what's best for the board as opposed to what's best for the corporation. So here are the things that you kind of need to balance in your mind when you're deciding whether it's a good idea to try to wear both of these hats at the same time. How often while such situations arise, the potential intensity of the conflict, the effect of the lawyer's resignation from the board, and the possibility of the corporations obtaining legal advice from another lawyer in such situations. So a lot of my students haven't taken a corporations course yet, but you should be aware that sometimes we have things like shareholder derivative suits, where some of the shareholders actually sue the board of directors for mismanagement of the company because remember the shareholders are owners. Now sometimes this can be a sort of a coalition of lots of smaller shareholders but remember most shares in large corporations are held by large investment funds like pension funds and things like that and they have a lot of interest in how if they're if they have a billion dollars invested in the corporation and how it's being managed. So if they think it's being mismanaged, they can resort to litigation to try to force a change in the board or to force the board to do something else. And I want you to think about this situation. Now you're in this situation. Who's your client? Well, you're on the board. Those are your friends. You're in the meeting, but technically the corporation is. So you might have a conflict if the owners of the corporation want something different than the board of directors or if there's tension there. Okay, if there's a material risk that the dual role will compromise the lawyer's independence of professional judgment, the lawyer should not serve as a director or should cease to act as a corporation's lawyer when conflicts of interest arise. In other words, when there's a conflict, you're going to have to choose. And if you know this is going to happen a lot because of the just the nature of this corporation and your representation, then you should choose up front which role. Are you going to be on the board, or are you going to be the lawyer? But if you thought you could do both and now there's a situation where you have a conflict, essentially the board is you and the board are going to have to decide. Are you going to resign from the board and continue representing the corporation, or are you going to stay on the board and have the corporation find other representation, at least for this matter. Okay. The lawyer should advise the other members of the board that in some circumstances, matters discussed at board meetings while the lawyer is present in the capacity of director might not be protected by the attorney-client privilege and that the conflict of interest considerations might require the lawyer's recusal as a director or might require the lawyer and the lawyer's firm to decline representation of the corporation in a matter. So I want to make this very clear. Let's say you're representing a large corporation. They have you come to their board meetings. They even say, hey we're gonna make you an official member of the board so that you can vote and your face is on their website. You can get compensation for being a board member in addition to being the lawyer for the corporation. All All of that's fine, but the other corporate executives or board members may think that because the lawyer is in the room, any conversations they have are privileged. And if litigation ensues between some of the members of the board, you need to advise them that if you were in a meeting in your capacity as a board member, then the conversation is not privileged. Even though you are also an attorney, attorney-client privilege will not apply to that conversation. And that may be enough for, for, um, to, to throw your decision to, to make you decide either to be a board member and not rep the lawyer for the corporation. Um, uh, in, in which case there won't be any attorney-client privilege issue, or if it's going to be confusing for people, is this conversation privileged or not, then maybe you shouldn't be on the board. Okay, and that concludes our lecture about representing corporate clients, and at least for purposes of conflicts of interest.