June 2, 1992
A law firm is not prohibited from defending a corporation in a wrongful termination case when a firm member who is also a director and former secretary of the corporation will be called as a witness, if the testimony of the lawyer/witness is consistent with the interests of the corporation and the representation of the corporation will not be materially limited by the law firm's responsibilities to the lawyer/witness or by the law firm's own interests.
References: MRPC 1.7(b), 1.16, 3.7(b); RI-97; CI-1106, CI-1156; Board of Education v. Nyquist, 590 F2d 1241 (1979).
An employee has filed a suit for damages against a former corporate employer alleging breach of contract for wrongful termination. The defendant corporation is represented by a law firm in which a member lawyer is also a member of the board of directors of the defendant corporation, and was its secretary during the time period involved in the suit.
Counsel for the plaintiff employee has filed a motion to disqualify counsel for the corporation alleging that the lawyer/director will be called as a witness, that the lawyer/director gave legal advice to the corporate defendant and can invoke the rules of privileged communication as to any advice given as a lawyer, and that, as a director, the lawyer/director would have to approve any settlement. Counsel also argues disqualification to avoid the appearance of impropriety.
In response to the motion for disqualification, the law firm denies that it had represented the defendant corporation prior to the law suit, asserts that the law firm has never represented the former employee in any capacity nor had any special relationship with the employee, and presents an affidavit of the lawyer/director asserting he/she never gave any legal advice nor represented the corporate defendant in any capacity other than as secretary/director, and never represented the employee nor gave the employee any legal advice.
The trial judge asks whether continued representation by the law firm is in violation of the ethics rules, and has forwarded the briefs of counsel for the parties to the Committee. Counsel for the parties have been advised that the judge is seeking an opinion from the Committee.
MRPC 3.7 states:
"(a) A lawyer shall not act as advocate at a trial in which the lawyer is likely to be a necessary witness except where:
"(1) the testimony relates to an uncontested issue;
"(2) the testimony relates to the nature and value of legal services rendered in the case; or
"(3) disqualification of the lawyer would work substantial hardship on the client.
"(b) A lawyer may act as advocate in a trial in which another lawyer in the lawyer's firm is likely to be called as a witness unless precluded from doing so by Rule 1.7 or Rule 1.9."
It appears from the motion that the lawyer/witness will be expected to testify as to conversations and meetings of the board, duties as secretary, and personnel changes of the corporation. There is no allegation that the lawyer/witness is the only person available to testify as to these matters, or that the matters are contested. Although the question of the lawyer/witness personally appearing as advocate in the matter is not at issue, it appears that the lawyer/witness would not be disqualified from personally representing the corporation in this matter under MRPC 3.7(a), since the lawyer is not a "necessary" witness.
Even if the lawyer/witness were disqualified as advocate for the corporation in the matter, the law firm of the lawyer/witness would not be imputedly disqualified unless there is also a conflict under MRPC 1.7 or 1.9.
Whether the lawyer/witness ever provided legal services to the corporation is in dispute. MRPC 1.9 addresses duties to former clients, but is based upon whether the prospective representation is materially adverse to the interests of the former client. Even if a previous lawyer-client relationship existed between the corporation and the law firm, those interests could not conceivably be materially adverse to the interests of the same corporation. Thus that particular factual dispute is not relevant to resolving the ethics issue.
MRPC 1.7(b) states:
"(b) A lawyer shall not represent a client if the representation of that client may be materially limited by the lawyer's responsibilities to another client or to a third person, or by the lawyer's own interests unless:
"(1) the lawyer reasonably believes the representation will not be adversely affected; and
"(2) the client consents after consultation. When representation of multiple clients in a single matter is undertaken, the consultation shall include explanation of the implications of the common representation and the advantages and risks involved."
MRPC 1.7(b) focuses on whether the lawyer's own interests or responsibilities a lawyer may owe to another client or to a third party materially limit the lawyer's ability to represent a client. If the representation would be materially limited, the lawyer may only undertake the representation if a disinterested lawyer would reasonably believe the representation would not be adversely affected and the client consents.
Since defendant corporation consents to the representation in this inquiry, the fact finder must determine that the law firm's representation will be materially limited by other responsibilities of the firm and that a disinterested lawyer could not reasonably believe the representation would not be adversely affected.
There is no per se prohibition against a lawyer serving on the board of directors of a client entity. CI-1106 concluded that a law firm may represent a hospital even though a member of the firm served on the hospital board of directors, provided that the lawyer/board member did not participate in issues which would have a financial impact on the law firm. The comment to MRPC 1.7 states:
"A lawyer for a corporation or other organization who is also a member of its board of directors should determine whether the responsibilities of the two roles may conflict. The lawyer may be called on to advise the corporation in matters involving actions of the directors. Consideration should be given to the frequency with which such situations may arise, the potential intensity of the conflict, the effect of the lawyer's resignation from the board, and the possibility of the corporation's obtaining legal advice from another lawyer in such situations. If there is a material risk that the dual role will compromise the lawyer's independence of professional judgment, the lawyer should not serve as director."
Therefore the mere fact that a member of the law firm serves on the board of the client entity is not sufficient for a violation of MRPC 1.7(b).
Several ethics opinions have addressed circumstances in which a law firm's duties to a witness affect the firm's ability to represent the client. CI-1156 opined that a lawyer must decline employment if the lawyer's responsibility to the client will be materially limited by the lawyer's personal interest in protecting a witness whose credibility is questioned. RI-26 opined that a lawyer could undertake representation where the lawyer's legal assistant would be a necessary witness about a contested fact, as long as the legal assistant's testimony was not inconsistent with the interests of the lawyer's client in the matter. RI-21 opined that a disinterested lawyer could not reasonably believe the representation would not be adversely affected when a member of the law firm of record testified adversely to the interests of the law firm's client. We do not find any specificity in the motion that addresses whether the lawyer/witness would be testifying inconsistently with the interests of the corporation, thus that determination is left to the fact-finder.
RI-37 opined that a disinterested lawyer could not reasonably believe a representation would not be adversely affected when, if successful, it would result in liability of the lawyer's partner. Since the lawyer/witness is not a party to the litigation, neither the lawyer/witness nor the corporation's law firm would have liability in this case.
The motion states that the lawyer/witness "influenced" the corporation regarding certain personnel decisions by being "vocal and outspoken" and by "making assessments" which allegedly carried great weight because of the dual status as a licensed lawyer, and that as a board member the lawyer/witness is interested in the case result and would influence any settlement. Even taking these allegations as true, the test is whether the activities are consistent with the interests of the defendant corporation.
The motion also alleges that the multiple role of the lawyer/witness may result in certain information sought by plaintiff to be refused on grounds of confidentiality or work product privilege. To the extent that those defenses are available, disqualification of defendant law firm will not remove them. Further, if these defenses are consistent with the interests of the defendant corporation, there is no conflict of interest.
Although the former Michigan Code of Professional Responsibility Canon 9 generally urged lawyers to "avoid even the appearance of impropriety," that provision has not been carried forward in the Michigan Rules of Professional Conduct. The argument that the relationship of the lawyer/director with the corporate law firm may have an appearance of impropriety is not a disciplinary standard under the rules, and is not a satisfactory basis for disqualification. Board of Education v. Nyquist, 590 F2d 1241 (1979).
Even if ethics rules are found to have been violated, the judge need not order disqualification, MRPC 1.16(c). The moving party has the burden of proof to show that an impermissible conflict exists which can only be resolved by disqualifying the opposing lawyer. Board of Education v. Nyquist, supra. In RI-97 we stated:
"We note that whether a lawyer who is counsel of record in litigation may withdraw is subject to the discretion of the tribunal, MRPC 1.16(c). The court must balance the integrity of the adversary process and the client's right to be represented by counsel of that client's own choosing. Dalrymple v. National Bank and Trust Co of Traverse City, 615 F Supp 979 (WD Mich 1985). In the interests of the administration of justice, and when weighing any hardship to the client, delay, and any other relevant factor, a presiding adjudicator may deny a motion for withdrawal or disqualification. Demis v. Demis, 564 NYS2d 515 (AD 3 Dept. 1990); Manning v. Waring Cox James Sklar and Allen, 849 F2d 222 (CA 6, 1988).
"It is not unethical to continue in a representation where the tribunal has declined to allow withdrawal."