May 22, 1995
A law firm, which has an "of counsel" relationship with a member of a public board which is involved in approving public loans for private undertaking, may not represent clients in matters before that board. Abstention by the board member affiliated with the law firm does not vitiate the conflict of interest.
References: MRPC 1.7(b), 1.10(a), 8.4(d); R-15; RI-22, RI-180, RI-194; C-241; Atasi Corp. v. Seagate Technology, 847 F2d 826 (Fed Cir 1988).
A law firm seeks to offer an independent contractor "counsel" position to a lawyer who is currently a member of the Board of the Michigan Strategic Fund (MSF). MSF is involved in authorizing loans for private activities from the proceeds of bonds executed and issued by MSF. The law firm currently represents clients seeking loans through the MSF in dealings with the staff of the MSF and other involved counsel, including the Michigan Attorney General's office (as issuer's counsel), bond counsel or counsel for the obligor, underwriter, credit bank and others. The law firm also occasionally serves as bond counsel, credit bank counsel or underwriter's counsel. The law firm is presently involved in roughly 3 to 6 of the transactions reviewed by the MSF annually and actively seeks to expand its practice before the MSF to include upwards of 12 transactions annually. Apparently, the MSF reviews over 100 transactions each year.
The lawyer which the law firm seeks to retain as an "independent contractor" or "counsel" was previously retained by the firm in a "counsel" relationship, devoting approximately two days per week to the firm's clients in exchange for a fixed monthly fee. The work performed by the lawyer for the firm did not involve bonds or representation of the firms clients engaged in transaction before the MSF. Upon accepting an appointment to the Board of the MSF, the lawyer/MSF board member severed the relationship with the firm in observance of prior opinions of the Committee.
The inquiring law firm is aware that prior ethics opinions RI-22 and C-241 appear to forbid a law firm employing a public official from representing clients in matters before the public body on which the firm member sits, and before any entity subordinate to that body. The law firm also notes an opinion from the State Board of Ethics, Advisory Opinion 94-EA-1, which purports to allow the law firm to continue representation in matters before the board as long as the lawyer abstains. The lawyer would not become personally involved in the law firm's representation of clients in board matters. If any issues involving the law firm's cases reach the board on which the lawyer sits, the lawyer would abstain from discussion and decision-making in the matter.
The law firm asks whether the nature of the lawyer's position with the firm as independent contractor makes any difference.
The Committee does not opine on questions involving statutory compliance under the State Ethics Act, MCL 15.341 et seq. The jurisdiction of this Committee is limited to questions arising under the Michigan Rules of Professional Conduct or the Michigan Code of Judicial Conduct and decisions based thereon. We note, however, that Advisory Opinion 94-EA-1 appears to be based upon (1) whether the lawyer is an employee or independent contractor of the law firm, and (2) the volume of board transactions handled by the law firm each year. The latter presumably relates to how much impact the lawyer's abstention as board member would have on the work of the board. Neither of these considerations are factors under the Michigan Rules of Professional Conduct.
The lawyer/MSF board member's proposed status with the law firm is variously described as "independent contractor" and "counsel" in the inquiry, and as "of counsel" in the State Board of Ethics opinion. Given the absence of clarification of the proposed relationship, it is assumed that the relationship will be what is generally considered "of counsel." For purposes of the imputed disqualification provision of MRPC 1.10(a), a lawyer described as "of counsel" is nonetheless "treated as one of the firm for purposes of the ethics rules, e.g., lawyer disqualification. RI-102. See also, Atasi Corp. v. Seagate Technology, 847 F2d 826 (Fed Cir 1988); Hazard & Hodes, The Law of Lawyering, Sec 1.10:202. In RI-194, MRPC 1.10 was applied equally to a "partner, shareholder, employee or other associate of the law firm." Thus, for purposes of this opinion, the lawyer/MSF board member is properly treated as a member of the inquirer law firm for purposes of MRPC 1.10(a), and the status as either a partner, associate or employee of the firm has no impact on this opinion.
As to the primary focus of the inquiry, this Committee addressed a virtually identical factual setting in RI-22 and concluded that "the law firm of a public commissioner or government official may not represent clients appearing before the Commission or Board, nor before any entity subordinate to that body." In reaching this conclusion, the Committee focused on MRPC 1.7(b) and 1.10(a).
MRPC 1.7(b) states:
"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 1.10(a) states:
"While lawyers are associated in a firm, none of them shall knowingly represent a client when any one of them practicing alone would be prohibited from doing so by Rules 1.7, 1.8(c), 1.9(a) or (c), or 2.2."
Based upon an analysis of these rules and a prior decision of the Committee in C-241, RI-22 concluded:
". . . if the public official could not represent the client because of the official's duty to a 'third person', i.e., constituents of the agency as an entity, then MRPC 1.10 would disqualify the firm . . . . It would appear that the specter of conflict of interest, be it actual or merely apparent, under either setting prohibits a firm's representation under the circumstances presented."
Each time the Committee has considered inquiries similar to that presented here, it has been determined that the existence of an "inexorable conflict" between the roles of public servant and private counsel prevents a disinterested lawyer from forming a reasonable belief that the representation of a private client will not be "materially limited by the lawyer's responsibilities" to the public entity also served by the lawyer. R-15; RI-180. For example, in RI-194 the Committee opined that it is unethical for any partner, shareholder, employee, or other associate of a law firm to represent a private client in a character and fitness proceeding when another lawyer of the same law firm is a member of either the State Bar of Michigan Standing Committee on Character and Fitness or any district character and fitness committee.
In the present case, the lawyer/MSF board member and the law firm each apparently recognize that an inexorable conflict would be created by the proposed relationship and thus each has indicated that the lawyer/MSF board member intends to disqualify from participating as a member of the MSF board in any matters in which the law firm is involved. The questions remaining are whether the proposed abstention vitiates the conflict, and whether other ethical prohibitions exist which are not cured by the proposed abstention.
Initially, it is noted that the law firm presently represents clients in roughly 3 to 6 of the transactions reviewed by MSF annually and that it seeks to increase its representation of clients to upwards of 12 transactions each year. Apparently, MSF reviews over 100 transactions annually. Given the number of transactions processed by MSF, it is assumed that as a matter of necessity, administrative procedures and policies have been developed which apply to most, if not all, transactions and that the MSF board is involved in establishing and reviewing those administrative procedures and policies. Additionally, it is understood that an aspect of the firm's representation of clients before the MSF board involves dealings with MSF staff relative to the administrative processing of loan requests or other matters relevant to the processing of the transaction. The question thus becomes whether the disqualification of the lawyer/MSF board member from only those matters in which the law firm is directly involved vitiates an otherwise inexorable conflict.
R-15 addressed a similar concern in considering the distinction between the lawyer/MSF board member's involvement in decisions directly affecting the member's fees and the member's role in addressing policy or administrative issues as a public official. There, it was concluded:
"If it were simply a matter of approving the lawyer's own fees for services in indigency cases, the lawyer/commissioner's abstention from that review might vitiate the conflict. However, commissioners are asked to determine a variety of issues regarding indigent defense beyond the approval of individual lawyer fees. Such decisions may affect whether lawyers are willing to serve as indigent counsel, how frequently they may be appointed, and whether they serve in misdemeanor or felony matters. Pursuant to MRPC 1.7(b)(1), the lawyer/commissioner's abstention from voting on the lawyer's bill will not cure the impropriety, notwithstanding the manner in which the court appointments are handled, and regardless of whether the fees are fixed or variable."
Thus, focusing on the number of transactions in which the law firm is directly involved is an insufficient indicator of those instances where potential conflicts will arise. Indeed, it will be virtually impossible for the lawyer/MSF board member to identify when involvement in an administrative or policy matter will or will not have an impact on the law firm's clients and thus impossible to determine when to abstain from involvement in a matter to be decided by the MSF board, whether it relates to a specific transaction or a policy or administrative matter. This same concern was opined in RI-180 where it was noted that "[w]hile the lawyer/commissioner intends to refrain from participation in law firm matters involving the police department, there exists a risk that some breach, even inadvertent, of public trust could occur."
MRPC 8.4(d), which provides that it is unethical to "state or imply an ability to influence improperly a governmental agency or official," is also impacted in these situations. It is assumed that the relationship between the law firm and the lawyer/MSF board member involved here will be noted on the law firm's stationary. Intentionally or not, the appearance of the name of a member of the Board of the MSF on the letterhead of a law firm which regularly represents clients before that board raises the implication that the law firm could influence the outcome of matters reviewed by the Board. RI-194.
In applying conflict of interest rules involving multiple clients or multiple lawyers, it is useful to view the representations from the perspective of the "most tainted" lawyer in the firm. Under MRPC 1.10(a), if it is unethical under MRPC 1.7 for one member of the firm to undertake a particular representation, it is unethical for any member of the firm to undertake that representation. If the fact situation presented in this inquiry is considered as though the board member personally were going to perform the representation of the firm's clients in matters involving the agency, the above analysis becomes even more compelling.
For the reasons stated above, it would be unethical, pursuant to MRPC 1.7(b) and 1.10(a), for the law firm to represent clients before the MSF while maintaining an "of counsel" relationship with the lawyer/MSF board member, regardless of whether the lawyer/MSF board member abstains from acting as a MSF board member in connection with transactions involving clients of the law firm.