12.06. The Client in the Organizational Context [Rule 1.13]

When you represent an individual, it is easy to know who the client is.  It is the person who signed the engagement letter, the person whose name will be on the pleadings or documents.  There could be situations where you may have to take steps on behalf of the client if they are diminished, but it is always clear who the client is.  In the organizational context, identifying the client you will be advising is more difficult.  If you represent the interests of Widgets, Inc., who is your client?  Is it the legal fiction identified as Widgets, Inc.?  Is it the board of directors that makes the decisions on behalf of Widgets, Inc.?  Is it all of the employees of the company? Or is it some combination of these?  This question becomes even more complicated when you start adding subsidiaries of the parent company – do you represent them too?

This initial question is answered in Rule 1.13(a):  “A lawyer employed or retained by an organization represents the organization acting through its duly authorized constituents.”  So, a lawyer representing Widgets, Inc. represents the interests of the company and not the interests of the board of directors or the employees.  However, Rule 1.13(a) also recognizes that Widgets, Inc. cannot speak or act on its own.  In the 2012 presidential campaign Mitt Romney uttered the now famous phrase “Corporations are people, my friend.”[1]  That may be true for constitutional rights, but a corporation, unlike an individual cannot speak on its own.  It must speak through its governing body.  Therefore, when a lawyer represents an organization, the lawyer represents the organization’s interests “acting through its duly authorized constituents.”  Those constituents constitute the “brain” of the organization.

A difficult issue in the organizational context involves affiliates – those organizations within the family tree.  There is no general rule for when an organization’s affiliate is also a client of the lawyer.  A couple of points can be made.  First, if the engagement letter says that the lawyer represents affiliates, then the lawyer represents the affiliates.  If the engagement letter says that the lawyer does not represent affiliates, there is a presumption that the lawyer only represents the parent company, unless there are additional facts indicating that the lawyer in fact represented the affiliate.

Leopold Lawyer represents Widgets, Inc.  The board of directors of Widgets votes to hire Lawyer to investigate potential wrongdoing by one of Widgets’ employees (liability could be imputed to Widgets).  Lawyer interviews the employee that was involved in the alleged wrongdoing.  Is the interview protected by obligation of confidentiality under Rule 1.6? [ABA Rule 1.13, Comment [2]]

Yes.  Lawyer’s client is Widgets, Inc.  The information learned during the course of the interview is “relating to representation” of Widgets.  Lawyer can disclose the information only if it is impliedly authorized to carry the representation of Widgets, Widgets consents to the disclosure, or one of the exceptions in Rule 1.6(b) applies.  Note, however, that Lawyer does not represent the interests of the employee.  The information can be disclosed if it benefits Widgets even if it harms the employee.

The situation with employees can be a difficult one for the lawyer.  In most situations, when an employee is acting within the course and scope of their employment, any negligent conduct of the employee will be imputed to the employer through the doctrine of respondeat superior.  That means that the interests of the organization and the employee are aligned – both are seeking to limit the amount of liability – and neither has a claim against the other.  In these situations, a lawyer can represent both the organization and the employee.  Thus, Rule 1.13(g) provides: “A lawyer representing an organization may also represent any of its directors, officers, employees, members, shareholders or other constituents, subject to [conflict of interest rules].”  This is very common.

Leora Lawyer represents Widgets, Inc.  Edward Employee is a delivery driver for Widgets.  One day while Employee was delivering widgets, he took his eyes off the road and hit Polly Plaintiff.  Plaintiff sues Widgets and Employee for Employee’s negligence.  The facts indicate that the accident was merely negligent (not intentional) and was within the course and scope of Employee’s job.  Therefore, Widgets would be responsible for any damages under the doctrine of respondeat superior.  Can Lawyer represent both Widgets, Inc. and Edward Employee in the case by Polly Plaintiff?

Yes.  This is a classic example where the interests of the employee and the organization are aligned.  This expressly recognized in Rule 1.13(g).  If Lawyer accepts representation of both Widgets and Employee, she will owe the duties of loyalty and confidentiality to both of her clients. 

There are situations, however, where the interest of the organizational client and the employees of the client conflict – and in those situations, the organization’s lawyer can only represent the interests of the organization.

Levi Lawyer represents Widgets, Inc.  Lawyer recently received a lawsuit naming Widgets, Inc. and Elvin Employee as defendants.  The complaint alleges that an employee of Widgets, Elvin Employee, defrauded the plaintiff (a store that purchases Widgets).  If true, the conduct would be intentional and outside the course and scope of Elvin’s employment (and therefore Widgets would not be responsible for any damages awarded).  Can Lawyer represent both Widgets, Inc. and Elvin Employee in the lawsuit?

No.  In this fact pattern there is a clear conflict of interest between Widgets and Employee.  Because Employee may be confused and believe that Lawyer also represents his interest, Lawyer has an obligation to make it clear that is not true.  Here is what Rule 1.13(f) requires: “In dealing with an organization’s directors, officers, employees, members, shareholders or other constituents, a lawyer shall explain the identity of the client when the lawyer knows or reasonably should know that the organization’s interests are adverse to those of the constituents with whom the lawyer is dealing.”  A Comment provides even more guidance and is worth quoting at length:

There are times when the organization’s interests may be or become adverse to those of one or more of its constituents.  In such circumstances, the lawyer should advise any constituent, whose interest the lawyer finds adverse to that of the organization of the conflict or potential conflict of interest, that the lawyer cannot represent such constituent, and that such person may wish to obtain independent representation.  Care must be taken to assure that the individual understands that, when there is such adversity of interest, the lawyer for the organization cannot provide legal representation for that constituent individual, and that discussions between the lawyer for the organization and the individual may not be privileged.[2] 

The bottom line is this:  a lawyer for an organization represents the interests of the organization.  The lawyer can also represent an employee in a matter so long as the interests of the organization and the employee are not at odds.  If the interests are at odds, it is the responsibility of the lawyer to make sure that the employee knows who the lawyer represents and what that means.  The Lopez case in the Readings demonstrates what happens when these rules are not followed.

[1] Philip Rucker, Mitt Romney says ‘corporations are people,’ Washington Post (Aug. 11, 2011)( https://www.washingtonpost.com/politics/mitt-romney-says-corporations-are-people/2011/08/11/gIQABwZ38I_story.html?utm_term=.71f840f35567 (last visited April 17, 2017)).

[2] ABA Rule 1.13, Comment [10].