I represent a corporation and its sole shareholder, and I've done work for an employee too. Can I represent the shareholder in selling stock to that employee?

Plain-English summary

An attorney represents a corporation and its sole shareholder for both corporate and personal matters, and has also provided legal services to an employee who manages the corporation's business affairs. The sole stockholder seeks to sell the employee stock in the corporation, payable by a promissory note, in a transaction that also involves negotiating and executing a long-term employment contract for the employee. The employee will be represented by independent counsel. The attorney asks whether the firm can represent the stockholder in the transaction given the prior representation of the employee.

The opinion says that, on the facts provided, the Panel cannot determine whether the employee has a continuing attorney-client relationship with the firm or is a former client, so it addresses both possibilities. If an attorney-client relationship exists, Rule 1.7 applies and the attorney should strictly adhere to its language, which bars representation directly adverse to another client, or representation materially limited by responsibilities to another client, absent the required reasonable belief and client consent after consultation.

If the employee is no longer a client, Rule 1.9 (Conflict of Interest: Former Client) applies. Under that Rule, the opinion concludes that representing the stockholder would be permissible as long as the matters are not "substantially related" to the prior representation of the employee and the attorney does not use information relating to the prior representation to the disadvantage of the employee.

In practice

Under this opinion, the threshold question the lawyer must resolve is factual: is the employee still a client or a former client? That status selects the governing rule. As a current client, the transaction is a Rule 1.7 concurrent-conflict problem requiring consent after consultation. As a former client, Rule 1.9 allows the representation subject to two limits the opinion identifies: the new matter must not be substantially related to the prior representation, and the lawyer must not use information from the prior representation to the former client's disadvantage.

Common questions

Q: Can a lawyer represent a shareholder against someone the firm has also represented?

A: It depends on whether that person is a current or former client. The opinion applies Rule 1.7 if the employee is still a client and Rule 1.9 if the employee is a former client.

Q: If the employee is a current client, what does Rule 1.7 require?

A: The opinion says the attorney should strictly adhere to Rule 1.7, which permits the adverse or materially-limited representation only if the lawyer reasonably believes it will not be adversely affected and each client consents after consultation.

Q: If the employee is a former client, when is the representation allowed?

A: The opinion concludes it is permissible as long as the matters are not substantially related to the prior representation and the lawyer does not use information from that representation to the employee's disadvantage.

Background and rules framework

The opinion interprets Rhode Island Rules of Professional Conduct 1.7 (conflict of interest: general rule) and 1.9 (conflict of interest: former client), analogs of the corresponding Model Rules, and references Rules 1.6 and 3.3 through Rule 1.9(b)'s cross-reference. Rule 1.7 governs concurrent conflicts and requires reasonable belief plus consent after consultation; Rule 1.9 bars representation in the same or a substantially related matter adverse to a former client absent consent, and bars adverse use of information from the prior representation.

Citations and references

Rules of Professional Conduct:

• MR 1.7 / RI RPC 1.7 (conflict of interest: general rule)
• MR 1.9 / RI RPC 1.9 (conflict of interest: former client)
• MR 1.6 / RI RPC 1.6 (confidentiality; referenced via Rule 1.9(b))
• MR 3.3 / RI RPC 3.3 (candor toward the tribunal; referenced via Rule 1.9(b))

See also

• RI EAP Opinion 2019-02: no conflict representing a buyer against a former corporate client where matters are not related
• RI EAP Opinion 2017-05: no conflict representing a client adverse to an affiliate of a former firm's client

Source

• Landing page: https://www.courts.ri.gov/attorney-resources/Pages/Ethics-Advisory-Panel-default.aspx
• Original PDF: https://www.courts.ri.gov/Opinions/EAP%2093-23.pdf

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

Final
ETHICS ADVISORY PANEL
Opinion #93-23, Request #356
Issued June 2, 1993

An attorney represents a corporation and its sole shareholder for both corporate and personal matters. The attorney has also provided legal services to an employee of same corporation who manages the business affairs of the corporation. The sole stockholder of the corporation seeks to sell the employee stock in the corporation payable by a promissory note. The sole transaction will also involve the negotiation and execution of a long term employment contract for the employee. The employee will be represented by independent legal counsel. The attorney asks whether the firm can represent the sole stockholder in the transaction given the prior legal representation of the employee.

Given the facts provided, the Panel is unable to determine whether the employee has a continuing attorney-client relationship with the law firm or whether the employee is a former client to the law firm.

If an attorney-client relationship exists, Rule 1.7 applies and the attorney should strictly adhere to its language. Rule 1.7 states:

(a) A lawyer shall not represent a client if the representation of that client will be directly adverse to another client, unless:

(1) the lawyer reasonably believes the representation will not adversely affect the relationship with the other client; and

(2) each client consents after consultation.

(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.

If the employee is no longer a client of the law firm, then the employee would be a former client and Rule 1.9 entitled "Conflict of Interest: Former Client" would apply. Rule 1.9 states:

A lawyer who has formerly represented a client in a matter shall not thereafter:

(a) represent another person in the same or a substantially related matter in which that person's interests are materially adverse to the interests of the former client unless the former client consents after consultation; or

(b) use information relating to the representation to the disadvantage of the former client except as Rule 1.6 or Rule 3.3 would permit or require with respect to a client or when the information has become generally known.

Under this Rule, representation of the stockholder would be permissible as long as the matters are not "substantially related" to the prior representation of the employee and the attorney does not use information relating to the prior representation to the disadvantage of the employee.