Can a lawyer represent a school district buying land from someone who sits on the board of a bank the lawyer's firm represents in unrelated matters?

Plain-English summary

A lawyer is outside real estate counsel to a school district, which asks her to represent it in buying a tract of land. The seller is a real estate developer who serves on the board of directors of a bank that the lawyer's firm represents in other, unrelated matters. Neither the lawyer nor the firm has ever represented the board member individually or his development business, the board member is not a controlling shareholder, and the bank has no interest in the land transaction.

The Committee starts with Rule 1.12(a), under which a lawyer retained by an organization represents the entity, not its directors, officers, members, or shareholders (Comment 1). So the firm's representation of the bank does not create a lawyer-client relationship with the board member, and the loyalty owed runs to the bank as an entity. The real question is whether the firm's representation of the bank would adversely limit the lawyer's representation of the school district against the board member, and if any lawyer in the firm were conflicted, Rule 1.06(f) would impute it to the whole firm.

Applying Rule 1.06(b)(2), the school district is the prospective client, the bank is a current client, and the board member is a third person to whom the firm has responsibilities only in his capacity as a bank director. The Committee finds no prohibited conflict: the firm's only responsibility to the board member is in that capacity, the bank has no interest in the land transaction so the matter is unrelated to the firm's bank work, there are no special dealings between the firm and the board member, and the firm has never represented him or his business. The representation therefore does not reasonably appear to be adversely limited under Rule 1.06(b)(2).

In practice

Under this opinion, and under the Texas rules as they stood at the time, a lawyer can represent a buyer against a seller who happens to sit on the board of a bank the lawyer's firm represents, where the firm's relationship is with the bank as an entity and the deal is unrelated to the firm's bank work. The Committee's analysis rests on Rule 1.12(a) (the entity, not its constituents, is the client) and a fact-specific Rule 1.06(b)(2) assessment finding no adverse limitation; had a conflict existed, Rule 1.06(f) would have imputed it to the firm.

Common questions

Q: My firm represents a bank; can I represent a client adverse to one of the bank's directors in an unrelated deal?

A: Per Opinion 564, yes, on these facts. The Committee says the firm represents the bank as an entity, not its directors, so no lawyer-client relationship exists with the director and no Rule 1.06(b)(2) conflict appears.

Q: Does representing the bank make its directors my clients?

A: No. The Committee says, citing Rule 1.12(a) and Comment 1, that representing an organization does not as a matter of law create an attorney-client relationship with its directors, officers, or shareholders.

Q: What facts mattered to the no-conflict conclusion?

A: The Committee relied on the bank having no interest in the land transaction, the firm never having represented the director or his business, the director not being a controlling shareholder, and no special dealings between the firm and the director.

Background and rules framework

The opinion interprets Texas Disciplinary Rule 1.12 (organization as client), corresponding to ABA Model Rule 1.13, and Rule 1.06 (conflicts of interest), corresponding to ABA Model Rule 1.7: Rule 1.06(b)(2) (representation adversely limited by responsibilities to another client or third person) and Rule 1.06(f) (imputation within a firm), which relates to ABA Model Rule 1.10.

Citations and references

Rules of Professional Conduct:

• MR 1.13 (organization as client)
• MR 1.7 (conflict of interest, current clients)
• MR 1.10 (imputation of conflicts within a firm)
• Texas Disciplinary Rule 1.12(a), Comment 1
• Texas Disciplinary Rule 1.06(b)(2), 1.06(f)

See also

• TX Ethics Op. 569: Representing a Client Against a Customer of the Lawyer's Law-Related Business
• TX Ethics Op. 578: Suing a Former-Client Municipality, and Whether Screening Helps

Source

• Landing page: https://www.legalethicstexas.com/resources/opinions/opinion-564/
• Original PDF: https://tcle-web.s3.amazonaws.com/public/documents/Opinion_564.pdf

Original opinion text

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

QUESTION PRESENTED

May a lawyer represent a school district in the purchase of real estate from an individual who currently serves as a member of the board of directors of a bank represented by the lawyer’s law firm in other unrelated matters?

STATEMENT OF FACTS

A lawyer serves as outside counsel to a school district in real estate matters. The school district recently contacted the lawyer and asked her to represent the district in the purchase of a tract of real estate. The seller of the real estate is a real estate developer who currently serves as a member of the board of directors of a bank (the Board Member). The lawyer is a member of a law firm that represents the bank in other unrelated matters. Neither the lawyer nor the law firm has ever represented the Board Member individually or the Board Member’s real estate development business. The Board Member does not own a controlling stock ownership interest in the bank. For purposes of this opinion, it is assumed that the bank has no interest in entering into any transaction involving the tract of real estate in question.

DISCUSSION

The bank is an organization. Rule 1.12(a) of the Texas Disciplinary Rules of Professional Conduct provides that “[a] lawyer employed or retained by an organization represents the entity.” Comment 1 to Rule 1.12 explains that “[a] lawyer employed or retained to represent an organization represents the organization as distinct from its directors, officers, employees, members, shareholders and other constituents.” Thus, the loyalty of the lawyer and her law firm is to the bank as an entity and not to the bank’s individual constituents.

Moreover, since representation of an entity does not, as a matter of law, create an attorney-client relationship with the entity’s shareholders, officers, or directors, it follows that the law firm’s representation of the bank does not, in and of itself, create an attorney-client relationship with the Board Member. Therefore, the real issue is whether the law firm’s representation of the bank might adversely limit the lawyer’s representation of the school district in the purchase of real estate from an individual who serves as a member of the bank’s board of directors. If the law firm or any lawyer in the firm has a conflict of interest because the Board Member serves on the bank’s board of directors, then Rule 1.06(f) would prohibit any other lawyer in the firm from engaging in such representation while the lawyer is a member of or associated with such firm.

Rule 1.06(b) provides in pertinent part that except to the extent permitted by Rule 1.06(c):

“... a lawyer shall not represent a person if the representation of that person: ...

(2) reasonably appears to be or become adversely limited by the lawyer’s or the law firm’s responsibilities to another client or to a third person or by the lawyer’s or law firm’s own interests., “

In the application of Rule 1.06(b)(2), the school district is the prospective client for the lawyer and her law firm, the bank is another current client of the law firm, and the Board Member is a third person to whom the law firm would have responsibilities only in the Board Member’s capacity as a member of the bank’s board of directors.

The Committee believes that under the facts here presented, there appears to be no prohibited conflict. The only responsibility that the law firm owes to the Board Member is in his capacity as a member of the client bank’s board of directors. Since the bank has no interest in entering into a transaction relating to the tract of real estate owned by the Board Member, the proposed transaction is unrelated to the law firm’s representation of the bank. There are also no special circumstances indicating any special relationship or dealings between the law firm and the Board Member. The law firm has not previously represented the Board Member or his real estate business; he merely serves on the bank’s board of directors and is a minority shareholder of the bank. Therefore, it does not reasonably appear that the lawyer would be adversely limited under Rule 1.06(b)(2) in her responsibilities to the school district because of her position as a member of the law firm and the law firm’s representation of the bank in unrelated matters.

CONCLUSION

Under the Texas Disciplinary Rules of Professional Conduct a lawyer may represent a school district in its purchase of real estate from an individual who currently serves as a member of the board of directors of a bank that the lawyer’s law firm represents on other unrelated matters.

Tex. Comm. On Professional Ethics, Op. 564 (2005)