ETHICS DOCKET NO. 1987-42

MARYLAND STATE BAR ASSOCIATION, INC.

COMMITTEE ON ETHICS

ETHICS DOCKET NO. 1987-42

Conflicts: Board member’s representation of a client doing business with Board’s company

In your letter dated March 21, 1987, you state that the A Insurance Company will select by a competitive bidding process a service company that will, under contract, administer A Insurance Company a insurance program. The service company selected will administer the A Insurance Company in accordance with the policies and protocols set by the Board of Directors and originated within its Executive Committee. The policies and protocols will establish generally how the service company should handle underwriting and claims matters. The Executive Committee will have primary responsibility for overseeing the service company's administration of the A Insurance Company.

Lawyer X is a member of the A Insurance Company's Board of Directors and its Executive Committee. He has represented a potential service company for a number of years primarily on regulatory and defense matters although he does give advice on general insurance matters from time-to-time. His representation of the company is on a case-by-case basis. He has no retainer agreement with the company. The Company is a major client of Lawyer X and accounts for a substantial amount of his billings, although the total billings are relatively small in comparison with his firm's other clients.

You state that Lawyer X will be screened from participation in the competitive bidding process by which the A Insurance Company will select a service company and if the company is awarded the bid, Lawyer X will in no way represent the company in negotiations with the A Insurance Company. You request an opinion of the Committee as to whether it is possible for Lawyer X to represent the A Insurance Company's service company on a case-by-case basis in matters unrelated to the A Insurance Company's Board of Directors and its Executive Committee.

Rule 1.7 of the Maryland Rules of Professional Conduct provides:

 

(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.

(c) The consultation required by paragraphs (a) and (b) shall include explanation of the implications of the common representation and any limitations resulting from the lawyer's responsibilities to another, or from the lawyer's own interests, as well as the advantages and risks involved.

The concept underlying this provision is that loyalty to a client is an essential element of the lawyer-client relationship. Therefore, the rule generally precludes undertaking a representation directly adverse to a client, even in a wholly unrelated matter, and prohibits participating in a representation in which a lawyer's other responsibilities are likely to affect his independent judgment on his client's behalf.

In the situation presented, Lawyer X as Board Member and is not acting in a but his fiduciary respects to his obligations to a client, i.e., he is obligated to act in the best interests of the entity and its members. As a member of the Executive Committee and the Board he will participate in establishing general policy with regard to how underwriting and claims matters are to be handled. We assume that these policies can be more or less favorable to the service company. Moreover, Lawyer X will also participate in determining, on behalf, how well the service company is performing its obligations to the A Insurance Company.

On the other hand, since the service company is a major client of Lawyer X and accounts for a substantial amount of his billings, it is likely that Lawyer X will be representing the service company on some matter at all times. Therefore, not only will the service company continually expect his loyalty, but his own financial interest is closely allied to the success of that service company. As it is likely that differences will arise during the course of the relationship between and the service company, it is difficult to see how Lawyer X would not be subject to conflicting obligations in simultaneously representing the company and fulfilling his obligations to the A Insurance Company.

While we recognize the potential conflicting interests of Lawyer X, we do not perceive that those conflicts necessarily implicate the Rules of Professional Conduct. This Committee has previously opined that as follows: 

""...(An) attorney having a law-related second-profession must be always cognizant of the capacity in which he is representing a client, always cognizant of the strictures placed upon him by the (Rules of Professional Conduct), always cognizant of the fact that no matter in which he is at any moment acting, he is always subject to the guidelines and standards of the (Rules of Professional Conduct), and that these guidelines and standards impose strictures upon him or her that may not be applicable to other practitioners of the second-profession."" MSBA Docket 78-7.

However, we do not perceive that even if Lawyer X's role on the Board and the Executive Committee is deemed a second-profession, that it is a law-related second-profession. Thus, while acting as a Board Member and Executive Committee Member of the A Insurance Company and notwithstanding that he may have been appointed to the Board because he is a lawyer, he is acting as a businessman, and his obligations to are established by the fiduciary duties of a member of the Board of Directors. Except for conduct involving dishonesty, fraud, deceit or misrepresentation, immoral acts adversely reflecting on a lawyer's fitness, and certain other conduct obviously not here applicable, which by definition are ""professional misconduct,"" see Rule 8.4(d) (f), we do not perceive that his conduct, as a member of the Board of Directors and not as a professional, is governed by the Rules of Professional Conduct. Rather, it is governed by corporate law and any statutes applicable to the A Insurance Company. .

We recognize that in the course of representing the, service company Lawyer X may obtain information concerning the service company which might bear on the service company's obligation to This information could place Lawyer X under conflicting obligations. (Contrast, Rule 1.6, which generally prohibits a lawyer from disclosing information concerning a client, with Maryland Code

Annotated, Corp. & Asso. Art. §2-405.1(a), which requires a director to perform his duties, inter alia, in a manner he reasonably believes to be in the best interest of the corporation; see also 52-419(a)). In such circumstances, as a lawyer, Lawyer X must comply with the Rules of Professional Conduct. As a Committee, it is outside the scope of our authority to opine on how Lawyer X must act in his capacity as a member of the Board of Directors under such circumstances except to note, as stated above, that he is always subject to the standards of Rule 8.4.

We note further, that in the event 1.7(b) is implicated, that is, if Lawyer X's responsibilities to the service company is implicated, that is, if Lawyer X's responsibilities to the service company is materially limited by his responsibilities to the A Insurance Company Lawyer X may not represent the service company unless he reasonably believes that the representation will not be adversely affected and the client consents after consultation.