The Florida Bar

October 18, 1965

A lawyer who resigns as counsel to a corporation after learning of improper conduct by the president harmful to some of the stockholders is ethically restricted in the extent to which he can act as an attorney in connection with controversies arising from the conduct of the president.

Canon: 6

Chairman Kittleson stated the opinion of the committee:

A member of The Florida Bar has requested the Committee's advice on the situation discussed below. One of his law partners has served as legal counsel to, and a director of, two corporations, Corporation A and Corporation B. As a result of a reorganization, Corporation A assumed certain of Corporation B's obligations and became the majority and controlling stockholder of Corporation B. The same person is president of both corporations, and the same persons constitute a majority of each corporation's board of directors. While serving as a director of and counsel to each corporation, his partner became aware of certain conduct on the part of the president that was harmful to both corporations and which resulted in a breach by Corporation A of its contract with Corporation B. At a special meeting of the directors of both corporations, his partner (speaking as a director) disclosed his findings pertaining to the president's conduct and then resigned as counsel to and director of both corporations. Since then, several directors of both corporations have been seeking legal counsel from the partner (or the firm) on the problem, and some of the minority stockholders of Corporation B have expressed a desire to take legal action against Corporation A and its president. The lawyer here is concerned about the extent to which his firm can ethically participate in the problems and controversies. Specifically, he seeks advice on these questions: (1) May his partner continue to give requested advice to stockholders and directors of the affected corporation where this advice would necessarily be based upon knowledge that he acquired as counsel to and a director of both corporations? (2) May his partner represent minority stockholders in a derivative action contemplated by them? (3) How can his partner reconcile his responsibilities as a director with his responsibilities as corporate counsel?

The Committee believes that this lawyer may disclose to the interested stockholders any relevant facts coming to his knowledge while a director of the affected corporation, but that he (or his firm) should not give legal advice or otherwise act as attorney in legal action against a corporation which he has served as counsel and director, under the circumstances discussed above. The Committee especially believes that the partner (or the firm) should not act as attorney in a derivative action, which is indicated as a remedy contemplated by the minority stockholders. The partner may, perhaps, act for stockholders in a suit directed against the president individually but not against the corporation itself or its officers and directors. Even here, careful consideration would be required on the subjects of confidential or privileged communications. The Committee believes that the third question is too broad for the Committee to handle satisfactorily and is, perhaps, beyond the scope of the Committee's proper function.

The Committee believes that the best interests of the profession will be served if the partner and the firm refrain from further involvement, as lawyers, in the controversy. If they continue participation as lawyers, there is real risk of public misunderstanding; someone will feel that the partner is taking unfair advantage of knowledge acquired while in the service of the corporation. The matter is complicated by his two corporate hats, one as director and one as counsel.

The Committee approves the partner's action in resigning as director of and counsel to both corporations, promptly upon his recognizing the conflict.

[Revised: 08-24-2011]