A lawyer currently represents Parent Corporation in a minor contract dispute. Subsidiary Corporation is wholly-owned by Parent Corporation and has never been represented by the lawyer. Plaintiff asks lawyer to bring a million dollar personal injury suit against Subsidiary Corporation. Can the lawyer represent Plaintiff in the case? In short, it depends.
Georgia Rule of Professional Conduct 1.7(a) provides that a “lawyer shall not represent or continue to represent a client if there is a significant risk that the lawyer’s own interests or the lawyer’s duties to another client, a former client, or a third person will materially and adversely affect the representation of the client…”
The duty of loyalty is essential in a lawyer’s relationship to a client. And “loyalty to a client prohibits undertaking representation directly adverse to that client….” Rule 1.7, cmt. 4.
Notwithstanding the duty of loyalty, a lawyer who represents a corporate client is not necessarily precluded from representing another client adverse to a corporate affiliate of that client in an unrelated matter. To preclude representation, the circumstances must be such that the affiliate corporation is also considered a client of the lawyer, there is an understanding between the lawyer and the corporate client that the lawyer will avoid cases adverse to the client’s affiliates, or the lawyer’s obligations to either the corporate client or the new client are likely to limit materially the lawyer’s representation of the other client.
In addressing this issue, the Northern District of Georgia has weighed various factors: whether the affiliates are inextricably intertwined, whether one company controlled and supervised the legal affairs of the other, whether counsel had taken efforts on behalf of the affiliate, whether the affiliates have similar management, share headquarters, share corporate principles and business philosophy, have the same legal department, and whether senior officers have the same titles in the different affiliates. At least one trial court in Georgia has adopted the reasoning of the Northern District.
When faced with this situation, what should a lawyer do? He or she should honestly explore the factors listed above. If many of them are present, then the affiliate entities are likely to be deemed the same client, and the new representation should be declined.