1. In order to have an effective attorney-client relationship, particularly when dealing
with business associations, identification of the client is critical. The fact pattern is
unclear as to the identity of the client. The potential clients are (1) Ellen individually,
(2) Nonprofit, Inc., and (3) both.
Based on the facts presented, it is likely that Linda was representing Nonprofit only. Ellen said
"Nonprofit would like to retain Linda to help it develop a formal employment agreement with
Ellen." At the same time, Linda has experience representing "small businesses," and it does not
indicate that she has experience representing employees individually in negotiations with such
businesses.
Importantly, a lawyer representing a corporation does not represent that corporation's
employees, including senior officers and even if there is only one employee. The corporation is
a distinct legal entity entitled to independent and zealous counsel. Therefore, on the facts
presented, Nonprofit is probably the only client at the inception of the attorney-client
relationship.
It does not matter that Ellen was the company's only employee, because there is no merger in
such a situation.not even when the sole employee is also the sole shareholder. Here, it was a
nonprofit, and therefore it is all the more clear that the attorney-client relationship was with
Nonprofit only.
A very important (but missing) fact is Linda's fee. The client can often (but not always) be
identified based on who is paying the fee. There is no reference to any fee arrangement. It thus
appears that Linda is doing this work pro bono. The ABA does not require written fee
agreements. If Linda was receiving a fee and more than $1000, she might have violated the
California rule requiring such agreements to be in writing if not for the fact that Nonprofit is a
corporation, because that is an exception to the rule on written fee agreements (other,
inapplicable exceptions include when the client in writing says it does not want a written fee
agreement or there is a prior relationship and an exigent circumstance arises requiring prompt
action by the lawyer to protect the client's interests). If Ellen paid the fee personally, however,
that would materially alter the analysis and suggest either (1) an unethical dual representation
of parties with an actual conflict without a waiver (which would have had to be obtained from
members of the Nonprofit board since Ellen couldn't authorize that herself due to her own
conflict), and also it would have required the fee agreement in writing as to Linda if over
$1,000, or (2) improper payment of legal expenses by a third party, without taking adequate
precautions to ensure independent representation and preservation of confidentiality.
Despite the fact that the representation is for the company and, the absence of a written
retainer agreement clearly identifying the client and the scope of representation is problematic.
Indeed, it is clear that Ellen is receiving personal legal advice from Linda. Ellen also asked Linda
to advance her personal interests and withhold information from the board. Although this
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happened after the initial attorney-client relationship was formed, it could arguably have
created a reasonable expectation by Ellen that Linda was her personal lawyer, too. To the
extent that this rose to the level of creating an attorney-client relationship with Ellen
individually, as noted above, that would be unethical. It is an improper dual representation of
clients with actually conflicting interests in the absence of an effective disclosure and consent.
The ABA rules apply a reasonable lawyer standard that prohibits representing actually
conflicting clients unless the lawyer reasonably believes that it will not materially impair their
ability to perform the required legal services competently and diligently. That conflict waiver
must be confirmed in writing by both clients affected by the joint representation, after
receiving complete disclosure of the risks from the lawyer. In California, there is no reasonable
lawyer standard; the rule applies to both potential and actual conflicts; in case of conflicts
between clients (as here), the disclosure must be in writing as well as the clients' consent to it;
and in case of personal and professional conflicts, the disclosure must be in writing. Here, no
such waiver occurred. Again, Ellen could not have authorized it herself on behalf of the
corporation, even though she was the only employee, because she was conflicted. Consent to
the dual representation could only have come from the board (since it's a nonprofit, there are
no shareholders to potentially consent instead).
Moreover, Linda should have advised Ellen to retain independent counsel (though Ellen was
free not to do so if she chose). From the fact that Ellen drafted an employment agreement, it is
unclear whether Ellen herself was a lawyer but it certainly suggests that she did not believe she
needed a lawyer of her own. Still, especially in this situation, Linda should have told Ellen this
suggestion.
In conclusion, on the facts presented (though some important ones are missing), the client was
Nonprofit only and Linda did not clearly violate any ethical rules at the point when the
relationship was created. Based on Linda's subsequent discussions with Ellen, however, it
seems clear that Ellen did not understand the scope of Linda's duties and may have believed
Linda to be her personal attorney, and therefore under the circumstances, Linda should have
disclosed the scope of representation more clearly and ideally had a written retainer
agreement making that clear to Ellen.
2.a. With respect to the employment agreement, Linda was obligated to zealously and
competently represent Nonprofit's interests.
The fact that Ellen drafted the employment agreement is not necessarily unethical in and of
itself. A lawyer is entitled to rely on their employees and independent contractors to perform
services subject to their supervision. A lawyer can also allow a client (or in this case, the
employee of a client) to prepare documents so long as the lawyer exercises diligent and
competent review and independent legal judgment in rendering advice. Here, because Ellen
was on the other side of the transaction, it was essentially her opening offer to Nonprofit.
Upon receiving the draft from Ellen, Linda was required to review the document carefully and
to attempt to revise and negotiate the terms to benefit Nonprofit. Because it was drafted by a
nonlawyer (presumably), Linda was also required to review the draft to ensure compliance with
all applicable laws. (The most significant issue presented in these facts is the salary, based on
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the source of the info, and that is discussed in part b.)
When Linda recognized that the terms were unusually favorable to Ellen, she should have
pushed back on those provisions and attempted to at least get them to conform to what is
standard in the typical employment agreement.
At the minimum, if Linda did not seek to negotiate or revise the draft herself, Linda was right to
call for a board meeting because she is obligated to tell the board about the provisions that she
has recognized as too favorable to Ellen. A lawyer has the duty to communicate with the client,
and where, as here, the only employee is in an adverse position, the board represents the
interests of the corporation.
As a lawyer, Linda is not obligated to make business decisions for her client. The decision about
the terms and how much ultimately to pay to Ellen is one for the board, not Linda.
Linda is also required to inform that board that it cannot have a privileged conversation with
her about the employment agreement if Ellen is present. Accordingly, Linda should probably
recommend that the board chair retract his invitation to Ellen, or at the very least ensure at the
outset of the meeting that they all understand that there will be no privilege between them.
2.b. The duty to communicate includes the duty of candor and honesty to the client. Here,
Linda could not honor Ellen's request for confidentiality because Nonprofit is her
client, not Ellen. Linda is obligated to ensure that Nonprofit has all material facts
relevant to the contract when deciding whether to agree to Ellen's requested salary.
Even if this were a dual representation situation, where Linda represented both Ellen and
Nonprofit, she would have a duty to disclose this fact to Nonprofit's board because the fact is
material to the representation. It is one of the reasons why disclosures in such situations are so
critical, because it puts the duty to protect confidentiality in tension with the duty to
communicate, and in a joint representation, that means disclosing all facts material to the
representation.
Linda should have told Ellen that she could not honor her request.
Linda would not have to tell the board that Ellen violated her duty of loyalty to Nonprofit,
however, because the duty of loyalty is not implicated when negotiating employment
agreements. That said, Linda should tell the Board that Ellen asked her to keep the information
secret, as that is important for the board to know when making the decision about whether to
expand Ellen's current untitled role.