TO illustrate, we present to you a brilliant and promising young lawyer, in the person of Atty. X, who is engaged by ABC Corp. as its retained legal counsel. In the course of their professional relationship, a derivative suit was filed in Court by the stockholders of ABC Corp. against the board of directors of the same corporation. Supposing the Board asks Atty. X to represent them in the derivative suit, can Atty. X represent it?
In the course of a lawyer’s practice, it is highly expected that a lawyer will have to encounter several instances where a conflict of interest situation arises. It should be underlined that lawyers should set the proper boundaries on who they can, or cannot, represent. Sometimes, the ethical boundaries on such matters are easily blurred along the lines, especially when you factor in the prospect of a lucrative remuneration in the equation. However, as members of the Bar, it is incumbent upon us to take the appropriate stance on the proper representation of clients.
A seemingly obvious answer to Atty. X’s dilemma is a definite and resounding no! Obviously, Atty. X cannot represent the board of directors of ABC Corp. in the derivative suit filed by the stockholders of the same corporation. As the corporation’s retained legal counsel, Atty. X owes a fiduciary duty to his client, the corporation, and such duty is not exclusive to the board of directors only, but extends, more important, to the stockholders of the corporation, as well. Thus, allowing Atty. X to defend the board of directors in the instant case would easily place Atty. X in the position of violating his fiduciary duties toward the corporation and its stockholders. Under the Code of Professional Responsibility, a lawyer owes fidelity to the cause of his client. Moreover, under the same code, it is also mandated that a lawyer shall not represent conflicting interests.
In fact, the honorable Supreme Court already had the opportunity to discuss the ramifications of a lawyer representing such conflicting interests in the case of Benedicto Hornilla and Atty. Ricafort v. Atty. Salunat. In the said case, it was held that a lawyer engaged as counsel for a corporation cannot represent members of the same corporation’s board of directors in a derivative suit brought against them. To do so would be tantamount to representing conflicting interests, which is prohibited by the Code of Professional Responsibility.
We now return to our brilliant and promising Atty. X in the illustration above, after a careful consideration of his predicament, we now expect Atty. X to decline representing the board of directors in the derivative suit, as Atty. X is bound by legal and ethical restrictions provided under the Code. In conclusion, when a corporation is faced with a similar situation, the best course of action is to engage external counsel to represent it, in order to avoid a conflict of interest.
For comments, you may e-mail me at lpkapunan@kapunanlaw.com.