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A LAWYER WHO HAD BEEN EMPLOYED BY CERTAIN INDIVIDUALS TO INCORPORATE
THEIR COMPANY, AND WHO HAD CONTINUED TO REPRESENT THEM AND THE CORPORATION
PRIOR TO THE INVOLUNTARY DISSOLUTION OF THE CORPORATION SHOULD NOT
ACCEPT EMPLOYMENT ON BEHALF OF HIS FIRM FROM A BANK TO SUE THE CORPORATION
AND THE INDIVIDUALS ON A NOTE GIVEN BY THE CORPORATION AND GUARANTEED
BY THE INDIVIDUALS.
CODE PROVISIONS INTERPRETED:
EC 4-1
Both the fiduciary relationship existing
between lawyer and client and the proper functioning of the legal
system require the preservation by the lawyer of confidences and
secrets of one who has employed or sought to employ him. A client
must feel free to discuss whatever he wishes with his lawyer and
a lawyer must be equally free to obtain information beyond that
volunteered by his client. A lawyer should be fully informed of
all the facts of the matter he is handling in order for his client
to obtain the full advantage of our legal system. It is for the
lawyer in the exercise of his independent professional judgment
to separate the relevant and important from the irrelevant and unimportant.
The observance of the ethical obligation of a lawyer to hold inviolate
the confidences and secrets of his client not only facilitates the
full development of facts essential to proper representation of
the client but also encourages laymen to seek early legal assistance.
EC 4-5
A lawyer should not use information acquired
in the course of the representation of a client to the disadvantage
of the client and a lawyer should not use, except with the consent
of his client after full disclosure, such information for his own
purposes. Likewise, a lawyer should be diligent in his efforts to
prevent the misuse of such information by his employees and associates.
Care should be exercised by a lawyer to prevent the disclosure of
the confidences and secrets of one client to another, and no employment
should be accepted that might require such disclosure.
EC 5-1
The professional judgment of a lawyer should
be exercised, within the bounds of the law, solely for the benefit
of his client and free of compromising influences and loyalties.
Neither his personal interests, the interests of other clients,
nor the desires of third persons should be permitted to dilute his
loyalty to his client.
FACTUAL
SITUATION
The inquiring lawyer had been retained by a father and son to incorporate
their business and had continued to represent the corporation and
the individuals in matters involving the interests of the individuals
in the corporation. The corporation was later dissolved for non-payment
of the corporate occupation tax, although the individuals continued
to do business in the name of the corporation for more than a year
after it was dissolved. The inquirer had also, during this time,
advised the father on estate planning problems. The inquirer states
that he was not aware of the fact that the corporation had been
"dissolved by the State".
The inquirer and his firm have now accepted employment from a bank
to sue and recover judgment against the corporation on a note given
by it to the bank and against the individuals who guaranteed payment
of the note. The inquirer states that neither he nor his firm had
any knowledge of the transaction upon which the suit is based until
retained by the bank.
QUESTION
The question is whether or not the inquirer and his firm should
withdraw as attorneys for the bank in the pending suit.
DISCUSSION
The inquirer seems to feel that since neither he nor his firm was
aware of the fact that the corporation had borrowed money from the
bank and that the individuals had guaranteed the payment of the
debt, they could not be in possession of any secrets or confidences
of the former clients that would have to be preserved in the pending
litigation. .
Drinker, in his work on Legal Ethics, has this to say (p. 105):
"The temptation to get into an interesting, important, or profitable
case is always alluring, and the lawyer is very prone to rationalize
himself into the belief that he will be able to steer safely between
Scylla and Charybdis, when sober reflection or a discussion with
his partners would bid him pause. Where there is any serious doubt,
it should be resolved by declining the second retainer."
Morrow, J. in Re Boone 83F 944, 952-53 (1897) said:
"The test of inconsistency is not whether the attorney has
ever appeared for the party against whom he now proposes to appear,
but it is whether his accepting the new retainer will require him,
in forwarding the interests of his new client, to do anything which
will injuriously affect his former client in any matter in which
he formerly represented him, and also whether he will be called
upon, in his new relation, to use against his former client any
knowledge or information acquired through their former connection."
Canon 37 of the old Canons of Professional Ethics provided:
"Confidences of a Client. It is the duty of a lawyer to preserve
his client's confidences. This duty outlasts the lawyer's employment,
and extends as well to his employees; and neither of them should
accept employment which involves or may involve the disclosure or
use of these confidences.....A lawyer should not continue employment
when he discovers that this obligation prevents the performance
of his full duty to his former client or to his new client."
Other authorities might be invoked to sustain the position that
the facts in the instant case do, indeed, present a situation involving
the preservation of the confidences of a client.
CONCLUSION
The Committee concludes that the inquirer and his firm should withdraw
from the representation of the bank against the former clients.
73-5
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