The Importance of Knowing Who Is, and Who Is Not, Your Client
By Neil J. Wertlieb
Lawyers must be able to identify who is, and who is not, their client in order to comply with their professional obligations. Lawyers owe fiduciary duties to their clients, including the duties of loyalty and confidentiality, which the California Supreme Court considers to be the most fundamental qualities of the attorney-client relationship. (See Flatt v. Sup.Ct. (Daniel) (1994) 9 C4th 275.) These duties to the client are embodied in the California Rules of Professional Conduct (the “Rules”), most notably in Rule 1.6 (Confidential Information of a Client) and Rule 1.7 (Conflict of Interest: Current Clients). Rule 1.6, together with Business and Professions Code section 6068(e)(1), obligates a lawyer “to maintain inviolate the confidence, and at every peril to himself or herself to preserve the secrets, of his or her client,” “unless the client gives informed consent.” In order to comply with this mandate, a lawyer must be able to identify who is their client, so as to ensure whose confidences and secrets are to be protected, and to ensure that the proper person has authorized any disclosure of such information. Rule 1.7 provides that “a lawyer shall not, without informed written consent from each client […], represent a client if the representation is directly adverse to another client in the same or a separate matter [or] if there is a significant risk the lawyer’s representation of the client will be materially limited by the lawyer’s responsibilities to or relationships with another client, a former client or a third person, or by the lawyer’s own interests.” In order to comply with Rule 1.7, and avoid impermissible conflicts of interest, lawyers must be able to properly identify who their clients are.
Similarly, the conflict of interest rule pertaining to former clients, Rule 1.9 (Duties to Former Clients), requires that a lawyer be able to identify who is a former client of the lawyer: “A lawyer who has formerly represented a client in a matter shall not thereafter represent another person in the same or a substantially related matter in which that person’s interests are materially adverse to the interests of the former client unless the former client gives informed written consent.” Other Rules also require a lawyer to be able to properly identify the client. For example: Rule 1.8.10 (Sexual Relations with Current Client) generally provides that “a lawyer shall not engage in sexual relations with a current client” subject to certain specified exceptions; Rule 1.4 (Communication with Clients) requires that a lawyer “keep the client reasonably informed about significant developments relating to the representation”; Rule 1.8.1 (Business Transactions with a Client) provides that “a lawyer shall not enter into a business transaction with a client” unless certain specified conditions are satisfied; and Rule 1.8.3 (Gifts from Client) generally provides that “a lawyer shall not […] solicit a client to make a substantial gift, including a testamentary gift, to the lawyer.” Certain Rules also require a lawyer to be able to identify who is not a client of the lawyer. For example: Rule 1.8.6 (Compensation from One Other than Client) mandates that “a lawyer shall not […] accept compensation for representing a client from one other than the client” unless certain specified conditions are satisfied; Rules 4.2 (Communication with a Represented Person) and 4.3 (Communicating with an Unrepresented Person) generally restrict a lawyer’s communications with a non-client; and Rule 7.3 (Solicitation of Clients) generally provides that “a lawyer shall not solicit professional employment” from a non-client unless certain specified conditions are satisfied. So how does a lawyer properly identify who is (or was) a client of the lawyer?
In most instances, this is a relatively simple inquiry: the lawyer and client enter into a retention agreement that evidences an attorney-client relationship for a specific matter. (Certain engagements, in fact, must be evidenced in a writing – see Business & Professions Code §§ 6146 (with respect to contingency fees) and 6148 (where reasonably foreseeable attorney fees and expenses exceed $1,000 and the client is not a corporation).) But sometimes it is not entirely clear whether an attorney-client relationship has been established. And, even if an attorney-client relationship has been established, it may not be entirely clear who is the client. California courts have held that an attorney-client relationship can only be created by contract. (See, e.g., Koo v. Rubio’s Restaurants, Inc. (2003) 109 Cal.App.4th 719.) However, the formation of an attorney-client relationship does not require an express contract; such a relationship can be formed implicitly, as evidenced by the intent and conduct of the parties. (See, e.g., Lister v. State Bar (1990) 51 C3d 1117; Hecht v. Superior Court (Ferguson) (1987) 192 Cal.App3d 560; Restatement, Third, The Law Governing Lawyers, §14(1).) While the lawyer and the purported client may have their own subjective views as to whether or not an attorney-client relationship has been formed and with which client(s), courts generally will apply an objective test. Thus, despite the subjective view of the lawyer to the contrary, the reasonable perception of the purported client may determine that such person is a client of the lawyer. (See, e.g., Responsible Citizens v. Superior Court (Askins) (1993) 16 Cal.App.4th 1717). The question as to who is, and who is not, the client is further complicated when the lawyer is associated with a law firm, and when the client is an organization. When a lawyer is associated with a law firm, a client of any lawyer in the law firm is generally considered, from a practical perspective, to be a client of all of the lawyers in the law firm, at least with respect to conflicts of interest. In accordance with Rule 1.10 (Imputation of Conflicts of Interest: General Rule): “While lawyers are associated in a firm, none of them shall knowingly represent a client when any one of them practicing alone would be prohibited from doing so by rules 1.7 or 1.9,” unless certain specified exceptions apply. The attorney-client relationship, and resulting potential conflict of interest, of one lawyer in the firm is essentially imputed to all lawyers in the firm.
The imputation of an attorney-client relationship also applies with respect to certain other prohibitions under the Rules. For example, the limitation on business transactions with a client set forth in Rule 1.8.1 applies not just to the lawyer who has an attorney-client relationship with the client, but to all other lawyers associated in the same law firm. By application of Rule 1.8.11 (Imputation of Prohibitions Under Rules 1.8.1 to 1.8.9), a prohibition under Rule 1.8.1 “that applies to any one of them shall apply to all of them.” Imputation under Rule 1.8.11, however, does not extend to the prohibition on sexual relations with a client “since the prohibition in [Rule 1.8.10] is personal and is not applied to associated lawyers.” But it is important to note that the term “client” has a unique meaning in the context of Rule 1.8.10 when the client is an organization. Solely for purposes of prohibited sexual relations under Rule 1.8.10, “a constituent of the organization who supervises, directs or regularly consults with that lawyer concerning the organization’s legal matters” is deemed to be a client of the lawyer – even if the lawyer has no attorney-client relationship with that individual. When a lawyer is working with an organization, the analysis as to the identity of the client may be further complicated by such factors as the working relationship and the ownership and structure of the organization. When a lawyer is retained by an organization, Rule 1.13 (Organization as Client) mandates that the lawyer “conform his or her representation to the concept that the client is the organization itself, acting through its duly authorized […] constituents overseeing the particular engagement.” Further, when dealing with such constituents, the lawyer must “explain the identity of the lawyer’s client whenever the lawyer knows or reasonably should know that the organization’s interests are adverse to those of the constituent(s) with whom the lawyer is dealing.” But even when the lawyer has an attorney-client relationship with an organization, the lawyer may also have an attorney-client relationship with any of its constituents (subject to the Rules pertaining to conflicts of interest).
As a result, when working with organizations, a lawyer should clearly delineate, both to himself or herself and to the various constituents, who is, and who is not, the client of the lawyer. This may be particularly challenging in a number of common situations. For example, when the organization is closely held, the owner(s) may be so closely identified with the organization itself, that either the owner(s) or the lawyer, or both, may have difficulty distinguishing who is, and who is not, the client. This can be especially difficult if the lawyer is working with the owner(s) of a to-be-formed business: although the owner(s) and the lawyer may expect and agree that the organization will be the client of the lawyer, the identity of the client for the pre-formation work (before the organization exists) may well be the owner(s) (e.g., because the formation work is being done for the benefit, and at the direction, of the owner(s)). Even with respect to established business organizations, with multiple subsidiaries and affiliated entities, the determination of which entities are, and which are not, clients of the lawyer may be unclear. The fiduciary duties owed by lawyers to their clients, as well as the protections afforded under the Rules to clients, require that lawyers at all times be able to clearly answer the question: Who is, and who is not, my client? Neil J. Wertlieb, the author of this article, is Co-Chair and a Founding Member of the California Lawyers Association Ethics Committee. Mr. Wertlieb is an experienced transactional lawyer, educator and ethicist, who provides expert witness services in disputes involving business transactions and corporate governance, and in cases involving attorney malpractice and attorney ethics. For additional information, please visit www.WertliebLaw.com. The views expressed herein are his own.