Inquiry is made concerning the propriety of in-house counsel to an affiliated group of companies consisting of several corporations and partnerships performing legal services for all of the affiliates and allowing the corporation that directly employs him to bill the affiliate for the legal services performed.
In-house counsel is directly employed by B Company, a Tennessee limited partnership in which A Company, also a Tennessee limited partnership, is the general partner and majority interest holder. A Company is likewise a general partner and majority interest holder in two other limited partnerships, C and D. Furthermore, A holds controlling shares of the capital stock of two corporations, E Corporation and F Corporation.
The majority of the partners, both general and limited, in the A Company, measured both by individuals and by interests held, are principals in all the partnerships and corporations named above. In addition, there are other business activities which do not exist under the structural umbrella of A Company but which are owned, at least in part, by the principals or some of the principals in the firms named above.
In the course of his employment, in-house counsel is asked to perform legal work for all the firms described above. He receives a set salary from B Company. He keeps records of Time spent on various matters for the various firms and the accounting department of B Company then bills his time devoted to a project to the appropriate firm. B Company does not realize a profit from his legal work; rather, the cost or portion of his salary for time devoted to particular projects is borne by the appropriate affiliate firm.
Tennessee Formal Ethics Opinion 83-F-44 prohibits in-house corporate counsel from allowing the corporation to bill its customers for legal services performed by corporate counsel. The opinion holds that such a practice is in violation of Disciplinary Rule 3- 101(A) which prohibits a lawyer from aiding a non-lawyer in the unauthorized practice of law, and Disciplinary Rule 3-102(A) which prohibits a lawyer from sharing legal fees with a non-lawyer.
In addition to the above, Disciplinary Rule 3-103 provides that a lawyer shall not form a partnership with a non-lawyer if any of the activities of the partnership consist of the practice of law.
The purpose of the stated Rules is that a lawyer should assist in preventing the unauthorized practice of law. Canon 3.
There is no per se violation of these Rules based on the facts stated herein.
However, the real question to be addressed is, does in-house counsel allow B Company, or others, to practice law through his actions; or, to regulate, direct or control his professional judgment; or, to intervene in the attorney-client relationship.
There can be no categorical answer to this question, as the answer is dependent upon the various circumstances as they exist from time to time surrounding the delivery of legal services by in-house counsel to the affiliates. In order for there to be no impropriety, it is absolutely necessary that in-house counsel exercise independent professional judgment on behalf of each client-affiliate. Canon 5. He must have a direct attorney-client relationship with the client-affiliate in the delivery of his legal services and must not allow his direct employer, or anyone else, to regulate, direct or control his professional judgment. He should devote his complete loyalty to the client-affiliate and no loyalty to his direct employer. He is in the precarious position of having a potential, if not actual, conflict of interest in every instance. He is bound by Disciplinary Rules 7-101(A) to represent the client-affiliate zealously and 4-101 to preserve the confidences and secrets. There should be a full and complete disclosure of the possible effect of his representation on the exercise of his independent professional judgment and the client-affiliate should be given an opportunity to evaluate the need for representation free of any potential conflict and all doubts should be resolved against the propriety of representation.
This 12th day of August , 1983.
Edwin C. Townsend
W. J. Flippin
Henry H. Hancock
APPROVED AND ADOPTED BY THE BOARD