Conflict of interest

of Corporate Lawyers

Problem Areas in Legal Ethics

Arellano University School of Law Arellano Law Foundation
2015-2016

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 CPR provisions

Rule 15.03. - A lawyer shall not represent conflicting interests

except by written consent of all concerned given after a full
disclosure of the facts.

Canon 21. A lawyer shall preserve the confidence and secrets of his
client even after the attorney-client relationship is terminated.

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 Corporate counsel and possibility of COI
Members of the Board of Directors
Employees of the corporation
General public
Counsels private interest

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 Duty of attorney to a
corporate client
[a]n attorney for a corporate client owes his duty [of loyalty] to the
corporate entity rather than a particular officer, director, or
shareholder. - ABC Trans Natl Transport, Inc. v. Aeronautics
Forwarders, Inc, 413 NE.2d 1299, 1310 1980

[a] corporate attorney represents the corporation, not the

individual directors or officers. - Heim v. Signcraft Screenprint Inc,
No 01C50014, 2001 WL 1018228 2001

[t]he attorney for a corporation, even a closely held one, does not
have a specific fiduciary duty toward the individual
shareholders. - Kopka v. Kamensky and Rubenstein, 821 NE.2d
719, 727 (2004)

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 He should resolve all doubts against the
propriety of the representation. Cannon v. U.S.
Acoustics Corp. 398 F.Supp. 209 (1975)

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 Palm v. Atty. Iledan, Jr.
A.C. No. 8242 [2009]
Complainant is the President of Comtech, a corporation engaged in the business
of computer software development.

From February 2003 to November 2003, respondent served as Comtechs

retained corporate counsel for the amount of P6,000 per month as retainer fee.

From September to October 2003, complainant personally met with respondent

to review corporate matters, including potential amendments to the
corporate by-laws.

In a meeting held on 1 October 2003, respondent suggested that Comtech

amend its corporate by-laws to allow participation during board meetings ,
through teleconference, of members of the Board of Directors who were outside
the Philippines.

Comtech decided to terminate its retainer agreement with respondent effective

November 2003.
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 On 24 March 2004, Comtechs new counsel sent a demand letter
to Soledad [a former officer and director of Comtech, who resigned
and who was suspected of releasing unauthorized disbursements
of corporate funds] to return or account for the amount of
P90,466.10 representing her unauthorized disbursements when
she was the Corporate Treasurer of Comtech.

On 22 April 2004, Comtech received Soledads reply, signed by

respondent.

In July 2004, due to Soledads failure to comply with Comtech's

written demands, Comtech filed a complaint for Estafa against
Soledad before the Makati Prosecutors Office. In the proceedings
before the City Prosecution Office of Makati, respondent
appeared as Soledads counsel.

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 In his Answer, respondent alleged that in January 2002, Soledad
consulted him on process and procedure in acquiring property.

In April 2002, Soledad again consulted him about the legal

requirements of putting up a domestic corporation. In February
2003, Soledad engaged his services as consultant for Comtech.

Respondent alleged that from February to October 2003, neither

Soledad nor Palm consulted him on confidential or privileged
matter concerning the operations of the corporation.
Respondent further alleged that he had no access to any record of
Comtech.

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 Respondent admitted that during the months of September and
October 2003, complainant met with him regarding the
procedure in amending the corporate by-laws to allow board
members outside the Philippines to participate in board
meetings.

Respondent alleged that there was no conflict of interest when he

represented Soledad in the case for Estafa filed by Comtech. He
alleged that Soledad was already a client before he became a
consultant for Comtech. He alleged that the criminal case was
not related to or connected with the limited procedural
queries he handled with Comtech.

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 In addition, although the information about the necessity to
amend the corporate by-laws may have been given to respondent,
it could not be considered a confidential information.

Further, whenever any amendment or adoption of new by-laws is

made, copies of the amendments or the new by-laws are filed with
the Securities and Exchange Commission (SEC) and attached to the
original articles of incorporation and by-laws. The documents are
public records and could not be considered confidential.

We agree with the IBP that in the course of complainants

consultations, respondent obtained the information about the
need to amend the corporate by-laws to allow board members
outside the Philippines to participate in board meetings
through teleconferencing. Respondent himself admitted this in
his Answer.

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 It is settled that the mere relation of attorney and client does not
raise a presumption of confidentiality. The client must intend the
communication to be confidential. Since the proposed
amendments must be approved by at least a majority of the
stockholders, and copies of the amended by-laws must be filed
with the SEC, the information could not have been intended to
be confidential. Thus, the disclosure made by respondent
during the stockholders meeting could not be considered a
violation of his clients secrets and confidence within the
contemplation of Canon 21 of the Code of Professional
Responsibility.

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 We find no conflict of interest when respondent represented Soledad
in a case filed by Comtech. The case where respondent represents
Soledad is an Estafa case filed by Comtech against its former officer.
There was nothing in the records that would show that
respondent used against Comtech any confidential information
acquired while he was still Comtechs retained counsel .

Further, respondent made the representation after the termination

of his retainer agreement with Comtech. A lawyers immutable
duty to a former client does not cover transactions that occurred
beyond the lawyers employment with the client.

The intent of the law is to impose upon the lawyer the duty to protect
the clients interests only on matters that he previously handled
for the former client and not for matters that arose after the lawyer-
client relationship has terminated.

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 Santos Ventura Hocorma Foundation, Inc. v.
Atty. Funk, A.C. No. 9094 August 15, 2012
It alleged that Atty. Funk used to work as corporate secretary,
counsel, chief executive officer, and trustee of the Santos Ventura
Hocorma foundation from 1983 to 1985. He also served as its
counsel in several criminal and civil cases.

Hocorma Foundation further alleged that on November 25, 2006

Atty. Funk filed an action for quieting of title and damages against
Hocorma Foundation on behalf of Mabalacat Institute, Inc.
(Mabalacat Institute). Atty. Funk did so, according to the
foundation, using information that he acquired while serving
as its counsel xxx.

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 Here, it is undeniable that Atty. Funk was formerly the legal
counsel of Hocorma Foundation. Years after terminating his
relationship with the foundation, he filed a complaint against it
on behalf of another client, the Mabalacat Institute, without the
foundation's written consent.

The evidence shows that Hocorma Foundation availed itself of

the legal services of Atty. Funk in connection with, among
others, the transfer of one of the properties subject of the
several suits that the lawyer subsequently filed against the
foundation. Indeed, Atty. Funk collected attorney's fees from
the foundation for such services.

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 An attorney may not, without being guilty of professional
misconduct, act as counsel for a person whose interest
conflicts with that of his present or former client. This rule is
so absolute that good faith and honest intention on the
erring lawyer's part does not make it inoperative.

The reason for this is that a lawyer acquires knowledge of

his former client's doings, whether documented or not,
that he would ordinarily not have acquired were it not
for the trust and confidence that his client placed on
him in the light of their relationship.

It would simply be impossible for the lawyer to identify and

erase such entrusted ledge with faultless precision or lock the
same into an iron box when suing the former client on behalf
of a new one.
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 Hornilla v. Atty. Salunat
A.C. No. 5804, July 1, 2003
They alleged that respondent is a member of the ASSA Law and
Associates, which was the retained counsel of the Philippine
Public School Teachers Association (PPSTA). Respondents brother,
Aurelio S. Salunat, was a member of the PPSTA Board which
approved respondents engagement as retained counsel of PPSTA.

Complainants, who are members of the PPSTA, filed an intra-

corporate case against its members of the Board of Directors
for the terms 1992-1995 and 1995-1997 before the Securities and
Exchange Commission. which was docketed as SEC Case No. 05-97-
5657, and a complaint before the Office of the Ombudsman,
docketed as OMB Case No. 0-97-0695, for unlawful spending and
the undervalued sale of real property of the PPSTA.

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 Respondent entered his appearance as counsel for the PPSTA
Board members in the said cases.

Complainants contend that respondent was guilty of conflict of

interest because he was engaged by the PPSTA, of which
complainants were members, and was being paid out of its
corporate funds where complainants have contributed. Despite
being told by PPSTA members of the said conflict of interest,
respondent refused to withdraw his appearance in the said
cases.
Respondent admits that the ASSA Law Firm, of which he is the
Managing Partner, was the retained counsel of PPSTA. Yet, he
appeared as counsel of record for the respondent Board of
Directors in the said case. Clearly, respondent was guilty of conflict
of interest when he represented the parties against whom his other
client, the PPSTA, filed suit.

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 What is a derivative suit?
Where corporate directors have committed a breach of trust either
by their frauds, ultra vires acts, or negligence, and the corporation
is unable or unwilling to institute suit to remedy the wrong, a
stockholder may sue on behalf of himself and other
stockholders and for the benefit of the corporation, to bring
about a redress of the wrong done directly to the corporation and
indirectly to the stockholders.
This is what is known as a derivative suit, and settled is the
doctrine that in a derivative suit, the corporation is the real party in
interest while the stockholder filing suit for the corporations behalf
is only nominal party. The corporation should be included as a
party in the suit.

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 A lawyer engaged as counsel for a corporation cannot represent
members of the same corporations 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.

The interest of the corporate client is paramount and should

not be influenced by any interest of the individual corporate
officials.

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 Corporation cannot consent to a
representation of a lawyer with COI
The cases and ethics opinions differ on whether there must be
separate representation from the outset or merely from the time
the corporation seeks to take an active role. Furthermore, this
restriction on dual representation should not be waivable by
consent in the usual way; the corporation should be
presumptively incapable of giving valid consent.

Outside counsel must thus be retained to represent one of the

defendants.

Rule 15.03. - A lawyer shall not represent conflicting interests

except by written consent of all concerned given after a full
disclosure of the facts.

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 Quiambao v. Atty. Nestor Bamba
A. C. No. 6708 August 25, 2005
Complainant Felicitas S. Quiambao charges respondent Atty. Nestor A.
Bamba with violation of the Code of Professional Responsibility for
representing conflicting interests when the latter filed a case
against her while he was at that time representing her in another
case, and for committing other acts of disloyalty and double-dealing.

The complainant was the president and managing director of Allied

Investigation Bureau, Inc. (AIB), a family-owned corporation
engaged in providing security and investigation services. She avers
that she procured the legal services of the respondent not only for
the corporate affairs of AIB but also for her personal case.

Particularly, the Spouses Santiago and Florita Torroba filed by her on

29 December 2000 before the Metropolitan Trial Court (MeTC) of
Paraaque City.
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 About six months after she resigned as AIB president, or on 14 June
2001, the respondent filed on behalf of AIB a complaint for
replevin and damages against her before the MeTC of Quezon
City for the purpose of recovering from her the car of AIB assigned
to her as a service vehicle. This he did without withdrawing as
counsel of record in the ejectment case, which was then still
pending.

We do not sustain respondents theory that since the ejectment

case and the replevin case are unrelated cases fraught with
different issues, parties, and subject matters, the prohibition is
inapplicable. His representation of opposing clients in both
cases, though unrelated, obviously constitutes conflict of interest
or, at the least, invites suspicion of double-dealing.

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 While the respondent may assert that the complainant expressly
consented to his continued representation in the ejectment case,
the respondent failed to show that he fully disclosed the facts
to both his clients and he failed to present any written
consent of the complainant and AIB as required under Rule 15.03,
Canon 15 of the Code of Professional Responsibility.

Neither can we accept respondents plea that he was duty-bound to

handle all the cases referred to him by AIB, including the
personal cases of its officers which had no connection to its
corporate affairs. That the representation of conflicting interest is
in good faith and with honest intention on the part of the lawyer
does not make the prohibition inoperative.

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 Extent or degree of prohibition on
representing COI
It must be noted that the proscription against representation of
conflicting interests finds application where the conflicting interests
arise with respect to the same general matter however slight the
adverse interest may be.

It applies even if the conflict pertains to the lawyers private

activity or in the performance of a function in a non-
professional capacity.

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 Business transactions between an attorney and his client are
disfavored and discouraged by the policy of the law.

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 De Guzman v. Atty. L. De Dios,
A.C. No. 4943 January 26, 2001
In 1995, complainant engaged the services of respondent as
counsel in order to form a corporation.
On January 10, 1996, with the assistance of Atty. De Dios,
complainant registered Suzuki Beach Hotel, Inc. (SBHI) with the
Securities and Exchange Commission.
On December 15, 1997, the corporation required complainant to
pay her unpaid subscribed shares of stock amounting to two
million two hundred and thirty five thousand pesos
(P2,235,000.00) or 22,350 shares, on or before December 30, 1997.
Complainant soon learned that her shares had been acquired by
Ramon del Rosario, one of the incorporators of SBHI. The sale
ousted complainant from the corporation completely. While
respondent rose to be president of the corporation,
complainant lost all her life's savings invested therein.
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 Complainant alleged that she relied on the advice of Atty. de
Dios and believed that as the majority stockholder, Atty. de
Dios would help her with the management of the corporation.

Complainant pointed out that respondent appeared as her

counsel and signed pleadings in a case where
complainant was one of the parties. Respondent, however,
explained that she only appeared because the property
involved belonged to SBHI.

Respondent alleged that complainant misunderstood the

role of respondent as legal counsel of Suzuki Beach Hotel,
Inc. Respondent manifested that her appearance as counsel
for complainant Diana de Guzman was to protect the rights
and interest of SBHI since the latter was the real owner
of the land in controversy.
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 Respondent claims that there was no attorney-client
relationship between her and complainant. The claim has no
merit. It was complainant who retained respondent to
form a corporation. She appeared as counsel in behalf of
complainant.

The present situation shows a clear case of conflict of

interest of the respondent.

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Thank you for your attention!!

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