Ethics Advisory Opinion 06-08
April 13, 2006
South Carolina Bar Ethics Advisory Opinion 06-08
RULES 1.13(a), 1.15(e) and 1.16(d)
June 19, 2006
After a meeting with two individuals, Lawyer formed a limited liability company at their request. Lawyer has no personal doubt that the two individuals are both members of the LLC. The two individuals are now in a dispute. Lawyer has informed both individuals that he cannot represent either of them in the dispute. Though the operating agreement was never signed, the company book could be relevant in resolving the dispute. Lawyer is in possession of the company book. Both individuals now want the company book.
With regards to the company book, what are Lawyer’s obligations under the Rules of Professional Conduct?
Summary of Opinion:
Absent a designation of one individual as the authorized representative of the company in a written engagement letter with Lawyer, Lawyer must keep the company book until the dispute is resolved.
Rule 1.15(e) provides that, “when in the course of representation a lawyer is in possession of property in which two or more persons claim interests, the property shall be kept separate by the lawyer until the dispute is resolved.” The company book comes under the definition of “property” as used in this rule.
This does not conflict with Rule 1.16(d) which requires a lawyer to take steps to the extent reasonably practical to protect client’s interests such as surrendering papers to which the client is entitled. It is important to note that the “client” in this case is the LLC. Lawyer has properly declined to represent either individual in compliance with the Rules to avoid a conflict of interest.
Rule 1.13(a) provides that a lawyer employed or retained by an organization represents the organization acting through its duly authorized constituents. If Lawyer had a written engagement agreement with the organization which specifically identified one individual as the sole contact person, it may be appropriate to release the company book to that individual. Still, the Rules require that Lawyer act in the best interests of the organization as a separate and distinct entity, and the safer course of action would be to retain the company book until the dispute is resolved or the company book is subpoenaed during a civil action.
Unless applicable law prohibits access by either party, as a practical matter, Lawyer could make a complete copy of the company book for each of the individuals which, if it would not result in an unreasonable financial burden on Lawyer, would be a reasonable accommodation. However, the original company book should be retained by Lawyer until the dispute is resolved.
Lawyer may also choose to move the court for the county in which he is located for permission to deposit the book with the court for safekeeping pursuant to Rule 67, SCRCP. This motion may be made in conjunction with a simple interpleader action in which Lawyer pleads that he is a disinterested stakeholder, sets forth the dispute, and asks the court to relieve him of responsibility and order the parties to litigate the issue between themselves.