In a 50 50 Partnership Who Does the Lawyer Really Represent


More and more, we are seeing in our practice occasions when an attorney who purportedly represents an entity (whether it be an LLC, LLP, Corporation or Partnership) blurs his or her duties and ends up favoring one partner over another in an entity that is supposedly owned equally. From our perspective, this is the essence of a conflict of interest and while it is certainly permissible to represent only the entity or only one or more of the partners, it is critical that the roles be defined clearly from the outset of the representation. As they say, “it only matters when it matters.” Well, it matters when the partners no longer see the world in the same shiny shade of blue. It matters when one partner “thinks” that the lawyer is supposed to be representing their interests, but perceives that other interests are in fact primary.

These are dodgy circumstances for any attorney and the true “entity attorney” must not advocate for one owner over the other in the instance when there is a conflict between the two owners. Instead, it is incumbent on the attorney to step aside in these disputes. Unfortunately, we have found with alarming frequency that the attorney doesn’t always recuse themselves, and, even more troubling, they may appear to pick and choose the partner whose interests are advanced. Not surprisingly, this tends to be the more financially sound member of the entity. Rather, the attorney, under the guise of representing the “entity” and not the “owners” will meet and communicate with the “favored” owner or the founding owner to the exclusion of the other owner. While the case law is generally supportive of the idea that the lawyer owes only a duty to the entity and not to the owners, in Lloyd v. Walters, 276 5.C.223, 277 S.E.2d 888 (1981) the South Carolina Supreme Court hinted that in certain circumstances in a two person corporation, the corporate attorney may actually owe individual duties to the owners to protect one of the owners from the fiduciary breaches of the other. Of course, the case law also assumes that the scope of the relationship between the parties has been a) well defined on the front end by the attorney and b) not expanded through a course of conduct.

Among the prickly issues surrounding the corporate client (and especially the small corporate client) is privilege. That is, only attorney client communications are privileged. If the attorney represents the entity and only the entity, then clearly the privilege extends to the entity – but what about the owners? Also, if the attorney is engaged in the joint representation of more than one client (with proper disclosures and consents, of course), then the attorney cannot engage in one-sided confidential communications with one client to the exclusion of another client. This ethical onion does not smell better as the layers are peeled away and it typically comes into play after a dispute has arisen between the owners of a small corporation and the attorney has by all appearances “chosen sides” by communicating with only one owner to the exclusion of the other.

For the attorneys, three rules: 1. Document the relationship. 2. Know your role. 3. Do NOT pick sides in a corporate dispute if you are in fact the corporate counsel. One thing is certain in a dispute between two owners of entity – one wins and one loses. Almost equally as certain is the following – the loser will not have liked losing and if the loser believes that “my lawyer” helped the other side, a lawsuit or bar complaint is foreseeable.

For the clients, two rules: 1. Document the relationship. 2. Seek independent counsel if you ever feel that the neutral corporate attorney is favoring the other side (and don’t wait until it’s too late).

These are tricky waters, but they are traversed safely every day by competent attorneys who understand their roles and by well-informed clients who are actively engaged.

Eric Bland and Ronnie Richter