Is your company’s attorney required to take direction from you?
In a close corporation or small business, directors, officers, shareholders, and employees (as well as a limited liability company’s members and mangers) often inquire as to whom the company’s attorney is required to take direction from. For example, is your company’s attorney (inside or outside counsel) required to take direction from you as a shareholder and initiate an investigation or litigation? How about taking direction from you in your capacity as a director or officer of the company? The answers to these questions can vary from business to business, state to state, and from one unique factual scenario to another.
Despite the myriad of possible answers, certain widely-recognized legal principles can provide a starting point from which to begin assessing who the company’s attorney is required to take direction from. According to one legal authority – the Restatement (Third) of Law Governing Lawyers § 96 (2010) – when a lawyer is employed or retained to represent an organization (such as an LLC, Corporation, Partnership, etc…) the lawyer: “represents the interests of the organization as defined by its responsible agents acting pursuant to the organization’s decision-making procedures.” Restatement, § 96 (1)(a) (emphasis added). The Restatement further provides: “…the lawyer must follow instructions in the representation … given by persons authorized so to act on behalf of the organization.” Restatement, § 96 (1)(b) (emphasis added). The official comments to the Restatement provide additional insight on the issue, but conclude by cautioning: “Who within an organization or among related organizations is authorized to direct the activities of a lawyer representing an organization is a question of organizational law beyond the scope of this Restatement.” Restatement, § 96 cmt. d.
Based upon this Restatement provision and the comments thereto, one must also review the “organizational law.” A logical place to begin analyzing “organizational law” is to review the organization’s legal documents – its articles of incorporation, bylaws, shareholder agreements, and similar organizational documents. These documents, as well as the law of the state of incorporation, should assist in identifying the “persons [who are] authorized to act for the organization;” and consequently, persons who may have authority to direct the activities of a lawyer representing the organization.
One final point must be made, the Restatement makes clear that by representing the organization, “a lawyer does not thereby also form a lawyer-client relationship with all or any individuals employed by it or who direct its operations or who have an ownership or other beneficial interest in it, such as it shareholders.” Restatement, § 96.
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