Q: Dear Ethics Lawyer, I am Associate General Counsel for Universal Shipping Company, a large transportation conglomerate. We have many subsidiaries, including some that are engaged in ancillary businesses and do not have “Universal” in their name. Today, I discovered that a law firm that is currently representing Universal Shipping in a transactional matter also represents a commercial party in a contract lawsuit against Smith Food Services, Inc., an ancillary business we acquired a few years ago as a wholly-owned subsidiary. Smith provides food and beverage service to airlines and railroads, and we left its management in place, so it functions as a free-standing subsidiary. Does the law firm have a conflict?
A: The answer here depends upon the factual circumstances. In ABA Op. 95-390 (1995), a majority of the Committee opined that a parent-subsidiary relationship does not automatically create a conflict when a lawyer represents one and is adverse to the other. This was carried forward in Comment 34 to Model Rule 1.7: “A lawyer who represents a corporation or other organization does not, by virtue of that representation, necessarily represent any constituent or affiliated organization, such as a parent or subsidiary. See Rule 1.13(a).” However, the Comment continues to note that a conflict can exist if under the factual circumstances the affiliate should also be considered a client, the lawyer and client have agreed to affiliates as clients, or the lawyer’s obligations to either the organizational client or the affiliate would create a “material limitation” of the lawyer’s ability to represent either.
Cases determining whether a subsidiary should be treated as one with the parent for conflicts purposes look at a variety of factors, depending upon the jurisdiction. Some employ an alter-ego type analysis. Many look at the extent of independent management and/or operations, whether they have the same in-house legal representation, the similarity of the matters involved, whether information obtained by the lawyer in representing one would be relevant to the adverse matter, etc. See, e.g., Gartner, Inc. v. HCC Specialty Underwriters, Inc., No. 20-cv-4885 S.D.N.Y. Jan. 14, 2022) (corporate affiliate conflict depends upon examination of the “degree of operational commonality” and “extent to which one [entity] depends financially on the other”). See also Freivogel on Conflicts. In determining whether there is a “material limitation” under Rule 1.7(a)(2), the focus is on whether there are any factors, such as the lawyer’s depth of relationship and fee interest as to one client provides a motive for the lawyer to less vigorously represent the other client.