Opinion 96-14
(May 1988)
The inquirer is a former shareholder of a law firm that disbanded in 1991. At the time the firm disbanded, it owed money to its lender on a line of credit and on a term loan. As security for its debt, the lender had acquired a perfected security interest in the firm's receivables.
The law firm had a number of contingent fee cases, some of which were retained by a second shareholder of the firm after it disbanded. The second shareholder agreed, in writing, to an equal sharing of net fees generated on the cases he retained. One case, which is the subject of this opinion, had been referred to the firm by a third attorney. The fee arrangement with the referring attorney provided that she would receive fifty percent of the net fee. The remaining fee was to be split equally between the second shareholder and the firm.
Sometime after the firm disbanded, the subject case was partially settled, resulting in the payment of a fee to the firm. The second shareholder, however, was ultimately successful in settling the remainder of the case, resulting in additional fees of nearly $1 million. Although the second shareholder has paid the appropriate amount to referring counsel, he has taken the position that the firm is not entitled to additional fees.
Judgments have been entered against the firm and in favor of the landlord, two former shareholders of the firm and one of the firm's trade creditors. Although the bank has not entered judgment against the firm, it would appear that it is pursuing collection activity.
The precise question raised by the inquirer is whether, "as a former shareholder of the firm and member in good standing of the Bar," the inquirer has an affirmative obligation to notify these creditors of the settlement and of the possible existence of a fund held by the second shareholder from which those creditors could recover money.
Resolution of this issue under the Pennsylvania Rules of Professional Conduct turns on whether the inquirer is acting as a lawyer for the firm with respect to any matter between the firm and the above-mentioned creditors. Because the inquirer has asked questions relating to any obligation to disclose that arises from his status as a shareholder of the law firm or as a member of the Bar, we understand the inquirer to be stating that he is not acting as a lawyer for the firm with respect to those matters. Under these circumstances, the Committee believes that the Rules of Professional Conduct do not impose upon the inquirer, as a principal of a party in litigation, an affirmative obligation to disclose to the creditors. Although the Committee expresses no opinion on whether other substantive law imposes such an affirmative obligation, the inquirer should be aware of such other possible sources of such a duty, including the obligation of a party to respond truthfully to discovery requests, and where necessary supplement those answers, and the obligation of one fiduciary to another, i.e., obligations of partners in the disbanded law firm to each other as well as the obligations of the firm and the shareholders under the firm's agreement(s) with the lender.
If the inquirer is acting as a lawyer for the firm with respect to any of these matters, then he must take into account the requirements of Rule 1.6, which restricts a lawyer's ability to communicate facts to third parties under certain circumstances, and the requirements of Rule 3.3, which imposes a duty of candor and disclosure to a tribunal under certain circumstances, which duty supersedes confidentiality under Rule 1.6.
The Philadelphia Bar Association's Professional Guidance Committee provides, upon request, advice for lawyers facing or anticipating facing ethical dilemmas. Advice is based on the consideration of the facts of the particular inquirer's situation and the Rules of Professional Conduct as promulgated by the Supreme Court of Pennsylvania. The Committee's opinions are advisory only and are based upon the facts set forth. The opinions are not binding upon the Disciplinary Board of the Supreme Court of Pennsylvania or any other Court. They carry only such weight as an appropriate reviewing authority may choose to give it.