Consider a scenario in which a lawyer, representing a company's board of directors, is asked to furnish an evaluation to be shared with the company's individual officers and directors. It is possible that an officer or director may try to use the opinion against the board, to the lawyer and the board's detriment. Or the officers and directors may even try to sue the lawyer for negligent advice irrespective of the absence of a direct attorney-client relationship in effect.
Does the preparation of this evaluation create risk for the client if it leads to others bringing claims against the board? Is it a viable claim under California law for directors or officers to sue the lawyer if they rely on the lawyer's advice in the report? What are the ethical duties in such a situation?
Lawyers can take heed of what kind of risks such a report can create. There can be multiple reasons for a board to request or share a report, including to furnish information to the company or investors at large. For example, corporations often retain attorneys to advise the corporation by conducting internal investigations and reporting the investigation results to shareholders or to regulatory agencies. As a result, careful consideration on a case-by-case basis should be employed.
Below are some ethical considerations to keep in mind in the event a client asks an attorney to prepare a third-party report.
Application of California law and ethical obligations
Notably, California did not adopt ABA Model Rule 2.3, which specifically governs lawyer evaluations that are later relied on by third parties.
As background, ABA Model Rule 2.3 states "[a] lawyer may provide an evaluation of a matter affecting a client for the use of someone other than the client if the lawyer reasonably believes that making the evaluation is compatible with other aspects of the lawyer's relationship with the client." Model Rule 2.3(a). The Model Rule dictates that the lawyer should not provide the evaluation without informed consent by the client, if the lawyer knows or reasonably should know that the evaluation is adverse to the client. Finally, Model Rule 2.3 states that information relating to the evaluation is otherwise protected by Rule 1.6 (addressing client confidentiality).
California's Commission for the Revision of the Rules of Professional Conduct noted that Model Rule 2.3 was not recommended for adoption because the Commission found the Rule "not sufficiently clear" and "problematic as a disciplinary standard." For instance, the Commission found the language in the Model Rule of "evaluation of a matter affecting a client" and "compatible with other aspects of the lawyer's relationship with the client" to be unclear and potentially overbroad.
So what governs such a situation in California? Because Model Rule 2.3 has not been adopted, California law and the California Rules of Professional Conduct can otherwise guide attorneys.
Consider client confidentiality
When a client asks its counsel to prepare an opinion to be shared with third parties, lawyers should consider the ethical ramifications. For instance, it is possible that a publicly disseminated report could disclose otherwise-confidential client information.
Maintaining client confidentiality is a strict requirement in California. The California Rules of Professional Conduct demand that lawyers not reveal confidential information without the client's informed consent pursuant to Business and Professions Code § 6068. In turn, § 6068 requires an attorney to "maintain inviolate the confidence, and at every peril to himself or herself to preserve the secrets, of his or her client." § 6068(e)(1).
Accordingly, obtaining informed consent from the client can be a
critical step before a lawyer agrees to prepare a legal opinion to be
distributed to third parties. It is advisable not to include confidential
client information in such an opinion unless it is necessary to the purpose of
the report and unless the client provides informed consent.
Consider the facts
California case law provides some guidance on situations in which attorneys can be found potentially liable for the opinions produced in a third-party or public report. For instance, one case found that if the attorney provides its assessment in order to benefit the client, it may owe a duty to issue that report with due care to those it seeks to influence in the interests of the client. The decision held that the attorney's opinion was intended to benefit the client and the attorney violated the duty it owed to those third parties that the attorney expected to influence on behalf of the client. See Meighan v. Shore, 34 Cal. App. 4th 1025, 1037 (1995) (citing Roberts v. Ball, Hunt, Hart, Brown & Baerwitz, 57 Cal. App. 3d 104 (1976)).
Thus, an attorney may be held to owe a duty of care to a third party in the event that it anticipated that a third party would rely on the opinion furnished. However, such a determination is expected to be made on a case-by-case basis given the facts presented.
Using disclaimers or limitations is one way to try to decrease this potential risk. Opining lawyers often choose to include limitations and disclaimers on the face of their report. This operates to make clear who the intended audience is, who may rely on the opinion, or to show that the lawyer is relying on facts provided by the client without independent investigation. The lawyer may consider also including disclaimers regarding the scope of law or jurisdiction considered and other limitations.
Consider other potential risks
Attorneys' obligations generally run directly -- and exclusively -- to their clients and not to the general public. This is different from an accountant, for example, who may assist with SEC filings or other financial reporting intended for public consumption. Accountants may owe duties to the investing public. Attorneys may encounter a conflict between their responsibilities to the client and the intended purpose of the report. When furnishing materials for review or consumption by others who are not their own clients, it is possible that an evaluation meant to support a client's position may run up against the attorney's duty of diligence to protect the client's interests or the duty of candor in explaining legal risks to a client.
It can be beneficial to define the scope of the client's representation from the outset. An attorney may wish to advise a client in advance of the potential risks associated with sharing an evaluation with a third party. Having these discussions before commencing the representation can help ensure both the lawyer and client understand the purpose of the representation.
Becoming knowledgeable of the potential ethical risks at play can help a lawyer to make sound decisions when a client asks if the attorney will furnish their opinion for third-party use.