State Bar of Arizona Ethics Opinions

98-04: Communication with Opposing Party; Communication with Unrepresented Party
3/1998

This opinion discusses a lawyer's ethical duties where a corporate parent is represented in a matter, and the attorney desires to communicate about the subject matter of the representation with an employee of a subsidiary of the corporation, without consent of the parent corporation’s counsel.  [ER 4.2]

FACTS[1]

 

The inquiring attorney desires to interview an employee of a subsidiary of a corporation that is a represented party.  The interview would concern the employee’s knowledge related to the matter in representation.

 

The subsidiary is wholly-owned by the opposing party corporation, and the employee in question is paid directly by the parent corporation.  Moreover, the inquiring attorney believes that the employee has knowledge of, and may have participated in, actions that could adversely affect the parent corporation.  The parent corporation’s counsel has not consented to the interview.

 

For the purposes of this opinion, we assume that neither the employee nor the subsidiary are represented by counsel in the matter that would be the subject of the inquiring attorney’s interview.

 

Question Presented

 

Where a corporate parent is represented in a matter, does ER 4.2 bar an attorney from  communicating about the subject of the representation, without consent of the parent corporation’s counsel, with an employee of a subsidiary of the corporation?

 

Relevant Ethical Rules

 

ER 4.2             Communications with Person Represented by Counsel

 

In representing a client, a lawyer shall not communicate about the subject of the representation with a party the lawyer knows to be represented by another lawyer in the matter, unless the lawyer has the consent of the other lawyer or is authorized by law to do so.

 

Comment to ER 4.2:

 

* * * * *

 

In the case of an organization, this rule prohibits communications by a lawyer for one party concerning the matter in representation with persons having a managerial responsibility on behalf of the organization, and with any other person whose act or omission in connection with that matter may be imputed to the organization for purposes of civil or criminal liability, or whose statement may constitute an admission on the part of the organization.

 

Opinion

 

Under certain circumstances, Rule 4.2 bars ex parte communications with employees of subsidiaries of a represented corporate parent, just as it bars ex parte communications with certain employees of the parent corporation.  Rule 4.2 prohibits ex parte communications with an employee of a wholly-owned subsidiary of a represented corporation when the communications concern the matter in representation and (1) the employee has managerial responsibility on behalf of the parent corporation, (2) the employee’s actions may give rise to liability on the part of the parent corporation or (3) the employee’s statements may constitute admissions binding on the parent corporation.

 

1.  The Three-Part Functional Analysis

 

Neither ER 4.2 itself nor the relevant comment explicitly limits the scope of the rule to persons directly employed by a corporation.  Rather, the boundaries of Rule 4.2 are defined pursuant to the three-part functional analysis set forth in the comment.  A lawyer may not communicate ex parte about the subject of a representation with: (1) persons having managerial responsibility in the organization, (2) persons whose acts or omissions in the matter may impute civil or criminal liability to the corporation, and (3) persons whose statements constitute party admissions binding on the represented corporation.  The ABA Ethics Committee has opined that the word “person” (rather than “employee”) was used in the comment in order to ensure that independent contractors would fall within the scope of ER 4.2.  American Bar Assoc. Comm. on Ethics and Prof. Resp., Formal Op. 91-359 (March 22, 1991).

 

Both the language of ER 4.2 and the comment militate against drawing a bright line rule delimiting the scope of the rule to exclude employees of a subsidiary of a corporation.  Rather, ex parte communications with an employee of a subsidiary of a represented corporation should be governed by the three-part functional analysis applicable to “organizations” as set forth in the comment to the rule.  In modern business organizations, subsidiaries may be treated “as a mere department in the [parent’s] own enterprise.”  Zenith Radio Corp. v. Matsushita Elect. Indus., 505 F. Supp. 1190, 1248 (E.D. Penn. 1980).  Communications between employees of a subsidiary and the parent corporation’s counsel may be subject to attorney-client privilege.  See,  United States v. United Shoe Mach. Corp., 89 F. Supp. 357, 359 (D. Mass 1950) (construing the attorney-client privilege to encompass communications from subsidiaries); Upjohn Co. v. United States, 449 U.S. 383 (1981) (implicitly assuming that managers of foreign subsidiaries and affiliates are employees for the purpose of discussing the attorney-client privilege and work-product issues).  Further, it is not difficult to envision scenarios in which an employee of a subsidiary could engage in conduct for which the parent corporation could be liable pursuant to the doctrines of, among others, alter ego, agency or respondeat superior.  Gatecliff v. Great Republic Life Ins. Co., 154 Ariz. 502, 521-22 (Ct. App. 1987).  Employees of subsidiaries can make admissions binding on the parent corporation.  Big Apple BMW, Inc. v. BMW of North American, Inc., 974 F.2d 1358, 1373 (3d Cir. 1992) (construing the federal party admissions provision to include admissions made by employee of subsidiary where parent corporation dominates the activities of the subsidiary).  In some corporations, managerial employees of subsidiaries may have managerial responsibilities over portions of the parent corporation.[2]

 

Including employees of subsidiaries among the categories of persons covered by Rule 4.2 serves the Rule’s goals of “(1) prevent[ing] unprincipled attorneys from exploiting the disparity in legal skills between attorneys and lay people, (2) preserv[ing] the integrity of the attorney-client relationship, (3) help[ing] to prevent the inadvertent disclosure of privileged information, and (4) facilitat[ing] settlement.”  Lang v. Superior Court, 170 Ariz. 602, 604-605 (Ct. App. 1992).  Employees of a subsidiary may be at the center of a dispute involving the parent corporation.  Their actions may give rise to a lawsuit against the parent.  They may confer with the parent corporation’s counsel to help them regarding a matter in representation, and they may have privileged information regarding the matter.

 

2.  Application to the Instant Case

 

Some of the facts the inquiring attorney has revealed suggest that the attorney’s communication with the employee in question would be prohibited by ER 4.2.  The parent corporation and the subsidiary appear to have close ties:  the subsidiary is wholly-owned by the parent, and the employee is paid directly by the parent corporation.  More important, the employee “has knowledge of matters, and may have participated in matters that could adversely affect the parent corporation,” raising the possibility that the employee’s conduct could impute liability to the parent.[3] 

However, without more detail concerning the employee’s relationships to the corporate parent and the matter in representation, the Committee cannot determine conclusively whether the inquiring attorney is prohibited from communicating with the employee.  The Committee is confident that the inquiring attorney will be able to make that assessment in accordance with the conclusions reached in this opinion.



[1] Formal Opinions of the Committee on the Rules of Professional Conduct are advisory in nature only and are not binding in any disciplinary or other legal proceedings.  ã State Bar of Arizona 1998 

[2] The inquiring attorney has directed the Committee to the unpublished decision in Thomas & Betts Corp. v. Panduit Corp., 1996 WL 6561 (N.D. Ill. 1996), in which the court ruled that an analogous Rule 4.2 did not bar the plaintiff’s attorneys from direct ex parte communications with the defendant’s subsidiaries and independent distributors to inform them that the parent was likely to be enjoined from selling the plaintiff’s product.  The Thomas court refused to adopt a per se rule permitting contact and applied the functional three-part test set forth in the comment, ruling that the communication was permissible because the subsidiaries and distributors did not have managerial responsibility for the parent, the dispute did not concern their activities, and there was no danger that plaintiff’s attorneys would extract admissions from them.

[3] It should be noted that an employee’s mere knowledge of wrongdoing is not enough to put an employee within ER 4.2.  Arizona Committee on the Rules of Professional Conduct, Formal Op. 95-07 (November 1, 1995).