2b. Can a lawyer for the corporation defend the board of directors in a derivative suit? Cite your legal basis.

No, Atty. Fortes Infide, the lawyer for Lobo Corporation, cannot defend its board of directors in a derivative suit.

A derivative suit is one brought by the shareholders on behalf of the corporation. A shareholder initiates a derivative action to remedy an alleged wrong to the corporation caused by acts of the corporate management or members of the board of directors.

The same issue of whether or not a lawyer engaged by a corporation defend members of the board of the same corporation in a derivative suit has been thoroughly enunciated in the case of Benedicto Hornilla and Atty. Federico D. Ricafort v. Atty Ernesto S. Salunat (A.C. No. 5804 July 1, 2003)[footnoteRef:1]. Jurisprudence held that the possibility for conflict of interest in such a situation is universally recognized. [1: http://www.chanrobles.com/cralawacno5804july12003.html#.VVAhdI6qqkq]

The Supreme Court held that although a number of cases permit joint representation by the lawyer engaged by a corporation where there is no obvious conflict of interest, the developing rule prohibits dual representation in all derivative action. If there is an existing conflict of interest such as in the given case of Lobo Corporation and its board of directors who have opposing views and interests, the lawyer, Atty. Fortes Infide, should refrain from representing or defending the board of directors in a derivative suit. Instead, outside counsel should be retained to represent the defendants.

Furthermore, the Supreme Court held that the restriction on dual representation should not be waivable by mere consent in the usual manner. The corporation must be presumed to be incapable of giving a valid consent. Other jurisdictions have the standing rule that in such circumstance where a lawyer represents both the corporation and its board of directors, such lawyer paves the way to a conflict of interest. the interest of the corporate clint should be given paramount importance and must not be influenced by any individual corporate officials interest.

Therefore, Atty. Infide, a lawyer engaged as counsel for Lobo Corporation, cannot represent members of the same corporations board of directors in a derivative suit brought against them. It would be tantamount to represent conflicting interests, as provided in the same case of Hornilla v. Salunat.

Rule 15.03 of the Code of Professional Responsibility provides:

A lawyer shall not represent conflicting interests except by written consent of all concerned given after a full disclosure of the facts.

Rule 15.01 provides:

A lawyer, in conferring with a prospective client, shall ascertain as soon as practicable whether the matter would involve a conflict with another client or his own interest, and if so, shall forthwith inform the prospective client.

Conflict of interest exists when an attorney represent inconsistent interests of two or more opposing parties. The first test is whether or not it is the lawyers duty to represent one client in a claim or issue, and his duty as well to oppose it for another client. If a lawyer argues for one client but opposes the same argument in defending the other client is involved in a conflict of interest.

There is also conflict of interest if the acceptance of the new retainer will require the lawyer to do an act which will compromise or cause injury to his first client. The second test to determine conflict of interest is whether or not the acceptance of a new attorney-client relationship will prohibit the lawyer from the full discharge of his duty of undivided loyalty and fidelity to his client or possibly invite suspicion of unfaithfulness or double dealing in the performance of his duty.

Courts generally reject the selective waiver in their dueling policy on the issue of confidentiality. In a derivative suit, the client cannot be allowed to choose among his opponents, waiving the privilege for some and raising the claim of confidentiality among others. The client is not allowed to invoke privilege of communications whose confidentiality he already has compromised for his own benefit[footnoteRef:2]. To allow such selective waiver would discourage corporations from seeking independent outside counsel to investigate, advise and represent them and protect the interest of shareholders and clients. [2: http://www.parkermillsllp.com/pdf/publications/Ethical%20Issues%20in%20Class%20Actions%20&%20Derivative%20Litigation.pdf]

Rule 15.02 states:

A lawyer shall be bound by the rule on privilege communication in respect of matters disclosed to him by a prospective client.

Canon 17 provides[footnoteRef:3]: [3: http://www.ibp.ph/d07.html]

A lawyer owes fidelity to the cause of his client and he shall be mindful of the trust and confidence reposed in him.

A lawyer should not represent conflicting interests and owes to his clients, the entire Lobo Corporation in this case, his full devotion and unwavering loyalty, as shown in the case of Ferdinand A. Samson v. Atty. Edgardo O. Era (A.C. No 6664 July 16, 2013)[footnoteRef:4]. The rule does not only cover cases where confidential communications have been confided, but also cases where no confidence has been given or will be used. A lawyer who wittingly serves and represents conflicting interests may be suspended from the practice of law, or even disbarred depending on the circumstances. [4: http://www.lawphil.net/judjuris/juri2013/jul2013/ac_6664_2013.html]