Kroes Materials (September 18, 2020 Seminar)

Wisconsin Entertainment Lawyers Association Ethics Presentation

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Part 1 - Ethical Pitfalls in Representing Creative Collaborators (organization as client)

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  1. INTRODUCTION

 

This CLE examines ethical considerations for counsel representing a group of individuals who have come together to collectively pursue an endeavor in the entertainment industry. This can either include representation of organizations such as bands or film crews, or situations where an attorney already representing an entity (such as a record label), may be brought to the table as “the lawyer”, thereby giving an individual the impression that the attorney also represents that individual. By examining Wisconsin Supreme Court Rules, statutes, and case law, this CLE aims to assist counsel in identifying and dealing with these scenarios at all stages of representation. While discussed in the context of sports and entertainment law, the general ethical principles discussed in this CLE can also be used throughout other practice areas.

 

  1. ETHICAL RULES
    1. SCR 20:1.6 Confidentiality
      1. (a) A lawyer shall not reveal information relating to the representation of a client unless the client gives informed consent, except for disclosures that are impliedly authorized in order to carry out the representation.
    2. SCR 20:1.7 Conflict of Interest Current Clients
      1. (a) A lawyer shall not represent a client if the representation involves a concurrent conflict of interest.
    3. SCR 20:1.8 Conflict of Interest: prohibited transactions
      1. (b) A lawyer shall not use information relating to representation of a client to the disadvantage of the client unless the client gives informed consent.
      2. (g) A lawyer who represents two or more clients shall not participate in making an aggregated agreement of the claims of or against the clients, unless each client gives informed consent, in a writing signed by the client.
      3. (j)(2) When the client is an organization, a lawyer for the organization (whether inside counsel or outside counsel) shall not have sexual relations with a constituent of the organization who supervises, directs or regularly consults with that lawyer concerning the organization’s legal matters.
    4. SCR 20:1.9 Duties to Former Clients
      1. (a) A lawyer who has formerly represented a client in a matter shall not thereafter represent another person in the same or substantially related matter in which that person’s interests are materially adverse to the interests of the former client unless the former client gives informed consent, confirmed in writing signed by the client.
    5. SCR 20:1.13 Organization as Client
      1. (a) A lawyer employed or retained by an organization represents the organization acting through its duly authorized constituents.

 

  1. WISCONSIN STATUTES
    1. Wis. Stat.§ 905.03 Lawyer Client Privilege
      1. (1)(a) A “client” is a person, public officer, or corporation, association, or other organization or entity, either public or private, who is rendered professional legal services by a lawyer, or who consults a lawyer with a view to obtaining professional legal services from the lawyer.
    2. Wis. Stat. §178.0202 Formation of Partnership
      1. (1) Except as otherwise provided for in sub. (2), the association of 2 or more persons to carry on, as co-owners, a business for profit forms a partnership, whether or not the persons intend to form a partnership.

 

 

  1. CASE LAW
    1. Fouts v. Breezy Point Condominium Ass’n., 2014 WI App 77, 355 Wis.2d 487, 851 N.W.2d 845
      1. The “entity rule” provides that when a lawyer represents an organization, the organization is the client, not the organization’s constituents.
      2. Fiduciary duties of a condominium association to ensure the association was properly managed did not automatically entitle him to access records of association protected by attorney-client privilege.
    2. Lane v. Sharp Packaging Systems, Inc., 2002 WI 28, 251 Wis.2d 68, 640 N.W.2d 788
      1. The clear purpose of the “entity rule” is to enhance the corporate lawyer’s ability to represent the best interests of the corporation without automatically having the additional and potentially conflicting burden of representing the corporation’s constituents.

 

  1. Jesse by Reinecke v. Danforth, 169 Wis.2d 229, 485 N.W.2d 63
    1. Where a person retains a lawyer for purpose of organizing an entity and a lawyer’s involvement with that person is directly related that that incorporation and such entity is eventually incorporated, “entity rule” applies retroactively such that the lawyer’s pre-incorporation involvement with the person is deemed to be representation of the entity, not the person.
    2. It is the corporate entity, not the person, who holds the attorney-client privilege.

 

  1. Croce v. Kurnit, 565 F.Supp. 884 (S.D.N.Y. 1982), aff’d 737 F.2d 229 (2d Cir. 1984)
    1. Even in absence of express attorney-client relationship, lawyer may owe fiduciary obligation to persons with whom he deals.
    2. Fiduciary duty arises when lawyer deals with persons who, although not his clients, he has or should have reason to believe rely upon him.
    3. Attorney’s introduction as “the lawyer,” his explanation to professional entertainer of legal ramifications of publishing and managerial contracts, his interest as principal in the transaction, his failure to advise entertainer to obtain outside counsel, and entertainer’s lack of independent representation, taken together, established both fiduciary duty on part of attorney and breach of that duty.

 

  1. Joel v. Grubman, 1992, Case No. 261-55-92, N.Y. Sup. Ct.
    1. Musician sued former lawyers for fraud, breach of fiduciary duty, malpractice and breach of contract arising out of business decisions made with the musician’s former manager, in addition to conflicts alleged regarding former representation of musician’s record label.
    2. Case settled before going to trial, however, industry insiders acknowledged that “every artist that goes to [the attorney] hires him precisely because he has relationships with all the label executives” and as such, “gets results.”

 

  1. HCL Properties Limited, et al. v. The superior Court of Los Angeles County, 35 Cal.4th 54, 15 P.3d 560 (2005)
    1. Limited partnership managing property and businesses of deceased entertainer, sued record companies for unpaid royalties, and companies sough discovery related to royalty agreements.
    2. When entertainer died his privilege transferred to his personal representative, and only once the estate was finally distributed and personal representative discharged, was the privilege terminated because there was no longer any privilege holder statutorily authorized to assert it.

 

  1. DISCUSSION
    1. Identify potential conflicts.
      1. When the lawyer is sought for contacts to the industry insiders for the lawyer’s relationships, it is the potential for conflicts that makes the lawyer attractive to clients.
      2. There could be an inherent conflict when representing any group of people.
      3. There could be a conflict when a lawyer already representing one party is introduced generally as “the lawyer”.
    2. Solutions
      1. Interview/screen clients.
      2. Identify the client early before representation commences.
      3. Set representation parameters and boundaries early in relationship.
      4. Explain implications of joint representation.
      5. Memorialize the representation in the legal representation agreement.
      6. Conflict of interest waiver.
      7. Appoint contact person for day-to-day contact.
      8. E-mail/correspondence to all decision-making members of organization.
      9. Adhere to the representation boundaries.
      10. Addressing internal conflicts.
      11. Know when to abstain/terminate representation.

 

 

Table of Authorities

PART 1

  • Wisconsin Supreme Court Rules
    • SCR 20:1.6 Confidentiality
    • SCR 20:1.7 Conflicts of Interest Current Clients
    • SCR 20:1.8 Conflict of Interest: prohibited transactions
    • SCR 20:1.9 Duties to Former Clients
    • SCR 20:1.13 Organization as Client

 

  • Wisconsin Statutes
    • Wis. Stat. §905.03 Lawyer client Privilege
    • Wis. Stat. §178.0202 Formation of Partnership

 

  • Wisconsin Case Law
    • Fouts v. Breezy Point Condominium Ass’n., 2014 WI App 77, 355 Wis.2d 487, 851 N.W.2d 845
    • Lane v. Sharp Packaging Systems, Inc., 2002 WI 28, 251 Wis.2d 68, 640 N.W.2d 788
    • Jesse by Reinecke v. Danforth, 169 Wis.2d 229, 485 N.W.2d 63

 

  • Non-Wisconsin Case Law
    • Croce v. Kurnit, 565 F.Supp. 884 (S.D.N.Y. 1982), aff’d 737 F.2d 229 (2d Cir. 1984)
    • Joel v. Grubman, 1992, Case No. 261-55-92, N.Y. Sup. Ct.
    • HCL Properties Limited, et al. v. The superior Court of Los Angeles County, 35 Cal.4th 54, 15 P.3d 560 (2005)