Ferranti International Plc v. Clark
1991 U.S. Dist. LEXIS 4595, 767 F. Supp. 670, 59 U.S.L.W. 2725 (1991)
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Rule of Law:
An implied attorney-client relationship does not exist between a corporation's outside counsel and its in-house general counsel where the general counsel, himself an attorney, retains the outside firm on behalf of the corporation and could not have reasonably believed the firm represented him personally.
Facts:
- William A. Clark served as vice president and general counsel for Ferranti International, Inc.
- In July 1986, Clark, acting in his corporate capacity, retained the law firm Hogan & Hartson to represent Ferranti International plc and its subsidiaries in a federal grand jury investigation concerning employee wrongdoing.
- Hogan & Hartson attorneys repeatedly advised Ferranti employees, in Clark's presence, that the firm represented the corporation and that the employees should obtain their own separate counsel due to potential conflicts of interest.
- Clark assisted in arranging for separate legal representation for other corporate employees.
- Clark communicated information to Hogan & Hartson regarding Ferranti, its subsidiaries, and its employees in his official capacity as vice president and general counsel.
- Later, Ferranti sued Clark regarding a $2.75 million employee 'settlement and release' agreement, alleging it was obtained by extortion.
- Clark claimed that he had personal discussions with Hogan & Hartson attorneys where they advised him on personal matters, such as leaving the company to avoid being 'tainted' by the investigation.
Procedural Posture:
- Plaintiff Ferranti International plc sued Defendant William A. Clark in the U.S. District Court for the Eastern District of Pennsylvania.
- The complaint alleged breach of fiduciary duty and professional malpractice and sought to rescind a settlement agreement.
- Defendant Clark filed a motion to disqualify Plaintiff's counsel, the law firm of Hogan & Hartson, based on an alleged conflict of interest.
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Issue:
Does an implied attorney-client relationship exist between a corporation's outside counsel and its in-house general counsel, who hired the firm on behalf of the corporation, sufficient to disqualify the outside counsel from representing the corporation in a subsequent lawsuit against the in-house general counsel?
Opinions:
Majority - Ludwig, District Judge
No. An implied attorney-client relationship did not exist between Hogan & Hartson and William A. Clark. The court reasoned that any belief by Clark that Hogan & Hartson represented him personally was unreasonable and without foundation. As Ferranti's general counsel, Clark was a legally sophisticated party who must have understood the distinction between corporate and individual representation, especially since Hogan & Hartson explicitly advised other employees to secure their own counsel due to conflicts of interest. The court found that Clark retained and communicated with the firm in his official corporate capacity, meaning his communications were on behalf of the corporation, his client, and were not for the purpose of seeking personal legal advice. Therefore, there is no legal-ethical basis to disqualify Hogan & Hartson.
Analysis:
This case strongly reinforces the 'entity theory' of corporate representation, which dictates that a corporate attorney's client is the corporation itself, not its individual constituents. The decision establishes a high bar for a corporate officer, particularly one who is also an attorney, to claim an implied personal attorney-client relationship with the company's outside counsel. It emphasizes that the sophistication of the individual claiming the relationship is a key factor in assessing the reasonableness of their belief. This precedent makes it more difficult for corporate insiders to use disqualification motions as a tactical weapon to disrupt litigation brought against them by their former employers.
