It should be emphasized that Laura serves as the general counsel for MoreHome Mortgage Company, with her primary allegiance being to the corporation itself, not to any of its executives or employees. While her role necessitates communication with company personnel, including Eric, the Chief Executive Officer, such interactions must strictly adhere to professional legal ethics. A challenge arises when the interest of the company is inconsistent with the interests of individuals within the company.
Duty of loyalty
As discussed above, the lawyer's client is MoreHome, which means she needs to maintain loyalty solely to the company, and to avoid conflicts of interest. When Eric approached Laura, if there had been an inconsistency between Eric's interests and those of the company, it would have been appropriate for Laura to advise Eric to seek independent counsel. However, since Eric was not personally implicated in the document falsification, her interests appeared to be aligned with the company's. Under these circumstances, Laura could represent both the company and Eric concurrently. Hence, even if Laura had offered legal advice to Eric, which she did not, it would not have been a breach of professional ethics.
A conflict of interest arises when Eric instructs Laura not to disclose information to others. At this point, Laura can no longer act according to Eric's instructions. The more appropriate course of action would have been for Laura to inform Eric that he is not her client and that her actions will be guided by the best interests of the company, not Eric's personal preferences. This clarification could have helped to set the right expectations and uphold the professional boundaries between Laura and Eric while ensuring that the company's interests remained the primary focus of Laura's actions.
The conflict of interest extends to the confidentiality obligations Laura may have towards Eric, if any. It should have been made clear at the beginning that any communication between Laura and Eric would not be kept confidential from the company, given that Eric is not her client, or at best, is a joint client with the company. Therefore, when Eric instructed Laura not to disclose information to the company, Laura should have promptly declined.
Duty of honesty
An attorney's appearance should reflect honesty, not only towards their client but also towards the public. Regardless of whether Eric was her client, Laura should have candidly informed him that any communication between them would not be confidential, instead of saying she would "think about it" and then immediately disclosing the information shared by him to the CEO. Laura might argue that she did not agree to confidentiality and stating "think about it" was a way to avoid an awkward refusal, thereby leaving some room for contemplation. However, considering the above discussion regarding the notification of conflict of interest, the State Bar might find it more appropriate if Laura had informed Eric at the beginning that their communication would not be confidential.
Duty to report internally
Laura bears an absolute duty to report the discovered misconduct within the company to its highest levels. Disclosing such matters to the CEO does not violate any professional ethics; on the contrary, professional ethics explicitly mandate Laura to take such action, even in the face of opposition from Eric. However, when the CEO showed indifference towards the disclosed misconduct, it was necessary for Laura to take the matter to higher authorities within the company. Typically, a corporation would have a board of directors representing its highest governing authority. Hence, Laura's failure to disclose the misconduct to the board of directors might constitute a violation of professional ethics.
Duty of confidentiality
An attorney is obligated to maintain confidentiality regarding client information, which means, generally, Laura should not disclose MoreHome's alleged misconduct to external parties. However, an exception to this rule exists when an attorney seeks advice on how to comply with professional ethics, permitting limited disclosure to outside counsel. Therefore, Laura's action of sharing some confidential information while consulting with an external attorney did not violate the duty of confidentiality. This step was taken in an effort to ascertain the correct ethical path forward, demonstrating a prudent approach towards adhering to professional ethics while navigating a complex situation.
Duty to report externally
An attorney typically does not have a duty to report externally. If Laura chose not to report outside the company, she would not be violating any professional ethics. However, her decision to report externally could potentially cross ethical lines. As previously mentioned, Laura should have first reported to the Board of Directors, and only considered external reporting if the Board remained indifferent.
Assuming that the CEO is the highest governing authority within the company, or that the CEO has control over the Board making reporting to them futile, whether Laura's external reporting breaches professional ethics may depend on whether the ABA or California's professional ethics standards are applied. Under the ABA guidelines, an attorney may report externally if the company is involved in 1. clear violation of law and 2. actions detrimental to the company's interest. California, on the other hand, only permits external reporting if the actions could result in death or serious bodily harm. Here, the company employees' actions of falsifying financial records clearly violate the law and are detrimental to the company's interests, but do not rise to the level of causing bodily harm or death. Therefore, under the ABA guidelines, Laura's action of reporting externally may not violate professional ethics, contrasting with California's more restrictive rules which might view Laura's actions as a breach of professional ethics.
In conclusion, Laura violated professional ethics when she failed to immediately inform Eric about the existence of a conflict of interest and the absence of confidentiality obligations between them. Furthermore, Laura might have breached professional ethics by not reporting to a higher authority within the company, if any. Lastly, the act of reporting externally could potentially contravene professional ethics if California rules are applied. But since her decision was made post consultation with external counsel, even if found in violation, the State Bar might consider Laura's honest belief that she was adhering to professional ethics, which could mitigate any disciplinary actions.