Volume 35

The Ethical Landmines of Dual Service: United States v. Holmes

by Sabrina Elliott

The legal profession has long debated whether lawyers should be allowed to engage in dual service, or represent corporations and also serve on their boards of directors. In ABA Formal Ethics Opinion 98-410 (Opinion 410) issued in 1998, the Formal Committee on Ethics and Professional Responsibility held that there is no prohibition against lawyers serving on the board of directors of a corporation that they, or their firm, represents. Indeed, the ABA Model Rules of Professional Conduct (“Model Rules”) allow for this dual service. While Opinion 410 does include a cautionary comment that a lawyer must evaluate whether the responsibilities of the two roles might conflict, neither the opinion nor the Model Rules provide clear guidance for lawyers about how to handle such conflicts. While there are benefits to this dual service, including the ability of the attorney to offer more comprehensive legal advice, this practice still warrants concern because of its vast ethical implications. Nonetheless, it is still a wide-spread practice. Robert Swaine of New York’s Cravath, Swaine & Moore once notably stated that while “most of us would be greatly relieved if a canon of ethics were adopted forbidding a lawyer in substance to become his own client through acting as a director or officer of a client . . . the practice is too widespread to permit any such expectation.” And yet, as former Supreme Court Justice Potter Stewart warned, “there are significant ethical issues implicated by such dual service’s intertwining ‘the function of the lawyer in giving professional counsel’ and ‘the function of corporate management . . . in the profit-making interests of its stockholders.’” While the ABA has yet to, and likely will not, ban the practice, it has consistently skirted the issue of what to do when inevitable conflicts arise as a consequence of this dual service. Some of these conflicts include privilege and confidentiality challenges, which can lead to potential conflicting duties owed to the corporation.

The debate surrounding dual service has recently been reinvigorated given a notable case in the media: United States v. Holmes.  Elizabeth Holmes founded and served as chairman of the board of directors of Theranos, a now defunct health technology company. Theranos “was a private health care and life sciences company with the stated mission to revolutionize medical laboratory testing through allegedly innovative methods for drawing blood, testing blood, and interpreting the resulting patient data.” Holmes was charged with two counts of conspiracy to commit wire fraud and nine counts of wire fraud. It is alleged that she “engaged in a multi-million-dollar scheme to defraud investors, and a separate scheme to defraud doctors and patients.” She was convicted of wire fraud and conspiracy, and her trial ended in January 2020 after nearly four months of testimony. David Boies, prominent litigator, and chairman of his own law firm, both served on the board of Theranos and as the company’s attorney. At trial, Boies was called to testify, and Holmes argued that all communication between Boies and herself was privileged under the doctrine of attorney-client privilege. This controversy reminded those in the legal profession of the vast attorney-client privilege issues that arise when a lawyer both represents a company, either private or public, and serves on its board of directors.

This Note will argue that the ABA needs to provide updated practical guidance on how lawyers should ethically navigate the attorney-client privilege and confidentiality challenges that emerge when serving as both legal counsel and a member of the board of directors for a corporation. Despite extensive scholarship and debate within the legal profession about the subject, the ABA’s guidelines for handling such conflicts have remained unchanged for more than two decades. Given the changes in the legal profession, especially the increase in lawyers serving on boards and the lack of distinction between business and legal advice, the ABA should adopt reform that provides greater clarity and uniformity for lawyers. Part I of this Note discusses the background of dual service, including benefits and drawbacks of the practice. Part II explores the attorney-client privilege and duty of confidentiality issues that arise out of dual service in the case of potential illegal activity by corporate officers, as demonstrated in United States v. Holmes. Finally, Part III considers Opinion 410 and why it is insufficient to guide lawyers who serve on boards, then considers other State Bar Opinions, including the D.C. Bar Ethics Opinion 382, which, as a local ethics opinion could provide a model for the ABA to adopt, and finally, offers a call for reform.

Keep Reading

Subscribe to GJLE