98-7.

• Case Date: August 11, 1998
• Court: Kansas

Kansas Ethics Opinion 1998. 98-7. August 11, 1998KBA Legal Ethics Opinion No. 98-7August 11, 1998 TOPIC: Client confidences; third party fee reimbursement DIGEST: Subject to MRPC 1.5, 1.6, 1.8, and 3.7 an employee of a corporation may have the corporation pay a private law firm the fees in the form of a retainer for legal services pursuant to a indemnification agreement. However, such payment does not entitle either the employee to control the disposition of an excess retainer nor the corporation to have an automatic right to reimbursement. If the corporation and the former employee cannot agree on disposition of the retainer, the matter can be settled by a declaratory judgment action between the corporation and the employee. If the retained firm becomes a witness in such action, it is not prohibited from representing the client in the action if the corporation sues the client for return of the excess indemnification unless the firm is owed money by the client towards which the excess funds would be applied. In such case the firm may have an impermissible conflict under MRPC 3.7 that it cannot act as attorney when it is going to be a witness. The firm must maintain client confidences, however, and can confirm to the corporation only the information about the retainer that is already known to the corporation: that the retainer was received and there may or may not be a balance on the retainer. The firm cannot mislead the corporation as to the existence of a balance in the retainer fee, but is not obligated to supply the amount until ordered to divulge such information in a resulting legal action. Date of Request: April 27, 1998 Reference: MRPC 1.5, 1.6, 1.8 and 3.7 Boilerplate Limitations on use of the Opinion. FACTS Corporation retains private law firm to represent an individual employee of the corporation regarding a potential criminal or civil fraud allegation made by the U.S. Attorney's office. Corporation paid a $10,000 retainer to the firm for the employee pursuant to corporate bylaws that required indemnification of the employee. The firm considers the employee, not the corporation, as its client. The firm has never represented the corporation. After separate internal investigations initiated after the retainer was paid, the employee was among several employees fired by the corporation. The corporation demanded the law firm refund the unused portion of the retainer. Employee, when notified, directed the firm not to refund the retainer. The funds now exist in the firm's trust account. Later, the U.S...