G.R. No. A.C. 5804. July 1, 2003.
Benedicto Hornilla and Atty. Federico D. Ricafort, complainants, vs. Atty. Ernesto S. Salunat, respondent.

FACTS

Complainants, members of the Philippine Public School Teachers Association (PPSTA), filed an administrative complaint against respondent Atty. Ernesto S. Salunat for conflict of interest and unethical practice. Respondent’s law firm, ASSA Law and Associates, was the retained counsel of PPSTA. Complainants had filed a derivative suit before the Securities and Exchange Commission and a complaint before the Office of the Ombudsman against PPSTA’s Board of Directors for alleged corporate mismanagement. Respondent entered his appearance as counsel for the individual board members in these cases.
Complainants alleged that by representing the board members sued in a derivative action, respondent represented interests conflicting with those of his client, PPSTA, which was the real party-in-interest in the suits. They contended he was being paid from corporate funds to act against the corporation’s interest. Respondent defended himself by arguing he acted for the law firm, not individually, and that the SEC case was handled by another partner. He also claimed the Ombudsman case lacked jurisdiction and his relationship to a board member was immaterial.

ISSUE

Whether respondent Atty. Ernesto S. Salunat is guilty of representing conflicting interests in violation of the Code of Professional Responsibility.

RULING

Yes, the Supreme Court found respondent guilty of representing conflicting interests. The legal logic centers on the nature of a derivative suit and the fiduciary duties of a corporate lawyer. In a derivative suit, the corporation is the real party in interest; the suit is brought for the benefit of the corporation to redress wrongs committed against it by its directors. The board of directors, while managing the corporation, is a separate entity from the corporate body itself. When a lawyer retained by a corporation undertakes to defend individual board members in a derivative suit alleging their mismanagement harmed the corporation, a clear conflict of interest arises.
The test for conflict is whether a lawyer’s duty to one client requires him to oppose for another client what he is bound to defend for the first. Here, respondent’s duty to PPSTA, as its retained counsel, would be to protect the corporate interest, which the derivative suit sought to do. By defending the board members against those very claims, he was necessarily opposing the interests of PPSTA. His filing of a pleading in the Ombudsman case on behalf of the board members solidified this representation. The Court held this situation inherently prohibited, as it placed respondent in a position where his loyalty to the corporation was compromised by his duty to the individual directors. However, considering it was his first offense, the Court merely admonished him to observe a higher degree of fidelity, warning that a repetition would be dealt with more severely.