A.C. No. 5804 - Hornilla vs. Salunat

Case Summary (A.C. No. 5804)

Summary of Facts and Complaints

On November 21, 1997, Hornilla and Ricafort filed an administrative complaint with the IBP Commission on Bar Discipline accusing Atty. Salunat of illegal and unethical practice and conflict of interest. The core factual allegations: ASSA Law and Associates (of which Salunat was a partner and managing partner) was retained counsel of the PPSTA; Aurelio S. Salunat, respondent’s brother, was a PPSTA Board member who approved that retention; complainants, as PPSTA members, filed intra-corporate and administrative complaints attacking Board actions (SEC Case No. 05-97-5657 and OMB Case No. 0-97-0695); respondent entered his appearance as counsel for the PPSTA Board members and was paid from corporate funds to which complainants contributed; respondent allegedly refused to withdraw despite being informed of the conflict; and respondent allegedly assured the Board (at a meeting) that he would win the PPSTA cases, implicating Rule 15.06.

Respondent’s Answer and Defenses

Respondent denied personal conflict, asserting he appeared on behalf of ASSA Law and Associates rather than in a personal capacity. He stated that in the SEC case another partner handled matters (Atty. Agustin V. Agustin), and that he merely filed a “Manifestation of Extreme Urgency” in the Ombudsman case. He characterized the complaints as instigated by Atty. Ricafort and raised a counter-allegation that Ricafort’s conduct constituted gross misconduct warranting discipline instead. He denied promising victory and limited his assurance to an expectation that jurisdictional issues would lead to dismissal of the Ombudsman complaint.

Investigative and IBP Proceedings

The complaint was docketed as CBD Case No. 97-531 and investigated. The investigating commissioner recommended a six-month suspension from the practice of law. The IBP Board of Governors adopted the recommendation by Resolution No. XV-3003-230 dated June 29, 2002. Respondent filed a motion for reconsideration with the Supreme Court.

Legal Issue Presented

Whether an attorney retained by a corporation (the PPSTA) may ethically represent members of that corporation’s board of directors who are defendants in derivative or intra-corporate actions brought against those directors by the corporation or by members on the corporation’s behalf — and, in the present circumstances, whether Salunat’s appearances for the Board while his firm represented the PPSTA constituted a conflict of interest under the Code of Professional Responsibility.

Governing Ethical Rule on Conflicts of Interest

Rule 15.03 of the Code of Professional Responsibility forbids representation of conflicting interests except with written consent after full disclosure. The rule’s tests include whether advocacy for one client would require opposing advocacy for another, whether acceptance of a new retainer would injure a prior client or require use of confidential knowledge against that client, and whether the new relation would impair undivided fidelity and loyalty or invite suspicion of double dealing.

Corporate and Derivative Suit Principles

Under the Corporation Code and settled jurisprudence, the board of directors exercises corporate powers, conducts corporate business, and controls corporate property; directors have a fiduciary character distinct from the corporate entity. When directors commit breaches of trust and the corporation is unwilling or unable to sue, a stockholder may bring a derivative suit on behalf of the corporation, making the corporation the real party in interest. In derivative actions, the prevailing view in other jurisdictions and in scholarly authorities is that dual representation of both the corporation and its assailed directors creates a conflict of interest that is generally impermissible; outside counsel should represent either the corporation or the individual directors but not both.

Application of Law to the Facts — SEC Case

The SEC action (SEC Case No. 05-97-5657) was brought by the PPSTA against its 1992–1995 Board of Directors. The record shows ASSA Law Firm was retained counsel of the PPSTA while respondent appeared of record for the Board members. Applying the tests under Rule 15.03 and the doctrine on derivative suits, the Court found that representing the corporation (PPSTA) while simultaneously defending its directors in a suit brought by that corporation presented an unavoidable conflict of interest. The Court concluded that such dual representation constituted representation of conflicting interests prohibited by the Code.

Application of Law to the Facts — Ombudsman Case

The Ombudsman complaint (OMB Case No. 0-97-0695) was filed nominally against individual Board members but was brought to protect corporate interests. Respondent’s filing of a Manifestation of Extreme Urgency, in which he sought dismissal, amounted to entering his appearance on behalf of the individual Board members. Because that complaint sought relief on behalf of the corporation, respondent’s appearance for the individual respondents while his firm represented the corporation likewise constituted a conflict of interest under Rule 15.03.

Court’s Conclusion on Ethical Breach

The Supreme Court concluded that respondent was guilty of representing conflicting interests in both proceedings identified above. The acceptance o

Case Syllabus (A.C. No. 5804)

Facts of the Case

On November 21, 1997, Benedicto Hornilla and Atty. Federico D. Ricafort filed an administrative complaint with the Integrated Bar of the Philippines (IBP) Commission on Bar Discipline against Atty. Ernesto S. Salunat for illegal and unethical practice and conflict of interest.
Complainants alleged that respondent was a member of ASSA Law and Associates, which was the retained counsel of the Philippine Public School Teachers Association (PPSTA).
Respondent’s brother, Aurelio S. Salunat, was a member of the PPSTA Board which approved respondent’s engagement as retained counsel of PPSTA.
Complainants, as members of PPSTA, filed an intra-corporate case against members of the Board of Directors for the terms 1992–1995 and 1995–1997 before the Securities and Exchange Commission, docketed as SEC Case No. 05-97-5657.
Complainants also filed a complaint before the Office of the Ombudsman, docketed as OMB Case No. 0-97-0695, alleging unlawful spending and the undervalued sale of PPSTA real property.
Respondent entered his appearance as counsel for the PPSTA Board members in the said cases.
Complainants contended respondent was guilty of conflict of interest because he was engaged by PPSTA (of which complainants were members) and was paid from corporate funds to which complainants had contributed.
Complainants asserted that respondent refused to withdraw his appearance despite being informed of the conflict of interest.
Complainants further averred respondent violated Rule 15.06 of the Code of Professional Responsibility when he appeared at a PPSTA Board meeting and assured members he would win the PPSTA cases.

Respondent’s Answer and Defenses

Respondent asserted he entered his appearance as counsel for the PPSTA Board Members for and on behalf of ASSA Law and Associates, not in an individual capacity.
As a partner in ASSA Law and Associates, respondent stated he only filed a "Manifestation of Extreme Urgency" in OMB Case No. 0-97-0695.
Respondent averred that SEC Case No. 05-97-5657 was handled by another partner of the firm, Atty. Agustin V. Agustin.
Respondent claimed complainant Atty. Ricafort instigated and indiscriminately filed the cases against PPSTA and its Board members.
Respondent maintained that his relationship to Aurelio S. Salunat was immaterial and reiterated he acted on behalf of the ASSA Law Firm when entering the retainer contract.
He denied assuring victory for the PPSTA Board; he alleged he assured the Board the truth would come out and the Ombudsman complaint would be dismissed for lack of jurisdiction, as respondents in the Ombudsman case were private employees, not public officials.
By way of Special and Affirmative Defenses, respondent alleged Atty. Ricafort was guilty of gross misconduct, malpractice, and unethical conduct for filing trumped-up charges, and prayed that Ricafort be disciplined or disbarred.

Investigative and IBP Proceedings

The complaint was docketed as CBD Case No. 97-531 and referred to the IBP Commission on Bar Discipline.
After investigation, Commissioner Lydia A. Navarro recommended respondent be suspended from the practice of law for six (6) months.
The IBP Board of Governors adopted Resolution No. XV-3003-230 dated June 29, 2002, approving the investigating commissioner’s report and recommendation.
Respondent filed a Motion for Reconsideration of the IBP Board of Governors’ Resolution with the Supreme Court.

Pertinent Rules of Professional Responsibility

Rule 15.03: "A lawyer shall not represent conflicting interests except by written consent of all concerned given after a full disclosure of the facts."
- There is conflict of interest when a lawyer represents inconsistent interests of two or more opposing parties.
- The test is "whether or not in behalf of one client, it is the lawyer's duty to fight for an issue or claim, but it is his duty to oppose it for the other client. In brief, if he argues for one client, this argument will be opposed by him when he argues for the other client."
Rule 15.06 (cited by complainants): "A lawy