For the many years I spent in management of my law firm, there was one obligation I feared more than anything els—Rule 5.1 of the Model Rules of Professional Conduct (RPC):
“A principal in a law firm, and a lawyer who individually or together with other lawyers possesses comparable managerial authority, shall make reasonable efforts to ensure that the firm or the organization has in effect measures giving reasonable assurance that all lawyers in the firm or the organization conform to the Rules of Professional Conduct.”
The scariest part of the rule, however, followed: “A lawyer shall be responsible for another lawyer's violation of the Rules of Professional Conduct if . . . ” (emphasis added)
Out of management, and supervising others, I thought I was finally relieved of the scariness of Rule 5.1, until those in management bestowed upon me the title “counsel to the firm,” and therefore keeper of the code and arbiter of all ethical dilemmas. As I took on this position, a part of me felt like Michael Corleone in Godfather III: “Just when I thought I was out, they pull me back in again.”
Lawyers in leadership (i.e., anyone who has authority over or manages other lawyers or staff) must know and understand Rule 5.1. It is not just limited to self-application, but to everyone working with, or for you. The responsibility is shared, whether you are a small firm or large firm lawyer. I was reminded of this responsibility recently when asked to help the firm with a difficult situation regarding a lawyer member of my firm and his service as chair of a local nonprofit board.
I started at my firm in 1988. From the day I arrived, to the present, firm leadership has always supported, encouraged and sometimes even pushed members to actively serve our local community. From time to time the service rendered is active nonprofit board participation. Nonprofits desire lawyers on their boards. I suppose lawyers would like to believe it is due to some acknowledgment by others that lawyers have special wisdom and insight, including superior logical reasoning in decision making. It might just be, however, that legal services are expensive and a lawyer serving on the board might be willing to provide legal services to the organization at a discounted rate.
Not only do our firm members serve as members of many local nonprofit boards, but in fact the firm is also legal counsel to many nonprofits. Occasionally, the two intersect and a lawyer member of the firm serves on the board of a nonprofit the firm represents. Lawyers volunteering their time to serve as members of local nonprofits are to be encouraged and commended, as are lawyers serving as counsel to local nonprofits (many times at reduced rates). However, lawyer service to a nonprofit as both board member and legal counsel, though not prohibited by the RPC, is fraught with danger, and should only be taken on carefully, with full consideration of potential pitfalls.
The Rules
RPC 1.7 is a rule that describes conflicts of interest––when they exist, and when consent to representation might be accomplished. Comment 35 describes application of RPC 1.7 to service by a lawyer on corporate boards, for profit and not-for-profit. Without suggesting prohibition from such service, the comment warns that lawyers need to carefully consider how to deal with conflicts of interest. The Comment was not guidance enough however, and the in-depth ABA Formal Opinion 98-410 was issued to help guide lawyers in how to deal with the sticky situation of making sure other board members understand the lawyers primary role of director, the dual role of lawyer if asked to perform legal services, the lawyers involvement in legal matters when also having helped make decisions related to the legal representation and the problem of a lawyer working on a legal matter where as director he or she has opposed, or will likely oppose, the action being considered.
In my research, I also found (and highly commend to you) an opinion of the D.C. Bar (Legal Ethics Committee Opinion 382). It is not only instructive, but practical when it comes to the various issues a lawyer serving as a nonprofit board member might face.
Liability Insurance
Though the RPC encourages public and community service, lawyers need to be aware what services are covered by their liability carrier, and what services run the risk of uninsured liability if the lawyer decides to mix legal service with nonprofit board service. Legal services and some ancillary acts are covered activities in typical liability policies. However, at least in the policy issued by the carrier used by many lawyers in the state of North Carolina (and I would imagine this is not unique), the following exclusion applies:
“any claim, or any theory of liability asserted in a suit, based in whole or in any part upon any Insured's act(s) or omission(s) occurring, in whole or in any part, while such Insured is, in any way, or to any extent, acting in his or her capacity as an owner, officer, manager, director, shareholder, member, partner, trustee, employee, or fiduciary (other than as covered by the provisions of INSURING AGREEMENT II. Coverage – Fiduciary) of a business enterprise, regardless of whether for-profit, or of a not-for-profit or charitable organization, or of a pension, welfare, profit-sharing, mutual or investment fund or trust.”