Relevant Provisions of the MRPC
While the ABA Model Rules of Professional Conduct do not directly apply to an attorney who serves a nonprofit solely as a board member, they do directly apply to how that attorney’s services as a board member may affect the attorney’s clients, and they do apply to an attorney who also—intentionally or inadvertently—represents the nonprofit organization as an attorney. Consequently, they are the starting point for our discussion.
Rule 1.13: Organization as Client. Model Rule 1.13(a) makes clear that an attorney “retained by an organization represents the organization acting through its duly authorized constituents.” Consequently, when the lawyer also serves a board member of the organization, the lawyer is one of the “duly authorized constituents” that the lawyer must work through to represent the organization. This dual role leads to an array of issues involving competence, independent judgment, confidentiality, and conflicts. A lawyer who is considering serving a nonprofit as a board member or as a board member and lawyer should carefully consider these issues.
Rule 1.1: Competence. Model Rule 1.1 requires a lawyer to provide “competent representation.” Competence is an issue for lawyers serving on nonprofit boards because the board will often look to the board member for (free) guidance on a broad range of legal issues that may be outside the lawyer’s expertise even when the lawyer is only acting as a board member. Similarly, if the lawyer serving as a director is also acting as legal counsel for the board and is providing that service on a low-cost or pro bono basis, there will be pressure by the other board members for the attorney to offer low-cost or free legal advice on issues that are outside the lawyer’s competence. Consequently, a lawyer serving on a nonprofit board or providing low-cost or free representation should be careful to always recommend that the board hire outside counsel if a legal issue arises that is outside the lawyer’s areas of competence.
Rule 2.1: Advisor. Model Rule 2.1 requires an attorney to “exercise independent professional judgment and render candid advice” when representing a client. When an attorney is both a board member and legal counsel for a nonprofit, the attorney should be careful to consider whether the attorney’s ability to give “independent professional advice” on legal topics has been compromised by the attorney’s role as a board member. For example, if the attorney, acting as counsel, is asked to give an opinion about the legality of a board decision, the independence of that opinion could be compromised if the attorney was a member of the board when the board decision was made.
Rule 1.6: Confidentiality of Information. Rule 1.6 relates to a lawyer’s duty to keep client information confidential “unless the client gives informed consent” or “the disclosure is impliedly authorized in order to carry out the representation.” Rule 1.6 does not apply to communications between the attorney and other board members if the attorney is acting as a board member. However, if the attorney is intentionally or unintentionally acting as legal counsel for the organization, then Rule 1.6 requires the attorney to keep communications related to that representation confidential.
Rule 1.7: Conflict of Interest: Current Clients. Rule 1.7 relates to conflicts of interest with current clients and prohibits a lawyer from representing a client if the representation “will be directly adverse to another client.” ABA Model Rules of Prof’l Conduct R. 1.7(a)(1). In addition, Rule 1.7 prohibits a lawyer from representing a client if there is a “significant risk” the representation “will be materially limited by the lawyer’s responsibilities to another client, a former client or a third person or by a personal interest of the lawyer.” Id. at 1.7(a)(2). Finally, Rule 1.7 permits a lawyer to represent two current clients with a conflict if the “lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client” and the client gives “informed consent” in writing. Id. at 1.7(b)(1), (4). However, two types of conflicts cannot be waived: representations “prohibited by law” and representations involving claims by clients against each other in litigation “or other proceeding before a tribunal.” Id. at 1.7(b)(2)–(3).
For our purposes, the current conflict rule can be boiled down as follows:
- A lawyer cannot act adversely to a current client.
- A lawyer should be extremely careful about representing multiple clients who appear to be similarly situated—their interests may diverge.
- Many of these prohibitions can be overcome with informed consent; however, a lawyer should be cautious.
Additional commentary on Model Rule 1.7 as it relates to attorney service on a nonprofit board can be found in comment 35 to the Model Rule (which most states have adopted as a guide to interpretation), the section 31 of the Restatement (Third) of the Law Governing Lawyers, and ABA and state bar ethics opinions.
What Role Is the Attorney Acting In?
An attorney can serve a nonprofit organization in two ways: (1) as a member of the organization’s board, and (2) as an attorney who represents the organization through the board. Because both roles may give rise to a conflict with current clients, an attorney taking either role should run a conflicts check and obtain law firm approval.
The general rule for determining the existence of an attorney-client relationship is whatever the client reasonably believed. See Herbes v. Graham, 180 Ill. App. 3d 692, 699 (2d Dist. 1989). So if the other board members reasonably believe they are receiving legal advice from an attorney who is a member of the board, a court will likely find the existence of an attorney-client relationship. Consequently, an attorney should document in a letter to the board the capacity in which the attorney will be providing services to the nonprofit organization. In addition, if the attorney is serving as counsel, the attorney should make clear that the client is the organization—not the individual board members. Model Rules of Prof’l Conduct R. 1.13. And an attorney representing the organization should follow the usual procedures for obtaining a signed retention letter laying out the scope of the representation.
Because board members tend to lean on an attorney who serves as a board member for legal advice, an attorney who is acting only as a board member should periodically remind the other board members of this limited role. This reminder may be an annual letter to the board, comments in the minutes suggesting the board retain counsel, or comments in the minutes stating that advice on a topic reflects the attorney’s business judgment and is not legal advice.
Finally, an attorney who serves as a board member and also represents the organization should repeatedly make clear that the organization, and not the board members, is the client and that the attorney cannot provide legal advice to board members about their service on the board. The attorney may also want to make clear during board meetings whether the particular advice being given is legal advice the attorney is giving as an attorney or whether it is business advice the attorney is giving as a board member.
Conflicts of Interest
Identifying the source of the potential conflict. The nonprofit organization and its board members are not clients if an attorney serves only as a board member (being mindful of the need to make this clear to the organization and the other board members). If an attorney also represents the organization, then the organization, and not the individual board members, is the client and can be a source of a conflict. Model Rules of Prof’l Conduct R. 1.13.
While the starting point for conflicts analysis is identifying the client, it’s also important to consider whether there are any personal interests of a lawyer that may create a conflict of interest under Rule 1.7(a)(2). Thus, although the nonprofit is not a client when the attorney is acting only as a board member, service on the board may still present a conflict with existing clients. And an attorney may have personal interests that create a conflict with the attorney’s representation of the nonprofit—even if the attorney does not have other clients adverse to the nonprofit.
Although it isn’t an ethics rule, the duty of loyalty should also be considered because it requires an attorney serving as a board member to avoid conflicts between the attorney’s personal interests (or the attorney’s firm’s interests) and the attorney’s service on the nonprofit board.
Conflicts arising from the attorney’s role with a nonprofit and the attorney’s representation of another client.
1. When the attorney’s role includes representing the nonprofit. Standard conflicts analysis applies to a situation where an attorney represents a nonprofit and the nonprofit is currently adverse to another client of the attorney. A direct conflict that cannot be overcome with informed consent always exists when two clients are in litigation with each other. Model Rules of Prof’l Conduct R. 1.7(b)(3).
Direct adversity requiring disqualification (absent informed consent) exists in non-litigated matters where there is “a substantial risk that the lawyer’s representation of one or more of the clients would be materially and adversely affected by the lawyer’s duties to one or more of the other clients.” Restatement (Third) of the Law Governing Lawyers § 130 (2000). If a lawyer learns during a joint transactional representation that one client’s objectives are “materially at variance with those of the other [client]” then a direct conflict exists. Id. cmt. c. However, it is important to note that “[d]irect adverseness requires a conflict as to the legal rights and duties of the clients, not merely conflicting economic interests. . . .” ABA Comm. on Ethics & Prof’l Responsibility, Op. 05-434 (Dec. 8, 2004)).
2. When the attorney’s role is only as a board member. Even if a potential representation is not directly adverse to a current client because the attorney does not actually represent the nonprofit, it is still possible the lawyer has a conflict of interest. The duty of loyalty prohibits a lawyer from taking a representation if there is a “significant risk” that the current representation will be “materially limited by the lawyer’s responsibilities to another client, a former client or a third person or by a personal interest of the lawyer.” ABA Model Rules of Prof’l Conduct R. 1.7(a)(2). Consequently, the attorney must not only consider present and past clients but must also determine if there is some responsibility to a third party or a personal interest—like nonprofit board membership—that would “materially limit” the lawyer’s ability to represent a client.
An attorney in a situation where a current client and a nonprofit on which the attorney is a board member are somehow adverse should consider two things. First, the attorney should consider whether the attorney possesses confidential information that will affect the advice given to the client or the attorney’s service as a board member. Second, the attorney should consider whether the attorney’s desire to see the client achieve a successful outcome, or the desire to help the nonprofit organization, affects the attorney’s ability to give independent professional advice to the client, and to use proper business judgment when participating in board decisions.
Conflicts arising from the attorney’s dual role as a board member and attorney for the organization. An attorney’s role as both a board member and legal counsel can give rise to conflicts of interest, and the attorney must exercise discretion about whether it is important to act in both roles. Model Rules of Prof’l Conduct R. 1.7 cmt. 35 (“A lawyer for a corporation or other organization who is also a member of its board of directors should determine whether the responsibilities of the two roles may conflict. … The lawyer should advise the other members of the board that in some circumstances matters discussed at board meetings while the lawyer is present in the capacity of director might not be protected by the attorney-client privilege and that conflict of interest considerations might require the lawyer’s recusal as a director or might require the lawyer and the lawyer’s firm to decline representation of the corporation in a matter.”) The Restatement similarly gives an attorney discretion about whether dual roles are appropriate:
[S]imultaneous service … is not forbidden. … The requirement that a lawyer for an organization serve the interests of the entity … is generally consistent with the duties of a director or officer. However, when the obligations or personal interests as director are materially adverse to those of the lawyer as corporate counsel, the lawyer may not continue to serve as corporate counsel without the informed consent of the corporate client.
Restatement (Third) of the Law Governing Lawyers § 135 cmt. d.
The comments to Model Rule 1.7 and the Restatement leave it to the lawyer’s discretion as to whether or not to accept the dual roles. ABA Formal Ethics Opinion 98-410 further discussed this situation and attempts to put some parameters on when the lawyer should exercise discretion to take or avoid both roles. The ethics opinion identified four key conflict situations:
- where the attorney is asked, as an agent of the organization, to pursue objectives that the lawyer opposed as a board member
- where the attorney is asked to give advice about board actions the attorney took part in
- where the board is taking actions that affect the lawyer’s firm, such as whether to retain the firm
- where the attorney is representing the nonprofit in an action in which the organization and the board members are parties
In addition, a conflict situation may arise where the lawyer is asked to give objective legal advice about different options a nonprofit may choose, while the attorney, acting as a board member, favors one of those options over the other.
At a minimum, the attorney should keep these potential conflict situations in mind and should not participate in any board decisions that affect the attorney personally, the attorney’s firm, and the attorney’s (or the attorney’s firm’s) clients. In addition, the attorney should make sure to obtain informed consent from the nonprofit by informing the board of the dual roles in writing, informing the board of the potential risks, and obtaining written signed consent from the board.
Keywords: litigation, ethics, professionalism, nonprofit, board member, conflict of interest
Dan Ebner is a partner at Prather Ebner LLP in Chicago, Illinois