Why you should think twice about board service — Part 2: How to avoid breaking the ethics rules
In Part 1 of this series I discussed some key areas to consider as an attorney before joining an organization’s board including: knowing your client, competence, and confidentiality of information. In addition to those factors, it is also critical to become more aware of the potential conflicts of interest that might not be obvious at first glance. Plus, it’s essential to understand how easily an attorney-client relationship is formed once you join a board. Understanding how the law will view your service on a board and how it may conflict with other clients of yours will help you decide whether it is worth the work, and the possible risks.
If you missed Part 1 of “Why you should think twice about board service”, read it here.
Rule 1.7 Conflict of Interest: Current Clients
Rule 1.7 covers conflicts of interest with current clients and bars you from representing a client if the representation “will be directly adverse to another client.” Model Rules of Prof. Conduct R. 1.7(a)(1). In addition, Rule 1.7 bars you 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).
So in other words:
- You can’t act adversely to a current client.
- You need to be very, very careful about representing multiple clients who appear to be similarly situated — because their interests may part ways in the future.
- Informed consent can get you over a lot of these issues, but be careful.
Additional commentary on Rule 1.7 is available in comment 35.
How does this come up? Here are a few examples from ABA Formal Ethics Opinion 98–410:
- You as the lawyer are asked to pursue objectives of the organization that you opposed (didn’t vote for) as a director. For example, the organization’s board decides to sue a third party. You voted no on this action at the board meeting. But the organization wants you to represent the nonprofit in the litigation. Do you have a conflict? You’ll need to determine whether the representation of the organization may be materially limited by your opposition to the action to such an extent that Rule 1.7 precludes the representation.
- You are asked to give a legal opinion on board actions in which you were a voting director. The concern is whether you are capable of having enough independence of professional judgment in that situation. This type of situation might be rare but certainly it is a good idea to advise the organization to seek the advice of other legal counsel.
- Any time the board takes an action affecting your law firm (ie: whether to retain your services). In those circumstances you should not be in the room for the discussion and should not participate in the vote (this should be a default under the organization’s conflict of interest policy, not just your professional responsibility rule observance).
- If the organization wants you or your firm to represent the organization in a matter where the organization and directors are named as defendants. Or even more clearly, independent counsel is needed in any controversy between the organization and its lawyers (when that includes you as a lawyer/director).
Forming a Lawyer Client Relationship with the Nonprofit
“But, WAIT just a minute!” you say, “I only agreed to board service, so none of what I say in a board meeting is legal advice” Oh. Really? Are you sure? For better or worse, in general the rule for determining the existence of an attorney-client relationship is whatever the client reasonably believed. Using my home state of Minnesota as an example, an attorney-client relationship may be formed where the parties “explicitly or implicitly agree to a contract for legal services.” See Gramling v. Memorial Blood Ctrs., 601 N.W.2d 457, 459 (Minn. App. 1999). Likewise the relationship can be formed “when a person seeks and receives legal advice from an attorney in circumstances in which a reasonable person would rely on the advice.” See Togstad v. Vesely, Otto, Miller & Keefe, 291 N.W.2d 686, 693 n.4 (Minn. 1980). 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.
Plus, we all have a professional responsibility under Rule 6.1: Voluntary Pro Bono Publico Service to provide 50 hours of pro bono service per year. When you serve as a director who also provides some pro bono legal services to the organization, it should be assumed that a lawyer-client relationship is formed and the duties of a lawyer to the client apply whether the lawyer receives compensation or serves pro bono.
Yes, even if you didn’t mean to, intend to or expect to, the second you rendered an opinion about something in your lawyer hat (and how can you not) you’ve become their attorney at least in some capacity. Most lawyers join nonprofit boards because of their passion for the mission, not with the expectation that they’ll serve as legal counsel. But it’s just SO easy to slip into a representation.
For example, when you work on amendments to the articles of incorporation or bylaws of the organization, prepares or review a contract, or any number of other things, you are probably giving legal advice that the organization is reasonably relying upon. Yes other people can work on these things, but since you are an attorney, you’re special. : ) So when — exactly — do you know if you’ve crossed that line? It’s really unclear.
Nonprofits operate in legal territory that can be difficult to navigate even on the best of days, so making sure you cover yourself before joining a board can prevent undue heartache. Conflicts of interest when it comes to a director / lawyer come up in the most unusual ways and the law’s view of your role on a board can quickly become your worst nightmare if you aren’t careful.
In the final edition of this three-part series I will cover the following:
Part 3: What to do before you join (or course corrections to take now)
- Having good boundaries how to protect yourself without being a jerk?
- Thinking about insurance — yours and theirs.
- Important information / questions to ask before you commit.