Congratulations. You were asked several months ago to serve on your client’s board and, of course, you were honored. The term “lawyer-board member” simply had a nice ring to it. And, quite frankly, it sounded like a great idea. The cerebrum, which controls the brain’s marketing functions, agreed. Every time your client needed legal services, who were they going to look to? A non-board member? Please. This was a perfect setup. What could go wrong?
Well, last month there was an issue that arose at a board meeting. You gave your legal advice and assumed it would be followed. But no one on the board seemed to like what you had to say. Now, you can’t get your phone calls returned. If the board does not follow your advice, you may have to withdraw your representation and how would that look for the client? What would that do to your firm’s representation with the client? Maybe this isn’t so easy after all.
There is nothing unethical about being your client’s board member, but there are common ethical issues that arise in that relationship. Here are three things to know about the ethics of being your client’s board member.
1. The attorney-client privilege of the corporation may be put in jeopardy.
As a general rule, the lawyer’s duty of confidentiality to a client under Professional Conduct Rule 1.6 and the board member’s fiduciary duty of confidentiality to the corporation are consistent. However, the obligations of lawyer and board member can diverge when it comes to the attorney-client privilege.The lawyer can play a dual role. Specifically, the lawyer who is also a board member will likely provide the board with business advice as well as legal advice. The distinction between business and legal advice is not always clear, and communications that might otherwise be privileged in an outside counsel situation can lose their privileged nature when the lawyer giving the advice is also on the corporation’s board. In fact, some courts have held that the scope of attorney-client privilege is much narrower when the lawyer is also serving as a board member. See, e.g., Fed. Sav. & Loan Ins. Corp. v. Fielding, 343 F. Supp. 537, 546 (D. Nev. 1972) (“When the attorney and the client get in bed together as business partners, their relationship is a business relationship, not a professional one, and their confidences are business confidences unprotected by a professional privilege.”).
In order to avoid loss of the attorney-client privilege, a lawyer-board membershould clearly separate legal advice from business advice, and her communications should make clear when she is providing privileged legal advice. This is easier said than done. It may also help to have another lawyer from the lawyer-board member’s firm present when legal advice is being given, not only to protect the privilege, but also to signal to other board members or management that privileged legal advice is being given.
2. Conflicts of interest may arise in the lawyer-board member’s dual relationship.
It is imperative that a lawyer-board member be aware of the potential conflicts of interest that may arise from the lawyer-board member’s dual role. These conflicts may limit the lawyer-board member’s ability to represent the corporation. Alternatively, conflicts may arise that limit the lawyer-board member’s ability to exercise independent judgment with respect to decisions as a board member.
In determining whether a conflict of interest requires the lawyer-board member to abstain from representing the corporation in the legal matter, the lawyer-board member must determine, in accordance with Professional Conduct Rule 1.7(a), whether the representation of the corporation will be “materially limited” by other responsibilities of the lawyer. Even if a conflict exists, the lawyer may still be able to provide representation, provided all the requirementsof Rule 1.7(b) are met (the lawyer reasonably believes she can provide competent and diligent representation; the representation is not prohibited by law; there is no direct claim asserted by one client against another; and the client gives informed consent, confirmed in writing).
The lawyer-board member must also be aware of conflicts which may limit her ability to exercise independent judgment as a board member when voting on matters that will affect her as a lawyer or her law firm. An example of such a situation is a board vote on retaining the lawyer-board member’s law firm to represent the corporation in a substantial legal matter. To resolve this conflict, the lawyer-board member should either abstain from discussion and vote on the matter or withdraw her law firm from consideration in order to participate fully in the board decision-making process.
3. Advise the client of the implications of your dual role as board member and counsel.
Finally, as important as it is for the lawyer-board member to be aware of the issues presented by her dual role, it is equally important for her to alert the corporation’s management and the rest of the board to the potential issues that could arise. Ideally this discussion should occur before the lawyer becomes a board member, or conversely, before a board member is engaged as the corporation’s lawyer. The discussion should include considerations of risk to the attorney-client privilege and the potential for conflicts of interest, discussed above, and the lawyer should reasonably assure herself that the client is informed of the potential issues that may arise. It may also be helpful to provide a summary of the discussion and issues in writing to the management and board.•
James Bell and Jessica Whelan assist lawyers and judges with professional liability and legal ethics issues. Bell, an attorney with Paganelli Law Group, is a regular speaker on criminal defense and ethics topics. He can be reached at [email protected] Whelan, an attorney with Bingham Greenebaum Doll LLP, can be reached at [email protected] The opinions expressed are those of the authors.