Current through Register Vol. 39, No. 6, September 16, 2024
(b) If a lawyer for an organization knows
that an officer, employee. or other person associated with the organization is
engaged in action, intends to act or refuses to act in a matter related to the
representation that is a violation of a legal obligation to the organization,
or a violation of law which reasonably might be imputed to the organization,
and is likely to result in substantial injury to the organization, then the
lawyer shall proceed as is reasonably necessary in the best interest of the
organization. Unless the lawyer reasonably believes that it is not necessary in
the best interest of the organization to do so, the lawyer shall refer the
matter to higher authority in the organization, including, if warranted by the
circumstances, to the highest authority that can act on behalf of the
organization as determined by applicable law.
(c) If, despite the lawyer's efforts in
accordance with paragraph (b), the highest authority that can act on behalf of
the organization insists upon action, or a refusal to act, that is clearly a
violation of law and is likely to result in substantial injury to the
organization, the lawyer may reveal such information outside the organization
to the extent permitted by Rule 1.6 and may resign in accordance with Rule
1.16.
(d) Paragraph (c) shall not
apply with respect to information relating to a lawyer's representation of an
organization to investigate an alleged violation of law, or to defend the
organization or an officer, employee, or other constituent associated with the
organization against a claim arising out of an alleged violation of
law.
(e) A lawyer who reasonably
believes that he or she has been discharged because of the lawyer's actions
taken pursuant to paragraphs (b) or (c), or who withdraws under circumstances
that require or permit the lawyer to take action under these Rules, shall
proceed as the lawyer reasonably believes necessary to assure that the
organization's highest authority is informed of the lawyer's discharge or
withdrawal.
(f) In dealing with an
organization's directors, officers, employees, members, shareholders or other
constituents, a lawyer shall explain the identity of the client when the lawyer
knows or reasonably should know that the organization's interests are adverse
to those of the constituents with whom the lawyer is dealing.
(g) A lawyer representing an organization may
also represent any of its directors, officers, employees, members, shareholders
or other constituents, subject to the provisions of Rule 1.7. If the
organization's consent to the dual representation is required by Rule 1.7, the
consent shall be given by an appropriate official of the organization other
than the individual who is to be represented, or by the shareholders.
Comment
The Entity as the Client
[1] An organizational client is a legal
entity, but it cannot act except through its officers, directors, employees,
shareholders and other constituents. Officers, directors, employees and
shareholders are the constituents of the corporate organizational client. The
duties defined in this Rule apply equally to unincorporated associations.
"Other constituents" as used in this Rule means the positions equivalent to
officers, directors, employees and shareholders held by persons acting for
organizational clients that are not corporations.
[2] When one of the constituents of an
organizational client communicates with the organization's lawyer in that
person's organizational capacity, the communication is protected by Rule 1.6.
Thus, by way of example, if an organizational client requests its lawyer to
investigate allegations of wrongdoing, interviews made in the course of that
investigation between the lawyer and the client's employees or other
constituents are covered by Rule 1.6. This does not mean, however, that
constituents of an organizational client are the clients of the lawyer. The
lawyer may not disclose to such constituents information relating to the
representation except for disclosures explicitly or impliedly authorized by the
organizational client in order to carry out the representation or as otherwise
permitted by Rule 1.6.
[3] When
constituents of the organization make decisions for it, the decisions
ordinarily must be accepted by the lawyer even if their utility or prudence is
doubtful. Decisions concerning policy and operations, including ones entailing
serious risk, are not as such in the lawyer's province. Paragraph (b) makes
clear, however, that when the lawyer knows that the organization may be
substantially injured by action of an officer or other constituent that
violates a legal obligation to the organization or is a violation of the law
that might be imputed to the organization, the lawyer must proceed as is
reasonably necessary in the best interest of the organization. As defined in
Rule 1.0(g), knowledge can be inferred from circumstances, and a lawyer cannot
ignore the obvious.
[4] In
determining how to proceed under paragraph (b), the lawyer should give due
consideration to the seriousness of the violation and its consequences, the
responsibility in the organization and the apparent motivation of the person
involved, the policies of the organization concerning such matters, and any
other relevant considerations. Ordinarily, referral to a higher authority would
be necessary. In some circumstances, however, it may be appropriate for the
lawyer to ask the constituent to reconsider the matter; for example, if the
circumstances involve a constituent's innocent misunderstanding of law and
subsequent acceptance of the lawyer's advice, the lawyer may reasonably
conclude that the best interest of the organization does not require that the
matter be referred to higher authority. If a constituent persists in conduct
contrary to the lawyer's advice, it will be necessary for the lawyer to take
steps to have the matter reviewed by a higher authority in the organization. If
the matter is of sufficient seriousness and importance or urgency to the
organization, referral to higher authority in the organization may be necessary
even if the lawyer has not communicated with the constituent. Any measures
taken should, to the extent practicable, minimize the risk of revealing
information relating to the representation to persons outside the organization.
Even in circumstances where a lawyer is not obligated by Rule 1.13 to proceed,
a lawyer may bring to the attention of an organizational client, including its
highest authority, matters that the lawyer reasonably believes to be of
sufficient importance to warrant doing so in the best interest of the
organization.
[5] Paragraph (b)
also makes clear that when it is reasonably necessary to enable the
organization to address the matter in a timely and appropriate manner, the
lawyer must refer the matter to higher authority, including, if warranted by
the circumstances, the highest authority that can act on behalf of the
organization under applicable law. The organization's highest authority to whom
a matter may be referred ordinarily will be the board of directors or similar
governing body. However, applicable law may prescribe that under certain
conditions the highest authority reposes elsewhere, for example, in the
independent directors of a corporation.
Relation to Other Rules
[6] The authority and responsibility provided
in this Rule are concurrent with the authority and responsibility provided in
other Rules. In particular, this Rule does not limit or expand the lawyer's
responsibility under Rule 1.6, 1.8, 1.16, 3.3, or 4.1. If the lawyer reasonably
believes that disclosure of information protected by Rule 1.6 is necessary to
prevent the commission of a crime by an organizational client, for example,
disclosure is permitted by Rule 1.6(b)(2). If the lawyer's services are being
or have been used by an organizational client to further a crime or fraud by
the organization, Rule 1.6(b)(4) permits the lawyer to disclose confidential
information to prevent, mitigate, or rectify the consequences of such conduct.
In such circumstances, Rule 1.2(d) may be applicable, in which event,
withdrawal from the representation under Rule 1.16(a)(1) may be
required.
[7] Paragraph (d) makes
clear that the authority of a lawyer to disclose information relating to a
representation in circumstances described in paragraph (c) does not apply with
respect to information relating to a lawyer's engagement by an organization to
investigate an alleged violation of law or to defend the organization or an
officer, employee, or other person associated with the organization against a
claim arising out of an alleged violation of law. This is necessary in order to
enable organizational clients to enjoy the full benefits of legal counsel in
conducting an investigation or defending against a claim.
[8] A lawyer who reasonably believes that he
or she has been discharged because of the lawyer's actions taken pursuant to
paragraphs (b) and (c), or who withdraws in circumstances that require or
permit the lawyer to take action under these Rules, must proceed as the lawyer
reasonably believes necessary to assure that the organization's highest
authority is informed of the lawyer's discharge or withdrawal.
Government Agency
[9] The duty defined in this Rule applies to
governmental organizations. Defining precisely the identity of the client and
prescribing the resulting obligations of such lawyers may be more difficult in
the government context and is a matter beyond the scope of these Rules. See
Scope [18]. Although in some circumstances the client may be a specific agency,
it may also be a branch of government, such as the executive branch, or the
government as a whole. For example, if the action or failure to act involves
the head of a bureau, either the department of which the bureau is a part or
the relevant branch of government may be the client for purposes of this Rule.
Moreover, in a matter involving the conduct of government officials, a
government lawyer may have authority under applicable law to question such
conduct more extensively than that of a lawyer for a private organization in
similar circumstances. Thus, when the client is a governmental organization, a
different balance may be appropriate between maintaining confidentiality and
assuring that the wrongful act is prevented or rectified, for public business
is involved. In addition, duties of lawyers employed by the government or
lawyers in military service may be defined by statutes and regulation. This
Rule does not limit that authority. See Scope.
Clarifying the Lawyer's Role
[10] There are times when the organization's
interest may be or become adverse to those of one or more of its constituents.
In such circumstances the lawyer should advise any constituent, whose interest
the lawyer finds adverse to that of the organization of the conflict or
potential conflict of interest, that the lawyer cannot represent such
constituent, and that such person may wish to obtain independent
representation. Care must be taken to assure that the individual understands
that, when there is such adversity of interest, the lawyer for the organization
cannot provide legal representation for that constituent individual, and that
discussions between the lawyer for the organization and the individual may not
be privileged.
[11] Whether such a
warning should be given by the lawyer for the organization to any constituent
individual may turn on the facts of each case.
Dual Representation
[12] Paragraph (g) recognizes that a lawyer
for an organization may also represent a principal officer or major
shareholder, director, employee, member, or other constituent.
Derivative Actions
[13] Under generally prevailing law, the
shareholders or members of a corporation may bring suit to compel the directors
to perform their legal obligations in the supervision of the organization.
Members of unincorporated associations have essentially the same right. Such an
action may be brought nominally by the organization, but usually is, in fact, a
legal controversy over management of the organization.
[14] The question can arise whether counsel
for the organization may defend such an action. The proposition that the
organization is the lawyer's client does not alone resolve the issue. Most
derivative actions are a normal incident of an organization's affairs, to be
defended by the organization's lawyer like any other suit. However, if the
claim involves serious charges of wrongdoing by those in control of the
organization, a conflict may arise between the lawyer's duty to the
organization and the lawyer's relationship with the board. In those
circumstances, Rule 1.7 governs who should represent the directors and the
organization.
