Ethical Issues for Attorneys to Fraternal Organizations: Legal Representation and Board Service

Dianne Chipps Bailey, Robinson, Bradshaw & Hinson

Many attorneys donate their time and professional services to fraternal organizations.  Some serve their fraternity or sorority by providing pro bono legal services; others serve as members of governing bodies of fraternal organizations or their affiliate foundations or national house corporations.  These relationships give rise to a number of significant ethical issues that all attorneys serving fraternal organizations, whether as compensated outside counsel or on a pro bono basis, should recognize and be prepared to navigate.

I. The Existence of an Attorney-Client Relationship

Whether an attorney-client relationship exists is often unclear when legal advice is provided pro bono.  Attorneys who serve as volunteer leaders in fraternal organizations must take care not to inadvertently create an attorney-client relationship. Courts have held that attorneys who establish an attorney-client relationship must possess a level of care, skill, and ability that is commensurate with others who are in the profession; must use his or her best judgment; and must exercise reasonable and ordinary care in the application of his or her knowledge or skills in a given situation that members of the profession would exercise under similar circumstances.  If a volunteer for a fraternal organization is not equipped to adhere to this high standard, he or she should ensure that a notation is included in the minutes of the fraternal organization’s governing board that such person is not providing legal advice to the organization and that an attorney-client relationship does not exist.  In addition, the fraternal organization’s governing board and the professional staff should be reminded that in the absence of an attorney-client relationship, conversations with the volunteer are not protected by the attorney-client privilege. To avoid confusion and potential conflict when a pro bono attorney-client relationship is intended, it is important to execute a formal engagement letter.  This letter should establish the responsibilities of the attorney and be specific enough to address potential points of contention.  For example, the engagement letter should clarify which party will pay for out-of-pocket costs.

II. Competency

Attorneys who accept pro bono clients are subject to attorney malpractice standards,  may not submit inferior work product, and must take care to ensure that they obtain any additional necessary knowledge to provide competent representation to their clients. Particularly when an attorney also serves as a member of the fraternal organization’s governing board, he or she may be called upon to respond to legal questions completely unrelated to his or her practice area.  In this instance, the attorney must be vigilant to conduct the necessary research and/or draw upon the expertise of other lawyers before responding to the request for assistance.  The attorney also must be prepared to commit adequate time to the representation, even when such representation is uncompensated.

III.  Standard of Care for an Attorney-Director

All directors owe the fiduciary duties of care and loyalty to the fraternal organization for which they serve as directors.  In some jurisdictions, however, courts have held that directors who are lawyers must meet a higher standard of care than what is required for non-attorney directors.

State statutes may amplify the duty of care owed by an attorney-director.  For example, the Uniform Prudent Management of Institutional Funds Act expressly states that, “a person that has special skills or expertise, or is selected in reliance upon the person’s representation that the person has special skills or expertise, has a duty to use those skills or that expertise in managing and investing institutional funds.”   As explained in the Official Comments, “[f]or example, if a charity names a person as a director in part because the person is a lawyer, the lawyer’s background may allow the lawyer to recognize legal issues in connection with funds held by the charity. The lawyer should identify the issues for the board, but the lawyer is not expected to provide legal advice. A lawyer is not expected to be able to recognize every legal issue, particularly issues outside the lawyer’s area of expertise, simply because the board member is lawyer.”

IV. Independence of Professional Judgment

An attorney who serves as both counsel to and a board member of a fraternal organization must satisfy the duties for each position.  Thus, if an attorney votes for or against a specific course of action in his or her role as a director, that person must still meet any and all obligations in his or her capacity as counsel, including independence of professional judgment.  Significantly, courts have held that attorneys who serve as a counsel to an entity and on the board of directors can be held liable both for failing to meet their fiduciary duties as a director and for failing to meet the standard of care as counsel in the same transaction. In situations where a conflict is unavoidable, an attorney should bring in a third party to address the specific issue or resign his or her position as director. Courts also question the independence of an attorney-director when the attorney’s firm stands to gain significant financial rewards in connection with increased legal fees that accrue from a decision made by the attorney in his or her capacity as a director.

V. Attorney-Client Privilege

Any attorney who serves as counsel to a fraternal organization and also holds a position on the organization’s board of directors must be aware that not all communications will automatically be protected by the attorney-client privilege. Courts have consistently held that only communications made for the purposes of providing legal advice are protected, and communications made while providing business advice do not fall under the umbrella of the privilege.  Typically, courts will evaluate each individual communication to determine whether legal advice was provided.  Any privilege may be lost, however, if the information is disclosed to certain third parties.  If the privileged material is disclosed to employees, in an open board meeting for example, any claim to the attorney-client confidentiality may be forfeited.  Courts are even less likely to find that privilege exists if the confidential information is disclosed to non-employees.

VI. Disqualification from Future Paying Client Relationships

When deciding to serve as pro bono legal counsel or on a nonprofit board of directors, an attorney should be aware of potential conflicts of interest.  Courts have held that an attorney, and the rest of his or her firm, can be disqualified from future paying client relationships because of previous work with a pro bono client or an attorney’s prior service on a nonprofit’s board of directors, even after termination of the relationship.

VII. Professional Liability Insurance

Any attorney serving on a fraternal organization’s board of directors should confirm the extent of his or her malpractice insurance.  Coverage depends on the terms of the individual policy.  Some policies explicitly exclude coverage for any activities related to board service.  Other policies provide coverage but some limit such coverage to activities when the attorney acts in a legal capacity.  Attorneys providing pro bono legal services also should confirm their professional liability coverage.  Some policies limit coverage to “employer-approved” pro bono work. Some pro bono programs, however, provide malpractice insurance through the pro bono program itself that can act as a supplement to any individual or firm policy.  Furthermore, any attorney whose activities are arguably both legal and non-legal in nature, including attorneys who serve as a voting member of a nonprofit board of directors while providing pro bono or paid legal counsel, should carefully evaluate any potential gaps in professional liability insurance coverage. Of course, the fraternal organization’s directors and officers insurance coverage should provide additional protection to the attorney in his or her capacity as a director.

VIII.  Termination of Relationship

An attorney seeking to withdraw from representation of a pro bono client must comply with the applicable state’s rules of professional conduct.  When withdrawing from a pro bono client representation, special consideration should be given to whether the withdrawal will have a “material adverse effect” on the interest of the client.  By comparison, a director of a fraternal organization may resign at any time by communicating such as required by state law or the organization’s bylaws, typically by communicating such resignation in writing to the board, the presiding officers, or the nonprofit itself.