(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, or a violation of law which reasonably might be imputed to the organization, and is likely to result in substantial injury to the organization, 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) In dealing with an organization’s directors, officers, employees, members, shareholders, or other constituents, a lawyer shall explain the identity of the client when it is apparent that the organization’s interests may be adverse to those of the constituents with whom the lawyer is dealing.
(d) 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 Comment apply equally to unincorporated associations.
“Other constituents” as used in this Comment 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 is likely to be substantially
injured by action of an officer or other constituent that violates a
legal obligation to the organization or is in violation of law that
might be imputed to the organization, the lawyer must proceed as reasonably
necessary in the best interest of the organization. As defined in Rule
1.0(f), 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] When it is reasonably necessary to enable the
organization to address the matter in a timely and appropriate manner,
paragraph (b) requires the lawyer to 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.
[6] Although Model Rule 1.13 contains a “reporting
out” requirement that authorizes disclosure of confidential client
information concerning an organizational client that would be prohibited
with respect to other types of clients, D.C. Rule 1.13 does not expand
the kinds of disclosures that are permitted for organizational clients.
Under the D.C. Rules, client confidences are protected to the same degree
whether the client is an organization or an individual. If a lawyer
has reported a matter to the highest appropriate authority in the organization,
and that authority has determined not to take any action recommended
by the lawyer, the lawyer should accept that authority’s decision,
just as the lawyer is required to abide by the decision of an individual
client to maintain confidences and secrets – unless disclosure
is authorized under Rule 1.6. If a binding judicial determination is
made that the disclosure limitations under D.C. Rule 1.13 are preempted
by federal law conferring broader authority to disclose client confidences
or secrets of certain types of organizational clients, a lawyer may
exercise the broader authority granted by federal law. The strictures
of the D.C. Rules, however, would continue to apply to protection of
confidences and secrets of other types of organizational clients.
Relation to Other Rules
[7] This rule does not limit or expand the lawyer’s
responsibility under Rules 1.6, 1.8, 1.16, 3.3, and 4.1. If the lawyer’s
services are being used by an organization to further a crime or fraud
by the organization, Rules 1.2(e) and 1.6 (d) can be applicable.
Government Agency
[8] The duty defined in this rule encompasses the
representation of governmental organizations. See Rule 1.6 comments
[37] through [40].
Clarifying the Lawyer’s Role
[9] 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.
[10] 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
[11] Paragraph (c) recognizes that a lawyer for an
organization may also represent a principal officer or major shareholder.
Derivative Actions
[12] 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.
[13] 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 whether lawyers
who normally serve as counsel to the corporation can properly represent
both the directors and the organization.
