Inside Track: Ethical Dilemmas: Conflicts Arising from Service on a Board:

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  • November
    18
    2020

    Ethical Dilemmas: Conflicts Arising from Service on a Board

    When you agree to serve on a board of directors of an organization outside your firm, and the organization has never been a client, can conflicts arise?

    Timothy J. Pierce

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    Nov. 18, 2020 – Does a position on an outside organization’s board of directors create conflicts for my firm, when the organization has never been a client?

    This dilemma is also a good reminder to keep a robust conflicts-checking system that includes your firm’s lawyers’ activities outside work – such as service on the board of a corporation or nonprofit.

    Question

    I work in a medium-sized law firm, and recently agreed to serve on the board of directors of a local community bank. My firm has not represented the bank on any legal matters. However, a younger associate in my firm undertook representation of a new client in a small claims matter in which the bank is the opposing party.

    I am concerned that this is a conflict – but the associate insists that it is not, because the bank is not a current or former client of our firm, and the small claims matter has nothing to do with my duties as a director.

    Does my position on the board of directors for the bank give rise to conflicts of interest for my firm?

    Need Ethics Advice?

    As a State Bar member, you have access to informal guidance and help in resolving questions regarding Wisconsin’s Rules of Professional Conduct for Attorneys.

    Ethics Hotline: To informally discuss an ethics question, contact State Bar ethics counselors org tpierce wisbar Timothy Pierce or org akaiser wisbar Aviva Kaiser. They can be reached at (608) 229-2017 or (800) 254-9154, Monday through Friday, 9 a.m to 4 p.m.

    Answer

    SCR 20:1.7(a)(2) states that a lawyer has a conflict when “there is a significant risk that the representation of one or more clients 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.”

    Tim PierceTim Pierce is ethics counsel with the State Bar of Wisconsin. Reach him by org tpierce wisbar email or through the Ethics Hotline at (608) 229-2017 or (800) 254-9154.

    SCR 20:1.10(a) states that “(w)hile lawyers are associated in a firm, none of them shall knowingly represent a client when any one of them practicing alone would be prohibited from doing so by SCR 20:1.7 or SCR 20:1.9 unless …the prohibition is based on a personal interest of the prohibited lawyer and does not present a significant risk of materially limiting the representation of the client by the remaining lawyers in the firm…”

    These two rules were applied to the question posed in this column in Ohio Ethics Opinion 2008-02, which had little difficulty in concluding that a lawyer’s service on a board of directors gives rise to the sorts of “responsibilities” to a “third person” that give rise to conflicts:

    A material limitation conflict may also arise when a lawyer serves only as a corporate director and not corporate counsel. The lawyer’s duties as a corporate director may interfere with the lawyer’s duties of loyalty and independent judgment to a represented client. A prime example of a material limitation conflict of interest is provided in the questions presented –  a client comes to a lawyer and wants to retain the lawyer to sue the corporation on which the lawyer serves as corporate director. The lawyer’s duties as a corporate director would materially limit the lawyer’s ability to represent the client against the corporation.

    Thus, as to the Board’s first consideration of whether a lawyer who serves as a corporate director and not as corporate counsel has a conflict of interest in a representation of a client in a lawsuit against the corporation, the answer is yes.

    With that established, the opinion further concludes that this conflict is not a personal conflict, and hence the conflict is imputed to every other lawyer in the firm:1

    The material limitation conflict of interest of a lawyer who serves as a corporate director and whose client is suing the corporation arises from both the lawyer’s fiduciary duties to the corporation and the lawyer’s personal interest in serving on the board. Both of these material limitation conflicts of interest, the personal interest and the fiduciary duties owed, pose a significant risk of materially limiting the lawyer’s loyalty and independence in representing a client against the corporation.

    Thus, the Board’s view is that the conflict of interest of the lawyer who serves as corporate director and not as corporate counsel and whose client is suing the corporation is imputed to other lawyers in the firm under Rule 1.10(a). Because the prohibited lawyer’s conflict is based upon a fiduciary duty to the corporation as well as a personal interest of the prohibited lawyer and presents a significant risk of materially limiting the representation of the client the conflict is imputed to the law firm pursuant to Rule 1.10(a).

    It is thus clear that the lawyer’s conflict arising under SCR 20:1.7(a)(2) from service on the board are imputed to every other lawyer in the firm.2

    Generally, conflicts are subject to informed consent if the conditions set forth SCR 20:1.7(b) are met:

    Notwithstanding the existence of a concurrent conflict of interest under par. (a), a lawyer may represent a client if:

    (1) the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client;

    (2) the representation is not prohibited by law;

    (3) the representation does not involve the assertion of a claim by one client against another client represented by the lawyer in the same litigation or other proceeding before a tribunal; and

    (4) each affected client gives informed consent, confirmed in a writing signed by the client.

    On these facts, if the associate reasonably believes that she can provide competent and diligent representation notwithstanding the conflict, the associate may seek the written and signed informed consent of the client in the small claims matter to undertake the representation. Note that the bank is not a client of the law firm, so the black letter of SCR 20:1.7(b)(4) does not require the written and signed informed consent of the bank.

    Whether or not the fiduciary obligations of the lawyer/director of the bank would require disclosure or other steps, is beyond the scope of this article.3 It certainly may be wise for the lawyer/director to refrain from any board discussion involving the legal matter.4

    This points out the importance of law firms having a comprehensive conflicts checking system, which not only takes into account current and former clients and witnesses, but also lawyers’ activities outside the practice of law that could give rise to conflicts – such as service on the board of a corporation or nonprofit.

    In Case You Missed It: Read Past Ethical Dilemmas

    Ethical Dilemmas appears monthly in InsideTrack. Check out these topics from recent issues:

    Endnotes

    1 Examples of “personal” conflicts are relationship by blood or marriage to opposing counsel, or strongly held political beliefs that pose a risk of materially impairing a lawyer’s ability to represent a client.

    2 See also Virginia Ethics Opinion 1821 and Berry v. Saline Mem. Hosp., 322 Ark. 182, 907 S.W.2d 736 (Ark. 1995).

    3 While client identity is protected information, SCR 20:1.6(c)(6) does permit disclosure of protected information “to detect and resolve conflicts of interest, but only if the revealed information would not compromise the attorney-client privilege or otherwise prejudice the client.”

    4 See Virginia Ethics Opinion 1821.




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