In general, “an organization’s lawyer does not owe the organization’s constituents a duty of competence or other duties established by a client-lawyer relationship unless the lawyer also represents a constituent as a client.”  In this Formal Opinion, the Advisory Committee addresses “whether the professional responsibilities of a lawyer representing the organization require the lawyer to inform the organization when proposed future conduct may pose legal risk for the organization’s constituents….

“It may be important to an organization client to know not only when potential future conduct creates legal risk to the organization but also when the conduct creates legal risk to the organization’s constituents, such as employees, officers, or board members, who will be acting on the organization’s behalf. Whether this information or any other information must be provided to an organization’s decision maker under the Rules will be a fact-based determination. The Rules do not specify in detail what must be disclosed as a matter of competent, necessary, or candid advice; the Rules set forth only a general standard. Whether an organization must be advised of how its proposed conduct will legally affect organization constituents may turn, in part, on the extent and gravity of the legal risk to the constituents. An organization’s lawyer may know from past experience whether the organization’s decision makers would want or expect to be told when proposed conduct has significant legal implications for the organization’s constituents. If the lawyer does not definitively know, the lawyer can discuss with the relevant organization decision makers whether the organization would want to know of significant legal risks to its constituents. A lawyer should not assume without any basis that an organization’s decision makers are or are not indifferent to legal risks to its constituents. Many organizations’ decision makers have an interest in the constituents’ welfare and seek to treat the constituents fairly. Many would want to take account of the potential costs and disruption if its constituents encountered legal problems because of their work for the organization. Moreover, particularly if the client is an organization of a sufficiently large size, the organization may have contractual duties of indemnification in place as to the constituents impacted that could both reduce the costs or disruption for those constituents and be directly relevant to the risk to the organization itself.”

The Committee then also addresses the lawyer’s responsibility to non-client constituents when giving legal advice to the organization:

“When a lawyer’s advice about an organization’s conduct implicates the legal liability of individual constituents, the individuals through whom the lawyer gives advice to the organization will often be the very ones who will be undertaking, directing, or assisting the action in question and who may therefore have personal risk of civil or criminal liability. As discussed, that individual is not a client (unless the lawyer intentionally or inadvertently establishes a client-lawyer relationship), and therefore, the organization’s lawyer will not owe that individual the ethical duties that lawyers owe to clients. Nevertheless, lawyers representing organizations may have obligations or restrictions when giving advice to the organizations they represent through nonclient constituents, as lawyers sometimes do in interacting with other nonclients in the course of a representation….

“Individual constituents may or may not be aware that they have their own legal interests at stake. They might erroneously assume that they have no personal legal risks, because they may think that if they did, the lawyer would tell them. Or, if the individuals understand that they have legal risks along with the organization, they might assume that they can rely personally on the lawyer’s advice and that they therefore have no need for separate counsel. Although the organization’s lawyer may not intend to foster these misunderstandings, such misunderstandings may be difficult to avoid when the lawyer is advising constituents about how they should act on behalf of the organization. Some constituents who are experienced in interacting with the organization’s lawyers will instinctively and correctly understand that the organization’s lawyer does not represent them personally and recognize the possible need for independent counsel, if they have concerns about their own liability. But others, without being told otherwise, may not understand this without an adequate explanation that their actions on behalf of the organization may have personal consequences, especially if they are not experienced in interacting with the organization’s lawyers.

“Individual constituents’ misunderstandings may be harmful to them because, when the interests of the organization and individual constituents diverge, the constituents cannot rely on the organization’s lawyer’s advice to protect their interests. For example, it may be reasonable for an organization to engage in conduct that poses legal risks for both the organization and its constituents. In the same situation, however, individuals might act more cautiously in light of the legal and other risks to themselves. One reason is that the organization may have defenses—such as an advice-of-counsel defense—that are unavailable to the unrepresented individual constituent. Another is that the consequences of acting aggressively in the face of risks may be less significant for the organization than for the individual, or that the organization will derive greater benefit from acting aggressively. In this situation, the Model Rules require an organization’s lawyer to take reasonable measures to avoid or dispel constituents’ misunderstandings about the lawyers’ role….

“The objective is not to advise constituents about how to act in light of personal legal risks but simply to give them information to prevent them from erroneously relying on misunderstandings of the lawyer’s role. Indeed, as Rule 4.3 makes clear, the lawyer shall not provide legal advice to the nonclient other than to advise the nonclient to secure independent counsel. As the comments to Rules 4.3 and 1.13 reflect, an organization’s lawyer is not providing legal advice when informing the constituents, in a way adequate for them to understand, that their interests may differ from those of the organization and that ‘the lawyer represents only the organization, not them.’ At the same time, these comments do not limit or specify what information may or must be provided in any given situation to avoid or dispel misunderstandings. With this objective in mind and depending on the circumstances, a more in-depth conversation may be necessary to satisfy the lawyer’s duty to undertake ‘reasonable efforts to correct’ a constituent’s misunderstanding of the lawyer’s role as lawyer to the organization.”

 

ABA Formal Opinion No. 514 (Jan. 8, 2025)