ABA Formal Ethics Opinion 514, released on January 8, 2025, provides important guidance concerning the ethical obligations of lawyers advising organizations regarding future conduct that may create legal risk for the organization's constituents. The Opinion notes the "complexity of the modern regulatory environment" and the "fine distinctions upon which the legality of a course of conduct may turn," as well as the possibility that a lawyer providing advice does not always possess all relevant information. A client organization's "constituents" can include officers, directors, managers, and, in some cases, the organization's shareholders. These are individuals with whom the organization's lawyer may interact but for whom the lawyer may not provide individual legal representation. Traditional professional responsibility rules provide that a lawyer advising an organization represents only the organization and not its constituents. It is possible, however, that a lawyer may jointly represent the interests of the organization's constituents, subject to conflict of interest limitations and/or waivers. In cases where the lawyer does not represent the entity's constituents, the lawyer's ethical obligation is to the organization only, even though a lawyer's advice to an organization may be delivered through individual constituents. The Opinion stresses the importance of lawyers educating constituents about the scope of their representation and clarifying that their obligation is to the entity and not its individual constituents in most cases.
When a lawyer is solely representing the organization, particularly in cases where the lawyer's relationship commonly includes communicating with constituents acting on behalf of the organization, the question arises as to what extent the lawyer must consider the interests of those constituents.
This question becomes particularly important when the organization engages in a course of conduct potentially exposing both the organization and its constituents to legal risk. In such a scenario, the organization client may decide to accept the legal uncertainty and related risk inherent in the conduct. At the same time, those risks may also impact the constituent, who is perhaps unable to comprehend the scope of the risk due to a lack of legal counsel.
One example discussed in the Opinion is when a lawyer advises the organization regarding representations to the government or a private entity, with a constituent signing the representations. The interests of the individual constituent and the entity may not align to the extent that those representations might create particular risks for the constituent. While the organization may intend to take a more aggressive position best serving the entity, that position may not be in the best interests of the individual constituent signing off on the representations. Importantly, given the lawyer's representation of the organization, the entity may invoke an advice of counsel defense unavailable to the unrepresented constituent
ADVICE TO ORGANIZATIONS ABOUT RISK TO CONSTITUENTS
According to the Opinion, a lawyer is obligated to advise an organization regarding the legal ramifications of proposed conduct on the organization and may, depending on the gravity and extent of the risk, need to inform the organization of potential legal risks for its constituents, including employees, officers, and directors. The Opinion also acknowledges that such analysis may involve increased expense. As such, an organization may not wish to solicit legal advice on the risks of proposed conduct on its constituents. The lawyer may concur with the organization in this regard and, with the organization's informed consent, refrain from providing advice.
RESPONSIBILITY TO NON-CLIENT CONSTITUENTS
When the constituent is a non-client, there is a risk that the individual will not understand that the organization's lawyer does not represent the constituent individually, and the constituent may fail to realize that their actions may have personal consequences. Although there is no one-size-fits-all disclosure, the Opinion suggests that the lawyer may want to disclose to constituents that they may incur personal legal risk if they act on behalf of the organization. As well, the lawyer should make clear that they are only advising the organization and not individual constituents and constituents should seek advice from their own counsel. This is particularly important when the lawyer knows or should know that the constituent's legal interests are at risk.
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