When nonprofit leaders speak with or exchange emails with that nonprofit’s lawyers, are such conversations subject to attorney-client privilege? How do both the nonprofit leader and the attorney know? More broadly, how do third parties understand who is and who is not authorized to speak on behalf of the nonprofit?
The Big Cheese
Consider the example of Edith Cheddar, fictional executive director for Cheese Educational Society of Elgin (“CHESE”). Troubled by the Board’s handling of her recent contract negotiation, she calls Brie Law, the nonprofit’s go-to law firm, and asks one of Brie’s attorneys whether the Board acted consistently with its fiduciary duty of care in approving her recent compensation package. Edith has had a long-term relationship with Brie Law. She has frequently sought the firm’s guidance on issues affecting CHESE and has become friends with many of the firm’s lawyers. One of Brie’s lawyers provides guidance addressing Edith’s questions. Following her telephone call, she sends the Brie attorney an email confirming her understanding of lawyer’s guidance.
Unfortunately, Edith’s relationship with the Board sours. CHESE fires her, and she files a discrimination claim against CHESE. A different law firm, Stilton Law, represents CHESE in the lawsuit. In the discovery phase of the litigation, Stilton wants Edith’s new lawyers, Edam Law, LLC, to turn over all emails relating to the lawsuit – including Edith’s email to the former firm – Brie Law. Edith doesn’t want to turn over that particular email. The email contained personal information, the disclosure of which could be harmful to her case. Must Edith turn over the email that was written to Brie Law’s attorney, or is it privileged?
Situations such as those facing Edith and CHESE are more common than nonprofit leaders might suppose, with long-term attorney-client relationships, and the trusted friendships developing therefrom, giving rise to this type of challenge.
What steps can nonprofits take to ensure their leaders understand the scope of attorney-client privilege? Correspondingly, when does a nonprofit leader actually speak on behalf of the nonprofit to its attorneys, as opposed to speaking to them in the person’s individual capacity? Key proactive measures may involve advance designations of such authorization, accompanying internal board minutes or resolutions, clear directions about authorized nonprofit representatives, communications about periodic leadership changes, and careful use of email “cc’ing.” Through such steps, nonprofits, their legal counsel, and others can obtain important assurances—and peace of mind—about privileged, confidential, or otherwise highly sensitive information.
Board Authorization: Designate or Default?
When entering an attorney-client relationship, remember that an individual director or officer is not the client. The attorney’s client is the nonprofit, through its board and duly authorized persons.
The Illinois Supreme Court Rules of Professional Conduct for attorneys make the duty of the lawyer to the organization (not the individual) quite clear. With Edith, for example, Rule 1.13(f) may obligate the law firm’s attorney to whom Edith initially spoke to clarify that he represents the nonprofit and its interests:
“In dealing with an organization's directors, officers, employees, members, shareholders or other constituents, a lawyer shall explain the identity of the client when the lawyer knows or reasonably should know that the organization's interests are adverse to those of the constituents with whom the lawyer is dealing.”
Additionally, if Edith’s conduct (as perceived by the attorney) is likely to result in substantial injury to the nonprofit, the attorney may have an obligation under Rule 1.13(b) to report Edith’s conversation with him to the Board.
There are three ways in which a nonprofit may clarify the attorney-client relationship:
- The nonprofit’s president and/or executive director may serve as the organization’s representative (as per the default under the nonprofit’s bylaws or policies).
- A nonprofit board may prospectively designate an organizational representative who is authorized to act on behalf of the corporation with respect to the attorney-client relationship.
- The board may ratify such matter retrospectively. In that case, the person(s) acting on behalf of the nonprofit should be quite confident that such board ratification will occur.
The board meeting minutes thus may contain the following language: “Upon motion duly made, seconded, and approved, Peter President is hereby authorized to serve as Noble Nonprofit’s representative for purposes of communicating with Local Law Firm.” Such information may be contained in a separate board resolution too, incorporated by reference in the board meeting minutes. Or for ratification, the meeting minutes could state as follows: “Upon motion duly made, seconded, and approved, the Board ratifies Peter President’s authority to serve as Noble Nonprofit’s representative for purposes of communicating with Local Law Firm.” Or the board meeting minutes could simply reflect the following: “The Board recognized that Peter President is serving as Noble Nonprofit’s representative for purposes of communicating with Local Law Firm, pursuant to his general authority as set forth in the Bylaws.”
Attorney-Client Communications About Communications
How does the attorney know with whom he or she may communicate regarding nonprofit client matters? Initially, a nonprofit leader may reach out to an attorney and thereby implicitly establish such authorization. The leader informs the attorney that he or she has such authorization, and the attorney accepts it at face value. Additionally, the attorney may ask that the nonprofit organization expressly set forth such information in the client’s written legal representation agreement. That can be particularly helpful, for clarity and in case of later questions.
What about later, as time goes by? New nonprofit leaders come on board, or specific client projects result in other designated nonprofit representatives. Phone calls, meetings, and email exchanges are all great ways for people to communicate about updated client contact information. For example, as a Board President is finishing a term, he or she may wish to alert the nonprofit’s attorney about the incoming President who will serve as the new primary client representative. Or the primary nonprofit leader may inform the attorney about additional staff members who will be involved in specific client matters, such as employment, real estate, or intellectual property projects.
What about when a nonprofit director is copied on an attorney-client email chain? That can be a quick way to efficiently share information. Note, however, such action may communicate to the attorney that the director is appropriately authorized. Any confusion should be addressed, such as through an introductory email or a follow-up clarifying email.
Beyond Attorney-Client Communications
It is possible, but hopefully rare, that a director or officer may falsely or otherwise improperly assert that he or she possesses the necessary board authorization for communicating with others, whether legal counsel or other third parties. But remember that just because a person serves on a nonprofit’s board or on the nonprofit’s staff does not necessarily mean that he or she may communicate with the nonprofit’s attorney. Certain matters may be confidential, only to be shared between certain nonprofit leaders and others with whom the organization engages, such as compensation-related information involving a paid executive director or sensitive contract negotiations warranting utmost confidentiality. While board members should be informed generally about their nonprofits’ activities as part of their fiduciary duty of due diligence, such duty does not automatically mean that they are privy to all attorney-client or other third-party communications.
Left unaddressed, a director’s or officer’s improper representations about his or her scope of authority may be made at the nonprofit’s peril, depending on the context and issues at stake. In today’s electronic world, the fastest and most effective way to correct such problems may be through email. For example, the Board President may send out an email like this, as the nonprofit’s primary representative:
To Whom It May Concern [or specifically named recipient]:
I am writing to provide clarification and direction regarding proper authorization for the Corporation’s activities, particularly with respect to disclosure of information, business negotiations, and other operational matters [customize as appropriate]. The Corporation carries out its activities through its Board of Directors’ governance, which in turn operates through its duly authorized officers and other individual representatives.
Consequently, please make sure that any activities between the Corporation and other parties are carried out only with such duly authorized representatives of the Corporation, preferably as evidenced in writing. Correspondingly, any disclosures of confidential information should be made only to such authorized persons. In certain cases, the Corporation’s authorized representative information may be located within certain written agreements between the Corporation and other parties.
If you have any question or would like further information, please contact me as the Corporation’s President and therefore its primary authorized representative. Thank you for your consideration and cooperation with this matter.
Who may communicate with legal counsel or others on behalf of a nonprofit board? When in doubt, check it out and clarify affirmatively in writing who is an authorized representative. Decide too as a board whether a nonprofit leader will have any specific authorization, such as to communicate with legal counsel on certain matters or to negotiate with other third parties about nonprofit activities. And correct any misunderstandings that may occur, before problems arise.