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Bar News - January 15, 2010


Professional Liability Law: The Lawyer as Non-Profit Director: Does Altruism Equal Personal Liability?

By:


William C. Saturley

John Kissinger
Congratulations! Your favorite non-profit has elected you to its board of directors. You immediately accept, eagerly anticipating the opportunity to serve your community. At your first meeting a legal question arises. The entire board awaits your input. What risks are you running when you respond?

To what extent do lawyers expose themselves to liability by serving on the boards of non-profits and charities?

Service on a Board Risks an
Implied Attorney- Client Relationship

The factors upon which an attorney-client relationship is formed have been identified a number of times by our Supreme Court: (1) a person or entity seeks advice or assistance from an attorney; (2) pertaining to matters within the attorney’s professional competence; and (3) the attorney expressly or impliedly agrees to give or gives advice or assistance. Note that an attorney-client relationship can be formed without the attorney’s expressly agreeing to represent the client. In hindsight, whether an attorney-client relationship was created in this situation may turn on the entity’s expectation or understanding of the lawyer’s contribution, rather than whether the lawyer opened a file.

Lawyers serving on non-profit boards may be especially susceptible to developing attorney-client relationships without intending to do so. Most for-profit corporations have outside legal counsel, or perhaps even a general counsel who attends their board meetings. Non-profits, by contrast, frequently add lawyers to their boards because they want to broaden community participation in their mission, but also, specifically, because they cannot afford private legal counsel. Non-profits may expect lawyer-directors to serve as pro bono quasi-general counsel, protecting them from potential legal missteps.

To make matters worse, the legal issues that come before the non-profit board may fall far beyond the lawyer’s professional expertise. If the board reasonably is relying on the attorney for advice, and the topic concerns an area beyond the lawyer’s ken, the lawyer may quickly run afoul of Rule 1.1 of the New Hampshire Rules of Professional Conduct, which requires lawyers to "provide competent representation to a client."

Conflicts of interest must also be considered. First, the classic conflict: another client of the lawyer or his firm has interests adverse to those of the non-profit. Second, even when the lawyer is merely a board member, a conflict may be created: responsibilities to the non-profit may limit one’s ability to provide independent professional judgment to other clients, as required by Rule 1.7.

Has Your Membership Created an Enhanced Fiduciary Duty to the Non-Profit?

All board members owe an obligation of fiduciary duty to the non-profit. The standard of care by which lawyer-directors are measured may well increase when deliberating issues within the lawyer’s area of expertise.

The New Hampshire Business Corporation Act, RSA § 293-A:8.30, for example, provides that "a director shall discharge his duties . . . with the care an ordinarily prudent person in a like position would exercise under similar circumstances." In gauging how a director "in a like position" and "under similar circumstances" would behave, is a lawyer-director measured by how an ordinarily prudent board member would behave – or an ordinarily prudent attorney? The American Bar Association, as well as several state court decisions, has suggested that a higher standard of care may sometimes apply to lawyers in the board room.

Do the Right Thing – But Reduce Your Risk

First, make it a habit, when speaking at board meetings on topics with which you have no more expertise than any other member, to say so: explain to the other members of the board that you are speaking as a board member, not as a lawyer. Such a practice will minimize the likelihood that other board members or the nonprofit itself will later claim reliance on your "legal" advice.

Second, find out if the non-profit complies with the "safe harbor" provisions offered to volunteers under RSA 508:17, limiting their personal liability.

Third, determine whether the non-profit offers directors and officers liability insurance. If not, consult a broker to find out how much it costs. Such a policy will fall short of covering you for legal advice you may offer, but it can cover a lot of other actions you make take while on the board.

Fourth, review or consult your broker about your firm’s professional liability policy. Most policies explicitly exclude all claims arising from membership on an organization’s board, especially if the carrier had no knowledge you were serving in that position. On the other hand, if the carrier knows the capacity in which you are serving, and you identify the work you do on a particular legal issue for the non-profit by creating a specific file for it – in other words, if you treat a particular issue as a normal file – your coverage should apply.

Conclusion

Service on non-profit boards allows lawyers to make valuable contributions to the community. Unfortunately, good intentions frequently line the road to litigation. Take steps to avoid exposing yourself to liability, and you may even enjoy your service to the board.

William C. Saturley and John C. Kissinger, Jr. practice in the commercial litigation and professional malpractice groups at Nelson, Kinder, Mosseau & Saturley in Manchester and Boston. Tobias W. Crawford is a third-year law student at Boston College Law School, who worked at Nelson, Kinder, Mosseau & Saturley during 2009 as a summer associate.

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