United States District Court
Northern District Of Illinois
Local Rules
LR83.51.13. Organization as Client
(a) A lawyer employed or retained by an organization represents the organization
acting through its duly authorized constituents.
(b) If a lawyer for an organization knows that an officer, employee, or other
person associated with the organization is engaged in action, intends to act or
refuses to act in a matter related to the representation that is a violation of a
legal obligation to the organization, or a violation of law which reasonably
might be imputed to the organization, and is likely to result in substantial
injury to the organization, the lawyer shall proceed as is reasonably necessary in
the best interest of the organization. In determining how to proceed, the
lawyer shall give due consideration to the seriousness of the violation and its
consequences, the scope and nature of the lawyer’s representation, the responsibility in the organization and the apparent
motivation of the person involved, the policies of the organization concerning such
matters and any other relevant considerations. Any measures taken shall be
designed to minimize disruption of the organization and the risk of revealing
information relating to the representation to persons outside the organization.
Such measures may include among others:
(1) asking reconsideration of the matter;
(2) advising that a separate legal opinion on the matter be sought for
presentation to appropriate authority in the organization; and
(3) referring the matter to higher authority in the organization, including, if
warranted by the seriousness of the matter, referral to the highest authority
that can act in behalf of the organization as determined by applicable law.
(c) If, despite the lawyer's efforts in accordance with section (b), the highest
authority that can act on behalf of the organization insists upon action, or a
refusal to act, that is clearly a violation of the law and is likely to result
in substantial injury to the organization, the lawyer may resign in accordance
with LR83.51.16.
(d) In dealing with an organization’s directors, officers, employees, members, shareholders or other constituents,
a lawyer shall explain the identity of the client when it is apparent that the
organization’s interests are adverse to those of the constituents with whom the lawyer is
dealing.
(e) A lawyer representing an organization may also represent any of its directors,
officers, employees, members, shareholders or other constituents, subject to
the provisions of LR83.51.7. If the organization’s consent to the dual representation is required by LR83.51.7, the consent
shall be given by an appropriate official of the organization other than the
individual who is to be represented, or by the shareholders.
Committee Comment. The Entity as the Client. An organizational client is a legal entity, but it cannot act except through
its officers, directors, employees, shareholders and other constituents.
Officers, directors, employees and shareholders are the constituents of the
corporate organizational client. The duties defined in this Comment apply equally
to unincorporated associations. “Other constituents” as used in this Comment means the positions equivalent to officers,
directors, employees and shareholders held by persons acting for organizational clients
that are not corporations.
When one of the constituents of an organizational client communicates with the
organization’s lawyer in that person’s organizational capacity, the communication is protected by LR83.51.6. Thus,
by way of example, if an organizational client requests its lawyer to
investigate allegations of wrongdoing, interviews made in the course of that
investigation between the lawyer and the client’s employees or other constituents are covered by LR83.51.6. This does not
mean, however, that constituents of an organizational client are the clients of the
lawyer. The lawyer may not disclose to such constituents information relating
to the representation except for disclosures explicitly or impliedly authorized
by the organizational client in order to carry out the representation or as
otherwise permitted by LR83.51.6.
When constituents of the organization make decisions for it, the decisions
ordinarily must be accepted by the lawyer even if their utility or prudence is
doubtful. Decisions concerning policy and operations, including ones entailing
serious risk, are not as such in the lawyer’s province. However, different considerations arise when the lawyer knows that
the organization may be substantially injured by action of a constituent that
is in violation of law. In such a circumstance, it may be reasonably necessary
for the lawyer to ask the constituent to reconsider the matter. If that fails,
or if the matter is of sufficient seriousness and importance to the
organization, it may be reasonably necessary for the lawyer to take steps to have the
matter reviewed by a higher authority in the organization. Clear justification
should exist for seeking review over the head of the constituent normally
responsible for it. The stated policy of the organization may define circumstances and
prescribe channels for such review, and a lawyer should encourage the
formulation of such a policy. Even in the absence of organization policy, however, the
lawyer may have an obligation to refer a matter to higher authority, depending on
the seriousness of the matter and whether the constituent in question has
apparent motives to act at variance with the organization’s interest. Review by the chief executive officer or by the board of directors
may be required when the matter is of importance commensurate with their
authority. At some point it may be useful or essential to obtain an independent
legal opinion.
In an extreme case, it may be reasonably necessary for the lawyer to refer the
matter to the organization’s highest authority. Ordinarily that is the board of directors or similar
governing body. However, applicable law may prescribe that under certain conditions
highest authority reposes elsewhere; for example, in the independent directors
of a corporation.
Relation to Other Rules. The authority and responsibility provided in section (b) are concurrent with
the authority and responsibility provided in other rules. In particular, this
rule does not limit or expand the lawyer’s responsibility under LR83.51.6, LR83.51.8, LR83.51.16, LR83.53.3, or
LR83.54.1. If the lawyer’s services are being used by an organization to further a crime or fraud by
the organization, LR83.51.2(d), LR83.51.6(b), and LR83.51.6(c)(2) can be
applicable.
Government Agency. The duty defined in this rule applies to governmental organizations. However,
when the client is a governmental organization, a different balance may be
appropriate between maintaining confidentiality and assuring that the wrongful
official act is prevented or rectified, for public business is involved. In
addition, duties of lawyers employed by the government or lawyers in military service
may be defined by statutes and regulation. Therefore, defining precisely the
identity of the client and prescribing the resulting obligations of such lawyers
may be more difficult in the government context. Although in some circumstances
the client may be a specific agency, it is generally the government as a
whole. For example, if the action or failure to act involves the head of a bureau,
either the department of which the bureau is a part or the government as a whole
may be the client for purpose of this rule. Moreover, in a matter involving
the conduct of government officials, a government lawyer may have authority to
question such conduct more extensively than that of a lawyer for a private
organization in similar circumstances. This rule does not limit that authority. See the discussion under the heading “Scope of the Rules of Professional Conduct” in the Comment section of LR83.50.1.
Clarifying the Lawyer’s Role. There are times when the organization’s interest may be or become adverse to those of one or more of its
constituents. In such circumstances the lawyer should advise any constituent, whose
interest the lawyer finds adverse to that of the organization of the conflict or
potential conflict of interest, that the lawyer cannot represent such constituent,
and that such person may wish to obtain independent representation. Care must
be taken to assure that the individual understands that, when there is such
adversity of interest, the lawyer for the organization cannot provide legal
representation for that constituent individual, and that discussions between the
lawyer for the organization and the individual may not be privileged.
Whether such a warning should be given by the lawyer for the organization to
any constituent individual may turn on the facts of each case.
Dual Representation. Section (e) recognizes that a lawyer for an organization may also represent a
principal officer or major shareholder.
Derivative Actions. Under generally prevailing law, the shareholders or members of a corporation
may bring suit to compel the directors to perform their legal obligations in the
supervision of the organization. Members of unincorporated associations have
essentially the same right. Such an action may be brought nominally by the
organization, but usually is in fact a legal controversy over management of the
organization.
The question can arise whether counsel for the organization may defend such an
action. The proposition that the organization is the lawyer's client does not
alone resolve the issue. Most derivative actions are a normal incident of an
organization’s affairs, to be defended by the organization’s lawyer like any other suit. However, if the claim involves serious charges
of wrongdoing by those in control of the organization, a conflict may arise
between the lawyer’s duty to the organization and the lawyer’s relationship with the board. In those circumstances, LR83.51.7 governs who
should represent the directors and the organization.