Ethics Opinion 305

Ethical Considerations Arising From Representation of Trade Association

Representation of a trade association does not, without more, create an attorney-client relationship with each member of the association; particular circumstances of a representation, however, may create an attorney-client relationship with one or more of the members.

When counsel for a trade association is asked to represent a client in a matter adverse to a member of that trade association, the lawyer must consider whether a de facto attorney-client relationship exists with the member, as well as whether the prospective representation would be impaired by the lawyer’s existing representation of the trade association.

Applicable Rules

• Rule 1.6 (Confidentiality of Information)
• Rule 1.7 (Conflict of Interest)
• Rule 1.13 (Organization as Client)
• Rule 1.16 (Declining or Terminating Representation)

Inquiry

The proliferation of trade associations, particularly in Washington, D.C., has led to inquiries regarding a lawyer’s ethical responsibilities to the trade associations she represents and, also, to the association’s members.¹ The primary concern is the circumstances under which a lawyer representing a trade association may undertake a representation adverse to a member of the trade association.

Discussion

Rule 1.13(a) states that “A lawyer employed or retained by an organization represents the organization acting through its duly authorized constituents.” The Comment to Rule 1.13 further states that “The duties defined in this Comment apply equally to unincorporated associations.” Comment [13] to Rule 1.7 adds, “[T]he lawyer who represents a . . . trade association or other organization-type client is deemed to represent that specific entity, and not its . . . members or ‘other constituents.’” A lawyer representing a trade association then, does not, simply by or through that representation, establish an attorney-client relationship with each member.²

This view has found considered acceptance elsewhere. See ABA Ethics Op. No. 92-365 (July 6, 1992) (interpreting the comparable provision of the Model Rules of Professional Conduct (1983, amended 1991); Oregon Bar Ethics Op. No. 1991-27 (a lawyer who represents a trade association may represent one member of the association against another member with respect to a matter unrelated to the work performed for the association without disclosure to or consent from the association).³ This approach, however, does not conclude the analysis. There remains for consideration the penumbra where an attorney is asked to undertake a representation adverse to one or more members of the trade association that she represents.

1. Representation Adverse to Member

In general, the lawyer for a trade association is not prohibited from representing the association in a manner adverse to a member or members. Comment [13] to Rule 1.7; D.C. Bar Ethics Op. No. 216. In the situation where the trade association becomes adverse to the interests of one of the members, Comment [8] to Rule 1.13 provides guidance to the trade association’s lawyer:

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. . . .

See also Shadow Isle, Inc. v. American Angus Assoc., No. 84-6126-CV-SJ-6, 1987 WL 17337, at *4 (W.D. Mo. Sept. 22, 1987) (law firm not barred from continuing to represent trade association in suit brought by member where the association was the only client recognized by the firm). In addition, since the member is not a client of the association’s lawyer, the lawyer is usually free to represent an unrelated party with interests adverse to the member. Comment [13] to Rule 1.7.

Under certain circumstances, however, the lawyer may be deemed to represent an individual member, notwithstanding the absence of a formal attorney-client relationship. Comment [14] to Rule 1.7. See also Association of the Bar for the City of New York (“ABCNY”) Ethics Op. No. 1999-01. “In general, representation may be implied where on the facts there is a reasonable belief by the constituent that there is individual as well as collective representation.” Comment [14] to Rule 1.7, citing ABA Ethics Op. No. 92-365. The threshold query, then, is whether the member should reasonably be regarded a de facto client of the lawyer.

2. Attorney-Client Relationship with Member of Association

“[D]etermining whether and to what extent the individual member has become a client requires careful examination of all of the circumstances of the firm’s relationship to and representation of the trade association.” ABA Ethics Op. No. 92-365. An attorney-client relationship may be formed in the absence of an express agreement, and is “not dependent on the payment of fees [or] . . . upon the execution of a formal contract.” Westinghouse Elec. Corp. v. Kerr-McGee Corp., 580 F.2d 1311,1317 (7th Cir.), cert. denied, 439 U.S. 955 (1978). What is most important is whether the member of the trade association disclosed confidential information to the association’s lawyer, and the surrounding circumstances and expectations. ABA Ethics Op. No. 92-365. See also Westinghouse, 580 F.2d at 1319-1320; Glueck v. Jonathan Logan, Inc., 653 F.2d 746, 749 (2d Cir. 1981).

In Westinghouse, the leading case on this issue, the law firm for a trade association also represented a party in litigation adverse to some of the association’s members. The affected members moved to disqualify the firm. These members had previously submitted information to the firm in connection with legislative efforts on behalf of the association, with the understanding that all material would be kept confidential and in the belief that the firm was acting on the members’ behalf. Although the court expressly declined to create a per se rule that a lawyer for a trade association represents every member of the association, it disqualified the law firm because the association members reasonably believed they were submitting confidential information to a firm acting in their individual behalf.

In its opinion regarding the representation of trade associations, the American Bar Association Committee on Ethics and Professional Responsibility drew upon Westinghouse as well as its previous conflict analysis with respect to the representation of corporations and partnerships. ABA Ethics Op. No. 92-365; see also ABCNY Ethics Op. 1999-01, citing ABA Ethics Op. 95-390. The factors considered by the ABA Committee included whether the lawyer involved had affirmatively assumed a duty of representation to the member of a trade association; whether the member had separate representation; whether the lawyer represented the member before commencing its representation of the association; and whether the member relied upon the lawyer’s representation of its individual interests. In addition, the Committee commented that the size of the trade association may bear on the reasonableness of any member’s expectation of representation; for example, it is more likely to be unreasonable for a member of a large association to expect that the association’s attorney represents its individual interests.

If, under the analysis described above, a lawyer concludes that an individual association member should be treated as a client of the law firm, the lawyer must consider whether it faces a conflict of interest.⁴ If the new representation would require the lawyer to advance two adverse positions in a single matter, then Rule 1.7(a) prohibits the representation. In other circumstances, the applicable rule is Rule 1.7(b), which provides that a lawyer shall not represent a client with respect to a matter if:

(1) that matter involves a specific party or parties and a position to be taken by that client in that matter is adverse to a position taken or to be taken by another client in the same matter even though that client is unrepresented or represented by a different lawyer;

(2) such representation will be or is likely to be adversely affected by representation of another client;

(3) representation of another client will be or is likely to be adversely affected by such representation; or

(4) the lawyer’s professional judgment on behalf of the client will be or reasonably may be adversely affected by the lawyer’s responsibilities to or interests in a third party or the lawyer’s own financial, business, property, or personal interests.

Rules 1.6 (confidentiality of information) and 1.10 (imputed disqualification) may also be implicated. Cf. Westinghouse, 580 F.2d at 1321 (referencing comparable rules under Code of Professional Responsibility). To overcome the conflict and continue the adverse representation, the lawyer must disclose the issue and obtain the consent of the member as well as of the prospective client, pursuant to Rule 1.7(c).⁵

3. Impairment of Representation

Even if no attorney-client relationship exists with the member, the lawyer must determine whether the representation would be materially impaired by her representation of the trade association. Pursuant to Comment [14] to Rule 1.7, representation (absent informed consent) would be improper if:

(a) the adverse matter is the same as, or substantially related to, the matter on which the lawyer represents the organization client. [sic]

(b) during the course of representation of the organization client the lawyer has in fact acquired confidences or secrets (as defined in Rule 1.6(b)) of the organization client or an affiliate or constituent that could be used to the disadvantage of any of the organization client or its affiliate or constituents, or

(c) such representation seeks a result that is likely to have a material adverse effect on the financial condition of the organization client.

See also Glueck, 653 F.2d at 750; ABCNY Ethics Op. No. 1999-01. In Glueck, the Second Circuit adopted the following text:

Disqualification will ordinarily be required whenever the subject matter of a suit is sufficiently related to the scope of the matters on which a firm represents an association as to create a realistic risk either that the plaintiff will not be represented with vigor or that unfair advantage will be taken of the defendant.

Glueck, 653 F.2d at 750. This test involves a careful analysis of the attorney’s relationship and dealings with the member and the member’s relationship and dealings with the association. For example, a member’s disclosure of confidential information relevant to the association’s matter undertaken by the attorney may be a basis for disqualification. Id.⁶ The Glueck court affirmed the disqualification of a law firm that represented a trade association in collective bargaining negotiations. The firm also represented a former executive of one of the association’s members in a breach of employment contract dispute. Applying the “substantial relationship” test, the court concluded that, while preparing for collective bargaining, the law firm might well learn of the member’s policies or practices bearing on the executive’s termination, and thus the trial court did not abuse its discretion in disqualifying the law firm. Glueck, 653 F.2d at 750.⁷ Cf. Shadow Isle, 1987 WL 17337, at *4 (law firm not barred from continuing to represent trade association in suit brought by member where no danger of divided loyalty to two clients existed since the association was the only client recognized by the firm).

Alternatively, the matter may not be undertaken if the result sought by the prospective client is likely to have a material adverse impact on the trade association’s finances. See Comment [16] to Rule 1.7. Disqualification on the grounds of financial adversity was appropriate in North Star Hotels Corp. v. Mid-City Hotel Assocs., 118 F.R.D. 109 (D. Minn. 1987), where a firm represented a hotel manager in a suit against the partnership that owned the hotel. The firm already represented two development partnerships whose general partner was also the general partner of the hotel partnership. Because any judgment against the hotel partnership would have a financial impact on the two development partnerships represented by the firm, the court disqualified the firm for a conflict arising from “financial adversity.” 118 F.R.D. at 112-13; see also ABA Ethics Op. No. 92-365, discussing North Star Hotels Corp.

If the analysis demonstrates that the lawyer’s representation of the trade association will materially limit its representation of the prospective client, then the lawyer may only accept or continue the representation by obtaining the consent of the trade association and the prospective client, pursuant to Rule 1.7(c). See Comment [1] to Rule 1.16 (“A lawyer should not accept representation in a matter unless it can be performed competently, promptly, without improper conflict of interest, and to completion.”).

Conclusion

A lawyer who represents a trade association does not, without more, represent the members of the association. When asked to represent a client in a matter where the lawyer would be adverse to an association member, however, the lawyer must consider the relevant facts and circumstances to determine if the member has a reasonable belief that an attorney-client relationship exists between the member and the lawyer. If so, the lawyer may accept the new representation only with the consent of both the prospective client and the member. If no attorney-client relationship exists with the member but the lawyer’s representation would be impaired because of a substantial relationship between the subject of the new representation and its representation of the trade association, or if the new matter is likely to be financially adverse to the association, then the representation may proceed only with the consent of the client and the trade association.

Inquiry No. 00-6-15
Adopted: January 16, 2001

1. A trade association is “an association of business organizations having similar problems and engaged in similar fields formed for mutual protection, interchange of ideas and statistics and for maintenance of standards within their industry.” Black’s Law Dictionary 1493 (6th ed. 1990). See also Nat’l Muffler Dealers Assoc., Inc. v. United States, 440 U.S. 472, 483 n.15 (1979) (noting that the Department of Commerce has defined a trade association as “‘a nonprofit, cooperative, voluntarily-joined, organization of business competitors designed to assist its members and its industry in dealing with mutual business problems.’”) (citation omitted).
2. While this Opinion concerns trade associations, the principles addressed here may apply to other types of organizations. See Rule 1.13.
3. Information obtained from a member while the lawyer is acting for the trade association is protected by the attorney-client privilege and subject to the confidentiality requirements of Rule 1.6; however, it is the trade association that holds the privilege, not the member. Comment [3] to Rule 1.13; D.C. Bar Ethics Op. No. 269. As described below, however, a situation may arise where the member, through the lawyer’s “act or omission”, has a reasonable belief that it was being represented individually by the lawyer, in which case the confidentiality requirements of Rule 1.6 protect the member’s communications as well as the trade association’s. See D.C. Bar Ethics Op. No. 269 n.6.
4. If the firm’s representation of the trade association has concluded when the hypothetical new matter is presented, such that the association is a former client, Rule 1.9 would control:
  A lawyer who has formerly represented a client in a matter shall not thereafter represent another person in the same or a substantially related matter in which that person’s interests are materially adverse to the interests of the former client unless the former client consents after consultation.
5. Rule 1.7(c) permits representation to go forward despite a conflict “if each potentially affected client provides consent to such representation after full disclosure of the existence and nature of the possible conflict and the possible adverse consequences of such representation.” Comment [19] to Rule 1.7 sets forth the requirements for disclosure:
  Adequate disclosure requires such disclosure of the parties and their interests and positions as to enable each potential client to make a fully informed decision as to whether to proceed with the contemplated representation. . . . Full disclosure also requires that clients be made aware of the possible extra expense, inconvenience, and other disadvantages that may arise if an actual conflict of position should later arise and the lawyer be required to terminate the representation.
  The Terminology section of the Rules defines “consent” as “a client’s uncoerced assent to a proposed course of action, following consultation with the lawyer regarding the matter in question.”
6. Glueck and other cases refer to the trade association member in such a situation as a “ vicarious” or “derivative” client. As the ABCNY Committee on Professional and Judicial Ethics observed, such names are not helpful to the analysis. ABCNY Ethics Op. 1999-01.
7. For a discussion of the “substantially related” test in this jurisdiction, see Rule 1.9 and Brown v. District of Columbia Bd. of Zoning Adjustment, 486 A.2d 37 (D.C. 1984) (en banc).