Protecting Attorney-Client Confidentiality in Association Relationships.

Most associations maintain a relationship with an attorney. The relationship may be continual and frequent or it may be episodic and occasional. Either way, there are times when an association's employed executives, volunteer leaders, or members may communicate in confidence with the association's attorney and expect that their communication will not be disclosed, especially to adverse parties. In fact, the circumstances in which that confidentiality--known as the attorney-client privilege--can safely be depended upon are fairly narrow. Association executives, volunteers, and members should recognize the limitations of the attorney-client privilege in the context of nonprofit organizations.

A basic and longstanding principle in American law is that an adverse party cannot force an attorney or the attorney's client to divulge confidential information shared between the attorney and client in the course of the attorney's representation of the client. This principle protects the attorney and the client from having to reveal their private communication to others, such as in a government investigation or during the discovery process in civil litigation. This same principle, of course, applies to communication with priests in a confessional, with doctors in the course of treatment, and so forth. When the client of the attorney is a person or a small group of people, deciding who is protected by the privilege is easy. But when the client is an entity, such as a business or a nonprofit organization, things get more complicated.

In order for a communication to be protected under the attorney-client privilege, the communication must be between a lawyer (whether an in-house employed lawyer or an outside retained one) and a client, with both acting in those respective capacities; and the communication must be made in confidence. In the business or nonprofit corporation context, the "client" is an entity. Legal information may need to be disseminated to various individuals within or around the entity.

General applicability of the privilege

Courts have used two separate tests to determine which individuals acting on behalf of an entity are covered by the attorney-client privilege.

Control group test. Some courts use a "control group" test that allows only those individuals who personify the entity, through their managerial or advisory capacities and their power to respond authoritatively to the advice of the entity's lawyer, to assert the privilege. For example, in Upjohn Co. v. United States, 449 U.S. 383, 389-97 (1981), the court asked the question: Is the individual making the communication in a position to control, or even to take a substantial role in, a decision about any action which the entity might take based on the advice of an attorney? If so the individual is said to personify the entity and the privilege would apply to protect from disclosure the confidential communication between that individual and the entity's attorney.

Subject matter test. Other courts, including the U.S. Supreme Court, do not follow this control group test and have adopted a subject matter test. Here the court focuses on the nature of the subject matter sought by a third party in an adversary proceeding--such as a government investigation or private civil lawsuit--and requires a finding that the subject matter embodies the type of information intended to fall within the privilege. Communication is protected from disclosure under this test if 1) the communication was made specifically in seeking or providing legal advice, 2) the communication relates to the legal advice, and 3) the communication is disclosed within the entity only on a need-to-know basis.

Specific applicability to associations

The legal precedents suggest that there is no difference in the applicability of the attorney-client privilege between business entities and nonprofit organization entities.

Communication between members of an association and the association's attorney can sometimes be covered under the attorney-client privilege if the conditions of the privilege are met. In two cases--United States v. American Radiator & Standard Sanitary Corp., 278 F. Supp. 608 (W.D. Pa. 1967) and Schwartz v. Broadcast Music, Inc., 16 F.R.D. 31 (D.C.N.Y. 1954)--the court held that "each individual member" of an association was seeking and receiving specific legal advice and could in those circumstances be considered an individual client of the association's lawyer. Each was thus protected by the privilege.

More common, however, are the circumstances of a homeowners association that represented member property owners in an action seeking damages for faulty construction. In Wardleigh v. Nevada, 891 P. 2d 1180, 1184 (Nev. 1995), the members invoked the attorney-client privilege to bar discovery of communication between homeowners and the association's attorney. The court held that "the homeowners are analogous to corporate shareholders, and the Association and its members must therefore be treated like a corporation and shareholders, respectively, for purposes of evaluating the attorney-client privilege."

By applying the control group test to this particular case, the court determined that, like corporate shareholders, these homeowners were not in a position to control, or even to take a substantial role in, a decision about any action that the association might take based on the attorney's advice. Using this argument, the court thus concluded that the homeowners' various communications with the association's attorney were not protected under the attorney-client privilege.

Protecting confidentiality

In summary, it is important for association employees, volunteer leaders, and members to keep in mind that the attorney-client privilege only extends to the communication made in confidence with the association's in-house or retained attorneys under certain circumstances.

1. Under the control group test, association employees, volunteers, and members must personify the association; that is, the individuals claiming attorney-client privilege are in a position to control, or at least to take a substantial role in, a decision about any possible action that the association might take based on the advice of the attorneys.

2. Under the subject matter test, the association employees, volunteers, and members must be communicating with the association's in-house or retained attorneys about relevant legal issues with the specific purpose of obtaining legal advice.

Jerald A. Jacobs is a partner in the law firm of Shaw Pittman in Washington, D.C., and is general counsel to ASAE.