ACC Files Amicus Over Confidentiality for Nonprofits

ACC Position: 

Although the case caption is under seal, certain portions of the parties’ briefs have been made public and the defendant is a nonprofit corporation that is organized for charitable purposes and tax-exempt pursuant to Section 501(c)(3) of the Internal Revenue Code. The AG is asserting that counsel for nonprofit corporations have a right, if not duty, to disclose information gained from their client to the AG as a result of the AG’s parens patriae authority to act on behalf of the public, which is seen as the beneficiary of nonprofit corporations in the state. If the AG’s position is accepted, attorneys for nonprofit corporations would be permitted, if not required, to share their clients’ confidences and secrets – including but not limited to privileged information – with the AG’s office. The Commonwealth Court rejected the AG’s position, but the Pennsylvania Supreme Court granted permission to hear an appeal on the issue. ACC filed an amicus brief urging the Supreme Court to affirm the lower court’s ruling.

ACC argues the Pennsylvania Supreme Court should affirm the lower court’s ruling that counsel for nonprofit corporations are prohibited from revealing information about their clients without their clients’ consent to the AG. To protect the trust and confidence that is the cornerstone of the attorney-client relationship, Pennsylvania’s professional ethics rules flatly prohibit counsel from revealing information about their clients except in narrow circumstances not present in this case.

The AG’s reliance on the special fiduciary rules applicable in the trust context is misplaced. The fiduciary exception is an exception to the attorney-client privilege. It has no bearing on the broader professional ethics rules that expressly apply to counsel for all organizational entities – whether public or private, for-profit or nonprofit. There is no basis in law or policy for granting counsel for nonprofit corporations a special exemption from these rules. Just like for-profit corporations, nonprofit corporations need to be able to trust and rely on their attorneys in order to comply with the array of complex laws and regulations governing their actions. Permitting counsel for nonprofit corporations to unilaterally expose their clients’ confidences and secrets to the government would significantly undermine the client-attorney relationship and jeopardize the ability of counsel – both in-house and outside – to provide the legal advice necessary to guide their clients’ behavior and promote compliance with the law.

While the AG possesses parens patriae authority to investigate the administration of nonprofit organizations, it can and must obtain relevant information through the normal discovery channels. The AG should not be permitted to go behind the back of organizations – whether for-profit or nonprofit – and obtain information from counsel in breach of the strict duty of confidentiality imposed by the professional ethics rules.

Click here to view the brief.