Adams Stirling PLC


Corporate Counsel. An association's legal counsel serves as corporate counsel to the the association. The association/corporation is the client, which acts through its board of directors. (Corp. Code § 300(a).) 

Corporations have a separate legal identity and enjoy the benefit of the attorney-client privilege. Evidence Code section 951 defines a "client" as the "person" who "directly or through an authorized representative, consults a lawyer for the purpose of retaining the lawyer ...." The term "person" includes a corporation; indeed, it may  extend to an unincorporated organization "when the organization (rather than its individual members) is the client."  (Smith v. Laguna Sur.)

This is also the position taken by the California State Bar in Rule 3-600(A) of the Rules of Professional Conduct:

In representing an organization, a member shall conform his or her representation to the concept that the client is the organization itself, acting through its highest authorized officer, employee, body, or constituent overseeing the particular engagement.

As a result, even though members pay the attorney's legal fees through their assessments, members do not have the right to call or email the association's attorney with questions. Nor can directors presume the attorney represents them individually:

In representing a corporation, an attorney's client is the corporate entity, not the individual shareholders or directors, and the individual shareholders or directors cannot presume that corporate counsel is protecting their interests. (La Jolla Cove v. Superior Court (2004) 121 Cal.App.4th 773.)

Communications with the Board. For most associations, making the president and the manager the contact points for the attorney is a common sense way of keeping legal expenses under control. Otherwise, allowing five directors to call and talk the ear off the attorney will significantly run up legal fees. Moreover, the attorney may receive conflicting instructions from five directors. Accordingly, most boards designate the president to act as liaison with the attorney so as to avoid conflicting instructions and unnecessary legal fees.

Request for Legal Opinion. The president, however, cannot block requests for legal guidance on issues. If, during a board meeting, a director asks for a legal opinion on an issue and a majority of the directors support that request, the president cannot overrule the request. The director requesting the legal opinion can also vote on his own request.

Director Confidences. If a director shares something with the attorney and tells him/her not to share it with the other directors, the attorney is not obligated to keep it confidential. As corporate counsel to the association, an attorney does not represent individual directors or owners. An association's legal counsel represents the association as a corporate entity.

In representing an organization, a member [attorney] shall conform his or her representation to the concept that the client is the organization itself, acting through its highest authorized officer, employee, body, or constituent overseeing the particular engagement. (State Bar Rules of Professional Conduct; Rule 3-600(A).)

When a director starts a conversation with "I have something confidential to tell you that cannot be shared with the other directors," legal counsel should stop them and explain their obligation to the corporation that may require the attorney to share the information with the board. At that point, the director can decide whether to proceed.

No Right to Inspect. Because communications, i.e., letters, emails, etc., between the board and legal counsel are privileged, members do not have the right to inspect those communications.

Conflicts of Interest. To avoid conflicts of interest, the association's lawyer does not represent individual directors or homeowners or the management company. If a dispute erupted between the association and the management company, the attorney would have to recuse him/herself from representing either client. As legal counsel to an association, a lawyer should never represent other persons or entities that could have conflicting interests with the association. When hiring legal counsel to represent the association, boards should ask if they represent management companies. If the attorney does, he/she will likely put the management company's interests ahead of the association's. Boards should drop that attorney from consideration.

Business Judgment. A good HOA attorney will always tell directors what they need to hear, not what they want to hear. Some legal opinions are crystal clear, “No, you can’t do that!” Or, “If you want to call a meeting, here is what the law requires.” Many times, however, boards are presented with options–Option A or Option B (and sometimes, Option C). The board must then weigh the risks and rewards of each and make a business decision. The attorney might recommend Option A. But, because they are all viable options, the board might weigh factors differently and choose Option C. Directors are protected from personal liability if they follow the Business Judgment Rule.

ASSISTANCE: Associations needing legal assistance can contact us. To stay current with issues affecting community associations, subscribe to the Davis-Stirling Newsletter.

Adams Stirling PLC