The Law for Lawyers Today

The Law for Lawyers Today

Ethics, Professional Responsibility and More

Former GC wins $8 million; SOX pre-empted state ethics rule on client confidentiality

Posted in Confidentiality, In-house Counsel, Privilege

Whistle BlowerA whistle-blowing general counsel won an $8 million federal jury verdict earlier this month, in a case that might encourage other GC’s to call out corporate wrongdoing.

Compensatory and punitive damages

After deliberating only three hours, the jury in Wadler v. Bio-Rad found that the GC had a reasonable basis for reporting his suspicions about the company’s Chinese sales operations to the organization’s audit team.

The GC’s allegations prompted an internal investigation by outside counsel, which concluded that the sales team had not violated the Foreign Corrupt Practices Act.

But the jury found that the company had retaliated against the GC by firing him after the report, in violation of the Sarbanes-Oxley Act, and that absent the report, he would not have been terminated for legitimate reasons.

The award to the GC included $5 million in punitive damages.  Speaking to Law360 (subs. req.), the GC’s lawyer attributed the punitive damages to the company  CEO’s creation of a back-dated negative performance review; computer metadata proved that the review hadn’t been created until after the GC had been fired.

Does SOX protection trump company’s privilege?

Judgment on the jury verdict was entered on February 10.  It will almost certainly be the subject of post-trial motions and possibly an appeal.

But the verdict stands out as a rare trial win for a GC in a whistle-blower case based on retaliatory firing.  Such suits have often been foreclosed before trial because of restrictions on a company lawyer’s ability to use confidential information of the employer in proving the GC’s case.

For example, in 2013, the Second Circuit affirmed dismissal of a GC’s whistle-blower suit brought under the federal False Claims Act, holding that the allegations relied on privileged information that could not be disclosed, and that the FCA did not preempt New York state ethics rules on confidentiality.

In the Bio-Rad case, however, the federal magistrate judge found at the end of 2016 that the whistle-blower protections of SOX trumped the company’s attorney-client privilege, and turned back the company’s motion to preclude use of privileged information at trial.

The GC’s ability to use this information as evidence arguably spelled the difference here.

Key factors in the magistrate judge’s ruling:

  • as a federal claim asserted under SOX,  the federal common law of privilege applied; that took the case outside the scope of the California Supreme Court’s 1994 ruling in General Dynamics Corp. v. Superior Court, which had limited retaliatory discharge claims to those that could be established without breaching the attorney-client privilege;
  • the text and structure of SOX doesn’t indicate that in-house lawyers aren’t protected from retaliation, and SOX § 1514(A)(b) and particularly the SEC’s final rule (17 C.F.R. § 205) preempts the California state ethics rule on client confidentiality;
  • Model Rule 1.6 is the guiding standard, which — unlike the California state rule — permits a lawyer to reveal information relating to the representation of a client to the extent the lawyer reasonably believes necessary to establish the lawyer’s claim in a controversy between the lawyer and the client; and
  • Bio-Rad made so many disclosures to the SEC, the DOJ and the DOL during the course of previous investigations and administrative proceedings, and to the court in the pre-trial phase of the case, that the company waived the privilege as to many communications.

The SEC had filed an amicus brief during the briefing on the company’s motion to exclude, supporting the position that the magistrate judge took — that SOX trumps state legal ethics rules regarding client confidentiality.

Trend or outlier?

Whether the Bio-Rad case will be upheld, and whether it is a trend or an outlier, remain to be seen.  But in the short run, it may encourage other GC’s to blow the whistle.

How far does DQ extend? NY appeals court says not that far, reinstating co-counsel

Posted in Conflicts, Disqualification

Viral marketing conceptWhen a conflict of interest crops up during a case, Ethics 101 tells us that the “taint” of that conflict can spread, and potentially disqualify all the lawyers of the affected firm.  Model Rule 1.10, “Imputation of Conflicts” explains the rule.  But how far does that disqualification go?  A New York appeals court examined this question in December, and reversed a DQ order in a personal injury suit.

“Associated in a firm”?

In Kelly v. Paulsen, the firm (“HHK”) represented two plaintiffs who had been injured in a motorcycle accident allegedly caused by the defendant.  HHK filed suit on plaintiffs’ behalf in 2009.  Four years later, a sole practitioner joined the plaintiffs’ team as co-counsel.  Very shortly before trial in 2015, the defendant learned — allegedly for the first time — that HHK was representing plaintiffs.  On the first day of trial, the defendant moved to disqualify HHK because the firm had also represented the defendant in “personal and business matters” for the previous 30 years.  (The court didn’t explain these somewhat singular facts, particularly how a party doesn’t learn the identity of opposing counsel’s firm for six years while a suit is pending.)

Based on the conflict, HHK withdrew, leaving the solo as plaintiffs’ only lawyer.  Defendant then moved to disqualify the solo as well, and the trial court granted the motion.  On appeal, the Third Department reversed.

The court of appeals said that New York’s Rule 1.10(a) (like the Model Rule), bars lawyers who are “associated in a firm” from representing a client when a conflict of interest would preclude any one of them from doing so if the lawyer were practicing alone.

This imputation rule thus has the potential for spreading the “taint” (a word courts often use) of the primarily-disqualified lawyer to others.

Although the Rules don’t define the phrase “associated in a firm,” the court in Kelly found that the well-established meaning extends beyond partners and associates who are employed in the same firm — it also can include “of counsel” relationships, for instance.

Nonetheless, the court wrote, “not every lawyer who has any connection or relationship with a firm is considered to be ‘associated’ with that firm” for conflicts and imputation purposes.  The question requires a factual analysis, and turns on whether the lawyer’s relationship with the firm is “sufficiently close, regular and personal.”

More like a contract lawyer

Here, the facts showed that the solo had his own separate office, didn’t receive any support services from HHK, and HHK didn’t “supervise” his work.  The key factor, however, was that the solo averred that he never had access to any HHK files except plaintiffs’, never represented the defendant, was not aware of him or his business affairs before the motorcycle case, and never got any confidential information about the defendant from HHK or had access to such information.

The defendant argued that HHK had “undeniably shared” his confidential information with the solo practitioner, based on plaintiffs’ demand for a high settlement figure.  Defendant said the demand indicated that the solo had received confidential information about his finances.  But the court viewed that argument as mere speculation.

The solo’s role here, said the court, is “more akin to that of a contract lawyer” who gets a case referral and works from his or her own office as co-counsel.  The court noted a 1999 New York ethics opinion that such a contract lawyer is not “associated” with the employing firm for conflicts purposes, and analogized that principle to the solo lawyer.

Key:  sharing confidential information

There are a number of courts that, like Kelly, have held that taint doesn’t affect co-counsel, at least where there is no showing that co-counsel received confidential information about the party moving to disqualify.  The always-excellent Freivogel on Conflicts collects the cases.  But there are still decisions that go the other way, too.  See, e.g., j2 Global Communications Inc. v. Captaris Inc., (C.D. Cal. 2012) (imputing “outside in-house counsel’s” disqualification to firm).  Bottom line:  while information-sharing remains key, this is a fact-specific area, and it pays to be aware of nuances that can vary the outcome.

For the first time, court requires “litigation funders” to be disclosed — but only in class actions

Posted in Fees

Money and gavelOn January 26, the U.S. District Court for the Northern District of California became the first court to mandate disclosure of litigation funding that parties in class actions receive from outside sources, under a revision to the court’s standing order applicable to all cases.  The rule provides that “in any proposed class, collective or representative action, the required disclosure includes any person or entity that is funding the prosecution of any claim or counterclaim.”

Final rule — more “funder friendly”

The final rule is more limited than an earlier draft, which would have expressly mentioned “litigation funders,” and required their identification in the first appearance in all civil proceedings.

The court’s request for comments on the earlier draft, during summer 2016, drew input from two large litigation funders.  The CEO of Burford Capital, which calls itself “the largest provider of strategic capital to the legal market,” criticized the earlier draft proposal as “unnecessary and discriminatory” in a comment he filed in July.  He told Law360 (subs. req.) that Burford was happy with the district court’s “incremental approach” to disclosure reflected in the final rule.

Another litigation funder, Bentham IMF, based in Australia, also commented this past summer on the earlier draft rule, expressing concern that it would open up wasteful “discovery sideshows,” intrude on attorney-client privilege and “give defendants in all cases the unprecedented and unintended advantage of knowing which claimants lack the resources to weather a lengthy litigation campaign.”

The U.S. Chamber of Commerce has supported disclosure of litigation funding, and told Law360 that the rule would force law suit investors out of the shadows, where they shouldn’t be allowed to control litigation, especially in class actions.

A growing segment — but is it champerty?

In its comments, Burford said that commercial litigation funding is in its infancy in the U.S., and that fewer than 75 cases in federal district court involve such funders each year.  That limited figure would appear to exclude the many other forms of third-party funding available to plaintiffs and investors.   And the market for litigation investing is lucrative and growing, according to Forbes, which headlined a story last year “The next great investment idea:  Somebody else’s lawsuit?”

Which raises the question — do law schools need to start teaching the law of champerty and maintenance again?  If you’ve never heard of the doctrines, here’s a 2003 explanation from the Ohio Supreme Court:

The doctrines of champerty and maintenance were developed at common law to prevent officious intermeddlers from stirring up strife and contention by vexatious and speculative litigation which would disturb the peace of society, lead to corrupt practices, and prevent the remedial process of the law.

The modern trend has been away from applying these old doctrines (which some jurisdictions codify by statute) to third-party funding agreements, as exemplified by a Delaware trial court decision last summer, involving Burford Capital.  And the 2003 Ohio ruling, which voided a contract as champerty and maintenance, was later abrogated by statute.

Some courts, however, are sticking to the champerty analysis.  For instance, a recent decision of the Pennsylvania court of appeals held that “champerty remains a viable defense in Pennsylvania,” invalidating a third-party funding agreement between plaintiff’s lawyer and the funder.  New York’s highest court this fall likewise interpreted a litigation funding transaction to be a sham attempt to evade the state’s champerty statute.

Trendline to watch

It will be interesting to watch the trend toward a growing litigation funding marketplace as it meets up with a possible push for more disclosure and a potential resurgence in champerty jurisprudence.  Stay tuned.

Digital dilemma: Who owns litigation database when partners leave a firm?

Posted in Law firm break-ups, Law Practice Management

digital archiveA high-profile duel over rights to legal databases is playing out in state court in Boston.  The warring parties are six former partners and the asbestos defense firm they left, allegedly taking with them high-value file-management and other databases.  The firm’s suit, filed in November, raises the question:  When partners leave, does a database that includes client information belong to the clients they take with them?  Or to the old firm, which says it has invested heavily in developing the proprietary database?

Digital age departures

Model Rule 5.6(a), adopted by Massachusetts and most other jurisdictions, makes client choice the paramount concern when lawyers move from firm to firm, prohibiting any agreement that restricts the right of the migrating lawyers to practice.  Model Rule 1.16 also protects a client’s right to their file when the representation terminates, thus limiting the right of the old firm to “lock up” the file, and protecting the right of the departing lawyers to take files and service clients at their new firm.   And Massachusetts’ version of Rule 1.16 enlarges on that concept, with an expansive and detailed list of file items that “belong” to the client.

But where does a custom-developed digital database fall under an ethics rule analysis?  Firms can invest heavily in developing such specialty management tools.  Does the principle of client choice mean that departing lawyers can walk away with such a valuable asset and use it to service those clients in their new practice?

Database dispute

As reported in the ABA Journal, the Boston Globe and the Boston Business Journal, the Governo Law Firm asserts in a  complaint filed in Suffolk County Superior Court that the six former partners had been negotiating to buy the firm.  Included in the discussions were the databases, which Governo alleges it developed as a proprietary system, and which it says contains information about billing, expert witnesses, client correspondence, court rulings and asbestos litigation literature.

The Boston Business Journal describes the Governo firm as “a small firm that has built a national profile defending companies accused of exposing workers and consumers to asbestos.”

According to the complaint, before abruptly ending the sale discussions and leaving, one of the former partners had copies of the databases downloaded to her own computer.  The six partners allegedly took more than half of Governo’s business with them; the complaint asserts claims for misappropriation of trade secrets, interference with contractual relationships and civil conspiracy.

The former partners opened their new firm on December 1, and are asserting that the database information belongs to the clients who came with them, and who were billed for the work connected to the databases.

On January 11, the Suffolk County Superior Court in Boston denied the Governo firm’s motion for preliminary injunction, ruling that the record was too undeveloped to determine whether the databases belong to the Governo firm, or to the clients who moved their business to the new firm.  A scheduling conference is set for Feb. 14.

The Boston Globe reported that the case is being carefully watched, for its potential to make law on “leaving a law firm in the digital age.”

Watch your P’s and Q’s

In denying injunctive relief, the judge reportedly assessed evidence from both sides on the ownership of the database material, but found it insufficient to decide.  That would appear to be a sound call, since determinations in this area can be very fact-specific.  Key factors might be whether the firm used its own funds to develop the data base, or if those development costs were passed on to clients.  In the latter case, an argument could be made that the clients charged for  creation of the database should have a continuing right to have the lawyers use it at their new firm.

Whether you are a firm manager or a lawyer thinking about leaving your firm for greener pastures, this is an area where it pays to check your jurisdiction’s rules and ethics opinions before acting.  As we’ve noted before, some states regulate the departure process by rule, and others have guidance on notice, client files and more, in their ethics opinions.  The law also continues to develop on law partnership agreements that try to bring some certainty to this potentially contentious aspect of legal practice.  We’ll continue to keep you posted.

Lawyers and marijuana: disciplinary cases on personal use highlight issues

Posted in Marijuana

Marijuana pileWe’ve written before about the intersection of legal ethics and marijuana, focusing on counseling business clients in the marijuana space.  But two recent disciplinary cases caught my eye, each involving a lawyer’s personal marijuana use, and they highlight interesting issues.

Fitness to practice?

The first case involves an Illinois-licensed lawyer who lived in both Michigan and Illinois, and although the case is still at the pleading stage, it raises the question of what kind of criminal conduct reflects adversely on a lawyer’s honesty, trustworthiness or fitness to practice, so as to violate Model Rule 8.4(b).

Under Michigan law, the lawyer was a “qualifying patient” and therefore able to legally possess 2.5 ounces of marijuana for medicinal purposes.  The lawyer’s girlfriend was licensed as the lawyer’s “primary caregiver” under the same law, and therefore she was allowed to possess up to five ounces of marijuana and grow up to 24 marijuana plants.

In his answer to a complaint filed by the Illinois disciplinary commission, the lawyer did not contest:  that from June 2012 to December 2013, his girlfriend grew more than 24 plants in the garage of the rented home they maintained in Michigan; that she also manufactured marijuana products and sold them to third parties; and that he had knowledge of her manufacture and sale of marijuana and provided “informational and financial assistance” to her operation.

According to the Commission’s complaint, law enforcement’s search of the Michigan garage found more than 100 marijuana plants.  In his answer, the lawyer denied that he knew of his girlfriend’s expanded grow operation before then.

The lawyer initially pled guilty to conspiracy to manufacture marijuana and was placed on deferred probation, which he completed; he then pled to a misdemeanor charge for maintaining a drug house, and the conspiracy charge was dismissed.

In the widely-read Legal Profession Blog, this case was headlined “Does Growing More Marijuana Plants than Permitted for Lawful Medical Use Reflect Adversely on Fitness?”  A knee-jerk answer would be, “Well, yes, because Rule 8.4(b) is violated whenever a lawyer commits a crime.”  But the comments to the Rules invite a more searching analysis.  Comment [2] notes that

Many kinds of illegal conduct reflect adversely on fitness to practice law, such as offenses involving fraud … However some kinds of offenses carry no such implication… Although a lawyer is personally answerable to the entire criminal law, a lawyer should be professionally answerable only for offenses that indicate lack of those characteristics relevant to law practice.

Examples of offenses indicating such a lack:  those involving “violence, dishonesty, breach of trust, or serious interference with the administration of justice.”

The disciplinary complaint charges that the lawyer’s criminal offenses violated Rule 8.4(b); the lawyer neither admitted nor denied the legal conclusion.  So — the issue has been joined, and it is one that will likely come up with increasing frequency as state-legalized medical and even state-legalized recreational marijuana use spreads.

Legal services in exchange for marijuana

The second disciplinary case involves a Louisiana lawyer charged with trading legal services for marijuana.  As described in the state supreme court’s opinion, a confidential informant told the sheriff’s office that she had paid her lawyer with dope on previous occasions, and he had told her that if she needed more legal help in the future, they could work out the “same old same old,” meaning payment in marijuana, or in drugs plus cash.

A sting was set up, in which the client-turned-informant told the lawyer she needed his help with criminal charges against her son, and that she had a “crap load of smoke” and a “backpack full of marijuana.”  They met in a car, under police surveillance, and bargained over the amount of an additional cash payment.  The lawyer then asked about “the other thing.  [T]hat’s what I am most concerned about.”  The client handed over a backpack with a half-pound of marijuana, worth $2,500, plus some marked cash.

Shortly after that, in front of his law office, law enforcement pulled the lawyer over for a traffic violation and arrested him.

Two weeks later, after news stories circulated about the incident, the lawyer self-reported his arrest to disciplinary authorities, and went into rehab.  He was diagnosed with alcohol and cannabis dependence and unresolved grief and depression stemming from his father’s death two years earlier.  He testified that the arrest was the best thing that could have happened to him, because he was finally forced to confront his addictions and get sober.

The interesting thing about this case is the disciplinary outcome on the charge of violating Louisiana’s version of Model Rule 8.4(b).  The lawyer admitted the rule violation, was remorseful, cooperative, and in compliance with a five-year contract with the state lawyer-assistance program, which required AA meetings, drug screens, and monthly sobriety reports to a monitor.  The diagnosis of addiction was not contested.  There was no testimony that the lawyer neglected client matters before or after his arrest.

The initial hearing panel recommended a one-year suspension, fully deferred on condition of no further misconduct.  The review board instead recommended a two-year fully-deferred suspension.

But the court rejected both of these recommendations, and instead issued an actual one-year suspension, with no deferment.  The court wrote that the fact that “respondent bartered his legal services for illegal drugs” “directly implicat[ed] the practice of law and caus[ed] harm to the legal profession.”  The court also found that there was “potential harm to his clients and the public.”

In contrast to the Illinois case, the Louisiana lawyer’s conduct was not just unlawful; the court drew a direct connection between the drugs and the lawyer’s practice, since he admittedly collected his legal fees in marijuana.

In the weeds

Irrespective of the result in the Louisiana case, the take-away from both cases should spotlight the role of lawyer assistance programs when lawyers are struggling with substance abuse issues.  As we’ve noted before, these programs exist all over the country, and as the one in my home jurisdiction of Ohio says, no disciplinary problem is made worse by being involved in a program.

CA Supreme Court rules against “categorical” privilege for public agency legal bills

Posted in Privilege

Folder searchIn late December, a divided California Supreme Court ruled that legal-fee bills in closed cases aren’t necessarily covered by attorney-client privilege.  Although the case involved a discovery demand  sent to a government entity under the state’s  public records act, some lawyers have questioned (sub. req.) how far the privilege limitations might go.

No “categorical” protection

The case arose out of a public-records request from the ACLU of Southern California to the Los Angeles County Board of Supervisors, seeking legal fee invoices that would reveal law firm billings to the county regarding nine lawsuits, each of which alleged the use of excessive force against inmates in the L.A. County jail system.  The ACLU alleged that the county and its outside lawyers were pursuing “scorched earth” tactics in refusing to settle excessive-force cases, and were using taxpayer dollars to do so.

Three of the cases were closed; the county agreed to produce copies of those legal bills.  But as to the six still-pending suits, the county said that they were exempt from the reach of the public records law under the attorney-client privilege exception, because “the detailed description, timing, and amount of attorney work performed … communicates to the client and discloses attorney strategy, tactics and thought process and analysis.”

On dueling writs of mandate, the intermediate state court of appeals found that the invoices were privileged and exempt from disclosure under the public record act.   In a 4-3 vote, the state supreme court reversed.

The high court rejected “categorical protection” for billing records.  Acknowledging that attorney-client privilege “no doubt holds a special place in the law of our state,” the majority wrote that it still only protects communications “made for the purpose of seeking or delivering the attorney’s legal advice or representations.”

Agreeing with the ACLU, the majority opinion said that “while invoices may convey some very general information about the process through which a client obtains legal advice, their purpose is to ensure proper payment for services rendered, not to seek or deliver that attorney’s legal advice or representation.”  Fee bills, the court said, evoke “an arm’s -length transaction between the parties in the market for professional services” more than they do the “discreet conveyance of facts and advice.”

Information in the “heartland”?

What remains privileged in a fee bill, however, said the court, is information that “lies in the heartland of the attorney-client privilege” — namely everything in an invoice on an active and pending legal matter — even when the information is  conveyed in a document, i.e. the  bill,  that is not “categorically privileged.”

The dissenters said that the majority’s ruling undermines a “pillar of our jurisprudence” by adding a “heretofore hidden meaning” to the state privilege statute, by shielding only communications that relate to the provision of legal consultation, even if they were otherwise transmitted confidentially between lawyer and client.

Following the majority’s rule, the dissenters wrote, means that lawyers must explain to their clients that confidential communications that were previously privileged “may be forced into the open by interested parties once the subject litigation has concluded.  If a limiting principle applies to this new rule,” the dissent warned, “it is not perceptible…”

Privilege takeaways

The contents of fee bills have long been subject to attorney-client privilege when they reveal information about strategy, research topics and the like.  As even the majority in this case notes, things like research topics or an uptick in the hours charged can be useful information to litigation opponents.  But as California commentators point out, the case will likely be read as a narrowing of the privilege, and by introducing subjectivity into the test, will possibly encourage discovery forays against the fee bills of opposing counsel.

California lawyer Ellen A. Pansky, quoted in the ABA/BNA Lawyers’ Manual on Professional Conduct, noted that “the case leaves an interesting, unanswered question: What mechanism will courts use to resolve a privilege claim when a party asserts attorney-client privilege to only portions of invoices previously transmitted in a completed prior matter?”  This might be an acute question, because California law seems to be that a court may not compel disclosure of attorney-client communications, even in camera, to rule upon a claim of privilege.

Particularly if you have cases in which California privilege law applies, stay tuned.

How should firms deal with impaired lawyers? Virginia opinion points to duties

Posted in In-house Counsel, Law Practice Management

Alcohol and drugs.The new year heralds a new start.  Many lawyers who struggle with an addiction — alcohol, drugs, gambling, food, sex — use the occasion to resolve to quit their harmful behavior, and there is a nationwide network of confidential bar organizations that can help.  But what are the obligations of a firm where an impaired lawyer works?  A new Virginia ethics opinion has some answers.

Duty to supervise

Every jurisdiction in the U.S. has a version of Model Rule 5.1.  Like Virginia’s rule, it requires partners or other lawyers in a firm who have managerial authority to make reasonable efforts to ensure that all lawyers in the firm conform to lawyer conduct rules.  The Virginia Supreme Court, in Ethics Opinion 1886, easily concluded that this mandates that firm managers and lawyers who simply supervise another lawyer make reasonable efforts to ensure that an impaired lawyer doesn’t violate the ethics rules.

Further, the rule requires preventive action, said the court.  “When a partner or supervising lawyer knows or reasonably believes that a lawyer under their direction and control is impaired,” they must “take reasonable steps to prevent” the impaired lawyer from violating ethics rules.

Steps to take

In dealing with an impaired lawyer, the firm’s first duty is protecting its clients’ interests, but the Virginia opinion (and common sense) suggests a range of responses that depend entirely on the circumstances:

  • Confrontation:  A first step may be confronting the impaired lawyer, and urging the lawyer to accept help.
  • Accommodation:  The firm may be able to work around some impairment situations.  For example, the firm might be able to reduce the impaired lawyer’s workload, require supervision or monitoring, or remove the lawyer from time-sensitive projects.
  • Supervision:  Depending on several factors — nature, severity, likelihood of recurrence — the firm may have an obligation to supervise, monitor or review the work of the impaired lawyer, including a senior lawyer or partner.
  •  Limitation:  Some circumstances will mandate that the firm entirely prevent the lawyer from servicing clients until the lawyer has recovered from the impairment.   In other situations, the firm might be able to protect clients by limiting the lawyer solely to giving advice, or to drafting legal documents for other lawyers.
  • Assistance as a condition of employment:  The Virginia Supreme Court said that firms should have an enforceable policy that requires an impaired lawyer to seek help — counseling, therapy, or treatment — as a condition of continued employment with the firm.
  • Reporting:  It may also be appropriate for the firm itself to confidentially report the impaired lawyer to the lawyer assistance program in that jurisdiction, or to consult with medical professionals for advice.

Not just for firms…

The Virginia ethics opinion focusses on harm prevention, and intentionally does not address the requirement under Model Rule 8.3 to report misconduct that has already occurred.  Also, legal obligations that a firm might have under HIPPA, the FMLA or the ADA, for example, are outside the scope of the opinion.

One important note:  Implicit in Opinion 1886 is that it also applies to lawyers working in-house or in corporate law departments, in government agencies, and in legal aid and legal services organizations — all of them constitute “firms” under Model Rule 1.0(c)‘s definition.

Deeds of loving-kindness

Whether you are a senior associate who supervises a more-junior lawyer, or you are the managing partner of a large firm, you have duties under Rule 5.1 with respect to an impaired lawyer.  We also have duties as human beings — duties that we can sometimes forget in the course of our practices.  Those duties, too, should point us in the direction of compassionate action for the benefit of a colleague suffering from an impairment.

Batting clean-up on 2016: positional conflicts, settlements and your firm letterhead

Posted in Conflicts, How Not to Practice, Law Practice Management

2017 Happy New Year typeYou may have some holiday leftovers lurking in your fridge (potato latkes, Xmas goose, black-eyed peas, New Year’s Eve caviar), and we too have some interesting ethics topics that we didn’t have room for during 2016 — so here’s a potpourri, touching on positional conflicts, coercive settlements and maybe how not to use your firm’s letterhead.

Arguing damage caps, pro and con

The U.S. district court for the Middle District of Tennessee in October turned back a disqualification motion aimed at Butler Snow, ruling that the firm could  continue representing a personal injury plaintiff who was potentially contesting the constitutionality of the state’s punitive damage caps, while at the same time asserting the caps defensively in at least one pending case for another client.

In its DQ motion, the trucking company defendant said those positions were inconsistent and raised a positional conflict in violation of Tennessee’s version of Model Rule 1.7 and its cmt. [24].

Not so, said the district court.  First, the trucking company waited until two months before trial to try to disqualify the law firm; it would cause severe prejudice to the plaintiff if she had to find new counsel.  Second, the firm retained separate counsel to represent the plaintiff on all post-trial issues challenging the damage caps, an arrangement that plaintiff agreed to at the beginning of her representation.  Third, there was no evidence that the potential conflict had actually affected the injury case, or was likely to compromise the firm’s representation of clients who simply asserted the caps to limit their liability rather than expressly defending their constitutionality.

On all these bases, the court held, the firm could stay in the case, part of which has now been settled.

Threat to publicize sexual allegations

In November, an Arizona lawyer who threatened to use press releases to alert the public to sexual allegations in order to obtain a settlement consented to a 30-day suspension.

In 2015 the lawyer filed a federal sexual harassment complaint on behalf of a client.  In a letter to the defendant, he announced he had created a specific website regarding the allegations, and said he would put up a public “shame on you” banner near the defendant’s restaurants.  He also told the defendant that he had scheduled meetings with police and the federal Department of Justice about the alleged hiring of undocumented workers.  In response to a settlement offer, the lawyer told the defendant’s lawyers that he “intended to destroy” the defendant’s businesses.

The judge in the federal case insisted that the lawyer stop his unprofessional behavior; the parties settled; and the state Disciplinary Judge accepted the lawyer’s admission that his conduct violated Arizona’s versions of Model Rules 4.4 (respect for the rights of others) and 8.4(d) (conduct prejudicial to the administration of justice).  The lawyer also agreed to two years probation and to pay costs.

The rules in my home jurisdiction, Ohio, include Rule 1.2(e), a specific prohibition against threatening criminal charges or professional misconduct allegations solely to obtain an advantage in a civil matter.  Interestingly, the Model Rules lack an express prohibition, although this case illustrates that disciplinary authorities can get there via other rules.

Using firm letterhead

Last, here’s a cautionary tale about using your firm letterhead for a personal legal dispute.

According to plaintiffs in a federal complaint filed in November, a Pepper Hamilton partner entered into a lease-to-own deal with a couple for a $750,000 house he owned.  The couple terminated the contract and moved out, and the lawyer claimed that they owed about $10,000.  The lawyer sent a demand letter for the money in September, using the firm’s letterhead.

That drew a suit from the couple against both the lawyer and the law firm for allegedly violating the federal Fair Debt Collection Practices Act.  “Once [the lawyer] sent the Sept. 19 letter … on [the firm’s] letterhead, he was no longer acting as an individual collecting his own debt, but rather a debt collector subject to the FDCPA,” the couple said in their complaint.

It remains to be seen whether that theory will fly — the case docket does not yet reflect any response to the complaint.  But it points to an issue that you should probably think about in your personal dispute before putting a piece of firm stationery in the printer.

What can you say when the client doesn’t pay? ABA opinion gives withdrawal guidance

Posted in Communication, Confidentiality, Law Practice Management

Money and JusticeOld-time lawyers say that it used to be easy to get the court’s permission to withdraw from a case.  You would just go to the judge and state, “Your Honor, we are not ready to go forward, and I am seeking leave to withdraw, because Mr. Green has not arrived.”  You know:  “Mr. Green” aka the moolah, aka the promised fee from the client.  And, so the story goes, the judge would bang the gavel and grant your motion.  (For a variation on the theme, see The Lincoln Lawyer, 2011, starring Matthew McConaughey.)

Such stories may be apocryphal, and whether true or not, hopefully we’ve come a long way in our understanding of the duties we owe clients in seeking to terminate our representation.  When withdrawing requires permission of a tribunal, as it does under most court rules, a continuing ethics quandary has been how much information we are permitted to disclose to the court in justifying the request.  On December 19, the ABA’s Standing Committee on Ethics and Professional Responsibility issued some guidance on the subject.

When you “may withdraw”

Model Rule 1.16(b), and state rules based on it, describe when you “may” withdraw from a representation, including when the client “substantially fails to fulfill an obligation to the lawyer regarding the lawyer’s services,” and the client has been warned that the lawyer will withdraw unless the obligation is fulfilled.  Comment [8] gives the example of a client refusing to abide by an agreement concerning fees or court costs.

In civil litigation, the quandary arises because Model Rule 1.6 requires the lawyer to maintain confidentiality about everything “relating to the representation,” with only narrow exceptions, and Rule 1.16(c) requires the lawyer to comply with a tribunal’s rules in seeking to withdraw.

You have to phrase your withdrawal request to the tribunal in some way — but  how far can you go in revealing the reason?  In Formal Opinion 476, the ABA Committee acknowledged the difficulty, quoting one characterization of the issue as a “procedural problem that has no fully satisfactory solution.”

Will “professional considerations” suffice?

The ABA Committee noted that many courts will simply accept a reference to “professional considerations” that are prompting the motion to withdraw.  (Sounds just a little like “Mr. Green.”)  Rule 1.16 cmt. [3] endorses that approach, advising that the “statement that professional considerations require termination of the representation ordinarily should be accepted [by the court] as sufficient.”

But some courts won’t accept “professional considerations” as sufficient.  The Committee cited withdrawal decisions from several jurisdictions that reflected details about the money owed by the client, the specific legal services carried out and other facts, indicating that the court had required much more than a generic statement from the lawyer about “professional considerations.”

The Committee pointed out that Model Rule 1.6(b)(5) and its cmt. [11] permit some disclosure of confidential client information in fee-collection suits by lawyers.  A motion to withdraw for failure to pay is “generally grounded in the same basic right of a lawyer to be paid pursuant to the terms of a fee agreement,” said the Committee.  Also, many court rules specify that motions to withdraw must be supported by “facts,” or “satisfactory reasons,” or similar showings.

Limit the info … but explain if required

Therefore, the Committee concluded, where the assertion that “professional considerations” justify withdrawal is not acceptable, and “when a judge has sought additional information” to support the motion to withdraw for non-payment, then the lawyer may “disclose information regarding the representation of the client that is limited to the extent reasonably necessary to respond to the court’s inquiry and in support of that motion to withdraw.”

What about the judicial officers considering such motions?  The Committee advised that judges “should not require the disclosure of confidential client information without considering whether such information is necessary to reach a sound decision on the motion.”  And if detailed information is required, courts should mitigate potential harm to the client, such as by allowing disclosure under seal or in camera, and by using redaction.

There will always be a tension between the duty of confidentiality and the necessity of providing reasons for a request to withdraw from representation. But Opinion 476 at least charts a path forward when facing the need to withdraw because of a client’s failure to pay.

Data breach report says BigLaw is most likely to be hit, and cybersecurity complaint is unsealed

Posted in Social Media and Internet

scientific_CloudComputing45Law firm cybersecurity is in the news again with two developments.  First, the latest ABA TechReport says that large law firms were more likely to be victims of a data security breach last year than mid-size or small firms, with one in seven respondents having been hit overall.  That’s a big deal.  Next, a federal class action complaint in what is thought to be the first suit attempting to base liability solely on a U.S. law firm’s allegedly inadequate cybersecurity was unsealed on December 9.  But that suit possibly turns out not to be such a big deal.

BigLaw take warning

As reported in Law360 (subs. req.), the 2016 ABA Legal Technology Survey collected responses from 800 ABA members, and it showed that 26% of firms with more than 500 lawyers had experienced a security breach.  That contrasts with about 15% of firms with 50-99 lawyers, and 20% of firms with 100-499 lawyers.  Only 8% of solos said they’d had a breach.

A possible explanation of the data may be what Willie Sutton said about why he robbed banks:  that’s where the money is.  Large and mid-size firms can be treasure troves for hackers looking to gain access to client info on deals and other financial activity, and law firms can provide “back door” access to the data of financial institution clients.  With more lawyers and more staff, larger firms also have more chances to suffer from human error.

The good news there, according to the survey, is that only 2% of respondents reported that hacking resulted in unauthorized access to client data.

Failure to secure data?

On the litigation front, a class action complaint was unsealed against Chicago-based firm Johnson & Bell Ltd., brought by former clients who asserted that the firm’s “computer systems suffer from critical vulnerabilities in its internet-accessible web services.”  Plaintiffs also alleged that client confidential information “has been exposed,” and identified the firm’s time-charge system, e-mail server and virtual private network as vulnerable to cyber-attack.

However, the plaintiffs never alleged that any actual breach has occurred, and the firm moved to dismiss the claims.  Potential vulnerability is not actionable, Johnson & Bell said in its motion — otherwise “every lawyer who carries a briefcase, takes notes in court or in a deposition … could be subject to being named in a class action lawsuit, because in each instance a client’s confidential information was ‘exposed’ or ‘vulnerable.'”

Counsel for plaintiffs in the suit is Jay Edelson, who has litigated successfully on behalf of consumers against businesses where actual breaches have occurred.

Although expansion of liability against law firms where no actual cyber-breach is alleged would be a  scary development, the possibility has fizzled for the moment.  As detailed in the district court’s opinion, the plaintiffs acknowledged that the time-tracking system vulnerability was  remedied shortly after the complaint was filed, and plaintiffs voluntarily dismissed their class action complaint in order to pursue arbitration under a provision of their retainer agreement with the firm.

Lawyer training = ounce of prevention

Law firm data vulnerability consists of at least two factors — technology and humans.  As we’ve pointed out before, a good way to address the human factor is with plenty of lawyer training, because we seem to be particularly prone to falling for scams and clicking before we think.  As for the technological factor, staying ahead of the bad guys is always going to be a game of Whack-a-Mole, which law firms will be striving to win.

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