The Law for Lawyers Today

The Law for Lawyers Today

Ethics, Professional Responsibility and More

Lack of vitamin-D didn’t mitigate intentional, habitual non-compliance with discovery requests

Posted in How Not to Practice

A stack of files with a magnifying glass beside themYou may not realize it, but under your jurisdiction’s version of Model Rule 3.4(d) you have an ethics duty to make reasonably diligent efforts to comply with legally proper discovery requests.  Interpreting a wrinkle in Ohio’s version of the rule, the state supreme court held earlier this month that a violation requires “intentionally or habitually” flouting the requirement — and in an odd twist, the court held that a claimed vitamin-D deficiency didn’t excuse a Dayton lawyer’s failure to comply.

Discovery duties under the ethics rules

Ohio’s Rule 3.4(d), unlike it’s Model Rule counterpart, provides that a lawyer “shall not … in pretrial procedure, intentionally or habitually make a frivolous motion or discovery request or fail to make reasonably diligent effort [sic] to comply with a legally proper discovery request by an opposing party.”  The Model Rule does not include the “intentionally or habitually” language.

The Ohio disciplinary case centered on an administrative appeal the lawyer filed in 2012 on behalf of a client seeking workers’ compensation benefits.  The appeal was lodged with the county court of common pleas.  The lawyer failed to comply with discovery requests, and failed to respond to the employers ensuing motion to compel.  Nor did he appear for the hearing on that motion.  The court ordered the lawyer to respond to the requests within 5 days or the case would be dismissed, and eventually imposed $5,980 in sanctions.  The lawyer failed to submit complete responses and the case was dismissed with prejudice.  The lawyer tried to appeal that order, but didn’t file a timely notice of appeal, resulting in the appeal’s dismissal.  The lawyer also failed to pay the court-ordered sanctions, including bouncing a check for a partial payment.

Which rule:  series qualifier or last antecedent?

The Ohio Supreme Court had to decide for the first time whether the phrase “intentionally or habitually” qualified both “frivolous motion” requests and failing to make “diligent effort to comply,” or whether the phrase only applied to the first clause that follows it.  Statutory construction geeks call these opposing canons of interpretation the “series qualifier” rule and the “last antecedent” rule respectively, and choosing which rule applies can drastically affect the outcome of cases.

The court decided without any deep analysis that the words “intentionally or habitually” “serve to modify each clause separately and not just the first clause.”  Therefore, to violate the second clause of Ohio’s Rule 3.4(d), a lawyer must intentionally or habitually fail to make reasonably diligent efforts to comply with legally proper discovery requests.

The court easily held that the conduct of the lawyer here violated the rule.

Did Vitamin D deficiency doom diligent discovery?

The lawyer argued that he didn’t receive proper mitigating credit for a personal-health issue that he was experiencing at the time of the misconduct — namely an alleged vitamin-D deficiency “that led to absentmindedness,” and that his own testimony about his condition should have been sufficient to prove mitigation.  The court held that the Ohio Rules for the Government of the Bar set a much higher standard than that, requiring, among other things, a diagnosis by a qualified health-care professional, and a determination that the disorder contributed to the cause of the misconduct.

The outcome:  an 18-month suspension, with six months stayed on condition that the lawyer pay the sanctions previously ordered.

Take-home lesson

Even if your jurisdiction’s ethics rules don’t have the “intentionally or habitually” language, it’s worth remembering that your discovery duties aren’t founded solely on the rules of civil or criminal procedure:  ethics rules also apply.  And by the way, you should get plenty of the Sunshine Vitamin, too.

Lawyer must reveal co-counsel’s error to client if it could raise malpractice claim

Posted in Communication, Conflicts, How Not to Practice, Malpractice

Let's talkWhat should you do when you are co-counsel on a case or in a deal, and you become aware that the other lawyer has made an error?  A new ethics opinion from the New York State Bar Association says that if you reasonably believe that your co-counsel has committed a significant error or omission that may give rise to a malpractice claim, you must disclose the information to the client.

Discovery slip-up

Ethics Opinion 1092 was based on an inquiry received from a lawyer with a dilemma.  The lawyer had been brought into a case as co-counsel on the eve of trial, and found that the other lawyer had done virtually no discovery, and had not made any document requests — despite the fact that communications and e-mails between the parties would be critical to the case.

The lawyer believed that the lack of discovery was a significant error, and that it could constitute malpractice.  The outcome of the case was still pending.  The lawyer was concerned that disclosing the information to the client could undermine the lawyer’s relationship with co-counsel, but was nonetheless convinced that it was in the client’s best interest to reveal the facts as soon as possible.

Interpreting communication, conflict rules

The NYSBA Committee on Professional Ethics noted that prior opinions had consistently held that a lawyer must come clean to the client about his or her own significant errors or omissions in providing legal services.  That principle is founded on two ethical duties:  (1) the duty to communicate with the client, and provide the information necessary for the client to make informed decisions (see Model Rule 1.4); and (2) the duty to withdraw from the representation where the lawyer’s personal interests conflict with the client’s (see Model Rule 1.7(a)(2)).

Those same rules also raise a duty to communicate with the client about co-counsel’s potential malpractice, the Committee opined.

Respect for client autonomy and decision-making means that the lawyer must provide information about all significant developments affecting the representation.  That “applies equally to a significant error or omission by co-counsel that may give rise to a malpractice claim,” said the Committee.

If co-counsel committed such an error, the client would have several options, such as continuing the relationship with co-counsel and reserving a possible malpractice claim; terminating co-counsel; bringing a malpractice action against co-counsel now; or getting independent advice about the options.  But without information, the client would be stymied in pursuing any of these choices.

Also, depending on the facts, the lawyer with the inquiry might have a personal conflict of interest that would raise a significant risk of adverse effect on the lawyer’s professional judgment — for instance, if the lawyer’s desire to maintain a good relationship with co-counsel was motivated by personal concerns, like preserving a good referral source (as opposed to being based on the goal of avoiding harm to the client’s case).  A personal interest plus risk of adverse effect on professional judgment could raise a duty to withdraw.

Further thoughts …

Instead of the facts posed by the inquiry to the Committee, what if the case is already over, and then you become aware of some error by co-counsel — but the trial outcome was favorable, notwithstanding the mistake?  The Committee didn’t consider that possible scenario, but it raises some further questions.  For instance, even if the result was an award to the client, is it possible that the award would have been larger absent the error?  How far do you have to go to decide such a question?

Even with these open questions, one thing is clear from this recent ethics opinion:  at least sometimes, co-counseling a case can result in a duty to have a difficult conversation with your client, and you should keep alert and know your ethics rules if that day should come.

Snoring lawyer disciplined in Va. gets reciprocal discipline in D.C. — It’s the cover-up, stupid

Posted in How Not to Practice, Licensing

Sleeping in classAs we learned in the Watergate era, “It’s not the crime — it’s the cover-up,” and that truism has an analog in the world of lawyer ethics, as a recent disciplinary case out of the District of Columbia illustrates.

Tale of the snoring lawyer

Like many who practice in the D.C. area, the lawyer was licensed in both the District and Virginia.  In 2014, the lawyer went to a CLE seminar in Virginia.  As described in the disciplinary opinion, “during the morning session, [the lawyer] fell asleep and began snoring, causing the seminar’s coordinator to intervene and wake [him].”

Things went from bad to worse in the afternoon session, when the lawyer “began talking loudly at a video presentation and continued to do so after the seminar coordinator asked him to stop.  In response to [the lawyer’s] continued outbursts, another attendee led [him] from the room.  That attendee smelled alcohol on [the lawyer’s] person. … [He] admitted to one attendee that he had been drinking.”

In the Virginia State Bar inquiry, the lawyer at first denied everything — being intoxicated, falling asleep and snoring.  That denial started the snowball rolling, because later, the lawyer had to admit “that those representations were not accurate,” and further, “that he did not take the steps necessary to correct his misrepresentations.”

The lawyer and the Virginia State Bar Disciplinary Board stipulated that he had violated the Virginia Rules of Professional Conduct, which, like their Model Rule 8.1(b) counterpart, makes it misconduct to “fail to disclose a fact necessary to correct a misapprehension known by a lawyer to have arisen” in connection with a bar discipline matter.

The penalty in Virginia:  a six-month suspension.  But that didn’t end the matter.

Reciprocal discipline woes

Many lawyers don’t realize that multiple licensure carries with it multiple exposure to disciplinary sanctions; all jurisdictions have rules mandating consideration of reciprocal discipline in their jurisdiction when a lawyer with a license there is disciplined in another jurisdiction.

That’s what happened to the lawyer here — the D.C. bar rules “presumptively impos[e] identical reciprocal discipline, unless the attorney demonstrates by clear and convincing evidence” some exception.

The lawyer argued that his Virginia suspension was based on “sleeping and snoring in a [CLE] class,” and that he was disciplined in Virginia for conduct that “does not constitute misconduct in the District of Columbia.”

Not so, said the D.C. Court of Appeals.

The lawyer’s Virginia discipline did not stem from the conduct at the CLE, according to the court; rather, it was based on the lies to the Virginia State Bar during the proceedings there, and his failure to correct his misrepresentations, until it was too late.  Those are ethical violations under the D.C. Rules of Professional Conduct, too, said the court.

Luckily for the lawyer, the Virginia suspension had already expired, and the D.C. Court of Appeals agreed that whether calculated from the beginning date of the Virginia suspension, or the date on which the lawyer reported his Virginia discipline to the D.C. bar, the suspension period had already run.

Therefore, although the lawyer was disciplined with the same six-month suspension in D.C., he effectively served no additional time.

“I cannot tell a lie”

Strict truth-telling in disciplinary matters must be your watchword, whether you snore or not.  It’s not the crime, it’s the cover-up, and when you’re dealing with reciprocal discipline you can get a double whammy.

Florida district court rules it lacks jurisdiction to determine unauthorized practice charge

Posted in Multi-jurisdictional practice, Unauthorized practice

Florida barIn a somewhat puzzling ruling handed down on May 25, a Florida district court judge held that the court lacked jurisdiction to address whether a Massachusetts lawyer who appeared on behalf of his defendant client at a Florida mediation was engaging in the unauthorized practice of law.

As reported by Law360 (subs. req.), the plaintiff, which runs an adult subscription service, is suing defendant Sun Social and others for allegedly hosting pirated content on their internet porn sites.

No jurisdiction, no sanctions

At the mediation, Sun Social appeared through its Massachusetts counsel, who had not yet sought pro hac vice admission.  Only after the parties reached an impasse did the plaintiff object to the Massachusetts lawyer’s participation.  The plaintiff charged the lawyer with unauthorized practice and sought sanctions, including disqualification.

The district court held that it could not address whether the lawyer’s conduct was UPL, because the Florida Constitution vests the state supreme court “with exclusive jurisdiction over … the prohibition of practice by persons not members of the Florida Bar,” and case law interpreting the provision delegates the determination of UPL solely “to the Florida Bar.”

The federal court judge denied the sanctions motion, ruling that “only the Florida Supreme Court has jurisdiction to determine whether the alleged acts constitute the unauthorized practice of law,” and noting that the lawyer had since sought and obtained pro hac vice admission.

Really without teeth?

The court seems to have reached the right outcome here, but for the wrong reason — and in holding that it was required to be agnostic on the issue of UPL, the court took a too-narrow view of its power to remedy future conduct that it might be presented with.

First, Rule 4-5.5 of the Florida Rules of Professional Conduct, like its Model Rule analog, creates some limited circumstances permitting lawyers admitted elsewhere to practice temporarily in Florida — including in “pending or potential” ADR proceedings like mediations (if the services arise out of or are reasonably related to the lawyer’s practice in his or her home jurisdiction).  And second, the Southern District of Florida’s own Local Rule 11.1 incorporates the Rules of Professional Conduct as standards and provides that for violating those rules, “attorneys may be subject to appropriate disciplinary action,” including under the court’s own Rules Governing Attorney Discipline.

If the district court lacks authority to sanction lawyers who sail outside the limited safe harbor of Rule 5.5’s temporary-practice provision, that limitation does not appear in the court’s local rules.  Indeed, it would appear to run counter to the court’s power to manage the proceedings before it.

“Immature and unprofessional mudslinging”

It is possible that the court was reflecting its impatience with the parties, which, the judge wrote, had engaged in “immature and unprofessional mudslinging.”  And after all, the Massachusetts lawyer had (after “blatantly drag[ging] his feet”) finally obtained the court’s permission to appear.  But in any event, the implication that the district court would be hamstrung in dealing with ethical misconduct constituting the unauthorized practice of law is unfortunate.

Using ill-gotten evidence and threatening opposing counsel draws 6-month suspension

Posted in How Not to Practice

Computer snoopingSome ethics violations happen because a lawyer carefully analyzes a debatable situation and draws a good-faith, but incorrect, conclusion. And then there are the lawyers who leave me wondering — what were they thinking? Let’s say your divorce client hacks into his future former wife’s e-mail account and hands you her payroll information and the direct examination questions that her lawyer has e-mailed her in preparation for trial. Raise your hand if you think you can use that evidence.

A lawyer in Missouri got his ticket to practice pulled for at least six months for trying to do just that. Oh yeah — he also threatened opposing counsel if she discussed the matter.

Client accessed e-mail “without permission”

The lawyer’s client, the divorcing husband, accessed the wife’s e-mail “on multiple occasions” without her permission. After he got current payroll records and a list of direct examination questions that opposing counsel had prepared for the wife, he turned them over to his lawyer.

On the second day of trial, the lawyer handed the wife’s counsel a stack of exhibits that included the direct examination questions that she had prepared for her client. Before then, the wife and her counsel were not aware that the wife’s e-mail had been breached.

The wife’s counsel requested a hearing on the record, at which the husband admitted his conduct and that he provided the ill-gotten documents to his lawyer. The lawyer admitted that he received the documents, knew they were “verboten” and that he failed to disclose his receipt of the information to opposing counsel.

“Rumor has it…”

Three days after the hearing, the husband’s lawyer sent the following e-mail to opposing counsel:

Rumor has it that you are quite the gossip regarding our little spat in court. Be careful what you say. I’m not someone you really want to make a lifelong enemy of, even though you are off to a pretty good start. Joel.

The Missouri Office of Chief Disciplinary Counsel charged the lawyer with violating the state’s versions of Model Rule 4.4(a) (using methods of obtaining evidence in violation of the rights of a third person); Rule 8.4(d) (conduct prejudicial to the administration of justice); and Rule 3.4(a) (unlawfully concealing a document having evidentiary value).

The hearing panel found that in addition to possessing the direct examination questions, the lawyer had used the improperly obtained payroll information during a pre-trial settlement conference.

The devil made me do it?

In the state supreme court, the lawyer argued that he did not use improper means to obtain the evidence because it was his client, the husband, who did so, not the lawyer himself. The court rejected that argument.

The comment to Rule 4.4 says that “when a lawyer knows that he or she has improperly received information, [the rule] ‘requires the lawyer to promptly notify the sender in order to permit that person to take protective measures.'” The lawyer acknowledged that he knew the source of the information and that his possession of the documents was “verboten.” Thus, the court held, the lawyer was required to promptly disclose his receipt of the information. The violation of Rule 3.4 was proven by the same conduct.

The threatening e-mail, implying that opposing counsel “would suffer professional retribution if she further discussed the issue” is conduct that prejudices the administration of justice, the court said.

Six-month suspension

A divided supreme court imposed an indefinite suspension with no leave to apply for reinstatement for six months. Two of the seven justices dissented and would have barred reinstatement for 12 months, which is the sentence the hearing panel had recommended. The supreme court did not explain its downward departure from the hearing panel’s stiffer recommended penalty. The dissents pointed out that the lawyer had already been disciplined five times in the past 25 years, including a previous six-month suspension.

Take-home lesson: Know your state’s version of Model Rule 4.4 so that you understand your obligations when receiving evidence from outside sources. You should also be aware that other authority — namely civil or criminal procedure rules and case law — are also potentially applicable. Hope you passed the test.

Violating confidentiality order results in lawyer’s DQ and referral to state ethics board

Posted in Confidentiality, Disqualification, How Not to Practice

Confidentiality stampCourts often analyze motions to disqualify by balancing the need to uphold professional standards against the rights of clients to choose their lawyers freely.  The New Jersey court of appeals struck that balance earlier this month in upholding the disqualification of a lawyer who violated a confidentiality order, finding that the lawyer knowingly disobeyed a court order, among other violations.

Looking for class action plaintiffs

The lawyer sued a car dealership and others in a putative class action, alleging fraud and the violation of various state consumer statutes.  The parties agreed on and the court entered a confidentiality order that allowed any party to designate confidential documents produced in discovery as “Attorneys’ Eyes Only.”

The confidentiality order mandated that the parties could use such material “solely for purposes of the prosecution or defense of this action.”

After several twists and turns, the suit was trimmed of its class allegations and proceeded solely against the dealership.

However, as the trial court wrote, “lo and behold, after the dealer produced the documents under the confidentiality order, a new [class action] lawsuit was filed in [another] county,” against the same defendant, based on the same theories, and initiated by the same lawyer, who admitted that she had used the “Attorneys’ Eyes Only” documents in soliciting the named class-action plaintiffs to file suit in the second action.

The lawyer claimed that this did not violate the confidentiality order; the trial court disagreed, and “relieved [the lawyer] from serving as plaintiff’s counsel” because of the violation.  The trial judge also referred the matter to the state Office of Attorney Ethics.  Following the client’s interlocutory appeal, the appellate division affirmed the disqualification order.

Inherent authority to impose DQ remedy

New Jersey’s Rule of Professional Conduct 3.4(c), identical to Model Rule 3.4(c), forbids a lawyer to “knowingly disobey an obligation under the rules of a tribunal except for an open refusal based on an assertion that no valid obligation exists.”

The appeals court held that the lawyer knowingly used materials designated as “Attorneys’ Eyes Only” to solicit clients and to initiate a separate lawsuit against the car dealership, and that the trial court had not abused its discretion in using its inherent powers to sanction the lawyer for her ethical violation by disqualifying her.

Quoting from its prior holdings on balancing the need for ethical conduct against client choice, the court of appeals said that “there is no right to demand to be represented by an attorney disqualified because of an ethical requirement.”

“We underscore that an attorney’s failure to conform to his or her ethical obligations may imperil their client’s right to counsel of their choice.”

Not only did the lawyer’s client lose out; the lawyer put her own license in jeopardy, with the court’s referral to the state disciplinary agency.

Filing administrative appeal without being admitted results in dismissal

Posted in How Not to Practice, Licensing

Untitled-1The client of a Colorado lawyer who filed an administrative appeal in North Dakota without being admitted there got a harsh result — the North Dakota Supreme Court ruled in Blume Construction v. State that the lawyer’s action was the unauthorized practice of law, and therefore that the client’s appeal was void.

Admission ticket required

Blume Construction had been assigned a penalty tax rate on its unemployment insurance, and hired a Colorado lawyer to appeal the determination.  Two days before the appeal deadline, the lawyer signed and submitted an electronic appeal request on behalf of Blume, giving the basis for the appeal, summarizing several statutory provisions and requesting relief.  Local practice rules required the lawyer to move for pro hac vice admission within 45 days of filing the appeal request; the lawyer did not do so.

In fact, at least 30 days before the scheduled administrative hearing on the appeal, the lawyer notified the referee that he could not secure a sponsoring attorney licensed in North Dakota, as required for pro hac vice admission, and Blume, the client, told the referee that a North Dakota lawyer would represent Blume instead.

On the morning of the administrative hearing on the appeal, the referee became aware that the notice of appeal had been filed by the Colorado lawyer.

The hearing was cancelled, and the referee ruled that filing an administrative appeal required North Dakota admission, and that Blume’s appeal request was void because it was filed by a nonresident lawyer not admitted to practice in the state; therefore, Blume was stuck with its penalty tax rate.  The intermediate court of appeals affirmed the referee’s decision.

No safe harbor

North Dakota’s version of Model Rule 5.5 provides safe harbor for some forms of temporary practice by out-of-state lawyers, including (1) “preparatory” efforts made by lawyers who intend to seek pro hac vice admission for the particular matter; and (2) services that the out-of-state lawyer carries out, but that could also be performed by non-lawyers.

Blume argued that filing the appeal request was merely preparatory, that its lawyer reasonably expected to be granted pro hac vice admission and, therefore, that the lawyer was within the safe harbor.  But the state supreme court disagreed, based on a 2009 case in which it had held that filing a request for reconsideration and being designated as counsel were not merely “preparatory.”

Blume also argued that a non-lawyer could have filed its administrative appeal, and therefore, that the Colorado lawyer did not need to be admitted in North Dakota.  Not so, said the court.  As a corporation, Blume couldn’t act through a non-attorney agent in a legal proceeding.  And the Colorado lawyer’s work in filing the appeal was more than clerical or just filling out a form; rather the lawyer applied legal skill and knowledge to the facts of the case.

Harsh result

With its harsh result — dismissal of Blume’s appeal — this case illustrates the risks to the client of unauthorized practice.  And, of course, lawyers who engage in unauthorized practice also put their licenses at risk.

Taking any action on behalf of a client before a tribunal in a jurisdiction where you are not admitted — or not yet admitted — requires close attention to several sources of authority in the jurisdiction you are headed for.  (Some lawyers make the mistake of looking to their home jurisdiction’s rules.)  You need to consider that jurisdiction’s ethics rules, its pro hac vice rules, its statutes, any applicable rules of court and its case law.  You may be under time pressure — as the Colorado lawyer was, with the client’s appeal deadline looming — but there is no substitute for knowing whether you have a safe harbor or a sinking boat.

Lawyers on hot seat after using paralegal to friend opposing party

Posted in Communication, How Not to Practice, Social Media and Internet

scientific_CloudComputing45Two New Jersey lawyers cannot avoid disciplinary charges arising from their use of a paralegal to friend a represented opposing party on Facebook, the state supreme court ruled recently.

We’ve written before about the perils of using Facebook to obtain information about opposing parties or to communicate with them.  This latest example involves a twist of particular interest to legal ethics wonks like me, because it also spotlights the issue of how disciplinary power is allocated between local and state ethics regulators.

“Will you be my friend?”

The two lawyers represented governmental defendants against the claims of a plaintiff injured after being hit by a police car.  The lawyers directed their paralegal to search the Internet to obtain information about the plaintiff, and in response, she accessed his Facebook page.  Initially, the page was open to all, but later, the plaintiff changed his privacy settings to limit access to “friends.”

It is alleged that the two lawyers then instructed the paralegal to access and continue to monitor the non-public parts of the plaintiff’s Facebook account.  In response, she submitted a friend request to the plaintiff — but she did not reveal that she worked for the law firm representing the defendants in the case, or that she was investigating him as part of the case.

The plaintiff — who was represented by counsel — accepted the friend request, and so the paralegal was able to get information from the non-public parts of his account.

The plaintiff learned about the lawyers’ actions after they sought to add the paralegal as a trial witness and produced printouts from the plaintiff’s Facebook page and his friends’ pages.  He filed a grievance with the local New Jersey District Ethics Committee, asserting that contacting him through Facebook without going through his own attorney constituted an ethical violation.

The local committee, however, declined to docket the grievance; the committee advised the plaintiff that the allegations, if proven, would not be a violation of the New Jersey Rules of Professional Conduct.

Who’s in charge?

But that was not the end of the matter.

The plaintiff’s lawyer filed a grievance directly with the state-level disciplinary body, the Office of Attorney Ethics, which, in New Jersey’s disciplinary system, has parallel jurisdiction.  The director investigated and filed a complaint against the lawyers alleging violation of numerous rules, including New Jersey’s versions of Model Rule 4.2 (communicating with a person represented by counsel); Model Rule 5.3 (failure to supervise a non-lawyer assistant); Model Rule 8.4(a) (violating the ethics rules by inducing another person to violate them); and Model Rule 8.4(c) (conduct involving dishonesty, fraud, deceit and misrepresentation).

The lawyers denied any violations — including asserting that they acted in good faith and were “unfamiliar with the different privacy settings on Facebook.”  Later, they asked the OAE to withdraw the complaint, arguing that procedurally, the state-level OAE could not proceed against them after the local-level district committee had declined to do so.  The OAE would not withdraw the complaint.

State supreme court:  “You’re on the hook”

That sent the case out of the disciplinary system and into the state court system, eventually ending up in the state supreme court.  On April 19, the court ruled that under New Jersey’s “robust disciplinary system,” the action of the local committee in declining the grievance would not “close off further inquiry” at the state level if the grievance presented “an important, novel issue as to which there is little guidance,” or if the allegations involved “egregious, unethical conduct.”

Bottom line:  The two lawyers will have face the ethics charges against them, notwithstanding the pass they got the first time around at the local level.  (Be aware that your own jurisdiction may have disciplinary procedures that are quite different from New Jersey’s.)  Stay tuned — and in the meantime, be very careful when using social media to investigate litigants.  Several jurisdictions have ethics opinions that point to the pitfalls, and provide specific guidance on how to stay out of trouble when doing so.  The New York State Bar Association guide to social media ethics issues, published last year, collects many of the significant opinions.

Panama Papers spotlight danger of failing to screen for problem clients

Posted in How Not to Practice, Law Practice Management

Business DeterminationThe leak of millions of documents apparently hacked from Panama-based law firm Mossack Fonesca has exposed the tax strategies of some of the world’s elite.  But the Panama Papers also shine a light on some failures of Mossack Fonesca to screen out problematic clients — failures of due diligence that the firm itself recognized.

Petropars and the Iranian connection

Mossack Fonesca rose to prominence at the same time that Panama was emerging as a center for offshore banking activity, as a New York Times article explains.  When the International Consortium of Investigative Journalists obtained the document trove now known as the Panama Papers, Mossack Fonesca’s own internal communications showed that it had represented dozens of companies and people on various U.S. government blacklists — despite internal firm policies that should have screened out such clients, the ICIJ said.

One case in point is Petropars Ltd., which the ICIJ described as an Iranian-government- controlled intermediary between foreign companies and Iran’s oil ministry.  Through its offices in Dubai and London, Petropars was also a player in the development of Iran’s multibillion-dollar South Pars natural gas field.

The Clinton administration banned U.S. involvement with Iranian oil development back in 1995; in 2010, the U.S. Treasury sanctioned Petropars, and put it on the Office of Foreign Assets Control’s blacklist.  The list is of individuals and companies connected with sanctioned countries, regimes, entities and people targeted as threats to U.S. security or policy.

The links between Petropars and the Iranian government had surfaced in 2001, when the company was investigated for possible corruption in handing out oil and gas contracts, and the conduct of the Iranian Oil Minister came under scrutiny, as the New York Times reported at the time.

Mossack Fonesca incorporated Petropars in the British Virgin Islands in 1998; the firm represented Petropars until 201o, when Jurgen Mossack, one of the firm’s founders, learned that Mossack Fonesca’s BVI post office box address had been listed as Petropars’ address in OFAC’s blacklist entry for the company.

“This is dangerous!”

Mossack raised the alarm in an internal e-mail addressed to the firm’s “Compliance Department,” among others.  He wrote “This is dangerous! … Everybody knows that there are United Nations sanctions against Iran and we certainly want no business with regimes and individuals from such places.”

He called into question how Petropars had been vetted as a firm client to begin with, and blasted the firm’s United Kingdom office:  “It would appear Mossfon UK are not doing their Due Diligence [sic] thoroughly (or maybe none at all), and maybe from now on we ourselves will have to do the DD on all clients that Mossfon UK have with us, present and future!”

Mossack wrote that “Anybody having had to do anything with this company [sic], … should have realized immediately that the names associated with it were Iranian names.  A red flag should have been raised immediately.”

The firm resigned as Petropars’ registered agent in October 2010.

Red flags, the duty to supervise, and avoiding problems

Later, in 2012, the firm’s audit of its London office concluded that the outpost had “no procedure in place” for “handling high-risk politicians, family and associates” and was not even conducting Internet searches to screen potential clients, according to the ICIJ.

Of course, Mossack Fonesca is not a U.S. law firm, and as such neither OFAC’s sanctions list nor our Rules of Professional Conduct apply to it.  But its founder certainly recognized the trouble it was courting by the apparent breakdown in its system of evaluating and screening potential clients.  For lawyers operating under U.S. rules, even without considering whether a firm is being used to assist client wrongdoing (see Model Rule 1.2(d)), agreeing to represent a client on OFAC’s sanctions list is not a wise move.

Engaging  in conduct that is prejudicial to the administration of justice violates Model Rule 8.4(d).  And under Rule 5.1, law firm managers must make reasonable efforts to have measures in place to ensure that firm lawyers are following the ethics rules.  Moreover, a “supervisory lawyer” can be responsible for another lawyer’s ethics violations, either by ratifying them or by failing to take remedial action against known ethics lapses.

Take home lesson:  If any component of your practice is international, and even if not, your client intake process should include thorough vetting, and close examination of relevant U.S. government sanctions lists.

Unpaid legal interns’ work can be billed to clients as fees or costs, NY state bar ass’n says

Posted in Communication, Fees, Law Practice Management

Unpaid internshipsIn today’s soft legal services market, some aspiring members of the profession feel pressure to work for free, but the fairness of such arrangements in general has come under scrutiny.  In a twist (and just in time for the summer crop of interns), the New York State Bar Association earlier this month said that law firms can bill clients for services provided by unpaid legal interns, as long as the amount is not excessive, and the internship program complies with applicable law.  If charged to clients as an expense, the law firm can build in its overhead costs, such as for supervising the intern, the Committee on Professional Ethics said in its Opinion 1090.

U.S. DOL standards judicially rejected

Last summer, the Second Circuit refused to apply U.S. Department of Labor standards barring employers from deriving immediate economic advantage from unpaid interns, in favor of a non-exhaustive set of considerations that focus on what the intern receives in exchange for the work.  The ruling overturned the grant of class certification in a wage case against Fox Entertainment.  The Second Circuit also upheld a trial court denial of class certification in another intern wage case against Hearst Corp.

Many law schools place students with private-sector employers who do not pay them; but the interns do benefit in some cases by getting academic credit.  Whether and how clients can be billed for the work of such credit-earning interns was the subject of a law firm inquiry.

Billing intern work as fees vs. expenses

In response to the inquiry, the NYSBA ethics committee said that there was nothing in the state’s ethics rules that would prohibit a law firm from billing clients for the services of a law student-intern on either a fee basis or as an expense to the firm, even if the firm didn’t pay the intern or the law school.

The state’s version of Model Rule 1.5(b) mandates communicating to the client “the basis or rate of the fee and expenses,” and under Rule 1.5(a), as interpreted by previous opinions, neither the fee nor any expenses may be “excessive” — defined as one where a “reasonable lawyer would be left with a definite and firm conviction” that it is too much.  Nothing in the opinion appears to require the firm to inform the client that although the intern receives academic credit, the firm is not compensating the intern.

While the firm could bill the student’s work to the client as legal fees (by the hour or per task, for instance), the committee also approved the possibility of billing the work as an expense instead.  In that case, the committee said, “the lawyer may charge the client ‘either … an amount to which the client has agreed in advance or … an amount that reflects the cost incurred by the lawyer’ to sponsor the intern (e.g., the cost of supervising the intern).”

In other words, although the law firm does not have any direct costs in connection with using an unpaid intern, it does incur overhead costs, and may peg the expense value of the  intern’s work to include those costs to the firm.

ABA opinions on billing

The NYSBA’s opinion tracks the ABA’s 1993 opinion on billing issues.  There, the ABA ethics committee said that in the absence of disclosure, it is improper to mark up expenses such as taxis and meals charged to the client unless the lawyer herself has incurred additional expenses beyond the actual cost of the disbursement item.  Later, in 2000, the ABA’s committee expanded the same principles to cover the work of temporary or contract lawyers.  This most recent New York opinion continues the same line of reasoning to support using the lawyer’s overhead cost to value an unpaid intern’s work when it is charged to the client as an expense.

The social justice aspect of using unpaid interns is hotly debated; but at least in New York, lawyers and firms have some guidance about the rules of the road in billing clients.

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