A Special Master has ordered Google to turn over supposedly “privileged” documents at issue in an NLRB dispute with former employees.  Whether it is upheld in this high-profile litigation or not, the ruling points out some significant misconceptions about privilege (and work product) held by many clients and some attorneys.

Anti-union campaign advice does not equal legal advice

One key aspect of the ruling was its conclusion that the attorney-client privilege does not typically protect unionization campaign communications because campaign messaging advice is not legal advice. Many of the documents reviewed were connected to Google’s work with a consultant hired to help craft anti-union campaign messaging. The Special Master found that Google did not establish that such materials were communications in connection with obtaining legal advice, as required for the privilege to apply.

Third Party Communications are not confidential

Generally, communications made in the presence of a third party lack protection unless the third party is an agent of the attorney or client. The Special Master also found that the communications were not confidential communications between Google and its legal counsel—rather, by involving the consultant, they fell outside the attorney-client relationship. Moreover, many of the anti-union training materials that the consultant provided were broadly disseminated—which waives the privilege.

“Washing” a communication through counsel does not create privilege

In an attempt to cloak the unionization campaign communications with privilege, Google instructed the consultant to send materials to Google’s outside counsel, so that outside counsel could then send them to Google. The Special Master held that “This effort at creating the impression of legal advice is not only disingenuous, but fails under established precedent holding that a party cannot cloak otherwise unprivileged material in attorney-client privilege simply by sharing it with legal counsel.” The Special Master deemed this an “attempt to conjure a privilege by detouring [the consultant’s] material through outside legal counsel.”

The Special Master was also unpersuaded by other arguments to shield documents, such as adding “privileged” labels on documents or language in the consultant’s contract stating that their communications were intended to be covered by privilege and work product.

Pointers

Privilege is construed differently in different jurisdictions, narrowly construed in most, and only applies to communications made for the purpose of obtaining legal advice.  Privilege and work product disputes are always fact intensive, and no client or attorney should assume either will apply to just any communication.  Here are a few important points to remember:

  • Simply copying an attorney (in-house or outside) does not make a communication privileged.
  • Merely marking “Privileged” on the face of a document does not make it so.
  • The privilege is for legal advice, not business advice (including campaign messaging). (For example, the Minnesota Supreme Court recently upheld rejecting privilege for a report prepared by counsel, where its predominant purpose was business advice, not legal advice.)
  • As we’ve cautioned before, routinely marking “CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGE” on communications may undermine the legitimacy of a privilege assertion.
  • Even if advice is deemed legal advice, if it is broadly disseminated outside the circle of privileged parties, it will likely lose its privileged character.

2021 was a whirlwind! Lawyers have had to be more flexible and resourceful than ever. It is the year that the ups and downs of the pandemic made it abundantly clear that this is more of a marathon than a sprint. While resilience can be invigorating, the challenges are ongoing. The stress of keeping up with the technology needed to facilitate a remote working environment alone can be downright daunting. While the methods of practice are constantly evolving, the standards of ethical and professional behavior are not. The five highlighted stories below illustrate some of the most popular and prevalent issues 2021 had to offer.

Cannabis continues to be a hot trend. We examined some different ways the states were dealing with the ethics issues:

Lawyers beware: NY and GA issue conflicting ethics decisions on representing cannabis clients | The Law for Lawyers Today

Working from home was a major theme in 2021, and it looks like it will be again as we enter the second year of the corona virus pandemic. Many states examined their rules or issued ethics opinions in light of the new demands of remote work.

For lawyers, work-from-anywhere might be the new model: NY and FL developments | The Law for Lawyers Today

Remote work certainly brought new challenges, as lawyers grappled with the necessary technology. A spectacular “cat-astrophe” highlighted the ethical need for competence in this area.

Of cats and competence: legal ethics lesson from the trenches | The Law for Lawyers Today

Social media has forever changed the way lawyers communicate about their legal services, and online reviews will continue to be a minefield. We looked at the issue of responding to negative reviews.

Negative online client reviews: ABA gives some tips for responding | The Law for Lawyers Today

Finally, being professional – with all its various meanings – is a watchword for lawyers always. We highlighted some “don’t let this happen to you” moments in 2021.

“Pervasive incivility” and rule violations spell disbarment for D.C.-area lawyer | The Law for Lawyers Today

Here’s hoping that 2022 brings a year of ethical legal practice plus all good things to you and yours.

A Florida lawyer violated the ethics rules by texting his witness during a deposition, the Florida Supreme Court recently held.  The court imposed an even stiffer penalty than recommended.

Just the facts, ma’am  

In January 2020, the Florida Bar filed its Complaint against the lawyer for conduct during a telephone deposition in a worker’s compensation case.  The Complaint alleged that the lawyer secretly texted his witness (a claims adjuster for the employer), telling her how to respond to questions. During the deposition, claimant’s counsel stated on record that she could hear typing sounds and asked the lawyer if he and the witness were texting. The lawyer denied this, stated he was just receiving a text from his daughter, and indicated he would put his phone away.

Despite the exchange, after questioning resumed, he accidentally sent text messages intended for his witness to claimant’s counsel. Consequently, claimant’s counsel filed a motion for production and in-camera inspection of all texts sent during the deposition. Upon the court’s order, he produced two pages of text messages—none were with his daughter.

Referee’s recommendations

The Bar asserted that the lawyer’s conduct violated the Sunshine State’s versions of Model Rules 3.4 (Fairness to Opposing Party) and 8.4(d) (conduct prejudicial to the administration of justice).  The Referee’s Report reflects that the testimony of the lawyer’s witness was unsworn, because the court reporter refused to swear the witness in due to the deposition being held telephonically rather than by video. The lawyer testified that he reasoned since the testimony was unsworn and opposing counsel did not agree to the identity of the witness throughout most of the deposition, the proceedings would need to be re-done or that the witness would have to testify at trial. The lawyer testified that he incorrectly believed that communicating with the witness during the deposition was not improper, and that in addition, worker’s compensation matters are typically more relaxed than civil litigation when it comes to applying the rules of procedure.

The referee, however, found that the lawyer’s conduct (including his representation that he was just responding to a text message from his daughter) was “misleading and a matter contrary to honesty,” rejected the charge of conduct prejudicial to the administration of justice, and recommended a 30-day suspension.

Dishonesty is “clear from the record”

The Florida Bar sought review of the referee’s light sentence, and the rejection of the charge of engaging in conduct prejudicial to the administration of justice.   The state supreme court found that the lawyer’s dishonesty was ”clear from the record,” and reasoned that the conduct was intended to defeat opposing counsel’s lawful attempts to obtain evidence, including making misrepresentations to hide the conduct.   The court said the conduct in fact was prejudicial to the administration of justice, in addition to being unfair to the opposing party, and boosted the sanction to a 91-day suspension.

Bottom line

The lawyer here alleged to have mistakenly thought that the deposition was an informal proceeding, and that the normal rules did not apply, justifying his texts to his witness.  He then misrepresented the facts when his conduct was noticed.  We are all susceptible to having an incorrect understanding of the law from time to time, but there really is never a good time to relax your ethical standards or your good judgement.  And while each jurisdiction will vary on its rules, no matter where you practice, nothing makes a bad situation worse than being dishonest about alleged misconduct.

Can violating a legal ethics rule qualify as an unfair trade practice under a state’s consumer protection statute?  A Florida district court recently said “Yes.” The question arose in motion practice over the admissibility of expert testimony in a timeshare-exit case.

And then there was one

A group of entities connected to Wyndham Vacation Resorts sued several defendants for inducing and assisting timeshare owners to get out of their contracts with Wyndham – including the lawyer the defendants used to review documents and send letters on behalf of timeshare owners who wanted out of their obligations.  All the claims settled except the ones against the lawyer, including claims that he had conspired to interfere with the timeshare owners’ contracts with Wyndham, and that he violated the Sunshine State’s unfair trade practices Act.  According to the court’s opinion, the lawyer was licensed in California, not Florida.

Wyndham sought to have a legal ethics expert testify on issues supporting its unfair trade practices claim—specifically that the lawyer’s violation of several ethics rules met the definition of unfair and deceptive trade practices under Florida law. The expert’s opinion centered on the lawyer’s noncompliance with the rules of professional conduct, including Florida’s versions of the Model Rules on fee sharing practices, interference by non-lawyers with the professional judgment of lawyers, supervision of non-lawyers and the unauthorized practice of law.

The lawyer moved to exclude Wyndham’s expert’s opinions, arguing that any supposed violation of Florida’s professional conduct rules was irrelevant to the claims against him, particularly the unfair trade practices act claim, and that ethical misconduct could not support such a claim.

Ethics and trade practices

The district court rejected the lawyer’s motion to exclude the expert’s opinions and held that “a violation of a legal ethics rule can potentially qualify as a deceptive act or unfair trade practice” under Florida’s act.  The court noted the statute’s liberal construction, and that under it a claim could be based on any rule or regulation that “proscribes … deceptive or unconscionable acts or practices.”

Further, the court said, while the preamble to the Florida rules notes that they don’t give rise to an independent cause of action against a lawyer, they do establish “standards of conduct by lawyers [; therefore] a lawyer’s violation of a rule may be evidence of a breach of the applicable standard of conduct.”  The Model Rules of Professional Conduct express the same idea in the Preamble at [20].

Here, said the court, Wyndham was not trying to assert a claim for violating the ethics rules, but to use evidence that the lawyer had committed ethical misconduct to support the unfair trade practices claim.  That was legitimate, the court held.

Time to share

While the court cited a Connecticut supreme court case as support for its holding, commentators have noted that the states have taken a variety of positions on whether and how deceptive trade practice and consumer protection acts apply to lawyer conduct.   Ultimately, the court dismissed the case with prejudice on November 23, following a settlement.  However, the take-home here is that the ethics rules can supply the standard of conduct for tort and statutory claims even outside the lawyer discipline rubric.  All jurisdictions now have some version of the Model Rules of Professional Conduct, and therefore your rules likely contain language to this effect.  Thus, your future noncompliance with the Rules of Professional Conduct may not only be scrutinized by discipline authorities, but by a jury as well.

Can a lawyer use an advice-of-counsel defense in a disciplinary case?  The Florida Supreme Court last month accepted the defense, adopting a referee’s report in a case spotlighting the issue.

The lawyer in the case personally guaranteed a loan for his own business venture. Unable to repay the loan, and facing hard-hitting collection methods from his creditor, he filed a Chapter 7 bankruptcy petition.   His failure to disclose a potential bonus from his law firm, arising from nearly $10 million dollars in legal fees, cost the seasoned lawyer years of litigation before he was finally exonerated of ethical misconduct.

Disclose or not? 

The lawyer was required to submit certain bankruptcy schedules to the bankruptcy court prior to discharge.  While his salary and past bonuses were sure predictors of future income, he was unsure of the exact amount that he would receive from the nearly $10 million dollars in fees he generated for his firm and whether the bonus should be disclosed on the schedules.

The lawyer relied on his bankruptcy attorney’s advice and did not disclose the discretionary bonus.  The bankruptcy court denied the discharge based on the failure to disclose the bonus.  The Florida district court later affirmed and referred the matter to the Florida Bar.

Disbarment recommendation

The formal disciplinary complaint alleged that the lawyer purposely failed to disclose the bonus in the sworn schedules, in violation of Florida’s version of Model Rule 3.3(a) (“Candor Toward the Tribunal”) and 8.4(c) (barring dishonesty, fraud, deceit and misrepresentation), among other rule violations, and sought his disbarment.

The lawyer’s defenses included his reliance on his bankruptcy attorney’s advice that he was not required to disclose the potential discretionary bonus.  The initial disciplinary panel recommended an 18-month suspension, but the Florida Supreme Court remanded and ordered reconsideration of the advice of counsel defense.

At the rehearing, the lawyer provided evidence that he did not have even a basic understanding of bankruptcy law and completely relied on his bankruptcy attorney.  His bankruptcy attorney likewise testified that “although Respondent is an experienced civil litigation attorney, he was a bab[e] in the woods when it came to bankruptcy law.”  Evidence showed his bankruptcy attorney’s advice was unambiguous— that the lawyer did not have to disclose the discretionary bonus on the sworn schedules as the bonus would have been the property of the law firm until the firm awarded him the bonus.

Exoneration based on advice of counsel

Ultimately, the Florida Supreme Court exonerated the lawyer of ethical misconduct, adopting the hearing referee’s finding that there was no clear and convincing evidence that the lawyer submitted the schedules with the intent to mislead the trustee and creditors, and no evidence that he did not act in good faith reliance on his attorney’s advice.  Rather, the lawyer was found to have reasonably relied on his attorney’s advice.

Takeaways

We have considered the advice of counsel defense before, when an Illinois attorney asserted the defense after he failed to disclose to a court the fact that his client had died 8 months before the start of settlement negotiations.  There, the court rejected the defense where the lawyer asserted that his law partners had advised him that his ethical duty of confidentiality barred him from disclosing the death, although the court gave the circumstances mitigating weight.

The difference is that the Florida lawyer was held to have reasonably relied on advice of counsel in a substantive area of law he was totally ignorant of, while lawyers (like the Illinois lawyer above) are presumed to know the legal ethics rules. Thus, the Florida lawyer’s defense was exonerating, rather than mitigating. You cannot simply pass on the responsibility of knowing your ethical duties by seeking the advice of counsel; however, reliance on that advice could certainly be a mitigating factor.

Although the distinction may seem small, it could be the difference between being found guilty of misconduct or avoiding being disciplined altogether.

“Pervasive incivility” was part of a package of wrongdoing that resulted in disbarment for a D.C.-area lawyer last month.  The case sheds light on the potential, and very real, downsides when lawyers depart from professional conduct ideals.

Client authority lacking

The lawyer was admitted in Maryland and D.C., as well as Virginia, and his troubles arose from representing a plaintiff in a Fair Debt Collections Practices Act action in Virginia federal district court.  According to the Maryland grievance commission’s petition, the lawyer entered into an agreed disposition in which his Virginia license was revoked; the Maryland Court of Appeals then imposed the same discipline in August.  Law.com recently had the story here (subs. req.).

What got the lawyer into such hot water that he was disbarred in both jurisdictions?  Litigation misconduct with an add-on of unprofessionalism.

According to the lawyer’s stipulations in the Virginia disciplinary case, he filed the FDCPA suit on behalf of the client against two lawyers for American Express, who were trying to collect the client’s past-due AmEx account.  The lawyer later stipulated that he had prepared the FDCPA complaint without consulting with his client.  He also admitted that he failed to convey an offer to the client that would have settled the case because “it did not include sufficient attorneys’ fees for [the lawyer’s] benefit.”

After rejecting the offer without the client’s authority, the lawyer then made a counter-demand — also without authority — that he characterized as his “standard demand,” since he “simply had no time to do customized demands in such cases.”

The client later testified at his deposition in the FDCPA case that he had no further interest in pursuing the litigation against the AmEx lawyers, and admitted that the suit was unjustified, since he had no legal injury.  At the conclusion of the deposition, he fired his lawyer and settled with the defendant-AmEx lawyers.

The misconduct formed the primary basis for stipulations that the lawyer had violated Virginia’s versions of Model Rules 1.2 (scope of authority between client and lawyer); 1.4 (communication), 3.1 (meritorious claims and defenses) and 4.1 (truthfulness in statements to others).  The Maryland court of appeals identified its own versions of the same rules.

“Unreasonable, bordering on the malicious”

Against this background, the Maryland and Virginia authorities also noted the lawyer’s lack of professionalism.  The parties stipulated that in his pursuit of the client’s FDCPA action, the lawyer threatened to bring bar complaints against both the defendant-AmEx lawyers, and their counsel.  He also  opposed counsel’s pro hac vice admission without a good faith basis.

In addition, the lawyer engaged in “pervasive incivility” in the Virginia disciplinary case itself, said the disciplinary board, including “disrespectful conduct toward the tribunal” and “threatening outbursts both inside and outside the courtroom.”  The district court magistrate judge in the underlying FDCPA case said that the lawyer’s conduct toward the defendant-AmEx lawyers and their counsel was “unreasonable, bordering on the malicious,” and that his “apparent distaste for his opponents spawned a host of unnecessary motions” that increased the litigation’s cost and wasted the court’s time.

The district  court, adopting the magistrate’s recommendation, ordered the lawyer to pay more than $84,000 in attorneys’ fees and costs incurred by the AmEx lawyers — this on top of the license revocations in the two jurisdictions.

Professionalism pointers

The Rules of Professional Conduct in your jurisdiction constitute a “floor.”  That is, if you conform your conduct to those Rules, you should not be disciplined for ethical misconduct.  But in addition, there is the matter of acting professionally.  Here, the outcome involved both rule violations and a lack of professionalism.  Even if you have “distaste” for your opposing counsel, as the lawyer here apparently did, if you let it affect your judgment to the extent of making threats, filing frivolous motions, disrespecting the court and having “outbursts,” your license and your pocketbook might both be at risk.

Ethics authorities in New York and Georgia recently issued opposing opinions on whether lawyers can represent clients in navigating what Justice Clarence Thomas last month called the “half-in, half-out regime” related to both recreational and medical marijuana, “a contradictory and unstable state of affairs” that “conceals traps for the unwary.” The issue, which we have commented on before here and here, is of course that cannabis remains illegal under federal law, while numerous states have liberalized their approaches to the drug.

Expanding counseling opportunities in NY

On July 8, 2021, following New York’s enactment of legislation legalizing recreational cannabis for adults, the New York State Bar Association gave attorneys the green light to counsel clients in the recreational marijuana industry. Similar to its prior opinions in 2014 and 2019 (post here) approving of attorneys counseling clients in the medical cannabis industry, the NYSBA focused on the federal government’s almost non-existent enforcement of marijuana laws in states that have legalized either medical or general adult-use marijuana.

Rule 1.2(d) of the New York Rules of Professional Conduct, like the analogous Model Rule, prohibits lawyers from assisting clients in illegal conduct. The NYSBA found that the federal enforcement policy created a “highly unusual and unique circumstance” and that the prohibition in Rule 1.2 was not intended to “preclude lawyers from counseling or assisting conduct that is legal under state law or to provide assistance that is necessary to implement state law and to effectuate current federal policy.”

The NYSBA further opined that lawyers may use state-legal marijuana and, so long as they otherwise comply with Rules 1.7 (conflicts) and 1.8(a) (business transactions with clients), they may accept equity ownership in a cannabis business as payment for legal services.

Not peachy in the Peach State?

The NYSBA’s opinion comes on the heels of the Supreme Court of Georgia taking the exact opposite position in its June 21, 2021 order denying a motion to amend Rule 1.2(d) of the Georgia Rules of Professional Conduct. The State Bar of Georgia had sought to amend Rule 1.2 to allow lawyers to assist clients in state-legal cannabis business, including the growth, manufacture, and sale of low-THC oil, which Georgia legalized in 2015.

In denying the motion, the Supreme Court of Georgia relied on the federal illegality of cannabis and held that passage of state laws permitting and regulating conduct that is still a federal crime does not change the long-standing prohibition against “counseling and assisting clients in the commission of criminal acts.” The court also noted that the requested amendment to Rule 1.2 would not necessarily be limited to state-legal low-THC oil, but “might well apply to a wide range of conduct constituting a crime under federal law that simply has no corollary state criminal sanctions,” perhaps hinting that it might leave the door open to a more-focused amendment.

Balancing act for lawyers

While Georgia’s position appears to be in the minority, the opposing opinions demonstrate the cannabis balancing act that state ethics authorities have tried to perform. While a few states, including Oklahoma, South Dakota, and Mississippi, have not allowed an exception to Rule 1.2 to enable attorneys to advise cannabis clients, others have taken positions similar to New York’s, either through advisory ethics opinions or formal amendments to their state ethics rules. For example, Alaska, Colorado, Hawaii, Pennsylvania, Ohio, Oregon and others have amended Rule 1.2 to allow attorneys to counsel clients in state-legal conduct, including state-legal marijuana business. (The International Cannabis Bar Association has a chart with an overview of jurisdictions and their approaches here.)

If you are considering counseling a cannabis client, you should be familiar with the relevant jurisdiction’s position on cannabis and Rule 1.2. Unsurprisingly, many commentators note that lawyers are simply ignoring ethics opinions that prohibit advising cannabis clients and some expect that will be the case in Georgia as well. That seems risky. While it is unclear whether lawyers have yet faced disciplinary consequences for violating state ethics rules related to cannabis clients or will in the future, this is a continually developing area that requires caution.

Two recent developments in states accounting for a hefty percentage of U.S. lawyers spotlight the profession’s move toward technology-based practice models that are untethered from physical offices.

In New York, the state senate last month unanimously passed a bill that would remove the requirement — dating to 1909 — that New York-licensed lawyers residing outside New York keep a physical office in the state.  And in Florida, the state supreme court gave final approval to an ethics opinion permitting out-of-state lawyers to carry out their practices remotely from Florida.

Repeal of “an antiquated law”

In the Empire State, during a decade of litigation aimed at undoing the physical-office requirement on Constitutional grounds, the state’s high court in 2015 interpreted § 470 of the Judiciary Law as requiring lawyers licensed in New York but not residing there to nonetheless maintain a brick-and-mortar office in New York.  On May 12, the state senate overwhelmingly approved a bill that would repeal § 470.

The New York State Bar Association has strongly backed the repeal bill, citing the “antiquated” nature of the physical-office requirement, according to a report in Law360 (sub. req.).  The bar group has argued that the old requirement reduces access to legal services (especially in rural areas), and imposes unnecessary expense on lawyers.  About 25 percent of state bar members live outside New York, according to the association.

The physical-office requirement was long claimed to be justified by the need to ensure service of process on New York lawyers.  But the state bar association’s working group on the issue said that was no longer true.  And it found that “the requirement of a physical office is often onerous to non-resident attorneys, [while] there is no nondiscriminatory basis for imposing that burden.”

Following its approval by the state senate, the bill now will be considered by the state assembly, where it has already advanced out of that body’s judiciary committee.

Sunshine in the Sunshine State

As we reported last August, the Florida State Bar Standing Committee on the Unlicensed Practice of Law released a preliminary advisory opinion that considered whether a New Jersey IP lawyer could work for his New Jersey clients from the bedroom of his Florida home.  The committee said that those facts “quite simply, do not implicate the unlicensed practice of law in Florida.  Petitioner is not practicing Florida law or providing legal services for Florida residents.  Nor is he or his law firm holding out to the public as having a Florida presence.”

Now, the state supreme court has given final approval to the opinion, which gives official sanction to non-Florida-licensed snow birds and others who want to sojourn in the Sunshine State and continue to service their non-Florida clients.  The now-official opinion raises thse guardrails:

  • you can’t establish a “place of business or office” in Florida (your porch, den, etc. doesn’t count);
  • your work must be solely for your regular (non-Florida) clients, on matters that don’t pertain to “Florida law;” and
  • you can’t “hav[e] or [creat[e] a public presence or profile in Florida as an attorney.”

Work-from-anywhere

The work-from-anywhere concept was already percolating in the form of “virtual law offices” when the COVID-19 pandemic arrived and accelerated the acceptance of new practice models using remote technology to reach clients, courts and each other.  The trend is likely to persist, with more developments like the recent ones in New York and Florida, so stay tuned — literally.

Remember your first days in law school, when you were introduced to a whole Black’s Law Dictionary-worth of exotic legalese?  Words like “estop,” “arguendo” and “gravamen”?  (If you’re like us, you’ve spent your post-school days learning how to avoid this jargon and write plain English; but we digress.)  Remember “escheatment”?  The term of course refers to the process by which, after a specified dormancy period, unclaimed property eventually can become the state’s property.

All U.S. jurisdictions have some form of escheatment statute.  Effective earlier this month, our home-state of Ohio tweaked its unclaimed-funds law to clarify its application to unclaimed client funds that lawyers hold, and to direct those funds to a legal assistance foundation aimed at increasing access to justice.  The Buckeye State’s statutory change is a good opportunity to brush up on ethics duties regarding client property that lawyers hold — including if we are unable to return it to the client.

Safekeeping client property

Model Rule 1.15, “Safekeeping Property,” has been adopted in some form in all U.S. jurisdictions.  The rule emphasizes our role as a fiduciary in safekeeping all forms of client property that come into our possession and codifies the prohibition against commingling funds belonging to the client with our own funds.  Typically (and subject to some exceptions), this calls for holding in a trust account (“IOLTA’s” or “IOTA’s”) money such as pre-paid fees, retainers, flat fees paid in advance and pre-distribution settlement funds.

But what to do with money that remains in a lawyer trust account for more than the dormancy period specified by a state’s unclaimed-funds statute?  It may be that you have settlement funds that can’t be distributed because you’ve lost contact with the client.  Or you may receive a refund of court fees that a business client is entitled to — but the business has been dissolved without leaving a successor.

Such situations are rare (most jurisdictions specify that IOLTA’s are for holding funds only over a short term), but they do happen.

Here’s a clue:  You and/or your firm don’t become the owners of the unclaimed funds.  Rather, after the applicable dormancy period, the funds escheat to the state.  Your jurisdiction might also have record-keeping and reporting requirements relating to both lawyer trust accounts and unclaimed funds — either in ethics rules, bar governance regulations or by statute.

Buckeye State provisions

Ohio lawyers have always been under a statutory duty to report and remit unclaimed funds to the state department of commerce.  The new provision creates a new statutory category, however, called “attorney unclaimed funds,” defined as unclaimed funds in IOLTA’s, nondirected escrow accounts (IOTA’s) and residual settlement funds.

The new provision requires lawyers to report and to remit all such unclaimed funds, which the commerce department can then direct to the Ohio Access to Justice Foundation.  The foundation can use unclaimed funds to provide financial assistance to legal aid societies and enhance access to justice by underserved legal services consumers.

The new Ohio law does not affect an owner’s ability to make claims on the funds; under current law, all holders, including lawyers, are protected from any claims by an owner after the holder remits the funds as unclaimed.  Therefore, if a client were to come forward later, the Ohio lawyer would be immune, and the client would be required to file a claim with the state’s division of unclaimed funds.

Ohio’s foundation is the largest funder of civil legal aid in Ohio, and like many such state organizations, depends on income generated from court filing fees and IOLTA and IOTA streams. Due to the pandemic, both sources have been significantly diminished in 2020-21 as interest rates fell and case filings declined.

Oregon initiated a similar amendment to its unclaimed funds statute in 2010, and it may become a trend.

Takeaways

Unclaimed fund statutes help lawyers by letting them “clear the books” of unclaimed funds after the dormancy period, usually with indemnification against later claims by the owners.  But as always, the devil is in the details, and you should check your jurisdiction’s requirements for safekeeping client property, as well as specific unclaimed fund laws.  More jurisdictions in the future may adopt Ohio’s approach in order to increase revenue to beleaguered legal assistance foundations.

Law firms that want to include mandatory arbitration provisions in their client engagement agreements must explain to the client the benefits and disadvantages of arbitrating a prospective dispute, the New Jersey state supreme court held late last year — and merely providing a link to the arbitration rules doesn’t satisfy the requirement, the court said.  The 50-page ruling sent a legal malpractice case against a Newark-based firm back to court, where the former client had filed it, instead of to an arbitrator.

JAM-med up

The client, described in the court’s opinion as a “sophisticated businessman,” retained the 150-lawyer firm to represent him, and signed a four-page retainer agreement.  The client was invited to take his time reviewing the document and to ask any questions he had, according to the opinion.

The retainer agreement included an arbitration provision requiring any dispute about the firm’s legal services or fees to be determined by binding arbitration, and warning that the client was waiving his right to a jury trial.  The provision indicated that the arbitration would be conducted by the well-known JAMS private arbitration/mediation organization, and included a link to the 33-page JAMS rules.  As described in the court’s opinion, the client signed the retainer agreement without asking any questions.

After the representation ended, a fee dispute arose, and the law firm invoked the JAMS arbitration provision.   While that was ongoing, the client filed a malpractice claim against the firm in court, asserting that the arbitration provision violated the New Jersey Rules of Professional Conduct and his constitutional right to trial by jury.

The firm won in the trial court; the appellate division reversed in favor of the client, and the state supreme court likewise sided with the client, invalidating the arbitration provision.  In addition, the supreme court referred the issue to the state’s ethics advisory committee, so that it could give further guidance to Garden State lawyers on the scope of their disclosure duties in connection with arbitration provisions.

What’s higher than a fiduciary duty?

If the same arbitration provision were in an ordinary commercial contract, the court wrote, it would on its face have passed muster.  But, of course, unlike a vendor in a transaction, lawyers are fiduciaries.  And while all fiduciaries are held to duties of fairness, good faith and fidelity, the court said, “an attorney is held to an even higher degree of responsibility in these matters than is required of all others.”

According to the court, this ultra-high level of responsibility and the fact that it’s the lawyer who prepares the retainer agreement, means that the lawyer must make the disclosures necessary for the client to make informed decisions.  This duty, said the court, is expressed in New Jersey’s version of Model Rule 1.4(c), requiring lawyers to explain matters to the extent reasonably necessary to open the way to informed decision-making about the representation.

By virtue of their superior knowledge, lawyers are already thinking at the beginning of a representation about the “prospect that the client may be a future adversary,” and that leads lawyers to select the forum perceived to be most advantageous for resolving disputes, the court noted.  Calling that situation at least the “shadow” of a conflict, the court ruled that lawyers who insert arbitration requirements in their retainer agreements — either for fee disputes or legal malpractice claims — “must explain the advantages and disadvantages of the arbitral and judicial forums.”

ABA, courts weigh in

The court partly relied for its reasoning on the ABA’s Formal Op. 02-425 (Feb. 20, 2002) (“Retainer Agreement Requiring the Arbitration of Fee Disputes and Malpractice Claims”), which advised that binding arbitration provisions are permissible if the client “has been fully apprised of the advantages and disadvantages, and consented.”

The New Jersey Supreme Court opinion also helpfully collects cases and ethics opinions from around the country on the issue — and many of these jurisdictions bring their own twist (underscoring the need for you to be aware of your own bailiwick’s approach).

For instance, at one end of the spectrum is my own Buckeye State, where in Adv. Op. 96-9, the Board of Professional Conduct advised back in 1996, under former disciplinary rules, that a client retainer agreement “should not contain language requiring a client to prospectively agree to arbitrate legal malpractice disputes.”

Bottom line:  arbitration may be something you want to include in your retainer agreements, but you need to be savvy about complying with your jurisdiction’s requirements about client communication in order to create valid provisions.