Communication

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As the legal market continues to change, attorneys face more challenges when it comes to client relations. While the trend has been for clients to slash attorney’s fees by hiring third party auditors to review bills, or to aggressively seek discounts on fees, ethical considerations, and now the United States Court of Appeals for the 10th Circuit, make it clear that overbilling clients cannot be a solution for legal revenue woes.

In a recent opinion, the Tenth Circuit left a law firm with a legal bill of its own when the Court ruled that the firm’s malpractice insurer was entitled to recover its expenses from defending an overbilling malpractice claim not covered under the firm’s policy.

What happened?

In 2012, the Colorado Attorney General’s Office began investigating attorney Michael P. Medved for allegedly overbilling clients, and later filed suit against him.  Additionally, Medved was facing a class action suit from former clients relating to the same allegations. Medved reached out to his firm’s malpractice insurance provider, Evanston Insurance Company, for representation in both matters.  At the time, Medved’s firm had a malpractice policy that covered “wrongful acts by reason of professional services.” Evanston agreed to defend Medved subject to a reservation of rights. Both cases resulted in relatively quick settlements.

Evanston later sued Medved seeking reimbursement for legal fees and costs incurred, arguing that the malpractice policy did not cover claims related to overbilling because overbilling was not a “wrongful act by reason of professional services.”

The 10th Circuit Court of Appeals agreed, reasoning that:  “The alleged wrongful act (overbilling) lacked the required connection to professional services rather than the claim itself, and the ‘by reason of’ phrase does not create a connection between the wrongful act and the professional services . . .”

Medved argued that Evanston’s failure to properly reserve its right to challenge the representation should estop Evanston’s claims, but the Court of Appeals quickly dismissed this argument, finding that Medved had failed to show prejudice.

Ethical considerations

Model Rule 1.5 prohibits a lawyer from collecting unreasonable fees or an unreasonable amount of expenses from a client. While this rule seems pretty simple on its face, there is no bright-line test to determine what is, or is not, reasonable. Given there is no bright-line rule, the ABA Model Rules provide eight factors you should consider when determining the reasonableness of a fee.

All jurisdictions have adopted some version of Rule 1.5.  Clients and courts have been paying more attention to attorneys’ billing practices; the Tenth Circuit’s ruling here points to the risk of not being able to rely on malpractice insurance to cover the cost of defending against overbilling claims.

The Tenth Circuit ruling also shines a light on the importance of heading off billing problems with clients before they start.  Communicating with clients about fees is more important than ever, and it’s also part of your duty under your jurisdiction’s version of Model Rule 1.4 (Communication). Thoughtful communication with the client throughout the course of a matter is the best practice.  However, the more transparently you communicate with clients about your fees and billing practices on the front end, the less likely it is that you’ll have to defend against an action based on overbilling on the back end.

*Imokhai Okolo is a rising second-year law student at the University of Akron School of Law where he serves as an Assistant Editor on the Akron Law Review, member of the Akron Law Trial team, Vice President of the Akron Black Law Students Association, and Student Director of the Driver License Restoration Clinic.

We’ve written before about what you can and cannot say when withdrawing from representation.  Now a Texas bar ethics opinion adds a twist:  what can you tell an insurance company that retains you to represent its insured, when the client won’t cooperate?

Lonely in the Lone Star state

A Texas lawyer had a quandary.  An insurer had assigned Lawyer to defend its insured in a state court personal injury action arising out of a car accident.  For a while, the client cooperated.  Then — radio silence.  Lawyer tried contacting the client by various means, including having an investigator track the client down to ask him to contact Lawyer.

The client’s non-cooperation made it difficult or impossible to defend the suit, and exposed Lawyer to sanctions for not answering discovery requests.  Lawyer also realized that the client’s failure to communicate might violate the cooperation provision of the insurance policy, and result in the insurer withdrawing coverage.

Lawyer’s investigator finally delivered a letter to the client, warning that Lawyer would move to withdraw if the client didn’t contact Lawyer.  Receiving no response, Lawyer prepared to withdraw, and asked for guidance on what he could disclose to the insurance company  about the reasons for withdrawing.

Silence is golden

You can’t say much, answered the state bar ethics committee.  “At a minimum,” the committee said, the client’s “failure to communicate with Lawyer is unprivileged client information.”  Under the state’s version of Model Rule 1.6, that meant that it was confidential information that Lawyer could not disclose to third parties or use to the disadvantage of the client, including in the context of withdrawing from the representation.

No exception to the general confidentiality rule applied here, noted the committee.  For instance, like the Model Rule, the Texas rule allows lawyers to disclose confidential client information in order to carry out the representation.  It’s sensible to regard that kind of disclosure as always being impliedly authorized, because otherwise, we could not negotiate with opposing counsel, for instance.  But the disclosure here would not be for the purpose of representing the client, the committee said — rather, it would be for the purpose of ending the representation.

Therefore, in withdrawing, the Lawyer was advised not to reveal the client’s failure to communicate in order to explain either to the insurance company or the court the reason for Lawyer’s withdrawal.

The committee cited the  ABA Ethics Committee’s 2016 Opinion 476, which considered what you can say to the court when withdrawing for non-payment, and which, like the Texas opinion, advises that the information is within the scope of your confidentiality duty to the client.

Take home lessons

  • Bear in mind that even the most difficult client is still your client; the Texas opinion points out that there’s no free ethics pass even when the client stops communicating with you.
  • And in the insurance defense context, the insured is a client for ethics purposes, despite the fact that the insurance company has assigned the case to you and is paying your fees.

If you believe that you may have materially erred in a current client’s representation, your duty of communication under Rule 1.4 requires you to inform the client.

That’s the unsurprising conclusion that the ABA’s Standing Committee on Ethics and Professional Responsibility reached in its latest opinion, issued April 17.

Of note, though, is that the Committee firmly concluded that no similar duty applies to former clients. Also interesting is the excursion into substantive law that the Committee takes in order to delineate when a current client becomes a former client.

What we have here is a duty to communicate…

Even if you’ve only seen the Paul Newman classic Cool Hand Luke on YouTube clips, you know the classic line about communication. Not failing to communicate is important whether you’re on a chain gang or just working hard for your client.

As the ABA Committee said in the opinion, unfortunately, “even the best lawyers may err in the course of clients’ representations,” and if material, you have to ‘fess up to the client. “An error is material if a disinterested lawyer would conclude that it is (a) reasonably likely to harm or prejudice a client; or (b) of such a nature that it would reasonably cause a client to consider terminating the representation even in the absence of harm or prejudice.”

The Committee identified several parts of Rule 1.4 that potentially apply where a lawyer may have erred in the course of a current client’s representation:

  • the duty to reasonably consult with the client about how the clients objectives are to be accomplished;
  • the duty to keep a client reasonably informed about the matter;
  • the duty to comply with reasonable requests for information; and
  • the duty to explain a matter so that the client can make informed decisions about the representation.

Errors exist along a continuum, the Committee said, ranging from errors like missing a statute of limitations, which can undermine the client’s objective, to minor typographical errors, or missing a deadline that only causes delay.
It’s not only errors that could support “a colorable legal malpractice claim” that must be communicated – because an error can “impair a client’s representation even if the client will never be able to prove all the elements of malpractice.”

Rather, the measure of the obligation to disclose errors to current clients is the materiality of the error.

But not to former clients

Significantly, “nowhere does Rule 1.4 impose on lawyers a duty to communicate with former clients.” That led the Committee to conclude that although a lawyer must inform a current client of a material error, there is no similar duty to former clients.

But how do you distinguish between current and former clients? For instance, if you represent a client only “episodically,” is the client a “current client” in between times?

Interestingly, the Model Rules themselves, and their state analogs, decline to touch those issues; rather, in order to determine whether a lawyer-client relationship exists, a lawyer must consult “principles of substantive law external to these Rules,” says section 17 of the Scope section.

The Committee, however, was not reluctant to deal with substantive law principles, and undertook a case analysis, concluding that “if a lawyer represents a client in more than one matter, the client is a current client if any of those matters is active or open,” and that the “episodic” client’s reasonable expectations guide whether it is a current or former client.

Calling all gurus

Once you’ve determined that you have a duty to communicate with a current client about a material error you’ve made, or even during the process of that decision, you are going to want to get some expert ethics advice. In its opinion, the Committee points to the confidentiality exception that Rule 1.6(b)(4) extends, permitting a lawyer to reveal client confidential information to get legal advice about complying with the Rules.

We’ve also written before about the trend toward upholding the in-house firm counsel privilege, which can allow that type of advice to fall within the attorney-client privilege.

In any event, this is an area where it pays to tread carefully, in order to maintain the rights of both lawyers and clients.

We’ve written before about the breadth of the duty of confidentiality we owe to our clients, and how it even extends to matters that you think are safe to discuss because they are of “public record.”   (See here and here.)  Now comes the ABA’s latest on the subject of lawyer “public commentary” — Formal Opinion 480 (Mar. 6, 2018).  And it prompts us to be wary of a couple pitfalls when it comes to what we say about clients in online articles, on twitter, at webinars, in podcasts and through traditional print publications — all of which the opinion refers to as “public commentary.”

Duty “extends generally”

All such public commentary, the ABA reminds us, whether on-line or not, must comply with the relevant jurisdiction’s version of Model Rule 1.6.  The rule requires us to maintain the confidentiality of all information relating to the representation of a client, unless that client has given informed consent to the disclosure, the disclosure is impliedly authorized to carry out the representation, or the disclosure is permitted by a specific exception in Rule 1.6(b).

The confidentiality rule, as is frequently said, is much broader than the attorney-client privilege, and includes all information relating to the representation, whatever its source.  Even the identity of the client is usually deemed to be confidential information, the ABA ethics committee notes in this newest, foot-note-heavy opinion.  And, adds the committee, it’s highly unlikely that a disclosure exception (except for consent) would apply when a lawyer engages in this sort of public commentary.

Don’t hype the hypo

That brings us to “hypotheticals.”  We all use them — from law profs in class, to lawyers seeking informal practical advice from colleagues at other firms, to gurus of various stripes who use real-life examples at legal CLE seminars.  But, says the ABA committee, beware:  “A violation of Rule 1.6(a) is not avoided by describing public commentary as a ‘hypothetical,’ if there is a reasonable likelihood that a third party may ascertain the identity or situation of the client from the facts.”

For example, in a widely-reported case mentioned in the ABA opinion, an Illinois lawyer got a 60-day suspension in her home jurisdiction for violating  Rule 1.6, when she blogged about her criminal defense clients using either their first names, a derivation of their first names, or their jail ID number.  Reciprocal discipline was imposed in Wisconsin.

In light of the ABA opinion, you’re going to want to make sure that any real-life client situations you describe in  public commentary is so thoroughly disguised that no one can tell that it’s real.  If you’re using social media to educate and engage, there’s arguable benefit in discussing actual situations in a hypothetical way, while being sure to scrub the real facts out.  But as we’ve said before, if you’re just making cocktail party chit-chat, why even go there?  It’s not worth the risk of divulging confidential client information.

Trial publicity statements

The ABA opinion also briefly notes the constraints that Model Rule 3.5 puts on using public commentary to influence the court of public opinion.  The rule prohibits a lawyer from seeking to influence a judge, juror, prospective juror, or other official by means prohibited by law, and cites the case of a Louisiana lawyer disbarred for, among other things, using an internet petition campaign to contest the rulings of a judge presiding over a custody dispute involving her client.  That kind of conduct can also obviously lead to trouble.

All in all, the new opinion is a straightforward application of Rule 1.6 to this age of public commentary; but it is a good wake-up call for those who need one.

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.

Empty Chair in an Interrogation RoomWhen the government comes knocking during a grand jury investigation, can a G-man interview one of your executives without getting consent from counsel?  Last month, the U.S. District Court for the District of Maine said “Yes,” and refused to suppress a suspect’s statements in the tax fraud case against him, holding that the ex parte chat didn’t violate attorney ethics rules.

The case shows how in a federal criminal investigation, an exception to the well-known “no-contact” rule can sweep away its protection.

Tax fraud … more than skin-deep

In U.S. v. Sabean, IRS special agents interviewed a Maine dermatologist in his office, without his tax lawyer present.  Almost two years later, the dermatologist was indicted for taking more than $3 million in fraudulent medical deductions, health care fraud and illegally distributing prescription drugs.

The dermatologist moved to suppress the statements he made during the IRS interview, using an argument that the court called “rather novel” — namely, that federal statute requires government lawyers to adhere to the legal ethics rules of the jurisdiction where they work, including, Maine’s version of Model Rule 4.2, and that violating the no-contact rule amounted to a violation of his Fifth Amendment due process rights, requiring exclusion of his statements.

“Authorized by law” exception

Maine’s Rule 4.2, like its Model Rule counterpart, provides that a “lawyer shall not communicate about the subject of the representation with a person the lawyer knows to be represented  by another lawyer in the mater, unless the lawyer has the consent of the other layer or is authorized to do so by law or a court order.”

Acknowledging that the IRS agents who interviewed the dermatologist were acting on behalf of government lawyers and knew that he was represented, the court decided that the interview fell under the “authorized by law exception.”

Comment [5] to Rule 4.2 says that ex parte “communications authorized by law” include “investigative activities of lawyers representing governmental entities, directly or through investigative agents, prior to the commencement of criminal or civil enforcement proceedings.  When communicating with the accused in a criminal matter, a government lawyer must comply with this Rule in addition to honoring the constitutional rights of the accused.”

The district court judge in Sabean reasoned that the comment means that the bar of the “no contact” rule “begins when there is an ‘accused,’ thereby marking the actual commencement of criminal proceedings,” and that the pre-indictment, non-custodial interview did not require consent of the suspect’s lawyer.

The judge found additional support for this view in the Reporter’s Notes for Rule 4.2, which were prepared by the state task force that considered adoption of the Model Rules of Professional Conduct.  The Reporter explained that “[t]raditional investigative activities of prosecutors are those ‘authorized … by law” for purposes of the exception to the no-contact rule.

The judge also cited a case from the Third Circuit, and cases from district courts in Pennsylvania and North Carolina, which held that pre-indictment interviews do not violate the no-contact rule.

Suppression not an “appropriate remedy”

In addition, the court said that “while exclusion may be a remedy for due process violations of interview procedures, it is not a mandatory remedy,” and suppression is to be reserved for only the “most egregious violations of the no-contact rule.”

This case simply didn’t fall into the “egregious” category, the court ruled:  the interview was investigative, not prosecutorial; and it wasn’t “scripted to reveal potential trial strategy or obtain uncounseled confession.”

Following the denial of the motion to suppress, the jury trial in the case was set to begin on November 1.

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.

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.

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.

OopsWhat’s ethical may nonetheless not be a best practice — timely advice from the ethics committee of the New York State Bar Association, which weighed in recently with an ethics opinion on the practice of blind copying your client on e-mails you send to opposing counsel.

The inquiry to the NYSBA’s Committee on Professional Ethics arose because the inquirer’s opposing counsel apparently objected to the inquirer bcc-ing the client on e-mails that the two lawyers were exchanging.

Is a bcc “deceptive”?

The ethics committee noted that lawyers are required by the state’s version of Model Rule 1.4 to communicate regularly with the client, and to keep the client reasonably informed.

Against that imperative, the committee considered whether using a bcc as a handy way to keep the client informed was somehow “deceptive” within the meaning of New York’s version of Model Rule 8.4(c), which prohibits “conduct involving dishonesty, fraud, deceit or misrepresentation.”  The committee concluded that because the lawyer is the client’s agent, it is not deceptive for a lawyer to send to her own client copies of correspondence with opposing counsel, and opposing counsel may not reasonably assume that the lawyer will not share communications with her own principal, the client.

Therefore, bcc’s are allowed even over the objection of opposing counsel, the committee said.

And, the committee said, there are good reasons not to copy the client on an e-mail that is directed to opposing counsel — which might at first suggest that a bcc is the way to go.  First, a cc would reflect the client’s e-mail address, which the client may not wish to provide to opposing counsel.  A cc may also appear to invite opposing counsel to communicate directly with the client — although it would be improper for opposing counsel to do so.  (Model Rule 4.2 bars communication with a represented party, and comment [3] advises that the bar applies even when the represented party initiates or consents to the communication.)

Danger — “Reply All”

So, bcc-ing your client on e-mails you send to opposing counsel is not unethical, and it seems preferable to using a cc.  But not so fast.  The committee also said that there are reasons not to use either cc or bcc when copying e-mails to the client — namely the dreaded “Reply All.”  Inadvertent use of the Reply All button has created embarrassment (and worse) many times.  If you google “Reply All embarrassments” you will get hundreds of hits with titles like “Nine reply-all e-mail disasters,” and “Reply-all horror stories:  the button everyone loves to hate.”

For lawyers, the stakes are, of course, even higher.  As the committee pointed out, “if the enquirer and opposing counsel are communicating about a possible settlement of litigation, the inquirer bccs his or her client, and the client hits “reply all” when commenting on the proposal, the client may inadvertently disclose to opposing counsel confidential information otherwise protected by Rule 1.6.”

Bottom line:  the committee advised that you can bcc your client on e-mail to opposing counsel even over opposing counsel’s objection — but there are good reasons to take the extra step to forward that correspondence to the client later, and to stay off of that bcc button.