Law Practice Management

A Washington lawyer was disbarred last month by the state supreme court in a disciplinary case with an interesting array of issues:  the heavy penalties for using trust account money to “rob Peter to pay Paul;” the danger of treating the representation of a relative too casually; “compassion fatigue” as a potential mitigating factor in lawyer discipline; and the application of the Constitutional protection against double jeopardy in the disciplinary setting.

Rob Peter, pay Paul

The lawyer was a sole practitioner with a personal injury practice.  Alerted to overdrafts in his client trust account, disciplinary counsel investigated and found numerous irregularities:

  • The lawyer transferred trust account money to his operating and personal accounts when they were overdrawn or short of funds, in the process converting more than $10,000 to his own use.
  • He also failed to pay several clients the full amounts of settlements they were entitled to, and made misrepresentations to them in the process.
  • The lawyer shuffled money in and out of the trust account, using funds properly belonging to one client to pay settlement amounts owed to others.

Misusing and misappropriating client funds in these kinds of ways is the most serious ethics breach in the rule-book, and the court found violations of Washington’s versions of Model Rule 1.15 (Safekeeping Property) and Rule 8.4(c) (dishonesty, fraud, deceit and misrepresentation).  In Washington, as in many jurisdictions, the presumptive penalty is disbarment.

All in the family

Additional counts of the disciplinary complaint involved the lawyer’s representation of his nephew in a car accident case.  There was no fee agreement, but the lawyer eventually settled the case for $90,000 and took a $20,000 fee.  Later, however, after a change in Washington law, the tortfeasor’s insurer sent the lawyer more than $17,000 as an additional settlement payment.  The lawyer failed to notify the nephew, signed his nephew’s name on the check and eventually disbursed it to his office account, using it to pay bills.

The lawyer testified that his sister — the client’s mother — authorized him to negotiate the check, and that the nephew’s drug problem made it inappropriate to give the additional settlement money to him.  The sister had power of attorney over her son at one point, but it had expired long before the lawyer distributed the additional settlement funds to himself without the client’s knowledge or permission.

The court found that in addition to violating the trust account rules and converting the funds dishonestly, the lawyer violated the state’s version of Model Rule 1.4 (Communication).

“Compassion fatigue”?

The lawyer argued that the disciplinary board, which unanimously recommended disbarment, should have considered his emotional problems as a mitigating factor.  In the same year that he committed the charged misconduct, he had lost three personal injury trials in a row.  A psychiatrist testified at the disciplinary hearing that these losses and the lawyer’s over-identification with his clients led to “compassion fatigue,” a syndrome in which people in the helping professions become ill themselves as a result of working with traumatized populations.

The lawyer’s expert witness said that symptoms of “compassion fatigue” can include becoming “jaded,” and mentally disassociating from daily life, and that it had caused the lawyer to become careless and to avoid the stress of dealing with his bookkeeping.

The court accepted the concept of “compassion fatigue” as a potential mitigating factor.  Under Washington law, the mitigating factor of emotional problems requires merely some connection between the asserted problem and the misconduct; the court found that the psychiatrist’s expert testimony established that connection at least as to  some of the lawyer’s misconduct.

Nonetheless, the court said, under the totality of the circumstances, the lawyer’s emotional problems carried “little weight.”  “Compassion fatigue” did not actually cause the lawyer to forge his nephew’s signature, or convert client funds, the court said; and he testified that he was still aware of his ethical obligations.

In order to justify mitigation where the presumptive sanction is disbarment, the court noted, the circumstances must be “extraordinary.”  Here, they were not, and the failure to preserve the integrity of his clients’ funds led the court to rule that the lawyer’s emotional troubles could not reduce the sanction.

Double jeopardy and lawyer discipline

Last, the lawyer argued that being charged with multiple rule violations stemming from single instances of misconduct meant that he was being punished more than once for the same conduct, in violation of the Constitutional protection against double jeopardy.

This was an issue of first impression in Washington.  However, numerous jurisdictions have considered whether the double jeopardy clause is implicated in lawyer disciplinary proceedings, and answered “No,” and the Washington Supreme Court was persuaded by these holdings.  The weight of authority is that the sanctions for professional misconduct — reproval (or admonishment or reprimand), suspension or disbarment — are not criminal sanctions (which consist of fines or incarceration).  Thus, disciplinary sanctions are not “punishment” for purpose of the double jeopardy clause, the court held.

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.

So, you’ve just met with a potential client and the opportunity to take a fascinating case or close a major deal is at your front door. The catch? The client wants to pay for your services in Bitcoin.  Do you accept? Can you accept?

The do’s and the can’s

If you’re licensed in Nebraska the answer is yes! With some caveats, of course. Late last year, Nebraska’s Lawyer Advisory Committee became the first authority to opine on the legal ethics implications of digital currencies. Ethics Advisory Opinion 17-03 allows attorneys to receive and accept digital currency as payment for legal services. However, in order to ensure attorneys aren’t charging unreasonable fees, the Committee advised that the currency must immediately be converted to U.S. dollars upon receipt. Digital currency can also be accepted from third-party payers so long as there is no interference with the attorney’s independent relationship with the client. And, attorneys can hold digital currency in trust or escrow for clients and third parties as long as it is held separately from the attorney’s property, with reasonable safeguards.

Why Bitcoin?

An advantage to accepting Bitcoin (or other digital currency) as payment is that there are no transfer fees. Unlike payment by credit card, wire, or check, and foreign currency conversion for international transactions, Bitcoin is transferred from client to attorney directly, with no fee attached. Other advantages are instant transactions, no bank acting as middleman in the transaction, and the shared digital ledger book that tracks all Bitcoin transfers, which prevents counterfeiting.

How does Bitcoin work?

Bitcoin is an open-source program existing on a decentralized peer-to-peer network on the internet. Anyone can access Bitcoin, and it is stored in a digital wallet. There is a public key, consisting of numbers and letters constituting the “address” to which the Bitcoin is sent, and a private key that the sender uses to authorize the transfer of Bitcoin from one digital wallet to another. These transfers are managed and tracked in the leger book.

The value of Bitcoin fluctuates (wildly).  As of July 3, one was worth $6,624, but it has been worth almost $20,000.  Bitcoin can be transferred in pieces; the smallest, a Satoshi, is one hundred millionth of a Bitcoin.

Some ethical considerations

Given Bitcoin’s ever-changing value, there is a chance that a Bitcoin that was worth the fair value of the legal services you provided last week may today be worth three times as much.  To the Nebraska Committee, that raises the prohibition against unreasonable fees, under its version of Model Rule 1.5(a). The Committee tried to address this concern by mandating that Bitcoin be converted to U.S. dollars upon receipt.

Not everyone agrees. The late ethics guru Ronald Rotunda, for instance, thought that there is no legal ethics issue in not immediately converting digital currency into dollars. He argued that all forms of currency can rise and fall in value against the U.S. dollar, and that deciding in light of that risk to accept a legal fee in Euros, for instance, is a business decision for the lawyer to make, not an ethics issue.

Another potential issue is that since Bitcoin is not legal tender, the IRS classifies it as property. One commentator has noted that this makes accepting a Bitcoin payment similar to bartering for legal services, “like the country lawyer accepting a bushel of apples for drafting a will.” You should check  ethics opinions in your jurisdiction to determine any restrictions on bartering for legal services before agreeing to accept Bitcoin as payment. (We’ve written about bartering for your legal services here.)

A further issue is how to hold digital currency in a client trust account. The Nebraska Committee advised that if the payment is intended to be a retainer to be drawn on as fees are earned in the future, it must be converted to U.S. dollars immediately.  That certainly avoids the risk that the client’s retainer will go down in value; but it also precludes any upside gain that could benefit the client.  These circumstances might call for some client decision-making — and that makes them a subject that you have a duty to communicate about with your client, under Rule 1.4(b).

The Takeaway

Payment in Bitcoin and other digital currencies can be a very cool and convenient alternative fee method that you can offer clients. Just be sure to consider all of the ethical implications before accepting this form of payment.

* Jasmine C. Taylor is a rising third-year law student at Cleveland-Marshall College of Law in Cleveland, Ohio. She is currently a Sergeant in the Ohio Army National Guard, 1-137th Aviation Regiment.

After hard-fought proceedings, you’ve finally settled a contentious case on behalf of your client.  The plaintiff’s lawyer has brought suit against your client before, and likely will again:  the lawyer advertises and uses social media aggressively to locate claimants who have the same kind of issue with your client.

Your client asks, “Can’t we include terms in the settlement agreement that would rein in this lawyer?  Maybe raise the settlement amount enough to get her to agree to stop taking these cases?  Or at least, get some language that would stop the blog posts and the TV ads fishing for clients to sue us?”

The answers:  “No — and no.”  A new ethics opinion from Ohio’s Board of Professional Conduct underscores the point.

Restrictions on right to practice

Model Rule 5.6(b), adopted with only minor variations in almost every jurisdiction,* bars you from “participating in making or offering” a settlement agreement that includes a restriction on a lawyer’s right to practice.  The new Ohio ethics opinion expressly extends that prohibition to settlement agreements conditioned on restricting a lawyer’s communication of information “contained in a court record.”

A settlement agreement can certainly bar both sides from disclosing non-public information (such as settlement terms, conditions and amount), and those are common clauses.  But preventing counsel from making a public announcement, or communicating to the media, or advertising about the case using information contained in case documents, violates Rule 5.6, said the Ohio Board.

The Board reasoned that an agreement prohibiting a lawyer from using public information interferes with the ability to market legal services in a way otherwise consistent with the Rules of Professional Conduct.  It also interferes with “the public’s unfettered ability to choose lawyers who have the requisite background and experience to assist in pursuing their claims.”  Rule 5.6(b) “prevents settlement agreements from being used to ‘buy off’ plaintiff’s counsel … in exchange for the lawyer foregoing future litigation against the same defendant.”  The Board also mentioned the conflict that such agreements create “between the interests of current clients and those of potential future clients.”

Expansive readings

The ABA Ethics Committee, as well as ethics committees in New York and the District of Columbia, have reached similar expansive conclusions about the reach of Rule 5.6(b).  The ABA Committee particularly disapproved in 2000 of settlement agreements conditioned on not “using” information in later representations against the same opposing party or related parties.  And the D.C. ethics opinion notes that the fact of settlement is usually reflected in public documents, thus making it a rule violation to condition the agreement on non-disclosure of that fact.

Underlying these opinions, as the D.C. ethics committee said, “is the intent to preserve the public’s access to  lawyers who, because of their background and experience, might be the best available talent to represent future litigants in similar cases, perhaps against the same opponent.”

Not a limit on duty of confidentiality

The Ohio opinion, and others, should not be read to alter your duty of confidentiality to your client.  Under Rule 1.6, absent client consent and other narrow exceptions, you already have a duty to keep confidential all information relating to the representation — and that would include otherwise public information, as we’ve noted before.  In contrast, the opinions centering on Rule 5.6(b) are about your ability to offer or accept settlement agreements restricting the right to practice.

Further, as Hofstra Professor Emeritus Roy Simon explains in his treatise on New York ethics law, you can get into ethics trouble even if a court might otherwise enforce the settlement agreement:  “A lawyer who makes or agrees to [a settlement in which a lawyer promises not to represent a client in later disputes with your client] risks professional discipline even if a court later holds that the agreement is enforceable.”

Client ABC’s — and the nuclear option

The restriction against participating in a settlement agreement aimed at reining in opposing counsel is a part of the ethical landscape that clients may not understand — especially when you need to turn down a request to pursue something that would be to the client’s advantage.

This is an issue that certainly merits explanation under Rule 1.4 in order to “permit the client to make informed decisions regarding the representation.”  And you also must “consult with the client about any relevant limitation on the lawyer’s conduct when the lawyer knows that the client expects assistance not permitted by the Rules of Professional Conduct or other law.”

The new Ohio opinion cautions that if worst comes to worst, and the client insists that you participate in accepting or offering settlement agreement with an impermissible condition, Rule 1.16(a)(1) requires you to withdraw from representation, in order to avoid violating Rule 5.6.  Hopefully you won’t need to exercise that nuclear option.

* An exception to the nearly-nationwide approach is Virginia’s Rule 5.6(b), which carves out settlement agreement restrictions on a lawyer’s right to practice that are approved by “a tribunal (in such situations as the settlement of mass tort cases) or a governmental entity.”

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.

The concept of “unbundled” legal services is laid out in Model Rule 1.2(c), which provides that lawyers may limit the scope of their representation in reasonable ways, if the client gives informed consent.  The rule opens the way to representing a client as to one phase of a matter, or as to certain issues or tasks.

A New York appellate ruling last month, however, demonstrates that an intended limited-scope arrangement can come back to bite you if you’re not careful to lay out in detail — in writing — what you are and are not going to undertake, and the client’s express buy-in to the plan.

Negligence?  Or thrift?   

The January 11 opinion of New York’s First Department reverses the grant of summary judgment in favor of the client on its malpractice claim, and gives the law firm a chance to prove at trial that client thriftiness — and not sloppy lawyering — was the cause of the client’s alleged $85 million loss on a soured loan transaction.

The plaintiff, a venture capital fund, hired the firm to document loans that the fund was making to a third party borrower.  The loans, totaling about $4.5 million, were to enable the third party to finance the purchase of several portfolios of life insurance policies,  secured by the policies themselves, with a face value of $84 million.  But the fund’s security interests in some of the loans were never perfected, because collateral assignment forms weren’t filed with the insurance carriers for the policies.  The borrower defaulted on the loans, defaulted on a subsequent settlement, and was uncollectible.  The underwriting insurers refused to pay proceeds of the collateral to the fund, because they had no records that the collateral had been assigned.

The question was, Whose fault was the slip-up?  The fund pointed at the lawyers, saying that filing the collateral forms was the firm’s responsibility.  It sued for legal malpractice, eventually moving for summary judgment on liability.

In the trial court, the law firm argued that it was not responsible for filing the collateral forms — that the fund expressly limited the scope of the representation as a cost-saving strategy, and further habitually minimized the role of outside counsel to “minimize legal spend.”  The firm said that it was retained only to draft the loan documents, and that the limited representation was at the client’s express instruction.

Significantly, there was no retention letter documenting the engagement or its scope.  The trial court granted judgment in favor of the fund.

Let’s have some paper with that….

This has a happy ending for the law firm — at least for now.  The reviewing court noted New York’s version of Model Rule 1.2(c), and said that if the firm “wanted to limit the scope of its representation, it had a duty to ensure that [the client] understood the limits.”  But the appellate division nonetheless reversed the summary judgment, holding that there were enough factual issues to justify trial — raised by warring e-mails between the client and the law firm, some of which suggested that the fund was looking to the firm to perfect its security interests, and some of which showed the contrary.

One fact that stands out, though, is the absence of an engagement letter that would have defined the scope of the representation and reflected the client’s assent.  That could have protected the law firm here.  As it is, despite beating summary judgment, the firm could still be at risk for an adverse trial verdict, absent some settlement.

Don’t be like the shoemaker’s children.  We would always counsel our clients to “get it in writing.”  When providing limited scope representation, the case for doing so is compelling.

Here’s a year-end reminder to in-house counsel:  make sure that you are properly registered and licensed, or you may run into disciplinary problems.  An Ohio lawyer who worked in a company’s law department learned that the hard way earlier this month, when she received a two-year suspension from the Ohio Supreme Court, with six months stayed.

If I don’t open that scary envelope…

The lawyer was suspended in 2013 because she failed to renew her registration with the state supreme court.  A year later, while still lacking any license, she got a second suspension based on her failure to complete CLE requirements.  She later stipulated that although she didn’t open letters she received from the supreme court, she was aware of her suspension.

A year after that, still without an Ohio or any other license, she started working for a company’s law department as staff counsel and (ironically) director of institutional compliance.

Shortly after being hired by the company, the lawyer completed a securities industry application form, and falsely stated that her authorization to act as an attorney had never been revoked or suspended.

In 2015, after the lawyer had been working for the company for about a year, the GC noticed that she hadn’t received a request from the lawyer to reimburse her Ohio attorney-registration fee for the upcoming biennium.  When the GC checked the supreme court’s website, she learned that the lawyer had been suspended since 2013.

The lawyer later admitted that she had known about her suspension, and that before filling out the securities application form falsely, the lawyer had delayed completing it, because she knew that it asked about prior suspensions.

The company fired the lawyer immediately.

Making a bad problem worse

The disciplinary case proceeded by stipulation, and the supreme court found numerous ethics rule violations, including of the state’s versions of Model Rule 5.5(a) (unauthorized practice); Rule 5.5(b) (misrepresenting oneself as authorized to practice law); Rule 8.1 (false statements in connection with a disciplinary matter); and Rule 8.4(c) (conduct involving dishonesty, fraud, deceit, or misrepresentation).

As in many disciplinary cases, the initial problem (failing to register) was made a lot worse by what my family calls “avoidant behavior” — like the lawyer’s failure to open the letters from the supreme court informing her of the suspension and what to do to cure it.  And of course, things were made even worse by the subsequent misrepresentation on the securities registration form.  An emotional shut-down in the face of a mistake can be a normal human reaction, but fighting against it is the best course. (That’s easy to say, I know.)

As a side note, the lawyer here was working for a corporate employer in Ohio and was (or should have been) licensed in Ohio.  Most jurisdictions permit a lawyer to work in-house with a license from a different jurisdiction — as long as you are validly licensed by the highest court of some jurisdiction.

But it’s dangerous to let that license lapse through inattention.  And many jurisdictions also have special in-house counsel registration requirements in their court rules or other regulations. (The ABA Center for Professional Responsibility has a list with links, here.)

Pay attention to all those requirements, and reach out for help if you have dropped the ball in meeting them.

One of 2017’s biggest legal trends is the upswing in law firm merger activity.  Altman Weil’s MergerLine site reports 76 deals announced through 2017 Q3, the most ever recorded through three quarters, with a prediction that there might be 100 mergers by year-end, surpassing the 2015 high of 91.

Firm mergers raise lots of conflicts issues, and some mergers are scuttled when they can’t be resolved.  Another issue that can be troublesome in the courtship stage involves the considerable amount of financial information disclosed, namely:  How can firms that are exploring a merger guard against the possibility that revealing financial information to each other might lead to poaching each other’s top rainmakers in the event that the merger doesn’t go forward?  Can firms enter into non-solicitation agreements, to alleviate this reasonable concern?

Issue of lawyer mobility

A new ethics opinion from the North Carolina state bar addresses agreements, made as part of merger negotiations, not to solicit or hire lawyers from each other for a specified period of time in the event that the firms decide not to merge.

The ethics issue arises under Model Rule 5.6(a), which prohibits a lawyer from offering or making an agreement that restricts the right of a lawyer to practice after terminating an employment relationship (except for retirement benefits agreements).

The rationale is that agreements that impose practice restrictions after a lawyer leaves a firm limit a lawyer’s professional autonomy; and more important, they limit the freedom of clients to choose a lawyer.

De minimis restriction

The North Carolina opinion reviewed an agreement between two firms exploring a merger.  In addition to customary terms barring disclosure of confidential client and proprietary firm information, if the firms decided not to merge, each firm agreed not to:

  • induce or solicit each other’s lawyers or other employees to join either firm;
  • hire or engage each other’s personnel as partners or counsel;
  • for the term of the merger exploration agreement (one year) and for two years after termination of the agreement.

The Committee noted the reality of the merger marketplace, surmising that “the non-solicitation provision was included in the agreement to foster the trust necessary for both firms to disclose financial information about [lawyer] productivity”  without fear that if negotiations fell apart, one or both firms would try “to lure highly productive lawyers or ‘rainmaker’ lawyers away” from each other.

The proposed agreement was permitted under the Tar Heel State’s adoption of Rule 5.6, the Committee said, viewing it as a matter of first impression.  First, the agreement imposed only a de minimis restriction on the mobility of the two firms’ lawyers.  “If there is a reasonable business purpose,” the Committee said, a “restriction that impacts lawyer mobility may be permissible.”  This one was for a relatively short, defined period of time, and only affected employment with one other law firm.

In addition, the Committee said, the restriction on lawyer mobility did not impair client choice:  it would not prevent or inhibit a client from following a lawyer who left one of the firms in order to take a position with a firm that wasn’t subject to the agreement.

The Committee cited the ethics rules as “rules of reason” (as noted in their scope section).  Under that rubric, and with its limited impact, the “no poach” provision passed muster.

Any more out there?

I’m not aware of other ethics opinions that deal with this aspect of Rule 5.6(a), or a no-poach clause.  If your firm is part of the hot merger marketplace, it would be wise to tread carefully and seek advice before including such a clause in your agreement with a potential merger partner.  And of course, as always, check your jurisdiction’s version of the rules.

If the clerk of courts e-mails you an order that your client must pay $1 million in attorney fees to the opposing party, but your spam filter catches the e-mail and then deletes it after 30 days without alerting you, and you therefore fail to appeal the order in time — well, your client may be out of luck, as a Florida court of appeals ruled recently.  (There is a motion for rehearing pending.)

Spam canned?

The ruling thus far is a cautionary tale and shines a light on some ethics duties as they might apply to your process for handling and keeping on top of spam e-mail — especially the duties of diligence (Model Rule 1.3) and competence (Model Rule 1.1, and see cmt. 8 on technology).

The facts:  Company sued Utility Authority, and Company won.  Company’s Lawyer moved for attorney fees, and after more than a year, the trial court granted them — reportedly as high as $1 million.  It’s worth noting that during the time that his client’s fee motion was pending, Company’s Lawyer had the firm’s paralegal check the court’s on-line docket every three weeks for a ruling.

When the court finally issued the ruling, the clerk e-mailed it to all counsel.  Technology experts who later testified said that the e-mail server at the Utility Authority’s Lawyer’s firm received the e-mail. But the firm’s e-mail filtering system was configured to drop and permanently delete e-mails perceived to be spam without further alert.

Apparently that’s what happened to the e-mailed attorney-fee order.  After 30 days passed without the fee award being paid (i.e. after the time to appeal the order had run), Company’s lawyers contacted opposing counsel.

No relief

The Utility Authority moved for relief from the judgment, arguing that its lawyers didn’t receive the order in time to file an appeal.  The trial court rejected the argument, and the court of appeals agreed:  this was not “mistake, inadvertence, surprise or excusable neglect,” it held.  The Utility Authority’s Lawyer’s firm did receive the order — the equivalent, the court of appeals said, of placing a physical copy of the order in a mailbox.  The e-mail just went right to spam, from where it apparently was deleted without further notice.

At the hearing on the motion, the law firm’s former IT consultant testified that he advised against that configuration; the firm rejected the advice, as well as advice to get a third-party vendor to handle spam filtering, and advice to get an online backup system that would have cost $700-1200 per year.  Financial considerations played a part in these decisions, the court found.

The decision to use this filtering configuration despite warning was a conscious decision to use “a defective e-mail system without any safeguards or oversight in order to save money.  Such a decision cannot constitute excusable neglect,” said the court of appeals.

Adding further sting, the court noted the Company’s Lawyer had a paralegal regularly check the court’s online docket during the long pendency of the fee motion.  If the Utility Company’s Lawyer had done something similar, the court said, he would have received notice of the fee order in time to appeal.  “The neglect” of that duty “was not excusable.”

Spam:  not tasty but good to check

The harsh result here may yet be ameliorated if the court of appeals grants rehearing.  In the meantime, however, the scary scenario points to the need to pay attention to your firm’s  technology and processes for handling spam.  And old-fashioned procedures like checking the court’s docket can also help avoid an unpalatable spam situation.

Putting your law firm name on coffee mugs and giving away donuts to prospective clients is apparently not enough anymore.  Recent firm branding campaigns have included sponsorships of pro golfers and cricket players, including emblazoning the bats with the firm name.

That may be the trend of the future in Biglaw, but a much more modest marketing effort recently landed an Ohio lawyer in disciplinary trouble.

No Justice, no peace?

According to the opinion, from 1981-1997, the lawyer in question practiced with another attorney, who eventually became (and continues to be) a Justice of the Ohio Supreme Court.  Fast forward to 2015.  With the permission of the Justice, the lawyer began using their old firm name, including on business cards, and hung a sign outside the office saying “O’Neill & Brown Law Office (Est. 1981).”

That only lasted for a few weeks before the local bar association began investigating.  After the disciplinary authorities advised the Justice that the sign violated Ohio ethics rules, the Justice instructed the lawyer to remove his name from the sign, and eventually the lawyer did so.

False and misleading

The Ohio Supreme Court (with the Justice in question not participating) agreed with the Board of Professional Conduct that the firm name on the sign and business card, and the reference to the firm having been established in 1981 were false or misleading communications that violated Ohio’s version of Model Rule 7.1.  The court also found a violation of Rule 7.5(c), which prohibits using a judge’s name in a firm name or other firm communication, unless the judge regularly and actively practices with the firm.

By a 4-3 vote, the court imposed a two-year stayed suspension on the lawyer.  A significant aggravating factor contributed to the sanction:  this wasn’t the lawyer’s first rodeo — he’d been disciplined several times before, according to the opinion, including a previous suspension for threatening a judge who served as chair of the local bar grievance committee.  But in mitigation, the court noted that his conduct “did not involve the provision of legal services,” that no clients were harmed, and that the Justice participated in the decision to use the “O’Neill & Brown Law Office” name on the sign.

The three-judge minority would have imposed an “indefinite” suspension, which in Ohio is a term of at least two years.

Stick to the tchotchkes

A good lesson here.  A prominent legal moniker on your office sign may be good marketing, but it would be best to stick to the coffee mugs — or cricket bats.