Five businesses filed suit earlier this month in a Texas federal district court against Morrison & Foerster, a 1,000+-lawyer mega-firm headquartered in San Francisco.  The case is unremarkable in most ways: on the one hand, former clients who assert wrongdoing in how the law firm handled their matters (including billing improprieties) and a less–than-desirable outcome – and on the other hand, a law firm that says “Don’t believe everything you read in a complaint, the claims are baseless and we will win.”  (MoFo told the ABA Journal last week that “[t]he complaint has no merit” and that the firm “will be vindicated.”)

What is noteworthy is one of the allegations about the firm’s billing.  The plaintiffs claim that the firm’s misdeeds include “block billing.”  By grouping multiple tasks in a single time entry, the plaintiffs allege in the complaint, Morrison & Foerster made it “impossible to determine exactly what tasks were performed and the amount of time allegedly spent for such tasks.”

Ye olde one-line fee bills

At this early stage, the allegations in the complaint remain unproven, and it can’t be known to what extent MoFo may (or may not) have sent invoices that block-billed discrete tasks.  Certainly, in days of yore it was common for law firms to send invoices summarizing the services provided.  (It was also common to see fee bills with one line: “For services rendered…” and then the dollar amount.)  In the 1980s, say, it was certainly easier to dictate a summary of the work done on a matter than it was to break out specific tasks.  (Those of us who were young and tech savvy in those bygone days would use our fancy Dictaphones™, though the senior partners would have their secretaries take dictation on a steno pad.)

Today though, most of us put our daily time charges directly into software that will spit out a list of charges for the month.  Preparing a “summary” of those charges actually requires more work than giving the client a detailed description of how much time was spent daily on what and by whom.  Why ever spend the time summarizing?

But what the plaintiffs in the case against MoFo might be alluding to is the practice of stringing together many short tasks in one running description and assigning a single combined time charge to those discrete tasks.  That can effectively obscure how much time the lawyer spent on each of those tasks – which is something clients now expect to be informed of.

Billing rules of the road

There is no ethics rule that says you may not “block bill” (though many corporate clients today have outside counsel guidelines that prohibit the practice).  But several ethics rules are broadly relevant, including your jurisdiction’s version of Model Rule 1.4(a)(3) (keeping the client reasonably informed about the matter); Model Rule 1.5(b) (communicating the basis of the fees and expenses); and Model Rule 1.5(a) (not charging an unreasonable fee).

ABA Ethics Opinion 93-79 vividly describes a number of billing no-no’s, including: billing more than one client for the same hours; billing time during travel to one client while working on another client’s matters and billing the second client as well; “continuous toil on or overstaffing a project for the purpose of churning out hours;” and marking up expenses, such as meals.  (The latter practice prompted the ABA Ethics Committee to opine colorfully that “[t]he lawyer’s stock in trade is the sale of legal services, not photocopy paper, tuna fish sandwiches, computer time or messenger services.”)

Blocking and tackling

When a client alleges misconduct against a lawyer or firm, the burden of proof is on the client.  But what we know about the tendencies of juries suggests that any lawyer should want to be in the best position possible to justify his or her fee if it is ever called into question.  We’re not playing football here – less blocking is better.

You probably know about the ethics rule that prohibits lawyers from trying to prospectively limit their liability to clients (or at least I hope you do!).  You can find it in your state’s version of Model Rule 1.8(h).

In an interesting twist, the Utah Ethics Advisory Committee recently opined that it’s permissible to include a provision in a retainer agreement requiring the client to indemnify the lawyer against third party claims against the lawyer arising from the client’s own “behavior or negligence.”

Narrow reading — but not alone

The Utah committee said that an indemnification provision against liability, loss and expense to the lawyer caused by third-party claims arising from client’s conduct “is not specifically prohibited by the rules.”

While Utah’s Rule 1.8(h) (identical to the Model Rule) bars prospective limitation of liability to a client for malpractice, the committee said, “it does not address the specific question of whether an attorney may include an indemnification provision for claims brought by third parties.”  Therefore, such a provision “is not prohibited on its face.”

Third-party indemnification provisions might be helpful in representations involving opinion letters — for example, providing a legal opinion on behalf of a lessor, which is to be given to and relied on by the lessee.  The lawyer would be benefitted by being able to seek indemnification from the lessor client against later claims by the lessee.

Few state ethics committees seem to have addressed the issue of third-party indemnification.  But the New York State Bar Association, in a 2013 opinion, has approved the concept in the context of opinion letters.  And a 2005 Oregon opinion advised that a lawyer asked to investigate a client’s employee could seek indemnity from the client against subsequent claims by the employee against the lawyer.

Insurance deductible?  Not so fast

What about using such an indemnification provision to hold a client responsible for the lawyer’s malpractice insurance deductible if the client unsuccessfully sues the lawyer for malpractice?

The Utah committee also considered that question, and concluded that Rule 1.8(h) doesn’t expressly bar that scenario, because “requiring payment for an unsuccessful malpractice claim, on its face, does not limit liability for malpractice.”  But trying to use indemnification to extract payment from the client for your malpractice insurance deductible may be misconduct under other rules, said the committee.  Rule 8.4(d) bars engaging in conduct that is “prejudicial to the administration of justice.”  An agreement that would make a client (or, by then, presumably a former client) responsible for paying your deductible after the client loses a malpractice case against you, could “have a chilling effect on a client’s pursuit of a malpractice claim and would thus be prejudicial to the administration of justice,” the committee advised.

Client communication

In any event, client communication is key.  To say the least, “the average client may not understand what indemnification is or in what specific circumstances it could be applied.”  Sophisticated clients might, but your best bet is clear explanation and understanding.  Model Rule 1.4(b) (“Communication”) requires you to “explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation.”

That would seem to apply to the client’s decision to agree to indemnify you for anything.


Note:  My co-editors and I are thrilled that the ABA Journal has again honored The Law for Lawyers Today as one of its “Web 100,” putting us among the 35 best legal blogs in the U.S.  Read the magazine’s announcement here.  We’re very proud, and we promise to keep bringing you fresh and lively news and comment from “Legal Ethics World.”  Thanks for reading!

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.

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.

Dictionary Englisch - Dutch*Updated on 7/29 to insert missing url links. 

Closely parsing the language in an arbitration clause, the California state court of appeals recently reversed an order compelling arbitration of a dispute between a lawyer and his client-turned-business-partner.  The lawyer must now defend against a $1.5 million claim based on malpractice and breach of the operating agreement that the lawyer had drafted in connection with his real estate venture with the former client.  With arbitration provisions becoming a common feature of lawyer-client retainer agreements, this ruling is worth attention.

Arbitration of malpractice case

The client’s 2013 malpractice complaint in Rice v. Downs alleged that while serving as counsel to the client and the companies he was affiliated with, the lawyer and the client decided that they would form a company together to develop properties in the affordable housing market.  The lawyer prepared the operating agreement for the LLC, which provided that “any controversy between the parties arising out of this Agreement shall be submitted” to arbitration in Los Angeles.

The malpractice complaint alleged a variety of misconduct against the lawyer, including secretly billing the LLC for his time, overcharging, conflicts of interest and providing bad advice.

The lawyer moved to compel arbitration of all the causes of action, based on the arbitration provision in the operating agreement.  The trial court granted the motion, and the lawyer won the arbitration, with the arbitrator dismissing the client’s claims with prejudice and declaring that the lawyer had not breached the operating agreement or any other obligation.  The trial court almost entirely confirmed the award (although it made dismissal of the client’s complaint without prejudice).  Both parties appealed.

“Arising out of” “arising in connection with”

In a reversal of the lawyer’s fortune, the court of appeals determined that the arbitration provision in the operating agreement did not apply to the malpractice case.

Under California law, the decision as to whether a contractual arbitration clause covers a particular dispute rests on whether the clause is “broad” or “narrow,” the court of appeals said.  “Broad” clauses use language such as “any claim arising from or related to this agreement,” or any claim “arising in connection with” the agreement.  With broad language, the court will command arbitration where the fact allegations even “touch matters covered by the contract.”

Not so where the parties choose to provide for arbitration only of controversies “arising from” or “arising out of” an agreement, ruled the court.  Those are “narrow” clauses, and the more limited language may not extend to tort claims.

Here, the court framed the issue as whether the particular claims the client asserted were controversies “arising out of” the operating agreements.  The court found very significant the fact that the parties broadly consented to jurisdiction in California courts of actions “arising out of, under or in connection with this Agreement or the transactions contemplated by this Agreement” — but they agreed to arbitrate only controversies “arising out of this Agreement.”

Thus, said the court, a tort claim based on violation of an independent duty originating outside of the agreement would not “arise from” the agreement, and would be outside the scope of the arbitration provision.  That exactly characterized the claims for malpractice and breach of fiduciary duty, the court held, which were not based on failing to perform under the operating contract, but rather violating duties created by the lawyer-client relationship.

Words matter; so do state rules

Of course, it is no news that a case can turn on contract interpretation.  But this one emphasizes the small drafting choices that can send a case to a full-blown jury trial or keep it in arbitration.  That’s of special concern to lawyers and their clients at the front end of a relationship — pre-dispute agreements to arbitrate are increasingly included in retainer agreements.

As always, be aware of your jurisdiction’s ethics opinions and rules governing arbitrating malpractice claims.  Most opinions on the subject indicate that the client’s informed consent is necessary; ethics opinions in a minority of states require consulting with independent counsel regarding the advisability of agreeing to arbitrate such claims.  (Ohio mandates independent consultation by Rule 1.8(h)(1) of its Rules of Professional Conduct.)

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.

Thumbs up and downA lawyer’s duty of care to a client does not include raising claims on the client’s behalf that are merely “colorable,” and not actually “viable,” the Oregon Supreme Court held last month.  The court said that a “colorability” standard would only promote “scorched earth litigation,” and expose lawyers to malpractice liability based on “hindsight bias.”

Plummeting real estate market — and shareholder oppression

In Rowlett v. Fagan, the plaintiff was a real estate developer who had organized an LLC to develop some valuable properties.  When the two other members of the business took actions the plaintiff viewed as unfair to his interests, he sought legal advice from a large Pacific Northwest regional firm.

The firm filed a demand for arbitration based on breach of fiduciary duty.  The case went into hiatus at that point.  Two years later, the firm amended the arbitration demand and added a claim based on “shareholder oppression.”  But in the meantime, the plaintiff’s two partners had ousted him from the LLC and cut him out of a $5.8 million distribution.

The court dismissed the arbitration claim for lack of prosecution; the firm then filed a complaint on the plaintiff’s behalf, with the same claims and a $900,000 prayer for relief.

Fast forward one year.  The real estate market had dropped like a rock, and the defendant offered to settle for $200,000, which the plaintiff accepted.  Then he turned around and sued his lawyers, alleging, among several other things, that they were negligent in failing to recognize that the factual circumstances gave rise to a claim for shareholder oppression, and in not asserting that claim before the real estate market tanked, at a time when it might have provided some negotiating leverage.

“Colorable” vs. “viable”

The intermediate court of appeals had reversed the trial court’s dismissal of the plaintiff’s claim for negligent failure to timely press the oppression claim, holding that while Oregon law was not clear on whether an oppression claim against an LLC was actually cognizable, the claim was at least colorable, and therefore that the law firm had a duty to raise it.  Wrong, said the state supreme court.

The supreme court held that lawyers cannot be held to have breached a duty of care by failing to raise claims that are merely colorable.  Rather, a malpractice plaintiff must “prove the existence of ‘a valid cause of action or defense, which, had it not been for the attorney’s alleged negligence, would have brought about a judgment favorable to the client in the original action.'”  Thus, a lawyer has no duty to a client to take “‘colorable,’ but ultimately incorrect, legal positions.”

A “colorable” standard of duty “would place lawyers in an untenable position, given that, any time an area of law is unsettled, both sides arguably are ‘colorable,'” said the court.  In sum (and perhaps inadvertently in a catchy rhyme), “a lawyer cannot be held liable for failing to assert a claim that is colorable but not viable.”

Vulnerable to second-guessing

The court’s ruling in Rowlett is in line with what the court called the “universally recognized” idea that where the law is unsettled, as it was on the underlying issue of the oppression claim, a lawyer’s judgment call does not subject the lawyer to liability — even if the judgment, as seen in the rear-view mirror, turns out to have been mistaken.

goldfish leaping in aquariumDid you make a New Year’s resolution to shift gears in your law practice?  Maybe start practicing in a new area of the law that is unfamiliar to you?  It’s always fine to add new skills, of course, and marketing yourself in new ways can be a good strategy for bringing in more revenue in 2016.  But merely dabbling in unfamiliar areas without the proper degree of competence and preparation can spell both disciplinary and malpractice problems.

Many lawyers begin to dabble when business slows down or dries up in an area they have become familiar with.  That was common during the last economic downturn.  It’s hard to measure the impact of dabbling on the incidence of malpractice complaints, but it seems to be responsible in a measurable way for disciplinary complaints against lawyers who do not prepare themselves adequately to face the challenge of doing a new kind of work.

Here in my Ohio bailiwick, Richard A. Dove, director of the Ohio Supreme Court’s Board of Professional Conduct (the adjudicatory arm of the state’s lawyer discipline system), said “We see several disciplinary cases each year in which lawyers, often due to economic pressures, extend their practice beyond their areas of competence. This includes not only legal competence but competence in the use of technology prevalent in the practice of law.”

Sometimes, a lawyer just becomes disenchanted with the law altogether, and wants a different kind of life.

When you are in over your head

A recent disciplinary case from Kansas helps illustrate some of the issues.  There, the lawyer was appointed to handle a federal criminal appeal.  She asked for and received three extensions of time to file the Eighth Circuit appellate brief on behalf of her client, but never filed it.  She didn’t respond to the court of appeals’ show cause order, or the letters requesting her response in the disciplinary investigation.  The Kansas Supreme Court’s opinion and the video of the oral argument provide the backstory.

The lawyer had been a patent and trademark associate in a major firm, but became disenchanted with her practice.  She left the firm, and decided to “try her hand” at criminal law.  She found it eye-opening, she testified; the case, which she took to trial in federal court, included her client making threats to harm her (he said he had his previous counsel’s fingers broken), and mysterious gunshots fired at her rural home by persons unknown.   She testified that even before her client’s trial, she realized that criminal law was not going to be a good fit for her, and she returned to school to become credentialed in another field.  She accepted the appointment to handle her client’s appeal while continuing to go to school.

Before the state supreme court, the lawyer admitted her misconduct, and neglect.  She said, “I was over my head, and did not seek proper advice about getting another attorney to replace” her in handling the appeal.

The Kansas Supreme Court imposed the discipline the lower board had recommended and the lawyer agreed to:  indefinite suspension, retroactive to an earlier administrative suspension for failure to register, which would allow the attorney to petition for reinstatement in September 2016.  She testified that she did not plan to practice law in the future.  The client ended up being allowed to proceed with the appeal with new counsel.

Shifting gears demands preparation

The comments to Model Rule 1.1 on competence recognize that you can strike out for unfamiliar territory and handle matters without “prior experience.”  As lawyers (even new law school graduates), our tool kit includes skills that transcend “any particular specialized knowledge.”  However, when working in a “novel field,” you must undertake “necessary study” and preparation.  And of course, you can also provide competent representation by associating — or at least getting advice from —  another lawyer who is already competent in the new field.  The resources are out there — our duty of competence requires that we use them when we embark on new paths.

locally grown red round grunge stamp on whiteIf you only agree to be “local counsel” in a matter, you can rest assured that your limited undertaking also limits the scope of your duties — right?   Wrong — as a recent disciplinary case and recent ethics opinion point out.

No “local counsel exception” to conduct rules

If your law school friend is serving as “national counsel” for a company defending product liability cases all over the country, you would naturally welcome a call asking you and your firm to serve as “local counsel” in your state in a claim against the company filed on your home turf.

In taking up the opportunity your friend is offering, you might make some assumptions — you might even regard these assumptions as “customary” in your bailiwick.  You might assume, for example, that your firm is only going to be a “mail drop,” and therefore you have no duty to know or advise on the substantive local law at play.  You might also assume that your duty to communicate is limited to interchanges with “national counsel.”  In fact, since you might never have any contact with the company itself, you might even designate the “national counsel” firm as the “client” in your billing system.

These assumptions may be “customary,” but they almost certainly lack any basis in your state’s version of the Model Rules of Professional Conduct — which make no distinctions between “local counsel” and “primary counsel” when it comes to the duties arising from the attorney-client relationship.

Cautionary tale

Disciplinary Counsel v. Broyles, decided October 29, illustrates how thinking of yourself as “only” local counsel can lead you astray.  The Ohio lawyer in the case drew a public reprimand for his conflict of interest in representing a couple in defending a foreclosure action brought by a lender.  The conflict consisted of the fact that nine months earlier, a law firm had hired the lawyer to be “local counsel” in representing the same lender against the same couple in obtaining a default judgment in the same foreclosure case against them.

The consent to discipline that the parties filed in the disciplinary case details that after the lender demanded the lawyer’s disqualification in the foreclosure suit, the court granted the motion, and the lawyer appealed.

On appeal, the lawyer argued that he was only providing local counsel services to the law firm that had hired him (which is where he sent his fee invoice) — and that he had never represented the lender.  He said “that he was providing a service to the law firm and not to [the lender] as he had no authority to make any representations to the court and did not advocate for any position in the case.”  There was no case law to support that contention, and the appeals court held that the lender was the client, and reasonably believed itself to be.

Bottom line:  the lawyer not only got disqualified from the foreclosure case based on his confusion about who his client was, but also was embarrassed with a public reprimand based on the violation of Ohio’s version of Model Rule 1.9 on former-client conflicts.

Ethics opinion guidance

In June, the Committee on Professional Ethics of the Association of the Bar for the City of New York issued an ethics opinion underscoring that lawyers who act as local counsel must adhere to the same ethics rules as lead counsel.  “An attorney who agrees to act as local counsel may be subjected to obligations and risks that she does not anticipate or intend to assume,” the Committee said.  If there are to be any limits on the scope of local counsel’s work, “it is the attorney’s obligation to communicate [them] to the client … rather than to rely on undefined terms, such as ‘local counsel.’  Preferably, local counsel will enter into an independent written retainer agreement with the client.”

This emphasizes the central role of the engagement letter, and the best practice of making the retention agreement directly with the client — not with “lead counsel.”  If you intend to limit your role to certain tasks, or a certain phase of the matter, you had better lay that out clearly at the beginning of the representation and get the client’s consent in writing.

As always, communication and documentation are the keys to avoiding unpleasant and potentially expensive surprises.


insurance umbrellaOnly one jurisdiction in the nation — Oregon — requires lawyers to carry legal malpractice insurance.  But all the other states have varying requirements about malpractice insurance and disclosing whether or not you carry it.  Knowing the rule in your jurisdiction is vital to staying out of ethics trouble.

Disclosure data

A helpful piece by Prof. Roy Simon, Hofstra University distinguished professor of legal ethics, emeritus, in the Association of American Law Schools Professional Responsibility Section Spring newsletter (subscription required) collects the data and points to the ABA’s comprehensive state-by-state chart.

Ohio, for instance, is one of only seven jurisdictions that require lawyers (with certain exceptions) to inform a client directly if they do not carry a certain level of malpractice insurance.  And Ohio lawyers who fail to communicate that fact to their clients have been reprimanded, and even suspended (at least when the failure to disclose is coupled with other misconduct).  The other states with disclose-to-clients requirements are Alaska, California, New Hampshire, New Mexico, Pennsylvania and South Dakota.

Disclosing on registration forms

Eighteen other jurisdictions require lawyers to disclose on their periodic registration statements whether they carry malpractice insurance.   (See the ABA’s chart for the list.)  This is in line with the ABA’s Model Court Rule on Insurance Disclosure, adopted in 2004.  The concept behind the Model Court Rule is to provide a potential client with the ability to get access to insurance information, according the report of the Standing Committee on Client Protection, which recommended the rule.

At least four states, according to the ABA’s data, are considering a malpractice insurance disclosure rule — Maine, South Carolina, Utah and Vermont.

Is insurance disclosure a good thing?

Naysayers on the subject of mandatory disclosure question need for it, point to a lack of hard data showing that it benefits clients, and assert that requiring lawyers to disclose whether they are insured unfairly stigmatizes those who are not — or even might encourage claims against those who are.

On the other hand, supporters of mandatory disclosure say that clients should understand the risk involved in retaining a lawyer who is not insured; and absent disclosure, most clients likely assume that the lawyer they hired is insured.

But if you are licensed in the near-majority of jurisdictions with some form of insurance disclosure requirement, this debate is somewhat beside the point.  And if your license is in one of the states now considering a disclosure rule, stay tuned.  Failing to comply can get you where you don’t want to be — in trouble.