Most lawyers have a general understanding of the “no-contact rule”  — namely that under state versions of Model Rule 4.2, with a few exceptions, you can’t communicate directly on the subject of the representation with someone you know is represented by counsel.  But where does in-house counsel fit in?  Is in-house counsel “fair game” for ex parte contact by opposing counsel?

Last month, the Virginia Supreme Court approved Legal Ethics Opinion 1890, and answered “Yes,” in an opinion that also covered some other issues of concern to in-house counsel.

No need for protection

Even in the current legal services market, where there is a trend for corporate clients to in-source legal work, many continue to rely on outside help for litigation and other matters, setting up a seeming choice for an opponent’s counsel — reach out to a company’s inside lawyer, or contact outside counsel.

The new Virginia opinion lines up with several other authorities in confirming that contacting in-house counsel can be an ethically-permitted option, even under the “no contact” rule.

This question might come up in a couple other ways, too:  when in-house counsel wants to contact an opponent’s outside counsel, who must decide whether she can participate in the communication; or when in-house counsel for one party wants to communicate with in-house counsel for another party, when both are represented by outside counsel.

In confirming that a lawyer “is generally permitted to communicate with a corporate adversary’s in-house counsel about a case in which the corporation has hired outside counsel,” the Virginia State Bar Association’s Standing Committee  on Legal Ethics referred to the purpose of Rule 4.2.  The no-contact rule is “to protect uncounseled persons against being taken advantage of by opposing counsel” and to safeguard the client-lawyer relationship from interference, the Committee said.

Contact between the in-house lawyer and opposing counsel does not present either of these dangers, said the Committee.  It is not likely that in-house counsel would be manipulated into making harmful disclosures, or do so inadvertently.  Therefore, the Committee concluded, the in-house lawyer does not need the protection of the no-contact rule.

Mainstream view, and some nuances

Other jurisdictions have arrived at conclusions similar to the Virginia Ethics Committee’s.  See, e.g., Op. 331 (D. C. Bar Ass’n Oct. 2005) (generally, no prior consent needed from company’s outside counsel in order for a lawyer to communicate with in-house counsel on the subject of the representation);  In re Grievance Proceeding, 2002 U.S. Dist. LEXIS 18417, 2002 WL 31106389 (D. Conn. July 19, 2002) (general counsel of a corporation did not constitute a “party” for purposes of Connecticut Rule 4.2, and protecting attorney-client relationship did not require bar against ex parte contact);  Op. 2007-1 (N.Y. City Bar Ass’n Jan. 1, 2007) (discussing various scenarios and concluding under former disciplinary rule that lawyer with objective good faith belief that in-house counsel is acting as entity’s lawyer may communicate with in-house counsel of a party known to be represented by outside counsel).

Likewise, the ABA’s Formal Op. 06-443 (Aug. 5, 2006), says that Model Rule 4.2 “generally does not prohibit” outside counsel from communicating ex parte with an opposing party’s inside counsel about the subject of the representation.  See also Restatement (Third) of the Law Governing Lawyers § 100 cmt. [c].

There are some nuances, however, which Rule 4.2 and/or the ABA opinion point to.

  • an adverse attorney should not communicate without consent with inside counsel who is part of the company’s “constituent” group for the matter –who participated, for instance, in giving business advice or in making decisions that gave rise to the dispute;
  • contacting an organization’s in-house counsel after being asked not to might violate the no-contact rule; and
  • Rule 4.2 and its comments describe permissive exceptions including contacts that are authorized by law (such as the constitutional right to petition the government) or a court order, or that don’t relate to the subject of the dispute.

Have you recently made a career move — maybe going in-house?  Or shifting from a firm to government work?  When you’re dealing with a work-life change, watch out for details that can too-easily fall through the cracks — like your license to practice, the date it expires, and whether you are in line to get an expiration notice.

Illustrating the possible pitfalls:  a high-level Justice Department  lawyer was in the spotlight this week because he practiced for two months while unaware that his license had lapsed.  He issued apology letters, including to the Ninth Circuit, where he had presented an oral argument while unlicensed.

“I wish to correct…”

As reported in Law360, the lawyer heads the DOJ’s Environment and Natural Resources Division.  He has been a member of the D.C. bar since 1997, and worked at Kirkland & Ellis before joining the DOJ in 2018.  His license was deactivated October 1 for not paying his annual bar dues.

In apology letters he sent to three federal courts where he practiced while his license was inactive, the lawyer said that the D.C. bar did not have his correct address and that he didn’t get mail forwarded from his former firm; as a result, he didn’t receive notice about the dues deadline.  Once he discovered his license had lapsed, he paid up the next day, he said.

During his twelve years at Kirkland, the lawyer said in the letters, the firm handled payment of his bar dues.

“If in appearing at oral argument,” the lawyer wrote to the Ninth Circuit, “I implicitly represented that my D.C. bar license was active and was authorized to represent the United States at that time … I wish to correct any such implicit representation and extend my sincere apology.”

Don’t let this happen to you!

Model Rule 5.5 bars practicing law in a jurisdiction in violation of the regulation of the legal profession in that jurisdiction.  Every jurisdiction prohibits unlicensed practice.  We’ve pointed out before the woes that can befall in-house counsel, for example, who fail to keep up their corporate license registration.  Here, the problem appears to have been a career move from private practice to government work with the accompanying change of address.  In his apology letters, the lawyer pointed out that his old firm had also moved to a new address after he left.  That surely made the snafu worse.

I’ve practiced with a large firm for my whole career, and the DOJ lawyer’s situation also illustrates how relatively easy we big-firm lawyers have it when it comes to the nitty-gritty details of practice.  It’s easy to become dependent on great support services — like staff that takes care of annual registration dues, or administering the IOLTA account or running the conflict-checking data base.

Just be aware that when making a change from one practice environment to another, you may have to pick up some tasks — and a change-of-address form may be one of them.

As 2020 kicks off, let’s take a look back at situations that got lawyers into ethical hot water last year.  They each point to some ways you can stay out of trouble this year.

1.  Talk nicely

As widely reported, calling your opposing counsel a “bowl of d- – ks,” among other epithets is a sure-fire way to serve up some  ethics woes.  Other examples of lawyers misusing their power of speech in various ways, included:

As the Model Rules say, being members of the legal profession means that we are representatives of clients, officers of the legal system, and public citizens with special responsibility for the quality of justice.  Calling a fellow member of the bar a “f- -ktard” just doesn’t square with those roles.

2.  Bill carefully

Billing was big news at the end of last year, with reports about the lawyer who failed to keep contemporaneous time records and was suspended for overcharging clients based on her reconstructions of the work.  In addition, there was the federal suit filed  early in the year, with the allegation that a firm’s “block billing” obscured overcharges.  (The plaintiff voluntarily dismissed the case two weeks after filing it.)  There are lots of ethics issues relating to legal fees in general — dividing them with other lawyers; whether you must deposit them in an IOLTA or IOTA; what to do in case of a fee dispute with a client — but everything depends on the core notions of charging a reasonable fee, communicating the basis of that fee to the client, and keeping the client informed about the bill as you go.

3.  Watch for conflicts

Getting disqualified is never a good thing, but conflicts of interest led to just that result in a couple cases providing some important take-aways.  For instance, in the government context, the DQ of an entire prosecutor’s office based on the chief prosecutor’s previous representation of the defendant while in private practice underscored the role that imputation plays under Model Rule 1.10 and 1.11 in spreading the “taint” of a disqualifying conflict.  And a lawyer who represented a massage parlor in the sale of the business was DQ’d in a suit over the deal because his previous representation of the buyer was “substantially related” to his work for the seller under the state’s version of Model Rule 1.9.

4.  Keep it confidential

Technology played a role in two situations last year that spotlighted confidentiality concerns.  In January, lawyers for President Trump’s former campaign chairman Paul Manafort failed to redact a document properly, leading to disclosure of the hidden contents when it was filed with the court.  And a lawyer’s Facebook posts that disclosed enough information about a client that she recognized herself resulted in a public reprimand for violating the duty of confidentiality.  The place where social media, technology and our confidentiality obligations intersect is a place to be cautious.

5.  Patrol the border

Finally, beware of possible pitfalls related to multi-jurisdictional practice and the unauthorized practice of law.  Last year a lawyer not licensed in Ohio was hit with an injunction and a stiff fine for UPL for providing legal services to six Ohio residents.  And if you are in-house counsel, and the jurisdiction where you are working has registration requirements (many now do), this is a good time to check and make sure you are in compliance.  (Here is a chart with links to state requirements posted by the ABA’s Center for Professional Responsibility and updated as of November 2019.)

Happy 2020 from all of us at The Law for Lawyers Today — make it a year of ethical practice!

If you’re making a New Year’s resolution to improve your time-keeping and billing habits, you can draw inspiration from this cautionary tale, detailing how a Massachusetts lawyer, a partner at a large firm, has been suspended for six months for overbilling clients at her prior firm.

3,000+ billable hours?!

As widely reported, the partner’s prior firm started investigating her 2015 time charges after she reported working 3,173 billable hours and more than 720 nonbillable hours.  According to the disciplinary opinion, the hours were not based on contemporaneous timekeeping.  Instead, the partner had her assistant create billing reports.  To do that, said the opinion,  the lawyer’s assistant would try to find and gather together notebooks the partner kept.  Then, the assistant “also would review the respondent’s calendar, correspondence files, pleading binders, and electronic mail messages.  She then would create a ‘weekly time report’ for the tasks the assistant believed the respondent had performed, as reflected in those documents.”  The partner would then review the drafts and make handwritten changes.  Often, this process would jog the partner’s memory and she would add charges that had not been reflected in her e-mail, calendar or notepads, she said.

The partner also allocated or re-allocated her own time to associates.  She testified at the disciplinary hearing that this was partly because she had carried out tasks that were more appropriate for an associate, or because the client’s guidelines would not permit more than one lawyer to attend a deposition, for example.  She also said that she sometimes added her own recalled time to an associate’s time-charge because “she believed that ‘creating [her] own new entry would have been an administrative burden that would then have required all of the draft bills to be re-run and that she ‘was always being pressured to get [her] bills done.’”

After the investigation, the partner left her prior firm; all but one of her clients followed her to her new firm.  The prior firm decided to return or credit to clients $260,000 in estimated overbilling.

At the hearing, it was undisputed that the partner was a hard worker, and that her clients were happy with the excellent results she achieved for them.  One even repurposed its fee refund and devoted it to a staff party, and invited the partner to attend.

But the disciplinary hearing panel was not so sanguine about the partner’s conduct.  It found that she violated the state’s versions of Model Rule 1.5(a) by charging a clearly excessive fee through charging more time than she actually worked and Model Rule 8.4(c) by conduct reflecting dishonesty, fraud, deceit or misrepresentation.  The reviewing board, and in turn the intermediate court of appeals, agreed.

The court particularly noted that “Client satisfaction does not preclude finding fees ‘excessive’” within the meaning of the ethics rules.

If I could save time in a bottle….

Like Jim Croce sang, you can’t capture time in a bottle, but you can and should keep contemporaneous time records and use them as the basis for billing your client whenever an engagement calls for hourly billing.  There are scads of software programs that can help you do that — or use pencil and paper.

Trying to recreate days or weeks of time entries based on vague clues about what you might have been doing is a sure way to cheat yourself out of potentially billable time — or, as the court found here, to cheat the client by overbilling.  (It can also lead to staff burn-out.  You can only sympathize with the partner’s assistant who had to try to recreate her time.)  Mark-ups, re-allocations, billing for your own perceived value of the time – all are inappropriate and can subject you and your firm to a whole range of problems, as it did in this case.

The partner in this case has not heard the last of it:  The professional conduct board is appealing the six-month suspension order and seeking a stiffer penalty.

Start 2020 off on the right foot with good time-keeping practices.

As widely reported in the news, the Seventh Circuit Court of Appeals last month harshly rebuked an Illinois lawyer for submitting a rambling 86-page appellate brief that the court said was “incoherent” and “gibberish.”  Quotes from the brief indeed made it appear deficient.  (One section, said the court, consisted solely of the heading “GAMESMANSHIP” and the statement that “Defendants have been ‘gaming’ the system.”)

But in the court’s sanctions order issued Monday, requiring the lawyer to pay legal fees and double costs, a new detail became widely known — namely, the lawyer said that his client had written the brief, and with his permission used the lawyer’s credentials to file the brief with the court.

“Monstrosity”

Last month, in upholding summary judgment in favor of the defendant employer in the discrimination suit, the Seventh Circuit said there was no evidence to support the claims of the lawyer’s client (the plaintiff) and the appeal was “utterly frivolous.”  The court went on to label the brief a “monstrosity.”

The sanctioned lawyer’s client had launched the case in the district court pro se, with a 386-paragraph complaint.  After the employer moved for summary judgment, she filed a response that the appeals court called “woefully noncompliant” with the local rule governing summary judgment briefs.  The court said that the response lacked the required sections, was a “disorganized … hard-to-decipher mess” and failed to cite appropriate evidence to oppose summary judgment.

On appeal, the formerly-pro se plaintiff was represented by the lawyer.  The Seventh Circuit’s November 7 ruling disposed of the client’s substantive arguments and quickly turned to sanctions against the lawyer under Federal Appellate Rule 38, calling the appeal a “shameful waste of judicial resources.”  In an opinion that has been called a “vicious benchslapping,” the court called out the brief for its legally and factually baseless assertions, “impenetrable arguments,” and even being a “typographical nightmare.”

“Most embarrassing” moments

At oral argument, the court noted in its November opinion, the lawyer had stated that he is a solo practitioner who “tries to get the help of … clients and whoever can provide help to [him]” and then “merge[s] that information.”

The court found that statement to be cryptic.  But in the lawyer’s response to the court’s show cause order on sanctions, it became clear what had happened:  the client had written the brief herself.

The court said that the lawyer explained in his response “that he did not have time to write an appellate brief, review the district court’s order, or examine the record.”  And he also “confessed that he allowed [the client] to submit an appellate brief that she prepared herself,” authorizing her to use his name, electronic signature and filing credentials.

In his response, the lawyer further explained that he had been a longtime friend of the client and “reluctantly agreed to do her oral argument after she asked me several times.”  When the briefing deadline came due, he “did not have the time … to attempt to rewrite [the client’s] brief and had to rely on the document that [the client] herself provided.”

The lawyer said in his response that during the oral argument he had “suffered through the most embarrassing and stressful moments of my legal career and perhaps my life,” and rued the tarnishing of his reputation after 32 years of practice.  He apologized for his “grave errors of judgment.”

In ordering the lawyer to pay attorney fees and double costs, the court noted his contrition, but said sanctions were merited based on the needless use of judicial resources and the burden and expense to the defendants.  Defendants were ordered to submit their fee-and-cost statement in early January.

Reverse-ghostwriting?

If you’re a litigator, you’ve certainly been up against briefing deadlines.  And I’m guessing that most of us have been subject to the entreaties of friends or family members who want us to do work for them when we really don’t have the time (or inclination, or know-how) to help.

These combined pressures can sometimes lead us to judgment errors.  Many federal cases say that a lawyer shouldn’t ghostwrite a brief for a client, while Model Rule 1.2(c) on limited scope representation and ABA Ethics Opinion 07-446 (May 5, 2007) (as well as some state ethics opinions) suggest that it can sometimes be permitted.  (Here and here are some discussions on the issue.)  But the opposite — letting a client submit her own work as yours, a kind of reverse ghostwriting — might be problematic.  Model Rule 8.4(c) bars all forms of dishonesty, fraud, deceit and misrepresentation.  Model Rule 3.3(a) bars making false statements of fact to a tribunal.

Letting someone sign your name to a pleading can obviously be risky, and if you do so without even knowing what’s in the document, the chances of adverse outcome — a bench slap, sanctions or worse — are magnified.  Be careful out there, and avoid the professional embarrassment that can come when you give in to a bad idea.

Last month, the New York State Bar Association Committee on Professional Ethics issued Opinion 1177, reaffirming that the New York Rules of Professional Conduct “permit a lawyer to assist a client in conduct designed to comply with state medical marijuana law,” even though the client’s conduct is prohibited by federal narcotics laws.

Reaffirming an earlier conclusion

The Committee first addressed this issue in a 2014 opinion, prompted by New York’s adoption that year of the Compassionate Care Act, which legalized medical marijuana.

In light of the conflict between the state law and federal narcotics laws that criminalize all marijuana without exception, the Committee considered whether New York’s version of Model Rule 1.2(d) —  which prohibits counseling or assisting clients “in conduct that the lawyer knows is illegal” – permits a lawyer to advise and assist clients seeking to act in compliance with New York state’s medical marijuana law.  The Committee concluded that the answer was “Yes.”

Conclusions based on federal enforcement policy

The Committee based its 2014 opinion specifically on “current federal enforcement policy,” noting the U.S.  Justice Department’s “Cole Memorandum” of August 29, 2013, which restricted “federal enforcement of the federal marijuana prohibition when individuals and entities act in accordance with state regulation of medical marijuana.”

Although then-Attorney General Jeff Sessions rescinded the Cole Memorandum in January 2018, the Committee’s opinion last month adhered to its earlier conclusion for several reasons:

  • First, the Committee cited Congress’s adoption in December 2014 of the Rohrabacher Amendment, a spending measure that bars the DOJ from using congressionally-appropriated funds to prevent states “from implementing their own State laws that authorize the use, distribution, possession, or cultivation of medical marijuana.”  The Committee noted that “[s]ince 2014, Congress has continuously renewed the Rohrabacher Amendment (by healthy bipartisan majorities) in subsequent spending measures.”  (In June 2019, the House of Representatives voted to expand the prohibition against interference to include adult-use cannabis regimes in additional to medical cannabis programs.)
  • Second, the Committee cited to United States v. McIntosh, in which the Ninth Circuit held in 2016 that the Rohrabacher Amendment “prohibits DOJ from spending funds from relevant appropriations acts for the prosecution of individuals who engaged in conduct permitted by” their respective states’ medical marijuana laws.
  • Finally, the Committee noted that “Sessions’ successor, William Barr, said during his confirmation hearing that he would not target state legal marijuana businesses, and would leave it to Congress to act.”

Thus, the Committee concluded in its recent opinion that “[t]he DOJ’s rescission of the Cole Memorandum does not meaningfully change federal law enforcement policy” and that, “[i]f anything, the adoption, continued approval, and implementation of the Rohrabacher Amendment reinforces [the Committee’s] earlier conclusion.”

Marijuana in the states

Currently, thirty-three states and the District of Columbia have laws permitting manufacture, distribution, and use of recreational and/or medical marijuana.  Most of these jurisdictions have either expressly amended their ethics rules or official comments to permit lawyers to advise clients on state-legal conduct or – like New York — have issued ethics opinions advising that lawyers may advise or assist clients in complying with state marijuana law without risk of professional discipline.  See, e.g., Oregon Rule 1.2(d); Ohio Rule 1.2(d)(2); Adv. Op. 201501 (Wash. St. Bar Ass’n 2015).  A July 2019 article in the ABA’s The Professional Lawyer collects many of the relevant state opinions and rules.

If you seek to represent clients in the cannabis space be sure to understand the lay of the land in the applicable jurisdiction.  After all, you don’t want to see your practice go up in smoke.

Disclosing client information on Facebook has gotten yet another lawyer in trouble.  A Massachusetts attorney was publicly reprimanded earlier this month for posting details of a guardianship case on the social media site, in violation of the Bay State’s version of Model Rule 1.6 (“Confidentiality of Information”).  The Board imposed a public reprimand, rejecting an argument that the only people who would have recognized the case from the information posted were the parties themselves.  The case highlights the risk of posting even information you have tried to anonymize.

“Back in the Boston office …”

After representing his client at a hearing in juvenile court, the lawyer (a member of the bar since 1977) posted on his personal Facebook page, which was public and had no privacy setting:

I am back in the Boston office after appearing in Berkshire Juvenile Court in Pittsfield on behalf of a grandmother who was seeking guardianship of her six year old grandson and was opposed by DCF [i.e., Department of Children and Families] yesterday.  Next date — 10/23.

Two people responded to the post.  A Massachusetts lawyer who was a FB friend asked, “What were the grounds for opposing?”  The lawyer answered, “GM [i.e. grandmother] will  not be able to control her daughter, the biological mother, and DCF has concerns.”  The friend responded (sarcastically), “DCF does have a sterling record of controlling children and questionable mothers, after all.”  The lawyer replied, “Indeed.”

A second FB friend, this one a non-lawyer, also responded:  “So what’s the preference … Foster care?  What am I missing here?”  The lawyer answered:

The grandson is in his fourth placement in foster care since his removal from GM’s residence in late July. I will discover what DCF is doing or not doing as to why DCF opposes the GM as guardian.  More to come.

Within a couple months, the lawyer’s client learned from her daughter about the lawyer’s FB post.  She later  complained to him and eventually to disciplinary authorities.

Connecting the dots?

The lower hearing committee recommended dismissing the disciplinary case, concluding that the FB post couldn’t reasonably be linked to the client, and therefore there was no confidentiality violation under Rule 1.6.  But the Board rejected that conclusion, because the post disclosed sufficient information to make it clear to the client’s daughter that the post referred to her mother. That belied the notion that no one could identify the case and learn confidential information from the post.

“Even if there were no evidence that a third party actually recognized the client in the post,” said the Board, “we would still conclude that the respondent had violated Rule 1.6(a).  There is no requirement that a third party actually connect the dots.”  Rather, the Board ruled, it was enough if it were “reasonably likely that a third party could do so.”

This was no mere hypothetical, or “shop talk” among lawyers the Board said.  The lawyer’s FB post did not seek advice from other lawyers, in the Board’s view, or have “any other purpose that would have served his fiduciary duty to his client.”  Rather, he violated the duty to “jealously guard … client secrets.”

The lawyer in this case had apparently practiced for 42 years without any other disciplinary history.  The Board brushed off his lack of previous discipline and said it was entitled to no mitigating weight.  Instead, the Board regarded the lawyer’s long experience as an aggravating factor, since “he should understand the importance of protecting client confidences.”

Be careful out there

Do we need to say it again?  Don’t even get close to talking about the specifics of your clients’ matters on social media.  Even if you try to disguise identities and details, that might not be enough to keep you out of trouble.

Bitcoin has come a long way since 2010 when Laszlo Hanyecz made the first Bitcoin purchase by paying 10,000 Bitcoins for two Papa John’s pizzas – a pizza order that today would have been worth over $80 million.

In addition to the pizza giant, some law firms are now accepting cryptocurrencies in exchange for legal services. Small firms in the technology industry, the Treasurer of the State of Ohio, and law firms such as Frost Brown Todd in Cincinnati and Steptoe & Johnson in Washington D.C. already are on the cryptocurrency bandwagon. Last week Am Law 200 firm Quinn Emanuel joined their ranks.

What is cryptocurrency?

Bitcoin is the oldest of over 1,000 cryptocurrencies – digital currencies not backed by any banks or governments. Cryptocurrencies are represented by entries in a digital ledger called a blockchain. The ledger is publicly accessible but encrypted. Each transfer of the cryptocurrency is recorded by adding to the ledger.

Individuals or entities that “own” part of the currency are identified by an anonymous key number. Each owner has a digital wallet, which can be stored in a smartphone app, that records transactions.

What are the ethics issues?

Before deciding to accept cryptocurrency payments from clients, law firms should understand and plan for the legal ethics issues that the digital currencies trigger. Among them:

  • Volatility

Cryptocurrencies are known for being extremely volatile, with sudden spikes and drops in value. Law firms accepting cryptocurrency must be careful not to run afoul of their jurisdiction’s version of Model Rule 1.5, which prohibits the collection of “an unreasonable fee or an unreasonable amount for expenses.”

Nebraska is apparently the only jurisdiction to have weighed in with an ethics opinion on cryptocurrency. It advises lawyers to convert a cryptocurrency payment to U.S. dollars immediately upon receipt and to notify their clients on how they will handle the digital currency, but questions remain as to the meaning of “immediate” (is a Monday morning conversion sufficiently immediate for a Friday night payment?), the applicable exchange rate (rate at time of payment or time of conversion?), and the exchange medium (which one should be used? Who pays transaction fees?).

  • Anonymity

The anonymous nature of cryptocurrency transactions has given digital currencies a reputation for attracting criminal behavior and may make it difficult to know who is paying your client’s legal fees. Of course, Model Rule 1.2(d) prohibits lawyers from assisting a client in conduct that the lawyer knows to be criminal. And Model Rule 1.8(f) mandates that lawyers may not accept compensation from anyone other than their clients unless certain conditions are met.

Before accepting cryptocurrency payments, law firms should establish practices, such as “know your client” procedures, to ensure that they are not facilitating criminal activity and that they know who is paying the bills.

  • Safeguarding client property

Model Rule 1.15 requires lawyers to safeguard client property. But cryptocurrencies cannot be deposited into your firm’s IOLTA account. The IRS defines cryptocurrency as property, and law firms must be technologically prepared to manage it. As financial institutions have not adapted to hold cryptocurrency in trust or to pay “interest” on such holdings to legal assistance organizations (which receive IOLTA interest under state-administered programs), this could be an area of uncertainty for firms.

Cryptocurrency can be stored in a digital wallet offered by online platforms, but there is a risk of hacking and lack of insurance against loss. Firms might also use “cold storage” by maintaining the cryptocurrency on a flash drive or other offline storage device.

Takeaway: Be tech savvy and have a good engagement letter

A detailed engagement letter tailored to compliance with the Rules of Professional Conduct is essential to manage the ethics risks of accepting cryptocurrency. A recent article counsels that the engagement letter should set forth the mechanics for conversion to U.S. dollars, identify the payer, and allocate responsibility for storage costs and the risk of loss – and that seems like prudent advice.

Remember: Model Rule 1.1 (“Competence”) as adopted in many jurisdictions carries with it the duty to be aware of the benefits and risks associated with relevant technology. You can certainly take advantage of the business development advantages of accepting cryptocurrency, but you should first carefully consider the ethical questions.

A New Jersey lawyer’s involvement in the sale of a massage parlor rubbed the district court the wrong way and resulted in his disqualification from a later suit over the transaction.  In its opinion last month, the court ruled that the buyer was the lawyer’s former client, and that the earlier work on the sale was “substantially related” to the later lawsuit in which the lawyer represented the seller against the buyer.  The case highlights key aspects of the rules on former-client conflicts of interest — and violating them is a common way to get tossed from litigation.

Massaging the facts

In his complaint, the seller alleged that he had sold the managing membership of Massages 4 All NJ 7, a New Jersey LLC, but that the buyer failed to get a permit or register the business properly with the borough as a massage business; rather, the buyer continued to display the prior permit listing seller as the owner.  Further, seller said in his complaint, buyer’s employee failed to register as a masseuse as required.

As a result of the permit transfer issues, said the seller, when the employees of Massages 4 All were arrested for prostitution, the police opened an investigation against the seller and he was eventually indicted on prostitution and  money laundering charges.  His bank accounts were frozen during the ensuing proceedings, he alleged.

The seller was eventually cleared, but sued the buyer asserting claims including breach of the covenant of fair dealing and negligent infliction of emotional distress.

The seller retained Matthew Jeon to represent him in the suit.  That set up the later motion to disqualify, because the buyer asserted that Jeon was involved in the underlying purchase and sale transaction for the massage parlor, and had represented him in the deal.   As his former lawyer, the buyer asserted, Jeon should be disqualified from suing him on behalf of the seller.  According to the court’s opinion, the buyer spoke Korean and had limited English language skills, and Jeon was fluent in Korean.

Former-client conflict rule spotlighted

The district court granted the motion to disqualify, agreeing that Jeon formerly represented buyer in the massage parlor transaction and was now precluded from representing seller in suing the buyer.

New Jersey’s rule on former client conflicts, like its Model Rule 1.9 counterpart, provides that absent written consent, a lawyer may not represent a  client against another client the lawyer has formerly represented in a “substantially related” matter.  Applying the rule, the district court opinion has some good take-home lessons:

  • The putative former client’s reasonable belief can create an attorney-client relationship and form the basis for disqualification.  Here, said the court, the evidence included Jeon’s filing of paperwork in connection with the transaction; his invoice to the buyer for legal services; the memo line on buyer’s check in payment, marked “Legal Services;” and the buyer’s averment that he had confidential communications with Jeon in which Jeon advised him regarding the transaction.
  • A “substantial relationship” can be shown based on likely exposure to relevant confidential information.  Two factors — confidential information shared in the former representation and the relevance of that information to the current litigation — are always key to analyzing conflicts under Rule 1.9.  Here, the court found that the buyer “likely” shared confidential information with Jeon, and that it was relevant to Jeon’s current representation adverse to the buyer.  The likely exposure and the fact that the current adverse representation revolved around the sale and operation of the massage parlor including the lack of proper business registration was sufficient to satisfy the necessary “substantial relationship.”
  • An open-ended prospective waiver can be insufficient to constitute consent to an actual conflict that arises later.  A former-client conflict is always subject to the former client’s written consent.  Here, Jeon argued that the buyer had waived the conflict in advance and in writing, including waiving any misunderstanding caused by the language barrier.  But the court rejected the waiver as too open-ended to be enforceable, because it merely sought to hold Jeon harmless against any further action arising from the massage parlor transaction.  That was insufficient, said the court, to identify what a future conflict would consist of or apprise the buyer of the material risks of the a potential future conflict.  Both are required in order to constitute a valid prospective waiver the court noted.

Be on the lookout for former-client conflicts — and be aware that federal district courts most often provide in their local rules that in resolving motions to disqualify they will look to the Rules of Professional Conduct in the forum state, as the court did here.