Can we be Facebook friends?  That’s one question left open by the ABA earlier this month in Formal Opinion 488, on the subject of judges’ personal relationships with lawyers as grounds for disqualification.  While spotlighting judicial ethics duties in maintaining impartiality, the opinion fails to provide some needed guidance on social media relationships.

Model Code of Judicial Conduct rules

Under Rule 2.11(A)(2) of the Model Code of Judicial Conduct, judges must disqualify themselves when their impartiality may reasonably be questioned, including (not limited to) where the judge’s spouse or domestic partner (and certain of their relatives) is a lawyer or party in the proceeding.

In Opinion 488, the ABA Ethics Committee advises on situations that fall outside the bounds of Rule 2.11(A)(2); that is, where judges may have “social or close personal relationships with the lawyers or parties” but not as a spouse, domestic partner or other family member.

The Committee identifies three categories of such relationships between judges and lawyers:  acquaintanceships; friendships; and close personal relationships.

In a common-sense application of Rule 2.11(A)(2), the Committee concluded that judges are not required to disqualify themselves or make disclosure when they are merely acquainted with a lawyer — for instance through being members of the same worship-place, gym or civic organization, or even having been co-counsel on a case before the judge took the bench.  Standing alone, acquaintanceship is not a reasonable basis to question a judge’s impartiality, the Committee said.

“Friendship” implies a greater degree of affinity, according to the opinion.  Friends may be casual (periodically meeting for a meal, staying in touch through calls or correspondence) or closer (routinely spending time together, vacationing together, sharing a mentor-protegee relationship developed while colleagues).  Not all friendships require disqualification, but there may be situations “in which the judge’s friendship with a lawyer or party is so tight” that there might be reasonable questions about the judge’s impartiality.  It’s a matter of degree, the Committee advised.

Last, a judge may have a personal relationship that goes beyond friendship but that still does not implicate Rule 2.11.  The judge may be involved romantically with a lawyer, or desire a romance; the judge and a lawyer may be amicable ex-spouses; or the judge may be a god-parent to a lawyer’s child or vice versa.  Existing or desired romantic relationships require disqualification, said the Committee.  “Other intimate or close personal relationships with a lawyer or party” at least require disclosure “even if the judge believes that he or she can be impartial,” and could require disqualification — it depends on the circumstances, the Committee said.

What’s left out?

Over at Professional Responsibility Blog, Prof. Alberto Bernabe points out that while the opinion is sensible, it doesn’t deal with an issue of concern to many lawyers — namely social media “friendships” with judges.  (Elected judges in particular sometimes seek out such virtual friendships.)  The issue is also the subject of several state ethics opinions, which have been somewhat divergent in their approaches.

Opinions in Ohio and New York, for instance, suggest that a social media friendship with a lawyer is not a per se basis for judicial disqualification.  Opinions in some other jurisdictions are more restrictive, and bar judges from being Facebook friends with lawyers who are currently appearing before them (California) or even may appear before them (Massachusetts).

Late last year, the Florida Supreme Court ruled in a divided opinion that there is no basis to single out social media “friendships” between judges and lawyers for a per se rule of judicial disqualification.  That makes sense to Prof. Bernabe and other commentators (see here):  given that real-life friendships aren’t automatically disqualifying, why should virtual ones be?

But earlier this year, a Wisconsin court of appeals rejected a per se rule while still holding in a child custody case that accepting a Facebook “friend” request from a party with a motion pending creates an appearance of impropriety and warrants judicial disqualification.

The ABA Ethics Committee could have been more helpful in clarifying the social media rules of the road on this issue for lawyers and judges.  In the meantime, lawyers should be mindful of their state’s version of Model Rule 8.4(f), which bars knowingly assisting a judge in conduct that violates the rules of judicial conduct, as well as any applicable state ethics opinions or cases that make it unfriendly to be a (social media) friend.

The practice of law comes in many forms and sizes. It may include giving advice about a legal right, representing a client in a legal proceeding, preparing legal documents, and negotiating on a client’s behalf. Yet what all these acts have in common is that you must have state authorization to so act. You face serious repercussions for unauthorized practice of law, whether the unauthorized practice is just for a single, quick transaction or a representation spanning more than a decade. The recent case Ohio State Bar Assn. v. Doheny in the Supreme Court of Ohio highlights two important points about the unauthorized practice of law.

No ticket in the Buckeye State

In Doheny, the practitioner was or had been licensed in Indiana, Virginia, and the District of Columbia, but never in Ohio. The Ohio State Bar Association charged him with 11 instances of unauthorized practice: he provided legal advice to more than six Ohio residents, negotiated on behalf of several Ohioans in legal matters, drafted purchase agreements and quitclaim deeds for real property located in Ohio, and collected approximately $70,000 in fees for those services.

Meanwhile, the practitioner held himself out as an attorney in Ohio by using false and misleading letterheads and titles to create the impression that he was authorized to practice law in the Buckeye State.

After initially cooperating in the investigation, the practitioner neither answered the complaint nor appeared in the proceedings. The Board on the Unauthorized Practice of Law recommended an injunction against further illegal acts and imposition of a $25,000 civil penalty.

In adopting the Board’s recommendation, the court provided two key takeaways about the unauthorized practice of law.

Practicing without a license

One key takeaway is that if you practice in a jurisdiction where you are not licensed you will be treated in that state as if you are not a lawyer at all. The court emphasized that “when an individual who is not licensed to practice law in Ohio negotiates legal claims on behalf of Ohio residents or advises Ohio residents of their legal rights or the terms and conditions of settlement, he or she is engaged in the unauthorized practice of law.” Because the practitioner in Doheny provided such services without an Ohio license, the court ruled that he engaged in the unauthorized practice of law.

Preventing individuals from engaging in the unauthorized practice of law was imperative to the court for two reasons: first, said the court, it is “necessary to protect the public from agents ‘who have not been qualified to practice law and who are not amendable to the general discipline of the court.’” Second, the public needs to be protected from the “incompetence, divided loyalties, and other attendant evils that are often associated with unskilled representation.” The court aimed to further these two policy objectives with its decision.

Holding yourself out as a lawyer

Another key takeaway from the court’s decision is that falsely holding yourself out as being authorized to practice law in a jurisdiction is equivalent to actually engaging in unauthorized practice. In line with state statute, the court defined the unauthorized practice of law in Ohio to include “the ‘[h]olding out to the public or otherwise representing oneself as authorized to practice law in Ohio’ by any person who is not admitted or otherwise certified to practice law in Ohio.”

In Doheny, the practitioner held himself out as an attorney in Ohio by using the honorific “Esq.” in his Ohio communications. He also used false and misleading letterhead by placing his name above the word “Principal” and including a Hamilton, Ohio office address which he neither owned nor had permission to use. After adopting these findings of fact, the court ruled that the practitioner engaged in unauthorized practice of law.

Don’t let this happen to you

Even in our current increasingly-globalized legal market, states take unauthorized practice seriously and will give it significant attention. Like the practitioner in Doheny, individuals in Ohio found to have engaged in the unauthorized practice of law can be enjoined from practicing law and fined up to $10,000 per offense. Before providing legal services in any jurisdiction, you should always make sure that you are authorized to do so.

The California court of appeals has denied a bid by an employment discrimination defendant to disqualify the plaintiff’s legal team.  The name partner in the law firm representing the plaintiff was formerly the employer’s chief operating officer — but the court rejected the assertion that his firm should be disqualified merely based on his knowledge of the employer’s “playbook.”  The opinion shines a light on the playbook theory.  (Hat tip to Dan Bressler over at Bressler Risk Blog, who also reports on the case.)

Bentley dealership woes

The plaintiff, Wu, was in sales at O’Gara Coach at its Beverly Hills Bentley dealership.  Alleging that he was called “chink,” “Buddha” and “sumo wrestler” by his supervisor, Wu asserted racial discrimination and wrongful termination claims against his former employer.  Wu retained the Ritchie Litigation law firm to represent him.  According to the court’s opinion, the name partner, Ritchie, was a law school graduate who had joined O’Gara Coach in 2013 and worked his way up to be president and chief operating officer of the company before he left, passed the California bar exam, and established his law firm.

Based on Ritchie’s former role with the company, defendant O’Gara Coach moved to disqualify his firm, asserting that in his former role Ritchie was directly involved in policy-making, discussed strategy in pending employment claims with the company’s outside counsel, and was responsible for workplace policies when Wu’s claims arose.

O’Gara argued that although Ritchie was never a lawyer for the company, he had been involved in matters substantially related to Wu’s claims and exposed to O’Gara’s confidential information, mandating disqualification under California’s rules on former-client conflicts of interest.

Playbook in play?

Rejecting the employer’s argument and reversing the trial court, the court of appeals said that at most, Richie possessed confidential information about O’Gara’s workplace policies, operations and general litigation strategies.

The court noted that this is commonly referred to as “playbook” information, and as the ethics scholar Prof. Charles Wolfram described it, the usual claim is that a lawyer’s possession of this type of confidential but general company information “would give the lawyer significant advantage if it were permissible to represent an adversary against the former client, regardless of the factual dissimilarities between the two representations in other respects.”

But under California law, said the appeals court, a law firm is not subject to disqualification merely because “one of its attorneys possesses information concerning an adversary’s general business practices or litigation philosophy acquired during the attorney’s previous relationship with the adversary.”

Rather, the appeals court ruled, more is required — namely a “material link” between Richie’s knowledge of O’Gara’s anti-discrimination policies and the actual issues presented by Wu’s lawsuit.  What Richie might know about O’Gara Coach based on his work as a non-lawyer executive had to be separated from his exposure to confidential and potentially privileged communications, the court said.  And no category of information that Richie had, the court held, was directly at issue in the case or had unusual value for his firm’s representation of Wu.

Across the jurisdictions

As ethics authority Bill Freivogel puts it at his always-useful Freivogel on Conflicts site, the issue in the playbook analysis is “when does a lawyer learn enough about the former client’s thought processes and procedures that the new representation may be deemed ‘substantially related’ to the former one,” thus requiring disqualification under Model Rule 1.9(a) and its state counterparts.

The Wu case is a good example of the approach in the Golden State — but results may differ in your own jurisdiction.

For example, applying the New Jersey Rules of Professional Conduct, a New Jersey district court judge ordered disqualification last year based on a playbook theory.  The defendant’s lawyers had formerly represented the plaintiff, and had gained information generally about its “patent prosecution strategy and [its] approach to defending the validity of its patents,” and knowledge about what the former client “protected as trade secrets apart from its patented inventions.”

When the playbook theory is in play, jurisdiction and factual nuances can matter.

If you and your spouse are both lawyers, you know that you potentially face a few unique ethics issues — conflicts and confidentiality are the most obvious ones.  (We’ve considered some of the ins and outs here and here.)

But what if your nearest and dearest is also your law partner — or what if it maybe only looks that way?

The Third Circuit Court of Appeals held last month in a non-precedential opinion that a New Jersey lawyer couldn’t be held liable for her husband’s alleged legal malpractice because the client hadn’t relied on the existence of an apparent partnership.

The opinion spotlights some interesting law/spouse partnership issues.

“No legal entity”

As set out in the court of appeals opinion, the client contacted George Cotz to discuss an anticipated action against her employer.  Later, at an in-person meeting, the client signed a retainer agreement.

The retainer agreement had several significant features:  it was on letterhead reading “Cotz & Cotz Attorneys at Law;” at the side, the “members” were listed as George Cotz and Lydia Cotz; and George Cotz signed the retainer agreement on behalf of “Cotz & Cotz.”

But “notwithstanding this document,” the court said, “no legal entity named ‘Cotz & Cotz’ existed and the Cotz’s had never entered into a partnership.”  (It would be interesting to know more of the underlying facts — like whether there had ever been such a partnership, and why this letterhead was used — but the opinion does not provide them.)

As the Third Circuit opinion describes, George Cotz filed the client’s employment action in state court, but he later failed to oppose the defendant-employer’s summary judgment motion, and it was granted.

The client filed a legal malpractice suit against George Cotz and “Cotz & Cotz,” and later amended her complaint to also name George Cotz’s wife, Lydia Cotz.

A divided appellate panel upheld the district court’s ruling:  no actual law partnership existed between George and Lydia Cotz, and the client lacked evidence that she relied on the appearance held out in the retainer agreement — namely, that there was such a partnership.


Interpreting New Jersey’s partnership statute, the Third Circuit said that in order to impose liability on someone who has purported to be a partner, the complaining party is “require[ed] in all cases” to have “acted in reliance on the representation.”

Here, Lydia Cotz escaped liability as a partner-by-estoppel for her husband’s alleged malpractice because there was no evidence that the client “transacted with [George Cotz] in whole or in part because of” the various representations that he was in a partnership.

For instance, said the court, the client testified that she had been referred to “the law office of Cotz & Cotz,” but not that “she called him because she thought he was in a partnership.”  Hence, the panel majority held, no partnership-by-estoppel was raised.

Need for magic words?

The dissenting judge wrote that there was at least a fact issue on whether the client relied on the existence of the Cotz & Cotz firm in making her hiring decision.

“What reasonable person would be referred to a law firm, go to the office of the law firm, and sign a retainer agreement with the law firm, only to think that they were hiring an individual attorney, rather than a law firm?” asked the dissenting judge.

The majority, said the dissenter, essentially established a requirement that under New Jersey law, “to establish a partnership by estoppel,” a plaintiff “must use the magic word ‘rely’ in their testimony.”

Partner, partner, who’s got a partner?

Of course, as in other state-law-based contexts, results may vary.  And the opinion is a federal court’s interpretation of New Jersey state law — and a non-precedential interpretation at that.

But the Third  Circuit’s grant of a litigation off-ramp to an alleged partner-by-estoppel is worth noting for its close reading of the reliance requirement when it comes to holding a purported partner liable.

Being in the cross-hairs of a client’s legal malpractice claim is a horrible-enough experience for any lawyer.  Even worse would be if your house had to be sold in order to satisfy the former client’s default judgment against you, as the Seventh Circuit ordered in a case earlier this month.  The opinion spotlights how state law impacts the bankruptcy code when it comes to protecting a residence from bankruptcy creditors — including those who might have a judgment against you.

Tenants in the entirety

According to the Seventh Circuit’s opinion, a client hired an Illinois lawyer to file a medical malpractice claim on her behalf, but the statute of limitations expired before the lawyer filed suit.  The client sued for legal malpractice, obtained a default judgment, and recorded it against property that the lawyer and his wife owned as tenants by the entirety.  The client claimed that with post-judgment interest, her claim against the lawyer totaled more than $1 million.

In 2015, the lawyer sought bankruptcy protection as a result of his own financial issues and filed a chapter 7 voluntary petition for relief.  In his bankruptcy schedules filed with the court, the lawyer identified his debt to the former client and acknowledged that it was secured with a judgment lien on his residence.  At the petition date, the lawyer and his wife owned the  property as tenants in the entirety; but prior to receiving a discharge order in the bankruptcy, the wife died.

Under Illinois law, the tenancy by the entirety ended when the wife died, and the lawyer’s interest became an individual one, in fee simple.

In the bankruptcy court, the lawyer argued that his residential property was exempt from the client’s lien under 11 U.S.C. § 522(b)(3)(B).  The Bankruptcy Code section exempts from the bankruptcy estate property in which the debtor has an interest as a tenant by the entirety “to the extent that such interest … is exempt from process under applicable non-bankruptcy law.”

The lawyer argued in the bankruptcy court that his contingent future interest in the home while his wife was alive was sufficient to keep it out of his Chapter 7 estate.  Tracing the tenancy-by-the-entirety doctrine back to the English feudal system, and reversing the bankruptcy court, the Seventh Circuit rejected the argument.

State-by-state approach

The court noted that tenancy in the entirety is a form of ownership originating before married women had legal identities and property interests of their own.  The doctrine enabled spouses to own property jointly, which would belong to the survivor when one spouse died.  But once women could hold property in their own right, states “splintered in their approach to tenancy the entirety,” the court said.

The Bankruptcy Code requires a state-by-state analysis, the court pointed out — and Illinois law, unlike that of some states, mainly provides protection against a forced sale of the property to collect a debt against only one of the tenants.  “Illinois law does not make all interests held by tenants in the entirety immune from process,” the court said, citing section (1)(c) of the Illinois joint tenancy statute, and fails to provide an exemption for contingent future interests such as the lawyer claimed.

In contrast to the law of Illinois, the court pointed to neighboring Indiana.  Under the Hoosier State’s statutes, “any interest the judgement has in real estate as a tenant by the entireties” is immune from bankruptcy process, noted the court.

Legal S.O.S.

We hope that you’ll never be in a legal-malpractice mess or a bankruptcy situation, let alone both.  But if you are, get expert help on the nuances of state law and how it affects your exemptions and interests in property — the home you save could be your own.

The outlines of the attorney-client privilege and work-product doctrine are well-established. But how should they apply when an organizational client suffers a cybersecurity event or other intrusion that results in a data breach?  Should information about the company’s security policies pre-breach and its post-breach response be given any enhanced protection? Under what circumstances?

The questions are burning ones, given recent data-security catastrophes that have exposed financial, health and other data of millions of people.  After each event, claimants quickly line up to file suit, and discovery demands for information inevitably follow.

Sedona Conference recommendations

The Sedona Conference, a non-profit, non-partisan institute whose working groups have been influential in e-discovery and other cutting-edge issues, recently published draft commentary recommending adoption of a qualified stand-alone protection for information prepared in a cybersecurity context, even when not involving communication with an organization’s lawyer.

The Working Group on Data Security and Privacy Liability noted in its 65-page Commentary (available for free download here) that cybersecurity and cybercrime are uniquely important, given that “American businesses and government agencies are under cyberattack twenty-four hours a day, seven days a week from criminal third parties,” and that “the federal government has declared this global cyber-crime wave a compelling national security concern, particularly in the area of critical infrastructure.”

Based on evaluating and balancing the competing interests, the Working Group proposed what it calls a “stand-alone cybersecurity privilege modeled on the work-product doctrine” that would extend to all documents and tangible things reflecting “mental impressions, conclusions, opinions, assessments, evaluations or theories” regarding a cyberattack, as well as “actual or potential actions in anticipation or response to a cyberattack.”

The proposed model would protect pre-breach cybersecurity information (“CI”) (and not just CI developed “in anticipation of litigation”), and information developed without participation of the organization’s counsel.

Lawyer involvement not needed?

The Working Group acknowledged that the expanded “qualified privilege” would protect a greater range of CI, although not all CI.  The proposal’s advantages, according to the Working Group:

  • it “would enable parties to take robust actions to protect themselves against and respond to third-party cyberattacks with greater (though not absolute) assurance that the CI they generate in the course of those efforts will not be used against them” later;
  • it ”would enable parties to obtain significant (though not absolute) protection against the discoverability of CI without using attorneys to lead their efforts to protect themselves against, and respond to, third-party cyberattacks,” lessening “the incentive … for putting attorneys in charge of efforts to address being victimized by such criminal activities and/or taking other measures to avoid creating a discoverable record concerning those efforts (such as not conducting certain assessments that are not otherwise legally required, conducting such assessments less thoroughly, or not reducing them to writing).”

Room for skepticism

The Working Group’s efforts are a welcome addition to the debate on the complex issues surrounding CI and what protection it should receive. (Law360 has comments here.)  Case-law guidance in this context is sparse, and rulings have tended to be very fact-specific.

But there is room for skepticism about whether CI merits its own stand-alone privilege, even as limited and qualified as the Sedona Conference Working Group proposes.

There is some validity in the adage that the ultimate motivation for cybersecurity is good security. In other words, clients should and do establish robust cybersecurity policies and practices in order to protect data, not just with an eye on protecting CI in the event of a lawsuit following a breach event.

And while the data-protection stakes, including the national security implications, have never been higher, it seems difficult to argue that cybersecurity is so different from other compliance regimes – such as antitrust – that it merits its own stand-alone privilege.

Caution can be called for here, because creating a new privilege might come back and bite in unintended ways.  For instance, in the event of a cybersecurity event, the company’s own search for causes can extend to outside provider entities; would those entities be justified in invoking an expanded CI privilege to resist turning over information that the company needs to identify and resolve a threat or investigate a breach?

The comment period on the Working Group’s proposal closed in June, and the final report will issue after analysis of the comments.  The debate will undoubtedly continue.

In-house attorneys face unique situations when it comes to client relationships and job responsibilities. But when it comes to ethical obligations, the Model Rules don’t recognize any difference between lawyers who work in-house and others.  Model Rule 1.0(c) defines “law firm” to include lawyers employed “in the legal department of” an organization, and it has been noted that notwithstanding the “square-peg-round-hole” problem, all the ethics rules apply to corporate counsel.  A recent Washington state supreme court opinion, however, has now called this rubric into question on a hot-button issue: wrongful discharge claims of in-house counsel.

The Dilemma

Imagine a scenario where a client seeks legal advice after being fired for reporting the employer’s illegal conduct — a classic whistle-blower scenario.  Many would advise an action raising claims of breach of contract, wrongful discharge and retaliation.  But what if your client were in-house counsel for that employer?  Model Rule 1.16(a)(3), adopted in some version in every jurisdiction, gives clients the right to discharge their lawyer at any time and for any reason.  See cmt. [4].  What recourse does in-house counsel have?

Washington Supreme Court’s solution

The Washington supreme court addressed this issue in Karstetter v. King County Corrections Guild. Jared Karstetter was an in-house attorney for the Corrections Officers Guild, under a five-year contract that provided for just-cause termination with notice and an opportunity to be heard. In 2016, Karstetter was contacted by a whistle-blower regarding parking reimbursements to Guild members.  The Guild directed Karstetter to cooperate with the investigation while the Guild sought advice from outside counsel.

The opinion is short on facts, but indicates that after investigating, the outside law firm recommended that Karstetter be fired.  He was terminated without notice or an opportunity to be heard, and he sued the Guild, alleging that he had assisted the investigation of a whistle-blower complaint as directed, and that he was fired for doing so.  He asserted claims for breach of contract, wrongful discharge and other common law claims.

The issue before the Washington supreme court was whether the state’s rules of professional conduct precluded the breach of contract and wrongful discharge claims.  In a divided decision, the majority reversed the intermediate court of appeals, concluding that the “rules of professional conduct do not foreclose an in-house attorney employee from bringing breach of contract and wrongful discharge claims against a former employer-client.”

The court reasoned that in the traditional attorney-client relationship, ethics rules would forbid an attorney from bringing such claims, but that “such an interpretation [of the ethics rules] is neither required nor reasonable in the nontraditional circumstances of in-house attorney employees.”

The court explained that in-house lawyers face unique employment situations and have complex relationships with their clients.  The relationship between in-house attorneys and their clients “cannot be characterized solely as an attorney-client relationship; it must be viewed as an employer-employee relationship as well.”

Noting that “our [ethics] rules have not evolved with the profession,” the court concluded that in-house attorneys can bring breach of contract and wrongful discharge claims against a former employer provided that the lawsuit is brought “without violence to the integrity of the attorney-client relationship.”

Ethical considerations and the aftermath of Karstetter

Model Rule 1.16 simply states that a lawyer must withdraw from representation if the lawyer is discharged.  While the rule may seem clear, the plain language leaves more questions than it answers. The rule does not address what requirements the client must meet to discharge an attorney, nor does it recognize circumstances surrounding non-traditional attorneys.

Courts have also ruled contrary to Karstetter, including courts in California and Illinois.  But see Wadler v. Bio-Rad Labs., Inc. (affirming jury verdict on in-house lawyer’s whistle-blower retaliation claim, based on state public-policy grounds).

Are the rules of professional conduct equitable as applied to in-house counsel?  When the rules were adopted, the vast majority of lawyers worked in a traditional legal environment.  Since then, there have been an increasing number of attorneys in non-traditional roles.  In-house lawyers have vastly different expectations, are economically dependent on the financial success of their client, and have an expanded set of work obligations.

It is possible that Karstetter and cases like it may lead to more challenges to the square-peg-round-hole application of the ethics rules to in-house lawyers, and the inquiry may not stop at Rule 1.16.  This inquiry may go deeper.  How does Karstetter affect Model Rule 1.6 (Confidentiality of Information), or Model Rule 1.9 (Duties to Former Clients)?  It is likely that the Washington Supreme Court will not be the only court faced with these issues.

Third-party litigation funding is a growing and, some say, controversial industry.  We’ve written before about whether such arrangements are permitted under state ethics rules (here), and we reported on the first effort to mandate disclosure of third-party funding via federal court rule (here), as well as the first state statute requiring such disclosure (here).

But litigation funders can also become litigators themselves.  Some file suit against law firms for non-payment of their fees. (On Tuesday, for example, a Los Angeles state court judge entered a $6 million judgment against a prominent plaintiff-side attorney and his firm as part of a dispute with a litigation funder over payment of the funder’s fees.)  And some funders have found themselves defending against claims that their funding agreements are unenforceable.

In the latest chapter of the second kind of scenario, a Minnesota court of appeals voided a litigation funding agreement under the North Star state’s champerty-and-maintenance doctrine, allowing a personal-injury plaintiff to side-step the sixty-percent annual interest she had agreed to in exchange for the funder’s advance of $6,000 in 2014.

The ruling upheld the trial court’s determination that Minnesota’s common law applied, rather than New York’s, despite a New York choice-of-law provision in the funding agreement.  Under New York’s narrower champerty statute, the funding agreement would have been valid, said the court of appeals.

Champerty and what?

You may not have thought about champerty and maintenance since law school — if you even learned about these old doctrines there.  But champerty and maintenance are on the books or part of the common law in many jurisdictions, and they have been dusted off, along with usury laws, in litigation-funding disputes like the Minnesota case, and in other jurisdictions.

Under Minnesota law, the appeals court said, champerty is an agreement between a litigant and a stranger to the litigation in which the stranger “pursues the litigant[‘]s claims as consideration for receiving part of any judgment proceeds.”  Maintenance is basically “meddling in someone else’s litigation” through assistance to the litigant from “someone who has no bona fide interest in the case.”

In the Minnesota case, the appeals court flatly said that “the [funding] agreement is not valid because it permits [the funder] to receive part of [the tort plaintiff’s] judgment proceeds.”  The court, echoing the trial court, said that champertous agreements “have untoward economic effects on the legal system that can provide both improper incentives and disincentives to pursue and settle litigation,” and that state public policy bars “an outsider’s intrusion into a lawsuit solely for speculative gain.”

Choice of law

The Minnesota case turned on a choice-of-law issue.  The funder had offices and did business in both New York and Minnesota, and the agreement called for New York law to apply.  New York’s statute defines champerty “much more narrowly” than Minnesota law, confining the doctrine to situations where the third party intends to bring the action.

The parties’ agreed choice of law was overcome, the Minnesota court held, because enforcing the provision would “thwart” the state’s policy against champerty.  In addition, the funder had admitted that it drafted the agreement specifically to avoid Minnesota’s champerty law.

Faced with the conflict between New York and Minnesota law, the court easily concluded that the funder should have expected Minnesota law to govern, as the agreement originated there, it was signed there, the funder was partly located there, and the agreement was to be performed there.  Minnesota also “has a strong interest in compensating tort victims and in protecting Minnesota’s judicial system and litigants” from champertous agreements, the court held.

What next?

Over the past decade, the litigation finance industry is estimated to have grown to possibly $5 billion in the U.S., and $10 billion globally.  While suits against consumer-tort finance firms, as in the Minnesota case, seem more common than suits involving large funders of commercial litigation, the scrutiny of these funding arrangements is sure to continue.

Both the New York State Bar Association (2018) and the New York City Bar Association (in 2018 and 2011) have weighed in on various ethics aspects of litigation funding, as have New Jersey (2001); the Philadelphia Bar Ass’n (2000); and Ohio (2012).

There are sure to be more bar ethics opinions (and cases) to come.

Many litigation lawyers know about the “litigation privilege” (sometimes called the “judicial privilege”).  The doctrine operates to immunize lawyers from liability for statements  made during the litigation process that are related to the litigation, even if they injure an opposing party.  (Here’s a 2015 Hofstra Law Review article that provides an overview.)

But lawyers might not be as familiar with limitations on what you can say about judges — limitations rooted in the rules of ethics.  In a recent Ohio disciplinary case, a lawyer received a stayed six-month suspension for impugning the integrity of three judges on the state court of appeals.

Judicial qualifications and integrity

Model Rule 8.2(a) prohibits statements “that the lawyer knows to be false” or makes “with reckless disregard as to [the statement’s] truth or falsity concerning the qualifications or integrity of a judge” or other judicial or public legal official, including a candidate.

In the Ohio disciplinary case, the lawyer had won a default judgment on behalf of his client, the plaintiff in an assault case.  The judgment lay dormant for a long time, until the defendant received an inheritance.  At that point, the lawyer tried to revive the judgment under Ohio statute.  Unfortunately, a court of appeals found he had waited too long to do so and dismissed the revived case.

Then the defendant in the assault case turned the tables and sued the lawyer and the lawyer’s client for malicious prosecution and other torts.  That’s when things started to go off the rails.

The lawyer’s answer to the complaint said that the appellate judges who had decided against reviving the default judgment had “contrived” their rationale “to justify a decision favoring [the assault defendant] premised apparently upon outside influences,” and had ruled in favor of him “for apparently undisclosed and non-legal reasons.”

The lawyer also filed a disciplinary complaint against the three appellate judges, and later, in opposition to the assault defendant’s motion to disqualify him, the lawyer referred to and attached portions of the complaint, even though Ohio bar rules require that all disciplinary documents and proceedings be held confidential up to the time the disciplinary board determines there is probable cause.

In the disciplinary complaint against the judges, the lawyer alleged that “it is impossible to believe that the judicial decision” against his client in the appellate court “is not the result of undue influence and corruption,” and called it “a conspiracy to pervert justice.”

“No reasonable factual basis”

The state supreme court in 2003 had adopted an objective standard for determining whether a lawyer’s statements about a judicial officer have been made with knowledge or reckless disregard for their falsity — and the board of professional conduct concluded that the lawyer here had no reasonable factual basis for his allegations.

The Board noted the lawyer’s testimony admitting that he failed to conduct “any investigation” before making his allegations, that they were based “solely on his reading of the court of appeals’ opinion,” and that he “did not actually know why the judges ruled as they did.”  The board recommended that the lawyer be suspended for a year, with six months stayed.

The state supreme court acknowledged the lawyer’s misconduct, but by a 5-2 vote imposed a six-month suspension, entirely stayed, citing similar cases and noting as a mitigating factor the lawyer’s otherwise-unblemished 51-year career.

Watch what you say…

Other lawyers have also gotten into hot water based on state versions of Model Rule 8.2.  For instance, last year, a Texas lawyer was referred to the state bar’s office of general counsel when he filed a motion to recuse two court of appeals justices, suggesting that campaign contributions affected the assignment of the panel that overturned a large jury award in favor of his clients.  According to the court of appeals order, the recusal motion alluded to assignments occurring behind a “veil of secrecy” and to the lack of credibility “in the face of a long string of statistically impossible coincidences” leading to the adverse appellate outcome.

That was apparently enough for the en banc appeals court to deem the comments as “direct attacks on the integrity of the justices” and on “this Court as a whole.”  However, the Texas State Bar’s site does not reflect any discipline against the lawyer to date.

You might think that you have an untrammeled right to make statements about a judge in connection with litigation, but be aware that the ethics rules provide a brake.  (Of course, as always, check your own jurisdiction’s professional conduct rules and regulations — they control your professional obligations, not the Model Rules.)

Today marks the fifth anniversary of this blog’s debut.

It’s been a wonderful ride. Waking up every Sunday morning (OK, most Sunday mornings), grabbing a cup of java, and writing 600 words about the latest in legal ethics might not be everyone’s idea of fun. But I’ve loved it.

Over the last half-decade our 230-some posts have been read about 75,000 times. We’ve twice won awards from the ABA Journal – in 2016 and 2018. The blog has been cited in law review articles, other blogs, news feeds like Law 360, and even in a law school casebook.

Best of all, this blog has allowed me and my co-editors to engage with lawyers from every sector of the legal community who are interested in legal ethics, and to be an ethics resource for companies big and small across the country – and around the world.  We are always amazed that we have faithful readers in places like Sweden, China, Saudi Arabia and Nigeria.

We have also paved the way for three more Thompson Hine blogs on the LexBlog platform: Trump and Trade, Source Code, and our newest, ERISA Litigation. You should check them out.

Thanks to all our readers, and here’s to many more years.