The eyes of the nation and of the world have been on crucial issues of racial inequity in the past few weeks following the death of George Floyd at the hands of police.  These issues penetrate to the very essence of how we can maintain a just society — issues that likewise go to the heart of lawyering.  One of the many ways that the legal community does the day-to-day work of maintaining an equitable society is by adhering to our ethical standards, which strongly call on us to practice our craft in line with the highest ideals of integrity.  These standards are always being refined and interpreted through the work of state and national ethics committees and the opinions they issue to guide practitioners.

Two significant ethics opinions have been issued in recent days.

California finally weighs in on pot practice

The Golden State has the most lawyers in the nation, and also the largest cannabis market.  However until late last month, the state bar’s ethics committee had been silent on the burning issue for lawyers seeking to counsel cannabis clients:  Can they provide representation with respect to conduct that is state-legal but that remains federally illegal?  As we noted at the time, city bars in San Francisco and Los Angeles took the lead on giving guidance to the state’s lawyers.

Now the state bar committee has weighed in, and unsurprisingly given the green light to lawyers who want to represent clients in all aspects that are “reasonably required” to make their clients’ businesses “functional and profitable in compliance with California law,” says the committee’s opinion.

Similar to Model Rule 1.2(d), Rule 1.2.1 of the California Rules of Professional Conduct bar counseling or assisting a client to engage in criminal, fraudulent or illegal conduct.  However, lawyers may nonetheless discuss the legal consequences of any proposed course of conduct with a client.  Under California’s comment [6] to Rule 1.2.1, a lawyer may “advise a client regarding the validity, scope and meaning of California laws that might conflict with federal or tribal law,” and advise on complying with California law “even if the client’s actions might violate the conflicting federal” law.

Interpreting the rule and comment, the Committee advised that California lawyers could provide legal services related to state-legal cannabis.  They may not advise the client to violate federal law, the Committee warned, and cannot provide advice or assistance in violating state or federal law in a way that avoids detection of those violations.  Lawyers must also advise the client about the conflict between state and federal laws on cannabis, including the potential for federal criminal liability and the associated penalties.

With 33 states and the District of Columbia taking steps to legalize cannabis for medical or recreational use or both, California’s guidance for lawyers may be influential elsewhere as well.

ABA cautions against “hearing too much” from prospective clients

In its latest ethics opinion, issued Tuesday, the ABA’s Standing Committee on Ethics and Professional Responsibility warned about the conflicts of interest that can arise from prospective-client interviews where a talkative potential client might over-share specific information before you decide whether to take on the matter.

Under Model Rule 1.18, even if no attorney-client relationship ensues as a result of a preliminary consultation, learning information from a prospective client creates duties of confidentiality that can bar you (under Rule 1.9) from taking on substantially-related future matters adverse to the prospective client.

In particular, the Committee advised, “Under Model Rule 1.18 a lawyer is prohibited from accepting a new matter if the lawyer received information from the prospective client that could be significantly harmful to the prior prospective client in the new matter.”

The kind of information that could be “significantly harmful” depends on the context.  But, drawing from cases and state ethics opinions, the Committee gave some examples of topics to avoid — at least until you decide whether to take on the matter:

  • settlement issues like pricing and timing;
  • detailed accounts of strategic thinking;
  • projections of potential claims and defenses;
  • legal theories regarding a case;
  • client financial information;
  • terms and structures of proposed transactions.

Bottom line:  patience pays.  Not hearing (or saying) too much before you determine that you will accept a new client or matter is the way to avoid learning “significantly harmful” information that can raise a conflict down the road if the consultation doesn’t result in an attorney-client relationship.

We’ve noted before that just because information relating to your representation of a client might be publicly available, your duty of confidentiality means that you can’t disclose it if it is not “generally known.”  The two concepts — public availability and being “generally known” —  are not the same, as a New Jersey lawyer learned earlier this month when the state supreme court imposed a one-year suspension in a disciplinary case that (among other things) involved a Yelp review.

“Good for the goose…”

According to the disciplinary board’s decision, the lawyer represented a client in a child custody matter and achieved a “seemingly good result” via settlement.  Over a year later, however, the client posted “poor reviews” of the lawyer’s services on several websites.  In turn, as set out in the board decision, the lawyer posted a review of the client’s massage business on Yelp, where he said that the client

is a convicted felon for fleeing the state with children.  A wonderful parent.  Additionally, she has been convicted of shoplifting from a supermarket.  Hide your wallets well during a massage.  Ooops, almost forgot about the DWI conviction.  Well maybe a couple of beers during a massage would be nice.

After the client complained, the lawyer sought to explain his actions, according to the board decision.  He admitted he was “very upset” by the client’s negative Yelp rating of his practice, and felt that his response was justified because “what was good for the goose was good for the gander.”

The lawyer conceded that his conduct regarding the client “rating was [not] my finest moment,” said the board.  The lawyer contended , however, that the conduct was not unethical because his disclosures “were public information and I did not violate attorney client privilege.”

Public information vs. generally known

Model Rule 1.9(c), like its New Jersey analogue, prohibits using “information relating to the representation” to the disadvantage of a former client with only narrow exceptions, “or when the information has become generally known.”

Here, said the board, the information in the Yelp review the lawyer posted related to the former representation, and the information had not become generally known.  The board cited New Jersey state and federal case authority and the ABA’s Formal Opinion No. 479 (2017).

As the ABA advised, “the phrase ‘generally known’ means much more than publicly available or accessible.  It means that the information has already received widespread publicity.”  Merely being “of public record” does not mean that the information is “generally known” when it is not “within the basic understanding and knowledge of the public,” said the New Jersey district court in a 2006 opinion.  And in a previous disciplinary opinion, the state supreme court had found that subpoenaed records from police departments had not become “generally known.”

On these bases, the state supreme court adopted the board’s decision finding a violation of Rule 1.9, and suspended the lawyer for a year, based on that plus other misconduct.

Don’t yelp

Retaliatory reviews on social media seem to be a recurrent ethical trouble spot for lawyers.  But you might be tempted to use or disclose client information in other more-benign-seeming settings — like at a social gathering (or Zoom hangout), where talking shop might lead to dishing the dirt on a matter because “after all, it’s ‘of public record.'”  In situations like that, the ethics rules should make you think twice.

Dan Bressler’s Risk Blog and The Professional Responsibility Blog also mention this case.

Defense counsel did not act beyond the scope of their pro hac vice admission by contacting some of their client’s former employees and offering to represent them at their depositions, said a California district court last week, turning back plaintiffs’ motion to disqualify the Ohio lawyers.  In its opinion the court analyzed both pro hac vice principles and the Golden State’s ethics rules on client solicitation.

Extent of PHV admission

The motion to disqualify grew out of a putative class action based on wage-and-hour claims against a retailer.  In their applications for pro hac vice admission, the Ohio lawyers identified the defendant as the party they represented.  Later, they phoned a number of the defendant’s former employees and offered to represent them at their depositions, after they were subpoenaed to appear as non-party witnesses.  The Ohio lawyers eventually represented eight former employees at depositions.

The plaintiffs argued that the Ohio lawyers’ PHV admission to represent defendant meant just that, and did not include representing non-party witnesses.  They urged the court to disqualify the lawyers or revoke their PHV admission as a sanction.  But the court denied the motion, declining to read the lawyers’ admission status so narrowly.  Instead, said the court, “counsel, admitted on a pro hac vice application, ought to be able to fully prosecute or defend the action in which they were admitted within the bounds of the law.”

Solicitation for pecuniary gain?

The plaintiffs also argued that by phoning some of the defendant’s former employees, the Ohio lawyers had violated California’s rules on client solicitation.  Like Model Rule 7.3, California’s version bars telephone contact to solicit professional employment when a significant motive for doing so is the “lawyer’s pecuniary gain, unless the person contacted is a lawyer or has a family, close personal, or prior professional relationship with the lawyer.”

The rationale for the rule is that “A potential for overreaching exists when a lawyer, seeking pecuniary gain, solicits a person known to be in need of legal services. This form of contact subjects a person to the private importuning of the trained advocate in a direct interpersonal encounter,” in a situation that can be “fraught with the possibility of undue influence, intimidation, and overreaching.”  Model Rule 7.3, cmt. [2].

But, argued the defendants, the Ohio lawyers did have a preexisting professional relationship with the employees, because they were all former managers of the client.  The court acknowledged that these were  management-level employees who were being deposed as a result of that employment relationship.

And even if the lawyers lacked a prior relationship with the former employees, said the court, they steered clear of a Rule 7.3 violation because they did not solicit for “pecuniary gain.”  Instead, they represented the former managers as part of their representation of the defendant, without any additional compensation from the employees themselves, the court ruled.

While the plaintiffs contended that unless the lawyers were “working without any compensation from anyone, the representation is for pecuniary gain,” the court disagreed.

Watch yourself…

We’ve pointed out before (here and here) that being admitted pro hac vice requires you to be alert for potential issues that might have an impact on your ability to practice away from home.  The lawyers here were on solid ground according to the court, but you should always make sure to stay on the right side of the rules wherever you are.

An Ohio lawyer crossed a border and also a line, leading to a two-year suspension and a restitution order under an opinion the state supreme court handed down this week.  The suspension was based on ethics violations as to numerous clients, but one involved the prohibitions against unauthorized practice and sexual activity with clients.  The opinion continues the disciplinary trend in the Buckeye State to treat all forms of lawyer-client sex harshly — even in the absence of physical contact.  It also shines a light on the perils of unlicensed cross-border practice.

Michigan v. Ohio (and not college football)

The client’s divorce action was already pending in Monroe County, Michigan when she retained the lawyer, who practiced in Toledo, Ohio, just across the border from Michigan.  The lawyer advised the client that he was not licensed to practice in Michigan, but would file a motion for pro hac vice admission and affiliate himself with an Ohio lawyer he knew who was licensed in both states.

Over the next six months, however, as described in the Board of Professional Conduct’s recommendation to the state supreme court, the lawyer failed to seek any kind of admission in the Wolverine State, despite the reminders he received from the Michigan-admitted lawyer, who was the only one of record in the client’s divorce case.

Despite his lack of any status in the case, the lawyer went to Michigan and, along with the Michigan-admitted lawyer, participated in both an unsuccessful mediation and a final pretrial conference on behalf of the client.  The Michigan-admitted lawyer, however, had never received the retainer he demanded, and refused to represent the client at her June trial. That left her unrepresented, forcing her to scurry to arrange substitute counsel on a week’s notice.

The court found that the unlicensed cross-border practice in Michigan violated Ohio’s version of Model Rule 5.5, which bars practice in a jurisdiction in which the lawyer is not admitted, and adopted the Board’s recommendation that the lawyer make restitution to the client of the $16,500 she paid to the lawyer and to substitute counsel for his work in coming up to speed the week before trial.

“Salacious” texts

In addition, according to the court’s opinion and the Board’s recommendation, the lawyer “engaged in an inappropriate personal relationship with [the client] that included multiple texts that were solicitous and sexual in nature.”   They never entered into a physical relationship, however, and the lawyer argued to the hearing panel that absent “actually engag[ing] in physical sexual activity” he did not violate Ohio’s version of Model Rule 1.8(j).  (The lawyer later deleted the “salacious texts,” but the client kept them.)

The Model Rule proscribes “sexual relations” with a client unless a consensual sexual relationship pre-existed the client-lawyer relationship.  But Ohio’s Rule 1.8(j), in contrast, more broadly prohibits “solicit[ing] or engag[ing] in sexual activity” absent a pre-existing consensual sexual relationship.  The Board noted that “one can violate the [Ohio] rule by the mere solicitation of sexual activity,” which had been clearly and convincingly proven by the text messages, the Board said.

As we’ve noted before, the state supreme court readily disciplines lawyers who violate the rule on sexual contact with clients, rejecting arguments based on consent, and here, the lack of actual physical relations.

Bottom line:  Toeing the line, whether it is a state border or an issue of sexual conduct, is the best way to avoid disciplinary trouble.

Falling below the standard of care in providing legal services to a client can of course bring a malpractice claim down on your head — and as we’ve pointed out, the economic climate resulting from the Covid-19 pandemic raises the risk of such claims.  Let’s say that you’ve actually made an error.  If you acknowledge your negligence, can you quickly settle the claim with your client and move on?   A Tennessee Supreme Court opinion issued last week spotlights the ethics rule that imposes requirements and limitations on your ability to smoothly exit a potentially messy situation.

Mea culpa

A Tennessee lawyer voluntarily dismissed the personal injury suit he had brought on behalf of his client in her car accident case.  Unfortunately, the lawyer failed to refile the case within the statute of limitations, and as a result, his client’s cause of action became time-barred.  (Blowing a deadline is the most common cause of a malpractice claim.)

The lawyer met with the client, acknowledged his mistake in writing, and gave her a $500 check with a promise to “make every effort to make [her] whole.”

Later, the client filed a grievance against the lawyer. A few months later, the lawyer agreed with the client to pay her $5,000 in exchange for a full release of her legal malpractice claim against him, and withdrawal of her ethics complaint.  The lawyer did not advise the client of the desirability of seeking independent legal counsel before settling her claim against him.

Clear conflict

Within three months of the settlement, the disciplinary authorities came knocking.  The lawyer was charged with violating his duty of competence and diligence under Tennessee’s versions of Model Rules 1.1 and 1.3.  He was also charged with violating the Volunteer State’s version of Model Rule 1.8(h)(2), which bars settling a liability claim or potential liability claim with a client or former client without advising that person — in writing — that it would be desirable for them to get independent legal advice on the advisability of the settlement.

The rule is included as a subsection of the rule on conflicts of interest that mostly arise based on a lawyer’s personal interests, and it’s easy to see why it is positioned there:  a lawyer who is in the cross-hairs of a client’s malpractice claim is clearly conflicted when it comes to valuing that claim and arriving at a fair settlement with an otherwise-unrepresented client.  The situation clearly calls for the client to get legal advice from someone besides the conflicted lawyer.  Failing to so advise his client before settling the potential malpractice claim against him put the Tennessee lawyer on the wrong side of the rule.

The lawyer stipulated to the rule violations, and only disputed the sanction that the disciplinary panel imposed and that the chancery court affirmed:  suspension for one year, with only 30 days to be served as an active suspension, and the rest as probation.  The state supreme court affirmed as well, calling the penalty “generous,” and noting that it was the least amount of time on active suspension provided for under the state rules.

The court also noted that the lawyer had received seven previous disciplinary sanctions over his 47-year career, four of them involving failing to file matters within the applicable statute of limitations.

Watch yourself

If you make an error, the prospect of resolving it quickly with the injured client is very inviting.  But if you fail to keep yourself out of a conflict in the process, you can find yourself in a different kind of trouble.

Lawyers should be allowed to help provide “basic financial assistance to indigent clients — such as money for groceries, clothes or medical supplies,” the New York City Bar Association said last week in a letter to the state’s courts.  In light of the urgent need caused by the corona virus pandemic, the group is seeking to fast-track an already-pending proposal to amend New York’s ethics rules, which generally bar providing financial assistance to clients in connection with pending or contemplated litigation.

An unlevel playing field

Model Rule 1.8(e) has only limited exceptions:  lawyers can advance court costs and expenses in contingent fee cases; and they can pay “court costs and expenses of litigation” on behalf of indigent clients.  But as New York’s version of the rule currently provides, they can’t advance or guarantee other financial assistance to litigation clients.

A rationale for the rule is that if lawyers “subsidize lawsuits” by making loans to clients for living expenses, it “would encourage clients to pursue lawsuits that might not otherwise be brought.”  See id. cmt. [10].  This ignores an obvious power and resource imbalance.  As Prof. Roy Simon points out in his treatise, Simon’s New York Rules of Professional Conduct Annotated, “[a]rguably, financial assistance by lawyers to litigants would level the playing field … especially where a relatively wealthy individual or a successful corporate defendant opposes a relatively impoverished plaintiff.”

One commentator has pegged the origins of the rule to the Star Chamber Act of 1487 and the Statute of Liveries of 1504 “which were intended to prevent wealthy landowners from bankrolling legal claims of their serfs as a means to gain more land and power for themselves.”

Humanitarian exception

The corona virus pandemic, which has wreaked havoc in New York, with more than 159,000 cases reported in New York City as of Thursday, obviously brings the subject of financial assistance to clients to the fore.  The stay-at-home order in New York, as elsewhere, has resulted in wide-ranging economic devastation and huge job losses

In its letter, the bar association described the proposal for a humanitarian exception to Rule 1.8(e), which would permit lawyers representing indigent clients on a pro bono basis, as well as lawyers working for legal service providers, public interest offices, and law school clinics, to provide financial assistance to indigent clients under limited circumstances.

For example, permitted activities under the humanitarian exception could include:  “a pro bono lawyer helping a client pay for groceries or essential living supplies; a non-profit law office establishing a client assistance fund to allocate resources based on need; and a law school clinic leveraging its resources to provide assistance to a client who may be struggling to meet basic living expenses.”

Under the proposal, lawyers  would not be allowed to offer financial assistance as an inducement to continue the pro bono representation or allowed to advertise the availability of financial assistance.

The New York State Bar Association has already approved the proposal and in January had sent it to the courts for their consideration.

Client assistance in other states

Although New York’s current version of Rule 1.8(e) tracks the Model Rule fairly closely, other jurisdictions have taken other more expansive approaches.  The District of Columbia’s Rule 1.8(d)(2), for example, allows lawyers to extend financial assistance provided that it is “reasonably necessary to permit the client to institute or maintain the litigation or administrative proceeding.”

Other states that permit client financial assistance over and above court costs and litigation expenses under their versions of Rule 1.8(e)include Louisiana; Minnesota (may guarantee loan “reasonably needed to enable the client to withstand delay in litigation that would otherwise put substantial pressure on the client to settle a case because of financial hardship rather than on the merits”); Mississippi; Montana and North Dakota.

Stay tuned for action on this front in the Empire State.  As the bar association wrote, “Especially now, lawyers should not be limited in their ability to provide assistance to clients who are struggling to make ends meet.”

When we scheduled our daughter’s wedding for March 15 in New York City, little did we know how surreal the world would be by then.  The wedding did happen, with a much-reduced number of guests, hand sanitizer on each table, and with the hora joyously danced with gloves on.  The next day, the governor banned any gatherings, and by the time we returned home to Cleveland a couple days after that, the changes in all of our every-day lives had taken hold.

Now we seem to be getting ready to start cautiously emerging into what everyone is calling the “new normal.”  What will it look like in terms of continuing to practice ethically and managing professional liability risk for you and your firm?

Malpractice-claim “upswell” to come

First, what are the stakes?  Many things about our future professional lives are unknowns, but if past tumultuous national events are a guide, there will likely be an uptick in grievances brought against lawyers, and likely a decided increase in the number of legal malpractice claims asserted against lawyers and firms.

The public health crisis has of course created potentially ruinous economic hardship for numerous clients, both businesses and individuals.  As the Great Recession taught us, the economic situation will result in many different kinds of litigation, and when deals go south or when underlying litigation does not turn out well, clients very often blame their lawyers, whether it’s justified or not.

One malpractice insurer has noted that during a recession, and for the three years following, there has historically been a spike in paid claims, a number that typically doesn’t recede until five years post-recession. “In addition, and looking back at the events of 2008 specifically, legal malpractice insurers experienced a spike in paid claims above $10,000 that ranged from 35% to 41%.”  Bar committee chairs note the same possibility of an upcoming “COVID-19 legal malpractice upswell.”

Keeping safe, minimizing risk

Here are five things you can do to try to reduce your risk of being on the wrong end of an ethics grievance or a malpractice complaint as we tiptoe toward the “new normal:”

  • Stay in your lane:  We’ve noted before that when times get lean — as they are going to become for practitioners in many areas — the temptation is to take all the business that comes in the door.  If you are a solo or in a small firm, beware of this tendency, because “dabbling” can raise competence and diligence issues from an ethics standpoint (Model Rule 1.1, Model Rule 1.3).  Make sure you are truly able to handle a matter before you agree to be retained.  Get input in the area from someone you trust, so that you don’t fall into the trap of not knowing what you don’t know.
  • Keep the calendar:  Year after year, missed deadlines are the most common source of legal malpractice claims.  The pandemic produced a shifting landscape of orders on court closures, statute-of-limitations, deadline extensions and the like.  Pull out all the stops on your calendaring process.  Build in redundancy, using paper calendars, your e-calendar and your docket department’s calendar system (assuming you’re lucky enough to have this kind of support).  Make sure that your staff — wherever they are working from — knows who has responsibility for what.
  • Be on top of your game:  No pressure here — but it’s obvious that developments in your substantive area of focus have changed and are changing quickly every day as the government responds to the COVID-19 pandemic.  Practicing competently means staying on top of it all.  Add that to the challenge we have all faced with working from home and at the same time possibly balancing a range of current life issues:  kids at home, spousal job loss, family health issues.
  • Document, document, document:  Put more in writing.  Your clients will continue to be in fast-moving situations, calling on you to move quickly, too.  Speed can be an enemy from a risk-management point of view, however.  At least memorialize in an e-mail what the client has asked you to do — aka the scope of the engagement.  This can be particularly important if you have been directed not to do some aspect that would ordinarily be within the scope of the legal work.  Also be clear about who you do and don’t represent, and communicate that in writing.
  • Check in with your carrier:  Your professional liability carrier can be a good source of risk-avoidance resources, and this is also a good time to check your policy provisions.  And if you don’t have insurance, make sure you are complying with any ethics rules or regulations on necessary communications you need to make to clients.

Don’t forget self-care

Last, this pandemic and its fallout will continue to be grueling from an emotional standpoint.  The mental health and well-being of lawyers, already widely viewed as problematic, will continue to be an issue.  Take care of yourself.  Reach out for help if you feel over-whelmed.  Here, as we frequently post, is a link to every state’s lawyer assistance program.  Here is a link to the ABA’s COVID-19 Mental Health Resource page.  There are lots of other resources, too.

We’ll emerge — in some way or another — on the other side of this.  In the meantime, be well and keep safe.

We’ve written before about Better Call Saul and its legal ethics lessons.  Now, as we all WFH (work from home, that is), here comes a light-hearted series featuring Rhea Seehorn’s character, Kim Wexler, discussing various legal ethics issues.  You can watch the first installment on YouTube here.  It’s a fun five minutes on marketing, and will definitely make you smile whether or not you are a fan of the Emmy Award-winning show (as I am).

Kim’s take on Model Rule 7.1 (“Communications Concerning a Lawyer’s Services”) and Model Rule 7.3 (“Solicitation of Clients”) is timely because we all need to market harder these days.  Lawyers are pushing out an unprecedented amount of free content to clients and prospective clients in the form of alerts and blog posts on fast-breaking pandemic developments.  And it doesn’t take much tea-leaf reading to see that there may be very hard times ahead for many sectors of the legal industry, making our marketing efforts that much more important.

But marketing harder doesn’t mean marketing improperly.  As Kim Wexler points out, you want to be a “GOOD lawyer.”

Hat tip to Prof. Alberto Bernabe’s Professional Responsibility Blog for pointing me to this neat resource.  I’ll be working it into the legal ethics course I teach as an adjunct law prof.  Remote learning, anyone?

Keep healthy, safe (and ethical) during this crazy time.

A few weeks ago, we wrote about the Ohio bar applicant with mega-school debt, and the recommendation of the state character and fitness board that she not be permitted to take the bar exam until 2024 based in part on her “neglect of financial responsibilities.”

Less than six weeks after hearing oral argument, a divided Ohio Supreme Court overturned the board’s recommendation, and ruled that the applicant will be permitted to take this year’s July bar exam.  The ABA Journal’s story is here, and you can read the court’s opinion here.

On-time payments

The court acknowledged the 59-year-old applicant’s testimony that the debt might not be paid off during her lifetime, but said that her credit report showed that she was servicing her current debts (with the exception of one disputed debt) and that she was not in arrears.  The board had also conceded that the applicant appeared to be timely on her debt obligations — although for the large educational debt, there was no repayment obligation at the time of the hearing, because of the applicant’s percentage-of-income plan.

All things considered, the majority said, the applicant had established by clear and convincing evidence that she has the requisite character, fitness and moral qualifications to practice and that she can sit for the upcoming exam.

Taxpayers’ burden?

Four of the court’s seven justices concurred; two justices concurred in the judgment only.  The lone dissenter said that the applicant’s pattern of taking on debt without a plan for how it will be repaid does not justify the trust of clients, adversaries or the courts with respect to her professional duties, and indicates that the applicant is “relying on someone else (most likely, in this case, the taxpayers) to take care of her debts for her.”

Large educational debt is more and more a part of post-law-school life.  The court’s willingness to see past the amount — at least when the debt is not in arears — is noteworthy, as is the relative speediness of its decision here.

A prominent Chinese dissident may proceed with his malpractice case against a law firm based on allegations that the firm failed adequately to protect his personal data from hackers, a Washington, D.C. district court said in an opinion on February 20.  In his $50 million suit, the plaintiff, Guo Wengui, alleges that after he retained the firm, someone (assumed to be associated with the Chinese government) penetrated the firm’s computer servers, gained access to his confidential information and published it on the Internet.

The district court turned back the firm’s motion to dismiss and allowed most of Wengui’s claims to go forward.  The case bears watching as cyberattacks increasingly target law firms, and legal IT teams struggle to stay one step ahead of security threats.

“Expect to be” a target

Wengui alleged in his complaint that he is a well-known dissident who exposed corruption and human rights abuses of the Chinese ruling party while he lived there.  After he fled China in 2015, Wengui came to New York.  Nonetheless, he alleged, the Chinese government has continued to harass him with demonstrations outside his home and a “negative propaganda campaign.”  He applied for political asylum and retained the law firm for potential assistance..

According to the complaint, the firm assured Wengui that it could protect his interests.  Wengui alleges that he warned the firm of the risks attendant to his status as a prominent dissident, including that the firm “should expect to be subjected to sophisticated cyber attacks,” and that it should “take special precautions” to prevent intrusion into and disclosure of his sensitive confidential information.

Nonetheless, Wengui alleged, in September 2017, the firm’s computer system was penetrated, and the hackers obtained Wengui’ s and his spouse’s sensitive personal information, including his asylum application.  The information was published and disseminated on social media, the complaint says.

Was cyber-breach a breach of duty?

The court held that Wengui pleaded viable claims for malpractice, breach of fiduciary duty and breach of contract.  Wengui’s claim that the firm’s information security measures were inadequate and unreasonable rested on more than the mere fact that “there was a cyber incident,” the court said.  And while it did not find that all failures to protect against a foreseeable cyberattack would be actionable standing on their own, the court said that here, there were additional factors:  Wengui “sufficiently” pleaded that the firm had misrepresented the manner in which it would protect his information in order to obtain his legal business.

Wengui also alleged that, despite the firm’s promise to take special precautions, it violated his express instructions by placing his confidential information on its servers and conveying it by e-mail, and that he was actually harmed when the Chinese government used the allegedly-hacked information as part of its “persecution and harassment” against Wengui.

These factors also pointed to the breach of the duty of reasonable care sufficient to sustain a malpractice claim at the pleading stage, and to support a breach-of-contract claim (although the latter “just barely,” said the court).

Corporate duty to protect?

In at least two cases, courts have gone so far as to hold that corporations have a duty to protect against a third person’s criminal act if the organization has a reason to anticipate the crime, and breaches its duty to customers if it fails to prevent a foreseeable cyberattack.  See Attias v. CatreFirst, Inc., 365 F. Supp. 3d 1, 21 (D.D.C. 2019); In re Arby’s Rest. Grp. Inc. Litig., 2018 U.S. Dist. LEXIS 131140 (N.D. Ga. Mar. 5, 2018).  In 2016, two plaintiffs filed a bellwether class action in the Northern District of Illinois against a law firm in advance of any cyber-breach, a development we discussed and one that worried commentators.  The putative plaintiffs later withdrew the complaint, and the law firm targeted in the suit later sued the putative plaintiffs’ lawyers.

We’ve written before about the reported susceptibility of law firms to data security breaches.  And late last year, the influential Sedona Conference proposed a new “data breach” privilege to protect information prepared in a cybersecurity context, even when not involving communication with an organization’s lawyer.

Negligence claims against law firms for information security breaches are sure to proliferate in the future as cybercriminals become ever more skillful and experienced in their attacks.  All lawyers should take note.