How not to practice law: gamble away clients' funds

So, here is the second installment of the day in the "how not to practice law category" and again, as usual, the punchline says it all.  This one involves a lawyer who reportedly lost over $8 million in client funds at a casino.  The attorney will reportedly plead guilty to wire fraud and money laundering. She faces upwards of 20 years and has already agreed to pay $8,785,045 to recoup five investors.  You can read the story here.  

So what are the odds that she will get disbarred?  (See what I did there?...  "the odds"... get it?...)

New Jersey Supreme Court on arbitration clauses in attorney retainer agreements

Late last year, the New Jersey state supreme court held that law firms that want to include mandatory arbitration provisions in their client engagement agreements must explain to the client the benefits and disadvantages of arbitrating a prospective dispute.  The case is called Delaney v. Dickey, and you can read it here.

The Law for Lawyers Today has a comment here.

ABA issues new ethics opinion on replying to online reviews -- UPDATED

January 18, 2021

With the increasing use of websites to contact lawyers and to provide feedback about their work, lawyers need guidance on how to address online criticism and negative reviews without violating duties in the rules of professional conduct.  A number of jurisdictions have issued ethics opinions on the subject already, and now the ABA Standing Committee on Ethics and Professional Responsibility has too.

The Committee's Formal Opinion No. 496 can be found here.  As usual it starts with a short summary of the full opinion.  It reads: 

Lawyers are regularly targets of online criticism and negative reviews. Model Rule of Professional Conduct 1.6(a) prohibits lawyers from disclosing information relating to any client’s representation or information that could reasonably lead to the discovery of confidential information by another. A negative online review, alone, does not meet the requirements of permissible disclosure in self-defense under Model Rule 1.6(b)(5) and, even if it did, an online response that discloses information relating to a client’s representation or that would lead to discovery of confidential information would exceed any disclosure permitted under the Rule. As a best practice, lawyers should consider not responding to a negative post or review, because doing so may draw more attention to it and invite further response from an already unhappy critic. Lawyers may request that the website or search engine host remove the information. Lawyers who choose to respond online must not disclose information that relates to a client matter, or that could reasonably lead to the discovery of confidential information by another, in the response. Lawyers may post an invitation to contact the lawyer privately to resolve the matter. Another permissible online response would be to indicate that professional considerations preclude a response.

As you can see, the opinion simply explains and expands on a general principle that we knew already: a lawyer can disclose confidential information if allowed by one of the exceptions to the rule and only to the extent reasonably necessary to advance the policy behind the exception.  What the opinion makes clear is that responding to a negative review is not justified by the exception to the rule that allows a lawyer to disclose confidential information in order to defend him/herself in a legal dispute.

For more commentary on the opinion you can visit: The ABA Journal, Law 360, Lex Blog, Lawyer Ethics Alerts Blog, Louisiana Legal Ethics and Ethical Grounds.

UPDATE 1/24/21:  

For more commentary go to The Law for Lawyers Today, California Legal Ethics, and My Shingle.

NJ Supreme Court validates use of mandatory arbitration clauses in retainer agreements

The New Jersey Supreme Court in Delaney v. Sills has validated the use of retainer agreements that provide that all disputes between attorney and client shall be subject to arbitration. On the other hand, the court emphasizes that the fiduciary nature of the attorney-client tie requires candid explanation to the client of the advantages and disadvantages of the arbitral forum.

In my opinion, mandatory arbitration agreements are inherently bad for consumers and lawyers should not be allowed to impose them on their clients.  I am glad that the court says lawyers have an obligation to explain the pros and cons of arbitration, but what good does that do when prospective clients are all but forced to accept it if they want the lawyer of their choice?  

The court summarized its decision as follows:

For an arbitration provision in a retainer agreement to be enforceable, an attorney must generally explain to a client the benefits and disadvantages of arbitrating a prospective dispute between the attorney and client. Such an explanation is necessary because, to make an informed decision, the client must have a basic understanding of the fundamental differences between an arbitral forum and a judicial forum in resolving a future fee dispute or malpractice action. . . . That information can be conveyed in an oral dialogue or in writing, or by both, depending on how the attorney chooses best to communicate it. The Court refers the issues raised in this opinion to the Advisory Committee on Professional Ethics (ACPE), which may propose further guidance on the scope of an attorney’s disclosure requirements. The new mandate will apply prospectively, except as to Delaney, who must be allowed to proceed with his malpractice action . . .. 

George Conk (a member of the ACPE) has a detailed comment on the decision here.  The Louisiana Legal Ethics Blog has a comment comparing the decision with the current state of the law in Louisiana.

DC Legal Ethics Committee opinion on duties related to impaired lawyers -- UPDATED

The District of Columbia Bar Legal Ethics Committee has issued an opinion on the duties owed to clients and the profession when an impaired lawyer leaves a law firm or government agency, particularly when the lawyer may continue to practice law, regardless of whether clients are, or may be, terminating their relationship with the firm in order to remain clients of the departing lawyer.

You can go here to read the full text of Ethics Opinion 377: Duties When a Lawyer is Impaired.

UPDATE 10/31/19:  Over at The Law for Lawyers Today, Karen Rubin provides a detailed review of the opinion.

Discipline for attempting to violate the rule on sex with clients

Model Rule 8.4, which is the basis of Rule 8.4 in most, if not all states, holds that it is professional misconduct for a lawyer to "violate or attempt to violate" the Rules of Professional Conduct.  Yet, you rarely see cases imposing discipline for an attempted violation of the rules.

This makes Lawyer Disciplinary Board v. Sayre interesting.  In this case, the Virginia Supreme Court imposed discipline on an attorney for a number of offenses and one of them involved an attempt to violate the rule against sex with clients.  The lawyer admitted that he knowingly engaged in inappropriate and sexually suggestive communications with the intent of initiating a sexual relationship with a client. Because his attempt was unsuccessful, the Court ruled the conduct was not a violation of rule 1.8, but it was a violation of rule 8.4.

The Legal Profession blog has a summary here.

How not to practice law: steal files from your firm when departing

The ABA Journal is reporting that a St. Louis lawyer was held in contempt, jailed for two days and ordered to pay more than $775,000 to her law firm for expenses incurred in its lawsuit to gain return of electronic files that the attorney was accused of taking before her resignation.  For more details go here.

Tennessee Supreme Court imposes sanctions for improper contingency fee

A few days ago I saw a report on a case out of the Tennessee Supreme Court on a topic that you don't see that often:  an unreasonable contingency fee agreement.  The practice of using contingency fees is, of course, common; and the practice of structuring the contingency itself as a percentage of the recovery is standard.  In most cases, the percentage is about 33%.  That is also pretty standard.  And that is why I don't think we see many cases on this topic.  Everybody pretty much does the same thing because the market regulates itself.

Yet, here we have a new case with a twist on the practice of using contingency fees.

The lawyer in the case entered into a contingent fee agreement with his client, which provided that if the client refused to accept a settlement offer that the lawyer advised was reasonable and should be taken, the client would be required to pay the lawyer the contingency fee “on the basis of that offer” unless waived by the lawyer.

As you would expect given the end result of the case, the defendant made an offer, the lawyer advised the client to take it, but the client refused.  The lawyer then withdrew from representation and asked for a lien against his client’s eventual recovery in her personal injury case for fees and expenses based on the original agreement.

The court agreed with the hearing panel that the contingent fee agreement was unreasonable and violated the Rules of Professional Conduct because the Rules only allow a contingency fee on the outcome of the matter. The Court also agreed with the hearing panel that the contingency fee agreement violated the Rules of Professional Conduct because it gave the lawyer a proprietary interest in any settlement offer arising in the case.  Thus, the Court affirmed the judgments of the trial court and the hearing panel imposing a public censure.

As it is often the case, whether public censure, one of the lightest possible sanctions out there, was the correct measure of discipline is debatable.  But I supposed reasonable people can disagree on that and it is the subject of a different conversation.

The case is Moore v. Board of Professional Responsibility and you can read the opinion here.

Faughnan on Ethics has a comment on the case here.  As he clearly explains, "[a]t its core, this case explains the limits on the ability of a plaintiff’s attorney to try to guard against what happens if their client rejects the attorney’s advice on whether to accept a settlement offer. There do, in fact, have to be limits on the ability to hedge against that because the ethics rules establish explicitly that the decision whether to settle a civil case or not is the client’s decision. RPC 1.2(a)."

Advice for when you realize you made a huge mistake and will likely get sued...

I often tell my torts students that forgetting to file a claim before the statute of limitations runs is possible the dumbest mistake they can make.  "Buy, and more importantly, learn to use a calendar!",  I tell them.

So what happens if the do make that dumb mistake? What happens next?   Here is some good advice.

The grades you don't want as a student and basic duties owed to clients, or the basic principles of ethical lawyering

Years ago, I wrote a short essay on whether we could reduce the professional conduct rules to just a few basic principles.  I concluded that, although we need the rules for guidance on specific issues, we can use a few general principles to define the notion of professional responsibility upon which all rules are generally based.

Along the same lines, a few weeks ago, Brian Faughnan posted a comment on “A recipe for ethical lawyering?” in which he expressed a similar idea by referring to the 5 Cs of lawyering:

Be COMPETENT at what you do
Recognize and respect your obligations of CONFIDENTIALITY
COMMUNICATE appropriately with your clients (and others) both as to content and frequency
Employ CANDOR in all situations in your practice [If you absolutely cannot be 100% truthful, and can’t simply stay silent, then don’t be false.]
Avoid CONFLICTS for which you don’t have, or cannot get, consent.

A few days later, Michael Kennedy followed up with his own commentary on the 5 Cs.

There is little to add to these two fine comments, but I will mention my own take on the 5 Cs, which is this: to try to get my students to remember the basic duties attorneys owe their clients, I tell them to think about the grades the do NOT want to get this semester: 1 F, 1 D and 4 Cs:

The F is for the Fiduciary duty owed to clients which in fact includes most, if not all, the others.

The D is for Diligence.

The Cs are for Competence, Confidentiality, Communication and Conflicts.

There are a couple of problems with my little word game for my students,* but it works for its purpose, I guess.... I hope...


*Note that “Conflicts” is, of course, not a duty – the duty is loyalty – but I needed a “C” to make the saying work!  Also note that I did not mention candor because, technically, the rule on candor says candor is owed to the tribunal, and my lesson was on duties owed to the client.  The equivalent of candor owed to the client would be Honesty, which I mention separately.  It is covered in the "catch-a;;" Rule 8.4 but can also be included in the notion of a fiduciary duty.

Texas Bar issues opinion on whether attorney can renegotiate a flat fee

Long time readers of this blog might remember that I have published a couple of short articles on flat fees. (See here and here, for example.)  One issue related to flat fees that is interesting is whether an attorney should have the right to renegotiate the fee if it turns out that he or she miscalculated the amount of time the legal services would take.  Obviously, you would think that once the fee agreement is set, the attorney can't unilaterally change it to force the client to pay more.  The main reason a client would agree to a flat fee is the fact they know ahead of time how much the total fee will be.

This puts an attorney in a difficult position when it turns out the amount of work the fee pays for turns out to be a lot more than expected.  The attorney could ask the client to pay more, but what if the client refuses?  After all, they have a contract that says the services would be provided for the agreed amount and therefore have the right to expect the work will be done regardless of how much work it is.  In a case like that, the lawyer miscalculated and would suffer the consequences of his/her mistake.  Like I said, I guess there is nothing that says that the lawyer can't ask the client to pay more, but if the client refuses, the lawyer has to suck it up -- do the work diligently, competently and completely even if it means taking a financial loss.

So the question I would ask is whether it would be ethical for the lawyer to include in the initial contract a clause allowing the lawyer to recalculate or at least to force the client to agree to renegotiate the fee under certain conditions.

A few months ago, the Texas Bar issued an Ethics Opinion partially addressing the issue.  It concludes as follows:

A lawyer may renegotiate his fixed, flat fee for representing a client in a litigation matter after the litigation is underway if modification of the fee agreement is fair under the circumstances. The burden of proving fairness is the lawyer’s and will depend upon factors such as the length of the lawyer-client relationship, whether the reason for the renegotiation could have been anticipated at the outset of the representation, and the client’s level of sophistication. Before seeking to renegotiate a fixed fee, the lawyer should be mindful of the risks that the lawyer voluntarily assumed when proposing or agreeing to that fee—including the possibility that the fixed fee might not be adequate to compensate the lawyer when compared to other fee arrangements.

Notice that the opinion refers to "renegotiating the fee" not to including something in the initial contract.  Does that mean that the opinion considers it ethical for an attorney to seek to renegotiate with the client, or that it would be ethical for the attorney to change the terms of the original agreement?   It is not clear, but it seems to me it is talking about whether it is ethical to ask the client to renegotiate, and it concludes that it would be depending on certain factors.

But, to me, that does not really answer some of the other important questions.  Let's say it is ethical for the attorney to ask, what happens if the client refuses to agree to the new proposed fee?  Can the attorney force the client to accept new terms?  Does the fact that the attorney can ask a client to renegotiate the terms of the contract, make the new terms themselves part of the contract?    My guess is that these questions would need to be addressed in the original contract and the client would have to agree to the terms ahead of time.

Also notice that the opinion seems to be limited to litigation.  Why is that?  What if a client asks me to prepare a will and I agree to do it for a flat fee of $100, which is my hourly fee, because I think it won't take me more than an hour.  Later I realize it will take me a lot longer than that. If the language of the opinion is limited to litigation, I'd have to suck it up, which a litigator wouldn't.  Why the difference?  What makes their time or work more valuable than mine?

You can read the full opinion (which is very short) here.

ABA Opinion 484: can a lawyer refer a client to a financing company in which the lawyer owns a financial interest?

At the end of November, the ABA Committee on Professional Responsibility issued Formal Opinion 484 on whether a lawyer may refer a client to a fee financing companies in which the lawyer owns a financial interest.  I have not read the opinion in full, so I can't comment on it at this time.  Here is the summary:

Lawyers may refer clients to fee financing companies or brokers in which the lawyers have no ownership or other financial interests provided they comply with Model Rules 1.2(c), 1.4(b), 1.5(a) and (b), 1.6, 1.7(a)(2), and 1.9(a). If a lawyer were to acquire an ownership or other financial interest in a finance company or brokerage and thereafter refer clients to that entity to finance the lawyer’s fees, the lawyer would be entering into a business transaction with a client, or obtaining a security or pecuniary interest adverse to the client, or both. In that instance, the lawyer would also be required to comply with Model Rule 1.8(a).

ABA Opinion 483 on the duties related to data breaches

Last October, the ABA Committee on Professional Responsibility published Formal Opinion 483 to provide guidance on how lawyers should handle data breaches before, during, and after an event. In short, lawyers must take proactive steps to protect sensitive client data and they must disclose material data breaches.

You can read the opinion here.  Here is a summary by the National Law Review:

The ABA states that data breaches pose a “major professional responsibility and liability threat” to the entire legal profession.  It defines a data breach as “a data event where material client confidential information is misappropriated, destroyed or otherwise compromised, or where a lawyer’s ability to perform the legal services for which the lawyer is hired is significantly impaired by the episode.”  When there is data breach, attorneys must first comply with state and federal legislation. Next, attorneys must disclose a breach to a current client if (a) that client’s material, confidential information is or reasonably may have been compromised (e.g., unauthorized access, use, theft, or destruction), or (b) the breach has materially disrupted the attorney’s ability to serve the client (e.g., ransomware limiting access to client information for any material amount of time). In essence, lawyers must notify clients when incidents like ransomware materially impair operations—even when there is no evidence of exfilatrated or compromised data.  Here, strong defense mechanisms include up-to-date, accessible, and easily restorable back-ups to fend off disruption of legal services

For some commentary on the opinion go here:

Faughnan on Ethics (on the relationship between the opinion and Model Rules 1.15 and 4.4)

Above the law

Lawyer Ethics Alerts Blog

Pennsylvania Superior Court rules lawyer can't serve as guardian ad litem and as lawyer for a child at the same time

Back in 2010 I posted a comment criticizing the practice of appointing attorneys for juveniles in delinquency proceedings to serve simultaneously as guardians ad litem and urging the Illinois Supreme Court to grant review in a case that challenged it.  I also published a law review article on the subject, available here.

Since then, the Court did review a case on the issue and decided that attempting to serve as a lawyer and as a guardian at the same time constituted an impermissible conflict of interest.  I wrote an article about the case (here).

Unfortunately, the practice of appointing lawyers to serve as lawyers and guardians simultaneously is still common in many jurisdictions, including, oddly, in Illinois.  (The ruling in Illinois banned the practice in delinquency cases but not in family law matters.)

I am writing about this again today because I just read that the Pennsylvania Superior Court issued a ruling in a case called In re J'K.M., 2018 BL 226337, Pa. Super. Ct., No. 1390 WDA 2017, 6/26/18, holding that an attorney appointed as a teen's guardian ad litem and as her lawyer in a neglect proceeding can't continue the dual roles because a divergence between what the child wants and what is best for them creates a conflict of interest.

Given my history on this issue, you will not be surprised to hear that I think this is definitely the correct decision. 

3M settles case filed by state of Minnesota

3M has agreed to pay $850 million to settle a long-standing lawsuit filed by Minnesota, over the company’s disposal of perfluorochemicals used in Scotchgard and other products, which the state says polluted drinking water sources.  Go here for more details.

Why is this relevant?  Because this was the case in which the law firm Covington & Burling was disqualified for allegedly violating the "hot potato doctrine."  Go here, here, here and here for my original posts on the case.  The disqualification order was later remanded for further proceedings.

Justice Department asks Supreme Court to consider discipline for ACLU lawyers in abortion case

You have probably read or heard about the story of the 17 year old detainee who was seeking to get an abortion while in custody.  After the government refused to allow her to leave the shelter where she was being held in custody, a ruling by the full U.S. Court of Appeals for the District of Columbia Circuit cleared the way for the abortion.

The case has not ended however, since it is being reported now that the Department of Justice has filed a petition before the Supreme Court in which it is asking the justices to vacate the D.C. Circuit’s ruling.  This would mean that the decision would no longer serve as legal precedent.

More interestingly for readers of this blog, the government is also suggesting that the justices should sanction the woman's attorneys for misconduct that, the government argues, thwarted it from seeking Supreme Court review of the decision in the first place.  You can read more about this development in the SCotUS blog here.

According to the ABA Journal online, ACLU legal director David Cole responded to the government filing in a statement that states: “This administration has gone to astounding lengths to block this young woman from getting an abortion,” Cole said. “Now, because they were unable to stop her, they are raising baseless questions about our conduct. Our lawyers acted in the best interest of our client and in full compliance with the court orders and federal and Texas law. That government lawyers failed to seek judicial review quickly enough is their fault, not ours.”

Florida seeks comments on proposed opinion on whether to allow sharing of fees with firms that allow sharing of fees with non-lawyers

The Florida bar is likely to adopt an ethics opinion that would make it easier for Florida lawyers to enter into co-counsel relationships with law firms in which non-lawyers have ownership stake -- or, in other words, to share fees with firms that share fees with non-lawyers.  Only two jurisdictions in the US allow sharing fees with non-lawyers, but a number of foreign countries do.

This is a big change in approach since only two jurisdictions in the US currently allow sharing of fees with non-lawyers and it may open the door for even more changes including allowing lawyers to share fees with non-lawyers directly in Florida - which would be good news for Avvo, as discussed in previous posts below.

But let's not get ahead of ourselves, yet.  The draft opinion emphasizes that it does not address a Florida Bar member becoming a partner, shareholder, associate, or other formal arrangement in a law firm that is permitted to have non-lawyer ownership in its home jurisdiction.

The committee will accept comments on the proposed opinion until Aug. 15. If no comments are received, the opinion will become final five days later. If comments are received, the matter will be taken up at The Florida Bar's Fall Meeting on October 13.

You can read the proposed opinion here.

Court of Appeals for the Second Circuit rejects argument that rules that ban lawyers from raising capital from non lawyers are unconstitutional -- UPDATED

In an important and highly anticipated opinion, the Court of Appeals for the Second Circuit has rejected an argument against the rules of professional conduct which ban lawyers from accepting capital investment from non-laywers.  In this particular case, the specific rules challenged were those of the state of New York, but the reasoning of the court is likely to influence courts in other jurisdicitons.

The ruling is a big blow to those who have been proposing adopting different rules, now in use in the UK and Australia, that would allow lawyers to practice law through "alternative business structures."

On the other hand, the ruling should not be unexpected since the American legal profession has proven to be very reluctant to adopt such a view.  There is a lot of literature about this and it was the hot issue in Professional Responsibility circles for the last couple of years. 

Many thought the ABA was ready to point the way toward change when, in 2014, it created the Commission on the Future of Legal Services and charged it with the task of studying how legal services are delivered in other countries and of recommending innovations that would improve the delivery of, and the public’s access to, legal services in the United States.

Yet, when the Commission presented its final report at the 2016 ABA Annual Meeting it essentially merely encouraged states to “explore how legal services are delivered by entities that employ new technologies and internet-based platforms and then assess the benefits and risks to the public.”  As for the notion of alternative business structures, the Commission’s report’s language was even more tentative, merely stating that “[c]ontinued exploration of alternative business structures will be useful.”  For my comment on the Commission's report go here.  I also have a short article on the debate regarding the future of the profession in 41 Journal of the Legal Profession 1 (2016).

Not content on waiting for the ABA to act, the law firm Jacoby & Meyers, challenged the constitutionality of a collection of New York regulations and laws that together prevent for‐profit law firms from accepting capital investment from non‐lawyers.

In its opinion rejecting the argument, the court explained that the law firm alleged that, if they were allowed to accept outside investment, they would be able to—and would—improve their infrastructure and efficiency and as a result reduce their fees and serve more clients, including clients who might otherwise be unable to afford their services, and that the challenged rules unconstitutionally infringe the firm's rights as lawyers to associate with clients and to access the courts—rights that are grounded, they argue, in the First Amendment.

The District Court dismissed the complaint, concluding that the firm failed to state a claim for violation of any constitutional right and that, even if such rights were to be recognized, the challenged regulations withstand scrutiny because they are rationally related to a legitimate state interest.

The Court of Appeals agreed and affirmed.  You can read the full opinion here.

UPDATE (3-28-17):  The ABA Journal has a short post on the story here.  The NY Personal Injury Blog has a comment here.

May lawyers reveal conflidential information to prevent a client's suicide?

The Virginia State Bar recently addressed the question of whether an attorney can disclose confidential information in order to help prevent a client from committing suicide.

Although Virginia ethics rules don’t specifically address a client’s threat of suicide, a 1984 Virginia ethics opinion said it is not improper for a lawyer to disclose to appropriate mental health authorities a client’s intent to commit suicide.  Therefore, according to an update to the Virginia State Bar’s list on frequently asked legal-ethics questions, a lawyer may take reasonably necessary protective action when the lawyer reasonably believes a client’s suicide threat is credible, adding that the rules “should be interpreted to allow the lawyer to contact the client’s family, close friends, mental health care providers, or emergency medical services personnel so that an intervention can be made to save the client from harm.”   Check out question and answer #26 here.

The Legal Profession blog has more information and some links here.  

On teaching how to represent a client with diminished capacity

The blog IP Ethics & Insights has a monthly feature on "what they don't teach you in law school" which is actually making me feel pretty good about my own teaching because the last two topics it has covered (here and here) are things I actually do teach in my class.  The first one was how to handle client's money, which I will be covering in class today, as a matter of fact.

The second one is how to represent a client with diminished capacity, which I cover as part of the discussion on the basic principles of an attorney-client relationship.  IP Ethics & Insights covers the basics here.  To discuss this material I assign a case called In the Matter of MR, 638 A.2d 1274 (N.J. 1994), which provides a good discussion of the basic principles and a helpful analysis on how to evaluate the proper role of the lawyer and the allocation of the decision making authority within the attorney client relationship. 

If you want more information about what I cover in my class (and how I do it), feel free to visit my course website here.