Disbarrment time in D.C.?

Today’s a pretty big day for the future of democracy in the United States. Not just because it is Law Day, but because Law Day is being commemorated pretty ironically as the man with a very checkered past currently serving as the Attorney General of the United States testifies to Congress about why he didn’t mean the things he said to get the job and why, apparently, the current occupant of the White House should be free to obstruct justice if he is frustrated.

A couple of weeks ago, I wrote about a rare situation in which a corporation sued its former GC for what was essentially a legal malpractice claim and mentioned that, if nothing else, it served as a good reminder for lawyers who represent organizations that it is the entity, and not the CEO or its other officers, that are the client.

Many moons ago when I thought that Jeff Sessions might end up being the worst AG we were going to get under the current administration I wrote about the fact that the AG always needs to remember that the President is not the client.

The fact that we now have an AG who appears to be even worse is certainly proof of the small and meaningless nature of my voice, but also still more proof of how important the distinction between who is the client and who is not should be.

Of course, as an exchange with Atrios that I’ve had today on Twitter bears out, rampant lying by the person who is arguably the most prominent lawyer in the nation is – in addition to being an existential threat to democracy in this instance – not a good look for our profession as a whole.

So, happy Law Day, I guess.

Friday follow up: undo the good and just leave the bad.

So, not quite six weeks ago, I wrote about a development from Tennessee that was something of a mixed bag.

Our Board of Professional Responsibility put out a proposed Formal Ethics Opinion for public comment that, in my opinion, was not a good opinion fraught with quite a number of significant flaws. (If you missed that post, you can check it out here.)

The substance of the draft was the bad part of the bag. But, for the first time under a new policy, the Board actually put a draft opinion out publicly for comment prior to formally adopting it. That, of course, was the good stuff in the bag.

Presumably, the Board’s rationale for putting the draft FEO out for comment was to give itself an opportunity to receive feedback before making a final decision about whether to issue the opinion as-is or at all or in some revised form. As the prior post indicated, the deadline for the submission of public comments was April 10.

Cut to earlier this week on April 23. That was the date that the Board put out the Spring 2019 edition of Board Notes. It is a semi-annual publication which is a collection of a lot of things, including reports on discipline, statistics about the handling and processing of cases, articles about rule changes or other items of interest, and occasionally formal ethics opinions that have been adopted since the prior issue of Board Notes.

But while Board Notes is a valuable resource, it is something that most folks only receive by way of an email and that a significant number of people pay no attention to whatsoever. (So, in a lot of ways, it is like this blog, except for the receiving it by email part.)

Without any fanfare or explanation, Formal Ethics Opinion 2019-F-167 was included in Board Notes. That was how Tennessee lawyers had the chance to first learn that the draft FEO put out for public comment had now been adopted. (Actually, if you received but have deleted the email, or if as is pretty statistically likely you are not a Tennessee lawyer, you can always go here at the Board’s website to read issues of Board Notes.)

If you are a diligent reader of all of the links, you will see that Formal Ethics Opinion 2019-F-167 has been adopted without change from its draft form.

Now, perhaps the Board received overwhelmingly positive feedback from the bar on the draft opinion and so felt confident that it got it right. Or maybe it received very little feedback about the draft opinion and decided it probably got it right and no one really cared either way.

At this point, it is impossible to know because there is nowhere on the BPR website or anywhere else that the bar (or the public) can go to presently to see what public comments were received about the opinion.

I happen to know that the Board received at least one comment – a negative one – and that it came from lawyers who actually do focus their practice on defending products liability cases because they shared a copy of the comment they sent in with me. The substance of their concerns made me feel a lot better about the thoughts I shared because they were able to more cogently point out the nature of the evidence that actually does matter in a products liability case. (They also happened to be lawyers who practice in other offices of my law firm, which I mention for the purposes of transparency.)

Perhaps, ultimately, the Board will make the comments received on the draft FEO publicly available somewhere. I hope so. Otherwise, if there won’t be transparency in terms of the bar’s reaction to proposed opinions, then there really isn’t much positive about even putting them out for comment in the first place.

In fact, there is real institutional downside for the Board in leaving members of the bar wondering whether the Board does not actually care about evaluating the feedback it receives on its proposed opinions.

If the Board isn’t going to make the comments it receives available for the bar to read, then it likely should not go to the trouble of putting drafts out for comment in the first place.

If the Board simply intends to plow forward with draft opinions regardless of perceived flaws, then it definitely should just scrap the whole endeavor.

Lawyers engaging in criminal conduct. Big love for immunity in Texas.

Let me offer a word or two or probably 1,000 about two recent items of interest having the issue of lawyers involved in crimes as their common thread. One comes from the Fifth Circuit and the other comes from an ABA Journal article about a situation in Utah.

First, the Fifth Circuit’s ruling in Troice v. Greenberg Traurig, LLP handed down on April 17, 2019. That case is one of many pieces of litigation involving the Allen Stanford Ponzi scheme. Specifically, this case involved a potential class action involved claims against Greenberg Traurig under a vicarious liability theory alleging that an attorney at Greenberg Traurig conspired with Stanford to further his scheme.

I am a big believer that the scope of immunity for civil liability to third parties for lawyers in connection with their acts in the representation of clients should be very broad. The most widely known version of this kind of immunity for lawyers is often referred to as the litigation privilege.

A readily-understandable example of which is this: a lawyer is representing a client and files a lawsuit for the client against a company alleging that the company’s products are defective and unsafe, according to the litigation privilege as a form of immunity, the company shouldn’t be able to sue the lawyer for defamation over those allegations.

As a proponent for this immunity to be broad in scope, I was not surprised to see the Fifth Circuit rule that Texas law would provide immunity even with respect to matters outside of litigation as long as they occurred within the scope of the representation of a client. What I was initially puzzled by, however, was the Fifth Circuit’s conclusion that a lawyer could even be immune from civil liability to a third party for criminal conduct.

My immediate reaction flowed from thinking about the fact that the ethics rules [RPC 1.2(d)] specifically delineate that “[a] lawyer shall not … assist a client, in conduct that the lawyer knows or reasonably should know is criminal.” Thus, there might be a logical basis for arguing that a lawyer using her representation to assist a client in committing a crime should not be treated as acting within the scope of a representation for purposes of civil immunity but would be treated as something outside of the scope of a legitimate representation.

Of course, the problem with that logic is how I had to insert “legitimate” in as a modifier for “representation.” Such an approach would raise questions about an array of other ways that a lawyer might violate the ethics rules during representation of a client and whether those acts should also trigger a loss of immunity from liability to third parties.

Although the opinion did not really get into any discussion of ethics rules, the Fifth Circuit was confronted by a similar argument from the plaintiffs — that criminal conduct by a lawyer is necessarily outside the scope of normal representation:

The plaintiffs also argue “attorneys are not immune from suit when they engage in criminal conduct.” Their contention is not that criminal conduct is an exception to the general rule immunizing behavior in the scope of representation but rather that criminal acts are categorically never within” that scope.

The Fifth Circuit, applying and interpreting/predicting Texas law, walked through how the Texas courts look at the issue not based on the nature of the attorney’s alleged conduct (i.e. criminal or not) but on the type of conduct (i.e. does it look like something that amounts to legal services to a client or not). Given that fact, it was easy for the Fifth Circuit to say that even alleged criminal conduct by a lawyer can be in the scope of a representation for purposes of evaluating civil immunity.

The prospect of civil immunity even for allegedly criminal conduct, however, likely does not change the fact such conduct is sufficiently dis-incentivized in other respects.

It can still subject the lawyer to potential criminal liability. And, of course, lawyers also still face the risk of professional discipline for most criminal behavior.

Most, but not all.

Which brings us to the Utah story and whether or not lawyers should face discipline for criminal conduct, if the criminal conduct in question involves polygamy. Utah apparently has a criminal statute that makes involvement in a polygamous relationship subject to as much as fifteen years in prison. The short ABA Journal piece discusses the background – a complaint has been brought by a former member of something called the Davis County Cooperative Society where polygamy is pervasive headed up by a lawyer leader — and stressing that Utah’s relevant ethics rule – like most – only addresses criminal conduct that “reflects adversely on the lawyer’s honesty, trustworthiness, or fitness” as a lawyer.

In most instances, one would think that an attorney would have a hard time pulling off a polygamous relationship without engaging in some acts of dishonesty, fraud, deceit, or misrepresentation but perhaps not here. Given the lawyer’s role as a leader of the Davis County Cooperative Society it sounds like the conduct is occurring out in the open so that deception is not part of the picture. Thus, the only way for RPC 8.4 to come into play would be for someone to try to argue that polygamy is a crime that reflects adversely on fitness as a lawyer.

As there are far too many jokes that could be made with that set up, I’ll refrain and, instead, focus on the original point about civil immunity. If Utah’s approach, was the same as the Fifth Circuit said Texas’s was, then it should mean that a lawyer could have potential civil liability to a third party for a polygamous relationship itself but a lawyer who, for example, represents clients in drafting up contracts related to a polygamous relationship, should be entitled to immunity.

Rarer than rare

I could try to open this post with references to song lyrics from either Toad the Wet Sprocket or Arctic Monkeys, but, either way, I’d likely lose most of you from the jump. (I could also try to claim knowledge of the Glenn Miller song that uses the exact phrase but while I may look it I’m just not old enough to know that reference.)

So, instead, we’ll go straight into the situation referenced by the title of the post. I’ve written in the past about the rare nature of instances of departures from law firms actually resulting in litigation and the rare nature of law firms suing other law firms over advertising practices. But what we discuss today is much rarer than either of those things, a corporation filing suit against its former general counsel for what is the equivalent of a claim for legal malpractice .

In the last few weeks there has been discussion in the legal press of a $70 million lawsuit filed by Hertz against three of its former high-level executives. One of those three defendants is Hertz’s former General Counsel. (He was also an EVP and Secretary but the lawsuit focuses only on his status as General Counsel so we shall do the same.)

So, what’s the deal? Well, Hertz has had some trouble over the years with the SEC where it ended up having to restate its financials for fiscal years 2011, 2012, and 2013. The restatement filing was made with the SEC in 2015 and amounted to a $231 million reduction in Hertz’s net income. The restatement was attributed to “material weaknesses” in Hertz’s internal controls which the lawsuit is claiming were either caused or made worse by the mismanagement of the company by the three defendants being sued, including the former General Counsel.

If you want to read a good summary treatment of the suit, you can grab one here or here. It certainly details a story of significant corporate turmoil and upheaval and paints a very unflattering picture of the former CEO (who is one of the three named defendants) and his management style. If you are interested in reading the full lawsuit filed in federal court in New Jersey, you can get it here.

If you want to get a clear flavor of the kinds of allegations involved without getting fully into the weeds – and in particular the almost “ride-along” nature of the case against the General Counsel – paragraph 6 of the Complaint is a pretty good landing point. (Frissora was the CEO; Douglas was the CFO; and Zimmerman is the General Counsel in question.)

Upon learning that Hertz might miss a financial target, Frissora would demand mandatory team-wide calls and continuous weekend meetings, and would repeatedly berate subordinates who did not come up with a sufficient number of “paradigm-busting” accounting strategies to fill the gaps between Hertz’s actual and expected performance, accusing them of not being team players if they would not play his game. Defendants Douglas and Zimmerman – Frissora’s right-hand subordinates who were entrusted with effectuating his orders — failed to stop, effectively counterbalance, or otherwise offset or report to Hertz’s board of directors . . . Frissora’s inappropriately forceful tone, in breach of their duties owed to Hertz.

The suit seeks to claw-back somewhere in the neighborhood of $70 million in incentive-based payments that were made to the three including significant amounts of money paid to each on their way out the door after they resigned and the financial problems had become known – payments that the lawsuit itself tags with the shorthand reference “Golden Parachutes.”

Paragraph 21 of the Complaint goes into the most details in terms of the allegations against the General Counsel. It does not, of course, reference the ethical duties that a lawyer to an organizational entity owed under RPC 1.13 but, at its heart, the dynamic that is discussed in that rule in most jurisdictions is exactly what this lawsuit is all about: the allegation that if Zimmerman wasn’t able to stop Frissora from engaging in wrongdoing he should have informed the Board of Directors of Hertz about what was going on.

Based on not much more than a very surface-level read, it is an extremely interesting story where I’d love to learn what the other side of it looks like. Given how rare this kind of lawsuit is, it would not be at all surprising for it to get resolved in a way that does not end up shedding light on whether the former general counsel’s story is one where he’s joined at the hip with the former CEO in a belief that everyone was trying to do the best thing for Hertz or if his story is one in which he wasn’t comfortable with what was going on but didn’t think he could rock any boats or somewhere in between. (One note of curiosity about the litigation and the dynamic, one of the two articles linked above goes into details about how the defendants in the New Jersey federal court suit have become plaintiffs in a suit filed in Delaware to seek to make Hertz pay them for the costs incurred in defending the suit Hertz has brought.)

At this point at least, and regardless of how any of it plays out further, the situation offers a ready highlight for lawyers who represent entities, and particularly in-house counsel, about how important it is to always remember that it is the entity that is the client – and not any particular officer – and how big the stakes can be when it comes to trying to figure out whether the person giving you instructions is acting in the best interest of that entity or not.

Things you might not know (for a Thursday)

Am I about to write about this just for the click-bait possibilities? Probably.

Does that make the underlying topic less worth discussing? I hope not.

So there used to be a time when people could become lawyers without ever having to go to law school. You could effectively apprentice in the law where you could work for and study with (through working for mostly) a practicing lawyer and then be able to sit for a bar examination and, if you passed, then become licensed to practice.

At some level, that sort of model makes some sense if you believe the ultimate goal of a legal education is for someone to be able to actually practice law at the end of their professional education.

In fact, many voices of criticism of modern law school education tend to focus on how disconnected it can be from teaching people how to actually practice law.

The flip side of course is that law school does a very fine job of teaching people how to think like a lawyer — a skill that readily translates to the ability to practice a variety of kinds of law. Whereas the idea of apprenticing into the practice of law may be more limited in that if you apprentice for a probate litigator you likely will learn how to be a good probate litigator but you might not learn that in a way that would translate into practicing some other type of law.

What you might not know (and I certainly didn’t before today) is that you can still apprentice into the law in California. I learned this from today’s news over at Above the Law that Kim Kardashian (you may have heard of her) is pursuing that path to becoming a California lawyer.

Mulling all of that over has returned me to a thought that I kick around from time-to-time from admittedly a different perspective but that is certainly related.

If successfully attending law school and passing the bar exam actually do each have real meaning such that both have to be required to practice law, then why shouldn’t (other than character and fitness requirements as an additional piece of the puzzle) the logical consequence of that be that anyone who has managed to do that to be able to practice law in at least one state, then be considered sufficiently qualified to be able to then at least apply to be admitted in any other state without having to jump through lots of procedural hoops? (For today, I’m not even going to go the step further that might also be a legitimate question if we really want to get contemplative.)

Quite a lot of states are pretty flexible in their procedures for letting folks already licensed in one jurisdiction “waive in” to get a license in that jurisdictions without having to take another bar exam. Some states are still pretty parochial in their approach – particularly states that have a good bit of beach front property.

Two For Tuesday For Tennessee

From time to time I feel a real obligation to write about things that are primarily (if not exclusively) only of interest to Tennessee lawyers. Today is one of those days so apologies in advance if this is not your cup of tea. (On the upside for you, this will be relatively short so you might be able to justify still reading it.)

There have been two significant developments this week in Tennessee involving rule changes (not ethics rule changes) but rule changes important to the practice of law in Tennessee. One is the adoption of a new Tennessee Supreme Court Rule authorizing collaborative law family law practice. The other is a further structural and substantive set of changes to the rule that governs the admission of lawyers in Tennessee – Tenn. Sup. Ct. R. 7.

The revisions to Rule 7 address a number of non-substantive changes including architectural reworking of the structure and ordering of portions of the rule but also address some substantive issues as well. You can read the entirety of the order implementing the revisions (which includes both a clean and a red-lined copy of the revised Rule 7) here.

Perhaps the most important substantive change to Rule 7 is the expansion of a registration procedure (currently available to in-house counsel admitted in another U.S. jurisdiction but working in Tennessee) to foreign legal counsel employed as a lawyer by an organization as well. In connection with that development, a 180-day amnesty period for foreign legal counsel presently practicing in Tennessee is on offer (as occurred in the past with the in-house counsel provisions).

Second, while the provisions addressing the right to practice pending admission have been explicitly tweaked to make clear that someone can apply and obtain that authority whether seeking admission by comity or by sitting for the bar exam (or, now that TN has embraced the UBE, submitting a score on the UBE from another jurisdiction), the rule has also been amended to make plain that a disciplinary complaint filed against someone practicing pursuant to the practice pending admission rule is also a disciplinary complaint against the attorney who is on record as being their supervising attorney (as is also the case with qualified law students permitted to engage in limited practice in compliance with the rules.

The adoption of a new rule permitting collaborative family law practice in Tennessee has been in the works since 2017 but was finally implemented this week and takes effect immediately. You can read the entirety of new Tenn. Sup. Ct. R. 53 here.

For those unfamiliar with the concept of collaborative family law practice (and I suspect there are many of you), a review of the rule is worth your time to get a flavor for the dynamic. One of the most important pieces is the notion that lawyers engaged in this kind of representation are prohibited in almost all circumstances from engaging in any litigation proceedings on behalf of the party they are representing related to the issue for which the collaboration is focused. (Which is a bit of weird end around on what would otherwise likely be viewed as a restriction on the right to practice in violation of our RPC 5.6.) In terms of impact on lawyer ethics, the other piece of the rule that has a direct impact is the piece that provides relief from the imputation of a collaborative lawyer’s conflicts to other lawyers in their firm in instances where the representation involves a person of “low income.” Specifically:

Section 10. Exception from Disqualification for Representation of Low-Income Parties.

After a collaborative family law proceeding concludes, another lawyer in a law firm with which a collaborative lawyer disqualified under Section 9, Subsection (a), is associated may represent a party without a fee in the collaborative family law matter or a matter related to the collaborative family law matter if:

(a) the party has an annual income that qualifies the party for free legal representation under the criteria established by the law firm for free legal representation;

(b) the collaborative family law participation agreement authorizes that representation; and

(c) the collaborative lawyer is isolated from any participation in the collaborative family law matter through procedures with the law firm that are reasonably calculated to isolate the collaborative lawyer from such participation as set out in Tenn. Sup. Ct. Rule 8, RPC 1.10.

Fine lines and not so fine lines

About six weeks ago, The Law For Lawyers Today published a good post about a problem for lawyers that sometimes lurks around efforts to make demands in order to settle legal disputes for clients — the risk of being accused of extortionate conduct. You can read that post here.

That post was prompted by what was then the most recent high-profile instance of such a situation causing roiling public debate – whether the lawyer for The National Enquirer had crossed any lines into extortion with respect to his dealings with Jeff Bezos and what appeared to be threats to release sensitive photographs of Mr. Bezos unless Bezos would cause The Washington Post to back off an ongoing investigation of The National Enquirer. That post largely just helps with issue spotting and particularly emphasizes the need to know your state’s laws, general federal laws, and a reminder that you can disclose what you need to about a client’s matter in order to get advice about how to comply with your own ethical obligations.

I’m writing today because there is now an even higher-profile situation involving a lawyer attempting to teach all of the rest of us about what not to do when it comes to avoiding being accused of extortion. This instance involves the lawyer previously best known for representing Stormy Daniels and injecting himself into the Brett Kavanaugh confirmation hearings in a way that, frankly, unfairly-tarred women who were making highly-credible claims, Michael Avenatti.

Avenatti has been indicted in federal court in New York with charges involving some of the federal statutes referenced by the linked blog post over an alleged effort to extort some $20 million from Nike. You can read the 11-page indictment here.

Now there are certainly aspects of this topic that can be nuanced and properly viewed as the kind of slippery slope on which ethical guidance is extremely wise, but this does not seem to be one. This seems to be a lot more straightforward of a situation in which the line crossing is pretty clearly apparent in the narrative, if the facts alleged can be proven. (Admittedly, part of why it seems easy to reach that conclusion is not only the substance of the indictment but the fact that the lawyer in question was also separately charged that same week in California for what is alleged to have been efforts to defraud a client out of settlement funds. You can read that California criminal complaint here.)

But sticking to the substance of this indictment, these alleged facts are the problematic ones:

a. On or about March 19, 2019, in Manhattan, MICHAEL AVENATTI, the defendant, and CC-1 met with attorneys for NIKE, Inc. (“Nike”) and threatened to release damaging information regarding Nike if Nike did not agree to make multi-million dollar payments to AVENATTI and CC-1 and make an additional $1.5 million payment to an individual AVENATTI claimed to represent (“Client-1”).

b. On or about March 20, 2019, AVENATTI and CC-1 spoke by telephone with attorneys for Nike, during which AVENATTI stated, with respect to his demands for payment of millions of dollars, that if those demands were not met “I’ll go take ten billion dollars off your client’s market cap … I’m not fucking around.”

And then this piece offered later in the indictment as further background to explain:

8. … Specifically, AVENATTI threatened to hold a press conference on the eve of Nike’s quarterly earnings call and the start of the annual National Collegiate Athletic Association (“NCAA”) tournament at which he would announce allegations of misconduct by employees of Nike. AVENATTI stated that he would refrain from holding the press conference and harming Nike only if Nike made a payment of $1.5 million to a client of AVENATTI’s in possession of information damaging to Nike, i.e. Client-1, and agreed to “retain” AVENATTI and CC-1 to conduct an “internal investigation” – an investigation that Nike did not request – for which AVENATTI and CC-1 demanded to be paid, at a minimum, between $15 and $25 million. Alternatively, and in lieu of such a retainer agreement, AVENATTI and CC-1 demanded a total payment of $22.5 million from Nike to resolve any claims Client-1 might have and additionally to buy AVENATTI’s silence.

Now, assuming that was how things actually played out, it is quite to formulate some helpful guideposts to a lawyer trying to figure out distinctions between legitimate settlement demands and extortion.

First, if you are a lawyer who actually has a client with a potential legal cause of action against a publicly-traded company that involves allegations that – once lodged in a publicly-filed court document – could result in negative publicity for Nike, you not only can, but might well be ethically obligated – to make a settlement demand for the client to try to avoid filing suit. (Depending on the nature of the claims and what your client might actually be able to recover in court, it is possible that you could even demand tens of millions of dollars in exchange for the client’s agreement not to sue.

Second, generally speaking, if what you are demanding money in exchange for is refraining from filing a lawsuit or pursuing some other legal proceeding that a client would have at least a colorable right to otherwise pursue, then you are pretty stable ground. If what you are demanding money to refrain from doing is holding a press conference. You should be worried that, perhaps, you are headed down the wrong path.

Third, if you are threatening a publicly-traded company and you decide to tie your settlement demand with a blatant threat that your action will directly damage their market valuation, you ought to again really ponder what you are doing. Particularly, if you are not threatening to file a suit for a client and, perhaps, unless you are threatening to file a suit for a client that would actually be a suit over whether or not the company has made appropriate public disclosures directly linked to how much its shares of stock now sell for.

Fourth, if part of your threat involves the party being threatened having to agree to let you represent them, you have definitely careened off the path of being engaged in legitimate efforts on behalf of a client to resolve a matter. Not only are you setting yourself up for the kind of fall that can result in jail time, you are also – at that point – likely violating your home state’s ethics rules on the solicitation of clients. Not to mention rules on conflicts of interest because – if you’ve decided to go down this path, you likely have also failed to realize that you are going to need a pretty good conflict waiver from the client you are claiming to represent in the first instance in order to have any chance of complying with your state’s version of RPC 1.7 (and, even then, you would still be likely to have a real problem on your hands regarding your state’s version of RPC 5.6.)

Not breaking: Dentons didn’t have to say “aloha” to Hawai’i

Well, at least not the goodbye, “aloha.” They can still say the other one as much as they want.

So, you probably have seen a headline somewhere in your online surfing about this wacky issue litigated before the Hawai’i Supreme Court. But, just in case you didn’t, here’s all that I think you need to know about it.

Dentons, who has featured here a few times before, would appear to be the world’s largest law firm at present. Back in 2018, it swallowed up a Hawai’i law firm. Since then it has had lawyers in its firm practicing law in Hawai’i. Not the stuff so far of an interesting story.

In one of the pieces of litigation its lawyers have been handling in Hawai’i, they filed a motion to seek pro hac vice admission on behalf of a non-Dentons lawyer licensed in California. The opposing party opposed the pro hac motion not on the basis of any problem with the California lawyer, but on grounds that Dentons was engaged in the unauthorized practice of law. Why? Is a question you, dear reader, might ask. Well, because not every lawyer at Dentons is licensed in Hawai’i.

Sounds like a crazy argument doesn’t it?

It actually was a crazy argument, but it was an argument supported by a slightly-messed up court rule. You can read the entirety of the 21-page opinion resolving the situation here.

The short version of what you’d find if you had the time to read that 21-page opinion is that it is true that Hawai’i used to have extremely restrictive and parochial rules preventing anyone who was not a Hawai’i-licensed lawyer from serving as a partner in a law firm in Hawai’i.

Believe it or not, those restrictions were a part of Hawai’i’s ethics rules until 1981. Beginning with changes starting in 1981, those restrictions were lifted and modified. A number of places in the present ethics rules in Hawai’i clearly indicate that it must be true that a multi-state law firm can have offices in Hawai’i. (One of them is Hawai’i’s RPC 7.5 about letterhead. This marks the first time in history I’ve found an ethics rule about letterhead to have been a helpful part of a state’s ethics rules.) But there was still one Hawai’i rule, not in the ethics rules but a different Hawai’i Supreme Court rule that had potentially problematic language if you were part of a multi-state law firm — Haw. Sup. Ct. R. 6 “Lawyer’s Professional Business Organizations.”

Specifically, Section (d)(1) of that rule provided that “[s]hares or interests in a lawyers’ professional business organization may be owned only by a lawyers’ professional business organization or by one or more persons licensed to practice law in this state by this court….”

Sometimes it only takes the slimmest of reeds for a certain kind of lawyer to be willing to make what otherwise seems like an outrageously foolhardy argument on behalf of a client. Turned out that the lawyer opposing Dentons in this case was, at least for a short period of time, that kind of lawyer. (NB: If you are looking for further proof of any pet theories you have about living in a simulation, the lawyer’s surname is (no kidding) Bickerton and, according to this article from a publication in Hawai’i he had the chutzpah to actually call one of Dentons’ arguments a “dumb ass argument.”)

The Hawai’i Supreme Court was able to dispose of this issue, and avoid having to address serious constitutional questions that would have arisen had Bickerton’s client’s rule interpretation been given merit, by explaining that the rule in question had been superseded by implication.

The court also ended its opinion by addressing any concerns that might be raised over the possibility that attorneys not licensed in Hawai’i could direct the conduct of Hawai’i lawyers without being subject to the jurisdiction of the disciplinary authorities in Hawai’i. It did so by referencing case law that (thankfully) concluded that Oregon general counsel for an Oregon company was not engaged in unauthorized practice in Hawai’i by assisting from Oregon and being actively involved with local Hawai’i counsel.

That portion of the opinion seems only to have been necessary because Hawai’i is still operating with an antiquated version of RPC 5.5 in place. While the Hawai’i Supreme Court has these issues in the front of its mind, it really ought to give some thought to adopting a version of ABA Model Rule 5.5 to make things a bit easier over there.

Until then, Me ka aloha pumehana.

You take the good, you take the bad…

You take them both and there you have … the news about Tenn. Formal Ethics Opinion 2019-F-167 (draft).

First, the good. I cannot give sincere and strong enough kudos to the Tennessee BPR for implementing a new policy to release draft Formal Ethics Opinions to the public for comment before deciding to actually adopt and issue them. That is a wonderful development for Tennessee lawyers and should ultimately lead to Tennessee having some of the best and most helpful ethics opinions of any state in the nation.

Now, the bad. 2019-F-167 in draft form ain’t one. This proposed FEO is yet another one seeking to weigh in on the topic of what kinds of provisions in settlement agreements might run afoul of a lawyer’s obligations under RPC 5.6 not to agree to restrictions on their practice as part of resolving a client matter. This time the underlying question is a provision in the settlement of an automobile products liability case that would require destruction of the allegedly defective vehicle.

The summary of the BPR’s conclusion is: “It is improper for an attorney to propose or accept a provision in a settlement agreement, in a products liability case, that requires destruction of the subject vehicle alleged to be defective if that action will restrict the attorney’s representation of other clients.”

Working from high-level problems first all the way down to problems at the level of details, here (for what it is worth) is what is wrong with this draft opinion:

  • The original intention of the rule, RPC 5.6, is to prevent an attorney from being put in a position where they have to agree that they will never again be adverse to someone as a condition for settling a particular client’s case. That is a policy decision made to try to protect the public’s general right to counsel despite the fact that the ethics rules (RPC 1.2) expressly provide that whether or not to settle a case is, and has to be, the ultimate decision of the client and not the lawyer. Every step down paths that are more remote from the original purpose of the restriction is one more step to making the rule tilt in the wrong direction of putting the lawyer’s future interests ahead of the current client’s right to settle their case.
  • Opinions that interpret a rule that says ” don’t do X” but that offer a conclusion of this other thing Y is wrong if Y also manages to “do X” aren’t all that helpful unless you provide really insightful guidance about when something would or would not also manage to “do X.” If you cannot articulate what things would or would not in a way that is, as a practical matter, helpful, then maybe you shouldn’t be issuing an opinion on the question.
  • The opinion goes to great lengths to explain how important the future possession of an arguably defective automobile is for the lawyer/firm making the inquiry and, in so doing, makes the following assertion as if it was the gospel truth: “The most compelling evidence when establishing the existence of a defect in a vehicle is the existence of other similar incidents.” But, it’s not. I’m not an expert in products liability litigation, though I have handled some cases over the years (admittedly, always on the defense side). If I need to prove that a particular vehicle that caused some particular person harm, then I need to prove that particular vehicle was defective. I don’t have to prove that any other vehicle at any other time was defective. Just that one. But also… that one. If I prove that other vehicles in other situations were defective and caused harm to other people, that isn’t actually going to correlate in any direct fashion to whether this particular vehicle that caused this particular harm was defective.
  • After doing that, the opinion explains a lot about the ways that the firm goes about purchasing the vehicle to have possession of it and talks about how “[i]t is the firm’s practice at the end of the case to request from the client that the firm be allowed to retain ownership and possession of the vehicle.” It does not, at any point in the opinion, provide any guidance on whether the firm has to comply with RPC 1.8(a) – business transaction with a client – in doing so; nor does it discuss whether such a policy on that firm’s part is a problem under RPC 1.8(i) – not acquiring a proprietary interest in a cause of action or subject matter of litigation that the lawyer is handling for a client.
  • The opinion does contain a discussion of RPC 3.4(a) and concerns of spoliation but makes another statement as if it were gospel truth that is actually simply not even close to 100% correct: “Clearly, in the context of a product liability case, the alleged defective product is key evidence in other current or subsequent cases of a similar defect.” It is bordering on irresponsible to put the imprimatur of the BPR on a position that the destruction of a particular physical piece of evidence at the conclusion of a particular piece of litigation would clearly put a lawyer at risk of being accused of spoliation of evidence in some future piece of litigation that does not yet even exist.
  • The opinion includes a discussion about the firm’s right to retain file materials and how that is important in terms of the ability to defend themselves in a subsequent legal malpractice action. That is a good issue to address. However, the sentence: “Without the ability to review the most important piece of evidence in the underlying products liability suit, the law firm would be left essentially defenseless if a former client brought a professional malpractice claim.” is another one of those bridge-too-far moments. The firm will have and retain copies of its expert reports from inspections of the vehicle and can even have and retain copious photographic and video evidence of the vehicle. There are many ways that it can satisfy its need to protect itself without having to have possession of the actual vehicle.
  • The opinion then ends with the BPR taking it upon itself to declare that the “ability for plaintiffs’ firms to act as industry watchdogs is both good public policy and was specifically addressed as a vested responsibility during Congress’s enactment of the Federal Motor Vehicle Safety Standards. It doesn’t seem wise to me for the BPR to be in the business of taking positions on public policy issues that are not absolutely necessary in order to provide guidance under the ethics rules. This doesn’t seem like that kind of situation, but, as the opinion cross-references, the BPR already did that with this exact same language in Formal Ethics Op. 2018-F-166, so the horse is already out of that particular barn.

So, I would say that this one needs to go back into the shop for some much needed repairs if not taken off the street altogether.

Speaking of which, the opinion’s reference to the firm’s willingness to assure the settling defendant that the vehicle will not be placed back on the road is actually the key point of all of this. The only real reason – to my knowledge – that a defendant ever seeks to include a destruction provision in settlement is a matter of safety in terms of making certain that the same vehicle does not go back in use to put anyone else at risk of harm and, of course, to put the defendant at risk of not having to get sued again over the same defective item injuring a different person. If the assurance that is offered to be provided by the firm can be done in a manner that is actually enforceable, then that should always likely suffice to resolve the situation. An re-drafted opinion that puts more emphasis on that and that spots other issues that could create problems with an eye toward getting to the right practical result would certainly seem more like helpful guidance than this draft.

The deadline for submitting public comments to the BPR on this opinion, should you be so inclined, is April 10, 2019. The document immediately below provides instructions on how you can do that.

A teachable moment to make your eyes water.

When you spend a lot of time consulting with and advising lawyers, finding teachable moments from examples of things that happen in real life are extremely helpful.

The world can be filled with teachable moments. On a non-ethics front, here is one: If you don’t pay attention to when a credit card has a new expiration date and update accordingly, you could end up having your domain briefly expire leaving you vulnerable to someone else potentially buying it.

On an ethics front, the importance of making sure you do what you can to make clear in an engagement letter who is and who is not your client, as well as what you are being hired to do versus other things someone might later try to claim were your responsibility is pretty high. As a result, paying attention to outside counsel guidelines or other documents that may come into your firm from a client that address those issues is extremely important.

A February 2019 case from the Federal Circuit stands as a very good teachable moment about how not paying attention to such things can lead to disqualification. If you practice in a law firm of any significant size, the full opinion is worth reading because it addresses not only the topics mentioned but also involves a fact pattern involving lateral movement that, ultimately, resulted in the disqualification proceedings coming to pass in the first place. Specifically, the lawyers who moved from another firm to Katten Muchin and brought with them their representation of a party adverse to a corporate parent of Bausch & Lomb in the first place were only ever informed that Katten Muchin was representing Bausch & Lomb.

The disqualification of the law firm of Katten Muchin in the lawsuit of Dr. Falk Pharma Gmbh et al. v. Generico, LLC et al. truly came about, however, because the firm did not push back on outside counsel guidelines it received that expanded the universe of what could constitute a conflict of interest (or, more realistically, didn’t pay attention at any true level that such was occurring).

The underlying moving parts of litigation are pretty detailed and intricate and involve patent litigation and trademark matters, part of which (I only mention to bring a satisfying end to the attempt at humor in my title) involved a dispute over the trademark MOISTURE EYES™.

If you want a more thorough understanding of the intellectual property issues in play in the various proceedings, you can get that over at Mike McCabe’s blog here.

For our purposes today, w/r/t the teachable moments, the following excerpts from the opinion ought to be able to drive home the importance of knowing what is in engagement letters that come from clients rather than emanate from your firm and knowing the details of any outside counsel guidelines being incorporated into any engagement letter:

The motions to disqualify stem from Katten’s representation of Bausch & Lomb Inc. … a corporate affiliate of Valeant-CA and Salix, in a trademark litigation and its concurrent representation of Mylan, adverse to movants, in the pending appeals. Specifically, Katten signed an engagement letter with Bausch & Lomb that broadly defined Katten’s client as any Valeant entity. Attorneys [Mukerjee and Soderstrom] represented Mylan during various stages of [these proceedings] first, as attorney from Alston & Bird LLP, but later, as attorneys from Katten. The parties agree that Mukerjee and Soderstrom moved to Katten as of May 3, 2018.

[snip]

In the course of representing Bausch & Lomb, Katten signed a general engagement letter “governing the overall relationship between [Katten] and Valeant Pharmaceuticals International, Inc…. This engagement letter incorporates by reference Valeant’s Outside Counsel Guidelines (“OC Guidelines…”

[snip]

The OC Guidelines also specify that “Valeant expects a significant degree of loyalty from its key external firms,” defined as “firms with 12 month billings exceeding one million dollars.” These key firms should “not represent any party in any matters where such party’s interests conflict with the interests of any Valeant entity.”

[snip]

On May 3, 2018, Mylan notified the district court that Mukerjee and Soderstrom had left Alston & Bird to join Katten. On May 25, 2018, Valeant-CA filed a motion to disqualify Katten in the district court action.

[snip]

Because the engagement letter creates an ongoing attorney-client relationship between the law firm, Katten, and its organizational clients, Valeant-CA and Salix, Katten’s representation of Mylan adverse to movants in Valeant II gives rise to a concurrent conflict of interest under Rule 1.7.

[snip]

Finally, we conclude that Katten’s erection of an ethical wall is insufficient to resolve its violation of Rule 1.7. Katten claims that this wall cordons off Mukerjee and Soderstrom from Katten attorneys who have worked for matters for Bausch & Lomb, Valeant-CA, or affiliates in the 18 months preceding May 7, 2018. But this wall does nothing to address concerns stemming from Katten’s violation because it was created after Mukerjee and Soderstrom joined Katten, it applies only partially to work conducted within 18 months before May 7, 2018, and Katten never previously informed movants of any potential conflict.

Now, in fairness, even without the engagement letter terms and the OC Guidelines, the outcome may have been the same because, as the opinion explains, the corporate entities involved here were so interrelated in terms of common infrastructure and shared legal departments, and financial interdependence as to be treated as amounting to corporate affiliates still subject to treatment as clients under conflict of interest rules. But that is another teachable moment issue for a different day.