Everything is arbitrable in New Jersey. (Sort of)

Lawyers and law firms have long struggled – at least during the length of my career – with whether they can, or should, include a provision in their contracts with clients that would require arbitration of some, or all, kinds of disputes.

In situations where a local or state bar association offers a free, voluntary fee dispute arbitration forum, the decision to put something into an engagement letter requiring participation in such a tribunal upon demand tends to be an easier call.

Seeking to have clients agree to arbitrate fee disputes and only fee disputes also tends to be an easier call even in the absence of bar association provided venues.

Whether a lawyer can, or should, seek to have a client agree to arbitrate all claims or disputes, is much trickier stuff. Many jurisdictions do not offer much in the way of formal ethics guidance beyond making clear that you cannot avoid having to take a trip through your state’s disciplinary process by trying to claim that an agreement to arbitrate disputes would include preventing a client from pursuing a grievance against the lawyer’s license. (In fact, in some places, simply trying to do that could get you into disciplinary trouble.) Another issue that exists in this realm but is often not fully focused upon is any impact that federal law, and specifically the Federal Arbitration Act, would have on enforceability in that it can be difficult for a client to try to argue that the nature of a legal matter does not affect interstate commerce. If the FAA is recognized as applying, then obstacles to enforcing an arbitration agreement with a client should be significantly reduced.

In advising lawyers on the topic, I have tried to be practical about the risk associated with such provisions and the need to be exceedingly clear and transparent about how any such provision is explained to a client. (I also make an effort to strongly suggest that the lawyer communicate with their professional liability insurance carrier as those folks tend to have strong opinions about whether arbitration is a good forum for resolving a legal malpractice claim or whether it is more likely to result in a “split-the-baby” outcome.) I have not actually written anything about this topic here in more than five years though.

Recently, the New Jersey Supreme Court has issued a thorough, and pretty good, opinion navigating the waters of how an attorney may balance their ethical duties of communication with obtaining an enforceable arbitration agreement from a client. Unfortunately, for the law firm in question that was involved in the litigation, the decision is only applicable on a going-forward basis. In that regard, it is helpful to know that the nature of the dispute in question was an engagement agreement between a lawyer and a sophisticated business client, a fee dispute was being arbitrated and the client then brought a lawsuit for legal malpractice. The engagement agreement established arbitration through JAMS and included a hyperlink in the engagement agreement where the 33-pages of JAMS rules were available, but the lawyer did not provide the actual JAMS rules to the client at that time.

One can certainly quibble with the New Jersey court’s analysis of application of the FAA given that it still clearly treats a contract between a lawyer and a client differently from other commercial contracts. The New Jersey court doesn’t actually confront the fact that it is treating an arbitration provision in an attorney-client contract differently from one in another type of contract. Instead, it compares arbitration provisions in an attorney-client contract with all other provisions in an attorney-client contract and says:

“When viewed through the lens of the RPCs, arbitration provisions are not treated differently from other provisions in a retainer agreement. Requiring attorneys to explain to a client the advantages and disadvantages of arbitration so that the client can make an informed decision whether to arbitrate a future fee dispute or legal malpractice claim against the firm does not single out a retainer agreement’s arbitration provision for disparate treatment and therefore does not run afoul of the FAA or NJAA. See Snow, 176 A.3d at 739; see also Hodges, 103 So. 3d at 1077.”

One can also argue about the fact that the opinion makes no effort to address the notion that a person who hasn’t yet signed an engagement agreement isn’t a client of the lawyer and so all of the arguments about fiduciary duties attorneys owe to clients and ethical obligations to clients are not actually on point unless you assume and agree that the law should treat a potential client as a client during the process of negotiating a fee agreement.

For lawyers generally though, even if you are not in New Jersey, the opinion provides pretty safe guidance to look to follow if you want to head down the path of pursuing such a provision.

You can access and read the full opinion here, but I’ll close by offering what I think are the two best excerpts:

We now hold that, 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. See RPC 1.4(c).
An arbitration provision in a retainer agreement is an acknowledgement that the lawyer and client may be future adversaries. That the retainer agreement envisions a potential future adverse relationship between the attorney and client — and seeks to control the dispute-resolution forum and its procedures — raises the specter of conflicting interests. An arbitral forum and judicial forum, and their accompanying procedures, are significantly different.
We do not make any value judgment about whether an arbitral or a
judicial forum would be more beneficial to a client if the client and attorney part as adversaries. We conclude, however, that an attorney’s fiduciary obligation mandates the disclosure of the essential pros and cons of the arbitration provision so that the client can make an informed decision whether arbitration is to the client’s advantage. See RPC 1.4(c). That obligation is in keeping with an attorney’s basic responsibility to explain provisions of a retainer agreement that may not be clear on their face. Accordingly, the disclosures required of an attorney in explaining an arbitration provision in a retainer agreement stand on an equal footing with the disclosures required in explaining other material provisions in the agreement. Such comparable treatment does not offend the Federal Arbitration Act (FAA), 9 U.S.C. §§ 1 to 16, or the New Jersey Arbitration Act (NJAA), N.J.S.A. 2A:23B-1 to -36.

and

Consistent with ABA Formal Opinion 02-425, the weight of authority as
expressed in professional advisory opinions and judicial case law in other jurisdictions, and this Court’s interpretation of its own RPCs, we hold that attorneys who insert provisions in their retainer agreements to arbitrate future fee disputes or legal malpractice claims must explain the advantages and disadvantages of the arbitral and judicial forums. Attorneys can fulfill that requirement in writing or orally — or by both means.
Attorneys may explain, for example, that in arbitration the client will not have a trial before a jury in a courtroom open to the public; the outcome of the arbitration will not be appealable and will remain confidential; the client may be responsible, in part, for the costs of the arbitration proceedings, including payments to the arbitrator; and the discovery available in arbitration may be
more limited than in a judicial forum.
Additionally, a lawyer who drafts a retainer agreement that channels any future legal malpractice action into an arbitral forum must say so directly in the written agreement. The client should not be left to discern the meaning of language that is clothed in ambiguity.

The New Jersey Supreme Court also referred the topic to the state bar’s Advisory Committee on Ethics for the issuance of any further ethical guidance deemed appropriate about the obligations of disclosure for New Jersey attorneys.

Gambling with RPC 1.8(a) is always risky.

It is not often that you get decisions out of any of the second highest courts in the land that turn on application of an attorney ethics rule, so it can be important to highlight when such events occur.

Given how many lawyers and law firms overlook the interrelationship between RPC 1.5 and RPC 1.8(a), it is very important to highlight the Fifth Circuit’s ruling last week in Wiener, Weiss & Madison v. Fox. In Fox, the Fifth Circuit ruled that because a contingency fee agreement between the firm and its client violated Louisiana’s version of RPC 1.8(a), it was unenforceable.

The full opinion is a good read for most any lawyer or firm that dabbles in contingency fee work.

For readers here, there is only some bare-bones background necessary to understand what ended up being the court’s straightforward result:

  • The firm’s representation of Fox started on an hourly rate basis in connection with Fox’s ex-husband’s bankruptcy proceedings, but because of tied up assets the firm agreed to seek those fees from the court paid out of the bankruptcy estate
  • The firm actually got paid, on application with the court, an attorney fee in the amount of more than $1 million.
  • There was more work to be done for Fox and the firm did not think the bankruptcy court would ever approve more fees, so the firm proposed a contingency fee agreement with Fox that the firm would get up to a 35% interest in Fox’s claims against the estate or as an equity owner in certain gambling entities tied up in the bankruptcy estate. Fox signed that agreement.
  • The bankruptcy court approved a plan of reorganization and gave Fox 100% interest in a holding company coming out of the estate.
  • Firm then claimed work was done and, if their client wanted them to continue, the client would have to sign a new contingency agreement that upped the percentage to 40%. Fox signed that agreement as well.
  • A few years later, the firm decided it thought the existing agreement was “unwieldy” and asked Fox to execute a new one. This time, for the first time, the firm advised Fox to seek independent counsel about whether to enter into the agreement.
  • She did, the independent counsel advised she shouldn’t sign, apparently also advised her that the earlier agreements were in violation of the rules, and the firm eventually sued Fox for breach of contract.

The Fifth Circuit, joined the analysis of a number of other courts in concluding that the 40% agreement was unenforceable because it provided the firm with a contingent interest in property owned by Fox and was, therefore, a business transaction with a client. Because the firm did not comply with RPC 1.8(a) as to that agreement, it was void.

Interestingly though, the Fifth Circuit should have been able to get to that conclusion without having to focus even one bit on the question of the property interest piece. This is because any renegotiation of a fee agreement with an existing client where the goal of the renegotiation is to improve the financial stake of the lawyer or law firm is a business transaction with a client requiring compliance with RPC 1.8(a).

In Tennessee, we make this clear in a comment to our version of RPC 1.8(a):

[1] …. It also applies when a lawyer seeks to renegotiate the terms of the fee agreement with the client after representation begins in order to reach a new agreement that is more advantageous to the lawyer than the original agreement….

Louisiana famously has adopted the ABA Model Rules but adopted no comments to those rules, The comment language to the ABA Model Rule does not spell out the answer on renegotiation the way that Tennessee’s does so the answer to this question under Louisiana’s rules required focusing on the property interest because the comment to the ABA Model Rules does include a reference to that concept.

The reason it is so important for lawyers to see these situations when they arise for what they are is that evaluation of a contingent attorney fee agreement becomes even more strict under RPC 1.8(a) than it would be under RPC 1.5(c). Not only does there become a hard-and-fast requirement of encouraging the client to seek out independent counsel for advice, but the rule requires that the new terms to be fair and reasonable from the perspective of the client. That sometimes can mean something different than merely being a reasonable contingency fee under RPC 1.5(c) and RPC 1.5(a).

Opposite ends but still the same spectrum (mostly).

Lawyers can get into significant amounts of ethical trouble over money issues. They can put their licenses at real risk by messing up their trust accounting obligations, they can get in trouble for overbilling clients, and, often, if they end up suing a client for failure to pay bills that are appropriately due, they will get a counterclaim for legal malpractice filed in response.

Over the last week, two items popped up on the radar screen that demonstrate even more ways that lawyers can run afoul of the ethics rules on topics involving money.

The first is a classic example of things that lawyers cannot do – because of the dishonesty involved – even if the end result is that their clients are not actually harmed by what transpired.

This story involves a lawyer in Pennsylvania who has been suspended for four years for making payments from his own personal funds to clients and misleading them about the outcomes of the handling of their matters. As happens pretty frequently, I saw this story thanks to an ABA Journal online article, but here is a link to the full order of the Pennsylvania Supreme Court which really comes about by way of a consent agreement for the level of discipline.

Interestingly, as far as these things go, his suspension was made retroactive all the way back to February 25, 2016 when the lawyer was temporarily suspended on an emergency basis over the misconduct. So, by the time the ultimately suspension order was issued, he has already served the full amount of the suspension and can, presumably, seek reinstatement in Pennsylvania.

More interestingly, his downfall came about as a result of falling down, quite literally. He experienced a vasovagal syncope and collapsed in such a way that he broke his face very severely. While hospitalized, others at his firm tried to cover on his matters and learned of what the lawyer had been doing.

As the filings with the Pennsylvania court detail, what he had been doing was paying clients out of pocket on their cases and telling him that these were settlements obtained for them in their cases, when, in reality, he had failed to file their matters. (There were even more clients identified where he was stringing them along about the status but had not yet gotten to the point of paying them.)

There were, as you might expect, lots of other deceptions the lawyer had to engage in to cover up the trail of what he was doing. The filings also lay out that, as often is the case when something like this takes place, the lawyer’s conduct came along despite a clean prior disciplinary history after he began experiencing problems of anxiety and depression. And that aspect of the tale makes it a little easier to attempt to be sympathetic, right up until you focus on the amounts involved.

The amounts involved amounted to in excess of $500,000, including a $424,000 payment to one of the four clients. Yes, you read those numbers right.

If I happened to have a half a million lying around that I could easily part with, I’m pretty confident I would not still be practicing law in the first place.

Shifting to the related topic that is easier to invoke sympathy, one of the things that the ethics rules in nearly every jurisdiction do is bar lawyers from providing funds to clients in order to help those clients meet their day-to-day needs. Instead, the only things that lawyers can do by way of advancing expenses to clients for which no repayment would be required is if the expenses are litigation expenses related to a matter the lawyer is handling for the client.

Last week, in connection with its first ever virtual annual meeting, the ABA House of Delegates was reportedly going to consider a resolution revising Model Rule 1.8(e) to allow for a “humanitarian” exception to this ethical prohibition. A proposal was recently enacted in New York to do likewise. I thought I had read somewhere that the ABA proposal had passed, but I cannot find anywhere online to confirm that. The resolution and report that was to be considered can be obtained from the download button link below.

Historically, the primary concern (as I understand it) that has always driven this prohibition is that, without it, deep pocketed lawyers would be able to obtain business simply by being able to pay clients directly to keep their cases.

Given the continued economic struggles being created as the pandemic rages on, it will be interesting to see what sort of traction, if any, such measures get moving forward.

There will be content.

So, it is March 20, 2020. We don’t know much about much in terms of what comes next. Stress and anxiety are most folks constant companions at the moment I’m certain. (And I bet a lot of you weren’t expecting the need to tech competence under the ethics rules to come at you quite this fast.) Whether or not there will be things to read here probably matters almost not at all to most people. Nevertheless, for better or worse, as long as I’ve got access to the internet I will plan to continue to post contents on the same weird and unsettling sort of “schedule.” Today’s another one of those days.

Today’s post is an opportunity to talk a bit about the dark side of litigation funding. Now, do not get me wrong, I’m generally “pro” when it comes to the topic of litigation funding. In fact, I had the opportunity to be a lawyer for one of the early litigation funding companies that operated in a niche, high-end space. Even then, one of the consistent issues for a company doing things the right way was the stigma of litigation funders as being companies that would take financial advantage of people in need.

Today’s story isn’t exactly about taking advantage of the kind of person in financial need you might think of, but it certainly is a story that sheds some light on unsavory aspects of an industry that speculates on the outcome of litigation.

Today’s story though also is something of a revisiting of the travails of a prominent California law firm that I’ve written about a few times in the past. Those posts had focused on a very contentious set of litigation matters between the firm and one of its former partners that effectively boiled down to a “he said, it said” sort of situation where the “he” was saying that the “it” was engaged in financial fraud and fired him when he raised questions about it and the “it” said that “he” was a sexual harasser. (If you aren’t familiar with that post, you can catch up here.)

It’s been a very bad couple of weeks for just about everyone in the United States. It’s been an even worse couple of weeks for John Pierce, the founder of the Pierce Bainbridge law firm. It has been such a bad couple of weeks that it is hard for an objective viewer not to think that the previously-referenced “he” seems to have a leg-up in proving his side of events against the “it” in the “he said, it said” landscape.

Before elaborating on the litigation funding issue, just a short recap of the recent chronology of events for the founder of this particular law firm.

And, about that deal, that is the deal with Parvati Capital that was front and center in the allegations in the “he said, it said” litigation. As a result of the Philadelphia suit, the details of that arrangement have come out and involve a highly -unusual approach to litigation funding where the law firm was given the sole responsibility for placing a value on their cases as part of agreeing to a 50-50 split with the litigation funder on the fees obtained in such future cases.

If you have access to Law360, you can read a pretty good article about that piece of the puzzle, one in which a former law partner of mine (who I practiced with back when I had the chance to represent a good litigation funding company many years ago) speaks on the ethical problems with the Parvati Capital deal. (Spoiler: pretty squarely an RPC 5.4 problem since it quacks very much like a fee-sharing duck.)

There are lots of aspects to dealing with litigation funding arrangements that can raise difficult ethics issues. But there are a variety of ways to obtain litigation funding within the ethics rules. Interestingly enough, while the Parvati arrangement seems very problematic as to some issues, and while having the lawyer assign a value to cases is bad news for a variety of reasons, such an approach does avoid altogether problems with navigating how to share documents and other details with a litigation funder for purposes of evaluating a case while doing what can be done to comply with RPC 1.6 and seek to protect privilege and work product.

A modest proposal (about NYC Bar Op. 2019-5)

I have made a living (well not actually a living since no one compensates me in any form of currency, whether crypto or otherwise, for my writings here) writing about problematic ethics opinions. July 11, 2019 brings what might be the most practically useless ethics opinion ever released. If it were only just practically useless, then it might not be worth writing about. But it adds into the mix the fact that it appears, without discussion, to significantly expand the scope of the rule being interpreted as well.

It comes from the New York City Bar, and it addresses cryptocurrency. Well, that’s not fair exactly. Nebraska opinion 17-03 which I wrote about almost two years ago can be described as an ethics opinion that addresses cryptocurrency. This opinion from the New York City Bar addresses a highly speculative question related to cryptocurrency. It asks “what if…a lawyer entered into an agreement with a client that would require the client to pay the lawyer in cryptocurrency?” Not kidding. That is literally the overriding premise. Now, admittedly, Memphis is a long way from New York City, but is this really a potential fee contract provision with relevance to more than a handful of lawyers?

If it is relevant to you, then you could go read the full opinion at this link. Before you decide whether that is how you wish to spend your time though, here is an excerpt from the opinion that literally identifies the three variations of possible fee agreements it considers:

  1. The lawyer agrees to provide legal services for a flat fee of X units of cryptocurrency, or for an hourly fee of Y units of cryptocurrency.
  2. The lawyer agrees to provide legal services at an hourly rate of $X dollars to be paid in cryptocurrency.
  3. The lawyer agrees to provide legal services at an hourly rate of $X dollars, which the client may, but need not, pay in cryptocurrency in an amount equivalent to U.S. Dollars at the time of payment.

If those questions cry out to you as needing answers, then by all means do go read the full opinion.

But, if those questions don’t sound like they are relevant to you and your practice (and the opinion itself even acknowledges that the first scenario is “perhaps-unrealistic” and the second scenario is only “perhaps more realistic”), then here’s my modest proposal.

Let’s pretend that NYC Bar Op. 2019-5 starts at roughly p. 12 and just includes the rest…. because (1) those four pages of analysis are a pretty good overview of how you work through RPC 1.8 in most jurisdictions in order to evaluate the business transaction with a client issue, and (2) it reminds the reader of the two significant ways that New York’s version of RPC 1.8(a) differs from the ABA Model Rule.

New York’s version differs from the ABA Model by making the scope of its RPC 1.8(a) less broad in two different ways. It mandates that the rule only applies to transactions where the lawyer and client have “differing interests” in the transaction and where the client expects the lawyer to be exercising professional judgment on behalf of the client.

Nevertheless, the last four pages of the opinion give sound guidance of what a lawyer has to be concerned about with respect to a business transaction with a client:

First, the lawyer must ensure that the transaction is “fair and reasonable to the client” and must disclose the terms of the transaction in writing and “in a manner that can be reasonably understood by the client.”

[snip]

Second, the lawyer must advise the client, in writing, about the desirability of seeking separate counsel and must then give the client a reasonable opportunity to consult separate counsel.

[snip]

Third, the client must understand and agree to “the essential terms of the transaction, and the lawyer’s role in the transaction, including whether the lawyer is representing the client in the transaction.”

One added benefit of my modest proposal is that it will also avoid the Pandora’s Box this opinion appears to wish to open. As long as the full version of this opinion exists, then lawyers will need to pay very close attention to what happens on page 4. That is when the opinion blithely sticks the words “(or prospective client)” in without discussion. Given the text of the rule, this reference would appear to entirely transform RPC 1.8(a) from a rule that only applies to a business transaction with someone who has already become your client into a rule that now applies to contracts to form an attorney-client relationship.

While the NYC Bar Opinion does cite to Professor Simon’s annotated version of the New York Rules of Professional Conduct (not surprisingly in the four pages at the end which should stay), my admittedly quick review of what Professor Simon offers in the annotations to RPC 1.8(a) doesn’t appear to indicate that the rule is as expansive as this opinion seems to indicate. Many of those annotations certainly read like the transaction in question can’t be the one that creates the attorney-client relationship itself. That seems like a pretty big thing to parenthetically speak into existence in this ethics opinion.

New good, but not perfect, guidance from the ABA

The Standing Committee on Ethics and Professional Responsibility of the ABA has been on something of a bit of a “spree” when it comes to the issuance of ethics opinions. (At least, it feels like it.) In the last 18 months, it has issued 10 opinions.

The most recent one is ABA Formal Op. 487 which offers ethical guidance to lawyers who take cases on a contingent fee basis or, more precisely, lawyers who take cases on a contingent fee basis after some other lawyer in a different firm has previously taken on the same case on a contingent fee basis. The dynamic of what exactly happens in such situations if, ultimately, there is some sort of successful result is largely the stuff of state-specific case law driven by lien laws and the distinction between whether a lawyer ends up being able to seek fees under their contract or under quantum meruit. Despite that, and relegating reference to those issues to a footnote at the end of the opinion, SCEPR has decided this area needs to be filled with guidance.

In doing so, the opinion focuses its attention upon the obligations of the new lawyer to communicate to the client about the potential – as difficult to quantify as it admittedly is – that the first lawyer might still be entitled to an amount of fees in the event of a recovery in the matter.

In giving this guidance, the ABA Formal Opinion certainly isn’t wrong (although I think it is wrong in one particular statement), but it is not entirely helpful and it is certainly not very practical.

Where a client hires successor counsel to handle an existing contingency fee matter, it does not pose an unreasonable burden on the successor counsel to advise the client that the predecessor counsel may have a claim to a portion of the legal fee if there is a recovery. In many instances, precision on this issue may be difficult as successor counsel may need to review the predecessor counsel’s fee agreement and assess its enforceability. Similarly, successor counsel may not be fully familiar with the nature and extent of the prior lawyer’s work on the matter. Successor counsel also will not know the amount of the recovery, if any, at the beginning of the representation. Nevertheless, Rules 1.5(b) and (c) mandate that successor counsel provide written notice that a portion of the fee may be claimed by the predecessor counsel.

That reading of the requirements of Rules 1.5(b) and (c) is not really an obvious and straightforward one. Thus, I don’t think it gives a very compelling foundation for the opinion’s conclusion. The conclusion is still probably correct though. Because there is an ABA Model Rule that provides a pretty compelling rationale for the conclusion even though the opinion rather remarkably never once references it — Model Rule 1.4(b) (“A lawyer shall explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation.”)

As to the one particular statement that I think the opinion simply gets wrong, it is the statement that talks about clients not being able to be exposed to “more than one contingent fee when switching attorneys” and that ordinarily neither the first lawyer nor the second lawyer would ordinarily be entitled to a full contingent fee. I think both of those statements are offered with far too much certainty to comport with reality. It is not at all difficult to come up with scenarios where it is only the work of the second lawyer that provides the reasons for the successful outcome triggering the availability of a contingent fee.

One thing that the opinion does very well though is make clear the way in which the rules don’t work on this topic. The opinion spends a good bit of time explaining something that should have been obvious – but has not been for some courts — the rule on fee sharing between lawyers in different firms does not have any application to this situation.

The opinion adroitly walks through the ways in which ABA Model Rule 1.5(e) is entirely inapplicable to a situation in which the first lawyer on a case has been discharged and a second lawyer has taken over the representation of the client.

Nearly four years later… and I’m making that James Bond reference this time.

So, if any of you are still around these parts after I’ve gone some 12 days without writing any content, then you are in for me dredging someone up that I previously wrote about on June 30, 2015. An attorney named Rodger Moore.

Rodger Moore. And he was suspended for the practice of law for conduct that involved stealing adult beverages (wine) and also stealing the oil of olives. You know… olives… the garnish that goes in a martini.

I guess back in the halcyon days of this venture I considered myself above making a James Bond reference? Well, I’m four years older now and don’t consider myself above much of anything I guess. So…here goes.

Rodger Moore is no longer licensed to bill.

Also, Roger Moore was not the best Bond, but this Rodger Moore was not the best lawyer.

The need for just a bit of “dry” humor for today’s post is in order because nothing else about the story is humorous. And, in fact, while not doing so in a fashion that is at all effective for his case, Mr. Moore raises a topic in the press that is not deserving of being milked for humor of any sort — the problem of depression in our profession.

You (like me) may have seen the story in The ABA Journal about the fact that after previously being suspended for failure to disclose certain pieces of his criminal past, Mr. Moore has now been disbarred for trying to charge over $10,000 to a client he had promised to represent for free. If you’d care to read the full Ohio opinion disbarring him from practice, you can get it here.

In short-form version, a woman who qualified for legal aid representation going through a divorce agreed to switch lawyers to Moore, after Moore sent an email saying he would represent her for free. Shortly thereafter, he sent her an invoice for $9,500 but then told her she didn’t have to pay that but that he was going to seek to have the court award his fee against her husband. He never did that but did send her an $11,000 promissory note and seek to have her sign that. Eventually, he had to bow out of her case because of his suspension from practice (but not until first trying to appear in court for her the day after he was suspended). He then got an attorney he shared office space with to take over the representation. That lawyer confirmed to her that he was providing the services for free but, ultimately, filed a lawsuit against her, representing Mr. Moore’s firm, seeking to force her to pay pursuant to the promissory note.

Based on his past history, his failure to appear on his own behalf in the disciplinary case, and the fact that he tried at the eleventh-hour to proffer up his license to retire or resign from practice rather than being disciplined, the Ohio Supreme Court decided to permanently disbar him.

In a real plot twist, Mr. Moore has communicated extensively with The ABA Journal as their article reveals and shared with them a draft letter that he was thinking about sending to the Ohio Supreme Court to complain about how he was treated.

Now, I’m fortunate enough that I do not suffer from depression. As I’ve revealed before anxiety is my issue. There is no question that problems with depression are rampant in our profession and little doubt that mental health issues continue to be stigmatized, hidden, and not treated effectively when it comes to lawyers.

I don’t have the necessary clinical training to know the first thing about whether Mr. Moore’s narrative could be explained by depression but I do know that the opinion reveals that he continued to practice while suspended for a pretty significant period of time, represented himself, and that both of those facts likely played a role in his ultimate disbarment. Both of those facts are the kind of things that are also not inconsistent with side effects of depression.

Mr. Moore may not be a very good messenger for the underlying message of the continued need to preach about the awareness of mental health issues, and his claimed beef that the disciplinary process should take depression into account as a mitigating factor misses the mark because nearly all states do – through application of the ABA Standards for Lawyer Misconduct – take mental health issues into account.

But he is, albeit maybe just inadvertently, a good messenger for making an important, and hard, point. Those kinds of proceedings can only take such things into account if the lawyer is able to disclose them so that they can be considered. Mr. Moore pretty clearly didn’t disclose any issues with depression at the time of the proceedings themselves but, because of the nature of such things and, if he was representing himself, if he really was suffering from untreated depression he might not have been able to bring himself to do so.

Any lawyer interested in reading up on issues of attorney wellness can now find a variety of good resources online. Perhaps the most recent report issued by a state bar comes out of Virginia and you can read that one here if you are so inclined.

Overreaching on attorney fees. Plaintiff’s lawyers do it too.

There are always a variety of ways that examples of overreaching by attorneys on fees manage to push into the legal news. Recently, I wrote about one example involving hourly billing. More often than not, overreaching under that system is what makes the news.

It is not the only way that attorneys overreach on fees though. It is done by plaintiff’s lawyers as well.

Today’s post is about a very recent disciplinary decision issued by the Tennessee Supreme Court that publicly censures a lawyer for overreaching in connection with a contingent fee agreement. It is a case that confirms a point I have raised with a number of lawyers over the years but for which I never had ready authority – other than the rules themselves – to back up my point. Now, I’ve got this decision in Moore v. BPR to help convince folks who need convincing.

At 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).

The rules clearly allow a lawyer who wishes to withdraw from representing a client over a disagreement about whether to settle a case to pursue withdrawal as long as they can justify it under one or more provisions of RPC 1.16(b). The law in Tennessee also permits such an attorney, if they do withdraw, to assert a lien as authorized by statute and pursuant to either the terms of their contract or, perhaps, depending on how things turn out for payment in the form of quantum meruit.

What the rules simply do not let a lawyer do is what happened in this new Tennessee Supreme Court case — include a term in the contract with the client that says that, if the client rejects a settlement that the lawyer advises should be accepted, then the lawyer becomes entitled – as a matter of contract – to a fee of x% of the settlement offer being rejected.

And, it does not matter what x equals in that last sentence. However, the nature of the overreach is certainly easier to spot when x happens to equal the original contingent fee percentage as was the case here.

As the Court explains, such a provision is not only antithetical to RPC 1.2(a) because of how much it undermines the right of the client as to settlement but it also takes a situation that is already difficult to balance with questions of conflicts and makes it untenable. Such a provision creates a severe conflict of interest for the lawyer at the moment the other side makes a settlement offer.

You can read the full opinion here. As a bonus, this case is also a primer for those who do disciplinary defense on the potential diminishing returns involved in pursuing appeals from public censures given that the rules prohibit a hearing panel who concludes that discipline should be imposed from imposing any discipline less serious than a public censure.

Thus, any attorney who seeks to appeal from a public censure imposed by a hearing panel has to understand that victory on appeal can only be obtained through a reversal in the nature of complete exoneration on the allegations of disciplinary violations. Far too many attorneys who represent themselves or who dabble in disciplinary defense often fail to understand that dynamic.

Inflation is likely more widespread than you’d like to believe.

Time inflation that is. I’m certainly not an economist.

In the past, I have written about issues associated with overbilling by lawyers in a number of different respects.

Today’s post involves a rare public situation involving the admission of overbilling by a lawyer – one that comes out of Illinois and involves a lawyer who worked his way up the ladder in not just one but two prominent firms in Chicago.  The attorney, Christopher Anderson, has now been made the subject of formal disciplinary proceedings based on his own admission of inflating his time entries and billings first while at Kirkland & Ellis as an associate and later at Neal Gerber Eisenberg, ultimately achieving the status of a non-equity partner.

Anderson came clean to the powers-that-be at the Neal Gerber firm after he had been practicing there for three years in 2018.  That firm did its own investigation and decided it needed to offer refunds or credits to some 100 clients who had been made to overpay as a result of Anderson’s conduct.  The refunds, as reported in the disciplinary complaint, amounted to roughly $150,000 and stemmed from the conclusion that only 4/5 of the time Anderson had billed to clients was legitimate.  The complaint indicates that once Kirkland & Ellis learned of Anderson’s conduct and that he had been engaged in the behavior there as well worked through its own process to offer refunds to clients.

The complaint describes the nature of the scheme on Anderson’s part to inflate his billings and is what I have always believed is what happens to be the most widespread way of abusing billable hours in our profession because it is the most tempting route to travel and the one that lawyers believe is the hardest to prove is happening:

During his time at both firms, in an attempt to meet what he perceived to be the firms’ billing expectations, Respondent recorded time beyond what he had actually spent in handling client matters, knowing that the time he recorded would be billed to his client and that they would be asked to pay fees based on the records he created.  For the days that Respondent felt he had not recorded sufficient time on client matter, he increased the time he claimed to have been spent on those matter based on a number of factors, including his assessment of the likelihood that the client would object to the time he recorded.  As an example, if Respondent spent 0.3 hours on a client matter, he would record that he had actually spent 0.5 hours, or he would bill 2.1 hours for work that actually took him 1.7 hours to complete.

Not surprisingly, some immediate reporting about the situation from The American Lawyer stressed the rareness of intentional overbilling. I beg to differ on that.   Unfortunately, I think this kind of practice goes on much more often than our profession would ever care to admit.  People who act out of a feeling of pressure that their “numbers” are not strong enough or who feel like they’re being forced to accept a cut-rate hourly fee for their time can find themselves heading down this path because, unlike inventing tasks that could be proven not to have been performed, there truly is very little ability for an outsider to prove that a lawyer who says they spent 2.1 hours doing something that really only took them 1.7 hours to complete is lying to you.

Or, as more succinctly put by my friend Trisha Rich who was quoted in the Chicago media about this:


“It would be hard for somebody to catch on to (overbilling in small increments) if somebody was doing that over time, because basically our billing records are on your honor,”

Other than this particular situation in which the conduct came to light because of the lawyer’s own guilty conscience, instances usually will not be ferreted out unless the lawyer also forgets that “pigs get fat and hogs get slaughtered.”

The other interesting piece of this story is that Illinois is only charging Anderson with violations of RPC 1.5 and RPC 8.4(c), but not also charging for violating RPC 7.1.  Illinois’s Rule 7.1 certainly could have also been included in the complaint because Illinois’s version of the rule has the same language as the ABA Model Rules:  “A lawyer shall not make a false or misleading communication about the lawyer or the lawyer’s services.”

Given that Anderson essentially has admitted the misconduct, throwing an additional charge at him likely would just have been piling on, but trying to remind lawyers that RPC 7.1 doesn’t just apply to advertising but applies to a wide variety of false statements about a lawyer or their services (here, falsely stating how much time you actually worked) is something of pet peeve of mind mine. [edited to be less stupid on 1/31/19]

Utahlking Ethics Opinions to Me? (Also Texas)

I’m interested in writing today about two recent ethics opinions that manage to go together quite nicely.  Utah Ethics Adv. Op. 18-04 and Texas Professional Ethics Committee Op. 679.  Both involve RPC 1.8 (or at least both should).  And, not only does neither opinion do a very good job with the subject matter it tackles but both tackle subjects where lawyers need to tread very carefully and could use really good advice.

But, as just a quick aside before doing so, I wanted to express some gratitude from last week and point you to a very important story worth reading.  As the culmination of a many-months-long project, I had the chance to share the stage last week at the ABA Forum on Franchising with two excellent lawyers – Shannon McCarthy Associate General Counsel for Chihuly, Inc. and Kevin Kennedy, General Counsel of Wiggin and Dana in Connecticut — and talk about a tricky and delicate topic – lawyers and obligations to report other lawyers with a particular emphasis on issues involving harassment and other toxic behavior.  I was really fortunate to get to work with them both.  For a story that offers something of a how-not-to manual offered by the experience of one of the world’s largest law firms, you can go read up here.

Now, back to regularly-scheduled programming…

While I missed it around the time it came out, the Utah State Bar put out an interesting ethics opinion explaining to lawyers a way they might be able ethically to mitigate their risk exposure in the event of third-party claims against the lawyer based on the client’s conduct.

The opinion declares that “[a]n attorney may include an indemnification provision in a retainer agreement at the commencement of representation that requires the client to indemnify the attorney and related entities against claims that arise from the client’s behavior or negligence.”

In explaining this outcome, the Utah opinion points out that nothing about RPC 1.8(h) directly prohibits it.  However, it doesn’t just stop there, it goes on to explain … just kidding actually.  It stops there on that issue.

As a practical matter, that is sort of a shame because lawyers ought to be cautioned a bit about the problems associated with starting the relationship with a client off with that sort of provision — particularly because if you are that concerned about that risk of liability from the client’s conduct, then maybe a rethink about whether to take them on is in order.  But, if one is going to do it, the beginning of the relationship is certainly more viable than mid-stream.

Speaking of which, that brings me to the Texas opinion, which tasked itself with answering this question:

May a lawyer renegotiate his fixed, flat fee for representing a client in litigation after the litigation is underway if the matter turns out to be greater in scope and complexity than the lawyer and client contemplated?

If Texas was interested in doing this right, it would recognize that the answer lies in application of its version of Model Rule 1.8(a) because that situation is a business transaction between lawyer and client.  Instead, Texas actually announced that its version of that rule does not apply to a mid-stream renegotiation of a fee.

Instead, the opinion points out that Texas courts have considered the issue and have said that it can occur but that there is a “presumption of unfairness.”  Rejecting the opportunity to apply Rule 1.8 to these circumstances is all the more baffling because — providing guidance to interpret ethics rules is the kind of thing ethics opinion writing bodies are supposed to do, rather than providing guidance about what court decisions mean.

In the end though, I’m likely being too harsh on the Texas opinion because it, at least, summarizes pretty nicely the analysis of the dynamic from the lawyer side of things and why, in most situations, effectuating an enforceable renegotiation will be unlikely:

The fundamental nature of a flat or fixed fee is that there is risk to the lawyer that the legal work and time required may exceed what the lawyer might have earned if the lawyer instead billed by the hour.  The client knows with certain that the total fee charged, no matter how much lawyer time or effort is involved, will not exceed the fixed amount.  The client’s risk in a flat or fixed fee agreement is the possibility of paying more than the client would have paid under an hourly billing agreement if the lawyer is able to complete the representation is [sic] less time than originally expected.  Because the lawyer is better able to anticipate the time and legal work required, the lawyer should be mindful that he knowingly assumed the risk — and should not unreasonably seek to change the fee agreement simply because the lawyer agreed to a fixed fee that, in hindsight, is no longer adequate.

(emphasis added).  And, also, amen to that.