Your IT pro is your best friend, but can’t always protect you from fraud.

Last week I was confronted with another example of how valuable excellent IT professionals can be for practicing lawyers.  As routinely happens, our firm’s spam filter trapped a significant number of emails last Wednesday. Because legitimate email sometimes gets wrongly blocked or filtered, our IT folks also review what gets caught in the filters.  Last Wednesday, our IT gurus noticed an email that, if given the benefit of the doubt, could potentially be a legitimate effort by a lawyer in another state to share with me a document through a well-known online document sharing service.

I was asked by our IT department if I recognized the sender and whether the email address being used was legit.  I did and it was, but there were still enough peculiarities about the details of the email that the IT folks were skeptical about whether it was legitimate or the result of hacking or spoofing.  Although this lawyer might very well have a reason to be in touch with me (I do have a blog read regularly by perhaps a dozen people after all), I had to admit that I wasn’t expecting to hear from this lawyer.  I agreed to send a new email to the person explaining what had transpired on our end and asking “did you mean to send me some documents through [high-profile service],” fairly quickly, a response came back from the person’s email address that was short and sweet:  “Yes i did.”

Now I was distracted by other aspects of what I was doing along with dealing with this issue and I really had not focused on the fact it was a little early in this person’s part of the world for them to be sending the first email and the fact that the response email was a little too pithy to be consistent with their personality, but the folks who handle IT for a living at our firm have a much more singular focus and not only weren’t distracted but were still quite concerned about details of the email and, most particularly, that one of the links in the email appeared to be pointing to an IP address in French Polynesia rather than to anything affiliated with the document sharing service.  Relying on that person’s expertise, it was easy for me to agree that it was more likely that the intruder who had hacked into this person’s email was sufficiently in control to be drafting replies sent to the email account then than (edit: and thx to a loyal reader for catching the error) that the lawyer had really tried to share a document with me using a file sharing service.

I’m relatively tech savvy and would like to think that, even without the involvement of the IT professional, I would never have clicked on a link that when hovered over didn’t look right, but having such high-quality IT folks in my corner made sure that I never even had the opportunity to make that mistake.

Unfortunately, not every situation is one where your IT folks can protect you from falling victim to fraud.

Much has been written online about financial scams targeting lawyers.  A few better pieces available online discussing various aspects of these issues can be found here, here, and here.  Gone are the days when such scams were as easy to see through as the Nigerian Prince emails.  Instead, common current scams involve contacts from companies that on paper actually exist  and that want to hire you to pursue litigation against someone who owes them money or to pay you to defend them in a case where they are accused of owing someone else money.  Once you agree to be hired, the case then quickly settles and the settlement proceeds flow through your trust account and you are instructed to quickly send the proceeds, minus payment for yourself of course, to the party owed the money under the settlement agreement whether that is your client or the other party (depending on the variation of the scam being deployed).  Any lawyer that acts too quickly, however, comes to find out that the funds were no good – money orders forged or wires reversed or checks bounce – and the lawyer is left holding the bag and trying to get out from under a hellish trust account deficit and inquiries from disciplinary counsel about RPC 1.15 compliance.

One iteration of this scheme involving forged money orders, shell companies on both sides controlled by the fraudsters, and with an interesting twist also involving hacking and spoofing of law firm email accounts can be studied in this story today from the ABA Journal and the indictment of a Texas lawyer who was on the criminal side (rather than the victim side) of such an endeavor.

In the unforgettable words of Roy Trenneman from The IT Crowd: “People.  What a bunch of bastards.”

Local counsel arrangements, RPC 1.2(c), and trying to avoid the wrath of court

This month the New York City Bar Association has issued an interesting formal ethics opinion on what is, in some respects, a surprisingly little discussed ethical situation:  What it can mean for a lawyer’s ethical obligations to simply be serving in a matter as “local counsel.”  When I first saw some of the media coverage of the issuance of this opinion — with some headlines/blurbs in the style of: “formal ethics opinion indicates that local counsel have all the same ethical obligations to the client as other counsel,” I started to worry that all the NYCBA did was make the kind of obvious point for which issuance of a formal ethics opinion should have been deemed unnecessary.  But, upon actually reading the full opinion, it is much more valuable than an exercise in stating the obvious.

The heart of the opinion focuses upon a concept that is (or at least should be) entirely uncontroversial in light of the existence of RPC 1.2(c) – someone serving as local counsel can certainly pursue an agreement with the client to limit the scope of their responsibilities as long as the limitations are reasonable.  The opinion smartly explains that this kind of arrangement “does not absolve a lawyer from complying with her ethical duties.  Rather, it narrows the universe within which those ethical obligations apply.”

The opinion then goes to some length to try to tease out examples of restrictions that would be viewed as reasonable and others that should not be reasonable.  One of which I’d like to note but put a pin in for just a second because it plays very much into what is sorely missing from the guidance in the opinion.  The first example the opinion offers as being acceptable would be where “[a] local counsel is asked to file a pro hac vice motion on behalf of an out-of-state lawyer in a multimillion dollar securities action, but not to perform any other work on the case once the out-of-state lawyer is admitted.”

The opinion then, at its conclusion, rightly stresses that local counsel still has to make certain to comply with relevant court rules regarding counsel’s responsibilities but then immediately points out that those kind of rules are outside the scope of what the NYCBA can opine about.  But the rub is that the first example proffered by the committee in its opinion is the kind of situation that it is difficult to imagine local counsel could ever manage to pull off and comply with relevant court rules.

From a loss prevention perspective, the risk for local counsel who serves in a very limited role like this where they find themselves being counsel of record in name only isn’t a compliance with the ethics rules question but one of ending up on the hook for lead counsel’s missteps, either in terms of the wrath of the trial court or a lawsuit for malpractice by the client.  Obviously, a limited scope arrangement signed off on by the client will go a long way toward chopping the legs out from under the malpractice suit.  But, in any jurisdiction like Tennessee’s where the pro hac vice rule still requires the local counsel to be present for hearings generally and to be on the pleadings, whether or not the lead counsel is the one calling the shots and running the litigation, to the trial court the “local” counsel is likely to be viewed as being on the hook for what happens in the litigation just as much as the lead counsel regardless of what sort of agreement may have been reached with the client.

Thus, in the end, this kind of opinion is of limited usefulness to lawyers looking for practical guidance on how risky it might be for them, as local counsel, to agree to be truly a passive almost bystander in connection with litigation.  In my opinion, the one additional piece of guidance that the committee could have offered that would have been within the scope of its mission was to suggest that a well-done limited scope representation engagement agreement for a local counsel in a litigation matter would include a provision that would expressly authorize the local counsel, should it become necessary, to produce the agreement to the court to make the court fully aware of the division of labor and responsibilities.  That might not be a bullet-proof way of deflecting a court’s wrath about something lead counsel did wrong, but it could only help.

Disputes with clients …

I find it interesting that very few of my posts over the last few months have involved situations where lawyers acted poorly in connection with disputes with their clients.  In fact, it appears that really only one has involved such a situation, this one.  I don’t quite know what to make of that fact given that the topic is a robust one.

Tomorrow, I will be presenting a national webcast seminar through the Clear Law Institute — “Things Go Sour: Ethical Issues for Lawyers in Disputes With Clients”.  I have presented on this topic on a number of prior occasions and am looking forward to the opportunity to do so again tomorrow.  I plan to cover as much of the gamut from how to better situate yourself to avoid disputes in the first place through to the practical realities associated with having to decide whether to sue over unpaid fees.  We start up at 3pm eastern/2pm central.  If you are interested in attending you can sign up at the link above.

An unsettling insurance decision if you practice in a law firm of any size.

The month of April 2015 brought a declaration from a legal consultant that he anticipates seeing a 10,000 lawyer law firm within five years.  Trying to determine if there would ever be a law firm so big that from a conflicts perspective its operation was fundamentally unworkable might be an interesting intellectual exercise to undertake, but that’s not happening today.

Instead, I’m interested in a much more immediate, and scary, intellectual exercise: mulling the ramifications of a troubling insurance coverage opinion out of Illinois earlier this year holding that the failure of one lawyer of the firm to disclose a known client problem on a malpractice insurance renewal application meant that none of the lawyers of the firm had coverage.  Instead, the insurer was entitled to rescind the firm’s policy in its entirety.

The majority opinion in Illinois State Bar Ass’n Mut. Ins. Co. v. Law Office of Tuzzolino & Terpinas reads like a relatively straightforward application of insurance principles, including limits on how far protections for “innocent insureds” can go (not to questions of whether the actual formation of the contract should be undone) and basic contract principles that serve to justify rescission.  In as much as the decision is driven by one of the “partners” of the firm — Tuzzolino (who by the time of the decision had been disbarred) — failing to disclose a known dispute with a client that was likely to lead to a claim being made, a claim that was of large enough size that the insurer’s position that, had it been disclosed, the firm’s coverage would not have been renewed seems plausible, then, as unpleasant as the outcome may be for the innocent lawyer, Terpinas, and the client who won’t likely be recovering on his judgment against the firm, it doesn’t stand out as meriting much thought if you practice law outside of Illinois.

Reading the dissent, however, provides an unsettling glimpse into just how alarming the repercussions of this straightforward application of insurance law principles really are.  As the dissent speculates, the logic and rationale used by the majority, and the result in the case, would mean that lack of disclosure by one lawyer in a firm of 100 (or 10,000 for that matter) lawyers would obliterate coverage for all of them.  Lawyers who practice together in firms are likely more or less attuned to the many ways that their professional fates are tied inextricably with their colleagues, but the possibility that a decision by one of your colleagues to sit on knowledge about a mistake, or knowledge of a  seriously unhappy client who is set on doing something about their unhappiness, could result in rescission of your entire law firm’s malpractice coverage is not likely something you’ve spent much time thinking over.

The only slightly helpful thought for larger firms — and in turn for the “innocent” lawyers practicing in those firms — is that perhaps the end result would be different for a firm of much larger size than Tuzzolino & Terpinas even under the majority view.  As the size of the firm increases, one would expect the likelihood that the lack of disclosure of one claim could justify rescission of the policy altogether would decrease.  A more realistic (or maybe just an optimistic) analysis — in terms of what would constitute the status quo ante for a much larger firm with one undisclosed claim — is that, if the existence of the potential claim had been disclosed, the insurer would still have renewed the firm and provided coverage but just at a higher cost to the firm in terms of premium, deductible, or self-insured retention (or perhaps as to all three).