Lawyering vicariously.

Lawyers in private practice work in a variety of settings ranging from solo practice to law firms with thousands of lawyers in scores of offices.  Lawyers also practice in a variety of business structures ranging from d/b/a arrangements on one end to Swiss Verein models.

My rough guess would be that the majority of United States private practice lawyers practice in connection with a business entity that provides (or at least is designed to provide) limited personal liability.  In Tennessee, we deviate from ABA Model Rule 1.8(h)’s approach to prospective limitations on liability for legal malpractice by prohibiting them entirely under RPC 1.8(h)(1).  But RPC 1.8(h)(1) does not mean that lawyers (or even a solo practitioner) cannot take advantage of Tennessee’s business organization laws to house their law practice in a professional limited liability company to manage financial risk.  This point is made clear in Tennessee in paragraph [14] of the Comment:

Nor does this paragraph limit the ability of lawyers to practice in the form of a limited-liability entity, where permitted by law, provided that each lawyer remains personally liable to the client for his or her own conduct and the firm complies with any conditions required by law, such as provisions requiring client notification or maintenance of adequate liability insurance.

Not all lawyers practice in such arrangements, however.  Some form traditional partnerships.  Others practice in an even looser fashion through things that are essentially just office-sharing arrangements but are often described, on letterhead or office signs or both, as “an association of attorneys.”  What I didn’t think lawyers would do would be to attempt to set up a version of both things (admittedly, my lack of awareness of this might just be my own ignorance of what is going on in the marketplace).

Three lawyers in middle Tennessee who may or may not be a law firm, appears to be an example of folks who have structured their law practice to do just that.  They hold themselves out to clients on letterhead as an association of attorneys while having also formed an LLC for the purpose of sharing office expenses.  Undertaking such an approach seems to offer the worst of both worlds, and an order denying summary judgment in a legal malpractice case — highlighted by the ABA/BNA Lawyers Manual on Professional Conduct — does not delve into whether the lawyers’ decision not to just become a law firm organized as a PLLC offers any tangible benefits.

What the order clearly does, however, is raise but leave unanswered, whether lawyers simply sharing office space can end up having vicarious liability for legal malpractice committed by one of their number.  The federal district court’s opinion is relatively short and can be read in full here.  Although it does not shut the door to the ability of these lawyers to demonstrate that vicarious liability should not be available, it does cite to existing Tennessee law regarding unincorporated associations to explain that Tennessee law permits such things to be sued as entities and for vicarious liability to arise among members for statutory violations and contract breaches.

In the end, I think with better constructed arguments, the firm in question ought to be able to muster stronger substantive arguments in opposition to vicarious liability than the one rejected by the court.  After all the concept of vicarious liability derives fundamentally from agency principles and one would hope the uninvolved lawyers could demonstrate lack of control or input into handling of the matter, as well as lack of interactions with those involved that would justify any apparent agency basis to justify vicarious liability.  But given the sole argument that the court indicates was teed up – we’re not a partnership and only partnerships can bring about vicarious liability —  the denial of summary judgment certainly appears to be the correct result.

What I’m still struggling to figure out is the reason one would go to the trouble of creating an LLC for office expense sharing, but attempt for that entity to have no relationship to your law practice and, instead, have your law practice be part of an “association of attorneys.”  I am certain that everyone involved is highly intelligent so there has to be a good reason to do so.  The only explanation I can conjure up is that it must be driven by a desire to avoid imputation of conflicts of interest among the lawyers sharing office space.

In Tennessee, our RPC 1.0(c) defines a “firm,” in part, as “a lawyer or lawyers in a law partnership, professional corporation, sole proprietorship or other association authorized to practice law.”  We dedicate a paragraph of the Comment accompanying this rule to giving guidance to lawyers about how the specific facts of their practice setting can impact whether or not they get treated as a “firm” for purposes of the ethics rules:

Whether two or more lawyers constitute a firm within paragraph (c) can depend on the specific facts.  For example, two practitioners who share office space and occasionally consult or assist each other ordinarily would not be regarded as constituting a firm.  However, if they present themselves to the public in a way that suggests that they are a firm or conduct themselves as a firm, they should be regarded as a firm for purposes of the Rules.  The terms of any formal agreement between associated lawyers are relevant in determining whether they are a firm, as is the fact that they have mutual access to information concerning the clients they serve….

Because RPC 1.10 imputes conflicts among lawyers in a firm, if these lawyers had organized themselves as a PLLC, then the conflicts of one would extend to all.  Typically, when handled correctly, a mere “association of attorneys” will not be treated as a firm for RPC 1.10 purposes.  If there’s another explanation out there, I’m missing it.  But, I’m also wondering how much added risk of still being treated as a firm comes from the information sharing necessary on the LLC side to work out expense arrangements.

A tale of two AGs – update on developments

So, in honor of this my 100th post to the blog, you’ll see that the site has been spruced up a bit with a new logo and look.  While the blog may now be more aesthetically-pleasing, the quality of the content isn’t likely to change (for better or worse).

You may recall a few months ago I wrote a little bit about the fact that 4% of the state attorneys general in the United States were under indictment.  I’ve refrained from posting any updates on what’s gone in since in Texas and Pennsylvania because there would, frankly, have been too many updates to post.  Yet, there is an aspect of 1 of the 2 stories that fascinates me in light of a particular ethics rule we have in Tennessee that I’m generally not a fan of but that, in this context, has a lot of merit.  So, I am posting this sort of “omnibus” version of an update in order to make that point.  (I am not qualified to try to weigh in on the politics of either situation, so I won’t.)

First, the much less interesting/less eventful-to-date of the two stories.  Texas’s AG is still facing criminal charges, has voluntarily relinquished certain aspects of his duties, and has recently moved to dismiss the indictments against him.  The prosecutors handling the case responded in opposition to the effort to dismiss just last week.  In the meantime, he continues to be a fully licensed lawyer under Texas law.

The second story has been, from a distance, much more entertaining to read about and certainly creates significantly more complicated ethics issues.  Pennsylvania’s AG has seemingly been in the news at least every couple of weeks since the criminal charges were first announced against her in August 2015.  She’s recently been sued by a few of the prosecutors who used to work for her.  The claims against her, defamation, false light invasion of privacy, and a civil rights/free speech claim, all are premised on the allegation that she leaked grand jury information and selectively released contents of emails they sent to try to silence them for criticizing her.

The biggest ethical issue that has developed over the last few months came about because her law license was temporarily suspended by the Pennsylvania Supreme Court as a result of the criminal charges.  Despite being unable to practice law, she has maintained that she does not have to resign from her position because much of her daily work is administrative or involves the making of policy and does not require her to practice law.  She also, around the time of her suspension, released  what she described as “pornographic” emails sent by one of the justices of the Pennsylvania Supreme Court.

Within the last week or so, media reports have come out about an internal memo sent to her by a group of her deputies in which they appear to be setting out a starkly different view of the situation and raising concerns under a few ethics rules about whether they are being exposed to potential disciplinary charges if they are somehow aiding her in the unauthorized practice of law.  This memo has apparently also garnered the attention  of a Pennsylvania Senate committee considering whether to attempt to remove her from her position.  You can read the AG’s response to a subpoena issued in those proceedings and a copy of the internal memo from her deputies here.

When I originally wrote about this situation, I mentioned that my state does not have a publicly-elected AG position.  Rather, our state AG is actually appointed by the Tennessee Supreme Court.  Reasonable minds can differ over whether that is a better or worse arrangement than public elections or having the Governor appoint the position. But I don’t think there is any real room for disagreement over the fact that if Tennessee ever found itself in this kind of pickle where our attorney general was suspended from the practice of law, that person would have to resign from the position altogether.

This seems clear to me because we have a provision in our ethics rules, RPC 5.5(h), that prohibits a law firm from “employ[ing] or continu[ing] the employment of a disbarred or suspended lawyer as an attorney, legal consultant, law clerk, paralegal or in any other position of a quasi-legal nature.”  Because our RPC 1.0(c) defines “law firm” to include “lawyer employed in . . . the legal department of a … government agency,” there would appear to be no reasonable argument that any suspended lawyer could continue to be employed during their suspension in the attorney general’s office.  Even if you credited the Pennyslvania AG’s argument that much of her job is administrative and focused on policy-making, that would be readily classifiable as “quasi-legal.”

I’ve been critical in the past of the existence of RPC 5.5(h) in Tennessee because of how it limits the ability of a suspended or disbarred lawyer to rehabilitate herself and because it imposes a one-size-fits-all approach where I don’t think such an approach is the best public policy.  But, watching the Pennsylvania situation from afar, it would be a welcome rule to have in that state right now to shut down at least one of the rings of that circus.

A verein-teresting thought experiment? Part 2

So, if you missed Part 1 you can get up to speed here.  Now I indicated I’d get the underlying documents (plural) this weekend and finish this little thought experiment today, but I don’t actually practice in the International Trade Commission (shocking to hear I bet) so beyond getting to the order of disqualification itself, I’ve had no luck.  But, I’m okay with that, because just being able to read the full ruling itself has given me a better, fuller perspective on this situation.  Which, of course, is the reason you usually ought not write about things based solely on media reports of what a legal decision was all about.

The end result, for me, though is that I still do think it entirely fair, when applying RPC 1.0’s definition of a firm, to hold even the largest of law firms to how they brand and market themselves to the public.  Yet, given what else was going on in this particular decision, I don’t think this moment amounts to the kind of potentially earth-shaking ruling that the media reports focus on as a possibility.  That’s because while the decision about whether Dentons was one firm, or more than one firm (specifically, whether Dentons Canada, LLP and Dentons US, LLP would be treated as two different law firms), was integral to the ultimate decision to disqualify but I don’t happen to think it was the most important factor in the outcome.

First, a quick primer on the underlying factual situation.  Dentons US has been representing the complainants in this ITC investigation against The Gap.  The Gap has a problem with that because for over twenty years Dentons and a predecessor firm, Salans, have represented The Gap in other matters, including a contemporaneous engagement in Canada regarding customs compliance issues.  Dentons says the dual representation is not a problem because Dentons US and Dentons Canada should be treated as separate firms for purposes of conflicts and, even if not, The Gap’s engagement letter with Dentons Canada contains a waiver of potential future conflicts.  (On this point, the court really doesn’t spend any time addressing what the specific language said or why it was not sufficient.  The court appears to claim that Dentons US walked away from that argument in its briefing:  “Indeed, Dentons US asserts that ti does not rely on an advance waiver for establishing that a conflict does not exist.”

Nevertheless, what’s missing from the focus of the media reports is that Dentons had apparently acknowledged in writing to at least one of the clients in the ITC matter, RevoLaze, that it had an “existing conflict” because of Dentons Canada’s representation of The Gap.  This disclosure was made in connection with a funding agreement involving Dentons US, RevoLaze, and a third-party litigation funding company.  It is hard for me to read the opinion without thinking that this fact was the key tipping point for the court.

The rest of the opinion reads very much like the kind of piece in which, after weighing all of the competing factors, the court could have reached a conclusion not to disqualify despite concluding that there was a violation of RPC 1.7 but for the fact — weighed heavily by the court in favor of disqualification — that prior to the issue ever being raised by the court or by the Gap — Dentons had been concerned enough about it to raise it itself with the clients on one side but not the other.

Thus, I do still think that we’re likely headed down a path in which the efforts to find structures that would allow seemingly unlimited growth of the size and scope of modern law firms are going to put real pressure on the way conflicts of interest are regulated.  If the pressure brought to bear by such firms on the existing regulatory structure is not successful in changing the rules of the road, I do ultimately think firms will have to break into smaller pieces.

But I have a harder time seeing the ruling in this case as any sort of watershed moment because had Dentons managed to be 100% consistent in the position it ultimately took about whether there was a conflict or not, then they quite  likely could have avoided disqualification.  And, speaking generally, the ramifications of disqualification from lucrative engagements tend to have more impact on strategic thinking — and willingness to stake out aggressive positions on taking on conflicting engagements — in the large law firm domain then the risk that one or more individual lawyers may be at risk for exposure to disciplinary proceedings involving a conflict of interest matter.

A verein-teresting thought experiment? Part 1.

In preparation for a panel presentation coming up at the end of this month, I have been delving back into the complicated and contradictory world of disqualification rulings from around the country.  While the lay of the land is highly inconsistent to a large degree, there are some common themes that can be teased out of how courts deal with such issues.   I hope to find some way to help articulate that at that conference at the end of the month and, if the end product sounds like something that makes sense, will try to elaborate here as well.

For today though I wanted to touch on what might be the most important current one bubbling through the system – the ruling of an ALJ for the U.S Int’l Trade Commission disqualifying Dentons in a patent infringement suit and that, commensurate with its potential import for the mega-firms that proliferate in modern law practice, is generating some real publicity.

Several months ago now, I mentioned something in passing about a consultant who was talking about seeing 10,000 lawyer law firms in the future and the stress and strain conflicts of interest analysis can put on the outer limits of just how big a firm can get.  The vehicle it seems that the mega-firms have been counting on to make such things possible is the Swiss verein.  If you want to immerse yourself with the details and history of that structure, you can go here for a start.  Suffice it to say for the purposes of this post, I’ll stick with the shorthand description the ABA Journal uses in its article today:

 “[A] decentralized structure which allows independent legal entities to share marketing and branding while keeping finances separate.”

My immediate reaction every time I read something like that description, with conflicts of interest in mind, is that it certainly sounds fine in theory but, at base level, something either is one law firm or it is not one law firm.  So, in the back of my head, my thinking has been this: given how imputation of conflicts works under RPC 1.10 and the definition of a “firm” under RPC 1.0, either how a conflict of interest is defined for lawyers and imputed within a firm will have to be fundamentally changed or, at the end of the day, the Swiss verein concept will yield under the weight of problems of conflicts.

Normally, I like to thoroughly read the subject matter I write about before putting up a post, and I have not yet done that with the ruling of the USITC nor Dentons’ motion for reconsideration.  But I have a reason for that, and here comes my thought experiment.  My immediate reaction having only read the media pieces this week (including the quote from Karen Rubin who runs a wonderful blog you should check out here) is that it is absolutely fair to look at how a firm markets and brands itself for purposes of evaluating conflicts of interest.  Tennessee, for example, like many other states has built the concept into the Comment that accompanies RPC 1.0:  “However, if they present themselves to the public in a way that suggests that they are a firm or conduct themselves as a firm, they should be regarded as a firm for purposes of the Rules.”  RPC 1.0, cmt.[2].  We’ve had no problem using that paradigm to evaluate things on much smaller scales like whether a person being held out as “of counsel” to a law firm results in sharing of conflicts and all sorts of situations in which a group of lawyers share office space.

So, here’s the question I’m pondering, is there anything I can possibly read in those materials that would manage a good explanation for why that principle shouldn’t carry over to this situation and damn the consequences?  My plan is to work on tracking down the underlying documents and studying them this weekend and then following up with a post on Monday to “complete” this thought experiment.