It doesn’t all even out in the Walsh.

Selecting just the right item to write about is not easy.  This is not going to be an instance of accomplishing it.  This is going to be an instance of writing something just because I truly find the outcome astounding (or at least I found the outcome astounding when I first read a blurb about the situation, but now having read the full Court opinion I’m less astounded).

A little less than a week ago, the Wisconsin Supreme Court released an opinion in which it accepted a lawyer’s effort at consenting to the revocation of his law license.  An outcome that is, as I understand Wisconsin procedure, technically not a disbarment, but also not quite the same thing as the surrender of a law license that we have here in Tennessee.

The headlines/blurbs I encountered as a first way of hearing about the story were of the Law360 variety — Atty’s Scanty Records Preclude Client Repayment, Court Says.   The disheartening takeaway one gets from reading that story reporting on the opinion is that a lawyer got away with trust account malfeasance by failing to keep the records that would be necessary to prove up the wrongdoing.  Knowing how tough disciplinary authorities can be on trust accounting violations, this was one where I had to find the time to read the actual opinion.

You can do so right here.  If you want to do so right now, I’ll wait until you get back.

Ok.  So now that you’ve read it too, what about the one client and his $1,500?  The second part of the complaint/investigation?

Attorney Walsh agreed to represent O.B. in attempting to have his felony convictions expunged or to seek a pardon for those convictions.  According to his fee agreement with O.B., Attorney Walsh accepted an advanced flat fee of $1,500 at or near the time of entering into the representation and deposited the advanced fee into his law firm’s business account.  Attorney Walsh claimed to the [Office of Lawyer Regulation] that he had done work on O.B.’s behalf and was able to describe some of that work.  According to the OLR’s summary Attorney Walsh promised O.B. in July 2015 that he would be following up on a lead that required research, but warned that O.B. would likely be out of luck if the research did not yield favorable results.  Attorney Walsh, however, failed to communicate the results of his research to O.B.  He then failed to provide O.B. with any of the notices that were required when an attorney placed an advanced fee into the attorney’s business account and utilized the alternative advanced fee procedure outlined in [a particular Wisconsin rule].  Indeed, Attorney Walsh failed to provide O.B. with a final accounting that showed how he had earned the $1,500 flat fee.

For a while I thought I could manage to work through the giant, headline-grabbing angle given that none of the clients associated with any of the things involving fluctuations in the bank records contend they are out money and since there weren’t sufficient records available to truly prove what was what, the Wisconsin disciplinary counsel opted not to seek restitution.  so while not quite “no harm, no foul,” but “definitely a foul, and he’s offering to give up his license without a fight so we’ll just take it and be done with it.”  Though it does appear that the lawyer first tried an approach that would be more like Tennessee’s law license surrender approach by first filing a petition for the voluntary resignation of his license.  Like surrender here, the existence of a pending disciplinary investigation can thwart that in Wisconsin so he tacked to filing a petition for consensual revocation.

But, there was at least that one client standing right there in these proceedings saying that they were out $1,500 as a result of this character.  How could the Wisconsin disciplinary counsel not pursue getting that person their money back?  And how could the Wisconsin Supreme Court manage to shrug its shoulders at that outcome?

Similarly, given the lack of billing records, the [Office of Lawyer Regulation] cannot determine with any reasonable certainty that [the client] should receive a refund of any particular amount of his advanced fee from Attorney Walsh.

Talk about the opposite of a “tie goes to the runner,” kind of ruling.

Which leads me back full circle to being astounded at that outcome up Wisconsin-way.  It’s an outcome that sends a really clear – but unfortunate – message to Wisconsin attorneys that are truly willing to just disregard obligations — make sure you don’t keep records as well.

Two smart, practical ABA Ethics Opinions in a row. (And a bonus “beg to differ”.)

So, this week the ABA Standing Committee on Ethics and Professional Responsibility issued Formal Op. 476 addressing the need to protect client confidentiality when a lawyer seeks to withdraw for reasons involving the client’s failure to pay.  As explained below, it is a solid, practical opinion touching on a subject often overlooked by lawyers who are just trying to get out of a case with as little additional wasted time and expense.

It comes on the heels of an opinion from earlier this month about a lawyer’s obligation to hold fees to be shared with a lawyer from another firm separate from the lawyer’s own funds, ABA Formal Op. 475, which — despite what this solo and small-firm centric blogger wrote recently — is also a practical, well-constructed, and correct opinion.  I have to beg to differ with the My Shingle piece because it misses the boat on the primary type of situation the ABA Formal Op. 475 is vital to addressing — where lawyers in different firms are sharing fees in a contingency case.  When you come at the question from that perspective as a starting point, the answer offered in the opinion is clearly the only answer that can be correctly offered.  The My Shingle complaints are readily resolved by simply working out a better front-end arrangement with a client about payment to multiple lawyers.

(N.B. – it can’t just be coincidence that these two opinions appear to be the first two in which my friend, Doug Richmond, shows up as a member of the committee involved in the issuance.  Doug is an excellent lawyer – as of course are all the lawyers on the committee — but Doug also has a flair for delivering practical advice through clear, straightforward written work product that leaves the reader with an abiding sense that the conclusion reached was inescapable.)

ABA Formal Op. 476 also does a nice job in tackling and acknowledging the interplay between trial court and lawyer in these circumstances.  The opinion truly can be well summed up if you lack the time or wherewithal to read it in full by simply quoting its “Conclusion,” section:

In moving to withdraw as counsel in a civil proceeding based on a client’s failure to pay fees, a lawyer must consider the duty of confidentiality under Rule 1.6 and seek to reconcile that duty with the court’s need for sufficient information upon which to rule on the motion.  Similarly, in entertaining such a motion, a judge should consider the right of the movant’s client to confidentiality.  This requires cooperation between lawyers and judges.  If required by the court to support the motion with facts relating to the representation, a lawyer may, pursuant to Rule 1.6(b)(5), disclose only such confidential information as is reasonably necessary for the court to make an informed decision on the motion.

As it stands, I really only have one item of criticism regarding Formal Op. 476 at all.  Yet it feels almost like nitpickery … in that I would have liked to see the opinion manage more clearly to stress that the need for protecting client confidences and discretion in any disclosure to a court regarding withdrawal applies to more withdrawal situations than merely not being paid.  Far too many times than I care to count have I been sitting in a courtroom and listened to a lawyer in the context of seeking withdrawal in some matter on the docket ahead of my case say too much, unprompted about their communications (or lack thereof) with the client.  The opinion says it is limiting itself to the deadbeat client situation because in other situations other rules and principles may apply, but I think there would have been value in exploring the commonalities.

The only other thing I’d like to use ABA Formal Op. 476 as a springboard to say involves highlighting an aspect of the rule we have here in Tennessee and how it provides a very helpful, practical mechanism for doing what the ABA Opinion actually encourages when it says:  “Of course, where practicable, a lawyer should first seek to persuade the client to take suitable action to remove the need for the lawyer’s disclosure.”  In the context of the ABA Formal Op. that would appear to be either: (1) pay the lawyer; (2) hire other counsel that can substitute in lieu of withdrawal, or perhaps (3) fire the lawyer so that withdrawal becomes mandatory.

In Tennessee, we offer another option as our RPC 1.16(b) also lists as a trigger for discretionary ability to withdraw merely that the client has provided informed consent confirmed in writing to withdrawal by the lawyer.  Such a clear escape valve in the rule permits a lawyer – even in a situation in which the client has become a deadbeat – to be able to counsel the client and explain that if the client will go ahead and provide informed consent to withdrawal, and show that consent by signing the motion itself, it can go an exceedingly long way in eliminating the risk that the lawyer will have to say anything about the client’s failure to pay in response to an inquiry from the court.

Texas Ethics Opinion Offers Stellar Example of Why You Ought to Have a Rule About This.

I’ve mentioned in the past the fact that Tennessee has a version of RPC 4.4(b) that directly addresses, and provides what I happen to think is the correct outcome, for what a lawyer is supposed to do about the receipt of someone else’s confidential information either inadvertently or via someone who isn’t authorized to have it in the first place.  Our RPC 4.4(b) goes further than the ABA Model Rule in two respects on this front in that: (1) it doesn’t just require notice as to inadvertently received information but makes clear that the lawyer has to either abide by any instructions as to what to do with the information or has to refrain from doing anything further with it until a court ruling can be obtained; and (2) we apply the same standard to information received unauthorizedly, e.g. a purloined document.  (Of course, I’ve also mentioned … repeatedly I admit … that the ABA Model Rules ought to be construed via Model Rule 1.15 to fill the gap on that second point, but … leading horses… and drinking water… and all that.

Earlier this month the State Bar of Texas Professional Ethics Committee issued Opinion 664 which “addresses” the following two questions:

1. Do lawyers violate the Texas Disciplinary Rules of Professional Conduct if they fail to notify an opposing party or its counsel that they are in possession of confidential information taken from the opposing party without the opposing party’s knowledge or consent?

2.  Do lawyers violate the Texas Disciplinary Rules of Professional Conduct if they fail to notify an opposing party or its counsel that they have inadvertently received confidential information of the opposing party?

In a relatively short opinion that discusses almost exclusively the first question, the Texas Committee ultimately says, “hey look, we don’t have a rule on any of this… so you are kind of on your own.”  That’s not really a quote from the opinion, of course.  The real quote from the opinion is longer but the gist is pretty much exactly the same as my fake quote.

The opinion then goes on to hold out the possibility that if you have this fact scenario plus something more than maybe one or more other rules could be violated — like Texas’s equivalents of Model Rule 1.2(d) or or Model Rule 3.3(a) or Model Rule 4.1 or Model Rule 8.4(d).  Quoting the opinion this time for real:

It is possible that under some circumstances the failure to provide notice to opposing counsel, or take other action upon receipt of an opponent’s confidential information, might violate one or more of the Texas Disciplinary Rules requiring lawyers to be truthful and to avoid assisting or condoning criminal or fraudulent acts or denigrating the justice system or subverting the litigation process.

The opinion also reminds readers that the lawyer’s course of conduct in such circumstances must be well thought through because the risk of disqualification still lurks, but in the end the opinion largely concludes with something that is mostly a restatement of the problem for Texas lawyers (and of my general inability to get horses standing so close to water to drink since Texas does have a version of ABA Model Rule 1.15  and confidential information certainly is “property”):

The Texas Disciplinary Rules of Professional Conduct do not prescribe a specific course of conduct a lawyer must follow upon the unauthorized or inadvertent receipt of another party’s confidential information outside the normal course of discovery.

The insistence on referencing discovery and, thus, making it seem like this is solely a problem for litigators rather than all lawyers is also a bit unfortunate.

Speaking of bad facts making bad law…

I’ve seen a number of short pieces around the Internet about the 70-year old Missouri lawyer who has gotten himself suspended for at least six months over a number of acts of misconduct, including (the thing most prominently mentioned) using information that his client improperly obtained by guessing someone else”s password.

There is no question that the facts, as laid out, in the Missouri Supreme Court opinion, justify a suspension and involve a violation of a number of ethics rules.  Specifically, there is no question that the use of the purloined information — payroll records and opposing counsel’s work product — was a violation of Missouri’s Rule 4.4(a) which prohibits the use of a method of obtaining evidence that violates a third party’s legal rights.  In addition, to the extent the tribunal concluded that that the lawyer had essentially threatened a disciplinary complaint against opposing counsel as leverage, it is a fair result to say that there was a violation of Missouri RPC 8.4(d), conduct prejudicial to the administration of justice, even though Missouri – unlike Tennessee- does not have an RPC 4.4(a) that specifically prohibits such threats.

But the rest of the ethics charges — all of which take issue with the lawyer not disclosing to the other side that his client had improperly obtained the confidential materials — is, at best, a lazy outcome and, at worst, just wrong, hence the “bad facts making bad law” title.

Unlike Tennessee, Missouri’s RPC 4.4 does not have any application to receipt of documents purposefully sent but by someone not authorized to have them in the first place.  It only addresses inadvertently produced documents.  As the opinion lays out the story, there was nothing inadvertent about this situation.  The lawyer’s client purposefully and intentionally provided the materials to the lawyer.  Nowhere in the opinion does the Missouri court cite to actual ethics rule language that would explain why the lawyer would be required to tell the other side about his client’s improper access to the spouse’s computer.  The closest it gets is when it misquotes language from a comment to its Rule 4.4.  Specifically, the court wrote:

The comment accompanying Rule 4-4.4(a) recognizes that lawyers “sometimes receive documents that were mistakenly sent or procured by opposing parties or lawyers.”  However, when a lawyer knows that he or she has improperly received information, “Rule 4-4.4 requires the lawyer to promptly notify the sender in order to permit that person to take protective measures.”  In this case, Rule 4-4.4 required [the lawyer] to promptly disclose his receipt of the information to Ms. Jones so that appropriate protective measures could be undertaken.

Except, Missouri’s Rule 4.4 most certainly does not require prompt notification to the sender unless the materials were inadvertently produced.  Importantly, the “sent or procured” quote by the court of its Rule 4.4 is just flat wrong.  The actual language of the Missouri rule is “sent or produced.”  The use of “procured” is a particularly unfortunate error because it makes it seem like the rule must contemplate purloined document issues when everything about Missouri’s actual Rule 4.4 is tied to inadvertence.

If Missouri had Tennessee’s version of RPC 4.4 – which requires notification for both inadvertent disclosure and unauthorized disclosure, then Missouri could look to RPC 4.4 and claim notification was required.  Given that the lawyer’s client’s improper access to the spouse’s computer could, for example, expose that client to criminal liability under federal law as a violation of the Computer Fraud and Abuse Act or the Stored Communications Act (or both), this is not merely an academic quibble.  It is one thing for a lawyer in such a situation to know better than to try to make use of the wrongfully obtained documents; it is another thing to flog the lawyer for failing to blow the whistle on their client’s wrongful conduct — potentially criminal wrongful conduct — by writing an opinion that makes it seem a matter-of-fact conclusion that a lawyer reading RPC 4.4 in Missouri would know they have to do that as well.

Because Missouri has a version of Rule 1.15 that is patterned after the ABA Model Rules, it does have an ethics rule on which it could have hung its justification for saying the lawyer was obligated to notify the opposing counsel about having the purloined materials.  Specifically, it could have pointed to RPC 1.15(d) and (e) as giving guidance:

(d) Upon receiving funds or other property in which a client or third person has an interest, a lawyer shall promptly notify the client or third person. . .

(e) When in the course of representation a lawyer is in possession of property in which two or more persons (one of whom may be the lawyer) claim interests, the lawyer shall keep the property separate until the dispute is resolved. The lawyer shall promptly distribute all portions of the property as to which the interests are not in dispute. Lawyers shall cooperate as necessary to enable distribution of funds that are not in dispute.

Of course, doing that would have required that court to embrace the rationale that Doug Richmond and I have explained in a separate article written quite a few years ago.  Instead, Missouri now adds itself onto the list (along with Nevada) of courts that would rather disregard the plain language of their own Rule 4.4, than admit we’ve got a point.

 

Fixing a bad ethics opinion – Kudos to the TN BPR!

Late in 2015, the Tennessee Board of Professional Responsibility issued Formal Ethics Opinion 2015-F-160 addressing issues regarding retention of client files.  I wrote here about a significant problem with the part of the opinion that indicated that our RPC 1.15(b) required retention of all client files for a five-year period.  The problem, to me, was of such significance that I couldn’t leave the criticism to a forum like this one where, if I’m lucky, it is read by a couple of hundred lawyers.  So, I also submitted a longer column about the problematic ethics opinion to the ABA/BNA Lawyers’ Manual on Professional Conduct, which was kind enough to accept it and publish it.

I am extremely pleased to report that the BPR has done the right thing and amended 2015-F-160.  You can go read 2015-F-160(a) in its entirety at the BPR”s website here.  But, the important takeaway can be summed up as: (1) only records of the funds (i.e. the kinds of financial records spelled out in more detail in Tenn. Sup. Ct. R. 9, Section 35.1(a)(2)) must be retained for five years; (2) the BPR does recommend as a guideline that lawyers retain all client files for 5 years from the end of the representation; and (3) lawyers and clients certainly can establish their own arrangement regarding a time period for retention.

As indicated in the title, the BPR deserves kudos for acting to amend this ethics opinion.

(P.S. While we’re fixing things, how about fixing the way Formal Ethics Opinions display on the BPR website?  Horizontal scrolling is a bad look – plus printing is a bit of a nightmare.)

Pursuing a popular cause? Crowdsourcing payment of your fees may be an option for your client.

Some time ago, I wrote a bit about how existing ethics rules make attempting to use Kickstarter to launch a law firm not a viable option.  The primary problem with using crowdsourcing to raise funds to start a law practice is the prohibition in the ethics rules on nonlawyer ownership or investment in law firms.

Having someone other than a client pay the fees and expenses of an attorney, however, is a concept that the ethics rules have long acknowledged, permitted, and embraced as long as certain safeguards are in place — primarily measures to make certain the attorney does not permit the person paying the fees to call the shots or impact the lawyer’s independent professional judgment.

Thus, it should come as no surprise to hear that the use of crowdsourcing platforms to raise money to pay for attorney fees is permitted by the ethics rules as long as the same kinds of safeguards are in place.  Yet, given that new technologies can sometimes lead bodies that draft ethics opinions to lose sight of the “old wine in a new bottle” aspect of some questions, it is always refreshing to read a well-written ethics opinion that gets the answer to such a question correct.

And that is exactly what the Philadelphia Bar Association’s Professional Guidance Committee offers in Opinion 2015-6.  And to make matters even better, Opinion 2015-6 does so in the context of educating the lawyer who made the initial inquiry that s/he can accomplish the goal but not in a fashion different from what s/he initially contemplated.

Opinion 2015-6 starts out answering an inquiry from a lawyer who is contemplating representing a client who cannot afford to pay a fee in pursuit of litigation against a government entity on a cause of action that would not include damages but where the possibility exists for a statutory attorney fee award.  The lawyer’s proposal in requesting the opinion was:

to solicit compensation for his or her work on a crowdfunding platform, an internet site that enables users to post information about a project and solicit financial contributions from persons who believe the project to be a worthy cause.  The inquirer would publicize the anticipated litigation on such a website and solicit contributions to serve as his or her fee.

The lawyer’s inquiry also explained that any contract with the client would make clear that money obtained from crowdfunding would belong to the lawyer under any circumstances.  Before working through the ethical issues implicated by, and the one real flaw associated with, the specific proposal, Opinion 2015-6 offered highly practical, and ultimately helpful, advice about the existence of an alternative that should work much better under the guidance the rest of the opinion will provide:

It is possible to raise funds on a crowdfunding site to support litigation, either by paying lawyers’ fees or expenses or both, but to hold the funds raised in some sort of trust arrangement and pay them out only as earned or incurred.

After teeing up the existence of this alternative, to which it returns in its discussion about the ethical requirement for reasonableness of fees, the opinion works through the traditional concept under the ethics rules permitting someone other than the client to pay an attorney’s fees as long as the safeguards imposed by RPC 1.8(f) are met.  The opinion then addresses the reality that, in order to avoid violating RPC 1.6, the client will have to give consent to any disclosures about the case that would be made in connection with seeking to raise funds from public supporters on any such site.

The longest portion of the opinion, however, involves working through why having the money raised be the property of the lawyer creates ethical problems — and simultaneously why the contrasting alternative approach where the funds raised belong to the client (or even to a separate entity created on the client’s behalf) — is a much sounder ethical approach for lawyers.

We suspect that the inquirer anticipates that the amount raised will total far less than he would expect to be paid if the matter takes as long as he or she now anticipates, he or she spends the total number of hours now anticipated and if those hours were compensated at average rates of pay in the area.  However, it may not turn out that way…. The litigation could end quickly, either favorably or not; before the litigation’s end the inquirer may seek to withdraw or the client may wish to discharge him; or the inquire may or may not succeed in seeking the payment of fees and expenses under an applicable fee shifting statute…. Without knowing how much was raised, it would therefore be difficult to determine whether or not the fees would be clearly excessive….

Opinion 2015-6 then proceeds to explain the kind of agreement attorney should enter into with client to pursue such an endeavor so as to avoid the RPC 1.5 concerns:

First, the fee arrangement should include terms which describe the lawyer’s obligations including the lawyer’s obligation to remain in the case, assuming the client wishes him to do so, until its conclusion or until some other point at which retention of the total fees paid would not constitute an excessive fee.  For example, the fee arrangement with the client could state that the inquirer is obligated to remain in the representation until the time expended reaches a total figure such that the total fee paid is reasonable in light of that time expended.

Second, the arrangement should require that the amount raised be placed in a trust account established under Rule 1.15 until those amounts are earned in accordance with the terms of the final fee agreement.  Until such time that it is determined that the fee is actually earned, the monies raised constitute Rule 1.15 funds and should be held separate from the lawyer’s own property.

The best part of the Philadelphia committee’s willingness to proffer such guidance is that it makes this kind of crowdfunding endeavor practically much more viable in terms of fundraising.  One would anticipate that the average person would be more likely to throw some money toward an impecunious client than a lawyer representing that client.  But even if the client in question would not qualify as impecunious, having the person who is the face of whatever cause is being pursued as the person making the plea for funds that can be used to pay an attorney seems like a rich vein of opportunity.  Particularly so, given how divided the public is on so many polarizing issues and how fervently each side feels on a variety of issues, such that the number of “causes” that could be popular enough to generate ample fundraising is likely larger than you might otherwise think.

And, I’m certainly no tax lawyer, but depending on the nature of the cause to be pursued, I would guess the possibilities exist for the creation not only of entities separate from the client who would be the recipient of the funds raised and then paid on the client’s behalf to an attorney but also of even entities that might qualify as non-profits in terms of the “mission” of the litigation.

(One caveat worth referencing is that in any jurisdiction in which the mostly outdated concepts of champerty, maintenance, or barratry are still alive and kicking, an attorney would be wise to assist a client in working through whether any of those common law doctrines might offer some risk to an otherwise potentially successful crowdfunding endeavor.)

[Edited to add: Crowdsourcing also works for editing purposes.  Thank you kind reader for catching my significant error which is now corrected above.]

Traps for the Unwary – nonrefundable fees and retainers

For my last post of 2015, some thoughts on a frequent source of trouble for lawyers in certain practice areas where efforts are often made to charge nonrefundable fees.  In Tennessee, back in 2011, our rules were revised to specifically acknowledge the legitimacy of the concept of a nonrefundable fee but also to impose certain strict requirements on its use.

Specifically, Tennessee enacted RPC 1.5(f) that reads as follows:

A fee that is nonrefundable in whole or in part shall be agreed to in a writing, signed by the client, that explains the intent of the parties as to the nature and amount of the nonrefundable fee.

We also enacted language in the Comment to the Rule to provide further guidance about this type of fee arrangement:

[4a]  A nonrefundable fee is one that is paid in advance and earned by the lawyer when paid.  Nonrefundable fees, like any other fees, are subject to the reasonableness standard of paragraph (a) of this Rule.  In determining whether a particular nonrefundable fee is reasonable, or whether it is reasonable to charge a nonrefundable fee at all, a lawyer must consider the factors that are relevant to the circumstances.  Recognized examples of appropriate nonrefundable fees include a nonrefundable retainer paid to compensate the lawyer for being available to represent the client in one or more matters or where the client agrees to pay to the lawyer at the outset of the representation a reasonable fixed fee for the representation.  Such fees are earned fees so long as the lawyer remains available to provide the services called for by the retainer or for which the fixed fee was charged.  RPC 1.5(f) requires a writing signed by the client to make certain that lawyers take special care to assure that clients understand the implications of agreeing to pay a nonrefundable fee.

At the same time that Tennessee adopted this new rule, we also adopted revised language in the Comment to RPC 1.15 to help lawyers focus on the earned/unearned distinction, rather than other nomenclature, for making a proper determination about whether money paid to the lawyer by the client should go into the client trust account or somewhere else:

[10] Whether a fee that is prepaid by a client should be placed in the client trust account depends on when the fee is earned by the lawyer.  An advance payment of funds upon which the lawyer may draw for payment of the lawyer’s fee when it is earned or for reimbursement of the lawyer for expenses when they are incurred must be placed in the client trust account.  When the lawyer earns the fee, the funds shall be promptly withdrawn from the client trust account, and timely notice of the withdrawal of funds should be provided to the client.

The Comment goes on to explain, as do other aspects of the Comment accompanying RPC 1.5, that advance fees not earned must be refunded but a reasonable nonrefundable fee does not have to be returned to a client.

Therein lies the rub, of course, or at least one of the two peskier rubs.  The reasonableness requirement that applies over and above the technical/procedural requirements of RPC 1.5(f) can still create real issues.

Just as a 60% contingent fee agreement with a client is subject to challenge as unreasonable even if the client had signed a written agreement otherwise satisfying all the procedural requirements of RPC 1.5(c), a nonrefundable fee agreement remains subject to challenge even if RPC 1.5(f) could otherwise be shown to be satisfied if the amount is unreasonable.

The other pesky rub for lawyers comes when they properly document something with their client as one thing, but then deposit it into the wrong account.  For example, being scrupulous in papering up a fee as nonrefundable and thus earned by the lawyer at the time of payment, but not having faith in the arrangement and depositing the fee into trust “out of an abundance of caution.”  Down that road lies commingling no matter how good the lawyer’s intentions.

Earlier this week, the Tennessee Supreme Court issued a new opinion involving the suspension of a lawyer (who just so happens to be the lawyer whose constitutional challenge argument on behalf of another lawyer was characterized by the Tennessee Supreme Court as “rambling and bordering on incoherent”) for multiple offenses, including charging an unreasonable nonrefundable fee.

Reading the opinion, the lawyer seems to have only attempted to treat the fee as nonrefundable after she was discharged by her client.  The opinion indicates that she believes she deposited the $10,000 into trust and then withdrew amounts from trust as billed.  And her fee agreement, as described, does not seem to have involved an effort to satisfy the language of RPC 1.5(f).   (In fact, rather than make an effort to reference that rule, the agreement referenced instead a 1992 Formal Ethics Opinion that interpreted pre-2003 versions of the ethics rules.)

Nevertheless, even if the lawyer had a well-documented agreement making the $10,000 payment a nonrefundable fee, the facts as they played out were ones in which I suspect most lawyers in Tennessee would likely end up agreeing to refund a substantial amount of the difference between the $10,000 paid up front and the roughly $2,000 worth of work performed at hourly rates before the client discharged the lawyer.  Questions certainly exist in Tennessee about how RPC 1.5(f) will be interpreted with respect to the timing of how to determine reasonableness and whether you only evaluate it prospectively, or retrospectively, or a little of both, but I don’t think many lawyers would want these kinds of facts to be involved in any test case addressing those issues.

Fortunately, the Court did take this opportunity to stress the earned/unearned distinction now spelled out in the Comments to our rules with a reference to one of the best sources of discussion for the distinctions to be drawn among the three arrangements lawyers manage to call “retainers” these days, a law review article by my friend Doug Richmond.

Thus, to the extent that lawyers in Tennessee may continue to focus on what they call a fee when trying to figure out where it should be deposited, our Court considers a “classic” or “true” retainer — a payment to ensure lawyer availability — as earned when paid.  Likewise, “advance fee retainers” are considered to be synonymous with “fixed” or “flat” fees, and also earned when paid.  Thus, both of these types of “retainers” should not go into a client trust account.  The third type of “retainer,” the “security retainer” — the type of advance fee payment that you draw down from as you perform work (i.e. what the $10,000 paid to this now-suspended lawyer actually was — goes into the trust account because at the time it it paid it is not yet earned.

TN issues formal ethics opinion on client files that’s bad in a very sneaky way.

Many moons ago at this point, I wrote a post here with some criticism about ABA Formal Ethics Opinion 471  and the various questions important to client file issues on which it punted.  Back then I also wrote about how our effort in Tennessee to get an ethics rule adopted (it would have RPC 1.19 in Tennessee) that would identify specifics for client file materials issues was unsuccessful.

Earlier this week, the BPR in Tennessee (our disciplinary authority) published a formal ethics opinion that certainly goes further than the ABA opinion in terms of answering questions, but now makes me wish I had not criticized the ABA opinion as much for punting questions.  Our BPR, in an apparently earnest effort to be helpful (at least I hope that is what it was), has managed to create a minimum 5-year requirement for retaining all client files out of whole cloth.

Formal Ethics Opinion 2015-F-160 upon a quick read seemed like a decent client file opinion.  Only in writing about the opinion did I come to understand how seriously flawed it is in a very important respect.

You can go read the full 8-page version of the BPR opinion here.  2015-F-160 addresses three questions: (1) how long should client file materials be retained by lawyers after matters are completed; (2) who owns the materials in the client file; and (3) what are the responsibilities that a retiring lawyer has with respect to client files?

As to the second question, the BPR adopts the “entire file” approach rather than the “end product” approach and says the client owns the entire file.  As to the third question, the BPR does a good job of pointing out that just because you retire doesn’t end your responsibility as to files and distinguishes between what that burden means for a lawyer who was a solo practitioner versus one who practiced in a firm.

But it is the portion of the opinion that addresses how long client file materials must be retained that will prove to be highly controversial and deserves real scrutiny.

When I first read it, I thought all the opinion was trying to say was that the only guidance that could be found in the ethics rules was that RPC 1.15(b) required trust accounting records had to be kept for at least five years after a representation was over.  But, no, the opinion through some questionable use of ellipses actually stakes out a position that because client files are property of the client, RPC 1.15(b) mandates that all client files must be retained for at least five years from the end of the representation.  Imposing a five-year retention period for client files might be a good idea and might be something that even would be worth putting into our ethics rules somewhere, but to act like it is already in there strikes me as a very disingenuous approach.

 

Here is how the BPR has gone about the process of justifying a claim that the five year requirement applies to client files as a whole (all ellipses below are theirs not mine):

Tennessee Rule of Professional Conduct 1.15 is the foundation for the lawyer’s obligation to maintain client records, which states in pertinent part:

(a)  A lawyer shall hold property and funds of clients or third persons that are in a lawyer’s possession in connection with a representation separate from the lawyer’s own property and funds.

(b) …. property shall be identified as such and appropriately safeguarded.  Complete records of such … property shall be kept by the lawyer and shall be preserved for a period of five years after termination of the representation.

(d) … Except as stated in this Rule or otherwise permitted by law or by agreement with the client, a lawyer shall promptly deliver to the client … any property that the client … is entitled to received and, upon request by the client …, shall promptly render a full accounting regarding such … property.

I think you would be hard pressed to find lawyers in Tennessee, who prior to the issuance of this opinion, would ever have taken the position that the five year requirement in RPC 1.15(b) applied to anything other than bank records or safety deposit box records.  Hopefully, you the reader, will understand why when I give you the versions of (b) and (d) sans ellipses:

(b)  Funds belonging to clients or third persons shall be deposited in a separate account maintained in an FDIC member depository institution having a deposit-accepting office located in the state where the lawyer’s office is situated (or elsewhere with the consent of the client or third person) and which participates in the required overdraft notification program as required by Supreme Court Rule 9, Section 29.1.  A lawyer may deposit the lawyer’s own funds in such an account for the sole purpose of paying financial institution service charges or fees on that account, but only in an amount reasonably necessary for that purpose.  Other property shall be identified as such and appropriately safeguarded.  Complete records of such funds and other property shall be kept by the lawyer and shall be preserved for a period of five years after termination of the representation.

(d)  Upon receiving funds or other property in which a client or third person has an interest, a lawyer shall promptly notify the client or third person.  Except as stated in this Rule or otherwise permitted by law or by agreement with the client, a lawyer shall promptly deliver to the client or third person any funds or other property that the client or third person is entitled to receive and, upon request by the client or third person, shall promptly render a full accounting regarding such funds or other property.

Reads a lot different with the gaps filled in, doesn’t it.  It sure doesn’t read like a rule that contemplates the client file as being the type of property being referred to that has to be kept separate.  Under this approach, I guess, if you are on a plane and you put a book you own to read on the plane into the same accordion file folder holding the client file you are also going to read on the flight, then you’ve just engaged in unethical commingling.  Right?

And, in case the intention of (b) as not being about client files wasn’t otherwise clear, Comment [2] to our RPC 1.15 states as follows:  “Paragraph (b) of this Rule contains the fundamental requirement that a lawyer maintain funds of clients and third parties in a separate trust account.  All such accounts, including IOLTA accounts, must be part of the overdraft notification program established under Supreme Court Rule 9, Section 29.1.”

I can’t say I’m speechless because I just wrote 1000 words about this, but …

 

First, trust but verify. Second, trust until verified.

Lawyers need to be able to trust some people to do their jobs.  These people might be support staff, colleagues, or sometimes even opposing counsel.

When it comes to trust accounting though, situation after situation demonstrates that no matter how much a lawyer trusts an employee with access to or some control over trust account funds, the lawyer always has to take a “trust but verify” approach to the situation.

A recent disciplinary decision out of Louisiana provides yet another example of the risk to lawyers in not actively supervising employees with access to and control over trust funds.  In this instance, a long-trusted employee of the lawyer (and someone who had in fact previously worked for the lawyer’s own father) started stealing funds from the settlement of the lawyer’s cases and continued to do so for a period of about five years.  The total amount of the theft appears to have been unclear to all involved for quite some time.  Even the ex-employee ultimately was unsure exactly how much she had stolen.

The opinion makes clear that the lawyer did not do anything to verify the employee’s handling of funds and also makes clear that, if that had been all there was to the story, that negligent supervision alone would likely have been sufficient to result in discipline to the lawyer even though what the employee did was criminal.  (RPC 5.3(b) in Louisiana and elsewhere requires that lawyers having direct supervisory authority over nonlawyers “shall make reasonable efforts to ensure that the person’s conduct is compatible with the professional obligation of the lawyer.”)  The opinion also reads pretty clearly though that, if that had been all that was in the mix, the lawyer likely would have only ended up walking away with a public reprimand.

The disciplinary consequences, however, ended up being a 30-day suspension because, in addition to not verifying the handling of funds done by the trusted employee in the first place, he didn’t do the correct thing with funds received after the crime.  The ex-employee was able to swing a loan from a relative and, after she had been reported to the police, repaid $39,312.35 to the lawyer.  Unfortunately, he didn’t put all of those funds in trust and wait until after he was able to completely verify how many clients or third parties funds were missing (and exactly how much) before treating any of the restitution money as his own.

Instead, as the opinion indicates, he had the ex-employee pay the restitution in the form of three separate, simultaneous checks – one for $19,612.35 that went into his trust account; another for $9,700 that went to his operating account, and then a third for $10,000 that went to his personal account.  In the disciplinary proceedings, he claimed that this approach was not provably wrong because he did not know that the amount being put into trust would not be sufficient.  The problem though was that, at that time, he had not yet had any audit performed on his accounts and only after depositing those three checks did he have a a CPA perform an audit of his trust account going back five years.  At the end of that audit though, the CPA determined that the $19,612.35 in trust was not the correct amount and that it should have been $22,330.96.  The lawyer immediately put his own personal funds in to make up the difference.

Unfortunately, the lawyer did not have his CPA also audit his operating account at that time.  The lawyer didn’t help his cause by testifying that he didn’t give access to the operating account, in part, out of a fear that it would be determined that the ex-employee paid back too much and was now actually owed money by the lawyer.

Subsequently, an audit performed by a different CPA retained by disciplinary counsel’s office, looking at both operating account records and trust account records, found that more trust funds were missing and that the balance in trust should have been something north of $34,000.  As a result, he was disciplined more harshly because he was viewed, in the best light, as having put his own personal financial interests ahead of the interests of clients and third parties who were harmed by his ex-employee’s criminal conduct and, in the worst light, of having twice violated RPC 1.15 with respect to the deposit of two of the three checks written by his ex-employee.

The practical lesson from all of this should be — in addition to the incredible importance of the “trust but verify” construct as to those with access to the trust account in the first place — if you are a lawyer victimized by an employee’s criminal conduct, and fortunate enough to be able to get that person to make restitution, you need to deposit the entirety of such funds into your trust account until you can completely verify just how much damage has been done and to whom.  RPC 1.15(a) in most jurisdictions, including in Louisiana, provides for the ability to hold both funds known to belong to clients and funds belonging to third parties together in the same trust account, it is just the lawyer’s own money that must be kept separate.  This Louisiana lawyer absolutely should have had the entire $39,312.35 deposited into his trust account and only moved any of it into his own personal account or his operating account once he was absolutely certain that the money was truly his.

Remember my conversation with the SuperShuttle driver?

A while back I wrote a piece about a relatively deep conversation I had about right and wrong and why lawyers do some really bad things with a SuperShuttle driver in Phoenix.  If you missed it, you can read it here.  But one of the things I didn’t say during that conversation was that there are some people out there who are:  just.the.worst.  Some of them end up lawyers.  And when they do, hoo boy.

I imagine if I asked the driver to paint the picture of someone who he would consider the worst possible lawyer of any of the truly rotten apples,then he’d probably say it would be someone who steals money, lies, is disrespectful, rude, vindictive, a bully, and maybe even something of a racist/misognynist/homophobe.  It is probably less likely that the driver would even think to also say that he blabs about privileged communications, but maybe he’d think to make that point as well.  Well, this Indiana lawyer who just got disbarred the first day of this month reads like he came straight out of central casting for the part.

I bet lots of people will be writing about this character, or already have written about him ( I promise I’m not lying when I say I haven’t gone looking for or read anybody’s take on this guy yet beyond the ABA Journal story here that got it on my radar screen).

I’m writing about him right now because I’m lazy.  My seminar season is about to kick into gear starting tomorrow with an hour of ethics I am looking forward to doing for the Memphis Bar Association Labor & Employment section here in Memphis.  Between actual work and seminar season, I’m going to have to be highly efficient with content for the blog this month.

Go read the order in all its gory detail if you can manage it, or I can give you a pretty good feel for it with this snippet of the Court’s order:

The seriousness, scope, and sheer brazenness of Respondent’s misconduct is outrageous.  He stole approximately $150,000 from his clients, threatened and intimidated his staff, disparaged and mocked virtually everyone around him, lied to all comers, and obstructed the Commission’s investigation.  Perhaps most disturbingly, Respondent repeatedly and fundamentally breached the duty of confidentiality that lies at the heart of the attorney-client relationship.  Respondent recorded privileged conversations and shared those recordings with others for his own amusement, he solicited his office staff to do the same, and he posted client confidences and falsehoods on a legal marketing website in order to “punish” certain clients and inflate Respondent’s own website ranking.

There are some nuances to the guy’s situation – like manipulating online reviews and whether opinions like that New York one from earlier this year tempt that kind of behavior – that could merit some thoughtful exploration, but it doesn’t deserve to be done in the context of someone who appears to just be a horrible human being.