Bad blogger – please accept this potpourri like sprinkling of items

The week feels like it is getting away from me, some travel, some work, some personal life, but may be able to write about something more substantive I’ve been meaning to tackle for later this week.  For today, here is a scattershot of stories all of which involve something previously found to be worthwhile enough to have written about.

First, just a very short period of time after the Baker Hostetler announcement of its use of Ross in its bankruptcy practice, we get the announcement that DLA Piper will be using a competing AI software program known as Kira for document review in its mergers and acquisitions practice.  You can read the short ABA Journal story online here.  More indications that this is a fast-moving area and that there will likely be more such announcements coming with regularity.

Second, the availability to consumers of an array of other choices for the delivery of legal services has been a frequent topic here.  The FTC has long been willing to speak out when state bars go too far down regulatory paths that have the potential to really impact consumers — lawyer advertising being an area that they have, in the past, been not at all shy about weighing in on — and the FTC (in conjunction this time with the Antitrust Division of the US Justice Department) has done so again earlier this month with respect to companies operating in the legal service provider sphere and how the services they offer online are beneficial to consumers.  The context involves a North Carolina state senator who requested their input on potential legislation in that state that would address the scope of the definition of the practice of law to carve out certain interactive websites.  Specifically, there is apparently pending in North Carolina a bill that, as the FTC/DOJ describes it would:

amend North Carolina General Statutes Section 84-2.1 to exclude from the statutory definition of the practice of law the operation of interactive websites that generate legal documents based on a consumer’s answers to questions presented by the software.27 A website would have to satisfy several conditions in order to be excluded from the definition of the practice of law, and thus for its provider not to be subject to prosecution for the unauthorized practice of law. These conditions include providing a disclosure that the forms are not a substitute for attorney advice or services, and disclosing the provider’s legal name and physical location and address.

The comment of the combined agencies appears to view the bill, as it stands, as being pro-competitive but also provided some further guidance:

The Agencies recommend that the North Carolina General Assembly not adopt restrictions on such software products unless there is credible evidence that they harm consumers, any restriction is narrowly tailored to address that harm, and the benefits of the restriction will outweigh the harm that will likely result to competition. Should the General Assembly receive any claims of consumer harm from interactive websites or similar products, the Agencies urge the legislature to consider whether the evidence substantiates any such actual or predicted harm.

The full comment of the FTC/DOJ is worth a read and you can get it here.

Last, Karen Rubin and the folks at her firm’s fine blog bring you an update on the latest travails of the lawyer I wrote about here in my Drunk and Disorderly is No Way to Attend a CLE piece.  You can read there latest well done post here.

Redefining what it means to be a “nonlawyer.”

I’ve written (quite a long time ago now it seems, but it was only just last Spring) about the unfortunate nature of lawyers calling people who aren’t lawyers “nonlawyers” – rather than referring to them in a less condescending fashion such as “regular people,” for example.  But, I still do it all the time, so I’m little more than a hypocrite at the moment on this particular issue.  I will admit that usually the context of the discussion — especially if it is about legal ethics where the ethics rules repeatedly make reference to that term — can make it harder to avoid saying/writing it, but that’s not really the best of excuses.

Thus, the best way to eradicate the mildly offensive use of the terms would be to repurpose the word with a new definition.

Nonlawyer: n. someone who pretends to be a lawyer but actually isn’t one.

There would be two substrata of nonlawyers under this new definition: (1) a person who used to be allowed to practice law (see also “lawyer”), but who lost that right, and then continued to act as if they were still a lawyer; and (2) a person who was never actually licensed to practice law at all but have acted as if they were in dealing with other people.

In my reading pile from March, I find an instance of each of these two types.

Coming in the first category would be this New York nonlawyer who might be a real-life spoiler alert for fans of Better Call Saul (though can’t really say a true “spoiler” alert as much as speculation; I’m just guessing how/why James McGill ultimately has to take on the name Saul Goodman).  Most recently, Jay Lipis was disbarred in New York in March 2016 after he admitted that, during a time that he was suspended from the practice of law in Massachusetts, he continued to practice law but did so under a fake name – Jeffrey Kriger.  While still serving his suspension in Massachusetts, he went to work for his old personal injury firm:

as an unpaid “settlement consultant” reviewing files, valuing cases, determining demand amounts, negotiating settlements with insurance adjusters, and communicating with clients about settlement offers, without adequate supervision. Moreover, in conversations with insurance adjusters, the respondent at times falsely identified himself in order to conceal his identity as a suspended attorney, and at other times falsely identified himself as an attorney or failed to correct any misunderstanding that he was an attorney at the law firm

This summary of the 2015 order suspending him in Massachusetts provides more of the details and also makes clear that there were quite a few other issues of unethical conduct.  (For those that are interested in what, if anything, happened to the lawyers employing him at that personal injury firm, you can read about that over at the Legal Profession Blog.

Fitting into the second category would be Kimberly Kitchen.  Although her name actually sounds like a pseudonym, she wasn’t lying about her name… just about being a lawyer … for a decade.  In addition, to “practicing law” for almost 10 years before being caught, she also managed to serve as the president of a county bar association in Pennsylvania before being found out.  In March 2016, she was convicted of forgery, unauthorized practice of law, and felony records tampering.

There are, actually, a surprising number of people falling into this second category, and their existence (and short-to-medium term success) often says more about how lax law firms can be about doing background checks on the lawyers they hire than about why someone — with a seemingly infinite number of possible things to pretend to be — would choose being a lawyer.

Ms. Kitchen’s case, however, does not seem to be one where it is obvious that the law firm that hired her (at least the last one to do so and that was making her partner in April 2014 when the fraud came to light) failed to do sufficient due diligence, as NBC News reported back when the criminal charges were brought against her that she:

allegedly forged numerous documents attesting that she was a licensed attorney, including an attorney’s license for 2014, supposed bar examination results, supposed records of her law school attendance and a check purporting to show she’d paid her registration fees.

While there may seem like there were a number of available avenues where her deception could have been ferreted out given that she didn’t go about fabricating a nondescript background:

According to her resumé, she graduated summa cum laude from Duquesne University School of Law in Pittsburgh and had taught trust and taxation law at the Columbia University School of Law.

Yet, as the CBS news report on her conviction makes clear, she even forged an email from Duquesne to make it appear she had attended there.

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.

 

Three updates for you on this election-year President’s Day.

Given that there isn’t a lot going on in the news that relates to legal issues, I feel obligated to offer lawyers something to read.  (I don’t think I’ve ever gone on record here about how badly I wish someone would create and implement a sarcasm font upon which all users could agree.  Maybe it would be a way to use comic sans where everyone would be ok with it?)

Back around Thanksgiving, I wrote about a Virginia federal court ruling that laid the framework for a future decision about whether a particular provision in a law firm operating agreement violated RPC 5.6.  Specifically, the provision required a departing shareholder who goes on to practice law in competition with the firm to forfeit half of their equity interest in the firm.  I concluded my original post by speculating that the outcome would ultimately hinge on how the court interpreted a paragraph in Comment [2] of D.C.’s version of the rule.  Sure enough, the court has now ruled, and its ruling did hinge to a significant extent upon application of that language as quoted in this piece from the ABA/BNA Lawyers’ Manual.  Interestingly though, much of the fight in the case actually came down to whether half of the shareholder’s equity interest was even a “substantial” financial penalty at all.

In the face of an argument from the firm that it wasn’t substantial because it was significantly less than the departing lawyer’s salary at his new destination, and expert testimony that the fragility of law firms should allow provisions forfeiting equity to avoid a “death spiral” when owners leave unexpectedly, the court looked only at the penalty in its own context:

Moreover, the practical effect of the Firm’s forfeiture clause is to penalize withdrawing members who wish to continue to represent even one of the Firm’s clients by depriving them of a previously accrued equity interest to which they otherwise would be entitled.  When Moskowitz left the Firm, he faced a choice: receive the full value of his [ownership interest] and turn down his clients who sought his continued representation, or forfeit fifty percent of his equity interest in the Firm and continue to represent his clients’ interests. There is a clear disincentive attached to the latter option.

Update part two & three – I’ve also tried to keep up with events in Pennsylvania and Texas as they unfold with respect to the fates of their top law enforcement officers, both of whom face criminal prosecution.

In Pennsylvania, the sitting Attorney General had something of a mixed bag of recent events.  Her effort to have her law license reinstated denied, but she managed on a first vote to survive being removed from office by the Pennsylvania Senate.

As to the Texas AG, you may recall that back when I first posted about any of this, I mentioned a disciplinary complaint that had nothing to do with, and predated in time, the indictment against him.  (Though unlike the events made the subject of the indictment, the disciplinary complaint actually related to the AG’s conduct in office.) Although there have not been any recent events regarding the indictment to catch my attention, there has now been news that the disciplinary complaint which originally was headed toward dismissal, has now been reinstated and will move forward over the AG’s advice to public officials that they could freely disregard the authority of the United States Supreme Court.

 

I’ll never understand why athletes hire non-lawyer agents.

Thanks to ESPN I’ve long known more about Johnny Manziel than I care to.  But, this past week, I learned something I really should never know — why his agent decided to fire Manziel as his client.  Up until this past week, Erik Burkhardt was Manziel’s agent.  Burkhardt is a law school graduate, but from the best I can determine is not licensed to practice law in any state.  (I will admit that I’ve only searched the rolls in the two states that would be most likely — Texas where the sports agency Burkhardt works for is officed and Florida where Burkhardt attended law school — but the fact that media outlets describe him as just a “law school graduate” leaves me comfortable that he’s not actually a lawyer.  Someone can feel free to correct me if I’m wrong.)

You do not have to be a lawyer to be a registered agent with the NFL Players Association — as is also true in many sports leagues.  But when it comes to professional athletes, who all can easily afford the services of even the attorneys in the U.S. who charge the highest of hourly rates,  the notion of hiring agents who aren’t lawyers bound by all of our rules of ethics has always puzzled me a bit.

Manziel, who is currently dealing with a plethora of problems, and probably doesn’t care too much at the moment that his agent decided to publicly fire him, but since he hired a non-lawyer who doesn’t have to worry about RPC 1.6 and RPC 1.9, if he ever gets around to caring about there isn’t much he can do.

Because of the obligations of confidentiality that lawyers must work under, I’d like to think that no reputable attorney would issue such a press release — or any press release at all — to say they’d fired one of their clients.  If they did, they could find themselves subject to discipline.

In Tennessee this past week, the Tennessee Supreme Court issued a pretty significant decision in a lawyer discipline case, not only because it was another example of the Court doing something relatively rare which is making a decision to increase discipline that had been consented to by the respondent and disciplinary counsel.  (I’ve written about another such rare instance before.)  The Vogel ruling will do doubt be most significant as precedent because it is the first decision of the Tennessee Supreme Court treating the issue of a lawyer’s sexual relationship with a client as a “material limitation” conflict under our RPC 1.7(a)(2).  The sexual misconduct aspect of the case will, of course, also be the focus of most of the attendant publicity, but it shouldn’t be overlooked that the lawyer involved also was disciplined for violating his obligations of confidentiality as to a different client as well.

The lawyer’s violation in that regard was one that many lawyers might not immediately grasp as improper — it certainly wasn’t a press release sort of scenario.  The lawyer had filed a motion to withdraw as counsel for a client and managed to do so in the appropriate fashion by not saying anything other than making reference to the fact that the rules required withdrawal.  The trial judge granted the motion to withdraw.  The former client then wrote a letter to the judge in the case complaining that she did not know why her lawyer had withdrawn.  The judge then communicated to the lawyer and instructed him to send his former a client a letter to explain.  The lawyer did so, but unfortunately and perhaps being more concerned with making sure the judge knew the lawyer had done as asked than focusing on the requirements of RPC 1.9, the lawyer copied the judge on the letter.  The Tennessee Supreme Court did a fine job of explaining why that was not something RPC 1.9 permitted.

Had Johnny Manziel retained a lawyer as his agent, then RPC 1.9 most certainly would not have permitted that person to pile on this past week.  A lawyer, if contacted by the press, might have confirmed the situation with a “Mr. Manziel and I have parted ways.  I wish him all the best in the future.”   But, a lawyer would never be able to ethically offer up the kind of “I’ve done all I can do, the guy won’t take my advice, and I don’t want anything that happens after this point to taint my own brand” statement Manziel’s agent put out into the world.

A Rorschach test in two parts

To pass the time during Snowmageddon (Snowpocalypse?), here’s a blogpost equivalent of an ink blot test.  Do you think either of these situations (or both) (or neither) involve situations where disciplinary authorities should be allocating resources to go after lawyers under the ethics rules?

The first inkblot:

An attorney runs advertisements for his bankrutpcy practice that say: “Keep your property.”  “Stop wage garnishments.” “Stop home foreclosure.” “Stop vehicle repossession.”  And, oh yeah, “been screwing banks since 1992.”  And, the lawyer has a current website with a bulldog picture and the words “We love to take a bite out of a banker!”  Are disciplinary proceedings in order?  Should it result in a 30-day suspension?  Should it matter whether your argument that you meant “screwing” as a connotation to thumbscrews that used to be used in debtor’s prisons sounds at all convincing?

If you were the lawyer in question, can you think of any reason you would simply consent to having the suspension order go down against you?  Would it matter if you had a past disciplinary history?  Should it?  Would it matter if the jurisdiction had some special advertising rule prohibition different from the ABA Model Rules?  Or, what if the relevant rule just prohibited making false or misleading communications about the lawyer or the lawyer’s services, including statements contain material misrepresentations of fact or law or that that omit facts necessary to make the statement as a whole not materially misleading?  Would you want to know if anyone, anywhere had actually been misled by the statements in the advertisements?

The second inkblot:

Lawyer, representing a criminal defendant she believes to be wrongly incarcerated, and in connection/cooperation with the North Carolina Center on Actual Innocence, takes a water bottle out of a house and doesn’t return it when she figures out it was not her water bottle and may have DNA on it of someone else that she is interested in having tested.  Should that be the subject matter of a disciplinary complaint?  What if she says she didn’t realize until she’d left the house that it wasn’t her water bottle?  What if you think, instead, that she knew when she took the water bottle that it was likely not hers?

Does it matter if the DNA turned out not to be helpful?  What about if, because of the attorney’s efforts, the criminal defendant was ultimately exonerated after spending 40 years in prison for a double murder he didn’t commit?  Is it obtaining evidence in violation of the rights of another in violation of RPC 4.4(a)?  Is that the kind of dishonesty that RPC 8.4(c) should exist to address?  What about RPC 8.4(d) and its prohibition on conduct prejudicial to the administration of justice?  Is it better, or worse, that the lawyer waited until finding out that the person wouldn’t submit to DNA testing before using the water bottle to run a DNA test?  Should the lawyer be admonished for the conduct?

What say you?

Legal Ethics Issues in “Making a Murderer” – Part 1 of ?

So, the latest rage in Netflix binge-watching is the documentary “Making a Murderer.”  If you haven’t been engaged in a digital detox program over the last month or so, then you are likely aware of its existence.   My wife and I just finished it up last evening.  If you haven’t watched it, you really should as it is quite compelling.  It will only take you roughly 10 hours if you do it in one sitting, I’ll wait here until you get back.

Ok.  Great.  Pretty compelling stuff, huh?

Now, I have my own views about the cases, the documentary, how it makes me feel about the system, etc.  (In addition to watching the series, I’ve also spent some time on the internet reading about the underlying case and things that were left out, etc.)  But I’m not going to get into a bunch of that on this blog because, strictly speaking, even the “law of lawyering,” doesn’t encompass many of the topics worth discussing.  On the broader issue, I will say just this (I guess):  I have no doubt that there was more to the prosecution case presented to the jury than was presented during the documentary.  This would have to be true given the length of the trial versus the length of the documentary.  (I will say that, even before scouring the web to read articles to reward myself for staying unspoiled during the run of watching the show, I found it fascinating on reflection that almost none of what we saw, and what was explored, in the documentary had anything to do with what, if any, motive the prosecution offered for why the accused would have murdered the victim.  Concurrently, though, there also was no exploration of what, if anything, the defense lawyers said and did to exploit the notion that there seemed to be no motive for the commission of the crime).  If you have already watched the documentary series, and want to learn just a bit more through articles that will certainly spoil you as to the current state of affairs for the subjects of the series if you haven’t watched, you could do worse than to read these three pieces: here, here, and here.

The popularity of this documentary and the issues it touches on does provide excellent fodder for occasional discussions of certain legal ethics issues.  I really wasn’t sure I was going to do tackle any of them here, but then I finally remembered (somewhere between watching Episodes 6 and 7 and last night’s watching of the final three episodes) from where I knew the name of the lead prosecutor.  I covered his 4-month suspension from the practice of law in my 2014 Ethics Roadshow.  I won’t pile on about the details of that because, at least at a surface level it has nothing to do with the case(s) explored in the documentary, but I will give you this link that points to that story itself if you want to go familiarize yourself.

What I do want to explore – and see if I can do so in way that doesn’t truly spoil anything for someone who hasn’t watched the series yet — is an instance of conduct, involving the prosecutor, that seemed to me at the time I was watching to clearly have run afoul of the lawyer ethics rules.

There is a memorable press conference, shown in Episode 3, held by the prosecutor.  You can read a transcript someone has made of the entire third episode online just by ginning up a decent Google search and that will get you the transcript of the remarks at the press conference.

Wisconsin, like most states, has (and had at the time of the press conference) an ethics rule governing a lawyer’s ability to make certain public statements about a pending matter in litigation.  Under the ABA Model Rules now (and back then), that rule is RPC 3.6, conveniently titled “Trial Publicity.”  RPC 3.6(a), applicable to lawyers in civil and criminal cases alike, is broadly designed to prevent lawyers from “mak[ing] an extrajudicial statement that the lawyer knows or reasonably should know will be disseminated by means of public communication and will have a substantial likelihood of materially prejudicing an adjudicative proceeding in the matter.”  At first blush, the kind of statements made in the press conference would certainly appear to be statements that are extremely likely to materially prejudice not one but two trials.  RPC 3.6(b)(2), however, goes on to make clear that, despite the general prohibition, a lawyer is still permitted to make an extrajudicial statement about “information contained in a public record.”  Which would mean that as long a lawyer puts enough detail into a court filing, repeating those details in a press conference would not violate RPC 3.6.

But, lawyers who are prosecutors also have special duties under another ethics rule, RPC 3.8.  And, under the ABA Model Rules, there exists a provision, RPC 3.8(f), that reads as follows:

except for statements that are necessary to inform the public of the nature and extent of the prosecutor’s action and that serve a legitimate law enforcement purpose, refrain from making extrajudicial statements comments that have a substantial likelihood of heightening public condemnation of the accused and exercise reasonable care to prevent investigators, law enforcement personnel, employees, or other persons assisting or associated with the prosecutor in a criminal case from making an extrajudicial statement that the prosecutor would be prohibited from making under Rule 3.6 or this Rule.

Now, if a rule like this had applied to the Wisconsin prosecutor, the press conference shown in Episode 3 would have violated this rule about six ways from Sunday.

Wisconsin, however, did not then (and does not now) have this rule in place.  Wisconsin has specifically declined to follow the ABA on this topic.  Thus, my initial instinct was wrong.  Whatever else I may think about the decision to hold the press conference and to have made the statements made (and the New York Times article I linked above indicates that the prosecutor himself has said he regrets holding that press conference), as long as the same contents were in the publicly-filed criminal complaint, then it would not have been an actionable violation of RPC 3.6 or 3.8 in Wisconsin.

Approximately 30 other states, including Tennessee, do have a provision identical to, or strongly similar to, RPC 3.8(f) and, thus, such a press conference by a prosecutor in those states would be a potentially disciplinable offense.

At some point, I will write a post about the troubling ethics issues raised by the acts and omissions of one of the lawyers for the minor defendant whose arrest was part of the subject matter of the press conference, but not today.

 

 

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.

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.

Rambling and bordering on incoherent is no way to do anything much less make a constitutional challenge.

I have made reference in the past on this blog about the problems that can come from the fact that Tennessee is one of a very few states that still use the “preponderance of the evidence” standard in disciplinary proceedings against lawyers.  Fewer than a dozen jurisdictions including Tennessee still use that standard.  Around forty U.S. jurisdictions require proof of misconduct by the much higher “clear and convincing evidence” standard in order to discipline a lawyer.

I have long believed that, with the right case, an as-applied constitutional challenge to the standard could be successful in Tennessee.  Personally, I would like to see Tennessee as a matter of public policy just come to the determination that joining the overwhelming majority of the states on this issue is simply the right thing to do.  The difference in the standard of proof wouldn’t make much difference at all in many cases where conduct is egregious and easily proven.  Where the different standard could really make a large amount of difference is upstream in disciplinary investigations well before formal proceedings are even initiated and would decrease the pressure on lawyers to agree to a resolution of their case with the imposition of a reprimand or a censure because of the fear that they could lose a contested case and potentially receive more severe punishment if a hearing panel ends up deciding that it was just slightly more likely that the accuser’s version of events was accurate.

I’ve never thought that a facial constitutional challenge would be a successful endeavor because the problem with the use of the standard is not that it defies due process in every case.  Only an as-applied challenge was ever going to have a chance at success.  And the right kind of fact pattern would be key.

We have something of a weird little cottage industry of lawyers who have their own track record of problems with past discipline and who have handled their own cases attempting to then trumpet themselves as lawyers for lawyers in disciplinary proceedings.  As a result, what I have long worried about is that someone might pursue a constitutional challenge to the standard in the wrong kind of case and end up the first vehicle for the Court to address the issue.  The risk of that sort of outcome is that the Court might find itself so strenuously justifying its system that any effort to win the day just on a public policy rationale would be lost.  Unfortunately, just such an event occurred earlier this month as a Nashville lawyer represented by a lawyer with her own quite checkered disciplinary history appears to have done just that.  And, as a bonus, did it in a fashion that the Court called “rambling and border[ing] on incomprehensible.”  You can read the Court’s opinion here.

It’s really a bit mind blowing that any lawyer would think that this particular case was a good one to pursue that constitutional argument.  The respondent was looking at a 6-month suspension but only 1 month of it as an active suspension, had previously been privately disciplined twice and publicly censured twice more for conduct similar to the most recent charges and, as even the Court pointed out in a footnote, the evidence of misconduct was more than sufficient to satisfy even the clear and convincing standard.   It appears that neither the lawyer whose license was actually at stake, nor his first lawyer were off-the-mark enough to originally think that was an avenue worth exploring.  But things changed once an additional lawyer was added to the team.

What is truly frustrating (in addition to why any lawyer would hire the lawyer who handled the defense of the case)   is that the rambling, nearly incomprehensible argument did manage to cause the Court to pontificate about how the preponderance of the evidence standard strikes the right balance because of it how it serves to protect the public from lawyer misconduct.

The only silver lining to be found in this dingy, dark grayish cloud is this:  although this ruling certainly forecloses any facial challenge to the standard as unconstitutional, it does not mean that a successful as-applied challenge cannot be brought in the right circumstances.  It certainly doesn’t make the task any easier though.

Tomorrow, I’ll be doing the first of my four stops on the roadshow across Tennessee, starting at home sweet home, Memphis.  If you are a lawyer in Memphis in need of dual credits, it isn’t too late to sign up and attend.  And, if you can’t make Memphis, I’ll be doing it again in Nashville on Thursday.