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.

Avvo Legal Services won’t work in Tennessee without RPC 7.6 compliance, but should it be so?

The evolution of Avvo from its origins as a lawyer-rating service to something with a much, much more extensive impact in the legal marketplace continued this week with the news of the launch of Avvo Legal Services.  Robert Ambrogi was, as often is the case, the first to break the news online about the development, briefly describing the nature of the service and helpfully linking to the FAQ Avvo offers attorneys about it.

The nutshell version of what exactly this is can be found in the Attorney FAQ under “What are Avvo Legal Services?

Avvo Legal Services are fixed-fee, limited scope legal services determined by Avvo and fulfilled by local attorneys.  Avvo defines the services and prices.  Attorneys choose which services they would like to offer in their geographical area.  Local clients purchase legal services, choose the attorney they want to work with, and pay the full price of the service up front.  The chosen attorney then completes the service for the client and is paid the full legal fee.  As a separate transaction, the chosen attorney pays a per-service marketing fee for the completed, paid service.

Now a writer at the Solo Practice University blog has already teed up a thoughtful piece asking some questions about fee-splitting concerns, which do seem significant when, despite the separate transactions involved there is no question that the “marketing fee” rises as the attorney fees charged rises, and whether it would be highly inadvisable for lawyers to run these transactions through their trust accounts.  I will, for the most, part omit further discussion of those two issues for now.

However, Avvo can say what it wants in its FAQ about why this service is not a lawyer referral service (just as it can attempt to analogize its marketing fee to a credit card processing fee if it thinks that might fly), but I don’t think there is any doubt that, under current ethics rules in a number of states, lawyers who participate with Avvo Legal Services will be taking on significant risk.

Should a lawyer in Tennessee, for example, want to participate in this arrangement (assuming a future roll out here), the likely outcome of any scrutiny would be that the lawyer would violate RPC 7.2(c) unless and until Avvo Legal Services can manage to obtain approval as a registered intermediary organization under our RPC 7.6.

This becomes clear when you look at each of those two Tennessee rules.

Our RPC 7.2(c) generally prohibits a lawyer from “giv[ing] anything of value to a person for recommending or publicizing the lawyer’s services” but provides 4 specific exceptions.  Two of those exceptions are unquestionably unavailable with respect to Avvo Legal Services (publicity in exchange for charitable sponsorships/contributions or purchase of a law practice).  One of the exceptions involves the usual charges of a registered intermediary organization permitted by RPC 7.6.  The other allows payment for “the reasonable costs of advertisements permitted by [RPC 7.2].”

Now, perhaps a lawyer handling cases through Avvo Legal Services could muster an argument that the “marketing fee” being paid is just the reasonable cost of an advertisement.  But nothing about the way Avvo Legal Services describes the program lends itself to such a view as everything about the explanatory materials point to the idea that the lawyer is paying for a result — a paying client — and not just an advertisement.  It’s also paying more for a more lucrative client engagement.  From paying $40 to earn $149 in attorney fees, up to paying $400 to earn $2,995 in attorney fees.

Nevertheless, paying the “marketing fee” could be justifiable under RPC 7.2(c) if it is the “usual charge” of a registered intermediary organization.

Given how broadly Tennessee RPC 7.6(a) defines the term “intermediary organization,” it seems difficult to figure a way that the Avvo Legal Services program would not meet the definition:

An intermediary organization is a lawyer-advertising cooperative, lawyer referral service, prepaid legal insurance provider, or a similar organization the business or activities of which include the referral of its customers, members, or beneficiaries to lawyers for the provision of legal services to the organization’s customers, members, or beneficiaries in matters for which the organization does not bear ultimate responsibility.

Whether or not Avvo Legal Services becomes properly registered will matter to Tennessee lawyers not only because then they could ethically pay a “usual charge,” but also because a Tennessee lawyer would be ethically prohibited by RPC 7.6(b) from “seek[ing] or accept[ing] a referral of a client, or compensation for representing a client, from” Avvo Legal Services unless several specific things were true.  For today’s purposes, the most significant would be that Avvo Legal Services would have to have “registered with the Board of Professional Responsibility and complied with all requirements imposed [on it] by the Board.”  RPC 7.6(b)(iv).

Tennessee lawyers can check, at any time, the list of entities that are properly registered with the Board in this respect at this link.  You’ll see that Avvo Legal Services is not on that list; of course, their current roll out explains that they are only launching in a few cities to start.  Presumably, Avvo Legal Services might pursue registration under our RPC 7.6/Supreme Court Rule 44 before opening the program up to lawyers in any Tennessee cities.

But should it have to?  What really is the rationale that would be used to justify why this sort of service should be off-limits to lawyers?

In jurisdictions that do not have Tennessee’s approach under RPC 7.2(c) and  RPC 7.6, this service may be more viable, albeit still burdened by a few thorny issues regarding arguments that this is fee sharing or what role Avvo Legal Services has (an agent/fiduciary for the client or an agent for the attorney or what exactly?) while it holds money paid by the client for the rendering of legal services.

Unlike Tennessee’s RPC 7.2(c), the ABA Model Rule does not include the words “or publicizing” and only imposes restrictions on the ability to pay someone for “recommending the lawyer’s services.”  Further, language in the Comment  to ABA Model Rule 7.2 further distinguishes between “recommendations” and “channeling” of work to the lawyer, as [5] indicates that while payments for recommendations are off limits altogether but that paying others for “channeling work” is only a problem if the channeling is “in a manner that violates RPC 7.3.”  Further, that same Comment elaborates that

a lawyer may pay others for generating client leads, such as Internet-based client leads, as long as the lead generator does not recommend the lawyer, any payment to the lead generator is consistent with Rule 1.5(e) (division of fees) and 5.4 (professional independence of the lawyer), and the lead generator’s communications are consistent with Rule 7.1 (communications concerning a lawyer’s services).

Yet, even with that seeming additional flexibility in jurisdictions that track the ABA Model Rules approach, issues would remain that will depend significantly on how the program actually works — particularly the consumer side of the interactions.  The very next sentence of that Comment exhorts that a lawyer “must not pay a lead generator that states, implies, or creates a reasonable impression that it is recommending the lawyer, is making the referral without payment from the lawyer, or has analyzed a person’s legal problems when determining which lawyer should receive the referral.”

A review of what appears to be the consumer-side FAQ for Avvo Legal Services does not contain any explicit disclosure of the fact that the attorney providing the service will be paying Avvo Legal Services for getting to work for the client.  In addition to what it doesn’t say, it has some language that could be construed as at least “implying” a recommendation of the particular lawyer doing the work:

You will work with the lawyer you selected during checkout. For phone call advice sessions, you can also choose to speak to the next available lawyer. In that case, Avvo will connect you with a highly reviewed attorney who is experienced in your topic area and licensed to practice in your state.

But, again, a question worth asking is:  should this be something the ethics rules work to prohibit?  Avvo Legal Services certainly seems to think that this endeavor can be sufficiently profitable, which strongly implies that there are a large number of consumers of legal services who would be willing to make use of such an arrangement and, ultimately, a significant number of lawyers who would be willing to provide services to such consumers in this manner and on these financial terms.  So, the larger question ought to be — if the rules governing our profession will not abide this kind of arrangement, then what is the rationale for nixing it?

Just who exactly are we seeking to protect, and why?

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.