An Update On Conflicts And Ethical Issues
1. CONFIDENTIALITY OF COMMUNICATIONS
a. Minnesota recently addressed the issues related to the use of e-mail, and both analog and digital cordless and cellular telephones.
b. Lawyers Professional Responsibility Board Opinion No. 19(1) notes that a lawyer may utilize these methods to communicate confidential client information without violating Rule 1.6 of the Minnesota Rules of Professional Conduct (that requires a lawyer to not knowingly reveal a client confidence or secret).
c. The opinion indicates that a lawyer may use e-mail without encryption and digital cordless or cellular phones [when used within a digital service area] without violating Rule 1.6.
d. However, to utilize an analog cordless or cellular phone to transmit and receive confidential client information, the lawyer must first obtain client consent after consultation with the client about the confidentiality risks associated with inadvertent interception.
e. Finally, if a lawyer knows or reasonably should know that a client or other person is utilizing an insecure means to communicate with the lawyer regarding confidential client information, the lawyer shall also consult with the client about the risks and obtain consent.
2. RECENT DECISIONS: (2)
a. CONFLICTS OF INTEREST
i. Deleo v. Kruger, 1998 Conn. Super. LEXIS 380 (Conn. Super. Ct. Feb. 10, 1998). In a rather odd set of circumstances, defense counsel in the underlying case was simultaneously defending a legal malpractice claim arising out of the underlying case. The plaintiff was not happy about this and sought to disqualify the defense counsel in the underlying case on the grounds that he was also representing the defendant in the legal malpractice case. Finding that the malpractice suit allowed the former lawyer to divulge privileged communications to his defense counsel, the court found nothing wrong with the defense counsel using this confidential information to defend the underlying claim.
ii. Worldspan, L.P. v. The Sabre Group Holdings, Inc., 1998 U.S. Dist. LEXIS 6181 (N.D. Ga. May 1, 1998). Defendants' local counsel served for several years and was still serving as counsel for plaintiff in state tax matters in Georgia and Tennessee. This litigation involves plaintiff's computer airline reservations operation, the "heart of plaintiff's entire business." In response to plaintiff's motion to disqualify defendants' local counsel, the firm pointed out that its client had agreed in 1992 to waive conflicts prospectively for non-state tax matters. The court found that the law firm's representation was a prohibited conflict and granted plaintiffs' motion to disqualify.
iii. Kassis v. Teacher's Ins. and Annuity, 1998 N.Y. App. Div. LEXIS 6968 (June 16, 1998). Kassis's representation in this five-year old lawsuit is being handled by the firm of Weg & Meyers. A junior associate, admitted on January 31, 1996 worked on this file for Kassis until February 1997, when he announced his intentions to leave the Weg firm. The Weg lawyer in charge of the litigation recommended that the associate interview with Thurm & Heller, who ultimately hired the associate on March 3. Thurm & Heller represents TIAA in this litigation. Facing a pending trial date and the need to respond to overdue discover, Weg & Meyers filed a motion to disqualify Thurm & Heller based on Thurm & Heller's employment of Kassis's former attorney, the one-year associate. The court refused to grant the motion on the basis that it would provide an undue advantage to Kassis, who would benefit by the delay while TIAA incurred significant financial hardship associated with obtaining new counsel. The court also found that a "Chinese wall" had successfully been implemented in Thurm & Heller, a 26-lawyer law firm. The dissenting opinion discussed why disqualification was still appropriate given the size of the firm, as the possibility was "too great that an attorney in a small firm either wittingly or unwittingly may acquire confidential information."
iv. Swift v. Ki Young Choe, 1998 N.Y. App. Div. LEXIS 6425 (June 4, 1998). The buyer and seller of real estate retained the same lawyer to represent their interests in the transaction. Before the closing, the lawyer required the buyer and seller to each sign a letter acknowledging that despite it being in their respective best interests to retain individual counsel, each was consenting to the dual representation and waiving conflicts. The buyer and seller also signed a general release of the lawyer and his firm for all claims arising from the dual representation. When one of the clients sued the firm, the lawyers were granted summary judgment based on the waiver and release. This ruling was reversed on appeal. The plaintiff may pursue a claim based on the absence of informed consent and the release cannot shield the lawyer from liability because it was obtained in violation of a disciplinary rule.
v. In In Re Granite Partners, L.L.P., 219 B.R. 22 (Bankr. S.D.N.Y. 1998), a bankruptcy court judge reduced a firm's 5.2 million dollar fee to 2.2 million for failure to obtain a conflict waiver from one of its clients - Merrill Lynch. A bankruptcy trustee retained the firm's services in investigating whether certain broker's wrongfully liquidated the debtor's securities. The firm represented many of the broker's and indicated to the trustee that it would obtain conflict waivers. In the final fee application, the firm disclosed to the court that it increasing represented Merrill Lynch and would not waive the conflict. Based upon this failure, the court held that the firm's failure to disclose this relationship "tainted" the final recommendation to the trustee. Thus, the court drastically reduced the firm's fees.
b. EX PARTE COMMUNICATIONS:
i. U.S. ex rel O'Keefe v. McDonnell Douglas Corp., 132 F.3d 1252 (8th Cir. 1998). This case arose out of an action alleging mischarging of labor hours by employees of McDonnell Douglas while working on U.S. military contracts. During the course of the litigation, investigative agents of the DOJ made numerous ex parte contacts with various present and former lower-level employees of McDonnell Douglas without the consent of McDonnell Douglas's counsel. McDonnell Douglas brought a motion for protective order, arguing that such ex parte contacts were barred by Rule 4.2. The government countered that the DOJ contacts were authorized by law in light of 28 C.F.R. §77.10(a), which permits ex parte communications with all but control group employees. The Eighth Circuit analyzed the "housekeeping" authority of federal agencies to promulgate regulations and concluded that no authority existed for §77.10(a). Beyond invalidating the statute, the Eighth Circuit found that disciplinary rules were not the subject of federal preemption. The government was ordered to turn over all papers related to its ex parte contacts.
ii. Sanifill v. Roberts, 1998 Ga. App. LEXIS 730 (May 8, 1998). Roberts sued Sanifill for injuries relating to the alleged negligence of Sanifill's employee, Parks, in the operation of a garbage truck. After defense counsel appeared, Roberts immediately sought Parks' deposition, only to learn that Parks no longer worked for Sanifill. Investigators hired by Roberts located Parks in Texas and Parks agreed to come to Georgia and give a statement. Once the recorded statement was in hand, Roberts' counsel scheduled the deposition of Parks and disclosed the statement. Sanifill's counsel objected, citing Rule 4.2. The court was unwilling to suppress the statement, finding instead that a literal reading of Rule 4.2 mandated that ex parte contact was only barred when the witness was represented by counsel.
iii. Carnival Corp. v. Romero, 710 So.2d 690 (Fla. Ct. App. 1998). The Romeros retained two former Carnival employees as trial consultants and experts. Carnival moved to disqualify the experts and the lawyers representing the Romeros. The trial judge denied the motion. The appellate court agreed, noting that the two former employees had no present authority to bind Carnival and neither of them had any access to attorney-client communications. The appellate court also rejected arguments that the former employees' knowledge of Carnival's security systems was privileged information. The court said that privilege protects communications, not facts.
i. Franklin & Marbin, P.A. v. Mascola, 1998 Fla. App. LEXIS 6327. A discharged lawyer sued his client under a contract for representation. The client retained the attorney to represent her in a paternity action. She agreed to pay the lawyers' firm on an hourly basis and to advise the lawyers of any claimed errors or discrepancies within 15 days of receiving the bill. The firm represented the client for 9 months without receiving any objections to the bills. The firm withdrew from the paternity action, citing irreconcilable differences. It also asserted a charging lien. The client claimed that she never examined the bills because she expected them to be paid eventually by the putative father. Ultimately, the court looked with favor on the contractual provision requiring the client to notify the firm of errors or discrepancies in the billing statement within 15 days. The court thought the provision was helpful from the client's perspective because the client could control the total by overseeing the amount of time spent by the lawyer. It also insured that lawyers would not be faced with after-the-fact objections to the expenditure of time that might have been avoided if timely raised. The court held that the client's failure to object seasonably to the hours as they were billed waived any objections to the number of hours billed and operated as an admission of reasonableness in a later suit for a money judgment against the client.
ii. Christensen v. Eggen, 577 N.W.2d 221 (Minn. 1998). Minnesota court holds that the public policy set forth in Rule 1.5(e) bars the enforcement of fee splits that do not comply with the Rule.
iii. Hurwitz v. Padden, 1998 Minn. App. LEXIS 791. In 1991, two Minnesota lawyers formed a firm, but failed to enter into a written partnership agreement. In 1993, they converted their firm to an LLC. By 1996 their professional relationship ceased and their firm dissolved. One lawyer then sued the other for 50% of the fees earned post-dissolution on contingent fee agreements originally entered into while the firm existed. This decision applies partnership law to LLC's and orders that the contingency fees be split 50/50. The opinion also discusses why Rule 1.5(e) does not apply to fee splits among former partners for matters where the client originally retained their former firm.
iv. In Image Technical Service, Inc. v. Eastman Kodak Co., 136 F.3d 1354 (9th Cir. 1998), the court reversed a lower court decision awarding plaintiff $400,000 in attorney's fees. In Image Technical Services, plaintiff and other companies filed an antitrust suit against Kodak . Prior to trial, Kodak successfully sought to disqualify plaintiff's law firm because it represented a division of Kodak in other matters. Kodak succeeded. Plaintiff eventually won the lawsuit and the district court awarded attorney's fees based upon the work the disqualified firm. Kodak appealed and the Ninth Circuit reversed the fee award.
3. LEGAL AUDITING SERVICES (3)
a. Many insurance companies engage the services of third-party legal auditing services.
b. When retained by an insurance company to act on behalf of an insured, defense attorney's often receive billing guidelines and litigation management guidebooks in addition to the requirement that attorney's submit bills to an outside auditing service for review and approval.
i. Minnesota's Rules of Professional Responsibility, Rule 1.6, provides that a lawyer will not "reveal a confidence or secret of a client."
ii. Many state bars consider defense counsel's release of information to these third-party auditing services to violate the lawyer's duty to confidentiality to her client.(4)
iii. Minnesota has not decided this question.
iv. States that oppose the practice believe that:
(1) Third-party auditing and "litigation guidelines" interfere with the "independence of judgment in rendering services to clients"; and
(2) A lawyer should not permit disclosure of information relating to his representation of his client to a third party.
v. One court has held that disclosure of confidential information in billing statements may waive the attorney-client privilege. See United States v. Massachusetts Institute of Technology, 129 F.3d 681 (1st Cir. 1997) (holding MIT's disclosure of documents to third-party audit service may waive privilege).
vi. On the other hand, some legal ethics scholars indicate that:
(1) much of the information lawyers are asked to submit to auditors is not confidential
(2) an agency relationship exists between the insurers and auditors such that issues of confidentiality and attorney-client privilege do not come in to play
vii. Representatives of the audit service industry claim that the defense bar is trying to influence ethics panels to support its position so defense lawyers can control fees charged - "This is not an ethical issue. It's a marketplace issue."
viii. Montana Test Case (5)
(1) Lawyers in Montana recently filed a case which the Montana Supreme Court will hear alleging that HMO-like cost controls and auditing illegally restrict their practice of law.
(2) They also argue that such practices violate the legal profession's code of ethics by creating a conflict of interest between supposedly independent outside counsel and the insurance companies they are sworn to defend at all costs.
4. UNAUTHORIZED PRACTICE OF LAW (6)
a. Threat of sanctions - "it is a violation of an attorney's professional duty to either assist in the unauthorized practice of law by another, or to practice law in a jurisdiction where he is not properly authorized."
b. ABA Model Code of Professional Responsibility - "Authority to engage in the practice of law conferred in any jurisdiction is not a per se grant of the right to practice elsewhere, and it is improper for a lawyer to engage in practice where he is not permitted by law or by court order to do so. . . . In furtherance of the public interest, the legal profession should discourage regulation that unreasonably imposes territorial limitations upon the right of a lawyer to handle the legal affairs of his client or upon the opportunity of a client to obtain the services of a lawyer of his choice in all matters, including the presentation of a contested matter in a tribunal before which the lawyer is not permanently admitted to practice." Ethical Consideration 3-9.
c. Risks of working with suspended or disbarred lawyers
d. Lawyers with national/inter-jurisdictional practices should consider the following:
i. Physical location of foreign attorney;
ii. Physical location of the client;
iii. Status of foreign attorney, e.g., retained individual counsel, corporate in-house counsel, or consultant;
iv. Authorship of pleadings or briefs by foreign attorneys;
v. Communication with opposing counsel by foreign attorney on clients' behalf;
vi. Type of court, e.g., federal court or state court;
vii. Retention of local counsel by foreign attorney;
viii. Attorney "in charge," i.e., local counsel or foreign attorney; and
ix. Interpretation of foreign law by foreign attorney.(7)
e. Example - To what limits may a paralegal go in assisting an attorney?
5. WITNESS COMPENSATION (8)
a. You wish to meet with a fact witness prior to a deposition, review documents and prepare for the testimony. The witness seeks compensation for her time. May you compensate her? If so, how much?
b. Model Rules of Professional Conduct 3.4(b) states that
A lawyer shall not . . . offer an inducement to a witness that is prohibited by law
i. The comment indicates that it is not improper to "pay a witness's expenses[.]" However, it remains silent as to paying a factual witness for her preparation time.
c. ABA Formal Opinion 96-402 (copy attached) has construed Rule 3.4(b) to allow a lawyer to compensate a witness for preparation time, including meetings with lawyers and time spent reviewing and researching records. Yet, this payment must not be "for the substance (or efficacy) of the witness's testimony or as an inducement to 'tell the truth'."
6. UPDATE ON - MeadowBrook, Inc. v. Tower Ins. Co., 559 N.W.2d 411 (Minn. 1997).
a. While cited by Minnesota courts and some other jurisdictions in the last year, no cases deal with the main issue raised by MeadowBrook -- that an insurer can withdraw a defense undertaken with a reservation of rights once all arguably covered claims have been dismissed with finality. (i.e. -- an insurer can settle out covered claims).
7. JOINT DEFENSE (9)
i. Two or more insurer-defendants
ii. Commonality of interests in defending the coverage litigation
(1) commonality exists even when the parties involved in the joint defense have adverse interests in some respects
(2) identify commonality of interests and whether that commonality is sufficient to make joint defense participation worthwhile
i. Compliance with case management orders
ii. Cost sharing opportunities
iii. Division of labor
iv. Access to information
v. Presentation of a united front
vi. Avoid duplication, and/or conflicting efforts and court filings
vii. Advantages to insureds
(1) efficient progression of case
(2) coordination of activities saves insured considerable work
i. High level excess insurer may not wish to incur the costs of joint defense participation
ii. Insurer with a large exposure may opt out of joint defense believing that minimal contribution of labor and money from other insurers is outweighed by the loss of control and administrative costs and duties attendant to participation in joint defense
iii. Nonparticipating insurer will not have the same access to information and work product from the joint defense group
d. Conflicts/Ethical Concerns
i. Joint Defense Privilege(10) - generally viewed as an extension of attorney-client privilege or work product doctrine - exists as an exception to the general rule that disclosure to third parties may waive attorney-client or work product protection
(1) have court expressly recognize privilege
(2) preclude discovery by insured into such matters at the outset of litigation in case management order
(3) such communications should be exempt from inclusion on privilege logs
(4) communication of confidential information, strategy, and mental impressions should be limited to matters within the common interests of the participants
ii. Attorney-Client Privilege
(1) legal advice is sought from or rendered by
(2) a professional legal advisor acting in that capacity; and
(3) communications relating to that purpose are made
(4) in conference
(5) by or to the client
(6) Waiver determinations by court:
(a) communications were made in the course of a joint defense effort
(b) statements were designed to further the effort
(c) privilege has otherwise been waived
iii. Work Product Doctrine
(1) FRCP 26(b)(3) - work product immunity if documents prepared in "anticipation of litigation"
(2) Except: "substantial need" and "undue hardship"
e. Conflicts of Interest in Joint Defense Scenario(11)
i. For potential conflicts of interest and disqualification, insert language that allows clients to indicate their awareness of the potential for a conflict and waive such conflict, if appropriate under the circumstances of the case
ii. Counsel must recognize the potential for disqualification due to unknown conflicts
iii. Indemnification provision? (consider including malpractice insurers)
iv. Represent in agreement that you represent your client exclusively and that your client's interests may be adverse to other defendants
v. Have a method for the return of documents should counsel end their participation in the agreement
8. EFFECTS OF Y2K
i. Conflict Systems
ii. Docketing Systems
iii. Billing Systems
iv. Accounting Systems
v. Any other Software
vi. Legal Research
vii. Equipment (phones, fax, etc.)
i. Transactional work software
ii. Advice to clients re: Y2K
iii. Data received from outside the firm
c. Contingency Plans
i. Do you have them in place?
9. RESURRECTING CIVILITY (12)
a. To maintain professionalism and civility in and out of the courtroom, we as lawyers should strive to "out nice" opposing counsel and others we deal with on a daily basis. Such an approach will help lawyers avoid some of the significant complaints of modern-day litigators like depression, suicide, chemical substance abuse, etc.
b. Ethical yardstick
i. Does your chosen course of action seem logical and reasonable? Forget what others might say. Does it make sense to you? If so, it is probably right.
ii. Does the solution you chose pass the test of sportsmanship? Or to state it otherwise, if everyone followed this same course of action, would the results be beneficial for all?
iii. Where do you think your plan of action will lead? What effect will it have on others? What effect will it have on you?
iv. How well will you think of yourself when you look back at what you have done?
v. Separate yourself from the problem. Imagine it is a problem affecting the person you most admire. How would that person respond to this problem?
vi. What difference would it make if everyone knew about your decision? Especially consider how you would feel if your family members and friends knew what you have done or plan to do. Chances are decisions made in hope that no one will find out are not ethical.
a. Opinion No. 19, Minnesota Lawyers Professional Responsibility Board;
b. Summary of Recent Admonitions, Edward Cleary, Director, Minnesota Office of Lawyers Professional Responsibility;
c. Index of recent Bench & Bararticles regarding professional responsibility;
d. Index of recent Finance & Commerce articles regarding professional responsibility;
e. "Of Legal Audits and Legal Ethics", Douglas R. Richard, Defense Counsel Journal, October 1998, Volume 65, No. 4.
f. National Law Journal article discussing recent Montana case challenging the use of third-party audit services; and
f. ABA Ethics Opinion 96-402.
1. Adopted January 22, 1999 (copy attached).
2. These materials are taken from "Lawyer's Liability and Discipline" - 1998 A National Survey by Flaherty & Jacobson, P.C. - ABA National Legal Malpractice Conference, Fall 1998, and "Ignoring Potential Conflicts of Interest May Prove Costly" by Mary S. Diemer in Litigation News, July 1998, Vol. 23, No. 5.
3. See, "Of Legal Audits and Legal Ethics:, Douglas R. Richmond, Defense Counsel Journal, October 1988 - (copy attached); Also see, Is "Managed Care" Ethically Permissible for Attorneys? Advisory Opinions say "NO" to Outside Bill Auditing, by Joseph W. Ryan, Jr. in Litigation News, September 1998, Vol. 23, No. 6; Litigation Guidelines, Third Party Fee Audits Examined, in For the Defense, January 1999; "You Charged How Much?" Insurers Hire Independent Auditors to Pick Apart Lawyers' Bills" by Debra Baker, in ABA Journal, Feb. 1999.
4. Id.(Kentucky, Florida, Louisiana, Utah, South Carolina, Pennsylvania, Indiana, South Carolina, and Missouri. The Massachusetts and Nebraska Ethics Committees disagree that such disclosure violates the duty of confidentiality).
5. Taken from an article entitled "Test Case for Insurers' Billing Rules - Montana Supreme Court case could start a trend" by Darryl Van Duch, National Law Journal, 1999 (copy attached).
6. These materials are taken from an article entitled, "Unauthorized Practice of Law in the Growing National Legal Market" by Eric S. Adams in The Young Lawyer Connection (DRI Publication), Summer 1998.
7. Id. (citing Fought & Co. v. Steel Engineering & Erection, Inc., 951 P.2d 487 (Haw. 1998) (holding that corporate counsel did not engage in the unauthorized practice of law)).
8. "Witness the Distinction: Compensation for time cannot be fee for testimony" by Elizabeth J. Cohen in ABA Journal, Dec. 1998.
9. These materials are taken from an article entitled "The Good, The Bad, and The Ugly About Joint Defense" by Scott M. Seaman and Rebecca Levy Sachs in The Brief, Fall 1998; as well as articles entitled "Should Disqualification of One Firm to a Joint Defense Agreement Oust All?", and "Things to Think About When Drafting a Joint Defense Agreement" both by Joseph W. Ryan, Jr. in Litigation News, March 1998, Vol. 23, No. 3.
10. See United States v. McPartlin, 595 F.2d 1321 (7th Cir.), cert. denied, 444 U.S. 833 (1979); Hunydee v. United States, 366 F.2d 183 (9th Cir. 1965); Continental Oil Co. v. United States, 330 F.3d 347 (9th Cir. 1964).
11. See Essex Chemical Corp. v. Hartford Accident & Indemnity Co., 993 F.Supp. 241 (D.N.J. 1998) (reversing Magistrate Judge Hedges' decision disqualifying every firm that had entered into a joint defense agreement to manage litigation and coordinate discovery).
12. These materials are taken from William D. Brown, Ph.D., "The Right Thing: ethics inaction/ethics in action" 1994 (Rev. Edition), pp. 279-280 from "Ethics and the Trial of a Legal Malpractice Action - - Judicial and Psychological Perspectives" by Carol L. Bauss, Judge Ronald K. Payne, & William D. Brown"- ABA National Legal Malpractice Conference, Fall 1998.