On January 16, 2015, the U.S. Bankruptcy Court for the Northern District of California ordered a California attorney to forfeit all fees—both earned and already paid—because he “blatantly violated his duty of loyalty” to his former client. After being terminated by the client, the attorney argued against a legal position that he had previously asserted on behalf of a client in the bankruptcy proceeding.
The client filed for bankruptcy protection after incurring $400,000 in attorney fees in a will contest, during which she was represented by another law firm. The attorney argued that although this other law firm’s fee obligations were secured by a deed of trust on the client’s home, the deed was invalid under California’s version of Model Rule 1.8(a) and that the value of her home should instead be used to pay her homestead exemption.
The client later terminated the attorney who decided to argue, in an attempt to secure payment of his own fees, that the same lien was valid and that any value of the estate above the original law firm’s claim should inure to the benefit of unsecured creditors (including himself). Unfortunately, irrespective of the legitimacy or correctness of the attorney’s revised view, the court held his now adversarial stance against his former client was a breach of an ethical duty that “was so flagrant that he should be denied the fees he now seeks, and be required to refund all fees he [had] previously received.”
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BigLaw’s failure to discover a paralegal’s error resulted in JPMorgan’s loss of its secured interest in a $1.5 billion loan.
The situation arose as work that trickled down the ladder was not properly reviewed when it was sent back up the chain of command. A partner at Mayer Brown instructed an associate to prepare documents to release JPMorgan’s security interest in a financing transaction that General Motors was repaying. The associate delegated the task of searching for the financing statements documenting the security interest to a paralegal who was unfamiliar with the transaction.
The delegation ultimately resulted in the inadvertent termination of JPMorgan’s security interest in an unrelated $1.5 billion transaction. The release of lien documents were transmitted to and presumably approved by the senior lawyers at Mayer Brown, by Simpson Thacher & Bartlett, the law firm representing JPMorgan, and by JP Morgan’s in house counsel. Although the Bankruptcy court excused the error, the Second Circuit Court of Appeals, held that “although the termination statement mistakenly identified for termination a security interest that the lender [JPMorgan] did not intend to terminate, the secured lender [JPMorgan] authorized the filing of the document,” and therefore, the “termination statement was effective to terminate the security interest.”
What is the lesson for attorneys everywhere? Be extra careful when reviewing documents—especially when important tasks are delegated to assistants. ABA Model Rules 5.1, 5.2 and 5.3, and the states that have adopted versions of those rules, provide that law firms must have reasonable supervisory procedures in place to assure that both associate attorneys and nonlawyer assistants adhere to the legal ethics rules, which include the fundamental duties of competence and diligence in representing a client.
The U.S. District Court for the District of Colorado clarified Colorado Rule 1.2(c), on limited scope representation in an order that was precipitated by a disagreement over the type of assistance that an attorney is permitted to provide a pro se litigant.
The Court found that an attorney is not permitted to draft general documents or documents that a pro se litigant is submitting to the court or to opposing counsel. Also, that an attorney may not communicate with opposing counsel on behalf of a pro se litigant, even if the pro se litigant is included in the communication.
However, the Court did find that an attorney may speak with a pro se litigant to provide advice. The order also allows an attorney to attend a pro se litigant’s hearing as a member of the public, and to assist a pro se litigant with clerical tasks, such as locating forms and sample documents.
It is interesting to note how the Colorado order differs from Florida’s Rule of professional Responsibility 4-1.2. In Florida, a lawyer is permitted to provide advice to a pro se litigant concerning the operation of the court system, and with drafting pleadings and responses. If the document will be submitted to the court the attorney must indicate that the document was prepared with the assistance of counsel.
Thus, states differ on the do’s and don’t for limited scope representation so it is important for attorneys to stay informed of their state rules pertaining to assisting pro se litigants. For more information click here, for Florida rule 4-1.2 click here. To read the Order, click here.
Attorney’s Website Posts Judges’ Praise: Another Victory for the First Amendment in Attorney Advertising?
An August 2014 decision continues to cause a stir among free speech supporters. The Third U.S. Circuit Court of Appeals ruled in favor of a New Jersey attorney, overturning a June 2013 District Court’s ruling, finding that a New Jersey advertising guideline that prohibited attorneys from including “on a website or other advertisement, a quotation or excerpt from a court decision (oral or written) about the attorney’s abilities or legal services,” is unduly burdensome. The Third Circuit ruling will open the door for the New Jersey attorney to post, on his firm’s website, excerpts from unpublished opinions praising the quality of his work.
Free speech supporters have applauded the decision and believe it to be highly persuasive and likely to become national precedent. Clay Calvert, director of the Marion B. Brechner First Amendment Project at the University of Florida in Gainesville, stated that the opinion is “important because it finally gives judicial pushback to an example of sweeping governmental overreach….” Similarly, First Amendment scholar Rodney A. Smolla, claims it “properly rejected the highly paternalistic view that consumers, including the potential clients of lawyers, are too unsophisticated to figure out for themselves that an accurately excerpted quotation from a judge, taken from the public record, is not a blanket endorsement of a lawyer’s abilities.”
Currently, the New Jersey attorney is waiting on the trial court to issue the order implementing the mandate from the Third Circuit and waiting to see if the state files a petition for writ of certiorari to the U.S. Supreme Court before reposting the excerpted quotes on his website. As of the publishing of this post, the quotes have not yet been reposted.
A solo practitioner in New York received a two-year suspension after employing a disbarred attorney as a paralegal—the problem arose because the disbarred attorney used an assumed name and was essentially engaged in the practice of law.
In its opinion and order, the Supreme Court of the State of New York agreed with the grievance committee’s recommendation because the Court found that the solo practitioner authorized the disbarred attorney to act as the principle contact between clients and also improperly solicited clients for the firm. Specifically, the Court found that the solo practitioner knowingly assisted a non-lawyer in the unauthorized practice of law, in violation of rule 5.5(b) of New York’s Rules of Professional Conduct, engaged in conduct involving dishonesty, fraud, deceit, or misrepresentation, in violation of rule 8.4(c), engaged in conduct prejudicial to the administration of justice, in violation of rule 8.4(d), and engaged in conduct that adversely reflects on his fitness as a lawyer, in violation of rule 8.4(h).
States vary as to whether disbarred or suspended attorneys are permitted to work in any capacity in a law firm. Disbarred or suspended attorneys may be employed as paralegals or law clerks in some states; however, paralegals and law clerks should never be engaged in the practice of law so it is critical to understand your state’s distinction among the roles, and know the tasks allowed in the context of a law firm.
Over the past few years, lawyers and legal ethics scholars have increasingly focused their attention on electronically stored information (ESI) and the ethical implications of keeping and deleting such information. In 2014, sanctions imposed on attorneys and their clients for discovery misconduct were inconsistent, with standards for imposing sanctions ranging from “negligence to recklessness to willful and bad faith behavior.”
The new Rule 37(e), which governs sanctions for destruction of ESI, would allow courts to consider sanctions only when “reasonable steps” were not taken to preserve the information. There would be a case-by-case determination of what constitutes “reasonable steps.” Negligent and reckless behavior would no longer result in the harshest sanctions like adverse inference instructions, which would be reserved for spoliation that occurred with “intent to deprive another party of the information’s use in the litigation.” The new rule also clarifies that the duty to preserve arises when litigation is reasonably anticipated.
Lawyers and their clients increasingly use technology like advanced data-storing and deletion systems as well as predictive coding to electronically flag discoverable materials. With these changes in the practice of law come changes in the way courts handle evidentiary and discovery issues. It is imperative that attorneys and their clients pay close attention to the law and new technologies in order to avoid sanctions for a preventable oversight. Comment 8 to Model Rule of Professional Conduct 1.1 states:
To maintain the requisite knowledge and skill, a lawyer should keep abreast of changes in the law and its practice, including the benefits and risks associated with relevant technology, engage in continuing study and education and comply with all continuing legal education requirements to which the lawyer is subject.
Attorneys should become familiar with the new rules, which could go into effect as early as December 2015.
For more information on this topic, click here.
To read the September 2014 Summary of the Report of the Judicial Conference Committee on Rules of Practice and Procedure, which includes more information about the proposed amendments to the Federal Rules of Civil Procedure, click here.
NY Proposes Amendments that Could Provide Guidance on Confidentiality Issues Regarding Law Firm Mergers and Lateral Moves
The New York Bar Association’s rule-drafting committee could possibly provide additional guidance on confidentiality issues. On Dec 23, the N.Y. Bar’s Committee on Standards of Attorney Conduct (“COSAC”) issued drafts for amendments to the New York Rules of Professional Conduct in response to the changes made to the Model Rules of Professional Conduct by the ABA. Regarding confidentiality, COSAC did not recommend the new exception in Model Rule 1.6(b)(7), which permits attorneys to disclose client information in order to detect and resolve conflicts of interest in lateral moves or law firm mergers. However, COSAC concluded that New York attorneys needed additional guidance about restrictions on permissible disclosures during lateral moves or law firm mergers.
There are at least three significant differences between the ABA comments of Model Rule 1.6(b)(7) and the N.Y. proposals. First, the N.Y. Committee’s comments address the duty of confidentiality in the context of lateral moves and mergers, rather than addressing the scope of the exception of confidentiality. Second, the report suggests good practices for when disclosures are permitted in the lateral moves and mergers context under the confidentiality rule. Third, the proposed updates offer guidance on “disclosures of information needed to enable lawyers and law firms to assess the financial and strategic concerns relevant to going forward with a prospective lateral hire or a law firm merger.”
On January 30, the report will be presented to the state bar House of Delegates and voting is expected to take place on March 28.
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