Florida Contemplates Fee Sharing with Out of State NonLawyers

A proposed advisory opinion by The Florida Bar’s Professional Ethics Committee addresses fee-splitting with out-of-state lawyers when the out-of-state lawyer practices in a law firm with nonlawyer ownership. In the opinion, the committee states that a Florida Bar member should not be subject to discipline simply because a nonlawyer owner of an out-of-state law firm could receive a portion of the legal fees.

Partnerships with out-of-state lawyers are hardly new, but tensions between Florida’s Rules of Professional Conduct, and the organization and ownership of out-of-state-firms led the Florida Bar to clarify the matter.

Under Florida Rule of Professional Conduct 4-5.4, lawyers are prohibited from partnering or sharing legal fees with a nonlawyer. However, some U.S. jurisdictions—Washington, D.C. and Washington state—permit nonlawyer ownership of law firms.

The Florida Bar proposed advisory opinion follows in the footsteps of ABA Formal Opinion 464, and several other jurisdictions, in deciding that nonlawyer ownership of law firms in jurisdictions where permissible should not cause collaborating Florida lawyers to violate the prohibition against fee sharing set forth in Rule 4-5.4.

The underlying policy of Rule 4-5.4  concerns the improper influence of a nonlawyer may on a  lawyer’s professional judgment. However in the scenario analyzed in the proposed opinion, Florida Bar committee believes that a lawyer’s professional independence is not at risk simply because a nonlawyer owner receives a portion of an out-of-state lawyer’s fees.

Ultimately, the proposed opinion encourages attorneys to work with out-of-state lawyers despite differences in ownership structure, and allows clients to maintain flexibility in choosing counsel from other jurisdictions. 

To read the proposed opinion please click here.  

From the Florida Bar webpage:

Pursuant to Rule 4(c) and (d) of The Florida Bar Procedures for Ruling on Questions of Ethics, comments from Florida Bar members are solicited on the proposed opinion. The committee will consider any comments received at a meeting to be held in conjunction with The Florida Bar’s Fall Meeting at 9:30 a.m. on Friday, October 13, 2017, at the Tampa Airport Marriott.Comments should be submitted to Elizabeth Clark Tarbert, Ethics Counsel, The Florida Bar, 651 E. Jefferson Street, Tallahassee 32399-2300, and must be postmarked no later than August 15, 2017.

Work-Product Protection in Full Force

The U.S. Court of Appeals for the Third Circuit held that evidence of a client thinking about using a lawyer’s advice to cover up a money-laundering scheme was not enough to defeat work- product protection.

As a result, a grand jury should have never seen a privileged email that the appellant received from his lawyer, but later forwarded to his accountant.

The appellate panel agreed with the district court that the appellant waived his attorney-client protection by forwarding the email to his accountant. However, the three-judge panel disagreed that the crime-fraud exception to the work-product privilege applied in this case.

Every state’s jurisprudence has some version of the crime-fraud exception, which allows the disclosure of certain communications that would otherwise be confidential. This exception to the work-product privilege is meant to prevent abuses of the privilege.

A party must satisfy two requirements when invoking the crime-fraud exception:

  • That the lawyer or client was committing or intending to commit an act of fraud
  • That the attorney work product was used in furtherance of that alleged crime or fraud

In this case, the “evidence is strong, but it is not sufficient by itself to pierce work-product protection.” The appellate panel reasoned that the second requirement can only be satisfied by a showing that the defendant actually engaged in an overt act to further the crime.

Merely thinking about a bad act is not enough to strip work-product protection, no matter how much evidence there is that the lawyer or client was intending to commit an act of fraud.

However, when a client uses work product to further a fraud, “the [client-lawyer] relationship has broken down, and the lawyer’s services have been misused.”

To read the full opinion, click here.

Disclosure of Investigatory Documents to the SEC Does Not Waive Privilege

A company’s sharing of documents with the Securities and Exchange Commission (“SEC”) does not necessarily waive the company’s work product protection in a subsequent class action.  In In re Symbol Techs.,Inc. Sec. Litig., Magistrate Judge A. Kathleen Tomlinson of the U.S. District Court for the Eastern District of New York ruled that documents generated by outside counsel during a company’s internal investigation of accounting irregularities were protected and not subject to production to the plaintiffs in a securities class action suit.

Prior to the class action before the Court, Symbol Technologies Inc. (“Symbol”) had been subject to an SEC investigations as well as previous class action litigation based upon fraudulent accounting practices. Symbol had cooperated with the government and signed a confidentiality agreement under which it produced certain documents. The investigations ultimately resulted in a Consent Order.

In the present class action case, a discovery dispute arose concerning documents related to an internal investigation that Symbol launched after discovering a revenue overstatement subsequent to Symbol’s signing of the Consent Order with the government. Symbol had produced documents to the government regarding the revenue overstatement investigation so as to comply with terms of the Consent Order.

The plaintiff demanded production of the documents that were generated or collected while investigating the accounting issues underlying the revenue error. The plaintiff relied on two theories as to why the documents at issue were discoverable: “(1) the internal investigatory documents at issue do not fall within the ambit of the work-product privilege; and (2) even if the documents were entitled to work product protection, Symbol waived any such protection by permitting disclosure to the government as well as the Independent Examiner.”

The Magistrate Judge disagreed. The Court held that under the particular circumstances, given Symbol’s history of class action litigation, the material was reasonably prepared in anticipation litigation despite that it was also prepared for the business purpose of discovering and correcting the revenue error in its reporting. Therefore, the investigatory documents remained subject to the work product privilege.

The Court also found that Symbol did not waive the privilege by disclosure to the government because Symbol’s confidentiality agreement with the government stated that Symbol “not intend to waive the protection of the attorney work product doctrine, attorney-client privilege, or any other privilege applicable as to third parties” and the government agreed to “maintain the confidentiality of the Confidential Materials . . . and will not disclose them to any third party, except to the extent that the [SEC] or the USAO determine this disclosure is otherwise required by law or would be in furtherance of the SEC’s or USAO’s discharge of their respective duties and responsibilities.”

 Finally, the Court concluded that the revenue error document disclosure to the government and an independent examiner did not constitute a disclosure to an adversarial party because the disclosure was pursuant to the Consent Order, which rendered all parties as having a common interest.

 The case provides meaningful insight into the nuances of the work product privilege. To read the case click here.