Conflicts of Interest? New York Advises on Law School Clinic and Nonprofit Collaboration

The New York State Bar Association’s Committee on Professional Ethics, recently advised that a legal clinic pursuing claims on behalf of indigent clients is not “associated” with its co-counsel, a nonprofit legal services organization, for the purposes of imputing conflicts of interest.

The question that prompted the release of Ethics Opinion 1141 came to the Committee from New York law school’s legal clinic that sought to have its students collaborate as co-counsel with a New York not-for-profit legal services organization. In reaching its conclusion, the Committee noted that the clinic and the legal services organization should not be considered associated under Rule 1.10 because, among other things, the entities are financially separate, operate out of separate offices, maintain their own files, do not share any personnel, and represent numerous clients in matters where they do not serve as co-counsel.

The Committee compared the collaboration to private practice and noted that separate law firms acting as co-counsel in discrete matters are not associated in the same firm for the purpose of imputing all conflicts of each firm to the other under Rule 1.10. Rather, the Rules require that the two firms clear conflicts “individually and separately, only in matters in which the two serve as co-counsel.”

Read the full ethics opinion here.

The ABA Draws a Brightline for Judges Conducting Independent Factual Research

The American Bar Association’s latest formal opinion prohibits judges from conducting independent research on adjudicative facts unless the information is subject to judicial notice. However, judges are permitted to use the Internet to search for general contextual information and to research legislative facts.

Formal Opinion 478 defines an adjudicative fact as one containing information that has factual consequence in determining the outcome of a case—i.e., the who, what, when, where, why and how. A legislative fact, on the other hand, is broad and does not specifically concern the immediate parties at hand.

The opinion offers several hypothetical situations to differentiate between these two types of information. For example, a judge who is assigned to a district with a history of environmental contamination cases may conduct general background learning on the Internet before a case is assigned, and may rely upon that information so long as there is reason to believe that the source is reliable. Conversely, a judge impermissibly gathers information about adjudicative facts when researching the store hours of a specific restaurant while presiding over a case involving a claim of unpaid overtime. There, the restaurant’s hours of operation have factual consequences in determining whether the plaintiff will prevail on the claim.

The ABA derives its bright-line distinction from Model Rule 2.9(C) in the Model Rule of Judicial Conduct. Under Model Rule 2.9(C), a judge’s investigation of facts is restricted to the evidence presented and to any information that may be judicially noticed. Due process protections found in Fed. R. of Evid. 201(e) guarantees that a party is entitled to be heard either before or after a court takes judicial notice of an adjudicative fact.  However, parties do not enjoy the same protections with research of legislative facts because the broad and recurring nature of this information does not raise the same due process concerns as adjudicative facts.

Overall, Formal Opinion 478 aims to preserve judicial impartiality against improper ex parte communications by limiting the scope of independent fact finding not tested by the adversarial process. The ABA emphasizes Model Rule 2.9(D) and reminds judges of their duty to supervise court staff and officials by taking reasonable steps to prevent improper independent investigations. Meanwhile, the ABA also recognizes the utility of the Internet as an important educational tool for today’s judiciary by encouraging judges to draw upon information contained in reliable Internet sources in the same way that they would use information from judicial seminars and books.

To read the ABA’s full opinion, click here.

Proposed Amendment to the Federal Rules Would Require Disclosure of Third-Party Litigation Funding

On November 7, 2017, the Advisory Committee on Civil Rules established a new subcommittee that will study whether the potential ethical and judicial concerns surrounding third-party litigation funding merit the enactment of amendments to the federal rules that would require disclosure of outside investment in any action filed in federal court. The issue is scheduled for discussion during the committee’s April 10, 2018 meeting in Philadelphia.

The U.S. Chamber Institute for Legal Reform has led the charge for an amendment to the rules of civil procedure that might counteract the potential ethical issues raised by the use of third-party funding arrangements in civil actions. Last summer, Lisa Rickard, president of the Chamber’s Institute for Legal Reform, sent a letter to the Administrative Office of the U.S. Courts to the Federal Rules of Civil Procedure requesting that the rules be amended to require disclosure of all compensation agreements that are “contingent on, and sourced from, any proceeds of the civil action, by settlement, judgment or otherwise.”  Rickard’s letter includes a discussion of the following legal ethics concerns:

 (1) Impermissible sharing of legal fees: Model Rule 5.4(a), which bars almost all forms of sharing legal fees with non-lawyers, conflicts with some models of third-party litigation funding which involve plaintiffs’ counsel repaying the funder’s investment out of attorney’s fees;

(2) client confidentiality: the extent that funding arrangements require disclosure of client information to the funder raises confidentiality issues; and

(3) conflicts of interest: attorneys who have contracted directly with a funding company may have duties to that company that are inconsistent with the duties of loyalty to the client, including conflicts that arise when attorney’s are incentivized to recommend clients to work with favored funders.

The Institute proposed a similar amendment to the rules committee in 2014, but it did not receive much attention. The rise in third-party litigation funding in recent years has apparently enlivened opposition, as evidenced by the fact that 29 organizations joined  Rickard’s  letter that  proposes a disclosure requirement be included in Federal Rule of Civil Procedure 26.

“The industry has grown tremendously,” said Page Faulk, vice president of legal reform initiatives at the Chamber’s institute. “There have been a lot of developments since we originally submitted the petition, and we’re also hearing from other business groups about their concerns.” She added that more judges are also sharing the outlined concerns.

In fact, some courts have begun to address third-party litigation funding issues on their own, with the U.S. District Court for the Northern District of California recently adopting a policy that permits class action defendants to discover whether their opponents are receiving funding from outside investors. And in March, the U.S. House of Representatives passed a bill that would mandate the disclosure of third-party funding in class actions.

Commercial litigation funders, including industry giants Burford Capital and Bentham IMF, have opposed the proposal, arguing the rule would be invasive and unnecessary.

To read more click here.

Florida Amends Bar Rules to Make Pro Bono Work More Accessible for Lawyers

On November 20, 2017, the Florida Supreme Court amended Florida Rule 4-1.2 and adopted Rule 4-6.6 to make it easier for lawyers to volunteer their services to legal aid organizations and pro bono clients.

In its order, the Florida Supreme Court noted that it is not always feasible for a lawyer providing short-term limited legal services through an organization to “systematically screen for conflicts of interest as is generally required before undertaking a representation.” Newly adopted Rule 4-6.6 directly addresses that issue, and states that a lawyer who provides short-term limited legal services to a client “under the auspices of a program sponsored by a nonprofit organization, court, government agency, bar association or an American Bar Association-accredited law school” will not be held to the standard conflicts of interest rules, barring two exceptions.

Specifically, the new rule states that a lawyer providing “short-term limited legal services to a client without expectation by either the lawyer or the client that the lawyer will provide continuing representation in the matter: (1) is subject to Rules 4-1.7 and 4-1.9 (a) only if the lawyer knows that the representation of the client involves a conflict of interest; and (2) is subject to Rule 4-1.10 only if the lawyer knows that another lawyer associated with the lawyer in a law firm is disqualified by Rule 4-1.7 or Rule 4-1.9(a) with respect to the matter.”

Among the amendments to Rule 4-1.2 are additions to the language of the rule that the Supreme Court wrote will “[exempt] a lawyer who gives advice in a short-term limited legal services program under new Bar Rule 4-6.6 from the requirement that a client’s informed consent to representation limited in objectives or scope must be in writing.” The Court also wrote that the new rules are intended to encourage lawyers to volunteer their services; thereby increasing access to justice “at a time when legal aid funding and staff cannot accommodate all individuals who need legal representation.”

The Florida Supreme Court’s order on the changes went into effect on November 20, 2017. Read the full order here.

Colorado Goes Live with Lawyer Self-Assessment Program

On October 24, 2017, the Colorado Supreme Court launched an online platform aimed at helping Colorado lawyers to practice ethically, avoid disciplinary actions, and reduce stress when dealing with rules of professional conduct. The new Colorado Lawyer Self-Assessment Program is the first online self-assessment program launched by a state for its lawyers, but Illinois will soon follow with its own similar same initiative.

A subcommittee of the Colorado Supreme Court’s Advisory Committee initiated the self-assessment tool, and a group of Colorado lawyers, professionals, and professors assisted in its development. The self-assessment program addresses 10 important areas-including conflicts, confidentiality, and fees-in which lawyers encounter common ethical obstacles when practicing law. Every area contains a list of objectives, requirements, and the best practices to follow. Then, the program asks the lawyer performing the assessment if he or she is following those guidelines and, if the answer is negative, the program provides ethics opinions and articles that explain the risks involved. Lawyers who complete the entire program also receive CLE credit.

Colorado lawyers are responding positively to the self-assessment program and the Colorado Supreme Court’s Advisory Committee expects to improve it considerably based on the assessment reports submitted.

View the Colorado Lawyer Self-Assessment Program here.

USPTO Trying Out Diversion Program for Struggling Practitioners

On November 3, 2017, the United States Patent and Trade Office (USPTO) announced that the agency’s Office of Enrollment and Discipline (OED) will be launching a two-year pilot diversion program for patent and trademark practitioners who commit minor ethical lapses without causing actual client harm. The program is a chance for practitioners to avoid discipline by taking affirmative steps to rectify the underlying issue that caused their misconduct. The motivation behind the program came from a recent study which found high levels of drinking, substance abuse and depression among American lawyers. The USPTO hopes that the diversion program will help put lawyers suffering from addiction or mental health issues on the path to resolve their misconduct and prevent future misconduct.

However, not everyone will qualify for the pilot program. For example, practitioners cannot participate if they have been publicly disciplined in the past three years. In addition, practitioners cannot take part if the misconduct includes (1) misappropriation of funds or dishonesty, deceit, fraud or misrepresentation; (2) substantial prejudice to anyone; (3) serious crime; or (4) anything resembling prior misconduct in the past five years.

The USPTO expects and anticipates that the program will further the mission of protecting the public by strengthening the skills and abilities of USPTO practitioners.

To read the OED Diversion Pilot Program click here.

To read the full USPTO article click here.

To read the study mentioned click here.

Marijuana Businesses Spark Tensions Between State and Federal Law

As expected, a surge of new businesses emerged in response to the state-level legalization of marijuana, which is currently legal in twenty-nine states, including Florida. This not only gave rise to a new form of business, but also allowed attorneys specializing in start-up companies to increase their clientele.

Marijuana, however, is legal only under state law, not federal law.  In fact, the federal U.S. drug policy statute, the Controlled Substances Act, still lists marijuana as a “controlled substance.”  This tension between state and federal law also affects attorneys from an ethical standpoint.  Specifically, Rule 4-1.2 of the Florida Rules of Professional Conduct states that a lawyer cannot counsel or assist a client in conduct that the lawyer knows is criminal.  In essence, an attorney can counsel and assist a client who owns a marijuana business, as state law permits, yet simultaneously violate federal law.  Although The Florida Bar, and other bar associations, have released guidelines to help lawyers navigate through this conflict in their representation, there is still uncertainty as to the scope of such representation.

This tension between state and federal law becomes even more apparent in the area of bankruptcy. Chief Judge Laurel M. Isicoff, of the Bankruptcy Court for the Southern District of Florida, recently denied confirmation of a Chapter 11 plan for reorganization because the debtor’s plan proposed the rental of a commercial property that would obtain funds stemming from a marijuana business.  Although it was an issue of first impression in this jurisdiction, the court looked at other jurisdictions, which have unanimously held that “the cultivation and sale of marijuana is illegal under federal law and therefore the federal law and the federal courts are not available to any person engaged in that business.” Further, the court considered the plan a violation of the good faith requirement because it was “based on an enterprise illegal under [f]ederal law.”  Debtor amended the plan, yet the court still viewed the amendment as reflecting funds from a marijuana business.

The court was direct in its position and stated that “the law is very clear—a bankruptcy plan that proposes to be funded through income generated by the sale of marijuana products cannot be confirmed unless the business generating the income is legal under both state law and federal law.”  As a result, the debtor sought to convert to a Chapter 13, which allows for the discharge of more types of debts than in a Chapter 11; however, the court denied the debtor’s request, holding that the plan, under a Chapter 13, would “require the . . . Trustee to violate federal criminal law to administer the plan payments,” which is also impermissible.

Unfortunately, it appears this tension will exist for some time, as it does not seem likely that the federal government will sanction the legalization of marijuana any time soon.

Read full bankruptcy opinion here.