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January 2011
Lawyers’ Professional Liability (Malpractice) Insurance Disclosing Information While Performing a Conflict Check Conflict Checks Relating to Lateral Attorney Moves
Article courtesy of Hinshaw & Culbertson LLP © May 2010 Hinshaw & Culbertson LLP – Used with permission
Risk Management Issue
What client-related information may a lawyer disclose for conflict-checking purposes to a firm considering the lawyer as a lateral candidate?
The Opinion
ABA Formal Ethics Opinion 09-455 (October 8, 2009)
ABA Formal Opinion 09-455 examines what client-related information may be disclosed for conflict-check purposes when a lawyer is considering a lateral move to a new firm and the new firm is conducting its due diligence on the lateral candidate. The Opinion addresses the tension between the attorney’s duty of confidentiality under Model Rule of Professional Conduct 1.6 and the potential lateral candidate’s and potential new firm’s obligations to detect and resolve conflicts of interest and to protect their clients’ and former clients’ interests.
Because a conflict check cannot be accomplished without sharing information generally about the clients and issues involved in a matter, the Opinion determines that, subject to certain limitations, the disclosure of conflicts information otherwise protected by Rule 1.6 should be considered permissible as necessary to comply with the Rules. In reaching this conclusion, the Opinion notes that the Model Rules are “rules of reason” to be “interpreted with reference to the purposes of legal representation and of the law itself.” The key limitation is that the scope of the information shared with the potential new firm should be no greater than reasonably necessary to accomplish the purpose of detecting and resolving conflicts of interest.
By way of example, the ABA Standing Committee on Ethics and Professional Responsibility indicates that if the moving lawyer’s current firm and the prospective firm are adverse in a number of existing matters, or regularly represent antagonistic groups, then further discussions and disclosures are likely unwarranted. Sometimes, however, resolving whether a lawyer may move to a new firm would require a fact-intensive analysis of information beyond the identity of the persons and issues involved in a representation. In those circumstances, if the firm cannot resolve the question based upon information available from other sources, then the moving lawyer must forego the move unless a permissible alternative method for detecting or resolving potential conflicts exists consistent with Model Rule 1.6 or, if screening is permitted, Rule 1.10.
Risk Management Solution
When considering a lateral hire, law firms should take great care to ensure that only information reasonably necessary for a conflict check is shared, and that the information shared is used only for conflict-checking purposes.
Disclaimer: Perspectives is published as a service to lawyers. While the information contained herein is believed to be reliable, readers are advised to consult their own legal and insurance counsel for assistance in applying it to their unique situations.
Lawyers’ Professional Liability (Malpractice) Insurance Lawyer’s Treatment of Flat Fee Voluntarily Refunded to Client Results in Discipline
Article courtesy of Hinshaw & Culbertson LLP © May 2010 Hinshaw & Culbertson LLP – Used with permission
Risk Management Issue
May lawyers use “flat fee” arrangements to sidestep rules relating to non-refundable retainers? Are flat fees “earned on receipt,” or must they be treated as advances against future fees?
The Case
In re Mance, 980 A.2d 1196 (D.C. 2009)
In December 2003, William Saunders retained lawyer Robert Mance to represent Saunders’ son, a suspect in a homicide case. Mance charged Saunders a fee of $15,000, with $7,500 due immediately and$7,500 due after Saunders’ son surrendered to the police. Mance further warned Saunders that, depending upon the investigation involved, Mance might require an additional $5,000 for investigative services. Saun- ders made the initial $7,500 payment. Mance depos- ited $6,010 into his client trust account and the rest into his operating account.
Approximately one month later, Saunders terminated Mance, believing that he was not doing anything to help Saunders’ son. Mance agreed to return the $7,500, but did not do so immediately because he did not have the funds readily available. Saunders waited until May, then filed a bar complaint when he still had not received the funds. Mance paid Saunders the $7,500 a week later, not realizing that Saunders had filed a bar complaint. Saunders contacted the bar and asked to withdraw the complaint, but bar counsel nonetheless brought formal charges against Mance, alleging (among other things) that Mance had misap- propriated and commingled client funds.
After a hearing, the hearing committee held that the $7,500 paid to Mance was a “flat fee” earned upon receipt (without regard to how much time was required), and not an “advance” that remained the property of the client until earned. In light of this conclu- sion, the hearing committee found that Mance had acted honorably by refunding the fees (with some delay), even though he was entitled to keep the fee. By depositing some of those funds into his client trust account, however, Mance had improperly commingled his own funds with client funds. The hearing committee recommended a public censure for this misconduct.
The disciplinary board basically affirmed, and bar coun- sel appealed the case to the District of Columbia Court of Appeals, challenging the board’s interpretation ofthe D.C. Rule of Professional Conduct 1.15(d)—patterned after Model Rule 1.15(d)—and application of that Rule concerning unearned fees.
Before the D.C. Court of Appeals, bar counsel ar- gued that a flat fee is actually an advance of unearned fees and, like any other client funds, must be depos- ited into a client trust account. Mance argued, and Saunders agreed, that the $7,500 was not client funds but the amount Mance intended to charge Saunders, no matter what services were performed.
The D.C. Court of Appeals rejected Mance’s arguments. “Simply labeling a fee as something other than a flat fee or extreme ‘frontloading’ of payment milestones,” the court explained, “will not excuse the law- yer from safekeeping the client’s funds until it can reasonably be said that they have been earned in light of the scope of representation.” Relying on § 38 of Restatement (Third) of the Law Governing Lawyers (2000), the court agreed with bar counsel’s interpretation of Rule 1.15(d)—that fees paid in advance of services rendered remain the client’s funds and must be treated as such “until earned unless the client consents to a different arrangement.”
In considering Mance, it should be noted that states vary widely as to when they allow a payment for future services to become the lawyer’s property prior to the rendering of such services. Many jurisdictions also regulate the use of “nonrefundable” fees.
Risk Management Solution
Mance is a reminder that ethics rules often impose serious impediments to a lawyer or law firm seeking to charge a “flat” fee for an engagement and treat that fee as nonrefundable and earned upon receipt. Law- yers should be careful when making such fee arrange- ments to know what is permitted under the relevant rules, to clearly communicate such fee arrangements to clients, and to handle prepaid fees in accordance with local rules.
Disclaimer: Perspectives is published as a service to lawyers. While the information contained herein is believed to be reliable, readers are advised to consult their own legal and insurance counsel for assistance in applying it to their unique situations.
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