Are You Screening in California? New California Proposed Rule 1.10 Diverges From ABA

Bar Recommends Adoption of a Conflicts Imputation Rule But Rejects a Related Screening Rule

Another in Our Series of Hinshaw Lawyers for the Profession® Alerts

Proposed California Rule of Professional Conduct, Rule 1.10

Brief Summary
The California State Bar Board of Governors has approved a proposed ethical rule on imputation of conflicts of interest based on ABA Model Rule 1.10, but has opted to let the issue of ethical screening be decided on a case-by-case basis. The Board’s proposed change is now pending consideration by the California Supreme Court.

Complete Summary
In March 2010, the California State Bar Board of Governors (Board) rejected a proposed ethical rule regarding imputation of conflicts of interest which included a provision that would have allowed screening of lawyers. The rule, which was proposed by the California Commission for the Revision of the Rules of Professional Conduct, was based on ABA Model Rule 1.10, albeit with a narrower screening rule.

The Board subsequently adopted a proposed conflicts imputation rule, but without an attendant screening provision. The comments to that proposed rule state that the issue of ethical screening should be resolved through case law. Shortly thereafter, the California Supreme Court declined to review or depublish a case from the California Court of Appeals that approved a limited screening rule in the prospective client context (Kirk v. First American Title Ins. Co., 183 Cal. App. 4th 776 (2010), 108 Cal. Rptr. 3d 620.

Believing that the California Supreme Court’s action signified an implicit approval of the underlying rule articulated in Kirk, the Commission asked the Board to reconsider the screening issue. The Commission proposed an even narrower screening rule that would have allowed, in the private firm context, screening without client consent so long as the lawyer did not “substantially participate in the prior representation.”

But the Board again rejected the proposed screening rule and stood by its decision to recommend a proposed rule change to the Supreme Court that deals with imputation of conflicts but leaves screening rules to be derived through case law.

Significance of Rule
Although California common law has long recognized that conflicts of interest may be imputed, the new Rule 1.10, if adopted, will codify a rule and add the prospect of disciplinary action for conflicted lawyers. And while lawyers still could attempt to protect against discipline or disqualification with screening mechanisms if the new rule is adopted, the effectiveness of such mechanisms would ultimately be decided on a case-by-case basis in court.

California Amends Statue of Limitations for Criminal Lawyer Legal Malpractice

California Statute Modifies Limitations Period for Certain Malpractice Claims Against Criminal Lawyers

Another in Our Series of Hinshaw Lawyers for the Profession® Alerts

California Assembly Bill No. 316, 2009-10 Reg. Sess. § 2 (2009)

Brief Summary
The California legislature, in what is believed to be the first instance of its kind in the nation, has enacted a law specifically addressed to the statute of limitations for actions by wrongfully-convicted persons against their attorneys, when proof of innocence is an element of the claim. The new law sets the time limit at two years from the date of post-conviction exoneration.

Complete Summary
A 2009 amendment to the California statute of limitations for actions against attorneys (Assembly Bill No. 316) added the following language to Cal. Code Civ. Proc. § 340.6(a):

If the plaintiff is required to establish his or her factual innocence for an underlying criminal charge as an element of his or her claim, the action shall be commenced within two years after the plaintiff achieves post-conviction exoneration in the form of a final judicial disposition of the criminal case.

In Section 1 of the bill, the legislature declared that its intent was to “remedy some of the harm caused to all factually innocent people who have been wrongfully convicted[,]” and to “remove some of the obstacles to compensation for the factually innocent and . . . ease their transition back into society.”

Significance of Amendment
In what is believed to be the first law in the nation addressed specifically to the statute of limitations for claims of negligence by criminal defense lawyers when a client must establish factual innocence as an element of a claim, California has modified the potential period of exposure and made clear that exoneration is required to trigger the statute. It remains to be seen whether other states may follow California’s example.

Advice for New Lawyers

A Practical Guide to Help Navigate the Ins and Outs of a Law Firm 

For new or younger lawyers, working in a law firm has many challenges. Understanding how to address those challenges and succeed in a law firm practice is the focus of this new guide. The author, Michael P. Downey, an attorney author on this blog and adjunct professor of legal ethics and law firm practice, provides an in-depth examination of how law firms operate, how they are managed, and how they develop clients and generate revenue. Written in an easy-to-read format, the book seeks to empower better decision making, thus helping newer lawyers find greater satisfaction in a law firm environment. 

Bonus Materials… 

This unique guide includes four valuable exercises on organizing and marketing a practice. These resources are also supplemented on the book’s companion website, www.DowneyonLawPractice.com. 

 Introduction to Law Firm Practice includes insights on: 

• The organizational structure and promotional tracks for law firms
• How law firms develop business and generate revenue
• Lawyer compensation and review processes
• Client intake procedures—engagement letters, retainers, and conflicts checking
• Law firm profitability
• Business development efforts—advertising, direct mail and e-mail, in-person solicitation, and preparing RFP/RFI responses
• Firm culture and demands on your time
• What senior lawyers expect from younger associates
• Mentoring, and
• Much more…

To order, visit the ABA Bookstore at: www.ababooks.org or call the ABA Service Center at 1-800-285-2221.

Girardi Slapdown Shows How Federal Courts Apply Sanctions Analysis Against Attorneys

Ninth Circuit Sanctions Lawyers in High-Profile Case

Another in Our Series of Hinshaw Lawyers for the Profession® Alerts

In re Girardi, ___ F.3d ___, 2010 WL 2735731 (2010)

Brief Summary
Relying on federal statutes and rules of professional conduct, the U.S. Court of Appeals for the Ninth Circuit sanctioned a group of attorneys who, in seeking to enforce a foreign judgment, made false statements to the court. The sanctions included monetary sanctions of $390,000 and ranged from a reprimand to a six-month suspension depending on the mental state, experience, and degree of involvement of each attorney.

Complete Summary
Four lawyers represented a group of Nicaraguan plaintiffs in an action against various U.S. entities. Some of the defendants were misidentified in the complaint, and this error was reflected in the Nicaraguan court’s $489 million default judgment and writ of execution against defendants. The attorneys later sought to enforce the judgment in California federal court relying on a notary affidavit which translated the writ of execution. The notary affidavit, however, was neither a perfect nor complete translation. Among other things, it altered the names of the defendants to correctly identify them. The lawyers maintained, in both the district court and the appellate court, that the notary affidavit was the actual judgment/writ of execution rather than a translation. Defendants moved for sanctions based on the filing of a frivolous appeal and making of false statements. The Ninth Circuit issued an order to show cause why the attorneys should not be sanctioned, and appointed a Special Master to oversee further proceedings.

Following a four-day trial, the Special Master found that the lawyers had vexatiously multiplied the proceeding by recklessly and intentionally misleading the court. He therefore recommended sanctions totalling $390,000, pursuant to 28 U.S.C. §§ 1912 and 1927, and Fed. R. App. P. 38. That sanction was designed to reimburse defendants. The Ninth Circuit ultimately adopted the Special Master’s findings of fact and conclusions of law, and its recommended sanctions.

The Ninth Circuit further sanctioned the lawyers for engaging in “conduct unbecoming a member of the court’s bar” in violation of Fed. R. App. P. 46. In reaching this conclusion, the court relied on both the California and American Bar Association (ABA) Rules of Professional Conduct, as well as the ABA Standards for Imposing Lawyer Sanctions. The court held the lawyers’ conduct clearly violated Rule 46 based on Model Rules 3.1 (lawyer shall not bring a frivolous proceeding), and 3.3 (lawyer shall not knowingly make or fail to correct a false statement made to a tribunal), as well as California Rule 5-200 (lawyer shall not seek to mislead a judge).

In determining the appropriate sanctions, the court reserved the six-month suspensions for conduct that was either knowing, intentional, reckless or willfully blind to the misrepresentations, including failing to satisfy the duty to investigate the legal and factual bases of the claim. The court also issued a public and private reprimand, respectively, to one lawyer whose actions were essentially limited to authorizing the other lawyers to sign his name on briefs, and to another inexperienced attorney who had tried to persuade his colleagues to discontinue the frivolous appeal.

Significance of Opinion
This opinion is a good illustration of how federal sanctions statutes, rules of appellate procedure, and state and model disciplinary rules intersect in the context of monetary and disciplinary sanctions on appeal. In addition, it demonstrates the potentially serious individual consequences for lawyers who make misrepresentations to the court, having failed to make the requisite effort to investigate their claims.

Ediscovery Sanctions Compromise the Attorney-Client Relationship

Our Hinshaw partners Steve Puiszis and Evan Brown author an excellent blog on emerging e discovery issues. These often overlap with ethics and law firm practice management issues of course. Check out their blog at http://blog.hinshawlaw.com/practicalediscovery/

Steve Puiszis recently authored a post of interest to us all which I’ll post part of here:

Ediscovery sanctions drive an ethical wedge in the attorney-client relationship

By Steve Puiszis
Merck Eprova AG v. Gnosis S.P.A., 2010 WL 1631519 (S.D.N.Y. April 20, 2010)

Today’s post involves the sorry tale of a foreign company that failed to properly issue a litigation hold and allowed the deletion of emails to occur after suit was filed. To make matters worse, at an evidentiary hearing, the company’s CEO admitted that certain responsive documents that he felt were immaterial were not produced. The CEO also testified that because the plaintiff’s discovery requests were so disproportionate, he did nothing to preserve documents relating to the manufacture and sale of the product in question. The district court concluded the defendant’s conduct in failing to issue any type of litigation hold amounted to gross negligence and that the defendant’s search for responsive documents fell well below the minimum standard that a reasonably prudent person would use.

*****

While the court’s desire to preserve the integrity of the attorney-client privilege is laudable, its order created an ethical dilemma for defense counsel and potentially drove an ethical wedge into the attorney-client relationship. Unless an attorney and client immediately agree that only one of them is solely responsible for such a sanction, the attorney should carefully evaluate whether Rule 1.7(a) of the Model Rules of Professional Conduct has been triggered. Rule 1.7(a) provides that a lawyer shall not represent a client if the representation involves a “concurrent” conflict of interest. It further explains that a concurrent conflict exists if there is a significant risk that the representation of the client will be materially limited by the personal interest of the lawyer. Comment 8 to Rule 1.7 notes that even when there is no direct adversity, “if a significant risk exists that a lawyer’s ability to consider, recommend or carry out an appropriate course of action for the client will be materially limited as a result of the lawyer’s other responsibilities or interests,” a conflict exists. Any lawyer subject to the type of sanction’s order entered in Gnosis would be personally interested in its outcome, and a claim could be made that it would be difficult to give “detached advice” under the circumstances. Thus, the specter of Rule 1.7(a) is arguably triggered by the sanctions order entered in Gnosis.

While this type of potential conflict can be waived by the client, it requires the lawyer to clearly identify and explain the nature of the conflict (in writing) to the client and obtain the client’s informed consent. This requires an explanation of the reasonably foreseeable ways the conflict could have an adverse effect on the client’s interests. Additionally, Model Rule 1.8(a) explains that the client should be informed in writing that the client may seek the advice of independent legal counsel on the transaction and be given a reasonable opportunity to obtain separate counsel to decide if the conflict should be waived. Accordingly, this type of ediscovery sanctions order will likely delay the proceedings and may require the involvement of separate counsel to address the issue.

The Gnosis decision brings into focus two important questions. The first is what should a lawyer do upon learning the client is refusing to follow counsel’s advise on preserving and producing electronically stored information (ESI)? The second is whether in light of the recurring damage being done to the attorney-client relationship as a result of ediscovery sanctions, are amendments to the federal ediscovery rules warranted, or is there a reasonable alternative to attorney sanctions that would adequately insure the attorney fulfills his ediscovery obligations to the client?

Read the rest of the article here — http://blog.hinshawlaw.com/practicalediscovery/2010/04/30/ediscovery-sanctions-drives-an-ethical-wedge-in-the-attorney-client-relationship/#more-762

When Will Access to Confidential Information Limit You in Other Cases?

Federal Circuit Sets Test  When Lawyer Access to Opposing Party Confidential Information May Limit Scope of Attorney Representation

Another in Our Series of Hinshaw Lawyers for the Profession® Alerts

In re Deutsche Bank Trust Co. Americas,___ F.3d___, 2010 WL 2106957 (Fed. Cir. 2010)

Brief Summary
Addressing a matter of first impression, the United States Court of Appeals for the Federal Circuit held that counsel may be barred from prosecuting certain patent applications for a client if that counsel, through patent infringement litigation on other related patents, has access to another party’s confidential information that is relevant to the patent prosecutions.

Complete Summary
Island Intellectual Property LLC (Island) sued petitioners (collectively “Deutsche Bank”) for patent infringement in the Southern District of New York. The litigation centered on three patents and Island concurrently had 19 pending patent applications closely related to them. Deutsche Bank was consequently concerned that Island’s counsel might use confidential information discovered in the infringement litigation for purposes of prosecuting Island’s other applications. Deutsche Bank sought a protective order barring Island’s counsel from prosecuting such applications.

The district court, reviewing a magistrate judge’s order, granted Deutsche Bank this protection as to most of Island’s trial counsel, but imposed a less restrictive protective order on Island’s lead trial counsel. Deutsche Bank petitioned the Federal Circuit for a writ of mandamus with respect to the terms of the protective order related to Island’s lead trial counsel.

Reviewing under an abuse of discretion standard, the Federal Circuit vacated in part and remanded. The court noted that although it normally would not grant mandamus review of a discovery order, it did so in this case because the matter involved an important issue of first impression on which courts have disagreed. The court also held that Federal Circuit law applied, noting the need for uniformity among the federal circuits in patent law.

The court held that the moving party must show that the scope of the protective order sought (e.g., duration, confidential information covered, activities prohibited) reasonably reflects the risk posed by disclosure of the confidential information.

Further, a party seeking an exemption from such an order has two burdens, both of which apply on an individual lawyer-by-lawyer basis. First, the party must show that the attorney does not provide competitive decision-making advice for the client through which counsel could inadvertently disclose the opposing party’s confidential information. The court held that this burden can be met if counsel is only involved in the client’s patent prosecution matters at an “ancillary” or “high-altitude” level, so long as there is a reasonable expectation that the lawyer’s authority or involvement will not change in a relevant way during the tenure of the protective order. The court declined to hold that in-house attorneys, or lawyers involved in patent prosecution are per se involved in competitive decision-making for the client.

Second, a party seeking an exemption from such a protective order must show that the harm it would suffer by being denied its choice of counsel outweighs the potential harm to the opposing party from inadvertent disclosure of its confidential information. The court held that this determination turns on the extent and type of counsel’s representation, the client’s reliance and dependence on that representation, and the potential hardship of retaining new counsel.

The court acknowledged that in some circumstances the factors that make counsel valuable to a client are the same factors that subject counsel to the risk of inadvertently disclosing the opposing party’s confidential information for the client’s benefit.

Significance of Opinion
In reaching its main holding, the court recognized that in some circumstances there is a high risk that counsel may inadvertently use confidential information discovered in litigation to aid a client in other endeavors. Although the “other endeavor” here involved patent application prosecution, the court’s basic reasoning could apply to any of a client’s litigation, non-litigation or business endeavors. The fact-specific nature of the court’s holding indicates more generally that parties seeking to protect confidential information by limiting the scope of opposing counsel’s representation would be well-advised to seek focused, reasonably limited protective orders.

New Jersey Elaborates on Former Client Conflict Disqualifications

New Jersey Supreme Interprets “Substantially Related Matters” Under Former-Client Conflicts Rule

Another in Our Series of Hinshaw Lawyers for the Profession® Alerts

City of Atlantic City v. Trupos, 201 N.J. 447, 992 A.2d 762 (2010)

Brief Summary
The New Jersey Supreme Court held that, for purposes of disqualifying a lawyer based on a former-client conflict, either (1) the lawyer must have received confidential information from the former client that can be used against that client in the current matter, or (2) facts relevant to the former representation must be relevant and material to the current representation.

Complete Summary
A law firm represented Atlantic City in certain real estate tax appeals in 2006 and 2007. The firm discontinued this representation and later represented a number of taxpayers in an appeal of 2009 real estate tax assessments. The city moved to disqualify the law firm under the former-client conflict rule asserting that the firm’s former representation and current representation were substantially related. The New Jersey Supreme Court held that the matters were not substantially related.

For purposes of disqualifying a lawyer — which requires a balance between clients’ right to counsel of their choice and safeguarding the highest professional standards — the Court held that matters are substantially related if:

(1) the lawyer . . . received confidential information from the former client that can be used against that client in the subsequent representation of parties adverse to the former client, or (2) facts relevant to the prior representation are both relevant and material to the subsequent representation.

The Court noted that the burden of establishing former-client status rests on the alleged former client, and that once this burden has been met, the burden of production shifts to the lawyer(s) facing disqualification to establish that the matters were not substantially related. But the burden of persuasion on this latter issue remains with the moving party.

The Court held that the city failed to meet its burden of persuasion because it did not point to any potentially harmful confidential information it shared with the law firm, and because the firm’s prior work for the city involved different properties, appraisers and relevant facts. The law firm did participate in the city’s selection of a revaluation company which later participated in the 2009 tax assessments, but the Court held that absent evidence that the firm was privy to substantive information such as that company’s valuation methodology, this fact did not establish that the firm received relevant confidential information during its representation of the city.

Significance of Opinion
This is the first New Jersey case to elaborate on the meaning of “substantially related matters” since the state overhauled its Rules of Professional Conduct in 2004. Unlike some jurisdictions which may focus on whether allegedly related matters involve overlapping issues of law, New Jersey’s test largely focuses on whether the matters are substantially factually related. This test requires more than an appearance of impropriety and more than a mere inference that certain confidential information that could be used adversely was shared during the prior representation. This decision is consistent with cases in other jurisdictions that will not presume that there is an actionable ethical violation without some basis to conclude that there is actual harm or prejudice.

Do You Practice Outside Your Home State? You Can Still Be Sanctioned.

Iowa Supreme Enjoins Out-of-State MJP Attorney for Violations of Iowa Ethics Rules

Another in Our Series of Hinshaw Lawyers for the Profession® Alerts

Iowa Supreme Court Attorney Disciplinary Board v. Carpenter,___N.W.2d ___, 2010 WL 1507633 (Iowa 2010)

An attorney had practiced in Iowa under a state multijurisdictional practice (MJP) rule allowing lawyers licensed in another jurisdiction to handle certain federal law matters. In a case of first impression for the Iowa Supreme Court, the Court used its equitable power to enjoin the attorney from practicing in Iowa under any rule for two years as a result of trust account and other ethics violations.

Complete Summary
An attorney licensed in Minnesota but not in Iowa (the “Accused”) practiced in Iowa pursuant to Iowa Rule of Professional Conduct (IRPC) 32:5.5(d)(2) (Iowa’s federal MJP rule), permitting out of state lawyers to practice in certain federal law matters. The Iowa Supreme Court Attorney Disciplinary Board filed charges against the Accused alleging numerous violations of the IRPCs including accounting and trust account violations. The Accused stipulated to a 30-month suspension with additional conditions for reinstatement.

The Iowa Supreme Court enjoined the Accused from any practice of law in Iowa for two years. In a case of first impression for it, the Court noted that no rules addressed the Court’s power to sanction attorneys practicing in Iowa without an Iowa license, and that certain traditional sanctions such as suspending or revoking an attorney’s license were inapplicable to such attorneys. After looking to other jurisdictions, the Court concluded that it had the authority to fashion equivalent sanctions by virtue of its injunctive and equitable powers. “This authority is clearly necessary for the protection of Iowa citizens[,]” the Court noted.

In determining the appropriate sanction, the Court examined sanctions levied against Iowa-licensed attorneys for similar rule violations, as well as the usual considerations of the Accused’s state of mind, harm to the Accused’s clients, the Accused’s fitness to practice law, and aggravating and mitigating factors. The Court determined from this analysis that the Accused’s conduct normally would justify a two-year suspension. Applying its equitable power, the Court then translated this suspension into an injunction. The Court ordered the Accused to cease and desist from practicing law in Iowa under any law, including IRPC 32:5.5(d)(2), for two years, with conditions for reinstatement.

Significance of Opinion
This opinion demonstrates that lawyers who practice in a state under the authority of an MJP provision are subject to discipline up to and including a prohibition on their practice, even if a state’s disciplinary structure does not contain express authority for such a sanction. The Court here properly focused on protecting Iowa clients and resorted to its inherent equitable authority to provide that protection.

Nonrefundable fees? Not in Missouri, New Opinion States

The Missouri Advisory Committee has issued Formal Opinion 128, which clarifies that Missouri’s ethics rules prohibit lawyers from charging “nonrefundable” fees.

The bottom line: Missouri does not have “nonrefundable” fees. Regardless of whether a representation is complete and the “terminology used to describe the fee, if the ultimate fee is unreasonable, taking into consideration the eight factors listed under Rule 4-1.5(a), the unreasonable portion must be refunded.”

Having established this bottom line, Formal Opinion 128 tackles some of the challenging issues left concerning fixed fees, advance fees, and the like.

The Opinion examines two types of matters where “fixed” or “nonrefundable” fees are frequently used.  It explains that in some circumstances, in particular domestic relations matters, it may be appropriate for a lawyer to charge a reasonable ”intake fee” to reflect that the lawyer will be foregoing the ability to represent other parties in the matter when the lawyer commences representing the client. This fee would be earned upon commencement, and thus would not be accurately described as “nonrefundable” — rather, it would be earned at commencement.

In contrast, Formal Opinion 128 explains, a criminal matter that did not involve such conflict issues likely would not be suitable for an “intake fee.” Thus, if the lawyer was terminated or withdrew shortly after commencing a representation, some of the fee would likely need to be refunded.

Formal Opinion 128 also challenges two long-held principles regarding fees. First, the Opinion rejects that a flat fee is “earned upon receipt for trust account purposes.” Formal Opinion 128 instead advises that, under the present version of Missouri Rule 4-1.15(f), “all flat fees must be deposited into a lawyer trust account and promptly removed when actually earned, similar to prompt removal of earned hourly fees.”

Finally, Formal Opinion 128 discourages the use of “retainer,” noting that the term “has taken on many meanings which are inconsistent with one another and which are confusing to clients.” Instead, the Opinion advises lawyers to use ”use plain language that clients are likely to clearly understand.”

A copy of Formal Opinion 128 is available here: http://www.mo-legal-ethics.org/modules.php?name=News&action=view&id=64&PHPSESSID=f96c1be7f56dc7617efd7c2555ce6517

Another Law Firm Loses Big to Employee Larceny — Is Yours Next?

The EQ has blogged a number of times about employee theft from law firms. Why do lawyers never seem to learn? If you interviewed these firms no doubt you would find intelligent, hard working people shocked that the theft occurred, and they’d probably say something along the cliched lines of “But he/she seemd so nice/trustworthy/loyal/normal”. Stop me if you’ve heard all this before right? But it does not seem to stop.

And if your firm does not have appropriate systems in place to stop it, you might be lucky just to lose a bundle of money. If you lose client account funds, you could be facing a “used-to-be our client” situation, a malpractice suit, or even a disciplinary suit.

The Chicago Sun-Times today reports that the Kelly, Olson, Michod, DeHaan & Richter firm’s ”long-time” office manager wrote 234 checks to herself between 2002 and 2009 totaling nearly $1 million. And she might have escaped detection had she not been on vacation when one of the firm checks bounced!

Here is the link to the story: http://www.suntimes.com/news/metro/2265912,lawfirm-manager-theft-charge-051210.article

Do you have procedures in place so your law firm does not become the next news story like this one?

And a tip: an outside “audit” of your firm’s management procedures and practices will probably serve you better in the long run than doing it yourself. You never know what might happen if someone with something to hide gets to run that review . . .