38 th National Conference on Professional Responsibility
Boston, Massachusetts June 2, 2012 LAW FIRM MANAGEMENT &
SUPERVISION: WHERE WE ARE & WHERE WERE HEADED
Slide 2
TODAYS SESSION Management/Supervision Update Recent Cases,
Developments, and Trends Global Developments: Management-Based
Regulation Australia U.K. Impact on U.S. Firms Relevance (if any)
to U.S. Regulation
Slide 3
PANELISTS Art Lachman, Moderator Henry Dinger Susan Fortney
Doug Richmond
Slide 4
NO GOOD DEED GOES UNPUNISHED You are a partner at Hale &
Hardy LLP, and you serve as the firms pro bono coordinator Two firm
litigation associates, Josh Callenbach and Megan Riggs, defended
Ralph Juhnke in a highly publicized criminal case Although Josh
& Megan performed admirably, Juhnke was convicted Josh &
Megan have since left the firm
Slide 5
NO GOOD DEED GOES UNPUNISHED One day, the two firm partners who
manage Josh & Megans departments when they worked at the firm
come to your office & show you a letter they received from the
state supreme courts disciplinary administrator The letters state
that: Josh & Megan failed to file a notice of appeal in Juhnkes
case prior to their departure from the firm No one else in the firm
assumed responsibility for the representation after they departed
As a result, Juhnke lost his appellate rights The department heads
are charged with violating RPC 5.1(a) & 5.1(b) You begin to
wonder when your mail will be delivered
Slide 6
NO GOOD DEED GOES UNPUNISHED Which of the following correctly
describes your potential exposure to discipline under the Model
Rules? A. Because this matter was handled without a fee, you face
no exposure under the RPCs B. If you were not directly involved in
supervising the associates work on this project, you face no
exposure under the RPCs C. Assuming that the associates conduct
violated the RPCs, you cannot be disciplined for that conduct
unless you knew about the violation at a time when its consequences
could be avoided D. None of the above is correct
Slide 7
DUTY TO MANAGE & SUPERVISE LAWYERS Duty to Manage Lawyers:
RPC 5.1(a) A partner in a law firm, and a lawyer who individually
or together with other lawyers possesses comparable managerial
authority in a law firm, shall make reasonable efforts to ensure
that the firm has in effect measures giving reasonable assurance
that all lawyers in the firm conform to the Rules of Professional
Conduct. Duty to Supervise Lawyers: RPC 5.1(b) A lawyer having
direct supervisory authority over another lawyer shall make
reasonable efforts to ensure that the other lawyer conforms to the
Rules of Professional Conduct.
Slide 8
RESPONSIBILITY FOR ANOTHER LAWYERS RPC VIOLATIONS RPC 5.1(c): A
lawyer is responsible for another lawyers violation of the RPCs if:
the lawyer orders or, with knowledge of the specific conduct,
ratifies the conduct involved; or the lawyer is a partner or has
comparable managerial authority in the law firm in which the other
lawyer practices, or has direct supervisory authority over the
other lawyer, and knows of the conduct at a time when its
consequences can be avoided or mitigated but fails to take
reasonable remedial action
Slide 9
NO GOOD DEED GOES UNPUNISHED When the associates left the firm,
what, if anything, should the firm have done? A. Nothing if the
associates, not the firm, had actually appeared in the case on
behalf of Juhnke B. Nothing if the associates informed you that
they were taking responsibility for Juhnkes representation or
obtaining new counsel for him after leaving the firm C. If the
associates would not be taking responsibility for Juhkes
representation after their departure, inform the client in writing
of the associates departure and the firms intent to withdraw as a
result D. B. & C. E. None of the above
Slide 10
SUBORDINATE LAWYER DUTIES RPC 5.2 (a) A lawyer is bound by the
Rules of Professional Conduct notwithstanding that the lawyer acted
at the direction of another person. (b) A subordinate lawyer does
not violate the Rules of Professional Conduct if that lawyer acts
in accordance with a supervisory lawyer's reasonable resolution of
an arguable question of professional duty.
Slide 11
NO GOOD DEED GOES UNPUNISHED Which of the following correctly
describes the potential legal liability of the firm (an LLP) and
the partners in this scenario? A. The partners may be liable for
their negligent conduct in managing or supervising the firms
associates B. Vicarious liability of managing and supervisory
partners for any legal malpractice of the associates is limited to
the partners capital contributions to the firm C. The firm itself
is liable in full for any legal malpractice of the associates D.
All of the above E. B. and C.
Slide 12
MANAGEMENT IS OVERRATED One of your firms longest-serving
secretaries, Roberta Nelson, embezzled $130,000 from the firm by
creating fake invoices from fictitious companies & having the
firm issue checks to those companies, all of which existed only as
the owners of post office boxes she rented As the firms GC, you
reported Robertas crime to the DA, who obtained an order of
restitution as part of Robertas plea bargain She has paid back
$87,000 she had not spent when caught Robertas lawyer has filed a
bar complaint against the firms Executive Committee, which includes
the Managing Partner, alleging violations of RPC 5.3(a) &
5.3(b)
Slide 13
MANAGEMENT IS OVERRATED You expect that once the local
disciplinary committee, chaired by Bob Frye, receives the
thoughtful and well-argued response of the firms outside counsel,
Doug Bryans, the matter will be dismissed Instead, Bob tells you
that if the charges are proven, the committee will seek suspensions
from practice for the firms Executive Committee members And a
longer suspension for the firms Managing Partner Bob tells you that
he sees no reason the charges wont be proven You call Doug
again
Slide 14
DUTY TO MANAGE & SUPERVISE NONLAWYERS Duty to Manage
Nonlawyers: RPC 5.3(a) A partner, and a lawyer who individually or
together with other lawyers possesses comparable managerial
authority in a law firm, shall make reasonable efforts to ensure
that the firm has in effect measures giving reasonable assurance
that the [employed, retained, or associated nonlawyers] conduct is
compatible with the professional obligations of the lawyer. Duty to
Supervise Nonlawyers: RPC 5.3(b) A lawyer having direct supervisory
authority over the nonlawyer shall make reasonable efforts to
ensure that the [employed, retained, or associated nonlawyer]'s
conduct is compatible with the professional obligations of the
lawyer.
Slide 15
RESPONSIBILITY FOR A NONLAWYERS RPC VIOLATIONS RPC 5.3(c): a
lawyer is responsible for conduct of a nonlawyer that would be a
violation of the RPCs if engaged in by a lawyer if: the lawyer
orders or, with knowledge of the specific conduct, ratifies the
conduct involved; or the lawyer is a partner or has comparable
managerial authority in the law firm in which the nonlawyer is
employed, or has direct supervisory authority over the nonlawyer,
and knows of the conduct at a time when its consequences can be
avoided or mitigated but fails to take reasonable remedial
action
Slide 16
MANAGEMENT IS OVERRATED True or False: The Managing Partner and
members of the firms Executive Committee have a heightened duty, in
comparison to other firm partners, to comply with the obligation to
manage nonlawyers set forth in RPC 5.3(a). A. True B. False
Slide 17
MANAGEMENT IS OVERRATED True or False: It is a valid defense in
the disciplinary proceeding against Managing Partner for allegedly
violating RPC 5.3(a) and 5.3(b) that MP delegated supervision of
Roberta to the firms experienced nonlawyer Executive Director. A.
True B. False
Slide 18
THANK GOODNESS WE PRACTICE HERE You serve as your firms
Managing Partner Jerry, a highly regarded partner at the firm with
whom youve worked for 30 years, admits to you that he improperly
paid himself $77,500 in conservatorship fees He is distraught,
telling you that his wife is divorcing him & that his son has
been diagnosed with aggressive, untreatable cancer He also tells
you that between the alcohol and the antidepressants, he is barely
able to function After calming Jerry and telling him to say nothing
to anyone about the purloined fees, you quickly summon Mary, your
most trusted colleague on the firms Management Committee
Slide 19
THANK GOODNESS WE PRACTICE HERE You make a plan: Jerry will
repay the fees over a 6-month period You view this as a 1-time
mistake, so youll tell the firms Executive Director & CFO but
no one else Jerry will take a leave of absence to be with his son
The firm will continue to pay his draws while hes away Mary says: I
agree with all of that, but shouldnt we tell Chris? I mean, hes our
General Counsel. You respond: We best leave Chris out of this. He
doesnt need to know about any of this and this is the sort of thing
that should be handled on a need-to-know basis.
Slide 20
THANK GOODNESS WE PRACTICE HERE All is fine until 2 months
later, when the firms Executive Director & CFO come into your
office and close the door You dont want to hear this, says your
CFO, but Ive done some discreet checking and it looks like there is
another $85,900 thats missing from accounts Jerry controls.
Slide 21
THANK GOODNESS WE PRACTICE HERE It would have been a good idea
for you to consult Chris, the firms General Counsel, when you first
heard about the purloined fees from Jerry because: A. Chris might
have proposed immediately conducting a full investigation to ensure
that the firm knew the full extent of the problem & could
promptly take any necessary corrective action. B. Chris might have
been able to offer objective, candid, and practical advice to
minimize the harm to clients and to the firm of Jerrys misconduct.
C. Chris might have explained the potential liability risks
associated with Jerrys professional misconduct D. Chris might have
explained professional duties to report misconduct to the bar, as
well as dealing with impairment issues. E. All of the above
Slide 22
THANK GOODNESS WE PRACTICE HERE Did Managing Partner violate
RPC 5.1(a), and if so, what should the sanction be? A. No violation
B. Violation; diversion C. Violation; public reprimand D.
Violation; suspension
Slide 23
BOARD OF OVERSEERS v. WARREN Decision of single justice
(12/29/10): No violation of Maine Bar Rules Decision of Maine
Supreme Law Court panel (12/8/11): No violation of duty to report
No violation of duty to prevent or rectify harm caused by rule
violation when there is an opportunity to take corrective action
Partner members of the firms Executive Committee violated
management duties Remand for entry of judgment & appropriate
sanction On remand to same single justice (2/24/12): As to each of
the named respondents, this proceeding is dismissed with a warning
regarding the violation of the Bar Rule identified in the Law Court
opinion. [emphasis added]
Slide 24
PEOPLE WHO ARE GOOD AT MATH BECOME DOCTORS Everyone liked Jack,
although the young man never seemed happy as an associate at your
firm, although hes much less popular now that his fraudulent
billing scheme has been discovered & publicly reported Jack
falsified 2,100 billable hours over 3 years (about a third of his
time), & then succeeded in writing off the time before clients
were billed Unfortunately, his false entries for 1 invoice slipped
through, & the client detected the overbilling That sparked an
internal investigation
Slide 25
PEOPLE WHO ARE GOOD AT MATH BECOME DOCTORS Jack seemed relieved
that he was caught He was trying to keep his hours up to avoid the
consequences of being viewed as unproductive Also, he didnt like
practicing law, was depressed, & had expected to be caught
& punished sooner He didnt even seem bothered by his 2-year
suspension from practice But now youve received an inquiry from the
disciplinary board about Jacks supervision You call a meeting with
the 2 partners whose clients were affected & the head of the
firms litigation group
Slide 26
PEOPLE WHO ARE GOOD AT MATH BECOME DOCTORS Meeting Agenda: (1)
How the hell could this have happened? (2) How the hell could this
have happened? (3) How the hell could this have happened?
Slide 27
Australia Regulatory Developments Catalyst: legislation
allowing incorporation and nonlawyer ownership Approach:
(state/territory basis) Regulator as proactive consultant who works
with Incorporated Legal Practices (ILPs) in developing firm ethical
infrastructure
Slide 28
Requirements for ILPs in Australia Must appoint a Legal
Practitioner Director Must identify and report professional
misdeeds Must implement and maintain Appropriate Management
Systems
Slide 29
Appropriate Management Systems Not defined in the legislation
but regulators & professional groups identified 10 objectives
of sound legal practice ILPs use self-assessment forms to rate
compliance with objectives
Slide 30
Positive Track Record of the ILP Regulatory Regime Complaints
rate for self-assessed ILPs dropped by two-thirds Majority of ILPs
assessed themselves to be in compliance on all ten objectives
Self-assessed ILPs had one-third the number of complaints as
compared to non- incorporated firms
Slide 31
U.K. Regulatory Developments Outcome-Focused Regulation Focus
of regulation is on complying with principles rather than enforcing
rules Requires the designation of firm managers COLP (Compliance
Officer for Legal Practice) COFA (Compliance Officer for Finance
& Administration)
Slide 32
Using MBR in the U.S.? Which of the following BEST describes
your feelings about U.S. jurisdictions shifting to management-
based regulation (putting aside the issue of nonlawyer ownership of
law firms)? A. Its a great idea & we should work to make it
happen. B. We should incorporate some aspects of management- based
regulation into the existing regulatory framework here. C. It would
represent an improvement over existing regulation, but such an
approach is impracticable here. D. Its a bad idea & should not
be adopted here.
