Ch. 9 Important Malpractice Traps

A. Client Relations Errors (17% 1995; 14% 2003; 11% 2007): steadily downward trend: lawyers getting better

B. “Top Ten Traps” See, fn. 3, p. 289 (1995, 2003 & 2007 studies)

A. Client Relations Errors

1. Ineffective Screening:Avoid “difficult clients” (trust gut instinct; consistently use standard office-wide screening procedures). U.S.: lawyers are not public utility; no “cab rank rule.” Corollary: discretionary right to w/d, but must comply w/ standards (e.g., advance notice to cl.; leave of ct required if in litigation) See generally RPC 1.16. “1st to fire”

A. Client Relations Errors

2. Client Communication & Failure to Keep Clients Reasonably Informed (& Duty to Follow Lawful Instructions w/in Scope of Authority)

N.B. Both fiduciary and ethical duty. See Rstmt LGL §§20-23, RPC 1.2, 1.4

Breakdown in communications/respect often basis for C bringing LM claim (accord, med mal), file grievance

B. Conflicts of Interest (COI) pp.293-96

Failure to recognize, analyze and deal properly with a conflict is high risk malpractice trap.

ABA Standing Committee on Prof’l Liability: 6.28 % (2003); 5.31% (2007). 1995-2003: 66.6% increase

Texas Lawyers’ Insurance Exchange (TLIE), Jett Hanna: 16.4% all claims filed; 22.5% all losses (1996-2007)

Harris Poll: most significant error or omission in largest claims v. firms w/ ≥35 Lawyers (1996); Richmond/ALAS accord; 20% losses > $20M involve COI (1980-2010)

COI give disgruntled C’s/former C’s “wild card”

Played to: Avoid paying outstanding bill; seek fee forfeiture; move for disqualification; bring legal malpractice claim

Potential consequences: m/b basis for excluding coverage; if carrier pays for loss > premium surcharges; fee forfeiture (Burrow v. Arce, pp. 112-

16) ; discipline; ct-imposed sanctions; loss of clients; firm splits; bad reputation among L’s & C base

Current Reports

• In re Marriage of Newton (Ill. App. 6/30/11)(initial consult w/ H as prospective C tainted representation of W; both DQ and complete fee forfeiture in representing W)

• Spence v. Wingate (S.C. 10/17/11)(L who formerly advised W about disposition of dying H’s probate estate owed continuing fiduciary duty not to adversely affect her interest in H’s life ins., when L later became attorney for estate)

LM for COI

Evans v. Baker & McKenzie, Joel Held (Dallas Sr. Counsel)(10/2010, Miss.)(multi-million dollar verdict)

P claimed firm concurrently represented him & partner in oil-rig drilling business; P unaware that partner insolvent & used P’s assets to get millions in loans. Further alleged firm secretly drafted docs creating subsidiaries in P’s name, but controlled by partner.

When accounting showed partner’s insolvency, P tried to dissolve busn., firm represented partner, devising “a litigation strategy to bring [P] to his knees.”

2. Analyzing COI, where “consentable” how to obtain “informed consent” (IC)

• Rstmt §§ 121-135 similar to RPC 1.7-1.13. Concepts of informed consent & nonconsentable conflicts

• §121 a COI is present if “…a substantial risk that L’s representation of the C would be materially & adversely affected by the L’s own interests or by the L’s duties to another current C, a former C, or a third person”

2. Analyzing COI, evaluating whether “consentable” conflict

Suni: “The key is whether the L’s exercise of independent prof’l judgment is likely to be unduly influenced by other interests….[A]sk yourself…[b/c of that] interest, am I likely to do or be tempted to do something different from what a truly independent L [w/o such interest] …would do in the same circumstances? (text at 297-98)

See also, RPC 1.7 Cmts 8, 14-15, 18; RPC 1.0(e) defines informed consent.

3. Practical Issues Re Written Disclosure & Informed Consent

RPC 1.7 COI: Current Clients(a) concurrent COI if (1) representation of 2 C’s

“directly adverse” or (2) signif risk that repre’n of 1 or more Cs will be “mat’ly ltd by L’s responsibilities to another C, a former C” or T/P or a psnl int. of L.

(b) If COI per (a), L/firm may represent if L rsnbly believes it is consentable per (1-3) and (4) each affected C gives informed consent, confirmed in wrtg.

See text p. 303, Hazard & Hodes on disclosure

Who is the Client? (for purpose of COI analysis) Suni, text p. 298

Who is it I am representing?“Accommodation clients” Rstmt §§122 cmt. d, 132 cmt. i.

Have I actually undertaken representation, or am I dealing with a prospective C?

Is the C an individual, or the entity for which that individual works?

Is it the insured or ins. co. paying the bill?Am I representing one party to the transaction, both

parties, or the entity they are forming?

Prob. 9-1 Know Your Conflicts & ClientsC retained you to evaluate LM claim pp.302-03

1. Who was M&M’s Client (Chassen or Tyson)? How to determine? If both, was there COI between? Consentable?

2. What possible LM claims?3. Relevant questions/information in evaluating

possible LM?4. Risk prevention steps firm might have taken?

COI: Estate Planning Problem

H&W marry in 1980s; 2d marriage for both; H has 3 children & substantial busn. assets. W has 2 children & minimal assets. 0 children born of this marriage.

1999-2005: H executed various estate planning devices, including trust & will. General theme: Homestead to W (joint tenancy by entireties, right of survivorship); $25K specific devise to each of H’s 6 grandchildren; trust income to W for life, R to H’s 3 children per stirpes.

COI: Estate Planning Problem

2006: H&W go to Lawyer, estate planner, who created documents fulfilling their agreement (mere scrivener?) Simplified:

1. LLP: proceeds from sale of H’s busn., homestead. Lawyer as manager; each of 5 children get 20% interest. W has LE in homestead, R to LLP.

2. Trust (H Settlor & T’ee): all other H assets, on H’s death distribution to H’s 3 children

COI: 2008 H dies, estate administration

1. Distribution of trust corpus to H’s children (0 income for W)

2. Homestead: W only has life estate, not fee simple interest.

Q: what’s wrong with this picture?

Does W have c/a for LM v. L?

RPC 1.7(a)(2) current COI, significant risk L’s representation of W mat’ly ltd by L’s responsibilities to H.

Is this a consentable conflict? (RPC 1.7(b)(1) & Cmt. 15: only if L RSNBLY believes that L will be able to provide competent & diligent repre’n to each client)

Analysis?1.7(b)(4) Did L obtain informed consent from H & W,

confirmed in writing?

COI: Estate Planning Problem

Rstmt Analysis §§121-22 accord: §121 “substantial risk” L’s repre’n of W “would

be materially & adversely affected by L’s … duties to another current C (H)

Cmts. c. (adverse effect on quality of repre’n; likelihood of subst’l risk; evaluate using objective std, on facts & circumstances L knew/shd have known when undertook repre’n)

COI: Estate Planning Problem

Rstmt §122(2) N/w/stdg IC of ea. affected C, L m/n represent if [i.e., its nonconsentable], (c) in the circumstances, it is not reasonably likely that the L will be able to provide adequate representation to one or more of the clients. (similar to 1.7(b)(1))

Rstmt §130 (current COI, nonlitigated matter; substantively similar to 122) cmt. c. illus. 2?

Bottom line, under both Rstmt & RPC

L didn’t see obvious conflict, didn’t attempt to obtain H&W informed consent. Even if L had done so, any consent would be ineffective because it was nonconsentable.

Reason: no reasonably competent L could believe it possible to represent both H & W in this estate planning b/c their interests were so diverse. W clueless that the estate plan deprived her of all rights of survivorship to homestead & no life estate in trust income, limited right to corpus. (as is common in joint estate plan).

Widow v. Lawyer

Breaches of fiduciary duty: impermissible COI between W, H & L, adversely affected repre’n of W, deprived of relevant info needed to protect her interests.

Harm: left w/ almost nothing after 20+ marriage. Proximate cause + but for

Damages: what would her rights have been if H died intestate? Probable rights if she had been competently represented by independent counsel?

4. Advance Waivers pp. 304-06

RPC 1.7 Cmt 22 might allow, under limited circumstances.

Anthony Davis, on ABA F. Op. 05-436: general, open-ended advance waiver usually ineffective. But advance waiver w/o fresh IC, m/b effective if: 1) rsnbly informed about potential risks if future conflict arises; 2) C is sophisticated consumer of legal services; 3) C actually consulted independent counsel about advisability of signing future waiver.

C. Litigation Errors pp. 306-26

ABA 2003 study: 44% all claims Most in π p.i. (2003: 19.96%; 2007: 21.56%Δ p.i. (2003: 9.96%; 2007 2.93%!)

Reason: so many judgment calls, strategic & tactical decisions, often made with little time to deliberate, research, confer w/ C. (Hence, Rstmt §§20-23). B/c adversary benefits from raising technical defects on appeal, C learns about.

LM claims akin to “Monday morning quarterbacking”; C dissatisfied w/ outcome says L “shoulda, coulda” done differently

1. Missed Litigation Deadlines

# 1 of Top 10 Malpractice Traps (ABA Desk Guide, 1999)2003 ABA Study: now 16% of claims arise from untimely

commencement of action (prima facie evidence of negligence). 2007: 7.44% fail. to calendar properly; 3.75% fail. to react to calendar; 10.73% fail. to file doc. where 0 deadline.

Many other litigation deadlines w/ major impact on outcome Malpractice Carriers: annual application requires description

of calendar/docketing system, including cross-check or dual control, ultimate responsibility of L handling matter.

1. Missed Deadlines

3 types of errors:Failure to calendar accurate deadlineIgnorance or misinterpretation of correct deadlineFailure to file in accordance w/ correctly calendared deadline

1. Missed DeadlinesThar, “Ways not to Blow S. of L” pp. 308-10

-Calculate immediately, while considering whether to undertake matter (ltd research duty?)

-THINK & CONFIRM you correctly determined applicable s. of l. (foreign jurisdiction – confirm w/ local counsel); RESEARCH

-VERIFY date of incident from independent source, PLAN AHEAD -- never wait til last day!

-Multiple calendaring system w/ >1 person tracking

1. Missed DeadlinesThar, “Ways not to Blow S. of L”

-Avoid 11th hour clients (e.g., Geary; 10/25 cert. w/drawn, improvidently granted)

-**Calendar matters where you receive referral fee (remember, joint responsibility)

-Periodic tickler dates to remind well in advance-Don’t procrastinate!!! Plan ahead & do what’s

necessary before filing, including pro hac vice application. “Virtual nullity doctrine”

-Law practice management: routinely send letters of non-engagement & termination when work complete.

2. Appellate Malpractice

• Evaluate scope of retainer; retained only for trial, not appeal? If so, preserve record for appeal, written reminder to C re deadline for filing, retain appellate counsel.

• If retained for whole case, tend to details preserving appeal: in trial, make record objections, take exception; preserve record for appeal; evaluate & discuss w/ C whether viable appealable issues; file timely notice of appeal/perfection; timely file record for appeal; post any required bond; timely file all briefs

2. Appellate Malpractice

• Rstmt §§ 21-23 Authority Reserved to C (both civil & criminal): whether to settle or appeal;

• Authority Reserved to L: refuse unlawful assistance; compliance with applicable law, orders of tribunal

• Joint decisions, after consultation: selecting which non-frivolous issues to raise on appeal

Appellate Malpractice pp. 311-13

• Mistakes in handling all aspects of appeal– Failure to file timely appeal– Failure to raise important issue needed for

reversal (vs. professional judgment call, selection of best issues to raise on appeal)

• Practical reality: difficulties in showing “but for” & “proximate cause”; appellate analogue to “case within a case” > limits risk of appellate malpractice liability.

Questions, p. 313

1. S/ retained only for trial. What should you do after unsuccessful outcome to avoid risk of appellate malpractice?

a. Confirm that written retainer states such limited scope representation

b. Written confirmation again at end of trial; need new L; remind of upcoming deadlines, possible grounds for appeal.

Questions, p. 313

2. s/ trial L refers C to appellate L; risk management steps?

Avoid negligent referral risks (3 names, current objective information about each, stress that C choice)

Questions, p. 313

3. S/ Retained for appeal; discover LM by trial L. Legal & ethical duties to C?- carefully evaluate; can appeal correct earier error?- disclose to C?- refer to LM L?

Recent cases where trial counsel’s mistakes foreclosed successor counsel’s options: 1st L liable but successor not.

Questions, p. 313

4. Normative question: should proximate cause in appellate LM be Q of law for court, or Q of fact that can be decided by jury w/ aid of EW?– Maj.: Q of law made by Judges, as trained legal

minds.– Min. (N.M.): jury can decide, aided by EW

testimony, predicting outcome of hypothetical appeal, based on preponderance of evidence.

3. The Exercise of Judgment in Litigation pp. 314-15

“judgmental immunity” (long history now eroding; thought to protect v. L’s errors on strategic & tactical decisions). Some jurisdictions treat as affirmative defense. M/b proximate cause obstacles.

Fla. “predicate” for LM defense: L 1) exercised informed judgment; 2) d/n ignore applicable statutes, court procedures or established legal principles; 3) must inform C of KNOWN PENDING resolution of unsettled legal propositions.

Prob. 9-2, p. 314: Which of listed “failures” may be protected by judgmental immunity?

4. Settlement Errors: Many possible types pp. 315-16

• Not consider settlement; lose at trial Leflar v. Cooper• Recommend C accept inadequate settlement• Draft or approve release of rights that should have been

reserved• Force C to settle for cheap, to cover up L’s serious litigation

errors (negl., failure to resch, investigate, conduct discovery)• Falsely claim matter settled to hide L’s errors; L pretends

payment from D • Not communicate settlement offer Missouri v. Frye• C fires L for cause, successor L recommends bad settlement

b/c of 1st L’s errors.

4. Settlement Errors pp. 315-26

Traditional view: Muhammad v. Strassburger, 587 A.2d 1346 (Pa. 1991)(former C m/n bring LM v. former L where underlying matter settled, unless L knowingly committed LM and then fraudulently induced C to settle) i.e., settlement usually insulates L from LM risk.

N.B. *Ziegelheim v. Apollo (N.J. 1992)(cited in Thomas at p. 322) began change of tide (despite pro-settlement policy, C entitled to competent legal advice about whether to accept or reject settlement offer)

4. Settlement Errors

Thomas v. Bethea (Md. Ct. App. 1998) pp. 316-25

Facts: L sued 3 slum landlords for lead poisoning of Minor (M); recommended C settle v. 2 for $2500. Never served 3d landlord. Broad form release executed by Mom relinquished claims v. all 3, tho $0 from 3d landlord who made material misrepresentation of fact, had ample insurance . M (now adult) sued L for LM (negligently persuaded Mom to accept grossly inadequate settlement)

Tr. Ct: special verdict, $125K; tr. ct. JNOV for D L.

Thomas v. Bethea

Issue: whether Md. Ct. App. Should adopt Prande (Ct. of Spec. App.)(allowing LM for negligent recommendation to settle, using heightened std: no rsnble atty who rsnbly investigated f’s & law would have recommended this settlement) ?Holding: Yes, following strong trend of other state cts that treat nego’n & settlement same as other prof’l negl., where rec’dn is product of negl. & C can prove harm. (Muhammad now distinct minority view)

Thomas v. Bethea

Rationale: General policy favoring settlements shd not insulate L’s from liab. where 1) L’s deficient representation forced C to accept unrsnbly low settlement or 2) L’s deficient investig’n into facts & law resulted in L significantly undervaluing settlement value. @320-21

Damages: Difference btwn settlement amount and likely recovery from adjudication. (avoids guesswork on reasonable settlement value)

Contrast Thomas (Md. ‘98) and Muhammad (Pa. ‘91)

Policy considerations for & against allowing LM where C settled underlying claim?-encourage settlements; efficiency; finality (Q: does

non-mutual collateral estoppel bar?)-fairness to C, right to competent representation-incentives & disincentives for lawyers

Q: on balance, as matter of policy, prefer minority view (Muhammad) or new majority view (Thomas)?

Measure of Damages for “Wrongful Settlement”?

Difficulties in proving “case w/in case” for such claims.Possibilities:1. Difference between actual settlement and what a

reasonable settlement would have been? Too speculative? How prove? (Thomas jury found settlement value v. unserved D was $25K, but fixed dmges @ $125K; trial ct JNOV b/c no ev. on rsnble settlement value.)

2. Difference between actual settlement and probable recovery at trial of underlying matter.

Problem 9-3 Inadequate Settlements p.

326

Wrongful death action filed against County w/in 2 year general statute of limitations, but after expiration of shorter limitations period for actions against governmental entities.

County moved for summary judgment on limitations grounds. Estate administrator settled for $10K (probable cost to county of litigating summary judgment).

Should C/administrator have LM c/a vs. L?

D. Business Transactions with Clients

• Fraught with danger; if does not work well, to client’s satisfaction, C often looks to L as guarantor.

• Jurors see & condemn L’s who engage in self-dealing, prefer own interests over that of C.

• That said, why do so many lawyers engage in business transactions with clients?

Rstmt §126 C/L Business Transactions

Generally prohibits business or financial transactions w/ C, NOT involving delivery of legal services UNLESS

(1) C has adequate information about the terms of transaction & risks presented by L’s involvement in it;

(2) Terms & circumstances of transaction are fair & reasonable TO THE C;

(3) C gives informed consent to consentable conflict involving L’s role in transaction after encouraged to seek & given rsnble opportunity to seek independent legal advice about transaction. (incorporates §122)

2. Fee arrangements

• When agreed at outset, before C/L relationship begins, generally treated as arms-length transaction. Scrutinize only under RPC 1.5(a) (prohibiting unreasonable fees or expenses; open-ended list of factors bearing on reasonableness).

• If fee dispute between L & C, cts may use K principles to construe ambiguous language v. L, as drafter (contra proferentem); or shift BOP to L that fee fair & reasonable to C.

2. Fee Arrangements

• Non-traditional fee arrangements, e.g. in which L takes ownership or security interest in C property, or stock: closely scrutinized as L/C business transaction. E.g., L helped C obtain financing for holographic baseball card, took % interest in venture as “finder’s fee.” Ct set aside.

2. Fee Arrangements

• Reminder: RPC 1.5(c) Requires that contingent fee agreements be

in signed writing, state method by which fee is determined including % accruing if resolved by settlement, at trial or appeal, and whether expenses for which C is responsible are calculated before (fairer to C) or after determining % fee. On conclusion, L must provide written disbursal statement.

2. b. Modifying Fee Agreements pp. 332-41

Rstmt LGL §18 (re C/L Ks concerning the rela’shp)(a) any K or modification “made beyond a reasonable

time after the L has begun to represent the C in matter, the C may avoid it unless the L shows that the K and the circumstances of its formation were fair and reasonable to the C; and

(b) if K after Ls services complete, C may avoid if not informed of facts needed to evaluate appropriateness of L’s compensation or other benefits that K gives the L.

2. b. Modifying Fee Agreements, Richmond Excerpt

S/1: Complex tax matter, seeking large refund from state. Firm regularly billed & was paid > $120K using standard hourly rate & customary expenses. Superb outcome: $7 M refund.

Q: may firm retroactively charge 10% premium where fee agreement contained language “to render a fair and reasonable bill”?

S/1 Beatty v. NP Corp., 581 N.E. 2d 1311 (Mass. App. Ct. 1991)

H: ambiguous language construed against drafter (contra proferentem); firm’s “subjective & unexpressed expectations” could not refute objective agreement to charge by hour.

Q: To avoid this outcome, how should original engagement letter read? (see pp. 336-37)

2. b. Modifying Fee Agreements, Richmond Excerpt

S/2 Undertake defense of civil case for $50K flat fee based on predictions of likely amount of work, fee profitable. Ably-represented P conducts extensive discovery which precludes successful defense summary judgment motion, joins additional defendants.

Can firm escape flat fee, charge for actual time & expenses?

S/2 Heller, Horowitz & Feit, P.C. v. Stage II Apparel Corp., 704 N.Y. App. Div. 2000) p. 333, 337

H: denied rescission of flat fee K; fact that litigation required more work than expected at time of K did not constitute relievable mutual mistake. Repeated invoices and payments based on flat fee ratified original agreement.

Q: To avoid this outcome, how should firm have drafted the engagement letter? (p. 337)

2. b. Modifying Fee Agreements, Richmond Excerpt

S/3 Firm undertakes defense in large, complex litigation, billing standard hourly rate & customary expenses. 0 advance retainer. Initially C pays in full monthly bills, later payments slow & low or not at all.When L discusses arrearages, C apologizes & promises to bring current when cash flow improves. C claims firm’s threat to w/draw will cause irreparable harm; L doubts judge would allow. Resolved by taking security interest in C’s property.

Q: What should firm have done 1) when retained? 2) as arrearages mount? 3) when idea of security interest arose?

2. b. Modifying Fee Agreements, S/3

Q: What should firm have done 1) when retained? Engagement letter: require substantial fee advance (put in

trust account, apply last bill to advance, refund excess); monthly statements pd promptly; if unpaid, L has right to suspend work and terminate engagement.

See RPC 1.5(b), 1.16(b)(5)(may w/d if C “fails substantially to fulfill oblig’n to L re L’s services” & “given rsnble warning that L will w/d unless” fulfilled.

2) as arrearages mount? 3) when idea of security interest arose? RPC 1.8(a), (i)(1)

S/3Welsh v. Case, 43 P.3d 445 (Or. Ct. App. 2002)(unique OR. Rules & facts)

H: Firm allowed to foreclose on mtge given as security interest for unpd fees; was not “busn. transaction” w/ C subject to applicable state rule (predecessor to RPC 1.8(a)); C very sophisticated, experienced in mtge transactions, & m/b “Wiley Coyote”

Takeaway: caution urged throughout all C/L relationship; study local variant of RPC 1.8(a) & 1.16(b)(3) & interpretations

2. b. Modifying Fee Agreements, Richmond Excerpt

Other “takeaway” points (pp. 339-41):Remember: courts & Rstmt generally treat L as more sophisticated

party, must satisfy informational burden in all dealings w/ C.Engagement letter should specify conditions that would permit fee

modification (exceptional result, basis for calculating bonus; across board increase in hourly rates; unexpected work volume in representation)

p. 339, last ¶: P abuse of flat fee, scorched earth defense*avoid any implication of duress when seeking mod’n*firm infrastructure: committee approval of fee modifications*1.8(a), get everything in writing, C’s signed & informed consent after

rsnble opportunity to consult w/ indep. L

Rstmt §126 Business Transaction Between L & C

Generally prohibits business or financial transactions w/ C, NOT involving delivery of legal services UNLESS

(1) C has adequate info. about the terms of transaction & risks presented by L’s involvement in it;

(2) Terms & circumstances of transaction are fair & reasonable TO THE C;

(3) C gives informed consents to consentable conflict involving L’s role in transaction after encouraged to seek & given rsnble opportunity to seek independent legal advice about transaction. (incorporates §122)

“How to” safely enter business transaction w/ C???

Dzienkowski & Peroni: pp. 328-332 many risks in taking equity investment in C entity

Liability to C w/ business interest: ct may grant rescission, impose constructive trust (shift BOP, constructive fraud), despite no proof of L’s fraudulent intent or harm to C.

Claims: negligence, breach of fiduciary dutyFirms who take equity interest risk loss of limited liability shield

from LLP or LLC.Potential liability to OTHER C’s (preferential treatment to C

w/whom L doing business)

3. Entrepreneurial Activities With Clients pp. 341-46

L’s involvement in a busn. venture w/ C morphes traditional role of L (as advocate, advisor or confidant) to POTENTIAL D, CO-CONSPIRATOR, AIDER, ABETTOR & TORTFEASOR. Lawsuit more likely, difficult to defend b/c COI

“may be unethical, are generally ill-advised, and are always risky.” Text at 341.

3. Entrepreneurial Activities With Clients pp. 341-46

Legal malpractice policies typically contain broad coverage exclusions any time L has business interest w/ C, even if d/n involve rendering of legal services.

3. Entrepreneurial Activities With Clients

OAMIC EXCLUSIONSi) To any claim arising out of legal services or advice

rendered by any insured in connection w/ any busn. enterprise owned in whole or in part, controlled directly or indirectly, or managed by any Insured, which service or advice is either claimed or is, in fact, in conflict w/ the interest of a C or former C . . . or in conflict w/ the interest of any person claiming an interest in the same or a related business enterprise.

3. Entrepreneurial Activities With Clients

OMAIC EXCLUSIONg) to any claim arising out of the insured’s acts

or omissions as an officer, director, partner, trustee or employee of a business enterprise or charitable organization or of a pension, welfare, profit sharing, mutual or investment fund or trust.

Risky Business Transactions w/ C’s, Hubert pp. 342-46

S/1 good long-term C homebuilder needs loan to buy land for development. No commercial lender willing to take risk. If L has $250K available, willing to loan, what must L do to minimize risk of adverse consequences?

RPC 1.8 (a) A lawyer shall not enter into a business transaction with a client or knowingly acquire an ownership, possessory, security or other pecuniary interest adverse to a client unless:

Risky Business Transactions w/ C’sRPC 1.8(a) UNLESS:

(1) the transaction and terms on which the lawyer acquires the interest are fair and reasonable to the client and are fully disclosed and transmitted in writing in a manner that can be reasonably understood by the client;

WHAT MUST BE DISCLOSED? (2) the client is advised in writing of the desirability of seeking and is given a

reasonable opportunity to seek the advice of independent legal counsel on the transaction; and WHAT IF C REFUSES TO CONSULT W/ INDEPENDENT COUNSEL?

(3) the client gives informed consent, in a writing signed by the client, to the essential terms of the transaction and the lawyer's role in the transaction, including whether the lawyer is representing the client in the transaction.

WHAT EFFECT IF ANY DEFECTS IN COMPLIANCE?

Hypo variations

s/1 0% interest loan, repayment through 20% of resulting profits?

s/2 Low interest loan, does not start to accrue until closings begin, and also 10% of resulting profit?

s/3 C declines to seek independent legal advice. Then what?

Terms to protect L? (security int. – m/b subordinated to construction lender?, psnl g’tee)

s/4 Just settled high $ case, C has proceeds to invest, L needs to borrow $. ANALYSIS, HOW TO PROCEED?

E. Breach of Confidentiality

RPC 1.6(a) and Rstmt LGL §§59-60 compared, text pp. 346-48.

RPC ethical duty safeguards all information relating to the representation of a C (may not reveal unless falls w/in exception)

Rstmt: (fiduciary) duty to protect information relating to the representation of a C where use or disclosure will adversely affect a material interest of C or if C instructed L not to use or disclose. Exception: where info. is generally known, or otherwise allowed by §§61-67

Problem 9-4, pp. 348-49

P.I. firm; nurse/paralegal obtained C’s permission to use medical records for continuing ed’n. Oops, she d/n redact all references to C identity > filed LM v. firm.

You are judge presiding over C’s LM v. Firm. Pending D motions for summary judgment (not then a C, signed release bars claim)

Evaluate and rule, as to liability of Firm and its partners.

Risk Management Lessons re Confidentiality pp. 347-48

***New technologies present special problems, security fixes still “work in progress”; encryption

Linked databases, shared computer systems, “cloud computing”

Internet, websites, blogs, listservsi-phones?Hackers, industrial espionageE-discovery

Electronic Data: Need Increased Vigilence

Richmond, Aon Sympos. (10/20/11): hackers try to “rattle doorknobs of” midsized firms’ computer systems 200,000/hour!Firewalls, antivirus software can’t protect when Facebook & social media involved.Today’s hackers: organized crime & espionage: 60%; hacktivists: 30%; joyriders: <10%RPC 5.1, 5.3: firm GC now more of compliance manager. (Steele)

Cal. F. Op. 2010-179

Before using particular technology to store or transmit confid’l info., analyze:1. Level of security surrounding use, may rsnble

precautions make more secure?2. Legal ramifications for t/p who intercepts or accesses;3. Degree of sensitivity of info.4. Possible impact of inadvertent disclosure;5. Urgency;6. C’s instructions & circumstances, e.g. other pties’

access to C’s devices

F. Representing Entities

1. Relative number of claims is small (2003: 6.37%; 2007: 4.94%), but often result in very large payouts, high defense costs.- Between 1996-2003, Claims exceeding $2M in losses increased by 60%-Vinson & Elkins settled Enron-related claims for $30M (critics: sweetheart deal, got off cheap)-Jenkins & Gilchrist (‘07): settled for $75 M to investors of bad tax shelter; firm dissolved.

F. Representing Entities

Formation: WHO IS THE CLIENT? (Individuals? The future entity?)

WHO IS THE CLIENT after formation of entity? (lessons, better safe than sorry)Risky business: advising constituent whose

conduct might be attributed to the entity.***Read RPC 1.13 & Cmts.

Who is the Client?

s/1 A,B,C (3 individuals) visit L, ask to create corporation, Z-Mart, Inc. How should L proceed? Who is/are C(s)?

s/2 After Z-Mart, Inc. formed? RPC 1.13(a). Who has authority to speak for it?

s/3Time passes, Z-Mart, Inc. grows into profitable company, Z-Mart, Inc. delivery truck causes serious accident. Wrongful death action v. Z-Mart, Inc. and Driver.

P vs. Z-Mart, Inc. and Driver

P incentives?D incentives?Internal investigation on cause of accident:

L meets separately w/ 1) V.P. Risk Management; 2) Director, Human Relations; 3) Driver.

What precautions must be observed by L while conducting investigation?

P vs. Z-Mart, Inc. and Driver

1.13(a), (f), (g) and Cmts. 1, 2, 3, 10, 11. Who is C?

To whom are confidentiality obligations? Permissible disclosures to whom?

Obligations to Driver? Risks if L does not handle investigation & defense correctly?

Perez v. Kirk & Carrigan, 822 S.W.2d 261 (Tex. App. – Corpus Christi 1991, writ denied)

1. P Driver vs. D Law firm, alleged breach of fiduciary duty, negligence & intentional infliction of emotional distress, DTPA; R&R sum. jdgmt for D firm

2. Implied C/L relationship arose where law firm defending truck co. obtained sworn statement from driver on work & driving history, events giving rise to fatal accident.

3. Disclosure of statement to District Attorney, who then prosecuted Driver, may have been breach of lawyers’ fiduciary duties to driver.

L for Corp. serving on Board of Directors?

Background: reasons why were private lawyers & firms willing to serve in dual capacity?

Modern view: recognized risks of serving on Board while also representing Corp.?Differing roles (busn. v. independent prof’l jdmt); many COILoss of ACP whenever L gives business (and not legal) advicePersonal exposure, excluded from both LM & D&O coverage; L attractive target; risks firm’s vicarious liability