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. 11216) ; 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 & Clients
C 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 deadline
Ignorance or misinterpretation of correct
deadline
Failure to file in accordance w/ correctly
calendared deadline
1. Missed Deadlines
Thar, “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 Deadlines
Thar, “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 selfdealing, 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 duty
Firms 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 illadvised, 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 EXCLUSIONS
i) 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 EXCLUSION
g) 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’s
RPC 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, listservs
i-phones?
Hackers, industrial espionage
E-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 COI
Loss of ACP whenever L gives business (and not
legal) advice
Personal exposure, excluded from both LM &
D&O coverage; L attractive target; risks firm’s
vicarious liability