Oral Testimony of Joseph P. McMonigle,
Chair of the ABA Standing Committee for Lawyers Professional Liability
The Commission next heard from Joseph P. McMonigle of San Francisco, Chair of the ABA Standing Committee for Lawyers Professional Liability. Mr. McMonigle has been defending lawyers for 22 years in a practice that is exclusively the defense of lawyers. The ABA Standing Committee is charged with 2 tasks: 1) to assist the profession in providing affordable professional liability insurance to lawyers in the U.S. and 2) to improve the quality of the legal services provided by lawyers by focusing on professional liability and risk prevention issues. Regarding availability of insurance, he thinks that given the current economic climate no matter what the form of the multidisciplinary practice there will be available insurance. "I think that pricing will be somewhat difficult[.]" Generally speaking, he has grave concerns about how modification of the Rules of Professional Conduct will affect professional liability issues. His concern centers on modification of the conflicts and confidentiality rules that effect the lawyer’s independence and the potential increase in professional liability risks the lawyer would face. Defense of cases involving lawyers and accountants commonly arise in tax, trust and estates, securities and marital dissolution cases. In these instances he finds it very difficult to draw the line between what the lawyer is supposed to be doing and what the accountant is supposed to be doing and the gray area produces the professionals finger pointing at each other. Placing that gray area of the standard of care into a multidisciplinary practice with lawyers and accountants as partners would make the determination of ultimate responsibility clearer because the professional liability insurance would respond for the group that’s serving the client. He is concerned about the difficulty of determining the lawyer’s standard of care as there already exists a tug and pull regarding what to do with the Rules of Professional Conduct in a lawyer’s professional liability case. The lawyer’s Rules of Professional Conduct deal with conduct and its discipline and when this code is transferred into the world of professional liability and tort law it doesn’t match up as ethics deals only with conduct, and not causation and damage and how the conduct affects the client. Plaintiffs typically focus on the rules of professional conduct because these offer bright lines, especially in the area of conflicts. Modifying the confidentiality and conflicts rules with regard to a multidisciplinary practice would cloud even further the lawyer’s standard of care. Such a change would be juxtaposed against recent adoption of the ALI Restatement of the Law Governing Lawyers which is going to have a very, very significant impact on carving out the standard of care for lawyers, and further confuses the standard of care for a lawyer in a particular jurisdiction. In a professional liability case once you have a lawyer working with an accountant partner the particular fact alone of a partner with a financial interest raises to the jury the question why isn’t the lawyer responsible for whatever is going on in that practice and why shouldn’t the partners be held to the standard of lawyers? He thinks starting down the slope of modifying the conflicts and confidentiality rules and the independence of lawyers creates a serious concern about increasing the risk to lawyers for professional liability.
Professor Daly began the questioning. She asked if a Model 4 (contract model) would alleviate the concerns as the captive law firm would be technically independent even though affiliated with a professional services firm by integrated technology, a referral agreement between the firms (not necessarily exclusive), and payment pursuant to contract for back office services. Mr. McMonigle has a healthy skepticism as to whether the law firm can control the dog as it seems to be the tail; he doesn’t believe the law firm can accomplish that objective. In his 22 years of practice he is not aware of any malpractice cases in which the ancillary business relationship was an important issue. Mr. Mundheim asked why the questions of due care get enormously more difficult with an integrated multidisciplinary firm. As due care is always looked at as conduct that’s reasonable under the circumstances he asked Mr. McMonigle for an MDP hypothetical. Mr. McMonigle protested that the Commission is to craft the model (as he is at the clean up end), but he would try to give an example of the MDP effect. He envisions a different standard would evolve with regard to the partner of the lawyer. He assumes that standard to be some modification of the rules that govern lawyers; though that person or entity need not meet the lawyer rules is it a different form of lawyer as there is a partnering? He clarified to Mr. Mundheim that he thinks a standard of care for the firm will develop. Mr. Nelson was told that in looking at the way in which the rules would operate in an MDP context, in Mr. McMonigle’s opinion, the sanctions for violation would be regulatory action as civil liability could not be relied on as a major source of assurance that whatever rules are established are adhered to. Mr. McMonigle answered Ms. Katz that today the number of cases filed against lawyers is down although the severity of cases in terms of dollar exposure is up slightly. The trend is that the serious cases are those that have the black letter of the law, the Rules of Professional Conduct, at play as the complicated transactional work that’s evolving increases the conflict cases. Ms. Katz asked if 1) the conflicts cases are the serious cases because they are a violation of the black letter rule, and 2) is that violation a basis to get into court and not necessarily related to the harm that a plaintiff might’ve experienced? In other words, are plaintiffs getting into court because lawyers’ rules are difficult to follow and therefore provide a crutch to a plaintiff that wants to find a deep pocket? Mr. McMonigle thought this was a very good question. He thinks that the Rules of Professional Conduct have a place in lawyer’s professional liability cases even though they were designed just to deal with conduct. The problem is that a plaintiff, armed typically with an ethics expert, can use the ethics rules violation to get the case to the jury and the jury fixates on the rules as the beginning and end of the analysis no matter how skillful the defense lawyer is in arguing causation and damage. Ms. Garvey asked what effect disclosure had in the conflicts area. Mr. McMonigle said he would prefer to have a document that discloses the potential conflicts but that’s obviously not enough protection as there are all kinds of cases that involve inadequate disclosures prior to consent (though some sign-off is much preferred to not having anything at all). He gave as an example of the rules triggering liability where there wasn’t actual harm to the client the case of lack of written consent to a conflict (although there was confirmation of discussion between the attorney and client about a particular conflict); the violation of the rule will result in the question going to the jury without any consideration of whether it affected the client’s rights. Asked about conflicts that are waivable with full disclosure Mr. McMonigle said it is difficult to craft a full disclosure when the lawyer is dealing with a new practice vehicle as predictions go awry, the client ends up in a different place and the lawyer is without protection. The Standing Committee for Lawyers Professional Liability has not specifically discussed the multidisciplinary practice issue. Following up on the discussion regarding structures and mechanisms that could protect the client and give some assurance that lawyers are adhering to their ethical obligations Professor Haddon asked whether a separate legal division and lawyer supervision and certification by and auditing of the entity would give him comfort and Mr. McMonagle said no. He anticipated that he would meet a plaintiff’s lawyer in court who would contend that the accountant as part of the partnership would need to meet the requirements of a lawyer. As they are now partners, the plaintiff’s lawyer is going to criticize the financial incentive of the lawyer and the accountant. "But somehow, some way, there’s going to be a financial incentive for this lawyer and this accountant to do it this way. And somebody’s going to criticize it by saying you had a financial incentive, didn’t you? There was some reason why you would rather use this lawyer and this accountant, because you were going to benefit from it. That’s a hard issue to hit when you’re in front of a jury." He thinks the profession will have to confront increased professional liability in the new MDP world. Professor Haddon commented that some of the presenters that morning had indicated it was the risk of professional liability that ensured they would comport themselves appropriately. Mr. Rosner asserted that for hundreds of years common law courts have applied given facts to a claim to decide whether the defendant was a reasonably prudent person or the standard of care was met. Mr. McMonigle responded that the Commission shouldn’t lose sight of the fact that when the quest to determine the standard of care is cloudy the typical scenario is lawyer liability, probably beyond where lawyer liability should be until some clearer definition of the standard is established. Judge Bradford asked about expert testimony to establish violation of the rule as some evidence that the jury is to consider, as the jury must find a causation link in order to establish liability and damages. Mr. McMonigle agreed that the Rules of Professional Conduct are some evidence of the standard of care but felt that violation of the rule should not be in the jury instruction as it was some evidence and not law. Assuming ultimate liability will be clearer with an MDP the thornier issue continues to be whether to hold the accountant to the standard of the lawyer. Dean Powell asked what difference an MDP would make considering the marketplace is causing lawyers and accountants to work more and more in teams and Mr. McMonigle said that now professional liability cases are those that fall through the cracks where the lawyer and accountant somehow haven’t covered the client’s needs. Even in the teaming arena you still have the independence of the lawyer and the check and balance of a lawyer and accountant working together, "that’s a different place than if you remove the check and balance of the lawyer and the accountant, then more of it is coming from a joint effort, as opposed to some independent evaluation by a lawyer." It’s less efficient for the lawyer and accountant not to be on the same team and the client will spend more dollars but the check and balance of the disciplines interacting is preserved. Mr. McMonigle couldn’t predict if an MDP rather than teaming would increase the number of professional liability cases. Dean Powell asked about requiring MDPs to provide insurance for its lawyers so they could exercise autonomy and was told that kind of insurance coverage would likely be available in today’s market. However, Mr. McMonigle doesn’t see how the lawyer gets beyond the tail and the dog is going to continue to be the force. The Chair presented the increased risk of liability as just a business factor to be considered in a lawyer deciding whether to join an MDP and Mr. McMonigle said it is a factor that lawyers need to be aware is in play when considering whether to go forward with a different practice configuration. His concern centers on whether the lawyer in the group can continue to function and advise clients in the manner in which they have been known to do or if there’s some impact as a result of the financial arrangement. He explained to Mr. Traynor that the impossibility of creating safe harbors arises because the problem as laid out typically doesn’t match up with what comes to pass so the lawyer hasn’t obtained informed written consent.