June 08, 2016 Articles

Tips for Representing Clients Before a State Licensing Board or Regulatory Agency

Representing professionals in disciplinary matters is an administrative law practice.

By Phillip A. Cole

The professional disciplines—whether law, medicine, accounting, engineering, cosmetology, or something else—are regulated by the state offices that license them. Typically, these licensing boards or agencies are staffed almost exclusively by members of the regulated profession. Claims of professional misconduct reviewed by regulatory boards may be, but likely are not, a reiteration of a typical malpractice civil suit. Professional negligence (a lawyer missing a statute of limitations deadline or a surgeon operating on the wrong knee) typically does not represent a departure from the ethical codes of conduct that govern professions. The rules of conduct for lawyers or doctors do not require perfection in performance; they focus on questions of loyalty, fidelity, and diligence in the delivery of the service. And a finding of professional misconduct does not require a showing of injury or damages. For example, the complainant could be a bystander. Indeed, in my practice, I have seen several instances of complaints by persons who were opposing parties to the lawyer’s client. Likewise, in the case of physicians, it is not uncommon for nurses to make a complaint.

Administrative Law—Take Charge Early 
Representing professionals in disciplinary matters is an administrative law practice. The principal adversary is the board or agency that investigates the claim and initiates the disciplinary proceeding. The administrative board generally possesses significant authority to negotiate settlements and will have a substantial record to inform the advocate about the board’s views on appropriate discipline for the most common violations.

The procedures in Minnesota under the Lawyers Professional Responsibility Board (LPRB), for example, illustrate the administrative character of these kinds of proceedings across the range of most professions. The LPRB consists of 16 members appointed by the Minnesota Supreme Court, including 9 non-lawyer members. The director is a powerful staff member, and the recommendations coming from the staff to the board are rarely contradicted. Most complaints are referred initially to regional committees in the judicial districts for investigation and recommendations. The district committee sends its recommendation to the director, who may accept it, reject it, or raise new violations not considered at the district level. The director may propose an admonition, the lowest level of discipline, which can end the matter.

The complainant, however, may object to the director’s disciplinary recommendation and thereby force the matter to the board for resolution. At this level, the discipline is “private,” meaning it is not published for general consumption. The LPRB and the lawyer can negotiate further, and if no agreement is reached, the matter goes to the supreme court. The supreme court will appoint a referee to conduct a hearing on the charge. The director represents the board at the hearing and must prove the allegations by clear and convincing evidence. The referee will make findings and will recommend discipline. The supreme court gives great deference to the referee’s findings but assumes full autonomy on the decision for discipline.

Lawyers typically are afforded limited coverage in their professional liability policies to permit funding a defense of a disciplinary complaint, for example, $5,000 or $10,000. The time to use this coverage is at the outset of the case. If the matter goes beyond the local district, the lawyer will face expensive litigation to resolve the matter. Lawyers coming before a committee of lawyers in their own judicial district have an edge. They are probably acquainted with members of the committee. At this stage, the advocate should attempt to play an influential part in the investigation by producing statements of witnesses, helpful documents, and a statement by the lawyer. It is unwise to take the Fifth in these proceedings unless the underlying matter is a crime, in which case the lawyer has bigger concerns than the committee’s investigation.

In a matter in which I became involved, a lawyer was charged with neglecting the client’s cases and deceiving the client about the neglect. The lawyer actually had a very strong defense that should have caused the matter to be dismissed in the original investigation. The committee’s investigator was a young woman about two years out of law school. The lawyer was dismissive of her, and she developed a strong animus toward him. She reported to the committee and recommended public discipline and suspension. The local committee did not go this far and sent a recommendation to the director for admonition only. In her report transmitting the recommendation, the investigator described a case of deplorable conduct that simply was not supported. The director advised that he would issue an admonition unless the lawyer appealed to the board. At that point, I became involved and filled out the investigation with facts not revealed in the report. The director determined to reject the report in whole and dismiss the charges. If those charges had been addressed at the initial stages and if the investigator had not become an adversary, the matter would have been dismissed routinely. In short, cooperating with the investigating and charging authorities is a hallmark of administrative practice. Such an approach is not assurance of a good outcome, but in cases in which discipline is warranted, such an approach can mitigate the discipline to be recommended.

If the matter gets to an adversary proceeding before a referee, all gloves come off. This proceeding is a trial in every sense of the word. It matters, even here, that the record of the proceeding shows cooperation in the investigation. Indeed, it is a duty of the professional to cooperate in these matters. Even if the professional is ultimately acquitted of the charges, a failure to cooperate itself can be the subject of discipline.

Ethical Considerations in Professional Liability Cases
Lawyers should be mindful of their ethical obligations in the representation of clients. There are no distinct ethical issues for lawyers representing professionals accused of malpractice or misconduct, but there are situations in professional liability practice that lawyers must not ignore.

Routinely, there is an insurer funding the defense of the client, and the insurer is obligated to indemnify the client in the case of a settlement or judgment. The lawyer will typically have a long-standing relationship with the insurer that is important to the lawyer who seeks recurrent retention in professional liability cases. The importance of the business relationship notwithstanding, the client is the professional accused of malpractice, not his or her insurer. The duties of reporting to the insurer on the case as it progresses are derived not from the relationship of the lawyer to the insurer but from the client’s obligation to keep the insurer informed. If there are coverage issues between the client and the insurer, the defense lawyer, usually, must stay removed from the coverage questions because of the ethical conflict. In some jurisdictions, the insurer in such situations must provide separate counsel to the insured to advise the client (referred to sometimes as “Cumis” counsel after a California case of that name) in an effort to ensure the client receives impartial advice. Such separate counsel should not be necessary in the defense of the claim because advice for the benefit of the client is the duty of the defense lawyer.

In putting a case together for a professional facing claims of malpractice, the use of expert witnesses is a necessity. Expert witnesses should be retained in writing with an openly stated fee basis for the services of the witness. There should never be an incentive or contingent element in the fee entitling the witness to profit if the case is successful. The witness should have no stake in the outcome of the case.

The preparation of witnesses in these cases presents no ethical issues distinct from those in civil litigation generally. A dilemma may arise for the lawyer when a witness is encountered whose testimony suggests an insurance coverage problem for the client or potentially raises issues subjecting the client to discipline. If the witness is material to the presentation of a successful defense, the client must be presented with the dilemma. If the disciplinary implications are serious, consultations with the client and insurer to pursue settlement should be undertaken. Fortunately, this situation will be rarely, if ever, encountered, but this discussion is meant to underscore the fact that the client is not the insurer.

A common conflict in professional liability matters arises when the client wants the case settled to avoid the embarrassment and distractions of defending and trying the case. This is not an issue if the client is also funding the loss, but where the insurer is funding the loss, the client does not possess the authority to settle without the insurer’s consent. The lawyer’s duty in this circumstance is to offer a professional opinion about the merits of the case even if that opinion argues against the desired settlement.

The critical duty of the lawyer in any litigation setting, including professional liability matters, requires that the advice to the client and the insurer accurately identify the risks for the client in litigation. Professional liability cases are in that category of civil litigation where motions to dismiss and for summary judgment are almost always attempted. In legal malpractice cases especially, the claims are often attended by issues of law that may preempt a jury trial. These motions and arguments must be aggressively pursued. No matter how confident one may be about the defense of a case, a jury trial harbors risks outside the control of the lawyer. Dispositive motions in legal and accounting malpractice are likely to transport the lawyer into areas of practice or business quite apart from the raw professional liability issues. Counsel is required to become knowledgeable in a variety of areas of law. In my experience, I have had to study and brief complex issues in patent law, bankruptcy law, real estate law, securities law, antitrust law, and others. More often than not, these underlying issues dominate the discussion, relegating questions about professional negligence itself to secondary status.

In one case, the lawyer (as counsel for a plaintiff in an underlying legal malpractice case) had failed to file a timely expert affidavit to support the claims, and the court had dismissed the client’s action. The professional negligence in failing to file the expert affidavit was indefensible, but the question of whether the underlying lawsuit would have been successful remained. The question in the underlying case dealt with the process in establishing mechanic’s liens on lots in an undeveloped subdivision and whether rulings in the underlying case had injured the client. It focused as well on the question of whether the lawyer in the underlying case had been negligent. The claim presented two underlying matters requiring the former client to show that his mechanic’s lien would have been valid but for the negligence of the lawyer he hired to file the liens. The defense of the case had virtually nothing to do with the standards of practice for lawyers. Experts on the mechanic’s lien issue, of course, abounded, but they essentially canceled themselves out. The malpractice case was dismissed on a motion to dismiss when the court found that Minnesota statutes would have barred the former client from obtaining any liens to enforce. The lawyer had failed to meet the standard of care by not producing expert witness disclosure in a timely manner, but the error was inconsequential.

Legal Malpractice in the Arena of the Business Lawyer
Legal malpractice claims arise out of client disappointment. When businesses are failing, the disappointment level rises and lawyers practicing in this area experience claims, along with accountants. The standard elements of the malpractice claim are as follows:

(1) the existence of an attorney-client relationship; (2) acts constituting negligence or breach of contract; (3) that such acts were the proximate cause of the plaintiff’s damages; [and] (4) that but for defendant’s conduct, the plaintiff would have been successful in the prosecution or defense of the action.

Blue Water Corp. v. O’Toole, 336 N.W.2d 279, 281 (Minn. 1983).

There are, broadly stated, two categories of lawyer error in transaction cases. The easier for the plaintiff is the plain error case in which the client has sustained a loss because the lawyer failed to execute a required task such as recording a security interest. The other and more problematic category for the plaintiff is the alleged failure to advise where the client in the face of a default, for example, learns the remedy is more limited than he or she believed. The causation case is far more difficult in the latter category. It would be a great concession to plaintiffs if a former client could build a causation case around the client’s wholly subjective assertion that if he or she had known about the risk of the transaction omitted from the lawyer’s advice, the entire deal would have been declined. The proof that the deal would have been declined is possessed entirely in the mind of the former client. Sellers of businesses are particularly prone to make a claim when the buyer ultimately does not perform and the seller posits damages based on the profits that would have been earned if the seller had not sold.

The “but for” element mandating a more favorable result in the transaction is the most critical factor in evaluating a claim in the area of business practice. The notion of an error by the lawyer is almost always arguable even in the weakest case. Experts abound in the legal malpractice arena to opine on the standard of care to support malpractice claims. This ease of obtaining criticism of a lawyer’s performance by the required expert is not replicated in any other area of professional liability. There most often is not a role for the lawyer expert in “but for” causation, however, and the case returns to its facts.

Privity—The Attorney-Client Element
It is not uncommon in transactional cases that persons outside the attorney-client relationship will claim losses alleged to be the product of malpractice by the lawyer. Common examples are corporate officers, shareholders, and creditors. With rare exception, however, only clients may claim damages for malpractice.

The element of privity, i.e., the requirement that an attorney-client relationship existed between the plaintiff and the defendant lawyer at the time of the error, is a critical component of the legal malpractice cause of action. The attorney-client relationship in the business setting is most often established by contract, and this is commonly done with a new client. Lawyers should describe their undertaking for a client in a retainer agreement when hired. Under circumstances in which the lawyer has had a longtime relationship with a client and is handed a new and particularized assignment, the best practice is to acknowledge the undertaking in a letter describing the scope of the assignment.

When a lawyer represents a corporation, the corporation alone is the client, and liability for an error will not accrue in favor of board members, officers, or shareholders. The picture is muddied in small business situations where the lawyer and his or her firm commonly represent not only the corporation but the principal members of the corporation and often family members. If a corporation has a sole shareholder, there ordinarily should be no conflict between the shareholder and the corporation in a business transaction unless the corporation is insolvent. If insolvent, the corporation must be governed for the benefit of its creditors, and in such a case, a lawyer should not attempt to represent both the principal and the corporation because of conflict of interest.

There are three examples of a professional relationship in which an attorney might be exposed for liability. The most obvious and most prevalent is a contract for the attorney’s services—typically, a retainer agreement. Although an agreement for an attorney’s services may be oral (subject to some ethical imperatives especially in the case of contingent-fee agreements), it is wisest to put the agreement in writing. A principal advantage of a writing is the limitation on the scope of the services to be rendered. If an attorney representing a corporation in a stock transaction, for example, does not intend to advise the client on state and federal securities laws and their application to the transaction, it is critical to say so in the agreement. In the absence of the stated limitation, it should be expected that the lawyer’s advice in all areas of the law touching on the transaction will be deemed the lawyer’s responsibility.

An attorney-client relationship also may arise by what the court denominates the “tort” method whereby the lawyer induces reliance on his or her advice or service in the absence of an agreement. The relationship may arise in the most disarming of circumstances. For the tort theory to impose on the attorney a professional duty to a client, there must be direct contact between the attorney and putative client and the attorney advises the putative client under circumstances where the client’s reliance on the advice is reasonable.

Two cases demonstrate the application of the tort theory. In Pine Island Farmers Coop v. Erstad & Riemer, P.A., 649 N.W.2d 444, 448 (Minn. 2002), a liability insurer attempted to impose an attorney-client relationship with the defense counsel it had retained to represent its insured in a covered claim. The court made clear that when retained by an insurer to represent an insured on a covered claim, the attorney’s client was the insured only. The insurer then attempted to claim a relationship on the tort theory because it had reasonably relied on the advice of the defense counsel in managing the defense. The insurer’s argument actually made a colorable claim for the application of the tort theory to create an attorney-client relationship. The court nonetheless declined, pointing out that the carrier’s duty was to retain counsel for the insured and that splitting the loyalty of the lawyer between the carrier and the insured would frustrate that duty.

The case of Togstad v. Vesely, Otto, Miller & Keefe, 219 N.W.2d 686 (Minn. 1980), is an example of the application of the tort theory that has demonstrably changed practice in the litigation arena. In Togstad, the plaintiff had sought the advice of the law firm regarding the merits of a medical malpractice claim. In a meeting with her, the firm discouraged the plaintiff on the merits, giving her an opinion that the case was weak. The court held (whether on a contract theory or tort theory) that there was an attorney-client relationship, and considering the lawyer was turning down the case, the lawyer had a duty to advise the client on the statute of limitations. As a result, lawyers rejecting cases routinely advise contacting other counsel and always warn on the loss of the action on limitations grounds.

In a transactional setting, the tort relationship might arise where a lawyer extends erroneous advice to a friend or occasional client on the tax implications of a transaction as to which the lawyer has not been engaged. This friendly advice scenario represents a common experience for lawyers. The best practice, nonetheless, is to withhold advice, suggesting that the lawyer or the lawyer’s firm might be able to help with the problem and inviting the potential client to call the office. Lack of clarity in the relationship always will work to the disadvantage of the lawyer.

The third relationship that allows a non-client to sue the lawyer for malpractice is the situation in which the sole or central purpose of the lawyer’s services to the client is intended to benefit directly a third person. That person may possess a cause of action if an error by the attorney frustrates the intentions of the client. This situation arises most commonly in the case of wills and trusts where a gift to a beneficiary is frustrated by the lawyer’s error, but this circumstance is nonetheless a ripe concern for the transactional lawyer.

In a transactional setting, lawyers issuing opinions to a client’s counterparty or lender on certain matters, for example, will give rise to an attorney-client relationship with the recipient of the opinion but only with regard to subject of the opinion. It is advisable and customary in the letter offering the opinion to limit the right of reliance on the opinion to the addressee.

Courts tend to reserve to themselves the policy component of direct and intended beneficiary standing and generally will consider the facts of an individual case. In close cases, therefore, this issue will be fought primarily as a matter of law because the governing factors are debatable. It is rare to see this issue go to a jury.

Keywords: litigation, professional services liability, administrative, professional misconduct, ethical


Phillip A. Cole is a shareholder with Lommen Abdo in Minneapolis, Minnesota.


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