The Professional Liability and Ethics & Professionalism Committees recently cosponsored a webinar to talk about trends in malpractice and bar complaints. The panel—featuring distinguished panelists from the Illinois Attorney Registration and Disciplinary Commission, the State Bar of Georgia, and the Attorneys’ Liability Assurance Society—identified several pitfalls and explained how lawyers can avoid them. Below are the key takeaways.
Knowledge of Client’s Parent and Subsidiary Companies
Know your client’s parent and subsidiary companies. Firms can unwittingly create conflicts of interest by agreeing to represent a new client that has a controlling interest in a party that is adverse to an existing firm client—even if the new representation is for an unrelated matter. This can lead to claims of malpractice, breach of fiduciary duty, and ethics violations. To avoid this, as part of their new-client conflict checks, firms should inquire about any parents or subsidiaries of the proposed client and make sure that those entities also clear the conflicts hurdle.
Never ignore red flags. Lawyers can get themselves and their firms in trouble by not investigating their own clients. For instance, an attorney that ignores worrying signs about a client’s financial condition in connection with a business sale can wind up being sued for aiding and abetting fraud if the attorney wrote documents with false financial representations and warranties. Lawyers should investigate any concerns revealed in public information (like reported financials and lawsuits) as well as those raised by the client, even if that means sacrificing a deal or losing the client. Despite the pressure to build business and please clients, lawyers must take care to protect themselves; and, in the end, they will better serve their clients.
Representation in Start-Ups
Be clear about whom you represent in a start-up. Lawyers called upon to assist in setting up new companies before a business entity is in place may be deemed to represent not just the business but also the founders. This is particularly so when the lawyer provides advice to the founders on organizational documents or communicates with third parties on their behalf. Unless the engagement is documented in advance with clear conflict waivers, if there is a falling out and one of the founders is ejected, the lawyer may be precluded from continuing to work for the business.
Firms must employ reasonable cybersecurity. Cybersecurity is a hot topic, but so far there is no specific ethical rule on what minimum security standards lawyers and firms must employ. This does not mean that lawyers can ignore cybersecurity. Rather, lawyers should assess their specific needs and capabilities, adopt reasonable measures, and document that process.
Richard G. Douglass is a partner at Novack and Macey LLP in Chicago, Illinois.