Robert A. Creamer, Joseph R. Lundy and Brian J. Redding,
Attorneys' Liability Assurance Society, Inc., A Risk Retention Group,
to the American Bar Association Ethics 2000 Commission
February 15, 2001
Marriott Hotel & Marina
San Diego, California
Chief Justice Veasey and Members of the Commission:
We begin by acknowledging, as many others have done, the extraordinarily thorough, careful and open process this Commission engaged in to produce the report it submitted on November 27, 2000. As the Commissioners and staff know, we have followed the Commission's deliberations carefully, serving on your Advisory Council, attending every hearing and open meeting of the Commission since its inception, and submitting testimony and other commentary on numerous occasions. We have been impressed with the care and conscientiousness of the Commission and Reporters, and believe, in general, that most of the Commission's recommendations serve the profession well, and fairly balance the interests of lawyers, their clients and others in the legal system.
Despite our generally positive view of the Commission's work, there are three of your recommendations that do not and will not serve well the profession or the public. We take the opportunity of this hearing to bring these three issues to your attention, and to urge you to reconsider your current recommendations on these issues before you submit your final report to the House of Delegates. The three issues that we urge the Commission to reconsider are (1) law firm discipline, (2) the requirement that all conflict consents must be confirmed in writing, and (3) the "litigation exception" to screening for laterally hired lawyers .
I. Law Firm Discipline
The Commission's current report recommends that Model Rules 5.1(a) and 5.3(a) be amended to impose discipline on law firms, in addition to individual law firm partners as in the present versions of those rules. Current Model Rule 5.1(a) imposes an obligation on all law firm partners to make reasonable efforts to ensure that a firm has in effect measures reasonably assuring that all lawyers in the firm comply with the legal ethics rules. Model Rule 5.3(a) imposes a similar obligation with respect to compliance by non-lawyer firm employees with a lawyer's professional obligations. The proposed amendments would make these obligations applicable to law firms as well as to individual firm partners.
The Commission should reconsider its recommendations on Model Rules 5.1(a) and 5.3(a) for three reasons: (A) law firm discipline is unnecessary; (B) it is unwise; and (C) it will inevitably be unfair to many law firm members who have not violated the legal ethics rules.
A. Law Firm Discipline Is Unnecessary
We were present when representatives of the National Organization of Bar Counsel (NOBC), the professional association of lawyer disciplinary officials, informed the Commission that those representatives did not believe the proposed amendments are necessary in order to assure compliance by law firms with Model Rules 5.1(a) and 5.3(a), or in order to discipline the managements of law firms that do not comply with those rules. Surprisingly, in our view, the Commission ignored this advice from the organization that represents officials charged with enforcement of the current legal ethics rules.
The Commission's proposed new Comment  to Model Rule 5.1 illustrates how unnecessary the amendment to that rule is. The proposed Comment offers as an example of where firm discipline would be appropriate a situation where "a law firm . . . has no system for identifying conflicts of interest". But the existing Rule 5.1(a) already applies to every partner in the firm, including those with firm management responsibility. These firm managers would obviously be the appropriate targets for disciplinary enforcement in the example cited, not the firm itself. The firm, as a firm, can act or fail to act only through its partners or shareholders.
The Reporter's Explanation for the proposed changes is equally unconvincing. The Reporter explains that law firm discipline,
will facilitate discipline in situations in which it may be clear that [Model Rule 5.1(a)] has been violated by the firm, but that no particular lawyer can be identified as personally responsible or, alternatively, that all the partners are co-equally responsible for the problem.
Reporter's Explanation of Changes to Model Rule 5.1, 3. But in the case of small firms, it is entirely practical, and much more effective, to discipline all partners for a firm's ethical violations. In large firms it is both practical and more effective to discipline those partners within the firm who had managerial responsibility and authority to deal with the problem or those lawyers that actually engaged in misconduct where misconduct was responsible for the firm's violation. Significantly, the Reporter cites no instance in which a state disciplinary authority was unable to deal effectively legal ethics violations because of inability to prosecute a law firm. Nor, to our knowledge, were any such instances brought to the Commission's attention by state disciplinary authorities.
The primary presentation to the Commission of which we are aware urging the proposed amendments on law firm discipline was oral testimony by Ralph Elliot on behalf of the ABA Standing Committee on Professional Discipline. (Minutes of Commission Meetings on March 24-25, 2000, in Chicago, Illinois, part XI.) Mr. Elliot informed the Commission that his Committee recommended the amendment of Model Rules 5.1 through 5.7 and possibly Model Rule 8.4, to make all of them applicable to law firms, and that the Standing Committee was prepared to take its own recommendations on this subject to the House of Delegates if this Commission did not take some action. Although Mr. Elliot apparently submitted no written testimony, we do not recall that he cited any actual instances of violations of the legal ethics rules in which no firm lawyer could be held responsible. In response to Mr. Elliot's testimony, we believe the better course would have been (and still would be) for this Commission to allow the Standing Committee to take its case on law firm discipline directly to the House of Delegates, where the subject could be more thoroughly considered and separately voted on.
The best evidence that a legal ethics rule on law firm discipline is not necessary is the fact that only two out of 51 U.S. jurisdictions, New York and New Jersey, have adopted such a rule. Based on our informal contacts with experts on lawyer discipline and disciplinary authorities in those states, we have learned that these New York and New Jersey rules have been used very infrequently. According to lawyers familiar with lawyer discipline in New York, since 1996, when the New York Code was amended to impose Model Rule 5.1(a) and 5.3(a) type obligations on law firms, three of the four Appellate Divisions of the New York Supreme Court (which administer the lawyer disciplinary system) have not even issued implementing regulations for these new rules. In the First Appellate Division, where regulations have been promulgated, only two "private admonitions" have been issued to small New York firms for minor professional misconduct.
In New Jersey, which has had versions of Rules 5.1(a) and 5.3(a) that apply to law firms since 1984, we have found only three reported cases in 17 years in which law firms have been disciplined. In the Mater of Jacoby & Meyers, 147 N.J. 374, 687 A.2d 1007 (1997); In the Matter of Ravich, Koster, Tobin, Oleckna, Reitman & Greenstein, 155 N.J. 357, 715 A.2d 216 (19980; and In the Matter of Rovner, Allen, Seiken and Rovner, 164 N.J. 617, 754 A.2d 554 (2000). Although New Jersey has gone further than New York in publicly, as opposed to privately, reprimanding these law firms, the facts of the cases make clear that individual lawyers could have been identified and sanctioned in each situation.
If there were a widespread perception among lawyer disciplinary authorities that many important legal ethics rules were going unenforced because no individual partner could be disciplined, surely more U.S. jurisdictions would have acted to address the problem. The fact that only two jurisdictions have done so (and that even in those jurisdictions only five law firms have been publicly or privately reprimanded) is the strongest possible evidence that the Standing Committee's proposal, which this Commission has now adopted, is "a solution in search of a problem". This Commission's recommendation to impose on law firms the obligations of Model Rules 5.1(a) and 5.3(a) is one of the few instances we know of in which the Commission has violated the salutary precept, "if it ain't broke, don't fix it".
B. Law Firm Discipline Is Unwise
Robert A. Creamer has previously submitted written testimony to this Commission addressing the concern that the proposed law firm discipline amendments will weaken individual lawyer responsibility for ethics compliance. We continue to be concerned about this possible effect of the proposed amendments to Model Rules 5.1(a) and 5.3(a). From the Reporter's Explanation of these proposed changes, we sense that the Commission shares this concern. As to both proposals, the Reporter asserts:
Although no change in substance in a lawyer's personal responsibility for compliance with paragraph (a) is intended, it is hoped that the prospect of law-firm discipline will provide an additional incentive for each partner or managing attorney to comply with paragraph (a).
Reporter's Explanation of Changes to Model Rule 5.1, 3, and to Model Rule 5.3, 2. We submit that a mere "hope" that the proposed change will strengthen individual lawyers' sense of responsibility for ethics rule compliance is a weak basis for such a potentially far-reaching change in responsibility for legal ethics compliance. The touchstone of legal ethics compliance in every U.S. jurisdiction has always been individual lawyer responsibility for conduct, both the lawyer's own conduct and the conduct of others the lawyer supervises or controls. This Commission should do nothing that has even the possibility of vitiating or weakening this obligation of individual responsibility.
In our experience dealing with actual or alleged misconduct by lawyers in ALAS firms, it is virtually never the case that the firm , qua firm, is the problem. The problem, when there is one, is that an individual lawyer or lawyers have, intentionally or accidentally, failed to follow firm policies, to their detriment and that of the firm. It is our view that any change in the ethics rules that de-emphasizes in any respect the individual responsibility of each lawyer to follow those rules, e.g., by shifting responsibility to the firm, lessens, not increases, focus on the rules and will be counterproductive in achieving compliance with the rules.
C. Law Firm Discipline Will Be Unfair To Many Lawyers
Most importantly, law firm discipline, with its apparent acceptance of the concept of "collective guilt", is fundamentally at odds with the emphasis of the current legal ethics rules on individual accountability, and with lawyer disciplinary procedures carefully designed to assure fairness to those accused of disciplinary violations. It raises the specter of the innocent being punished along with the guilty, and will inevitably create a sense of unfairness about the lawyer disciplinary process.
The result of imposing discipline for a "firm violation" of the legal ethics rules will be to visit sanctions on innocent lawyers who had nothing to do with, and may not even have been aware of, the conduct that caused the firm's violation. Since law firms are not admitted to law practice, and cannot be disbarred or suspended, the only apparent sanctions for "firm violations" of the ethics rules will be reprimands, monetary fines, or perhaps limitations on the future conduct of firm lawyers. But innocent lawyers in the firm will be subjected to these sanctions just as surely as will the guilty ones. These innocent lawyers will share in the opprobrium and adverse client reaction caused by a firm reprimand. Innocent partners will, in effect, pay a portion of any fine imposed upon the firm. And innocent firm lawyers will be just as subject to limitations on future conduct of firm lawyers as those whose actions, or failure to act, caused the violation. Indeed, in the case of many "firm violations", any discipline imposed on the firm would undoubtedly penalize far more innocent firm lawyers than guilty or responsible ones.
If the Commission's current recommendations on law firm discipline are adopted, a host of new lawyer disciplinary issues will arise. What must lawyers in disciplined firms disclose when applying for pro hac vice admission in other jurisdictions, or in seeking admission to the bar in other states? Must they disclose that they have been the subject of disciplinary action? Must they disclose that their firm has? If a firm with offices in many states is disciplined, must it report this to lawyer disciplinary authorities in other states? Does a lateral lawyer joining a disciplined firm share in the taint of the firm's sanction? Must a lateral partner contribute to paying any monetary fine imposed on the firm? What about lawyers who leave a disciplined firm, must they continue to report that they were sanctioned, or that their former firm was sanctioned while there were part of it?
The concept of collective guilt that underlies "law firm discipline" is inconsistent with a system premised on individual lawyer responsibility and fairness to respondents in disciplinary proceedings. The Commission should not recommend rules changes that could have such a perverse and unfair effect on many lawyers.
II. Consents To Conflicts Should Not Be
Required To Be Confirmed In Writing
ALAS has for many years encouraged lawyers in its member firms to obtain client consents to conflicts of interest in writing, or to confirm in writing a client's or former client's oral consent to a conflict of interest. (For simplicity, we will hereafter refer to consents of "clients", with the intention of including consents of both current and former clients.) There is no question that confirming consents in writing is a "best practice", and often benefits the lawyer as much as the client. The question, therefore, is not whether it is desirable for lawyers to confirm client consents in writing, but whether it is realistic and fair, given the exigencies of law practice, to require written confirmation of an informed client's oral consent (1) as a condition for the effectiveness of the consent, (2) in order for the lawyer to avoid professional discipline, (3) in order for the lawyer and his or her firm to avoid disqualification, and (4) in order for the lawyer to avoid liability to the client for malpractice or breach of fiduciary duty. We believe that it is not. We offer below an alternative to the Commission's current recommendation on written confirmation of consents that accomplishes much of what the Commission seeks to achieve, but without the undesirable and possibly drastic effects on lawyers and the lawyer-client relationship of the Commission's current proposal.
A. Why Written Confirmation Should
Be Required for All Client Consents to Conflicts
Two hypothetical situations, representing common factual patterns in modern litigation and transactional law practice, illustrate the problem:
Lawyer is in the closing days of a long trial representing Corporation A. As a rebuttal witness, Lawyer's opponent calls Accountant. Because Accountant is a rebuttal witness, Lawyer had no advance notice that he would be called as a witness. Accountant and his firm are long-time clients of Lawyer's firm on matters unrelated to the subject of the trial. It might present either a "direct adversity" or a "material interest" conflict for Lawyer to cross-examine Accountant, so Lawyer seeks consent from the Accountant and from A's general counsel, who is sitting next to Lawyer at counsel table. Both give fully informed consent for Lawyer to proceed, but there is no time or means to confirm the consents in writing. The cross-examination of Accountant proceeds, and Accountant proves to be devastating witness against A. Despite aggressive cross-examination of Accountant by Lawyer, a $5 million judgment is entered against A, largely as a result of Accountant's testimony. A's General Counsel, while admitting that he gave informed oral consent, brings a disciplinary charge against Lawyer for failing to confirm the consent in writing which, the General Counsel claims, would have given him more time to consider the issue, and would have caused him to insist that a lawyer with no conflict handle the cross-examination of Accountant. Corporation A also sues Lawyer and his firm for $5 million for malpractice and breach of fiduciary duty because the General Counsel's consent was not confirmed in writing as required by the legal ethics rules. In addition, Accountant, angry at the aggressiveness of Lawyer's cross-examination, files a disciplinary complaint against Lawyer for failing to confirm Accountant's consent in writing.
Lawyer represents Corporation A in a sale of assets to Corporation B. On the day of the closing, Lawyer learns that the bank financing B's purchase of A's assets will not be First Bank, as originally planned, but Second Bank, a long time client of Lawyer's firm on unrelated matters. Since Second Bank is now on the other side of the transaction, Lawyer seeks consents from both A's and Second's representatives at the closing to proceed with the closing. Both representatives give fully informed consent, but there is no time or means to confirm the consent in writing. After the closing, B defaults on the loan from Second, and the assets in which Second had a security interest prove to be worth far less than the unpaid balance of the loan. Second files a disciplinary complaint against Lawyer because its consent was not confirmed in writing which, Second claims, would have given it time to insist that another lawyer represent A in the closing. Second also sues Lawyer and his firm for the uncollectible amount of its now defaulted loan to B, alleging that Lawyer's failure to confirm Second's consent in writing was a breach of his fiduciary duty to Second.
As these hypotheticals demonstrate, the "confirmation in writing" requirement proposed by the Commission will shift the focus of disciplinary, malpractice and disqualification inquiries from whether the client's consent was adequately informed to whether the lawyer confirmed the consent in writing. This is not an issue on which disciplinary sanctions, lawyer liability or lawyer and law firm disqualification should turn. We have a suggestion that will provide lawyers a strong incentive to confirm consents in writing, but avoid the risks of disciplinary sanctions, disqualification or liability when an informed consent is not confirmed in writing.
Suggested Changes In Rules 1.7(b), 1.9(b) and Comments
We suggest that the Commission's recommended version of Model Rule 1.7(b), dealing with current client consents, and Model Rule 1.9(b), dealing with former client consents, be changed to indicate that confirmation of consents in writing is preferred, but not required. This would make these rules essentially similar in effect to the current Model Rule 1.5(a), which recommends that initial engagement agreements with clients not involving contingent fee arrangements should "preferably" be in writing. With this small wording change in the Commission's currently recommended Model Rule 1.7(b), the lead in sentence would read [added language underlined]:
(b) Notwithstanding the existence of a concurrent conflict of interest under paragraph (a), a lawyer may represent a client if each affected client gives informed consent, preferably confirmed in writing, and: . . .
Likewise, the Commission's proposed Model Rule 1.9(b), the phrase "confirmed in writing" could be changed to " preferably confirmed in writing".
The Commission's proposed Comment  to Model Rule 1.7 would need only minimal changes to accommodate the new black letter rule. The first sentence could be changed slightly to read (language proposed to be deleted is struck out, language proposed to be added is underlined): "Paragraph (b) requires the lawyer to obtain the informed consent of the client,
and encourages the lawyer to confirm
the consent in writing". The fourth and fifth sentences of proposed Comment  could be changed to delete references to a "requirement" for a confirmatory writing as follows: "The
requirement of a writing does not supplant the need in most cases for the lawyer to talk with the client, . . . . Rather, the writing is
useful in order to impress upon clients the seriousness of the decision . . .". With these changes, Model Rules 1.7 and 1.9 would place sufficient emphasis on the desirability of confirming client consents in writing, but would not present the danger that important disciplinary, liability and disqualification issues will decided on the basis of the formality of written confirmation.
III. The Litigation Exception to
Screening Provisions of Rule 1.10
Finally, we wish to comment briefly on the action taken by the Commission at its fall meeting in Philadelphia with respect to the screening issue. In the morning session in Philadelphia the Commission voted to adopt, in Rule 1.10 (c), a screening rule that avoids imputation to others in the firm of a conflict that a lateral transfer brings to the firm, so long as a prescribed screening mechanism is followed and the former client receives written notice. That amendment was one that we supported. In fact, it was essentially equivalent to the system that we, and other commentators, had previously suggested to the Commission. In the afternoon session at Philadelphia the Commission modified the screening rule it had adopted that morning to exclude from that rule situations where a lateral lawyer had "a substantial role" at the old firm in the same litigation matter in which the new firm represents an adverse party. Because of the "eleventh hour" adoption of this exception to the screening rule, we have not previously had an opportunity to comment formally.
We believe the litigation exception adopted at the eleventh hour weakens the screening rule, and should be deleted, thus returning Rule 1.10 (c) to the form drafted by the Reporter and initially adopted by the Commission in Philadelphia. Our view is based upon the following:
A. In Screening Jurisdictions,
Screening Works For Litigators
As we believe we demonstrated in our prior submissions, those jurisdictions that have adopted screening rules covering all matters, including active litigation matters, have had no problems with operation of the rule. You will recall that our prior submission to the Commission included testimonials from several lawyer regulatory commissions indicating that their screening rules worked well and they knew of no problems in operation of the rule. We know of no indication that litigation has been different from transactional work in this regard.
B. Litigators Are No Less
Trustworthy Than Other Lawyers
The litigation exception to screening singles out litigators for special treatment under the ethics rules. The obvious implication from the current draft of Rule 1.10 (c) is that litigators are less trustworthy or conscientious than transactional lawyers. Your draft may be read to imply that litigators are either less honest than transactional lawyers (and will intentionally violate the screen) or less able to comply with their obligations (and will accidentally violate screens where transactional lawyers will not).
The Commission has now approved screening for lateral transfers who are:
a) Former government lawyers [Rule 1.11 (b)];
b) Former judges; arbitrators, mediators and other third-party neutrals [Rule 1.12 (c)];
c) Former law clerks, secretaries and paralegals [Comment  to Rule 1.10]; and
d) All transactional lawyers.
(The Commission has also approved screening for all lawyers involved in "initial interview" conflicts in its proposed Rule 1.18.) Only litigators who had a "substantial" role in currently pending matters are excluded from the benefits of lateral-transfer screening procedures adopted by the Commission.
C. The Litigation Exception Will Deny Lateral Opportunities
to Litigators, Encourage Tactical Use Of Disqualification Motions,
And Deny Litigation Clients Their Counsel of Choice
The Commission's litigation exception will have a substantial impact on lateral transfers, and detract from the benefits to lawyers and clients that the Reporter's original draft would have provided. The preclusive effect of the litigation exception may be substantial because no one will be able to predict with certainty what is a "substantial role". (This was a significant problem with the # 124 Restatement-type screening contained in earlier Commission drafts.) Thus, out of fear that the other side, for tactical reasons, will unreasonably contend that lawyers had a "substantial role" in a particular case, the currently proposed rule will interdict most lateral transfers of litigators who have worked, even briefly, on a matter. Further, in those situations where the firm moves forward with hiring a lateral litigator on the supposition that the lawyer's role was insubstantial, there will be challenges and, in all probability, the erroneous granting of some motions to disqualify, thus depriving clients of their counsel of choice.
D. The Litigation Exception Will Continue To
Impose Substantial Costs On The Legal System
While Rule 1.10 (c) as currently drafted is preferable to the existing Model Rule, the litigation exception will continue to generate the type of harm that screening can, and should, avoid. If a firm is dissolving, or a practice group is moving to another firm, operation of the litigation exception will continue to cause individual lawyers, or groups of lawyers, to be denied employment at prospective firms. Those who oppose screening dismiss as inconsequential the employment concerns of individual lawyers. We disagree with that view, but there are additional concerns as well.
In a prospective merger situation, firms can expend enormous amounts of lawyer and administrative staff time seeking to work out dozens or hundreds of conflict situations through the waiver process, only to have the project scuttled by a few clients refusing to consent. Often these consents are refused solely or primarily as a matter of litigation tactics. The simple fact is that in terms of additional administrative time, stifled employment opportunities, often for young lawyers, and deprivation of counsel of choice for clients, the litigation exception, like the existing Model Rule, imposes substantial costs on the legal system, with, in our view, virtually no corresponding benefit to that system.
In conclusion, we urge the commission to rethink the litigation exception to lateral screening. That exception demeans those among us who litigate cases. It implies that they are less honest and less honorable than transactional lawyers in the same firms. It impugns the integrity of many who are members of the ABA, including all of those populating the Association's largest section. That could be avoided by simply deleting the litigation exception, and returning to the Reporter's carefully crafted draft of Rule 1.10 (c).
Robert A. Creamer Joseph R. Lundy Brian J. Redding
[Robert A. Creamer, Joseph R. Lundy and Brian J. Redding are Loss Prevention Counsel for the Attorneys' Liability Assurance Society, Inc., A Risk Retention Group (ALAS), an association of more than 260 large U.S. law firms, which provides professional liability insurance coverage to over 51,000 lawyers practicing in the United States and abroad. They each engaged in private practice at ALAS firms for a collective total of 70 years before joining ALAS. Loss Prevention Counsel at ALAS daily consult with lawyers in ALAS firms about legal ethics and lawyer liability problems they encounter in their practices. Messrs. Creamer, Lundy and Redding have a collective total of 22 years of experience in rendering such legal ethics consultation services. They also write, speak and teach about legal ethics and lawyer liability issues on a regular basis.]