Dishonest or “unworthy” clients represent major professional liability risks to law firms. Among 73 publicly reported settlements or judgments against U.S. law firms that exceed $20 million, 45 are primarily attributed to the representation of dishonest clients. And those are only publicly reported cases — others involving similar amounts were resolved confidentially, writes Douglas R. Richmond, managing director of Aon, a British-American professional services firm, in an article for the ABA Center for Professional Responsibility.
But along with financial issues, representing unworthy clients represents a significant professional responsibility risk. ABA Model Rule of Professional Conduct 1.1 mandates that a lawyer competently represent a client. Competent representation presupposes that the lawyer is rendering assistance in carrying out a client’s lawful objectives. But a client’s planning of, or participation in, crimes, fraud and other knowingly unlawful conduct is not a lawful objective.
Richmond shares eight trouble signs that might signal to a lawyer that a client will be problematic:
- Changes in professional relationships. Be wary of clients who have recently or frequently changed auditors, bankers, investment bankers or lawyers. Be especially wary if the client complains that the former professionals did not understand their business or were overly cautious, or ask you whether you will accept a representation that a similar firm has declined.
- Weak or nonexistent professional relationships. Scrutinize clients who intend to make public offerings using the services of undistinguished underwriters or who want to engage seemingly unqualified law firms to issue opinions on a transaction.
- Unexplained departures. Be cautious when an important client executive has unexpectedly resigned or resigned without an adequate or plausible explanation.
- Questionable business plans or strategies. Exercise caution if a client has dramatically changed its business strategy or line of work, or appears to be pursuing a business strategy that calls for expertise, capital or other resources beyond its reach.
- Unusual revenue. Be skeptical if a client’s revenue growth is unusually rapid or appears to be inexplicable when viewed in context.
- Conspicuousness and extravagance. Beware of individual clients who are making conspicuous purchases, such as extraordinarily large or multiple houses, airplanes, boats and luxury automobiles or who otherwise appear to be living beyond their means.
- Lack of information. Be careful regarding organizational clients about which little information exists. Offshore entities may be a special concern.
- Misinformation or misrepresentation. Beware of clients who give inaccurate or misleading accounts of events or transactions, who offer unreliable explanations for events or incidents, or who decline to provide information you need for their representation.
Learn more in “Dishonest or Unworthy Clients: Pink Flags” from the ABA Center for Professional Responsibility. The center provides national leadership in developing and interpreting standards and scholarly resources in legal and judicial ethics, professional regulation, professionalism and client protection.