In 2009 the Kentucky Supreme Court substantially revised the Kentucky Rules of Professional Conduct.
Articles in this index written before 2009 citing Kentucky Rules of Professional Conduct must be checked for any changes to the rule cited.

The Top Five Ethical Violations Found in Malpractice Claims

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The ABA’s 2011 Spring National Legal Malpractice Conference included the program “Top Five Ethics Violations and Resulting Claims for Legal Malpractice.” What follows is a synopsis of the program plus some risk management thoughts of our own.

  1. Client Identity
    The panelists pointed out these situations when problems over who is a client often arise:
    • Prospective clients
    • Joint representations
    • Corporate affiliates
    • Unincorporated entities: LLCs, partnerships, associations, consortium, pre-incorporation
    • Controlling shareholders
    • Individuals v. entities: board members, officers, employees, constituents
    • Third party payors
    • Other third parties: beneficiaries, lenders, investors, joint venturers, opposing parties

Risk management procedures recommended by the panel include:

    • Use file-opening procedures that clearly identify the client.
    • Always use letters of engagement to document who the client is.
    • Have as firm policy that joint representations are discouraged.
    • Have as firm policy that representing individuals within client entities is discouraged.
    • Always use letters of nonengagement when a prospective client does not become a client.
    • Be thoroughly familiar with the professional responsibility rule on Organization as Client. (Note: In Kentucky SCR 3.130, Rule 1.13)

We add to the panel’s thoughts these risk management considerations in client identification from our newsletter and Bench & Bar articles:

    • When you represent a business entity client there is always the risk of giving nonclient officers and employees the erroneous impression that you are their lawyer and acting in their interest. Make sure everyone (including you) knows whom your client is. In any ambiguous situation clarify your role early. If necessary to make your position perfectly clear, advise nonclients to get counsel. Make sure that officers and employees of business entity clients no matter how high ranking understand you represent the business -- not them.
    • When you provide information verbally or in writing directly to a nonclient in a business transaction there is always the risk that your role will be misunderstood and the nonclient will later claim reliance on your “advice.”
    • When you do a legal service favor for a nonclient “just” to facilitate your client’s business there is a risk that this favor will justify the nonclient’s reliance on you as if they were also a client. Avoid tempting reliance on you by nonclients through your affirmative conduct (accommodative minor legal service to get the deal done) and passive conduct (allowing impressions to stand that you are acting in the nonclient’s interest as well as your client’s).
    • When you provide information and opinion letters to clients that you know will be passed on to nonclients it is reasonable to expect the nonclient to rely on that information. This usually exposes you to liability for erroneous or misleading representations. In appropriate circumstances caution your client that your advice is offered in the client’s best interest and should not be passed on as “good advice” to nonclients involved in the same business transaction.
  1. Scope of Representation
    The panelists discussed the scope problems created by a mushrooming scope, unbundling of services, client budget restrictions on scope, and partnering with other lawyers. The panel recommended:
    • Use a letter of engagement to carefully document the scope of representation and any limitations on scope.
    • Document communications with the client about case status.
    • Document cost-benefit discussions and client imposed limitations on research and number of lawyers working on the matter.

Lawyers Mutual recommends that a limited scope representation letter of engagement include the following:

    • The client’s situation and goals.
    • The tasks the lawyer will accomplish.
    • The available options and opportunities.
    • The anticipated costs of various tasks necessary to achieve the client’s goals.
    • Tasks not assigned the lawyer.
    • The benefits and risks of the tasks that the lawyer will undertake.
    • Tasks the client has agreed to perform. (From “Avoiding Malpractice In Unbundled Services,” Katja Kunzke, Wisconsin Lawyers Mutual Ins. Co.)
  1. Conflicts
    The panelists discussed conflict issues that involved erroneous client identification as the root problem. Also covered were conflicts involving joint representations, hot potato clients, and those arising during a representation. It was suggested that lawyers:
    • Avoid any appearance of a conflict.
    • Notify clients of a possibility of or potential conflict that may become adverse.
    • Avoid, or discuss with clients, representing competitors.
    • Advance no legal position adverse to the interest of a client.
    • Do not engage in representation of a new client involving differing interests with a current client whether conflicting, inconsistent, diverse, or discordant.
    • Do not engage in positional or issues conflicts.
  1. Doing Business with Client
    The panelists discussed stock ownership and other investments in clients. Other business relationships covered were litigation financing, landlord-tenant, customer of client’s business, and client requested referrals. The panel’s recommendations were succinct:
    • Don’t do business with clients.
    • If you must, then disclose and document. (Note: See SCR 3.130, Rule 1.8 (a)).
    • Consider requiring independent counsel or paying for it.
    • Get advance consents to foreseeable conflict issues.

Lawyers Mutual recommends that when doing business with a client include in the required documentation:

    • The nature of the transaction and each of its terms including all circumstances of the transaction known to the lawyer.
    • The nature and extent of the lawyer's interest in the transaction and any potential adverse effects the transaction could have on the client including the effect they could have on the lawyer's and client's relationship.
    • The ways in which the lawyer's participation in the transaction might affect the lawyer's exercise of professional judgment on concurrent legal work for the client, if any.
    • A clear statement of the risks and advantages to each of the parties to the transaction.
    • An agreement that if future circumstances affecting the lawyer's independent judgment occur, renewed disclosure and consent must precede continued representation.
    • The kind of advice the client would have received if the client had been a stranger.
    • Specific advice stressing the importance of seeking independent legal counsel to obtain a detailed explanation of all risks associated with the business transaction.

This list is a combination of disclosure recommendations in Wolfram, § 8.11.4, Modern Legal Ethics; and the ABA/BNA Lawyers' Manual on Professional Conduct, Business Transactions with Clients, 51:501 at 51:506.

  1. Getting Paid and Getting Out
    This topic concerned the classic situation when a lawyer is owed considerable unpaid fees and wants to be paid and to be shed of the deadbeat client. Dunning the deadbeat often results in a malpractice claim. The panelists recommended:
    • Avoid the problem by getting an adequate retainer.
    • Watch out for clients in bankruptcy.
    • Get out; don’t get in deeper.
    • Don’t sue clients for fees.

Lawyers Mutual’s long-standing risk management advice on suing clients for fees is to use the following check list:

    • Was a good result obtained in the underlying case?
    • Is the size of the fee sufficient to warrant the risk of a malpractice counterclaim?
    • Has a disinterested lawyer of experience reviewed the file for malpractice?
    • How reasonable were the fees?
    • Will work on the matter as reflected on billing withstand cross-examination?
      • Does billing indicate over-practicing?
        • Too many meetings, telephone calls, and research hours.
        • Billing for several lawyers reviewing or preparing to discuss the file.
        • Over-qualified personnel for the work.
      • Are entries vague?
        • No names and no billing rates for the work done.
        • Itemized bills use generic terms such as “phone call” or “meeting” with no substantive information.
      • Subject to being misconstrued?
        • Billing for “soft costs” (copying, fax) and general overhead (heat, air conditioning).
        • All telephone calls take .3 hours; all dollar amounts are nice round numbers or end in five.
    • How much non-billable time will be spent defending any malpractice counterclaim?
    • Will any judgment obtained be collectible?
    • Will you recover more than you spend?

 


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Disclaimer: The contents of this Web site are intended for general information purposes only and should not be construed as legal advice or legal opinion on any specific facts or circumstances. It is not the intent of this Web site to establish an attorney’s standard of due care for a particular situation. Rather, it is our intent to advise our policyholders to act in a manner which may be well above the standard of due care in order to avoid claims having merit, as well as those without merit. In the event any statement on the Web site differs from a statement in an issued policy the policy will control.

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