Risk Update

Risk Reading — Clients Aren’t Property, Pandemic Ethics and Conflicts, Lawyers Technological Competence & Regulatory Sandboxes

A few interesting odds and ends I’ve come across recently, spanning a few topics. Starting with: “Looking at Your Firm’s Balance Sheet: Law Firm Clients, and Lawyers, are Not Property” —

  • “It has been almost two years since the California Supreme Court issued its decision in Heller Ehrman v. Davis Wright (2018) 4 Cal.5th 467, holding that a dissolved law firm has no property interest in fees generated after dissolution for hourly matters that were in progress when the firm dissolved. And earlier this year, on February 13, 2020, the District of Columbia Court of Appeals essentially made the same finding in Diamond v. Hogan Lovells US LLP (D.C. 2020) 18-SP-218. These cases put to bed – once and for all – the idea that a law firm is entitled to future profits from the firm’s clients as an ongoing property right.”
  • “In a narrow sense, this means that a lawyer who leaves a dissolved law firm and takes clients to a new law firm does not have to give back profits earned on those matters at the new firm. But in a much broader sense, these courts reaffirmed something that should guide all lawyers and law firms managing partner or group departures: law firm clients are not property. This might sound obvious since clients have the right to choice of counsel and, in fact, this principle is part of what guided the court to reaffirm that law firms do not own clients.”
  • “As the court made clear in Heller, revenue from any client, who can leave the firm at any time, is an expectation interest, but not a property interest. So law firms don’t own clients, although the revenue stream from clients is an asset of the firm, at least until it isn’t.”
  • “On the other hand, law firms have the right to fair competition with departing lawyers for those clients, and should hold the lawyers to their fiduciary duties and their contractual obligations under the partnership agreement.”
  • “For lawyers, the fact that the law firm doesn’t own the clients and doesn’t own the practices doesn’t mean that you have carte blanche to do as you wish when you are departing. You still owe fiduciary duties to your firm and you may have contractual obligations to the firm. Ultimately, you have the right to compete for the clients, just like the firm does, after you give notice of your departure. But you shouldn’t rig the system and compete for clients before the firm knows you are leaving. Also, if you are retiring or selling your interest in your firm, if you have not properly planned for that event, the value of your interest in the firm may be much different than you think.”

A Taxonomy for Lawyer Technological Competence” —

  • “…in October 2019, the Federation of Law Societies of Canada amended its Model Code rule on competence to include explicit reference to technological competence. Several provincial and territorial law societies have incorporated this amendment into their respective codes, and more will hopefully soon follow suit.”
  • “The fact that there now exists a formal duty of technological competence raises the question of what, exactly, does this duty entail? What does this duty require from lawyers? In a strict sense, these questions will only be answered if and when Canadian law societies issue specific guidance or bring public disciplinary proceedings against lawyers for alleged breaches of the duty of technological competence.”
  • “In the meantime, I’ve been thinking about how we might frame our understanding of a lawyer’s duty of technological competence. This column offers an initial, 6-part (alliterative!) taxonomy for thinking about technologically competent lawyering.”
  • See the full article for more details

The Paradigm Shift of Regulatory Sandboxes” —

  • “Earlier this fall, the Law Society of British Columbia made headlines when it announced the creation of an “Innovation Sandbox” that would allow unauthorized providers of legal services to deliver those services in BC on a pilot-project basis while the regulator assesses their reliability and effectiveness.”
  • “The LSBC Sandbox is modelled on a similar project recently launched by the State Bar of Utah, which has already received several applications from innovative legal services providers seeking to close the access-to-justice gap in that state. California has been considering a similar initiative for several months now.”
  • “There are people (primarily lawyers) who think the law society has gone too far and is risking lawyers’ livelihoods by opening the market to non-lawyer providers. There are also people (primarily not lawyers) who think the law society has not gone far enough, that the Sandbox will suffer the same fate as authorized paralegal programs and will fail to really address the A2J crisis.”
  • “The Sandboxes take a different and, I think, better approach. Rather than lawyers generously permitting ‘non-lawyers’ to fill legal needs they’re not interested in serving, the Sandbox opens its doors and says, ‘Anyone who wants to provide legal services, come in and show us what you’ve got.’ They’re offering a new approach to regulating the delivery of legal services — a demand approach (what the market needs), rather than a supply approach (what lawyers are willing to do and allow).”
  • “So these Sandboxes might look, from outside the profession, like a very small step forward. But viewed from the inside, I think they’re something close to a paradigm shift, and their potential impact is significant. They represent the possibility of fundamental change for the better in the underlying premise of legal services regulation.”

New Ethics Opinion Addresses Lawyers’ Obligations When Required To Return To Court In-Person During A Pandemic” —

  • “Nine months ago the COVID-19 pandemic brought court operations in New York State to a near standstill. In the past few months, courts have slowly started to resume in-person appearances, but those plans were recently stalled owing to a spike in COVID-19 cases. Although the courts are understandably eager to resume in-person appearances, a lawyer may be hesitant to return in person owing to the associated health and safety risks.”
  • “A recent ethics opinion from the New York City Bar Association Committee on Professional Ethics (Opinion 2020-5) addresses a lawyer’s ethical obligations when required to return to court in person during a public health crisis. In short, the Opinion concludes that a lawyer’s health and safety concerns may create a conflict of interest which, if the conflict cannot be waived, may require the lawyer to withdraw. As detailed below, the Opinion provides a helpful roadmap for lawyers to analyze the conflict of interest rules as well as other ethical obligations when facing a directive to return to court in person.”
  • “The Opinion also provides some examples of situations where a lawyer’s health and safety concerns could compromise the lawyer’s professional judgment. For instance, a lawyer’s desire to request an adjournment or permission to appear remotely ‘could be in direct conflict’ with the client’s interests in having the lawyer appear in person.”
  • “Because the Opinion concludes that a lawyer’s health and safety concerns could create a conflict of interest, the Opinion next analyzes whether such a conflict is waivable… Whether a conflict based on a lawyer’s health and safety concerns is waivable turns on whether the lawyer reasonably believes that he or she will be able to continue to meet the “minimum standards of competence and diligence” contained in Rules 1.1 and 1.3. If so, the client can waive the conflict in writing after the lawyer explains the conflict to the client including the potential risks and the reasonably available alternatives.”
  • “The Opinion also concludes that if the conflict is not waivable, either because the client refuses to consent or because the conflict prohibits the lawyer from competently representing the client, then the lawyer would be obligated to withdraw under Rule 1.16(b)(1).”