NC Legal Ethics

The North Carolina State Bar Council adopted proposed revisions to the opinion concerning the involvement of corporations, title companies and other non-lawyers in real estate closings.   Revised Authorized Practice Opinion 2002-1.  I previously wrote a blog on the proposed revisions to this opinion, which were published after the Bar’s October meeting.  One of the concerns that I raised in that prior blog was that the Bar’s revisions took an overly broad interpretation of its statues in stating that they prohibited anyone from arranging for the services of an attorney in real estate closings.  I believed this would disrupt business as usual for many real estate practices, including regular relationships with real estate and mortgage brokers.

In response to comments submitted about the proposed revisions, including from the NC Bar Association’s Real Property Section, the Bar added an additional sentence to the last footnote that at least partially addresses this concern.  The new sentence clarifies that title companies and others are not prohibited from referring parties to attorneys as long as they are not paid any fee for the referral and they do not require the use of a specific attorney.  While other issues remain with the revised opinion, this addition at least provides some clarification on this one important issue.  The revised opinion does not have to be approved by the Supreme Court and now is in effect.

On January 26, 2012, the North Carolina State Bar Ethics Committee met and finally approved the revised opinion on the use of cloud computing or software as a service.  Of course we’re all using this technology already (do you use a smart phone?), so you might think the Ethics Committee is a bit slow on the uptake.  Believe it or not, other states have been waiting and watching us for guidance.  The newly adopted final ethics opinion, 2011 Formal Ethics Opinion 6, permits the use of cloud computing, or software as a service, so long as the lawyer uses reasonable care to safeguard confidential client information.  This time the opinion really does leave it to the attorney’s discretion and good judgment to determine what cloud vendor to use and how to go about taking precautions to help ensure no client information is lost or taken.  Gone are the 23 questions that a lawyer had to be able to answer about the vendor before proceeding into the cloud.  Instead, the opinion lists a manageable five (5) recommended security measures that a lawyer may consider when shopping around for a cloud vendor.  Given that this is a rapidly changing and evolving technology, the general reasonableness approach makes sense and ensures that the opinion won’t be obsolete in say. . . 28 minutes from now.

At the time of this post, the ethics opinion can be found here.

The State Bar has proposed amending its formal opinion concerning the involvement of nonlawyers in real estate closings, Authorized Practice Advisory Opinion 2002-1.  The original opinion was adopted approximately nine years ago, under accusations from the US Department of Justice and the Federal Trade Commission that the Bar’s opinions in the real estate area at the time illegally restrained trade on companies and non-lawyer competitors in providing real estate closing services.  I served as in-house co-counsel to the special committee that drafted and recommended the original opinion in 2003.

The current proposed revisions to the opinion were published in the winter 2011 edition of the State Bar Journal and are posted on the Bar’s website, although a bit difficult to find.  From an initial review of the proposed revisions, most changes may appear cosmetic.  However, there are at least two substantive changes to the opinion that would have significant practical ramifications for attorneys, entities and nonlawyers providing closing-related services, and other professionals in the real estate industry.

First, the Bar has added three related tasks to the list of legal services that only lawyers can perform in a closing.  The revised opinion would require a lawyer to determine that: (1) all contract and closing conditions have been satisfied, (2) the deed and deed of trust can be recorded after a title update; and (3) the funds for the closing can be disbursed pursuant to the NC Goods Funds Settlement Act.  The practical effect of these proposed changes, if adopted, would be to make it difficult to impossible for nonlawyers and entities to provide closing services in competition with attorneys.  As noted above, this competition was the original impetus for the threats from the USDOJ and FTC, which led to the Bar’s adoption of the original opinion and superseded prior inconsistent opinions.  The proposed revisions also would make it impractical for nonlawyers to receive and disburse closing funds without the
involvement of an attorney.  This was one of the two closing-related services that the original opinion specifically stated nonlawyers and companies could provide when not acting under the supervision of a lawyer.

Second, the Bar has added language that states that nonlawyers may not “handle” closings and cannot advertise that they do so.  The linchpin for the Bar’s proposed revision and conclusion is that “N.C. Gen. Stat. § 84-5 prohibits nonlawyers from arranging for or providing the lawyer or any legal services.”  In my opinion, there is nothing in the language of N.C. Gen. Stat. § 84-5 that prohibits a non-lawyer from “arranging for” the lawyer or legal services as long as the entity or non-lawyer is not actually performing or being hired to perform legal services.  If the prohibition against corporations and other nonlawyers “handling” closings means that they cannot “arrange for” lawyers or legal services, then this proposed revision is problematic.

Other real estate professionals and even real estate attorneys should be concerned about the rationale for this new conclusion.  If adopted, this prohibition against arranging for attorneys or legal services in a closing would have to be applied uniformly to all.  Realtors and mortgage brokers routinely “arrange for” a closing attorney with whom they regularly do business.  From years of representing real estate attorneys, realtors and brokers, it has been my experience that these nonlawyer professionals often do much more than simply recommend an attorney.  They often make the initial contact with the lawyer, provide him or her the contract and other documentation, and in many instances act as the intermediary between the joint client and the real estate attorney.  Under any reasonable interpretation, these activities constitute “arranging for the lawyer or any legal services.”  The proposed opinion could unintentionally interfere with these established relationships and the regular dealings between
real estate attorneys and these professionals.

While there is nothing in NC statues to prohibit such conduct in my view, the State Bar’s proposed revisions rely and rest upon the conclusion that “arranging for an attorney” is illegal if you are a corporation or other non-lawyer.  The proposed opinion therefore is expanding its interpretation of the statute beyond its language and in a way that would have much wider and presumably unintended implications than would appear from the text of the opinion.

The State Bar should accept comments to the proposed revisions through its quarterly meetings later this month from January 25-27.   If you are interested, it is worth your time to write to the State Bar about this proposed opinion, whether or not you agree with my opinions expressed herein.

I believe the use of client testimonials or endorsements is one of the most effective ways that lawyers can market themselves.  I know that when I want to buy a new product, especially a costly one, the first thing I do is read the reviews online.  I want to know what others think — everyone does.  Client testimonials are like reviews about your product– that is, your legal services.  Can you ethically include client testimonials on your website or in other  lawyer marketing?  If the testimonial is a truthful ”soft endorsement,” (i.e. “He treated me with respect,” or “They took the time to explain everything to me,” etc.) that only describes the characteristics of your services but does not describe the results you achieved, then you can ethically post the testimonial.   See 2007 FEO 4.

What fun is that?  That’s like reading a review on a laptop that says, “The laptop was so nicely packaged in an easy to open, convenient brown box.”  What everyone really wants to know is does the laptop work and how well does it work?  Likewise, potential clients are mostly interested in whether the lawyer has achieved good results for others.  The Ethics Committee has determined that discussions about results in marketing materials may create unjustified expectations and therefore, can be misleading under Rule 7.1.  The Committee has issued a limited opinion, however, permitting attorneys to include case results on websites so long as there is an appropriate disclaimer conspicuously located in the immediate vicinity.  2009 FEO 16.  There is no similar opinion permitting client testimonials which refer to or describe results.  In January, the Ethics Committee will be reviewing an inquiry about testimonials (yes, I submitted it) and will hopefully issue an opinion that will provide guidance on whether testimonials which either imply results (He did a good job) or specify results (He got me my social security benefits) can be used, either on websites, printed marketing materials, TV commercials or radio ads, and if so, whether disclaimer language is required.  If an attorney can include case results on his website so long as there is a disclaimer, should truthful testimonials mentioning results be treated any differently? I’ll let you know what the Ethics Committee says about it.

In the meantime, if you have client testimonials on your website, you might want to include a disclaimer, like the one on our testimonial page.

The N.C. State Bar Ethics Committee met last week, and they are still grappling with the Google Adwords opinion.  If you’re not familiar with this issue, it originally arose as a grievance that was filed against an attorney for purchasing the other attorney’s name as a Google Adword.  This means that Attorney A pays for a preferential position on the search results page whenever someone Googles Attorney B’s name.  Attorney A, who is buying the name for ad placement, does not receive exclusive rights to the name, but if he is the highest bidder on Attorney B’s name, he gets the priority advertising.

The question is whether this practice violates the Rules of Professional Conduct.  I’ll be honest, I don’t like it.  My gut tells me that it should not be permitted and there’s something wrong about someone using my name (and my professional reputation) to launch their advertising.  Say it’s my sense of fair play.  But is it misleading to the consumer?   Nope, I can’t say that it is.  The average person running a search of my name would not assume that because another attorney appears in Google’s sponsored links or preferential ad space, that there is any affiliation between us.  Although a prior version of the opinion found that the practice did not violate the Rules, the current proposed ethics opinion on this issue prohibits the practice on the basis of a Rule 8.4(c) violation; that is, the act of purchasing the other attorney’s name, itself, is dishonest.   The majority of the Ethics Committee agreed with the proposed opinion, but there were not enough votes to republish the revised opinion for comment.  As it stands, the opinion is tabled until the January meeting.  In the meantime, the State Bar staff is also looking into the constitutionality of prohibiting this kind of conduct.  Stay tuned…

Legal document provider, LegalZoom.com, Inc., filed suit against the N.C. State Bar in state court on September 30.  In the suit, LegalZoom challenges the State Bar’s interpretation that its online “self-help” legal document production constitutes the unauthorized practice of law (UPL).  LegalZoom also asserts that the State Bar violated its constitutional rights by previously issuing it a cease and desist letter and by failing to register prepaid legal plans sponsored by it.  The suit filed by LegalZoom may allow NC courts to set important precedent in this rapidly evolving area where the practice of law intersects with technology.

In addressing complaints against LegalZoom and others, the State Bar’s Authorized Practice Committee has opined that legal document production software programs, including those online, constitute UPL.   The UPL statutes define as the practice of law preparing or aiding in the preparation of various legaldocuments.  The State Bar has interpreted this statute to prohibit preparing legal documents even when they are produced by a customer’s direct input of information into an automated document creation software program and no person is involved in preparing or providing documents to the consumer.

Not much case law exists on this issue.  As a result, this suit is likely to draw interest around the country.  Google recently announced the launch of an online legal document production service, which will compete with LegalZoom and others in this market.  Part of the competing interests on this issue are the State Bar’s obligation to assure competent legal representation to NC consumers versus the public’s right to access affordable legal assistance.  One thing seems certain – many interested legal observers and lawyers will be watching this suit and the decision could have a significant impact on the public.

A newly proposed ethics opinion, Proposed 2011 FEO 14, would require attorneys to obtain written consent from their clients before outsourcing administrative support services where client confidential information is involved.  The opinion specifically deals with outsourcing administrative support services to an individual or company from a foreign country, but there is language in the opinion that is broad enough to cover outsourcing on a local basis.  The question also arises whether “outsourcing” includes basic copy/print/scanning or courier jobs where client confidential information is involved.  The proposed ethics opinion quotes an ABA opinion on topic:  “[W]here the relationship between the firm and the individuals performing the services is attenuated, as in a typical outsourcing relationship, no information protected by Rule 1.6 may be revealed without the client’s informed consent.”  ABA Formal Opinion 08-451 (2008). It is unclear from the North Carolina opinion, as proposed, what administrative functions are covered and whether the opinion would apply to local as well as foreign outsourcing.  As a small law firm, we outsource large copy jobs, some scanning, unusual print jobs, and binding, among other things, on a regular basis.  I try to ensure that the persons handling the administrative work understand and are willing to abide by my professional obligation of confidentiality.  Client consent had not been required, until possibly now.  I have written a letter to the State Bar asking for clarification, so this matter should be taken up at the Ethics Committee’s October 2011 quarterly meeting.  I’m hoping that the Ethics Committee will agree with Virginia’s approach.  VA State Bar Standing Comm. on Legal Ethics, Op. 1850 (2010)(certain “rudimentary functions” that are truly clerical or administrative can be outsourced without client consent).  I’ll keep you posted on developments. . . .

Quicken may be great for some things like tax submissions and payroll, even general accounting, but not for lawyer trust accounting.  Why?  Because Quicken doesn’t alert you when you disburse more than you have on account for a particular client.  In Quicken, you create subaccounts for each client within your trust account.  But suppose you have $500 in the trust account for Joe Smith, and $400 in the trust account for Bob Jones.  At the conclusion of the representation, you are supposed to disurse $400 for your legal fee from the trust account for Bob Jones.  Through a key stroke error, your assistant prints a check for your legal fee as $500 instead of $400, and the check is deposited into your operating account.  Quicken never warns you that your are writing a check for more than you have on account for Bob Jones because there is enough in the trust account as a whole to cover it.  Yikes.  If you have some money in the trust account to cover administrative fees or bank charges, then you might not have disbursed against another client’s funds. But you can’t keep too much in the account to cover accounting errors.

I strongly suggest that if you are using Quicken for your trust accounting, you look into software specifically designed for lawyers’ trust accounts.  Most of the time this software is a time/billing and general accounting software as well.  Many times, such software somes with a conflicts checking capability, another plus.  The biggest advantage from a trust accounting perspective is that the software forces you to associate each transaction in the trust account with a client and it will not allow you to over-disburse against a client’s funds.  Accounting is not my thing, so I need all the help I can get.  I happen to use PCLaw for time keeping, billing, accounting and trust accounting, but there are many other programs out there as well.  Shop around to find what suits your practice.  You can probably continue to use Quicken for some things — just not your trust account.  It just may save you from having to answer some tough questions from the State Bar.

Have you ever had someone, who is already represented by counsel in a matter, call you wanting a second opinion about how his case is being handled?  Giving an honest assessment of the person’s case, including your thoughts about how the attorney is handling the matter, would make most of us a bit uneasy.  But an honest assessment is exactly what the person is looking for and exactly what you should give him should you decide to consult with him.  Rule 4.2, Comment 1 says that the prohibition against communicating with persons represented by counsel does not extend to represented persons who are seeking a second opinion about their legal situation.  Under these circumstances, an attorney, not already involved in the matter on behalf of another client, is free to consult with this person.  The Comment to Rule 4.2 also says the consulting attorney should, but is not required to, inform the first attorney of his participation and advice.  Disclosure can only be made, however, with consent from the person with whom the attorney consulted, and 9 times out of 10, that person would not want his attorney to know he has consulted with other counsel.

So yes, you can talk to the person, give them your honest assessment, and collect a consultation fee for doing so.  Even when critiquing how the case is being handled, as a matter of professionalism, you should not disparage the other attorney, but simply suggest how you would have handled it differently.  If the person says he or she would like to hire you to conclude his matter, you should inform the potential client that you cannot undertake representation while they are represented by other counsel.  You would be happy to speak with them about representation once the representation by the first counsel has concluded.  You should not be involved in “firing” the other attorney, nor should you encourage the potential client to do so.  Your obligation is to give an honest assessment of the situation, which may or may not be critical of the first attorney.  This information can then be used by the person to make an informed decision about his representation.

With the emerging focus of the paperless office, the cloud-based office systems, and the portability of the law practice, we necessarily face increased security risks in the protection, maintenance, and access to our information.  Lawyers now work from wherever they happen to be.  I believe with this increased portability of our practices comes the need to conduct e-security audits.  With the rapid pace that technology is advancing, such an audit should be done at least yearly.  Some of the items an IT professional would assess are security protocols and policies, outdated hardware and software, end user risks, education and training of staff, back up systems, etc. The idea is to do whatever you can to avoid lost, deleted, corrupted or compromised data.  Does you firm have employee policies covering use of e-mail, use of laptops away from your office, encrypted flash drives, accessing files from home, loading software or applications on work computers, or social networking sites?  If you don’t, perhaps you should.  For example, it may be your firm’s policy to allow employees to access their personal web based e-mail accounts from law firm computers on a limited basis, but what about opening attachments?  Attachments from unknown sources may be potentially harmful and could cause damage to network systems even if accessed from a strictly web based e-mail account.  An e-mail policy about the opening of attachments could provide guidance to your employees and protection of your operating systems.  What about lawyers taking laptops and flashdrives with them wherever they go.  Is data stored locally on the laptop or unencrypted on the flashdrive?  These items are lost or stolen every day.  A firm policy about not downloading information locally to your laptop or only carrying encrypted flashdrives would provide some protection.  Your IT professional can brainstorm these and other solutions to security issues your firm faces. 

Don’t have an IT staff person or IT company that you work with?  My motto has always been, don’t do something yourself that you can hire someone else to do (and who does it much better).  Stick to practicing law as that is what you do best.  Leave the security to the professionals.