Anti-Contact Rule and Corporations

Suppose you represent an injured person and the opposing party is a corporation represented by counsel.  In conducting witness interviews of company employees, who can you talk to without corporate counsel’s consent?  This is a sometimes tricky issue that makes more sense when you think about the persons Rule 4.2 is trying to protect.  Rule 4.2, the anti-contact rule, prohibits an attorney who represents a client in a matter from talking to a represented person about the subject of the representation.  The purpose of this rule is to protect a client from overreaching by opposing counsel and specifically, to protect attorney-client communications.  So the question becomes, who, within a corporation, should be protected by this rule?  Answer:  persons who have or would likely have actually consulted with corporate counsel on the matter.   Those persons who are off limits include: (1) personnel who supervise, direct or consult with the corporation’s lawyer on the matter (think high level managerial employees), (2) persons who have authority to legally obligate (think “speak for”) the corporation with respect to the matter, and (3) persons whose acts or omissions are at issue in the litigation and may be imputed to the corporation for purposes of civil or criminal liability.  Rank and file employees are generally fair game as are low and middle level management, such as a plant supervisor.  Officers of the corporation? — consult with the corporation’s lawyer first.  Unrepresented former employees are fair game, unless they participated substantially in the legal representation prior to their departure.  Finally, a rank and file employee is not off limits simply because corporate counsel has interviewed that person as a fact witness.  It is not the mere fact of the communication with corporate counsel that is the key; it is whether the employee’s communication was more like a legal consultation with corporate counsel.

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Refund of Fee Paid by Third Party: Don’t “Pay it Forward”

Assume a client has retained your services, and you receive a check in the mail for the advance fee or the flat fee, but the check doesn’t come from the client’s account.  Maybe the payment is from a family member, the client’s employer, or a significant other.  This is the third-party payor situation.  You need to pay close attention to where the funds are coming from.  Why?  Because if the representation ends prematurely and/or there are unearned fees that must be returned, you are required to return the funds from whence they came.  If the client demands that the funds be returned to him or her, don’t simply “pay it forward.”  Let the client know that you need some verification from the payor that the funds may be refunded to the client.  One limited exception: if the third-party has given the funds as a “gift” to the client, then the funds are the client’s and may be returned to the client under these circumstances.

You  also need to be aware of who the check is from because you’ll want to address the third party payor situation in your fee contract or by agreement.  I would suggest having a separate third-party payor fee agreement that acknowledges that the client consents to having the third party pay the legal fee, that the client’s confidential information will remain protected and not be shared with the third party without the client’s consent, and that in the event a refund is due, the funds will be returned to the payor so that the client doesn’t dispute the refund later.  See Rule 1.8(f) for further guidance.

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Live Chat Pop Ups: Still Alive. . .

Ever been viewing a website and had a Live Chat pop up window appear asking if you need assistance?  Who hasn’t?  At its most recent quarterly meeting in April 2011, the Ethics Committee voted to publish an opinion for comment that approves the use of Live Chat Support pop up windows on attorney websites.  The Ethics Committee did an about face on this issue, finding that the Live Chat Support pop up window did not violate the solicitation rules because it was not “lawyer-initiated contact” with a potential client, inasmuch as the the visitor has chosen to visit the lawyer’s website.  The ethics opinion also states that attorneys using such support services on their websites must be mindful not to inadvertently mislead a visitor to believe that the person with whom they are conversing is an attorney if that is not the case, and they must ensure that such nonlawyer agent does not give legal advice.  Finally, the opinion cautions that accepting too much information through the support service from a prospective client could create a conflict of interest with a current client that could require withdrawal.  See the full opinion which should be posted in a couple of weeks on the State Bar’s website.

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Alternative Business Models: Good or Bad?

On March 8, 2011, Fletcher Hartsell Jr., a North Carolina attorney and state senator, introduced a bill in the general assembly that would permit an nonlawyer to own up to 49 percent of a law firm so long as lawyers in the firm continue to control the company and there is no interference with the exercise of professional judgment by licensed attorneys in the firm.  Currently the Rules of Professional Conduct do not permit nonlawyers to have an ownership interest in a law firm primarily to prevent a nonlawyer from directing or controlling the conduct of attorneys, thereby interfering with their professional autonomy.  See Rule 5.4(d).  Arguments for a change to this rule include greater access to justice for the public, more flexible business forms, and better and more comprehensive services to clients.  For example, a law firm/CPA firm may be able to provide more comprehensive services to the public.  The current proposal in the general assembly appears to open the door to investment in law firms by any nonlawyers, and may also open the door to a broader range of multidisciplinary practice – think personal injury firm/body shop.  I haven’t made up my mind whether the legislation as drafted is good or bad. But I think any legislation in this arena must serve the purpose of furthering the public’s interest without sacrificing a lawyer’s independence of professional judgment and unfettered loyalty to clients.

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Life’s Too Short

Have you ever taken on a client and later thought, “Why did I ever agree to this representation?”  It’s very hard to turn away a potential client, especially when clients are scarce.  But it is important to know when to say “no.”  I’m sure you’ve come across the ultra-needy client, the crazy client, the never-good-enough client, or the constantly complaining client.  When you meet with a potential client and you hear that little nagging voice saying, “Don’t walk, run,” listen to that voice.  It’s almost never wrong.  You need to ask yourself, is it worth the headache, the fee dispute, the meritless State Bar complaint, or the additional time and energy?  Life’s too short.  You’ll never regret turning away the wrong client.  Besides, then you’ll be available when the right client comes along.

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Beyond the Billable Hour and Legal Fees

Many law firms recoup office expenses associated with a client’s legal matter by passing along the actual cost of the expense to the client.   If you think outside that box, here are some quick tips about charging clients for expenses:

  • Can you ever charge a client more than the cost of office expenses?  Yes, but only if the basis for the charge is disclosed, the client has agreed to the charge in advance, and the total charge to the client is not clearly excessive.  Here we’re talking about photocopying, long distance calls, computer research, postage, etc.  Ethics Decision 00-5 (unpublished opinion).
  • Can you ever charge a client more than the actual cost of third-party expenses? No.  Here we’re talking about court reporters, deposition transcripts, expert witness fees, court costs, etc.
  • Can you ever charge a client for a portion of the firm’s general overhead? No.  This would cover legal publications, office equipment, utilities, marketing expenses, etc. 
  • Can you charge the client a flat rate for expenses? Perhaps.  In a recent opinion, the State Bar has indicated that it would be inappropriate to charge a $200 flat rate to clients for an out-of-office visit because the charge bears no relationship to the mileage for the visit, and the flat rate could result in a clearly excessive charge in violation of Rule 1.5.  See 2010 FEO 10.  My guess is that the State Bar likely will not opine on the minutiae of a law firm’s formula for recouping its other in-house expenses.  So, as long as a firm can reasonably determine a valid basis for charging its flat fee for expenses (good historical data), the total cost charged to the client would not be clearly excessive under the circumstances, and the client has agreed to the charge in advance, a law firm should be able to charge a flat rate for certain in-house expenses. 
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Trust Account: A Balancing Act

OK.  I don’t enjoy balancing and reconciling my trust account, but it’s got to be done.  If you are hanging out a shingle and planning to accept advance fees or third party funds, you’ve got to have a trust account.  The State Bar requires that a trust account be balanced every month, and that it be reconciled every quarter.  Aren’t balancing and reconciling the same thing?  Nope.  To balance your account, you check off the deposits and withdrawals in a given month and make sure the balance checks out with the bank statement.  To reconcile your account, you must add up each individual client’s balance within the account to be sure the balance matches that of your bank statement.  You can use a computer program to generate a reconciliation report, so it’s rather painless.  Just make sure the report lists the individual client balances.  There are lots of programs out there designed for law firm accounting and trust accounting.  I happen to use PCLaw.  Keep in mind two things when opening a trust account.  1). Know how to manage a trust account yourself before delegating to someone else, and 2). Lay your eyes on the trust account books every month.  First, you can’t teach someone else how to handle trust accounting unless you know how to do it yourself.  The State Bar has a wonderful trust account handbook on line that provides everything you need to know.  Second, if you delegate the daily management of your trust account, you are still responsible for supervising that person.  Bottom Line:  if there is a problem with your trust account, you will be held responsible.

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Conflict: You Snooze, You Lose?

I used to think a conflict of interest under Rule 1.9 could only be waived by agreement with the former client and could be raised as a means to disqualify an attorney person at any time.  It appears the State Bar plans to change this notion.  At its most recent quarterly meeting, the Ethics Committee adopted a new proposed opinion that recognizes that sufficient delay in raising a conflict of interest issue could constitute a waiver of the conflict, and an inability to use it to disqualify opposing counsel.  The factors to consider in determining whether the “you snooze, you lose” rule would come into play are: (1) whether the lawyer’s failure to identify the conflict was unintentional, (2) whether the former client knew of the new representation, (3) the length of the delay in lodging the objection, (4) whether there was an opportunity to lodge an objection, (5) whether the former client was represented by counsel during the delay, (6) the reason the delay occurred, and (7) whether disqualification would result in substantial hardship for the new client.   I think this proposed opinion is a good one, because it really only targets persons who attempt to use the conflict rules merely as a strategic sword to disqualify counsel and not because the new representation resulted in any prejudice to the former client.

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Signing Up Clients: Use of Paralegal Could be UPL

In July 2010, the State Bar adopted “Guidelines for Use of Paralegals in Rendering Legal Services.” These guidelines prohibit paralegals from engaging in the practice of law and lawyers from assisting in such practice. Specifically, Guideline 2 states that “a lawyer may not delegate the following responsibilities or activities to a paralegal: establishing a client-lawyer relationship and the terms of the relationship; giving oral or written legal advice or a legal opinion to a client; interpretation of legal documents for a client[.]” If you are using paralegals exclusively to sign up clients, you may need rethink your business model. I believe this guideline requres that a lawyer must be inserted somewhere in the process prior to signing up a client. It need not be a face-to-face meeting, but the lawyer must have some communication with the client prior to the client signing the engagement agreement. The State Bar appears to be taking the position that a legal judgment is involved in the decision whether to provide representation to a client and that such decision cannot be delegated to a paralegal. Although the paralegal can oversee the signing of the engagement agreement, a lawyer should be available should the client have any legal questions. See

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Direct Mail Ads – Look Out for a Rule Change

Today, the NC Ethics Committee voted to publish a revision to Rule 7.3(c). The Rule currently requires that all direct mail solicitations contain the words, THIS IS AN ADVERTISEMENT FOR LEGAL SERVICES, on both the front of the envelope and at the beginning of the body of the letter. On the envelope, the font of the disclaimer must be larger than any other print on the envelope. For the letter, the existing Rule requires that the font be as large as or larger that the lawyer’s name or firm name appears in the letterhead. So what’s the proposed change? The font of the disclaimer on the letterhead would now need to be “as large as or larger than any other printing in the communication.” “Who cares?” you say. Lawyers who use targeted direct mail, that’s who. What if you include a brochure in your communication? The current wording would appear to require that the disclaimer on the letterhead be as large as or larger than any printing on the brochure as well. What if you have logos and pictures in your materials? It’s not clear. What if you have a watermark on your letterhead? Who knows? Keep watching. We should have answers soon.

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