When “Good Enough” is Not Good Enough

Lawyers often come to us with funds in their trust account that they can’t identify.  Perhaps they hire an accountant or CPA to try to determine to whom the funds belong.  What I hear is invariably the same: “My CPA says he can’t trace the funds to any particular client.  So, the funds must be mine. He says that’s good enough for me to transfer these funds to myself.  Is that right?”  Unfortunately, no.  The State Bar’s position is that if you cannot conclusively determine that the funds belong to you, you may not transfer them to yourself.  You will have the burden of demonstrating that the funds are earned fees to which you were entitled, if you are ever audited.

So, ask yourself, can you trace those funds to an earned fee for a particular client?  Can you find the client ledger showing the disbursements, and the remaining funds in trust?  Can you locate the client fee agreement that demonstrates the basis for your fee?  There should be a paper trail that will support the transfer of those funds from the trust account to the operating account.

What if you can’t trace the funds in trust back to a particular client and demonstrate that they are fees owed to you?  Then, the funds must remain in trust until they can be escheated to the North Carolina State Treasurer. Rule 1.15-2(r) states that

[i]f entrusted property is unclaimed, the lawyer shall make due inquiry of his or her personnel, records, and other sources of information in an effort to determine the identity and location of the owner of the property….If the effort is unsuccessful and the provisions of G.S. 116B-53 are satisfied, the property shall be deemed abandoned, and the lawyer shall comply with the requirements of Chapter 116B of the General Statutes concerning the escheat of abandoned property.

If you need technical assistance concerning the escheat of funds, you can go to www.nctreasurer.com or call the Office of the North Carolina State Treasurer in Raleigh.

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Is a Change in Legal Advertising On the Way?

A new ethics opinion, 2017 FEO 3, has now been published on this issue.

For the public, finding a lawyer is just a click away.  The vast majority of lawyers have websites dedicated to promoting their practice.  For those that do not, there are multiple directories listing contact information for lawyers, and unless you don’t want anyone to know where you work or how to reach you, finding that information is easy.  Currently, the State Bar requires that all lawyers include an office address on any communication advertising the lawyer’s services. Rule 7.2(c).  This requirement aimed to prevent the public from being misled about where an attorney practiced.  If a lawyer only practiced in Asheville, for example, but sent advertisements to persons in Boone and Hickory (with the same 828 area code), then by including a physical office address on the ad, the recipient would know the attorney was not located nearby, and could properly consider that information in determining whether to hire that lawyer.

But when you can find out so much more about a lawyer from his or her website than simply where they are located, why wouldn’t including the website address on an advertisement be sufficient?  Well, it appears the address requirement may indeed be changing with the times.  A newly proposed ethics opinion, Proposed 2017 FEO 3, if adopted, would permit legal advertisements which contain only the lawyer’s website URL, so long as the website includes the lawyer’s name and office address.  Specifically, the proposed opinion states:

Utilizing a website address in an advertisement actually provides a consumer with the ability to access more information about the lawyer or law firm than an advertisement that contains only the lawyer’s or the firm’s name and office address.  Therefore, an advertisement that includes a URL for a law firm’s website complies with Rule 7.2(c) so long as the law firm’s website contains the law firm’s official name or trade name, or the name of a responsible lawyer, and the firm’s office address. The firm name, trade name, or the name of the lawyer must appear on the website homepage.  The firm’s office address need not appear on the homepage provided it can be easily found on the website. 

Although the inquiry in Proposed 2017 FEO 3 only asks about use of an address for billboards, the opinion’s Editor’s Note makes clear that it applies to all forms of legal advertising.  Thus, the proposed opinion would specifically govern banner ads, Google sponsored ads, mobile ads on social media platforms, and other abbreviated on-line advertising, where compliance with the address rule was difficult, if not impossible, due to space constraints.  It would also include radio and TV ads, and all forms of print advertising, including targeted direct mail advertising.

This proposed opinion is published for comment on the State Bar’s website, if you want to take a look.  If adopted, this opinion would likely require a change to Rule 7.2(c), since the Rule specifically requires the lawyer’s name and address to be on the communication itself.  In so doing, perhaps the Ethics Committee might also take the opportunity to revisit other advertising Rules (Rules 7.1-7.5) that may be in need of an update.

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Payoff for Professionalism

What goes around, comes around — Most people use this expression as a warning not to do bad things to others because a bad act may be done to you later in return.  The same principle applies for acts of professionalism, but in a positive sense.  Consistently treating others with professionalism most often pays off with professional acts extended back to you.  This principle applies to actions toward clients, judges, staff, as well as opposing parties and counsel.

Portions of the Creed of Professionalism of the Wake County and Tenth Judicial District Bars is instructive on this issue:

To my colleagues in the practice of law, I offer concern for your welfare. As we work together, I will respect your personal and family commitments. I will share my learning and experience so that we may all improve our skills and abilities.

To the courts and to those who assist them, I offer respect, candor, and courtesy. I will respect and strive to improve the judicial process. I will serve as an officer of the court, encouraging respect for the law and avoiding the abuse or misuse of the law, its procedures, its participants, and its processes.

To opposing parties and their counsel, I offer honesty, fairness, and courtesy. I will seek truth and strive to resolve our clients’ disputes in a dignified manner. I will pursue the most efficient and least costly solutions to problems and avoid unnecessary delay.

Consider one not so hypothetical example:  Attorney A and Attorney B are frequently opposing counsel in often hotly contested matters.  Attorney B inadvertently files a pleading with the Court that is proper on its face but inconsistent with a prior discussion and agreement with Attorney A several months before.  Rather than filing an accusatory motion or other responsive pleading and likely damaging their relationship, Attorney A contacts Attorney B and has a frank but professional discussion reminding him of the prior conversation and the inconsistent information in the document he filed with the court.  As a result, Attorney B promptly files an amended pleading with the Court correcting the inadvertent error, obviating the need for what likely would have been a contentious court intervention on the issue.  See also Rule 1.2(a)(2) of the Rules of Professional Conduct.

Fast forward about a year later in an entirely unrelated matter in which Attorney A and B again are opposing counsel.  In this case, Attorney A files an appeal of an adverse decision to her client.  However, a young associate in her office inadvertently misreads or misunderstands the requirements and serves opposing counsel but does not file the appeal within the time limit, as required in the applicable rule.  Rather than filing a motion to dismiss the appeal, which likely would be denied based on excusable neglect, Attorney B convinces his client not to pursue the issue and to defend the appeal on the merits.  Attorney B informs Attorney A after the decision has been made not to pursue a dismissal.  Again, Attorney B’s professionalism and courtesy to Attorney A avoids potentially permanently damaging their ongoing relationship and eliminates the need for court intervention, without likely changing the result to his client.

In the future, you may find yourself in a situation like the above example, where you need an act of professionalism and courtesy from a colleague or opposing party.  It’s yet one more reason to consistently act with professionalism in all your dealings with clients, colleagues and opposing parties and counsel. Remember the old saying: what comes around goes around – and that can be a good thing.

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The Rule or the Ethics Opinion: What Happens When They Differ?

The Rules of Professional Conduct set forth the duties owed by lawyers to clients and others, and provide a framework to which lawyers must adhere.  The Rules are the basis for imposing discipline against attorneys. The Comments to the Rules do not impose any additional obligations, but provide guidance as to how lawyers should comply with the Rules.  The ethics opinions (CPRs, RPC, and FEOs) are adopted by the Ethics Committee and serve to provide further interpretation of the Rules and guidance in specific scenarios.  What happens if an ethics opinion conflicts with the Rules? Well, it shouldn’t conflict.  But I can think of one instance where they do.

Rule 3.5(a)(3) provides that a lawyers shall not communicate ex parte with a judge or other official except:

(A) in the course of official proceedings;

(B) in writing, if a copy of the writing is furnished simultaneously to the opposing party;

(C) orally, upon adequate notice to opposing party; or

(D) as otherwise permitted by law[.]

(emphasis added).  This Rule appears to permit potentially unlimited written communication with a judge before whom a matter is pending, so long as opposing counsel or the opposing party is simultaneously copied.  There is, however, an ethics opinion, 98 FEO 13 that says, notwithstanding the language in Rule 3.5, there are only four (4) instances where lawyers are permitted to communicate in writing to a judge or judicial official relative to a pending matter:

1) Written communications, such as a proposed order or legal memorandum, prepared pursuant to the court’s instructions

2) Written communications relative to emergencies, changed circumstances, or scheduling matters that may affect the procedural status of a case such as a request for a continuance due to the health of a litigant or an attorney;

3) Written communications sent to the tribunal with the consent of the opposing lawyer or opposing party if unrepresented; an

4) Any other communication permitted by law or the rules or written procedures of the particular tribunal.

98 FEO 13.  The ethics opinion reasons that even though Rule 3.5(a)(3) may appear to permit unlimited communications with a tribunal so long as it is copied simultaneously to the opposing side, Rule 3.5 must be read in conjunction with Rule 8.4(d), which prohibits conduct that is prejudicial to the administration of justice.  Further, Comment [7] to Rule 3.5 says that lawyers should not communicate with a judge relative to a matter pending before the judge in a manner that “might have the effect or give the appearance of granting undue advantage to one party.”  The opinion goes on to say that these kinds of informal written communications could be used as an opportunity to introduce new evidence, argue the merits of the case, or cast the opposing party/counsel in a bad light.

In my experience, lawyers have been tripped up by this ethics opinion, because it, on its face, is contrary to the black letter of the Rule of Professional Conduct.  It is also my experience that lawyers have been disciplined for conduct which departs from this ethics opinion.  So, at least while 98 FEO 13 is on the books, you should follow its narrower requirements.  The other potential problem with the opinion is that it can be read to restrict the conduct of lawyers who are not even appearing before the tribunal if the written communication relates to a pending matter.  The Ethics Committee may be taking another look at this ethics opinion and Rule 3.5(a)(3).  Should the Rule or Comments be clarified to include some of the concerns in 98 FEO 13, or should 98 FEO 13 be stricken or redrafted?  If you have any thoughts or insights to share, please feel free to contact the State Bar ethics staff.  The more input from you, the better the result.

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With Great Power Comes Great Responsibility

These days, you literally have the power to access any document in your law office through your cell phone, table, or laptop.  Client files and communications may be accessed by touching a few characters on the keyboard.  It is very convenient and makes staying on top of things much easier, but there are also risks.  What happens if that device is lost or stolen? Will your password provide the necessary protection to keep your client data safe?

When lawyers think about the security of their computerized data, the first things to come to mind may be virus protection, firewalls, and data back-ups.  These are all very important, but the security of end-user devices is just as important.  I recently attended an excellent CLE presented by Lawyer’s Mutual that opened my eyes to additional cybersecurity issues lawyers must be aware of and reminded me of Comment No. 8 to N.C. Rule of Professional Conduct 1.1 quoted below:

[8] To maintain the requisite knowledge and skill, a lawyer should keep abreast of changes in the law and its practice, including the benefits and risks associated with the technology relevant to the lawyer’s practice, engage in continuing study and education, and comply with all continuing legal education requirements to which the lawyer is subject.

Keeping abreast of the benefits and risks associated with the technology relevant to the lawyer’s practice, likely includes being aware of how someone could gain access to mobile devices and how to adequately protect them.  Several ways to protect the data on end-user devices were discussed at the CLE, including using multi-factor identification when logging into a database with confidential information and using strong passwords.  But ultimately, best practice is to encrypt all laptops, mobile devices, and removable media, such as flash drives.  It is worth paying an IT professional to help you now, rather than facing the headache of a costly data breach later.  Along with the great power of easy and constant access to client documents comes the great responsibility as lawyers of protecting against disclosure of confidential information.

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New Year Checkup for Your Practice

It’s 2017, and many of us are already losing our battle to keep our resolutions.  Often, New Year’s resolutions are about personal growth, and that’s great.  It is hard to keep those resolutions when so many of them are not specific or concrete enough.  For example, we say we’ll go to the gym more, lose some weight, be a better person, and think more positively.  Unless your goals are specific, it can be hard to measure whether you have achieved any of these goals.  But what about your law firm? The new year is also a good time to take stock and perform a checkup of your firm.  Here is a check list with enough specificity to hopefully make it easier to stick to these resolutions:

  1. Trust Account – New rules were adopted in June of 2016.  If you haven’t already, read the new rules.  Then print out the three report forms that you will need to use from the State Bar’s website, www.ncbar.gov.  There is a monthly reconciliation report, a quarterly reconciliation report, and a quarterly review report.  Finally, vow to review the previous month’s trust records by the 15th of the following month.
  2. Insurance – Review your liability insurance, both your limits and deductible, and be sure you think they are sufficient, given the state of your practice in 2016.  Review your business/property insurance policy as well to be sure it covers any new purchases or property. Finally, with the prevalence of Ransomware, consider obtaining a cyber security insurance policy. These days, it’s becoming more a matter of when you will be hacked, rather than if. Lawyers Mutual has these kind of policies and can explain what they cover and why you may need one.
  3. Cyber Security – Make an appointment to sit down with your IT professional and ask them some questions.  How is my data being protected?  Tell me about my firewall.  Do I have two different ways to back up my data?  How can I keep client information on my computer safer? Do I need two-step authentication or encryption on laptops and other mobile devices such as employee smart phones and tablets where client information can be accessed?  What can I do to protect client information if one of those items is lost or stolen?
  4. Tax Planning – Once your CPA has a bit more time, make an appointment to talk about how your firm did last year, and whether you can do anything to save on taxes.  Discuss whether there are any employee benefits (401K, Health Reimbursement Accounts, Health Savings Accounts, etc.) that can help your business save in taxes.
  5. Marketing Assessment – List all of the ways in which you market your business.  Then figure out if any of those marketing tools is not paying off, and cut it.  Finally, think about how you can expand into at least one new market and brainstorm the best ways to reach those folks.
  6. Plan to Save – This sounds like a vague goal, but it doesn’t have to be.  Make an appointment with a financial advisor and figure out a new way to save, especially for retirement. Auto draft a certain amount monthly into a retirement account. If you are 50 years old, then you can step up savings into your 401(k) or other retirement accounts (yes, we only know this because we’re at that stage).  Consult your CPA on how you can maximize your retirement savings while saving taxes at the same time.
  7. Appreciation – Meet with your employees and let them know how much you appreciated their hard work this past year.  Start 2017 off on the right foot.
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Turning Over a Client’s File — the Safe Way

Lawyers in North Carolina know that a client’s file belongs to the client.  Even if you copy the client with all correspondence or court filings along the way, when the representation ends, the client is entitled to a copy of their entire file, if requested.  Rule 1.16(d). You need not turn over your personal notes, internal firm memoranda or unfinished work product, but just about everything else must be turned over to the client. CPR 3, RPC 169. What if the client asks that you provide the client file to a third person, a friend or a relative?  Before you simply send the client’s file with another person at the client’s direction, slow down and consider whether it is in the client’s best interest to do so.

Yes, the client has the authority to direct where his file should be sent at the termination of your representation, but you, as the lawyer, have an obligation to advise the client as to what is in his best interest.  Without your guidance, the client can’t make an informed decision. For example, suppose the client is being represented by another lawyer on appeal.  At the conclusion of your representation, the client has directed that you give his entire file to his sister.  Appellate counsel, however, will likely need your file to represent the client’s best interests.  Will the client’s sister maintain and keep the file in a manner that will assist subsequent counsel?  If the file is electronic, is this person responsible enough to keep track of the flash drive? If the sister opens the client file on her computer, which is accessible by everyone in her household, has the privilege been waived?  Certainly, confidentiality has been compromised.

Before you simply follow your client’s directive, communicate with the client, and explain why it is in the client’s interest for the file to be transferred directly to subsequent counsel or to the client.  Certainly, if there is no appeal, the client’s matter is not of a highly sensitive nature, and/or the client is unavailable to come pick up the file, there may be very good reasons to give the file to someone of the client’s choosing. But before you send the file off, have a conversation with your client.  Then, confirm the client’s directive about who gets the file in writing, after you have discussed any possible risks.

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Must We Reveal Those Skeletons?

I was reminded recently of an Ethics Decision (unpublished) that answered the question, “When must a lawyer disclose unsavory personal information” to a client or prospective client?  Ethics Decision 2003-5. If you are currently being investigated by the State Bar, are you required to disclose that fact to your clients, or any prospective clients?  What about if you are being investigated by the government?  Or if you have been charged in a criminal matter?   At what point do attorneys have an obligation to disclose this kind of personal information to clients?

The State Bar has determined that an attorney has an obligation to reveal “unsavory personal information” when the attorney reasonably believes such information is necessary for the client to make an informed decision regarding representation.  You should ask yourself, can the client give informed consent to continued representation without this information? For example, an attorney who has received a grievance for an advertising violation, can reasonably conclude that the disciplinary matter will have no bearing upon his representation of his clients or prospective clients.  The matter will likely be resolved without the attorney losing the ability to practice law.  On the other hand, a lawyer who has a complaint pending for misappropriation of trust funds, where the State Bar has evidence to support the charges, will very likely lose his license.  He should consider whether he can appropriately conclude the client’s representation in the short term, or whether it will be necessary to give clients notice and the choice of alternative counsel.  The key here is to inform the client in plenty of time so the client’s interests are not prejudiced by the need to select new counsel.

In addition, if the attorney anticipates that a pending disciplinary or criminal matter may be so time consuming that it could adversely affect the representation of his client, there likely would also be a duty to disclose to any current clients whose representation may be impacted.  The attorney in such a situation should also consider whether to undertake any new representation.  The same considerations would apply to any personal situation that may take significant time away from the practice of law, such as personal health issues or a family health crisis.

It is interesting to note that the test for whether to disclose is not whether the client would want to know that information, but rather, whether the client needs the information to make an informed decision regarding representation.  The test appears to hinge upon whether the client could be prejudiced or whether the representation may suffer due to the attorney’s personal circumstances.  Another point is that the State Bar leaves the decision to disclose to the professional judgment or the discretion of the attorney.  I find that curious because it is likely that an attorney’s professional judgment may be impaired because he may have a vested interest in not disclosing the information.

If you are ever faced with this question about whether to reveal personal information to the client, I would try to put yourself in the client’s shoes.  If you, as the client, might want to know the information, then also ask yourself whether there is any possibility that your personal circumstances could affect the client’s representation.  If either answer is yes, and you are reluctant to inform the client, get the advice of ethics counsel.  It may be prudent to get another set of eyes to review the situation.


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Conflict Checks: Not Just for New Clients

In evaluating conflicts, I always tell my attorney clients that it is important to have a mechanism in place to (1) Identify, (2) Assess and (3) Address conflicts of interest.  You would think the first step is obvious, but you may be surprised by how easy it can be to miss identifying a conflict of interest in the first place. Sometimes the failure to identify a conflict stems from a complicated factual scenario such as multi-party litigation with various business entities or subsidiaries or unusual facts involving representation of estates or uninsured motorist claimants.  Luckily, those kinds of conflicts are few and far between.  More often, the conflict of interest that is missed is the one that should be obvious, if only we were looking for it. Where we fail to look most often is the conflict that involves the existing client.  If there is an existing client, then you’ve already done your initial conflict check before accepting that person as a client, and you feel safe in knowing you have done your due diligence.    But what happens if the client introduces a new matter?  Or suppose it is not as clear as a new matter?  Instead, the client changes the scope of the representation so that there may be additional issues, or suppose as you get deeper into the representation, you determine the scope of the representation should be expanded or changed.  Or, what if after additional investigation, you discover or receive new information suggesting that there are other adverse or potentially adverse parties or witnesses.

In any of the above scenarios, if you notice that there are additional issues with potential additional parties or adverse interests, then you should go ahead and run another conflict check.  The Rules of Professional Conduct provide that an attorney must be vigilant about identifying conflicts of interest that may arise during the course of the representation.  Sometimes a conflict arises through the direct action of a client, and other times, a conflict can arise that no one could have anticipated.  For example, suppose you represent a client in an employment dispute.  After you have represented a client for a number of months, you discover there are a number of fact witnesses that the employer intends to call at trial.  This is an opportunity to run another conflict check.  In so doing, you learn that one of the employer’s witnesses against your client is someone your firm is currently representing in a domestic dispute.  If  this is a matter that is proceeding to trial, then you have a conflict of interest because you cannot cross-examine a current client of the firm.

There may be a number of discoveries that you make or changes that occur during the course of representation that would trigger the requirement to run conflict checks.  If you stay vigilant, and know when to look, you won’t get blind-sided by a conflict of interest.



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Targeted Direct Texting

There is a newly proposed ethics opinion (October 2016) which will supersede the information in this blog.

Lawyers are familiar with targeted direct mail solicitation, and even if you don’t do it, you know there are ethics rules that apply. Targeted direct mail presumes that you know of a particular legal need of a prospective client, and you communicate with that person about the need for services. Rule 7.3(c). Unless you’ve sent one of these letters, you may not know that there are lots of ethics requirements that govern the minutiae of sending a targeted direct mail letter, especially regarding the font size, thickness, darkness, color, placement and conspicuousness of the advertising disclaimer.  These rules are not simply to be generally adhered to; they must be followed to the letter.  They are strictly construed.  Some of the requirements are subjective (no writing more conspicuous than the advertising disclaimer), so you should go above and beyond to be sure “THIS IS AN ADVERTISEMENT FOR LEGAL SERVICES” is absolutely the most conspicuous printing anywhere on the envelope and on the direct mail letter.

What about targeted direct electronic communications?  There are rules for that too.  Like the direct mail rules, these rules are designed to inform the public that the communication is an advertisement, but also may have the effect of squashing any creative, novel, eye-catching message designed to grab the attention of your reader.  The advertising notice (think big and all caps) must be in the subject line or header of the email.  The advertising notice must also appear at the beginning and ending of any electronic communication.  Then there are restrictions about the fonts, color, and size of the disclaimer, and finally, the disclaimer must be the most conspicuous printing (think HUUUGE – for the Bernie and Trump supporters).

Do these rules allow for targeted solicitation via text?  It is unclear.  Certainly the rules permit targeted solicitation through electronic communications.  Texting, however, does not have a subject/header field to include the advertising disclaimer.  Arguably, any electronic communication lacking this field could be banned as a method of targeted advertising under the Rules.  In addition, by the time you include the advertising disclaimer at the beginning and ending of a text, it may not matter what you include in the middle because the text will be so long that you will likely have lost your reader anyway. There does not appear to be an ethics opinion on this issue, although there is a proposed ethics opinion about using texting to advertise when a recipient has signed up for an advertising service.  This kind of texting service would not require the use of the disclaimer, as there is no known need for legal services.  In addition, there appear to be some federal laws that may restrict this kind of advertising altogether.  See CFR 64.1200.  My advice: don’t use texting for targeted advertisements–at least not without asking the State Bar first.


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