Ably covered by Bill Wernz at Minnesota Lawyering.
Ably covered by Bill Wernz at Minnesota Lawyering.
Nancy Rapoport has some thoughts about the emails and cognitive biases. Two of the emails she discusses (which can be found on that WSJ timeline as well):
In another exchange in June 2009, Mr. Sanders and Mr. Canellas joke about the law firm's outside auditor, who was fired by his company for reasons unrelated to his auditing assignments. Mr. Sanders remarks to Mr. Canellas, “Can you find another clueless auditor for next year?” Mr. Canellas responded: “That’s the plan. Worked perfect this year.”
According to the complaint, Mr. Sanders emailed Dewey's then chief operating officer on Dec. 4, 2008, expressing concern about the firm's cash-flow problems. "I don't want to cook the books anymore," Mr. Sanders allegedly wrote in the message. "We need to stop doing that."
Here it is:
Some key grafs are below. The Wall Street Journal also offers some highlights.
The Firm’s first full year of operations was 2008. The merger, coming just before the financial crisis, was troubled from the start and the Firm’s first year financial performance was severely below expectations. By the end of that year, the Firm had more than $100 million in term debt outstanding and available lines of credit of more than $130 million with four banks (the “Banks”). The Firm’s credit agreements with the Banks contained several covenants, including a cash flow covenant (the “Cash Flow Covenant”) requiring the Firm to maintain a minimum defined year-end cash flow. Because of its poor financial performance, the Firm was unable to meet this covenant in 2008.
The defendants and others at the Firm were aware that the failure to meet the Cash Flow Covenant during the 2008 credit crisis could have disastrous effects on the Firm. To avoid this, the defendants and others at the Firm (individually and collectively, the “Schemers”) engaged in a scheme (the “Scheme”) to defraud the Firm’s lenders and others by, among other things, misrepresenting the Firm’s financial performance and compliance with the Cash Flow Covenant. In later years, among other things, the Schemers continued to misrepresent the Firm’s financial performance and condition and that the Firm was in compliance with the Cash Flow Covenant and other covenants and defrauded additional lenders and investors using similar misstatements. As part of the efforts to ensure the success of the Scheme, the Schemers lied to and otherwise misled the Firm’s partners and auditors, as well as others. The Schemers, themselves or working through others, withheld information and affirmatively concealed the Scheme when they were questioned by partners, including members of the Firm’s Executive Committee, auditors, or others.
The Fraudulent Methods
By or about the end of 2008, the Schemers had created a document they called the “Master Plan” that described certain fraudulent accounting adjustments that the Schemers decided to pursue as part of the Scheme. From in or about the end of 2008 until the Firm’s bankruptcy in 2012, the Schemers input numerous of these and other fraudulent adjustments, and engaged in other fraudulent conduct, most of which made it appear that the Firm had either increased revenue, decreased expenses, or limited distributions to partners. Some of these fraudulent adjustments and acts were:
a. Reversing disbursement write-offs
From 2008 through 2011, the Schemers improperly reversed millions of dollars of write-offs of client disbursements that the Firm had no intention or reasonable expectation of collecting.
b. Reclassifying disbursement payments
From 2008 through 2011, the Schemers improperly reclassified millions of dollars of payments that had been applied to client disbursements during the year and applied the payments instead to outstanding fee amounts.
c. Reclassifying Of Counsel payments
–From 2008 through 2011, the Schemers reclassified millions of dollars of compensation to Of Counsel lawyers as equity partner compensation. Historically, Of Counsel compensation had been treated as an expense in the Firm’s financial statements.
d. Reversing credit card write-offs
In 2008 the Firm initially properly wrote off more than $2.4 million in charges from an American Express card associated with defendant SANDERS that had not previously been expensed and were not chargeable to clients. For year-end 2008, the Schemers fraudulently reversed this write-off and hid the amount in the Firm’s books as an unbilled client
disbursement receivable. Each subsequent year, the Schemers initially wrote this amount off, but then reversed the write-off at year-end. The amount remained on the Firm’s books as an unbilled client disbursement receivable at the time of the bankruptcy.
e. Reclassifying salaried partner expenses
In 2008, the Schemers improperly reclassified as equity partner compensation millions of dollars in compensation paid to, and amortization of benefits related to, two salaried, non-equity partners. Similar amounts had previously been treated as expenses on the Firm’s financial statements, so the reclassification had the effect of reducing Firm expenses. This change in treatment was neither disclosed to the Firm’s auditors nor disclosed on the Firm’s audited financial statements. In later years, the compensation paid to these two salaried partners was classified as equity partner compensation.
f. Seeking backdated checks
During at least two year-ends from 2008 through 2011, the Schemers sought backdated checks from clients to post to the prior year. At the end of each of the Scheme years the Schemers engaged in efforts to hide the date on which checks were received by the Firm. These efforts minimized the risk that the Firm’s auditors would discover that December checks received in January, including backdated checks, were being posted to the prior year.
g. Applying partner capital as fee revenue
–For year-end 2009, more than $1 million that had been contributed by a partner to satisfy his capital requirement was applied as a fee payment for the client of a different partner. This amount was backed out of fees and applied to the partner’s capital account during 2010, but for year-end 2010 it was again applied as a fee payment for the same client.
h. Applying loan repayments as revenue
In 2008, pursuant to defendant DAVIS’s authorization, the Firm took on $2.4 million in bank loans that benefitted defendants DICARMINE and SANDERS. In early 2012, defendants DICARMINE and SANDERS repaid the Firm the final $1.2 million owed under the loans but structured the transaction so the loan repayment would increase the Firm’s revenue for 2011.
Three former top executives of Dewey & LeBoeuf, the giant law firm that filed for bankruptcy protection in 2012, are expected to be charged on Thursday with misleading other lawyers and lenders about the financial health of the firm.
The Manhattan district attorney, Cyrus Vance, Jr., is expected to announce the filing of criminal charges against the three, Steven H. Davis, the firm’s former chairman; Stephen DiCarmine, the former chief executive; and Joel Sanders, the former chief financial officer, people briefed on the matter said.
Andrew Cohen has an article at The Atlantic about a case that was in the news several months ago. (Earlier coverage can be found at Professional Responsibility Blog, by Alberto Bernabe.) The Ninth Circuit en banc oral argument is here. At about 9:00 there is a nice discussion about how sandbagging works in both directions. [This post has been updated since original posting.] Excerpt:
A few years ago, federal prosecutors in San Diego convinced a jury to convict John Maloney of the felony charge of "knowing possession of marijuana with intent to distribute." The feds did so by cheating during the closing argument of the trial. During the rebuttal part of their closing argument to jurors, when they knew that neither Maloney nor his attorney could respond, prosecutors suggested at length that the defendant must have lied about his trip because he had no luggage with him.
The inference during the closing argument was clear. If Maloney was lying about the trip, if he had no luggage with him, than he must have "known" that he had the marijuana in question and thus was guilty of the crime with which he was charged. That's what the jury found, anyway, and it's what the 9th U.S. Circuit Court of Appeals initially found as well. The problem was: there was no evidence introduced at trial, either way, about Maloney's luggage on that trip. And prosecutors knew it.
[The following post originally appeared on Jurist.]
Protecting client confidences used to be so much easier. Lawyers could place sensitive documents in a locked file cabinet behind a locked office door, and that pretty much did the trick.
Today, the protection of confidential information is considerably more difficult. Lawyers store a range of information in the "cloud" as well as on smart phones, laptops, flash drives, and law firm networks. Information that should remain confidential can easily be lost or stolen, hacked, inadvertently sent, intercepted while in transit, and even accessed without permission by foreign governments or the National Security Agency (NSA). Put simply, the duty of confidentiality is now a lot more complicated than knowing how to use a lock and key.
Until recently, the American Bar Association's (ABA) Model Rules of Professional Conduct offered little advice to lawyers who wanted to understand their confidentiality obligations in a digital age. In fact, the word "technology" did not even appear in the Rules. Part of the problem was that the relevant rule on confidentiality—Rule 1.6—was drafted in the "locked file cabinet" era, when the necessary precautions were far more obvious.
New Guidance for Lawyers
Fortunately, the Model Rules have been updated to give lawyers more direction. In August 2012, the ABA Commission on Ethics 20/20 proposed, and the ABA House of Delegates adopted, amendments to Rule 1.6. These amendments state explicitly what had long been implied: a lawyer must "make reasonable efforts to prevent the inadvertent or unauthorized disclosure of, or unauthorized access to, information relating to the representation of a client."
The instruction to make "reasonable efforts" is necessarily vague, so new language was added to the official comment to Rule 1.6—specifically comments 18 and 19—to help lawyers determine whether their efforts are "reasonable." One of the comments suggests that lawyers should consider a range of factors, including, but not limited to: the sensitivity of the information; the likelihood of disclosure if additional safeguards are not employed; the cost of employing additional safeguards; the difficulty of implementing the safeguards; and the extent to which the safeguards adversely affect the lawyer's ability to represent clients—e.g., by making a device or important piece of software excessively difficult to use. These factors are intended to be specific enough to give lawyers some direction, but flexible enough in a world of rapidly evolving technologies to address new threats to client confidences.
An Example: NSA Surveillance of Foreign Clients
The New York Times recently reported that the NSA collaborated with its counterpart in Australia to intercept communications between a US law firm and its foreign client—the government of Indonesia—in order to learn more about trade issues in the region. One striking feature of the story is that the NSA knew the targeted lawyer-client communications concerned perfectly lawful conduct, not some terrorist plot.
Until this news broke, lawyers had suspected that the NSA might be monitoring privileged communications, but there was little proof. In fact, just last year the Supreme Court held that the surveillance of privileged communications was so speculative that lawyers had no standing to challenge it.
The Times story suggests that lawyers' concerns are not speculative. Existing litigation may now be on much stronger ground, and the ABA has asked [PDF] the NSA for more information about its handling of privileged communications.
In the meantime, what should lawyers do when communicating with clients abroad? How can lawyers satisfy their ethical duty of confidentiality?
The language of the newly adopted comment offers some guidance. For example, one important factor is the extent to which the lawyer's communications with a foreign client are "sensitive." The reality is that some legal matters are unlikely to be of interest to the US government. Moreover, other matters may be of interest to the NSA or a foreign government, but a particular communication may not be especially sensitive. In these situations, the use of email would seem to be appropriate and ethical, despite the risk of interception. It is important to keep in mind that the touchstone here is "reasonableness," so the mere possibility that a particular type of communication—e.g., email—could be intercepted does not by itself mean that the communication is ethically impermissible.
But what about sensitive communications with clients that may be of interest to the NSA or foreign governments, such as the communications described in the New York Times article? In such cases, lawyers appear to have several options. One would be to jump on a plane and meet with the client in person. The obvious problem with this approach is that it is an awfully expensive and time-consuming way to represent a foreign client, and the new comment language states that cost is a relevant consideration when determining a lawyer's ethical duties. So an in-person meeting may be desirable in some situations, but it is probably not ethically required.
A much less expensive option—though arguably less reliable—is for lawyers and clients to encrypt their email communications. A recent NBC News report illustrates that encryption is not foolproof and the NSA's ability to crack or find ways around encrypted communications appears to be more robust than people had previously thought. With that said, new solutions are emerging all the time, such as one recently created by two former NSA security experts. In short, encrypting email is not a perfect solution, but it is better than nothing.
Another option might be best described as the "Walter White" solution, where you and your client purchase prepaid phones that are used only for lawyer-client conversations. These so-called "burner" phones are not a guarantee of confidentiality, but they can help to reduce the likelihood that the government will listen to the privileged conversations.
Regardless of the option used, it is increasingly important for lawyers to be aware of the risks different methods of communication impose and to inform clients of the same. Of course it is difficult to quantify the likelihood that particular communications will be intercepted, especially given how little we know about existing surveillance methods, but clients need to be told that most kinds of communications are not risk-free. If a client consents to the use of a particular form of communication despite the reasonably knowable risks, lawyers should feel comfortable that they have complied with their ethical duty of confidentiality.
The unfortunate reality is that lawyers are finding it increasingly difficult to protect a client's confidences without resorting to extreme or unduly expensive measures. Such measures may be advisable in certain kinds of legal matters, but they are probably not ethically required. A lawyer's ethical duty is to make reasonable efforts, and we may have to accept that those efforts do not provide the same kind of comfort the trusty lock and key once afforded.
Suggested Citation: Andrew Perlman, Protecting Client Confidences in a Digital Age: The Case of the NSA, JURIST - Forum, Mar. 04, 2014, http://jurist.org/forum/2014/03/andrew-perlman-client-confidences.php
Story at WSJ. According to the article, Justice Kennedy (who presumably holds the swing vote) may be seeking a middle path. The death of those claims would have a large impact on a segment of the legal profession.
I was surprised that the nomination of Debo Adegbile for an important DOJ slot was rejected, presumably because he had worked for Mumia Abu-Jamal, who was convicted of killing a Philadelphia police officer in 1981. Seven Democrat senators voted against Adegbile and all the GOP senators did. More at The Hill.
[Update: I've edited the post twice now. Sorry. According to the Washington Post, Adegbile filed an amicus brief and also represented Abu-Jamal directly: "Adegbile and other [NAACP Defense Fund] filed a friend-of-the-court brief with the Supreme Court in 2009 asserting that the conviction was invalid because of racial discrimination in jury selection. They directly represented Abu-Jamal when prosecutors asked the Supreme Court to reinstate his death sentence, which had been thrown out because of problems with jury instructions. He is serving life in prison without parole."]
I find it interesting to compare the lawyer's duty to tell the truth to similar duties imposed on other professionals. In the Susan B. Anthony List v. Driehaus case, which deals with a statute banning falsehoods in political campaigns, a humorist (PJ O'Rourke) and a fellow from the Cato Institute (Ilya Shapiro) have filed a funny and clever amicus brief asserting that it's important that people be allowed to be less than 100% truthful in that context. This excerpt is from the Introduction:
“I am not a crook.”
“Read my lips: no new taxes!”
“I did not have sexual relations with that woman.”
“If you like your healthcare plan, you can keep it.”
While George Washington may have been incapable of telling a lie, his successors have not had the same integrity. The campaign promise (and its subsequent violation), as well as disparaging statements about one’s opponent (whether true, mostly true, mostly not true, or entirely fantastic) are cornerstones of American democracy.
Wall Street Journal looks at the possibility that the demise of fraud-on-the-market claims will hurt the white shoe defense firms that profit from defending such claims.
At White Collar Crime Prof Blog. Hard hitting. I don't practice criminal law and don't have a feel for how good or bad the decision is.
The recent event, where protesters snuck a video recorder into the SCOTUS, will, I imagine, hurt the prospects of installing cameras there. Op-ed at LA Times.
The 8th circuit has held that in order for a death row inmate in Missouri to challenge the state's method of execution as cruel and unusual, his lawyer had to propose an alternate method to execute his client that would not violate the 8th amendment. The lawyers for the inmate have sought certiorari. It's worth reading about. Here's a description just posted on the Atlantic website. The Yale Legal Ethics Bureau has filed an amicus supporting cert. A report by Andrew Cohen on the Atlantic website is at:
[update, by JJS. The amicus brief of the Yale clinic is here.]
The recently reported medical negligence case of Nield v. Pocatello Health Services raises critical issues regarding restrictions on First Amendment rights of lawyers and judicial candidates, which should concern all Idaho citizens. Such restrictions have long been justified by the “compelling” state interest in maintaining confidence in the impartiality of the judiciary.
In his dissent in Nield, Justice Daniel Eismann accuses three other justices of being “untruthful” and questions their impartiality. The Idaho Supreme Court has sanctioned at least one attorney for far less offensive statements.
In the late 1990s, Idaho attorney John Topp was publicly reprimanded for implying that a district court judge had decided a case based on the judge’s concern about its political ramifications. The court said this was a false statement of fact rather than a constitutionally protected opinion, essentially because Topp could not have known what was in the judge’s mind, and it appeared to others that the lawyer was aware of undisclosed facts leading to his conclusion. That case raised a deep concern that Idaho attorneys exercise First Amendment rights at their peril.
The following blog post was written by Matthew Callahan, a law student at NYU, for the Legal Ethics Forum law student blogging competition. It was chosen as one of two winning entries after a blind review of the submissions. The other winning submission is here.
Federal Rule of Evidence 502(d), offering protection for privilege in accidentally disclosed documents during civil discovery, came into effect in 2008. While adoption of the Rule has been slow, lawyers who ignore it may one day find themselves on the wrong end of a malpractice suit.
Inadvertent disclosure is the bane of discovery; no lawyer wants to be in the position of releasing privileged documents to the other side. Moreover, like the many state rules that follow it, American Bar Association Model Rule of Professional Conduct 1.6(c) requires attorneys to “make reasonable efforts to prevent the inadvertent or unauthorized disclosure of, or unauthorized access to, information relating to the representation of a client.” Both for the sake of their clients happiness and to avoid professional misconduct charges, lawyers have strong incentives to keep privileged documents from leaking to the other side.
However, even with heroic efforts to protect privileged documents, mistakes do happen. Rule 502(d) provides one way to mitigate the harm of those failures by permitting the court to enter—on motion of the parties, or sua sponte—what is commonly called a “clawback” order. The order holds that privilege in a document is not waived unless a party intentionally shares it: mistaken disclosure, even if negligent, is not a waiver in any court, and the disclosing party can require return of a document by informing the opposing party that the document in question is privileged.
502(d) was not widely used by the legal community in its early years, but there are signs that the tide is starting to turn in favor of 502(d) orders. The District Court for the District of Kansas issues guidelines for cases involving e-discovery that require parties to familiarize themselves with 502(d) orders. Among others, Maryland District Court Judge Paul W. Grimm includes language from Rule 502(d) in his standing discovery order; that same order was included as an exemplar by e-discovery expert Ralph Losey in his Electronic Discovery Best Practice blog.
Judicial decisions have also begun to embrace 502(d). The judge in Chevron v. Weinberg, a D.C. District Court case, entered a 502(d) order two years into discovery, commenting that “[i]t is a shame that this tool was not employed by the Weinberg Group earlier on” since such an order “may have prevented the protracted litigation and discovery battles that have plagued this case for the past two years.” The District Court for the District of New Mexico declared that “clawback orders are staples of modern complex commercial litigation” and entered one over the objection of one of the parties in S2 Automation, LLC v. Micron Technology, Inc.
Given the power of 502(d) and its ability to save a case, judges (particularly Southern District of New York Magistrate Judge Andrew Peck) have stated in conferences that not requesting a 502(d) order may expose a practitioner to a malpractice claim. As the Legal Ethics Forum blog previously discussed, Magistrate Judge Jillyn Schulze has even held that a 502(d) order completely removes the need for privilege review. Building on this holding, one law review article makes the claim that lawyers who fail to request a 502(d) order are doing so for the purpose of overcharging their clients for privilege review, and could face liability as a result. Furthermore, as the use of 502(d) becomes more common, the “reasonable efforts” to prevent unauthorized access to privileged documents required by Model Rule 1.6(c) may encompass a request for a 502(d) order, opening the non-requesting lawyer up to disciplinary action.
In addition to the stick of increased liability for not requesting an order, there is a carrot for requesting one, too. While opinions differ, Daniel J. Capra, the Reporter to the Judicial Conference Advisory Committee on Evidence Rules (and one of the authors of Rule 502), believes that if a law firm successfully claws back a privileged document, it could not lose a malpractice suit for improper disclosure of that document.
Rule 502(d)’s path to universal acceptance is not certain, however. Some courts have read additional requirements of reasonable care into the Rule, gutting its protections (e.g. in the 2010 Central District of California case Kandel v. Brother International). Prof. Henry Noyes of Chapman University School of Law believes that 502(d)’s provisions protecting against waiver in state courts are vulnerable to a constitutional challenge, which could result in a Rule that protected only against waiver in other federal courts but not state courts. And some critics have argued that, rather than protecting both parties equally, a 502(d) order just shifts the burden of privilege review from the producing party to the receiving party, who must ensure that their case isn’t built on documents the producing party will claw back with a privilege claim at the last minute.
Nonetheless, 502(d) has many strong adherents, and it is here to stay. No malpractice awards have yet been granted for failure to enter a 502(d) order, but lawyers ignore this Rule at their peril. In any case involving e-discovery, lawyers would be well-served to consider requesting a 502(d) order, both to protect their clients’ interests and their own.
The following blog post was written by Amanda Soraiz, Guangdong Cheng, Xiang Liu, Yihong Zhang, Yuqing Zhao, and Kun Chang of Case Western Reserve Law School. It was submitted for the Legal Ethics Forum law student blogging competition. The entry was chosen as one of two winning entries after a blind review of the submissions. The other winning entry is here.
We live in an unprecedented age of globalization where it becomes more and more likely that, at some point in our legal careers, we will encounter attorneys from other countries or find ourselves in a multi-ethnic, multi-cultural exchange. For this reason it is increasingly important, now more than ever, that we acquaint ourselves with the rules and customs of other nations as a means to equip ourselves as better attorneys and global citizens.
As a group of students with American and Chinese legal backgrounds, we have come together to compare and contrast the Law of the People’s Republic of China on Lawyers (LPRCL) and the Model Rules of Professional Conduct (MRPC). Originally adopted by the American Bar Association more than 105 years ago, the MPRC is widely known and deeply embedded in our judicial system. In contrast, the LPRCL is much newer and less extensive, having come into effect June of 2008 and comprised of just seven short chapters. Yet the overlap and differences between the two sets of legal ethics systems provide a unique and insightful glimpse into the similarities and differences found between our two worlds.
License for Legal Practice
Before becoming a lawyer, a person who intends to practice law in the U.S. typically needs to graduate from an ABA-approved law school. Then in order to obtain a license to practice law, a law school graduate must apply for bar admission through a state board of bar examiners. Normally, this board is an administrative agency of the highest state court in the jurisdiction. In a few jurisdictions, such as Alaska, the board is served by the state’s bar association. The bar examination eligibility or the bar admission requirements are set by each state.
In contrast, a formal legal education is not a prerequisite for being a lawyer in China. In most instances, an undergraduate degree is required. Then to be qualified as a lawyer, one needs to pass the National Judicial Examination (NJE), administered by the Ministry of Justice. The exam is scheduled once a year. All legal professions, including judges, public prosecutors, lawyers and notaries are required to pass the NJE before being granted admission to practice. After passing the NJE, a person who intends to practice law must complete a full year’s internship at a law firm. Finally, he or she should submit an application to the judicial administration department of the people’s government of a city for review.
Law Firm Regulations
Under the MPRC, a lawyer who directly supervises the work of another lawyer must take reasonable efforts to ensure that the supervised lawyer adheres to the rules. A partner of a law firm who has managerial authority is liable for the misconduct of the lower level lawyers.
Under the LPRCL, a law firm shall establish sound systems for professional management and shall see that its lawyers observe the professional ethics and disciplines in their legal practice. However, the LPRCL does not require the managerial partner assume responsibility for the misconduct by the lower level lawyers. But this does not mean that the law firm itself can escape liability.
Both sets of rules prohibit law firms from engaging in non-legal services. The MPRC provides that a lawyer may not form a partnership or other business entity with a non-lawyer if any of the business’s activities consist of the practice of law, and the LPRCL requires that law firms shall not engage in business activities other than legal services. Moreover, referral agreement is not permitted under the LPRCL.
Duties to Clients
The MPRC and the LPRCL contain similar rules governing the attorney-client relationship. Our explanation of the distinctions between them will focus on three major topics: confidentiality, conflicts of interests, and relationship termination.
Both the MPRC and the LPRCL have strict provisions on confidentiality. Generally, lawyers are required to keep information relating to the representation in confidence. Under the MPRC, there are seven exceptions to the confidentiality rule, under which lawyers are permitted but not required to disclose confidential information. The LPRCL confidentiality rule contains three exceptions: (1) to prevent death or substantially bodily harm; (2) to protect national security; and (3) to protect public security. It seems that the LPRC have fewer but broader exceptions to get around the confidentiality rule, and it is unclear whether it is permissible or mandatory to disclose information under these exceptions.
As to conflict of interests, the major difference between the MPRC and the LPRCL is the rule of imputed disqualification. As a general rule under the MPRC, when one lawyer is disqualified due to conflict of interests, the whole firm is also disqualified. The LPRCL does not have a similar imputation rule. However, the LPRCL contains a rule that requires a two-year “cool off period” for judges and prosecutors who resign and want to act as defenders.
As to termination of attorney-client relationship, the LPRCL provides that clients can terminate representation at will, while lawyers cannot terminate unless they have good cause. It is noteworthy that the LPRCL allows a lawyer to terminate the representation if he finds that his client intentionally conceals material facts concerning the case.
In the U.S., bar associations are membership organizations designed to raise the standards of the legal profession and to encourage professionalism. Each state has its own bar association. In the majority of states, membership in the bar associations is mandatory for lawyers. The American Bar Association (ABA) is the largest lawyers association in the U.S., and also the largest professional membership organization in the world. One of the ABA’s most important activities is the creation and maintenance of model ethical codes related to the legal profession.
The largest lawyers association of China is the All-China Lawyers Association (ACLA). The ACLA is formed at the national level, and provinces and cities form local lawyers associations. Similarly, the ACLA carries out professional administration over lawyers in China. It sets the professional code and disciplinary rules for lawyers.
All lawyers of China are members of the ACLA. The LPRCL states that: “A lawyer or law firm shall join the local lawyers association where the lawyer or law firm is located. A lawyer or law firm that has joined a local lawyer association is, at the same time, a member of the All-China Lawyers Association.” In addition, the ACLA does not have the power to set the academic standards for law schools in China.
Similar to the MPRC, the LPRCL includes disciplinary warnings, fines, suspension and permanent disbarment. However, under the LPRCL, lawyers usually will not be permanently disbarred, unless a lawyer receives criminal punishment for an intentional crime or a lawyer keeps violating the rules. For instance, the LPRCL states that if a lawyer violates the rules, and “before the elapse of one year after he was given a disciplinary warning, conducts another act for which he should be given such a warning by way of punishment,” he will be suspended from legal practice for no less than three months but no more than one year; if within two years after the expiration of the suspension period, that lawyer conducts another acts for which he should be suspended from legal practice, his lawyer’s practice certificate will be revoked.
Story at ABA Journal.
I testified yesterday afternoon at a U.S. House Oversight Committee hearing on the IRS’s use of politicized search terms to single out 501(a)(4) organizations for additional scrutiny. The hearing also looked into the Department of Justice (DOJ) investigation of the IRS scandal and the fact that a lead lawyer for the DOJ investigation has been a major campaign contributor to the President.
A few highlights from the hearing:
Organizations under Section 501(c)(4) of the Internal Revenue Code have proliferated in recent years. Citizens United opened the floodgates through which private money – from corporations, individuals and unions – flows into the political process. This is part of a corrupt system of campaign finance that in my view must be fixed. Nobody on the Committee commented on that point.
I told the Committee that close IRS scrutiny of 501(c)(4) applications to discern a “political purpose” of an organization is not the way to arrive at a better system of campaign finance. The notion that “social welfare” is somehow distinguishable from “politics” is in my view unworkable, particularly in a society where politics is the process by which we choose our government and social welfare is to a great extent affected by government.
Ineffective regulations for 501(c)(4) organizations are no excuse for the conduct that occurred at the IRS in 2010-2012, but the regulations should be revised and if necessary the underlying statute should be amended. The IRS should focus on collecting taxes not ferretting out politics.
The scope and purpose of the DOJ investigation of the IRS misconduct is unclear. The staffing of the investigation, however, has introduced yet more controversy. I agree with Bruce Green and other experts who submitted written opinions to the Committee stating that ethics rules do not prohibit a career prosecutor who has made campaign contributions to the President from participating in, or even directing, an investigation such as this one.
However, the impartiality rule -- 5 CFR 2635.502 -- has catch-all language that government employees, including career prosecutors, should consider in these situations. The purpose of the rule is not necessarily to disqualify an employee from a particular assignment but to encourage an employee to consult with agency ethics officials before making a decision about whether it is the best interest of the agency to go forward with a particular assignment where there could be an appearance of partiality. Because of the enormous controversy about alleged politicization of the IRS, I would not have staffed this DOJ investigation with a senior lawyer who was strongly identified with either of the two political parties, but this is a matter about which reasonable persons could disagree. I do hope, however, that such a conversation about staffing this investigation occurred at the DOJ and 5 CFR 2635.502 intended for that conversation to occur.
The conversation discussed above would probably have to be initiated by the employee because it would be improper under the Hatch Act and civil service laws for DOJ officials to look up campaign contributions of career DOJ attorneys.
Finally, I am frustrated at not knowing the purpose and scope of the DOJ investigation. Comments were made by Members at the hearing that the President of the United States was a potential target of the investigation even though I am not aware of any evidence linking anyone at the White House to the gross misconduct at the IRS. There was even reference to “impeachment.” I am concerned that the rhetoric in this investigation may be getting ahead of the facts.
Maybe still in NY, or maybe only barely and not enough to sting. The survival and scope of champerty is important today because it is the darling of the opponents of litigation funding, which has become pervasive in recent years. A couple of NY champerty cases this week prompt this post.
Champerty traces to French feudal law, whereby a tenant in land (a tenant by champart) paid the owner of the land out of the crop if any; no crop, not payment. Just so, a litigation funder takes its chances that the claim in which it invests will not produce a crop -- um, I mean money. The doctrine migrated from France to the UK, then to the US (or parts of it). How? Who knows? (By boat probably.)
Scholarship has revealed that about half of US jurisdictions have rejected the champerty defense. In NY, what is left of it is preserved in Judiciary Law 489. But the NY Court of Appeals has consistently defined that section quite narrowly. It wrote in one case:
“What the statute prohibits ... is the purchase of claims with the intent and for the purpose of bringing an action that [the purchaser] may involve parties in costs and annoyance, where such claims would not be prosecuted if not stirred up ... in [an] effort to secure costs”
It would seem fairly easy, then, to steer around this impediment and indeed nearly always the champerty defense fails. For one thing, an expansive view of champerty would have doleful consequences in the market for commercial paper. (But see the final paragraph.) The buyer might be foreclosed from suing on the note.
Anyway, on Feb. 24 a state trial judge in Manhattan dismissed a claim on champerty grounds. (2014 WL 702105.) The next day the appellate court in Manhattan in a separate case, reversed a dismissal on champerty grounds, with the quote that appears above. (2014 WL 700435.)
Now the cases differ. The plaintiff in the trial court had a harder argument. But strictly applying the narrow definition quoted above might have led to a different result. It may yet be different if the case is appealed.
The problem for the opponents of litigation funding, despite the lower court decision and even if it stands, is that litigation funding's dominant model does not involve buying a claim and suing on it, but rather investing in the claim of the borrower, who brings the claim in its own name. It would be difficult, if not impossible, for that model to fall within the definition of champerty as the NY courts have narrowed it.
One other oddity here: The NY statutory language has an exception if the buyer pays $500,000 or more for the claim on which it sues.Then, there is no champerty defense. So sellers with big claims to sell will find a liquid market but anyone whose claim falls beneath this floor may have to discount the purchase price to account for the risk of a successful champerty defense.(For reasons I omit here, the NY trial judge found this safe harbor unavailing despite the $1 million purchase price for the claims.)
I don't know that anyone has challenged this exception as irrational. Perhaps its rationality relies on the need to have a vibrant market for commercial paper. But it is not so limited and may be vulnerable.
Interesting profile of a high-impact environmental law advocate, Tim Bishop, of Mayer Brown. (I owe a hat tip to a blog for this one, but lost the link. Sorry!) One of Bishop's comments reminded me of a famous quotation from Alexis de Tocqueville. Bishop:
"Virtually everything in civil and political life here comes down to being about law and potentially subject to litigation," Bishop said in a recent interview at his Mayer Brown office.
“There is hardly a political question in the United States which does not sooner or later turn into a judicial one.”
There is not much more to say on this one.
[UPDATE: Please read the comments for a clarification of the story.]
We covered this story earlier when the Port first raised the issue. New story at Wall Street Journal. I didn't hear any clear theory of why it was a conflict for Gibson Dunn to represent the Port regarding the 2011 toll raise and also do the investigation of "Bridgegate." I wonder if the Port and the firm parted ways in light of a disagreement over whether a conflict existed.
Thomas Friedman has a nice description of Google's hiring practices in this past Sunday's New York Times. In a nutshell, Google's senior vice president of "people operations" (such a great Google way of putting it) said "G.P.A.’s are worthless as a criteria for hiring, and test scores are worthless. ... We found that they don’t predict anything.”
Instead of grades and Ivy League degrees, Google focuses on general cognitive skills, which Google says is the "ability to process on the fly. It’s the ability to pull together disparate bits of information. We assess that using structured behavioral interviews that we validate to make sure they’re predictive."
Google also looks for "emergent" leadership -- knowing when to step up and lead and when to step back -- as well as intellectual humility (the willingness to admit to error) and the willingness to take ownership of problems and finding solutions. That's just a summary; Friedman offers a lot of helpful context.
So imagine that a law firm wanted to hire like Google instead of using law school grades and pedigree. What would that hiring process look like? And would that law firm end up being more or less competitive?
Imagine that law schools wanted to admit students this way (i.e., instead of focusing on GPA and LSAT scores). What would the admissions process look like? And would law schools that used such a process produce more successful graduates?
And imagine that law schools hired faculty like Google (i.e., not fixating on law school grades and pedigree). What would the process look like? And would those schools be better off? (I'm certainly not the first to ask these kinds of questions. See, e.g., here and here.)
Billy Beane and Google have been successful looking for non-traditional predictors of success. But in law, we still pretty much look for the same traditional credentials. I think we can, and eventually will, do better.
Decision below. Story at Reuters. Excerpt from story:
(Reuters) - The Supreme Court on Tuesday limited the ability of criminal defendants facing federal charges to challenge a court's decision to freeze their assets before trial.
By a 6-3 vote, the court said defendants cannot use a pretrial hearing to challenge a grand jury's finding that there was probable cause that they committed a crime that required forfeiture.
The court's ruling did not alter existing law allowing defendants to ask courts to release seized assets if the funds in question cannot be traced to the alleged crime.
The federal government had said in court papers that a ruling for the Kaleys would make it harder to seek restitution for victims, such as investors harmed by white-collar crime, after a defendant has used frozen assets to pay for legal expenses.
In the majority opinion, Justice Elena Kagan said that if the court had ruled for the Kaleys it would have "strange and destructive consequences" because judges would effectively be able to second-guess grand jury findings.
Article at ABA Journal.
The American Bar Association (ABA) last week sent a letter to leaders at the National Security Agency (NSA) expressing concern about reports that the agency’s Australian counterpart had spied on a U.S. law firm working for Indonesia. The agency allegedly offered to share details with the NSA, including “information covered by attorney-client privilege.”
“The attorney-client privilege is a bedrock legal principle of our free society and is important in both the civil and criminal contexts,” the group’s president, James Silkenat, wrote in the letter. “The ABA has consistently fought to preserve the attorney-client privilege and opposes government policies, practices and procedures that erode the privilege.”
“The interception and sharing of attorney-client privileged communications by government agencies — or any third party — raises concerns, including chilling the full and frank discussion between lawyer and client that is essential for effective legal representation,” he added.
The graphing is spectacular, but --warning -- I cannot determine who did it or what the source is.
Just posted on the Times website is an article about a transgender lawyer. Ben Weiser, who wrote it, saw in an isolated fact the seed of bigger story about sexual identity and legal identity. The incident with Judge Oetken is especially striking and shows once again the dramatic and beneficial changes in the makeup of the federal bench (at least in New York, thanks to Senator Schumer).
Are the quotes from Rebecca Roiphe and me correct? Or was disclosure and a chance to object required?
Details from NALP. Excerpt:
In the fall of 2013, for the fifth year in a row, law firms continued to engage in limited entry-level hiring. With the large law firm business model still facing significant challenges five years after the Great Recession, recruiting volumes by U.S. law firms on the campuses of U.S. law schools remained mostly flat during the late summer and early fall of 2013 compared with recruiting activity the year before. There were variations by region and by city, but overall law firms continued to exhibit caution in recruiting new associates. These are among the key findings reported in NALP's just released Perspectives on Fall 2013 Law Student Recruiting, an annual report based on NALP surveys on selected aspects of fall recruitment activity and the experiences of both legal employers and law schools. A total of 123 U.S. law schools and more than 400 law firms provided information in response to NALP’s surveys on fall 2013 law student recruiting activities.
I've long belived that (1) students have far more control over the curriculum at law schools, (2) in exercising their choice the students should listen carefully to alums, profs, judges, hiring partners, etc., and (3) law schools should meet the students at least halfway by adjusting the course offerings to accommodate the students' desires. Here's an article by Fried, Coates and Spier, with the results of a survey of lawyers who hire Harvard law grads, asking what courses the Harvard students should take. Below are two graphs of the recommended business courses and non-business courses.
[Update; the second graph below was added after Steve Gillers' comment. It shows recommended skills for all practice groups. The third graph, likewise added after Steve's comment, shows recommended non-business courses for all practice groups. The article also has graphs with recommendations for just the litigation practice group.]
Story at the Topeka Capital-Journal. (h/t: ABA Journal. ) The basis for the IAC claim is that the defense counsel did not use the client's proffered alibi defense. (You might want to check out ABA Opinion 10-456 and this related article by Peter Joy and Kevin McMunigal.) Excerpt from the news story:
[The alibi witness's] statement was "inconsistent" with the alibi that [the defendnat] Dante Peppers had told defense attorneys, [defense attorney] Betts said.
"The phone calls bothered me," Betts said, because they made it "problematic" to use the alibi. Betts and lawyers Scott Gesner and Jennifer Roth, who were on the Peppers defense team, talked about the alibi and decided not to use it because "I didn't think it was in his best interest."
Not using the alibi was a "tactical" decision by Betts, he said. Betts said Thursday was the first time he heard about Peppers allegedly going to the Lawrence night spot on the night of the shootings.
I find this topic fascinating, but am skeptical that the draft ethics opinion from COPRAC (the ethics committee of the State Bar of California) is necessary or advances the ball. I don't like the references to the Guideliness of Civility and Professionalism, which often take a rosey-eyed view of the lawyer's role in negotations. They suggest, for example, that lawyers have a general duty to be "cooperative" in negotiations. Actually, they don't and shouldn't have a general duty of that type. Cooperative negotiations are often in the best interests of the client and are certainly more pleasant for the lawyers, but there are plenty of cases where the client is best served with tough and abrasive negotiation tactics. Such is life.
The draft opinion then goes on to explore six hypos. Hypo Nos. 1, 2, and 4 are material lies, but we don't need a new COPRAC opinion to tell us that that is not acceptable. Hypo 3 is the classic case of puffing about the "bottom line," but, again, we don't need COPRAC's opinion on that. COPRAC's answer to No. 5 is "it depends," which is something we knew before this draft was written. The correct answer to No. 6 is "it looks dubious, but it actually depends upon what specific information was promised to be exchanged and upon what it means to not reveal information during ADR negotiations" or "there is inusufficient information in the hypo to tell," but COPRAC suggests that the lawyer's behavior is invariably improper.
Maybe I'm being too hard on the draft. It does get the easy issues correct. My main criticism is that COPRAC shouldn't issues opinions unless they fill a gap in the existing law and we have no such gap. Moreover, a COPRAC opinion shouldn't attempt to provide a broad guide to this field; it should address narrower issues and let the appellate courts continue to define what counts as fraud and what doesn't.
A few months ago I posted an inquiry about this topic and many of you were kind enough to point me in the direction of a variety of helpful materials. I have completed a draft of a paper, How Do You Rate Your Lawyer?: Lawyers' Responses to Online Reviews of their Services," which can be accessed here. I would welcome any other thoughts and comments. Here's the abstract:
Thoughts at My Shingle. [UPDATE: read the first comment below] Excerpt from that site's post:
In some jurisdictions like Delaware , certain virtual arrangements won’t comply with the bonafide office rule. New York has certain rules governing lawyer advertising of bonafide offices, and the bar maintains a list of virtual offices that comply. In addition, the New York City Bar now offers a virtual office program guaranteed to meet ethics requirements.
Many of our readers are familiar with "Boxer v. Jewel" or "unfinished business" claims. The Wall Street Journal reports about a February 7th decision that permits trustees of bankrupt firms to recoup profits from business that left the firm before the dissolution. One lawyer said of the new ruling, "[The bankruptcy judge] is almost treating the clients as chattel."
Article at Chicago Tribune. The firm's comment is very carefully worded and does not exclude the possibility that its privileged communincations with client were intercepted, read, and used by the federal government. Excerpt from article:
Mayer Brown, the Chicago-based law firm cited in a weekend report about National Security Administration spying, has issued a statement that stops short of an outright denial that its communications were under surveillance but says there is “no indication” that any spying occurred “at the firm.”
* * * * *
Responding to the report, Mayer Brown said in a statement late Sunday night: “There is no indication, either in the media reports or from our internal systems and controls, that the alleged surveillance occurred at the firm.”
Asked by the Tribune whether the firm was saying that there was no evidence of spying at the firm, or that there was no evidence of spying of the firm, a Mayer Brown spokesman responded: “At the firm.”
The Mayer Brown statement also said, “Nor has there been any suggestion that Mayer Brown was in any way the subject of the alleged scrutiny. Mayer Brown takes data protection and privacy very seriously, and we invest significant resources to keep client information secure.”
William Baude, at Volokh, looks at the court's rule (which says no) and a statute (which seems to say yes).