The Professional Responsibility Group at my firm, Frankfurt Kurnit, periodically distributes ethics alerts by e-mail to lawyers in the New York area. In our final ethics alert of the year, we recapped six trends we have observed over the past year in our ethics practice and our work on various ethics committees.
The following is an excerpt of the first three developments we discuss in the alert, along with tips for staying out of trouble:
1. New York Has the Rules Now, Not the Code
Until 2009, New York lawyers were governed by the Code of Professional Responsibility. That year, New York became the 49th State (with California the lone holdout) to implement a version of the ABA Model Rules of Professional Conduct. Yet, many of New York's older ethics opinions and cases, which were decided under the Code, will continue to be extremely relevant to this practice area for many years to come. Unfortunately, this seems to cause a great deal of confusion for New York lawyers who do not regularly engage in the area of professional responsibility law. Because of this confusion, we continue to see motions and other papers that cite to the Code, instead of the Rules, even where the conduct occurred after the Rules were adopted. (Note that conduct prior to April 1, 2009 is still covered by the Code.) We have observed similar confusion from some of our hotline callers.
Tip: When analyzing your ethical obligations as a New York lawyer, the place to start is with the relevant provision of the New York Rules of Professional Conduct. A copy of the Rules (with the comments) can be found here on the New York State Bar Association website. Naturally, as with any research project, reviewing the relevant rule is just the beginning. But starting in the right place gives you the best chance of finding the right answer!
2. You Must Supervise Your Escrow Accounts
New York lawyers received a sharp wake-up call in late-2012 when the New York Court of Appeals affirmed a disciplinary charge against attorney Peter Galasso, for failing to adequately supervise his escrow account, which allowed his bookkeeper (his own brother!) to steal millions of dollars in client funds. In early 2013, following a remand after an unrelated charge was dismissed on appeal, the Second Department re-affirmed a two-year suspension of Mr. Galasso. Escrow violations remain the number one ground for attorney discipline in New York. Just bouncing a check on an escrow account will trigger a report to the disciplinary authorities, and will likely lead to an audit covering at least six months of account records. An attorney can be disciplined for inadvertently commingling business or personal funds with client funds, even if no client is harmed. And it is now clear that attorneys (at least in smaller firms) can be disciplined for not catching misappropriations in their escrow accounts, even if they had delegated the management of those accounts to another partner or a non-lawyer bookkeeper.
Tip: The treatment of advance retainers in New York differs from other states. In New York, lawyers are permitted to treat advance retainers as the lawyer's funds, rather than client funds. See NYS Bar Op. 816 (2007). Such retainers do not need to be placed in an escrow account until the lawyer bills time against the funds. They can be immediately placed in the lawyer's operating account or other non-escrow account. This reduces the risk that the lawyer will inadvertently commingle or convert client funds. To avoid confusion, the lawyer should specify in the retainer agreement that the advance retainer will be placed in the lawyer's operating account or other non-escrow account. Any unused portion of the advance retainer must still be refunded to the client.
3. You May Have a Duty to Disclose Your Client's Perjury or Other Fraud on the Court
Most lawyers believe that their duty of confidentiality is sacrosanct. They may not know, however, that a change in the ethics rules requires them to take "reasonable remedial measures" to correct false statements made to a tribunal by their client or another witness, "including, if necessary, disclosure to the tribunal." NY Rule 3.3(a)(3) & (b) (emphasis added). This obligation trumps the duty of confidentiality. See NY Rule 3.3(c). In addition, a 2013 ethics opinion has concluded that the duty to correct false statements lasts beyond the conclusion of the legal proceeding. See NYCBA Ethics Op. 2013-2. Over the past year, we have seen a growing number of lawyers faced with the Hobson's choice of having to disclose their client's fraud to a tribunal or risk disciplinary charges.
Tip: Before the rule change, lawyers would sometimes deal with this problem simply by withdrawing from the representation. Many lawyers (particularly older ones) still think that is a sufficient remedy. Unfortunately, that may no longer be the case, particularly where a trial is nearing or ongoing. Before disclosing any client confidences, however, a lawyer faced with this dilemma should seek independent ethics advice.
You can read the full alert here.
If you would like to receive our ethics alerts in 2014, please e-mail me at firstname.lastname@example.org