I want to offer a couple of comments on economic analysis of legal ethics. There has been a fair bit of work on this intersection, but not as much as other fields in which I have taught, such as antitrust, IP, securities regulation, contracts, and corporate law, where economic approaches dominate. Recognizing that economic analysis will always have trouble with certain important questions (on which all other approaches will have trouble, too--comparative advantage is the only kind), I’d like to see that happen in PR, too.
To kick things off, I want to explain why I see Spaulding v. Zimmerman, 263 MN 346 (1962), differently than many of my friends in the PR field. In the version I hear most often, I hate it, though I have hope for it as an example of how confidentiality obligations could be treated as liability rules.
You know the case. The plaintiff, a minor, is injured in a car accident. The defendant orders a physical examination, which reveals that the plaintiff has a potentially fatal heart condition. Plaintiff’s counsel does not ask for a copy of the exam report, to which plaintiff is entitled. The case settles, the court approves the settlement (because the plaintiff is a minor), and life goes on. An Army doctor later spots the condition, and the plaintiff sues to re-open the case, arguing that he should get more money because the accident might have caused the condition. The court gives the plaintiff more money, but manages to clear all the lawyers on the ground that defense counsel had no duty to warn the other side (but did have to tell the court so it could evaluate the fairness of the settlement).
Most people I talk to treat the case as an example of role immersion run amok: how could anyone, even acting as a lawyer, let this poor plaintiff walk around with a potentially fatal condition and not warn him?
I don’t like this spin on the case because putting things this way misses a couple of important points and promises answers I doubt any of us can deliver. The important points are that there was genuine incompetence in the case—plaintiff’s counsel should have asked for a copy of the report--and should have paid for failing to do so. But for this carelessness, the right amount would have been paid up front and the costs of subsequent proceedings would have been avoided. The careless lawyer should bear the cost of his error. The court avoids this result by finding a duty to disclose to the judge, which is nice to the careless counsel but is an unprincipled (or at least not generalizable) out, available only because the plaintiff was a minor. On the facts, Spaulding is not only this day and train only; it is more like half a seat.
The second point stems from the suggestion, in an excellent article on the case by Roger Crampton and Lori Knowles, 83 MN L. Rev. 63, that defense counsel did not tell his client about the plaintiff’s injuries because counsel was looking out for the insurer, which paid for the representation and settlement. The parties were apparently friendly, so if defense counsel had kept his client properly informed (and in this case that means telling the client about the report), the client probably would have ordered counsel to share the information, even if it cost the insurer money. That story is not in the case report, but it suggests that both lawyers acted badly, but neither paid. (This article also reports the tragic fact that the plaintiff lost his voice because the heart condition went untreated.)
But the point I think most important is that there is a difference between the morality of disclosure and the costs of disclosure. Suppose that in Spaulding the client was told of the report but wanted it kept secret. Counsel urges disclosure but the client refuses. Counsel just can’t live with himself if he keeps quiet, so he discloses, and a case that would have settled for $10 settles for $20. Who pays the marginal $10?
I think the lawyer should pay. I see no reason why it should be the client, whose moral code is by hypothesis untroubled by silence. If the lawyer enjoyed the moral utility of disclosure—having a clear conscience--then the lawyer should pay. It is true that having to pay makes disclosure less likely, but so what? The lawyer would be paying only for costs he or she created (assuming the baseline legal rule allows silence), and there is nothing unfair about that.
The standard Spaulding narrative, which as I hear it does not suggest to students that morality requires them to bear the costs of their actions, therefore presents a case in which the misconduct of the lawyers in the case goes unpunished and therefore might suggest to students that they might want to do the right thing, which will also be free to them (though not their clients) somehow. (I don’t want to overstate this—perhaps many of you make just this point when you teach the case—I can only go on what I have heard.)
This gist of my suggestion is that when disclosure will produce a concrete benefit, client confidentiality should be protected with a liability rule, not a property rule (which would imply enjoining disclosure if the client found out ex ante and punishing it if the client found out ex post), so that a lawyer could choose to disclose and pay damages, which is of course a variation on Holmes's definition of a contract.
Disciplinary rules complicate my nice story. If disciplinary rules do not allow disclosure, then the lawyer would have to calculate the expected cost of discipline and add it to the marginal increase in settlement. The risk of discipline might silence lawyers who value a clear conscience at $10 but who think the cost of disclosure would be $12. (I’ll talk later about how anyone might derive these numbers, and whether it is good or bad to think this way.)
We could deal with this problem by creating an exception to confidentiality rules for counsel who compensate clients for harm they cause through disclosure. In other words, the disciplinary rule and agency tort structure would merge in this case. (Discipline might internalize reputational externalities for all lawyers, but I very seriously doubt that those are significant, so I will disregard that risk for now.) The rules are rules of reason, and I have a hard time seeing significant discipline being handed down for disclosure in Spaulding-like cases, so the expected cost of discipline may be low enough that my suggestion is in reality what students face, which is all the more reason to put Spaulding to them this way. (This suggestion would improve (though perhaps only slightly) on MR 1.6 by freeing lawyers from worries over whether harm was "reasonably certain." Payment of the marginal settlement cose would create a safe harbor from discipline.)
There are problems here. Most obviously, if a lawyer paid only the marginal increment due to disclosure, he might have an incentive to agree to a higher-than-necessary settlement in order to limit that marginal amount and thus his disclosure cost. (I.e., he might recommend that the client accept an opening offer of $19 even if he thought he could get it down to $10, just so he would be liable for $1 rather than $10 when he disclosed.) Alternatively, counsel might wind up engaging in side bargaining with the plaintiff, offering to disclose information of value to the plaintiff if the plaintiff kicked back part of the settlement to the lawyer. (An anodyne version of this scenario is that the lawyer bargains down the cost of settlement.) But even partial cost-bearing is better than none, or at least not obviously worse, so this point should not foreclose efforts to design such a system.
I offer this as an example of how an economic baseline might help us think differently about an old issues such as client disclosure: we should not just limit ourselves to trying to specify some set of cases in which community morality stays the hand of discipline. If agency creates financial risks to disclosure, which it does (disclosure in this case would be disloyal, though perhaps justifiably so), why not put that fact up front and tailor the rule to it?
Against this one might argue that the lawyer should not have to pay because the client is not entitled to counsel who pushes for every last advantage, and otherwise plays the hardest ball possible. That point is true, and if it were feasible to specify up front what a lawyer would and would not do, I would hold lawyers and clients to those specifications. But any specification will be incomplete—Spaulding is memorable in part because it is unique, and thus would be an unlikely subject of ex ante contracting—and I think most clients expect that lawyers will press for any lawful advantage the client wants. Giving effect to that expectation, which I think of as the reliance interest in legal ethics, will minimize transaction costs and is justified on that ground. (We can talk about penalty defaults later if you want to.)
That leaves broad lessons about the nature and scope of role morality, and this is what I had in mind earlier in saying that to emphasize this aspect of Spaulding is to promise answers we don’t have. I don’t think there is a single answer to lawyer role questions, and I certainly don’t have it. The best we can do is invite students to think about their own orientation toward the material and make their own calls. That exercise will be more fruitful if they think about the costs of their actions, and who bears them, as well as the benefits.
DM