Legal Ethics Forum

Blog Competition Winner: Federal Rule of Evidence 502(d) and Potential Malpractice Liability

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.

Blog Competition Winner: A Brief Comparison between U.S. and China Ethical Rules for Lawyers

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.

Introduction

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.

Lawyers Associations

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.

Sanctions

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.

Adam Lamparello & Charles E. MacLean, "Requiring Three Years of Real-World Legal Writing Instruction: Law Students Need It; Prospective Employers Want It; The Future of the Legal Profession Demands It"

Article. Abstract:

Part I of this three-part series set forth a blueprint for change. In this essay, we get more specific and propose a three-year legal writing curriculum that is designed to mirror the actual practice of law, from start to finish, and provide alternative paths for students who prefer to focus on transactional drafting or alternative dispute resolution. In so doing, we include: (1) required courses for each of the six semesters of law school; (2) a discussion of the practical skills that students will acquire in each course; (3) electives that students may take to complement their required courses; and (4) suggestions for textbooks and other materials. In our view, law students should not just learn to "think like lawyers," but also to "do what lawyers do." They should graduate with knowledge of how law is practiced, and not merely how it is acquired. This essay continues that quest.

The oldest law firm in the US?

Story at ABA Journal.

House Hearing on DOJ Investigation of IRS Misconduct

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.

http://oversight.house.gov/hearing/obama-administration-conducting-serious-investigation-irs-targeting/ 

http://oversight.house.gov/wp-content/uploads/2014/02/Painter-Testimony.pdf

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.

Champerty: Where is Thy Sting?

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.

Noel Semple, "Canada: Depending on the Kindness of Strangers - Access to Civil Justice"

Article. Abstract:

‘Abysmal’ was the word used to describe the accessibility of Canadian civil justice in a recent major report. Access to justice is simultaneously a social problem, a professional obligation for the legal profession, and a market opportunity for law firms. Are there any signs of significant progress on any of these fronts? This short Correspondent's report will review recent Canadian efforts to connect people of modest means with the expert legal services they urgently need.

Elaine Craig (Dalhousie University - Schulich School of Law), "The Ethical Obligations of Defence Counsel in Sexual Assault Cases"

Article. Abstract:

The treatment of sexual assault complainants by defence counsel has been the site of significant debate for legal ethicists. Even those with the strongest commitment to the ethics of zealous advocacy struggle with how to approach the cross-examination of sexual assault complainants. One of the most contentious issues in this debate pertains to the use of bias, stereotype and discriminatory tactics to advance one’s client’s position. This paper focuses on the professional responsibilities defence lawyers bear in sexual assault cases. Its central claim is as follows: Defence counsel are ethically obligated to restrict their carriage of a sexual assault case (including the evidence they seek to admit, the lines of examination and cross-examination they pursue and the closing arguments they submit) to conduct that supports finding of facts within the bounds of law. Put another way, defence counsel are ethically precluded from using strategies and advancing arguments that rely for their probative value on three social assumptions about sexual violence that have been legally rejected as baseless and irrelevant.

"The attorney enviros hate to see at the Supreme Court"

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.

Tocqueville:

“There is hardly a political question in the United States which does not sooner or later turn into a judicial one.”

Chadbourne & Parke LLP v. Troice - SCOTUS permits state law fraud actions against law firms

I haven't had time to read the whole opinion. The court permits state law fraud actions to proceed against law firms that represented key players in the Stanford financial fraud. Here's the SCOTUS Blog page.