ETHICS AT EIGHT:

38th National Conference on Professional ResponsibilityBoston, MassachusettsJune 2, 2012LAW FIRM MANAGEMENT & SUPERVISION: WHERE WE ARE & WHERE WERE HEADED 1TODAYS SESSIONManagement/Supervision UpdateRecent Cases, Developments, and Trends

Global Developments: Management-Based RegulationAustraliaU.K.Impact on U.S. FirmsRelevance (if any) to U.S. RegulationPANELISTSArt Lachman, ModeratorHenry DingerSusan FortneyDoug RichmondNO GOOD DEED GOES UNPUNISHEDYou are a partner at Hale & Hardy LLP, and you serve as the firms pro bono coordinator Two firm litigation associates, Josh Callenbach and Megan Riggs, defended Ralph Juhnke in a highly publicized criminal caseAlthough Josh & Megan performed admirably, Juhnke was convictedJosh & Megan have since left the firm

NO GOOD DEED GOES UNPUNISHEDOne day, the two firm partners who manage Josh & Megans departments when they worked at the firm come to your office & show you a letter they received from the state supreme courts disciplinary administratorThe letters state that:Josh & Megan failed to file a notice of appeal in Juhnkes case prior to their departure from the firmNo one else in the firm assumed responsibility for the representation after they departedAs a result, Juhnke lost his appellate rightsThe department heads are charged with violating RPC 5.1(a) & 5.1(b)You begin to wonder when your mail will be delivered

NO GOOD DEED GOES UNPUNISHEDWhich of the following correctly describes your potential exposure to discipline under the Model Rules?Because this matter was handled without a fee, you face no exposure under the RPCsIf you were not directly involved in supervising the associates work on this project, you face no exposure under the RPCsAssuming that the associates conduct violated the RPCs, you cannot be disciplined for that conduct unless you knew about the violation at a time when its consequences could be avoidedNone of the above is correctDUTY TO MANAGE & SUPERVISE LAWYERSDuty to Manage Lawyers: RPC 5.1(a)A partner in a law firm, and a lawyer who individually or together with other lawyers possesses comparable managerial authority in a law firm, shall make reasonable efforts to ensure that the firm has in effect measures giving reasonable assurance that all lawyers in the firm conform to the Rules of Professional Conduct.Duty to Supervise Lawyers: RPC 5.1(b)A lawyer having direct supervisory authority over another lawyer shall make reasonable efforts to ensure that the other lawyer conforms to the Rules of Professional Conduct.7RESPONSIBILITY FOR ANOTHER LAWYERS RPC VIOLATIONSRPC 5.1(c): A lawyer is responsible for another lawyers violation of the RPCs if:the lawyer orders or, with knowledge of the specific conduct, ratifies the conduct involved; orthe lawyer is a partner or has comparable managerial authority in the law firm in which the other lawyer practices, or has direct supervisory authority over the other lawyer, and knows of the conduct at a time when its consequences can be avoided or mitigated but fails to take reasonable remedial action

8NO GOOD DEED GOES UNPUNISHEDWhen the associates left the firm, what, if anything, should the firm have done?Nothing if the associates, not the firm, had actually appeared in the case on behalf of JuhnkeNothing if the associates informed you that they were taking responsibility for Juhnkes representation or obtaining new counsel for him after leaving the firmIf the associates would not be taking responsibility for Juhkes representation after their departure, inform the client in writing of the associates departure and the firms intent to withdraw as a resultB. & C.None of the aboveSUBORDINATE LAWYER DUTIESRPC 5.2(a) A lawyer is bound by the Rules of Professional Conduct notwithstanding that the lawyer acted at the direction of another person. (b) A subordinate lawyer does not violate the Rules of Professional Conduct if that lawyer acts in accordance with a supervisory lawyer's reasonable resolution of an arguable question of professional duty.

10NO GOOD DEED GOES UNPUNISHEDWhich of the following correctly describes the potential legal liability of the firm (an LLP) and the partners in this scenario?The partners may be liable for their negligent conduct in managing or supervising the firms associatesVicarious liability of managing and supervisory partners for any legal malpractice of the associates is limited to the partners capital contributions to the firmThe firm itself is liable in full for any legal malpractice of the associatesAll of the aboveB. and C.MANAGEMENT IS OVERRATEDOne of your firms longest-serving secretaries, Roberta Nelson, embezzled $130,000 from the firm by creating fake invoices from fictitious companies & having the firm issue checks to those companies, all of which existed only as the owners of post office boxes she rentedAs the firms GC, you reported Robertas crime to the DA, who obtained an order of restitution as part of Robertas plea bargainShe has paid back $87,000 she had not spent when caughtRobertas lawyer has filed a bar complaint against the firms Executive Committee, which includes the Managing Partner, alleging violations of RPC 5.3(a) & 5.3(b)

MANAGEMENT IS OVERRATEDYou expect that once the local disciplinary committee, chaired by Bob Frye, receives the thoughtful and well-argued response of the firms outside counsel, Doug Bryans, the matter will be dismissedInstead, Bob tells you that if the charges are proven, the committee will seek suspensions from practice for the firms Executive Committee membersAnd a longer suspension for the firms Managing PartnerBob tells you that he sees no reason the charges wont be provenYou call Doug againDUTY TO MANAGE & SUPERVISE NONLAWYERSDuty to Manage Nonlawyers: RPC 5.3(a)A partner, and a lawyer who individually or together with other lawyers possesses comparable managerial authority in a law firm, shall make reasonable efforts to ensure that the firm has in effect measures giving reasonable assurance that the [employed, retained, or associated nonlawyers] conduct is compatible with the professional obligations of the lawyer.Duty to Supervise Nonlawyers: RPC 5.3(b)A lawyer having direct supervisory authority over the nonlawyer shall make reasonable efforts to ensure that the [employed, retained, or associated nonlawyer]'s conduct is compatible with the professional obligations of the lawyer.14RESPONSIBILITY FOR A NONLAWYERS RPC VIOLATIONSRPC 5.3(c): a lawyer is responsible for conduct of a nonlawyer that would be a violation of the RPCs if engaged in by a lawyer if:the lawyer orders or, with knowledge of the specific conduct, ratifies the conduct involved; orthe lawyer is a partner or has comparable managerial authority in the law firm in which the nonlawyer is employed, or has direct supervisory authority over the nonlawyer, and knows of the conduct at a time when its consequences can be avoided or mitigated but fails to take reasonable remedial action

15MANAGEMENT IS OVERRATEDTrue or False: The Managing Partner and members of the firms Executive Committee have a heightened duty, in comparison to other firm partners, to comply with the obligation to manage nonlawyers set forth in RPC 5.3(a).TrueFalseMANAGEMENT IS OVERRATEDTrue or False: It is a valid defense in the disciplinary proceeding against Managing Partner for allegedly violating RPC 5.3(a) and 5.3(b) that MP delegated supervision of Roberta to the firms experienced nonlawyer Executive Director.TrueFalseTHANK GOODNESS WE PRACTICE HEREYou serve as your firms Managing PartnerJerry, a highly regarded partner at the firm with whom youve worked for 30 years, admits to you that he improperly paid himself $77,500 in conservatorship feesHe is distraught, telling you that his wife is divorcing him & that his son has been diagnosed with aggressive, untreatable cancerHe also tells you that between the alcohol and the antidepressants, he is barely able to functionAfter calming Jerry and telling him to say nothing to anyone about the purloined fees, you quickly summon Mary, your most trusted colleague on the firms Management Committee

THANK GOODNESS WE PRACTICE HEREYou make a plan:Jerry will repay the fees over a 6-month periodYou view this as a 1-time mistake, so youll tell the firms Executive Director & CFO but no one elseJerry will take a leave of absence to be with his sonThe firm will continue to pay his draws while hes awayMary says: I agree with all of that, but shouldnt we tell Chris? I mean, hes our General Counsel.You respond: We best leave Chris out of this. He doesnt need to know about any of this and this is the sort of thing that should be handled on a need-to-know basis.

THANK GOODNESS WE PRACTICE HEREAll is fine until 2 months later, when the firms Executive Director & CFO come into your office and close the doorYou dont want to hear this, says your CFO, but Ive done some discreet checking and it looks like there is another $85,900 thats missing from accounts Jerry controls.

THANK GOODNESS WE PRACTICE HEREIt would have been a good idea for you to consult Chris, the firms General Counsel, when you first heard about the purloined fees from Jerry because:Chris might have proposed immediately conducting a full investigation to ensure that the firm knew the full extent of the problem & could promptly take any necessary corrective action.Chris might have been able to offer objective, candid, and practical advice to minimize the harm to clients and to the firm of Jerrys misconduct.Chris might have explained the potential liability risks associated with Jerrys professional misconductChris might have explained professional duties to report misconduct to the bar, as well as dealing with impairment issues.All of the aboveTHANK GOODNESS WE PRACTICE HEREDid Managing Partner violate RPC 5.1(a), and if so, what should the sanction be? No violationViolation; diversionViolation; public reprimandViolation; suspensionBOARD OF OVERSEERS v. WARRENDecision of single justice (12/29/10):No violation of Maine Bar RulesDecision of Maine Supreme Law Court panel (12/8/11):No violation of duty to reportNo violation of duty to prevent or rectify harm caused by rule violation when there is an opportunity to take corrective actionPartner members of the firms Executive Committee violated management dutiesRemand for entry of judgment & appropriate sanctionOn remand to same single justice (2/24/12):As to each of the named respondents, this proceeding is dismissed with a warning regarding the violation of the Bar Rule identified in the Law Court opinion. [emphasis added]PEOPLE WHO ARE GOOD AT MATH BECOME DOCTORSEveryone liked Jack, although the young man never seemed happy as an associate at your firm, although hes much less popular now that his fraudulent billing scheme has been discovered & publicly reportedJack falsified 2,100 billable hours over 3 years (about a third of his time), & then succeeded in writing off the time before clients were billedUnfortunately, his false entries for 1 invoice slipped through, & the client detected the overbillingThat sparked an internal investigation

PEOPLE WHO ARE GOOD AT MATH BECOME DOCTORSJack seemed relieved that he was caughtHe was trying to keep his hours up to avoid the consequences of being viewed as unproductiveAlso, he didnt like practicing law, was depressed, & had expected to be caught & punished soonerHe didnt even seem bothered by his 2-year suspension from practiceBut now youve received an inquiry from the disciplinary board about Jacks supervisionYou call a meeting with the 2 partners whose clients were affected & the head of the firms litigation group

PEOPLE WHO ARE GOOD AT MATH BECOME DOCTORSMeeting Agenda: (1) How the hell could this have happened?(2) How the hell could this have happened?(3) How the hell could this have happened?

Australia Regulatory DevelopmentsCatalyst: legislation allowing incorporation and nonlawyer ownership

Approach: (state/territory basis)Regulator as proactive consultant who works with Incorporated Legal Practices (ILPs) in developing firm ethical infrastructure

Requirements for ILPs in AustraliaMust appoint a Legal Practitioner Director

Must identify and report professional misdeeds

Must implement and maintain Appropriate Management Systems

Appropriate Management SystemsNot defined in the legislation but regulators & professional groups identified 10 objectives of sound legal practice

ILPs use self-assessment forms to rate compliance with objectivesPositive Track Record of the ILP Regulatory RegimeComplaints rate for self-assessed ILPs dropped by two-thirds Majority of ILPs assessed themselves to be in compliance on all ten objectivesSelf-assessed ILPs had one-third the number of complaints as compared to non-incorporated firmsU.K. Regulatory DevelopmentsOutcome-Focused RegulationFocus of regulation is on complying with principles rather than enforcing rulesRequires the designation of firm managersCOLP (Compliance Officer for Legal Practice) COFA (Compliance Officer for Finance & Administration)

Using MBR in the U.S.?Which of the following BEST describes your feelings about U.S. jurisdictions shifting to management-based regulation (putting aside the issue of nonlawyer ownership of law firms)? Its a great idea & we should work to make it happen.We should incorporate some aspects of management-based regulation into the existing regulatory framework here.It would represent an improvement over existing regulation, but such an approach is impracticable here.Its a bad idea & should not be adopted here.