Issues Facing Law Firm Ethics Counsel

Many law firms, particularly larger ones, designate attorneys or committees to address and resolve a variety of issues, from hiring, legal and insurance concerns to ethics issues. In this article, I focus upon the ethics function, and the unique ethics issues that are faced today by law firm ethics counsel. Some firms combine the ethics function with “general counsel” tasks, and others empower their ethics attorney or committee to decide business conflict issues as well. However the law firm decides to design the administrative structure to address ethics issues, the base underlying principles for ethics counsel remain the same. Like every other area of the law, attorneys who provide ethics advice to clients are bound by the applicable Rules of Professional Conduct. Even when the law firm is the client, e.g., even when the advice is only given within the law firm, ethics rules will usually come into play. But, in comparison with advising a paying client, the practical and legal ramifications flowing from the intra-firm work of law firm ethics attorneys are fairly unique.

The ABA Ruling on Ethics

Recently, in Formal Opinion 08-453, “In House Consulting on Ethical Issues” (Oct. 17, 2008), the American Bar Association Standing Committee on Ethics and Professional Responsibility addressed these issues in a comprehensive manner. In conjunction with the only state ethics opinion on point, New York State Bar Association on Professional Ethics Opinion 789 (Oct. 26, 2005), ABA Formal Opinion 08 453 is must reading for law firm management. The most salient points addressed in the Opinion are described below.

'Reasonable Efforts' to Implement Ethics Systems

Many jurisdictions have provisions like District of Columbia Rule of Professional Conduct 5.1(a). This Rule specifies that law firm and government agency management “shall make reasonable efforts” to ensure that there are measures in effect “giving reasonable assurance that all lawyers in the firm or agency conform to the Rules of Professional Conduct.” This requirement also applies to “lawyers employed in a legal services organization or the legal department of a corporation or other organization ' .” See D.C. Rule of Professional Conduct 1.0(c).

Comments 2 and 3 to Rule 5.1(a) discuss what these “reasonable efforts” entail. For example, such efforts may include policies and procedures “designed to detect and resolve conflicts of interest, identify dates by which actions must be taken in pending matters, account for client funds and property and ensure that inexperienced lawyers are properly supervised.” Other measures “can depend on the firm's structure and the nature of its practice.”

In smaller law firms, the comments state, “informal supervision and occasional admonition ordinarily might be sufficient.” However, in larger firms or practice groups where tricky ethical issues frequently arise, more formal procedures are usually required. “Some firms, for example, have a procedure whereby junior lawyers can make confidential referrals of ethical problems directly to a designated senior partner or special committee.” Other firms require the ethics partner or committee to analyze all proposed new matters for conflicts, and to either admonish the firm attorney to decline the representation or obtain the necessary consents. Firms of all sizes “may also rely on continuing legal education in professional ethics.”

If law firm management fails to make the necessary “reasonable efforts,” discipline by the applicable attorney grievance authorities remains a possibility. In addition, there remains the risk that evidence on this point may be admitted in malpractice and other litigation against the law firm.

Disclosing Confidential Information During
Ethics Consultations

According to ABA Formal Opinion 08 453, a lawyer ordinarily has “implied authority” to disclose confidential information to the firm ethics partner in order to obtain ethics advice. The only exception is where the client “has expressly instructed that information be confined to specific lawyers.”

Whenever a client proposes such instructions, a prudent firm will seek to carve out an exception for the ethics partner. Otherwise, the firm may have no alternative but to disengage from the representation. This is because someone needs to decide whether the confidential information creates a conflict and often the ethics partner is the person best able to weigh the circumstances and make the right decision.

Is the Firm Obligated to inform the Client of an Ethics Consultation?

ABA Formal Opinion 08 453 states that normally, the law firm is not required to tell the client before or after the fact either that a firm attorney has asked ethics counsel for advice, or the contents of that advice. If the firm concludes that a course of action is or will be unethical, however, the firm would need to consult with the client regarding limits on the attorney's actions. If consultation were not possible, the firm likely would need to withdraw because informed consent would not be likely. Depending upon the outcome of the consultation, the firm might also need to withdraw from the representation because the conflict could be unwaivable or because the client might refuse to consent.

Does an Ethics Consultation Create a Per Se Conflict?

One might argue that simply discussing an ethics issue within the law firm creates a per se conflict of interest with the affected client. But not according to ABA formal Opinion 08-453. Nevertheless, if the main reason for the ethics consultation is to protect the interests of the law firm and the firm attorney from the consequences of the attorney's misconduct, the representation can only continue if the client provides informed consent.

The Importance ofIdentifying Firm Ethics Counsel's Client or Clients

ABA Formal Opinion 08-453 does a nice job analyzing the thorny issue of identifying who are the law firm ethics counsel's clients in any given situation. Generally, the Opinion notes, “an ethics counsel in the first instance represents the law firm, not any of the individual lawyers in the firm.” At times, it is perfectly acceptable and appropriate for ethics counsel to advise the firm and individual attorneys. One example where that would not be the case is when ethics counsel has concluded that an individual firm attorney has engaged in misconduct. In such cases, ethics counsel must be careful to admonish the individual attorney that he or she is not being advised or represented by ethics counsel. Otherwise, ethics counsel may be ethically precluded from advising the firm or the individual attorney regarding the issue. This preclusion might also extend to all firm attorneys, requiring the firm to seek ethics advice outside the firm. The admonition to the individual attorney should be documented.

Disclosing Misconduct to Senior Firm Management or to Outside Authorities

Many jurisdictions have provisions like Rule 1.13(b) of the District of Columbia Rules of Professional Conduct. As applied in the law firm context, if ethics counsel knows that another firm attorney is engaging in misconduct that “is likely to result in substantial injury to the organization,” Rule 1.13(b) requires ethics counsel, if necessary, to refer the matter “to the highest authority that can act on behalf of” the law firm as determined under applicable law. Usually, this would be a board chair or managing partner.

ABA Formal Opinion 08-453 cogently summarizes the obligations of ethics counsel under Rule 1.13(b):

A law firm normally will expect its ethics counsel to report to senior management any serious ethical violations the ethics counsel has discovered. In some situations, it would be reasonable for the ethics counsel to believe that the situation can be corrected simply by counseling the lawyer involved about the appropriate course of conduct and, if the lawyer complies, that such resolution is in the best interest of the organization. If the ethics counsel's advice is rejected, however, or if the misconduct is sufficiently serious or urgent, referral to a higher authority in the firm will be required.

Moreover, in jurisdictions that follow Model Rule 1.13(c), ethics counsel may even reveal confidential information to disciplinary or other authorities when (in the words of ABA Opinion 08-453) the highest authority in the law firm “fails to address the misconduct appropriately ' ” On the other hand, not all jurisdictions follow Model Rule 1.13(c). In the District of Columbia, for example, “ [i]f a lawyer has reported a matter to the highest appropriate authority in the organization, and that authority has determined not to take any action recommended by the lawyer, the lawyer should accept that authority's decision, just as the lawyer is required to abide by the decision of an individual client to maintain confidence and secrets ' unless disclosure is authorized under [the narrow circumstances outlined in] Rule 1.6.” See Comment 6 to Rule 1.13 of the District of Columbia Rules of Professional Conduct.

Personally, I've never faced the situation where my firm's management has failed to address ethical misconduct appropriately. Anyone who has worked in a law firm can imagine the difficult decisions that the firm ethics counsel would face under such circumstances. On the one hand, ethics counsel might be ethically required to take further steps contrary to the stated positions and interests of firm management. On the other hand, to take these steps could be regarded as an act of disloyalty, and subject ethics counsel to serious disciplinary action (or worse) by the firm.

But consider this further complication. Many law firms have offices in multiple locations. If some of those locations follow Model Rule 1.13(c) and others do not, which jurisdiction's ethics rule will apply? In these circumstances, the ethics counsel and the firm will have even more difficult decisions to make. The ethics rules in many jurisdictions often provide helpful ground rules to firms in deciding these conflict of laws questions.

Reporting Attorney Misconduct to Disciplinary Authorities

The final subject area addressed by Formal Opinion 08-453 relates to the reporting of attorney misconduct to bar authorities. Rule 8.3 in most states requires attorneys to report egregious ethical violations that raise “a substantial question as to the lawyer's honesty, trustworthiness or fitness as a lawyer in other respect” ' unless client confidences would be divulged and the client declines to consent. When reporting violations that are not this severe, the attorney and the firm have more discretion in deciding what to report.

Formal Opinion 08-453 suggests that when confidential information would be disclosed, the law firm and other clients would need to consent to such disclosure. Moreover, citing Comment 2 to Model Rule 8.3, the Opinion exhorts ethics counsel “to encourage a client [including the law firm] to consent to disclosure where prosecution would not substantially prejudice the client's interests.”

Conclusion

Most, if not all, law firms of significant size have an in-house ethics counsel or committees to address ethics issues involving firm attorneys and other personnel. Such steps are important to foster a healthy, respectful and productive workplace, and to protect the ethical reputations of the firm and its lawyers. The use of ethics counsel, fully supported by firm management, can also help the firm in preventing and defending litigation against the firm. Conversely, firms without ethics counsel ' or which do not follow or support the decisions of ethics counsel ' are destined to have problems sooner or later.

Formal Opinion 08-453 provides instructive guidelines to law firm management and ethics counsel on how to proceed in an ethical manner. The Gospel of Saint Luke admonishes “Physician, heal thyself.” This Formal Opinion is the antithesis of St. Luke's admonition and for that, law firm ethics counsel like myself are grateful.

Jeffrey P. Ayres, a member of this newsletter's Board of Editors, is a partner at Venable LLP, with offices in New York, California, Washington, DC, Maryland, and Virginia. For many years, Mr. Ayres has chaired Venable's Ethics Committee. He regularly advises management (including law firms) on ethics and employment issues. He can be reached at [email protected].

Many law firms, particularly larger ones, designate attorneys or committees to address and resolve a variety of issues, from hiring, legal and insurance concerns to ethics issues. In this article, I focus upon the ethics function, and the unique ethics issues that are faced today by law firm ethics counsel. Some firms combine the ethics function with “general counsel” tasks, and others empower their ethics attorney or committee to decide business conflict issues as well. However the law firm decides to design the administrative structure to address ethics issues, the base underlying principles for ethics counsel remain the same. Like every other area of the law, attorneys who provide ethics advice to clients are bound by the applicable Rules of Professional Conduct. Even when the law firm is the client, e.g., even when the advice is only given within the law firm, ethics rules will usually come into play. But, in comparison with advising a paying client, the practical and legal ramifications flowing from the intra-firm work of law firm ethics attorneys are fairly unique.

The ABA Ruling on Ethics

Recently, in Formal Opinion 08-453, “In House Consulting on Ethical Issues” (Oct. 17, 2008), the American Bar Association Standing Committee on Ethics and Professional Responsibility addressed these issues in a comprehensive manner. In conjunction with the only state ethics opinion on point, New York State Bar Association on Professional Ethics Opinion 789 (Oct. 26, 2005), ABA Formal Opinion 08 453 is must reading for law firm management. The most salient points addressed in the Opinion are described below.

'Reasonable Efforts' to Implement Ethics Systems

Many jurisdictions have provisions like District of Columbia Rule of Professional Conduct 5.1(a). This Rule specifies that law firm and government agency management “shall make reasonable efforts” to ensure that there are measures in effect “giving reasonable assurance that all lawyers in the firm or agency conform to the Rules of Professional Conduct.” This requirement also applies to “lawyers employed in a legal services organization or the legal department of a corporation or other organization ' .” See D.C. Rule of Professional Conduct 1.0(c).

Comments 2 and 3 to Rule 5.1(a) discuss what these “reasonable efforts” entail. For example, such efforts may include policies and procedures “designed to detect and resolve conflicts of interest, identify dates by which actions must be taken in pending matters, account for client funds and property and ensure that inexperienced lawyers are properly supervised.” Other measures “can depend on the firm's structure and the nature of its practice.”

In smaller law firms, the comments state, “informal supervision and occasional admonition ordinarily might be sufficient.” However, in larger firms or practice groups where tricky ethical issues frequently arise, more formal procedures are usually required. “Some firms, for example, have a procedure whereby junior lawyers can make confidential referrals of ethical problems directly to a designated senior partner or special committee.” Other firms require the ethics partner or committee to analyze all proposed new matters for conflicts, and to either admonish the firm attorney to decline the representation or obtain the necessary consents. Firms of all sizes “may also rely on continuing legal education in professional ethics.”

If law firm management fails to make the necessary “reasonable efforts,” discipline by the applicable attorney grievance authorities remains a possibility. In addition, there remains the risk that evidence on this point may be admitted in malpractice and other litigation against the law firm.

Disclosing Confidential Information During
Ethics Consultations

According to ABA Formal Opinion 08 453, a lawyer ordinarily has “implied authority” to disclose confidential information to the firm ethics partner in order to obtain ethics advice. The only exception is where the client “has expressly instructed that information be confined to specific lawyers.”

Whenever a client proposes such instructions, a prudent firm will seek to carve out an exception for the ethics partner. Otherwise, the firm may have no alternative but to disengage from the representation. This is because someone needs to decide whether the confidential information creates a conflict and often the ethics partner is the person best able to weigh the circumstances and make the right decision.

Is the Firm Obligated to inform the Client of an Ethics Consultation?

ABA Formal Opinion 08 453 states that normally, the law firm is not required to tell the client before or after the fact either that a firm attorney has asked ethics counsel for advice, or the contents of that advice. If the firm concludes that a course of action is or will be unethical, however, the firm would need to consult with the client regarding limits on the attorney's actions. If consultation were not possible, the firm likely would need to withdraw because informed consent would not be likely. Depending upon the outcome of the consultation, the firm might also need to withdraw from the representation because the conflict could be unwaivable or because the client might refuse to consent.

Does an Ethics Consultation Create a Per Se Conflict?

One might argue that simply discussing an ethics issue within the law firm creates a per se conflict of interest with the affected client. But not according to ABA formal Opinion 08-453. Nevertheless, if the main reason for the ethics consultation is to protect the interests of the law firm and the firm attorney from the consequences of the attorney's misconduct, the representation can only continue if the client provides informed consent.

The Importance ofIdentifying Firm Ethics Counsel's Client or Clients

ABA Formal Opinion 08-453 does a nice job analyzing the thorny issue of identifying who are the law firm ethics counsel's clients in any given situation. Generally, the Opinion notes, “an ethics counsel in the first instance represents the law firm, not any of the individual lawyers in the firm.” At times, it is perfectly acceptable and appropriate for ethics counsel to advise the firm and individual attorneys. One example where that would not be the case is when ethics counsel has concluded that an individual firm attorney has engaged in misconduct. In such cases, ethics counsel must be careful to admonish the individual attorney that he or she is not being advised or represented by ethics counsel. Otherwise, ethics counsel may be ethically precluded from advising the firm or the individual attorney regarding the issue. This preclusion might also extend to all firm attorneys, requiring the firm to seek ethics advice outside the firm. The admonition to the individual attorney should be documented.

Disclosing Misconduct to Senior Firm Management or to Outside Authorities

Many jurisdictions have provisions like Rule 1.13(b) of the District of Columbia Rules of Professional Conduct. As applied in the law firm context, if ethics counsel knows that another firm attorney is engaging in misconduct that “is likely to result in substantial injury to the organization,” Rule 1.13(b) requires ethics counsel, if necessary, to refer the matter “to the highest authority that can act on behalf of” the law firm as determined under applicable law. Usually, this would be a board chair or managing partner.

ABA Formal Opinion 08-453 cogently summarizes the obligations of ethics counsel under Rule 1.13(b):

A law firm normally will expect its ethics counsel to report to senior management any serious ethical violations the ethics counsel has discovered. In some situations, it would be reasonable for the ethics counsel to believe that the situation can be corrected simply by counseling the lawyer involved about the appropriate course of conduct and, if the lawyer complies, that such resolution is in the best interest of the organization. If the ethics counsel's advice is rejected, however, or if the misconduct is sufficiently serious or urgent, referral to a higher authority in the firm will be required.

Moreover, in jurisdictions that follow Model Rule 1.13(c), ethics counsel may even reveal confidential information to disciplinary or other authorities when (in the words of ABA Opinion 08-453) the highest authority in the law firm “fails to address the misconduct appropriately ' ” On the other hand, not all jurisdictions follow Model Rule 1.13(c). In the District of Columbia, for example, “ [i]f a lawyer has reported a matter to the highest appropriate authority in the organization, and that authority has determined not to take any action recommended by the lawyer, the lawyer should accept that authority's decision, just as the lawyer is required to abide by the decision of an individual client to maintain confidence and secrets ' unless disclosure is authorized under [the narrow circumstances outlined in] Rule 1.6.” See Comment 6 to Rule 1.13 of the District of Columbia Rules of Professional Conduct.

Personally, I've never faced the situation where my firm's management has failed to address ethical misconduct appropriately. Anyone who has worked in a law firm can imagine the difficult decisions that the firm ethics counsel would face under such circumstances. On the one hand, ethics counsel might be ethically required to take further steps contrary to the stated positions and interests of firm management. On the other hand, to take these steps could be regarded as an act of disloyalty, and subject ethics counsel to serious disciplinary action (or worse) by the firm.

But consider this further complication. Many law firms have offices in multiple locations. If some of those locations follow Model Rule 1.13(c) and others do not, which jurisdiction's ethics rule will apply? In these circumstances, the ethics counsel and the firm will have even more difficult decisions to make. The ethics rules in many jurisdictions often provide helpful ground rules to firms in deciding these conflict of laws questions.

Reporting Attorney Misconduct to Disciplinary Authorities

The final subject area addressed by Formal Opinion 08-453 relates to the reporting of attorney misconduct to bar authorities. Rule 8.3 in most states requires attorneys to report egregious ethical violations that raise “a substantial question as to the lawyer's honesty, trustworthiness or fitness as a lawyer in other respect” ' unless client confidences would be divulged and the client declines to consent. When reporting violations that are not this severe, the attorney and the firm have more discretion in deciding what to report.

Formal Opinion 08-453 suggests that when confidential information would be disclosed, the law firm and other clients would need to consent to such disclosure. Moreover, citing Comment 2 to Model Rule 8.3, the Opinion exhorts ethics counsel “to encourage a client [including the law firm] to consent to disclosure where prosecution would not substantially prejudice the client's interests.”

Conclusion

Most, if not all, law firms of significant size have an in-house ethics counsel or committees to address ethics issues involving firm attorneys and other personnel. Such steps are important to foster a healthy, respectful and productive workplace, and to protect the ethical reputations of the firm and its lawyers. The use of ethics counsel, fully supported by firm management, can also help the firm in preventing and defending litigation against the firm. Conversely, firms without ethics counsel ' or which do not follow or support the decisions of ethics counsel ' are destined to have problems sooner or later.

Formal Opinion 08-453 provides instructive guidelines to law firm management and ethics counsel on how to proceed in an ethical manner. The Gospel of Saint Luke admonishes “Physician, heal thyself.” This Formal Opinion is the antithesis of St. Luke's admonition and for that, law firm ethics counsel like myself are grateful.

Jeffrey P. Ayres, a member of this newsletter's Board of Editors, is a partner at Venable LLP, with offices in New York, California, Washington, DC, Maryland, and Virginia. For many years, Mr. Ayres has chaired Venable's Ethics Committee. He regularly advises management (including law firms) on ethics and employment issues. He can be reached at [email protected].