dealing with ethics conflicts should not require ... · fact situation: rich mann, for whom you...

Dealing with Ethics Conflicts Should Not Require Revolutionary Thought: Ensuring a United Front and Preventing Revolt

May 13, 2016

Spring Symposium of ABA Real Property, Trust and Estate Law Section

Boston, MA

Conflicts (and related issues) Affecting Real Estate Attorneys

May 13, 2016 (9:45-10:45)

Robert S. Freedman, Moderator and Presenter

Carlton Fields

Alison R. Bost, Presenter Deputy General Counsel

Womble Carlyle Sandridge & Rice, LLP

Randy J. Curato, Presenter Vice President—Loss Prevention Counsel

ALAS, Inc. Copyright © 2016 by Attorneys’ Liability Assurance Society, Inc., A Risk Retention Group (ALAS). All rights reserved. ABA Model Rules ©2016 by the American Bar Association. Reprinted With permission. All rights reserved. This information or any or portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.

Dealing with Ethics Conflicts Should Not Require Revolutionary Thought: Ensuring a United Front and Preventing Revolt

May 13, 2016

ABA Real Property, Trust and Estate Law Section Boston, MA

Ethical Issues Facing Real Estate Attorneys

Lawyer Discipline and Civil Risks. When is the last time you read the Rules of

Professional Conduct (RPC or Rules)? If you are like most, it was probably some time ago, although hopefully not as long ago as your preparation for the ethics portion of the bar exam. The RPCs cover virtually every lawyer activity and professional relationship. Lawyers should regularly look to the RPCs for guidance in their daily practice. Just skimming the table of contents of the Rules will alert lawyers to the existence of rules on, among other things, competence, diligence and communication, confidentiality, fees, conflicts, candor toward a tribunal, fairness to opposing counsel, dealing with unrepresented persons, supervisory responsibilities, advertising, and multijurisdictional practice of law. And, the comments following each rule provide additional guidance on compliance with the RPCs. Knowing and complying with the RPCs will make any lawyer a better and more effective practitioner.

Violation of a rule is not a basis for civil liability, for example, in a legal malpractice or breach of fiduciary duty claim asserted by a client. However, “since the Rules do establish standards of conduct by lawyers, a lawyer’s violation of a Rule may be evidence of breach of the applicable standard of conduct.” ABA Model Rules of Professional Conduct, Preamble [20]. Accordingly, a lawyer should expect an expert in a malpractice case to invoke the RPCs when testifying against the lawyer in a professional liability case. As importantly, lawyers must realize that violation of a Rule is a basis for discipline. Disciplinary authorities take a dim view of a rule violation, particularly if the lawyer claims ignorance.

Certain of the RPCs proscribe what a lawyer must or must not do—these rules generally use the terms shall or shall not. These rules make the lawyer’s decision on how to proceed in a covered circumstance easier. Other rules allow the lawyer some discretion—these rules generally use the term may. These rules will require the lawyer to exercise good judgment. The comments can assist a lawyer in determining how to proceed. Some suggest that a lawyer should or should not do something and others provide analysis or examples applying the rules. These comments do not add any requirements to the rule itself, but lawyers generally should heed the guidance in the context of the circumstances.

2

While disciplinary violations and civil liability do not always overlap, the two often will intersect. Discipline and professional liability concerns should motivate any lawyer to have a copy of the RPCs within arm’s reach when practicing law. The following hypothetical fact situations highlight a number of a lawyer’s duties in the context of situations faced by commercial real estate lawyers in their everyday practice.

Program Summary. This session will focus on applying in a lawyer’s practice

several conflict and related Rules of Professional Conduct, including those listed below. The ABA Model Rules are attached; however, lawyers should consult their state’s version of these rules when analyzing conflicts and other ethics issues.

1.2 Scope of Representation 1.3 Diligence 1.4 Communication 1.6 Confidentiality 1.7 Conflicts 1.9 Former Clients

1.13 Organization as Client 3.4 Fairness to Opposing Party and Counsel 4.1 Truthfulness in Statements to Others 4.3 Dealing with Unrepresented Persons

Fact Situation: Rich Mann, for whom you have done other commercial real estate work, the last matter having concluded 18 months ago, calls you with a new assignment. He advises you that he has worked out a deal with two others to create an LLC and, with money contributed to the LLC from each member and financing from a bank, acquire a warehouse that currently has two tenants each occupying one-half of the space. The leases are currently well under market rates and the LLC will non-renew the leases when they expire approximately six months after the anticipated acquisition, and repurpose the warehouse, making some significant modifications. In addition, one of the LLC members plans to lease part of the warehouse for one of his private businesses.

Client Identification: Who is the client? [If Rich Mann, is he a current or former client?]

Who is not the client? Who do you want/not want to be the client? What can you do to help you decide that question [due diligence on each one] Could you represent multiple clients; if so, which ones? What if Rich Mann wants you to represent him, the LLC, and the other LLC members? Can you? Should you?

Conflicts of Interest: What is the first thing you should do? [Conflict check]

3

What else do you need to know? [Names of all others involved] Who do you need to worry about? [Seller, partners in LLC, lender, tenants, property identification] How far into the ownership structure of the entities do you need to go? Can you represent multiple parties? Which ones? Which ones will require a conflict waiver? Does the fact that one of the parties involved is a current client affect your analysis? Assume your conflict check shows that your firm did some limited work for the seller two years ago. Is the seller a current client or a former client? What difference does it make? Assuming the lender is a current client of your firm, can you proceed? If so, what do you need to do first? What if the lender is a significant firm client? Can you use a screen to solve the seller or lender conflict issues? Which, of any, of the conflicts can be waived? How should you handle getting any waivers? Should they be in writing? Is an email waiver sufficient? Should you have the client sign the waiver?

Engagement Letter: Do you need one? Why or why not? Does it matter whether this is a current or former client? Why or why not?

Can you rely on a prior engagement letter with Rich Mann? Why or why not? If so, should you do anything else? What are the key components of a good engagement letter [client identification, scope of work, fees]? What should the client identification say? What should the scope of the work be? Should you exclude anything? [Zoning?] What should you do about the nonclient(s)? [INYL letter, put in documents who you represented and who represented the others] If you will represent the LLC or multiple parties, who will give you direction? What should you do if the clients want to have multiple individuals providing direction? Should you document that in the engagement letter? Should you ask for a retainer?

Drafting Issues:

After negotiations and several drafts, you receive a “final” purchase contract from the seller’s lawyer, which the seller has signed, and is now ready for your client’s signature. You notice that a provision agreed to by all parties, which is favorable to the seller but unfavorable to your client(s) was somehow dropped.

What, if anything, should you do? Any conflict with the client? Should you have your client sign and do nothing?

4

Do you have to consult the client? What is likely to happen if you do nothing (discipline, malpractice claim, other claim)? You submit the draft contract to your client for comment and Rich Mann adds

comments in hidden text for you. After making your changes, you forward the contract to the seller’s lawyer, without scrubbing the document.

Have you done anything wrong? What if the seller’s lawyer turns on the hidden text and reads your client’s comments, including his notes that he is willing to cave on a certain contentious point if push comes to shove? What if the seller’s lawyer just examines the metadata of the document, which shows which changes were made by the client, by you, and when? Do these issues create a conflict with the client? What should you have done? Should you be mining documents received from seller’s lawyer to check for hidden text, headers and footers, and other metadata? Can you? You send changes to the purchase contract to the seller’s lawyer, who sends it

back saying it is fine, except for one small change in one provision, which he makes in the redline draft. The change is acceptable to your client and you accept the changes in the redline and circulate the contract for signature. Unbeknownst to you, seller’s lawyer also changed the “boilerplate language” without telling you. After the contract is signed, the deal closes, and the client takes possession, you get the contract from the file to use as a template for another deal, whereupon you discover the changes, which materially affect your client.

Is this your fault? Does this create a conflict with the client? What should you do now? What could you have done to avoid it? What is likely to happen? Discipline (for whom?), malpractice claim (against whom?), or both. By the way, should you be using a prior deal document as a template?

Post-Closing Issues:

After the acquisition, Rich Mann calls to complain about several problems, asking why you didn’t alert him before they bought the property and warehouse.

The Leases: Mann says the tenants are saying their leases cannot be non-renewed because of their right to unilaterally extend the term. Zoning: Mann says the county inspector has refused to approve the warehouse modifications on the grounds that they create zoning violations on the property.

5

Environmental: Mann says that he discovered some buried barrels, which have skulls painted on them, on the property and in a storage room in the warehouse. LLC Member Leasing: The LLC member who planned to lease some of the space is threatening to sue him for breach of fiduciary duty and you for malpractice. Are any of these issues your problem?

Working with Consultants: Assume that the zoning issues and/or the environmental issues are included in the scope of your work and you need to retain a consultant to assess those issues. First, should this even be within your scope of work?

How should you find one and what would you do to evaluate them? Is a conflict check required?

How would you handle the retention and/or payment: you hire/pay or client hires/pays? [Give client options, get client involved in selection and confirm their agreement to retain explain need, value, etc.] Do you need an engagement letter with the consultant? [Have a definitive engagement letter with them; outline specifically their responsibilities including whether or not will require a written report]

What should it say? What else should you do? [Conflict check; read and understand ethics rules or guidelines that apply to them, etc.] Are communications with the consultant privileged? What do you need to do to protect the privilege (or what things shouldn’t you do)?

6

ABA Model Rules of Professional Conduct

Selected Rules:

Rule 1.2 Scope of Representation

Rule 1.3 Diligence

Rule 1.6 Confidentiality

Rule 1.4 Communication

Rule 1.7 Conflicts

Rule 1.9 Duties to Former Clients

Rule 1.13 Organization as Client

Rule 3.4 Fairness to Opposing Party and Counsel

Rule 4.1 Truthfulness in Statements to Others Rule 4.3 Dealing with Unrepresented Persons

©2016 by the American Bar Association. Reprinted With permission. All rights reserved. This information or any or portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.

7

Rule 1.2 Scope Of Representation And Allocation Of Authority Between Client And Lawyer (a) Subject to paragraphs (c) and (d), a lawyer shall abide by a client's decisions concerning the objectives of representation and, as required by Rule 1.4, shall consult with the client as to the means by which they are to be pursued. A lawyer may take such action on behalf of the client as is impliedly authorized to carry out the representation. A lawyer shall abide by a client's decision whether to settle a matter. In a criminal case, the lawyer shall abide by the client's decision, after consultation with the lawyer, as to a plea to be entered, whether to waive jury trial and whether the client will testify.

(b) A lawyer's representation of a client, including representation by appointment, does not constitute an endorsement of the client's political, economic, social or moral views or activities.

(c) A lawyer may limit the scope of the representation if the limitation is reasonable under the circumstances and the client gives informed consent.

(d) A lawyer shall not counsel a client to engage, or assist a client, in conduct that the lawyer knows is criminal or fraudulent, but a lawyer may discuss the legal consequences of any proposed course of conduct with a client and may counsel or assist a client to make a good faith effort to determine the validity, scope, meaning or application of the law.

Rule 1.3 Diligence A lawyer shall act with reasonable diligence and promptness in representing a client.

Rule 1.4 Communication (a) A lawyer shall:

(1) promptly inform the client of any decision or circumstance with respect to which the client's informed consent, as defined in Rule 1.0(e), is required by these Rules;

(2) reasonably consult with the client about the means by which the client's objectives are to be accomplished;

(3) keep the client reasonably informed about the status of the matter;

(4) promptly comply with reasonable requests for information; and

(5) consult with the client about any relevant limitation on the lawyer's conduct when the lawyer knows that the client expects assistance not permitted by the Rules of Professional Conduct or other law.

(b) A lawyer shall explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation.


8

Rule 1.6 Confidentiality Of Information (a) A lawyer shall not reveal information relating to the representation of a client unless the client gives informed consent, the disclosure is impliedly authorized in order to carry out the representation or the disclosure is permitted by paragraph (b).

(b) A lawyer may reveal information relating to the representation of a client to the extent the lawyer reasonably believes necessary:

(1) to prevent reasonably certain death or substantial bodily harm;

(2) to prevent the client from committing a crime or fraud that is reasonably certain to result in substantial injury to the financial interests or property of another and in furtherance of which the client has used or is using the lawyer's services;

(3) to prevent, mitigate or rectify substantial injury to the financial interests or property of another that is reasonably certain to result or has resulted from the client's commission of a crime or fraud in furtherance of which the client has used the lawyer's services;

(4) to secure legal advice about the lawyer's compliance with these Rules;

(5) to establish a claim or defense on behalf of the lawyer in a controversy between the lawyer and the client, to establish a defense to a criminal charge or civil claim against the lawyer based upon conduct in which the client was involved, or to respond to allegations in any proceeding concerning the lawyer's representation of the client;

(6) to comply with other law or a court order; or

(7) to detect and resolve conflicts of interest arising from the lawyer’s change of employment or from changes in the composition or ownership of a firm, but only if the revealed information would not compromise the attorney-client privilege or otherwise prejudice the client.

(c) A lawyer shall make reasonable efforts to prevent the inadvertent or unauthorized disclosure of, or unauthorized access to, information relating to the representation of a client.


9

Rule 1.7 Conflict Of Interest: Current Clients (a) Except as provided in paragraph (b), a lawyer shall not represent a client if the representation involves a concurrent conflict of interest. A concurrent conflict of interest exists if:

(1) the representation of one client will be directly adverse to another client; or

(2) there is a significant risk that the representation of one or more clients will be materially limited by the lawyer's responsibilities to another client, a former client or a third person or by a personal interest of the lawyer.

(b) Notwithstanding the existence of a concurrent conflict of interest under paragraph (a), a lawyer may represent a client if:

(1) the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client;

(2) the representation is not prohibited by law;

(3) the representation does not involve the assertion of a claim by one client against another client represented by the lawyer in the same litigation or other proceeding before a tribunal; and

(4) each affected client gives informed consent, confirmed in writing.

Rule 1.9 Duties To Former Clients (a) A lawyer who has formerly represented a client in a matter shall not thereafter represent another person in the same or a substantially related matter in which that person's interests are materially adverse to the interests of the former client unless the former client gives informed consent, confirmed in writing.

(b) A lawyer shall not knowingly represent a person in the same or a substantially related matter in which a firm with which the lawyer formerly was associated had previously represented a client

(1) whose interests are materially adverse to that person; and

(2) about whom the lawyer had acquired information protected by Rules 1.6 and 1.9(c) that is material to the matter;

unless the former client gives informed consent, confirmed in writing.

(c) A lawyer who has formerly represented a client in a matter or whose present or former firm has formerly represented a client in a matter shall not thereafter:

(1) use information relating to the representation to the disadvantage of the former client except as these Rules would permit or require with respect to a client, or when the information has become generally known; or

(2) reveal information relating to the representation except as these Rules would permit or require with respect to a client.


10

Rule 1.13 Organization As Client (a) A lawyer employed or retained by an organization represents the organization acting through its duly authorized constituents.

(b) If a lawyer for an organization knows that an officer, employee or other person associated with the organization is engaged in action, intends to act or refuses to act in a matter related to the representation that is a violation of a legal obligation to the organization, or a violation of law that reasonably might be imputed to the organization, and that is likely to result in substantial injury to the organization, then the lawyer shall proceed as is reasonably necessary in the best interest of the organization. Unless the lawyer reasonably believes that it is not necessary in the best interest of the organization to do so, the lawyer shall refer the matter to higher authority in the organization, including, if warranted by the circumstances to the highest authority that can act on behalf of the organization as determined by applicable law.

(c) Except as provided in paragraph (d), if

(1) despite the lawyer's efforts in accordance with paragraph (b) the highest authority that can act on behalf of the organization insists upon or fails to address in a timely and appropriate manner an action, or a refusal to act, that is clearly a violation of law, and

(2) the lawyer reasonably believes that the violation is reasonably certain to result in substantial injury to the organization,

then the lawyer may reveal information relating to the representation whether or not Rule 1.6 permits such disclosure, but only if and to the extent the lawyer reasonably believes necessary to prevent substantial injury to the organization.

(d) Paragraph (c) shall not apply with respect to information relating to a lawyer's representation of an organization to investigate an alleged violation of law, or to defend the organization or an officer, employee or other constituent associated with the organization against a claim arising out of an alleged violation of law.

(e) A lawyer who reasonably believes that he or she has been discharged because of the lawyer's actions taken pursuant to paragraphs (b) or (c), or who withdraws under circumstances that require or permit the lawyer to take action under either of those paragraphs, shall proceed as the lawyer reasonably believes necessary to assure that the organization's highest authority is informed of the lawyer's discharge or withdrawal.

(f) In dealing with an organization's directors, officers, employees, members, shareholders or other constituents, a lawyer shall explain the identity of the client when the lawyer knows or reasonably should know that the organization's interests are adverse to those of the constituents with whom the lawyer is dealing.

(g) A lawyer representing an organization may also represent any of its directors, officers, employees, members, shareholders or other constituents, subject to the provisions of Rule 1.7. If the organization's consent to the dual representation is required by Rule 1.7, the consent shall be given by an appropriate official of the organization other than the individual who is to be represented, or by the shareholders.


11

Rule 3.4 Fairness To Opposing Party And Counsel A lawyer shall not:

(a) unlawfully obstruct another party' s access to evidence or unlawfully alter, destroy or conceal a document or other material having potential evidentiary value. A lawyer shall not counsel or assist another person to do any such act;

(b) falsify evidence, counsel or assist a witness to testify falsely, or offer an inducement to a witness that is prohibited by law;

(c) knowingly disobey an obligation under the rules of a tribunal except for an open refusal based on an assertion that no valid obligation exists;

(d) in pretrial procedure, make a frivolous discovery request or fail to make reasonably diligent effort to comply with a legally proper discovery request by an opposing party;

(e) in trial, allude to any matter that the lawyer does not reasonably believe is relevant or that will not be supported by admissible evidence, assert personal knowledge of facts in issue except when testifying as a witness, or state a personal opinion as to the justness of a cause, the credibility of a witness, the culpability of a civil litigant or the guilt or innocence of an accused; or

(f) request a person other than a client to refrain from voluntarily giving relevant information to another party unless:

(1) the person is a relative or an employee or other agent of a client; and

(2) the lawyer reasonably believes that the person's interests will not be adversely affected by refraining from giving such information.

Rule 4.1 Truthfulness In Statements To Others In the course of representing a client a lawyer shall not knowingly:

(a) make a false statement of material fact or law to a third person; or

(b) fail to disclose a material fact to a third person when disclosure is necessary to avoid assisting a criminal or fraudulent act by a client, unless disclosure is prohibited by Rule 1.6.

Rule 4.3 Dealing With Unrepresented Person In dealing on behalf of a client with a person who is not represented by counsel, a lawyer shall not state or imply that the lawyer is disinterested. When the lawyer knows or reasonably should know that the unrepresented person misunderstands the lawyer’s role in the matter, the lawyer shall make reasonable efforts to correct the misunderstanding. The lawyer shall not give legal advice to an unrepresented person, other than the advice to secure counsel, if the lawyer knows or reasonably should know that the interests of such a person are or have a reasonable possibility of being in conflict with the interests of the client.


12

dealing with ethics conflicts should not require ... · fact situation: rich mann, for whom you...

Documents