SHERMAN & HOWARD L.L.C. · 2015, Techcrunch.com 6. New York County Lawyers Association Committee on...
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SHERMAN & HOWARD L.L.C. Hot Topics in Professional Responsibility May 6, 2015 Presented by: Anthony E. Davis Lawyers for the Profession® Practice Group of Hinshaw & Culbertson LLP
Transcript of SHERMAN & HOWARD L.L.C. · 2015, Techcrunch.com 6. New York County Lawyers Association Committee on...
SHERMAN & HOWARD L.L.C.
Hot Topics in Professional Responsibility May 6, 2015
Presented by: Anthony E. Davis Lawyers for the Profession® Practice Group
of Hinshaw & Culbertson LLP
SHERMAN & HOWARD L.L.C.
Hot Topics in Professional Responsibility
May 6, 2015
Table of Contents
1. Outline
2. Anthony Davis’ “Bio”
A. AN UPDATE ON CYBER RISKS
3. Sarah Green, Do Millennials Believe in Data Security?, Harvard Business Review, February 18, 2014
4. Steven M. Puiszis, How to protect yourself from spear phishing - protect yourself against identity theft and you are also protecting the Firm. Top ten tips, Hinshaw & Culbertson LLP, March 26, 2014
5. This USB Drive Can Nuke a Computer, Matt Burns (@mjburnsy), Posted Mar 12, 2015, Techcrunch.com
6. New York County Lawyers Association Committee on Professional Ethics, Op. 748, The ethical implications of attorney profiles on LinkedIn, March 10, 2015
7. Pennsylvania Bar Association Formal Opinion 2014-300, Ethical Obligations for Attorneys Using Social Media
8. Professional Ethics of the Florida Bar Proposed Advisory Opinion 14-1, January 23, 2015
B. ETHICAL AND EFFECTIVE BILLING PRACTICES
9. Hypothetical: A Billing Nightmare, The Consequences of Inadequately Managing the Billing Process
10. Extracts from the Colorado Rules of Professional Conduct, Rules 1.5 and 1.15
11. E-mail message to Anthony Davis, 08/05/01 regarding $5.00 Invoice
12. Jay Shepherd, What if Apple Stores Billed by the Hour? Lessons for Law Firms, The Client Revolution, July 2009
13. Robert Ambrogi, Why Is This Man Smiling? Latest legal victory has LegalZoom poised for growth, ABA Journal, August 1, 2014
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14. Anthony E. Davis and Julianne Splain, Improving the Profitability and Managing the Risks of Law Practice: A New Look at Fee Arrangements, Billing, and Collections, Lawyer to Lawyer, Edition XIX, September 2002
15. Gary A. Munneke and Anthony E. Davis, Part IV: Fees, Billing and Collection, Chapter 4 – Alternative Fee Arrangements, THE ESSENTIAL FORMBOOK: Comprehensive Management Tools for Lawyers, Volume II, American Bar Association, 2001
16. Robert C. Pozen, They Work Long Hours, but What About Results?, The New York Times, October 07, 2012
17. Amy Miller, Survey Shows the Bell Is Tolling for the Billable Hour, Corporate Counsel, December 01, 2009
18. Dan DiPietro and Gretta Rusanow, In Today’s Market, Clients Seeking Cost Certainty, The Legal Intelligencer, December 15, 2010
19. How to Migrate from Traditional Billing to Alternative Fees, Association of Corporate Counsel, September 2009
20. Christian Lewis, 3 In-House Views of Alternative Fee Arrangements, Law360, October 17, 2014
Bibliographies
A. AN UPDATE ON CYBER RISKS
Copies of the An Update on Cyber Risks PowerPoint presentation are available on request.
Recent Incidents and Decisions of Interest:
The Limits of Technology
1. Over-reliance on calendaring software
Francis J. Lawall and James C. Carnigan, 4th Circuit Rules Computer Oversight Not ‘Excusable Neglect,’ The Legal Intelligencer, June 21, 2011
Symbionics Inc. v. Ortlieb, 2011 WL 2076335 (C.A.4 (Va.))
In re Sandoval, 2009 WL 2372849 (D.Colo.)
In Re WorldCom, Inc. Docket Nos. 10-4588(L), 11-0408 (XAP), United States Court of Appeals for the Second Circuit, Decided: January 24, 2013
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Virus introduced worm that erased calendar entries may constitute excusable neglect – (the dog ate my homework?)
Sonders v. Mezvinsky, 2001 WL 1403525 (Bkrtcy.E.D.Pa.)
Carol Gerber, Keeping an Eagle Eye on Typos, Daily Dispatch, February 27, 2013
John O. McGinnis, Machines v. Lawyers, City Journal, June 25, 2014
2. Under-Utilization of Technology
Monica Bay, Big Law Whipped for Poor Tech Training, Law Technology News, 05/22/2013
3. Exclusive: Linklaters lawyer quits to invent proofreading machine, Roll on Friday, September 27, 2013
4. Jalil Asif QC, I-Die, Counsel.com, August 2014
5. Paul Lippe and Daniel Martin Katz, 10 predictions about how IBM’s Watson will impact the legal profession, Legal Rebels, October 2, 2014
Data Protection – External Threats
6. Sharon D. Nelson, David G. Ries, and John W. Simek, Locked Down, Information Security for Lawyers, © 2012 American Bar Association
7. Law firm data compromised by hackers
K&S attacked by hackers, Bloomberg News, March 8, 2011
Martha Neil, Neighbor Gets 18 Years for Hacking Lawyer’s Wi-Fi Account, Using His ID to Harass Others, ABA Journal, July 13, 2011
Michael A. Riley and Sophia Pearson, China-Based Hackers Target Law Firms to Get Secret Deal Data, Bloomberg News, January 31, 2012
Catherine Dunn, How Secure Are Law Firms’ Computer Networks?, Corpcounsel.com, February 21, 2012
Michael Riley & Dune Lawrence, Hackers Linked to China’s Army Seen From EU to D.C., Bloomberg, July 26, 2012
Nicole Perlroth, Hackers in China Attacked The Times for Last 4 Months, The New York Times, January 30, 2013
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Martha Neil, Traveling to China? Don’t take a laptop computer, universities warn academics, ABA Journal, July 17, 2013
Allison Grande, Revamped Breach Laws Expose Cos. Hit By Russian Hack, Law360, August 06, 2014
Rob Waugh, Android security mystery – ‘fake’ cellphone towers found in U.S., We Live Security, August 28, 2014
8. Standards for the Protection of Personal Information (PI) of Residents of the Commonwealth” (201 CMR 17.00, Massachusetts), March 1, 2010
9. Law Firms and Risk Control: Information Security and Confidential Survey Results, CNA, April 2011
10. Responding to a Data Breach, Communications Guidelines for Merchants, 2008 ©Visa Inc.
11. John W. Simek & Sharon D. Nelson, Esq., Preventing Law Firm Data Breaches, Law Practice Magazine, January/February 2012, Volume 38 Number 1
12. Martha Neil, Corporate Clients Should Ask Specific Questions About Law Firm Computer Security, Experts Say, ABA Journal, February 21, 2012
13. Somini Sengupta & Nicole Perlroth, The Bright Side of Being Hacked, The New York Times, March 4, 2012
14. Jennifer Smith, Lawyers Get Vigilant on Cybersecurity, Pressure Grows as Mobile Devices, Email Make Sensitive Data More Vulnerable, The Wall Street Journal, June 26, 2012
15. Leo A. Notenboom, Are Password Managers like Roboform and Lastpass safe?, Ask-Leo.com, July 6, 2012
16. Dan Goodin, Why passwords have never been weaker—and crackers have never been stronger, ARS Technical, August 20, 2012
17. Mat Honan, What to Do After You’ve Been Hacked, Wired.com, March 5, 2013
18. Andrew Dunn, Park Sterling Bank suing law firm after fraudulent wire transfer, The Charlotte Observer, April 03, 2013
19. Anna Reynolds, Fear of cyber crime rise as nearly 80% believe their firm could be hit by web hack, Legalweek.com, May 3, 2013
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20. John Seabrook, Network Insecurity, Are we losing the battle against cyber crime?, The New Yorker, May 20, 2013
21. Monica Bay, Big Law Whipped for Poor Tech Training, Law Technology News, May 22, 2013
22. Martha Neil, Bank’s new cybersecurity audits catch law firms flat-footed, ABA Journal, June 13, 2013
23. Allison Grande, NY Cybersecurity Push Turns Up the Heat on Law Firms, Law360, October 27, 2014
24. Lily Hay Newman, Even If You’re Wise to Phishing, Spear Phishing Could Still Fool You, Gizmodo, July 14, 2013
25. Lucy L. Thomson, Health Care Data Breaches and Information Security, Addressing Threats and Risks to Patient Data, Identity Theft Resource Center, Data Breach Reports, 2005-2013
26. Ama Sarfo, 5 Ways Law Firms Can Avoid A Data Breach Nightmare, Law360, August 16, 2013
27. Encryption, complex passwords are best ways to protect client data, YourABA – enews for members, September 2013
28. Nicole Perlroth, Jeff Larson and Scott Shane, N.S.A. Able to Foil Basic Safeguards of Privacy on Web, The New York Times, September 5, 2013
29. Jonathan Ames, Top City firm fights off cyber attack, The Lawyer, October 28, 2013
30. Jonathan Ames, Cyber security: Lawyers are the weakest link, The Lawyer, October 28, 2013
31. Connor Adams Sheets, Have My Passwords Been Stolen? How To Check For Account Breaches Using HaveIBeenPwned, International Business Times, December 05, 2013
32. Allison Grande, Report of NSA Spying On Mayer Brown Rattles Other Firms, Law360, February 18, 2014
33. Gina Passarella, Law Firms Face Pressure from Clients on Data Security, The Legal Intelligencer, March 04, 2014
34. Letter Dated 10 March 2014 from the NSA to the ABA
35. Spiders in the web: The risks of online crime to legal business, Solicitors Regulation Authority, March 2014
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36. Data Security, Lawyers’ Insurance Association of Nova Scotia, April 2014
37. Evan Weinberger, Cybercriminals Outpacing Security Measures, Report Says, Law360, April 22, 2014
38. Beware Keyloggers at Hotel Business Centers, Krebs on Security, July 14, 2014
39. Graham Cluley, Yahoo ads network helps hackers spread CryptoWall ransomware, grahamcluley.com, August 11, 2014
The Cloud
40. Cloud Ethics Opinions Around the U.S., ABA Law Practice Management Section, http://www.americanbar.org/groups/departments_offices/legal_technology_resources/resources/charts_fyis/cloud-ethics-chart.html
41. Cloud Computing/Software as a Service for Lawyers, ABA Law Practice Management Section, http://www.americanbar.org/groups/departments_offices/legal_technology_resources/resources/charts_fyis/saas.html
42. Storing Confidential Information in ‘Cloud' Is Permissible, With Reasonable Precautions, ABA/BNA Lawyers’ Manual on Professional Conduct, Volume 26, No. 22, October 27, 2010, New York State Bar Association Committee on Professional Ethics, Opinion 842, Using an outside online storage provider to store client confidential information, 09/10/10
43. Larry Griffin, Storm on the Horizon? The Risks of Cloud Computing, Beazley Brief, Issue 24, June 2011
44. The New York City Bar, Committee on Small Law Firms, The Cloud and the Small Law Firm: Business, Ethics and Privilege Considerations, November 2013
45. Solicitors Regulation Authority, Silver Linings: Cloud computing, law firms and risk, November 2013
46. Daniel Beekman, Manhattan judge finds accounting firm stole from the cloud in landmark ruling, Daily News, December 16, 2013
47. Samson Habte, New York City Bar Report Offers Guidance On Ethical Risks of ‘Leaping Into the Cloud’, ABA/BNA Lawyers’ Manual on Professional Conduct, Volume 29, No. 26, December 18, 2013
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Risks in Using Devices
48. Professional Ethics of The Florida Bar Opinion 10-2, September 24, 2010, Using Storage Devices
49. Ron Lieber, Your Voice Mail May Be Even Less Secure Than You Thought, The New York Times, August 19, 2011
50. Debra Cassens Weiss, Law Firm Employee Lost Backup Hard Drive on Train; It Contained Med-Mal Patient Data, ABA Journal, October 11, 2011
51. Nicole Perlroth, Cameras May Open Up the Board Room to Hackers, New York Times, January 22, 2012
52. Sharon D. Nelson and John W. Simek, Renegade SmartPhones Threaten Business Security, Law Practice Today, February 2012
53. Nicole Perlroth, Traveling Light in a Time of Digital Thievery, New York Times, February 10, 2012
54. The “Bring Your Own Device” to Work Movement: Engineering Practical Employment and Labor Law Compliance Solutions, The Littler Report, May 2012
55. Philip M. Berkowitz, Legal Challenges Arise to ‘Bring Your Own Device’ Policies, New York Law Journal, July 16, 2012
56. Brian Baxter, Associate’s Failure to Keep Secrets a Cautionary Tale for Young Lawyers, The Am Law Daily, November 30, 2012
57. ‘Devices’ / David Navetta, The Legal Implications of BYOD: Preparing Personal Devise Use Policies, ISSA Journal, November 2012
58. Mat Honan, Break Out a Hammer: You’ll Never Believe the Data ‘Wiped’ Smartphones Store, Gadget Lab, April 1, 2013
59. Fred Donovan, Wall Street doesn’t want outside law firms allowing BYOD, Goldman Sachs warns that if banks and law firms don’t sort out data security, feds will, Fierce Mobile IT, July 9, 2013
60. Steven J. Fox, Affinity to pay $1.2 million for photocopier breach, Health IT Law Blog, August 15, 2013
61. Dan Goodin, New Android threats could turn some phones into remote bugging devices “Weirdest permissions” include disabling lock screens and recording audio, ARS Technical, December 10, 2013
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62. Natasha Lomas, A Closer Look at Blackphone, The Android Smartphone That Simplifies Privacy, TechCrunch, February 26, 2014
63. William Maruca, Unencrypted Laptops Prove Costly, HIPAA, HITECH & HITT, Fox Rothschild LLP, April 24, 2014
64. Bibeka Shrestha, Insurers Flocking To Data Breach Exclusions In CGL Policies, Law360, August 26, 2014
65. Wayman Fire Prot., Inc. v. Premium Fire & Sec., LLC, No. 7866-VCP, 2014 WL 897223 (Del. Ch. Mar. 5, 2014)
66. Hope A. Comisky and Tracey E. Diamond, The Risks and Rewards of a BYOD Program: Ensuring Corporate Compliance Without Causing “Bring Your Own Disaster” to Work, Charleston Law Review, Volume 8, 2014
67. Andy Greenberg, The Unpatchable Malware That Infects USBs Is Now on the Loose, Wired, October 2, 2014
Email Risks
68. The Attorney's Guide to Metadata Ethics Opinions Around the U.S. http://t.co/YImhH8KhQs
69. Availability – or loss – of attorney client privilege for e-mails or text messages sent by individuals from their employer-provided e-mail addresses, or using their employer-provided technology, or using an e-mail account shared with client’s children
Scott v. Beth Israel Medical Center, 17 Misc.3d 934, 847 N.Y.S.2d 436 – October 17, 2007
Stengart v. Loving Care Agency, Inc., 408 N.J.Super. 54, 973 A.2d 390 – March 30, 2010
Ontario v. Quon, 130 S.Ct. 2619 – June 17, 2010
Willis v. Willis, 2010 N.Y. App. Div. LEXIS 9581 (N.Y. App. Div. 2d Dep't Dec. 21, 2010)
Holmes v. Petrovich Development Company, LLC, 2011 WL 117230 (Cal.App. 3 Dist.)
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70. E-mail response to attorney’s friend (not a client) recommending misstatement by friend as to length of separation from friend’s spouse in order to qualify for a no-fault divorce – discipline imposed.
Attorney Grievance Commission of Maryland v. John A. Elmendorf, 404 Md. 353, 946 A.2d 542 (Ct. App. Md.) - April 17, 2008
71. E-mailing part of sealed case record in a child custody case to family member of client contrary to court order – sanctions imposed.
In re Karen H. Spencer, 985 So.2d 330 (Sup. Ct. Miss.) – June 19, 2008
72. Use of autocomplete misdirects e-mail to adversary and its counsel leading to disqualification of adversary’s counsel.
Terraphase Engineering, Inc. et al v. Arcadis, U.S. Inc., USDC, NDCal. No. C-10-04647, December 17, 2010
Greg Mitchell, Email ‘Oops’ Ends with Gordon & Rees Being Booted from Case, Legal Pad (a Recorder Blog), December 29, 2010
73. State Bar of California Standing Committee on Professional Responsibility and Conduct Formal Opinion No. 2010-179
74. ABA Formal Opinion 11-459, Duty to Protect the Confidentiality of E-Mail Communications with One’s Client, August 4, 2011
75. Robert Hilson, DLA Piper rejection of offer to settle fee clash haunts firm, as ‘churning’ emails surface, aceds (Association of Certified E-Discovery Specialists®), April 4, 2013
76. Peter Lattman, Settling Fee Dispute, Law Firm Denounces ‘E-Mail Humor,’ The New York Times, April 17, 2013
77. Andrew Stickler, DLA Piper to Lose Business Over Sexist Emails, Law360, May 21, 2014
78. In the Matter of A Warrant For All Content and Other Information Associated With The Email Account [email protected] Maintained At Premises Controlled by Google, Inc., Case 1:14-mj-00309-UA (S.D.N.Y. Jul. 18, 2014)
79. In the Matter of A Warrant For All Content and Other Information Associated With The Email Account [email protected] Maintained At Premises Controlled by Google, Inc., Case 1:14-mj-00309-UA (S.D.N.Y. Jul. 18, 2014)
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80. Clive Thompson, End the Tyranny of 24/7 Email, The New York Times, August 28, 2014
Challenges to Protecting Client Confidential Information
81. Debra Cassens Weiss, Tens of Thousands of Pacer Documents Could Have Failed Redactions, Study Suggests, ABAJournal.com, Legal Ethics, Posted May 31, 2011
82. Gina Passarella, Pa. Firm Sues Ex-Partner for Allegedly Using Dropbox to Access Client Files, The Legal Intelligencer, February 13, 2012
83. Use of digital information improperly obtained by client.
A.J.H. (M.J.H.) v. M.A.H.S., Mo. Ct. App. E. Dist., No. ED96873, 2/21/12
84. Nicole Ozer, Note to Self: Siri Not Just Working for Me, Working Full-Time for Apple, Too, ACLU of Northern California, March 12, 2012
85. Mark A. Berman, Metadata Meets Facebook E-Discovery, New York Law Journal, May 2, 2012
86. Lawyers May Look at Sender’s Metadata But Can’t Use Program to Find Scrubbed Info, ABA/BNA Lawyers’ Manual on Professional Conduct, Volume 28, No. 11, May 23, 2012
87. Joan C. Rogers, Virtual Law Practitioner Must Go Extra Mile To Ensure That Ethical Duties Are Observed, ABA/BNA Lawyers’ Manual on Professional Conduct, Volume 28, No. 16, August 1, 2012
88. United States of America, v. Christopher Finazzo and Douglas Dey, 10-CR-457 (RRM)(RML) – February 19, 2013
89. Joe Patrice, You’ve Got (No) Mail! Major Law Firm Blocks Employee Email Access, Above The Law, April 16, 2013
90. Andrew Strickler, Quinn's Document Flub Shows Risks Of Rising Data Demands, Law360, October 25, 2013
91. Monica M. Wahba, Protect Sensitive Business Info By Sharing Smarter, Law360, July 3, 2014
Social Networking
92. Limitations on obtaining credit reports under the FCRA
Duncan v. Handmaker, 149 F.3d 424 (C.A.6 (Ky.), June 8, 1998)
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93. Unauthorized practice of law based on misleading advertising – disbarred lawyer held herself out as an attorney, providing services to other lawyers subject to professional discipline in California – conviction for unauthorized practice of law.
People v Lebbos, 2008 WL 391241 (Cal.App. 6 Dist.) – February 14, 2008
94. Using the Internet to disseminate obscene material – conviction and disbarment (treating conviction as a “serious crime”).
In the Matter of Steven Lipton, 51 A.D.3d 207, 854 N.Y.S.2d 735 (App. Ct. 2d.) – March 25, 2008
95. A lawyer may not ethically send a “friend” request to an opponent or a potential witness with the goal of getting inside information for a client's matter.
The Philadelphia Bar Association Professional Guidance Committee, Opinion 2009-02
New York State Bar Association Committee on Professional Ethics, Opinion 843, Lawyer's access to public pages of another party's social networking site for the purpose of gathering information for client in pending litigation, 09/10/10
The Association Of The Bar Of The City Of New York Committee On Professional And Judicial Ethics, Formal Opinion 2010-2, Obtaining Evidence From Social Networking Websites
New York County Lawyers’ Association Committee on Professional Ethics, Op. 743, Lawyer investigation of juror internet and social networking postings during conduct of trail, May 18, 2011
Misleading “Friending” Request – San Diego County Bar Association, Legal Ethics Opinion 2011-2, (Adopted by the San Diego County Bar Legal Ethics Committee May 24, 2011.)
Samson Habte, Lawyer Must Disclose Identity and Purpose When Making ‘Friend’ Requests to Witnesses, ABA/BNA Lawyers’ Manual on Professional Conduct, Volume 29, No. 15, July 17, 2013
96. Misleading law firm website – lawyers in separate solo practices creating joint website without revealing that they did not practice law as a law firm – all lawyers involved disciplined.
In the Matter of J. Michael Loomis, 905 N.E.2d 406 (Sup. Ct. Ind.) May 7, 2009
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97. Texting client during deposition – loss of attorney-client privilege
Ngai v. Old Navy, 2009 WL 2391282 (D.N.J.) – July 31, 2009
98. Use of internet to disparage judge – blog describing judge as “evil, unfair witch” – attorney disciplined.
John Schwartz, A Legal Battle: Online Attitude vs. Rules of the Bar, The New York Times, September 12, 2009
99. Blog disclosing classified information – attorney convicted and disbarred.
In the matter of Leibowitz, 72 A.D.3d 1190, 897 N.Y.S.2d 754 (App. Div. 2d) – April 1, 2010
Maria Glod, Former FBI employee sentenced for leaking classified papers, The Washington Post, May 25, 2010
100. Failure to Monitor Website - Management Committee Reprimanded, The Ethical Quandary, Hinshaw & Culbertson LLP, October 18, 2010
101. Posting information on blog and in chat room waives attorney-client privilege.
Lenz v. Universal Music Corp., et al., 2010 WL 4789099 (N.D.Cal.) November 17, 2010
102. Tweeting about decision which the court had ordered not to be posted gets lawyer in trouble.
Nate Raymond, Elmer Thud: Famous Litigator in Twitter Twouble Over Bwagging, The American Lawyer, January 5, 2011
103. Simon Chester, Thinking About Social Media in Your Law Firm, Law Practice Magazine, March/April 2011
104. The Association of the Bar of the City of New York Committee on Professional and Judicial Ethics, Formal Opinion 2012-2, Jury Research and Social Media
105. Carole Levitt & Mark Rosch, Using Social Media for Investigative Research and Avoiding Potential Ethical Traps, Internet for Lawyers, Inc., March 28, 2012
106. Pennsylvania Bar Ass’n Comm. on Legal Ethics and Professional Responsibility, Formal Op. 2014-300, Ethical Obligations for Attorneys Using Social Media
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107. Wendy Wen Yun Chang, South Carolina Disapproves “Expert” Answering of Specific Online Legal Questions, The Ethical Quandary, April 2, 2012
108. Truthfully Bashing Other Lawyers in Blogs Doesn’t Count as Conduct Harmful to Justice, ABA/BNA Lawyers’ Manual on Professional Conduct, Volume 28, No. 9, April 25, 2012
109. Republishing a complaint filed in a shareholder derivative action on a law firm's website not protected by litigation privilege.
Cole v. Patricia A. Meyer & Associates, APC, 206 Cal.App.4th 1095, 142 Cal.Rptr.3d 646 – June 8, 2012
110. Richard D. Shane and Jose Ferrer, Florida Court: Lawyers And Judges Should Not Be Facebook Friends, September 13, 2012, Domville v. State, No. 4D12-556 (Fla. 4th DCA 2012)
111. The State Bar of California Standing Committee on Professional Responsibility and Conduct, Formal Opinion No. 2012-186, Under what circumstances would an attorney’s postings on social media websites be subject to professional responsibility rules and standards governing attorney advertising?
112. The ABA Standing Committee on Ethics and Professional Responsibility Formal Ethics Opinion 462 – Judge’s Use of Electronic Social Networking Media, February 21, 2013
113. Oregon Formal Opinion No. 2013-189, February 2013, Accessing Information about Third Parties through a Social Networking Website
114. Law Firm Apps for Clients
Julia Love, Law Firms Use Apps to Burnish Brands, The Recorder, May 8, 2013
115. Samson Habte, Attorneys Sometimes May Advise Clients To Purge Damaging Social Media Information, ABA/BNA Lawyers’ Manual on Professional Conduct, Volume 29, No. 15, July 17, 2013
116. Russells breaks JK Rowling spell, Lawyer News Daily, July 19, 2013
117. Mike Frisch, Failure to Search Internet Shows Lack of Competence, Legal Profession Blog, December 6, 2013
118. New York State Bar Association Commercial and Federal Litigation Section, Social Media Ethics Guidelines, March 18, 2014
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119. The ABA Standing Committee on Ethics and Professional Responsibility Formal Ethics Opinion 466, Lawyer Reviewing Jurors’ Internet Presence, April 24, 2014
120. Philadelphia Bar Assn’n Prof’l Guidance Comm., Op. 2014-05, 7/14
121. Abigail Rubenstein, Employee Misuse of Social Media on the Rise, Survey Says, Law360, April 29, 2014
122. Mass. Bar Ass’n Comm. on Prof’l Ethics, Op. 2014-5
123. John G. Browning, A ‘Friend’ At Court?, Counsel Magazine, July 2014
124. Rule 138. Personal Identity Information, Illinois Supreme Court, Article II. Rules on Civil Proceedings in the Trial Court, Part B. Pleadings and Other Papers
125. Federal Trade Commission Regulations: Statement of General Policy or Interpretation, Part 600—Statements of General Policy or Interpretations
126. Appendix C to Part 601, Prescribed Notice of User Responsibilities, Notice To Users Of Consumer Reports: Obligations of Users Under the FCRA
127. Ben James, NLRB ‘Like’ Ruling Sheds Light on Social Media Protection, Law360, August 25, 2014
128. Jonathan Cain, Wearable Devices in the Workplace Challenge Data Security and Privacy, Today’s General Counsel, August 26, 2014
129. Debra Cassens Weiss, Lawyer’s photoshopped celebrity pictures lead to suspension recommendation, ABAJournal.com, September 18, 2014
130. Hayes Hunt, Lawyer’s Duty to Preserve Social Media Evidence, Today’s General Counsel, September 12, 2014
131. Graham Cluley, Will your unread Facebook messages be deleted? Dream on, and don’t click on that email, grahamcluley.com, October 2, 2014
132. Larry Griffin, Lawyers Must Click with Caution in the Social Media Era, Beazley Brief, November 2014
B. ETHICAL AND EFFECTIVE BILLING PRACTICES
http://www.acc.com/valuechallenge/index.cfm
ACC Value-Based Fee Primer, Association of Corporate Counsel, July 2010
Andrew Strickler, 4 Ways GCs Can Spot Bill Padding, Law360, New York, August 29, 2014
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Martha Neil, Contract attorney faces felony overbilling case, allegedly claimed over 24 hours on 80 work days, ABA Journal, Oct 15, 2013
Steven J. Harper, The Tyranny of the Billable Hour, The New York Times, March 28, 2013
Adam Liptak, Bloated Billables, The New York Times, October 29, 2002
Reid F. Trautz and Paul McLaughlin, How to Get Paid, Law Practice Management, January/February 2001
Daniel Wise, Jury Slaps Former Law Firm with $7 Million Verdict, New York Law Journal, June 20, 2007
Lisa G. Lerman, Lying to Clients, University of Pennsylvania Law Review, January 1990, Volume 138, Number 3
Lisa G. Lerman, Scenes from a Law Firm, Rutgers Law Review, Volume 50:2153, 1998
Lisa G. Lerman, Blue-Chip Bilking: Regulation of Billing and Expense Fraud by Lawyers, The Georgetown Journal of Legal Ethics, Winter 1999, Volume XII, No. 2
Copyright © 2015 Hinshaw & Culbertson LLP
SHERMAN & HOWARD L.L.C. Hot Topics in Professional Responsibility
May 6, 2015
Presented by: Anthony E. Davis Lawyers for the Profession® Practice Group of Hinshaw & Culbertson LLP
Outline
A. AN UPDATE ON CYBER RISKS
I. Introduction
Mission Impossible – Controlling Access to Digital Information
II. External Threats
Hacking
Physical (In)security
III. Interception of or Improper Access to Data
Insecure Work Station
Passwords
IV. Data Devices and Storage
Mobile Data
Loss of Devices
BYOD
USB Drives
Encryption?
The “Cloud” – What Is It, and Is It Secure?
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V. Unintended Data Disclosure
Is It Dumb?
“Reply All”
Autocomplete
Email = Digital Data
Client Generated Email
VI. Social Networking/Social Media
The Ethics of Social Networking
Advertising Concerns
Online Investigations
“Friending” and False “Friending”
Credit Checks
Communications with Jurors
Friending with Judges
Third Party Sites
The Robing Room
B. ETHICAL AND EFFECTIVE BILLING PRACTICES
I. Fee Arrangements – Alternatives to Hourly Billing
The Problems with Hourly Billing
The Positive Reasons to Consider Alternatives to Time-Charging
What Are the Alternatives To Time-Charging?
Why Do the Alternatives Work?
The Hidden Implications of Alternative Fee Arrangements
The Future of Hourly Fees
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II. Managing the Time-Keeping Process
Why It Matters
The Requirements
Daily
Oversight
The Ethics of “Minimum Billable Hour” Requirements
Time Recording For Alternative Fees Arrangements
The Problem of Under-Recording
III. Managing the Billing Process
ALWAYS Use Personalized Cover Letters (When the Bill will be Read by a Human Being)
Correct Billing Language
Billing Expenses and Disbursements
What Are Properly Billable Disbursements?
www.hinshawlaw.com
©2014 Hinshaw & Culber tson LLP
Anthony E. DavisPartner800 Third Avenue13th FloorNew York, NY [email protected]
Service AreasCounselors for the Profession
Lawyers for the Profession®
Litigators for the Profession
Professional Liability
EducationM.A., Cambridge University,1974
LL.M., New York University,1971
B.A., Cambridge University,1970
Barrister and Solicitor (non-practising) in England andWales
AdmissionsColorado
New York
U.S. Court of Appeals for theFourth Circuit
U.S. Court of Appeals for theSecond Circuit
U.S. Court of Appeals for theTenth Circuit
U.S. Court of InternationalTrade
U.S. District Court for theDistrict of Colorado
U.S. District Court for theEastern District of New York
U.S. District Court for theSouthern District of New York
Anthony Davis is best described as a lawyer's lawyer. Mr. Davis is a member ofthe Lawyers for the Profession® practice group and his practice focuses on thelaws that govern lawyers. He advises attorneys and law firms on legalprofessional and ethics issues, law firm creation, merger and dissolution, riskmanagement and loss control.
Professional BackgroundMr. Davis is a Lecturer-in-Law at the Columbia University School of Law,teaching "Professional Responsibility Issues in Business Practice." As anAdjunct Professor of Law, Mr. Davis taught "Legal Profession" at Brooklyn LawSchool for many years.
Professional Affiliations● Association of Professional Responsibility Lawyers (APRL), Past President● New York City Bar, Professional Ethics Committee, Member● College of Law Practice Management, Fellow● American Law Institute, Member● American Bar Foundation, Life Fellow
Honors & Awards● Named a "Lawyer of the Year" in the Ethics and Professional Responsibility
Law category for New York by Best Lawyers, September 2012● Included in "The Best Lawyers in America®” in the area of Ethics and
Professional Responsibility Law (2011–Present)
PresentationsMr. Davis is popular lecturer and panelist, drawing on his many years ofteaching experience when speaking to bar associations and law firmsthroughout the United States on all aspects of professional responsibility, thelaw as it affects lawyers, law practice and risk management.
Page 2www.hinshawlaw.com
©2014 Hinshaw & Culber tson LLP
PublicationsMr. Davis is the co-author of "Risk Management: Survival Tools for Law Firms, 2nd Edition," and of "The EssentialFormbook: Comprehensive Practice Management Tools for Lawyers," both published by the American Bar Association.
In addition to his books, he has written and lectured widely on a variety of legal profession and ethics issues, including aregular bi-monthly column on professional responsibility in the New York Law Journal.
Do Millennials Believe in Data Security?
Sarah GreenHarvard Business ReviewFebruary 18, 2014
Millennials have a reputation for being the most plugged-in generation in the workplace. Experts have even suggested “reverse mentoring” so that younger workers can inculcate their “tech-savvy” habits in older generations. But a new survey from Softchoice shows that those may actually be bad habits when it comes to keeping data secure.
For instance, 28.5% of twenty-somethings keep their passwords in plain sight, compared with just 10.8% of Baby Boomers. They’re also significantly more likely to store work passwords ona shared drive or word document that isn’t itself password-protected, and more likely than older workers to forget their passwords.
And it gets worse! They’re more likely to email work documents to their personal accounts, move documents via cloud apps that IT doesn’t know they have, and lose devices that would give whoever found them unrestricted access to company data. Basically, in every way that Softchoice measured, the youngest workers were the most likely to lose data or leave themselves open to hacking.
But – here’s the kicker — they’re also the most informed about the risks. Younger workers were also the most likely to say that their company has a clear policy on the downloading of cloud
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apps; that their IT departments have communicated about the risks of cloud apps; and that their workplace has a clear policy on how to protect information.
So what’s going on?
In part, it’s just that this generation’s well-documented impatience. Which, as an older Millennial myself, I would rebrand as “efficiency.” We just see a bigger payoff in having the data we need when we need it. For instance, the primary reason Millennials cited for not seeking company approval before downloading a new cloud app was that the IT department simply takes too long.
The same logic drives their emailing of sensitive documents to themselves – more than other generations, they said they had to transfer work files to their personal computers, otherwise they couldn’t access the information they needed from home. And unlike older generations, twenty-somethings are more willing to work from home as long as they have the data they need to do so. This goes back to what young entrepreneurs in Silicon Valley call “the merge” – rather than juggling “work” and “life,” the two fuse into a seamless whole. And our tech habits follow suit: we’re much more likely to use the same apps for both work and personal reasons.
But there’s something else happening here, too — and it shows up in some of the other segments in the Softchoice survey. Workers (regardless of age) who use cloud-based apps are also less rigorous about keeping company data safe than those who don’t. And sorted by function, IT itself is among the worst offenders in violating their own data-security protocols, neck and neck with Finance:
Taken together, these patterns suggest that the people who use write down their passwords, email documents to themselves, and store company documents in the cloud are those who simply use technology the most — and the ones who need or want to access their work from multiple locations. (A different survey, which ranked employees by level of seniority as opposed to age, found that senior leaders were worse than lower-ranking managers when it came to data security. I’m willing to bet it’s the same logic; the more you work away from the office, the more likely you are to violate your IT department’s policy–and justify the increased risk to company data by your own increased productivity).
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And it’s not in this survey, but I suspect Millennials and IT workers just have a different take on the ROI of spending time on data security. When major data breaches and password hacks are announced regularly by major corporations, when the NSA is listening in on your phone calls, when Julian Assange and Edward Snowden are leaking secret government documents, and when absolutely everyone, from your dentist to your hairdresser, asks for your Social Security number – does it really matter if your password is taped to your screen?
Or do you just assume that if the hackers want to get you, they will?
Note: the Softchoice survey also measured workers over the age of 65 and HR professionals, but the sample sizes for those segments were quite small so I’ve excluded those data sets here.
How to protect yourself from spear phishing - protect yourself against identity theft and you are also protecting the Firm. Top ten tips.
Steven M. Puiszis Hinshaw & Culbertson LLP March 26, 2014
One of the internet risks we all encounter is spoofed of phony emails. Hackers recently also began creating phony messages from commonly used social media sites such as LinkedIn, Facebook etc. While some of these are easy to recognize, hackers are improving the efforts all the time. Clicking on a phony email or falling prey to a phishing scam will allow a hacker to gain entry into your mobile device and/or potentially your home or work computer. So we all need to be careful before we click on an email, or any type of internet message or a link or a photo in a message. There are some techniques you can use to prevent from becoming a victim of identity theft. Return Path is a provider of email intelligence solutions and below are their top 10 tips to prevent from falling prey to a phishing scheme. By learning and applying these tips, you will be protecting yourself and the Firm in the process:
1. Hover over From Column
Probably the easiest way to identify if an email is legitimate or not, is to simply hover your mouse arrow over the name in the From column. By doing so, you will be able to tell if the email is from a recognizable domain that is linked to the actual sender name. For example, an email from Match.com should typically have the from domain of “match.com” (not “motch.com” or “humbletemper.com”).
2. Are the URLs legitimate?
Continuing on with the theme of hovering over certain parts of the email, another place to check would be any URLs the email is trying to get you to visit. You will always want to make sure the link is legitimate and uses encryption (https://). However, in order to be extra cautious, it is best practice to always open a new window and go to the site directly without using the email link provided in an email.
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3. Incorrect grammar/spelling
A common practice of many hackers is to use misspelled words on purpose. While it may seem that this would easily reveal an illegitimate email, it is actually a tactic used to find less savvy users. Spammers have learned that if they get a response from a poorly written email, they are on to an easy target and will focus their efforts to bring that user down.
4. Plain text/Absence of logos
Most legitimate messages will be written with HTML and will be a mix of text and images. A poorly constructed phishing email may show an absence of images, including the lack of the company’s logo. If the email is all plain text and looks different than what you’re used to seeing from that sender, it is best to go with your gut feeling and ignore the message.
5. Message body is an image
This is a common practice of many spammers. Make sure the email is a good mix of text and images. Also, there may be embedded links for you to hover over within the image for an extra step of precaution.
6. IP Reputation
If you can easily identify the sending IP of that email, http://www.whatismyip.com/how-to/?ref=301 you can look up the IP’s reputation through Return Path’s Sender Score site, https://www.senderscore.org/ . This tool will reveal a score (0-100) and will be able to give you some insight into the sending IPs historical performance. The lower the score, the more likely the email is a phishing or spoofing attempt.
7. Request for personal information
One tactic that is commonly used by hackers is to alert you that you must provide and/or update your personal information about an account (e.g., Social Security number, bank account details, account password). Phishers will use this tactic to drive urgency for someone to click on a malicious URL or download an attachment aiming to infect the user’s computer or steal their information.
8. Suspicious attachments
Is this new email in your inbox the first time your bank has sent you an attachment? The majority of financial institutions or retailers will not send out attachments via email, so be careful about opening any from senders or messages that seem suspicious. High risk attachments file types that should not be clicked on include: .exe, .scr, .zip, .com, .bat.
9. Urgent/Too good to be true
If an email seems too good to be true, it most likely is. Be cautious with any message offering to place money into your bank account by simply “clicking here”. Also, if the content places any
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kind of urgency as far as “you must click into your account now”, it is most likely a scam and should be marked as “junk”.
10. Is my email address listed as the From address?
If you notice that your email address is being identified as the From address, this is a sign of a fake email message. Along those same lines, if the To field shows a large list of recipients, you should also be cautious. Legitimate emails will most likely be sent directly to you and you only. You may see “undisclosed recipients” and this is something to keep an eye on as well. It could be a valid send, but double check by using the other tips identified above.
A hat tip to Lauren Soares of Return Path for these tips.
This USB Drive Can Nuke A Computer
Matt Burns (@mjburnsy) Posted Mar 12, 2015 Techcrunch.com
Do not ever use a random USB flash drive. There are plenty of software exploits that can ruin your computer or life. And with this flash drive, it can physically destroy your computer by blasting a load of voltage to the USB controller with negative voltage. Think Wile E. Coyote and an ACME Human Cannon. BOOM!
The basic idea of the USB drive is quite simple. When we connect it up to the USB port, an inverting DC/DC converter runs and charges capacitors to -110V. When the voltage is reached, the DC/DC is switched off. At the same time, the filed transistor opens. It is used to apply the -110V to signal lines of the USB interface. When the voltage on capacitors increases to -7V, the transistor closes and the DC/DC starts. The loop runs till everything possible is broken down. Those familiar with the electronics have already guessed why we use negative voltage here. I‘ll explain to others that negative voltage is easier to commutate, as we need the N-channel field resistor, which, unlike the P-channel one, can have larger current for the same dimensions.
Put simply, the bits inside the USB drive draws and stores a ton of power. When a certain level is hit, it returns the power to the source, which is either a dedicated USB controller or the CPU itself. This is bad news bears. The amount of power returned overloads the circuits, rendering it useless. Since a lot of USB controllers are built directly into the main processor… bye bye computer.
Scary. Thankfully the creator hasn’t released the schematic for the drive.
There are enough USB exploits floating around to warrant caution. Some will unknowingly install malware or backdoor software, and now, there is at least one, that will actually destroy your computer. It’s straight out of Colin Farrell spy movie and a fantastic argument for Apple’s vision of the future.
New York County Lawyers Association Professional Ethics Committee
Formal Opinion 748
March 10, 2015
TOPIC: The ethical implications of attorney profiles on LinkedIn
DIGEST: Attorneys may maintain profiles on LinkedIn, containing information such as education, work history, areas of practice, skills, and recommendations written by other LinkedIn users. A LinkedIn profile that contains only one’s education and current and past employment does not constitute Attorney Advertising. If an attorney includes additional information in his or her profile, such as a description of areas of practice or certain skills or endorsements, the profile may be considered Attorney Advertising, and should contain the disclaimers set forth in Rule 7.1. Categorizing certain information under the heading “Skills” or “Endorsements” does not, however, constitute a claim to be a “Specialist” under Rule 7.4, and is accordingly not barred, provided that the information is truthful and accurate.
Attorneys must ensure that all information in their LinkedIn profiles is truthful and not misleading, including endorsements and recommendations written by other LinkedIn users. If an attorney believes an endorsement or recommendation is not accurate, the attorney should exclude it from his or her profile. New York lawyers should periodically monitor and review the content of their LinkedIn profiles for accuracy.
RULES OF PROFESSIONAL CONDUCT: 7.1 and 7.4
OPINION
LinkedIn, the business-oriented social networking service, has grown in popularity in recent years, and is now commonly used by lawyers. The site provides a platform for users to create a profile containing background information, such as work history and education, and links to other users they may know based on their experience or connections. Lawyers may use the site in several ways, including to communicate with acquaintances, to locate someone with a particular skill or background—such as a law school classmate who practices in a certain jurisdiction for assistance on a matter—or to keep up-to-date on colleagues’ professional activities and job changes.
The site also allows users and their connections to list certain skills, interests, and accomplishments, creating a profile similar to a resume or law firm biography. Users can list their own experience, education, skills, and interests, including descriptions of their practice areas and prior matters. Other users may also “endorse” a lawyer for certain skills—such as litigation or matrimonial law—as well as write a recommendation as to the user’s professional skills. 1
1 This opinion addresses the fields, headings, and protocols of LinkedIn as they exist on the date of this opinion. The committee cannot anticipate changes or additions to this or other social networking sites, and limits this analysis to the site as of the date of this opinion.
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This opinion addresses the ethical implications of LinkedIn profiles: specifically, whether a LinkedIn Profile is considered “Attorney Advertising,” when it is appropriate for an attorney to accept endorsements and recommendations, and what information attorneys should include (and exclude) from their LinkedIn profiles to ensure compliance with the New York Rules of Professional Conduct.2
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LinkedIn allows a user to provide objective, biographical information such as one’s “Education” and “Experience,” as well as subjective information, such as “Skills,” “Endorsements,” and “Recommendations.” LinkedIn users can control the fields they choose to populate. Some users may only list education and work experience, while other users may include more extensive information, such as skills, endorsements, and recommendations. Furthermore, the information in one’s profile visible to others may vary depending on the whether the viewer located the profile through an external search engine such as Google, whether the viewer is logged in to LinkedIn on the computer being used, or whether the viewer is “connected” on LinkedIn to the person whose profile he or she is viewing.
In light of the varied information an attorney may provide on his or her profile, and which information is visible to online users, the use of LinkedIn raises concerns about what aspects of an attorney’s profile constitute “Attorney Advertising,” which is subject to specific ethical rules, and what aspects do not. The New York Rules of Professional Conduct define attorney advertising as “communications made in any form about the lawyer or the law firm’s services, the primary purpose of which is retention of the lawyer or law firm for pecuniary gain as a result of the communication. RPC 7.1. The rules further delineate what information an attorney may include in an advertisement—such as education, past experience, fee arrangements, testimonials or endorsements (NYRPC 7.1(b), (d))—and what information an attorney may not include in an advertisement—such as undisclosed paid endorsements or certain trade names. RPC 7.1(c). Online advertisements must be labeled “Attorney Advertising” “on the first page, or on the home page in the case of a website” (Id. at 7.1(f)) and any advertisement containing statements about the lawyer’s services, testimonials, or endorsements must include the disclaimer “[p]rior results do not guarantee a similar outcome.” Id. at 7.1(e)(3).
The comments to the rules make clear that “[n]ot all communications made by lawyers about the lawyer or the law firm’s services are advertising” as the advertising rules do not encompass communications with current clients or former clients germane to the client’s earlier representation. RPC 7.1, Cmt. [6]. Likewise, communications to “other lawyers . . . are excluded from the special rules governing lawyer advertising even if their purpose is the retention of the lawyer or law firm.” Id. Cmt. [7].
2 This opinion is limited to the committee’s analysis of the New York Rules of Professional Conduct. Attorneys should be aware that other jurisdictions may have different ethical rules, and should consult those rules where appropriate.
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Applying these rules to LinkedIn profiles, it is the opinion of this Committee that a LinkedIn profile that contains only biographical information, such as a lawyer’s education and work history, does not constitute an attorney advertisement. An attorney with certain experience such as a Supreme Court clerkship or government service may attract clients simply because the experience is impressive, or knowledge gained during that position may be useful for a particular matter. As the comments to the New York Rules of Professional Conduct make clear, however, not all communications, including communications that may have the ultimate purpose of attracting clients, constitute attorney advertising. Thus, the Committee concludes that a LinkedIn profile containing only one’s education and a list of one’s current and past employment falls within this exclusion and does not constitute attorney advertising.3
The additional information that LinkedIn allows users to provide beyond one’s education and work history, however, implicates more complicated ethical considerations. First, do LinkedIn fields such as “Skills” and “Endorsements” constitute a claim that the attorney is a specialist, which is ethically permissible only where the attorney has certain certifications set forth in RPC 7.4? Second, even if certain statements do not constitute a claim that the attorney is a specialist, do such statements nonetheless constitute attorney advertising, which may require the disclaimers set forth in RPC 7.1?
a. Specialization
New York Rule of Professional Conduct 7.4 prohibits an attorney from identifying herself as a “specialist” or “specializ[ing] in a particular field of law” unless the attorney has been certified by an appropriate organization or jurisdiction. RPC 7.4(a)–(c). The New York State Bar Association (NYSBA), interpreting the New York Rules of Professional Conduct, concluded in a 2013 opinion that “a lawyer or law firm listed on a social media site may . . . identify one or more areas of law practice [but] to list those areas under a heading of ‘Specialties’ would constitute a claim that the lawyer or law firm ‘is a specialist or specializes in a particular filed of law,’” and would likely run afoul of Rule 7.4, unless the attorney’s certifications meet the requirements of that Rule. See NYSBA Ethics Opinion 972 (June 26, 2013).
While NYSBA has addressed the ethical implications of the heading “Specialties,” the applicability of these guidelines to LinkedIn fields such as “Skills,” “Endorsements,” and “Recommendations” has not been previously addressed in New York. Further complicating this question is the fact that LinkedIn profile headings are not chosen by users. The LinkedIn website provides certain default fields, from which users can choose to add to their profiles. NYSBA advises users who are concerned about these headings to consider avoiding them entirely, by “includ[ing] information about the lawyer’s experience elsewhere, such as under another heading or in an untitled field that permits biographical information to be included.” Social Media Ethics Guidelines of the
3 Of course, as with all statements made by an attorney, either to a client, an adversary, or a judge, the biographical information must be truthful and not misleading. See RPC 7.1, Cmt. [6].
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Commercial Federal Litigation Section of the New York State Bar Association at 4 (Mar. 18, 2014) available at http://www.nysba.org/workarea/DownloadAsset.aspx?id=47547.
With respect to skills or practice areas on lawyers’ profiles under a heading, such as “Experience” or “Skills,” this Committee is of the opinion that such information does not constitute a claim to be a specialist under Rule 7.4. The rule contemplates advertising regarding an attorney’s practice areas, noting that an attorney may “publicly identify one or more areas of law in which the lawyer or law firm practices, or may state that the practice of the lawyer or law firm is limited to one or more areas of law, provided that the lawyer or law firm shall not state that the lawyer or law firm is a specialist or specializes in a particular field of law, except as provided in Rule 7.4(c).” RPC 7.4(a). This provision contemplates the distinction between claims that an attorney has certain experience or skills and an attorney’s claim to be a “specialist” under Rule 7.4. Categorizing one’s practice areas or experience under a heading such as “Skills” or “Experience” therefore, does not run afoul of RPC 7.4, provided that the word “specialist” is not used or endorsed by the attorney, directly or indirectly. Attorneys should periodically monitor their LinkedIn pages at reasonable intervals to ensure that others are not endorsing them as specialists.
b. Endorsements and Recommendations
Endorsements and recommendations written by other LinkedIn users raise additional ethical considerations. While these endorsements and recommendations originate from other users, they nonetheless appear on the attorney’s LinkedIn profile. The ethical treatment of endorsements and recommendations depends on who is considered to “own” the endorsement and recommendation: the author of the endorsement or recommendation or the person whose profile is enhanced by it.
Because LinkedIn gives users control over the entire content of their profiles, including “Endorsements” and “Recommendations” by other users (by allowing an attorney to accept or reject an endorsement or recommendation), we conclude that attorneys are responsible for periodically monitoring the content of their LinkedIn pages at reasonable intervals. To that end, endorsements and recommendations must be truthful, not misleading, and based on actual knowledge pursuant to Rule 7.1. For example, if a distant acquaintance endorses a matrimonial lawyer for international transactional law, and the attorney has no actual experience in that area, the attorney should remove the endorsement from his or her profile within a reasonable period of time, once the attorney becomes aware of the inaccurate posting. If a colleague or former client, however, endorses that attorney for matrimonial law, a field in which the attorney has actual experience, the endorsement would not be considered misleading. The Pennsylvania Bar Association, interpreting the Pennsylvania Rules of Professional Conduct, reached a similar conclusion in a 2014 opinion, emphasizing that an attorney must “monitor his or her social networking websites, [] verify the accuracy of any information posted, [and] remove or correct any inaccurate endorsements. . . . This obligation exists regardless of whether the information was posted by the attorney, by a client, or by a third party.”
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Pennsylvania Bar Association Formal Op. 2014-300, “Ethical Obligations for Attorneys Using Social Media,” at 12. While we do not believe that attorneys are ethically obligated to review, monitor and revise their LinkedIn sites on a daily or even a weekly basis, there is a duty to review social networking sites and confirm their accuracy periodically, at reasonable intervals.
c. LinkedIn Profiles as “Attorney Advertising” and Appropriate Disclaimers
Finally, if an attorney chooses to include information such as practice areas, skills, endorsements, or recommendations, the attorney must treat his or her LinkedIn profile as attorney advertising and include appropriate disclaimers pursuant to Rule 7.1. As discussed above, not all communications are advertising, and a LinkedIn profile containing nothing more than biographical information would not ordinarily be considered an advertisement. But a LinkedIn profile that includes subjective statements regarding an attorney’s skills, areas of practice, endorsements, or testimonials from clients or colleagues is likely to be considered advertising.
Attorneys who wish to include this information should review Rule 7.1 to determine the appropriate language to include in their profiles. While the Committee declines to provide guidelines for all potential profile content, the Committee provides the following recommendations for attorneys’ consideration and directs attorneys to review Rule 7.1 before creating or significantly amending their LinkedIn profiles.
If an attorney’s LinkedIn profile includes a detailed description of practice areas and types of work done in prior employment, the user should include the words “Attorney Advertising” on the lawyer’s LinkedIn profile. See RPC 7.1(f). If an attorney also includes (1) statements that are reasonably likely to create an expectation about results the lawyer can achieve; (2) statements that compare the lawyer’s services with the services of other lawyers; (3) testimonials or endorsements of clients; or (4) statements describing or characterizing the quality of the lawyer’s or law firm’s services, the attorney should also include the disclaimer “Prior results do not guarantee a similar outcome.” See RPC 7.1(d) and (e). Because the rules contemplate “testimonials or endorsements,” attorneys who allow “Endorsements” from other users and “Recommendations” to appear on one’s profile fall within Rule 7.1(d), and therefore must include the disclaimer set forth in Rule 7.1(e). An attorney who claims to have certain skills must also include this disclaimer because a description of one’s skills—even where those skills are chosen from fields created by LinkedIn—constitutes a statement “characterizing the quality of the lawyer’s [] services” under Rule 7.1(d).
Conclusion
Attorneys may maintain profiles on LinkedIn, containing information such as education, work history, areas of practice, skills, and recommendations written by other LinkedIn users. A LinkedIn profile that contains only one’s education and current and past employment does not constitute Attorney Advertising. If an attorney includes additional information in his or her profile, such as a description of areas of practice or certain skills
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or endorsements, the profile may be considered Attorney Advertising and should contain the disclaimers set forth in Rule 7.1. Categorizing certain information under the heading “Skills” or “Endorsements” does not, however, constitute a claim to be a “Specialist” under Rule 7.4, and is accordingly not barred, provided that the information is truthful and accurate.
Attorneys must ensure that all information in their LinkedIn profiles, including endorsements and recommendations written by other LinkedIn users, is truthful and not misleading. If an attorney believes an endorsement or recommendation is not accurate, the attorney should exclude it from his or her profile. New York lawyers should periodically monitor and review the content of their LinkedIn profiles for accuracy.
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FORMAL OPINION 2014-300
ETHICAL OBLIGATIONS FOR ATTORNEYS USING SOCIAL MEDIA
I. Introduction and Summary
“Social media” or “social networking” websites permit users to join online communities where they can share information, ideas, messages, and other content using words, photographs, videos and other methods of communication. There are thousands of these websites, which vary in form and content. Most of these sites, such as Facebook, LinkedIn, and Twitter, are designed to permit users to share information about their personal and professional activities and interests. As of January 2014, an estimated 74 percent of adults age 18 and over use these sites.1 Attorneys and clients use these websites for both business and personal reasons, and their use raises ethical concerns, both in how attorneys use the sites and in the advice attorneys provide to clients who use them. The Rules of Professional Conduct apply to all of these uses. The issues raised by the use of social networking websites are highly fact-specific, although certain general principles apply. This Opinion reiterates the guidance provided in several previous ethics opinions in this developing area and provides a broad overview of the ethical concerns raised by social media, including the following:
1. Whether attorneys may advise clients about the content of the clients’ social networking
websites, including removing or adding information. 2. Whether attorneys may connect with a client or former client on a social networking
website. 3. Whether attorneys may contact a represented person through a social networking
website. 4. Whether attorneys may contact an unrepresented person through a social networking
website, or use a pretextual basis for viewing information on a social networking site that would otherwise be private/unavailable to the public.
5. Whether attorneys may use information on a social networking website in client-related matters.
6. Whether a client who asks to write a review of an attorney, or who writes a review of an attorney, has caused the attorney to violate any Rule of Professional Conduct.
7. Whether attorneys may comment on or respond to reviews or endorsements. 8. Whether attorneys may endorse other attorneys on a social networking website. 9. Whether attorneys may review a juror’s Internet presence.
1 http://www.pewinternet.org/fact-sheets/social-networking-fact-sheet/
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10. Whether attorneys may connect with judges on social networking websites.
This Committee concludes that:
1. Attorneys may advise clients about the content of their social networking websites, including the removal or addition of information.
2. Attorneys may connect with clients and former clients. 3. Attorneys may not contact a represented person through social networking websites. 4. Although attorneys may contact an unrepresented person through social networking
websites, they may not use a pretextual basis for viewing otherwise private information on social networking websites.
5. Attorneys may use information on social networking websites in a dispute. 6. Attorneys may accept client reviews but must monitor those reviews for accuracy. 7. Attorneys may generally comment or respond to reviews or endorsements, and may
solicit such endorsements. 8. Attorneys may generally endorse other attorneys on social networking websites. 9. Attorneys may review a juror’s Internet presence. 10. Attorneys may connect with judges on social networking websites provided the purpose
is not to influence the judge in carrying out his or her official duties. This Opinion addresses social media profiles and websites used by lawyers for business purposes, but does not address the issues relating to attorney advertising and marketing on social networking websites. While a social media profile that is used exclusively for personal purposes (i.e., to maintain relationships with friends and family) may not be subject to the Rules of Professional Conduct relating to advertising and soliciting, the Committee emphasizes that attorneys should be conscious that clients and others may discover those websites, and that information contained on those websites is likely to be subject to the Rules of Professional Conduct. Any social media activities or websites that promote, mention or otherwise bring attention to any law firm or to an attorney in his or her role as an attorney are subject to and must comply with the Rules. II. Background
A social networking website provides a virtual community for people to share their daily activities with family, friends and the public, to share their interest in a particular topic, or to increase their circle of acquaintances. There are dating sites, friendship sites, sites with business purposes, and hybrids that offer numerous combinations of these characteristics. Facebook is currently the leading personal site, and LinkedIn is currently the leading business site. Other social networking sites include, but are not limited to, Twitter, Myspace, Google+, Instagram, AVVO, Vine, YouTube, Pinterest, BlogSpot, and Foursquare. On these sites, members create their own online “profiles,” which may include biographical data, pictures and any other information they choose to post. Members of social networking websites often communicate with each other by making their latest thoughts public in a blog-like format or via e-mail, instant messaging, photographs, videos, voice or videoconferencing to selected members or to the public at large. These services permit members to locate and invite other members into their personal networks (to “friend” them) as well as to invite friends of friends or others.
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Social networking websites have varying levels of privacy settings. Some sites allow users to restrict who may see what types of content, or to limit different information to certain defined groups, such as the “public,” “friends,” and “others.” For example, on Facebook, a user may make all posts available only to friends who have requested access. A less restrictive privacy setting allows “friends of friends” to see content posted by a specific user. A still more publicly-accessible setting allows anyone with an account to view all of a person’s posts and other items. These are just a few of the main features of social networking websites. This Opinion does not address every feature of every social networking website, which change frequently. Instead, this Opinion gives a broad overview of the main ethical issues that lawyers may face when using social media and when advising clients who use social media. III. Discussion
A. Pennsylvania Rules of Professional Conduct: Mandatory and Prohibited
Conduct
Each of the issues raised in this Opinion implicates various Rules of Professional Conduct that affect an attorney’s responsibilities towards clients, potential clients, and other parties. Although no Pennsylvania Rule of Professional Conduct specifically addresses social networking websites, this Committee’s conclusions are based upon the existing rules. The Rules implicated by these issues include:
Rule 1.1 (“Competence”) Rule 1.6 (“Confidentiality of Information”) Rule 3.3 (“Candor Toward the Tribunal”) Rule 3.4 (“Fairness to Opposing Party and Counsel”) Rule 3.5 (“Impartiality and Decorum of the Tribunal”) Rule 3.6 (“Trial Publicity”) Rule 4.1 (“Truthfulness in Statements to Others”) Rule 4.2 (“Communication with Person Represented by Counsel”) Rule 4.3 (“Dealing with Unrepresented Person”) Rule 8.2 (“Statements Concerning Judges and Other Adjudicatory Officers”) Rule 8.4 (“Misconduct”)
The Rules define the requirements and limitations on an attorney’s conduct that may subject the attorney to disciplinary sanctions. While the Comments may assist an attorney in understanding or arguing the intention of the Rules, they are not enforceable in disciplinary proceedings.
B. General Rules for Attorneys Using Social Media and Advising Clients About
Social Media
Lawyers must be aware of how these websites operate and the issues they raise in order to represent clients whose matters may be impacted by content posted on social media websites. Lawyers should also understand the manner in which postings are either public or private. A few Rules of
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Professional Conduct are particularly important in this context and can be generally applied throughout this Opinion. Rule 1.1 provides:
A lawyer shall provide competent representation to a client. Competent representation requires the legal knowledge, skill, thoroughness and preparation reasonably necessary for the representation.
As a general rule, in order to provide competent representation under Rule 1.1, a lawyer should advise clients about the content of their social media accounts, including privacy issues, as well as their clients’ obligation to preserve information that may be relevant to their legal disputes. Comment [8] to Rule 1.1 further explains that, “To maintain the requisite knowledge and skill, a lawyer should keep abreast of changes in the law and its practice, including the benefits and risks associated with relevant technology….” Thus, in order to provide competent representation in accordance with Rule 1.1, a lawyer should (1) have a basic knowledge of how social media websites work, and (2) advise clients about the issues that may arise as a result of their use of these websites. Another Rule applicable in almost every context, and particularly relevant when social media is involved, is Rule 8.4 (“Misconduct”), which states in relevant part:
It is professional misconduct for a lawyer to: … (c) engage in conduct involving dishonesty, fraud, deceit or misrepresentation;
This Rule prohibits “dishonesty, fraud, deceit or misrepresentation.” Social networking easily lends itself to dishonesty and misrepresentation because of how simple it is to create a false profile or to post information that is either inaccurate or exaggerated. This Opinion frequently refers to Rule 8.4, because its basic premise permeates much of the discussion surrounding a lawyer’s ethical use of social media.
C. Advising Clients on the Content of their Social Media Accounts
As the use of social media expands, so does its place in legal disputes. This is based on the fact that many clients seeking legal advice have at least one account on a social networking site. While an attorney is not responsible for the information posted by a client on the client’s social media profile, an attorney may and often should advise a client about the content on the client’s profile. Against this background, this Opinion now addresses the series of questions raised above.
1. Attorneys May, Subject to Certain Limitations, Advise Clients About The Content Of Their Social Networking Websites
Tracking a client’s activity on social media may be appropriate for an attorney to remain informed about developments bearing on the client’s legal dispute. An attorney can reasonably expect that opposing counsel will monitor a client’s social media account.
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For example, in a Miami, Florida case, a man received an $80,000.00 confidential settlement payment for his age discrimination claim against his former employer.2 However, he forfeited that settlement after his daughter posted on her Facebook page “Mama and Papa Snay won the case against Gulliver. Gulliver is now officially paying for my vacation to Europe this summer. SUCK IT.” The Facebook post violated the confidentiality agreement in the settlement and, therefore, cost the Plaintiff $80,000.00. The Virginia State Bar Disciplinary Board3 suspended an attorney for five years for (1) instructing his client to delete certain damaging photographs from his Facebook account, (2) withholding the photographs from opposing counsel, and (3) withholding from the trial court the emails discussing the plan to delete the information from the client’s Facebook page. The Virginia State Bar Disciplinary Board based the suspension upon the attorney’s violations of Virginia’s rules on candor toward the tribunal, fairness to opposing counsel, and misconduct. In addition, the trial court imposed $722,000 in sanctions ($542,000 upon the lawyer and $180,000 upon his client) to compensate opposing counsel for their legal fees.4 While these may appear to be extreme cases, they are indicative of the activity that occur involving social media. As a result, lawyers should be certain that their clients are aware of the ramifications of their social media actions. Lawyers should also be aware of the consequences of their own actions and instructions when dealing with a client’s social media account. Three Rules of Professional Conduct are particularly important when addressing a lawyer’s duties relating to a client’s use of social media. Rule 3.3 states:
(a) A lawyer shall not knowingly: (1) make a false statement of material fact or law to a tribunal or fail to
correct a false statement of material fact or law previously made to the tribunal by the lawyer; …
(3) offer evidence that the lawyer knows to be false. If a lawyer, the lawyer’s client, or a witness called by the lawyer, has offered material evidence before a tribunal or in an ancillary proceeding conducted pursuant to a tribunal’s adjudicative authority, such as a deposition, and the lawyer comes to know of its falsity, the lawyer shall take reasonable remedial measures, including, if necessary, disclosure to the tribunal. A lawyer may refuse to offer evidence, other than the testimony of a defendant in a criminal matter, that the lawyer reasonably believes is false.
(b) A lawyer who represents a client in an adjudicative proceeding and who knows that a person intends to engage, is engaging or has engaged in criminal
2 “Girl costs father $80,000 with ‘SUCK IT’ Facebook Post, March 4, 2014: http://www.cnn.com/2014/03/02/us/facebook-post-costs-father/ 3 In the Matter of Matthew B. Murray, VSB Nos. 11-070-088405 and 11-070-088422 (June 9, 2013)
4 Lester v. Allied Concrete Co., Nos. CL08-150 and CL09-223 (Charlotte, VA Circuit Court, October 21,
2011)
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or fraudulent conduct related to the proceeding shall take reasonable remedial measures, including, if necessary, disclosure to the tribunal.
(c) The duties stated in paragraphs (a) and (b) continue to the conclusion of the proceeding, and apply even if compliance requires disclosure of information otherwise protected by Rule 1.6.
Rule 3.4 states:
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 or assist another person to do any such act;
Rule 4.1 states:
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 aiding and abetting a criminal or fraudulent act by a client, unless disclosure is prohibited by Rule 1.6.
The Rules do not prohibit an attorney from advising clients about their social networking websites. In fact, and to the contrary, a competent lawyer should advise clients about the content that they post publicly online and how it can affect a case or other legal dispute. The Philadelphia Bar Association Professional Guidance Committee issued Opinion 2014-5, concluding that a lawyer may advise a client to change the privacy settings on the client’s social media page but may not instruct a client to destroy any relevant content on the page. Additionally, a lawyer must respond to a discovery request with any relevant social media content posted by the client. The Committee found that changing a client’s profile to “private” simply restricts access to the content of the page but does not completely prevent the opposing party from accessing the information. This Committee agrees with and adopts the guidance provided in the Philadelphia Bar Association Opinion. The Philadelphia Committee also cited the Commercial and Federal Litigation Section of the New York State Bar Association and its “Social Media Guidelines,” which concluded that a lawyer may advise a client about the content of the client’s social media page, to wit:
A lawyer may advise a client as to what content may be maintained or made private on her social media account, as well as to what content may be “taken down” or removed, whether posted by the client or someone else, as long as there is no violation of common law or any statute, rule, or regulation relating to the preservation of information.
Unless an appropriate record of the social media information or data is preserved, a party or nonparty may not delete information from a social media profile that is subject
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to a duty to preserve. This duty arises when the potential for litigation or other conflicts arises 5
In 2014 Formal Ethics Opinion 5, the North Carolina State Bar concluded that a lawyer may advise a client to remove information on social media if not spoliation or otherwise illegal.6 This Committee agrees with and adopts these recommendations, which are consistent with Rule 3.4(a)’s prohibition against “unlawfully alter[ing], destroy[ing] or conceal[ing] a document or other material having potential evidentiary value.” Thus, a lawyer may not instruct a client to alter, destroy, or conceal any relevant information, regardless whether that information is in paper or digital form. A lawyer may, however, instruct a client to delete information that may be damaging from the client’s page, provided the conduct does not constitute spoliation or is otherwise illegal, but must take appropriate action to preserve the information in the event it is discoverable or becomes relevant to the client’s matter. Similarly, an attorney may not advise a client to post false or misleading information on a social networking website; nor may an attorney offer evidence from a social networking website that the attorney knows is false. Rule 4.1(a) prohibits an attorney from making “a false statement of material fact or law.” If an attorney knows that information on a social networking site is false, the attorney may not present that as truthful information. It has become common practice for lawyers to advise clients to refrain from posting any information relevant to a case on any website, and to refrain from using these websites until the case concludes.
2. Attorneys May Ethically Connect with Clients or Former Clients on Social Media
Social media provides many opportunities for attorneys to contact and connect with clients and other relevant persons. While the mode of communication has changed, the Rules that generally address an attorney’s communications with others still apply. There is no per se prohibition on an attorney connecting with a client or former client on social media. However, an attorney must continue to adhere to the Rules and maintain a professional relationship with clients. If an attorney connects with clients or former clients on social networking sites, the attorney should be aware that his posts may be viewed by clients and former clients. Although this Committee does not recommend doing so, if an attorney uses social media to communicate with a client relating to representation of the client, the attorney should retain records of those communications containing legal advice. As outlined below, an attorney must not reveal confidential client information on social media. While the Rules do not prohibit connecting with clients on social media, social media may not be the best platform to connect with clients, particularly in light of the difficulties that often occur when individuals attempt to adjust their privacy settings.
5 Social Media Ethics Guidelines, The Commercial and Federal Litigation Section of the New York State
Bar Association, March 18, 2014 at 11 (footnote omitted). 6 http://www.ncbar.com/ethics/printopinion.asp?id=894
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3. Attorneys May Not Ethically Contact a Represented Person Through a Social Networking Website
Attorneys may also use social media to contact relevant persons in a conflict, but within limitations. As a general rule, if contacting a party using other forms of communication would be prohibited,7 it would also be prohibited while using social networking websites. Rule 4.2 states:
In representing a client, a lawyer shall not communicate about the subject of the representation with a person the lawyer knows to be represented by another lawyer in the matter, unless the lawyer has the consent of the other lawyer or is authorized to do so by law or a court order.
Regardless of the method of communication, Rule 4.2 clearly states that an attorney may not communicate with a represented party without the permission of that party’s lawyer. Social networking websites increase the number of ways to connect with another person but the essence of that connection is still a communication. Contacting a represented party on social media, even without any pretext, is limited by the Rules. The Philadelphia Bar Association Professional Guidance Committee concluded in Opinion 2009-02,8 that an attorney may not use an intermediary to access a witness’ social media profiles. The inquirer sought access to a witness’ social media account for impeachment purposes. The inquirer wanted to ask a third person, i.e., “someone whose name the witness will not recognize,” to go to Facebook and Myspace and attempt to “friend” the witness to gain access to the information on the pages. The Committee found that this type of pretextual “friending” violates Rule 8.4(c), which prohibits the use of deception. The action also would violate Rule 4.1 (discussed below) because such conduct amounts to a false statement of material fact to the witness. The San Diego County Bar Legal Ethics Committee issued similar guidance in Ethics Opinion 2011-2,9 concluding that an attorney is prohibited from making an ex parte “friend” request of a represented party to view the non-public portions of a social networking website. Even if the attorney clearly states his name and purpose for the request, the conduct violates the Rule against communication with a represented party. Consistent with this Opinion, this Committee also finds that “friending” a represented party violates Rule 4.2. While it would be forbidden for a lawyer to “friend” a represented party, it would be permissible for the lawyer to access the public portions of the represented person’s social networking site, just as it would be permissible to review any other public statements the person makes. The New York State
7 See, e.g., Formal Opinion 90-142 (updated by 2005-200), in which this Committee concluded that,
unless a lawyer has the consent of opposing counsel or is authorized by law to do so, in representing a client, a lawyer shall not conduct ex parte communications about the matter of the representation with present managerial employees of an opposing party, and with any other employee whose acts or omissions may be imputed to the corporation for purposes of civil or criminal liability. 8 Philadelphia Bar Assn., Prof’l Guidance Comm., Op. 2009-02 (2009).
9 San Diego County Bar Assn., Legal Ethics Comm., Op. 2011-2 (2011).
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Bar Association Committee on Professional Ethics issued Opinion 843,10 concluded that lawyers may access the public portions of other parties’ social media accounts for use in litigation, particularly impeachment. The Committee found that there is no deception in accessing a public website; it also cautioned, however, that a lawyer should not request additional access to the social networking website nor have someone else do so. This Committee agrees that accessing the public portion of a represented party’s social media site does not involve an improper contact with the represented party because the page is publicly accessible under Rule 4.2. However, a request to access the represented party’s private page is a prohibited communication under Rule 4.2
4. Attorneys May Generally Contact an Unrepresented Person Through a Social Networking Website But May Not Use a Pretextual Basis For Viewing Otherwise Private Information11
Communication with an unrepresented party through a social networking website is governed by the same general rule that, if the contact is prohibited using other forms of communication, then it is also prohibited using social media. Rule 4.3 states in relevant part:
(a) 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. …
(c) When the lawyer knows or reasonably should know that the unrepresented person misunderstands the lawyer’s role in the matter, the lawyer should make reasonable efforts to correct the misunderstanding.
Connecting with an unrepresented person through a social networking website may be ethical if the attorney clearly identifies his or her identity and purpose. Particularly when using social networking websites, an attorney may not use a pretextual basis when attempting to contact the unrepresented person. Rule 4.3(a) instructs that “a lawyer shall not state or imply that the lawyer is disinterested.” Additionally, Rule 8.4(c) (discussed above) prohibits a lawyer from using deception. For example, an attorney may not use another person’s name or online identity to contact an unrepresented person; rather, the attorney must use his or her own name and state the purpose for contacting the individual. In Ohio, a former prosecutor was fired after he posed as a woman on a fake Facebook account in order to influence an accused killer’s alibi witnesses to change their testimony12. He was fired for “unethical behavior,” which is also consistent with the Pennsylvania Rules. Contacting witnesses under false pretenses constitutes deception. 10
New York State Bar Assn., Comm. on Prof’l Ethics, Op. 843 (2010). 11
Attorneys may be prohibited from contacting certain persons, despite their lack of representation. This portion of this Opinion only addresses communication and contact with persons with whom such contact is not otherwise prohibited by the Rules, statute or some other basis. 12
“Aaron Brockler, Former Prosecutor, Fired for Posing as Accused Killer’s Ex-Girlfriend on Facebook,” June 7, 2013. http://www.cnn.com/2014/03/02/us/facebook-post-costs-father/
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Many Ethics Committees have addressed whether an attorney may contact an unrepresented person on social media. The Kentucky Bar Association Ethics Committee13 concluded that a lawyer may access the social networking site of a third person to benefit a client within the limits of the Rules. The Committee noted that even though social networking sites are a new medium of communication, “[t]he underlying principles of fairness and honesty are the same, regardless of context.”14 The Committee found that the Rules would not permit a lawyer to communicate through social media with a represented party. But, the Rules do not prohibit social media communication with an unrepresented party provided the lawyer is not deceitful or dishonest in the communication. As noted above, in Opinion 2009-02,15 the Philadelphia Bar Association Professional Guidance Committee concluded that an attorney may not access a witness’ social media profiles by deceptively using a third party intermediary. Use of an alias or other deceptive conduct violates the Rules as well, regardless whether it is permissible to contact a particular person. The New Hampshire Bar Association Ethics Committee agreed with the Philadelphia Opinion in Advisory Opinion 2012-13/05,16 concluding that a lawyer may not use deception to access the private portions of an unrepresented person’s social networking account. The Committee noted, “A lawyer has a duty to investigate but also a duty to do so openly and honestly, rather than through subterfuge.” The Oregon State Bar Legal Ethics Committee concurred with these opinions as well in Opinion 2013-189,17 concluding that a lawyer may request access to an unrepresented party’s social networking website if the lawyer is truthful and does not employ deception. These Committees consistently conclude that a lawyer may not use deception to gain access to an unrepresented party’s page, but a lawyer may request access using his or her real name. There is, however, a split of authority among these Committees. The Philadelphia and New Hampshire Committees would further require the lawyer to state the purpose for the request, a conclusion with which this Committee agrees. These Committees found that omitting the purpose of the contact implies that the lawyer is disinterested, in violation of Rule 4.3(a). This Committee agrees with the Philadelphia Opinion (2009-02) and concludes that a lawyer may not use deception to gain access to an unrepresented person’s social networking site. A lawyer may ethically request access to the site, however, by using the lawyer’s real name and by stating the lawyer’s purpose for the request. Omitting the purpose would imply that the lawyer is disinterested, contrary to Rule 4.3(a).
5. Attorneys May Use Information Discovered on a Social Networking Website in a Dispute
If a lawyer obtains information from a social networking website, that information may be used in a legal dispute provided the information was obtained ethically and consistent with other portions of 13 Kentucky Bar Assn., Ethics Comm., Formal Op. KBA E-434 (2012). 14
Id. at 2. 15
Philadelphia Bar Assn., Prof’l Guidance Comm., Op. 2009-02 (2009). 16
New Hampshire Bar Assn., Ethics Comm., Op. 2012-13/05 (2012). 17
Oregon State Bar, Legal Ethics Comm., Op. 2013-189 (2013).
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this Opinion. As mentioned previously, a competent lawyer has the duty to understand how social media works and how it may be used in a dispute. Because social networking websites allow users to instantaneously post information about anything the user desires in many different formats, a client’s postings on social media may potentially be used against the client’s interests. Moreover, because of the ease with which individuals can post information on social media websites, there may be an abundance of information about the user that may be discoverable if the user is ever involved in a legal dispute. For example, in 2011, a New York18 court ruled against a wife’s claim for support in a matrimonial matter based upon evidence from her blog that contradicted her testimony that she was totally disabled, unable to work in any capacity, and rarely left home because she was in too much pain. The posts confirmed that the wife had started belly dancing in 2007, and the Court learned of this activity in 2009 when the husband attached the posts to his motion papers. The Court concluded that the wife’s postings were relevant and could be deemed as admissions by the wife that contradicted her claims. Courts have, with increasing frequency, permitted information from social media sites to be used in litigation, and have granted motions to compel discovery of information on private social networking websites when the public profile shows relevant evidence may be found. For example, in McMillen v. Hummingbird Speedway, Inc.,19 the Court of Common Pleas of Jefferson County, Pennsylvania granted a motion to compel discovery of the private portions of a litigant’s Facebook profile after the opposing party produced evidence that the litigant may have misrepresented the extent of his injuries. In a New York case, Romano v. Steelcase Inc.,20 the Court similarly granted a defendant’s request for access to a plaintiff’s social media accounts because the Court believed, based on the public portions of plaintiff’s account, that the information may be inconsistent with plaintiff’s claims of loss of enjoyment of life and physical injuries, thus making the social media accounts relevant. In Largent v. Reed,21 a Pennsylvania Court of Common Pleas granted a discovery request for access to a personal injury plaintiff’s social media accounts. The Court engaged in a lengthy discussion of Facebook’s privacy policy and Facebook’s ability to produce subpoenaed information. The Court also ordered that plaintiff produce her login information for opposing counsel and required that she make no changes to her Facebook for thirty-five days while the defendant had access to the account. Conversely, in McCann v. Harleysville Insurance Co.,22 a New York court denied a defendant access to a plaintiff’s social media account because there was no evidence on the public portion of the profile to suggest that there was relevant evidence on the private portion. The court characterized this request as a “fishing expedition” that was too broad to be granted. Similarly, in Trail v. Lesko,23 Judge R. Stanton Wettick, Jr. of the Court of Common Pleas of Allegheny County denied a party access to a 18
B.M. v D.M., 31 Misc. 3d 1211(A) (N.Y. Sup. Ct. 2011). 19
McMillen v. Hummingbird Speedway, Inc., 2010 Pa. Dist. & Cnty. Dec. LEXIS 270 (Pa. County Ct. 2010). 20
Romano v Steelcase Inc., 30 Misc. 3d 426 (N.Y. Sup. Ct. 2010). 21
Largent v. Reed, No. 2009-1823 (Pa.Ct.Com.Pl. Franklin Cty. 2011). 22
McCann v. Harleysville Ins. Co. of N.Y., 78 A.D.3d 1524 (N.Y. App. Div. 4th Dep't 2010). 23
Trail v. Lesko, 2012 Pa. Dist. & Cnty. Dec. LEXIS 194 (Pa. County Ct. 2012).
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plaintiff’s social media accounts, concluding that, under Pa. R.Civ.P. 4011(b), the defendant did not produce any relevant evidence to support its request; therefore, granting access to the plaintiff’s Facebook account would have been needlessly intrusive.
6. Attorneys May Generally Comment or Respond to Reviews or Endorsements, and May Solicit Such Endorsements Provided the Reviews Are Monitored for Accuracy
Some social networking websites permit a member or other person, including clients and former clients, to recommend or endorse a fellow member’s skills or accomplishments. For example, LinkedIn allows a user to “endorse” the skills another user has listed (or for skills created by the user). A user may also request that others endorse him or her for specified skills. LinkedIn also allows a user to remove or limit endorsements. Other sites allow clients to submit reviews of an attorney’s performance during representation. Some legal-specific social networking sites focus exclusively on endorsements or recommendations, while other sites with broader purposes can incorporate recommendations and endorsements into their more relaxed format. Thus, the range of sites and the manner in which information is posted varies greatly. Although an attorney is not responsible for the content that other persons, who are not agents of the attorney, post on the attorney’s social networking websites, an attorney (1) should monitor his or her social networking websites, (2) has a duty to verify the accuracy of any information posted, and (3) has a duty to remove or correct any inaccurate endorsements. For example, if a lawyer limits his or her practice to criminal law, and is “endorsed” for his or her expertise on appellate litigation on the attorney’s LinkedIn page, the attorney has a duty to remove or correct the inaccurate endorsement on the LinkedIn page. This obligation exists regardless of whether the information was posted by the attorney, by a client, or by a third party. In addition, an attorney may be obligated to remove endorsements or other postings posted on sites that the attorney controls that refer to skills or expertise that the attorney does not possess.
Similarly, the Rules do not prohibit an attorney from soliciting reviews from clients about the attorney’s services on an attorney’s social networking site, nor do they prohibit an attorney from posting comments by others.24 Although requests such as these are permissible, the attorney should monitor the information so as to verify its accuracy. Rule 7.2 states, in relevant part:
(d) No advertisement or public communication shall contain an endorsement by a celebrity or public figure.
(e) An advertisement or public communication that contains a paid endorsement shall disclose that the endorser is being paid or otherwise compensated for his or her appearance or endorsement.
Rule 7.2(d) prohibits any endorsement by a celebrity or public figure. A lawyer may not solicit an endorsement nor accept an unsolicited endorsement from a celebrity or public figure on social 24
In Dwyer v. Cappell, 2014 U.S. App. LEXIS 15361 (3d Cir. N.J. Aug. 11, 2014), the Third Circuit ruled that an attorney may include accurate quotes from judicial opinions on his website, and was not required to reprint the opinion in full.
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media. Additionally, Rule 7.2(e) mandates disclosure if an endorsement is made by a paid endorser. Therefore, if a lawyer provides any type of compensation for an endorsement made on social media, the endorsement must contain a disclosure of that compensation. Even if the endorsement is not made by a celebrity or a paid endorser, the post must still be accurate. Rule 8.4(c) is again relevant in this context. This Rule prohibits lawyers from dishonest conduct and making misrepresentations. If a client or former client writes a review of a lawyer that the lawyer knows is false or misleading, then the lawyer has an obligation to correct or remove the dishonest information within a reasonable amount of time. If the lawyer is unable to correct or remove the listing, he or she should contact the person posting the information and request that the person remove or correct the item. The North Carolina State Bar Ethics Committee issued Formal Ethics Opinion 8,25 concluding that a lawyer may accept recommendations from current or former clients if the lawyer monitors the recommendations to ensure that there are no ethical rule violations. The Committee discussed recommendations in the context of LinkedIn where an attorney must accept the recommendation before it is posted.26 Because the lawyer must review the recommendation before it can be posted, there is a smaller risk of false or misleading communication about the lawyer’s services. The Committee also concluded that a lawyer may request a recommendation from a current or former client but limited that recommendation to the client’s level of satisfaction with the lawyer-client relationship. This Committee agrees with the North Carolina Committee’s findings. Attorneys may request or permit clients to post positive reviews, subject to the limitations of Rule 7.2, but must monitor those reviews to ensure they are truthful and accurate.
7. Attorneys May Comment or Respond to Online Reviews or Endorsements But May Not Reveal Confidential Client Information
Attorneys may not disclose confidential client information without the client’s consent. This obligation of confidentiality applies regardless of the context. While the issue of disclosure of confidential client information extends beyond this Opinion, the Committee emphasizes that attorneys may not reveal such information absent client approval under Rule 1.6. Thus, an attorney may not reveal confidential information while posting celebratory statements about a successful matter, nor may the attorney respond to client or other comments by revealing information subject to the attorney-client privilege. Consequently, a lawyer’s comments on social media must maintain attorney/client confidentiality, regardless of the context, absent the client’s informed consent. This Committee has opined, in Formal Opinion 2014-200,27 that lawyers may not reveal client confidential information in response to a negative online review. Confidential client information is defined as “information relating to representation,” which is generally very broad. While there are 25
North Carolina State Bar Ethics Comm., Formal Op. 8 (2012). 26
Persons with profiles on LinkedIn no longer are required to approve recommendations, but are generally notified of them by the site. This change in procedure highlights the fact that sites and their policies and procedures change rapidly, and that attorneys must be aware of their listings on such sites. 27
Pennsylvania Bar Assn, Ethics Comm., Formal Op. 2014-200 (2014).
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certain circumstances that would allow a lawyer to reveal confidential client information, a negative online client review is not a circumstance that invokes the self-defense exception. As Rule 1.6 states:
(a) A lawyer shall not reveal information relating to representation of a client unless the client gives informed consent, except for disclosures that are impliedly authorized in order to carry out the representation, and except as stated in paragraphs (b) and (c).
(b) A lawyer shall reveal such information if necessary to comply with the duties stated in Rule 3.3.
(c) A lawyer may reveal such information to the extent that the lawyer reasonably believes necessary: (4) 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 or disciplinary proceeding 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
(d) 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.
(e) The duty not to reveal information relating to representation of a client continues after the client-lawyer relationship has terminated.
Thus, any information that an attorney posts on social media may not violate attorney/client confidentiality. An attorney’s communications to a client are also confidential. In Gillard v. AIG Insurance Company,28 the Pennsylvania Supreme Court ruled that the attorney-client privilege extends to communications from attorney to client. The Court held that “the attorney-client privilege operates in a two-way fashion to protect confidential client-to-attorney or attorney-to-client communications made for the purpose of obtaining or providing professional legal advice.”29 The court noted that communications from attorney to client come with a certain expectation of privacy. These communications only originate because of a confidential communication from the client. Therefore, even revealing information that the attorney has said to a client may be considered a confidential communication, and may not be revealed on social media or elsewhere. Responding to a negative review can be tempting but lawyers must be careful about what they write. The Hearing Board of the Illinois Attorney Registration and Disciplinary Commission reprimanded an attorney for responding to a negative client review on the lawyer referral website AVVO30. In her response, the attorney mentioned confidential client information, revealing that the client had been in a physical altercation with a co-worker. While the Commission did not prohibit an attorney from
28
Gillard v. AIG Insurance Co., 15 A.3d 44 (Pa. 2011). 29
Id. at 59. 30
In Re Tsamis, Comm. File No. 2013PR00095 (Ill. 2013).
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responding, in general, to a negative review on a site such as AVVO, it did prohibit revealing confidential client information in that type of reply. The Illinois disciplinary action is consistent with this Committee’s recent Opinion and with the Pennsylvania Rules. A lawyer is not permitted to reveal confidential information about a client even if the client posts a negative review about the lawyer. Rule 1.6(d) instructs a lawyer to make “reasonable efforts to prevent the inadvertent or unauthorized disclosure of . . . information relating to the representation of a client.” This means that a lawyer must be mindful of any information that the lawyer posts pertaining to a client. While a response may not contain confidential client information, an attorney is permitted to respond to reviews or endorsements on social media. These responses must be accurate and truthful representations of the lawyer’s services. Also relevant is Rule 3.6, which states:
(a) A lawyer who is participating or has participated in the investigation or litigation of a matter shall not make an extrajudicial statement that the lawyer knows or reasonably should know will be disseminated by means of public communication and will have a substantial likelihood of materially prejudicing an adjudicative proceeding in the matter.
This Rule prohibits lawyers from making extrajudicial statements through public communication during an ongoing adjudication. This encompasses a lawyer updating a social media page with information relevant to the proceeding. If a lawyer’s social media account is generally accessible publicly then any posts about an ongoing proceeding would be a public communication. Therefore, lawyers should not be posting about ongoing matters on social media when such matters would reveal confidential client information. For example, the Supreme Court of Illinois suspended an attorney for 60 days31 for writing about confidential client information and client proceedings on her personal blog. The attorney revealed information that made her clients easily identifiable, sometimes even using their names. The Illinois Attorney Registration and Disciplinary Commission had argued in the matter that the attorney knew or should have known that her blog was accessible to others using the internet and that she had not made any attempts to make her blog private. Social media creates a wider platform of communication but that wider platform does not make it appropriate for an attorney to reveal confidential client information or to make otherwise prohibited extrajudicial statements on social media.
8. Attorneys May Generally Endorse Other Attorneys on Social Networking Websites
Some social networking sites allow members to endorse other members’ skills. An attorney may endorse another attorney on a social networking website provided the endorsement is accurate and not misleading. However, celebrity endorsements are not permitted nor are endorsements by judges. As previously noted, Rule 8.4(c) prohibits an attorney from being dishonest or making
31
In Re Peshek, No. M.R. 23794 (Il. 2010); Compl.., In Re Peshek, Comm. No. 09 CH 89 (Il. 2009).
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misrepresentations. Therefore, when a lawyer endorses another lawyer on social media, the endorsing lawyer must only make endorsements about skills that he knows to be true.
9. Attorneys May Review a Juror’s Internet Presence The use of social networking websites can also come into play when dealing with judges and juries. A lawyer may review a juror’s social media presence but may not attempt to access the private portions of a juror’s page. Rule 3.5 states:
A lawyer shall not: (a) seek to influence a judge, juror, prospective juror or other official by means
prohibited by law; (b) communicate ex parte with such a person during the proceeding unless
authorized to do so by law or court order; (c) communicate with a juror or prospective juror after discharge of the jury if:
(1) the communication is prohibited by law or court order; (2) the juror has made known to the lawyer a desire not to communicate;
or (3) the communication involves misrepresentation, coercion, duress of
harassment; or (d) engage in conduct intended to disrupt a tribunal.
During jury selection and trial, an attorney may access the public portion of a juror’s social networking website but may not attempt or request to access the private portions of the website. Requesting access to the private portions of a juror’s social networking website would constitute an ex parte communication, which is expressly prohibited by Rule 3.5(b). Rule 3.5(a) prohibits a lawyer from attempting to influence a juror or potential juror. Additionally, Rule 3.5(b) prohibits ex parte communications with those persons. Accessing the public portions of a juror’s social media profile is ethical under the Rules as discussed in other portions of this Opinion. However, any attempts to gain additional access to private portions of a juror’s social networking site would constitute an ex parte communication. Therefore, a lawyer, or a lawyer’s agent, may not request access to the private portions of a juror’s social networking site. American Bar Association Standing Committee on Ethics and Professional Responsibility Formal Opinion 466 concluded that a lawyer may view the public portion of the social networking profile of a juror or potential juror but may not communicate directly with the juror or jury panel member. The Committee determined that a lawyer, or his agent, is not permitted to request access to the private portion of a juror’s or potential juror’s social networking website because that type of ex parte communication would violate Model Rule 3.5(b). There is no ex parte communication if the social networking website independently notifies users when the page has been viewed. Additionally, a lawyer may be required to notify the court of any evidence of juror misconduct discovered on a social networking website.
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This Committee agrees with the guidance provided in ABA Formal Opinion 466, which is consistent with Rule 3.5’s prohibition regarding attempts to influence jurors, and ex parte communications with jurors.
10. Attorneys May Ethically Connect with Judges on Social Networking Websites Provided the Purpose is not to Influence the Judge
A lawyer may not ethically connect with a judge on social media if the lawyer intends to influence the judge in the performance of his or her official duties. In addition, although the Rules do not prohibit such conduct, the Committee cautions attorneys that connecting with judges may create an appearance of bias or partiality.32 Various Rules address this concern. For example, Rule 8.2 states:
(a) A lawyer shall not make a statement that the lawyer knows to be false or with reckless disregard as to its truth or falsity concerning the qualifications or integrity of a judge, adjudicatory officer or public legal officer, or of a candidate for election or appointment to judicial or legal office.
In addition, Comment [4] to Canon 2.9 of the Code of Judicial Conduct, effective July 1, 2014, states that “A judge shall avoid comments and interactions that may be interpreted as ex parte communications concerning pending matters or matters that may appear before the court, including a judge who participates in electronic social media.” Thus, the Supreme Court has implicitly agreed that judges may participate in social media, but must do so with care. Based upon this statement, this Committee believes that attorneys may connect with judges on social media websites provided the purpose is not to influence the judge, and reasonable efforts are taken to assure that there is no ex parte or other prohibited communication. This conclusion is consistent with Rule 3.5(a), which forbids a lawyer to “seek to influence a judge” in an unlawful way. IV. Conclusion
Social media is a constantly changing area of technology that lawyers keep abreast of in order to remain competent. As a general rule, any conduct that would not be permissible using other forms of communication would also not be permissible using social media. Any use of a social networking website to further a lawyer’s business purpose will be subject to the Rules of Professional Conduct. Accordingly, this Committee concludes that any information an attorney or law firm places on a social networking website must not reveal confidential client information absent the client’s consent. Competent attorneys should also be aware that their clients use social media and that what clients reveal on social media can be used in the course of a dispute. Finally, attorneys are permitted to use social media to research jurors and may connect with judges so long as they do not attempt to 32
American Bar Association Standing Committee on Ethics and Professional Responsibility Formal Opinion 462 concluded that a judge may participate in electronic social networking, but as with all social relationships and contacts, a judge must comply with the relevant provisions of the Code of Judicial Conduct and avoid any conduct that would undermine the judge’s independence, integrity, or impartiality, or create an appearance of impropriety.
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influence the outcome of a case or otherwise cause the judge to violate the governing Code of Judicial Conduct. Social media presents a myriad of ethical issues for attorneys, and attorneys should continually update their knowledge of how social media impacts their practice in order to demonstrate competence and to be able to represent their clients effectively.
CAVEAT: THE FOREGOING OPINION IS ADVISORY ONLY AND IS NOT BINDING
ON THE DISCIPLINARY BOARD OF THE SUPREME COURT OF PENNSYLVANIA OR
ANY COURT. THIS OPINION CARRIES ONLY SUCH WEIGHT AS AN APPROPRIATE
REVIEWING AUTHORITY MAY CHOOSE TO GIVE IT.
PROFESSIONAL ETHICS OF THE FLORIDA BAR 1
PROPOSED ADVISORY OPINION 14-1 2 January 23, 2015 3
A Florida Bar member has asked the committee regarding the ethical obligations on 4 advising clients to “clean up” their social media pages before litigation is filed to remove 5 embarrassing information that the lawyer believes is not material to the litigation matter. The 6 inquirer asks the following 4 questions: 7
1) Pre-litigation, may a lawyer advise a client to remove posts, photos, videos, 8 and information from social media pages/accounts that are related directly to the 9 incident for which the lawyer is retained? 10
2) Pre-litigation, may a lawyer advise a client to remove posts, photos, videos, 11 and information from social media pages/accounts that are not related directly to 12 the incident for which the lawyer is retained? 13
3) Pre-litigation, may a lawyer advise a client to change social media 14 pages/accounts privacy settings to remove the pages/accounts from public view? 15
4) Pre-litigation, must a lawyer advise a client not to remove posts, photos, 16 videos and information whether or not directly related to the litigation if the 17 lawyer has advised the client to set privacy settings to not allow public access? 18
Rule 4-3.4(a) is applicable and states as follows: 19
A lawyer must not: 20
(a) unlawfully obstruct another party's access to evidence or otherwise 21 unlawfully alter, destroy, or conceal a document or other material that the lawyer 22 knows or reasonably should know is relevant to a pending or a reasonably 23 foreseeable proceeding; nor counsel or assist another person to do any such act; 24
The comment to the rule provides further guidance: 25
The procedure of the adversary system contemplates that the evidence in a 26 case is to be marshalled competitively by the contending parties. Fair competition 27 in the adversary system is secured by prohibitions against destruction or 28 concealment of evidence, improperly influencing witnesses, obstructive tactics in 29 discovery procedure, and the like. 30
Documents and other items of evidence are often essential to establish a claim or defense. 31 Subject to evidentiary privileges, the right of an opposing party, including the government, to 32 obtain evidence through discovery or subpoena is an important procedural right. The exercise of 33 that right can be frustrated if relevant material is altered, concealed, or destroyed. Applicable 34 law in many jurisdictions makes it an offense to destroy material for the purpose of impairing its 35 availability in a pending proceeding or one whose commencement can be foreseen. Falsifying 36
evidence is also generally a criminal offense. Subdivision (a) applies to evidentiary material 37 generally, including computerized information. 38
The committee is of the opinion that the representation in this inquiry involves a 39 “reasonably foreseeable proceeding” as the client has hired the lawyer, presumably to determine 40 whether the client has a viable claim and pursue the claim if viable. However, under the rule, the 41 proper inquiry is whether information on a client’s social media page is relevant to that 42 reasonably foreseeable proceeding, rather than whether information is “related directly” or “not 43 related directly” to the client’s matter. Information that is not “related directly” to the incident 44 giving rise to the need for legal representation may still be relevant. However, what is relevant 45 requires a factual, case-by-case determination. In Florida, the second District Court of Appeal 46 has determined that normal discovery principles apply to social media, and that information 47 sought to be discovered from social media must be “(1) relevant to the case's subject matter, and 48 (2) admissible in court or reasonably calculated to lead to evidence that is admissible in court.” 49 Root v. Balfour Beatty Construction, Inc.,132 So.3d 867, 869-70 (Fla. 2nd DCA 2014). 50
What constitutes an “unlawful” obstruction, alteration, destruction, or concealment of 51 evidence is a legal question, outside the scope of an ethics opinion. The committee is aware of 52 cases addressing the issue of discovery or spoliation relating to social media, but in these cases, 53 the issue arose in the course of discovery after litigation commenced. See, Allied Concrete Co. v. 54 Lester, 736 S.E.2d 699 (Va. 2013) (Sanctions of $542,000 imposed against lawyer and $180,000 55 against the client for spoliation when client, at lawyer's direction, deleted photographs from 56 client's social media page, the client deleted the accounts, and the lawyer signed discovery 57 requests that the client did not have the accounts); Gatto v. United Airlines, 2013 WL 1285285, 58 Case No. 10-cv-1090-ES-SCM (U.S. Dist. Ct. NJ March 25, 2013) (Adverse inference 59 instruction, but no monetary sanctions, against plaintiff who deactivated his social media 60 accounts, which then became unavailable, after the defendants requested access); Romano v. 61 Steelcase, Inc. 907 N.Y.S.2d 650 (NY 2010) (Court granted request for access to plaintiff's 62 MySpace and Facebook pages, including private and deleted pages, when plaintiff's physical 63 condition was at issue and information on the pages is inconsistent with her purported injuries 64 based on information about plaintiff's activities available on the public pages of her MySpace 65 and Facebook pages). In the disciplinary context, at least one lawyer has been suspended for 5 66 years for advising a client to clean up Facebook page, causing the removal of photographs and 67 other material after a request for production had been made. In the Matter of Matthew B. 68 Murray, 2013 WL 5630414, VSB Docket Nos. 11-070-088405 and 11-070-088422 (Virginia 69 State Bar Disciplinary Board July 17, 2013). 70
The New York County Lawyers Association has issued NYCLA Ethics Opinion 745 71 (2013) addressing the issue. The opinion concludes that lawyers may advise their clients to use 72 the highest level of privacy settings on their social media pages and may advise clients to remove 73 information from social media pages unless the lawyer has a duty to preserve information under 74 law and there is no violation of law relating to spoliation of evidence. Other states have since 75 come to similar conclusions. See, e.g., North Carolina Formal Ethics Opinion 5 (attorney must 76 advise client about information on social media if information is relevant and material to the 77 client’s representation and attorney may advise client to remove information on social media if 78 not spoliation or otherwise illegal); Pennsylvania Bar Association Opinion 2014-300 (attorney 79 may advise client to delete information from client’s social media provided that this does not 80
constitute spoliation or is otherwise illegal, but must take appropriate action to preserve the 81 information); and Philadelphia Bar Association Professional Guidance Committee Opinion 82 2014-5 (attorney may advise a client to change the privacy settings on the client’s social media 83 page but may not instruct client to destroy any relevant content on the page). Subsequent to the 84 publication of the opinion, the New York State Bar Association’s Commercial and Federal 85 Litigation Section adopted Social Media Ethics Guidelines. Guideline No. 4.A, citing to the 86 opinion, states as follows: 87
A lawyer may advise a client as to what content may be maintained or made 88 private on her social media account, as well as to what content may be “taken 89 down” or removed, whether posted by the client or someone else, as long as there 90 is no violation of common law or any statute, rule, or regulation relating to the 91 preservation of information. Unless an appropriate record of the social media 92 information or data is preserved, a party or nonparty may not delete information 93 from a social media profile that is subject to a duty to preserve. [Footnote 94 omitted.] 95
The committee agrees with the NYCLA that a lawyer may advise a client to use the 96 highest level of privacy setting on the client’s social media pages. 97
The committee also agrees that a lawyer may advise the client pre-litigation to remove 98 information from a social media page, regardless of its relevance to a reasonably foreseeable 99 proceeding, as long as the removal does not violate any substantive law regarding preservation 100 and/or spoliation of evidence. The committee is of the opinion that if the lawyer does so, an 101 appropriate record of the social media information or data must be preserved if the information 102 or data is known by the lawyer or reasonably should be known by the lawyer to be relevant to the 103 reasonably foreseeable proceeding. 104
The committee is of the opinion that the general obligation of competence may require 105 the inquirer to advise the client regarding removal of relevant information from the client’s social 106 media pages, including whether removal would violate any legal duties regarding preservation of 107 evidence, regardless of the privacy settings. If a client specifically asks the inquirer regarding 108 removal of information, the lawyer’s advice must comply with Rule 4-3.4(a). What information 109 on a social media page is relevant to reasonably foreseeable litigation is a factual question that 110 must be determined on a case-by-case basis. 111
In summary, a lawyer may advise that a client change privacy settings on the client’s 112 social media pages so that they are not publicly accessible. Provided that there is no violation of 113 the rules or substantive law pertaining to the preservation and/or spoliation of evidence, a lawyer 114 also may advise that a client remove information relevant to the foreseeable proceeding from 115 social media pages as long as an appropriate record of the social media information or data is 116 preserved. 117
Copyright © 2015 Hinshaw & Culbertson LLP
HYPOTHETICAL
A Billing Nightmare The Consequences of Inadequately Managing the Billing Process
Not long ago, I received a telephone call from Smith, a lawyer in a respected large law firm in a prosperous midsize city. Smith explained that he was a member of the firm’s three-person executive committee and a commercial lawyer. Smith told of what had happened at the firm’s monthly partnership meeting on the previous Saturday morning. (Such meetings were always on Saturdays, he said, because that way no one had to give up valuable billable time and “waste” time on firm management.) He reported that the meeting had been particularly boring, mostly reviewing financial information, and that he had not been paying much attention to the conversation, instead catching up on reading the reports generated for the meeting. Smith said that during this review of the reports he noticed something that he found a little startling, and during a lull in the discussion he had asked what was intended as a rhetorical question: “How come the Report on Hours Billed and Collected Per Attorney shows that Jones (an associate who had been at the firm about two and a half years) has an average billed and collected hours of 260 hours per month—but I’ve never seen him in the office on a weekend?” Smith reported that what happened next was stunning. One of the partners, Green (with whom Jones principally worked, in civil litigation) responded with obvious affront and venom: “Why are you picking on my hardworking associate when the lazy******s in commercial practice can’t even make 200 hours a month?”
Smith reported that he had not intended to provoke this reaction, and decided—for the moment—to let the matter drop. After all, he knew that his partners wanted to get the meeting over with and go off to their golf games. However, as soon as the meeting ended, he decided that he was sufficiently troubled by Green’s strange and unexpected reaction that he would perform what he described as a “mini-audit.” So he went to the firm’s accounting office and pulled some bill files on matters worked on by Jones, as well as printouts of Jones’s recorded time sheets. At first blush, he said, all appeared to be in order; the time on the bills matched the time recorded on the printouts. But he was still unaccountably troubled and decided to perform one more check. At random, he selected a bill with extensive time charges for Jones’s work and went to the file room to compare the file with the bill. On the bill he noted a two-day period when, on the first day, Jones had recorded several hours of work “preparing to conduct deposition,” and on the second day, six hours of work for “conducting deposition.” He pulled the deposition transcript from the file; it was very thin. He read through it; it concerned the chain of custody of some physical evidence. He remembered (from his own far-off days as an associate) that court reporters always note both the beginning and ending time of depositions in the transcript. He checked and found that the deposition (for which the client had been billed, and had paid, six hours’ work) had lasted just 35 minutes. Smith reported that although he was horrified, there was nothing more that he could do—except go home and stew—until Monday.
On Monday morning, Smith reported, he waited for Green to arrive and then immediately confronted him with the information Smith had uncovered. Green was
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“livid.” However, Smith told Green that he (Smith) was going to interview Jones, and invited Green to be present. Having no choice, Green agreed, and they called in Jones.
It was a short interview, which went roughly as follows:
SMITH: “How do you keep your time records?”
JONES: “In a clothbound diary on my desk I record, on a daily basis, the name of each client/matter on which I work. Then, at the end of the month, when the firm’s administrator comes around and tells me that she will withhold my salary check until my time is entered into the billing system, I enter my time into the system.”
SMITH: “If you only enter the name of each client/matter on a daily basis, how can you enter your time at the end of the month?”
JONES: “Oh, I go through my diary and allocate the time I recall being in the office among all of the matters I have worked on.”
SMITH: “How long has that been your practice?”
JONES: “Since I joined the firm, two and a half years ago.”
Smith terminated the interview and asked Jones to leave. He then asked Green one question: “Were you aware that this was how your associate was recording time, based on which you have been issuing bills?” Green, Smith reported, declined to answer the question.
Extracts from The Colorado Rules of Professional Conduct
Rule 1.5 — Fees
(a) A lawyer shall not make an agreement for, charge, or collect an unreasonable fee or an unreasonable amount for expenses. The factors to be considered in determining the reasonableness of a fee include the following:
(1) the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly;
(2) the likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer;
(3) the fee customarily charged in the locality for similar legal services;
(4) the amount involved and the results obtained;
(5) the time limitations imposed by the client or by the circumstances;
(6) the nature and length of the professional relationship with the client;
(7) the experience, reputation, and ability of the lawyer or lawyers performing the services; and
(8) whether the fee is fixed or contingent.
(b) When the lawyer has not regularly represented the client, the basis or rate of the fee and expenses shall be communicated to the client, in writing, before or within a reasonable time after commencing the representation. Any changes in the basis or rate of the fee or expenses shall also be promptly communicated to the client, in writing.
(c) A fee may be contingent on the outcome of the matter for which the service is rendered, except in a matter in which a contingent fee is otherwise prohibited. A contingent fee agreement shall meet all of the requirements of Chapter 23.3 of the Colorado Rules of Civil Procedure, “Rules Governing Contingent Fees.”
(d) Other than in connection with the sale of a law practice pursuant to Rule 1.17, a division of a fee between lawyers who are not in the same firm may be made only if:
(1) the division is in proportion to the services performed by each lawyer or each lawyer assumes joint responsibility for the representation;
(2) the client agrees to the arrangement, including the basis upon which the division of fees shall be made, and the client’s agreement is confirmed in writing; and
(3) the total fee is reasonable.
(e) Referral fees are prohibited.
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(f) Fees are not earned until the lawyer confers a benefit on the client or performs a legal service for the client. Advances of unearned fees are the property of the client and shall be deposited in the lawyer’s trust account pursuant to Rule 1.15(f)(1) until earned. If advances of unearned fees are in the form of property other than funds, then the lawyer shall hold such property separate from the lawyer’s own property pursuant to Rule 1.15(a).
(g) Nonrefundable fees and nonrefundable retainers are prohibited. Any agreement that purports to restrict a client’s right to terminate the representation, or that unreasonably restricts a client’s right to obtain a refund of unearned or unreasonable fees, is prohibited.
Rule 1.15A. General Duties of Lawyers Regarding Property of Clients and Third Parties
(a) A lawyer shall hold property of clients or third persons that is in the lawyer’s possession in connection with a representation separate from the lawyer’s own property. Funds shall be kept in trust accounts maintained in compliance with Rule 1.15B. Other property shall be appropriately safeguarded. Complete records of such funds and other property of clients or third parties shall be kept by the lawyer in compliance with Rule 1.15D.
(b) Upon receiving funds or other property of a client or third person, a lawyer shall, promptly or otherwise as permitted by law or by agreement with the client or third person, deliver to the client or third person any funds or other property that the client or third person is entitled to receive and, promptly upon request by the client or third person, render a full accounting regarding such property.
(c) When in connection with a representation a lawyer is in possession of property in which two or more persons (one of whom may be the lawyer) claim interests, the property shall be kept separate by the lawyer until there is a resolution of the claims and, when necessary, a severance of their interests. If a dispute arises concerning their respective interests, the portion in dispute shall be kept separate by the lawyer until the dispute is resolved. The lawyer shall promptly distribute all portions of the property as to which the interests are not in dispute.
(d) The provisions of Rule 1.15B, Rule 1.15C, Rule 1.15D, and Rule 1.15E apply to funds and other property, and to accounts, held or maintained by the lawyer, or caused by the lawyer to be held or maintained by a law firm through which the lawyer renders legal services, in connection with a representation.
Rule 1.15B. Account Requirements
(a) Every lawyer in private practice in this state shall maintain in the lawyer’s own name, or in the name of the lawyer’s law firm:
(1) A trust account or accounts, separate from any business and personal accounts and from any other fiduciary accounts that the lawyer or the law firm may maintain as executor, guardian, trustee, or receiver, or in any other fiduciary capacity, into which the lawyer shall deposit, or shall cause the law firm to deposit, all funds entrusted to the lawyer’s care and any advance payment of fees that have not been earned or advance payment of expenses that have not been incurred. A lawyer shall not be required to maintain a trust account when the lawyer is not holding such funds or payments.
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(2) A business account or accounts into which the lawyer shall deposit, or cause the law firm to deposit, all funds received for legal services. Each business account, as well as all deposit slips and all checks drawn thereon, shall be prominently designated as a “business account,” an “office account,” an “operating account,” or a “professional account,” or with a similarly descriptive term that distinguishes the account from a trust account and a personal account.
(b) One or more of the trust accounts may be a Colorado Lawyer Trust Account Foundation (“COLTAF”) account. A “COLTAF account” is a pooled trust account for funds of clients or third persons that are nominal in amount or are expected to be held for a short period of time, and as such would not be expected to earn interest or pay dividends for such clients or third persons in excess of the reasonably estimated cost of establishing, maintaining, and accounting for trust accounts for the benefit of such clients or third persons. Interest or dividends paid on a COLTAF account shall be paid to COLTAF, and the lawyer and the law firm shall have no right or claim to such interest or dividends.
(c) Each trust account, as well as all deposits slips and checks drawn thereon, shall be prominently designated as a “trust account,” provided that each COLTAF account shall be designated as a “COLTAF Trust Account.” A trust account may bear any additional descriptive designation that is not misleading.
(d) Except as provided in this paragraph (d), each trust account, including each COLTAF account, shall be maintained in a financial institution that is approved by the Regulation Counsel pursuant to Rule 1.15E. If each client and third person whose funds are in the account is informed in writing by the lawyer that Regulation Counsel will not be notified of any overdraft on the account, and with the informed consent of each such client and third person, a trust account in which interest or dividends are paid to the clients or third persons need not be in an approved institution.
(e) Each trust account, including each COLTAF account, shall be an interest-bearing, or dividend-paying, insured depository account; provided that, with the informed consent of each client or third person whose funds are in the account, an account in which interest or dividends are paid to clients or third persons need not be an insured depository account. For the purpose of this provision, an “insured depository account” shall mean a government insured account at a regulated financial institution, on which withdrawals or transfers can be made on demand, subject only to any notice period which the financial institution is required to reserve by law or regulation.
(f) The lawyer may deposit, or may cause the law firm to deposit, into a trust account funds reasonably sufficient to pay anticipated service charges or other fees for maintenance or operation of the account. Such funds shall be clearly identified in the lawyer’s or law firm’s records of the account.
(g) All funds entrusted to the lawyer shall be deposited in a COLTAF account unless the funds are deposited in a trust account described in paragraph (h) of this Rule. The foregoing requirement that funds be deposited in a COLTAF account does not apply in those instances where it is not feasible for the lawyer or the law firm to establish a COLTAF account for reasons beyond the control of the lawyer or law firm, such as the unavailability in the community of a
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financial institution that offers such an account; but in such case the funds shall be deposited in a trust account described in paragraph (h) of this Rule.
(h) If funds entrusted to the lawyer are not held in a COLTAF account, the lawyer shall deposit, or shall cause the law firm to deposit, the funds in a trust account that complies with all requirements of paragraphs (c), (d), and (e) of this Rule and for which all interest earned or dividends paid (less deductions for service charges or fees of the depository institution) shall belong to the clients or third persons whose funds have been so deposited. The lawyer and the law firm shall have no right or claim to such interest or dividends.
(i) If the lawyer or law firm discovers that funds of a client or third person have mistakenly been held in a COLTAF account in a sufficient amount or for a sufficiently long time so that interest or dividends on the funds being held in such account exceeds the reasonably estimated cost of establishing, maintaining, and accounting for a trust account for the benefit of such client or third person (including without limitation administrative costs of the lawyer or law firm, bank service charges, and costs of preparing tax reports of such income to the client or third person), the lawyer shall request, or shall cause the law firm to request, a refund from COLTAF, for the benefit of such client or third persons,of the interest or dividends in accordance with written procedures that COLTAF shall publish and make available through its website and shall provide to any lawyer or law firm upon request.
(j) Every lawyer or law firm maintaining a trust account in this state shall, as a condition thereof, be conclusively deemed to have consented to the reporting and production requirements by financial institutions mandated by Rule 1.15E and shall indemnify and hold harmless the financial institution for its compliance with such reporting and production requirement.
Rule 1.15C. Use of Trust Accounts
(a) A lawyer shall not use any debit card or automated teller machine card to withdraw funds from a trust account. Cash withdrawals from trust accounts and checks drawn on trust accounts payable to “Cash” are prohibited. All trust account funds intended for deposit shall be deposited intact without deductions or “cash out” from the deposit, and the duplicate deposit slip that evidences the deposit shall be sufficiently detailed to identify each item deposited.
(b) All trust account withdrawals and transfers shall be made only by a lawyer admitted to practice law in this state or by a person supervised by such lawyer. Such withdrawals and transfers may be made only by authorized bank or wire transfer or by check payable to a named payee. Only a lawyer admitted to practice law in this state or a person supervised by such lawyer shall be an authorized signatory on a trust account.
(c) No less than quarterly, a lawyer admitted to practice law in this state or a person supervised by such a lawyer shall reconcile the trust account records both as to individual clients or other persons and in the aggregate with the bank statements issued by the bank in which the trust account is maintained.
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Rule 1.15D. Required Records
(a) A lawyer shall maintain, or shall cause the lawyer’s law firm to maintain, in a current status and shall retain or cause the lawyer’s law firm to retain for a period of seven years after the event that they record:
(1) An appropriate record-keeping system identifying each separate person for whom the lawyer or the law firm holds funds or other property and adequately showing the following:
(A) For each trust account the date and amount of each deposit; the name and address of each payor of the funds deposited; the name and address of each person for whom the funds are held and the amount held for the person; a description of the reason for each deposit; the date and amount of each charge against the trust account and a description of the charge; the date and amount of each disbursement; and the name and address of each person to whom the disbursement is made and the amount disbursed to the person.
(B) For each item of property other than funds, the nature of the property; the date of receipt of the property; the name and address of each person from whom the property is received, the name and address of each person for whom the property is held and, if interests in the property are held by more than one person, a statement of the nature and extent of each person’s interest in the property, to the extent known; a description of the reason for each receipt; the date and amount of each charge against the property and a description of the charge; the date of each delivery of the property by the lawyer; and the name and address of each person to whom the property is delivered by the lawyer.
(2) Appropriate records of all deposits in and withdrawals from all other bank accounts maintained in connection with the lawyer’s legal services, specifically identifying the date, payor, and description of each item deposited as well as the date, payee, and purpose of each disbursement;
(3) Copies of all written communications setting forth the basis or rate for the fees charged by the lawyer as required by Rule 1.5(b), and copies of all writings, if any, stating other terms of engagement for legal services;
(4) Copies of all statements to clients and third persons showing the disbursement of funds or the delivery of property to them or on their behalves;
(5) Copies of all bills issued to clients;
(6) Records showing payments to any persons, not in the lawyer’s regular employ, for services rendered or performed; and
(7) Paper copies or electronic copies of all bank statements and of all canceled checks.
(b) The records required by this Rule shall be maintained in accordance with one or more of the following recognized accounting methods: the accrual method, the cash basis method, or the income tax method. All such accounting methods shall be consistently applied. Bookkeeping records may be maintained by computer provided they otherwise comply with this Rule and
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provided further that printed copies can be made on demand in accordance with this Rule. They shall be located at the principal Colorado office of the lawyer or of the lawyer’s law firm.
(c) Upon the dissolution of a law firm, the lawyers who rendered legal services through the law firm shall make appropriate arrangements for the maintenance or disposition of records and client files in accordance with this Rule and Rule 1.16A. Upon the departure of a lawyer from a law firm, the departing lawyer and the lawyers remaining in the law firm shall make appropriate arrangements for the maintenance or disposition of records and client files in accordance with this Rule and Rule 1.16A.
(d) Any of the records required to be kept by this Rule shall be produced in response to a subpoena duces tecum issued by the Regulation Counsel in connection with proceedings pursuant to C.R.C.P. 251. When so produced, all such records shall remain confidential except for the purposes of the particular proceeding, and their contents shall not be disclosed by anyone in such a way as to violate the attorney-client privilege of the lawyer’s client.
Rule 1.15E. Approved Institutions
(a) This Rule applies to each trust account that is subject to Rule 1.15B, other than a trust account that is maintained in other than an approved financial institution pursuant to the second sentence of Rule 1.15B(d).
(b) Each trust account shall be maintained at a financial institution that is approved by the Regulation Counsel, pursuant to the provisions and conditions contained in this Rule. The Regulation Counsel shall maintain a list of approved financial institutions, which it shall renew not less than annually. Offering a trust account or a COLTAF account is voluntary for financial institutions.
(c) The Regulation Counsel shall approve a financial institution for use for lawyers’ trust accounts, including COLTAF accounts, if the financial institution files with the Regulation Counsel an agreement, in a form provided by the Regulation Counsel, with the following provisions and on the following conditions:
(1) The financial institution does business in Colorado;
(2) The financial institution agrees to report to the Regulation Counsel in the event a properly payable trust account instrument is presented against insufficient funds, irrespective of whether the instrument is honored. That agreement shall apply to all branches of the financial institution and shall not be canceled except on thirty-days’ notice in writing to the Regulation Counsel.
(3) The financial institution agrees that all reports made by the financial institution shall be in the following format: (i) in the case of a dishonored instrument, the report shall be identical to the overdraft notice customarily forwarded to the depositor; (ii) in the case of an instrument that is presented against insufficient funds but that is honored, the report shall identify the financial institution, the lawyer or law firm for whom the account is maintained, the account number, the date of presentation for payment, and the date paid, as well as the amount of the overdraft created thereby. Report of a dishonored instrument shall be made simultaneously with,
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and within the time provided by law for, notice of dishonor, if any. If no such time is provided by law for notice of dishonor, or if the financial institution has honored an instrument presented against insufficient funds, then the report shall be made within five banking days of the date of presentation of the instrument.
(4) The financial institution agrees to cooperate fully with the Regulation Counsel and to produce any trust account records on receipt of a subpoena for the records issued by the Regulation Counsel in connection with any proceeding pursuant to C.R.C.P. 251. Nothing herein shall preclude a financial institution from charging a lawyer or law firm for the reasonable cost of producing the reports and records required by this Rule, but such charges shall not be a transaction cost to be charged against funds payable to the COLTAF program.
(5) The financial institution agrees to cooperate with the COLTAF program and shall offer a COLTAF account to any lawyer or law firm who wishes to open one.
(6) With respect to COLTAF accounts, the financial institution agrees:
(A) To remit electronically to COLTAF monthly interest or dividends, net of allowable reasonable COLTAF fees as defined in subparagraph (c)(10) of this Rule, if any; and
(B) To transmit electronically with each remittance to COLTAF a statement showing, as to each COLTAF account, the name of the lawyer or law firm on whose account the remittance is sent; the account number; the remittance period; the rate or rates of interest or dividends applied; the account balance or balances on which the interest or dividends are calculated; the amount of interest or dividends paid; the amount and type of fees, if any, deducted; the amount of net earnings remitted; and such other information as is reasonably requested by COLTAF.
(7) The financial institution agrees to pay on any COLTAF account not less than (i) the highest interest or dividend rate generally available from the financial institution on non- COLTAF accounts when the COLTAF account meets the same eligibility requirements, if any, as the eligibility requirement for non-COLTAF accounts; or (ii) the rate set forth in subparagraph (c)(9) below. In determining the highest interest or dividend rate generally available from the financial institution to its non-COLTAF customers, the financial institution may consider factors customarily considered by the financial institution when setting interest or dividend rates for its non-COLTAF accounts, including account balances, provided that such factors do not discriminate between COLTAF accounts and non-COLTAF accounts. The financial institution may choose to pay on a COLTAF account the highest interest or dividend rate generally available on its comparable non-COLTAF accounts in lieu of actually establishing and maintaining the COLTAF account in the comparable highest interest or dividend rate product.
(8) A COLTAF account may be established by a lawyer or law firm and a financial institution as:
(A) A checking account paying preferred interest rates, such as market-based or indexed rates;
8
(B) A public funds interest-bearing checking account, such as an account used for other non- profit organizations or government agencies;
(C) An interest-bearing checking account, such as a negotiable order of withdrawal (NOW) account, or business checking account with interest; or
(D) A business checking account with an automated investment feature in overnight daily financial institution repurchase agreements or money market funds. A daily financial institution repurchase agreement shall be fully collateralized by U.S. Government Securities (meaning U.S. Treasury obligations and obligations issued or guaranteed as to principal and interest by the United States government) and may be established only with an approved institution that is “well-capitalized” or “adequately capitalized” as those terms are defined by applicable federal statutes and regulations. A “money market fund” is a fund maintained as a money market fund by an investment company registered under the Investment Company Act of 1940, as amended, which fund is qualified to be held out to investors as a money market fund under Rules and Regulations adopted by the Securities and Exchange Commission pursuant to said Act. A money market fund shall be invested solely in U.S. Government Securities, or repurchase agreements fully collateralized by U.S. Government Securities, and, at the time of the investment, shall have total assets of at least two hundred fifty million dollars ($250,000,000).
(9) In lieu of a rate set forth in paragraph (c)(7)(i), the financial institution may elect to pay on all deposits in its COLTAF accounts, a benchmark rate, which COLTAF is authorized to set periodically, but not more frequently than every six months, to reflect an overall comparable rate offered by financial institutions in Colorado net of allowable reasonable COLTAF fees. Election of the benchmark rate is optional, and financial institutions may choose to maintain their eligibility by paying the rate set forth in paragraph (c)(7)(i).
(10) “Allowable reasonable COLTAF fees” are per-check charges, per-deposit charges, fees in lieu of minimum balances, federal deposit insurance fees, sweep fees, and reasonable COLTAF account administrative fees. The financial institution may deduct allowable reasonable COLTAF fees from interest or dividends earned on a COLTAF account, provided that such fees (other than COLTAF account administrative fees) are calculated and imposed in accordance with the approved institution’s standard practice with respect to comparable non-COLTAF accounts. The financial institution agrees not to deduct allowable reasonable COLTAF fees accrued on one COLTAF account in excess of the earnings accrued on the COLTAF account for any period from the principal of any other COLTAF account or from interest or dividends accrued on any other COLTAF account. Any fee other than allowable reasonable COLTAF fees are the responsibility of, and the financial institution may charge them to, the lawyer or law firm maintaining the COLTAF account.
(11) Nothing contained in this Rule shall preclude the financial institution from paying a higher interest or dividend rate on a COLTAF account than is otherwise required by the financial institution’s agreement with the Regulation Counsel or from electing to waive any or all fees associated with COLTAF accounts.
9
(12) Nothing in this Rule shall be construed to require the Regulation Counsel or any lawyer or law firm to make independent determinations about whether a financial institution’s COLTAF account meets the comparability requirements set forth in paragraph (c)(7). COLTAF will make such determinations and at least annually will inform Regulation Counsel of the financial institutions that are in compliance with the comparability provisions of this Rule.
(13) Each approved financial institution shall be immune from suit arising out of its actions or omissions in reporting overdrafts or insufficient funds or producing documents under this Rule. The agreement entered into by a financial institution with the Regulation Counsel shall not be deemed to create a duty to exercise a standard of care and shall not constitute a contract for the benefit of any third parties that may sustain a loss as a result of lawyers overdrawing lawyer trust accounts.
E-mail Message to Anthony Davis, 08/05/01 Regarding $5.00 Invoice:
I really enjoyed your seminar. It was very informative and entertaining. I especially enjoyed your discussion of hourly billing. This was one of my pet peeves throughout my 35 years as a CPA, both as a partner and managing partner in a large local firm and as a partner in a national firm.
Many years ago, when computerized hourly billing was just coming into vogue, my largest client received an invoice labeled as "general legal services", in the amount of $5.00. The attorney involved was outside general counsel for the client, and the usual monthly billing ran in the 2-3,000 range. For some reason, the $5 billing, because it was so miniscule, caught everyone's attention. (I should point out that the attorney rented space in my client's office building.)
Since the company principals were both on vacation during the month for which the billing was sent, and the attorney involved was also out for most of the month, the question arose as to what service had been rendered for $5. No one in the company could think of even having spoken to the attorney.
Finally, the corporate controller remembered that the only time he had seen the attorney was early in the month, when they were at adjacent urinals in the men's room. Apparently the controller made the mistake of making a business or legal related comment!
Obviously, there were other problems here than just hourly billing, including not going over the bills before they are mailed and not supervising the procedure, but the amount of damage it did to the attorney's credibility was significant.
What if Apple Stores Billed by the Hour? Lessons for Law Firms
By Jay Shepherd The Client Revolution July 2009
The renowned customer service at Apple Stores will never been a good model for a top-notch law firm – learn why!
Apple Stores are known for their knowledgeable personnel and excellent customer service. Not coincidentally, those are also the hallmarks of outstanding law firms. This month, The Legal Mac features an article from Jay Shepherd which questions what it would be like if these stores were run like law firms — and by extension, why law firms can’t be run more like Apple Stores. It is a very thought-provoking article, and I hope you enjoy it. — Ben Stevens, The Mac Lawyer
A few weeks ago, I was out to dinner with my wife and girls. Nearby was an Apple Store, so while we waited, I scurried over for a quick purchase. I needed to get a new antiglare plastic sheet for my iPhone. Keep in mind, I was going to purchase what is probably the least expensive item in the Apple Store.
Anyway, I got to the store, made my way over to the iPhone accessories (there are about six million of them), grabbed a screen protector, and took a moment to see if there’s anything else I need (“need” being a vague term). At this time, a store representative, Anil (or it could have been Pete or Algernon — I don’t remember the names, so I’m invoking dramatic license and inventing them) came over and asked if I needed any help. This occurred not in a hovering, vulturelike, typical salesperson way, but rather in an “I’m-here-to-help” way.
“No,” I said, holding up my screen protector and my iPhone. “I just needed to get this.” He replied, “Great. But that particular protector is for the original iPhone. You have an iPhone 3G. You need this one.” Of course, he was right, and I swapped protectors with the correct one that he handed me. He then led me over to Angelina (license again), who took my credit card and quickly rang me up on her little handheld device. She asked me if I found everything I needed, and I confirmed that I did.
At that point, Angelina pointed to the screen protector and asked, “Do you want help putting that on?” If you’ve ever tried to put an adhesive sheet of plastic onto a piece of glass, it’s tricky. If you stick it on too early, you end up misaligned and, well, stuck. “Sure,” I said. She then called Pam over, telling me that Pam was the best screen-protector sticker-onner.
Pam led me over to another table. She took my iPhone and gently and carefully cleaned the glass face. Then, with the movements of a nimble surgeon, she peeled the backing off the protector, lined it up, and lowered it to about a millimeter above the glass. Then — and this is the cool part — she just dropped it that last millimeter. The protector floated down and landed evenly on the screen.
Pam then took a card and squeegeed the protector so that no bubbles would form under it. And that was it. My screen protector was perfectly installed, my receipt was being emailed to me, and
the whole process took about six minutes from start to finish. I returned to my family just in time to sit down and order dinner.
So to recap: three Apple Store team members waited on me, all working together to make the smallest possible Apple Store sale. No one cross-sold me anything. I didn’t get snookered into a new Apple Cinema Display or a new MacBook Air. Three employees: $14.95 in sales revenue.
Now what if the Apple Store was run like a law firm? What if the Apple Store billed by the hour?
First of all, Anil, Angelina, and Pam would all use timesheets to keep track of the work they do each day. They would be required to divide up and account for their time in tenth-of-an-hour increments. I only spent about six minutes in the store, but each one of them would have to record his or her interaction with me. Since six minutes would be the smallest amount possible, each would record a “0.1” on that day’s timesheet.
Anil would write, “Conference with client in regards to optimal protection for said client’s iPhone 3G screen, to wit: a screen protector. Referral to Angelina for point-of-sale transaction … 0.1 hours.”
Angelina: “Conference with client in regards to point-of-sale transaction for one (1) screen protector for said client’s iPhone 3G (three G). Discussion in regards to additional products needed for purchase. Referral to Pam for screen-protector installation … 0.1 hours.”
And Pam: “Conference with client in regards to installation of iPhone screen protector. Cleaning and maintenance of said client’s said iPhone screen. Further conference with client in regards to having a nice evening … 0.1 hours.”
But in reality, law-firm clients resist double (or triple) billing by multiple lawyers. So firms often have to write down the time of other lawyers. In this scenario, two of the Apple team members would have had their time cut. Since only Angelina actually generated revenue (by swiping my credit card), Anil and Pam’s time would have been cut. This is ironic, since Anil (by helping me get the right protector) and Pam (by affixing it) gave me the most value.
Of course, law firms want their associates to bill as much time as possible, and they discourage nonbillable time. So if the Apple Store were run like a law firm, Anil and Pam would have been discouraged from such “nonbillable” work as helping me choose or affix an inexpensive screen protector, in favor of “billable” work like selling a new Mac Pro. If the Apple Store employees focused on selling billable hours, they wouldn’t be wasting time helping customers with little things like this.
But then again, if that had been the case, maybe I wouldn’t have returned to an Apple Store a few weeks later to buy the $2,500 MacBook Air that I wrote this article on.
In law firms where lawyers are measured by the hours they bill, they are effectively punished for nonbillable time spent helping clients. Which is why people love going to the Apple Store, and hate dealing with lawyers.
2
• • • • • • •
A coda to this story: I went to the Chestnut Hill ( Mass.) Apple Store to buy a conversion cord (USB to Ethernet) for the aforementioned MacBook Air. Tony, an Apple Store “business partner,” greeted me and offered to get the cable. In chatting with him, I happened to mention that I bought my Air about three weeks before the recent Apple Worldwide Developers Conference. At the WWDC, to my chagrin, Apple had announced a $800 price cut on the Air I had just bought. My purchase was a few days too early to qualify for the discount.
“Let me see what I can do,” Tony said.
And here I was just making small talk. I had resigned myself to unlucky bad timing; I hadn’t been asking for an exception.
A short while later, Tony had rerun my MacBook Air purchase with the $800 discount. Wow. All I can say is “wow.”
Here’s a guy who had worked there for three years, loves his job, and excels at helping people. To be sure, his help took $600 out of Apple’s sales revenue that day (you see, after receiving the discount, I bought a few more things that I wouldn’t have otherwise bought). But the bottom line is that I spend thousands of dollars with Apple each year. (Our whole law firm uses Macs and iPhones.) In the long run, Tony’s help will encourage me to spend thousands more in the future.
If Tony billed by the hour, this never would have happened.
3
Why Is This Man Smiling? Latest legal victory has LegalZoom poised for growth.
Robert Ambrogi August 2014 ABA Journal
In recent years, LegalZoom has faced lawsuits in eight states seeking to shut it down for violating state laws barring the unauthorized practice of law. But with a notable recent victory in South Carolina, and having fended off all but one of the other lawsuits, LegalZoom is anything but shutting down.
To the contrary, LegalZoom, which began offering legal forms online in 2001, is poised to significantly broaden the range of services it offers consumers and small businesses. Already it has expanded into prepaid legal services, operating plans in 41 states and the District of Columbia. Now it is looking ahead to offering a continuum of products and services, from simple forms to full-fledged legal advice, with both lawyers and nonlawyers in the mix.
“We need to continue to evolve, continue to innovate and continue to connect consumers with the services that are right for them at a price they can afford to pay,” says Chas Rampenthal, LegalZoom’s general counsel.
Meanwhile, legal ethicists such as Deborah L. Rhode, director of the Center on the Legal Profession at Stanford Law School, say it is time for the legal profession to drop efforts to shut down such companies for UPL and instead focus on how best to regulate them to protect their customers.
“With respect to LegalZoom, the train has left the station,” Rhode says. “They’ve got a couple million satisfied customers and it’s going to be really hard for anyone to shut them down.”
In a May Fordham Law Review article, Rhode and co-author Lucy Buford Ricca, executive director of the Center on the Legal Profession, argue that the legal market is primed for a total transformation driven by innovative companies such as LegalZoom. “From a regulatory perspective,” they write, “the key focus should not be blocking these innovations from the market, but rather using regulation to ensure that the public’s interests are met.”
FORMS OR ADVICE?
The nub of complaints against LegalZoom is not the self-help documents it provides, but the way it provides them. At its website, customers buy documents to form a business, register a trademark, create a will and address other common legal needs. Questionnaires guide customers through creation of the document, after which LegalZoom employees review the answers for spelling, consistency and completeness.
Some, including the North Carolina State Bar, maintain that these elements of guidance and review transform LegalZoom from simple document provider to legal adviser. Others, such as Richard Granat, co-chair of the ABA eLawyering Task Force and president and CEO of DirectLaw Inc., contend such arguments are nothing more than “an effort to protect lawyers’ incomes.”
2
In 2008 the North Carolina bar issued LegalZoom a cease-and-desist letter. The matter made its way to North Carolina business court where, last March, a judge put off deciding the UPL issue, saying he required additional evidence to fully understand LegalZoom’s process for preparing complex documents.
Two weeks earlier, the high court in neighboring South Carolina gave LegalZoom a green light to operate.
Adopting the findings of a special referee it appointed to investigate the company, the court held that LegalZoom’s practices “do not constitute the unauthorized practice of law.”
The referee compared the functionality of LegalZoom’s software to a scrivener who transcribes information without giving advice or consultation: “LegalZoom’s software acts at the specific instruction of the customer and records the customer’s original information verbatim, exactly as it is provided by the customer. The software does not exercise any judgment or discretion, but operates automatically in the same fashion as a ‘mail merge’ program.”
Previously, LegalZoom settled UPL suits in California, Missouri and Washington. Lawsuits in Alabama and Ohio were dismissed. Besides North Carolina, the company still faces a challenge in Arkansas, where the matter is in arbitration.
ECOSYSTEM OF LEGAL SERVICES
Even as LegalZoom has battled claims of unauthorized practice, it has moved closer to actual practice. Launching its own prepaid legal services plans was one step; another was to develop practice management systems to help the lawyers in these plans deliver services more efficiently.
But Rampenthal sees his company spurring broader changes in the legal services market, moving it toward an “ecosystem” that will more closely resemble the way medicine is delivered.
“You don’t walk right in and see the doctor,” he explains. “You see nurses and technicians and practitioners. The doctor relies on those other professionals, and the system lets the doctors do what they do best.” Paralegals and other licensed legal professionals will provide assistance and advice for certain matters and refer more complex matters to attorneys.
LegalZoom declined to disclose its revenues. As of August 2012, it had served some 2 million customers, according to a prospectus it filed with the U.S. Securities and Exchange Commission in advance of a planned initial public offering. In 2011, it brought in revenues of $156 million and was on track to bring in close to $200 million in 2012. Last January, it dropped its IPO after selling $200 million in equity to the private equity firm Permira.
PROTECTING THE PUBLIC
With LegalZoom’s train steaming along at full throttle, and given other changes in the legal industry, the unauthorized practice debate is no longer relevant, many say.
“The best approach is to recognize that these new players are providing a kind of legal service,” says Andrew M. Perlman, director of the Institute on Law Practice Technology and Innovation at
3
Suffolk University Law School. “What we call it is less important than what we do with them. We need to find a way to appropriately regulate what they do so that the public is protected.”
Regulation, Perlman believes, would encourage innovation in the delivery of legal services by eliminating the legal uncertainties faced by companies such as LegalZoom. “The more we resolve these questions through regulation, the more we’ll free up innovation.”
However, Milan Markovic, associate professor at Texas A&M University School of Law, questions the premise that companies such as LegalZoom are needed because of the failure of the legal profession to meet the needs of middle-income consumers. “My problem is we have almost no data to support that, and the types of services LegalZoom offers actually can be obtained,” he says, sometimes at even lower cost.
Markovic would prefer that bar associations accept we are in a do-it-yourself age and directly provide to consumers more of the documents and services they want. To the extent evidence can substantiate legitimate failures in the legal services market, however, Markovic would support regulatory or licensing schemes that would allow for alternatives.
No one can say whether LegalZoom has seen the last of these UPL suits. But in its 2012 SEC filing, it noted the lawsuits then pending and added: “We anticipate that we will continue to be the target for such lawsuits in the future.”
This article originally appeared in the August 2014 issue of the ABA Journal with this headline:
y
~~..~~.
Mwr
Oo E:~vre f2e~inr~sis
• ~ •
m rovin t e ro to 11 an
ana in t o s s o aw ractice:
e~ oo ~zt ee ~~~zn eY~ents,
z in , ~n o ectzonsBy Anthony E. Davis, Moye, Giles, O Keefe, Uermeire eT' Gorrell LLP dnd
Julianne Spl~zin, Chubb eT' Son
Law firm risk management can be reduced to two positive principles
improving service to clients and making law firms (and individual lawyers) more
profitable. Nowhere do these positive Moms align more closely than in the man-
agement of fees, billings, and collections. But there are enormous risks and obsta-
cles to achieving these goals in the contemporary environment of law practice.
A principal obstacle is created by economic good times. Until recently, so
many firms had been prospering as never before that some lawyers did not see a
particularly urgent need for increased profitability. Currently, however, many law
firms are seeing reduced profits as some clients pay bills later than usual and oth-
ers fail to pay at all. In this regard, as firms look to trim their expenses, the lessons
of risk management may be salutary.
Fees and fee arrangements represent firms' lifeblood but also pose serious risks if the
How to Better Manage arrangements are inappropriate or are just badly managed. By managing their client relations andthe Billing Process ................................ 2
establishin ositive client relationshi s initially, firms will have fewer difficulties with billin andgp p gPreventing Collection collections. By overseeing the billing process, firms can avoid the nightmares that follow the dis-Problems.................................................. 6
covert' of billing or reimbursement frauds. By managing the collection process, and particularlyThe Alternatives to by following through on client intake management and enforcement of withdrawal clauses inHourly filling .......................................... 8
engagement letters, firms can avoid running up large overdue balances and can thereby make
fee suits largely avoidable. Finally, firms should consider alternatives to time-charging, both to
improve client relations generally and to improve profitability. In all these areas, firms that man-
age the billing process with care and diligence can necessarily meet the stated initial goals: serve
clients better and increase profitability.
This issue of Lawyer to Ldwye~ consists of three articles that focus on three aspects of the man-
agement of fees. In the first article, we consider what is required if firms wish to manage the
billing (and timekeeping) function. In the second article, we review the thorny topic of collec-
tions, focusing both on the reasons the golden rule is "Never sue a client for fees" and on howCHUBB PROFESSIONAL
Chubb Group of Insurance Companies firms can avoid the need to do so. In the concluding article, we explore why and how firms
can benefit from adopting alternatives to time-charging.
Reprinted With Permission. All Rights Reserved.
ow to ester ana et e 1 in rocess
At the 1998 Annual Meeting of the American Bar Associa-
tion's Center for Professional Responsibility, during a panel
devoted to the phenomenon of billing fraud, a speaker distrib-
uted achart listing thirty-five cases reported in just the previous
five years in which lawyers had been convicted of billing fraud
involving sums exceeding $100,000. Preventing such fraud,
however, is not simply a matter of identifying dishonest lawyers;
it is also about effectively managing the time-recording and
billing processes.
Fraud is not the only consequence of inadequate manage-
ment of the billing process. Indeed, the most common effects of
billing problems are fee disputes and disgruntled clients. When
lawyers send bills on an infrequent and irregular basis, or charge
clients for expenses that look like typical overhead costs, or issue
bills in amounts that exceed estimates previously given, clients
are likely to be unhappy. Unhappy clients are more likely to dis-
pute bills and even sue for malpractice.
When billing improprieties of any kind are detected, law
firms face potentially serious problems, including:
Criminal prosecution of the lawyers) involved.
Professional discipline of the lawyers) involved and
perhaps the law firm as a whole where the violation
stems from a lack of adequate supervision.
Handling the affected clients.
Suits brought by clients disputing fees and, in some
cases, alleging malpractice.
Dealing with the lawyers) involved.
Adverse publicity.
As any lawyer who has lived through the experience of a
firm faced with this assortment of difficulties will confirm, two
stand head and shoulders above the others adverse publicity
and the combined financial impact of having to refund money
to clients and losing clients. Indeed, although firms routinely
survive these situations, there is a real risk that the discovery of
billing impropriety will cause a law firm to collapse. A signifi-
cant number of the firm's partners may conclude that the only
way to disassociate themselves from the objectionable activities
is to leave the firm entirely and, if enough partners make that
decision, the firm inevitably collapses.
Many cases of billing improprieties, as well as outright
frauds, have their roots in at least one of four management fail-
ures: first, the failure to manage timekeeping, recording, and
entry procedures; second, the failure to manage the client's mat-
ter to m~imize efficiency in the delivery of professional services;
third, the failure to manage or oversee the issuance of bills; and
fourth, the failure to manage expenses both charging costs to
clients and reimbursing the lawyers claiming to have made the
disbursements.
ANTHONY E. DAVIS is a Partner at Moye, Giles, 0"Keefe,
Vermeire &Correll LLP, practicing law in New York and Col-
orado, advising lawyers and law firms on legal profession and
legal ethics issues and in the area of law firm risk management
and loss control. He is the author of numerous articles and
books, including Risk Management.' Survival Tools For Law
Firms and The Essential Formbook: Comprehensive Manage-
ment Tools for Lawyers, published by the American Bar Associ-
ation. He received his law degree from Cambridge University
and an LL.M. from New York University School of Law. He is
admitted in New York and Colorado, and as a solicitor (non-
practicing) in England.
J U L I A N N E S P LA I N ,Assistant Vice President and Loss Pre-
vention Counsel at Chubb &Son, Inc., in Simsbury, Connecticut,
provides loss prevention services to Chubb's insured law firms,
accounting firms, and other professionals. She also serves as
the editor of Chubb's publication Lawyer to Lawyer.
:................................................................................... :
Parts of these articles are excerpted from The Essential Form-
book: Comurehensive Management Tools for Lawyers, by GaryA. Munneke and Anthony E. Davis. Copyright 2001 American
Bar Association. Reprinted with permission. ....................................................................................:
Reprinted With Permission. All Rights Reserved.
There is a parallel set of affirmative reasons lawyers should
spend time and effort on actively managing the billing process:
first, good billing practices help advance good communication
with clients; second, well-crafted bills are more likely to he paid;
and third, clients who are satisfied that they are being treated
appropriately in the billing process are better sources of new
business than are aggrieved clients.
On an individual lawyer level, billing problems can derive
from simple sloppiness or deliberate malfeasance. In firms of
more than one lawyer, these problems are largely the result of
too much trust in, and too little verification of, the ways in
which lawyers handle their clients' matters.
The most obvious, but still surprisingly frequent, source of
billing disputes is inaccurate time-recording, even when no
fraud is involved or alleged. This is possible only when the over-
sight system is weak, as it often is. For instance, if lawyers
whether partners or associates can get away with not handing
in their time entries until the end of the month (four or five
weeks after the first entry) or even delaying for two or three
weeks, what can begin as procrastination ("I know what I did
today I'll enter it tomorrow") quickly slides into exaggeration
("I know I've worked my off this month I must have done
300 hours") . There are, further, many instances in both
recorded fee disputes and criminal fraud cases in which lawyers
reported that it was "firm practice" or that they were "told when
I joined the firm" that it was customary to "pad" bills or even
that "clients expect it."1 The practice in some firms of setting
minimum hourly quotas for lawyers clearly exacerbates the dan-
gers, especially when an individual is placed in a position in
which sufficient work is not available. Then, even if the hours
themselves are not exaggerated, it is inevitable that "work
expands to fill the time available." Bills based on inaccurate time
records will, eventually and inevitably, lead to disputes with
clients, at a minimum.
Firms confronted with circumstances of improper billing or
even outright fraud have two choices: (1) do nothing (the
"ostrich defense") or (2) meet with all affected clients. The
ostrich defense is extremely risky. If anyone discovers and
reports a billing problem after the firm has gained knowledge of
it and fails to act, all those with knowledge may be brought in
as accessories after the fact.
.....................................................................................1 See, e.g., Lisa G. Lerman, Blue-Chip Bilking.• Regulation of Billing and Expense
Fraud by Lawyers, 12 Geo. J. Legal Ethics 205, 261-62 (1999).
"...there is ~z redl risk that the
discovery of billing
impropriety will cause d
law firm to collapse. "
Accordingly, most firms opt to deal with the affected clients.
This requires that the firm:
Confess the problem.
Advise the clients of their right to consult with separate
counsel.
Offer to have an independent audit of all affected bills
(paid for, of course, by the firm) .
Try to reach a compromise fee that will be acceptable.
Beg the clients to stay with the firm and probably
offer a discount for future services to help retain the
clients.
In addition, the firm will have to deal with the lawyers
involved, either retraining them in timekeeping practices or
ending the firm's association with them. All solutions involve
costs in time and financial resources as well as impairment of
firm morale.
Improving M~zn~geYnent of the Billing Process
The following are six steps to improved billing practices.
1. Establish policies regarding accuracy. Firms need to
express clear policies regarding the requirement of accuracy in
timekeeping and recording. Policies that set requirements on
minimum hours to be billed to clients create an implicit pres-
sure on attorneys to "pad" their bills; therefore, we believe that
firms should avoid such policies. If a firm believes that work-
level standards based on time spent working are necessary to
measure performance or productivity, these standards should
not be tied to billable time but should be based on other
criteria.
Reprinted With Permission. All Rights Reserved.
2. Enforce frequent reporting. Firms need to enforce fre-
quent (preferably daily) reporting and must not tolerate
exceptions. Some firms use a system of financial penalties, and
others use financial incentives to force or encourage compliance
with these strict requirements. Software tools can assist in mak-
ing this process smooth and easy to comply with, but oversight
and enforcement are necessary to provide verification of com-
pliance. If these requirements prove burdensome, they should
be viewed as a necessary cost of using time itself as the basis for
billing. Individual lawyers need to maintain the habit of billing
"early and often." Regular and frequent billing keeps the size of
individual bills more manageable from the client's perspective. It
also enables client questions to surface while the work done is
fresh in both sides' memories and before the amount in dispute
is so great that easy resolution is elusive.
`:..firms mdy find that the time
sent mdndging their billing
process is the most productive Yndndgement
time they dre likely to spend. "
3. Independently review the billing process. Firms also need
to monitor the billing process. Although this does not require
oversight of every bill issued, it does mean that sufficient inde-
pendent review needs to take place to ensure that billing impro-
prieties are certain to be discovered, so as to deter (and, hope-
fully, eliminate) such occurrences. The same principles hold true
for client disbursements: There is no substitute for adequate
internal audit systems and independent review and monitoring
of all expense claims, both for expenses reimbursed to the firm's
lawyers and expenses billed to clients.
It is notable that, although many billing fraud cases also
involve billing entries for disbursements, a number of frauds
have occurred involving lawyers who were dissatisfied with their
compensation levels and who took extra funds in the form of
improper expense claims. This type of fraud can involve
improper charging of items to client accounts or improper reim-
bursement claims to the firm for expenses incurred, such as
travel or entertainment for the lawyer's family, often under the
guise of entertaining clients. Although thefts from the firm are
less destructive than fraud committed against clients, they are
nevertheless hugely embarrassing, and firms rarely avoid signifi-
cant adverse publicity when they occur. Verification that appro-
priate procedures are being followed is a small price to pay to
avoid these situations.
4. Draft bills that appeal to clients. Bills should clearly
describe and explain the value of the services rendered. The
greatest mistake that lawyers make is that, instead of describing
the value of the services rendered (i.e., how the services assisted
the client in moving toward the objective for which the lawyer
was engaged), most bills describe how the lawyers spent their
time. In most cases, it is a fundamental misconception that
clients care about how lawyers spend their time. The only thing
clients care about is reaching the desired objective as efficiently
as possible. If bills are always crafted to describe the progress
made toward accomplishing the client's goals and objectives, the
client will be informed about the state of the matter and, as a
result, will want to pay promptly to encourage the lawyer to
make more progress in the next billing period.
5. Avoid billing for overhead items. Whenever possible,
lawyers should forego billing clients for any disbursements
related to ordinary office overhead. Only with respect to third-
party expenses (stenographers, travel expenses, filing fees, etc.) is
billing, or seeking to have clients directly pay, advisable. Numer-
ous bar association ethics opinions, including the American Bar
Association (ABA) Committee on Ethics and Professional
Responsibility Formal Opinion 93-379 (Dec. 6, 1993), declare
it is peg se improper for a lawyer to make a profit from charges
for normal office operating expenses (photocopying, telephone,
etc.) unless the lawyer and the client agree to pricing schedules
at the outset of the engagement. In the absence of a specific
agreement, if these items are going to be billed, they must be
billed at cost.
One aspect of this issue is billing for computer-assisted legal
research (CALR) . In cases regarding fee awards, several courts
have held that CALR expense is an element of legal fees rather
than a separately reimbursable expense or cost and, therefore,
such expenses should be added to or included within the legal
fees, not itemized separately.2 Thus, a lawyer itemizing a CALK
expense as a cost on his or her bill may find that a court will
refuse to order reimbursement of such expense. Although these
holdings arise from fee award cases rather than ethical or
.....................................................................................2 See, e.g., Montgomery v. Aetna Plywood, Inc., 231 F.3d 399, 409 (7th Cir.
2000); Frederick v City of Portland, 162 F.R.D. 139, 144-45 (D. Or. 1995).
Reprinted With Permission. All Rights Reserved.
disciplinary cases, they illustrate one of the potential pitfalls that
may entrap the unwary lawyer in connection with billing for
expenses.
In reality, clients resent such add-ons, both in theory and
even more when they see the bill including these items. It is far
preferable, in terms of overall client relations and submitting
bills clients willingly pay, to initially establish a rate or fee basis
that includes all office overhead and to forego such disburse-
ment items altogether. Clients should, of course, be expected to
pay or to reimburse true out-of-pocket, third-party expenses.
6. Send a cover letter. It is advisable to send a cover letter
with a bill. Cover letters provide a way of saying to clients that
the firm is continuing to manage their interests and does not
look on them simply as a source of revenue. Even if a brief, stan-
dard letter is used, it is a way of communicating positively at a
time when the client is also digesting that he or she has to write
another check.
The cover letter should contain four elements:
A thank-you for past payments.
A simple, "plain English" summary of how the work
performed as described in the bill advanced the client's
interests toward the desired outcome.
An explanation of the activities planned for the next
month and how these advance the client's interest
toward the desired outcome.
An invitation for the client to call with any questions
regarding the bill.
The third item is the "killer" element; if the client sees contin-
ued progress toward the desired outcome, the bill will get paid!
Although some may see it as "wasted" non-billable time,
firms may find that the time spent managing their billing
process is the most productive management time they are likely
to spend. Attention and effort devoted to improving the billing
process will both improve collection rates and reduce the real
wasted time previously spent by lawyers on work for which the
clients do not pay.
Managing Ciient Relations
In today's litigious climate, maintaining good client relations
is more challenging than ever. Consequently, managing billing
and collection begins even before the commencement of the
attorney-client relationship. Three key client relations problems
drive most claims against attorneys: failure to obtain client con-
sent, failure to follow client instructions, and improper with-
drawal from representation. To avoid such failures, law firms
should establish standard procedures to earn clients' confi-
dence: make all parties' expectations and obligations explicit;
clarify the scope, cost, and likely effects of the services; and
demonstrate an understanding of the legal and factual issues
involved. Establishing a positive relationship with a client is the
best investment a lawyer can make as well as a vital risk man-
agement tool.
Engagement letters play a critical role in establishing good
client relations and reducing the frequency and severity of mal-
practice claims. Good engagement letters take time, but they
are never a waste of time because they provide a necessary
foundation for the firm's management of the whole client rela-
tionship. The engagement letter establishes the scope and lim-
itations ofthe firm's services and states the basis on which fees
will be computed. The engagement letter's clear delineation of
the parties' responsibilities and obligations helps avoid mis-
communications and resulting billing problems. Only when fee
arrangements are carefully constructed, and made part of the
process of establishing positive relationships with clients from
the outset, can lawyers expect to maximize the potential for
improving trust between lawyer and client and to maximize
their profitability.
Reprinted With Permission. All Rights Reserved.
~~ ~lid +_...
:.~
reventino ectlon ro emsMost fee disputes and collection problems arise not from
dishonest practices but from management failures, including
failures during the collection process. Such collection failures
occur when firm management inadequately scrutinizes potential
clients, when lawyers do not bill and communicate regularly
and frequently, when lawyers do not promptly withdraw from
representing derelict clients, and when firm management does
not oversee the collection process. Such failures result not only
in uncollected fees but also in wasted time. Every hour spent
trying to resolve billing disputes with clients is an hour lost to
productive activity.
Between 80 and 90 percent of all fees that will be paid are
paid within ninety days of bill issuance.l Of the remaining,
most are collected within the next ninety days. After that, forget iti
Management's role, therefore, is to carefully track payments
and take steps to follow up before the ninety days have passed.
Statements, letters, and follow-up calls should be made on a
fixed schedule, firmwide, with no discretion in the hands of the
billing lawyer to avoid or delay the process. If discretion is to be
exercised for any reason (including whether the firm should or
must continue the representation as a matter of professional
responsibility), it should be exercised by the firm's management,
not by the billing lawyer. The schedule should commence as
soon as thirty days have passed and should culminate in a
notice, delivered before the ninetieth day, informing the client
that (subject to compliance with the applicable ethics code) the
firm will cease all work for the client if up-to-date payment is
not received before the ninetieth day. Again, absent special dis-
1 See, e.g., John H. Woodall, Achieving Financial Stability, Law OfficeManagement 1988, at 283, 303 (PLI Com. Law and Practice Course,
Handbook Series No. 478, 1988) ("Historically, you are most successful in
collecting receivables in the first 90 days after billing, and in the next 90 days
you stand to lose (i.e. not collect) between 10% and 25% of money owed to
you. From thereon, your collection rate dwindles downward geometrically.").
pensation from the firm's management on a case-by-case basis,
this policy and procedure should be universal in application to
all clients and all lawyers (no matter how senior or how power-
ful) and should be set forth in every engagement letter. Lawyers
should also be encouraged to explain this policy to prospective
clients in conjunction with delivery of the initial engagement
letter.
"Never sue a client for fees" should be an absolute rule for
all lawyers, although many firms ignore it. There are three obvi-
ous reasons for this rule. Suing the client:
is highly likely to result in a malpractice counterclaim;
is likely to be largely unproductive; and
is avoidable by using prudent practice management
procedures.
Insurers' statistics vary, but at least one has reported that up
to two-thirds of all claims against lawyers begin as counterclaims
to fee suits. By suing for fees, firms call their professional liabil-
ity insurance into play. In numerous cases, the damages awarded
on the counterclaim have vastly outweighed the relatively paltry
amounts for which the firm originally initiated the litigation.
Before commencing a suit, a firm needs to ask a basic ques-
Lion: Why is the client not paying? There are three possible
answers:
The client cannot pay.
The client is a deadbeat and never intended to pay.
The client refuses to pay because he or she has sorr~e
form of complaint most likely that he or she is
unhappy with the outcome of the matter, the cost
incurred, or the time taken to resolve the issue.
In any event, a fee collection suit is unlikely to produce the
entire desired fee. Equally important, even if a fee is ultimately
collected, at what cost will it be to the firm?
Before deciding to file a fee suit, a firm must assess the costs
of such a suit, including the internal time and resources used to
bring the claim; the additional value of that time in terms of the
billings given up to pursue the matter; and the cost, if any, of
outside counsel. Assuming the fee suit provokes a counterclaim,
the potential future increase in the cost of insurance should also
be factored in, as well as the firm's deductible. Furthermore,
Reprinted With Permission. All Rights Reserved.
even when some payment is received, it is usually significantly
less than the amount billed or claimed or so delayed that the
value of the funds when received is much less than had they
been paid when due. Finally, public perception and firm repu-
tation are at stake. Does the firm really want its current and
potential clients to think that it is sufficiently bad at its practice
that its clients do not pay or that the firm may turn on its clients
and sue them?
Many firms stop short of litigation but are willing to hire
either collection agencies or outside collection consultants. In
both instances, the firm is at least keeping the process private
but also necessarily incurring additional costs, thereby reducing
the value of any recovery. In the end, it always comes back to
prevention, as collection suits are almost entirely avoidable.
At far less administrative cost and risk to resources, firms
can prevent collection problems, first by improving client selec-
tion i.e., better managing client intake. Firms should require
appropriate credit checks for all new clients during the client
intake and file-opening processes. Firms should also conduct
judgment searches and/or lien searches to help determine
whether the prospective client is a deadbeat. Such searches can
be conducted on-line at minimal, if any, cost to the firm. These
checks should be centrally managed and overseen so that some-
one other than the introducing partner reviews the results and
exercises independent judgment on behalf of the firm.
Second, the firm should require all clients to countersign
approved form engagement letters before work is commenced
on the matter to ensure that clients are put on notice at the out-
set that the firm will withdraw if not promptly paid.
Third, the collection process should be overseen such that
at some point firm management requires the lawyer (subject to
the making of any required motions) to cease providing services
to the delinquent client. Not only does terminating the repre-
sentation ultimately avoid the need to sue clients, it immediately
leads to much greater productivity within the firm. When firms
write off time or actual bills for a client who does not pay, the
lawyer who was working for nothing has actually and measur-
ably harmed the firm, as well as himself or herself. Time spent
on derelict clients is time (and other resources) that could have
been used for more productive clients or for recreation. The
wasted time thus represents wasted firm capital and wasted per-
sonnel resources. Therefore, allowing and requiring firm
management to play "bad cop" in prohibiting work at an early
stage for clients whose bills are overdue is the best way to save
those valuable resources.
CHECKLIST
F11iE STEPS FtJR iMPRaVING COLI.ECTICINS--~--
AV01D THE PROBLEM
Firms can avoid most of their collection problems by managing
five elements of the firm's business practices:
1. Institute a standard practice of conducting appropriate
credit checks for all new clients during client intake and file-
opening processes. In firms larger than solo practices, some-
one other than the introducing partner should determine the
creditworthiness of a potential client.
2. Require all clients to countersign approved form engage-
ment letters before a client is accepted or work is com-
menced. Such letters should contain a clause reserving the
right of the firm to withdraw as counsel if the client fails to
pay the firm's invoices within a specified time period. This
ensures that all clients are put on notice at the outset that
the firm will withdraw if not promptly paid.
3. Bill frequently and use invoice forms and styles that empha-
size the value of the services provided in approaching or
achieving the client's goals and objectives.
4. Communicate regularly and effectively so that clients are
kept informed of the status of their cases and so that
lawyers will learn at the earliest possible moment when
problems or misunderstandings arise and well before they
become so great as to be insoluble. Such communication
may be aided by sending a cover letter with every bill.
5. Ensure oversight of the bill-aging process, i nc I ud i ng req u i r-
ing lawyers to cease to provide services to delinquent clients
at a time determined by the firm. Ninety days after a bill is
unpaid is often appropriate, subject to the making of any
required motions in litigation matters. Of course, there are
occasions when a lawyer, even if entitled to withdraw,
should not do so for professional reasons. Nevertheless,
clients accepted by the firm based on the understanding that
they will pay for that privilege should, as a normal matter, be
held to that agreement.
Reprinted With Permission. All Rights Reserved.
e ternatives
to our 1 in
On a more fundamental level, many billing, timekeeping,
and collection problems can be lessened or eliminated entirely if
a firm ceases billing on an hourly basis and instead employs
alternative billing methods. There are compelling reasons to
consider alternatives to hourly billing. Billing based on time
spent, however, although of relatively recent vintage, has
become so ingrained (in the minds of clients and judges as well
as lawyers) that we first need to explore further the powerful
negative aspects of time-charging.
The ProbleYns with Hourly Billing
Client Aversion: Uncertainty
Picture the scene: You are standing in line at LAX for the
Los Angeles—San Francisco shuttle. When you finally get to the
ticket counter, the agent issues around-trip ticket and enters
your credit card in the computer but no price is indicated on
the ticket. You enquire why. He tells you that the airline will
inform you of the price after your travel has been completed.
You protest. He explains that there are too many variables, such
as delays caused by weather, traffic, air traffic control, ground
crew operations, unavailable gates, and incoming equipment,
and that the airline can compute the price only once it knows
how long it actually took to get you there and back again. You
insist on getting an estimate. He says (hesitatingly and in a con-
spiratorial whisper) that the lowest price he has ever seen was
$400 but that it has gone as high as $2,000 (but that is not an
agreed upper limit) when there was day-long fog at the San
Francisco airport. How do you feel when you get on the plane?
The unease caused by uncertainty from the client's per-
spective is only the beginning of the problem of hourly billing.
Client Aversion: Conflict of Interest
Have you ever asked a group of clients how they feel (not
think but feel) about hourly billing? We have asked this ques-
tion of lawyers who have had experience as clients presumably
the group of clients most likely to be disposed to accept this
billing arrangement. Even among this class of clients, a majority
report three very profound and powerful feelings coming out of
their experiences as clients: powerlessness, distrust, and anger.
Notably, the feelings of powerlessness and distrust are common
even among those who do not feel that the ultimate fee was out
of line, but all three emotions are obviously most pronounced
among the large group who feel that the hourly billing lawyers
"took advantage" of their vulnerability. At one level, what these
sophisticated clients are describing is the existence and fre-
quent breach of their lawyers' fiduciary duties to place the
clients' interests first. At another level, they are also pointing out
that time-charging necessarily creates a direct conflict of inter-
est: The longer the work takes, the more the lawyer earns, ver-
sus the faster the client's desired outcome is realized, the less the
lawyer earns. Even though nonlawyer clients perceive this con-
flict, they may not be able to articulate it; however, the failure to
identify the problem as a "conflict of interest" does nothing to
reduce those negative feelings.
This feeling of powerlessness is heightened whenever the
client is not in a position to understand the niceties of the sub-
stantive or procedural issues causing the unanticipated fees.
Contrast this with a homeowner who hires a contractor to make
repairs on her house. Although experience has probably hard-
ened the client/homeowner to expect surprises in the form of
additional work as the job proceeds, such additional work will
either be included in the fixed price agreed at the outset or be
the subject of an explicit additional work order, which the client
must approve before the contractor does the extra work, speci-
fying both the additional work to be performed and the' price
associated with it. Lawyers frequently make no parallel efforts
either to explain why the extra work is required or how it will
increase the overall fee.
The problem is most pronounced and most serious among
lawyers practicing in firms that have stated criteria as to the
number of hours lawyers at every level of the firm are expected
or required to bill annually. In those firms, the existence of the
conflict is not merely theoretical; it has actually been institu-
tionalized, to the inevitable disadvantage of clients.
Reprinted With Permission. All Rights Reserved.
Client Aversion: Inefficiency
The underlying problem from the client's point of view is
that hourly billing potentially permits, and may even encourage,
inefficiencies in the delivery of the desired services. Rather than
accomplishing the client's desired outcomes as speedily and effi-
ciently as possible, time-charging promotes expansive, labor-
intensive work that may have limited relationship to the client's
objectives and have much to do with keeping as many lawyers
as busy as possible.
In short, clients (even sophisticated corporate clients) may
be, at best, distrustful of hourly billing and, at worst, angry and
resentful. The increasing adoption by corporate clients of intru-
sive oversight procedures of legal bills in recent times exempli-
fies this distrust. When instituted, these procedures rarely pro-
mote healthy or positive lawyer-client relationships.
Positive Reasons to Consider Alte~n~ztives toTime-Charging
The Benefits of Ei~iciency
Lawyer Smart enters into a fee arrangement with her client,
which yields a fee that is related to the outcome sought by the
client: $100,000 for completion of the project (as defined in
advance) . She handles the matter successfully, using limited
resources from her firm (associates, etc.) and takes 100 hours to
produce the outcome. On an hourly basis, Smart has earned
$1,000 per hour. Lawyer Traditional offers the same services for
another client. He accomplishes the same result, using 200
hours of associate time and 150 hours of his own time. His time
is billed at $400 per hour, and the associates are billed at $200
per hour; total fees to Traditional's firm are also $100,000. In
this example, even though the total fee was the same, Smart's
firm was significantly more profitable because it made the same
fee with far lower overhead (associates' salaries, costs of space
and support staff, etc.) and had the saved time and resources
available to use for (and bill to) other clients. Although the
example is simplistic, the point is significant. If lawyers
approach their work as other businesses do, the lawyers will
make more money, not by working more hours but by working
more efficiently. Either they will earn the same fees for less work
or, more desirably, more efficient work, or they will earn more
fees for the same number of hours worked previously.
`:..clients (even sophisticated corporate clients
mdy be, ~t best, distrustful of hourly billing
end, dt worst, angry and resentful. "
The Benefits for Firm Management
A second benefit derived from moving away from time-
charging is that firms are able to take hold of their business
administration in entirely new and positive ways. In almost
every other sector of our economy, price is determined by two
considerations: cost and what the market will bear. To achieve
greater profitability, firms need, often for the first time, to deter-
mine their true cost levels. Indeed, for the transition away from
time-charging to work at all, firms have no alternative but to
generate true service delivery cost data in a number of different
ways, including by practice area, by individual case or matter
type, and by practice group or individual lawyer. By establishing
historic benchmarks for every type of work within a firm, firms
will discover what kinds of cases or matters are historically most
(and least) profitable, enabling firms to start planning for
improved efficiencies based on knowledge of the firm's actual
costs, rather than guesswork.
Other, more immediate benefits can be gained from alter-
native billing arrangements. For instance, firms or practice
groups that develop profitable fixed-fee billing arrangements
(after doing the appropriate cost and price analysis described
above) will have amuck-enhanced ability to plan their cash flow
and budget their operations with greater ease and efficiency.
The Benefits for Client Relationships
By relating fees to the expressed wishes of clients, set out in
fully articulated engagement letters, lawyers and firms can
obtain the intangible, but fundamentally important, benefit of
improved client relationships. By establishing fee arrangements
that are directly related to the client's needs and objectives and
that have been discussed and agreed to, a positive level of trust
will replace the negative feelings so often engendered by hourly
billing. Ultimately, contented clients will yield more business,
both directly and by way of referrals.
Reprinted With Permission. All Rights Reserved.
The Alte~n~ztives to 7~iYne-Ch~z~ging
The principal alternatives to hourly billing that have no ele-
ment of time-charging are:
Fixed fees.
Contingency (and reverse contingency) fees.
Stage fees.
"Premium for success" fees.
`:..fees based wholly or pd~ti~zlly on
success yn~y be ~zn option
~xnd ~zn opportunity or many
... kinds o pr~xctice.
Fixed Fees
Although litigators often claim that there is no way their
practices can accommodate fixed fees and a few bar association
ethics committees have suggested that, at least in insurance
defense work, fixed fees may be unethical, both groups are mis-
taken. What the lawyers fail to recognize is that they fear fixed
fees because they only know how to guess at the progress of
future litigation. In fact, the budgeting process in any commer-
cial enterprise is informed guesswork based on accurate analy-
sis of prior history. In other words, even litigation practices
could establish profitable fixed-fee structures if they undertook
rigorous cost and profit analysis of prior cases although there
may be other, better alternative-fee arrangements for many liti-
gation practices. Certainly, afixed-fee arrangement is most eas-
ily adapted to practices with expertise in repetitive work, such as
real estate closings or immigration work focusing on visa appli-
cations. Nevertheless, at least one of the most profitable corpo-
rate merger and acquisition firms in the country charges only
fixed fees for the transactions it handles.
Contingency Fees
Although many lawyers and lay people alike think of con-
tingency fees as the domain only of personal injury and class
action lawyers, fees based wholly or partially on success may be
an option and an opportunity for many other kinds of prac-
tice. It is no fluke that lawyers who do work on contingency are
frequently the most profitable and successful. These arrange-
ments work because they are advantageous to clients as well as
lawyers. The fundamental benefit to clients of these arrange-
ments is that by sharing the reward with the lawyer, they can
require the lawyer to share the risks. A contingency fee arrange-
ment is beneficial both because it demonstrates to the client that
there is no conflict of interest in that the lawyer is committed to
success and because it eradicates most, if not all, of the frictions
relating to the subject of fees.
Reverse Contingency Fees
As some defense attorneys have determined, even they can
find ways to improve profitability by engaging in risk-sharing
fee arrangements. After thoroughly and carefully evaluating
cases with their clients, these lawyers have structured fees based
on alternative outcomes. For instance, assume a claim is for
$10 million and review with the client suggests that a probable
verdict would be $6 million but that the client would settle for
$4 million. The firm may agree to stage fees at a minimal level,
but also earn acontingency/premium in the form of a percent-
age of the savings achieved either by a settlement before trial or
by a verdict at less than the agreed level. Thus, if the firm has a
one-third reverse contingency and the firm achieves a settlement
before trial of $1 million, its contingency fee will be $1 million
(one-third of the $3 million saved).
Stage Fees
Although stage-fee arrangements have many of the prob-
lems of time-charging, they do offer clients some additional
control over what the law firm does or at least what it gets paid
for doing. Thus, fees are fixed for each element (or stage) of a
transaction or case (e.g., the fee per deposition), and the extent
of the fee remains in the client's control (albeit the lawyer's
obligation remains. to provide competent service, even if this
means taking a loss in some individual cases) .
"Premium for Success" Fees
As with both fixed and contingency fees, the concept
underlying "premium for success" is the sharing of risk between
lawyer and client. The client pays an hourly or fixed rate, which
may be discounted, and if the representation is successful, the
client also pays a "premium." The client benefits by reducing its
Reprinted With Permission. All Rights Reserved.
exposure to expense for a transaction that is not consummated;
the lawyer benefits by experiencing a new level of client loyalty
and by taking profitability to a level far higher than any hourly
fee arrangement is ever likely to reach.
The Hidden IYnplic~tions for Ldw FirYnM~n~zgement of Alternative-Fee Ar~~zngeYnents
Some firms are leery of alternatives to time-charging for
several reasons. The structure and composition of a firm is likely
to experience potentially major consequences as a result of rig-
orous cost and profitability analysis, which is the sine crud non of
any effective change. Suddenly practice areas that on the surface
look profitable because of the high dollar number of the fees col-
lected may appear relatively expensive and even unprof-
itable compared to other, more efficient practice areas. In
turn, this can put significant pressure on long-established com-
pensation structures. If not properly managed, simply the exer-
cise of doing the cost and profitability analysis can provoke the
departure of partners or of whole practice groups. In addition,
although hourly billing did not become the primary form of fee
generation among lawyers until the late 1960s, most lawyers
now practicing have known no other system.
Furthermore, the entire structure of many large firms the
"pyramid" is based on the assumption that profits come from
maximizing the amount of lawyer time (and therefore the num-
ber of lawyers) thrown at clients' matters the "leverage" sys-
tem. The very suggestion that profits can be improved by
increasing efficiency is entirely counterintuitive to lawyers and
firms whose historic success is based on leverage. Indeed, that
very success is a strong reason many lawyers particularly those
managing or reaping the profits at the top of very large firms
decline to contemplate the kinds of changes discussed here.
The Future of Hourly Fees
Given ever-increasing pressure on lawyers to work and bill
more hours and the concern that such pressure detrimentally
affects not only those lawyers but also their communities, the
American Bar Association (ABA) has established a Commission
on Billable Hours to conduct a study and identify issues on the
effects of increased billable hours demanded of lawyers working
in private law firms. The Commission recently issued its Billable
Hours Report, which reviews the corrosive effects of hourly
timekeeping and explores various alternatives to hourly billing.
In addition, it discusses means of working within the billable-
hour system and provides "best practices" ideas for mitigating
the damaging aspects of hourly billing.l
`:..the pressure from clients of dll kinds
dnd sizes, dnd the pressure from competition ...
will compel both the largest and the smallest
firms to abandon time-charging. "
Although some clients (and some judges) will insist on con-
tinuing the time-charging arrangement for a considerable time
to come, the future lies with the alternatives. Even if it was only
a matter of the negative aspects, time-charging would, ulti-
mately, be doomed. But the pressure from clients of all kinds
and sizes, and the pressure from competition as smaller and
leaner firms adopt and offer aggressive alternative-fee structures,
will compel both the largest and the smallest firms to abandon
time-charging. As the economy undergoes recession, it will
become apparent that those firms that prepared by understand-
ing their cost structure namely, those firms that have exam-
ined and explored the alternatives will survive the tough mar-
ket as they offer clients, who are themselves under financial pres-
sure, not just discounted hourly rates but instead fee arrange-
ments that are profitable for both.
1 The ABA Commission on Billable Hours Report 2001 — 2002 can be found athtt~://www abanet.or~/careercounsel/billable/toolkit/bhcom~lete.~df. For moreinformation on the impact of billable hours on the legal profession, see theABA Commission's "Online Toolkit" at
htt~://www abanet.org/careercounsel/billable/toolkit/toc.html.
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CHAPTER 4
ALTERNATIVE FEE ARRANGEMENTS
349
Alternative Fee Arrangements
By far the most comprehensive treatment of the alternatives to thebillable hour is Billing Innovations: New Win-Win Ways to End HourlyBilling, by Richard C. Reed (ABA Law Practice Management Section,1996). In Chapter 2 of his book, Reed makes the following assertion,which summarizes our discussion thus far: "Any billing method thatdoes not depend exclusively on time spent as a measure of value provides an incentive for efficiency and early resolution of the matterbeing handled." He also points out that there are rules in many jurisdictions governing the use of engagement letters, the permissible useof retainers (and in many jurisdictions, a prohibition on all or someforms of nonrefundable retainers), and the use of contingencyfees. These rules are discussed in Volume I, Part II of The EssentialFormbook.
In Chapter 2 of Billing Innovations, Reed also sets out the following summary of what he refers to as generic billing methods:
A Summary of Generic Billing Methods1
[Tlbis chapter is a summary of the fourteen generic billing methods, presented in outline form for easy reference.
1. Fixed or Flat Fee The fixed or flat fee is the price that willbe charged for defined services. It may be the total fee for theengagement or may apply to segments of the total services. Itmay stand alone or be combined with either an hourly fee or acontingent fee.
Advantages
• Forces agreement between lawyer and client on what serv-ices will be required and furnished.
• Requires you to know cost of providing defined services.• Client knows what the. fee will be.• Can be competitive with the market.• Useful in marketing services.• Not dependent on time spent.• Can be keyed to value ofbenefits to client.
Disadvantages
• Unprofitable if cost of providing services exceeds estimatedcost.
1 Reprinted with permission from Billing Innovations: New Win~Win Ways to End HourlyBilling, a publication ofthe ABA Law Practice Management Section, by Richard C. Reed, 1996.Footnotes have been added to reflect recent court deCisions in support of the billing methodsdescribed.
2007 SUPPLEMENT 351
THE ESSENTIAL FORMBOOK, VOLUME II, PART II
• Unprofitable if services are not performed efficiently.• Unprofitable if there is no specific definition of what services
are included and unforeseen problems arise requiring extrawork that is clearly covered by the representation agreement.
• Should not be used when there are foreseeable uncertainties.
When to Use
• For routine services where experience shows what is normally required so that you can foresee and define includedservices.
• When you can estimate both the tiroe required and the mixof standard billing rates.
• For co=odity services in. a highly competitive market.• For volume work on a repetitive basis.• When you are comfortable accepting the risk of unprof
itability ifcost of production exceeds the fixed fee.
Predictability ofTotal Fee
• Excellent---enables clients to know what the fee will be.
Incentive for Efficiency
• Encourages use of systems, appropriate delegation, andtechnology.
Recognition ofValue to Client
• Can be priced to reflect value to client.• Value to client rather than time expended can be the stan
dard in setting the fee, subject to competitive marketconditions.
Relevant Example
• While techuically not a fixed or flat fee agreement, the U.S.District Court in the Southern District of New Yorkenforced a fee agreement against a law firm where theretainer agreement including a $10,000 fee "cap" clearlyillustrated the client's intent to impose a ceiling on its legalfees.2
2Data~Stream ASIRS Technologies LLC v. China IneZ Marine Containers Ltd., No. 02 Civ.61;30,2004 WL 830062 (S.D.N.Y. Apr. 13, 2004).
352 2007 SUPPLEMENT
Alternative Fee Arrangements
2. Contingent Fee The contingent fee is a charge that dependson the results achieved. It requires clear agreement on whatthe desired results will be. Those results may be positive(direct) in the sense of achieving a desired objective, or negative (reverse) in the sense of avoiding exposure to liability. Acontingent fee may be combined with a fIxed or flat fee, orwith hourly billing.
Advantages
• Client does not pay unless favorable result is achieved.• Clients who are otherwise unable to pay can obtain legal
representation.• Can be lucrative if you are careful in accepting the repre
sentation and screen cases well before agreeing to proceed.• Depends On results, not time expended in obtaining results.• Terms of representation can be clearly defIned in fee
agreement.
Disadvantages
• You assume risk of providing services without assurance ofbeing paid.
• Carrying costs. The expense of litigation may have to be advanced or carried by the lawyer ifthe client is unable to do so.
• Some jurisdictions are limiting contingency percentages inprescribed cases.
• Uneven cash flow for the lawyer.• The time and effort required may exceed estimates.
When to Use
• When it is desirable to represent individuals who are otherwise unable to pay.
• When your expertise and reputation attract good cases.• When you can skillfully screen the desirability of a repre
sentation so that you accept only cases with a likelihood ofsuccess.
Predictability ofTotal Fee
• Clear formula for measuring results that determine theamount ofthe fee, even though the exact fee is not known atthe outset.
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THE ESSENTIAL FORMBOOK, VOLUME II, PART II
Incentive for Efficiency
• Excellent, as your goal will be maximum results with theleast expenditure of time and effort. However, if lawyer andclient differ on whether the matter should be settled ortried, complications can arise.
• Not tied to time spent.
Recognition ofValue to Client
• Tied directly to results achieved so presumably will reflectvalue.'
• If matter is mishandled so that good results are notobtained, client will not receive value, even though no orlow fee is paid.
Relevant Examples
• A client who challenges the size of a contingent fee bears theburden of showing unreasonableness, and must first present a prima facie case that she is entitled to have moneyreturned to her before her lawyer must provide evidence ofreasonableness of the fee. The Colorado Court of Appealsissued a directed verdict in such a case after the client failedto show the fees were excessive.3
• While some states may prohibit a lawyer from charging acontingent fee for collecting medical payments, the WestVIrginia Supreme Court ofAppeals took the opposite stance,noting that West Virginia, unlike other states, has nostatute expressly prohibiting such fee.agreements.4
• The Indiana Supreme Court issued two decisions in August2003 that put lawyers on notice that they would be disciplined for taking the entire contingency fee from the first ofa series of settlement payments intended for the clientunless the client had agreed to such an arrangement inwriting. The Court found the fees to be unreasonable inboth cases, and stated that the contingency fee should oulybe collected as the funds are actually received.5
'Monday v. Robert J. Anderson PC, No. 02CA1080 (Colo. Ct. App. May 5, 2003).
4Lawyer Disciplinary Bd. v. Morton. No. 270?1 CW. Va. May 2,2002).'In re Hailey, 792 NE.2d 851 (Ind. 2003); In re Stochel, 792 N.E.2d 874 (Ind. 2003).
354 2007 SUPPLEMENT
Alternative Fee Arrangements
3. Straight Hourly Billing In the past quarter centuryhourly billing (sometimes referred to as time/rate billing) haspredominated. It is predicated on the keeping of accurate,contemporaneous records of time expended by lawyers, legalassistants, and other staff members. The hourly rate for eachfee charger is intended to cover the cost of production plus aprofit factor. Therefore, knowing the cost of production isimportant, although many lawyers do not have reliable costdata. To some extent, hourly rates are market driven, particularly at the commodity level, and can reflect lawyer expertiseand anticipated value at the high end of the Value Curve.
Hourly billing has developed some non-time-relatedentries such as minimum time charged for particular services, for example, minimum time entries of a quarter hour orminimum entries for each letter or phone call.
Many lawyers or firms will have different rates for different fee chargers, and different rates for a specific lawyerdepending on the type of service, the client,. the subject matter, or other variables. These variations recognize that thevalue to the client will differ and that time spent, per se, doesnot accurately measure the fee to be charged.
Can be combined with contingent fee or fixed or flat feebilling.
Advantages
• Both lawyers and clients have become accustomed to thehourly method of billing and are, therefore, comfortablewith this method and how it operates.
• Rate schedules can be set, quoted, and used by the lawyerand checked, monitored, and compared by clients.
• Billing can be somewhat automatic, particularly with computerized billing systems that multiply time recorded bypreestablished rates per hour to produce statements.
• Subjective judgments in billing are not required.• Detailed itemized statements based on contemporaneous
time entries are a chronology of work done and can be ameans of communication between lawyer and client.
• Detailed itemized statements when regarded as tangibleevidence of work done create the appearance of objectivityand evidence of the services provided to jus,tify the chargebeing made.
• All risks (except the risk of nonpayment of the fee) areplaced on the client.
2007 SUPPLEMENT 355
THE ESSENTIAL FORMBOOK, VOLUME II, PART II
Disadvantages
o Client is unable to know what the total charges will be.o Discourages efficiency, incentive to reach an early conclu
sion and to provide cost-effective services.o Clients are resisting the high cost of legal services.o Clients must accept all of the risks, including lawyer
inefficiency.o The fee charged may have little relationship to the value of
the benefits received by the client.o Time spent does not recognize the benefits ofthe use of sys
tems and technology, nor does it compensate adequately forthe cost of development of such methods.
• The lawyer is not adequately compensated iu high-valueand high-responsibility matters.
o Does not recognize extraordinary, priority, or emergencyservices.
o There are finite limits for billable hours per year and forhourly billing rates, so there is. a cap on maximum grossincome.
o Does not promote finding better ways to provide legal services at a reasonable cost to the client.
When to Use
o When the client demands hourly billing and will not consideralternative methods.
o When there are variables that cannot be foreseen with reasonable accuracy.
o When no reasonably fair alternative method can be used.o When the lawyer is willing to accept the representation but
not willing to accept any risk.o In situations requiring court approval of fees, where the
court only recognizes hourly billing in approving fees.
Predictability ofTotal Fee
o Difficult unless there is a guaranteed maximum.o Sophisticated clients having past experience with similar
matters and/or with prior use of the same lawyer may beable to anticipate the range of the fee that will be charged.
o Limited even with case control by the client.o Dependent on willingness oflawyer to write down fee for'
client based on retrospective review.
356 2007 SUPPLEMENT
Alternative Fee Arrangements
Incentive for Efficienc~'
• Not inherent except to generally please the client and topreserve the lawyer-client relationship.
• Generally perceived to promote inefficiency and disregardfor relating fee for services to the value to the client of thoseservices.
Recognition ofValue to Client
• Generally unrelated to value to the client. The lack ofrelationship between the amount ofthe fee and the value to theclient may penalize either the lawyer or the client.
Relevant Example
• In a fee dispute between a prominent Manhattan law fIrmand an artist who authorized the firm to "leave no stoneunturned" in a child custody dispute, the New YorkSupreme Court held that the client could not claim that the$3.9 million in legal fees were excessive.s The Courtdeclined to make a policy determination that the fees wereunethical, stating that it would not "police the conduct ofwealthy litigants who chose to share their wealth withcounsel on extravagant litigation."
4. Blended Hourly The blended hourly rate is a hybrid of thehourly rate. Instead of specific hourly rates for individual feechargers, one rate applies to all hours billed on a matter.
Advantages
• GenerallY the same advantages as for the hourly method.• Is thought to be more simple to negotiate and administer
than the method ofhaving specific rates for each fee charger.• Can be advantageous to the lawyer if work can be per
formed by individuals with lower normal hourly billingrates. This is dependent on capabilities of those individualsand the retained right of the lawyer, not the client, to directwho will do the work.
• May encourage delegation.
Gpaul, Weiss, Rilkind, Wharton & Garrison v. Kooru;, 780 N.Y.S.2d 710 (N.Y. Sup. Ct. N.Y.Cty.2004). .
2007 SUPPLEMENT 357
THE ESSENTIAL FORMBOOK, VOLUME II, PART II
Disadvantages
• Generally the same disadvantages as for the hourlymethod.
• Appears to be simple, but is still dependent on knowing costof production.
• May endanger the quality of the work product unless quality controls are in place.
• Will be unprofitable unless the blend in practice is at thehigh end.
When to Use
• When the type of work involves a typical patiern and thefee-charger mix to do the work is reasonably foreseeable.
• Should not be used uniformly if the matters subject to theagreement vary in required level of expertise and specialization or in responsibility assumed.
Predictability ofTotal Fee
• Same as for hourly billing.
Incentive for Efficiency
• By providing incentive to delegate, there may be more efficient use of individual skills. Care must be taken to ensurequality ofproduct and to avoid increased cost to the client iflow-end personnel are markedly less efficient than high-endindividuals.
Recognition ofValue to Client
• Generally unrelated to value to the client. The lack ofrelationship betweenthe amount ofthe fee charged and the valueto the client may penalize either the lawyer or the client.
5. Fixed or Flat Fee plus Hourly In this hybrid method, theportions of the services that can be defined as to scope arecharged on a fixed or flat fee basis; the portions of the services that cannot be defined because ofvariables or uncertaintiesare charged on a time-rate or hourly basis. This methodcan be used in both litigation and transactional matters.Numerous variations can occur, and the sequence of steps inthe method of charging may vary.
To illustrate the use of this method ina transactionalmatter, in an estate-planning assignment during the initialphase when the objectives of the client are being determined,
358 2007 SUPPLEMENT
Alternative Fee Arrangements
asset information is being gathered, and tax ramifications arebeing determined, the services can be charged on an hourlybasis. When the route has been determined and what will berequired can be defined, the preparation of documents andservices necessary to complete the assignment can be chargedon a fixed or flat fee basis.
To illustrate the use of this method in litigation, a flat feecan be charged for handling what appears to be routine litigation with some agreement on what services are included forthat fee. If it is necessary to do extra work, there can be anhourly charge for services beyond the original defined scope.
Advantages
• There is a compromise or balancing in risk-sharing and predictability of the fee by use of this blend.
• The advantages of the hourly and the fixed or flat fee methods are accordingly modified.
• If the fixed or flat fee is quoted after some of the variables orunknowns have been cleared, the client will have an economic basis upon which to decide to proceed.
Disadvantages
• There is a compromise or balancing in risk-sharing and predictability of the fee by use of this blend.
• The disadvantages of the hourly and the fixed or flat feemethods are accordingly modified.
When to Use
• When some but not all of the contemplated services can bedefined ~o that a fixed or flat fee can be quoted. At the outset the general approach to charging can be specified eventhough the precise fixed or flat fee cannot be specified untilsome of the variables or unknowns have been cleared.
Predictability ofTotal Fee
• The method of charging'will be agreed upon, though theexact total cannot be predicted because of the portion notincluded in the fixed or flat fee.
Incentive for Efficiency
• A combination of the incentives described above for, thefixed or flat fee and hourly methods.
2007 SUPPLEMENT 359
THE ESSENTIAL FORMBOOK, VOLUME II, PART II
Recognition ofValue to Client
• Compromise between the two methods.
6. Hourly plus a Contingency By combining hourly billingand a contingency factor, client and lawyer are sharing riskswithin the limitations ofthe representation agreement. Sincea portion of the fee will be hourly, the lawyer is guaranteed aminimum amount. This is true whether the hourly fee isbased on regular hourly rates or the agreed hourly rates arelower than the regular rates. That will guarantee Bome payment to the lawyer but leave some risk with the client.
As in straight contingency agreements, both the clientand the lawyer are motivated to obtain the maximum resultssince both will benefit.
It is important to define .clearly the way the contingentfee will be measured. If the achieved result justifying thecontingent fee is not directly expressed in dollars, there mustbe some agreement spelled out on the amount of the contingent fee and how it will be measured. For example, the basisfor the contingent fee might be obtaining a rezoning, acquiring a business, or obtaining a restraining order, any of which
. needs to be assigned a value or tied to the fee amount thatwill be paid.
Advantages
• Lawyer and client share some of the risks and the benefits.• The hourly fee offsets the cost of carrying the matter.• The client will not pay the full hourly rate if the objective is
not achieved, and will share proportionately ouly if thereare benefits.
• May enable a client not able to pay fully to achieve a resultfor which the client will be able to pay because of the benefit received.
Disadvantages
• As with any contingent fee agreement, the lawyer mustdetermine the chances of success and exercise care inaccepting the representation.
• Disagreement can result if the fee agreement does not clearly define how the contingent fee will be computed.
• Except to the extent ofthe compromise, has the samedisadvantages as both the hourly and the contingent fee methods.
360 2007 SUPPLEMENT
Alternative Fee Arrangements
When to Use
• With carefully selected clients.• After careful appraisal of chances of success.• Where significant potential dollar value exists (the contin
gent fee potential must offset the reduced hourly fee).
Predictabilit" ofTotal Fee
• Limited.
Incentive for Efficiency
• Generally the same as with any continent fee representation.
Recognition ofValue to Client
• Close relationship to value because of contingency factorand how success will be measured.
7. Percentage Typically, percentage fees have been based ona schedule of fees related to the amount involved in the matter being handled. The amount may be predetermined or may,in some instances, be related to the amount ultimately determined. Examples include a percentage of the value of estatesbeing probated, the amount of a real estate transaction, andthe amount of a bond issue. The percentage rate may be constant or may be graduated.
Advantages
• Relatively easy to state the terms in the representationagreement.
• Reflects the amount involved and the exposure of thelawyer to liability.
• Is not dependent on time spent.• Ifpercentage and amount oftransaction are predetermined,
same advantages as fixed or flat fee.• If percentage is known but amount of transaction is not
known, same advantages as contingentfee.
Disadvantages
• If set too high, may not be competitive.• If set too low, may be unprofitable.
2007 SUPPLEMENT 361
THE ESSENTIAL FORMBOOK, VOLUME II, PART II
• If complications arise and extra services are required, riskis on the lawyer, unless representation agreement closelydefines what services are included.
• If percentage and amount of transaction are predetermined,same disadvantages as fixed or flat fee.
• If percentage is known but amount of transaction is notknown, same disadvantages as contingent fee.
When to Use
• In situations as shown in the above examples.• There appears to be a growing tendency to use a percentage
fee in court awards in common fund fee approvals, in lieu oflodestar or hourly methods.
Predictability ofThtal Fee
• Method is known even if the amount of the fee cannotbe calculated until the amount of the transaction isdetermined.
Incentive for Efficiency
• Good, because not tied to hours spent or duration of thetransaction.
• Provides incentive to use most effective and most economical personnel to complete the assignment and maximizeresults.
Recognition ofValue to Client
• To the extent that the amount involved represents value,this method recognizes value to client.
8. Retrospective Based on Value This method differs inapproach from most of the alternative billing methods in thatthe exact amount of the fee is not known to either lawyer orclient until the matter is concludeq. However, the factors thatare to be considered in setting the final fee can be set forth inthe representation agreement. Often these are the factors setforth in the Model Rules ofProfessional Conduct. It is possibleto establish either a maximum or minimum fee that will becharged. May be combined with an hourly fee in setting aminimum by agreeing at the outset that the fee will be no lessthan a prescribed amount. The amount of the fee should bedetermined by the lawyer, not the client.
362 2007 SUPPLEMENT
Alternative Fee Arrangements
Advantages
o Allows a retTospective determination of the amount of thefee at a time when all uncertainties and unknowns nolonger exist. All effort is made to equate the amount of thefee to the value to the client of the services performed.
o Dependent 011 benefits conferred rather than solely on timespent.
o Because determining the amount of the fee is subjective,can be more equitable than if some mechanical system isused.
Disadvantages
o Client does not know in advance what the fee will be.o Is dependent on close and trusting lawyer-client relation
ship; not frequently used today.o Sophisticated purchasers of legal services are wary of
potential abuses and inability to budget or monitor legalexpense.
o Should cut two ways with reduction of fee below normalhourly rates where value is not achieved despite efforts todo so or higher than normal rates if results are exceptional.
o Lawyer's determination of value may differ from client'sperception of value received.
o If no payment is made until conclusion of the matter, thelawyer will have the cost of carry with limited cash flow,unless agreement is made for 'partial payment of fees as thematter progresses, subject to final adjustment.
When to Use
o When lawyer and client have a trusting relationship characterized by good co=unication and awareness by the clientofthe work that was dOlle and the true value ofthe results.
o Use selectively depending on client and nature of the matter being handled.
o When both lawyer and client have confidence that the otherwill act fairly.
Predictability ofTotal Fee
o Difficult, unless a maximum or minimum range is set withclearly defined criteria for setting the fee.
2007 SUPPLEMENT 363
THE ESSENTIAL FORM BOOK, VOLUME 11, PART 11
Incentive for Efficiency
• Generally good, because time spent is not necessarily amajor criterion.
Recognition ofValue to Client
• By defmition, the best way to relate fee charged to value tothe client, conditioned on being applied fairly and equitably.
9. Availability-Only Retainer The availability-only retainer, sometimes referred to as a "pure retainer" or "right-to-callretainer," is characterized by payment to the lawyer of a feefor which no direct services (or limited services as specified)will be performed, in exchange for the lawyer's commitmentto be available when requested·and to refrain within a specified time period from representing either parties adverse tothe client or competitors of the client. This method is notwidely used. It normally will be used when the lawyer hashigh-level expertise or prestige. The funds when receivedbelong to the lawyer and need not be deposited into theclient's trust account.
Advantages
• Lawyer is not expected to do any work for the fee.• Client is assured of representation by the lawyer of client's
choice.• Client is assured that lawyer will not represent any party
adverse to client or competitor of the client.• Client may deem lawyer's prestige will add to the prestige
of the client.
Disadvantages
• Lawyer will be unable to accept desirable work from otherclients.
• Client may decide that amount paid does not bring expectedbenefits.
• Lawyer's loss of business opportunities may exceed amountof the retainer.
When to Use
• When the mutual benefits exceed the disadvantages.• When the monetary amount is significant enough to justify·
being unable to take work from other clients.
364 2007 SUPPLEMENT
Alternative Fee Arrangements
Predictabilit~,ofTotal Fee
• Entirely predictable.
Incentive for Efficiency
• Not relevant, since no services are provided.
Recognition ofValue to Client
• Should be reflected by the negotiated amount of theavailability-only retainer.
The Washington State Formal Opinion 186 recognizesthe distinction between "advance fee deposits," which areclient funds and must be put into a trust account, and "retainers," which are funds paid by a client to secure a lawyer'savailability over a given period of time. The funds are considered earned at the time ofpayment and must NOT be put intothe client's trust account. This opinion cites Baranowski v.State Bar, 154 Cal. Rptr. 752, 593 P.2d 613, 618, and Rule1.14(a), Model Rules of Professional Conduct. Some jurisdictions prohibit nonrefundable retainers; others permit them, ifreasonable in amount.
10. Retainer as a Deposit against Future Services By wayof definition, the retainer as a deposit against future servicesis distinguished from the payment of an annual retainer. Theannual retainer is a subspecies of the frxed or flat fee, inwhich the client pays an agreed-upon annual or monthlyamount for specifred services such as informal counseling ortelephone advice.
The retainer as a deposit against future services is notper se a billing method, but a technique to ensure that theclient will pay for services to be rendered or for disbursementsto be made on behalf of the client. The funds when received bythe lawyer must (in most states) be placed into the client'strust account, subject to withdrawal only when services hav;ebeen performed or disbursements made on behalf of theclient. At the conclusion of the representation, any balancemust be returned to the client.
This technique can be used with a variety of billingmethods, as it is a deposit against future charges howevercomputed.
2007 SUPPLEMENT 365
THE ESSENTIAL FORMBOOK, VOLUME II, PART II
Advantages
• Requires financial commitment by the client at the start ofthe representation.
• Minimizes fee collection problems ifretainer balance is keptat an agreed level throughout the representation.
• Enables lawyer to lmow throughout the representation thatthe lawyer will be paid.
Disadvantages
• Client must come up with up-front funds.• If balance at the end of representation is insufficient to
cover the final charges, there could be a collection problem.• There may be a timing problem as to when client can take a
tax deduction for legal expense.
When to Use
• From the standpoint of the lawyer, whenever possible forcash flow purposes.
• If there is doubt about when the lawyer has been hired andis obligated to the representation, a representation agreement specifying that the representation will start onlywhen funds have been deposited will protect against certainmalpractice claims.
Predictability ofTotal Fee
• Not relevant.
Incentive for Efficiency
• Not relevant.
Recognition ofValue to Client
• Dependent on method ofbilling chosen.
11. Unit The unit fee is a subspecies of the fixed or flat fee inthat a fixed charge is made for a specific service irrespective ofthe actual time spent in providing that service. Illustrativeare fixed charges for each letter, phone call, deposition, etc.This approach normally is combined with hourly billing forservices not included in the unit billing. Some representationagreements provide that for a specified service either the unitfee or the hourly rate fee will be charged, whichever is greater.
366 2007 SUPPLEMENT
Alternative Fee Arrangements
Advantages
• Simplifies time recording somewhat.• Reduces lost time from inadequate record-keeping.• Can add a premium over straight homly billing.
Disadvantages
• Distorts time records if records are used for pmposes otherthan billing.
• May be deceptive if client believes fee will be charged Onhourly basis.
• Requires clear explanation in representation agreement ofwhat the unit charges will be.
When to Use
• When lawyer has accurate knowledge of typical time re-quired to provide a specific service.
• When client will agree to this method.
Predictability ofTotal Fee
• Same as for homly billing.
Incentive for Efficiency
• Encomages efficiency in providing the services covered bythe unit fee portion of the representation agreement.
• Encourages minimum time expenditme for a specific service.
Recognition ofValue to Client
• Not keyed to value unless unit price is below hourly rate.
12. Lodestar The lodestar method of setting fees had its originin the federal court system in Lindy Brothers Builders, Inc. v.American Radiator & Sanitary Corp., 487 F.2d 161 (3d Cir.1973), and has been adopted in some states. To have an objective system that could be applied by the courts with some consistency, the method involves multiplying the hours spent bya reasonable billing rate per hom to determine the ''lodestar.''Then that amount is multiplied by a factor, e.g., 1.4, 1.7, 3.0,or 0.8, to recognize factors other than time spent.
Court decisions have restricted the factors that can beconsidered as a multiplier, contending that those factors aresubsumed in the homly billing rate. For example, "expertise"originally was a factor in determining the amount of the
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multiplier, but now is generally consi.;lered to be reflected inthe hourly billing rate. Uncertainty ofpayment remains a factor for the multiplier.
Courts often set billing rates that are below the marketand sometimes will disallow a portion of the hours expendedif the court deems the hours unnecessarily spent.
One objection to the lodestar method is that approvingfees based on the method takes up too much court time.
Advantages
• In theory, the hourly rate method can be modified upwardor downward based on criteria other than time spent.
Disadvantages
• Same as those for the hourly billing method, plus the tendency of courts to disallow a portion of the hours expended.
• Many contend that this method encourages inefficiency,discourages early settlement, and is too complicated.
• As in any court approval process, permits second guessingofwhat was required.
• Awards may not reflect market value of the services.
When to Use
• When required by the court to do so.
Predictability ofTotal Fee
• Little predictability.
Incentive for Efficiency
• Very limited; padding may be encouraged if lawyer believesthe court will most likely not allow all hours recorded.
Recognition ofValue to Client
• None.
Relevant Exantl'le
• The Second Circuit Court ofAppeals held that lawyers whosuccessfully appealed the ruling of an upstate New Yorkfederal district court Were not entitled to appellate feescharged by Manhattan lawyers simply because the appeal
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was tried there.7 The Court stated that the forum district,rather than the location of the appeal, should be used todetermine the relevant lodestar calculation.
• In a "garden-variety securities case," the U.S. District Courtfor the Western District of Washington allocated fees toplaintiff's lawyers using the lodestar method instead ofawarding a percentage of the settlement. The Courtdeclined to award the requested $8.5 million and insteadcalculated a lodestar of approximately $1.25 million for4,172.9 hours of work done by twenty-nine attorneys. Thecourt applied a multiplier of 3.5 to arrive at a fee award of$3,937,867.32, and also awarded $474,584.23 for litigationexpenses.s
13. Relative Value The relative value method of billing involves the creation of schedules that breal< down the servicesperformed by a lawyer by subject matter and by task andassign a "relative value" or multiplier to each. Each feecharger can be assigned a different basic rate or charge thatis then factored into the equation. There are variations inthis method as used by individual practitioners who havedeveloped their own schedules. Proprietary systems alsoexist.
Inherent in this approach is a determination or judgment in the first instance of the value of each componentservice or task. The predicate is that tasks performed by alawyer differ in value, whereas straight hourly billing assumes that all time spent in performing various tasks hasequal value.
Once the relative value schedules have been established,the base rate factor can be changed, thereby producing achanged fee.
The relative value method combines elements of hourly,fixed or flat fee, and value billing.
Advantages
• If uniformly used within a law firm, will tend to providemore uniform or consistent statements.
• Addresses value in the development ofthe schedules.• May permit fme-tuning in fee determination.
7Arbor Hill Concerned Citizens Neighborhood Ass'n v. Albany County, 369 F.3d 91 (2d Cir.2004).
BIn re Infospace Inc., 330 F. Supp. 2d 1203 (W.D. Wash. 2004).
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Disadvantages
• Time-consuming to prepare and maintain schedules of relative value.
• Thought to be cumbersome to use.• Client's perception of value mayor may not coincide with
values assigned in the schedules.• May ignore such factors as results achieved or responsi
bility assumed uuless final charges are reviewed.
When to Use
• When the tasks to be performed can be classified and arereasonably predictable.
Predictability ofThtal Fee
• Limited, except in routine matters that fall into a billingpattern.
Incentive for Efficiency
• Dependent on whether system is task-oriented rather thantime-oriented.
Recognition ofValue to Client
• Inherent in this method is a determination of value in theproduction oflegal services, which mayor may not coincidewith the client's perception ofvalue.
14. Statutory or Other Scheduled Fee System The amountto be paid for legal services is spelled out in some statutoryenactments, in schedules for prepaid legal service plans, or bypurchasers of legal services on a volume basis. Some areimposed, some are negotiated. Some may be fixed Or flat fee;some prescribe methodology; some are in fee-shifting situations; some reflect government-imposed social policies.
Advantages
• Lawyers know in advance what the fee will be or how it willbe computed.
• Client or the plan can negotiate fee amounts.• From client point-of-view may aid.in cost containment.
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Disadvantages
• Often rigid and/or arbitrary.• May not recognize the cost of production.• May be out-of-date if not revised fi.-equently.
When to Use
• When compelled to do so.• When fee will fairly pay for services provided.
Predictability ofTotal Fee
., Reasonably predictable.
Incentive for Efficiency
• Can be incentive if fee is fixed and not dependent on timespent.
Recognition ofValue to Client
• Typically not much correlation.
Relevant Example
• In an employment discrimination case, the Seventh Circuitheld that where the plaintiff was represented by a Chicagolawyer, the lawyer was entitled to her own hourly fee andnot the lower market rate in Southern Illinois, because forcing out-of-town counsel to accept reduced rates would workagainst the intent of the fee-shifting statutes that wereenacted to help such clients obtain legal counseL9
• A divided Illinois Appellate Court, Second Department, heldthat a law firm that had failed to properly register with thestate Supreme Court had engaged in the unauthorizedpractice onaw while working a case dealing with consumerfraud law and was thus not entitled to the fee award provided by the law that served as the basis for the case. 'O
'Mathur v. Bd. of Trustees of Southern Ill. Univ., 317 F.3d 738 (7th Cir. 2003).
"'Ford Motor Credit Co. v. Sperry, 801 N.E.2d 954 (Ill. App. Ct. 2003).
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PREVALENT ALTERNATIVE BILLING ARRANGEMENTS
Of course, not every practice (or client) will find it appropriate toadopt, piecemeal, versions of all these alternative billing methods. Itis important to consider which ones are most likely to work inimproving practice and firm profitability, and then to develop pricingand engagement policies that encourage clients to adopt the chosenfee arrangement.
In the authors' experience talking to lawyers around the country,the following are the most prevalent alternative billing arrangements:
• Fixed fees• Contingency and "reverse" contingency fees• Stage fees• "Premium for success" fees
The following co=ents may help firms identify which alternativemethods may be useful in their practices.
Fixed Fees
One practitioner we know with an extremely profitable practice notbased on contingency fees is a lawyer specializing exclusively ini=igration work. Fixed fees work for him for a simple reason. Hefigured out for himself the lessons of Chapter 3; he worked out thecosts associated with each kind of visa or work status applicationthat is handled in his practice and then determined how to do eachmore efficiently. His price for each application is basically set in relation to a very competitive market of other immigration lawyers, buthis huge profit is derived from having highly trained and specializedassociates and paralegals performing the repetitive work involved inhis practice. As a result, he has reduced his costs per application toabout 10 percent of the price that the market permits him tocharge-leaving him a profit of 90 percent on every application.
Clearly, not every lawyer can replicate this i=igration lawyer'skind of "cookie cutter" practice. However, lawyers in many otherareas of practice indicate that there are frequently subspecialtiesthat do lend themselves to this kind of efficiency-based pricing. Forinstance, there are a number ofkinds ofreal estate-related work thatcan be structured in this way, from mortgage foreclosures to homeowners' closings. More importantly for larger firms, even litigators
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can often find ways to increase profitability using either straightfixed fees, or a variant such as fixed stage-by-stage fee arrangements.
While litigators often claim that there is no way that their practices can accommodate fixed fees, and a few bar association ethicscommittees have suggested that, in insurance defense work at least,they may be unethical, both these lawyers and committees are mistaken. What the lawyers fail to recognize is that the reason for theirfear of fixed fees is that they only know how to guess at the progressof future litigation. In fact, any budgeting process in ally commercialenterprise is guesswork-based on accurate analysis of prior history.In other words, even litigation practices could establish profitablefixed fee structures if they undertook the kind of rigorous cost andprofit analysis of prior cases suggested in Chapter 3. For instance,many crinlinallawyers have developed fixed fee schedules for theircases based, presumably, at least in part on an analysis of the 'workinvolved in the average case, the market rate, and the lawyer's anticipated revenue needs. What litigators must remember is that whilesome cases involve more effort than others, or even spin out of control, if the litigators do the appropriate analyses, they can determineaverages for each kind of case, and for every stage of the litigationprocess. When they undertake that preparatory effort, they enablethemselves to offer their clients the benefits of fixed fee arrangements and increase their profitability at the same time.
Lawyers who cannot get away from focusing on the fact thateach case, individually, is unpredictable are destined to remain inthe time-charging trap (as long as they can find clients willing to goalong with them). Surely the enormous pressure of insurance companies on defense firms' time-charging practices must encouragerethinking of how to bill in ways that avoid that trap and encourageefficiencies. Here, of course, are additional ethical challenges. Byavoiding the conflicts of interest in the hourly fee arrangement,lawyers are at risk if they set fixed fees that do not permit them toact diligently in cases involving more effort than the normal matter.Some ethics committees have therefore opined that such arrangements are impermissible. This is a mistaken view. Rather, the position that should be taken is that lawyers are obligated to providediligent and competent service on all matters that they undertakeand that, therefore, fixed fees must be set at levels where they canhandle the hard as well as the easy matters entrusted to them.
The second aspect of successful fixed fee arrangements forfirms to master before undertaking them is development of precise
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descriptions of the scope of services to be provided. For instance, if alitigator were to offer a fixed fee for a piece of litigation and setthe price assuming that the engagement would last through trial,she would surely lose money ifforced to handle the appeal within thesame fee. Accordingly, in accepting the engagement, it would beessential that the litigator specifY that the scope of the engagementwas through trial and did not include the appeal. Again, this may beeasier for lawyers with "cookie cutter" practices, but it is not beyondthe reach of lawyers with highly sophisticated practices. Forinstance, we know of bond counsel who operate in the same way asthe immigration lawyer; their engagement letters are lengthy anddetailed and their clients are sophisticated enough to understandwhat is and is not included within the agreed fee. (Engagement letterissues are addressed at greater length in Chapter 5.)
The benefits of fixed fees are not limited to clients' appreciationof the removal of uncertainty from the process of hiring a lawyer.Like every aspect of clients' businesses, fixed fees enable clients todecide, up-front, whether the benefits of the process are worth thecost-in other words, to decide on the value they place on the engagement. If they were unwilling to agree to the fixed fee, it is almost certain that when the hourly fees reached the same level, there wouldhave been collection problems. On the other hand, clients recognizethat fixed fee arrangements involve the lawyer in sharing somedegree of risk in any given matter, since theirs may be "the case fromhell," involving significantly more effort than the normal case.Clients are much more comfortable with lawyers who are willing toshare risk, since they understand that this makes the relationshipmore of a joint venture and much less adversarial than when clientsare being charged for time spent. In addition to establishing value tothe client, fixed fee arrangements also benefit both sides by creatingcertainty as to when fees will be due and paid. This benefit, largelyunknown to lawyers who bill on a time-charge basis, is of inestimablevalue in budgeting law firms' operations, not least in distributingprofits. In addition, from the client's point of view, it makes budgeting and paying legal bills a matter of routine, rather than a source ofstress.
Stage-by-Stage Fee Arrangements
While stage-by-stage fee arrangements have many of the problems oftime charging, they do offer clients some additional elements of control over what the law firm does-or at least what it gets paid for
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doing. Thus, fees are fixed for each element of a transaction or case(e.g., the fee per deposition), and the e:l..'ient of work (i.e., the numberof depositions) remains in the client's control.
Contingency Fees
While many lawyers and laypersons alike think of contingency feesas the domain only of personal injury and class-action lawyers, infact there are many other kinds of practice where fees based whollyor partially on success may be an option-and an opportunity. It is nofluke that lawyers who work on contingency are frequently the mostprofitable and successful. It is vital to note that these arrangementswork because they are advantageous to clients as well as lawyers.For clients, the fundamental benefit of these arrangements is that,by sharing the reward with the lawyer, they can require the lawyerto share the risks. This is beneficial because it demonstrates to theclient that there is (normally) no conflict of interest, in that thelawyer is committed to success, and because the frictions relating tothe subject offees are thereby largely eradicated. One of the reasonsthat contingency fee practices are so profitable is that the degree ofrisk sharing is maximized, and the higher the level of risk undertaken by the lawyer, the more willing clients are to forego greaterinterests at the end of the day.
Reverse Contingency Fees
''Reverse'' contingency fee arrangements involve complex risk sharing where there is no pot of gold, but only the variable risk of loss bythe client at the end of the matter. When defendants are in a positionwhere the best result would be a verdict of no liability, and the worstresult a verdict with a huge dollar adverse verdict, lawyers canstructure contingency fee arrangements. In a way even greater thanin traditional plaintiffs' contingency fee work, lawyers consideringreverse contingency arrangements must be prepared to invest verysubstantial capital (i.e., lawyer time) in researching the case beforesetting the fee structure. The client and lawyer must agree on theworst case result, which, ifit occurs, will be the equivalent of a defendant's verdict to a plaintiff's lawyer. The fee is then based on a percentage of the saving achieved by the lawyer in the final outcome.For instance, if the client and lawyer agree that the realistic worstcase verdict will be $9 million and agree on a 33 percent reverse contingency, the lawyer will collect $3 million if the lawyer takes thecase through to a successful verdict of no liability. On the other hand,
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if the lawyer negotiates a settlement at $6 million, he or she will stillrecover $1 million (being one-third of the saving from the worst caseverdict). In either event, the client has benefited from a saving fromthe worst case verdict, and both parties have benefited from the risksharing principle. While these arrangements are not for the faint ofheart, they can be very profitable-provided that the lawyers involvedeffectively invest in the up-front case evaluation process.
The Premium for Success Fee
These arrangements are, in effect, transactional lawyers' equivalentsof contingency fees. As with fixed and contingency fees, the conceptunderlying "premiums for success" is the sharing of risk betweenlawyer and client. The benefit for the client is that it reduces itsexposure to expense for transactions that are not consummated; thebenefit for the lawyer is that a new level ofloyalty is established withthe client, and profitability is taken to a level far higher than anyhourly fee arrangement is likely to reach.
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HOW TO GET THERE: MANAGING THE MOVEAWAY FROM HOURLY BILLING
The assessment checklist at the end of this chapter provides guidance in deciding ifyou want to move your firm or practice away fromtime-based billing. Even if you are convinced to begin the. process,the move cannot occur overnight. Such a change should not beattempted without appropriate preparation, on the part of boththe lawyers and the clients to be involved. Initially, as shown inChapter 3, it is essential to lay the basic foundation, in terms ofestablisbing costs, to set prices appropriately. In addition, no alternative fee arrangement will succeed without effective and positiveengagement letters, as discussed in Chapter 5. However, betweenlaying the foundation for effective pricing and presenting clientswith proposed engagement letters, there is an equally importantintermediate step: persuading the other lawyers involved of the wisdom of the endeavor. Again, Richard Reed's Billing Innovations provides an invaluable road map of what is involved in the process.Form 1 at the conclusion of this chapter contains Reed's suggestionson how to proceed.
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THE HIDDEN IMPLICATIONS OF ALTERNATIVE FEEARRANGEMENTS: THE FUTURE OF HOURLY FEES
There are several reasons why some lawyers are leery of alternativesto time charging. First, there are major potential consequences for thestructure and composition oflaw firms that may follow from the kindof rigorous cost and profitability analysis that is the sine qua non ofany effective change. As in the Chapter 3 example of Litigator, Tax,and Real Estate, the rigorous analysis of profitability that needs toprecede any move into alternative billing may show that differentpractices within firms (even firms of only two lawyers) have very different profitability-even iftheir gross revenues are similar.
Take, for instance, two partners who each generate $150,000 inannual fee receipts. If partner A, who practices estate planning,operates very efficiently using forms that she has collected anddeveloped, and requires very little secretarial or support staff, theoverhead (rent, receptionist, library, equipment, etc.) attributable toher practice may be $50,000. Her partner, B, is a real estate lawyer.He requires a full-time secretary and a paralegal to prepare and conduct closings and prepare closing statements. His share of overheadis $100,000. When the partners (or their accountants) have completed this analysis, the result will likely put significant pressure ontheir long-established compensation structure-splitting the combined net profit of both practices. While both practices might benefitfrom alternatives to time charging, or from modifying their existingfixed fee arrangements, if not properly managed, simply doing thecost and profitability analysis can provoke the partnership's collapse. On the other hand, constructively used, this analysis is anessential step in determining how to make B's practice more efficient, thereby increasing the profit from each client and the practiceas a whole.
In addition, although hourly billing only became the primaryform offee generation among lawyers in the late 1960s, a majority oflawyers now practicing have known no other system. Furthermore,the entire structure ofmany large firms-the "pyramid"-is based onthe assumption that profits come from maximizing the amount oflawyer time (and therefore the number oflawyers) thrown at clients'matters-the "leverage" system. The very suggestion that profits canbe improved by increasing efficiency is counterintuitive to lawyersand firms whose historic success is based on "leverage." Indeed, thatsuccess is a strong reason why many lawyers, particularly those
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managing or reaping the profits at the top ofvery large firms, declineto contemplate the kinds of changes discussed here.
Because so much of the profession has grown up with the hourlyfee, it could take at least a generation to get away from time charging. However, because the benefits of alternative fee arrangementsare so clear, and so evenly shared between lawyers and their clients,eventually time charging will go the way of the dinosaurs.
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CHECKLISTSELF-ASSESSMENT CHECKLIST FOR SELECTING
A BILLING METHOD
Before you jump in to change your methods for the billing and pricing oflegal services, you should consider each of the following:
__ Objectives and goals must be clearly defined.The solo practitioner, firms of all sizes, and in-house counsel need to set objectives and goals. Do you have firmobjectives and goals?What are your strengths and weaknesses?What services do you now provide?What services should you provide in order to meet yourgoals and objectives?How do you as owner(s) of the firm or organization perceive your organization, its competitive advantages anddisadvantages?Is your perception realistic and supported by the facts?How does your perception fit with your clients' perception? How will you find out?Who are your lawyers and what are their talents?What is your lawyer experience mix and how does it fitthe needs of your clients?Who are your clients and what are their legal needs nowor in the foreseeable future?How do your firm's talents meet the needs of your clients?Do your clients perceive that you or your firm has theskills to meet their needs as perceived by your clients?Where does your practice fit on the value curve?
__ What is your present and future market?__ What are the market trends?__ What is the demography of:
__ your firm__ your clients__ your legal community?
__ Who are your competitors and where are they located?
Source: Reprinted with permission from Billing Innovations: New Win-Win Ways to EndHourly Billing, a publication ofthe ABA Law Practice Management Section, by Richard C.Reed,1996.
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In what practice areas do they compete?What are the prevailing rates for the types of services youprovide in your market, especially if you are providingservices that are price sensitive?Who are your clients?What are the needs of your present or potential clients?
__ What are your present billing methods?Do your present billing methods enable you to achieve adesired level of profitability?Do your billing methods meet client needs and preferences?Do your billing methods enable you to compete effectively?Do they enable you to further your firm goals?Do they fairly measure value to the client?Are they consistent with trends?Do they promote effective marketing?Are they based on written fee agreements?Have they been innovative? Flexible?Are the billing methods different for different types ofservices?Are they competitive in your market area as to price?
__ Things to examine in your practice.Examine how many manual or computerized maxisysterns or minisystems already exist in your practice. In a"minisystem," you or someone in your organization follows a preestablished system of performing certainactions or producing certain documents for a phase of atransaction. In a "maxisystem," the preestablished system exists for substantially the whole transaction.
Example of a maxisystem: The preparation of simplearticles of incorporation, bylaws, the oath of directors,and minutes of the organizational meeting for a smallcorporation.
Example of a minisystem: Getting out and servingnotices of a deposition, including subpoenas, arrangingfor a court reporter, and reserving a conference room.Analyze your practice to see if there are recurring representations where the value to the client will be materiallyincreased if a certain result is Obtained.
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Examples: A merger or acquisition occurs; there isearly resolution of the matter being handled; a rezoneis obtained or a plat is approved with certain approveddensities.
Where you are willing to share risks with the client,. a contingency factor in a price to be charged may beappropriate.Do you have some high-volume, reasonably similar matters that can be handled on a routine basis by legal assistants or junior associates?
Example: Nonjudicial deed of trust foreclosures.
__ Are you willing to try innovative billing?Have you analyzed your practice to determine those practice areas or types of services where alternative or innovative billing methods might be beneficial?Are you or some members ofyour firm willing to innovate?Do you have clients who might be willing to accept alternative billing methods?Are you willing to take the time and make the effort tobring about a change in how you bill for legal services?Will your organization support the effort?
__ List five or more situations in your practice where you can use. alternative billing methods.
__ What immediate steps do you propose to take to change yourmethods of billing or pricing?
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FORM 1GUIDELINES FOR SELECTING AN ALTERNATIVE
BILLING METHOD
1. Gather some of your most forward-looking colleaguestogether and urge them to join you in thinking globallyabout how law practice is and will be changing. Think conceptually.
2. Abandon any notions that law practice in the future will beas it has been in the past or is at present.
3. Read everything that you can about alternative billingmethods, total quality management, and current practicesof corporate legal departments in moving towards "partnering" with outside law firms.
4. Think about the information you have or can gather aboutthe cost of providing legal services for specific representations. Act to improve the cost-accounting aspects of yourpractice. Concentrate on determining the cost to producelegal services where the scope of the engagement can bereasonably defined.
5. Analyze the systems you now employ, whether manual ortechnology based, to determine the co=odity services youroutinely perform. Co=odity services are services that arerepeated regularly and often can be done by legal assistantsor associates following prescribed practices or procedures.
6. List the twenty clients that produce the most fees for yourfirm. Then think of what services are involved and how wellyou meet what you perceive are those clients' legal needs.
7. Then do a client surveyor client audit of those key clientsand ask them how well they feel you are meeting their legalneeds. Your perception of their legal needs may differ fromtheir perception. Indicate a willingness to discuss ways thatyou could improve in order to meet those needs.
8. When you begin to feel that certain matters could be billedon other than an hourly basis, collect closed files thatinvolved comparable services and analyze what was
Source: Reprinted with permission from Billing Innovations: New Win-Win Ways to EndHourly Billing,- a publication of the ABA Law Practice Management Section, by Richard C.Reed, 1996.
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involved, the charges you made, the common elements, andthe variables. Determine whether there is enough similarityin the scope of the previous work to predict the cost of providing those services currently.
9. Depending on the size of your firm, determine whetherthere are specific lawyers, practice areas, or practice groupsthat might be particularly amenable to innovations inbilling methods. Concentrate on those rather than trying tomake the whole firm change initially.
10. Think about value and how it can best be measured. Arethere clients who are extremely results oriented? Ask yourself if you would be willing to share some of the risks, ifthere is a good possibility of getting a bonus based on favorable results.
11. Attend all the seminars offered on alternative billing methods. Talk to those in attendance, both speakers and registrants, to learn how to use new methods and to hear of theirpersonal experience. Many small firm practitioners havealready successfully developed innovative billing and pricing methods. Learn from those who know it works.
12. Think about how your marketing efforts could be enhancedby using innovative billing and pricing methods. Clients liketo know in advance how much services will cost so they canjudge whether the effort will be worth the cost and can planahead for their legal expense.
13. Ifyour client insists on having a cap or maximum fee quotation and you are inclined to agree, rather than agree tohourly billing with a maximum, switch to a fixed fee.
14. Constantly ask yourself how your efficiency could beincreased, including not only eliminating unnecessary workbut also decreasing the time for resolution of the client'sproblem.
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They Work Long Hours, but What About Results?
Robert C. Pozen The New York Times October 07, 2012
IT’S 5 p.m. at the office. Working fast, you’ve finished your tasks for the day and want to go home. But none of your colleagues have left yet, so you stay another hour or two, surfing the Web and reading your e-mails again, so you don’t come off as a slacker.
It’s an unfortunate reality that efficiency often goes unrewarded in the workplace. I had that feeling a lot when I was a partner in a Washington law firm. Because of my expertise, I could often answer a client’s questions quickly, saving both of us time. But because my firm billed by the hour, as most law firms do, my efficiency worked against me.
From the law firm’s perspective, billing by the hour has a certain appeal: it shifts risk from the firm to the client in case the work takes longer than expected. But from a client’s perspective, it doesn’t work so well. It gives lawyers an incentive to overstaff and to overresearch cases. And for me, hourly billing was a raw deal. I ran the risk of being underpaid because I answered questions too quickly and billed a smaller number of hours.
Firms that bill by the hour are not alone in emphasizing hours over results. For a study published most recently in 2010, three researchers, led by Kimberly D. Elsbach, a professor at the University of California, Davis, interviewed 39 corporate managers about their perceptions of their employees. The managers viewed employees who were seen at the office during business hours as highly “dependable” and “reliable.” Employees who came in over the weekend or stayed late in the evening were seen as “committed” and “dedicated” to their work.
One manager said: “So this one guy, he’s in the room at every meeting. Lots of times he doesn’t say anything, but he’s there on time and people notice that. He definitely is seen as a hard-working and dependable guy.” Another said: “Working on the weekends makes a very good impression. It sends a signal that you’re contributing to your team and that you’re putting in that extra commitment to get the work done.”
The reactions of these managers are understandable remnants of the industrial age, harking back to the standardized nature of work on an assembly line. But a measurement system based on hours makes no sense for knowledge workers. Their contribution should be measured by the value they create through applying their ideas and skills.
By applying an industrial-age mind-set to 21st-century professionals, many organizations are undermining incentives for workers to be efficient. If employees need to stay late in order to curry favor with the boss, what motivation do they have to get work done during normal business hours? After all, they can put in the requisite “face time” whether they are surfing the Internet or analyzing customer data. It’s no surprise, then, that so many professionals find it easy to procrastinate and hard to stay on a task.
There is an obvious solution here: Instead of counting the hours you work, judge your success by the results you produce. Did you clear a backlog of customer orders? Did you come up with a new idea to solve a tricky problem? Did you write a first draft of an article that is due next week?
2
Clearly, these accomplishments - not the hours that you log - are what ultimately drive your organization’s success.
Many of your results-oriented strategies will be specific to your job and your company, but here are a few general ways that professionals across all industries can improve their efficiency.
LIMIT MEETINGS Internal meetings can be a huge waste of time. A short meeting can be useful for discussing a controversial issue, but long meetings - beyond 60 to 90 minutes - are usually unproductive. Leaders often spend too much time reciting introductory material, and participants eventually stop paying attention.
Try very hard to avoid meetings that you suspect will be long and unproductive. When possible, politely decline meeting invitations from your peers by pointing to your impending deadlines. If that’s not an option, make clear that you can stay for only the first 60 minutes, and will then have to deal with more pressing obligations. And be hesitant to call meetings yourself; you can deal with most issues through e-mail or a quick phone call.
If you’re involved in calling or planning a necessary meeting, make sure it’s productive. Create an agenda that organizes the meeting and keeps it moving briskly. Distribute that agenda, along with any advance materials, at least a day in advance. Appoint a “devil’s advocate” for every meeting, whose job is to make sure that the potential negatives are discussed. At the end of the meeting, make sure that everyone agrees on the next steps, with each step assigned to one participant and with a specific deadline.
REDUCE READING You don’t need to read the full text of everything you come across in the course of your work, even if it comes directly from the boss. Though reading a long article from cover to cover might make you feel productive, it might not be the best use of your time. Most likely, only a very small part of that article is vital to your work. Maybe you need to remember the big ideas, not the intricate details. Or maybe you need only to find one or two examples that illustrate a particular larger point. Once you start reading a text, make it a point to search for what’s important, while skipping sections that are less relevant.
Of course, some materials call for you to become totally immersed in the details. If you are reading an article directly related to the company’s newest blockbuster product, for instance, it probably makes sense to go over every word. But for less important tasks, this level of detail is often unnecessary. If you’re not careful, these tasks can take over your entire schedule.
And avoid rereading your e-mails. I am a great believer in the OHIO principle: Only handle it once. When you read an e-mail, decide whether or not to reply to it, and, if you need to reply, do so right then and there. I have found that about 80 percent of all e-mails, whether internal or external, do not require a response. Don’t let these extraneous communications clog your in-box and waste your time.
WRITE FASTER Even if you need to create A-plus work for a project, it needn’t be perfect right off the bat. When some people sit down to write a long memo, they insist on perfecting each sentence before moving to the next one. They want to complete all the stages of the writing process at the same time - a most difficult task. In my experience, this leads to very slow writing.
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A better approach separates the main steps in the writing process. First, compose an outline for what you are going to say, and in what order. Then write a rough draft, knowing it will be highly imperfect. Then go back over your work and revise as needed. This is the time to perfect the phrasing of those sentences.
In general, don’t waste your time creating A-plus work when B-plus is good enough. Use the extra time to create A-plus work where it matters most.
AS you try these and other results-oriented strategies, you may well find yourself spending less time at the office - and that can make some bosses nervous. The traditional emphasis on face time, after all, is easy for managers: it takes much less effort to count hours than it does to measure results. That’s why you may need to forge a new relationship with your boss.
You must earn your boss’s trust that you can accomplish your work in less time. In part, you can do this by thinking about your organization and watching your boss. Ask yourself: What are the most important goals of your unit? What sort of pressure is your boss under - to expand globally, to introduce new products, to cut costs, or something else? How might the boss’s personality and management style shape these considerations?
But it’s not enough to think and observe. You need to communicate - often. Every week, write down a list of your assigned tasks - short-term assignments and long-term goals - and rank them by importance, from your perspective. Then ask your boss to weigh in on the list.
You and your boss should come to a consensus about the metrics for every project. If your boss doesn’t establish any, suggest them yourself. Metrics can include both qualitative and quantitative results. They provide objective measures for judging final results - and move your boss away from the crutch of face time. And the process of establishing these metrics can help you and your boss clarify how best to accomplish a project.
Once the boss is confident that you know what to do and how to do it, show that you can consistently create high-quality results on high-priority projects. There’s no particular secret here: you need to do your best to achieve the established goals. And remember that most projects run into potholes or even roadblocks on the way. Be quick to report problems to the boss and to suggest possible solutions, including a revision the project metrics themselves.
I KNOW that a change in focus from hours to results may be a challenge in some organizations. But your boss is likely to be receptive if you politely raise the question of productivity and show you’re willing to be held accountable for results, rather than hours worked. You may also be able to do more work from home, if that’s what you prefer.
Even in a culture oriented toward results, however, you sometimes will need to be physically present in the office to do your work. And some jobs absolutely depend on it. In almost all workplaces, colleagues need to get together to brainstorm ideas, solve tough problems or build communal bonds. But there’s no reason for these interactions to take up large amounts of time.
By emphasizing results rather than hours, I’m able to get home at 7 p.m. for dinner with my family nearly every night - except when there are true emergencies. This has greatly enhanced my family life, and has given me a secondary benefit: a fruitful mental break. I’ve solved some
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of the thorniest problems in my home office at 10 p.m. - after a refreshing few hours chatting with my wife and children.
Focusing on results rather than hours will help you accomplish more at work and leave more time for the rest of your life. And don’t be afraid to talk to your boss about these issues. To paraphrase the management guru Peter Drucker, although you don’t have to like your boss, you have to manage him or her so you can have a successful career.
Robert C. Pozen, a senior lecturer at Harvard Business School and a senior fellow at the Brookings Institution, is the author of “Extreme Productivity: Boost Your Results, Reduce Your Hours” (HarperCollins).
Survey Shows the Bell Is Tolling for the Billable Hour
Amy Miller Corporate Counsel December 01, 2009
Companies are successfully pushing their outside counsel to abandon the billable hour, a new survey indicates.
In October, The American Lawyer and the Association of Corporate Counsel jointly surveyed 587 general counsel and chief legal officers, and found that 39 percent paid law firms more money this year under alternative fee arrangements than they did in 2008. Meanwhile, just over half (53 percent) said spending on alternative fee arrangements had stayed the same. Only 8 percent said it had fallen.
The results weren’t surprising to Susan Hackett, general counsel for the ACC. The increase might have been more substantial, had many cash-strapped general counsel not turned to the quick fix of rate discounts, rather than alternative fee arrangements. But the results nevertheless prove that the legal profession is finally moving away from the billable hour -- for good.
“People are assuming the change is here to stay,” Hackett says. “We’ve turned a corner, and I don’t think we’re going back.”
Spending off the clock wasn’t up drastically for most companies. The highest percentage of legal heads, 42 percent, said spending had increased 10 percent or less. Only 13 percent said it had increased more than 30 percent.
Legal chiefs used a variety of non-hourly arrangements, from contingency fees to retainers for a portfolio of services. But the most popular was the flat fee. Forty-eight percent of general counsel said they had paid a flat fee for an entire matter this year, and 36 percent had for some stages of a matter. Only 24 percent said they still paid all their law firms by the hour.
Flat fees were even more popular among the 149 legal chiefs at large companies that earned $1 billion or more in revenue. Sixty percent said they had used a flat fee for an entire matter, and 46 percent had for some stages of a matter. Only 12 percent of those in-house lawyers said they still paid firms solely by the hour this year.
And the survey results also show that in-house legal departments, not law firms, are taking the lead. Fifty-four percent of legal chiefs said they had initiated their arrangements, while only 3 percent said their law firms had. Eighteen percent said it was a combination of both. Twenty-six percent said the question did not apply.
Hackett says that finding was a surprise. When she goes out to talk to attorneys at law firms, she hears the opposite. Lawyers typically complain that in-house counsel are reluctant to try alternative arrangements, despite their best efforts. “Maybe this is the accurate reflection of the market,” she says.
But no matter who initiates the arrangements, most in-house legal departments still aren’t using them extensively, the survey found. Sixty-nine percent said that 10 percent or less of their total spending on outside counsel was done off the clock in 2009. Only 6 percent said that more than half of their spending on law firms was done under alternative fee arrangements.
Hackett says that percentage will continue to climb though. She hopes that by 2010, general counsel will be spending a quarter of their budget for outside counsel under alternative fee arrangements. And a quarter of all their legal matters will be handled under them, too. “That’s a huge jump,” Hackett says. “But people can’t go back to spending like they did before.”
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In Today’s Market, Clients Seeking Cost Certainty
Dan DiPietro and Gretta Rusanow The Legal Intelligencer December 15, 2010
The Citi Private Bank Law Watch Third Quarter 2010 results indicated that firms continue to experience flat revenue growth. The current state of the legal industry has been aptly described by a number of managing partners we’ve talked to as: “a smaller market with more competitors.” These factors, together with an increasing willingness on the part of general counsel to branch out beyond their traditional law firms, are forcing many law firms to compete on price, and others to innovate in order to be profitable and sustainable in this changed market.
Citi Private Bank provides financial services to more than 600 U.S. and U.K. law firms and over 35,000 individual lawyers. Each quarter, the Law Firm Group confidentially surveys firms in the Am Law 100 and Second Hundred, along with smaller firms. In addition, we conduct a more detailed annual survey. These reports, together with extensive discussions with law firm management conducted on an ongoing basis, provide a comprehensive overview of financial trends in the industry and insight into where it is headed.
Over the past three months, having traveled throughout the United States and London conducting roundtables with managing partners of over 150 firms, meeting with individual law firms, and learning how firms are responding to this flat market, we heard two themes. The first relates to the constant pricing pressures firms face, and how they are responding to these pressures. The second relates to how firms are seeking to differentiate themselves in ways other than just price.
New low-cost competitors
We hear continually from law firms about the unrelenting pricing pressures from clients. As a cost center, the corporate law department faces pressure internally to reduce its outside legal costs. General counsel have been open to other options given the availability of off-shore legal service providers, and Am Law Second Hundred firms prepared to offer services at a lower cost than the traditional law firms. Am Law 100 firms have commented to us about the increased competition from these alternative providers, as well as from smaller firms that are able to provide legal services at significantly lower rates because of lower cost structures.
Afas: pricing and project management
In addition to simply discounting fees, we see an increased focus on alternative fee arrangements (AFAs). We see this as a direct reaction to the war on pricing. While we are not predicting the end of the billable hour, we are seeing firms turn their attention to alternative fee structures, not only as a defensive strategy, but also as a means of strategically shifting their business model.
In so doing, firms have described two key challenges to us. The first is how to accurately price services at the outset. Firms have started to consider how they might mine data in their practice management systems and knowledge management systems to create accurate cost predictions for matters. Some firms have formed committees composed of IT, finance, knowledge management and practice group representatives working together to identify the common characteristics of
various matters, and in so doing, improving the predictability of matter costs. In other words, these firms are moving from a reactive stance to a more strategic, scientific approach to pricing of legal services.
The second challenge firms confront is, once they have agreed to an AFA, how can they ensure that the work will be completed within the agreed scope and to budget. To do so, some law firms are retaining professional project managers. Other firms are placing that responsibility on lawyers by conducting project management training sessions for partners and attorneys in the firm.
The ‘apples to oranges’ dilemma
Despite all the noise in the industry around AFAs, and general counsel asking for innovative fee structures, we also hear how, for many firms, their experience has been that clients are using AFAs as code for seeking a deeper discount to the hourly rate. Firms describe responding to a client’s request for a more creative fee structure, only to find that the client is then unable to compare the proposed creative solution with other alternatives in the market. This “apples to oranges” problem can result in the client, who is unable to assess the value of what is being offered, simply reverting to a request for a deeper discount.
Lowering the law firm cost structure
To compete on price, we’ve heard a lot about how firms are lowering their cost base, focusing on operational efficiencies, or simply taking a hit to their profit margins (hopefully as a short-term solution with longer-term benefits).
Some firms have moved back office functions to cheaper locations, either within the United States (in-shore) or overseas (off-shore) in an effort to lower their cost structures. On this latter trend, we’ve seen firms outsource to third-party off-shore service providers, and others have created their own captive off-shore operations mimicking the outsourcing model. Although back office functions were typically the initial focus of these initiatives, firms are now beginning to outsource basic legal work.
Firms also have told us that they are looking at creating categories of lawyers at a lower cost structure than the traditional partner-track associate. This can enable firms to produce work at lower cost, but it also raises a number of “social contract” issues in firms where there have traditionally been just partner-track associates. Firm will need to consider several issues with this category of lawyer: exposure to clients and partners, professional development opportunities and a longer-term career path.
Two long-term approaches to generating profit
We have been hearing firms take a “loss leader” approach to pricing their services. Firms describe how, in markets where clients differentiate legal service providers based solely on price (not on quality), they are heavily discounting their fees during the initial stages of a relationship, just to get their foot in the door. Firms have taken this strategy, in the hope that eventually, clients will begin to see the difference in quality, and will then be more prepared to pay higher fees for higher quality work.
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Firms also are taking a “venture capital” approach to winning work in markets outside of their traditional client base. We’ve heard how certain Am Law 50 firms are offering discounted services to startups, in an effort to start what they hope will become a long-term, and ultimately profitable, relationship with the next Google or Microsoft.
Who is your client?
We hear regularly about the increasing presence of the procurement team in client discussions about fees. Law firms describe how a discussion with procurement is much more focused around price than on the value of a long-standing relationship between the company and its external law firm. Nevertheless, with procurement at the table, law firms now need to consider who their client is — is it the general counsel or procurement? And what factors will drive a decision on which law firm the company chooses to use?
It’s not always about cost reduction.
We recently heard a firm describe how it entered into an arrangement with a client to work under a fixed budget for 2010, with the proviso that during the 2011 budget season, the client and law firm would meet to discuss whether the actual cost of legal services provided in 2010 (based on an agreed upon hourly rate) was higher or lower than the 2010 budgeted amount. The adjustment would then be made to the 2011 budget. What the client here was looking for was cost certainty, rather than cost reduction. By understanding its client’s need for certainty, the law firm was able to maintain its fee structure — and keep its client.
Underscoring this focus on price certainty, we recently heard about a corporate client, who, having invited law firms to tender for work under an AFA, did not select the lowest cost bid. In selecting a more expensive law firm rather than the lowest cost option, the general counsel explained how she was concerned that the low cost provider would not deliver at that price. She went further to say that she did not want to be embarrassed in front of her CEO, so opted for the higher bid, because she felt comfortable that the bid was more realistic. This story illustrated to us that while clients care a lot about cost, they are prepared to pay a premium for cost certainty.
Shifting the discussion to ‘value beyond price’
Beyond the focus on cost, clients also care a lot about the “value beyond price” that we are hearing firms offer to clients. Recognizing that their corporate law department clients have limited resources and budgets, law firms are seeking out ways that they can assist their clients beyond the delivery of core legal services. Where a client has a short-term need for extra in-house resources, law firms are offering to second associates to a client for a period of time at a negotiated rate that works for both the firm and the client. Where a client has a need for better knowledge tools, firms are offering knowledge management products and services to clients, such as databases of client work product, access to library/research assistance and CLE programs.
For major cases and matters, law firms are conducting end-of matter debriefs with clients at no charge, to identify what went well and what could be done better the next time. Law firms are also offering a set amount of “free” telephone advice — where the in-house lawyers can
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comfortably pick up the phone and talk to their law firm about basic issues without fear of seeing a bill for it.
We’ve observed that the most successful programs are those where the law firm understands that, as an internal cost center, its corporate client may lack basic law practice tools, and actively engages their client in understanding what they lack, and how they can benefit, at no cost, from their law firm. While these initiatives may not be fee-generating, they strengthen the ties between law firm and client — and create opportunities for new fee-generating work.
It’s clear to us that in the process of figuring out how to compete on price, firms are looking more broadly than just offering deeper discounts to their hourly rates. The discussions we’ve had make us hopeful that firms are beginning to realize they will need to manage differently to maintain profit growth in this client-centric world. Even beyond AFAs, the increased focus on who is their client and what does their client want, suggests to us that firms are embracing the challenges they’ve faced in this soft demand market. In the process, they are being innovative in how they run their law firms, positioning their firms for future growth.
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3 In-House Views of Alternative Fee Arrangements
Christian Lewis Law360 October 17, 2014
What does general counsel really think of alternative fee arrangements? The question was met with a fair amount of skepticism by a panel of general counsel Friday at the annual meeting of the Legal Marketing Association Southeastern Chapter.
Tactics such as blended billing and bonus arrangements do work in certain circumstances, according Dean Kim, general counsel of North American Business Units at Bridgestone Americas Inc., but the key is to remember that a corporation asks the same questions of its legal department as it would of any other division of the company: What was our spend? How does it compare historically? What was the level of service?
“If we come up with blended fee arrangements and end up spending the same amount at the end of the year, it’s not worth it,” Kim said. “If you really have a long view, you don’t want to just win the proposal — you want to actually have a relationship that lasts.”
Others were less receptive to the idea of alternative fee arrangements.
“The flat-fee thing normally doesn’t work for a law firm. A 10 percent discount doesn’t really work either,” said Christopher Kelly, general counsel of AmSurg Corp., one of the largest outpatient surgery companies in the U.S. “I haven’t seen anything innovative enough to replace the traditional model.”
Christopher Javillonar, general counsel of power wheelchair maker Permobil Inc., agreed: “I’m sticking with the traditional model now until someone proves otherwise.”
So if not on the billing side, how do law firms get the attention of in-house counsel? One suggestion was to tout those attorneys with experience regulating a specific industry.
“I work in the most highly regulated sector of the most highly regulated industry,” Kelly said. “Smart firms hire the people who used to work for the government regulators — people with relevant, recent experience. That’s who I want to hear from.”
He said he also looked for attorneys serving in some capacity as teachers — for example, subject matter experts presenting at conferences.
Javillonar agreed. Having recently moved in-house from the law firm side, Bryan Cave LLP, he said he was the one out there actively seeking information.
“How do you get my attention? Networking. Conferences. My goal is to meet you, meet people in your firm, see what services you provide,” he said.
All the panelists agreed that law firm attorneys needed to study and understand the company’s business. And to be effective, they should serve not only as legal experts but also as business advisers.
2
“Our environment is a little bit irreverent,” said Michelle Kennedy, general counsel and chief financial officer of hockey team Nashville Predators. “If what you have is the stiff, in-the-box attorney, it’s just not going to work very well … This is not something that can be solved in a black-and-white way. You need to be comfortable existing in the gray areas.”
--Editing by Christine Chun.
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