Ethics Wake-Up Calls for Supervisory Responsibilities

By William Wernz posted 07-07-2020 11:42

  

[This blog originally appeared as an article in the July 2020 Bench & Bar of Minnesota.  Added near the end of the article is a paragraph describing a Minnesota Supreme Court discipline case decided July 1, 2020.]

Who in your law firm is responsible for adopting and updating policies and procedures on legal ethics matters? Who is responsible for training lawyers and staff on these matters? Must your firm audit its own files and procedures to reasonably ensure compliance with the ethics rules? What are the areas of law firm operation that are important for ethics scrutiny?

Lawyers who manage law firms and law offices should be asking these questions. Several wake-up calls—including an article by Susan Humiston, the director of the Office of Lawyers Professional Responsibility, and a public reprimand—make the questions timely.[1] Before considering these questions, let’s also ask, how do lawyers best learn legal ethics? And how do lawyers and law firms go about character formation?

Ethics as habit, character, and culture

In recounting his law firm legal ethics education in the 1980s, Patrick Schiltz regarded the ethics rules as “irrelevant.”[2] His learning came from watching and emulating an experienced partner-mentor. Schiltz paid special attention to the mentor’s ethics habits, the ways in which the mentor’s professional character manifested itself in his regular conduct.

The heart of a good professional ethics education will always be the development of habits and character. How do I live a good life in the law? How do I treat subordinates and adversaries? How do I best serve clients—by reflexively implementing their goals or by first counseling with them about their true interests? Do I treat mundane things like notarizations, filing, and others’ schedules impatiently or with good systems? What does it mean to be an officer of the court? 

The best class in legal ethics is participatory: learning by watching and doing. Lawyers who learn their habits without benefit of good mentors will have to work hard at becoming good lawyers in the full sense. In decades gone by, law firm partners could claim that their firm’s ethics program largely consisted of saying to new attorneys, “Keep your head up, your eyes open, your mouths shut, and emulate the best of what you observe.”

Law firm ethics also reflect the firm’s character. Are there any consequences if a powerful partner treats staff and junior attorneys disrespectfully? Do partners customarily take time to mentor associates? Does the firm encourage pro bono efforts? How does the firm acculturate new lawyers in the firm’s traditions? The rules are not the primary determinant of a law firm’s—or a lawyer’s—character and core values. But a managing partner who regards the rules as “irrelevant” in 2020 risks discipline, damages, and disaster.

The rules and law firm practices in the late 20th century

Before 1985, the ethics rules did not regulate the conduct of managing partners and supervisory attorneys. In 1985, the Court adopted Rule 5.1, which provides that lawyers with management responsibility “shall make reasonable efforts to ensure that the firm has in effect measures giving reasonable assurance that all lawyers in the firm conform to the Rules of Professional Conduct.” Supervising lawyers in law firms and in corporate and governmental offices are treated alike. In 1985, the Court also adopted Rule 5.3, creating supervisory obligations for lawyers regarding nonlawyer staff. 

After 1985, OLPR increased disciplinary regulation of several areas of law firm administration. Lawyers who did not keep their license or CLE status current for substantial periods were disciplined. A trust account overdraft notification program was initiated. Law firm managers were sometimes disciplined via OLPR’s “Who’s Responsible Letter.” When an ethics complaint was filed against a law firm, OLPR would write to the firm, asking the name of the attorney who was responsible for the conduct. The letter produced awkward, short-straw moments for law firms. The lesson of the letter was obvious—best to have a partner who, in advance of any complaint, takes on, and actually exercises, responsibility for various law firm operations.

In 1992, I resigned as OLPR director and became ethics partner at Dorsey & Whitney. I took seriously the fact that my name would be on the response to any “who’s responsible” letter from OLPR. In addition to Dorsey responsibilities, I advised other law firms, and served on two malpractice insurance claims committees.

In the early 1990s, most large firms had policy and procedure manuals, but the manuals were likely to be incomplete, out-of-date, and not readily accessible. When intranet technology became available, the firm could post a manual on the intranet, readily update it, and make it available to all in the firm. 

As law firms expanded, developing uniform policies and procedures became imperative. As firms merged and laterals joined, training in the firm’s policies was also necessary. Designation within the firm of partners responsible for these tasks was likewise necessary. 

A 1994 OLPR article advised that Rules 5.1 and 5.3 required certain law firm “systems” and “education.”[3] The article also advised that establishing a firm ethics committee was an excellent means of managing supervisory responsibilities. The article did not mention auditing. The article advised, “What is reasonable for a partner in a 100-plus lawyer firm… may not be reasonable for a partner in a two-person firm.” From this article and my own experience, I would say that at the turn of the century OLPR expected large firms to have policies, procedures, and training in ethics matter. Expectations regarding smaller firms were less formal and well-defined.

Today’s ethics requirements of law firms: Wake-up calls

Humiston’s article was not the first wake-up call on law firm ethics. OLPR has published several articles on supervisory responsibilities.[4] ABA Formal Opinion 17-477R (2017) advised that firms should have ethics policies, training, and auditingThese developments show rising expectations of lawyers, in large firms and small.

Another wake-up call arrived on June 19, 2020, in a petition for disciplinary action that alleges: “Respondent’s failure, as sole shareholder and managing attorney of the firm, to ensure there were measures in place to ensure he and members of his firm were kept apprised of widely publicized and pertinent amendments to the MRCP which directly impacted the viability of his clients’ cases violated Rule 5.1(a), MRPC.” (In re Biersdorf, A20-0875)  In the civil case underlying this charge, a client’s case was dismissed, because the firm—through ignorance of a 2013 amendment to Rule 5.04(a), R. Civ. Proc.—failed to file a case within one year of service. 

Yet another wake-up call is a recent public discipline issued to a lawyer for failure to supervise a paralegal. The 2019 case shows that higher standards are now being applied to lawyer supervision of staff. It involved a solo practitioner, Naros, who did not keep close enough tabs on a paralegal, J.U. J.U.’s employment by Naros began in 2009, but J.U.’s misconduct apparently did not begin until 2015. Unknown to Naros, J.U. repeatedly forged Naros’s signature, communicated with courts and clients in the name of Naros, and used filing procedures that kept Naros in the dark. 

Naros had policies prohibiting the misconduct that J.U. committed. However, Naros admitted that she did not have in place “measures to detect and prevent J.U. from engaging in serious misconduct related to numerous client files.” More specifically, the discipline petition alleged and Naros admitted that “the policy makes clear that [Naros] is to sign all pleadings, but does not have any checks in place so that [Naros] can determine when pleadings are not signed by [Naros]. There is no requirement that signed pleadings must be placed in the client file.”[5]

In re Naros served notice that the ethics rules applicable to supervisors require more than adopting well-intentioned policies. Ms. Naros’ description of her situation is another wake-up call: “It was a supervising lawyer’s worst nightmare come true. I was blindsided. I trusted this person who I had trained and worked with without incident for a decade. If this could happen to me, it can happen to anyone.”

In 2019, another lawyer was publicly disciplined, in fact suspended, for offenses including lax supervision. But that attorney committed other misconduct, and his supervision was so lax that a staff member misappropriated more than $2.7 million in client funds.[6] In 2020, an estate planning lawyer agreed to be publicly disciplined for several related violations, one of which was insufficient supervision of a paralegal. The paralegal routinely answered client inquiries that involved giving legal advice, without copying the lawyer on e-mails or indicating whether the advice was given by or approved by the lawyer.[7]

Notwithstanding the wake-up calls and other disciplines, OLPR’s pursuit of supervisory lawyers has not yet been militant in a general way. In 2018, just four of 117 admonitions were for supervisory offenses. 

When OLPR disciplines lawyers who personally violate rules, it does not routinely discipline supervising lawyers unless they have very specific supervisory responsibility. For example, OLPR privately admonished a partner with direct supervisory authority for billing at regular rates the services of a subordinate attorney whom the supervisor knew was not current in licensure requirements.[8] In 2005, an alert appeared that general counsel in an organization “could face discipline [under Rule 5.1] for permitting other lawyers in the organization’s law department to continue to practice law in Minnesota without being licensed.”[9] The responsible attorney in a private firm would have the same exposures, but it does not appear that OLPR disciplined any supervisory partner when an attorney practiced in a private firm for 14 months while she had only an in-house license.[10]

Ethics policies and procedures: Subject areas

What are the ethics-related subjects on which a law firm should have formal policies and procedures? Trust accounting is the first and by far most important subject. Rule 1.15 extensively regulates trust accounts. Trust account books and records are prescribed by Rule 1.15(h) and by the Lawyers Board. Extensive trust account aids are available on the OLPR website.

A law firm’s policies and procedures should also include: 

  • client intake and new matters;
  • conflicts; 
  • business dealings with clients; 
  • deadlines and diligence; 
  • communication; 
  • accounting for client funds and property; 
  • protection of confidential information; 
  • marketing practices; 
  • security of technology; 
  • the unauthorized practice of law; 
  • lawyer impairment; 
  • reporting violations; 
  • social media use and abuse; and 
  • harassment and discrimination.[11]

Several of these topics deserve special comment.

Client intake and file-opening are very important areas for firm policy-making supervision, auditing, and ethics compliance. The policy should stress that no new client or new matter may be taken on unless required procedures are followed. The policy should prescribe client-naming conventions, e.g. “Jane Doe as the PR of the Estate of John Doe,” rather than, “The Estate of John Doe.” Engagement letters should be required and sample forms made available—deficiencies in retainer agreements are among the most common subjects of discipline. The policy should identify special risk areas, such as representing joint clients. Conflict issues most frequently arise in conjunction with new clients and new matters.

 Business dealings with clients should be addressed. Most malpractice insurers exclude coverage of such dealings. The common law presumes fraud. Discipline is frequent and often severe. Lawyers may not realize that the governing rule is very broad. Rule 1.8(a) covers lawyers taking security interests in client property, taking stock in lieu of fees, and at least some barter exchanges for fee payments. 

A policy on reporting duties and procedures would provide that firm lawyers should first report various matters, including rule violations, to a designated person in firm management, such as the ethics partner. The policy would state that the person making a report will not suffer an adverse consequence. The policy would explain Rule 8.3, Reporting Professional Misconduct, and cite OLPR and other commentaries on the rule. 

A firm policy should cover notarization, signatures, and document dating. Again, there is frequent discipline and a need for firm standards. A policy covering harassment and discrimination is important both for ethics compliance and for dealing with civil complaints.

Cybersecurity is an increasingly important issue. It is also an issue that should be specifically assigned to someone, inside or outside the firm, with special expertise.[12]

Ethics policies and procedures: Implementation and responsibility

Humiston’s article identifies three measures for implementing the “reasonable efforts” and “reasonable assurance” provisions of Rule 5.1. First, a firm should have policies and procedures in the above areas. Second, the firm should train lawyers and staff in compliance. Third, the firm should audit to reasonably ensure compliance. The article takes the position that “only” when a firm has in place formal policies and procedures, training, and auditing can the firm “feel confident that you have ‘measures’ in place to ‘assure’ compliance, which is what the rule requires.” 

How should supervision and auditing be implemented? An article by an ethics expert explains the need for an ethics partner.[13] A small firm might instead divide responsibilities among partners or consult as needed with regular outside ethics counsel. “Auditing,” at a minimum, involves periodic review of a representative sample of files as well as interviews with a sample of firm lawyers and staff to determine how the firm is complying with its policies.

How are “reasonable” efforts and assurances to be determined? Humiston takes positions based on what “seems to me” reasonable. The Director’s judgment is no doubt important. “Reasonable” is, however, a defined term. “Reasonable” denotes “the conduct of a reasonably prudent and competent lawyer.” Rule 1.0(i). Based on this definition, community standards are highly relevant to determining what is reasonable. The OLPR article does not attempt to anchor its prescriptions for “reasonable” supervision in the conduct of good law firms.

What are Minnesota law firms in fact doing to comply with Rules 5.1 and 5.3? Large firms now typically adopt policies and provide at least some ethics training. The profession could make use of model policies and procedures, but it appears that no such models have been created. Perhaps MSBA or MLM or OLPR/LPRB could take the lead.

Auditing, over and above an insurer’s review, still appears to be far less than universal. I believe small firms are very unlikely to have formal, written policies and procedures, formal training, and audit programs, except for trust accounts. One assumes OLPR still expects less formality from small firms, but the discipline in Naros shows that small firms must take responsibilities for good systems and supervision seriously.

Examples are helpful in describing the nuts and bolts of implementation. To guard against unauthorized practice, a designated clerical person could check online attorney registration records quarterly to confirm that every lawyer in the firm has a current license and current CLE status. The person would make a regular written report to a designated partner. A designated “trust account” partner could certify in writing to all lawyers that the firm maintains the books and records required by the Lawyers Board. 

A commitment to doing the right thing

Law firms must take some measures to ensure that their policies and procedures are not mere window-dressing. Rules, procedures, training, and even audits are insufficient if a firm does not make a serious commitment to doing the right thing. Lawyers in charge must do the right thing when problems arise. Rule 5.1(c) provides for discipline when a supervisory lawyer “knows of the conduct at a time when its consequences can be avoided or mitigated but fails to take reasonable remedial action.” 

A large firm in Maine is the poster child for how not to handle an ethics problem. The firm learned that a partner had misappropriated law firm funds, but nonetheless relied for months on the partner’s false assurances that the misappropriation was isolated and did not involve client funds. Incredibly, the firm did not involve its ethics partner in handling the matter. When there is misconduct, those tasked with ethics responsibility must independently investigate to learn the extent of the problem. The Maine firm’s Executive Committee members were found to have violated Rule 5.1 and the firm suffered enormous adverse publicity.[14] In contrast, several large firms in Minnesota have investigated, reported, and dealt with serious misconduct by their lawyers.[15]

However, a Minnesota lawyer, Udeani, committed the same type of error as the Maine firm.  “No later than June 7, 2017, Udeani learned that his non-lawyer assistant altered and stole three money orders that a client paid to cover the filing fees associated with the client's case. Udeani asked that client not to go to the police and told him that his non-lawyer assistant would pay him back. Although Udeani subsequently prevented his non-lawyer assistant from handling outgoing mail, her duties remained otherwise unchanged. Critically, Udeani continued to allow his non-lawyer assistant to have access to client funds and he did not conduct an internal audit at that time to ensure that other clients had not been harmed. Udeani's non-lawyer assistant continued to steal from clients until November 2017.”  Udeani did not fire the assistant until November 2017.  Later audits showed that the assistant had stolen from other clients as well.  Udeani’s misconduct violated Rule 5.3 and was part of the basis for which he was suspended from practice.[16] 

The public, the courts, OLPR, and malpractice insurers have rising expectations of lawyers. The governing lawyers of any large firm should confirm that the firm has in place policies and procedures on important ethics subjects as well as training programs and periodic audit arrangements. For small firms, managing attorneys should at least consider how they would respond if OLPR investigated an ethics complaint that raised both issues of conduct by an individual and issues of proper supervision by firm management. A partner should have decided who is responsible long before receiving a notice of investigation that asks, “Who’s responsible?” 

Notes

[1] Susan Humiston, “Your Ethical Duty of Supervision, Bench & Bar of Minn., Dec. 2019.

[2] Patrick J. Schiltz, “Legal Ethics in Decline: The Elite Law Firm, the Elite Law School, and the Moral Formation of the Novice Attorney, 82 MINN. L. REV. 705, 717 (1998).

[3] Marcia A. Johnson, “Responsibility for Others Redux,” Bench & Bar of Minn., Dec. 1994. 

[4] Craig D. Klausing, “Responsibility for the Conduct of Others,” Minn. Law., Mar. 2, 2015, citing In re Kaszynski, 620 N.W.2d 708 (Minn. 2001) and In re Voss, 830 N.W.2d 867 (Minn. 2013). See also, Martin A. Cole, “Mentors, Supervisors and Professional Responsibility,” Bench & Bar of Minn.,

July 2007; Cassie B. Hanson, “How Do You Know That Your Bookkeeper is Keeping Accurate Trust Account Records?”, Minn. Law., 3/5/2012.

[5] In re Naros, 928 N.W.2d 915 (Minn. 2019). Petition for Disciplinary Action. http://lprb.mncourts.gov/LawyerSearch/casedocs/PetitionsStipulations/NarosKristenKatheryn-PDA05152019.pdf 

[6] In re Rosso, 919 N.W.2d 477 (Minn. 2018).

[7] In re Nelson, Petition for Disciplinary Action, filed 5/20/2020.

[8] In re Panel Case No. 23236, 728 N.W.2d 254 (Minn. 2007). 

[9] Kenneth L. Jorgensen & Margaret Fuller Corneille, “In-House Counsel and Unauthorized Practice,” Bench & Bar of Minn., Nov. 2005.

[10] In re Altschuler, 879 N.W.2d 929 (Mem.) (Minn. 2016). 

[11] This list overlaps with a list in Humiston’s article, but that list omits several important topics.

[12] For consideration of lawyers’ competence and confidentiality duties regarding cybersecurity, especially when remote locations are used, see ABA Formal Op. 447R (2017) and Pennsylvania Formal Op. 2020-30.

[13] Charles E. Lundberg, “Why Your Firm Needs an Ethics Partner. Now.” Bench & Bar of Minn., Dec. 2016.

[14] Bd. of Overseers of the Bar v. Warren, et al., 34 A.3d 1103 (Me. 2011).

[15] In re O’Hagan, 450 N.W.2d 571 (Minn. 1990); In re Moskal, 583 N.W.2d 282 (Minn. 1998); In re Block, 739 N.W.2d 917 (Minn. 2007); In re Margulies, 781 N.W.2d 249 (Minn. 2010).

[16] In re Udeani, 2020 WL 3551804 (Minn. July 1, 2020).

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