This Month's Topic: 2013-2014 - What's New in Legal Ethics?
Summary
A. The biggest 2014 Minnesota legal ethics story will likely be the Supreme Court’s opinion in the former client conflict disqualification case State v. 3M.
B. A distant second will be the Court’s action on a petition, by MSBA and LPRB, to amend a few Rules of Professional Conduct. The petition will generally follow ABA Model Rule amendments.
C. From a personal perspective, the biggest news is that a complete and updated edition of Minnesota Legal Ethics should be posted in April 2014. The treatise has been a long labor of love. Another news item will be the third annual Ethics Summit CLE, on May 28, 2014.
D. A discipline petition will likely be filed against a Minnesota lawyer, William Butler. Proceedings following the petition will likely determine to what degree sanctions determinations in civil court are preclusive in discipline proceedings.
E. 2013 ethics news was interesting to ethics mavens, but admittedly somewhat low profile for general audiences.
1. 2013 National News – Small Potatoes.
The Legal Ethics Forum publishes an annual list, “Top Ten Legal Ethics Stories.” Minnesota is not mentioned in the 2013 Top Ten, nor in the 15 Honorable Mention stories. Minnesota lawyers should not feel slighted. The marquee national story reports three cases that recognize the attorney-client privilege for communications involving a firm’s loss prevention or ethics counsel. “Blurred Boundaries” between lawyering and other activities is the runner-up story. That 2013 was a slow year for national legal ethics news is apparent from the boundaries discussions –a narrow ABA Formal Opinion, a “suggestion” in a New York City Bar report, and a recommendation for further study by a California bar working group.
2. 2013 Minnesota News - Broad Interpretations of Rules.
As I reported in my Minnesota Legal Ethics blog posts, in 2013 there were four important broad interpretations of discipline rules – one rejected, two adopted and one continuing. Collectively, these represent Minnesota’s top 2013 ethics news.
A. Purported “Spirit” of Procedural Rules. The Office of Lawyers Professional Responsibility (OLPR) argued that the procedural Rules on Lawyers Professional Responsibility (RLPR) should be interpreted according to their “spirit.” OLPR argued that a reinstatement petition should be denied, because the petitioner purportedly failed to comply with the “spirit” of a notification Rule. This argument was ill-advised. If, after the relevant events occur, OLPR could declare discernments from the world of procedural spirits, lawyers who try to follow the RLPR, and even seek expert advice in doing so, would not be able to rely on the text of the rules or on expert advice. To oppose a single reinstatement petition, OLPR argued for a principle, that, if accepted by the Minnesota Supreme Court, would have made the RLPR unreliable. Such unreliability would be calamitous for lawyers and for OLPR. Fortunately, the Court rejected OLPR’s argument. In re Lieber, 834 N.W.2d 200 (Minn. 2013). My August 2013 blog post discussed these issues.
B. Rules’ Application to Lawyer-Fiduciaries. Two broad interpretations of the Rules of Professional Conduct are found in In re Ahl, 828 N.W.2d 109 (Minn. 2013), discussed in my May 2013 blog post. Ahl applied Rule 1.15, which governs the trust accounts that lawyers maintain for clients, to a trust for which Ahl acted, after drafting the trust, as trustee, rather than lawyer. Ahl also found that excessive trustee fees constituted “conduct prejudicial to the administration of justice,” even though the trust was not court-qualified. Rule 8.4(d). Minnesota lawyers face the danger that the broad language of Rule 8.4(d) will be applied, retrospectively, to any conduct that may be deemed unprofessional.
C. “Substantially Prejudiced” Override for Client Files. The fourth broad interpretation is found in Lawyers Board Op. 13, discussed in my August 2013 blog post. Opinion 13 continues to purport to add to Rule 1.16 amendments a general standard, “A lawyer may withhold documents not constituting client files, papers and property until the outstanding fee is paid unless the client’s interests will be substantially prejudiced without the documents.” Id., emphasis added. This standard apparently purports to state the “plain meaning” of Rule 1.16(d), “Upon termination of representation, a lawyer shall take steps to the extent reasonably practicable to protect a client’s interests ....” Rule 1.16(e), adopted in 2005, specifies the file materials that are covered by Rule 1.16(d). LPRB’s attempt to add to Rule 1.16(e), by opinion, goes beyond the authority given LRPB by the Supreme Court – to state only the “plain meaning” of rules. In re Panel File 99-42, 621 N.W.2d 240 (Minn. 2001).
D. 2013 OLPR Discipline Case Reports. OLPR’s reports of 2013 cases appear in two articles. Martin A. Cole, Summary of Public Discipline, BENCH & B. OF MINN., Feb. 2014; Martin A. Cole, Admonition Summary, BENCH & B. OF MINN., Mar. 2014 (forthcoming).
3. 2014 – State v. 3M: Former Client Conflict Disqualification
A. Overview. State v. 3M Company, 2013 WL 3284285 (Minn. App. Ct. July 1, 2012) is under submission to the Minnesota Supreme Court. The case should provide importance guidance both on the former client conflicts rule (1.9) and on whether disqualification is automatic on finding a Rule 1.9 conflict, where there has not been informed consent.
B. Basic Facts. The facts stated here and citations are drawn from State v. 3M. In or about December 2010, the State of Minnesota, represented by the Washington D.C. firm, Covington & Burling, sued 3M for contamination of water by 3M’s perfluorochemicals (PFCs). Covington had represented 3M on various matters, from 1992 to late 2010. One subject of Covington representations involved 3M’s PFCs, though not in water. In 2000, 3M decided to stop manufacturing and using PFCs. Covington also represented the State, in environmental matters, from 1995 to 2010.
C. Disqualification Motion. In April 2012, 3M “discovered Covington’s name in the documents that 3M produced for discovery.” 3M claimed a conflict of interest and demanded Covington’s withdrawal. When Covington declined, 3M moved to disqualify Covington. The Hennepin County District Court disqualified Covington, finding a violation of Rule 1.9. Rule 1.9 prohibits representation adverse to a former client in a matter “substantially related” to a prior representation, unless the affected client gives informed consent. The State and Covington appealed the order.
D. Interrogatories – Covington’s Own 3M Work Product. The district court found, “Covington has gone so far to seek discovery on the very issues on which it previously counseled 3M.” The appeals court found, “Covington served interrogatories about 3M’s knowledge of the hazardous character of PFCs and requested all documents that referred or related to the effects of PFCs on human health, or designated PFCs as a toxic substance, and all documents and information relating to 3M’s communication with regulatory agencies, including the FDA, about PFCs and about 3M’s decision to phase out production of PFCs. Covington also deposed or scheduled depositions of 3M employees and former employees who worked on PFCs, including some who had been advised by [Covington].”
E. Court of Appeals.
1. Conflict. In an unpublished opinion, the Court of Appeals affirmed the order disqualifying Covington. The court readily found a conflict, “Although Covington’s former representation of 3M in the FDA regulatory matters had a different focus than its current representation of the state ..., both matters at their heart concern the risk that PFCs pose to human health, and at least facially, the matters are ‘substantially related’.”
2. Equities? In deciding whether conflicts require disqualification, courts often weigh equities. However, citing authorities including Lennartson v. Anoka-Hennepin Indep. Sch. Dist. No. 1, 662 N.W.2d 125 (Minn. 2003), the Court of Appeals said that Minnesota law precludes weighing equities. For a critique of this aspect of Lennartson, see William J. Wernz, Ethics Walls in Minnesota – Lennartson Revisited, MINN. LAW., Aug. 2003 [subscription required].
3. Delay? Informed Consent? Waiver? Appellants argued that, even if Covington’s representations for and against 3M, on PFCs, were substantially related, disqualification was inappropriate because 3M waited 15 months after the suit was initiated to seek disqualification. Appellants argued the delay was tantamount to informed consent (under the ethics rules) or waiver (under common law). The court found the delay, “might well be perceived as tactical maneuvering. And 3M’s claim that it only realized at that late date that there may be a conflict is contradicted by the record.”
4. What If? Putting aside the 3M facts, what if a party seeking disqualification clearly had been lying in the bushes and the timing of the motion was prejudicial both to the adverse party and to the court? Most courts, in most jurisdictions, and Minnesota courts, for most of Minnesota history, would find, or at least consider, whether the moving party was guilty of laches. Findings of laches not infrequently result in denial of disqualification motions. However, the Court of Appeals ---constrained by Lennartson – stated, “knowledge of the conflict, by itself, [and, apparently, even if coupled with intentional delay] is not sufficient to avoid disqualification.”
F. Supreme Court Oral Argument
1. On January 13, 2014, the Minnesota Supreme Court heard oral arguments on review of the Court of Appeals’ affirmance. All five justices (two had recused) vigorously questioned the advocates.
2. The arguments focused on waiver. The State argued that, by not moving for disqualification for 15 months, 3M had knowingly and intentionally relinquished its right to claim a conflict.
3. When should knowledge of a conflict be imputed within a corporation? Questions by at least two justices suggested that 3M should be deemed to have known of the conflict from the beginning of the suit. Mindful of Lennartson, the advocates were generally silent on equities – although the waiver arguments would have been somewhat similar if they had been made as equitable argument.
4. At oral argument, appellants presented very little argument that Rule 1.9 was not violated. It appears the Supreme Court factual decision will turn on two issues (a) the legal issue of whether disqualification follows automatically where a lawyer violates a conflict rule and the affected client has not given informed consent; and, if not, (b).the factual issue of whether 3M unduly delayed its disqualification motion, to the extent that 3M could be deemed to have waived its right to object to Covington’s adverse representation. It is possible – though from the subjects of argument not likely -- that the court will revisit Lennartson’s unusual discarding of equities in disqualification cases – which are, after all, proceedings in equity.
4. 2014 Changes in Rules and Comments - Little to Do About Little
A. ABA Changes. The ABA, on the recommendation of its Ethics 20/20 Commission, adopted a number of changes to the Model Rules of Professional Conduct, and especially to the related comments, in 2012-3. The changes relate primarily to developing globalization and use of technology in the practice of law. Minnesota has, for the most part, followed the Model Rules and Rules amendments. In 2014, a joint LPRB/MSBA committee will recommend a petition to the Minnesota Supreme Court, to adopt at least some of the ABA amendments. Patrick R. Burns, Changes Mulled for Rules of Conduct, MINN. LAW., Feb. 3, 2014.
B. The Problem of the Comments. However, there is a problem. Most of the ABA amendments are to the Model Rule comments, rather than the Model Rules. Unlike the great majority of states, the Minnesota Supreme Court has repeatedly declined to adopt comments or amendments to comments.
C. The Committee’s Minimalist Approach. The LPRB/MSBA committee may attempt to deal with the comments’ Neverland status by recommending that the court, “at least acknowledge the changes in the comments, even if it chooses not to adopt them.” Burns, Id. This approach, however, begs the question of whether there will be any “changes in the comments.” If there are, who will have changed them in Minnesota? In the past, the court has published the comments with the Rules, “for convenience.” However, it is unclear what convenience is achieved, if the comments have no status or uncertain status.
D. Contemplated Rules Amendments are Mere Codifications. Only two amendments to the Minnesota Rules are contemplated, both to Rule 1.6, “Confidentiality of Information.” These amendments would merely codify principles that have long been operative in Minnesota legal ethics. One amendment would expressly permit disclosure of client information for lateral hire conflict checking purposes, where the client would not be prejudiced. Rule 1.6(b)(2) already effectively permits such disclosures. The second amendment would require lawyers to be careful to protect confidential information. Again, the amendment’s substance is found both in current law and in discipline reports over a long time period. Rule 1.1, Rule 1.6 cmt. 15; Timothy M. Burke, Loose Lips Sink Ships, Minn. Law., Apr. 5, 1999; William J. Wernz, Summary of Admonitions, Bench & B. of Minn., Mar. 1990.
5. 2014 – State Discipline of William Butler? Sanctions and Discipline Compared
A. Overview. As detailed below, for the last two years, the federal courts in Minnesota have spent an enormous amount of time imposing heavy sanctions and disciplines against a Minnesota lawyer, William Butler, for filing numerous frivolous suits and appeals. Butler has been suspended in federal court, and OLPR will very likely seek Butler’s suspension or disbarment in 2014. The procedural history of these matters is summarized below.
B. Are Rule 11 Sanctions and Contempt Findings Preclusive in State Discipline Proceedings? To what degree will court findings of frivolous litigation and contempt be preclusive in state discipline proceedings? Rule 11, R. Civ. Proc., is closely related to ethics Rules 3.1 (frivolous claims) and 8.4(d) (conduct prejudicial to the administration of justice). Normally, however, determinations by a preponderance of evidence in civil proceedings do not operate as collateral estoppel in discipline proceedings, because discipline is imposed only after facts are established by clear and convincing evidence. However, the Minnesota Supreme Court has sometimes found civil tribunals’ determinations preclusive for discipline purposes. In one case, the Court held, “Respondent is essentially requesting this court to review the federal district court’s finding that the lawsuit was vexatious and frivolous with respect to the Swensons. We decline to do so.” In re Tieso, 396 N.W.2d 32, 33 (Minn. 1986). In another case, the court found clear error where its referee declined, “without explanation,” to find a Rule 3.1 violation, notwithstanding that a district court had found a Rule 11 violation and imposed sanctions, affirmed on appeal. In re Albrecht, 660 N.W.2d 790, 795 (Minn. 2003). The preclusion issue is important to any Minnesota attorney who faces a Rule 11 motion, or the like. The issue is important for OLPR, because the burden of independently proving that Butler’s litigation claims in numerous cases could be heavy.
C. Denial of Rule 11 Sanctions is not Necessarily Exculpatory. Because Rule 11 includes stringent procedural requirements, and Rule 11 has purposes that differ in part from those of Rule 3.1, denial of Rule 11 sanctions does not preclude discipline. In re Panel Case No. 17289, 669 N.W.2d 898, 905 (Minn. 2003). In re Ulanowski, 800 N.W.2d 785 (Minn. 2011).
D. March 29, 2012: The United States District Court for the District of Minnesota imposed sanctions against attorney William Bernard Butler for filing a frivolous lawsuit. This would be the first of many such sanctions orders, for filing over 30 frivolous lawsuits, engaging in "brazen delay tactics and judge-shopping by voluntarily dismissing actions only to turn around and refile them again immediately afterwards," and "repeatedly cycl[ing] the same plaintiffs through different lawsuits, making sure to reshuffle the caption so that a different person appears to be the lead plaintiff." In re: William Bernard Butler, Dec. 26, 2013, Order on Attorney Discipline, Dec. 26, 2013 (8th Cir.), citing Welk v. GMAC Mortg., LLC, 850 F. Supp. 2d 976, 999–1000 (D. Minn. 2012).
E. August 2012: Minnesota federal District Court Judge Patrick J. Schiltz issued an order for sanctions against Butler, in the amount of $80,000. The sanctions order cited Butler’s “extraordinarily egregious and brazen” misconduct, including “brazen delay tactics and judge-shopping.” It said Butler created a “cottage industry of filing frivolous show-me-the-note claims.”
F. July 2013: Minnesota federal District Court Michael Davis ordered ethics investigation of Butler and appointed special counsel for that purpose. OLPR confirmed that it has an open investigative file.
G. August 2013: The Eighth Circuit affirmed Judge Schiltz’s August 2012 sanctions order.
H. December 2013: The Eighth Circuit issued an order suspending Butler from practice in federal court. Findings include, “To this date he has not paid the sanctions, nor made any arrangement to pay any part of what he owes in the district court. He has meanwhile filed appeals in the United States Court of Appeals for the Eighth Circuit in at least 24 cases involving the same or substantially similar claims and tactics as those for which he was originally sanctioned.” Suspension in the Eighth Circuit automatically results in suspension in District Court in MN. In re Butler, 2013 U.S. App. LEXIS 25945 (8th Cir. Dec. 26, 2013).
I. January 21, 2014: Judge Schiltz held Butler in contempt for failure to comply with the August 2012 sanctions order.
J. TBD, 2014: OLPR will file a Petition for Disciplinary Action against Butler. Minnesota Supreme Court will appoint a judge to act as its referee. The referee will decide to what degree civil sanctions orders and related determinations of fact and law may be preclusive in discipline proceedings. Lawyers who are faced with sanctions motions will recognize the importance of this decision.