Overview. Attention should be paid whenever the Minnesota Supreme Court speaks on the creation, nature, or termination of the attorney-client relationship. That relationship is foundational for legal ethics, for attorney discipline, and for legal malpractice. The relationship is a predicate for the great majority of the Rules of Professional Conduct and for almost all liability claims against lawyers that are based on professional services. In re Severson, 2015 WL 672413 (Minn. Feb. 8, 2015) finds a duty for lawyers to communicate clearly with putative clients the existence of the attorney-client relationship, or lack thereof. Where there is such a relationship, a lawyer must also communicate the scope of the representation and the basis or rate for fees. Rule 1.5(b).
The great majority of attorney-client relationships are formed by express contract, with implied contracts for service ranking second. Where no contract exists, and there is no court appointment, how else may an attorney-client relationship be formed? The basic answer is not new: “[A]n attorney-client relationship is created whenever an individual seeks and receives legal advice from an attorney in circumstances in which a reasonable person would rely on such advice.” Togstad v. Vesely, Otto, Miller & Keefe, 291 N.W.2d 686, 693 n.4 (Minn. 1980). The advice-and-reliance predicate for an attorney-client relationship is called the “tort theory.” For precedent, Togstad cited a much older case, Ryan v. Long, 35 Minn. 394, 29 N.W. 51 (1886) (affirming an attorney-client relationship even though the attorney also acted as counsel for another party in the same matter).
In re Severson. Severson applied the tort theory to find an attorney-client relationship. The court did not expand the tort theory itself, but the court did apply it in a sketchier set of circumstances than in any prior case. Although the court’s referee found an attorney-client relationship, he conceded, “a reasonable counter-argument could be made under the facts and especially under the law.” (The Severson Petition for Disciplinary Action, referee findings, and Supreme Court opinion are available at http://lprb.mncourts.gov/LawyerSearch/casedocs/SEVERSON-A13-1382-02182015.pdf.) Two justices (Anderson and Gildea) dissented, primarily on the ground that a three month suspension would have sufficed, rather than the one year suspension ordered by the court. The dissenters affirmed the finding of an attorney-client relationship, but they called the finding “tenuous.”
Severson violated many rules, and interesting issues were raised on appeal. These issues included the nature and importance of remorse in lawyer discipline. However, this blog will focus only on the issue of formation of attorney-client relationship.
Severson was found to have engaged in several conflicts of interest. He contested some of the conflict allegations, claiming that during the period 1996-2002 he did not have an attorney-client relationship with the putative client, Strom (referred to by the court as “D.S.”). For conflicts to be found, an attorney-client relationship must first be shown. In re Perry, 494 N.W.2d 290, 294 (Minn. 1992). The Office of Lawyers Professional Responsibility (OLPR) alleged that D.S. had an attorney-client relationship with Severson, under the tort theory. The referee so found, Severson appealed, and the court affirmed.
D.S. was orphaned as an infant. She was adopted, but in her high school years, she came to be at odds with her stepfather. D.S. was a friend of Severson’s daughter and D.S. came to live in the Severson house. As D.S. was about to turn 18, her mother (also her conservator) told D.S. that steps should be taken to terminate her conservatorship. D.S., knowing Severson was a lawyer, approached him for assistance and Severson told D.S. his law firm could help her.
Severson’s firm, through lawyers other than Severson, provided legal services for terminating the D.S. conservatorship. They regarded their client for these services as the conservator, not D.S.. This view is consistent with OLPR’s general position. Julie E. Bennett, You Do Not Represent the Estate, Minn. Law., at 12, 12, Sept. 7, 2009. Perhaps because the issue was not contested, the court stated, “[I]t is not necessary to decide whether Severson’s firm represented D.S. with respect to the closing of the conservatorship, and we express no opinion on that topic.”
The firm did, however, bill D.S. for the conservatorship termination services. In quick succession, in 1996, (1) the conservatorship closed, (2) Severson drafted and signed with D.S. an investment agreement, (3) Severson also drafted, and D.S. signed, a power of attorney, naming Severson attorney-in-fact, for dealing with D.S.’s bank accounts; and (4) the conservatorship account balance, of $541,868, was transferred from the conservatorship account to the Severson firm’s trust account. The funds were thereafter transferred out of trust, but Severson could not account for the funds’ whereabouts during 1996-2002.
The investment agreement provided Severson would pay D.S. 9% annual interest. The agreement did not require Severson to segregate or secure D.S.’s funds, did not provide a remedy for default, and otherwise was not drafted to serve the interests of D.S. It is fair to say that, if D.S. had been advised by independent counsel, counsel would have advised that the investment agreement was extremely risky. If Severson acted as lawyer for D.S. regarding her investment, the investment agreement plainly violated Rules 1.7(b) (materially limited representation) and 1.8(a) (business dealing with client).
Although Severson paid interest as provided, when D.S. demanded payment of all principal, he could not pay. D.S. retained counsel, sued, and by settlement (taking her legal fees into account) D.S. recovered about three-fifths of the principal amount that was due her.
After trial, the referee found, and the court affirmed on appeal, that, under the “tort theory,” D.S. and Severson had an attorney-client relationship. The court cited several factors:
- D.S. asked Severson for help in closing the conservatorship and investing money because Severson was an attorney.
- Severson indicated his firm could help D.S. The court noted, “it was Severson's own words that indicated he was going to perform legal work for D.S.”
- D.S. received legal advice from Severson. However, such advice and services appear to have been limited to the drafting of a power of attorney and the investment agreement.
The Dissent’s View. The dissent (which focused on the degree of discipline) found an attorney-client relationship more readily than the majority. The dissent reasoned that it was unnecessary to determine whether the investment agreement supported an attorney-client relationship, because, “The power of attorney is clearly a legal document that may be, and often is, drafted by an attorney, and that is sufficient evidence of an attorney-client relationship.”
Two points regarding the power of attorney may be noted. Supporting the view that drafting the power created an attorney-client relationship, it was not a short-form statutory document, but one that was custom-drafted by Severson. On the other hand, Severson never actually used the power.
The reach of the dissent’s statement is unclear. If, say, an attorney drafts a will for a person, and the person executes the will, relying on the attorney’s services and advice, it is indisputable that there is an attorney-client relationship. If, on the other hand, an attorney who owns business rental property drafts a commercial lease, to be signed by a tenant, the relationship of landlord and tenant is adverse, and, absent special circumstances, the attorney-landlord would not have an attorney-client relationship with the tenant. (Such special circumstances were found in Gillespie v. Klun, 406 N.W.2d 547 (Minn. Ct. App. 1987), where Klun was found to have acted as counsel for adverse parties.) Perhaps the principle on which the dissent relied is that where an attorney drafts a document for another’s signature, and the attorney will provide services for the signatory pursuant to that document, an attorney-client relationship is formed. However, an attorney might also be a computer whiz, and it is far from clear that an attorney’s drafting a contract for high tech services, to be provided for someone who later claims to be a client, would create an attorney-client relationship.
Duty to Clarify “Any Ambiguity.” The majority opinion relied heavily on the symmetry of D.S. seeking help from a trusted person because he was a lawyer, and the lawyer expressly assuring D.S. that his law firm could help. The court also stated, generally, “It is incumbent on the lawyer to clarify any ambiguity.” Geoffrey C. Hazard, Jr. et al., The Law of Lawyering § 2.5 (3d ed. Supp.2013) (referring to Section 14 of the Restatement of the Law Governing Lawyers). The court added, “The need to clarify any ambiguity is especially important when lawyers step outside the practice of law and provide non-legal services, such as business and investment services.”
Several rules and comments require clarifications regarding client or non-client status generally or in particular situations. The most general of these is Rule 4.3(c), requiring a lawyer, when “dealing on behalf of a client," to clarify the lawyer’s role to an unrepresented party, when that party is discernibly confused. As discussed in Minnesota Legal Ethics, OLPR has disciplined lawyers for Rule 4.3(c) violations, where the lawyers have not dispelled non-clients’ reasonably discernible but mistaken beliefs that they were clients. Additional rules and comments bear on clarification of client or non-client status, e.g. Rule 1.7 cmt. 2, 1.8 cmt. 27, 1.13(d), 2.2 cmt. 2, 5.7(a)(2) and 5.7 cmt. 7. However, unless one begged the question of whether D.S. was Severson’s client, none of these authorities could be cited to argue that Severson had a duty to clarify.
A lawyer may argue that the rules require clarification of attorney-client status only where a purported client’s claim to have been a client is reasonable or where a non-client’s confusion about status was reasonably discernible. However, the court’s repeated statement that “any ambiguity” must be clarified goes beyond the limits of reasonableness and discernibility found in the rules. A lawyer may also argue that Rule 4.3(c) applies only where the lawyer clearly represents one client and another person claims to have been a client – not where the lawyer acts merely in a business capacity. In any event, after Severson, lawyers are best advised to clarify client/non-client status, especially when acting solely in a business capacity, rather than relying on reasonableness arguments.
D.S. had several needs for clarification. She was only 18, Severson was a father-figure, and Severson and his firm provided a mixture of legal and non-legal services. D.S. had no reason to know that her mother/conservator was regarded as the only client in the closing of the conservatorship, especially when the firm billed D.S. for services.
Fiduciary Services and Rule 8.4(d). My May 2013 blog discussed In re Ahl, 828 N.W.2d 109 (Minn. 2013). (http://www.mnbar.org/publications/ebooks/legal-ethics/updates-blog/minnesota-legal-ethics/2013/05/01/may-2013---minnesota-ethics-update) Acting briefly as lawyer, Ahl drafted a trust for her aunt. Acting for years as trustee, Ahl improperly failed to distribute trust funds to beneficiaries, and paid herself excessive fees. Ahl’s fiduciary breaches were found to violate Rule 8.4(d) (prohibiting conduct “prejudicial to the administration of justice”).
Why was Severson not charged with Rule 8.4(d) violations? His services under the investment agreement would have been fiduciary in nature. His fiduciary breaches would have been roughly parallel to his violations of the conflict rules for lawyers. The Severson petition is dated July 16, 2013, shortly after the Ahl decision.
The Rule 8.4(d) question is in one sense academic, because an attorney-client relationship was found in Severson, though just barely. Whether Severson violated Rule 8.4(d), as Ahl did, or the conflict rules does not matter as much as the essence of their misconduct.
The essence of Severson’s misconduct regarding his investment agreement with D.S. was, like Ahl’s, breach of trust. My 2013 blog argues that Rule 8.4(d) was stretched to capture Ahl’s breaches of trust. But Rule 8.4(d), having been stretched, is available to capture other breaches of trust by lawyers who are acting primarily in non-lawyer fiduciary capacities.
Take-Aways. Severson makes plain the civil and disciplinary consequences that can follow when a lawyer does business with someone who could reasonably regard herself as a client. Lawyers must clarify whether borderline situations involve an attorney-client relationship. These duties are especially clear where the lawyer may well owe the person fiduciary duties, in addition to the fiduciary duties created by an attorney-client relationship.
A lawyer’s ethical duty is to state clearly, “The scope of the representation and the basis or rate of the fee and expenses for which the client will be responsible. . . .” Rule 1.5(b). Although performance of this duty is said to be “preferably in writing,” the lawyer who does not state or negate the existence of the attorney-client relationship in writing may be found to fail to have clarified an ambiguous situation. Id. A written declaration to a person that the lawyer is not acting for the client will normally suffice to negate a later claim of reliance on the lawyer by the putative client.
Lawyers should also recognize that, in rare situations, “saying” won’t make it so—that is, where the putative client clearly and reasonably relies on the lawyer’s advice and services, even an express declaration that there is no attorney-client relationship may be found ineffective. In re Davis, 585 N.W.2d 373 (Minn. 1998), discussed in Minnesota Legal Ethics, provides one example. Davis drafted an agreement for his and his client’s signatures, and explained the agreement (omitting the ways in which Davis enormously benefited), but claimed that he told the client he was not acting as the client’s lawyer. On behalf of Davis’s client, I testified that Davis acted like a surgeon who purported to have disclaimed acting as a doctor, while performing a surgery. A civil judgment of nearly two million dollars was entered against Davis and he was later disbarred.
Severson, Ahl, Davis and other cases show the perils of lawyers failing to be clear about whether their services are of an attorney-client nature, especially when providing services that are fiduciary in nature.