The Adaptable Lawyer Staying Practical in Today’s Complex Legal Environment 1 Carlsmith Ball LLP Honolulu, HI September 13 and 14, 2012

The Adaptable Lawyer Presenters Gawain Charlton-Perrin CNA Risk Control Consulting Director (312)

The Adaptable Lawyer Disclaimer The purpose of this presentation is to provide information, rather than advice or opinion. It is accurate to the best of the speaker's knowledge as of the date of the presentation. Accordingly, this presentation should not be viewed as a substitute for the guidance and recommendations of a retained professional. In addition, CNA does not endorse any coverages, systems, processes or protocols addressed herein unless they are produced or created by CNA. Any references to non-CNA Web sites are provided solely for convenience, and CNA disclaims any responsibility with respect to such Web sites. To the extent this presentation contains any examples, please note that they are for illustrative purposes only and any similarity to actual individuals, entities, places or situations is unintentional and purely coincidental. In addition, any examples are not intended to establish any standards of care, to serve as legal advice appropriate for any particular factual situations, or to provide an acknowledgement that any given factual situation is covered under any CNA insurance policy. Please remember that only the relevant insurance policy can provide the actual terms, coverages, amounts, conditions and exclusions for an insured. All CNA products and services may not be available in all states and may be subject to change without notice. CNA is a registered trademark of CNA Financial Corporation. Copyright © 2012 CNA. All rights reserved. 3

The Adaptable Lawyer 4 Introduction 4

The Adaptable Lawyer Outline of Topics I.Managing the Attorney-Client Relationship II.The Hidden Risks of Business Transactions Practice 5

The Adaptable Lawyer 6 I.Managing the Attorney-Client Relationship 6

The Adaptable Lawyer Introduction A.Client Consultation B.Decision Whether to Accept or Decline Representation C.Defining Representation in Engagement Agreement D.Maintaining the Representation: Conflicts of Interest E.Terminating the Relationship: Closing Letters 7

The Adaptable Lawyer A.Client Consultation Meet, preferably in person, with prospective client. Run conflicts check on prospective client before receiving any confidential information. Reach understanding with client about scope of representation. Discuss legal fees and expenses, confirming the ability to pay. Decide whether to accept representation. 8

The Adaptable Lawyer Declining Representation Model Rule 1.16: Declining or Terminating Representation Comment 1 A lawyer should not accept representation in a matter unless it can be performed competently, promptly, without improper conflict of interest and to completion Source: ABA, Center for Professional Responsibility, Model Rules of Professional Conduct, Model Rule 1.16: Declining or Terminating Representation. B.Decision Whether to Accept or Decline Representation

The Adaptable Lawyer B.Decision Whether to Accept or Decline Representation If not representing client, send Declination Letter Language Procedure – Letter or Remember: if presumptive client has objectively reasonable belief that attorney-client relationship exists, then attorney client relationship may be deemed to exist. Cautionary tale involving Indiana attorney.* 10 Source: *Douglas v. Monroe et al., 743 N.E.2d 1181 (Ind. Ct. App. 2001)

The Adaptable Lawyer C.Defining Representation in Engagement Agreement An optimal means of communicating with the client is through use of an engagement agreement in order to confirm the scope of the representation and to provide the client with written instruction on how legal fees and expenses will be handled. Representing multiple clients Representing one client for multiple matters 11

The Adaptable Lawyer Advantages of Engagement Agreements Creates expectation with client at outset of attorney-client relationship Presents opportunity to avoid confusion between attorney and client Protects attorney in event of a dispute: –Ohio case (Court granted MSJ – Engagement agreement bound parties on legal fees) –NY case (Court dismissed case – Engagement agreement clearly limited scope concerning tax liability) But, a poorly drafted or undrafted engagement agreement will not protect attorneys –NV case (Lack of engagement agreement prevented granting of MSJ) 12 *Katz, Teller, Brant & Hild LPA v. Farra, 2011 WL (Ohio App. 2nd Dist. 2011) **Ambase Corp. v. Davis Polk & Wardell et al., 866 N.E.2d 1033 (2007) ***Allyn v. McDonald, 910 P.2d 263 (Nev. 1996) C.Defining Representation in Engagement Agreement

The Adaptable Lawyer C.Defining Representation in Engagement Agreement Elements of a Proper Engagement Agreement Identify Client Scope of Representation Fees and Billing Procedures Expenses Consequences of Late Payment and Failure to Pay Responsibilities of Law Firm and Client Termination of Representation File Retention and Destruction Policy – See Guide on Lawyersinsurance.com Signature Block and Date Line for Client Law Firm’s Insurance Info? 13

The Adaptable Lawyer Identify Client & Scope of Agreement Who is the client? For example, if forming a limited liability company (“LLC”) for one or more persons, the letter expressly must delineate whom lawyer is representing and steps that lawyer will take in creating the LLC. 14 C.Defining Representation in Engagement Agreement

The Adaptable Lawyer What If Lawyer Represents More than One Client in Same Matter or Case? Need for Joint Representation Waiver that specifies: –client’s option to consult with other counsel on joint representation –law firm’s duty to share confidential information with all joint clients and not favor one client over others –client’s duty to alert law firm if any conflict develops among joint clients –whether law firm would continue to represent other joint clients if one client obtains other counsel 15 C.Defining Representation in Engagement Agreement

The Adaptable Lawyer Scope of the Agreement It is not unethical for an attorney to limit his or her potential liability for legal malpractice by contractually limiting scope of the representation or the duration of the representation. 16 C.Defining Representation in Engagement Agreement Source: Nichols v. Keller et al., 15 Cal.App.4th 1672, 1684 (1993)

The Adaptable Lawyer Special Circumstances - Awaiting Further Action Letters Scenarios: –Client has not paid retainer fee. –Client has not provided lawyer with necessary documents. –Client did not commit to representation at initial meeting. –Client has not signed engagement agreement. –Client is not responding to messages. 17 C.Defining Representation in Engagement Agreement

The Adaptable Lawyer Awaiting Further Action Letters Sample language: –We will not be representing you unless you send us [required documents]: –We will not be representing you unless you provide us with $_____ as a retainer fee. –Please note that time limits may apply to your claim. Therefore, you must act immediately. –If we do not hear from you by [date certain], we will assume that you do not wish to proceed and we will close our file. 18 C.Defining Representation in Engagement Agreement

The Adaptable Lawyer D.Maintaining the Relationship: Conflicts of Interest Most Common Model Rules of Professional Conduct on Conflicts: Model Rule 1.7: Conflict of Interest: Current Clients Model Rule 1.9: Duties to Former Clients Need to Obtain Informed Consent of Clients Waivers Normally Come in Pairs Need to Screen Conflicted Lawyers When Appropriate and Permitted by Rule 19 Source: ABA, Center for Professional Responsibility, Model Rules of Professional Conduct, Model Rule 1.7: Conflict of Interest: Current Clients and Model Rule 1.9: Duties to Former Clients.

The Adaptable Lawyer D.Maintaining the Relationship: Conflicts of Interest Conflicts of Interest: Former Client Scenario Determine if New Matter is “Substantially Related” to Former Matter New Matter is Substantially Related to Former Matter if: –they involve same transaction or legal dispute; or –substantial risk exists that confidential information in prior matter would materially advance client’s position in subsequent matter 20

The Adaptable Lawyer D.Maintaining the Relationship: Conflicts of Interest Conflicts of Interest: Former Client Scenario If no substantial relationship between new matter and former matter, no conflict arises and no need for a waiver. If substantial relationship between new matter and former matter, then written informed consent must be obtained Informed Consent: Adequate information and explanation about material risks of and reasonably available alternatives to proposed course of conduct. Continuing duty to maintain confidences Even if not required by rules, written consent of former client also should be secured. Can ethically screen affected attorneys 21

The Adaptable Lawyer D.Maintaining the Relationship: Conflicts of Interest Conflicts of Interest: Current Clients Scenario Before agreeing to represent one client against another existing client, lawyer must determine that: –lawyer reasonably believes he/she will be able to provide competent and diligent representation to each client; –representation is not prohibited by law; –representation does not involve assertion of claim by one client against another client represented by lawyer in same litigation or other proceeding before tribunal; and –each affected client gives informed consent, confirmed in writing. 22

The Adaptable Lawyer D.Maintaining the Relationship: Conflicts of Interest Conflicts of Interest: Current Clients Scenario Elements of an Effective Conflict Waiver Letter: –draft separate waivers for each client; –give full and accurate descriptions of the adverse matters; –explain the potential risks involved; –inform clients that they have the option of seeking the advice of another lawyer; and –state that the client is not obligated to consent. 23

The Adaptable Lawyer D.Maintaining the Relationship: Conflicts of Interest 24 New Client Adverse to Former Client Adverse to Current Client Yes Determine that: 1.Reasonable belief 2.Not prohibited by law; 3.No assertion of adverse claim 4.Not the same matter; and 5.Client gives informed consent No Conflict No If no substantial relationship to former representation, No conflict No Conflict If substantial relationship for former representation, must obtain informed consent of former client No Yes

The Adaptable Lawyer E.Terminating the Relationship: Closing Letters Advantages: Informs client that representation has ended Gives lawyer the opportunity to request any outstanding fees or costs Provides client with the opportunity to clear up any misunderstanding with attorney and seek new counsel, if necessary Aids attorney in statute of limitation disputes* Kloian v. Schwartz, 725 N.W.2d 671 (Mi.Ct. App. 2006) 25 Sample Closing Letter Dear Mr./Ms. Client: We want to thank you again for choosing our firm to represent you with respect to case/matter #____. This letter is being sent to confirm that case/matter #____ is concluded, and we will be closing our file as our representation of you has ended. Enclosed with this letter are any original documents {list the original documents being returned] that we have not previously returned to you. As we discussed in our initial interview, we will store your file for ____ years from this date, after which the file will be destroyed. If you wish for us to store the file for a longer period of time, you must instruct us to do so in writing, within five days of the date of this letter. If you need legal representation in the future, I hope that you again will consider engaging our law firm. Thank you for allowing us to represent you in this matter. Sincerely, [Lawyer’s Name]

The Adaptable Lawyer 26 The Adaptable Lawyer II.The Hidden Risks of Business Transactions Practice 26

The Adaptable Lawyer Introduction Business Transactions (“BT”) representations cover many types of transactions: –sales agreements –employment agreements –agency agreements –entertainment contracts –commercial transactions (including franchising where real estate is not the major subject of the transaction) 27

The Adaptable Lawyer Introduction BT claims are coded differently than corporate litigation/business organization claims. For this section, BT claims do NOT involve: –all aspects of the business formation –operations –sale and dissolution of corporations –partnerships (general and limited) –agency and other forms of business organizations 28

The Adaptable Lawyer BT Claims – Safe Practice? Historically, business transactions have been perceived as a “safe” area of legal practice that did not incur many legal malpractice claims or substantial losses. 29

The Adaptable Lawyer A.BT Claims Incur Loss Disproportionate to Number of Claims BT claims represent 4% of claims 30

The Adaptable Lawyer 31 BT claims represent 9% of losses. A.BT Claims Incur Loss Disproportionate to Number of Claims

The Adaptable Lawyer B.BT claims Have Higher Defense Costs Than Other AOP Claims 32 Claim expenses include the cost of defense counsel, investigation, discovery, trial, expert consultants and other costs related to defending the claim. BT claims have higher defense costs per claim than other AOP claims

The Adaptable Lawyer B.BT claims Have Higher Defense Costs Than Other AOP Claims Reasons Why Higher Defense Costs in BT claims: –53% of BT claims start out as or become lawsuits, compared to an average of 45% for other AOP claims. Suited claims incur more expenses Suited claims more likely to result in indemnity payments –BT claims typically require retention of multiple experts –BT claims frequently involve multiple parties. –BT representations are frequently document-intensive. 33

The Adaptable Lawyer C.Percentage of Practice Devoted to BT Work Affects Claims 34 Nearly 70% of BT claims involve attorneys who devote 5% or less of their practice to BT work

The Adaptable Lawyer C.Percentage of Practice Devoted to BT Work Affects Claims Attorneys who devote less than 5% of their practice to BT work may not have adequate: Resources Time Human resources Document processing and handling capacity Equipment such as software, hardware and information resources. 35

The Adaptable Lawyer C.Percentage of Practice Devoted to BT Work Affects Claims Attorneys with the most experience in business transactions face the most severe BT claims on average. Attorneys who devote more than 25% of their practice to BT work are less likely to have a claim brought against them (9.9%) However, those claims result in almost twice the size of loss than BT claims brought against attorneys who devote 5% or less of their practice to BT work. 36

The Adaptable Lawyer D.Activities that Lead to BT Claims 37 Preparation, filing and/or transmittal of documents are most common activities associated with BT claims.

The Adaptable Lawyer D.Activities that Lead to BT Claims Number 1 Activity - Preparation/Filing/Transmittal of Documents Common document handling errors include: –Failure to timely file documents with various authorities –Failure to acquire appropriate licenses, signatures, or approvals –Omission of important provisions 38

The Adaptable Lawyer E.Alleged Errors Leading to BT Claims Inadequate representation (IR) is most common allegation of error in BT claims IR claims include : –lawyer overlooked significant issue –lawyer should have advised client against accepting various portions of the agreement, or transactions against client’s best interest. –lawyer failed to advise client about “downside” of transaction Lawyer’s fiduciary duty to protect client’s best interests. 39

The Adaptable Lawyer E.Alleged Errors Leading to BT Claims Conflict of Interest is the second most common allegation of error in BT claims Conflict of Interests claims include: –Representation of multiple corporate entities –Representation of multiple family members –Attorney should have concluded that parties had an actual conflict at beginning of joint representation –Attorney should have identified and acted upon conflict sooner –Attorney continued to represent one entity when other individual has conflict with that entity. 40

The Adaptable Lawyer F.Risk Control Techniques Whether to Take the BT Case: Time to take on BT case –Conducted proper investigation and research Tools to handle BT case BT Experience –Are you dabbling? BT Experience to handle client –How sophisticated and experienced is the client? Client issues –Reliable/honest/responsible? 41

The Adaptable Lawyer F.Risk Control Techniques How to Manage the Risk of a BT Case Create a checklist – See BT checklist in materials Do not rely solely upon client’s representations Document scope of engagement in written engagement letter Document all instructions to and from client Avoid scrivener representations Avoid clients who fail to exercise due diligence 42

The Adaptable Lawyer F.Risk Control Techniques How to Manage the Conflict of Interest Risks Clearly and thoroughly discuss potential for conflicts to develop as multi-party representations progress Prepare written conflict of interest waivers Remain alert to possibility that clients in multi-party transactions move from potential to actual conflicts and be ready to withdraw, if necessary Regularly discuss clients’ understanding of relationship of attorney to all parties 43

The Adaptable Lawyer F.Risk Control Techniques How to Manage the Conflict of Interest Risks Act quickly to correct misconceptions concerning party to whom attorney represents and owes loyalty. Do not give legal advice to non-clients or inadvertently create or give rise to mistaken belief in existence of attorney-client relationship. Do not favor long-term client’s interest over that of newer client associated with matter. 44

The Adaptable Lawyer Final Thoughts Early Reporting of BT Claims and Potential Claims Can Help Reduce Overall Exposure Others? 45 F.Risk Control Techniques

The Adaptable Lawyer Risk Control Products and Outside Assistance Risk Control Hotline – Risk Control articles and alerts on Risk Control Checklists, Claim Studies and Practice Guides on Risk Control Lunch and Learn programs Risk Control Audio Podcasts on 46 Risk Control Techniques and Tools Available

The Adaptable Lawyer 47 The Adaptable Lawyer Conclusion 47