Procrastinators Programs SM

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1 Procrastinators Programs SM The Duty to Supervise Non-Lawyer Employees and More Ethics Tidbits Elizabeth A. Alston Ethics by Alston Course Number: Hour of Ethics CLE December 19, :40 4:40 pm

2 Elizabeth A. Alston was appointed by the Louisiana Supreme Court as a member of the Louisiana State Bar Association Committee on Professional Responsibility in When that committee was transformed into the Disciplinary Board of the Louisiana State Bar Association (now, the Louisiana Attorney Disciplinary Board), she served as vice-chair and chair of the Board in 1991 and Since that time, she has been retained by insurance companies, law firms, lawyers, and lawyers clients to provide detailed ethics opinions. She has also been retained in the role of expert witness in the field of legal ethics in lawyer professional liability and fee dispute cases. She has represented and advised lawyers in various aspects of court sanction orders and motions to disqualify, both in federal and state court. She also represents respondents before the Louisiana Attorney Disciplinary Board and the Louisiana Judiciary Commission. Her law practice is primarily devoted to matters involving legal and judicial ethics and professional responsibility. She is a past member of the American Bar Association s Standing Committee on Ethics and Professional Responsibility and the A.B.A. Standing Committee on Professional Discipline. She is a current member of the A.B.A. Standing Committee on the Delivery of Legal Services, the A.B.A. Center for Professional Responsibility, and the Association of Professional Responsibility Lawyers.

3 A LAWYER S DUTY TO SUPERVISE NONLAWYER EMPLOYEES an Ethics Presentation by Elizabeth A. Alston Alston Law Firm, LLC 322 West 26th Avenue Covington, LA (985) Toll free: (877) Fax: (985) beth@ethicsbyalston.com

4 Lawyer supervision of nonlawyer employees Two pieces - the supervising lawyers and the nonlawyer assistants. The supervision must be adequate, and the nonlawyer assistant must not engage in the unauthorized practice of law. 1. Lawyers who manage and supervise a. Shall make reasonable efforts to enure the firm has in effect measures giving reasonable assurance that all lawyers conform to the Rules of Professional Conduct and that all nonlawyer assistants conduct is oompatible with the professional obligations of the lawyer. Rules 5.1(a) & (b); 5.3(a). b. A lawyer shall be responsible for another lawyer s or a nonlawyer assistant s conduct if: i. The supervising lawyer orders, or with the knowledge of the specific conduct, ratifies the conduct involved; or ii. Knows of the conduct at a time when its consequences can be avoided or mitigated but fails to take reasonable remedial action. 2. Unauthorized practice of law, Rule 5.5 a. Contains definition of practice of law, purports to only apply to the employment of a suspended lawyer, but could be applied more broadly by analogy i. For purposes of this Rule, the practice of law shall include the following activities: (1) holding oneself out as an attorney or lawyer authorized to practice law. (2) rendering legal consultation or advice to a client. (3) appearing on behalf of a client in any hearing or proceeding, or before any judicial officer, arbitrator, mediator, court, public agency, referee, magistrate, commissioner, hearing officer, or governmental body operating in an adjudicative capacity, including submission of pleadings, except as may otherwise be permitted by law. (4) appearing as a representative of the client at a deposition or 2

5 3. La.R.S. 37:212 other discovery matter (5) negotiating or transacting any matter for or on behalf of a client with third parties. (6) otherwise engaging in activities defined by law or Supreme Court decision as constituting the practice of law. a. The practice of law means and includes: (1) In a representative capacity, the appearance as an advocate, or the drawing of papers, pleadings or documents, or the performance of any act in connection with pending or prospective proceedings before any court of record in this state; or (2) For a consideration, reward, or pecuniary benefit, present or anticipated, direct or indirect; (a) The advising or counseling of another as to secular law; (b) In behalf of another, the drawing or procuring, or the assisting in the drawing or procuring of a paper, document, or instrument affecting or relating to secular rights; (c) The doing of any act, in behalf of another, tending to obtain or secure for the other the prevention or the redress of a wrong or the enforcement or establishment of a right; or (d) Certifying or giving opinions, or rendering a title opinion as a basis of any title insurance report or title insurance policy as provided in R.S. 22:512(17), as it relates to title to immovable property or any interest therein or as to the rank or priority or validity of a lien, privilege or mortgage as well as the preparation of acts of sale, mortgages, credit sales or any acts or other documents passing titles to or encumbering immovable property. 4. Compensation issues. In re Guirard and Pittenger, (La. 5/5/09), 11 So.3d Nonlawyer employees called Case Managers were compensated bi-monthly based upon a commission computed as a percentage of the firm's gross legal fees collected on the individual settled cases that the individual case manager worked on 3

6 and settled during the payroll period. Mr. Guirard and his partner, Mr. Pittenger, were disbarred. 5. Assistant attending or participating in statements by insurance adjusters without lawyer present is prohibited. In re Gerdes, Jr., (La. 10/25/11), 74 So.3d Supervision issues. In re: Sledge, (La. 10/21/03), 859 So. 2d 671. Mr. Sledge s staff decided what cases were non-litigation matters, that could be settled without the necessity of filing petitions, and litigation matters, where petitions would have to be filed. The nonlawyer staff prepared petitions and other pleadings based upon forms prepared by Mr. Sledge. At times, the staff used a rubber stamp to sign his name on pleadings, or signed his name themselves. Non-litigation matters ordinarily went to Ms. LeBleau, who would oversee the clients' medical treatment, verify insurance, correspond with insurance adjusters and prepare demand letters seeking sums based on guidelines used in all cases.[6] Following her preparation of a demand letter, she would direct the matter to Ms. Lalumandier, who would negotiate and settle the matter directly with the insurance carrier's adjuster. The record indicates that at no point during the process did respondent directly supervise or review the work of his staff, and in most cases, respondent had not even met the client his firm was representing. Mr. Sledge was physically absent from his office for months at a time. His staff was left unsupervised to operate the office on a daily basis. Complaint filed by disgruntled nonlawyer employees. In 2012, Mr. Sledge applied for reinstatement to the practice of law, and his petition was denied, 2012-OB-0779, 06/01/12. In re: Sweeney, (La. 9/27/03). Nonlawyer employee filed one of three complaints. Clients had been in contact with Mr. Sweeney s office staff and misinformed of status of cases. Consent discipline approved of a fully-deferred suspension of one year, conditioned upon a two-year period of unsupervised probation. In the joint petition for consent discipline, the parties stipulated to the following: The central problem uncovered by ODC's investigation, and acknowledged by Mr. Sweeney, is Mr. Sweeney's failure to properly 4

7 supervise his non-lawyer employees. Mr. Sweeney's inadequate office management procedures, practices, and supervision violated Rule 5.3 of the Rules of Professional Conduct. While other rule violations are implicated, given the nature of the above detailed matters, both ODC and Mr. Sweeney agree that the central problem is the Rule 5.3 failure to properly supervise violation. 7. Trust and escrow account issues. LSBA vs. Keys, Jr., 567 So.2d 588 (La. 1990). The Respondent was retained to handle a succession and came into possession of succession funds which were appropriately deposited into an escrow or trust account solely for the benefit of the estate. The checkbook was kept in the Respondent's office. During the time the succession funds were being held in the Respondent's law office, his employee wrote checks on the succession account totaling approximately $46, without Court approval and payable to his firm. The Respondent acknowledged the secretary's conduct was inappropriate but that she had done so without his knowledge. The Court directly addressed a lawyer's responsibility in a disciplinary context for the misconduct of an employee who handled clients' funds which should have been under the lawyer's control but who used the misappropriated funds improperly. The Court stated: While respondent did not know of the misuse of the funds in the present case at a time when the consequences could have been avoided, his negligence in failing to establish adequate procedures for handling the client's funds resulted in the commingling of the client's funds with those of the attorney and the use of the client's funds for the attorney's personal purposes. Perhaps an attorney may blindly trust an employee with his own funds, but the attorney who undertakes to handle a client's funds has the duty to take reasonable steps to safeguard the funds. Here, the respondent's duty under D.R to safeguard the funds of a client included the duty of reasonable supervision of the non-lawyer employee who actually handled the funds. Respondent failed to instruct his employee on the concept of escrow accounts and failed to check periodically the handling of the funds held in escrow. Respondent's supervisory failures over a long period of time created a fertile environment for his employee's misuse of the funds. The Court determined discipline was appropriate. Mr. Keys was suspended from the practice of law for thirty days. As ODC has remarked in a recent petition for consent discipline, In the nearly twenty years which has passed since the Keys decision, the disciplinary jurisprudence has evolved in many ways. Amongst those 5

8 evolutionary changes has been a willingness by the Supreme Court to defer imposing actual suspensions while placing an individual on probation with terms and conditions reasonably tied to the misconduct establishing the sanction. It appears clear that no useful purpose would be served by imposing an actual suspension. Rather, a lengthy and harsh period of suspension fully deferred and coupled with targeted terms and conditions of probation would have a strong deterrent effect for this Respondent going forward (and for other attorneys who learn of this decision); includes an educational component requirement to ensure that the Respondent fully recognizes and appreciates not only her ethical obligations but also the proper means of maintaining and supervision of both her operating and trust accounts, and finally provides an appropriate mechanism of revocation should the respondent be unable or unwilling to comply with the terms and conditions of her probation. Because of the lengthy period over which the trust account mismanagement has occurred, it is appropriate the potential period of suspension be one that would require the Respondent to apply for reinstatement should he fail to abide by his ethical obligations going forward. In re: DeRouen, (La. 11/1/13). Ms. DeRouen failed to properly supervise a non-lawyer assistant and mishandled her client trust account. She entered into a joint petition for consent discipline and was suspended from the practice of law for a period of one year and one day, fully deferred, subject to a two-year period of supervised probation. In re Fowler, (La. 9/27/13). Nonlawyer employee (wife) mishandled client funds by commingling them with lawyer s funds in operating account, keeping lawyer s earned fees in trust account, and paying costs from lawyer s fees in trust account. Wife signed on trust account, in violation of Rule 1.15(f). Discipline: a year and a day suspension, fully deferred, subject to a two-year period of supervised probation. 8. Embezzlement. A year and a day suspension, fully deferred, subject to a twoyear probation, was imposed in the following cases: In re: Geiger, (La. 2/12/10) 27 So.3d 280, employee embezzled $27,000 thereby depriving third party providers of funds when due. In re: Bennett, (La. 4/9/10) 32 So.3d 793, paralegal embezzled $15,000 from trust account. In re: Overton, (La. 11/6/09) 20 So.3d 479, employee embezzled $250,000, approximately $182,000 of which were funds payable to third parties. 6

9 In re: Charles, (La. 12/9/05), 916 So.2d 117, employee misappropriated over $13,000 in settlement funds payable to a client. 9. Charging excessive interest on loans to clients. In re: Baldone, (La. 9/27/13). An associate figured out that Mr. Baldone was charging excessive interest on his loans to clients, in violation of Rule 1.8(3)(5)(iii). This rule prohibits a lawyer from charging a client a rate of interest on advances that is higher than the financial institution's interest rate on the line of credit used by the lawyer to fund the advances. Mr. Baldone instructed his staff to comply with its dictates. However, despite Mr. Baldone's instructions, Rule 1.8(e)(5)(iii) was not followed in some cases. The calculations were reviewed, and refund checks were issued to clients. Mr. Baldone received a public reprimand by consent. 7