Ethical Dilemmas Created By Client-Drafted Engagement Letters and Outside Counsel Policies. Stephen G. Masciocchi, Holland & Hart LLP

Transcription

1 Ethical Dilemmas Created By Client-Drafted Engagement Letters and Outside Counsel Policies Stephen G. Masciocchi, Holland & Hart LLP

2 History of OCPs Mid-90 s hortatory Evolved control of fees/expenses Today covers everything Confidentiality and publicity Conflicts and waivers Indemnification and insurance Experts and outsourcing Litigation and ADR Data security Diversity requirements and flex-time policies

3 You get a call. It s your dream case...

4 ... but it comes with conditions: Client includes affiliates Disclose representation of competitors Conflicts (broad) Client as additional insured Most favored nations Highest standard of care Choice of law / ethics code Indemnify and hold harmless

5 Affiliates as Clients Background: ABA Opin Case law balancing tests General rule: affiliates not automatically clients OCPs change the rule by contract All subsidiaries and affiliates (some list them, some don t) Mergers and acquisitions

6 Affiliates as Clients (cont.) Ethical dilemmas in representing affiliates Who are they? How do you know about M&As? Address by Communicate: get list from client Put onus on client to notify of M&A

7 Conflicts Concurrent Conflicts of Interest: Rule (a) - direct adversity conflicts 1.7(a)(2) - material limitation conflicts Generally not considered conflicts: Representing competitors in unrelated matters (1.7, cmt. 6) Possible future conflicts

8 Conflicts (cont.) Sample OCP definitions of conflicts include: Competitors (vendors) Adverse to our business interests Contrary to our corporate values Might damage our brand Potential conflicts Appearance of a conflict Positional conflicts

9 Conflicts (cont.) Issues How to screen for amorphous concepts? Enforceability of vague terms? Disclosure prohibited under 1.6(a)? Address by Describe conflict screening process Explain prohibition on disclosing 1.6(a) info Chicken and egg problem

10 Conflicts (cont.) Advance consent to waive conflicts Some OCPs contain prospective waivers E.g., transactional, opinion letters (usually not litigation) Rules Valid waiver requires informed consent Explain risks and available alternatives Whose responsibility?

11 Indemnification Example: Outside counsel will indemnify and hold harmless client [and its employees] from and against any and all claims, damages, liabilities, losses and expenses [including attorneys fees] based on, arising out of, or in any way connected with outside counsel s performance or lack of performance under this agreement. Issue: Likely voids outside counsel s malpractice insurance coverage

12 Indemnification (cont.) Insuring clause - non-contractual claims only - can t extend Cooperation clause If convert tort into contract claim, prejudices insurer Ex: deprives insurer of tort defenses (e.g., comparative fault, shorter SOL) Subrogation clause - Can t hold harmless client/employees impairs insurer s subrogation rights Consent to settlement clause - violated if firm must pay

13 Indemnification (cont.) Why include clause that will void MP insurance? C.R.C.P. 265: Lawyers jointly & severally liable for acts of other lawyers in firm unless have a compliant malpractice policy when the act or omission occurs Rule doesn t require actual coverage for a claim! Hence, OCP s voiding of coverage doesn t make non-actors personally liable

14 Indemnification (cont.) If you insist on indemnification: Can only recover against firm & personally-responsible lawyers (who have no insurance coverage) Will likely void the only viable source of recovery See Rule 1.1 (competence) and 1.4 (communication)

15 Request to be a Named Insured Prohibited by malpractice policies But, OK under GGL policies

16 Most Favored Nations Outside Counsel represents that the rates and other economic conditions in this Agreement are at least as favorable to Client as those charged to any other client of Outside Counsel (other than pro bono clients). or Outside Counsel confirms that no lower billing rates are charged to any other client of Outside Counsel (other than pro bono clients).

17 Most Favored Nations (cont.) Ethical dilemma fee must be compared to: Flat fees particular case Flat fees all matters Contingency fees and expenses - 1.5(c), 1.8(e) Blended fees (e.g., reduced hourly + success fee) Future matters moving target Cannot ethically agree / Cannot be enforced per 1.6(a) Alternative language?

18 One-Lawyer Rule We will only pay for one lawyer to attend [conference calls, internal meetings, depositions, settlement conferences, hearings, court appearances, etc.] Issues Competence 1.1 Truthfulness 4.1 Address by writing down everyone s time but charging for only one

19 Standard of Care E.g., highest standard of care of lawyers in State X E.g., highest level expected of lawyers in community X Issues Difficult to define Not insurable standard of care

20 Governing Law (Apparently) innocuous - Law of State X Or: State X s Rules of Professional Conduct ABA Model Rules of Professional Conduct ABA Model Code of Professional Responsibility

21 Governing Law (cont.) Issues Conflicting ethical duties Lower ethical standards Higher ethical standards d Easily addressed

22 If none of this can be negotiated If none of this can be negotiated, do you still want that dream case?

23 Issues for Outside Counsel Competence 1.1 Communication 1.4 Confidentiality 1.6(a) Conflicts as defined by OCP Truthfulness 4.1 Insurance

24 Issues for In-House Counsel Competence 1.1 Communication 1.4 Consultation 1.0(e) & 1.7(a)(2) ) Inducement Rule 8.4(a) misconduct to induce another to violate the Rules Insurance

25 Issues for In-House Counsel (cont.) Addressing these issues Raise with your client and outside counsel Be prepared for outside counsel to raise them A reasonable compromise is almost always possible Alternative clauses are available

26 QUESTIONS?

27 Ethical Dilemmas Created By Client-Drafted Engagement Letters and Outside Counsel Policies Stephen G. Masciocchi, Holland & Hart LLP