Politician Moonlighting as Lawyer Stirs Up Controversy – and Conflicts of Interest

conflict-of-interestCalifornia State Treasurer Bill Lockyer recently announced that he’ll be moonlighting as a lawyer at international firm Brown Rudnick, LLP.

Several commentators have pointed out the potential conflict: Lockyer will offer advice on government and legal matters in other states, while continuing to serve as California’s Treasurer; however, “California isn’t an island, its financial doings quite often move into other states.”

It will come down to Brown Rudnick’s willingness to subject Lockyer’s assignments to “a rigorous internal conflict and ethics review” versus its desire for him to “make it rain by using his considerable influence and connections to hook big clients.”

What are the elements of a “rigorous” conflicts system? Here’s a starting point:

Designate a Conflicts Checker
Many firms allow the attorney requesting the new client or matter to analyze potential conflicts, but this is itself a possible conflict of interest, since the individual with the most interest in opening the matter is deciding whether the work can proceed.

Large firms that don’t have a director of conflicts should have their conflict checks conducted by their general counsel or risk management partner. Smaller firms can hire, assign or develop a conflicts expert and invest that person with decision-making authority. Small firms should at least have a lawyer other than the one seeking to open the matter conduct the conflict analysis.

Know the Rules
All lawyers should know the six Model Rules of Professional Conduct that govern most conflict situations, and the code of professional conduct for each state in which they practice.

Develop Good Procedures
Decide how your firm will analyze conflicts, clear them, and waive them, and then document those practices and educate your staff.

Install An Electronic Database
It should enable you to easily store and retrieve comprehensive information (i.e., it should be easily searchable). It should also be able to search external resources in addition to the database you’re keeping, and have reporting capabilities that will provide you with tangible proof that you’ve run all the necessary checks.

Legal malpractice insurer Lawyers Mutual adds these suggestions:

The system is integrated with other systems; i.e., time and billing and case management;

Provides easy access to conflict data for everyone in the office;

Checks are conducted at the three key stages of the representation: before face-to-face

consultations, before a new file is opened and when a new party enters the case;

Searches check for varying spelling of names and all prior names, corporate affiliates, etc.;

Conflict entries show the party’s relationship with the client;

Checks are conducted when new attorney and staff members join the firm and their list of past


All parties connected with a case are entered into the system; and

Conflict searches are documented in the file.

A new client list is circulated weekly to all lawyers and staff in the office and is reviewed for possible conflicts.

(Further reading: Important Components of a Conflicts Database)

Don’t Rely Solely on Your Database

A good conflict-checking system will identify conflicts of interest before you begin a representation, but some conflicts arise during representation. Develop policies for identifying and managing these conflict situations.  

Become a Man – or Woman – of Letters

Document the precise nature and scope of the work that you’re going to perform in each matter in an engagement letter to the client. This will stimulate your thinking about the case such that you may identify potential conflicts in this or other cases.  

 Write a declination letter to the client or prospect whenever you identify a conflict of interest that prevents you from undertaking a representation. This will help you prove that an attorney-client relationship was never formed, which in turn should inoculate you from a legal malpractice claim. (You should send a declination whenever you turn a down a representation, regardless of the reason).

 Whenever you close a matter, notify the client via a closing letter. This will help you in any malpractice defense, and allow you to do some marketing at the same time.

Further reading:

The Hazard: Conflicts of Interest – American Bar Association

Best Practices for Avoiding Client Conflicts of Interest – Jay Reeves/Lawyers Mutual Insurance Co.

Maintenance of Conflict Procedures – Marion C. Rice, Esq./New York State Bar Association

Conflict of Interest Self-Audit – Texas Lawyers Insurance Exchange

A Conflicts of Interest Primer – Eric Mosca of InOutsource/Peer to Peer magazine

For many more links on this and other law practice topics, visit https://lawyersinsurer.com/law-firm-risk-management-linkbrary/   


Coming M&A Boom Presents Risks and Opportunities for Law Firms

merger-wallpaperA prominent money manager predicts an imminent boom in mergers and acquisitions, because the US economy is still growing sluggishly, so companies can’t grow fast enough organically to satisfy shareholders, and they have $1.45 trillion in cash.

There’s been no boom to date – global M&A activity is at a three-year lowexcept in technology and telecommunications, but according to consulting firm PwC the fundamentals for strong M&A activity remain in place.”

This means there should be a lot of work available for M&A lawyers. If your firm has an M&A practice, now is the time to market it aggressively, and perhaps expand it via lateral hires. If it doesn’t, but wants to enter this practice area, it’s time to consider lateral hires or even an ‘M’ or ‘A’ with a law firm that has an M&A practice.

The one thing your firm shouldn’t do is dabble in this area: according to CNA, one of the world’s largest legal malpractice insurers, “nearly 70% of all business transaction claims are instituted against attorneys who reported that business transactions practice generated 5% or less of their annual revenues.” (p. 2) A review of these claims indicates that attorneys inexperienced in this area “underestimate the complexity of these matters…(and lack) the appropriate resources (to manage them), and the ability to properly process, prepare, handle, and review all of the necessary documents in the transaction.” (p.10)

The biggest source of business transaction claims (35%) is improper preparation, filing and/or transmittal of documents, i.e., the omission or erroneous drafting of a contract provision, failure to acquire the appropriate license, signature, or approval before recording a document, failure to file or record a document in time to meet a deadline, etc. The second biggest source of these claims (30%) is negligent advice. The other major source is conflict of interest, which occurred more often in this area of practice than in any other that CNA insures; the most common type of conflict of interest alleged was that the attorney represented multiple parties to the transaction.

To reduce your risk of being sued for malpractice – and incurring the associated stress, costs, and reduced productivity: 

I. Avoid:
A. Representing a client who is more experienced than you in the industry or type of transaction being undertaken.
B. Representing a client who may be engaged in a fraudulent transaction (you may be sued by those victimized by the fraud).
C. Representing a client who asks you to “cut corners” (this may be a sign of fraud).
D. Representing all parties to a transaction.
E. Representing one party, while the other parties are unrepresented.
F. Representing one party in a transaction, and having your fees paid by another party.
G. Scrivener representations, whereby the parties have agreed to a transaction and retain you to draft a contract that reflects their agreement.

II. Follow these procedures for engagements that you do accept:
A. Use a checklist.
B. Document the scope and specifics of the engagement in a letter to the client, and don’t begin work until the client has signed and returned it to you.  Sample Letter #1   Sample Letter #2 (see page 43) 
C. Document all instructions from the client.

New Psychiatric Disorders May Become Employment Lawyers’ Full Employment Act


brain-gearsIn May, the American Psychiatric Association re-leased DSM-5, the 5th edition of its Diagnostic and Statistical Manual of Mental Disorders, which psy-chologists and physicians use to to diagnose and treat patients.

According to attorney Darren Creasy of Post and Schell, DSM-5 expanded previously recognized disorders, and added these conditions as medically-diagnosable disorders:

  • Caffeine-Withdrawal Syndrome – fatigue, head-ache, difficulty focusing,  diuresis (frequent uri-nation), muscle twitching, rambling flow of thought and speech, etc., resulting from over-intake of caffeine;
  • Mild Neurocognitive Disorder – “minor cognitive decline,” beyond “normal” issues of aging, that “concerns” the individual and requires “greater effort, compensatory strategies, or accommodation” to “maintain independence and perform activities of daily living”;
  • Social (Pragmatic) Communication Disorder – a “persistent difficulty with verbal and nonverbal communication that cannot be explained by low cognitive ability” that may cause “inappropriate responses in conversation” and can limit occupational performance;
  • Attenuated Psychosis Syndrome – infrequent (perhaps no more than weekly) onset of mild distress and social dysfunction that, in the patient’s subjective judgment, requires psychotherapeutic treatment.

In other words, DSM-5 has “medicalized the ordinary quirks and travails of everyday life…Social Communication Disorder sure sounds a lot like poor interpersonal skills, and Caffeine-Withdrawal Syndrome sounds a lot like Wednesday afternoon.”  

Thus, DSM-5 may create an increased employment practices liability risk, as any employee disciplined for performance issues could claim to have one of these disorders, and seek accommodation and perhaps file a claim against his or her employer for violating the Americans with Disabilities Act (ADA). The ADA prohibits discrimination against anyone who has a disability, which according to The ADA Amendments Act of 2008 means “…a physical or mental impairment that substantially limits one or more major life activities…(which include) learning, reading, concentrating, thinking, com-municating, and working”. (The amendments broadened the protection provided by the ADA, which had been narrowed by the Supreme Court and the EEOC since it was passed in 1994). 

The ADA doesn’t list the impairments that qualify as a disability, and Creasy points out that “just because a disorder is recognized in the DSM does not mean it automatically meets the definition of “disability” under the ADA…in fact, the EEOC’s interpretive guidance expressly excludes from the definition of “impairment” any “common per-sonality traits such as poor judgment or a quick temper where these are not symptoms of a mental or psychological disorder”’. However, DSM-5 not only makes it much easier to claim that personality traits such as poor judgment or a quick temper are symptoms of a disorder, i.e., Social Communication Disorder, and thus qualify as a disability, it gives the EEOC grounds to consider the presence of the traits themselves as a disability.

The first claims that cite the new disorders will force the EEOC to issue interpretive guidance as to whether or not they qualify as disabilities; however, attorney Douglas A. Hass of Franczek Radelet P.C. writes “employers would be prudent to assume every-thing but the most transitory and minor impairments will be found to be disabilities.” In other words, DSM-5 will enable increased demands for accommodation, and ADA claims, as employees disciplined for misconduct, poor performance, etc., claim that their behavior was due to a disability, rather than their own shortcomings. 

This is great news for employment lawyers, both plaintiff and defense, but bad news for employers, including law firms.

To protect your firm, develop and adhere to sound procedures for disciplining employ-ees, fully document all disciplinary action, and if an employee asks for an accommo-dation because he or she is disabled and thus protected by the ADA, engage in the interactive process in good faith. Finally, if your firm has Employment Practices Liability Insurance (EPLI) coverage, make sure that it’s broad enough and the limits are high enough to protect your firm. If your firm lacks EPLI coverage, consider buying it, especially if it has 15 or more employees, and is thus subject to the ADA and other federal legislation that protects workers.

I’m tired, finding it hard to focus, and I have to pee like a racehorse, so I’ll end this post now. Clearly, I’m suffering from Caffeine-Withdrawal Syndrome. Maybe I’ll file an ADA claim…




Fraudsters and Scammers Are Still Targeting Lawyers – Including You (Part II)

anti-fraudPart I explained the types of check scams targeting lawyers, and how they work.  This post explains how you can avoid being victimized by these scams.

The Oregon State Bar Professional Liability Fund (OSBPLF) offers 11 tips to avoid being scammed. If a new client passes your initial screening, protect yourself by following these steps before depositing his or her check and wiring funds from your account:

“-Call the issuing bank branch of the check to verify that the check is legitimate. Use the phone book, the bank’s Web site, or directory assistance to obtain the phone number of the issuing bank branch. Do NOT use the telephone number print­ed on the check – it could be fraudulent.
-If the issuing bank will not or cannot verify the authenticity of the check, ask your bank to call the issuing bank and make this inquiry before de­positing the check into your trust account. It helps to have a good relationship with your banker.
-If you cannot verify that the check you have is legitimate, consider terminating the legal representation of the client or waiting until the check has cleared and the funds are not subject to a chargeback. Instruct your bank to notify you immediately if it suspects fraud.
-Verify money orders by calling the issuing company. Keep in mind that scammers might use a legitimate number on numerous money orders, so there is no guarantee that the money order is legitimate.”

Clearly, the best way to avoid being defrauded is to have a good client screening process, follow sound procedures for disbursing funds from your client trust account, and learn to spot and avoid scams.

What if you do all of that and still get scammed? That’s where insurance comes in.

Your legal malpractice policy may cover your loss, unless it has an exclusion for claims that involve handling funds, or it covers only claims that involve the rendering of legal advice, i.e., it doesn’t cover claims involving the business aspects of law practice, such as those pertaining to your trust account.

Another option is to purchase crime coverage, which will likely cover you for the fraud described here, as well as computer and many other types of fraud, employee dishonesty, etc.

A skilled broker will make sure that you’re covered for this exposure.


Fraud Fact Sheet: Don’t Become the Next Victim 
Scammers Aim at Lawyers: How to Avoid Becoming the Next Victim 
Scam Update: New Ways They Can Get Your Money
Lawyer Email Scams: How The Nigerian Scam Is Used On Lawyers 
Massive Spike in Bad Cheque Frauds Targeting Lawyers Worldwide 
Frauds Targeting Lawyers Continue at High Level: Don’t Be Duped 
How to Report (And Stop) Fraud Attempts Using Gmail, Yahoo and Hotmail Addresses

For hundreds more links on this and related topics, visit LawyersInsurer.com/Law Firm Risk Management Linkbrary 

Fraudsters and Scammers Are Still Targeting Lawyers – Including You (Part I)


fraudA high-profile prosecution of check scammers that targeted law firms, and extensive efforts by bar associations, legal malpractice insurers, etc., to educate lawyers about those scams have reduced the threat, but the AvoidAClaim blog reported receiving over 200 emails last month from lawyers who were the target of scammers.

Here’s how these scams work:

First, a scammer approaches the target law firm with a new matter; the Oregon State Bar Professional Liability Fund (OSBPLF) describes the most popular:

Business loan scam: The “client” is set­ting up a business and buying equipment or in­ventory. The “client” seeks representation to help with borrowing money. Example
Debt collection scam: The “client” is seeking representation to collect a debt. Example
Collaborative family law agreement scam: The “client” is seeking representation to collect spousal support or a lump-sum alimony settlement. Example

According to the OSBPLF “the fraud can take many forms, but essen­tially it consists of some variation of the following scenario”:
-Client hires lawyer, either by phone or e-mail.
-Client sends lawyer a check – a standard check, a cashier’s check, a certified check, or a money order – for purposes of the legal representation (i.e., payment of a loan to a third party, payment for a real estate deal, payment for the purchase of a business, etc.). Alternatively, lawyer re­ceives payment from a third party for the legal mat­ter in the form of a check, i.e., for payment owed to the client for a debt.
-The lawyer deposits the check into his or her trust account. Shortly thereafter, client requests that law­yer wire the funds to a particular bank account, minus the lawyer’s fee.
-Lawyer assumes everything is fine – after all, the check sent by the client was a cashier’s check, a certified check, or a money order – and follows client’s instruction to wire the funds into the specified bank account, less the legal fee. After the funds have been wired, “the bank discovers that the check the lawyer deposited…is fraudulent, and recalls the funds released to lawyer’s trust account.”

In other words, the bank will hold the lawyer responsible for depositing a fraudulent instrument, and will charge it back against his/her account. This will either cause the lawyer’s trust account to be overdrawn, or will cause a shortfall of funds owed to an­other of his or her clients, an ethical rules violation, which the lawyer must correct by replacing the funds. Meanwhile, the “client” is thousands of miles away and tens of thousands of dollars richer.

Note that the bank may not discover the fraud for days, weeks, or even months: “Check forg­ers know how to delay confirmation that the check is not legitimate. For example, check forgers may change the nine-digit MICR (magnetic ink character recognition) lines at the bottom of the check. The check may say the name of one particular bank, but the code on the check is drawn from a different institution. This causes the check to be misrouted, which causes delays in processing the check. There is no banking regulation deadline as to how long a bank may wait to “charge back” your account and recall funds previously deposited.

Some lawyers who’ve been defrauded by this scam thought they were being careful by calling their bank and confirming that the deposited funds were available, before they wired funds from their account. However, the OSBPLF warns “there is a difference between the time when banks make the funds available and the time when final pay­ment by the issuing bank has been honored and collected (i.e., “cleared”). A cashier’s check for less than $5,000 will be available in one banking day. For checks over $5,000, the bank will notify the customer when the funds will be available; generally, this is 7 to 11 business days. Some banks make the funds available sooner and give the customer “provisional credit.” As a result, in some situations an attorney may be allowed to draw upon these funds very quickly – yet it may turn out that the money hasn’t actually been collected from the issuing bank.”

Further, “cashier’s checks present a special opportunity for scam­mers because they are widely perceived to be as good as cash, and, in fact, legitimate cashier’s checks are guaranteed by the issuing bank. However, cashier’s checks are still checks, and banks can still recall the funds from a “cleared” check if subsequent processing finds it to be fraudulent. Many scams exploit the misconceptions surrounding cashier’s checks.”

Next post: how you can avoid being the next victim.



Storm Warning: Disaster-Proof Your Practice for Hurricane and Winter Season, Part II

Our last post discussed risk management measures that a law firm should implement to avoid a shutdown if its office becomes inaccessible due to damage from a hurricane, fire, or other disaster. Good risk management measures like these are a law firm’s first line of defense against a not only a property loss, but a malpractice claim, data breach, etc. Its last line of defense is good insurance, which the topic of today’s post.

I. Property Insurance: If you rent your office, then you should buy a commercial property insurance policy that complies with the requirements of your lease, and covers what your landlord’s policy doesn’t cover. In most cases, your landlord will buy insurance for the building, so you should buy a policy that covers your office contents: furniture, supplies, equipment (i.e., computers and  copiers), etc.; in other words, you essentially need business renters insurance. However, don’t assume that your landlord will insure the building: be sure to review your lease to determine what type(s) of insurance you’re required to obtain. If your own your office premises, then buy a policy that covers both your building and its contents (if you have a mortgage, it will likely require you to insure the building). 

Be careful when buying property insurance: property policies vary widely in what they cover and the amount of coverage they provide. Further, there are gaps in the commercial property policy that may leave you exposed to major expenses if you incur a loss. Some of these gaps can be filled by buying an endorsement (optional coverage) that either restores coverage for property that is otherwise excluded, or extends the coverage provided by the basic policy. Here are three important ones:

A. The Additional Covered Property endorsement covers damage to a building’s foundation and other real property that is otherwise not covered. The cost to remove and replace a foundation damaged by fire other loss can be prohibitive. Premises owners and tenants who are required to provide insurance for their building need this endorsement.

B. The Additional Building Property endorsement property classifies all property that can be considered either building or personal property as “building”. This is important, because some types of property, i.e., semi-permanently installed equipment, can be considered either, which can lead to a dispute with your insurance company if that property is damaged and you file a claim. This endorsement eliminates that possibility, and thus a possible delay in adjusting your claim until any coverage dispute is resolved, reduces your risk of incurring a coinsurance penalty, and often pays for itself, because the rate to insure a building is lower than the rate to insure personal property. Premises owners, tenants who are required to provide insurance for their building, and tenants who aren’t, but have made improvements to their premises will benefit from this endorsement.

C. Ordinance or Law coverage covers the cost of upgrading a building to comply with current building codes and ordinances after a loss, if required by law, i.e., if more than 50% of a building is destroyed. Having replacement cost coverage is insufficient, because that only covers the building as it exists, not any required upgrades. Further, property insurance covers only actual damage caused by a covered loss to a building; it doesn’t cover the cost to demolish and replace an undamaged portion of a building that must be torn down and rebuilt because of a local ordinance.

If your firm has a property loss that triggers a building code upgrade, it could be financially ruinous without Ordinance or Law coverage, which we recommend to premises owners and tenants who are required to provide insurance for their building.

II. Business Income and Extra Expense Coverage – if your law firm suffers a fire or other propertyloss that impairs its business, this coverage will pay lost profits for up to 12 months while your office is being repaired, and extra expenses that your firm incurs so that it can operate during the repair period, i.e., rental of temporary office space. Business Income and Extra Expense Coverage can be purchased individually or together when you buy Commercial Property insurance.

The basic business income policy applies only if a firm’s economic loss is caused by a hurricane, fire, or other direct physical loss covered by its commercial property policy. As a result, endorsements may be needed to cover business income losses resulting from utility service interruptions, blocked ingress or egress to a particular location, and government-ordered roadblocks or evacuations, i.e., in the event of an approaching hurricane. Law firms may avoid the need for this coverage by following the measures recommended in our last post.

Storm Warning: Disaster-Proof Your Practice for Hurricane and Winter Season, Part I

hurricaneThere are still over two months to go in hurricane season, which ends on November 30th. Winter will arrive three weeks later, bringing freezing weather, snow and ice storms, and high winds to much of the US.

What if damage from a hurricane, winter storm, or other peril, such as a fire, shuts your office for days or even weeks? If you don’t plan ahead, the consequences are clear: reduced current income as you generate fewer billable hours and some current clients replace you; reduced future income as some regular clients take their business elsewhere, referrals from peers stop as word spreads about your predicament, and your marketing efforts cease; cash flow problems as your billing and collection activity is reduced, you continue to incur most of your overhead costs, and you incur extra expenses to reopen your practice; increased risk of malpractice claims as you lose track of statutory deadlines, postpone settlement conferences, etc.

You can avoid these consequences, and even a single day of downtime, by implementing a sound disaster recovery plan.

At the end of this article are links to comprehensive guides that cover all aspects of disaster recovery planning. This article focuses on the three aspects of it that will enable you to avoid downtime: protecting your data, protecting your important papers, and choosing an alternate location to practice in if your office is inaccessible. 

I. Protect your electronic data: case files, contact lists, forms, billing records, etc. According to the National Archives and Records Administration, 93% of companies that lost their data for 10 days or more due to a disaster, filed for bankruptcy within one year of the disaster. So backup your data regularly, using at least one local backup and one off-site backup.

Local backup entails backing up your data to either a disc (CD or DVD) or external hard drive that you install on your computer. An external hard drive is preferable to a disc, because it has much greater capacity. You can buy a good one for under $100; install it in your computer and store data on it by using your computer’s backup software (Windows backupMac backup). Back up your laptop or desktop at least once a day, i.e., before you go home; then remove the disc or external hard drive and either store it overnight in a fire/flood-resistant safe or take it home with you.

Off-site backup is the best protection from fire, hurricane, etc., because even the best safe can be lost or destroyed, taking your local backup with it (however, data can be restored much faster from a local backup than from an offsite back-up.) The most efficient offsite backup is via the Internet, i.e., a cloud storage provider: sign up with a vendor, install its application on your computer, and then upload your files. Note: choose a vendor that encrypts your data before storing it, which will protect you from a data breach, etc.  

By using alternate back-up methods, you can avoid downtime even if your computers are destroyed in a fire, storm, etc.: just buy new ones and load your back-up files onto them.

II A. Protect your paper files: scan them into your computer; you can then access them at any time, and they’ll backed-up with the rest of your electronic data. Better yet, go paperless after you scan them by storing your paper files offsite; choose a secure facility that has good fire protection (a fire alarm and sprinkler). If you’re not ready to go fully paperless, take a baby step by scanning your closed files; it will be much cheaper than storing them offsite (don’t throw out your paper files without first ensuring that you’re in compliance with local rules pertaining to file retention). As a worst-case-scenario measure, contract with a damaged document recovery company.

II B. Protect paper documents that you need to operate your business, and your business and trust account checkbooks. Store vital documents in metal files cabinets that are at least several feet high to minimize the risk of flood damage; store checkbooks in a fire/flood-resistant safe (this will also protect them from theft), along with any blank check paper, client settle­ment checks that you haven’t yet distributed, and stocks, bonds, etc., that you keep on hand.

III. Choose an alternate place to practice and meet clients while your office is being repaired. A solo practitioner can work at home and rent a hotel conference room to meet clients; a small firm can rent a temporary office; a larger firm may have to combine work-from-home and temporary office rentals. You don’t need to have a formal arrangement in place ahead of time, but you should know what you are options are so you can act quickly, if necessary.

 Finally, having good relationships with your fellow attorneys, i.e., members of the Sole and Small Firm Practi­tioners Section of your bar association, will help you greatly if disaster strikes.

Next time: choosing the right disaster insurance.