1

Ethics & the Small Law Practitioner

Gary J. Ross Jackson Ross PLLC

Gary.Ross@JacksonRossLaw.com | www.JacksonRossLaw.com | (212) 804-5754

Gary J. Ross has advised both small businesses and large Fortune 500 companies on a variety of transactional, disclosure, corporate governance and compliance matters. Prior to founding Jackson Ross PLLC, Gary worked in the Corporate Transactions & Securities and Capital Markets practice groups at Sidley Austin LLP and Alston & Bird LLP. From 2009 to 2012, Gary served in the U.S. Department of the Treasury, where he managed conflicts of interest issues pertaining to contractors and financial agents engaged by Treasury to provide asset management, advisory, and other services relating to the Troubled Asset Relief Program (TARP). In that capacity, he developed and recommended compliance standards and regulation interpretation guidelines and designed the on-site testing carried out by the TARP audit department, during which he served as the subject matter specialist. He also helped draft the federal regulation for conflicts of interests as they pertained to TARP, and prepared the official conflicts of interest responses to Special Inspector General of the Troubled Asset Relief Program (SIGTARP) inquiries. Gary received his J.D. from Northwestern Law School in 2004 and earned a B.B.A. from the University of Miami in 1994. Prior to attending law school, Gary worked as a Case Manager for the Tennessee Department of Human Services. Gary is admitted to practice law in New York, the District of Columbia, and Georgia.

Gary’s practice is focused on the following areas: • Corporate & Securities • Compliance • Small Businesses • Nonprofits

2

TABLE OF CONTENTS

I. WHY SOLO AND SMALL FIRM PRACTITIONERS HAVE MORE ETHICS

VIOLATIONS THAN OTHER ATTORNEYS ............................... page 1

II. SOURCES FOR ETHICS RULES FOR ATTORNEYS ............... page 4

III. COMMON ETHICAL CONCERNS FOR SOLO AND SMALL FIRM

ATTORNEYS .............................................................................. page 5

IV. LEARN HOW TO OPERATE YOUR PRACTICE IN ACCORDANCE WITH

THE ETHICS RULES ................................................................ page 11

V. CONCLUSION .......................................................................... page 13

DISCLAIMER: The following materials and accompanying Access MCLE, LLC audio CLE program are for instructional purposes only. Nothing herein constitutes, is intended to constitute, or should be relied on as, legal advice. The author expressly disclaims any responsibility for any direct or consequential damages related in any way to anything contained in the materials or program, which are provided on an “as-is” basis and should be independently verified by experienced counsel before being applied to actual matter. By proceeding further you expressly accept and agree to Author’s absolute and unqualified disclaimer of liability.

3

I. WHY SOLO AND SMALL FIRM PRACTITIONERS HAVE MORE ETHICS

VIOLATIONS THAN OTHER ATTORNEYS

A. Reliance on Own Professional Judgment

Since lawyers in solo or small firm practice don’t have the luxury of having a large

number of other attorneys in the office, we often have to rely on our own judgment and

make our own policies. Frequently, we will find ourselves in the position of having to

decide on the spot our firm’s policies and procedures on a certain matter. Not having

the opportunity to fully think through a matter or quickly ask another person, we

sometimes arrive at a different decision than we would in another setting.

B. Self-Promotion

SmallLaw attorneys have to promote their own practices, whether through word-of-

mouth, traditional advertising, or social media (the latter of which is still a fairly

unchartered legal ethics area). Unlike attorneys in large firms, attorneys in solo

practice or small firms must find their own clients, and SmallLaw attorneys often don’t

have time to stay up to date on the latest ethical rules relating to marketing, such as

those regarding, for example, claims of expertise, past favorable judgments, LinkedIn

profiles, etc.

C. Areas of Practice

SmallLaw areas of practice, such as family law, personal injury, criminal defense,

bankruptcy, and immigration, tend to lead to more complaints to the bar association

than the practice areas typically offered by big law firms. Also, SmallLaw attorneys

face financial pressure to maintain a steady flow of clients, thus it is difficult to turn

down cases. Any attorney who takes a case outside of his or her area of expertise runs

a greater risk for being responsible for a bad outcome that could lead to a bar

complaint.

D. Lack of Administrative Assistance

We often have limited to no administrative assistance. SmallLaw attorneys generally

have to handle their own billing, mailing, and filings. It can be easy to get behind, miss

deadlines, and/or lose files. Compounding this is the fact many of us have to organize

our own client files, a task which normally (if not always) takes a backseat to billable

matters.

4

E. Lack of Standardized Documents

Unlike larger firms, which will have examples and templates of numerous documents,

from engagement and termination letters to promissory notes and pleadings, we draft

our own documents, often without much guidance on current best practices. Random

Internet searches do not always yield useable precedents, creating many opportunities

for bad lawyering.

II. SOURCES FOR ETHICS RULES FOR ATTORNEYS

A. State Rules of Professional Conduct

Most states follow the ABA Model Rules of Professional Conduct (hereafter “Model

Rules”), but there are differences among the states in key areas, such as referral fees.

Model Rule 8.5(b)(2) states that a lawyer is subject to the professional rules of the

jurisdiction in which the lawyer’s conduct occurs, or the jurisdiction that bears (or the

lawyer reasonably believes will bear) the predominant effect of the lawyer’s conduct.

Many states have rules such as D.C. Rule 8.5(b)(2)(ii), which states that attorneys

licensed in more than one state can follow the professional rules of the state “in which

the lawyer principally practices.”

When a state rule is not clear on its face, an attorney should consult the Commentary to

the Model Rules. Also, the ABA has a running list of the 50 states’ Ethics Hotlines,

where attorneys can confidentially ask ethics questions at the Bar Association of their

state:

http://www.americanbar.org/groups/professional_responsibility/resources/links_of_inte

rest.html.

B. State Bar Ethics Opinions

State Bar Association Ethics Opinions are advisory, and not binding. However, they

are often cited in court decisions, and are generally posted on the website of state bar

associations. See for example the NYC Bar Association’s ethics opinion page:

http://www.nycbar.org/ethics/ethics-opinions-local. It is worthwhile for attorneys to

take the time to periodically review any new state bar opinions, particularly for

information regarding current topics such as virtual law firms and whether soliciting

LinkedIn endorsements constitutes prohibited claims of expertise.

5

C. Other Sources

Some useful books and treatises on legal ethics include: Mallen & Smith, Legal

Malpractice, Stern & Felix-Retzke, A Practical Guide to Preventing Legal

Malpractice, and Blumberg & Baughman, Preventing Legal Malpractice.

III. COMMON ETHICAL CONCERNS FOR SOLO AND SMALL FIRM

ATTORNEYS

A. Attorney Marketing

Solo and small firm attorney marketing opens a Pandora’s box of ethical issues.

Common ethics questions with which attorneys in solo or small firm practice are

confronted include:

a. What should attorneys name their firms?

b. Can attorneys claim expertise in different practice areas?

c. What are the ethical concerns regarding guarantees of results?

d. What are attorneys allowed to put on his or her website? Do attorneys some sort of

disclaimer?

e. What are the ethical concerns involved with attorneys’ social media profiles (e.g.

Facebook, Twitter, and LinkedIn)?

Relevant rules that attorneys should keep in mind include Model Rules 7.1, 7.2, and

7.3. Model Rule 7.1 forbids false or misleading communications about the lawyer or a

lawyer’s services. Model Rule 7.2 permits attorneys to advertise services through

written, recorded or electronic communication, including public media. Model Rule

7.3 imposes additional requirements, for example, limiting the situations where an

attorney may solicit professional employment, and requiring “Advertising Material” to

be written on every written, recorded or electronic advertisement or solicitation.

B. Establishment of Lawyer-Client Relationship

Lawyers must ensure no prospective client, or anyone else who is not a client, has any

reason to believe the attorney is their lawyer. If any person does have reason to believe

the attorney is their lawyer, the attorney could be held to have fiduciary duties of care

and loyalty to the client could cause the attorney to be subject to discipline or a

malpractice suit under Model Rule 1.18. To make certain of the existence of an

attorney-client relationship, an attorney should always seek to obtain from the client an

executed engagement letter, which should include the scope and duration of the work to

be performed. Attorneys should check the state bar for its particular requirements on

what must be included in an engagement letter. (For example, many state bars require a

description of dispute resolution procedures.) Attorneys should also send a notice of

non-representation to any prospective client for whom they are denying representation.

6

Even when no client-lawyer relationship ensues, an attorney who has learned certain

information from a prospective client owes that prospective client a duty of

confidentiality.

C. Retainers

Model Rule 1.5 concerns legal fees, and sets out eight factors in determining whether a

fee is reasonable:

a. the time and labor required, the novelty and difficulty of the questions involved,

and the skill requisite to perform the legal service properly;

b. the likelihood, if apparent to the client, that the acceptance of the particular

employment will preclude other employment by the lawyer;

c. the fee customarily charged in the locality for similar legal services;

d. the amount involved and the results obtained;

e. the time limitations imposed by the client or by the circumstances;

f. the nature and length of the professional relationship with the client;

g. the experience, reputation, and ability of the lawyer or lawyers performing the

services; and

h. whether the fee is fixed or contingent.

Note that fees charged to other clients have no bearing on what constitutes a reasonable

fee. Some clients may ask to lower or defer fees or may object to paying a retainer.

With all clients, large or small, an attorney should communicate plainly and clearly

which legal services are and are not provided, where any retainer will be kept (i.e. trust

account), when the attorney can move a retainer to his or her operating account, and the

process for refunding retainers.

D. Interest on Lawyer Trust Accounts

Attorneys often receive client funds to be held in trust for future use. Client funds are

deposited into an Interest On Lawyer Trust Account (IOLTA) when the interest on

these client funds cannot otherwise earn enough income for the client to be more than

the cost of securing that income. The client receives the interest if the funds are large

enough or will be held for a long enough period of time to generate net interest

sufficient to allocate directly to the client. Otherwise, the interest is used to provide

civil legal aid to the poor, for educational purpose, and to support improvements to the

justice system. Every state operates an IOLTA program.

Lawyers need to be careful in managing their IOLTA accounts, and client trust

accounts generally, to avoid co-mingling and keep accurate accounting. This is

particularly true in solo practice or in small firms, where attorneys may be tempted to

draw on those accounts to pay immediate expenses and credit them later. Doing so is

not only a violation of ethical rules, but may also subject an attorney to criminal

liability.

7

E. How to Handle Various Conflicts of Interest

Model Rule 1.7 lays out the rules for conflicts of interest with current clients. An

attorney may not represent two clients that have a direct conflict of interest with one

another, unless (1) the attorney reasonably believes he or she can render competent

representation to both, (2) the representation is not prohibited by law, (3) the

representation does not involve a claim asserted by one against the other, and (4) each

client provides informed written consent. Model Rule 1.8 provides additional specific

rules governing conflicts of interest, in particular those regarding business transactions

with clients, prohibiting of solicitation of gifts from the client, using confidential

information to the client’s disadvantage, providing financial assistance to clients, and

media rights.

Lawyers sometimes find themselves in situations involving successive adverse

representation (i.e. the lawyer represents a new client whose interests are materially

adverse to those of a former client in the same or substantially related matter). Model

Rule 1.9 provides that in such circumstances, where the lawyer has acquired

confidential information material to the matter, he or she may not take the new client

without the former client’s written consent. Conversely, if the lawyer has not acquired

any material confidential information, the lawyer is free to accept the representation

without the consent of the former client.

Attorneys should keep careful, indexed records of their clients and matters that are

easily accessible so as to ascertain whether a potential conflict exists, and take special

care with business transactions with clients. If a conflict of interest exists, Model Rule

1.10 may impute that conflict to other attorneys in the firm. Some imputations, such as

for personal interest conflicts, may be overcome by screening the attorney with the

conflict from the matter. However, such screening is often difficult in small firms (and

impossible in solo practices).

F. Communication Between Lawyers and their Clients

Under Model Rule 1.4(a), a lawyer shall: (1) promptly inform the client of any decision

or circumstance with respect to which the client’s informed consent, as defined in Rule

1.0(e), is required by these Rules; (2) reasonably consult with the client about the

means by which the client’s objectives are to be accomplished; (3) keep the client

reasonably informed about the status of the matter; (4) promptly comply with

reasonable requests for information; and (5) consult with the client about any relevant

limitation on the lawyer’s conduct when the lawyer knows that the client expects

assistance not permitted by the Model Rules or other law.

Model Rule 1.4(b) provides: a lawyer shall explain a matter to the extent reasonably

necessary to permit the client to make informed decisions regarding the representation.

Two ethical concerns concerning communications with clients that frequently arise are

attorneys trying to cover up their mistakes from clients, and attorneys suspending their

8

work pending payment. As described in Section 4, Part B, attorneys should bear bad

news, including their own mistakes, to the client as soon as possible. Clients are owed

a fiduciary duty of loyalty. While it is never pleasant to admit one’s errors to a client,

doing so may avoid a malpractice suit. Most attorneys would rather face the possible

loss of a client rather than a malpractice suit.

G. SmallLaw Attorneys In New Areas of Law

Under Model Rule 1.1, “a lawyer shall provide competent representation to a client.

Competent representation requires the legal knowledge, skill, thoroughness and

preparation reasonably necessary for the representation.” An attorney who is requested

to represent a client on a matter in which he or she is not competent must either: (i)

offer to defer the matter to another attorney in the firm (often not possible in

SmallLaw); (ii) decline the representation; or, if possible, (iii) become competent in the

matter within a time frame that does not harm the client’s interests.

Keeping in mind Model Rule 1.1 and the above three options, an attorney should

seriously consider the likelihood that the delay caused by the attorney becoming

competent in the matter will have negative repercussions for his or her client. This may

vary depending on the type of case. For instance, a speeding ticket case versus

deportation. Some types of law are so specialized that it may be impossible for an

attorney not well versed in the field to provide competent representation.

Above all else, attorneys should be candid about their qualifications, and not mislead

their clients as to their experience in an area of law or their ability to become competent

in an entirely new area in a short time. Often, an attorney would be better off

partnering with experienced attorneys in fields outside the attorney’s normal practice,

or receive recurring advice from these attorneys.

H. Ending an Attorney-Client Relationship

Generally, Model Rule 1.16 governs declining or terminating representation. Under

Rule 1.16(a), an attorney must terminate representation if: (1) the representation will

result in a violation of the Rules of Professional Conduct; (2) the attorney’s physical or

mental condition materially impairs the lawyer’s ability to represent the client; or (3)

the client discharges the attorney.

Under Model Rule 1.16(b), an attorney may terminate representation if: (1) withdrawal

can be accomplished without material adverse effect on the client’s interests; (2) the

client persists in a course of action using the lawyer’s services that the lawyer

reasonably believes is criminal or fraudulent; (3) the client has used the lawyer’s

services to perpetuate a crime or fraud; (4) the client insists on taking action the lawyer

considers repugnant, or with which the lawyer has a fundamental disagreement; (5) the

client fails substantially to fulfill an obligation to the lawyer regarding the lawyer’s

services, and has been given reasonable warning that the lawyer will withdraw unless

the obligation is fulfilled; (6) the representation will result in an unreasonable financial

9

burden on the lawyer or has been rendered unreasonably difficult by the client; or (7)

other good cause exists.

One of the most common and fundamental reasons for an attorney to terminate his or

her representation is a where a client fails to pay legal fee. Where an attorney initiates

the termination, it is important to comply with jurisdiction rules on retaining client files

and take reasonable steps not to prejudice the client; for example, informing the client

of the statute of limitations for his or her case. Note an attorney may not be able to

withdraw under Model Rule 1.16(b) if doing so would cause the client’s case to fall

outside the statute. Model Rule 1.16(c) requires an attorney to give reasonable notice

to the client, allow the client time to employ other counsel, surrender papers and

property and refunding any advance payment, expense or fee that has not been earned

or incurred.

Model Rule 1.16(d) has additional restrictions for attorneys representing clients in

court. Typically, an attorney must seek permission from the court to withdraw. Further,

a court can even order an attorney to continue representation, notwithstanding good

cause for terminating it.

I. Ethical Concerns Governing “Of Counsel” Relationships

Attorneys should check state bar’s rules for restrictions and requirements on being “of

counsel” to a firm. Most states allow lawyers to be “of counsel” to multiple law firms.

Being “of counsel” typically requires more than occasional referrals. However, a close

personal relationship could be enough for an “of counsel” title to be permissible.

J. Ethical Concerns of Fee Sharing Among Attorneys

According to Model Rule 1.5(e), a division of a fee between lawyers who are not in the

same firm may be made only if: (1) the division is in proportion to the services

performed by each lawyer or each lawyer assumes joint responsibility for the

representation; (2) the client agrees to the arrangement, and the agreement is confirmed

in writing; and (3) the total fee is reasonable. Attorneys should be sure to also check

their state’s specific rules for fee sharing, as this is an area that tends to vary by state.

K. Do I Have to Report Another Lawyer for Unethical Behavior?

Under Model Rule 8.3(a), a lawyer who knows that another lawyer has committed a

violation of the Rules of Professional Conduct that raises a substantial question as to

that lawyer’s honesty, trustworthiness or fitness as a lawyer in other respects, shall

inform the appropriate professional authority. Not all misconduct and crimes meet this

standard, but those involving dishonesty and fraud almost always do.

Most states have adopted Model Rule 8.3(a) in some form. Model Rule 8.3(a) does not,

however, require an attorney to report his or her own misconduct.

10

L. Other Ethical Concerns

When leaving a firm, an attorney has theoretically terminated representation of the

attorney’s current clients. To move clients to a new practice, the attorney should keep

in mind the rules regarding client advertising and solicitation. For example, Model

Rule 7.3(a) prohibits an attorney from soliciting professional employment either in

person or on the telephone or another real-time electronic contact, when a significant

motive for the lawyer’s doing so is the lawyer’s pecuniary gain, unless the person on

the receiving end of the solicitation: (1) is a lawyer; or (2) has a family, close personal,

or prior professional relationship with the lawyer. The latter provision allows an

attorney to solicit former clients in real time (e.g. by a phone call). Prior to leaving a

firm, an attorney is still under an ethical obligation to zealously represent all clients,

even if the clients the attorney does not expect will move to the attorney’s new practice.

As described in Part E, Model Rule 1.8 governs business transactions with clients.

Attorneys often enter into such transactions. For example, some attorneys will acquire

an ownership interest or lien to secure payment of legal fees. An attorney may only

enter into a business transaction with a client if the client is advised of its right to seek

independent counsel, and is given an opportunity to do so. Further, the transaction

must be fair and reasonable to the client, and fully disclosed in writing in a manner that

the client can reasonably understand. Finally, the client must give written informed

consent to the transaction.

A frequent issue that SmallLaw attorneys face in representing entrepreneurs is

accepting equity in a company for legal services. Not only is this form of payment

inherently risky from a monetary perspective, it may create ethical conflict of interest

problems. Law firms sometimes create separate funds, similar to venture capital funds,

that make these “investments” and hold them separate from the law firm’s generating

operating accounts. These funds are managed by investment managers who report to

the law firm’s management, since under Model Rule 5.4, lawyers are not permitted to

report or split fees with non-lawyers. However, forming these types of funds require

additional infrastructure and effort that is normally not available in solo or small firm

practices.

11

IV. LEARN HOW TO OPERATE YOUR PRACTICE IN ACCORDANCE WITH

THE ETHICS RULES

A. Engagement Letters

Do not give advice without an engagement letter, even when giving free advice to

friends. Avoid dispensing advice, whether for compensation or otherwise, on areas in

which you are not competent.

Clarify the scope of the engagement: is it just to write an opinion letter, or represent the

client until the end of a transaction? All parties should also understand exactly who is

the client; for example, whether it is the company entity as a whole, the board of

directors, the CEO, or an important investor.

An engagement letter should include the right to withdraw at will. Such a right is

critical for two reasons: (i) an engagement letter that forces an attorney to remain as

counsel may also set him or her up for a legal malpractice suit; and (ii) such a clause

avoids any risk of having to later disclose the reason(s) why the attorney sought to

withdraw, which itself may be legal malpractice in requiring disclosure of client

information.1

Regularly update the engagement letter template, including periodically checking state

bar association websites for the latest information on updated requirements.

Send letters of non-representation when refusing to take on case, or when the client

takes too long to return an executed engagement letter.

B. Communication with Clients

As described in Model Rule 1.4, attorneys are subject to ethical rules on

communicating with clients. Attorneys have to keep clients reasonably informed about

the status of a matter, and promptly inform the client of any decision or circumstances

with respect to which the client’s informed consent, as defined in Model Rule 1.0(e), is

required under the Model Rules. Attorneys must also comply with reasonable requests

for information and explain a legal matter to the extent reasonably necessary to permit

the client to make informed decisions.

Practically speaking, it is best to require all client waivers to be in writing, for the

attorney’s own protection in any potential malpractice suits, and as sometimes required

under the Model Rules.

While an attorney must keep clients reasonably informed of pending matters, it is

generally best to bring bad news to a client as soon as possible. Attorneys cannot

1 James King, Avoiding Legal Malpractice Suits, p. 4.

12

misrepresent the status of a case, and delay only dampens the level of trust between an

attorney and the client.

For solo and small firm attorneys, client feedback is an important tool in evolving a

practice and facilitating client interaction in the future. As reported by the ABA, “the

vast majority of law firms do a horrific job of eliciting open and honest feedback. Most

of them do nothing. Some do it on an ad hoc basis…” Structured feedback, such as

periodic surveys or questionnaires, gives clients a means to let a lawyer know how to

improve his or her service, and provides additional assurance to the client that the

client’s concerns are important.

C. Communicate with Fellow Lawyers

As mentioned in Section I, attorneys in solo or small firm practice often do not have the

benefit of experienced attorneys within the firm that can provide mentorship and

advice. Thus, it is important to reach out to other SmallLaw attorneys in the same (or

similar) practice areas.

The SoloSez ABA List Serve is a resource that can put attorneys in touch with other

SmallLaw attorneys.2 The ABA website also offers links to state bar associations’

mentoring programs, many of which cater to solo practitioners or attorneys in small law

firms.

D. Communicate with State and Local Bar Associations

When in doubt about an ethical issue, seek informal advice from the staff of the state or

local bar association. Many bar associations have ethics hotline numbers, which an

attorney can call to seek informal advice. Calling such hotlines is easy and much faster

than requesting a formal (or even an informal) advisory opinion.

For a more detailed response attorneys can request an advisory opinion from the state

or local bar association’s ethics committee. Informal opinions respond specifically to

the lawyer’s proposed conduct, whereas formal opinions are applicable to lawyerly

conduct generally, and take much longer to request and issue. Whether formal or

informal, such opinions typically do not pass upon questions of law or matters currently

in litigation, as ethics committees invariably respect the authority of the courts. Ethics

committees also do not respond to requests concerning past conduct, other attorneys’

conduct, or anonymous inquiries.

2 http://www.americanbar.org/groups/gpsolo/resources/solosez.html

13

E. Ethics CLEs

Attorneys should always make their Continuing Legal Education (CLE) hours count,

striving to take classes that are relevant to his or her practice. It is no different when it

comes to fulfilling ethics CLE requirements. It is recommended that an attorney attend

at least one state bar general ethics CLE event every year to keep abreast of any new

ethics opinions or changes in the ethics rules.

V. CONCLUSION

While the practice of law is a rewarding profession in many ways, particularly at the solo

and small firm level, it is also awash with ethical issues that may spell danger for the

unwary. Many of these issues come up more frequently in solo or small firm practice,

where attorneys must look to their own best guidance in making proper decisions.

Attorneys should always keep in mind their fiduciary duties to their clients, and not

hesitate to consult the Model Rules and other guidance provided by state and local bar

associations. I hope this paper has provided practical guidance to assist you in your

future practice.