By Sarah Diane McShea [Originally published in NYPRR February 2001]
Nearly five years ago, New York became the first state to require law firms — not just individual lawyers — to comply with existing lawyer ethics codes. The May 1996 revisions to the Code of Professional Responsibility provided that a law firm must obey the ethics rules, maintain a conflicts check system and supervise the work of its partners, associates and non-lawyer employees. [See, 22 NYCRR §§1200.3, 1200.5, 1200.24(e)]. However, no New York court provided any investigatory or enforcement mechanism until the next year.
Then, in 1997, the Appellate Division, First Department, amended its rules to include any law firm that “has a member, employs or otherwise retains an attorney or legal consultant” who is within its jurisdiction. [22 NYCRR §603.1(b)]. The Court’s rules would seem to authorize the investigation and discipline of a California (or Chicago or London) law firm, if any one of the firm’s partners or associates was admitted to practice by the Appellate Division, First Department. In practice, however, the First Department’s Departmental Disciplinary Committee has applied the rule more narrowly, restricting its investigations to law firms with offices in Manhattan or the Bronx.
Interestingly, the other Appellate Divisions have not amended their rules to enable their disciplinary and grievance committees to investigate or discipline law firms. So, while New York has a broad law-firm discipline rule, only one Judicial Department has made any use of this potentially powerful prosecutorial tool.
Until recently, the First Department’s Disciplinary Committee had actually conducted relatively few investigations of law firms. At the ABA’s annual meeting in Atlanta last year, it was reported that the Committee had issued private admonitions only to two small law firms for minor professional misconduct. But that may be changing. In a recent interview, a senior disciplinary prosecutor said that in the past year the Disciplinary Committee has increased its scrutiny of law firms and that while such investigations did not constitute a significant portion of the Committee’s substantial case load, “there have been more matters opened during the past year where the issue of possible law firm misconduct is the focus of the Committee’s inquiry.”
New Jersey has gone slightly further than New York and has publicly reprimanded two law firms for what it viewed as “law firm” misconduct. In In re Ravich, Koster, Tobin, Gleckna, Reitman & Greenstein [155 N.J. 357, 715 A.2d 216 (1998)], the New Jersey Supreme Court reprimanded a firm for improperly soliciting clients by parking a rented recreational vehicle, covered with law firm ads, at the site of an apartment building gas line explosion. [See also, In re Jacoby & Meyers, 147 N.J. 374, 687 A.2d 1007 (1997), reprimand imposed on law firm for failing to use approved New Jersey trust account for settlements received in connection with New Jersey legal matters.]
In New Jersey and New York, therefore, little effective use has been made of this powerful tool, which was intended to spur law firms to supervise their lawyers and support staff more effectively and reform cultures which foster (or ignore) individual lawyer misconduct.
ABA Commission Proposes Law Firm Discipline
Notwithstanding the almost unanimous opposition of disciplinary prosecutors around the country and the less than compelling results in the two jurisdictions with actual experience with law firm discipline, the ABA Ethics 2000 Commission has now proposed that the ABA Model Rules be amended to provide for law firm discipline. The Commission’s initial discussion draft did not recommend that law firms be made subject to professional discipline, and in public hearings many commentators, including representatives of the National Organization of Bar Counsel, reportedly recommended that the Commission not adopt a law firm discipline rule.
Nonetheless, with little fanfare and less explanation, the Commission recently proposed that the title of Model Rule 5.1 be expanded to include law firms (the new title is “Responsibilities of Partners, Supervisory Lawyers and Law Firms”). It also proposed that Rule 5.1(a) be amended to require that “…the law firm shall make reasonable efforts to ensure that the firm has in effect measures giving reasonable assurance that all lawyers in the firm conform to the Rules of Professional Conduct.”
The Commission’s proposed Comments to Rule 5.1 explain the scope of the expanded rule. Comment  states that Rule 5.1 applies to the law firm as an entity, but notes that “primary responsibility” for the firm’s compliance with the ethics rules “still resides with each partner or managing lawyer in the firm.” Comment  states somewhat more expansively that lawyers with managerial authority and the firm itself must “make reasonable efforts to establish internal policies and procedures designed to provide reasonable assurance” that the lawyers in the firm comply with the ethics rules. Comment  includes policies and procedures “designed to detect and resolve conflicts of interest, identify dates by which actions must be taken in pending matters, account for client funds and property, and ensure that inexperienced lawyers are properly supervised.”
Thus, a law firm that failed to maintain a conflicts check system, master calendar, escrow accounts and records, or reliable supervision of its partners and young lawyers would face discipline as an entity, even though individual partners or managers might be primarily responsible for the firm’s failure to have (or use) one or more such procedures.
Questioning Commission’s Proposals
The Reporter’s Explanation of Changes sheds little light on why the Commission added law firm discipline to its recommendations, and, particularly, why it chose to ignore the advice of disciplinary prosecutors throughout the country who had reported that a discipline rule for law firms was not necessary to police the profession.
The Commission has extended the duties in paragraph (a) to the law firm as an entity. While the primary responsibility for a law firm’s compliance with paragraph (a) should remain with each individual partner or managing lawyer, the Commission believes it is important to be able to hold the law firm as an entity accountable for defects in the firm’s policies and procedures as they relate to compliance with the Rules of Professional Conduct. This will facilitate discipline in situations in which it may be clear that paragraph (a) has been violated by the firm, but that no particular lawyer can be identified as personally responsible or, alternatively, that all the partners are co-equally responsible for the problem. In the latter situation, it may be inefficient to proceed against all the partners and unfair to identify some to serve as scapegoats for the collective failure of all. In other situations, it may be appropriate to impose discipline on the law firm in addition to some partners who can be seen as primarily responsible for the firm’s violation. [Although no change in substance in a lawyer’s personal responsibility for compliance with paragraph (a) is intended, it is hoped that the prospect of law-firm discipline will provide an additional incentive for each partner or managing attorney to comply with paragraph (a).]
This is a fairly tepid rationale for creating a new type of law firm liability, particularly one with enormous potential to expand a firm’s exposure to civil claims, while limiting its ability to defend against the claims. After all, if a law firm is disciplined, that action may be given preclusive effect in a subsequent civil action against the firm. The overwhelming majority of disciplinary prosecutors, including many in New York, remain opposed to law firm discipline. They rely on the sound theory that the license to practice law is issued to individual lawyers, who should be personally accountable for their own conduct and compliance with the rules.
For many years, sophisticated disciplinary prosecutors have successfully pursued senior and managing law firm partners, holding them vicariously liable for the ethical infractions of their partners and subordinates. In many respects, the vicarious disciplinary liability of senior lawyers is a more effective tool in reforming law firm cultures and enforcing ethics codes than law firm discipline, which is typically private or imposed on relatively small firms for comparatively minor infractions.
There is a further wrinkle in imposing law firm discipline which is not addressed in the Commission’s proposed Comments or in the Reporter’s Explanation of the proposed changes. What is the personal and professional impact on individual lawyers in a law firm that has been disciplined? Are the partners and associates obliged to report on pro hac vice applications and malpractice policy renewal applications that they have been disciplined? Are they obliged to report that their law firm has been disciplined? If a multijurisdictional firm is disciplined in New York for misconduct occurring in New York, have the lawyers in the firm’s Los Angeles or Dallas office also been disciplined? Must the Los Angeles members of the firm report the New York discipline to California? Will California then impose reciprocal discipline on the law firm’s members in California? Will a lateral partner joining the firm after it has been disciplined inherit the taint? Will departing partners carry it with them? If individual lawyers are not required to report the firm’s discipline, what is to prevent the firm from disbanding and re-forming as a new entity?
Law firm discipline remains a potentially effective and powerful tool in a disciplinary prosecutor’s arsenal, although at this point it is largely untested. The cautious use of the rule in New York is indicative more of the rule’s drawbacks than its advantages in furthering compliance with the profession’s ethics codes. Surely, it would be wiser for the ABA to await further evidence of the effectiveness of law firm discipline before including it in the Model Rules.
Sarah Diane McShea represents lawyers and law firms in legal ethics and professional discipline matters.
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