Law and Ethics of Lawyering
2002 Final Exam Sample Answer
This sample answer covers a superset of everything you might have chosen to discuss on the exam. It is not realistic to think that you could address everything discussed in this answer in the time allotted. Nor did I expect that you followed a specific outline or format. There are many paths to Nirvana.
In general, I was very pleased with the uniform high quality of the exams. Most of you seemed to “get it.” However, a few suggestions to improve your answers:
There were 8 As, 2 ABs, 26 Bs, 4 BCs and 3 Cs.
This is a rich, complex question with lots of subtlety. Most of you got to the right issues, but few of you really mixed it up with the facts. Some of this was due to the limited time.
I was disappointed that I didn’t do a better job explaining to you the importance of addressing conflicts from both clients’ perspectives. Conflict waivers usually come in pairs—if you think you need a conflict waiver from one client, almost invariably you have a 1.7(b) obligation to get a waiver from the other client. I apologize if I didn’t make that as clear in class as I should have.
Also, some of you remained confused about the difference between the attorney-client privilege and the 1.6 duty of confidentiality. The attorney-client privilege is a privilege; it’s not a duty per se. Also, it only can be invoked in litigation. In this question, the attorney-client privilege does not “limit” what First can say to Acquireco; instead, Rules 1.6 and 1.9 do.
Newco is a former client of First and therefore Rule 1.9 applies.
Rule 1.9(a) limits First’s representation if this is a substantially related matter. Arguments could be made that this matter is not substantially related because First did not represent Newco in acquisitions matters specifically and 2 years have passed since the representation (and presumably Newco has changed since then). On the other hand, representing Newco in financings is basically the same as representing Newco in an acquisition, and even if you didn’t know that, you could infer that the matters are substantially related because of likelihood that First will have to foul its nest. Whether you apply the more liberal Fifth Circuit standard or the more restrictive Second Circuit standard, you should conclude that these matters are substantially related. Therefore, First cannot proceed without a conflict waiver from Newco.
1.9(b) also applies and leads to the same conclusion. First can’t disadvantage Newco using information it obtained from the prior representation unless the information is general knowledge. There’s no doubt that using such information to advise an acquirer is a disadvantage to Newco. And the general knowledge qualifier doesn’t help much; at best you can assume that only some things First learned from the representation have not become general knowledge. In particular, one could assume that Newco would want to keep some information related to legal errors as quiet as possible. Therefore, even if you concluded that 1.9(a) didn’t bar First, you should have concluded that First needs a waiver under 1.9(b).
The exam instructions told you that if you conclude a waiver is necessary or desirable, then you should also specify what information you would include in the waiver to fully inform your client when they are granting the waiver. I was disappointed to see that ALMOST NONE OF YOU DID THIS. I even saw that many of you circled this paragraph on your exam, and several of you enumerated in your answer that full disclosure was necessary to get the consent but without saying what specific disclosures you’d make. I appreciated the few of you who followed the instructions!
Some of the things I would include in my conflict waiver (these track some of the “cons” from the next portion of the question):
A few of you concluded that First could not proceed with the representation, period, and did not discuss the availability of conflict waivers at all. These answers were penalized pretty severely.
Having identified that Newco controls First’s behavior because a consent is required, we next turn to First’s relationship with Acquireco. If First’s representation will be “materially limited” by its obligations to Newco, then First will need a waiver under Rule 1.7(b).
Getting this waiver could be tricky. To make full disclosure to Acquireco, First will need to specify what limits Newco places on its disclosure of confidential information. But, Newco may not even want First to make these disclosures to Acquireco because revealing areas where Newco is sensitive is, in its own way, a significant disclosure. (Imagine, for example, if First did a sexual harassment investigation for Newco but Newco said that First could not disclose any of this information to Acquireco or even tell Acquireco about the investigation—can First get informed consent if it doesn’t tell Acquireco that it can’t talk about the sexual harassment investigation?). If Newco places limits on what First can say to Acquireco in the waiver request, I think this conflict is too fundamental and there’s no way for First to represent Acquireco.
Newco may not restrict what First may disclose in its waiver for Acquireco but may nevertheless specify that First must keep certain information from Acquireco (say, for example, information where Newco wants to preserve the attorney-client privilege). In these cases, First can ask for the waiver and Acquireco may be willing to grant it. However, consider if a reasonable client would be willing to grant such a waiver (see comment under “Consultation and Consent”), as most of the time acquirers expect their counsel to be ruthless in ferreting out information and here we know that under such limitations First can’t be. Therefore, one might conclude that any restrictions Newco places on First’s information disclosure makes the conflicts too fundamental.
Although ethical screens effectively need client consent to be legally meaningful, they might be a way to get Newco to give a broader waiver (i.e., Newco may waive all limits on First’s disclosures so long as certain individuals aren’t working on the transaction).
But even if Newco gives First a completely free pass to tell Acquireco everything, I would assert that at minimum a 1.7(b) waiver is required and at maximum the conflict may still be too fundamental. Some of the fundamental conflicts that will arise no matter what information First could provide to Acquireco:
So, no matter what, a waiver from Acquireco is required. The waiver should reference the previous two bullet points, as well as:
The final portion of question asked you to put yourself in Newco’s position and evaluate the pros/cons of granting the waiver.
This is a real-life question. In the Silicon Valley, the “joke” is that law firms never see conflicts (“Conflicts? I don’t see no stinkin’ conflicts!”). So as would be expected, in this matter the conflict was not even raised, nor were conflict waivers prepared or signed. Sigh. This is especially typical of the “First” law firm, who will remain nameless here (I will happily offer uncensored views in private) but is known in the Valley for its sloppy work and flexible ethics.
Many of you concluded from Newco’s perspective that the cons strongly outweigh the pros, but I disagree. I think the handcuffs placed on First in critiquing documents they prepared is a huge advantage, plus Acquireco won’t be amused about finding new counsel. However, given the mixed incentives problems, I’m not convinced I would grant the waiver if I were in Acquireco’s shoes.
Basically, the Delaware law is one of those “technicalities” that is easily ignored and rarely has any consequence. Nevertheless, most of us would intuitively believe this practice violates the Rules, but finding a specific provision prohibiting this conduct is a little challenging. Some rules that might limit the conduct:
As you can see, it’s not automatic that an attorney is violating the Rules through this practice.
As for whether you would engage in this practice, answers ranged from “never” to “hell yeah!” There are 2 principles that we discussed in class that seemed particularly apt here.
First, if you are willing to bend the rules on this technicality, do you fall into the “Lawyer as God” complex where you establish your own “laws” that are loosely based on the actual law? For example, several of you wrote that you would accept the consents so long as they were not “too late.” How late? 3 days? 14 days, 6 hours? 4 years? Do you have adaptable standards that are context-specific? Recognize that any of these approaches converts you into Lawyer as God, as you substitute your judgment for the legislature. Where does this stop?
Similarly, consider if this practice confirms Schlitz’s prediction that you will become a liar. Putting the wrong date on a consent will invariably be a lie—not a big one, and often one with no meaningful consequence, but a lie nevertheless. And as Schlitz predicts, lies beget more lies until you no longer can distinguish right from wrong.
Those of you who disavowed this practice won’t have it any easier. As you will learn, the directors are VIPs because they are gatekeepers of future business. Thus, you will be instructed to make a favorable impression with directors each time you interact with them, and a less-than-flattering comment from a director will definitely go into your performance review. And if you try to enforce a technical and poorly-known rule, I GUARANTEE that you will get directors asking why you are being so uptight. The comments will go something like, “I’ve been in business for 30 years and no other attorney has hounded me to return my consents within 30 days….” And that will be a true statement—sloppy industry standards set up the rule-followers for criticism and ridicule. For those of you who claimed that you would not monkey with the dates, let’s talk after 5 years of practice and see if you’ve been able to avoid the temptation. You will be tempted.
There are a few ways you can, in theory, reduce the risks of this practice:
Some of you proposed a solution of filling in the dates some other way, such as typing them in advance, predating the consents or telling directors to fill in a specific date instructed by the attorney. Do these “solutions” really solve the problem?
Some of you misapprehended the question and believed the client instigated this conduct as opposed to the attorney. You should be clear that attorneys will often cut legal corners on their own initiative, and that’s what was at issue in this question. Clients will usually not know or care about these corner cuts, because they just want the work done at the lowest price and in a way that makes them look good to their bosses—and if a lawyer is willing to sign off on it, they won’t second-guess that decision.
This is a real life situation. I was having all kinds of problems getting the board to return consents on time, and this particular board had zero tolerance for legal formalities (and, for that matter, little knowledge about the legal requirements governing their conduct). So I decided it would be easier to leave the dates blank, so that I could still get the consents to comply with the statute of a board member muffed it—which, of course, a board member did. However, this matter dragged on so long that we ended up having to redo the consents anyway (18 months later, but that’s a different story…).
We had already discussed recycling contracts in class, so I wanted to revisit the subject matter with a little more complexity. Here, unlike the typical situation, a client thinks its contract is confidential. Does that change the analysis from our position that attorneys can ordinarily recycle contracts?
Rule 1.6(a) is the most directly relevant rule. The rule prohibits an attorney from revealing “information relating to representation of a client.” How does this apply to form contracts? Unfortunately, we don’t precisely know. I can imagine at least 3 different “levels” of application:
So in light of these different paradigms, I have at least the following options:
Taking an aggressive approach to Rule 1.6 could lead to disciplinary action and malpractice claims. This is especially problematic because in client-v-attorney actions such as this, the attorney should expect to lose.
Taking a conservative approach to Rule 1.6 is no better. Asking Bigco for consent will get them involved in my business affairs and theoretically give them veto power over my client development. Bigco may also be annoyed that I am hassling them with legal formalities, or Bigco may be concerned that I may have divided loyalties. If Bigco realizes that they paid to go first, they may also complain about their billing arrangements.
Plus, if I take the conservative approach, I’ll need to do a Rule 1.6 waiver to proceed as Smallco requested. Some of the consequences I might spell out in the waiver include:
Plus, if I conclude that a Rule 1.6 waiver is required from Bigco, I think I may also conclude I need a Rule 1.7(b) waiver from Smallco. This discussion tracks some of the issues discussed in Q1 regarding confidential information waivers. Plus, if I have to start from scratch, Smallco will be confused about why and unhappy about bearing the full expense of drafting the contract.
A number of you discussed Rule 1.7(a) as potentially precluding me from working on any Smallco matters because the clients are partial competitors. Rule 1.7(a) applies to “directly adverse” situations. Direct competitors do not create direct adversity unless they are squaring off in court or over a negotiation table. Interestingly, no one cited the Maritrans case we discussed briefly in class, which addressed the definition of “substantially related” for purposes of Rule 1.9(a) but is otherwise squarely on point for the assertion that taking on a direct competitor could violate duties. As I discussed in class, I can’t rationalize the Maritrans case and I’m reluctant to hold it up as logical precedent. I’m much more moved by the comment to Rule 1.7 (under “Loyalty to a Client”) that says “simultaneous representation in unrelated matters of clients whose interests are only generally adverse, such as competing economic enterprises, does not require consent of the respective clients.” I feel especially comfortable that this statement applies when the economic enterprises are not directly competing.
Some of you thought Rule 1.8(b) applies. This is not intuitively obvious to me because I’m not sure how the information is being used to Bigco’s detriment. Perhaps if the information leaked out, this might be a detriment?
Some of you suggested that I would be blowing the attorney-client privilege by making the disclosures to Smallco. The attorney-client privilege in the contract is waived by Bigco when it distributes the contract to its customers (even if it’s distributed under an NDA).
This is based on many real-life situations, although I’ve never had to deal with this question exactly. A number of my clients would distribute their form contracts only under NDA, but I never had any client specifically comment to me on my practices of recycling contracts. Indeed, my clients expected that I would draft “industry-standard” contracts that would look familiar, and clients especially valued my low cost and fast turnaround when I could pull together contracts using relevant starting points. I never got waivers from clients for this practice, and even today I’m not sure Rule 1.6 is so clear that I feel uncomfortable with that conclusion.
On further reflection, I realize this question was more complicated than I had expected to be covered in 25 minutes. It didn’t appear that too many of you ran out of time, but this question, like Q1, is a rich question with subtlety that needed time to fully explore.
The question presents conflicting duties on the part of the lawyer—on the one hand, we have duties that require us to follow a business decision-maker’s instructions; on the other hand, we have duties that require or permit us to speak up despite the instructions. Successfully reconciling the duties is effectively impossible.
This problem occurs in real life all the time because very few business-people are rewarded for NOT doing something. Instead, many entrepreneurs and CEOs are expected to take risks and are rewarded for those that succeed. Therefore, you should expect to find many situations where the businessperson is willing to take on serious risk that you think is imprudent. The question is, what will you do about it?
Rule 1.2(a) is most directly applicable. It says that a lawyer must abide by the client’s decisions regarding the objectives of representation. In this case, the “objectives” refer (I think) to the decision to proceed with Omega. It’s the business person’s call to make that decision and this Rule says the lawyer has to abide by it. I don’t think “objectives” refers to the manner in which the decision is made, thus arguably opening the door for the lawyer to follow a different process, but one could make a counterargument on that.
The comment to Rule 1.13 (“The Entity and the Client”) also applies here. It says that when a decision is made, the decision must ordinarily be accepted by the lawyer even if its utility or prudence is doubtful. Further, decisions concerning policy and operations, including ones entailing serious risk, are not the lawyer’s province.
So the starting point is…when the client makes the decision, the lawyer does not get to substitute his/her own business judgment for the client’s.
Rule 1.4(b) provides counterbalance to that starting point. It says that I must explain a matter as reasonably necessary for the client to make an informed decision. However, the facts say that I have already presented my case to Jill, so perhaps I’ve met this duty. Do I also need to make the same disclosures to the board if Jill has made the decision?
Rule 2.1 might also apply, saying that I must render candid advice. Again, presumably I’ve met this duty in my discussions with Jill.
So that takes us to Rule 1.13. (a) tells me that the organization acts through its constituents, and Jill—as CEO—is certainly an important and reliable constituent. Ordinarily, she is an appropriate decision-maker for me to take direction from.
However, (b) goes on to require a lawyer to do more if the decision-maker is doing something that violates the law or his/her legal duty to the organization and is likely to result in substantial injury to the organization. Note that (b) applies ONLY IF the decision-maker is making a decision that violates the law or his/her legal duties to the organization.
Without knowing more, we can’t be precise about whether a tortious decision violates the law. This may be more philosophic than practical, but I think not every tort is a legal violation. Plus, the facts say the course of conduct only “exposes” the company to legal risks; it doesn’t say that the conduct is unambiguously tortious—it may be an area where bright minds disagree.
And there’s no indication that Jill is violating her duty to the organization, such as by advancing her interests at the expense of the organization. I made my case, she chose the business benefits over the legal risks, and that’s what an officer/employee is supposed to do.
So I don’t think Rule 1.13 necessarily applies. But even if it does, it doesn’t offer much guidance. (b) tells me that I am supposed to ask for reconsideration, then suggest a second opinion, and then if all that fails, go over Jill’s head. The first two steps don’t really mean much; the third is the big step with significant consequences (discussed below).
If the conduct is fraudulent or criminal (and it could be given the ambiguity in the facts), then Rules 1.2(d), 1.16(a) and 8.4 would apply and I would need to withdraw from representation. Also, in that case, Rule 1.6(b) would apply and I would likely need to whistleblow to third parties.
As we can see, the rules are somewhat at odds, but the most natural reading is that, unless the tortious conduct is also fraudulent or a crime, I am mandated to follow Jill’s instructions about the decision. However, I think an argument can be made that I am not breaching my duties under the Rules if I disagree with her about process, so I can speak up to the board if I choose to.
In practice, I would not speak up unless I got Jill’s consent or I was asked a direct question. I wouldn’t lie if asked a direct question, and perhaps Rules 1.4 and 2.1 require me to elucidate more information in response to a direct question. Otherwise, the facts say that Jill wants to brief the board, not ask the board to make the decision. Therefore, I believe it’s the CEO’s province to decide what the board needs to hear, not mine, in a non-decision-making briefing.
Going over Jill’s head without her consent would have potentially awful consequences. Jill will be furious about my second-guessing and lack of loyalty. I would expect either to be terminated or marginalized in the organization because the CEO no longer trusts me. The board may respect my integrity and candor, or they may be angry at my lack of protocol and respect for my boss, especially if I do not convince them that the risk is substantial enough to “veto” Jill’s decision.
If I tell Jill in advance that I will be speaking up, I would expect that she will disinvite me from the meeting and present the legal issues in her briefing skewed to her perspective, and that she will start poisoning the board’s opinion about me by hinting to the board that I am not a good attorney, I shouldn’t be trusted, etc.
If I let Jill make the business decision and make a less-than-complete presentation to the board in accordance with her instructions, I would expect to be recognized as a business-savvy lawyer and a team player both by Jill and by the board. If in fact the worst occurs and the company engenders business-threatening litigation, I would expect to have to explain why I didn’t tell the board about the underlying problems, although I feel comfortable that many people will understand and respect the decision if I can document that Jill and I discussed the risks in great detail and she made the business call. Note that it’s never appropriate to say “I told you so” or “serves you right,” although you will think that sometimes!
If the outcome truly becomes business-threatening, then I will likely end up on the street—but consider how rarely litigation proves to be business-threatening that way. In fact, I have a number of attorney friends who were employed by companies going down to the bitter end to wind up affairs, supervise trailing litigation, etc. You’ll usually have some lead time to get out if the situation explodes.
I trust everyone understands how serious a remedy “withdrawal” is when you’re in-house counsel. Withdrawing means quitting, giving up your salary, benefits, stock options, title and office. It means you will need to pay mortgages and student loans out of your savings (what savings?). It means your spouse and kids dependent on your salary are going to be very scared. It means explaining to future employers why you left (and remember, Rule 1.6 may keep you from explaining the gory details!). So while it’s easy to say on an exam that you would withdraw if you were uncomfortable with Jill, I don’t think it’s as easy in practice. This draws a bulls-eye on the core challenge of being an in-house attorney, and I would be happy to discuss the pros and cons of an in-house attorney career if you want.
A number of you discussed the facts as if Jill had asked for advice about her personal legal situation. I don’t think the facts suggested that.
A number of you discussed Rule 4.1 as mandating disclosures to the board. Rule 4.1 doesn’t apply to the board because it applies to interactions with “third parties,” not your clients (and the directors are part of your client).
This is a real-life situation. In my case, I followed the CEO’s instructions and make a truthful but fundamentally incomplete presentation to the board. Even when the situation blew up (and we all knew it would), I felt good that I had properly advised the decision-maker and that we had anticipated all consequences we were experiencing. However, it also made me think carefully about how comfortable I was in a situation where I was ordered to present incomplete information to the ultimate decision-makers.
This was supposed to be the softball question in case you were running out of time. It’s really a very easy question! Surprisingly, over half of you missed one of the two “must-have” issues here. I rarely use mandatory penalties when grading questions, but here, if you discussed only client identity issues or only attorney-client issues, I imposed a cap on the score you could receive no matter how good your answer was on what it addressed.
Jane’s impending question could be about Corpco matters, personal matters, or general legal topics. Remember, under Togstad, it’s the reasonable subjective belief of the individual that dictates if you’ve formed an attorney-client relationship. Therefore, ideally you will want to preempt her from asking questions about personal legal matters (unless you decide to take her on as a client). Taking her on as a client raises dual representation issues. See Rule 1.13(e).
Note that it’s possible she will be asking about her personal situation vis-à-vis Corpco (e.g., if she has a suit against Corpco for sexual harassment). As you can imagine, these conversations get sticky fast because the conversation with Jane could taint your ability to represent Corpco in that matter. This is a conversation you really want to avoid.
This conversation is taking place in front of spouses in a restaurant. If Jane is asking for legal advice, either for Corpco or herself, the conversation probably would not be protected by the attorney-client privilege. While Jane’s discussion in front of her spouse may or may not blow the attorney-client privilege (depends on the nature of the legal topic or if the spouse can be treated as an agent or other privileged recipient), our working theory is that your spouse is not a privileged recipient. Further, holding the conversation in the restaurant may or may not preserve the privilege depending on whether it constitutes a situation where it’s reasonable to believe that only privileged individuals can hear the conversation.
Jane’s question, or explanation of the question, could reveal information that you and she would want to preserve under the attorney-client privilege. Therefore, even letting her ask the question might irreparably waive the privilege for sensitive information! Thus, best practice would be to cut her off before she asks the question.
If you let her ask the question, discover that it is a personal one, and don’t wish to take on as her lawyer, best practice would be to explain to her your role as corporate attorney (Rules 1.13(d) and 4.3), tell her you are not representing her and that she should get her own counsel, and then send her a no-engagement letter.
If you let her ask the question and it’s about a Corpco matter where the attorney-client privilege isn’t a concern, then you might decide to have the conversation but will have a practical dilemma about whether or not to bill the time. I hate working for free but would you need to tell her you are billing the time if you think that she doesn’t expect it? Clients HATE unhappy surprises in their bills.
None of these best practices are consistent with the evening’s purpose, which is to socialize and deepen the client relationship. So I, like most of you, might weakly defend against the impending question with statements like “I was hoping we wouldn’t talk shop tonight,” “I’d be happy to talk law, but I fear our spouses will be bored” or “I’ve had too much alcohol to think clearly.” If Jane persists, I would hear enough to decide if there was a risk involved and, if there was, cut short the discussion with a more pointed rejoinder like “I’m not sure we want to discuss this now; this is the kind of conversation we usually like to have when we can be sure it’s covered by the attorney-client privilege.” If her conversation asks for general legal knowledge, I would discuss it without much fear; and if that started bleeding into matters where she might misinterpret as being personal legal advice, I’d use a short but definitive disclaimer.
I chose this question to highlight how the Rules of Professional Conduct can easily spoil a fun and perfectly lovely social event! Obviously this situation arises all the time in practice, and paranoia about managing your duties as a lawyer will definitely chill your social life.