September 21, 2020

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September 21, 2020

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September 18, 2020

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The New Rules of Professional Conduct: Significant Changes for In-House Counsel

(Reproduced by permission. ©2007 Colorado Bar Association, 36 The Colorado Lawyer 71 (Nov. 2007). All rights reserved.)

Professional Conduct and Legal Ethics articles are sponsored by the CBA Ethics Committee. Articles published here do not necessarily reflect the legal interpretation of the Committee.

 

The impending changes to the Rules of Professional Conduct are significant for in-house counsel. In addition to the changes applicable to all lawyers, some Rules will now apply to in-house counsel that previously did not.

The Rules of Professional Conduct (Rules) apply to in-house counsel, although how they apply is less obvious and less discussed than it is for outside counsel. Significant changes to the Rules (New Rules) become effective on January 1, 2008. An article by Marcy Glenn and Mike Berger that provides an overview of changes made to the existing Rules (Current Rules) by the New Rules on a rule-byrule basis was published in the August 2007 issue of The Colorado Lawyer.1

In-house counsel have dual roles. First, they are lawyers working for their clients. Second, however, they function as gatekeepers for legal services and often are viewed as the client itself by outside counsel. Thus, in-house counsel must be familiar with the New Rules from both perspectives—as both a lawyer and a client.

Further, the stakes may be higher for in-house counsel than for outside counsel. Although outside counsel may have the fallback of ceasing representation of a particular client if things get too difficult, ethically, in-house counsel usually have no such luxury.

This article provides an overview of how the New Rules apply to in-house counsel. The discussion focuses on compensation issues and in-house practice, and is divided into three broad categories—getting hired as in-house counsel, practicing in-house, and handling things that go wrong.

Getting Hired (or Promoted) In-House

If an in-house counsel position includes compensation in the form of stock, stock options, or other nonmonetary consideration, being hired by an entity that is already a client is itself likely a “business transaction with a client.”2 Under both Current and New Rule 1.8, a lawyer may not enter into a business transaction with a client unless the transaction complies with the requirements set forth in Rule 1.8. Colorado Bar Association (CBA) Ethics Committee Formal Opinion 109 provides an analysis of this Rule.3

Generally, the transaction must be fair and reasonable to the client, transmitted in writing, and understandable by the client. The client must be advised to obtain other counsel to review the deal and be given time to do so before the deal is consummated. The client must give written, informed consent to the transaction.

When applied to a client offering an in-house position to an attorney, some of these conditions usually are met. For example, the offer presumably will be understandable by the client if the client is making it.

The offeree attorney still should make sure the transaction complies with Formal Opinion 109. Particularly, he or she should advise the offeror to have another attorney review the offer and give the offeror time to do so. The danger is not so much a grievance by the management hiring the lawyer, but rather a shareholder derivative suit in the future. If a disgruntled shareholder brings suit claiming management insiders (who may well include in-house counsel) looted the company, the shareholder may argue that the lawyer received the stock or stock options in an unethical fashion.4

If in-house counsel later is offered a promotion and nonmonetary compensation, the same procedure should be followed. If, as is often the case, the in-house attorney is offered the same compensation package that other employees are being offered, this would be strong evidence that the offer was objectively reasonable. Even so, the in-house attorney still should advise the client to have another lawyer review the transaction and give the client time to do so if the client has not already done so. This is especially important in a small company, where each employee’scompensation may be unique.

Nonmonetary Compensation May Create an Unreasonable Fee

Current Rule 1.5 provides “a lawyer’s fee shall be reasonable.” It has long been the law that reasonableness is determined at the time the contract for the fee was executed,5 unless the compensation rises so high that it is unconscionable.6

Thus, the contingency fee lawyer who only writes a letter may receive a disproportionate fee, because it was possible that he or she could have taken the case through trial without receiving any compensation. The same analysis currently would apply to stock and stock options—the stock or options may be worth little at the time they are awarded and thus the fee was “reasonable” at the time it was paid. The fact that the stock options may be quite valuable by the time they vest is not determinative.

New Rule 1.5, however, provides “lawyers shall not make an agreement for, charge, or collect an unreasonable fee or an unreasonable amount for expenses” (emphasis added). Comment [1] provides for an objective analysis of the reasonableness of the fee.

If the New Rule is read literally, the analysis of whether the fee is reasonable should be made both at the time the agreement for the fee is entered into and at the time the fee actually is collected. Thus, stock options that may be worthless when issued but valuable by the time they vest may be subject to attack by the disgruntled stockholder. In this situation, however, the stockholder has an even better argument, because even if the transaction was reasonable when made, and even if the lawyer complied with the requirements of Rule 1.8 and CBA Opinion 109, the fee nevertheless may be excessive at the time it is collected.

New Rule 1.5 also prohibits the charging of “unreasonable expenses.” “Unreasonable expenses” are not defined, but Comment [1] makes clear that making a profit on expenses is improper, just as prior ethical opinions have stated.7

Compensation and Conflicts of Interest

The in-house lawyer should always consider the limits on representation provided for in Rules 1.7 (Conflict of Interest) and 2.1 (Independent Judgment). For example, consider a situation where the in-house attorney has stock options in the employer/client, and those options have been earmarked for the attorney’s retirement. The client is considering two possible courses of action, one that will result in an increase in the price of the stock in the short run but may be riskier in the long run. The other will provide greater certainty in value in the long run, but the stock’s value will not spike in the short run.

If the attorney’s advice would be different if he or she was five years from retirement than it would be if the attorney was twenty years from retirement, the attorney probably is not exercising independent judgment as required by the Rules. In this situation, the attorney must either divest the stock or not participate in the decision-making process itself.

Rule 1.5 Fees

As discussed above, a lawyer’s fee must be objectively reasonable both at the time the fee agreement is reached and, under New Rule 1.5, at the time it is collected. If in-house counsel performs services for which the customer of the client is charged, the client is allowed to charge only its “actual cost” for in-house counsel for such services. If the company itself made a profit on the lawyer’s work, that would be a violation of both Current and New Rule 1.5, which prohibit splitting of legal fees with nonlawyers.8

In-House Practice

Once hired as in-house counsel, numerous ethical issues may arise in day-to-day practice that are affected by the New Rules. These issues are discussed below.

Licensing

New Rule 5.5 (Unauthorized Practice of Law; Multijurisdictional Practice of Law) provides that a lawyer cannot practice in Colorado (even in-house) if the lawyer:  (1) is not authorized9 to practice in Colorado; and (2) either works or resides in Colorado. New Rule 8.5 expressly gives the Colorado Supreme Court jurisdiction over attorneys practicing law in Colorado, even if they are licensed elsewhere.

This creates at least four issues for in-house counsel practicing without a Colorado license: (1) it can be a crime10; (2) it is an ethical violation; (3) the disgruntled shareholder might attack even the wages earned by the in-house counsel on the ground that he or she was not authorized to practice law and therefore should not have been paid; and (4) practicing without a license may raise serious issues of privilege for the client. One of the necessary elements of the attorney-client privilege is a communication between a client and an attorney.11 If the in-house employee is practicing law without a license, however, it is not clear that the attorney-client privilege is created.12 Thus, all communications between the inhouse employee and the client may be subject to discovery.

That said, Colorado has a special rule tailor-made for in-house counsel.13 It applies where the lawyer has only one client. Registration under this rule is inexpensive, easy, and will avoid those pesky criminal and ethical violations.

Rule 1.6 Confidentiality of Information

New Rule 1.6 has been changed to be consistent with the federal Sarbanes Oxley statute and regulations.14 Under Current Rule 1.6, an attorney can reveal that the client intends to commit a crime and the information necessary to prevent the crime.

For example, the Sarbanes Oxley statute charges the Securities and Exchange Commission to issue regulations requiring an attorney to reveal, in certain circumstances, information for “remedial measures” from a violation of securities law.15 Given the corporate scandals that led to Sarbanes Oxley, the general understanding is that the attorney was to be allowed to disclose where the spoils from the looting of the corporate treasury are hidden. Under the Sarbanes Oxley regulations, however, this exception is limited to instances where the attorney’s services are used to perpetrate the crime.16

Under New Rule 1.6, the lawyer can reveal the same information as before, and also reveal information:
to prevent, mitigate, or rectify substantial injury to the financial interests or property of another that is reasonably certain to result or has resulted from the client’s commission of a crime or fraud in furtherance of which the client has used the lawyer’s services.

This is the first time Colorado has allowed a lawyer to breach the obligation of client confidentiality to “mitigate or rectify” the consequences of a crime or fraud.

A separate change in New Rule 1.6 is that a lawyer may reveal information regarding representation before changing firms, so that conflicts can be cleared in advance. Comment [5A] states that such disclosure is “impliedly authorized” in the representation. If in-house counsel does not want the company’s outside counsel to disclose even the fact of representation, the outside counsel should be so directed, and that will trump the “implied authorization.”17

New Rule 1.6(b)(7) also makes clear that when a lawyer (in-house or outside) is confronted with a subpoena or court order requiring disclosure of confidential information, the lawyer generally should assert the attorney-client privilege on behalf of the client unless that assertion is frivolous. The tribunal nevertheless may order disclosure. In such instances, the lawyer must consult with the client,18 and it is a good idea to advise the client to be prepared to seek further relief on an emergency basis if necessary.

Rule 1.7 Conflict of Interest: General Rule

Although New Rule 1.7 appears structurally different from Current Rule 1.7, the changes regarding the existence of a conflict are not substantive (there are some substantive changes regarding consent). New Rule 1.7 is organized to require lawyers to analyze conflicts of interest in two categories—directly adverse to client conflicts and material limitation conflicts.

To resolve either type of conflict, the same process is used. First, identify the client or clients to determine whether a conflict exists. Second, determine if the conflict is consentable. Third, if consentable, informed consent must be confirmed in writing.

Although at first blush “directly adverse to client” conflicts might not appear to affect in-house counsel, it is possible for in-house counsel to be adverse to his or her own clients, particularly when there are groups of related companies for which the in-house counsel sometimes works. In-house counsel should go through the same steps described above. Comment [34] to New Rule 1.7 makes clear that representing one of several related companies, without more, does not prevent being adverse to the other companies; however, there often is more. For example, if in-house counsel paid by one company has done even uncompensated work for related companies, this can create serious conflicts for the attorney for future intercompany issues.

The material limitation conflict also may arise for in-house counsel—recall the above discussion regarding stock, particularly stock options that are earmarked for counsel’s retirement. If counsel cannot give objective, independent advice, he or she must withdraw from the matter under New Rules 1.7 and 2.1. There is no “inhouse” exception to these rules (or any others, for that matter).

Board of directors. Comment [35] to New Rule 1.7 impresses the seriousness of being a lawyer for a company and serving on the board of directors. Although not a conflict per se, the lawyer must be vigilant regarding whether a conflict of either sort has arisen, especially when the lawyer will be called on to give advice to the board.

Comment [35] suggests the following factors should be considered in determining whether an attorney can both represent a company and serve on the company’s board of directors:

1) how often the lawyer will be called on to give advice to the board;
2) the potential intensity of the conflict; and
3) the potential effect of the lawyer’s resignation from the board.

If there is a material risk the conflict will affect counsel’s role as lawyer, he or she
should not serve on the board. As a member of the board, the lawyer should advise
other board members that the lawyer’s mere presence at meetings does not mean the attorney-client privilege applies.19

Rule 1.11 Special Conflicts of Interest for Former and Current Government Employees

If a government attorney leaves government practice and becomes in-house counsel, special rules regarding conflicts of interest apply. New Rule 1.11 provides that the lawyer cannot work on any matter for the new firm that the lawyer substantively and personally worked on while employed by the government. If the lawyer is disqualified, the whole firm typically is disqualified. When a lawyer leaves government employment and goes in-house, the entire in-house staff may be disqualified from working on a matter the attorney previously handled, as in-house staff may be considered a single firm for this purpose.

There are two ways for the new employer to comply with this rule without the entire in-house staff being disqualified: (1) informed consent from the government, confirmed in writing, is obtained;20 or (2) a timely confidentiality wall (including screening of fees) is put in place, the government is given notice of both the personally involved lawyer’s prior work on the matter and the screening efforts sufficient to allow the government to ascertain compliance with the rule, and the lawyer and partners at the new firm believe the screening efforts are likely to be effective.21

Rule 1.13 Organization as Client

Under both Current and New Rule 1.13, the organization is the client. New Rule  1.13(f) provides that when the lawyer knows or should know that the constituents with whom the lawyer is dealing have interests adverse to the organization, the lawyer “shall explain the identity of the client.” New Rule 1.13(g) makes clear that the lawyer can represent both the organization and the constituents, as long as the usual conflict of interest rules are followed and written, informed consent is obtained from both the organization (from an individual not being represented individually) and the constituents.

A lawyer is obligated to engage in “up the ladder” reporting of ongoing actions that violate the law and are likely to result in substantial injury to the organization. The only exception is when the lawyer “reasonably believes that it is not necessary and in the best interests of the organization to do so.”22

Further, New Rule 1.13 provides that if resorting to higher authorities within the organization fails, a lawyer is permitted to reveal information outside the organization as necessary, to prevent a “clear violation of law” and if the “lawyer reasonably believes that the violation is reasonably certain to result in substantial injury to the organization.” Note that this applies only to ongoing or future wrongs and not to rectify damages from past acts.

Under Current Rule 1.13, if the client persists in an illegal course of action, the only option for the lawyer is resignation. Under New Rule 1.13, the lawyer is required to report up the ladder to the highest authority within the organization. The lawyer may report outside the ladder to the extent necessary to prevent substantial injury to the organization, even if the information is otherwise protected by Rule 1.6. If the lawyer reasonably believes he or she has been discharged because of reporting misdeeds of management, then a duty to report the discharge to the highest authority of the organization arises.23

Rule 1.3 Diligence

Comment [2] to New Rule 1.3 (Diligence) provides, “A lawyer’s work load must be controlled so that each matter can be handled competently.” This may provide important fodder for discussion regarding in-house counsel’s workload.

Comment [5] to New Rule 1.3 requires a sole practitioner to have a “contingency plan” in the event of sudden death or disability. This rule likely applies where inhouse counsel is a single attorney, and could apply where a small number of attorneys with nonoverlapping job duties (for example, a two-person in-house staff where one person handles all litigation and the other handles all transactions) exists. This may directly play into the ability of in-house counsel to withdraw, as discussed more fully below.

Dealing With the Court and Opposing Counsel

New Rule 3.1, Comment [2], expressly creates an obligation on lawyers to “inform themselves about the facts of their clients’ cases and the applicable law and determine that they can make good faith arguments in support of their clients’ positions.” New Rule 3.4 (Fairness to Opposing Party and Counsel) allows payment of both expert and fact witnesses, including reimbursement of out-ofpocket costs and payment for time. Contingent payments remain prohibited.

Communications With Others

The Comments to New Rule 4.2 (Communication with Person Represented by Counsel) make clear that the rule applies even if the represented person initiates the contact. The New Rule does not apply to a lawyer from whom the client seeks a second opinion, nor does it stop a lawyer from advising a client as to the communication the client is entitled to make—that is, directly contacting the other party. Court orders can clarify or change this Rule altogether under certain circumstances.24

The other potentially significant change in New Rule 4.2 regards who at a represented organization an adverse lawyer may not contact ex parte. The Current Comment references “persons having managerial responsibility on behalf of the organization.” New Comment [7] refers to a person who “supervises, directs or regularly consults with the organization’s lawyer concerning the matter or has authority to obligate the organization with respect to that matter.”

This could have a significant effect in litigation, as this verbiage is different from that relied on in CBA Ethics Committee Revised Formal Opinion 69.25 If the lawyer is uncertain who is covered, the court’s guidance should be obtained.26

New Rule 4.3 (Dealing with Unrepresented Person) distinguishes between situations where the lawyer knows the unrepresented person to be genuinely adverse and situations where the lawyer does not. If the lawyer knows or reasonably should know the unrepresented person is, or may be, adverse, the only legal advice the lawyer can give to the unrepresented person is to get an attorney. Comment [2] to New Rule 4.3 expressly states that a lawyer may negotiate a transaction or settlement of a dispute with a nonlawyer, as long as the lawyer has disclosed his or her status and stated that the client’s interests are adverse to the unrepresented person’s interests.

Lawyers Acting in Business Capacity

Many lawyers do not actively practice law, and this is especially true of in-house  counsel. The fact that the lawyer is acting as a business person, however, does not mean that the lawyer is excused from the ethical Rules. To the contrary, the Supreme Court repeatedly has held that as long as the lawyer is licensed (even if he or she is on inactive status), the ethical Rules apply.27

This creates a special burden on in-house counsel acting in a business capacity. For example, the lawyer might be negotiating a contract with a person who is not represented. If that person asks about the meaning or consequences of a particular term, the lawyer can respond only by saying that he or she is a lawyer and that his or her interests are adverse to the inquirer, and then advise the other party to obtain legal advice.

Similarly, if a lawyer is negotiating a contract with a company that has in-house counsel, but the negotiations are not with opposing in-house counsel, the lawyer must be vigilant about Rule 4.2. As long as the opposing layperson intends to have legal counsel review the contract in the future, no issue arises, because the other firm is not represented on that particular matter. If the opposing layperson states that a lawyer is involved in the present or past tense, however, the lawyer must cease communications except with the opposing lawyer, unless the opposing lawyer consents to direct communications with the opposing layperson.28

Supervising In-House Counsel

Current Rule 5.1(a) (Responsibilities of a Partner or Supervisory Lawyer) applies only to “partners” in “law firms.” As “partner” is currently defined, it excludes inhouse counsel.29 New Rule 5.1(a), however, applies to any lawyer who has “comparable managerial authority” to a partner in a law firm. As a result, Rule 5.1(a) could apply to in-house counsel, whereas in the past it likely did not.30

The responsibilities of a “partner or attorney having comparable managerial authority” under New Rule 5.1 include establishing internal procedures and policies so that all lawyers conform to the Rules. Of particular importance for inhouse lawyers are procedures regarding deadline management, supervision of junior lawyers and staff, and procedures for addressing ethical issues in a confidential manner. The same analysis applies to supervision of staff under New Rule 5.3.

Under New Rule 5.5 (Unauthorized Practice of Law), a law firm (including a legal department within a company) can use a disbarred attorney as a paralegal. The Rules require that the firm give notice that the disbarred attorney is not authorized to practice law. The notice need not say why the disbarred attorney is not authorized to practice law but has to be kept on file for two years.

Law-Related Services

New Rule 5.7 (Responsibilities Regarding Law-Related Services), which has no counterpart under the Current Rules, applies where lawyers provide law-related services. “Law-related services” are defined as “services that might reasonably be performed in conjunction with and in substance are related to the provision of legal services, and that are not prohibited as the unauthorized practice of law when provided by a non-lawyer.” Comment [9] includes a nonexhaustive list of such services, including “providing title insurance, financial planning, accounting trust services, real estate counseling, legislative lobbying, economic analysis, social work, psychological counseling, tax preparation, and patent, medical, or environmental counseling.”

New Rule 5.7 provides that the lawyer is governed by the Rules even when not acting as a lawyer if the law-related services are not distinct from the lawyer’s legal services or if the lawyer fails to take reasonable measures to assure that the recipient of the services knows that the services are not legal in nature.31 However, the comments also make clear that the recipient of the law-related services is not a “legal client” and legal protections such as the attorney-client privilege do not apply.32 The lawyer’s job under New Rule 5.7 is to make sure the customer/client knows this.

Handling Things That Go Wrong

Not every transaction or case goes according to plan. When things go wrong, inhouse counsel must know his or her duties both as lawyer and as client.

Malpractice Claims Against In-House Counsel

Perhaps the biggest change in the New Rules is that they acknowledge the potential for violation of them to be admitted as direct evidence of malpractice.33 Although malpractice actions against in-house counsel are rare, they are not unprecedented.34 They may arise in response to a claim by terminated in-house counsel.35

New Rule 1.6(b)(5) (Confidentiality of Information) allows a lawyer to disclose client confidences when seeking his or her own counsel regarding compliance with the Rules. Currently, lawyers have limited capacity to do so. This disclosure needs to be narrowly tailored to only that information necessary for the lawyer to get good advice.36

Many in-house counsel do not have malpractice insurance, perhaps relying on the company’s directors’ and officers’ policy. Whether such a policy would cover a malpractice claim against in-house counsel is beyond the scope of this article, but it should be noted that many such policies exclude coverage for “professional services.”37

Inadvertently Received Documents

CBA Ethics Committee Formal Opinion 108 provides that if an attorney received privileged documents that he or she thinks might be improperly disclosed, the attorney’s obligation is limited to notifying the sending party. If the receiving attorney is notified by the sending party prior to review of the actual documents, the receiving attorney is obligated to follow the sending party’s instruction—for example, destroying or returning the document unread. ABA Model Rule 4.4 varied from this, but New Rule 4.4 was adopted to be generally consistent with Opinion 108.38

The reasoning behind the limited duty of notice was to put the burden on the party who erred by improperly sending the document, rather than putting the innocent recipient in an ethical bind. As stated in Opinion 108, the innocent receiving lawyer should not be the one who has to decide between zealously representing the client and maintaining ethics and professionalism.

The new Comment [3] suggests that a receiving lawyer may return an inadvertently sent document even when not required to do so and that such conduct is “a matter of professional judgment ordinarily reserved to the lawyer. See Rules 1.2 and 1.4.” The Comment appears to be intended to head off a malpractice case or grievance against a lawyer who returns an inadvertently sent document that could be used to help the lawyer’s client.

Reporting Errors

New Rule 8.3 (Reporting Professional Misconduct) requires reporting of professional misconduct in certain circumstances. This applies to in-house counsel regardless of who engaged in the unethical conduct.

The New Rules do not change the obligations for a lawyer to report the lawyer’s own error to the client. The analysis of what a lawyer needs to do is found in CBA Formal Opinion 113. An in-house attorney should be aware of his or her duties to the client and of the responsibilities owed to the client by outside counsel.

As set out in CBA Formal Opinion 113, “candor is a given,” but the erring lawyer is required to make a disclosure to the client only when there is a likelihood of damage to the client. Even then, the erring lawyer does not have to say “I committed malpractice.” He or she simply must advise the client to have other counsel review the situation. Legal errors occur across a spectrum. Loss of a claim, missing a jurisdictional deadline, or including an incorrect amount in a promissory note are likely to result in damage and a lawyer immediately must disclose such errors if the lawyer cannot correct the situation. If there is no substantial likelihood of loss—for example, when an attorney fails to request certain written discovery when there still is time to obtain the same information through depositions—there probably is no immediate duty to disclose.

There is a gray area in between these extremes, such as the failure to demand a jury or failure to include an acceleration clause in a promissory note, where disclosure may or may not be required. In deciding whether disclosure is ethically required, the erring lawyer must consider the nature of the error, whether the error can be corrected, the extent of harm resulting from the error, and the likelihood that the lawyer’s conduct would be deemed unreasonable (and therefore give rise to a colorable malpractice claim).39

In-house counsel should be aware of the relatively low duty to disclose in the event of an error by outside counsel. Even though the affirmative duty to disclose without prompting is triggered only in the event of likelihood of damage, the outside attorney must answer questions truthfully under both Current Rule and New Rule 8.4. In other words, the duty to respond to a question by a client truthfully is greater than the duty to voluntarily reveal errors.

If the client wants representation to continue after the disclosure of error, the lawyer must perform a New Rule 1.7(b) analysis to determine whether there is a conflict or if the interests of the lawyer and client are aligned. In the latter case, the lawyer must consider whether an objective lawyer would believe the conflict is consentable. The final step is to obtain informed consent, confirmed in writing.

Withdrawal as Counsel

CBA Ethics Committee Formal Opinion 116 regards the departure of a lawyer from a law firm.40 Although written from the perspective of outside counsel, it provides helpful guidance for in-house counsel. New Rule 1.16 (Declining or Terminating Representation) also should be considered.

In short, the departing lawyer must consider several issues, including:

  • the client’s right to choose counsel
  • notice to the client of the departure
  • proper and continuous handling of client matters
  • withdrawal from litigation by the attorney
  • what to do with client files
  • conflicts of interest arising out of the departing lawyer’s new job
  • restrictions on the right to practice
  • the duty of candor.

The attorney’s obligations to the client for proper and continuous handling of client matters could be significant, especially where the in-house staff is small. It may be that the in-house lawyer cannot simply quit with no notice the way other employees can.

Conclusion
The role of in-house counsel often requires them to view matters from two perspectives—as the lawyer and as the client. Further, withdrawal from representation is a serious decision when the lawyer has only one client. In-house counsel must be familiar with the New Rules from both perspectives, be prepared to counsel their client, and understand the ethical significance of the actions of their outside counsel. To do this, regular review of the New Rules, Comments, and CBA Ethics Opinions is recommended.

Notes
1. Glenn and Berger, “The New Colorado Rules of Professional Conduct: A Survey of the Most Important Changes,” 38 The Colorado Lawyer 71 (Aug. 2007), available at www.cobar.org/tcl/tcl_articles.cfm?articleid=5179.

2. In fact, receiving a salary technically would be a “transaction with a client.” Under Rule 1.8, however, the hiring of a lawyer for a wage is not a prohibited transaction. This point is underscored by New Rule 1.5, Comment [4], which states, “a fee paid in property instead of money may be subject to the requirements
of Rule 1.8(a) because such fees often have the essential qualities of a business transaction with a client.”

3. All Colorado Bar Association (CBA) Ethics Committee Opinions are available online at www.cobar.org/index.cfm/ID/386/CETH/Formal-Ethics-Opinions-Index.

4. In the long run, perhaps the biggest change in the New Rules is that the Rules themselves may be admissible as direct evidence of misconduct in a private suit. Paragraph [20] of the Preamble to the Current Rules provides that violation of a Current Rule “should [not] create any presumption that a legal duty has been
breached.” Paragraph [20] of the Preamble to the New Rules recognizes that violation of the New Rules may be admitted as direct evidence of breach of a duty, but states that this should be done only in “appropriate cases.”

5. E.g., Stezer v. Robinson, 368 P.2d 124, 127 (Cal. 1962). See also Youngblood v. Higgins, 303 P.2d 637 (Cal.App. 1957).

6. E.g., Anderson v. Kenelly, 547 P.2d 260 (Colo.App. 1975).

7. E.g., American Bar Association (ABA) Formal Opinion 93-379 (1993).

8. Texas Ethics Opinion 531 (1999) discusses the plan of a title company to charge for the services of its in-house counsel to prepare legal documents at “market rates” rather than the company’s cost. Texas Opinion 531 says this is unethical improper “fee-splitting” with a nonlawyer (the company). Only lawyers and law
firms—not other companies—are allowed to profit from the practice of law. See also CBA Ethics Committee Formal Opinion 72: Recovery of Attorney Fee Lender Using In-House Counsel (revised 1992, addendum issued 1995).

9. “Authorized” in this context means either licensed or excepted from therequirements of licensing by the Colorado Supreme Court.

10. 18 CRS § 18-5-113(1)(e) (criminal impersonation); People v. Bauer, 80 P.3d 896 (Colo.App. 2003) ( lawyer whose license to practice law was suspended convicted of criminal impersonation for holding himself out as licensed attorney).

11. E.g., People v. Madera, 112 P.3d 688, 690 (Colo. 2005), citing People v. Lessie, 24 P.3d 22, 26 (Colo.App. 2000).

12. E.g., Brink v. Dalesio. 82 F.R.D. 664 (D.Md. 1979) (attorney-client privilege did not protect communications, where lawyer officed in Maryland, but had never been licensed to practice there, had only ever been licensed in Virginia, license in Virginia was inactive, and lawyer initially claimed documents were protected by accountant-client privilege and had not claimed to have serve as an attorney for the “client”).

13. C.R.C.P. 222.

14. 18 U.S.C. § 1514A.

15. 15 U.S.C. § 7245.

16. 17 C.F.R. § 205.3.

17. New Rule 1.6 (Confidentiality of Information), Comment [5].

18. New Rule 1.6 (Confidentiality of Information), Comment [13].

19. Id.

20. New Rule 1.11(a)(2).

21. New Rule 1.11(b).

22. New Rule 1.13(b).

23. New Rule 1.13(e) and Comment [8].

24. New Rule 4.2, Comment [6].

25. See Glenn and Berger, supra note 1 at 79.

26. New Rule 4.2, Comment [6].

27. E.g., People v. Schindelar, 845 P.2d 1146, 1147 (Colo. 1993).

28. New Rule 4.2.

29. The Comment to Current Rule 5.1(a) states that Current Rule 5.1(a) applies to in-house lawyers. Also, an argument could be made that if in-house counsel owns stock in the client, Current Rule 5.1(a) applies. New Rule 5.1(a) does not require this equity ownership for its application.

30. See New Rule 1.1 (Terminology), Comment [3]: With respect to a law department of an organization . . . there is ordinarily no question that the members of the department constitute a firm with the meaning of
the [New Rules].

31. Certain of the Rules always apply to lawyers, even when not acting as a lawyer. E.g., People v. Rishel, 50 P.3d 938 (Colo.P.D.J. 2002) (attorney disbarred for deceitful conduct in purely private transaction that had nothing to do with his legal practice).

32. New Rule 5.7(a)(2), Comments [2] and [6].

33. See note 4, supra.

34. See generally Forstic et al., “Legal Malpractice Liability of Employed Attorneys,” 11 ACCA Docket 80 (Fall 1993); Marks Polarized Corp. v. Solinger & Gordon, 476 N.Y.S.2d 743 (N.Y.Sup.Ct. 1984) (malpractice claim against inhouse counsel).

35. E.g., Kersey v. Dennison Mfg. Co., 1992 WL 71390 (D.Mass. Feb. 21, 1992) (counterclaim for malpractice against in-house counsel).

36. New Rule 1.6, Comment [9].

37. Gische, “Directors and Officers Liability Insurance,” (Jan. 2000), available at library.findlaw.com/2000/Jan/1/241472.html.

38. See Consolidated Minutes of Standing Committee on Rules of Professional Conduct, at 128-33 and 147-51, available at www.courts.state.co.us/supct/committees/profconductdocs/minutes_all.pdf.

39. See CBA Ethics Committee Formal Opinion 113: Ethical Duty of Attorney to Disclose Errors to Client (Nov. 19, 2005), 35 The Colorado Lawyer 13 (Jan. 2005).

40. CBA Ethics Committee Formal Opinion 116: Ethical Considerations in the Dissolution of a Law Firm or a Lawyer’s Departure from a Law Firm (March 17, 2007), 36 The Colorado Lawyer 21 (May 2007).

Copyright © 2008 Fairfield and Woods, P.C., ALL RIGHTS RESERVEDNational Law Review, Volume , Number 205

TRENDING LEGAL ANALYSIS


About this Author

John Tanner, Fairfield Woods, Litigation attorney
Director

John M. Tanner helps businesses solve disputes. He employs many tools, including negotiation, alternative dispute resolution and both traditional and atypical litigation tactics. He has represented clients in all aspects of commercial litigation, including contract disputes, receiverships, intellectual property and construction matters. Jack is proud to count Microsoft, Noble Energy, Kinder Morgan, the University of Denver and the Denver Museum of Nature and Science among his clients.

Jack has been on the Colorado Bar Association Ethics Committee since 1995. ...

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