Picture this: it is the start of a rather slow work week and a partner at the law firm you work at approaches you. “Do you remember that transaction for Client A that my group has been handling for the past six months? Well, it fell through, and Client A just received a complaint filed by the other side. I have a call with them this afternoon; does your litigation team have capacity to take this one on?” This hypothetical leaves room for all sorts of answers, qualified or otherwise. Assuming that you play along and have to give a response to the partner, would your reply be any different if you owed this partner a favor for helping you out on a case not long ago? What about if your litigation team could really use the work, you knew that Client A paid their bills on time, and that billing rates were top tier for matters worked on for this client?
We can cut to the chase. Any response should include some sort of inquiry as to the firm’s role in the representation of Client A and, more specifically, whether the firm (conceivably) could have had a role in the cause of the failed transaction and subsequent litigation. Did the partner, for example, draft or sign off on a faulty provision in the parties’ agreement that contributed to the transaction having fallen apart? If the failed deal may have been caused, at least in part, by an error on the part of the firm, then a different kind of discussion with the client may be required by the Rules of Professional Conduct (“RPCs”). This article discusses the duty to self-report potential claims that a client may have against the lawyer and the interplay between this duty and the rules governing disclosure and conflicts of interest.
The Origins of the Self-Reporting Duty
The RPCs “require an attorney to notify the client that he or she may have a legal malpractice claim even if notification is against the attorney’s own interest.” Olds v. Donnelly, 150 N.J. 424, 443 (1997); see also RPC 1.4. Lawyers thus maintain an ethical obligation to disclose their own acts of malpractice to clients. See, e.g., Restatement (Third) of the Law Governing Lawyers § 20, cmt. c (2000) (“If the lawyer’s conduct of the matter gives the client a substantial malpractice claim against the lawyer, the lawyer must disclose that to the client.”); In re Tallon, 447 N.Y.S. 2d 50 (3d Dep’t 1982) (lawyers maintain an ongoing obligation to disclose to clients their own acts of malpractice). For example, in In re Tallon, a New York court held that an attorney had a professional duty to promptly notify his client of his failure to act by allowing the statute of limitations to run on a claim for property damages, and of the client’s potential claim against him. Id.
Where a lawyer fails to make such a disclosure and takes steps to conceal a mistake or error, some jurisdictions have found that this constitutes ethical misconduct subject to discipline. See, e.g., In re Shaughnessy, 811 N.E.2d 990 (Mass. 2004) (imposing discipline on respondent who actively concealed the failure to file suit prior to expiration of applicable statute of limitations); In re Hoffman, 700 N.E.2d 1138 (Ind. 1998)( imposing discipline on attorney who failed to explain to client the effect of his malpractice in failing to file claim within limitations period)). This conduct can also serve as the basis for a claim for legal malpractice or breach of fiduciary duty. Beal Bank v. Arter & Hadden, 42 Cal. 4th 503 (Cal. 2007) (holding that “attorneys have a fiduciary obligation to disclose material facts to their clients, an obligation that includes disclosure of acts of malpractice”; statute of limitations tolled during period of nondisclosure); Grunwald v. Bronkesh, 131 N.J. 483, 494 (N.J. 1993)(finding that an attorney’s has a “fiduciary duty of full disclosure” to reveal a potential claim for malpractice to a client); Carlson v. Fredrikson & Byron, 475 N.W.2d 882 (Minn. Ct. App. 1991) (malpractice liability for failure to disclose conflict only when conflict required withdrawal)).
Conflicts of Interest and Material Limitations
When an attorney commits an error during the course of a representation, the attorney’s potential exposure to malpractice liability gives rise to an impermissible conflict of interest due to the material limitation on serving the client’s interest. See RPC 1.7. This notion is rooted in ABA Model RPC 1.7(a)(2), which provides, in pertinent part, that a lawyer shall not represent a client if “there is a significant risk that the representation of one or more clients will be materially limited by … a personal interest of the lawyer.” In Circle Chevrolet Co. v. Giordano, Halleran & Ciesla, the New Jersey Supreme Court recognized that the interests of a lawyer and client may diverge at the point when the lawyer is subject to a potential claim for malpractice. 142 N.J. 280, 291 (N.J. 1995).
Under ABA Model RPC 1.7(b), however, a lawyer may continue to represent a client under such circumstances provided that full disclosure of the facts are made to the client, the representation is not otherwise prohibited by law, and the client gives his or her informed consent. See, e.g., N.J. Advisory Comm. on Prof’l Ethics Op. 684 (Mar. 9, 1998)(“[w]hile we can foresee instances in which a client may well choose not to pursue a malpractice claim, a lawyer cannot decide this issue for a client through nondisclosure.”); Col. Bar Ass’n, Formal Ethics Op. 113 (2005) (attorneys are bound by the ethics rules to disclose material errors to clients)).
The Bottom Line
The self-reporting duty is rooted in an attorney’s general obligation to fully disclose material facts concerning the representation to the client. This duty also derives from an attorney’s obligation to avoid circumstances that may impair the representation by placing the interests of the attorney in conflict with those of the client.
Reprinted with permission from the October 21, 2024 edition of The Legal Intelligencer © 2024 ALM Global Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-256-2472 or reprints@alm.com.