SHERMAN & HOWARD LLC Hot Topics in Professional Responsibility

SHERMAN & HOWARD L.L.C. Hot Topics in Professional Responsibility

May 6, 2015

Presented by: Anthony E. Davis Lawyers for the Profession® Practice Group of Hinshaw & Culbertson LLP

SHERMAN & HOWARD L.L.C. Hot Topics in Professional Responsibility

May 6, 2015

Table of Contents

1. Outline

2. Anthony Davis’ “Bio”

A. AN UPDATE ON CYBER RISKS

3. Sarah Green, Do Millennials Believe in Data Security?, Harvard Business Review, February 18, 2014

4. Steven M. Puiszis, How to protect yourself from spear phishing - protect yourself against identity theft and you are also protecting the Firm. Top ten tips, Hinshaw & Culbertson LLP, March 26, 2014

5. This USB Drive Can Nuke a Computer, Matt Burns (@mjburnsy), Posted Mar 12, 2015, Techcrunch.com

6. New York County Lawyers Association Committee on Professional Ethics, Op. 748, The ethical implications of attorney profiles on LinkedIn, March 10, 2015

7. Pennsylvania Bar Association Formal Opinion 2014-300, Ethical Obligations for Attorneys Using Social Media

8. Professional Ethics of the Florida Bar Proposed Advisory Opinion 14-1, January 23, 2015

B. ETHICAL AND EFFECTIVE BILLING PRACTICES

9. Hypothetical: A Billing Nightmare, The Consequences of Inadequately Managing the Billing Process

10. Extracts from the Colorado Rules of Professional Conduct, Rules 1.5 and 1.15

11. E-mail message to Anthony Davis, 08/05/01 regarding $5.00 Invoice

12. Jay Shepherd, What if Apple Stores Billed by the Hour? Lessons for Law Firms, The Client Revolution, July 2009

13. Robert Ambrogi, Why Is This Man Smiling? Latest legal victory has LegalZoom poised for growth, ABA Journal, August 1, 2014

14. Anthony E. Davis and Julianne Splain, Improving the Profitability and Managing the Risks of Law Practice: A New Look at Fee Arrangements, Billing, and Collections, Lawyer to Lawyer, Edition XIX, September 2002

15. Gary A. Munneke and Anthony E. Davis, Part IV: Fees, Billing and Collection, Chapter 4 – Alternative Fee Arrangements, THE ESSENTIAL FORMBOOK: Comprehensive Management Tools for Lawyers, Volume II, American Bar Association, 2001

16. Robert C. Pozen, They Work Long Hours, but What About Results?, The New York Times, October 07, 2012

17. Amy Miller, Survey Shows the Bell Is Tolling for the Billable Hour, Corporate Counsel, December 01, 2009

18. Dan DiPietro and Gretta Rusanow, In Today’s Market, Clients Seeking Cost Certainty, The Legal Intelligencer, December 15, 2010

19. How to Migrate from Traditional Billing to Alternative Fees, Association of Corporate Counsel, September 2009

20. Christian Lewis, 3 In-House Views of Alternative Fee Arrangements, Law360, October 17, 2014

Bibliographies

A. AN UPDATE ON CYBER RISKS

Copies of the An Update on Cyber Risks PowerPoint presentation are available on request.

Recent Incidents and Decisions of Interest:

The Limits of Technology

1. Over-reliance on calendaring software

Francis J. Lawall and James C. Carnigan, 4th Circuit Rules Computer Oversight Not ‘Excusable Neglect,’ The Legal Intelligencer, June 21, 2011

Symbionics Inc. v. Ortlieb, 2011 WL 2076335 (C.A.4 (Va.))

In re Sandoval, 2009 WL 2372849 (D.Colo.)

In Re WorldCom, Inc. Docket Nos. 10-4588(L), 11-0408 (XAP), United States Court of Appeals for the Second Circuit, Decided: January 24, 2013

Virus introduced worm that erased calendar entries may constitute excusable neglect – (the dog ate my homework?)

Sonders v. Mezvinsky, 2001 WL 1403525 (Bkrtcy.E.D.Pa.)

Carol Gerber, Keeping an Eagle Eye on Typos, Daily Dispatch, February 27, 2013

John O. McGinnis, Machines v. Lawyers, City Journal, June 25, 2014

2. Under-Utilization of Technology

Monica Bay, Big Law Whipped for Poor Tech Training, Law Technology News, 05/22/2013

3. Exclusive: Linklaters lawyer quits to invent proofreading machine, Roll on Friday, September 27, 2013

4. Jalil Asif QC, I-Die, Counsel.com, August 2014

5. Paul Lippe and Daniel Martin Katz, 10 predictions about how IBM’s Watson will impact the legal profession, Legal Rebels, October 2, 2014

Data Protection – External Threats

7. Law firm data compromised by hackers

K&S attacked by hackers, Bloomberg News, March 8, 2011

Martha Neil, Neighbor Gets 18 Years for Hacking Lawyer’s Wi-Fi Account, Using His ID to Harass Others, ABA Journal, July 13, 2011

Michael A. Riley and Sophia Pearson, China-Based Hackers Target Law Firms to Get Secret Deal Data, Bloomberg News, January 31, 2012

Catherine Dunn, How Secure Are Law Firms’ Computer Networks?, Corpcounsel.com, February 21, 2012

Michael Riley & Dune Lawrence, Hackers Linked to China’s Army Seen From EU to D.C., Bloomberg, July 26, 2012

Nicole Perlroth, Hackers in China Attacked The Times for Last 4 Months, The New York Times, January 30, 2013

Martha Neil, Traveling to China? Don’t take a laptop computer, universities warn academics, ABA Journal, July 17, 2013

Allison Grande, Revamped Breach Laws Expose Cos. Hit By Russian Hack, Law360, August 06, 2014

Rob Waugh, Android security mystery – ‘fake’ cellphone towers found in U.S., We Live Security, August 28, 2014

8. Standards for the Protection of Personal Information (PI) of Residents of the Commonwealth” (201 CMR 17.00, Massachusetts), March 1, 2010

9. Law Firms and Risk Control: Information Security and Confidential Survey Results, CNA, April 2011

10. Responding to a Data Breach, Communications Guidelines for Merchants, 2008 ©Visa Inc.

11. John W. Simek & Sharon D. Nelson, Esq., Preventing Law Firm Data Breaches, Law Practice Magazine, January/February 2012, Volume 38 Number 1

12. Martha Neil, Corporate Clients Should Ask Specific Questions About Law Firm Computer Security, Experts Say, ABA Journal, February 21, 2012

13. Somini Sengupta & Nicole Perlroth, The Bright Side of Being Hacked, The New York Times, March 4, 2012

14. Jennifer Smith, Lawyers Get Vigilant on Cybersecurity, Pressure Grows as Mobile Devices, Email Make Sensitive Data More Vulnerable, The Wall Street Journal, June 26, 2012

15. Leo A. Notenboom, Are Password Managers like Roboform and Lastpass safe?, Ask-Leo.com, July 6, 2012

16. Dan Goodin, Why passwords have never been weaker—and crackers have never been stronger, ARS Technical, August 20, 2012

17. Mat Honan, What to Do After You’ve Been Hacked, Wired.com, March 5, 2013

18. Andrew Dunn, Park Sterling Bank suing law firm after fraudulent wire transfer, The Charlotte Observer, April 03, 2013

19. Anna Reynolds, Fear of cyber crime rise as nearly 80% believe their firm could be hit by web hack, Legalweek.com, May 3, 2013

20. John Seabrook, Network Insecurity, Are we losing the battle against cyber crime?, The New Yorker, May 20, 2013

21. Monica Bay, Big Law Whipped for Poor Tech Training, Law Technology News, May 22, 2013

22. Martha Neil, Bank’s new cybersecurity audits catch law firms flat-footed, ABA Journal, June 13, 2013

23. Allison Grande, NY Cybersecurity Push Turns Up the Heat on Law Firms, Law360, October 27, 2014

24. Lily Hay Newman, Even If You’re Wise to Phishing, Spear Phishing Could Still Fool You, Gizmodo, July 14, 2013

25. Lucy L. Thomson, Health Care Data Breaches and Information Security, Addressing Threats and Risks to Patient Data, Identity Theft Resource Center, Data Breach Reports, 2005-2013

26. Ama Sarfo, 5 Ways Law Firms Can Avoid A Data Breach Nightmare, Law360, August 16, 2013

27. Encryption, complex passwords are best ways to protect client data, YourABA – enews for members, September 2013

28. Nicole Perlroth, Jeff Larson and Scott Shane, N.S.A. Able to Foil Basic Safeguards of Privacy on Web, The New York Times, September 5, 2013

29. Jonathan Ames, Top City firm fights off cyber attack, The Lawyer, October 28, 2013

30. Jonathan Ames, Cyber security: Lawyers are the weakest link, The Lawyer, October 28, 2013

31. Connor Adams Sheets, Have My Passwords Been Stolen? How To Check For Account Breaches Using HaveIBeenPwned, International Business Times, December 05, 2013

32. Allison Grande, Report of NSA Spying On Mayer Brown Rattles Other Firms, Law360, February 18, 2014

33. Gina Passarella, Law Firms Face Pressure from Clients on Data Security, The Legal Intelligencer, March 04, 2014

34. Letter Dated 10 March 2014 from the NSA to the ABA

35. Spiders in the web: The risks of online crime to legal business, Solicitors Regulation Authority, March 2014

36. Data Security, Lawyers’ Insurance Association of Nova Scotia, April 2014

37. Evan Weinberger, Cybercriminals Outpacing Security Measures, Report Says, Law360, April 22, 2014

38. Beware Keyloggers at Hotel Business Centers, Krebs on Security, July 14, 2014

39. Graham Cluley, Yahoo ads network helps hackers spread CryptoWall ransomware, grahamcluley.com, August 11, 2014

The Cloud

40. Cloud Ethics Opinions Around the U.S., ABA Law Practice Management Section, http://www.americanbar.org/groups/departments_offices/legal_technology _resources/resources/charts_fyis/cloud-ethics-chart.html

41. Cloud Computing/Software as a Service for Lawyers, ABA Law Practice Management Section, http://www.americanbar.org/groups/departments_offices/legal_technology _resources/resources/charts_fyis/saas.html

42. Storing Confidential Information in ‘Cloud' Is Permissible, With Reasonable Precautions, ABA/BNA Lawyers’ Manual on Professional Conduct, Volume 26, No. 22, October 27, 2010, New York State Bar Association Committee on Professional Ethics, Opinion 842, Using an outside online storage provider to store client confidential information, 09/10/10

43. Larry Griffin, Storm on the Horizon? The Risks of Cloud Computing, Beazley Brief, Issue 24, June 2011

44. The New York City Bar, Committee on Small Law Firms, The Cloud and the Small Law Firm: Business, Ethics and Privilege Considerations, November 2013

45. Solicitors Regulation Authority, Silver Linings: Cloud computing, law firms and risk, November 2013

46. Daniel Beekman, Manhattan judge finds accounting firm stole from the cloud in landmark ruling, Daily News, December 16, 2013

47. Samson Habte, New York City Bar Report Offers Guidance On Ethical Risks of ‘Leaping Into the Cloud’, ABA/BNA Lawyers’ Manual on Professional Conduct, Volume 29, No. 26, December 18, 2013

Risks in Using Devices

48. Professional Ethics of The Florida Bar Opinion 10-2, September 24, 2010, Using Storage Devices

49. Ron Lieber, Your Voice Mail May Be Even Less Secure Than You Thought, The New York Times, August 19, 2011

50. Debra Cassens Weiss, Law Firm Employee Lost Backup Hard Drive on Train; It Contained Med-Mal Patient Data, ABA Journal, October 11, 2011

51. Nicole Perlroth, Cameras May Open Up the Board Room to Hackers, New York Times, January 22, 2012

52. Sharon D. Nelson and John W. Simek, Renegade SmartPhones Threaten Business Security, Law Practice Today, February 2012

53. Nicole Perlroth, Traveling Light in a Time of Digital Thievery, New York Times, February 10, 2012

54. The “Bring Your Own Device” to Work Movement: Engineering Practical Employment and Labor Law Compliance Solutions, The Littler Report, May 2012

55. Philip M. Berkowitz, Legal Challenges Arise to ‘Bring Your Own Device’ Policies, New York Law Journal, July 16, 2012

56. Brian Baxter, Associate’s Failure to Keep Secrets a Cautionary Tale for Young Lawyers, The Am Law Daily, November 30, 2012

57. ‘Devices’ / David Navetta, The Legal Implications of BYOD: Preparing Personal Devise Use Policies, ISSA Journal, November 2012

58. Mat Honan, Break Out a Hammer: You’ll Never Believe the Data ‘Wiped’ Smartphones Store, Gadget Lab, April 1, 2013

59. Fred Donovan, Wall Street doesn’t want outside law firms allowing BYOD, Goldman Sachs warns that if banks and law firms don’t sort out data security, feds will, Fierce Mobile IT, July 9, 2013

60. Steven J. Fox, Affinity to pay $1.2 million for photocopier breach, Health IT Law Blog, August 15, 2013

61. Dan Goodin, New Android threats could turn some phones into remote bugging devices “Weirdest permissions” include disabling lock screens and recording audio, ARS Technical, December 10, 2013

62. Natasha Lomas, A Closer Look at Blackphone, The Android Smartphone That Simplifies Privacy, TechCrunch, February 26, 2014

63. William Maruca, Unencrypted Laptops Prove Costly, HIPAA, HITECH & HITT, Fox Rothschild LLP, April 24, 2014

64. Bibeka Shrestha, Insurers Flocking To Data Breach Exclusions In CGL Policies, Law360, August 26, 2014

65. Wayman Fire Prot., Inc. v. Premium Fire & Sec., LLC, No. 7866-VCP, 2014 WL 897223 (Del. Ch. Mar. 5, 2014)

66. Hope A. Comisky and Tracey E. Diamond, The Risks and Rewards of a BYOD Program: Ensuring Corporate Compliance Without Causing “Bring Your Own Disaster” to Work, Charleston Law Review, Volume 8, 2014

67. Andy Greenberg, The Unpatchable Malware That Infects USBs Is Now on the Loose, Wired, October 2, 2014

Email Risks

68. The Attorney's Guide to Metadata Ethics Opinions Around the U.S. http://t.co/YImhH8KhQs

69. Availability – or loss – of attorney client privilege for e-mails or text messages sent by individuals from their employer-provided e-mail addresses, or using their employer-provided technology, or using an e- mail account shared with client’s children

Scott v. Beth Israel Medical Center, 17 Misc.3d 934, 847 N.Y.S.2d 436 – October 17, 2007

Stengart v. Loving Care Agency, Inc., 408 N.J.Super. 54, 973 A.2d 390 – March 30, 2010

Ontario v. Quon, 130 S.Ct. 2619 – June 17, 2010

Willis v. Willis, 2010 N.Y. App. Div. LEXIS 9581 (N.Y. App. Div. 2d Dep't Dec. 21, 2010)

Holmes v. Petrovich Development Company, LLC, 2011 WL 117230 (Cal.App. 3 Dist.)

70. E-mail response to attorney’s friend (not a client) recommending misstatement by friend as to length of separation from friend’s spouse in order to qualify for a no-fault divorce – discipline imposed.

Attorney Grievance Commission of Maryland v. John A. Elmendorf, 404 Md. 353, 946 A.2d 542 (Ct. App. Md.) - April 17, 2008

71. E-mailing part of sealed case record in a child custody case to family member of client contrary to court order – sanctions imposed.

In re Karen H. Spencer, 985 So.2d 330 (Sup. Ct. Miss.) – June 19, 2008

72. Use of autocomplete misdirects e-mail to adversary and its counsel leading to disqualification of adversary’s counsel.

Terraphase Engineering, Inc. et al v. Arcadis, U.S. Inc., USDC, NDCal. No. C-10-04647, December 17, 2010

Greg Mitchell, Email ‘Oops’ Ends with Gordon & Rees Being Booted from Case, Legal Pad (a Recorder Blog), December 29, 2010

73. State Bar of California Standing Committee on Professional Responsibility and Conduct Formal Opinion No. 2010-179

74. ABA Formal Opinion 11-459, Duty to Protect the Confidentiality of E-Mail Communications with One’s Client, August 4, 2011

75. Robert Hilson, DLA Piper rejection of offer to settle fee clash haunts firm, as ‘churning’ emails surface, aceds (Association of Certified E-Discovery Specialists®), April 4, 2013

76. Peter Lattman, Settling Fee Dispute, Law Firm Denounces ‘E-Mail Humor,’ The New York Times, April 17, 2013

77. Andrew Stickler, DLA Piper to Lose Business Over Sexist Emails, Law360, May 21, 2014

78. In the Matter of A Warrant For All Content and Other Information Associated With The Email Account [email protected] Maintained At Premises Controlled by Google, Inc., Case 1:14-mj-00309-UA (S.D.N.Y. Jul. 18, 2014)

79. In the Matter of A Warrant For All Content and Other Information Associated With The Email Account [email protected] Maintained At Premises Controlled by Google, Inc., Case 1:14-mj-00309-UA (S.D.N.Y. Jul. 18, 2014)

80. Clive Thompson, End the Tyranny of 24/7 Email, The New York Times, August 28, 2014

Challenges to Protecting Client Confidential Information

81. Debra Cassens Weiss, Tens of Thousands of Pacer Documents Could Have Failed Redactions, Study Suggests, ABAJournal.com, Legal Ethics, Posted May 31, 2011

82. Gina Passarella, Pa. Firm Sues Ex-Partner for Allegedly Using Dropbox to Access Client Files, The Legal Intelligencer, February 13, 2012

83. Use of digital information improperly obtained by client.

A.J.H. (M.J.H.) v. M.A.H.S., Mo. Ct. App. E. Dist., No. ED96873, 2/21/12

84. Nicole Ozer, Note to Self: Siri Not Just Working for Me, Working Full-Time for Apple, Too, ACLU of Northern California, March 12, 2012

85. Mark A. Berman, Metadata Meets Facebook E-Discovery, New York Law Journal, May 2, 2012

86. Lawyers May Look at Sender’s Metadata But Can’t Use Program to Find Scrubbed Info, ABA/BNA Lawyers’ Manual on Professional Conduct, Volume 28, No. 11, May 23, 2012

87. Joan C. Rogers, Virtual Law Practitioner Must Go Extra Mile To Ensure That Ethical Duties Are Observed, ABA/BNA Lawyers’ Manual on Professional Conduct, Volume 28, No. 16, August 1, 2012

88. United States of America, v. Christopher Finazzo and Douglas Dey, 10- CR-457 (RRM)(RML) – February 19, 2013

89. Joe Patrice, You’ve Got (No) Mail! Major Law Firm Blocks Employee Email Access, Above The Law, April 16, 2013

90. Andrew Strickler, Quinn's Document Flub Shows Risks Of Rising Data Demands, Law360, October 25, 2013

91. Monica M. Wahba, Protect Sensitive Business Info By Sharing Smarter, Law360, July 3, 2014

Social Networking

92. Limitations on obtaining credit reports under the FCRA

Duncan v. Handmaker, 149 F.3d 424 (C.A.6 (Ky.), June 8, 1998)

93. Unauthorized practice of law based on misleading advertising – disbarred lawyer held herself out as an attorney, providing services to other lawyers subject to professional discipline in California – conviction for unauthorized practice of law.

People v Lebbos, 2008 WL 391241 (Cal.App. 6 Dist.) – February 14, 2008

94. Using the Internet to disseminate obscene material – conviction and disbarment (treating conviction as a “serious crime”).

In the Matter of Steven Lipton, 51 A.D.3d 207, 854 N.Y.S.2d 735 (App. Ct. 2d.) – March 25, 2008

95. A lawyer may not ethically send a “friend” request to an opponent or a potential witness with the goal of getting inside information for a client's matter.

The Philadelphia Bar Association Professional Guidance Committee, Opinion 2009-02

New York State Bar Association Committee on Professional Ethics, Opinion 843, Lawyer's access to public pages of another party's social networking site for the purpose of gathering information for client in pending litigation, 09/10/10

The Association Of The Bar Of The City Of New York Committee On Professional And Judicial Ethics, Formal Opinion 2010-2, Obtaining Evidence From Social Networking Websites

New York County Lawyers’ Association Committee on Professional Ethics, Op. 743, Lawyer investigation of juror internet and social networking postings during conduct of trail, May 18, 2011

Misleading “Friending” Request – San Diego County Bar Association, Legal Ethics Opinion 2011-2, (Adopted by the San Diego County Bar Legal Ethics Committee May 24, 2011.)

Samson Habte, Lawyer Must Disclose Identity and Purpose When Making ‘Friend’ Requests to Witnesses, ABA/BNA Lawyers’ Manual on Professional Conduct, Volume 29, No. 15, July 17, 2013

96. Misleading law firm website – lawyers in separate solo practices creating joint website without revealing that they did not practice law as a law firm – all lawyers involved disciplined.

In the Matter of J. Michael Loomis, 905 N.E.2d 406 (Sup. Ct. Ind.) May 7, 2009

97. Texting client during deposition – loss of attorney-client privilege

Ngai v. Old Navy, 2009 WL 2391282 (D.N.J.) – July 31, 2009

98. Use of internet to disparage judge – blog describing judge as “evil, unfair witch” – attorney disciplined.

John Schwartz, A Legal Battle: Online Attitude vs. Rules of the Bar, The New York Times, September 12, 2009

99. Blog disclosing classified information – attorney convicted and disbarred.

In the matter of Leibowitz, 72 A.D.3d 1190, 897 N.Y.S.2d 754 (App. Div. 2d) – April 1, 2010

Maria Glod, Former FBI employee sentenced for leaking classified papers, The Washington Post, May 25, 2010

100. Failure to Monitor Website - Management Committee Reprimanded, The Ethical Quandary, Hinshaw & Culbertson LLP, October 18, 2010

101. Posting information on blog and in chat room waives attorney-client privilege.

Lenz v. Universal Music Corp., et al., 2010 WL 4789099 (N.D.Cal.) November 17, 2010

102. Tweeting about decision which the court had ordered not to be posted gets lawyer in trouble.

Nate Raymond, Elmer Thud: Famous Litigator in Twitter Twouble Over Bwagging, The American Lawyer, January 5, 2011

103. Simon Chester, Thinking About Social Media in Your Law Firm, Law Practice Magazine, March/April 2011

104. The Association of the Bar of the City of New York Committee on Professional and Judicial Ethics, Formal Opinion 2012-2, Jury Research and Social Media

105. Carole Levitt & Mark Rosch, Using Social Media for Investigative Research and Avoiding Potential Ethical Traps, Internet for Lawyers, Inc., March 28, 2012

106. Pennsylvania Bar Ass’n Comm. on Legal Ethics and Professional Responsibility, Formal Op. 2014-300, Ethical Obligations for Attorneys Using Social Media

107. Wendy Wen Yun Chang, South Carolina Disapproves “Expert” Answering of Specific Online Legal Questions, The Ethical Quandary, April 2, 2012

108. Truthfully Bashing Other Lawyers in Blogs Doesn’t Count as Conduct Harmful to Justice, ABA/BNA Lawyers’ Manual on Professional Conduct, Volume 28, No. 9, April 25, 2012

109. Republishing a complaint filed in a shareholder derivative action on a law firm's website not protected by litigation privilege.

Cole v. Patricia A. Meyer & Associates, APC, 206 Cal.App.4th 1095, 142 Cal.Rptr.3d 646 – June 8, 2012

110. Richard D. Shane and Jose Ferrer, Florida Court: Lawyers And Judges Should Not Be Facebook Friends, September 13, 2012, Domville v. State, No. 4D12-556 (Fla. 4th DCA 2012)

111. The State Bar of California Standing Committee on Professional Responsibility and Conduct, Formal Opinion No. 2012-186, Under what circumstances would an attorney’s postings on social media websites be subject to professional responsibility rules and standards governing attorney advertising?

112. The ABA Standing Committee on Ethics and Professional Responsibility Formal Ethics Opinion 462 – Judge’s Use of Electronic Social Networking Media, February 21, 2013

113. Oregon Formal Opinion No. 2013-189, February 2013, Accessing Information about Third Parties through a Social Networking Website

114. Law Firm Apps for Clients

Julia Love, Law Firms Use Apps to Burnish Brands, The Recorder, May 8, 2013

115. Samson Habte, Attorneys Sometimes May Advise Clients To Purge Damaging Social Media Information, ABA/BNA Lawyers’ Manual on Professional Conduct, Volume 29, No. 15, July 17, 2013

116. Russells breaks JK Rowling spell, Lawyer News Daily, July 19, 2013

117. Mike Frisch, Failure to Search Internet Shows Lack of Competence, Legal Profession Blog, December 6, 2013

118. New York State Bar Association Commercial and Federal Litigation Section, Social Media Ethics Guidelines, March 18, 2014

119. The ABA Standing Committee on Ethics and Professional Responsibility Formal Ethics Opinion 466, Lawyer Reviewing Jurors’ Internet Presence, April 24, 2014

120. Philadelphia Bar Assn’n Prof’l Guidance Comm., Op. 2014-05, 7/14

121. Abigail Rubenstein, Employee Misuse of Social Media on the Rise, Survey Says, Law360, April 29, 2014

122. Mass. Bar Ass’n Comm. on Prof’l Ethics, Op. 2014-5

123. John G. Browning, A ‘Friend’ At Court?, Counsel Magazine, July 2014

124. Rule 138. Personal Identity Information, Illinois Supreme Court, Article II. Rules on Civil Proceedings in the Trial Court, Part B. Pleadings and Other Papers

125. Federal Trade Commission Regulations: Statement of General Policy or Interpretation, Part 600—Statements of General Policy or Interpretations

126. Appendix C to Part 601, Prescribed Notice of User Responsibilities, Notice To Users Of Consumer Reports: Obligations of Users Under the FCRA

127. Ben James, NLRB ‘Like’ Ruling Sheds Light on Social Media Protection, Law360, August 25, 2014

128. Jonathan Cain, Wearable Devices in the Workplace Challenge Data Security and Privacy, Today’s General Counsel, August 26, 2014

129. Debra Cassens Weiss, Lawyer’s photoshopped celebrity pictures lead to suspension recommendation, ABAJournal.com, September 18, 2014

130. Hayes Hunt, Lawyer’s Duty to Preserve Social Media Evidence, Today’s General Counsel, September 12, 2014

131. Graham Cluley, Will your unread Facebook messages be deleted? Dream on, and don’t click on that email, grahamcluley.com, October 2, 2014

132. Larry Griffin, Lawyers Must Click with Caution in the Social Media Era, Beazley Brief, November 2014

B. ETHICAL AND EFFECTIVE BILLING PRACTICES

http://www.acc.com/valuechallenge/index.cfm

ACC Value-Based Fee Primer, Association of Corporate Counsel, July 2010

Andrew Strickler, 4 Ways GCs Can Spot Bill Padding, Law360, New York, August 29, 2014

Martha Neil, Contract attorney faces felony overbilling case, allegedly claimed over 24 hours on 80 work days, ABA Journal, Oct 15, 2013

Steven J. Harper, The Tyranny of the Billable Hour, The New York Times, March 28, 2013

Adam Liptak, Bloated Billables, The New York Times, October 29, 2002

Reid F. Trautz and Paul McLaughlin, How to Get Paid, Law Practice Management, January/February 2001

Daniel Wise, Jury Slaps Former Law Firm with $7 Million Verdict, New York Law Journal, June 20, 2007

Lisa G. Lerman, Lying to Clients, University of Pennsylvania Law Review, January 1990, Volume 138, Number 3

Lisa G. Lerman, Scenes from a Law Firm, Rutgers Law Review, Volume 50:2153, 1998

Lisa G. Lerman, Blue-Chip Bilking: Regulation of Billing and Expense Fraud by Lawyers, The Georgetown Journal of Legal Ethics, Winter 1999, Volume XII, No. 2

SHERMAN & HOWARD L.L.C. Hot Topics in Professional Responsibility May 6, 2015 Presented by: Anthony E. Davis Lawyers for the Profession® Practice Group of Hinshaw & Culbertson LLP

Outline

A. AN UPDATE ON CYBER RISKS

I. Introduction

Mission Impossible – Controlling Access to Digital Information

II. External Threats

Hacking

Physical (In)security

III. Interception of or Improper Access to Data

Insecure Work Station

Passwords

IV. Data Devices and Storage

Mobile Data

Loss of Devices

BYOD

USB Drives

Encryption?

The “Cloud” – What Is It, and Is It Secure?

V. Unintended Data Disclosure

Is It Dumb?

“Reply All”

Autocomplete

Email = Digital Data

Client Generated Email

VI. Social Networking/Social Media

The Ethics of Social Networking

Advertising Concerns

Online Investigations

“Friending” and False “Friending”

Credit Checks

Communications with Jurors

Friending with Judges

Third Party Sites

The Robing Room

B. ETHICAL AND EFFECTIVE BILLING PRACTICES

I. Fee Arrangements – Alternatives to Hourly Billing

The Problems with Hourly Billing

The Positive Reasons to Consider Alternatives to Time-Charging

What Are the Alternatives To Time-Charging?

Why Do the Alternatives Work?

The Hidden Implications of Alternative Fee Arrangements

The Future of Hourly Fees

II. Managing the Time-Keeping Process

Why It Matters

The Requirements

Daily

Oversight

The Ethics of “Minimum Billable Hour” Requirements

Time Recording For Alternative Fees Arrangements

The Problem of Under-Recording

III. Managing the Billing Process

ALWAYS Use Personalized Cover Letters (When the Bill will be Read by a Human Being)

Correct Billing Language

Billing Expenses and Disbursements

What Are Properly Billable Disbursements?

3 Anthony E. Davis Service Areas Partner Counselors for the Profession 800 Third Avenue Lawyers for the Profession® 13th Floor Litigators for the Profession New York, NY 10022 212-935-1100 Professional Liability [email protected] Education M.A., Cambridge University, 1974 LL.M., New York University, Anthony Davis is best described as a lawyer's lawyer. Mr. Davis is a member of 1971 the Lawyers for the Profession® practice group and his practice focuses on the B.A., Cambridge University, laws that govern lawyers. He advises attorneys and law firms on legal 1970 professional and ethics issues, law firm creation, merger and dissolution, risk Barrister and Solicitor (non- management and loss control. practising) in England and Wales Professional Background Admissions Mr. Davis is a Lecturer-in-Law at the Columbia University School of Law, Colorado teaching "Professional Responsibility Issues in Business Practice." As an Adjunct Professor of Law, Mr. Davis taught "Legal Profession" at Brooklyn Law New York School for many years. U.S. Court of Appeals for the Fourth Circuit Professional Affiliations U.S. Court of Appeals for the Second Circuit ● Association of Professional Responsibility Lawyers (APRL), Past President U.S. Court of Appeals for the ● New York City Bar, Professional Ethics Committee, Member Tenth Circuit ● College of Law Practice Management, Fellow U.S. Court of International ● American Law Institute, Member Trade ● American Bar Foundation, Life Fellow U.S. District Court for the District of Colorado U.S. District Court for the Honors & Awards Eastern District of New York

● Named a "Lawyer of the Year" in the Ethics and Professional Responsibility U.S. District Court for the Law category for New York by Best Lawyers, September 2012 Southern District of New York ● Included in "The Best Lawyers in America®” in the area of Ethics and Professional Responsibility Law (2011–Present)

Presentations Mr. Davis is popular lecturer and panelist, drawing on his many years of teaching experience when speaking to bar associations and law firms throughout the United States on all aspects of professional responsibility, the law as it affects lawyers, law practice and risk management.

www.hinshawlaw.com

©2014 Hinshaw & Culbertson LLP Publications Mr. Davis is the co-author of "Risk Management: Survival Tools for Law Firms, 2nd Edition," and of "The Essential Formbook: Comprehensive Practice Management Tools for Lawyers," both published by the American Bar Association. In addition to his books, he has written and lectured widely on a variety of legal profession and ethics issues, including a regular bi-monthly column on professional responsibility in the New York Law Journal.

www.hinshawlaw.com Page 2

Sarah Green Harvard Business Review February 18, 2014

Millennials have a reputation for being the most plugged-in generation in the workplace. Experts have even suggested “reverse mentoring” so that younger workers can inculcate their “tech- savvy” habits in older generations. But a new survey from Softchoice shows that those may actually be bad habits when it comes to keeping data secure.

For instance, 28.5% of twenty-somethings keep their passwords in plain sight, compared with just 10.8% of Baby Boomers. They’re also significantly more likely to store work passwords on a shared drive or word document that isn’t itself password-protected, and more likely than older workers to forget their passwords.

And it gets worse! They’re more likely to email work documents to their personal accounts, move documents via cloud apps that IT doesn’t know they have, and lose devices that would give whoever found them unrestricted access to company data. Basically, in every way that Softchoice measured, the youngest workers were the most likely to lose data or leave themselves open to hacking.

But – here’s the kicker — they’re also the most informed about the risks. Younger workers were also the most likely to say that their company has a clear policy on the downloading of cloud apps; that their IT departments have communicated about the risks of cloud apps; and that their workplace has a clear policy on how to protect information.

So what’s going on?

In part, it’s just that this generation’s well-documented impatience. Which, as an older Millennial myself, I would rebrand as “efficiency.” We just see a bigger payoff in having the data we need when we need it. For instance, the primary reason Millennials cited for not seeking company approval before downloading a new cloud app was that the IT department simply takes too long.

The same logic drives their emailing of sensitive documents to themselves – more than other generations, they said they had to transfer work files to their personal computers, otherwise they couldn’t access the information they needed from home. And unlike older generations, twenty- somethings are more willing to work from home as long as they have the data they need to do so. This goes back to what young entrepreneurs in Silicon Valley call “the merge” – rather than juggling “work” and “life,” the two fuse into a seamless whole. And our tech habits follow suit: we’re much more likely to use the same apps for both work and personal reasons.

But there’s something else happening here, too — and it shows up in some of the other segments in the Softchoice survey. Workers (regardless of age) who use cloud-based apps are also less rigorous about keeping company data safe than those who don’t. And sorted by function, IT itself is among the worst offenders in violating their own data-security protocols, neck and neck with Finance:

Taken together, these patterns suggest that the people who use write down their passwords, email documents to themselves, and store company documents in the cloud are those who simply use technology the most — and the ones who need or want to access their work from multiple locations. (A different survey, which ranked employees by level of seniority as opposed to age, found that senior leaders were worse than lower-ranking managers when it came to data security. I’m willing to bet it’s the same logic; the more you work away from the office, the more likely you are to violate your IT department’s policy–and justify the increased risk to company data by your own increased productivity).

And it’s not in this survey, but I suspect Millennials and IT workers just have a different take on the ROI of spending time on data security. When major data breaches and password hacks are announced regularly by major corporations, when the NSA is listening in on your phone calls, when Julian Assange and Edward Snowden are leaking secret government documents, and when absolutely everyone, from your dentist to your hairdresser, asks for your Social Security number – does it really matter if your password is taped to your screen?

Or do you just assume that if the hackers want to get you, they will?

Note: the Softchoice survey also measured workers over the age of 65 and HR professionals, but the sample sizes for those segments were quite small so I’ve excluded those data sets here.

3 How to protect yourself from spear phishing - protect yourself against identity theft and you are also protecting the Firm. Top ten tips.

Steven M. Puiszis Hinshaw & Culbertson LLP March 26, 2014

One of the internet risks we all encounter is spoofed of phony emails. Hackers recently also began creating phony messages from commonly used social media sites such as LinkedIn, Facebook etc. While some of these are easy to recognize, hackers are improving the efforts all the time. Clicking on a phony email or falling prey to a phishing scam will allow a hacker to gain entry into your mobile device and/or potentially your home or work computer. So we all need to be careful before we click on an email, or any type of internet message or a link or a photo in a message. There are some techniques you can use to prevent from becoming a victim of identity theft. Return Path is a provider of email intelligence solutions and below are their top 10 tips to prevent from falling prey to a phishing scheme. By learning and applying these tips, you will be protecting yourself and the Firm in the process:

1. Hover over From Column

Probably the easiest way to identify if an email is legitimate or not, is to simply hover your mouse arrow over the name in the From column. By doing so, you will be able to tell if the email is from a recognizable domain that is linked to the actual sender name. For example, an email from Match.com should typically have the from domain of “match.com” (not “motch.com” or “humbletemper.com”).

2. Are the URLs legitimate?

Continuing on with the theme of hovering over certain parts of the email, another place to check would be any URLs the email is trying to get you to visit. You will always want to make sure the link is legitimate and uses encryption (https://). However, in order to be extra cautious, it is best practice to always open a new window and go to the site directly without using the email link provided in an email. 3. Incorrect grammar/spelling

A common practice of many hackers is to use misspelled words on purpose. While it may seem that this would easily reveal an illegitimate email, it is actually a tactic used to find less savvy users. Spammers have learned that if they get a response from a poorly written email, they are on to an easy target and will focus their efforts to bring that user down.

4. Plain text/Absence of logos

Most legitimate messages will be written with HTML and will be a mix of text and images. A poorly constructed phishing email may show an absence of images, including the lack of the company’s logo. If the email is all plain text and looks different than what you’re used to seeing from that sender, it is best to go with your gut feeling and ignore the message.

5. Message body is an image

This is a common practice of many spammers. Make sure the email is a good mix of text and images. Also, there may be embedded links for you to hover over within the image for an extra step of precaution.

6. IP Reputation

If you can easily identify the sending IP of that email, http://www.whatismyip.com/how- to/?ref=301 you can look up the IP’s reputation through Return Path’s Sender Score site, https://www.senderscore.org/ . This tool will reveal a score (0-100) and will be able to give you some insight into the sending IPs historical performance. The lower the score, the more likely the email is a phishing or spoofing attempt.

7. Request for personal information

One tactic that is commonly used by hackers is to alert you that you must provide and/or update your personal information about an account (e.g., Social Security number, bank account details, account password). Phishers will use this tactic to drive urgency for someone to click on a malicious URL or download an attachment aiming to infect the user’s computer or steal their information.

8. Suspicious attachments

Is this new email in your inbox the first time your bank has sent you an attachment? The majority of financial institutions or retailers will not send out attachments via email, so be careful about opening any from senders or messages that seem suspicious. High risk attachments file types that should not be clicked on include: .exe, .scr, .zip, .com, .bat.

9. Urgent/Too good to be true

If an email seems too good to be true, it most likely is. Be cautious with any message offering to place money into your bank account by simply “clicking here”. Also, if the content places any

2 kind of urgency as far as “you must click into your account now”, it is most likely a scam and should be marked as “junk”.

10. Is my email address listed as the From address?

If you notice that your email address is being identified as the From address, this is a sign of a fake email message. Along those same lines, if the To field shows a large list of recipients, you should also be cautious. Legitimate emails will most likely be sent directly to you and you only. You may see “undisclosed recipients” and this is something to keep an eye on as well. It could be a valid send, but double check by using the other tips identified above.

A hat tip to Lauren Soares of Return Path for these tips.

3 This USB Drive Can Nuke A Computer

Matt Burns (@mjburnsy) Posted Mar 12, 2015 Techcrunch.com

Do not ever use a random USB flash drive. There are plenty of software exploits that can ruin your computer or life. And with this flash drive, it can physically destroy your computer by blasting a load of voltage to the USB controller with negative voltage. Think Wile E. Coyote and an ACME Human Cannon. BOOM!

The basic idea of the USB drive is quite simple. When we connect it up to the USB port, an inverting DC/DC converter runs and charges capacitors to -110V. When the voltage is reached, the DC/DC is switched off. At the same time, the filed transistor opens. It is used to apply the - 110V to signal lines of the USB interface. When the voltage on capacitors increases to -7V, the transistor closes and the DC/DC starts. The loop runs till everything possible is broken down. Those familiar with the electronics have already guessed why we use negative voltage here. I‘ll explain to others that negative voltage is easier to commutate, as we need the N-channel field resistor, which, unlike the P-channel one, can have larger current for the same dimensions.

Put simply, the bits inside the USB drive draws and stores a ton of power. When a certain level is hit, it returns the power to the source, which is either a dedicated USB controller or the CPU itself. This is bad news bears. The amount of power returned overloads the circuits, rendering it useless. Since a lot of USB controllers are built directly into the main processor… bye bye computer.

Scary. Thankfully the creator hasn’t released the schematic for the drive.

There are enough USB exploits floating around to warrant caution. Some will unknowingly install malware or backdoor software, and now, there is at least one, that will actually destroy your computer. It’s straight out of Colin Farrell spy movie and a fantastic argument for Apple’s vision of the future. New York County Lawyers Association Professional Ethics Committee Formal Opinion 748 March 10, 2015 TOPIC: The ethical implications of attorney profiles on LinkedIn DIGEST: Attorneys may maintain profiles on LinkedIn, containing information such as education, work history, areas of practice, skills, and recommendations written by other LinkedIn users. A LinkedIn profile that contains only one’s education and current and past employment does not constitute Attorney Advertising. If an attorney includes additional information in his or her profile, such as a description of areas of practice or certain skills or endorsements, the profile may be considered Attorney Advertising, and should contain the disclaimers set forth in Rule 7.1. Categorizing certain information under the heading “Skills” or “Endorsements” does not, however, constitute a claim to be a “Specialist” under Rule 7.4, and is accordingly not barred, provided that the information is truthful and accurate. Attorneys must ensure that all information in their LinkedIn profiles is truthful and not misleading, including endorsements and recommendations written by other LinkedIn users. If an attorney believes an endorsement or recommendation is not accurate, the attorney should exclude it from his or her profile. New York lawyers should periodically monitor and review the content of their LinkedIn profiles for accuracy. RULES OF PROFESSIONAL CONDUCT: 7.1 and 7.4 OPINION LinkedIn, the business-oriented social networking service, has grown in popularity in recent years, and is now commonly used by lawyers. The site provides a platform for users to create a profile containing background information, such as work history and education, and links to other users they may know based on their experience or connections. Lawyers may use the site in several ways, including to communicate with acquaintances, to locate someone with a particular skill or background—such as a law school classmate who practices in a certain jurisdiction for assistance on a matter—or to keep up-to-date on colleagues’ professional activities and job changes. The site also allows users and their connections to list certain skills, interests, and accomplishments, creating a profile similar to a resume or law firm biography. Users can list their own experience, education, skills, and interests, including descriptions of their practice areas and prior matters. Other users may also “endorse” a lawyer for certain skills—such as litigation or matrimonial law—as well as write a recommendation as to the user’s professional skills. 1

1 This opinion addresses the fields, headings, and protocols of LinkedIn as they exist on the date of this opinion. The committee cannot anticipate changes or additions to this or other social networking sites, and limits this analysis to the site as of the date of this opinion. This opinion addresses the ethical implications of LinkedIn profiles: specifically, whether a LinkedIn Profile is considered “Attorney Advertising,” when it is appropriate for an attorney to accept endorsements and recommendations, and what information attorneys should include (and exclude) from their LinkedIn profiles to ensure compliance with the New York Rules of Professional Conduct.2 *** LinkedIn allows a user to provide objective, biographical information such as one’s “Education” and “Experience,” as well as subjective information, such as “Skills,” “Endorsements,” and “Recommendations.” LinkedIn users can control the fields they choose to populate. Some users may only list education and work experience, while other users may include more extensive information, such as skills, endorsements, and recommendations. Furthermore, the information in one’s profile visible to others may vary depending on the whether the viewer located the profile through an external search engine such as Google, whether the viewer is logged in to LinkedIn on the computer being used, or whether the viewer is “connected” on LinkedIn to the person whose profile he or she is viewing. In light of the varied information an attorney may provide on his or her profile, and which information is visible to online users, the use of LinkedIn raises concerns about what aspects of an attorney’s profile constitute “Attorney Advertising,” which is subject to specific ethical rules, and what aspects do not. The New York Rules of Professional Conduct define attorney advertising as “communications made in any form about the lawyer or the law firm’s services, the primary purpose of which is retention of the lawyer or law firm for pecuniary gain as a result of the communication. RPC 7.1. The rules further delineate what information an attorney may include in an advertisement—such as education, past experience, fee arrangements, testimonials or endorsements (NYRPC 7.1(b), (d))—and what information an attorney may not include in an advertisement— such as undisclosed paid endorsements or certain trade names. RPC 7.1(c). Online advertisements must be labeled “Attorney Advertising” “on the first page, or on the home page in the case of a website” (Id. at 7.1(f)) and any advertisement containing statements about the lawyer’s services, testimonials, or endorsements must include the disclaimer “[p]rior results do not guarantee a similar outcome.” Id. at 7.1(e)(3). The comments to the rules make clear that “[n]ot all communications made by lawyers about the lawyer or the law firm’s services are advertising” as the advertising rules do not encompass communications with current clients or former clients germane to the client’s earlier representation. RPC 7.1, Cmt. [6]. Likewise, communications to “other lawyers . . . are excluded from the special rules governing lawyer advertising even if their purpose is the retention of the lawyer or law firm.” Id. Cmt. [7].

2 This opinion is limited to the committee’s analysis of the New York Rules of Professional Conduct. Attorneys should be aware that other jurisdictions may have different ethical rules, and should consult those rules where appropriate. 2

Applying these rules to LinkedIn profiles, it is the opinion of this Committee that a LinkedIn profile that contains only biographical information, such as a lawyer’s education and work history, does not constitute an attorney advertisement. An attorney with certain experience such as a Supreme Court clerkship or government service may attract clients simply because the experience is impressive, or knowledge gained during that position may be useful for a particular matter. As the comments to the New York Rules of Professional Conduct make clear, however, not all communications, including communications that may have the ultimate purpose of attracting clients, constitute attorney advertising. Thus, the Committee concludes that a LinkedIn profile containing only one’s education and a list of one’s current and past employment falls within this exclusion and does not constitute attorney advertising.3 The additional information that LinkedIn allows users to provide beyond one’s education and work history, however, implicates more complicated ethical considerations. First, do LinkedIn fields such as “Skills” and “Endorsements” constitute a claim that the attorney is a specialist, which is ethically permissible only where the attorney has certain certifications set forth in RPC 7.4? Second, even if certain statements do not constitute a claim that the attorney is a specialist, do such statements nonetheless constitute attorney advertising, which may require the disclaimers set forth in RPC 7.1? a. Specialization New York Rule of Professional Conduct 7.4 prohibits an attorney from identifying herself as a “specialist” or “specializ[ing] in a particular field of law” unless the attorney has been certified by an appropriate organization or jurisdiction. RPC 7.4(a)–(c). The New York State Bar Association (NYSBA), interpreting the New York Rules of Professional Conduct, concluded in a 2013 opinion that “a lawyer or law firm listed on a social media site may . . . identify one or more areas of law practice [but] to list those areas under a heading of ‘Specialties’ would constitute a claim that the lawyer or law firm ‘is a specialist or specializes in a particular filed of law,’” and would likely run afoul of Rule 7.4, unless the attorney’s certifications meet the requirements of that Rule. See NYSBA Ethics Opinion 972 (June 26, 2013). While NYSBA has addressed the ethical implications of the heading “Specialties,” the applicability of these guidelines to LinkedIn fields such as “Skills,” “Endorsements,” and “Recommendations” has not been previously addressed in New York. Further complicating this question is the fact that LinkedIn profile headings are not chosen by users. The LinkedIn website provides certain default fields, from which users can choose to add to their profiles. NYSBA advises users who are concerned about these headings to consider avoiding them entirely, by “includ[ing] information about the lawyer’s experience elsewhere, such as under another heading or in an untitled field that permits biographical information to be included.” Social Media Ethics Guidelines of the

3 Of course, as with all statements made by an attorney, either to a client, an adversary, or a judge, the biographical information must be truthful and not misleading. See RPC 7.1, Cmt. [6]. 3

Commercial Federal Litigation Section of the New York State Bar Association at 4 (Mar. 18, 2014) available at http://www.nysba.org/workarea/DownloadAsset.aspx?id=47547. With respect to skills or practice areas on lawyers’ profiles under a heading, such as “Experience” or “Skills,” this Committee is of the opinion that such information does not constitute a claim to be a specialist under Rule 7.4. The rule contemplates advertising regarding an attorney’s practice areas, noting that an attorney may “publicly identify one or more areas of law in which the lawyer or law firm practices, or may state that the practice of the lawyer or law firm is limited to one or more areas of law, provided that the lawyer or law firm shall not state that the lawyer or law firm is a specialist or specializes in a particular field of law, except as provided in Rule 7.4(c).” RPC 7.4(a). This provision contemplates the distinction between claims that an attorney has certain experience or skills and an attorney’s claim to be a “specialist” under Rule 7.4. Categorizing one’s practice areas or experience under a heading such as “Skills” or “Experience” therefore, does not run afoul of RPC 7.4, provided that the word “specialist” is not used or endorsed by the attorney, directly or indirectly. Attorneys should periodically monitor their LinkedIn pages at reasonable intervals to ensure that others are not endorsing them as specialists. b. Endorsements and Recommendations Endorsements and recommendations written by other LinkedIn users raise additional ethical considerations. While these endorsements and recommendations originate from other users, they nonetheless appear on the attorney’s LinkedIn profile. The ethical treatment of endorsements and recommendations depends on who is considered to “own” the endorsement and recommendation: the author of the endorsement or recommendation or the person whose profile is enhanced by it. Because LinkedIn gives users control over the entire content of their profiles, including “Endorsements” and “Recommendations” by other users (by allowing an attorney to accept or reject an endorsement or recommendation), we conclude that attorneys are responsible for periodically monitoring the content of their LinkedIn pages at reasonable intervals. To that end, endorsements and recommendations must be truthful, not misleading, and based on actual knowledge pursuant to Rule 7.1. For example, if a distant acquaintance endorses a matrimonial lawyer for international transactional law, and the attorney has no actual experience in that area, the attorney should remove the endorsement from his or her profile within a reasonable period of time, once the attorney becomes aware of the inaccurate posting. If a colleague or former client, however, endorses that attorney for matrimonial law, a field in which the attorney has actual experience, the endorsement would not be considered misleading. The Pennsylvania Bar Association, interpreting the Pennsylvania Rules of Professional Conduct, reached a similar conclusion in a 2014 opinion, emphasizing that an attorney must “monitor his or her social networking websites, [] verify the accuracy of any information posted, [and] remove or correct any inaccurate endorsements. . . . This obligation exists regardless of whether the information was posted by the attorney, by a client, or by a third party.”

Pennsylvania Bar Association Formal Op. 2014-300, “Ethical Obligations for Attorneys Using Social Media,” at 12. While we do not believe that attorneys are ethically obligated to review, monitor and revise their LinkedIn sites on a daily or even a weekly basis, there is a duty to review social networking sites and confirm their accuracy periodically, at reasonable intervals. c. LinkedIn Profiles as “Attorney Advertising” and Appropriate Disclaimers Finally, if an attorney chooses to include information such as practice areas, skills, endorsements, or recommendations, the attorney must treat his or her LinkedIn profile as attorney advertising and include appropriate disclaimers pursuant to Rule 7.1. As discussed above, not all communications are advertising, and a LinkedIn profile containing nothing more than biographical information would not ordinarily be considered an advertisement. But a LinkedIn profile that includes subjective statements regarding an attorney’s skills, areas of practice, endorsements, or testimonials from clients or colleagues is likely to be considered advertising. Attorneys who wish to include this information should review Rule 7.1 to determine the appropriate language to include in their profiles. While the Committee declines to provide guidelines for all potential profile content, the Committee provides the following recommendations for attorneys’ consideration and directs attorneys to review Rule 7.1 before creating or significantly amending their LinkedIn profiles. If an attorney’s LinkedIn profile includes a detailed description of practice areas and types of work done in prior employment, the user should include the words “Attorney Advertising” on the lawyer’s LinkedIn profile. See RPC 7.1(f). If an attorney also includes (1) statements that are reasonably likely to create an expectation about results the lawyer can achieve; (2) statements that compare the lawyer’s services with the services of other lawyers; (3) testimonials or endorsements of clients; or (4) statements describing or characterizing the quality of the lawyer’s or law firm’s services, the attorney should also include the disclaimer “Prior results do not guarantee a similar outcome.” See RPC 7.1(d) and (e). Because the rules contemplate “testimonials or endorsements,” attorneys who allow “Endorsements” from other users and “Recommendations” to appear on one’s profile fall within Rule 7.1(d), and therefore must include the disclaimer set forth in Rule 7.1(e). An attorney who claims to have certain skills must also include this disclaimer because a description of one’s skills—even where those skills are chosen from fields created by LinkedIn—constitutes a statement “characterizing the quality of the lawyer’s [] services” under Rule 7.1(d). Conclusion Attorneys may maintain profiles on LinkedIn, containing information such as education, work history, areas of practice, skills, and recommendations written by other LinkedIn users. A LinkedIn profile that contains only one’s education and current and past employment does not constitute Attorney Advertising. If an attorney includes additional information in his or her profile, such as a description of areas of practice or certain skills 5

or endorsements, the profile may be considered Attorney Advertising and should contain the disclaimers set forth in Rule 7.1. Categorizing certain information under the heading “Skills” or “Endorsements” does not, however, constitute a claim to be a “Specialist” under Rule 7.4, and is accordingly not barred, provided that the information is truthful and accurate. Attorneys must ensure that all information in their LinkedIn profiles, including endorsements and recommendations written by other LinkedIn users, is truthful and not misleading. If an attorney believes an endorsement or recommendation is not accurate, the attorney should exclude it from his or her profile. New York lawyers should periodically monitor and review the content of their LinkedIn profiles for accuracy.

FORMAL OPINION 2014-300

ETHICAL OBLIGATIONS FOR ATTORNEYS USING SOCIAL MEDIA

I. Introduction and Summary

“Social media” or “social networking” websites permit users to join online communities where they can share information, ideas, messages, and other content using words, photographs, videos and other methods of communication. There are thousands of these websites, which vary in form and content. Most of these sites, such as Facebook, LinkedIn, and Twitter, are designed to permit users to share information about their personal and professional activities and interests. As of January 2014, an estimated 74 percent of adults age 18 and over use these sites.1

Attorneys and clients use these websites for both business and personal reasons, and their use raises ethical concerns, both in how attorneys use the sites and in the advice attorneys provide to clients who use them. The Rules of Professional Conduct apply to all of these uses.

The issues raised by the use of social networking websites are highly fact-specific, although certain general principles apply. This Opinion reiterates the guidance provided in several previous ethics opinions in this developing area and provides a broad overview of the ethical concerns raised by social media, including the following:

1. Whether attorneys may advise clients about the content of the clients’ social networking websites, including removing or adding information. 2. Whether attorneys may connect with a client or former client on a social networking website. 3. Whether attorneys may contact a represented person through a social networking website. 4. Whether attorneys may contact an unrepresented person through a social networking website, or use a pretextual basis for viewing information on a social networking site that would otherwise be private/unavailable to the public. 5. Whether attorneys may use information on a social networking website in client-related matters. 6. Whether a client who asks to write a review of an attorney, or who writes a review of an attorney, has caused the attorney to violate any Rule of Professional Conduct. 7. Whether attorneys may comment on or respond to reviews or endorsements. 8. Whether attorneys may endorse other attorneys on a social networking website. 9. Whether attorneys may review a juror’s Internet presence.

1 http://www.pewinternet.org/fact-sheets/social-networking-fact-sheet/

10. Whether attorneys may connect with judges on social networking websites.

This Committee concludes that:

1. Attorneys may advise clients about the content of their social networking websites, including the removal or addition of information. 2. Attorneys may connect with clients and former clients. 3. Attorneys may not contact a represented person through social networking websites. 4. Although attorneys may contact an unrepresented person through social networking websites, they may not use a pretextual basis for viewing otherwise private information on social networking websites. 5. Attorneys may use information on social networking websites in a dispute. 6. Attorneys may accept client reviews but must monitor those reviews for accuracy. 7. Attorneys may generally comment or respond to reviews or endorsements, and may solicit such endorsements. 8. Attorneys may generally endorse other attorneys on social networking websites. 9. Attorneys may review a juror’s Internet presence. 10. Attorneys may connect with judges on social networking websites provided the purpose is not to influence the judge in carrying out his or her official duties.

This Opinion addresses social media profiles and websites used by lawyers for business purposes, but does not address the issues relating to attorney advertising and marketing on social networking websites. While a social media profile that is used exclusively for personal purposes (i.e., to maintain relationships with friends and family) may not be subject to the Rules of Professional Conduct relating to advertising and soliciting, the Committee emphasizes that attorneys should be conscious that clients and others may discover those websites, and that information contained on those websites is likely to be subject to the Rules of Professional Conduct. Any social media activities or websites that promote, mention or otherwise bring attention to any law firm or to an attorney in his or her role as an attorney are subject to and must comply with the Rules.

II. Background

A social networking website provides a virtual community for people to share their daily activities with family, friends and the public, to share their interest in a particular topic, or to increase their circle of acquaintances. There are dating sites, friendship sites, sites with business purposes, and hybrids that offer numerous combinations of these characteristics. Facebook is currently the leading personal site, and LinkedIn is currently the leading business site. Other social networking sites include, but are not limited to, Twitter, Myspace, Google+, Instagram, AVVO, Vine, YouTube, Pinterest, BlogSpot, and Foursquare. On these sites, members create their own online “profiles,” which may include biographical data, pictures and any other information they choose to post.

Members of social networking websites often communicate with each other by making their latest thoughts public in a blog-like format or via e-mail, instant messaging, photographs, videos, voice or videoconferencing to selected members or to the public at large. These services permit members to locate and invite other members into their personal networks (to “friend” them) as well as to invite friends of friends or others.

Social networking websites have varying levels of privacy settings. Some sites allow users to restrict who may see what types of content, or to limit different information to certain defined groups, such as the “public,” “friends,” and “others.” For example, on Facebook, a user may make all posts available only to friends who have requested access. A less restrictive privacy setting allows “friends of friends” to see content posted by a specific user. A still more publicly-accessible setting allows anyone with an account to view all of a person’s posts and other items.

These are just a few of the main features of social networking websites. This Opinion does not address every feature of every social networking website, which change frequently. Instead, this Opinion gives a broad overview of the main ethical issues that lawyers may face when using social media and when advising clients who use social media.

III. Discussion

A. Pennsylvania Rules of Professional Conduct: Mandatory and Prohibited Conduct

Each of the issues raised in this Opinion implicates various Rules of Professional Conduct that affect an attorney’s responsibilities towards clients, potential clients, and other parties. Although no Pennsylvania Rule of Professional Conduct specifically addresses social networking websites, this Committee’s conclusions are based upon the existing rules. The Rules implicated by these issues include:

 Rule 1.1 (“Competence”)  Rule 1.6 (“Confidentiality of Information”)  Rule 3.3 (“Candor Toward the Tribunal”)  Rule 3.4 (“Fairness to Opposing Party and Counsel”)  Rule 3.5 (“Impartiality and Decorum of the Tribunal”)  Rule 3.6 (“Trial Publicity”)  Rule 4.1 (“Truthfulness in Statements to Others”)  Rule 4.2 (“Communication with Person Represented by Counsel”)  Rule 4.3 (“Dealing with Unrepresented Person”)  Rule 8.2 (“Statements Concerning Judges and Other Adjudicatory Officers”)  Rule 8.4 (“Misconduct”)

The Rules define the requirements and limitations on an attorney’s conduct that may subject the attorney to disciplinary sanctions. While the Comments may assist an attorney in understanding or arguing the intention of the Rules, they are not enforceable in disciplinary proceedings.

B. General Rules for Attorneys Using Social Media and Advising Clients About Social Media

Lawyers must be aware of how these websites operate and the issues they raise in order to represent clients whose matters may be impacted by content posted on social media websites. Lawyers should also understand the manner in which postings are either public or private. A few Rules of

Professional Conduct are particularly important in this context and can be generally applied throughout this Opinion.

Rule 1.1 provides:

A lawyer shall provide competent representation to a client. Competent representation requires the legal knowledge, skill, thoroughness and preparation reasonably necessary for the representation.

As a general rule, in order to provide competent representation under Rule 1.1, a lawyer should advise clients about the content of their social media accounts, including privacy issues, as well as their clients’ obligation to preserve information that may be relevant to their legal disputes.

Comment [8] to Rule 1.1 further explains that, “To maintain the requisite knowledge and skill, a lawyer should keep abreast of changes in the law and its practice, including the benefits and risks associated with relevant technology….” Thus, in order to provide competent representation in accordance with Rule 1.1, a lawyer should (1) have a basic knowledge of how social media websites work, and (2) advise clients about the issues that may arise as a result of their use of these websites.

Another Rule applicable in almost every context, and particularly relevant when social media is involved, is Rule 8.4 (“Misconduct”), which states in relevant part:

It is professional misconduct for a lawyer to: … (c) engage in conduct involving dishonesty, fraud, deceit or misrepresentation;

This Rule prohibits “dishonesty, fraud, deceit or misrepresentation.” Social networking easily lends itself to dishonesty and misrepresentation because of how simple it is to create a false profile or to post information that is either inaccurate or exaggerated. This Opinion frequently refers to Rule 8.4, because its basic premise permeates much of the discussion surrounding a lawyer’s ethical use of social media.

C. Advising Clients on the Content of their Social Media Accounts

As the use of social media expands, so does its place in legal disputes. This is based on the fact that many clients seeking legal advice have at least one account on a social networking site. While an attorney is not responsible for the information posted by a client on the client’s social media profile, an attorney may and often should advise a client about the content on the client’s profile.

Against this background, this Opinion now addresses the series of questions raised above.

1. Attorneys May, Subject to Certain Limitations, Advise Clients About The Content Of Their Social Networking Websites

Tracking a client’s activity on social media may be appropriate for an attorney to remain informed about developments bearing on the client’s legal dispute. An attorney can reasonably expect that opposing counsel will monitor a client’s social media account.

For example, in a Miami, Florida case, a man received an $80,000.00 confidential settlement payment for his age discrimination claim against his former employer.2 However, he forfeited that settlement after his daughter posted on her Facebook page “Mama and Papa Snay won the case against Gulliver. Gulliver is now officially paying for my vacation to Europe this summer. SUCK IT.” The Facebook post violated the confidentiality agreement in the settlement and, therefore, cost the Plaintiff $80,000.00.

The Virginia State Bar Disciplinary Board3 suspended an attorney for five years for (1) instructing his client to delete certain damaging photographs from his Facebook account, (2) withholding the photographs from opposing counsel, and (3) withholding from the trial court the emails discussing the plan to delete the information from the client’s Facebook page. The Virginia State Bar Disciplinary Board based the suspension upon the attorney’s violations of Virginia’s rules on candor toward the tribunal, fairness to opposing counsel, and misconduct. In addition, the trial court imposed $722,000 in sanctions ($542,000 upon the lawyer and $180,000 upon his client) to compensate opposing counsel for their legal fees.4

While these may appear to be extreme cases, they are indicative of the activity that occur involving social media. As a result, lawyers should be certain that their clients are aware of the ramifications of their social media actions. Lawyers should also be aware of the consequences of their own actions and instructions when dealing with a client’s social media account.

Three Rules of Professional Conduct are particularly important when addressing a lawyer’s duties relating to a client’s use of social media.

Rule 3.3 states:

(a) A lawyer shall not knowingly: (1) make a false statement of material fact or law to a tribunal or fail to correct a false statement of material fact or law previously made to the tribunal by the lawyer; … (3) offer evidence that the lawyer knows to be false. If a lawyer, the lawyer’s client, or a witness called by the lawyer, has offered material evidence before a tribunal or in an ancillary proceeding conducted pursuant to a tribunal’s adjudicative authority, such as a deposition, and the lawyer comes to know of its falsity, the lawyer shall take reasonable remedial measures, including, if necessary, disclosure to the tribunal. A lawyer may refuse to offer evidence, other than the testimony of a defendant in a criminal matter, that the lawyer reasonably believes is false. (b) A lawyer who represents a client in an adjudicative proceeding and who knows that a person intends to engage, is engaging or has engaged in criminal

2 “Girl costs father $80,000 with ‘SUCK IT’ Facebook Post, March 4, 2014: http://www.cnn.com/2014/03/02/us/facebook-post-costs-father/ 3 In the Matter of Matthew B. Murray, VSB Nos. 11-070-088405 and 11-070-088422 (June 9, 2013) 4 Lester v. Allied Concrete Co., Nos. CL08-150 and CL09-223 (Charlotte, VA Circuit Court, October 21, 2011)

or fraudulent conduct related to the proceeding shall take reasonable remedial measures, including, if necessary, disclosure to the tribunal. (c) The duties stated in paragraphs (a) and (b) continue to the conclusion of the proceeding, and apply even if compliance requires disclosure of information otherwise protected by Rule 1.6.

Rule 3.4 states:

A lawyer shall not:

(a) unlawfully obstruct another party’s access to evidence or unlawfully alter, destroy or conceal a document or other material having potential evidentiary value or assist another person to do any such act;

Rule 4.1 states:

In the course of representing a client a lawyer shall not knowingly: (a) make a false statement of material fact or law to a third person; or (b) fail to disclose a material fact to a third person when disclosure is necessary to avoid aiding and abetting a criminal or fraudulent act by a client, unless disclosure is prohibited by Rule 1.6.

The Rules do not prohibit an attorney from advising clients about their social networking websites. In fact, and to the contrary, a competent lawyer should advise clients about the content that they post publicly online and how it can affect a case or other legal dispute.

The Philadelphia Bar Association Professional Guidance Committee issued Opinion 2014-5, concluding that a lawyer may advise a client to change the privacy settings on the client’s social media page but may not instruct a client to destroy any relevant content on the page. Additionally, a lawyer must respond to a discovery request with any relevant social media content posted by the client. The Committee found that changing a client’s profile to “private” simply restricts access to the content of the page but does not completely prevent the opposing party from accessing the information. This Committee agrees with and adopts the guidance provided in the Philadelphia Bar Association Opinion.

The Philadelphia Committee also cited the Commercial and Federal Litigation Section of the New York State Bar Association and its “Social Media Guidelines,” which concluded that a lawyer may advise a client about the content of the client’s social media page, to wit:

 A lawyer may advise a client as to what content may be maintained or made private on her social media account, as well as to what content may be “taken down” or removed, whether posted by the client or someone else, as long as there is no violation of common law or any statute, rule, or regulation relating to the preservation of information.  Unless an appropriate record of the social media information or data is preserved, a party or nonparty may not delete information from a social media profile that is subject

to a duty to preserve. This duty arises when the potential for litigation or other conflicts arises 5

In 2014 Formal Ethics Opinion 5, the North Carolina State Bar concluded that a lawyer may advise a client to remove information on social media if not spoliation or otherwise illegal.6

This Committee agrees with and adopts these recommendations, which are consistent with Rule 3.4(a)’s prohibition against “unlawfully alter[ing], destroy[ing] or conceal[ing] a document or other material having potential evidentiary value.” Thus, a lawyer may not instruct a client to alter, destroy, or conceal any relevant information, regardless whether that information is in paper or digital form. A lawyer may, however, instruct a client to delete information that may be damaging from the client’s page, provided the conduct does not constitute spoliation or is otherwise illegal, but must take appropriate action to preserve the information in the event it is discoverable or becomes relevant to the client’s matter.

Similarly, an attorney may not advise a client to post false or misleading information on a social networking website; nor may an attorney offer evidence from a social networking website that the attorney knows is false. Rule 4.1(a) prohibits an attorney from making “a false statement of material fact or law.” If an attorney knows that information on a social networking site is false, the attorney may not present that as truthful information. It has become common practice for lawyers to advise clients to refrain from posting any information relevant to a case on any website, and to refrain from using these websites until the case concludes.

2. Attorneys May Ethically Connect with Clients or Former Clients on Social Media

Social media provides many opportunities for attorneys to contact and connect with clients and other relevant persons. While the mode of communication has changed, the Rules that generally address an attorney’s communications with others still apply.

There is no per se prohibition on an attorney connecting with a client or former client on social media. However, an attorney must continue to adhere to the Rules and maintain a professional relationship with clients. If an attorney connects with clients or former clients on social networking sites, the attorney should be aware that his posts may be viewed by clients and former clients.

Although this Committee does not recommend doing so, if an attorney uses social media to communicate with a client relating to representation of the client, the attorney should retain records of those communications containing legal advice. As outlined below, an attorney must not reveal confidential client information on social media. While the Rules do not prohibit connecting with clients on social media, social media may not be the best platform to connect with clients, particularly in light of the difficulties that often occur when individuals attempt to adjust their privacy settings.

5 Social Media Ethics Guidelines, The Commercial and Federal Litigation Section of the New York State Bar Association, March 18, 2014 at 11 (footnote omitted). 6 http://www.ncbar.com/ethics/printopinion.asp?id=894

3. Attorneys May Not Ethically Contact a Represented Person Through a Social Networking Website

Attorneys may also use social media to contact relevant persons in a conflict, but within limitations. As a general rule, if contacting a party using other forms of communication would be prohibited,7 it would also be prohibited while using social networking websites.

Rule 4.2 states:

In representing a client, a lawyer shall not communicate about the subject of the representation with a person the lawyer knows to be represented by another lawyer in the matter, unless the lawyer has the consent of the other lawyer or is authorized to do so by law or a court order.

Regardless of the method of communication, Rule 4.2 clearly states that an attorney may not communicate with a represented party without the permission of that party’s lawyer. Social networking websites increase the number of ways to connect with another person but the essence of that connection is still a communication. Contacting a represented party on social media, even without any pretext, is limited by the Rules.

The Philadelphia Bar Association Professional Guidance Committee concluded in Opinion 2009- 02,8 that an attorney may not use an intermediary to access a witness’ social media profiles. The inquirer sought access to a witness’ social media account for impeachment purposes. The inquirer wanted to ask a third person, i.e., “someone whose name the witness will not recognize,” to go to Facebook and Myspace and attempt to “friend” the witness to gain access to the information on the pages. The Committee found that this type of pretextual “friending” violates Rule 8.4(c), which prohibits the use of deception. The action also would violate Rule 4.1 (discussed below) because such conduct amounts to a false statement of material fact to the witness.

The San Diego County Bar Legal Ethics Committee issued similar guidance in Ethics Opinion 2011- 2,9 concluding that an attorney is prohibited from making an ex parte “friend” request of a represented party to view the non-public portions of a social networking website. Even if the attorney clearly states his name and purpose for the request, the conduct violates the Rule against communication with a represented party. Consistent with this Opinion, this Committee also finds that “friending” a represented party violates Rule 4.2.

While it would be forbidden for a lawyer to “friend” a represented party, it would be permissible for the lawyer to access the public portions of the represented person’s social networking site, just as it would be permissible to review any other public statements the person makes. The New York State

7 See, e.g., Formal Opinion 90-142 (updated by 2005-200), in which this Committee concluded that, unless a lawyer has the consent of opposing counsel or is authorized by law to do so, in representing a client, a lawyer shall not conduct ex parte communications about the matter of the representation with present managerial employees of an opposing party, and with any other employee whose acts or omissions may be imputed to the corporation for purposes of civil or criminal liability. 8 Philadelphia Bar Assn., Prof’l Guidance Comm., Op. 2009-02 (2009). 9 San Diego County Bar Assn., Legal Ethics Comm., Op. 2011-2 (2011).

Bar Association Committee on Professional Ethics issued Opinion 843,10 concluded that lawyers may access the public portions of other parties’ social media accounts for use in litigation, particularly impeachment. The Committee found that there is no deception in accessing a public website; it also cautioned, however, that a lawyer should not request additional access to the social networking website nor have someone else do so.

This Committee agrees that accessing the public portion of a represented party’s social media site does not involve an improper contact with the represented party because the page is publicly accessible under Rule 4.2. However, a request to access the represented party’s private page is a prohibited communication under Rule 4.2

4. Attorneys May Generally Contact an Unrepresented Person Through a Social Networking Website But May Not Use a Pretextual Basis For Viewing Otherwise Private Information11

Communication with an unrepresented party through a social networking website is governed by the same general rule that, if the contact is prohibited using other forms of communication, then it is also prohibited using social media.

Rule 4.3 states in relevant part:

(a) In dealing on behalf of a client with a person who is not represented by counsel, a lawyer shall not state or imply that the lawyer is disinterested. … (c) When the lawyer knows or reasonably should know that the unrepresented person misunderstands the lawyer’s role in the matter, the lawyer should make reasonable efforts to correct the misunderstanding.

Connecting with an unrepresented person through a social networking website may be ethical if the attorney clearly identifies his or her identity and purpose. Particularly when using social networking websites, an attorney may not use a pretextual basis when attempting to contact the unrepresented person. Rule 4.3(a) instructs that “a lawyer shall not state or imply that the lawyer is disinterested.” Additionally, Rule 8.4(c) (discussed above) prohibits a lawyer from using deception. For example, an attorney may not use another person’s name or online identity to contact an unrepresented person; rather, the attorney must use his or her own name and state the purpose for contacting the individual.

In Ohio, a former prosecutor was fired after he posed as a woman on a fake Facebook account in order to influence an accused killer’s alibi witnesses to change their testimony12. He was fired for “unethical behavior,” which is also consistent with the Pennsylvania Rules. Contacting witnesses under false pretenses constitutes deception.

10 New York State Bar Assn., Comm. on Prof’l Ethics, Op. 843 (2010). 11 Attorneys may be prohibited from contacting certain persons, despite their lack of representation. This portion of this Opinion only addresses communication and contact with persons with whom such contact is not otherwise prohibited by the Rules, statute or some other basis. 12 “Aaron Brockler, Former Prosecutor, Fired for Posing as Accused Killer’s Ex-Girlfriend on Facebook,” June 7, 2013. http://www.cnn.com/2014/03/02/us/facebook-post-costs-father/

Many Ethics Committees have addressed whether an attorney may contact an unrepresented person on social media. The Kentucky Bar Association Ethics Committee13 concluded that a lawyer may access the social networking site of a third person to benefit a client within the limits of the Rules. The Committee noted that even though social networking sites are a new medium of communication, “[t]he underlying principles of fairness and honesty are the same, regardless of context.”14 The Committee found that the Rules would not permit a lawyer to communicate through social media with a represented party. But, the Rules do not prohibit social media communication with an unrepresented party provided the lawyer is not deceitful or dishonest in the communication.

As noted above, in Opinion 2009-02,15 the Philadelphia Bar Association Professional Guidance Committee concluded that an attorney may not access a witness’ social media profiles by deceptively using a third party intermediary. Use of an alias or other deceptive conduct violates the Rules as well, regardless whether it is permissible to contact a particular person.

The New Hampshire Bar Association Ethics Committee agreed with the Philadelphia Opinion in Advisory Opinion 2012-13/05,16 concluding that a lawyer may not use deception to access the private portions of an unrepresented person’s social networking account. The Committee noted, “A lawyer has a duty to investigate but also a duty to do so openly and honestly, rather than through subterfuge.”

The Oregon State Bar Legal Ethics Committee concurred with these opinions as well in Opinion 2013-189,17 concluding that a lawyer may request access to an unrepresented party’s social networking website if the lawyer is truthful and does not employ deception.

These Committees consistently conclude that a lawyer may not use deception to gain access to an unrepresented party’s page, but a lawyer may request access using his or her real name. There is, however, a split of authority among these Committees. The Philadelphia and New Hampshire Committees would further require the lawyer to state the purpose for the request, a conclusion with which this Committee agrees. These Committees found that omitting the purpose of the contact implies that the lawyer is disinterested, in violation of Rule 4.3(a).

This Committee agrees with the Philadelphia Opinion (2009-02) and concludes that a lawyer may not use deception to gain access to an unrepresented person’s social networking site. A lawyer may ethically request access to the site, however, by using the lawyer’s real name and by stating the lawyer’s purpose for the request. Omitting the purpose would imply that the lawyer is disinterested, contrary to Rule 4.3(a).

5. Attorneys May Use Information Discovered on a Social Networking Website in a Dispute

If a lawyer obtains information from a social networking website, that information may be used in a legal dispute provided the information was obtained ethically and consistent with other portions of

13 Kentucky Bar Assn., Ethics Comm., Formal Op. KBA E-434 (2012). 14 Id. at 2. 15 Philadelphia Bar Assn., Prof’l Guidance Comm., Op. 2009-02 (2009). 16 New Hampshire Bar Assn., Ethics Comm., Op. 2012-13/05 (2012). 17 Oregon State Bar, Legal Ethics Comm., Op. 2013-189 (2013).

this Opinion. As mentioned previously, a competent lawyer has the duty to understand how social media works and how it may be used in a dispute. Because social networking websites allow users to instantaneously post information about anything the user desires in many different formats, a client’s postings on social media may potentially be used against the client’s interests. Moreover, because of the ease with which individuals can post information on social media websites, there may be an abundance of information about the user that may be discoverable if the user is ever involved in a legal dispute.

For example, in 2011, a New York18 court ruled against a wife’s claim for support in a matrimonial matter based upon evidence from her blog that contradicted her testimony that she was totally disabled, unable to work in any capacity, and rarely left home because she was in too much pain. The posts confirmed that the wife had started belly dancing in 2007, and the Court learned of this activity in 2009 when the husband attached the posts to his motion papers. The Court concluded that the wife’s postings were relevant and could be deemed as admissions by the wife that contradicted her claims.

Courts have, with increasing frequency, permitted information from social media sites to be used in litigation, and have granted motions to compel discovery of information on private social networking websites when the public profile shows relevant evidence may be found.

For example, in McMillen v. Hummingbird Speedway, Inc.,19 the Court of Common Pleas of Jefferson County, Pennsylvania granted a motion to compel discovery of the private portions of a litigant’s Facebook profile after the opposing party produced evidence that the litigant may have misrepresented the extent of his injuries. In a New York case, Romano v. Steelcase Inc.,20 the Court similarly granted a defendant’s request for access to a plaintiff’s social media accounts because the Court believed, based on the public portions of plaintiff’s account, that the information may be inconsistent with plaintiff’s claims of loss of enjoyment of life and physical injuries, thus making the social media accounts relevant.

In Largent v. Reed,21 a Pennsylvania Court of Common Pleas granted a discovery request for access to a personal injury plaintiff’s social media accounts. The Court engaged in a lengthy discussion of Facebook’s privacy policy and Facebook’s ability to produce subpoenaed information. The Court also ordered that plaintiff produce her login information for opposing counsel and required that she make no changes to her Facebook for thirty-five days while the defendant had access to the account.

Conversely, in McCann v. Harleysville Insurance Co.,22 a New York court denied a defendant access to a plaintiff’s social media account because there was no evidence on the public portion of the profile to suggest that there was relevant evidence on the private portion. The court characterized this request as a “fishing expedition” that was too broad to be granted. Similarly, in Trail v. Lesko,23 Judge R. Stanton Wettick, Jr. of the Court of Common Pleas of Allegheny County denied a party access to a

18 B.M. v D.M., 31 Misc. 3d 1211(A) (N.Y. Sup. Ct. 2011). 19 McMillen v. Hummingbird Speedway, Inc., 2010 Pa. Dist. & Cnty. Dec. LEXIS 270 (Pa. County Ct. 2010). 20 Romano v Steelcase Inc., 30 Misc. 3d 426 (N.Y. Sup. Ct. 2010). 21 Largent v. Reed, No. 2009-1823 (Pa.Ct.Com.Pl. Franklin Cty. 2011). 22 McCann v. Harleysville Ins. Co. of N.Y., 78 A.D.3d 1524 (N.Y. App. Div. 4th Dep't 2010). 23 Trail v. Lesko, 2012 Pa. Dist. & Cnty. Dec. LEXIS 194 (Pa. County Ct. 2012).

plaintiff’s social media accounts, concluding that, under Pa. R.Civ.P. 4011(b), the defendant did not produce any relevant evidence to support its request; therefore, granting access to the plaintiff’s Facebook account would have been needlessly intrusive.

6. Attorneys May Generally Comment or Respond to Reviews or Endorsements, and May Solicit Such Endorsements Provided the Reviews Are Monitored for Accuracy

Some social networking websites permit a member or other person, including clients and former clients, to recommend or endorse a fellow member’s skills or accomplishments. For example, LinkedIn allows a user to “endorse” the skills another user has listed (or for skills created by the user). A user may also request that others endorse him or her for specified skills. LinkedIn also allows a user to remove or limit endorsements. Other sites allow clients to submit reviews of an attorney’s performance during representation. Some legal-specific social networking sites focus exclusively on endorsements or recommendations, while other sites with broader purposes can incorporate recommendations and endorsements into their more relaxed format. Thus, the range of sites and the manner in which information is posted varies greatly.

Although an attorney is not responsible for the content that other persons, who are not agents of the attorney, post on the attorney’s social networking websites, an attorney (1) should monitor his or her social networking websites, (2) has a duty to verify the accuracy of any information posted, and (3) has a duty to remove or correct any inaccurate endorsements. For example, if a lawyer limits his or her practice to criminal law, and is “endorsed” for his or her expertise on appellate litigation on the attorney’s LinkedIn page, the attorney has a duty to remove or correct the inaccurate endorsement on the LinkedIn page. This obligation exists regardless of whether the information was posted by the attorney, by a client, or by a third party. In addition, an attorney may be obligated to remove endorsements or other postings posted on sites that the attorney controls that refer to skills or expertise that the attorney does not possess. Similarly, the Rules do not prohibit an attorney from soliciting reviews from clients about the attorney’s services on an attorney’s social networking site, nor do they prohibit an attorney from posting comments by others.24 Although requests such as these are permissible, the attorney should monitor the information so as to verify its accuracy.

Rule 7.2 states, in relevant part:

(d) No advertisement or public communication shall contain an endorsement by a celebrity or public figure. (e) An advertisement or public communication that contains a paid endorsement shall disclose that the endorser is being paid or otherwise compensated for his or her appearance or endorsement.

Rule 7.2(d) prohibits any endorsement by a celebrity or public figure. A lawyer may not solicit an endorsement nor accept an unsolicited endorsement from a celebrity or public figure on social

24 In Dwyer v. Cappell, 2014 U.S. App. LEXIS 15361 (3d Cir. N.J. Aug. 11, 2014), the Third Circuit ruled that an attorney may include accurate quotes from judicial opinions on his website, and was not required to reprint the opinion in full.

media. Additionally, Rule 7.2(e) mandates disclosure if an endorsement is made by a paid endorser. Therefore, if a lawyer provides any type of compensation for an endorsement made on social media, the endorsement must contain a disclosure of that compensation.

Even if the endorsement is not made by a celebrity or a paid endorser, the post must still be accurate. Rule 8.4(c) is again relevant in this context. This Rule prohibits lawyers from dishonest conduct and making misrepresentations. If a client or former client writes a review of a lawyer that the lawyer knows is false or misleading, then the lawyer has an obligation to correct or remove the dishonest information within a reasonable amount of time. If the lawyer is unable to correct or remove the listing, he or she should contact the person posting the information and request that the person remove or correct the item.

The North Carolina State Bar Ethics Committee issued Formal Ethics Opinion 8,25 concluding that a lawyer may accept recommendations from current or former clients if the lawyer monitors the recommendations to ensure that there are no ethical rule violations. The Committee discussed recommendations in the context of LinkedIn where an attorney must accept the recommendation before it is posted.26 Because the lawyer must review the recommendation before it can be posted, there is a smaller risk of false or misleading communication about the lawyer’s services. The Committee also concluded that a lawyer may request a recommendation from a current or former client but limited that recommendation to the client’s level of satisfaction with the lawyer-client relationship.

This Committee agrees with the North Carolina Committee’s findings. Attorneys may request or permit clients to post positive reviews, subject to the limitations of Rule 7.2, but must monitor those reviews to ensure they are truthful and accurate.

7. Attorneys May Comment or Respond to Online Reviews or Endorsements But May Not Reveal Confidential Client Information

Attorneys may not disclose confidential client information without the client’s consent. This obligation of confidentiality applies regardless of the context. While the issue of disclosure of confidential client information extends beyond this Opinion, the Committee emphasizes that attorneys may not reveal such information absent client approval under Rule 1.6. Thus, an attorney may not reveal confidential information while posting celebratory statements about a successful matter, nor may the attorney respond to client or other comments by revealing information subject to the attorney-client privilege. Consequently, a lawyer’s comments on social media must maintain attorney/client confidentiality, regardless of the context, absent the client’s informed consent.

This Committee has opined, in Formal Opinion 2014-200,27 that lawyers may not reveal client confidential information in response to a negative online review. Confidential client information is defined as “information relating to representation,” which is generally very broad. While there are

25 North Carolina State Bar Ethics Comm., Formal Op. 8 (2012). 26 Persons with profiles on LinkedIn no longer are required to approve recommendations, but are generally notified of them by the site. This change in procedure highlights the fact that sites and their policies and procedures change rapidly, and that attorneys must be aware of their listings on such sites. 27 Pennsylvania Bar Assn, Ethics Comm., Formal Op. 2014-200 (2014).

certain circumstances that would allow a lawyer to reveal confidential client information, a negative online client review is not a circumstance that invokes the self-defense exception.

As Rule 1.6 states:

(a) A lawyer shall not reveal information relating to representation of a client unless the client gives informed consent, except for disclosures that are impliedly authorized in order to carry out the representation, and except as stated in paragraphs (b) and (c). (b) A lawyer shall reveal such information if necessary to comply with the duties stated in Rule 3.3. (c) A lawyer may reveal such information to the extent that the lawyer reasonably believes necessary: (4) to establish a claim or defense on behalf of the lawyer in a controversy between the lawyer and the client, to establish a defense to a criminal charge or civil claim or disciplinary proceeding against the lawyer based upon conduct in which the client was involved, or to respond to allegations in any proceeding concerning the lawyer’s representation of the client (d) A lawyer shall make reasonable efforts to prevent the inadvertent or unauthorized disclosure of, or unauthorized access to, information relating to the representation of a client. (e) The duty not to reveal information relating to representation of a client continues after the client-lawyer relationship has terminated.

Thus, any information that an attorney posts on social media may not violate attorney/client confidentiality.

An attorney’s communications to a client are also confidential. In Gillard v. AIG Insurance Company,28 the Pennsylvania Supreme Court ruled that the attorney-client privilege extends to communications from attorney to client. The Court held that “the attorney-client privilege operates in a two-way fashion to protect confidential client-to-attorney or attorney-to-client communications made for the purpose of obtaining or providing professional legal advice.”29 The court noted that communications from attorney to client come with a certain expectation of privacy. These communications only originate because of a confidential communication from the client. Therefore, even revealing information that the attorney has said to a client may be considered a confidential communication, and may not be revealed on social media or elsewhere.

Responding to a negative review can be tempting but lawyers must be careful about what they write. The Hearing Board of the Illinois Attorney Registration and Disciplinary Commission reprimanded an attorney for responding to a negative client review on the lawyer referral website AVVO30. In her response, the attorney mentioned confidential client information, revealing that the client had been in a physical altercation with a co-worker. While the Commission did not prohibit an attorney from

28 Gillard v. AIG Insurance Co., 15 A.3d 44 (Pa. 2011). 29 Id. at 59. 30 In Re Tsamis, Comm. File No. 2013PR00095 (Ill. 2013).

responding, in general, to a negative review on a site such as AVVO, it did prohibit revealing confidential client information in that type of reply.

The Illinois disciplinary action is consistent with this Committee’s recent Opinion and with the Pennsylvania Rules. A lawyer is not permitted to reveal confidential information about a client even if the client posts a negative review about the lawyer. Rule 1.6(d) instructs a lawyer to make “reasonable efforts to prevent the inadvertent or unauthorized disclosure of . . . information relating to the representation of a client.” This means that a lawyer must be mindful of any information that the lawyer posts pertaining to a client. While a response may not contain confidential client information, an attorney is permitted to respond to reviews or endorsements on social media. These responses must be accurate and truthful representations of the lawyer’s services.

Also relevant is Rule 3.6, which states:

(a) A lawyer who is participating or has participated in the investigation or litigation of a matter shall not make an extrajudicial statement that the lawyer knows or reasonably should know will be disseminated by means of public communication and will have a substantial likelihood of materially prejudicing an adjudicative proceeding in the matter.

This Rule prohibits lawyers from making extrajudicial statements through public communication during an ongoing adjudication. This encompasses a lawyer updating a social media page with information relevant to the proceeding. If a lawyer’s social media account is generally accessible publicly then any posts about an ongoing proceeding would be a public communication. Therefore, lawyers should not be posting about ongoing matters on social media when such matters would reveal confidential client information.

For example, the Supreme Court of Illinois suspended an attorney for 60 days31 for writing about confidential client information and client proceedings on her personal blog. The attorney revealed information that made her clients easily identifiable, sometimes even using their names. The Illinois Attorney Registration and Disciplinary Commission had argued in the matter that the attorney knew or should have known that her blog was accessible to others using the internet and that she had not made any attempts to make her blog private.

Social media creates a wider platform of communication but that wider platform does not make it appropriate for an attorney to reveal confidential client information or to make otherwise prohibited extrajudicial statements on social media.

8. Attorneys May Generally Endorse Other Attorneys on Social Networking Websites

Some social networking sites allow members to endorse other members’ skills. An attorney may endorse another attorney on a social networking website provided the endorsement is accurate and not misleading. However, celebrity endorsements are not permitted nor are endorsements by judges. As previously noted, Rule 8.4(c) prohibits an attorney from being dishonest or making

31 In Re Peshek, No. M.R. 23794 (Il. 2010); Compl.., In Re Peshek, Comm. No. 09 CH 89 (Il. 2009).

misrepresentations. Therefore, when a lawyer endorses another lawyer on social media, the endorsing lawyer must only make endorsements about skills that he knows to be true.

9. Attorneys May Review a Juror’s Internet Presence

The use of social networking websites can also come into play when dealing with judges and juries. A lawyer may review a juror’s social media presence but may not attempt to access the private portions of a juror’s page.

Rule 3.5 states:

A lawyer shall not: (a) seek to influence a judge, juror, prospective juror or other official by means prohibited by law; (b) communicate ex parte with such a person during the proceeding unless authorized to do so by law or court order; (c) communicate with a juror or prospective juror after discharge of the jury if: (1) the communication is prohibited by law or court order; (2) the juror has made known to the lawyer a desire not to communicate; or (3) the communication involves misrepresentation, coercion, duress of harassment; or (d) engage in conduct intended to disrupt a tribunal.

During jury selection and trial, an attorney may access the public portion of a juror’s social networking website but may not attempt or request to access the private portions of the website. Requesting access to the private portions of a juror’s social networking website would constitute an ex parte communication, which is expressly prohibited by Rule 3.5(b).

Rule 3.5(a) prohibits a lawyer from attempting to influence a juror or potential juror. Additionally, Rule 3.5(b) prohibits ex parte communications with those persons. Accessing the public portions of a juror’s social media profile is ethical under the Rules as discussed in other portions of this Opinion. However, any attempts to gain additional access to private portions of a juror’s social networking site would constitute an ex parte communication. Therefore, a lawyer, or a lawyer’s agent, may not request access to the private portions of a juror’s social networking site.

American Bar Association Standing Committee on Ethics and Professional Responsibility Formal Opinion 466 concluded that a lawyer may view the public portion of the social networking profile of a juror or potential juror but may not communicate directly with the juror or jury panel member. The Committee determined that a lawyer, or his agent, is not permitted to request access to the private portion of a juror’s or potential juror’s social networking website because that type of ex parte communication would violate Model Rule 3.5(b). There is no ex parte communication if the social networking website independently notifies users when the page has been viewed. Additionally, a lawyer may be required to notify the court of any evidence of juror misconduct discovered on a social networking website.

This Committee agrees with the guidance provided in ABA Formal Opinion 466, which is consistent with Rule 3.5’s prohibition regarding attempts to influence jurors, and ex parte communications with jurors.

10. Attorneys May Ethically Connect with Judges on Social Networking Websites Provided the Purpose is not to Influence the Judge

A lawyer may not ethically connect with a judge on social media if the lawyer intends to influence the judge in the performance of his or her official duties. In addition, although the Rules do not prohibit such conduct, the Committee cautions attorneys that connecting with judges may create an appearance of bias or partiality.32

Various Rules address this concern. For example, Rule 8.2 states:

(a) A lawyer shall not make a statement that the lawyer knows to be false or with reckless disregard as to its truth or falsity concerning the qualifications or integrity of a judge, adjudicatory officer or public legal officer, or of a candidate for election or appointment to judicial or legal office.

In addition, Comment [4] to Canon 2.9 of the Code of Judicial Conduct, effective July 1, 2014, states that “A judge shall avoid comments and interactions that may be interpreted as ex parte communications concerning pending matters or matters that may appear before the court, including a judge who participates in electronic social media.” Thus, the Supreme Court has implicitly agreed that judges may participate in social media, but must do so with care.

Based upon this statement, this Committee believes that attorneys may connect with judges on social media websites provided the purpose is not to influence the judge, and reasonable efforts are taken to assure that there is no ex parte or other prohibited communication. This conclusion is consistent with Rule 3.5(a), which forbids a lawyer to “seek to influence a judge” in an unlawful way.

IV. Conclusion

Social media is a constantly changing area of technology that lawyers keep abreast of in order to remain competent. As a general rule, any conduct that would not be permissible using other forms of communication would also not be permissible using social media. Any use of a social networking website to further a lawyer’s business purpose will be subject to the Rules of Professional Conduct.

Accordingly, this Committee concludes that any information an attorney or law firm places on a social networking website must not reveal confidential client information absent the client’s consent. Competent attorneys should also be aware that their clients use social media and that what clients reveal on social media can be used in the course of a dispute. Finally, attorneys are permitted to use social media to research jurors and may connect with judges so long as they do not attempt to

32 American Bar Association Standing Committee on Ethics and Professional Responsibility Formal Opinion 462 concluded that a judge may participate in electronic social networking, but as with all social relationships and contacts, a judge must comply with the relevant provisions of the Code of Judicial Conduct and avoid any conduct that would undermine the judge’s independence, integrity, or impartiality, or create an appearance of impropriety.

influence the outcome of a case or otherwise cause the judge to violate the governing Code of Judicial Conduct.

Social media presents a myriad of ethical issues for attorneys, and attorneys should continually update their knowledge of how social media impacts their practice in order to demonstrate competence and to be able to represent their clients effectively.

CAVEAT: THE FOREGOING OPINION IS ADVISORY ONLY AND IS NOT BINDING ON THE DISCIPLINARY BOARD OF THE SUPREME COURT OF PENNSYLVANIA OR ANY COURT. THIS OPINION CARRIES ONLY SUCH WEIGHT AS AN APPROPRIATE REVIEWING AUTHORITY MAY CHOOSE TO GIVE IT.

1 PROFESSIONAL ETHICS OF THE FLORIDA BAR

2 PROPOSED ADVISORY OPINION 14-1 3 January 23, 2015

4 A Florida Bar member has asked the committee regarding the ethical obligations on 5 advising clients to “clean up” their social media pages before litigation is filed to remove 6 embarrassing information that the lawyer believes is not material to the litigation matter. The 7 inquirer asks the following 4 questions:

8 1) Pre-litigation, may a lawyer advise a client to remove posts, photos, videos, 9 and information from social media pages/accounts that are related directly to the 10 incident for which the lawyer is retained?

11 2) Pre-litigation, may a lawyer advise a client to remove posts, photos, videos, 12 and information from social media pages/accounts that are not related directly to 13 the incident for which the lawyer is retained?

14 3) Pre-litigation, may a lawyer advise a client to change social media 15 pages/accounts privacy settings to remove the pages/accounts from public view?

16 4) Pre-litigation, must a lawyer advise a client not to remove posts, photos, 17 videos and information whether or not directly related to the litigation if the 18 lawyer has advised the client to set privacy settings to not allow public access?

19 Rule 4-3.4(a) is applicable and states as follows:

20 A lawyer must not:

21 (a) unlawfully obstruct another party's access to evidence or otherwise 22 unlawfully alter, destroy, or conceal a document or other material that the lawyer 23 knows or reasonably should know is relevant to a pending or a reasonably 24 foreseeable proceeding; nor counsel or assist another person to do any such act;

25 The comment to the rule provides further guidance:

26 The procedure of the adversary system contemplates that the evidence in a 27 case is to be marshalled competitively by the contending parties. Fair competition 28 in the adversary system is secured by prohibitions against destruction or 29 concealment of evidence, improperly influencing witnesses, obstructive tactics in 30 discovery procedure, and the like.

31 Documents and other items of evidence are often essential to establish a claim or defense. 32 Subject to evidentiary privileges, the right of an opposing party, including the government, to 33 obtain evidence through discovery or subpoena is an important procedural right. The exercise of 34 that right can be frustrated if relevant material is altered, concealed, or destroyed. Applicable 35 law in many jurisdictions makes it an offense to destroy material for the purpose of impairing its 36 availability in a pending proceeding or one whose commencement can be foreseen. Falsifying 37 evidence is also generally a criminal offense. Subdivision (a) applies to evidentiary material 38 generally, including computerized information.

39 The committee is of the opinion that the representation in this inquiry involves a 40 “reasonably foreseeable proceeding” as the client has hired the lawyer, presumably to determine 41 whether the client has a viable claim and pursue the claim if viable. However, under the rule, the 42 proper inquiry is whether information on a client’s social media page is relevant to that 43 reasonably foreseeable proceeding, rather than whether information is “related directly” or “not 44 related directly” to the client’s matter. Information that is not “related directly” to the incident 45 giving rise to the need for legal representation may still be relevant. However, what is relevant 46 requires a factual, case-by-case determination. In Florida, the second District Court of Appeal 47 has determined that normal discovery principles apply to social media, and that information 48 sought to be discovered from social media must be “(1) relevant to the case's subject matter, and 49 (2) admissible in court or reasonably calculated to lead to evidence that is admissible in court.” 50 Root v. Balfour Beatty Construction, Inc.,132 So.3d 867, 869-70 (Fla. 2nd DCA 2014).

51 What constitutes an “unlawful” obstruction, alteration, destruction, or concealment of 52 evidence is a legal question, outside the scope of an ethics opinion. The committee is aware of 53 cases addressing the issue of discovery or spoliation relating to social media, but in these cases, 54 the issue arose in the course of discovery after litigation commenced. See, Allied Concrete Co. v. 55 Lester, 736 S.E.2d 699 (Va. 2013) (Sanctions of $542,000 imposed against lawyer and $180,000 56 against the client for spoliation when client, at lawyer's direction, deleted photographs from 57 client's social media page, the client deleted the accounts, and the lawyer signed discovery 58 requests that the client did not have the accounts); Gatto v. United Airlines, 2013 WL 1285285, 59 Case No. 10-cv-1090-ES-SCM (U.S. Dist. Ct. NJ March 25, 2013) (Adverse inference 60 instruction, but no monetary sanctions, against plaintiff who deactivated his social media 61 accounts, which then became unavailable, after the defendants requested access); Romano v. 62 Steelcase, Inc. 907 N.Y.S.2d 650 (NY 2010) (Court granted request for access to plaintiff's 63 MySpace and Facebook pages, including private and deleted pages, when plaintiff's physical 64 condition was at issue and information on the pages is inconsistent with her purported injuries 65 based on information about plaintiff's activities available on the public pages of her MySpace 66 and Facebook pages). In the disciplinary context, at least one lawyer has been suspended for 5 67 years for advising a client to clean up Facebook page, causing the removal of photographs and 68 other material after a request for production had been made. In the Matter of Matthew B. 69 Murray, 2013 WL 5630414, VSB Docket Nos. 11-070-088405 and 11-070-088422 (Virginia 70 State Bar Disciplinary Board July 17, 2013).

71 The New York County Lawyers Association has issued NYCLA Ethics Opinion 745 72 (2013) addressing the issue. The opinion concludes that lawyers may advise their clients to use 73 the highest level of privacy settings on their social media pages and may advise clients to remove 74 information from social media pages unless the lawyer has a duty to preserve information under 75 law and there is no violation of law relating to spoliation of evidence. Other states have since 76 come to similar conclusions. See, e.g., North Carolina Formal Ethics Opinion 5 (attorney must 77 advise client about information on social media if information is relevant and material to the 78 client’s representation and attorney may advise client to remove information on social media if 79 not spoliation or otherwise illegal); Pennsylvania Bar Association Opinion 2014-300 (attorney 80 may advise client to delete information from client’s social media provided that this does not 81 constitute spoliation or is otherwise illegal, but must take appropriate action to preserve the 82 information); and Philadelphia Bar Association Professional Guidance Committee Opinion 83 2014-5 (attorney may advise a client to change the privacy settings on the client’s social media 84 page but may not instruct client to destroy any relevant content on the page). Subsequent to the 85 publication of the opinion, the New York State Bar Association’s Commercial and Federal 86 Litigation Section adopted Social Media Ethics Guidelines. Guideline No. 4.A, citing to the 87 opinion, states as follows:

88 A lawyer may advise a client as to what content may be maintained or made 89 private on her social media account, as well as to what content may be “taken 90 down” or removed, whether posted by the client or someone else, as long as there 91 is no violation of common law or any statute, rule, or regulation relating to the 92 preservation of information. Unless an appropriate record of the social media 93 information or data is preserved, a party or nonparty may not delete information 94 from a social media profile that is subject to a duty to preserve. [Footnote 95 omitted.]

96 The committee agrees with the NYCLA that a lawyer may advise a client to use the 97 highest level of privacy setting on the client’s social media pages.

98 The committee also agrees that a lawyer may advise the client pre-litigation to remove 99 information from a social media page, regardless of its relevance to a reasonably foreseeable 100 proceeding, as long as the removal does not violate any substantive law regarding preservation 101 and/or spoliation of evidence. The committee is of the opinion that if the lawyer does so, an 102 appropriate record of the social media information or data must be preserved if the information 103 or data is known by the lawyer or reasonably should be known by the lawyer to be relevant to the 104 reasonably foreseeable proceeding.

105 The committee is of the opinion that the general obligation of competence may require 106 the inquirer to advise the client regarding removal of relevant information from the client’s social 107 media pages, including whether removal would violate any legal duties regarding preservation of 108 evidence, regardless of the privacy settings. If a client specifically asks the inquirer regarding 109 removal of information, the lawyer’s advice must comply with Rule 4-3.4(a). What information 110 on a social media page is relevant to reasonably foreseeable litigation is a factual question that 111 must be determined on a case-by-case basis.

112 In summary, a lawyer may advise that a client change privacy settings on the client’s 113 social media pages so that they are not publicly accessible. Provided that there is no violation of 114 the rules or substantive law pertaining to the preservation and/or spoliation of evidence, a lawyer 115 also may advise that a client remove information relevant to the foreseeable proceeding from 116 social media pages as long as an appropriate record of the social media information or data is 117 preserved. Copyright © 2015 Hinshaw & Culbertson LLP

HYPOTHETICAL

A Billing Nightmare The Consequences of Inadequately Managing the Billing Process

Not long ago, I received a telephone call from Smith, a lawyer in a respected large law firm in a prosperous midsize city. Smith explained that he was a member of the firm’s three-person executive committee and a commercial lawyer. Smith told of what had happened at the firm’s monthly partnership meeting on the previous Saturday morning. (Such meetings were always on Saturdays, he said, because that way no one had to give up valuable billable time and “waste” time on firm management.) He reported that the meeting had been particularly boring, mostly reviewing financial information, and that he had not been paying much attention to the conversation, instead catching up on reading the reports generated for the meeting. Smith said that during this review of the reports he noticed something that he found a little startling, and during a lull in the discussion he had asked what was intended as a rhetorical question: “How come the Report on Hours Billed and Collected Per Attorney shows that Jones (an associate who had been at the firm about two and a half years) has an average billed and collected hours of 260 hours per month—but I’ve never seen him in the office on a weekend?” Smith reported that what happened next was stunning. One of the partners, Green (with whom Jones principally worked, in civil litigation) responded with obvious affront and venom: “Why are you picking on my hardworking associate when the lazy******s in commercial practice can’t even make 200 hours a month?”

Smith reported that he had not intended to provoke this reaction, and decided—for the moment—to let the matter drop. After all, he knew that his partners wanted to get the meeting over with and go off to their golf games. However, as soon as the meeting ended, he decided that he was sufficiently troubled by Green’s strange and unexpected reaction that he would perform what he described as a “mini-audit.” So he went to the firm’s accounting office and pulled some bill files on matters worked on by Jones, as well as printouts of Jones’s recorded time sheets. At first blush, he said, all appeared to be in order; the time on the bills matched the time recorded on the printouts. But he was still unaccountably troubled and decided to perform one more check. At random, he selected a bill with extensive time charges for Jones’s work and went to the file room to compare the file with the bill. On the bill he noted a two-day period when, on the first day, Jones had recorded several hours of work “preparing to conduct deposition,” and on the second day, six hours of work for “conducting deposition.” He pulled the deposition transcript from the file; it was very thin. He read through it; it concerned the chain of custody of some physical evidence. He remembered (from his own far-off days as an associate) that court reporters always note both the beginning and ending time of depositions in the transcript. He checked and found that the deposition (for which the client had been billed, and had paid, six hours’ work) had lasted just 35 minutes. Smith reported that although he was horrified, there was nothing more that he could do— except go home and stew—until Monday.

On Monday morning, Smith reported, he waited for Green to arrive and then immediately confronted him with the information Smith had uncovered. Green was “livid.” However, Smith told Green that he (Smith) was going to interview Jones, and invited Green to be present. Having no choice, Green agreed, and they called in Jones.

It was a short interview, which went roughly as follows:

SMITH: “How do you keep your time records?”

JONES: “In a clothbound diary on my desk I record, on a daily basis, the name of each client/matter on which I work. Then, at the end of the month, when the firm’s administrator comes around and tells me that she will withhold my salary check until my time is entered into the billing system, I enter my time into the system.”

SMITH: “If you only enter the name of each client/matter on a daily basis, how can you enter your time at the end of the month?”

JONES: “Oh, I go through my diary and allocate the time I recall being in the office among all of the matters I have worked on.”

SMITH: “How long has that been your practice?”

JONES: “Since I joined the firm, two and a half years ago.”

Smith terminated the interview and asked Jones to leave. He then asked Green one question: “Were you aware that this was how your associate was recording time, based on which you have been issuing bills?” Green, Smith reported, declined to answer the question.

2 Extracts from The Colorado Rules of Professional Conduct

Rule 1.5 — Fees

(a) A lawyer shall not make an agreement for, charge, or collect an unreasonable fee or an unreasonable amount for expenses. The factors to be considered in determining the reasonableness of a fee include the following:

(1) the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly;

(2) the likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer;

(3) the fee customarily charged in the locality for similar legal services;

(4) the amount involved and the results obtained;

(5) the time limitations imposed by the client or by the circumstances;

(6) the nature and length of the professional relationship with the client;

(7) the experience, reputation, and ability of the lawyer or lawyers performing the services; and

(8) whether the fee is fixed or contingent.

(b) When the lawyer has not regularly represented the client, the basis or rate of the fee and expenses shall be communicated to the client, in writing, before or within a reasonable time after commencing the representation. Any changes in the basis or rate of the fee or expenses shall also be promptly communicated to the client, in writing.

(c) A fee may be contingent on the outcome of the matter for which the service is rendered, except in a matter in which a contingent fee is otherwise prohibited. A contingent fee agreement shall meet all of the requirements of Chapter 23.3 of the Colorado Rules of Civil Procedure, “Rules Governing Contingent Fees.”

(d) Other than in connection with the sale of a law practice pursuant to Rule 1.17, 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, including the basis upon which the division of fees shall be made, and the client’s agreement is confirmed in writing; and

(3) the total fee is reasonable.

(e) Referral fees are prohibited. (f) Fees are not earned until the lawyer confers a benefit on the client or performs a legal service for the client. Advances of unearned fees are the property of the client and shall be deposited in the lawyer’s trust account pursuant to Rule 1.15(f)(1) until earned. If advances of unearned fees are in the form of property other than funds, then the lawyer shall hold such property separate from the lawyer’s own property pursuant to Rule 1.15(a).

(g) Nonrefundable fees and nonrefundable retainers are prohibited. Any agreement that purports to restrict a client’s right to terminate the representation, or that unreasonably restricts a client’s right to obtain a refund of unearned or unreasonable fees, is prohibited.

Rule 1.15A. General Duties of Lawyers Regarding Property of Clients and Third Parties

(a) A lawyer shall hold property of clients or third persons that is in the lawyer’s possession in connection with a representation separate from the lawyer’s own property. Funds shall be kept in trust accounts maintained in compliance with Rule 1.15B. Other property shall be appropriately safeguarded. Complete records of such funds and other property of clients or third parties shall be kept by the lawyer in compliance with Rule 1.15D.

(b) Upon receiving funds or other property of a client or third person, a lawyer shall, promptly or otherwise as permitted by law or by agreement with the client or third person, deliver to the client or third person any funds or other property that the client or third person is entitled to receive and, promptly upon request by the client or third person, render a full accounting regarding such property.

(c) When in connection with a representation a lawyer is in possession of property in which two or more persons (one of whom may be the lawyer) claim interests, the property shall be kept separate by the lawyer until there is a resolution of the claims and, when necessary, a severance of their interests. If a dispute arises concerning their respective interests, the portion in dispute shall be kept separate by the lawyer until the dispute is resolved. The lawyer shall promptly distribute all portions of the property as to which the interests are not in dispute.

(d) The provisions of Rule 1.15B, Rule 1.15C, Rule 1.15D, and Rule 1.15E apply to funds and other property, and to accounts, held or maintained by the lawyer, or caused by the lawyer to be held or maintained by a law firm through which the lawyer renders legal services, in connection with a representation.

Rule 1.15B. Account Requirements

(a) Every lawyer in private practice in this state shall maintain in the lawyer’s own name, or in the name of the lawyer’s law firm:

(1) A trust account or accounts, separate from any business and personal accounts and from any other fiduciary accounts that the lawyer or the law firm may maintain as executor, guardian, trustee, or receiver, or in any other fiduciary capacity, into which the lawyer shall deposit, or shall cause the law firm to deposit, all funds entrusted to the lawyer’s care and any advance payment of fees that have not been earned or advance payment of expenses that have not been incurred. A lawyer shall not be required to maintain a trust account when the lawyer is not holding such funds or payments.

2 (2) A business account or accounts into which the lawyer shall deposit, or cause the law firm to deposit, all funds received for legal services. Each business account, as well as all deposit slips and all checks drawn thereon, shall be prominently designated as a “business account,” an “office account,” an “operating account,” or a “professional account,” or with a similarly descriptive term that distinguishes the account from a trust account and a personal account.

(b) One or more of the trust accounts may be a Colorado Lawyer Trust Account Foundation (“COLTAF”) account. A “COLTAF account” is a pooled trust account for funds of clients or third persons that are nominal in amount or are expected to be held for a short period of time, and as such would not be expected to earn interest or pay dividends for such clients or third persons in excess of the reasonably estimated cost of establishing, maintaining, and accounting for trust accounts for the benefit of such clients or third persons. Interest or dividends paid on a COLTAF account shall be paid to COLTAF, and the lawyer and the law firm shall have no right or claim to such interest or dividends.

(c) Each trust account, as well as all deposits slips and checks drawn thereon, shall be prominently designated as a “trust account,” provided that each COLTAF account shall be designated as a “COLTAF Trust Account.” A trust account may bear any additional descriptive designation that is not misleading.

(d) Except as provided in this paragraph (d), each trust account, including each COLTAF account, shall be maintained in a financial institution that is approved by the Regulation Counsel pursuant to Rule 1.15E. If each client and third person whose funds are in the account is informed in writing by the lawyer that Regulation Counsel will not be notified of any overdraft on the account, and with the informed consent of each such client and third person, a trust account in which interest or dividends are paid to the clients or third persons need not be in an approved institution.

(e) Each trust account, including each COLTAF account, shall be an interest-bearing, or dividend-paying, insured depository account; provided that, with the informed consent of each client or third person whose funds are in the account, an account in which interest or dividends are paid to clients or third persons need not be an insured depository account. For the purpose of this provision, an “insured depository account” shall mean a government insured account at a regulated financial institution, on which withdrawals or transfers can be made on demand, subject only to any notice period which the financial institution is required to reserve by law or regulation.

(f) The lawyer may deposit, or may cause the law firm to deposit, into a trust account funds reasonably sufficient to pay anticipated service charges or other fees for maintenance or operation of the account. Such funds shall be clearly identified in the lawyer’s or law firm’s records of the account.

(g) All funds entrusted to the lawyer shall be deposited in a COLTAF account unless the funds are deposited in a trust account described in paragraph (h) of this Rule. The foregoing requirement that funds be deposited in a COLTAF account does not apply in those instances where it is not feasible for the lawyer or the law firm to establish a COLTAF account for reasons beyond the control of the lawyer or law firm, such as the unavailability in the community of a

3 financial institution that offers such an account; but in such case the funds shall be deposited in a trust account described in paragraph (h) of this Rule.

(h) If funds entrusted to the lawyer are not held in a COLTAF account, the lawyer shall deposit, or shall cause the law firm to deposit, the funds in a trust account that complies with all requirements of paragraphs (c), (d), and (e) of this Rule and for which all interest earned or dividends paid (less deductions for service charges or fees of the depository institution) shall belong to the clients or third persons whose funds have been so deposited. The lawyer and the law firm shall have no right or claim to such interest or dividends.

(i) If the lawyer or law firm discovers that funds of a client or third person have mistakenly been held in a COLTAF account in a sufficient amount or for a sufficiently long time so that interest or dividends on the funds being held in such account exceeds the reasonably estimated cost of establishing, maintaining, and accounting for a trust account for the benefit of such client or third person (including without limitation administrative costs of the lawyer or law firm, bank service charges, and costs of preparing tax reports of such income to the client or third person), the lawyer shall request, or shall cause the law firm to request, a refund from COLTAF, for the benefit of such client or third persons,of the interest or dividends in accordance with written procedures that COLTAF shall publish and make available through its website and shall provide to any lawyer or law firm upon request.

(j) Every lawyer or law firm maintaining a trust account in this state shall, as a condition thereof, be conclusively deemed to have consented to the reporting and production requirements by financial institutions mandated by Rule 1.15E and shall indemnify and hold harmless the financial institution for its compliance with such reporting and production requirement.

Rule 1.15C. Use of Trust Accounts

(a) A lawyer shall not use any debit card or automated teller machine card to withdraw funds from a trust account. Cash withdrawals from trust accounts and checks drawn on trust accounts payable to “Cash” are prohibited. All trust account funds intended for deposit shall be deposited intact without deductions or “cash out” from the deposit, and the duplicate deposit slip that evidences the deposit shall be sufficiently detailed to identify each item deposited.

(b) All trust account withdrawals and transfers shall be made only by a lawyer admitted to practice law in this state or by a person supervised by such lawyer. Such withdrawals and transfers may be made only by authorized bank or wire transfer or by check payable to a named payee. Only a lawyer admitted to practice law in this state or a person supervised by such lawyer shall be an authorized signatory on a trust account.

(c) No less than quarterly, a lawyer admitted to practice law in this state or a person supervised by such a lawyer shall reconcile the trust account records both as to individual clients or other persons and in the aggregate with the bank statements issued by the bank in which the trust account is maintained.

4 Rule 1.15D. Required Records

(a) A lawyer shall maintain, or shall cause the lawyer’s law firm to maintain, in a current status and shall retain or cause the lawyer’s law firm to retain for a period of seven years after the event that they record:

(1) An appropriate record-keeping system identifying each separate person for whom the lawyer or the law firm holds funds or other property and adequately showing the following:

(A) For each trust account the date and amount of each deposit; the name and address of each payor of the funds deposited; the name and address of each person for whom the funds are held and the amount held for the person; a description of the reason for each deposit; the date and amount of each charge against the trust account and a description of the charge; the date and amount of each disbursement; and the name and address of each person to whom the disbursement is made and the amount disbursed to the person.

(B) For each item of property other than funds, the nature of the property; the date of receipt of the property; the name and address of each person from whom the property is received, the name and address of each person for whom the property is held and, if interests in the property are held by more than one person, a statement of the nature and extent of each person’s interest in the property, to the extent known; a description of the reason for each receipt; the date and amount of each charge against the property and a description of the charge; the date of each delivery of the property by the lawyer; and the name and address of each person to whom the property is delivered by the lawyer.

(2) Appropriate records of all deposits in and withdrawals from all other bank accounts maintained in connection with the lawyer’s legal services, specifically identifying the date, payor, and description of each item deposited as well as the date, payee, and purpose of each disbursement;

(3) Copies of all written communications setting forth the basis or rate for the fees charged by the lawyer as required by Rule 1.5(b), and copies of all writings, if any, stating other terms of engagement for legal services;

(4) Copies of all statements to clients and third persons showing the disbursement of funds or the delivery of property to them or on their behalves;

(5) Copies of all bills issued to clients;

(6) Records showing payments to any persons, not in the lawyer’s regular employ, for services rendered or performed; and

(7) Paper copies or electronic copies of all bank statements and of all canceled checks.

(b) The records required by this Rule shall be maintained in accordance with one or more of the following recognized accounting methods: the accrual method, the cash basis method, or the income tax method. All such accounting methods shall be consistently applied. Bookkeeping records may be maintained by computer provided they otherwise comply with this Rule and

5 provided further that printed copies can be made on demand in accordance with this Rule. They shall be located at the principal Colorado office of the lawyer or of the lawyer’s law firm.

(c) Upon the dissolution of a law firm, the lawyers who rendered legal services through the law firm shall make appropriate arrangements for the maintenance or disposition of records and client files in accordance with this Rule and Rule 1.16A. Upon the departure of a lawyer from a law firm, the departing lawyer and the lawyers remaining in the law firm shall make appropriate arrangements for the maintenance or disposition of records and client files in accordance with this Rule and Rule 1.16A.

(d) Any of the records required to be kept by this Rule shall be produced in response to a subpoena duces tecum issued by the Regulation Counsel in connection with proceedings pursuant to C.R.C.P. 251. When so produced, all such records shall remain confidential except for the purposes of the particular proceeding, and their contents shall not be disclosed by anyone in such a way as to violate the attorney-client privilege of the lawyer’s client.

Rule 1.15E. Approved Institutions

(a) This Rule applies to each trust account that is subject to Rule 1.15B, other than a trust account that is maintained in other than an approved financial institution pursuant to the second sentence of Rule 1.15B(d).

(b) Each trust account shall be maintained at a financial institution that is approved by the Regulation Counsel, pursuant to the provisions and conditions contained in this Rule. The Regulation Counsel shall maintain a list of approved financial institutions, which it shall renew not less than annually. Offering a trust account or a COLTAF account is voluntary for financial institutions.

(c) The Regulation Counsel shall approve a financial institution for use for lawyers’ trust accounts, including COLTAF accounts, if the financial institution files with the Regulation Counsel an agreement, in a form provided by the Regulation Counsel, with the following provisions and on the following conditions:

(1) The financial institution does business in Colorado;

(2) The financial institution agrees to report to the Regulation Counsel in the event a properly payable trust account instrument is presented against insufficient funds, irrespective of whether the instrument is honored. That agreement shall apply to all branches of the financial institution and shall not be canceled except on thirty-days’ notice in writing to the Regulation Counsel.

(3) The financial institution agrees that all reports made by the financial institution shall be in the following format: (i) in the case of a dishonored instrument, the report shall be identical to the overdraft notice customarily forwarded to the depositor; (ii) in the case of an instrument that is presented against insufficient funds but that is honored, the report shall identify the financial institution, the lawyer or law firm for whom the account is maintained, the account number, the date of presentation for payment, and the date paid, as well as the amount of the overdraft created thereby. Report of a dishonored instrument shall be made simultaneously with,

6 and within the time provided by law for, notice of dishonor, if any. If no such time is provided by law for notice of dishonor, or if the financial institution has honored an instrument presented against insufficient funds, then the report shall be made within five banking days of the date of presentation of the instrument.

(4) The financial institution agrees to cooperate fully with the Regulation Counsel and to produce any trust account records on receipt of a subpoena for the records issued by the Regulation Counsel in connection with any proceeding pursuant to C.R.C.P. 251. Nothing herein shall preclude a financial institution from charging a lawyer or law firm for the reasonable cost of producing the reports and records required by this Rule, but such charges shall not be a transaction cost to be charged against funds payable to the COLTAF program.

(5) The financial institution agrees to cooperate with the COLTAF program and shall offer a COLTAF account to any lawyer or law firm who wishes to open one.

(6) With respect to COLTAF accounts, the financial institution agrees:

(A) To remit electronically to COLTAF monthly interest or dividends, net of allowable reasonable COLTAF fees as defined in subparagraph (c)(10) of this Rule, if any; and

(B) To transmit electronically with each remittance to COLTAF a statement showing, as to each COLTAF account, the name of the lawyer or law firm on whose account the remittance is sent; the account number; the remittance period; the rate or rates of interest or dividends applied; the account balance or balances on which the interest or dividends are calculated; the amount of interest or dividends paid; the amount and type of fees, if any, deducted; the amount of net earnings remitted; and such other information as is reasonably requested by COLTAF.

(7) The financial institution agrees to pay on any COLTAF account not less than (i) the highest interest or dividend rate generally available from the financial institution on non- COLTAF accounts when the COLTAF account meets the same eligibility requirements, if any, as the eligibility requirement for non-COLTAF accounts; or (ii) the rate set forth in subparagraph (c)(9) below. In determining the highest interest or dividend rate generally available from the financial institution to its non-COLTAF customers, the financial institution may consider factors customarily considered by the financial institution when setting interest or dividend rates for its non-COLTAF accounts, including account balances, provided that such factors do not discriminate between COLTAF accounts and non-COLTAF accounts. The financial institution may choose to pay on a COLTAF account the highest interest or dividend rate generally available on its comparable non-COLTAF accounts in lieu of actually establishing and maintaining the COLTAF account in the comparable highest interest or dividend rate product.

(8) A COLTAF account may be established by a lawyer or law firm and a financial institution as:

(A) A checking account paying preferred interest rates, such as market-based or indexed rates;

7 (B) A public funds interest-bearing checking account, such as an account used for other non- profit organizations or government agencies;

(C) An interest-bearing checking account, such as a negotiable order of withdrawal (NOW) account, or business checking account with interest; or

(D) A business checking account with an automated investment feature in overnight daily financial institution repurchase agreements or money market funds. A daily financial institution repurchase agreement shall be fully collateralized by U.S. Government Securities (meaning U.S. Treasury obligations and obligations issued or guaranteed as to principal and interest by the United States government) and may be established only with an approved institution that is “well-capitalized” or “adequately capitalized” as those terms are defined by applicable federal statutes and regulations. A “money market fund” is a fund maintained as a money market fund by an investment company registered under the Investment Company Act of 1940, as amended, which fund is qualified to be held out to investors as a money market fund under Rules and Regulations adopted by the Securities and Exchange Commission pursuant to said Act. A money market fund shall be invested solely in U.S. Government Securities, or repurchase agreements fully collateralized by U.S. Government Securities, and, at the time of the investment, shall have total assets of at least two hundred fifty million dollars ($250,000,000).

(9) In lieu of a rate set forth in paragraph (c)(7)(i), the financial institution may elect to pay on all deposits in its COLTAF accounts, a benchmark rate, which COLTAF is authorized to set periodically, but not more frequently than every six months, to reflect an overall comparable rate offered by financial institutions in Colorado net of allowable reasonable COLTAF fees. Election of the benchmark rate is optional, and financial institutions may choose to maintain their eligibility by paying the rate set forth in paragraph (c)(7)(i).

(10) “Allowable reasonable COLTAF fees” are per-check charges, per-deposit charges, fees in lieu of minimum balances, federal deposit insurance fees, sweep fees, and reasonable COLTAF account administrative fees. The financial institution may deduct allowable reasonable COLTAF fees from interest or dividends earned on a COLTAF account, provided that such fees (other than COLTAF account administrative fees) are calculated and imposed in accordance with the approved institution’s standard practice with respect to comparable non-COLTAF accounts. The financial institution agrees not to deduct allowable reasonable COLTAF fees accrued on one COLTAF account in excess of the earnings accrued on the COLTAF account for any period from the principal of any other COLTAF account or from interest or dividends accrued on any other COLTAF account. Any fee other than allowable reasonable COLTAF fees are the responsibility of, and the financial institution may charge them to, the lawyer or law firm maintaining the COLTAF account.

(11) Nothing contained in this Rule shall preclude the financial institution from paying a higher interest or dividend rate on a COLTAF account than is otherwise required by the financial institution’s agreement with the Regulation Counsel or from electing to waive any or all fees associated with COLTAF accounts.

8 (12) Nothing in this Rule shall be construed to require the Regulation Counsel or any lawyer or law firm to make independent determinations about whether a financial institution’s COLTAF account meets the comparability requirements set forth in paragraph (c)(7). COLTAF will make such determinations and at least annually will inform Regulation Counsel of the financial institutions that are in compliance with the comparability provisions of this Rule.

(13) Each approved financial institution shall be immune from suit arising out of its actions or omissions in reporting overdrafts or insufficient funds or producing documents under this Rule. The agreement entered into by a financial institution with the Regulation Counsel shall not be deemed to create a duty to exercise a standard of care and shall not constitute a contract for the benefit of any third parties that may sustain a loss as a result of lawyers overdrawing lawyer trust accounts.

9 E-mail Message to Anthony Davis, 08/05/01 Regarding $5.00 Invoice:

I really enjoyed your seminar. It was very informative and entertaining. I especially enjoyed your discussion of hourly billing. This was one of my pet peeves throughout my 35 years as a CPA, both as a partner and managing partner in a large local firm and as a partner in a national firm.

Many years ago, when computerized hourly billing was just coming into vogue, my largest client received an invoice labeled as "general legal services", in the amount of $5.00. The attorney involved was outside general counsel for the client, and the usual monthly billing ran in the 2-3,000 range. For some reason, the $5 billing, because it was so miniscule, caught everyone's attention. (I should point out that the attorney rented space in my client's office building.)

Since the company principals were both on vacation during the month for which the billing was sent, and the attorney involved was also out for most of the month, the question arose as to what service had been rendered for $5. No one in the company could think of even having spoken to the attorney.

Finally, the corporate controller remembered that the only time he had seen the attorney was early in the month, when they were at adjacent urinals in the men's room. Apparently the controller made the mistake of making a business or legal related comment!

Obviously, there were other problems here than just hourly billing, including not going over the bills before they are mailed and not supervising the procedure, but the amount of damage it did to the attorney's credibility was significant. What if Apple Stores Billed by the Hour? Lessons for Law Firms

By Jay Shepherd The Client Revolution July 2009

The renowned customer service at Apple Stores will never been a good model for a top-notch law firm – learn why!

Apple Stores are known for their knowledgeable personnel and excellent customer service. Not coincidentally, those are also the hallmarks of outstanding law firms. This month, The Legal Mac features an article from Jay Shepherd which questions what it would be like if these stores were run like law firms — and by extension, why law firms can’t be run more like Apple Stores. It is a very thought-provoking article, and I hope you enjoy it. — Ben Stevens, The Mac Lawyer

A few weeks ago, I was out to dinner with my wife and girls. Nearby was an Apple Store, so while we waited, I scurried over for a quick purchase. I needed to get a new antiglare plastic sheet for my iPhone. Keep in mind, I was going to purchase what is probably the least expensive item in the Apple Store.

Anyway, I got to the store, made my way over to the iPhone accessories (there are about six million of them), grabbed a screen protector, and took a moment to see if there’s anything else I need (“need” being a vague term). At this time, a store representative, Anil (or it could have been Pete or Algernon — I don’t remember the names, so I’m invoking dramatic license and inventing them) came over and asked if I needed any help. This occurred not in a hovering, vulturelike, typical salesperson way, but rather in an “I’m-here-to-help” way.

“No,” I said, holding up my screen protector and my iPhone. “I just needed to get this.” He replied, “Great. But that particular protector is for the original iPhone. You have an iPhone 3G. You need this one.” Of course, he was right, and I swapped protectors with the correct one that he handed me. He then led me over to Angelina (license again), who took my credit card and quickly rang me up on her little handheld device. She asked me if I found everything I needed, and I confirmed that I did.

At that point, Angelina pointed to the screen protector and asked, “Do you want help putting that on?” If you’ve ever tried to put an adhesive sheet of plastic onto a piece of glass, it’s tricky. If you stick it on too early, you end up misaligned and, well, stuck. “Sure,” I said. She then called Pam over, telling me that Pam was the best screen-protector sticker-onner.

Pam led me over to another table. She took my iPhone and gently and carefully cleaned the glass face. Then, with the movements of a nimble surgeon, she peeled the backing off the protector, lined it up, and lowered it to about a millimeter above the glass. Then — and this is the cool part — she just dropped it that last millimeter. The protector floated down and landed evenly on the screen.

Pam then took a card and squeegeed the protector so that no bubbles would form under it. And that was it. My screen protector was perfectly installed, my receipt was being emailed to me, and the whole process took about six minutes from start to finish. I returned to my family just in time to sit down and order dinner.

So to recap: three Apple Store team members waited on me, all working together to make the smallest possible Apple Store sale. No one cross-sold me anything. I didn’t get snookered into a new Apple Cinema Display or a new MacBook Air. Three employees: $14.95 in sales revenue.

Now what if the Apple Store was run like a law firm? What if the Apple Store billed by the hour?

First of all, Anil, Angelina, and Pam would all use timesheets to keep track of the work they do each day. They would be required to divide up and account for their time in tenth-of-an-hour increments. I only spent about six minutes in the store, but each one of them would have to record his or her interaction with me. Since six minutes would be the smallest amount possible, each would record a “0.1” on that day’s timesheet.

Anil would write, “Conference with client in regards to optimal protection for said client’s iPhone 3G screen, to wit: a screen protector. Referral to Angelina for point-of-sale transaction … 0.1 hours.”

Angelina: “Conference with client in regards to point-of-sale transaction for one (1) screen protector for said client’s iPhone 3G (three G). Discussion in regards to additional products needed for purchase. Referral to Pam for screen-protector installation … 0.1 hours.”

And Pam: “Conference with client in regards to installation of iPhone screen protector. Cleaning and maintenance of said client’s said iPhone screen. Further conference with client in regards to having a nice evening … 0.1 hours.”

But in reality, law-firm clients resist double (or triple) billing by multiple lawyers. So firms often have to write down the time of other lawyers. In this scenario, two of the Apple team members would have had their time cut. Since only Angelina actually generated revenue (by swiping my credit card), Anil and Pam’s time would have been cut. This is ironic, since Anil (by helping me get the right protector) and Pam (by affixing it) gave me the most value.

Of course, law firms want their associates to bill as much time as possible, and they discourage nonbillable time. So if the Apple Store were run like a law firm, Anil and Pam would have been discouraged from such “nonbillable” work as helping me choose or affix an inexpensive screen protector, in favor of “billable” work like selling a new Mac Pro. If the Apple Store employees focused on selling billable hours, they wouldn’t be wasting time helping customers with little things like this.

But then again, if that had been the case, maybe I wouldn’t have returned to an Apple Store a few weeks later to buy the $2,500 MacBook Air that I wrote this article on.

In law firms where lawyers are measured by the hours they bill, they are effectively punished for nonbillable time spent helping clients. Which is why people love going to the Apple Store, and hate dealing with lawyers.

• • • • • • •

A coda to this story: I went to the Chestnut Hill ( Mass.) Apple Store to buy a conversion cord (USB to Ethernet) for the aforementioned MacBook Air. Tony, an Apple Store “business partner,” greeted me and offered to get the cable. In chatting with him, I happened to mention that I bought my Air about three weeks before the recent Apple Worldwide Developers Conference. At the WWDC, to my chagrin, Apple had announced a $800 price cut on the Air I had just bought. My purchase was a few days too early to qualify for the discount.

“Let me see what I can do,” Tony said.

And here I was just making small talk. I had resigned myself to unlucky bad timing; I hadn’t been asking for an exception.

A short while later, Tony had rerun my MacBook Air purchase with the $800 discount. Wow. All I can say is “wow.”

Here’s a guy who had worked there for three years, loves his job, and excels at helping people. To be sure, his help took $600 out of Apple’s sales revenue that day (you see, after receiving the discount, I bought a few more things that I wouldn’t have otherwise bought). But the bottom line is that I spend thousands of dollars with Apple each year. (Our whole law firm uses Macs and iPhones.) In the long run, Tony’s help will encourage me to spend thousands more in the future.

If Tony billed by the hour, this never would have happened.

3 Why Is This Man Smiling? Latest legal victory has LegalZoom poised for growth.

Robert Ambrogi August 2014 ABA Journal

In recent years, LegalZoom has faced lawsuits in eight states seeking to shut it down for violating state laws barring the unauthorized practice of law. But with a notable recent victory in South Carolina, and having fended off all but one of the other lawsuits, LegalZoom is anything but shutting down.

To the contrary, LegalZoom, which began offering legal forms online in 2001, is poised to significantly broaden the range of services it offers consumers and small businesses. Already it has expanded into prepaid legal services, operating plans in 41 states and the District of Columbia. Now it is looking ahead to offering a continuum of products and services, from simple forms to full-fledged legal advice, with both lawyers and nonlawyers in the mix.

“We need to continue to evolve, continue to innovate and continue to connect consumers with the services that are right for them at a price they can afford to pay,” says Chas Rampenthal, LegalZoom’s general counsel.

Meanwhile, legal ethicists such as Deborah L. Rhode, director of the Center on the Legal Profession at Stanford Law School, say it is time for the legal profession to drop efforts to shut down such companies for UPL and instead focus on how best to regulate them to protect their customers.

“With respect to LegalZoom, the train has left the station,” Rhode says. “They’ve got a couple million satisfied customers and it’s going to be really hard for anyone to shut them down.”

In a May Fordham Law Review article, Rhode and co-author Lucy Buford Ricca, executive director of the Center on the Legal Profession, argue that the legal market is primed for a total transformation driven by innovative companies such as LegalZoom. “From a regulatory perspective,” they write, “the key focus should not be blocking these innovations from the market, but rather using regulation to ensure that the public’s interests are met.”

FORMS OR ADVICE?

The nub of complaints against LegalZoom is not the self-help documents it provides, but the way it provides them. At its website, customers buy documents to form a business, register a trademark, create a will and address other common legal needs. Questionnaires guide customers through creation of the document, after which LegalZoom employees review the answers for spelling, consistency and completeness.

Some, including the North Carolina State Bar, maintain that these elements of guidance and review transform LegalZoom from simple document provider to legal adviser. Others, such as Richard Granat, co-chair of the ABA eLawyering Task Force and president and CEO of DirectLaw Inc., contend such arguments are nothing more than “an effort to protect lawyers’ incomes.” In 2008 the North Carolina bar issued LegalZoom a cease-and-desist letter. The matter made its way to North Carolina business court where, last March, a judge put off deciding the UPL issue, saying he required additional evidence to fully understand LegalZoom’s process for preparing complex documents.

Two weeks earlier, the high court in neighboring South Carolina gave LegalZoom a green light to operate.

Adopting the findings of a special referee it appointed to investigate the company, the court held that LegalZoom’s practices “do not constitute the unauthorized practice of law.”

The referee compared the functionality of LegalZoom’s software to a scrivener who transcribes information without giving advice or consultation: “LegalZoom’s software acts at the specific instruction of the customer and records the customer’s original information verbatim, exactly as it is provided by the customer. The software does not exercise any judgment or discretion, but operates automatically in the same fashion as a ‘mail merge’ program.”

Previously, LegalZoom settled UPL suits in California, Missouri and Washington. Lawsuits in Alabama and Ohio were dismissed. Besides North Carolina, the company still faces a challenge in Arkansas, where the matter is in arbitration.

ECOSYSTEM OF LEGAL SERVICES

Even as LegalZoom has battled claims of unauthorized practice, it has moved closer to actual practice. Launching its own prepaid legal services plans was one step; another was to develop practice management systems to help the lawyers in these plans deliver services more efficiently.

But Rampenthal sees his company spurring broader changes in the legal services market, moving it toward an “ecosystem” that will more closely resemble the way medicine is delivered.

“You don’t walk right in and see the doctor,” he explains. “You see nurses and technicians and practitioners. The doctor relies on those other professionals, and the system lets the doctors do what they do best.” Paralegals and other licensed legal professionals will provide assistance and advice for certain matters and refer more complex matters to attorneys.

LegalZoom declined to disclose its revenues. As of August 2012, it had served some 2 million customers, according to a prospectus it filed with the U.S. Securities and Exchange Commission in advance of a planned initial public offering. In 2011, it brought in revenues of $156 million and was on track to bring in close to $200 million in 2012. Last January, it dropped its IPO after selling $200 million in equity to the private equity firm Permira.

PROTECTING THE PUBLIC

With LegalZoom’s train steaming along at full throttle, and given other changes in the legal industry, the unauthorized practice debate is no longer relevant, many say.

“The best approach is to recognize that these new players are providing a kind of legal service,” says Andrew M. Perlman, director of the Institute on Law Practice Technology and Innovation at

2 Suffolk University Law School. “What we call it is less important than what we do with them. We need to find a way to appropriately regulate what they do so that the public is protected.”

Regulation, Perlman believes, would encourage innovation in the delivery of legal services by eliminating the legal uncertainties faced by companies such as LegalZoom. “The more we resolve these questions through regulation, the more we’ll free up innovation.”

However, Milan Markovic, associate professor at Texas A&M University School of Law, questions the premise that companies such as LegalZoom are needed because of the failure of the legal profession to meet the needs of middle-income consumers. “My problem is we have almost no data to support that, and the types of services LegalZoom offers actually can be obtained,” he says, sometimes at even lower cost.

Markovic would prefer that bar associations accept we are in a do-it-yourself age and directly provide to consumers more of the documents and services they want. To the extent evidence can substantiate legitimate failures in the legal services market, however, Markovic would support regulatory or licensing schemes that would allow for alternatives.

No one can say whether LegalZoom has seen the last of these UPL suits. But in its 2012 SEC filing, it noted the lawsuits then pending and added: “We anticipate that we will continue to be the target for such lawsuits in the future.”

This article originally appeared in the August 2014 issue of the ABA Journal with this headline:

3 y • ~ • m rovin t e ro to 11 an ~~ ana in t o s s o aw ractice: ~. ..~ e~ oo ~zt ee ~~~zn eY~ents, z in , ~n o ectzons

By Anthony E. Davis, Moye, Giles, O Keefe, Uermeire eT' Gorrell LLP dnd Julianne Spl~zin, Chubb eT' Son

Law firm risk management can be reduced to two positive principles improving service to clients and making law firms (and individual lawyers) more profitable. Nowhere do these positive Moms align more closely than in the management of fees, billings, and collections. But there are enormous risks and obsta- cles to achieving these goals in the contemporary environment of law practice.

A principal obstacle is created by economic good times. Until recently, so many firms had been prospering as never before that some lawyers did not see a Mwr particularly urgent need for increased profitability. Currently, however, many law Oo E:~vre f2e~inr~sis firms are seeing reduced profits as some clients pay bills later than usual and others fail to pay at all. In this regard, as firms look to trim their expenses, the lessons of risk management may be salutary.

Fees and fee arrangements represent firms' lifeblood but also pose serious risks if the How to Better Manage arrangements are inappropriate or are just badly managed. By managing their client relations and the Billing Process ...... 2 establishingp ositive client relationship s initially, firms will have fewer difficulties with billing and Preventing Collection collections. By overseeing the billing process, firms can avoid the nightmares that follow the dis- Problems...... 6 covert' of billing or reimbursement frauds. By managing the collection process, and particularly The Alternatives to by following through on client intake management and enforcement of withdrawal clauses in Hourly filling ...... 8 engagement letters, firms can avoid running up large overdue balances and can thereby make fee suits largely avoidable. Finally, firms should consider alternatives to time-charging, both to improve client relations generally and to improve profitability. In all these areas, firms that manage the billing process with care and diligence can necessarily meet the stated initial goals: serve clients better and increase profitability.

This issue ofLawyer to Ldwye~ consists of three articles that focus on three aspects of the management of fees. In the first article, we consider what is required if firms wish to manage the billing (and timekeeping) function. In the second article, we review the thorny topic of collections, focusing both on the reasons the golden rule is "Never sue a client for fees" and on how CHUBB PROFESSIONAL firms can avoid the need to do so. In the concluding article, we explore why and how firms Chubb Group of Insurance Companies can benefit from adopting alternatives to time-charging. Reprinted With Permission. All Rights Reserved. As any lawyer who has lived through the experience of a firm faced with this assortment of difficulties will confirm, two stand head and shoulders above the others adverse publicity and the combined financial impact of having to refund money to clients and losing clients. Indeed, although firms routinely survive these situations, there is a real risk that the discovery of billing impropriety will cause a law firm to collapse. A signifi- ow to ester ana e cant number of the firm's partners may conclude that the only way to disassociate themselves from the objectionable activities t e 1 in rocess is to leave the firm entirely and, if enough partners make that decision, the firm inevitably collapses. At the 1998 Annual Meeting of the American Bar Associa- tion's Center for Professional Responsibility, during a panel Many cases of billing improprieties, as well as outright devoted to the phenomenon of billing fraud, a speaker distrib- frauds, have their roots in at least one of four management fail- uted achart listing thirty-five cases reported in just the previous ures: first, the failure to manage timekeeping, recording, and five years in which lawyers had been convicted of billing fraud entry procedures; second, the failure to manage the client's mat- involving sums exceeding $100,000. Preventing such fraud, ter to m~imize efficiency in the delivery of professional services; however, is not simply a matter of identifying dishonest lawyers; third, the failure to manage or oversee the issuance of bills; and it is also about effectively managing the time-recording and fourth, the failure to manage expenses both charging costs to billing processes. clients and reimbursing the lawyers claiming to have made the disbursements. Fraud is not the only consequence of inadequate management of the billing process. Indeed, the most common effects of ANTHONY E. DAVIS is a Partner at billing problems are fee disputes and disgruntled clients. When Moye, Giles, 0"Keefe, lawyers send bills on an infrequent and irregular basis, or charge Vermeire &Correll LLP, practicing law in New York and Col- clients for expenses that look like typical overhead costs, or issue orado, advising lawyers and law firms on legal profession and bills in amounts that exceed estimates previously given, clients legal ethics issues and in the area of law firm risk management are likely to be unhappy. Unhappy clients are more likely to dis- and loss control. He is the author of numerous articles and pute bills and even sue for malpractice. books, including Risk Management.' Survival Tools For Law Firms and The Essential Formbook: Comprehensive Manage- When billing improprieties of any kind are detected, law ment Tools for Lawyers, published by the American Bar Associ- firms face potentially serious problems, including: ation. He received his law degree from Cambridge University Criminal prosecution of the lawyers) involved. and an LL.M. from New York University School of Law. He is admitted in New York and Colorado, and as a solicitor (non- Professional discipline of the lawyers) involved and practicing) in England. perhaps the law firm as a whole where the violation stems from a lack of adequate supervision. J U L I A N N E S P LA I N ,Assistant Vice President and Loss Pre- vention Counsel at Chubb &Son, Inc., in Simsbury, Connecticut, Handling the affected clients. provides loss prevention services to Chubb's insured law firms, accounting firms, and other professionals. She also serves as Suits brought by clients disputing fees and, in some the editor of Chubb's publication Lawyer to Lawyer. cases, alleging malpractice. :...... Dealing with the lawyers) involved. : Parts of these articles are excerpted from The Essential Form- Adverse publicity. book: Comurehensive Management Tools for Lawyers, by Gary A. Munneke and Anthony E. Davis. Copyright 2001 American Bar Association. Reprinted with permission...... :

Reprinted With Permission. All Rights Reserved. There is a parallel set of affirmative reasons lawyers should spend time and effort on actively managing the billing process: first, good billing practices help advance good communication with clients; second, well-crafted bills are more likely to he paid; "...there is ~z redl risk that the and third, clients who are satisfied that they are being treated discovery ofbilling appropriately in the billing process are better sources of new business than are aggrieved clients. impropriety will cause d law firm to collapse." On an individual lawyer level, billing problems can derive from simple sloppiness or deliberate malfeasance. In firms of more than one lawyer, these problems are largely the result of too much trust in, and too little verification of, the ways in which lawyers handle their clients' matters. Accordingly, most firms opt to deal with the affected clients. requires that the firm: The most obvious, but still surprisingly frequent, source of This billing disputes is inaccurate time-recording, even when no Confess the problem. fraud is involved or alleged. This is possible only when the oversight system is weak, as it often is. For instance, if lawyers Advise the clients of their right to consult with separate whether partners or associates can get away with not handing counsel. in their time entries until the end of the month (four or five weeks after the first entry) or even delaying for two or three Offer to have an independent audit of all affected bills weeks, what can begin as procrastination ("I know what I did (paid for, of course, by the firm). today I'll enter it tomorrow") quickly slides into exaggeration Try to reach a compromise fee that will be acceptable. ("I know I've worked my off this month I must have done

300 hours"). There are, further, many instances in both Beg the clients to stay with the firm and probably recorded fee disputes and criminal fraud cases in which lawyers offer a discount for future services to help retain the when reported that it was "firm practice" or that they were "told clients. I joined the firm" that it was customary to "pad" bills or even that "clients expect it."1 The practice in some firms of setting In addition, the firm will have to deal with the lawyers minimum hourly quotas for lawyers clearly exacerbates the dan- involved, either retraining them in timekeeping practices or gers, especially when an individual is placed in a position in ending the firm's association with them. All solutions involve which sufficient work is not available. Then, even if the hours costs in time and financial resources as well as impairment of themselves are not exaggerated, it is inevitable that "work firm morale. expands to fill the time available." Bills based on inaccurate time records will, eventually and inevitably, lead to disputes with Improving M~zn~geYnent ofthe Billing Process clients, at a minimum. The following are six steps to improved billing practices.

Firms confronted with circumstances ofimproper billing or 1. Establish policies regarding accuracy. Firms need to even outright fraud have two choices: (1) do nothing (the express clear policies regarding the requirement of accuracy in "ostrich defense") or (2) meet with all affected clients. The timekeeping and recording. Policies that set requirements on ostrich defense is extremely risky. If anyone discovers and minimum hours to be billed to clients create an implicit pres- reports a billing problem after the firm has gained knowledge of sure on attorneys to "pad" their bills; therefore, we believe that it and fails to act, all those with knowledge may be brought in firms should avoid such policies. If a firm believes that work- as accessories after the fact. level standards based on time spent working are necessary to measure performance or productivity, these standards should ...... not be tied to billable time but should be based on other 1 See, e.g., Lisa G. Lerman, Blue-Chip Bilking.• Regulation ofBilling and Expense Fraud by Lawyers, 12 Geo. J. Legal Ethics 205, 261-62 (1999). criteria.

Reprinted With Permission. All Rights Reserved. 2. Enforce frequent reporting. Firms need to enforce fre- less destructive than fraud committed against clients, they are quent (preferably daily) reporting and must not tolerate nevertheless hugely embarrassing, and firms rarely avoid signifi- exceptions. Some firms use a system of financial penalties, and cant adverse publicity when they occur. Verification that appro- others use financial incentives to force or encourage compliance priate procedures are being followed is a small price to pay to with these strict requirements. Software tools can assist in mak- avoid these situations. ing this process smooth and easy to comply with, but oversight and enforcement are necessary to provide verification of com- 4. Draft bills that appeal to clients. Bills should clearly pliance. If these requirements prove burdensome, they should describe and explain the value of the services rendered. The be viewed as a necessary cost of using time itself as the basis for greatest mistake that lawyers make is that, instead of describing billing. Individual lawyers need to maintain the habit of billing the value of the services rendered (i.e., how the services assisted "early and often." Regular and frequent billing keeps the size of the client in moving toward the objective for which the lawyer individual bills more manageable from the client's perspective. It was engaged), most bills describe how the lawyers spent their also enables client questions to surface while the work done is time. In most cases, it is a fundamental misconception that fresh in both sides' memories and before the amount in dispute clients care about how lawyers spend their time. The only thing is so great that easy resolution is elusive. clients care about is reaching the desired objective as efficiently as possible. If bills are always crafted to describe the progress made toward accomplishing the client's goals and objectives, the client will be informed about the state of the matter and, as a result, will want to pay promptly to encourage the lawyer to `:..firms mdyfind that the time make more progress in the next billing period. sent mdndging their billing process is the most productive Yndndgement 5. Avoid billing for overhead items. Whenever possible, lawyers should forego billing clients for any disbursements time they dre likely to spend." related to ordinary office overhead. Only with respect to third- party expenses (stenographers, travel expenses, filing fees, etc.) is billing, or seeking to have clients directly pay, advisable. Numer- ous bar association ethics opinions, including the American Bar 3. Independently review the billing process. Firms also need Association (ABA) Committee on Ethics and Professional to monitor the billing process. Although this does not require Responsibility Formal Opinion 93-379 (Dec. 6, 1993), declare oversight of every bill issued, it does mean that sufficient inde- it is peg se improper for a lawyer to make a profit from charges pendent review needs to take place to ensure that billing impro- for normal office operating expenses (photocopying, telephone, prieties are certain to be discovered, so as to deter (and, hope- etc.) unless the lawyer and the client agree to pricing schedules fully, eliminate) such occurrences. The same principles hold true at the outset of the engagement. In the absence of a specific for client disbursements: There is no substitute for adequate agreement, if these items are going to be billed, they must be internal audit systems and independent review and monitoring billed at cost. of all expense claims, both for expenses reimbursed to the firm's One aspect of this issue is billing for computer-assisted legal lawyers and expenses billed to clients. research (CALR). In cases regarding fee awards, several courts It is notable that, although many billing fraud cases also have held that CALR expense is an element of legal fees rather involve billing entries for disbursements, a number of frauds than a separately reimbursable expense or cost and, therefore, have occurred involving lawyers who were dissatisfied with their such expenses should be added to or included within the legal compensation levels and who took extra funds in the form of fees, not itemized separately.2 Thus, a lawyer itemizing a CALK improper expense claims. This type of fraud can involve expense as a cost on his or her bill may find that a court will improper charging ofitems to client accounts or improper reim- refuse to order reimbursement of such expense. Although these bursement claims to the firm for expenses incurred, such as holdings arise from fee award cases rather than ethical or travel or entertainment for the lawyer's family, often under the ...... guise of entertaining clients. Although thefts from the firm are 2 See, e.g., Montgomery v. Aetna Plywood, Inc., 231 F.3d 399, 409 (7th Cir. 2000); Frederick v City of Portland, 162 F.R.D. 139, 144-45 (D. Or. 1995).

Reprinted With Permission. All Rights Reserved. disciplinary cases, they illustrate one of the potential pitfalls that may entrap the unwary lawyer in connection with billing for Managing Ciient Relations expenses. In today's litigious climate, maintaining good client relations In reality, clients resent such add-ons, both in theory and is more challenging than ever. Consequently, managing billing even more when they see the bill including these items. It is far and collection begins even before the commencement of the preferable, in terms of overall client relations and submitting attorney-client relationship. Three key client relations problems bills clients willingly pay, to initially establish a rate or fee basis drive most claims against attorneys: failure to obtain client con- that includes all office overhead and to forego such disburse- sent, failure to follow client instructions, and improper with- ment items altogether. Clients should, of course, be expected to drawal from representation. To avoid such failures, law firms pay or to reimburse true out-of-pocket, third-party expenses. should establish standard procedures to earn clients' confidence: make all parties' expectations and obligations explicit; 6. Send a cover letter. It is advisable to send a cover letter with a bill. Cover letters provide a way of saying to clients that clarify the scope, cost, and likely effects of the services; and the firm is continuing to manage their interests and does not demonstrate an understanding of the legal and factual issues look on them simply as a source of revenue. Even if a brief, stan- involved. Establishing a positive relationship with a client is the dard letter is used, it is a way of communicating positively at a best investment a lawyer can make as well as a vital risk man- time when the client is also digesting that he or she has to write agement tool. another check. Engagement letters play a critical role in establishing good The cover letter should contain four elements: client relations and reducing the frequency and severity of malpractice claims. Good engagement letters take time, but they A thank-you for past payments. are never a waste of time because they provide a necessary foundation for the firm's management of the whole client rela- A simple, "plain English" summary of how the work performed as described in the bill advanced the client's tionship. The engagement letter establishes the scope and lim- interests toward the desired outcome. itations ofthe firm's services and states the basis on which fees will be computed. The engagement letter's clear delineation of An explanation of the activities planned for the next the parties' responsibilities and obligations helps avoid mis- month and how these advance the client's interest communications and resulting billing problems. Only when fee toward the desired outcome. arrangements are carefully constructed, and made part of the of establishing positive relationships with clients from An invitation for the client to call with any questions process regarding the bill. the outset, can lawyers expect to maximize the potential for improving trust between lawyer and client and to maximize The third item is the "killer" element; if the client sees contin- their profitability. ued progress toward the desired outcome, the bill will get paid!

Although some may see it as "wasted" non-billable time, firms may find that the time spent managing their billing process is the most productive management time they are likely to spend. Attention and effort devoted to improving the billing process will both improve collection rates and reduce the real wasted time previously spent by lawyers on work for which the clients do not pay.

Reprinted With Permission. All Rights Reserved. ~~ ~ pensation from the firm's management on a case-by-case basis, lid +_... this policy and procedure should be universal in application to all clients and all lawyers (no matter how senior or how power- :.~ ful) and should be set forth in every engagement letter. Lawyers should also be encouraged to explain this policy to prospective clients in conjunction with delivery of the initial engagement letter. reventin "Never sue a client for fees" should be an absolute rule for o ectlon ro ems all lawyers, although many firms ignore it. There are three obvious reasons for this rule. Suing the client: Most fee disputes and collection problems arise not from dishonest practices but from management failures, including is highly likely to result in a malpractice counterclaim; failures during the collection process. Such collection failures is likely to be largely unproductive; and occur when firm management inadequately scrutinizes potential clients, when lawyers do not bill and communicate regularly is avoidable by using prudent practice management and frequently, when lawyers do not promptly withdraw from procedures. representing derelict clients, and when firm management does not oversee the collection process. Such failures result not only Insurers' statistics vary, but at least one has reported that up in uncollected fees but also in wasted time. Every hour spent to two-thirds of all claims against lawyers begin as counterclaims trying to resolve billing disputes with clients is an hour lost to to fee suits. By suing for fees, firms call their professional liabil- productive activity. ity insurance into play. In numerous cases, the damages awarded on the counterclaim have vastly outweighed the relatively paltry Between 80 and 90 percent of all fees that will be paid are amounts for which the firm originally initiated the litigation. paid within ninety days of bill issuance.l Of the remaining, most are collected within the next ninety days. After that, forget iti Before commencing a suit, a firm needs to ask a basic ques- Lion: Why is the client not paying? There are three possible Management's role, therefore, is to carefully track payments answers: and take steps to follow up before the ninety days have passed. Statements, letters, and follow-up calls should be made on a The client cannot pay. fixed schedule, firmwide, with no discretion in the hands of the billing lawyer to avoid or delay the process. If discretion is to be The client is a deadbeat and never intended to pay. exercised for any reason (including whether the firm should or The client refuses to pay because he or she has sorr~e must continue the representation as a matter of professional form of complaint most likely that he or she is responsibility), it should be exercised by the firm's management, unhappy with the outcome of the matter, the cost not by the billing lawyer. The schedule should commence as incurred, or the time taken to resolve the issue. soon as thirty days have passed and should culminate in a notice, delivered before the ninetieth day, informing the client In any event, a fee collection suit is unlikely to produce the that (subject to compliance with the applicable ethics code) the entire desired fee. Equally important, even if a fee is ultimately firm will cease all work for the client if up-to-date payment is collected, at what cost will it be to the firm? not received before the ninetieth day. Again, absent special dis- Before deciding to file a fee suit, a firm must assess the costs of such a suit, including the internal time and resources used to bring the claim; the additional value of that time in terms of the 1 See, e.g., John H. Woodall, Achieving Financial Stability, Law Office Management 1988, at 283, 303 (PLI Com. Law and Practice Course, billings given up to pursue the matter; and the cost, if any, of Handbook Series No. 478, 1988) ("Historically, you are most successful in outside counsel. Assuming the fee suit provokes a counterclaim, collecting receivables in the first 90 days after billing, and in the next 90 days you stand to lose (i.e. not collect) between 10% and 25% of money owed to the potential future increase in the cost of insurance should also you. From thereon, your collection rate dwindles downward geometrically."). be factored in, as well as the firm's deductible. Furthermore,

Reprinted With Permission. All Rights Reserved. even when some payment is received, it is usually significantly CHECKLIST less than the amount billed or claimed or so delayed that the value of the funds when received is much less than had they F11iE STEPS FtJR iMPRaVING COLI.ECTICINS--~-- been paid when due. Finally, public perception and firm repu- AV01D THE PROBLEM tation are at stake. Does the firm really want its current and potential clients to think that it is sufficiently bad at its practice Firms can avoid most of their collection problems by managing that its clients do not pay or that the firm may turn on its clients five elements of the firm's business practices: and sue them? 1. Institute a standard practice of conducting appropriate Many firms stop short of litigation but are willing to hire credit checks for all new clients during client intake and file- either collection agencies or outside collection consultants. In opening processes. In firms larger than solo practices, some- both instances, the firm is at least keeping the process private one other than the introducing partner should determine the but also necessarily incurring additional costs, thereby reducing the value of any recovery. In the end, it always comes back to creditworthiness of a potential client. prevention, as collection suits are almost entirely avoidable. 2. Require all clients to countersign approved form engage-

At far less administrative cost and risk to resources, firms ment letters before a client is accepted or work is com- can prevent collection problems, first by improving client selec- menced. Such letters should contain a clause reserving the tion i.e., better managing client intake. Firms should require right of the firm to withdraw as counsel if the client fails to appropriate credit checks for all new clients during the client pay the firm's invoices within a specified time period. This intake and file-opening processes. Firms should also conduct ensures that all clients are put on notice at the outset that judgment searches and/or lien searches to help determine the firm will whether the prospective client is a deadbeat. Such searches can withdraw if not promptly paid. be conducted on-line at minimal, if any, cost to the firm. These 3. Bill frequently and use invoice forms and styles that empha- checks should be centrally managed and overseen so that some- size the value of the services provided in approaching or one other than the introducing partner reviews the results and exercises independent judgment on behalf of the firm. achieving the client's goals and objectives. 4. Communicate regularly and effectively so that clients are Second, the firm should require all clients to countersign approved form engagement letters before work is commenced kept informed of the status of their cases and so that on the matter to ensure that clients are put on notice at the out- lawyers will learn at the earliest possible moment when set that the firm will withdraw if not promptly paid. problems or misunderstandings arise and well before they become so great as to be insoluble. Such communication Third, the collection process should be overseen such that at some point firm management requires the lawyer (subject to may be aided by sending a cover letter with every bill. the making of any required motions) to cease providing services 5. Ensure oversight of the bill-aging process, i nc I ud i ng req u i r- to the delinquent client. Not only does terminating the repre- ing lawyers to cease to provide services to delinquent clients sentation ultimately avoid the need to sue clients, it immediately leads to much greater productivity within the firm. When firms at a time determined by the firm. Ninety days after a bill is write off time or actual bills for a client who does not pay, the unpaid is often appropriate, subject to the making of any lawyer who was working for nothing has actually and measur- required motions in litigation matters. Of course, there are ably harmed the firm, as well as himself or herself. Time spent occasions when a lawyer, even if entitled to withdraw, on derelict clients is time (and other resources) that could have should not do so for professional reasons. Nevertheless, been used for more productive clients or for recreation. The clients accepted by the firm based on the understanding that wasted time thus represents wasted firm capital and wasted personnel resources. Therefore, allowing and requiring firm they will pay for that privilege should, as a normal matter, be management to play "bad cop" in prohibiting work at an early held to that agreement. stage for clients whose bills are overdue is the best way to save those valuable resources.

Have you ever asked a group of clients how they feel (not think but feel) about hourly billing? We have asked this question oflawyers who have had experience as clients presumably the group of clients most likely to be disposed to accept this billing arrangement. Even among this class of clients, a majority report three very profound and powerful feelings coming out of e ternatives their experiences as clients: powerlessness, distrust, and anger. common our in Notably, the feelings of powerlessness and distrust are to 1 even among those who do not feel that the ultimate fee was out On a more fundamental level, many billing, timekeeping, of line, but all three emotions are obviously most pronounced and collection problems can be lessened or eliminated entirely if among the large group who feel that the hourly billing lawyers a firm ceases billing on an hourly basis and instead employs "took advantage" of their vulnerability. At one level, what these alternative billing methods. There are compelling reasons to sophisticated clients are describing is the existence and fre- consider alternatives to hourly billing. Billing based on time quent breach of their lawyers' fiduciary duties to place the spent, however, although of relatively recent vintage, has clients' interests first. At another level, they are also pointing out become so ingrained (in the minds of clients and judges as well that time-charging necessarily creates a direct conflict of inter- as lawyers) that we first need to explore further the powerful est: The longer the work takes, the more the lawyer earns, ver- negative aspects of time-charging. sus the faster the client's desired outcome is realized, the less the lawyer earns. Even though nonlawyer clients perceive this con- The ProbleYns with Hourly Billing flict, they may not be able to articulate it; however, the failure to Client Aversion: Uncertainty identify the problem as a "conflict of interest" does nothing to reduce those negative feelings. Picture the scene: You are standing in line at LAX for the Los Angeles—San Francisco shuttle. When you finally get to the This feeling of powerlessness is heightened whenever the ticket counter, the agent issues around-trip ticket and enters client is not in a position to understand the niceties of the sub- your credit card in the computer but no price is indicated on stantive or procedural issues causing the unanticipated fees. the ticket. You enquire why. He tells you that the airline will Contrast this with a homeowner who hires a contractor to make inform you of the price after your travel has been completed. repairs on her house. Although experience has probably hard- You protest. He explains that there are too many variables, such ened the client/homeowner to expect surprises in the form of as delays caused by weather, traffic, air traffic control, ground additional work as the job proceeds, such additional work will crew operations, unavailable gates, and incoming equipment, either be included in the fixed price agreed at the outset or be and that the airline can compute the price only once it knows the subject of an explicit additional work order, which the client how long it actually took to get you there and back again. You must approve before the contractor does the extra work, speci- insist on getting an estimate. He says (hesitatingly and in a con- fying both the additional work to be performed and the' price spiratorial whisper) that the lowest price he has ever seen was associated with it. Lawyers frequently make no parallel efforts $400 but that it has gone as high as $2,000 (but that is not an either to explain why the extra work is required or how it will agreed upper limit) when there was day-long fog at the San increase the overall fee. Francisco airport. How do you feel when you get on the plane? The problem is most pronounced and most serious among The unease caused by uncertainty from the client's per- lawyers practicing in firms that have stated criteria as to the spective is only the beginning of the problem of hourly billing. number of hours lawyers at every level of the firm are expected or required to bill annually. In those firms, the existence of the conflict is not merely theoretical; it has actually been institu- tionalized, to the inevitable disadvantage of clients.

The underlying problem from the client's point of view is that hourly billing potentially permits, and may even encourage, `:..clients (even sophisticated corporate clients inefficiencies in the delivery of the desired services. Rather than mdy be, ~t best, distrustful ofhourly billing accomplishing the client's desired outcomes as speedily and efficiently as possible, time-charging promotes expansive, labor- end, dt worst, angry and resentful." intensive work that may have limited relationship to the client's objectives and have much to do with keeping as many lawyers as busy as possible.

In short, clients (even sophisticated corporate clients) may The Benefits for Firm Management be, at best, distrustful of hourly billing and, at worst, angry and A second benefit derived from moving away from time- resentful. The increasing adoption by corporate clients of intru- charging is that firms are able to take hold of their business sive oversight procedures of legal bills in recent times exempli- administration in entirely new and positive ways. In almost fies this distrust. When instituted, these procedures rarely pro- every other sector of our economy, price is determined by two mote healthy or positive lawyer-client relationships. considerations: cost and what the market will bear. To achieve Positive Reasons to Consider Alte~n~ztives to greater profitability, firms need, often for the first time, to deter- Time-Charging mine their true cost levels. Indeed, for the transition away from time-charging to work at all, firms have no alternative but to The Benefits of Ei~iciency generate true service delivery cost data in a number of different ways, including by practice area, by individual case or matter Lawyer Smart enters into a fee arrangement with her client, type, and by practice group or individual lawyer. By establishing which yields a fee that is related to the outcome sought by the historic benchmarks for every type of work within a firm, firms client: $100,000 for completion of the project (as defined in will discover what kinds of cases or matters are historically most advance). She handles the matter successfully, using limited (and least) profitable, enabling firms to start planning for resources from her firm (associates, etc.) and takes 100 hours to improved efficiencies based on knowledge of the firm's actual produce the outcome. On an hourly basis, Smart has earned costs, rather than guesswork. $1,000 per hour. Lawyer Traditional offers the same services for another client. He accomplishes the same result, using 200 Other, more immediate benefits can be gained from alter- hours of associate time and 150 hours of his own time. His time native billing arrangements. For instance, firms or practice is billed at $400 per hour, and the associates are billed at $200 groups that develop profitable fixed-fee billing arrangements per hour; total fees to Traditional's firm are also $100,000. In (after doing the appropriate cost and price analysis described this example, even though the total fee was the same, Smart's above) will have amuck-enhanced ability to plan their cash flow firm was significantly more profitable because it made the same and budget their operations with greater ease and efficiency. fee with far lower overhead (associates' salaries, costs of space and support staff, etc.) and had the saved time and resources The Benefits for Client Relationships available to use for (and bill to) other clients. Although the example is simplistic, the point is significant. If lawyers By relating fees to the expressed wishes of clients, set out in approach their work as other businesses do, the lawyers will fully articulated engagement letters, lawyers and firms can make more money, not by working more hours but by working obtain the intangible, but fundamentally important, benefit of more efficiently. Either they will earn the same fees for less work improved client relationships. By establishing fee arrangements or, more desirably, more efficient work, or they will earn more that are directly related to the client's needs and objectives and fees for the same number of hours worked previously. that have been discussed and agreed to, a positive level of trust will replace the negative feelings so often engendered by hourly billing. Ultimately, contented clients will yield more business, both directly and by way of referrals.

Reprinted With Permission. All Rights Reserved. The Alte~n~ztives to 7~iYne-Ch~z~ging action lawyers, fees based wholly or partially on success may be an option and an opportunity for many other kinds of prac- The principal alternatives to hourly billing that have no ele- tice. It is no fluke that lawyers who do work on contingency are ment of time-charging are: frequently the most profitable and successful. These arrangements work because they are advantageous to clients as well as Fixed fees. lawyers. The fundamental benefit to clients of these arrange- Contingency (and reverse contingency) fees. ments is that by sharing the reward with the lawyer, they can require the lawyer to share the risks. A contingency fee arrange- Stage fees. ment is beneficial both because it demonstrates to the client that there is no conflict of interest in that the lawyer is committed to "Premium for success" fees. success and because it eradicates most, if not all, of the frictions relating to the subject of fees.

Reverse Contingency Fees wholly or pd~ti~zlly on `:..fees based As some defense attorneys have determined, even they can success yn~y be ~zn option find ways to improve profitability by engaging in risk-sharing ~xnd ~zn opportunity or many fee arrangements. After thoroughly and carefully evaluating ... kinds o pr~xctice. cases with their clients, these lawyers have structured fees based on alternative outcomes. For instance, assume a claim is for $10 million and review with the client suggests that a probable verdict would be $6 million but that the client would settle for $4 million. The firm may agree to stage fees at a minimal level, Fixed Fees but also earn acontingency/premium in the form of a percentage of the savings achieved either by a settlement before trial or Although litigators often claim that there is no way their by a verdict at less than the agreed level. Thus, if the firm has a practices can accommodate fixed fees and a few bar association one-third reverse contingency and the firm achieves a settlement ethics committees have suggested that, at least in insurance before trial of $1 million, its contingency fee will be $1 million defense work, fixed fees may be unethical, both groups are mis- (one-third of the $3 million saved). taken. What the lawyers fail to recognize is that they fear fixed fees because they only know how to guess at the progress of Stage Fees future litigation. In fact, the budgeting process in any commercial enterprise is informed guesswork based on accurate analy- Although stage-fee arrangements have many of the prob- sis of prior history. In other words, even litigation practices lems of time-charging, they do offer clients some additional could establish profitable fixed-fee structures if they undertook control over what the law firm does or at least what it gets paid rigorous cost and profit analysis of prior cases although there for doing. Thus, fees are fixed for each element (or stage) of a may be other, better alternative-fee arrangements for many liti- transaction or case (e.g., the fee per deposition), and the extent gation practices. Certainly, afixed-fee arrangement is most eas- of the fee remains in the client's control (albeit the lawyer's ily adapted to practices with expertise in repetitive work, such as obligation remains. to provide competent service, even if this real estate closings or immigration work focusing on visa appli- means taking a loss in some individual cases). cations. Nevertheless, at least one of the most profitable corpo- "Premium for Success" Fees rate merger and acquisition firms in the country charges only fixed fees for the transactions it handles. As with both fixed and contingency fees, the concept underlying "premium for success" is the sharing of risk between Contingency Fees lawyer and client. The client pays an hourly or fixed rate, which Although many lawyers and lay people alike think of con- may be discounted, and if the representation is successful, the tingency fees as the domain only of personal injury and class client also pays a "premium." The client benefits by reducing its

Reprinted With Permission. All Rights Reserved. exposure to expense for a transaction that is not consummated; the lawyer benefits by experiencing a new level of client loyalty and by taking profitability to a level far higher than any hourly `:..the pressurefrom clients ofdll kinds fee arrangement is ever likely to reach. dnd sizes, dnd the pressurefrom competition ... The Hidden IYnplic~tionsfor Ldw FirYn will compel both the largest and the smallest M~n~zgement ofAlternative -Fee Ar~~zngeYnents firms to abandon time-charging." Some firms are leery of alternatives to time-charging for several reasons. The structure and composition of a firm is likely to experience potentially major consequences as a result of rigorous cost and profitability analysis, which is the sine crud non of Although some clients (and some judges) will insist on con- any effective change. Suddenly practice areas that on the surface tinuing the time-charging arrangement for a considerable time look profitable because of the high dollar number of the fees col- to come, the future lies with the alternatives. Even if it was only lected may appear relatively expensive and even unprof- a matter of the negative aspects, time-charging would, ulti- itable compared to other, more efficient practice areas. In mately, be doomed. But the pressure from clients of all kinds turn, this can put significant pressure on long-established com- and sizes, and the pressure from competition as smaller and pensation structures. If not properly managed, simply the exer- leaner firms adopt and offer aggressive alternative-fee structures, cise of doing the cost and profitability analysis can provoke the will compel both the largest and the smallest firms to abandon departure of partners or of whole practice groups. In addition, time-charging. As the economy undergoes recession, it will although hourly billing did not become the primary form of fee become apparent that those firms that prepared by understand- generation among lawyers until the late 1960s, most lawyers ing their cost structure namely, those firms that have exam- now practicing have known no other system. ined and explored the alternatives will survive the tough market as they offer clients, who are themselves under financial pres- Furthermore, the entire structure of many large firms the sure, not just discounted hourly rates but instead fee arrange- "pyramid" is based on the assumption that profits come from ments that are profitable for both. maximizing the amount of lawyer time (and therefore the number of lawyers) thrown at clients' matters the "leverage" system. The very suggestion that profits can be improved by increasing efficiency is entirely counterintuitive to lawyers and firms whose historic success is based on leverage. Indeed, that very success is a strong reason many lawyers particularly those managing or reaping the profits at the top of very large firms decline to contemplate the kinds of changes discussed here.

The Future ofHourly Fees

Given ever-increasing pressure on lawyers to work and bill more hours and the concern that such pressure detrimentally affects not only those lawyers but also their communities, the American Bar Association (ABA) has established a Commission on Billable Hours to conduct a study and identify issues on the effects of increased billable hours demanded of lawyers working in private law firms. The Commission recently issued its Billable

Hours Report, which reviews the corrosive effects of hourly 1 The ABA Commission on Billable Hours Report 2001 — 2002 can be found at timekeeping and explores various alternatives to hourly billing. htt~://www abanet.or~/careercounsel/billable/toolkit/bhcom~lete.~df. For more information on the impact of billable hours on the legal profession, see the In addition, it discusses means of working within the billable- ABA Commission's "Online Toolkit" at hour system and provides "best practices" ideas for mitigating htt~://www abanet.org/careercounsel/billable/toolkit/toc.html. the damaging aspects of hourly billing.l

Reprinted With Permission. All Rights Reserved...... Questions, suggestions, or requests for additional copies are Editor's Notes welcome and should be directed to the Editor, Lawyer to Lawyer to Lawyer, published by Chubb, is provided as a service Lawyer, 82 Hopmeadow Street, Simsbury, CT 06070-7683. To receive additional copies of this issue or a past issue of to our insureds and brokers. This literature is descriptive only. Lawyer to Lawyer, please fill out the information below and It is offered as a resource to be used in developing or fax back to the Editor, Lawyer to Lawyer, at 860.408.2288. maintaining a loss prevention program. This literature is # of copies necessarily general in content and intended to give an overview professional liability in the United Edition XVIII — of certain aspects of lawyers' "Border Crossings by Lawyers: You May Be States. It should not be relied on as legal advice or a definitive In Hostile Territory" statement of the law in any jurisdiction. For such advice, Edition XVII — applicants, insureds, or other readers should consult their own "Tolling Agreements" legal counsel. No liability is assumed by reason of the Edition XVI — information this document contains. At the time of printing, "Law Firm Employment Liabilities" Internet sites were available. Due to the evolving nature of the Edition XV — Internet, Web sites listed may change or may not be available Brave New World of Associate Salaries" "The in the future. Edition XIV — "The National Trend Toward Adopting a Comparative This literature does not purport to explain or interpret any Negligence Defense to Legal Malpractice Claims" policy of insurance issued by Executive Risk Indemnity Inc. or Edition XIII — Executive Risk Specialty Insurance Co. Coverage for particular "Investing in Clients: The Latest Trend in Conflicts of claims may differ depending on policy language. You should Interest" read your policy for complete coverage information. Edition XI — "My Brethren's Keeper: Professional Liability Chubb offers the following insurance products for by Association" professional firms: Edition X — ■ Professional Liability "Breach of Fiduciary Duty and Punitive Damages" Lawyers Edition IX — Employment Practices Liability for Law Firms "Using Binding Arbitration Provisions for Fee Disputes" Law Firm Management Liability Name: ■ Employed Lawyers Professional Liability Firm: Address: ■ Accountants Professional Liability ■ Management Consultants Professional Liability Phone: Email: ~ Crime ~ Fiduciary Liability :...... : ■ Miscellaneous Professional Liability

Safety'NetSM Internet Liability

i Customarq for Law Firms CHUBB PROFESSIONAL Chubb Group of Insurance Companies Kidnap/Ransom and Extortion Insurance 82 Hopmeadow Street Post Office Box 2002 ~ Commercial Automobile Simsbury, CT 06070-7683 •Fax: 860.408.2002 Phone: 800.432.8168 ■ Email: csi-infoC~chubb.com Worker's Compensation Web site: htt~://csi.chubb.com

...... Reprinted With Permission. All...... Rights Reserved. Form 14-01-0599 (Ed. 9/02) LP22 CHAPTER 4

ALTERNATIVE FEE ARRANGEMENTS

349 Alternative Fee Arrangements

By far the most comprehensive treatment of the alternatives to the billable houris BillingInnovations: New Win-Win Ways to EndHourly Billing, by Richard C. Reed (ABA Law Practice Management Section, 1996). In Chapter 2 of his book, Reed makes the following assertion, which summarizes our discussion thus far: "Any billing method that does not depend exclusively on time spent as a measure ofvalue pro vides an incentive for efficiency and early resolution of the matter being handled." He also points out that there are rules in manyjuris dictions governing the use ofengagement letters, the permissible use ofretainers (and in many jurisdictions, a prohibition on all or some forms of nonrefundable retainers), and the use of contingency fees. These rules are discussed in Volume I, Part II ofThe Essential Formbook. In Chapter 2 of Billing Innovations, Reed also sets out the fol lowing summary ofwhat he refers to as generic billing methods:

A Summary of Generic Billing Methods1 [Tlbis chapter is a summary of the fourteen generic billing meth ods, presented in outline form for easy reference.

1. Fixed or Flat Fee The fixed or flat fee is the price that will be charged for defined services. It may be the total fee for the engagement or may apply to segments of the total services. It may stand alone or be combined with either an hourly fee or a contingent fee.

Advantages • Forces agreement between lawyer and client on what services will be required and furnished. • Requires you to know cost of providing defined services. • Client knows what the. fee will be. • Can be competitive with the market. • Useful in marketing services. • Not dependent on time spent. • Can be keyed to value ofbenefits to client.

Disadvantages • Unprofitable ifcost of providing services exceeds estimated cost.

1 Reprinted with permission from Billing Innovations: New Win~Win Ways to End Hourly Billing, a publication ofthe ABA Law Practice Management Section, by Richard C. Reed, 1996. Footnotes have been added to reflect recent court deCisions in support ofthe billing methods described.

2007 SUPPLEMENT 351 THE ESSENTIAL FORMBOOK, VOLUME II, PART II

• Unprofitable ifservices are not performed efficiently. • Unprofitable ifthere is no specific definition of what services are included and unforeseen problems ariserequiring extra work that is clearly covered bythe representation agreement. • Shouldnotbe usedwhen there areforeseeable uncertainties.

When to Use • For routine services where experience shows what is nor mally required so that you can foresee and define included services. • When you can estimate both the tiroe required and the mix of standard billing rates. • For co=odity services in. a highly competitive market. • For volume work on a repetitive basis. • When you are comfortable accepting the risk of unprof itability ifcost of production exceeds the fixed fee.

Predictability ofTotal Fee • Excellent---enables clients to know what the fee will be.

Incentive for Efficiency • Encourages use of systems, appropriate delegation, and technology.

Recognition ofValue to Client • Can be priced to reflect value to client. • Value to client rather than time expended can be the stan dard in setting the fee, subject to competitive market conditions.

RelevantExample • While techuically not a fixed or flat fee agreement, the U.S. District Court in the Southern District of New York enforced a fee agreement against a law firm where the retainer agreement including a $10,000 fee "cap" clearly illustrated the client's intent to impose a ceiling on its legal fees. 2

2Data~Stream ASIRS Technologies LLC v. China IneZ Marine Containers Ltd., No. 02 Civ. 61;30,2004 WL 830062 (S.D.N.Y. Apr. 13, 2004).

352 2007 SUPPLEMENT Alternative Fee Arrangements

2. ContingentFee The contingentfee is a chargethat depends on the results achieved. It requires clear agreement on what the desired results will be. Those results may be positive (direct) in the sense of achieving a desired objective, or nega tive (reverse) in the sense of avoiding exposure to liability. A contingent fee may be combined with a fIxed or flat fee, or with hourly billing.

Advantages • Client does not pay unless favorable result is achieved. • Clients who are otherwise unable to pay can obtain legal representation. • Can be lucrative ifyou are careful in accepting the repre sentation and screen cases well before agreeing to proceed. • Depends On results, not time expended in obtaining results. • Terms of representation can be clearly defIned in fee agreement.

Disadvantages • You assume risk ofproviding services without assurance of being paid. • Carrying costs. The expense oflitigation may have to be ad vanced or carriedbythe lawyer ifthe client is unable to do so. • Some jurisdictions are limiting contingency percentages in prescribed cases. • Uneven cash flow for the lawyer. • The time and effort required may exceed estimates.

When to Use • When it is desirable to represent individuals who are other wise unable to pay. • When your expertise and reputation attract good cases. • When you can skillfully screen the desirability of a repre sentation so that you accept only cases with a likelihood of success.

Predictability ofTotal Fee • Clear formula for measuring results that determine the amount ofthe fee, even though the exact fee is not known at the outset.

2007 SUPPLEMENT 353 THE ESSENTIAL FORMBOOK, VOLUME II, PART II

Incentive for Efficiency • Excellent, as your goal will be maximum results with the least expenditure oftime and effort. However, iflawyer and client differ on whether the matter should be settled or tried, complications can arise. • Not tied to time spent.

Recognition ofValue to Client • Tied directly to results achieved so presumably will reflect value.' • If matter is mishandled so that good results are not obtained, client will not receive value, even though no or low fee is paid.

Relevant Examples •A client who challenges the size ofa contingent fee bears the burden of showing unreasonableness, and must first pres ent a prima facie case that she is entitled to have money returned to her before her lawyer must provide evidence of reasonableness of the fee. The Colorado Court ofAppeals issued a directed verdict in such a case after the client failed to show the fees were excessive.3 • While some states may prohibit a lawyer from charging a contingent fee for collecting medical payments, the West VIrginia Supreme Court ofAppeals took the opposite stance, noting that West Virginia, unlike other states, has no statute expressly prohibiting such fee.agreements.4 • The Indiana Supreme Court issued two decisions inAugust 2003 that put lawyers on notice that they would be disci plined for taking the entire contingency fee from the first of a series of settlement payments intended for the client unless the client had agreed to such an arrangement in writing. The Court found the fees to be unreasonable in both cases, and stated that the contingency fee should ouly be collected as the funds are actually received.5

'Monday v. Robert J. Anderson PC, No. 02CA1080 (Colo. Ct. App. May 5, 2003). 4Lawyer Disciplinary Bd. v. Morton. No. 270?1 CW. Va. May 2,2002). 'Inre Hailey, 792 NE.2d 851 (Ind. 2003); In re Stochel, 792 N.E.2d 874 (Ind. 2003).

354 2007 SUPPLEMENT Alternative Fee Arrangements

3. Straight Hourly Billing In the past quarter century hourly billing (sometimes referred to as time/rate billing) has predominated. It is predicated on the keeping of accurate, contemporaneous records of time expended by lawyers, legal assistants, and other staff members. The hourly rate for each fee charger is intended to cover the cost of production plus a profit factor. Therefore, knowing the cost of production is important, although many lawyers do not have reliable cost data. To some extent, hourly rates are market driven, particu larly at the commodity level, and can reflect lawyer expertise and anticipated value at the high end of the Value Curve. Hourly billing has developed some non-time-related entries such as minimum time charged for particular servic es, for example, minimum time entries of a quarter hour or minimum entries for each letter or phone call. Many lawyers or firms will have different rates for differ ent fee chargers, and different rates for a specific lawyer depending on the type of service, the client,. the subject mat ter, or other variables. These variations recognize that the value to the client will differ and that time spent, per se, does not accurately measure the fee to be charged. Can be combined with contingent fee or fixed or flat fee billing.

Advantages • Both lawyers and clients have become accustomed to the hourly method of billing and are, therefore, comfortable with this method and how it operates. • Rate schedules can be set, quoted, and used by the lawyer and checked, monitored, and compared by clients. • Billing can be somewhat automatic, particularly with com puterized billing systems that multiply time recorded by preestablished rates per hour to produce statements. • Subjective judgments in billing are not required. • Detailed itemized statements based on contemporaneous time entries are a chronology of work done and can be a means of communication between lawyer and client. • Detailed itemized statements when regarded as tangible evidence of work done create the appearance of objectivity and evidence of the services provided to jus,tify the charge being made. • All risks (except the risk of nonpayment of the fee) are placed on the client.

2007 SUPPLEMENT 355 THE ESSENTIAL FORM BOOK, VOLUME II, PART II

Disadvantages

o Client is unable to know what the total charges will be. o Discourages efficiency, incentive to reach an early conclu sion and to provide cost-effective services. o Clients are resisting the high cost oflegal services. o Clients must accept all of the risks, including lawyer inefficiency. o The fee charged may have little relationship to the value of the benefits received by the client. o Time spent does not recognize the benefits ofthe use of sys tems and technology, nor does it compensate adequately for the cost of development of such methods. • The lawyer is not adequately compensated iu high-value and high-responsibility matters. o Does not recognize extraordinary, priority, or emergency services. o There are finite limits for billable hours per year and for hourly billing rates, so there is. a cap on maximum gross income. o Does not promote finding better ways to provide legal serv ices at a reasonable cost to the client.

When to Use

o When the client demands hourly billing andwillnot consider alternative methods. o When there are variables that cannot be foreseen with rea sonable accuracy. o When no reasonably fair alternative method can be used. o When the lawyer is willing to accept the representation but not willing to accept any risk. o In situations requiring court approval of fees, where the court only recognizes hourly billing in approving fees.

Predictability ofTotal Fee

o Difficult unless there is a guaranteed maximum. o Sophisticated clients having past experience with similar matters and/or with prior use of the same lawyer may be able to anticipate the range of the fee that will be charged. o Limited even with case control by the client. o Dependent on willingness oflawyer to write down fee for' client based on retrospective review.

356 2007 SUPPLEMENT Alternative Fee Arrangements

Incentive for Efficienc~' • Not inherent except to generally please the client and to preserve the lawyer-client relationship. • Generally perceived to promote inefficiency and disregard for relating fee for services to the value to the client ofthose services.

Recognition ofValue to Client • Generally unrelated to value to the client. The lack ofrela tionship between the amount ofthe fee and the value to the client may penalize either the lawyer or the client.

Relevant Example • In a fee dispute between a prominent Manhattan law fIrm and an artist who authorized the firm to "leave no stone unturned" in a child custody dispute, the New York Supreme Court held that the client could not claim that the $3.9 million in legal fees were excessive.s The Court declined to make a policy determination that the fees were unethical, stating that it would not "police the conduct of wealthy litigants who chose to share their wealth with counsel on extravagant litigation."

4. Blended Hourly The blended hourly rate is a hybrid ofthe hourly rate. Instead of specific hourly rates for individual fee chargers, one rate applies to all hours billed on a matter. Advantages • GenerallY the same advantages as for the hourly method. • Is thought to be more simple to negotiate and administer than the methodofhaving specific rates for each fee charger. • Can be advantageous to the lawyer if work can be per formed by individuals with lower normal hourly billing rates. This is dependent on capabilities of those individuals and the retained right ofthe lawyer, not the client, to direct who will do the work. • May encourage delegation.

Gpaul, Weiss, Rilkind, Wharton & Garrison v. Kooru;, 780 N.Y.S.2d 710 (N.Y. Sup. Ct. N.Y. Cty.2004). .

2007 SUPPLEMENT 357 THE ESSENTIAL FORMBOOK, VOLUME II, PART II

Disadvantages • Generally the same disadvantages as for the hourly method. • Appears to be simple, but is still dependent on knowing cost ofproduction. • May endanger the quality of the work product unless quali ty controls are in place. • Will be unprofitable unless the blend in practice is at the high end.

When to Use • When the type of work involves a typical patiern and the fee-charger mix to do the work is reasonably foreseeable. • Should not be used uniformly if the matters subject to the agreement vary in required level of expertise and special ization or in responsibility assumed.

Predictability ofTotal Fee • Same as for hourly billing.

Incentive for Efficiency • By providing incentive to delegate, there may be more effi cient use of individual skills. Care must be taken to ensure quality ofproduct and to avoid increased cost to the client if low-end personnel are markedly less efficient than high-end individuals. Recognition ofValue to Client • Generally unrelated to value to the client. The lack ofrela tionshipbetweenthe amount ofthefee charged andthevalue to the client maypenalize either the lawyer or the client.

5. Fixed orFlat Fee plus Hourly In this hybrid method, the portions of the services that can be defined as to scope are charged on a fixed or flat fee basis; the portions of the servic es that cannot be defined because ofvariables or uncertainties are charged on a time-rate or hourly basis. This method can be used in both litigation and transactional matters. Numerous variations can occur, and the sequence of steps in the method of charging may vary. To illustrate the use of this method ina transactional matter, in an estate-planning assignment during the initial phase when the objectives of the client are being determined,

358 2007 SUPPLEMENT Alternative Fee Arrangements

asset information is being gathered, and tax ramifications are being determined, the services can be charged on an hourly basis. When the route has been determined and what will be required can be defined, the preparation of documents and services necessary to complete the assignment can be charged on a fixed or flat fee basis. To illustrate the use of this method in litigation, a flat fee can be charged for handling what appears to be routine litiga tion with some agreement on what services are included for that fee. Ifit is necessary to do extra work, there can be an hourly charge for services beyond the original defined scope.

Advantages • There is a compromise or balancing in risk-sharing and pre dictability of the fee by use of this blend. • The advantages of the hourly and the fixed or flat fee meth ods are accordingly modified. • Ifthe fixed or flat fee is quoted after some ofthe variables or unknowns have been cleared, the client will have an eco nomic basis upon which to decide to proceed.

Disadvantages • There is a compromise or balancing in risk-sharing and pre dictability ofthe fee by use of this blend. • The disadvantages of the hourly and the fixed or flat fee methods are accordingly modified.

When to Use • When some but not all of the contemplated services can be defined ~o that a fixed or flat fee can be quoted. At the out set the general approach to charging can be specified even though the precise fixed or flat fee cannot be specified until some ofthe variables or unknowns have been cleared.

Predictability ofTotal Fee • The method of charging'will be agreed upon, though the exact total cannot be predicted because of the portion not included in the fixed or flat fee.

Incentive for Efficiency •A combination of the incentives described above for, the fixed or flat fee and hourly methods.

2007 SUPPLEMENT 359 THE ESSENTIAL FORMBOOK, VOLUME II, PART II

Recognition ofValue to Client • Compromise between the two methods.

6. Hourly plus a Contingency By combining hourly billing and a contingency factor, client and lawyer are sharing risks within the limitations ofthe representation agreement. Since a portion of the fee will be hourly, the lawyer is guaranteed a minimum amount. This is true whether the hourly fee is based on regular hourly rates or the agreed hourly rates are lower than the regular rates. That will guarantee Bome pay ment to the lawyer but leave some risk with the client. As in straight contingency agreements, both the client and the lawyer are motivated to obtain the maximum results since both will benefit. It is important to define .clearly the way the contingent fee will be measured. If the achieved result justifying the contingent fee is not directly expressed in dollars, there must be some agreement spelled out on the amount of the contin gent fee and how it will be measured. For example, the basis for the contingent fee might be obtaining a rezoning, acquir ing a business, or obtaining a restraining order, any of which . needs to be assigned a value or tied to the fee amount that will be paid.

Advantages • Lawyer and client share some ofthe risks and the benefits. • The hourly fee offsets the cost ofcarrying the matter. • The client will not pay the full hourly rate ifthe objective is not achieved, and will share proportionately ouly ifthere are benefits. • May enable a client not able to pay fully to achieve a result for which the client will be able to pay because of the bene fit received.

Disadvantages • As with any contingent fee agreement, the lawyer must determine the chances of success and exercise care in accepting the representation. • Disagreement can resultifthe fee agreement does not clear ly define how the contingent fee will be computed. • Except to the extent ofthe compromise, has the samedisad vantages as both the hourly andthe contingent fee methods.

360 2007 SUPPLEMENT Alternative Fee Arrangements

When to Use • With carefully selected clients. • After careful appraisal of chances of success. • Where significant potential dollar value exists (the contin gent fee potential must offset the reduced hourly fee).

Predictabilit" ofTotal Fee • Limited.

Incentive for Efficiency • Generallythe sameas with any continentfee representation.

Recognition ofValue to Client • Close relationship to value because of contingency factor and how success will be measured.

7. Percentage Typically, percentage fees have been based on a schedule of fees related to the amount involved in the mat ter being handled. The amount may be predetermined or may, in some instances, be related to the amount ultimately deter mined. Examples include a percentage ofthe value ofestates being probated, the amount of a real estate transaction, and the amount of a bond issue. The percentage rate may be con stant or may be graduated.

Advantages • Relatively easy to state the terms in the representation agreement. • Reflects the amount involved and the exposure of the lawyer to liability. • Is not dependent on time spent. • Ifpercentage and amount oftransaction are predetermined, same advantages as fixed or flat fee. • If percentage is known but amount of transaction is not known, same advantages as contingentfee.

Disadvantages • Ifset too high, may not be competitive. • Ifset too low, may be unprofitable.

2007 SUPPLEMENT 361 THE ESSENTIAL FORMBOOK, VOLUME II, PART II

• If complications arise and extra services are required, risk is on the lawyer, unless representation agreement closely defines what services are included. • Ifpercentage and amount oftransaction are predetermined, same disadvantages as fixed or flat fee. • If percentage is known but amount of transaction is not known, same disadvantages as contingent fee.

When to Use • In situations as shown in the above examples. • There appears to be a growing tendency to use a percentage fee in court awards in common fund fee approvals, in lieu of lodestar or hourly methods.

Predictability ofThtal Fee • Method is known even if the amount of the fee cannot be calculated until the amount of the transaction is determined.

Incentive for Efficiency • Good, because not tied to hours spent or duration of the transaction. • Provides incentive to use most effective and most economi cal personnel to complete the assignment and maximize results.

Recognition ofValue to Client • To the extent that the amount involved represents value, this method recognizes value to client.

8. Retrospective Based on Value This method differs in approach from most ofthe alternative billing methods in that the exact amount of the fee is not known to either lawyer or client until the matter is concludeq. However, the factors that are to be considered in setting the final fee can be set forth in the representation agreement. Often these are the factors set forth in the Model Rules ofProfessional Conduct. It is possible to establish either a maximum or minimum fee that will be charged. May be combined with an hourly fee in setting a minimum by agreeing atthe outset that the fee will be no less than a prescribed amount. The amount of the fee should be determined by the lawyer, not the client.

362 2007 SUPPLEMENT Alternative Fee Arrangements

Advantages

o Allows a retTospective determination of the amount of the fee at a time when all uncertainties and unknowns no longer exist. All effort is made to equate the amount of the fee to the value to the client ofthe services performed. o Dependent 011 benefits conferred rather than solely on time spent. o Because determining the amount of the fee is subjective, can be more equitable than if some mechanical system is used.

Disadvantages o Client does not know in advance what the fee will be. o Is dependent on close and trusting lawyer-client relation ship; not frequently used today. o Sophisticated purchasers of legal services are wary of potential abuses and inability to budget or monitor legal expense. o Should cut two ways with reduction of fee below normal hourly rates where value is not achieved despite efforts to do so or higher than normal rates ifresults are exceptional. o Lawyer's determination of value may differ from client's perception of value received. o If no payment is made until conclusion of the matter, the lawyer will have the cost of carry with limited cash flow, unless agreement is made for 'partial payment offees as the matter progresses, subject to final adjustment.

When to Use o When lawyer and client have a trusting relationship charac terized by good co=unication and awareness by the client ofthe work that was dOlle and the true value ofthe results. o Use selectively depending on client and nature of the mat ter being handled. o When both lawyer and client have confidence that the other will act fairly.

Predictability ofTotal Fee o Difficult, unless a maximum or minimum range is set with clearly defined criteria for setting the fee.

2007 SUPPLEMENT 363 THE ESSENTIAL FORM BOOK, VOLUME 11, PART 11

Incentive for Efficiency • Generally good, because time spent is not necessarily a major criterion.

Recognition ofValue to Client • By defmition, the best way to relate fee charged to value to the client, conditioned on being applied fairly and equitably.

9. Availability-Only Retainer The availability-only retain er, sometimes referred to as a "pure retainer" or "right-to-call retainer," is characterized by payment to the lawyer of a fee for which no direct services (or limited services as specified) will be performed, in exchange for the lawyer's commitment to be available when requested·and to refrain within a speci fied time period from representing either parties adverse to the client or competitors of the client. This method is not widely used. It normally will be used when the lawyer has high-level expertise or prestige. The funds when received belong to the lawyer and need not be deposited into the client's trust account.

Advantages • Lawyer is not expected to do any work for the fee. • Client is assured of representation by the lawyer of client's choice. • Client is assured that lawyer will not represent any party adverse to client or competitor of the client. • Client may deem lawyer's prestige will add to the prestige ofthe client.

Disadvantages • Lawyer will be unable to accept desirable work from other clients. • Client may decide that amount paid does not bring expected benefits. • Lawyer's loss of business opportunities may exceed amount ofthe retainer.

When to Use • When the mutual benefits exceed the disadvantages. • When the monetary amount is significant enough to justify· being unable to take workfrom other clients.

364 2007 SUPPLEMENT Alternative Fee Arrangements

Predictabilit~, ofTotal Fee • Entirely predictable.

Incentive for Efficiency • Not relevant, since no services are provided.

Recognition ofValue to Client • Should be reflected by the negotiated amount of the availability-only retainer. The Washington State Formal Opinion 186 recognizes the distinction between "advance fee deposits," which are client funds and must be put into a trust account, and "retain ers," which are funds paid by a client to secure a lawyer's availability over a given period oftime. The funds are consid ered earned at the time ofpayment and must NOT be put into the client's trust account. This opinion cites Baranowski v. State Bar, 154 Cal. Rptr. 752, 593 P.2d 613, 618, and Rule 1.14(a), Model Rules of Professional Conduct. Some jurisdic tions prohibit nonrefundable retainers; others permit them, if reasonable in amount. 10. Retainer as a Deposit against Future Services By way of definition, the retainer as a deposit against future services is distinguished from the payment of an annual retainer. The annual retainer is a subspecies of the frxed or flat fee, in which the client pays an agreed-upon annual or monthly amount for specifred services such as informal counseling or telephone advice. The retainer as a deposit against future services is not per se a billing method, but a technique to ensure that the client will payfor services to be rendered or for disbursements to be made on behalfofthe client. The funds when received by the lawyer must (in most states) be placed into the client's trust account, subject to withdrawal only when services hav;e been performed or disbursements made on behalf of the client. At the conclusion of the representation, any balance must be returned to the client. This technique can be used with a variety of billing methods, as it is a deposit against future charges however computed.

2007 SUPPLEMENT 365 THE ESSENTIAL FORMBOOK, VOLUME II, PART II

Advantages • Requires financial commitment by the client at the start of the representation. • Minimizes fee collection problems ifretainer balance is kept at an agreed level throughout the representation. • Enables lawyer to lmow throughout the representation that the lawyer will be paid.

Disadvantages • Client must come up with up-front funds. • If balance at the end of representation is insufficient to cover the final charges, there could be a collection problem. • There may be a timing problem as to when client can take a tax deduction for legal expense.

When to Use • From the standpoint of the lawyer, whenever possible for cash flow purposes. • Ifthere is doubt about when the lawyer has been hired and is obligated to the representation, a representation agree ment specifying that the representation will start only when funds have been deposited will protect against certain malpractice claims.

Predictability ofTotal Fee • Not relevant. Incentive for Efficiency • Not relevant. Recognition ofValue to Client • Dependent on method ofbilling chosen.

11. Unit The unit fee is a subspecies of the fixed or flat fee in that a fixed charge is made for a specific service irrespective of the actual time spent in providing that service. Illustrative are fixed charges for each letter, phone call, deposition, etc. This approach normally is combined with hourly billing for services not included in the unit billing. Some representation agreements provide that for a specified service either the unit fee or the hourlyrate fee will be charged, whichever is greater.

366 2007 SUPPLEMENT Alternative Fee Arrangements

Advantages • Simplifies time recording somewhat. • Reduces lost time from inadequate record-keeping. • Can add a premium over straight homly billing.

Disadvantages • Distorts time records ifrecords are used for pmposes other than billing. • May be deceptive if client believes fee will be charged On hourly basis. • Requires clear explanation in representation agreement of what the unit charges will be.

When to Use • When lawyer has accurate knowledge of typical time required to provide a specific service. • When client will agree to this method. Predictability ofTotal Fee • Same as for homly billing. Incentive for Efficiency • Encomages efficiency in providing the services covered by the unit fee portion of the representation agreement. • Encourages minimumtime expenditmefor a specific service.

Recognition ofValue to Client • Not keyed to value unless unit price is below hourly rate.

12. Lodestar The lodestar method ofsetting fees had its origin in the federal court system in Lindy Brothers Builders, Inc. v. American Radiator & Sanitary Corp., 487 F.2d 161 (3d Cir. 1973), and has been adopted in some states. To have an objec tive system that could be applied by the courts with some con sistency, the method involves multiplying the hours spent by a reasonable billing rate per hom to determine the ''lodestar.'' Then that amount is multiplied by a factor, e.g., 1.4, 1.7, 3.0, or 0.8, to recognize factors other than time spent. Court decisions have restricted the factors that can be considered as a multiplier, contending that those factors are subsumed in the homly billing rate. For example, "expertise" originally was a factor in determining the amount of the

2007 SUPPLEMENT 367 THE ESSENTIAL FORMBOOK, VOLUME II, PART II

multiplier, but now is generally consi.;lered to be reflected in the hourly billing rate. Uncertainty ofpayment remains a fac tor for the multiplier. Courts often set billing rates that are below the market and sometimes will disallow a portion of the hours expended ifthe court deems the hours unnecessarily spent. One objection to the lodestar method is that approving fees based on the method takes up too much court time.

Advantages • In theory, the hourly rate method can be modified upward or downward based on criteria other than time spent.

Disadvantages • Same as those for the hourly billing method, plus the ten dency of courts to disallow a portion of the hours expended. • Many contend that this method encourages inefficiency, discourages early settlement, and is too complicated. • As in any court approval process, permits second guessing ofwhat was required. • Awards may not reflect market value of the services.

When to Use • When required by the court to do so.

Predictability ofTotal Fee • Little predictability.

Incentive for Efficiency • Very limited; padding may be encouraged iflawyer believes the court will most likely not allow all hours recorded.

Recognition ofValue to Client • None.

RelevantExantl'le • The Second Circuit Court ofAppeals held that lawyers who successfully appealed the ruling of an upstate New York federal district court Were not entitled to appellate fees charged by Manhattan lawyers simply because the appeal

368 2007 SUPPLEMENT Alternative Fee Arrangements

was tried there.7 The Court stated that the forum district, rather than the location of the appeal, should be used to determine the relevant lodestar calculation. • In a "garden-variety securities case," the U.S. District Court for the Western District of Washington allocated fees to plaintiff's lawyers using the lodestar method instead of awarding a percentage of the settlement. The Court declined to award the requested $8.5 million and instead calculated a lodestar of approximately $1.25 million for 4,172.9 hours of work done by twenty-nine attorneys. The court applied a multiplier of 3.5 to arrive at a fee award of $3,937,867.32, and also awarded $474,584.23 for litigation expenses.s 13. Relative Value The relative value method of billing in volves the creation of schedules that breal< down the services performed by a lawyer by subject matter and by task and assign a "relative value" or multiplier to each. Each fee charger can be assigned a different basic rate or charge that is then factored into the equation. There are variations in this method as used by individual practitioners who have developed their own schedules. Proprietary systems also exist. Inherent in this approach is a determination or judg ment in the first instance of the value of each component service or task. The predicate is that tasks performed by a lawyer differ in value, whereas straight hourly billing ass umes that all time spent in performing various tasks has equal value. Once the relative value schedules have been established, the base rate factor can be changed, thereby producing a changed fee. The relative value method combines elements of hourly, fixed or flat fee, and value billing.

Advantages • If uniformly used within a law firm, will tend to provide more uniform or consistent statements. • Addresses value in the development ofthe schedules. • May permit fme-tuning in fee determination.

7Arbor Hill Concerned Citizens Neighborhood Ass'n v. Albany County, 369 F.3d 91 (2d Cir. 2004). BIn re Infospace Inc., 330 F. Supp. 2d 1203 (W.D. Wash. 2004).

2007 SUPPLEMENT 369 THE ESSENTIAL FORMBOOK, VOLUME II, PART II

Disadvantages • Time-consuming to prepare and maintain schedules of rela tive value. • Thought to be cumbersome to use. • Client's perception of value mayor may not coincide with values assigned in the schedules. • May ignore such factors as results achieved or responsi bility assumed uuless final charges are reviewed.

When to Use • When the tasks to be performed can be classified and are reasonably predictable.

Predictability ofThtal Fee • Limited, except in routine matters that fall into a billing pattern.

Incentive for Efficiency • Dependent on whether system is task-oriented rather than time-oriented.

Recognition ofValue to Client • Inherent in this method is a determination of value in the production oflegal services, which mayor may not coincide with the client's perception ofvalue.

14. Statutory or Other Scheduled Fee System The amount to be paid for legal services is spelled out in some statutory enactments, in schedules for prepaid legal service plans, or by purchasers of legal services on a volume basis. Some are imposed, some are negotiated. Some may be fixed Or flat fee; some prescribe methodology; some are in fee-shifting situa tions; some reflect government-imposed social policies.

Advantages • Lawyers know in advance what the fee will be or how it will be computed. • Client or the plan can negotiate fee amounts. • From client point-of-view may aid.in cost containment.

370 2007 SUPPLEMENT Alternative Fee Arrangements

Disadvantages • Often rigid and/or arbitrary. • May not recognize the cost of production. • May be out-of-date ifnot revised fi.-equently.

When to Use • When compelled to do so. • When fee will fairly pay for services provided.

Predictability ofTotal Fee ., Reasonably predictable.

Incentive for Efficiency • Can be incentiveif fee is fixed and not dependent on time spent.

Recognition ofValue to Client • Typically not much correlation.

Relevant Example • In an employment discrimination case, the Seventh Circuit held that where the plaintiffwas represented by a Chicago lawyer, the lawyer was entitled to her own hourly fee and not the lower market rate in Southern Illinois, because forc ing out-of-town counsel to accept reduced rates would work against the intent of the fee-shifting statutes that were enacted to help such clients obtain legal counseL9 •A divided Illinois Appellate Court, Second Department, held that a law firm that had failed to properly register with the state Supreme Court had engaged in the unauthorized practice onaw while working a case dealing with consumer fraud law and was thus not entitled to the fee award provid ed by the law that served asthe basis for the case.'O

'Mathur v. Bd. of Trustees of Southern Ill. Univ., 317 F.3d 738 (7th Cir. 2003). "'Ford Motor Credit Co. v. Sperry, 801 N.E.2d 954 (Ill. App. Ct. 2003).

2007 SUPPLEMENT 370a' THE ESSENTIAL FORMBOOK, VOLUME II, PART II

PREVALENT ALTERNATIVE BILLING ARRANGEMENTS

Of course, not every practice (or client) will find it appropriate to adopt, piecemeal, versions ofall these alternative billing methods. It is important to consider which ones are most likely to work in improving practice and firm profitability, and then to develop pricing and engagement policies that encourage clients to adopt the chosen fee arrangement. In the authors' experience talking to lawyers around the country, the following are the most prevalent alternative billing arrange ments: • Fixed fees • Contingency and "reverse" contingency fees • Stage fees • "Premium for success" fees The following co=ents may help firms identify which alternative methods may be useful in their practices.

Fixed Fees One practitioner we know with an extremely profitable practice not based on contingency fees is a lawyer specializing exclusively in i=igration work. Fixed fees work for him for a simple reason. He figured out for himself the lessons of Chapter 3; he worked out the costs associated with each kind of visa or work status application that is handled in his practice and then determined how to do each more efficiently. His price for each application is basically set in rela tion to a very competitive market of other immigration lawyers, but his huge profit is derived from having highly trained and specialized associates and paralegals performing the repetitive work involved in his practice. As a result, he has reduced his costs per application to about 10 percent of the price that the market permits him to charge-leaving him a profit of90 percent on every application. Clearly, not every lawyer can replicate this i=igrationlawyer's kind of "cookie cutter" practice. However, lawyers in many other areas of practice indicate that there are frequently subspecialties that do lend themselves to this kind of efficiency-based pricing. For instance, there are a number ofkinds ofreal estate-related work that can be structured in this way, from mortgage foreclosures to home owners' closings. More importantly for larger firms, even litigators

370b 2007 SUPPLEMENT Alternative Fee Arrangements

can often find ways to increase profitability using either straight fixed fees, or a variant such as fixed stage-by-stage fee arrangements. While litigators often claim that there is no way that their prac tices can accommodate fixed fees, and a few bar association ethics committees have suggested that, in insurance defense work at least, they may be unethical, both these lawyers and committees are mis taken. What the lawyers fail to recognize is that the reason for their fear of fixed fees is that they only know how to guess at the progress of future litigation. In fact, any budgeting process in ally commercial enterprise is guesswork-based on accurate analysis ofprior history. In other words, even litigation practices could establish profitable fixed fee structures if they undertook the kind of rigorous cost and profit analysis of prior cases suggested in Chapter 3. For instance, many crinlinallawyers have developed fixed fee schedules for their cases based, presumably, at least in part on an analysis ofthe'work involved in the average case, the market rate, and the lawyer's antic ipated revenue needs. What litigators must remember is that while some cases involve more effort than others, or even spin out of con trol, ifthe litigators do the appropriate analyses, they can determine averages for each kind of case, and for every stage of the litigation process. When they undertake that preparatory effort, they enable themselves to offer their clients the benefits of fixed fee arrange ments and increase their profitability at the same time. Lawyers who cannot get away from focusing on the fact that each case, individually, is unpredictable are destined to remain in the time-charging trap (as long as they can find clients willing to go along with them). Surely the enormous pressure ofinsurance compa nies on defense firms' time-charging practices must encourage rethinking ofhow to bill in ways that avoid that trap and encourage efficiencies. Here, of course, are additional ethical challenges. By avoiding the conflicts of interest in the hourly fee arrangement, lawyers are at risk if they set fixed fees that do not permit them to act diligently in cases involving more effort than the normal matter. Some ethics committees have therefore opined that such arrange ments are impermissible. This is a mistaken view. Rather, the posi tion that should be taken is that lawyers are obligated to provide diligent and competent service on all matters that they undertake and that, therefore, fixed fees must be set at levels where they can handle the hard as well as the easy matters entrusted to them. The second aspect of successful fixed fee arrangements for firms to master before undertaking them is development of precise

371 THE ESSENTIAL FORMBOOK, VOLUME II, PART II

descriptions ofthe scope of services to be provided. For instance, if a litigator were to offer a fixed fee for a piece of litigation and set the price assuming that the engagement would last through trial, she would surely lose money ifforced to handle the appeal within the same fee. Accordingly, in accepting the engagement, it would be essential that the litigator specifY that the scope of the engagement was through trial and did not include the appeal. Again, this may be easier for lawyers with "cookie cutter" practices, but it is not beyond the reach of lawyers with highly sophisticated practices. For instance, we know of bond counsel who operate in the same way as the immigration lawyer; their engagement letters are lengthy and detailed and their clients are sophisticated enough to understand what is andis not included within the agreed fee. (Engagementletter issues are addressed at greater length in Chapter 5.) The benefits of fixed fees are not limited to clients' appreciation of the removal of uncertainty from the process of hiring a lawyer. Like every aspect of clients' businesses, fixed fees enable clients to decide, up-front, whether the benefits of the process are worth the cost-in other words, to decide on the value they place on the engage ment. Ifthey were unwilling to agree to the fixed fee, it is almost cer tain that when the hourly fees reached the same level, there would have been collection problems. On the other hand, clients recognize that fixed fee arrangements involve the lawyer in sharing some degree of risk in any given matter, since theirs maybe "the case from hell," involving significantly more effort than the normal case. Clients are much more comfortable with lawyers who are willing to share risk, since they understand that this makes the relationship more ofa joint venture and much less adversarial than when clients are being charged for time spent. In addition to establishing value to the client, fixed fee arrangements also benefit both sides by creating certainty as to when fees will be due and paid. This benefit, largely unknown to lawyers who bill on a time-charge basis, is ofinestimable value in budgeting law firms' operations, not least in distributing profits. In addition, from the client's point ofview, it makes budget ing and paying legal bills a matter ofroutine, rather than a source of stress. Stage-by-Stage Fee Arrangements While stage-by-stage fee arrangements have many ofthe problems of time charging, they do offer clients some additional elements of con trol over what the law firm does-or at least what it gets paid for

372

------_.---- Alternative Fee Arrangements

doing. Thus, fees are fixed for each element of a transaction or case (e.g., the fee per deposition), and the e:l..'ient ofwork (i.e., the number of depositions) remains in the client's control. Contingency Fees While many lawyers and laypersons alike think of contingency fees as the domain only of personal injury and class-action lawyers, in fact there are many other kinds of practice where fees based wholly or partially on success may be an option-and an opportunity. It is no fluke that lawyers who work on contingency are frequently the most profitable and successful. Itis vital to note that these arrangements work because they are advantageous to clients as well as lawyers. For clients, the fundamental benefit of these arrangements is that, by sharing the reward with the lawyer, they can require the lawyer to share the risks. This is beneficial because it demonstrates to the client that there is (normally) no conflict of interest, in that the lawyer is committed to success, and because the frictions relating to the subject offees are thereby largely eradicated. One ofthe reasons that contingency fee practices are so profitable is that the degree of risk sharing is maximized, and the higher the level of risk under taken by the lawyer, the more willing clients are to forego greater interests at the end ofthe day. Reverse Contingency Fees ''Reverse'' contingency fee arrangements involve complex risk shar ing where there is no pot ofgold, but only the variable risk ofloss by the client at the end ofthe matter. When defendants are in a position where the best result would be a verdict ofno liability, and the worst result a verdict with a huge dollar adverse verdict, lawyers can structure contingency fee arrangements. In a way even greater than in traditional plaintiffs' contingency fee work, lawyers considering reverse contingency arrangements must be prepared to invest very substantial capital (i.e., lawyer time) in researching the case before setting the fee structure. The client and lawyer must agree on the worst case result, which, ifit occurs, will be the equivalent ofa defen dant's verdict to a plaintiff's lawyer. The fee is then based on a per centage of the saving achieved by the lawyer in the final outcome. For instance, if the client and lawyer agree that the realistic worst case verdict will be $9 million and agree on a 33 percent reverse con tingency, the lawyer will collect $3 million if the lawyer takes the case through to a successful verdictofno liability. On the other hand,

373 THE ESSENTIAL FORMBOOK, VOLUME II, PART II

ifthe lawyer negotiates a settlement at $6 million, he or she will still recover $1 million (being one-third ofthe saving from the worst case verdict). In either event, the client has benefited from a saving from the worst case verdict, and both parties have benefited from the risk sharing principle. While these arrangements are not for the faint of heart, they can be very profitable-provided that the lawyers involved effectively invest in the up-front case evaluation process. The Premium for Success Fee These arrangements are, in effect, transactional lawyers' equivalents of contingency fees. As with fixed and contingency fees, the concept underlying "premiums for success" is the sharing of risk between lawyer and client. The benefit for the client is that it reduces its exposure to expense for transactions that are not consummated; the benefit for the lawyer is that a new level ofloyalty is establishedwith the client, and profitability is taken to a level far higher than any hourly fee arrangement is likely to reach.

374 Alternative Fee Arrangements

HOW TO GET THERE: MANAGING THE MOVE AWAY FROM HOURLY BILLING

The assessment checklist at the end of this chapter provides guid ance in deciding ifyou want to move your firm or practice away from time-based billing. Even ifyou are convinced to begin the. process, the move cannot occur overnight. Such a change should not be attempted without appropriate preparation, on the part of both the lawyers and the clients to be involved. Initially, as shown in Chapter 3, it is essential to lay the basic foundation, in terms of establisbing costs, to set prices appropriately. In addition, no alter native fee arrangement will succeed without effective and positive engagement letters, as discussed in Chapter 5. However, between laying the foundation for effective pricing and presenting clients with proposed engagement letters, there is an equally important intermediate step: persuading the other lawyers involved ofthe wis dom of the endeavor. Again, Richard Reed's Billing Innovations pro vides an invaluable road map of what is involved in the process. Form 1 at the conclusion of this chapter contains Reed's suggestions on how to proceed.

375 THE ESSENTIAL FORMBOOK, VOLUME 11, PART [I

THE HIDDEN IMPLICATIONS OF ALTERNATIVE FEE ARRANGEMENTS: THE FUTURE OF HOURLY FEES

There are several reasons why some lawyers are leery of alternatives to time charging. First, there are major potential consequences for the structure and composition oflaw firms that may follow from the kind ofrigorous cost and profitability analysis that is the sine qua non of any effective change. As in the Chapter 3 example of Litigator, Tax, and Real Estate, the rigorous analysis of profitability that needs to precede any move into alternative billing may show that different practices within firms (even firms of only two lawyers) have very dif ferent profitability-eveniftheir gross revenues are similar. Take, for instance, two partners who each generate $150,000 in annual fee receipts. If partner A, who practices estate planning, operates very efficiently using forms that she has collected and developed, and requires very little secretarial or support staff, the overhead (rent, receptionist, library, equipment, etc.) attributable to her practice may be $50,000. Her partner, B, is a real estate lawyer. He requires a full-time secretary and a paralegal to prepare and con duct closings and prepare closing statements. His share of overhead is $100,000. When the partners (or their accountants) have complet ed this analysis, the result will likely put significant pressure on their long-established compensation structure-splitting the com bined net profit of both practices. While both practices might benefit from alternatives to time charging, or from modifying their existing fixed fee arrangements, if not properly managed, simply doing the cost and profitability analysis can provoke the partnership's col lapse. On the other hand, constructively used, this analysis is an essential step in determining how to make B's practice more effi cient, thereby increasing the profit from each client and the practice as a whole. In addition, although hourly billing only became the primary form offee generation among lawyers in the late 1960s, a majority of lawyers now practicing have known no other system. Furthermore, the entire structure ofmany large firms-the "pyramid"-is based on the assumption that profits come from maximizing the amount of lawyer time (and therefore the number oflawyers) thrown at clients' matters-the "leverage" system. The very suggestion that profits can be improved by increasing efficiency is counterintuitive to lawyers and firms whose historic success is based on "leverage." Indeed, that success is a strong reason why many lawyers, particularly those

376

------Alternative Fee Arrangements managing or reaping the profits at the top ofvery large firms, decline to contemplate the kinds of changes discussed here. Because so much of the profession has grown up with the hourly fee, it could take at least a generation to get away from time charg ing. However, because the benefits of alternative fee arrangements are so clear, and so evenly shared between lawyers and their clients, eventually time charging will go the way ofthe dinosaurs.

377 THE ESSENTIAL FORMBOOK, VOLUME II, PART II

CHECKLIST SELF-ASSESSMENT CHECKLIST FOR SELECTING A BILLING METHOD

Before you jump in to change your methods for the billing and pric ing oflegal services, you should consider each of the following: __ Objectives and goals must be clearly defined. The solo practitioner, firms ofall sizes, and in-house coun sel need to set objectives and goals. Do you have firm objectives and goals? What are your strengths and weaknesses? What services do you now provide? What services should you provide in order to meet your goals and objectives? How do you as owner(s) of the firm or organization per ceive your organization, its competitive advantages and disadvantages? Is your perception realistic and supported by the facts? How does your perception fit with your clients' percep tion? How will you find out? Who are your lawyers and what are their talents? What is your lawyer experience mix and how does it fit the needs ofyour clients? Who are your clients and what are their legal needs now or in the foreseeable future? How do your firm's talents meet the needs ofyour clients? Do your clients perceive that you or your firm has the skills to meet their needs as perceived by your clients? Where does your practice fit on the value curve? __ What is your present and future market? __ What are the market trends? __ What is the demography of: __ your firm __ your clients __ your legal community? __ Who are your competitors and where are they located?

Source: Reprinted with permission from Billing Innovations: New Win-Win Ways to End Hourly Billing, a publication ofthe ABA Law Practice Management Section, by Richard C. Reed,1996.

378 Alternative Fee Arrangements

In what practice areas do they compete? What are the prevailing rates for the types ofservices you provide in your market, especially if you are providing services that are price sensitive? Who are your clients? What are the needs ofyour present or potential clients? __ What are your present billing methods? Do your present billing methods enable you to achieve a desired level of profitability? Do your billing methods meet client needs and prefer ences? Do your billing methods enable you to competeeffectively? Do they enable you to further your firm goals? Do they fairly measure value to the client? Are they consistent with trends? Do they promote effective marketing? Are they based on written fee agreements? Have they been innovative? Flexible? Are the billing methods different for different types of services? Are they competitive in your market area as to price? __ Things to examine in your practice. Examine how many manual or computerized maxisys terns or minisystems already exist in your practice. In a "minisystem," you or someone in your organization fol lows a preestablished system of performing certain actions or producing certain documents for a phase of a transaction. In a "maxisystem," the preestablished sys tem exists for substantially the whole transaction. Example ofa maxisystem: The preparation of simple articles of incorporation, bylaws, the oath of directors, and minutes of the organizational meeting for a small corporation. Example of a minisystem: Getting out and serving notices of a deposition, including subpoenas, arranging for a court reporter, and reserving a conference room. Analyze your practice to see if there are recurring repre sentations where the value to the client will be materially increased ifa certain result is Obtained.

379

.. -- _._~-~-- THE ESSENTIAL FORMBOOK, VOLUME II, PART II

Examples: A merger or acquisition occurs; there is early resolution of the matter being handled; a rezone is obtained or a plat is approved with certain approved densities. Where you are willing to share risks with the client, .a contingency factor in a price to be charged may be appropriate. Do you have some high-volume, reasonably similar mat ters that can be handled on a routine basis by legal assis tants or junior associates? Example: Nonjudicial deed oftrust foreclosures. __ Are you willing to try innovative billing? Have you analyzed your practice to determine those prac tice areas or types of services where alternative or inno vative billing methods might be beneficial? Are you or some members ofyour firm willing to innovate? Do you have clients who might be willing to accept alter native billing methods? Are you willing to take the time and make the effort to bring about a change in how you bill for legal services? Will your organization support the effort? __ List five or more situations in your practice where you can use . alternative billing methods. __ What immediate steps do you propose to take to change your methods of billing or pricing?

380

~~~------_.~~~---_. -- -~~~ Alternative Fee Arrangements

FORM 1 GUIDELINES FOR SELECTING AN ALTERNATIVE BILLING METHOD

1. Gather some of your most forward-looking colleagues together and urge them to join you in thinking globally about how law practice is and will be changing. Think con ceptually. 2. Abandon any notions that law practice in the future will be as it has been in the past or is at present. 3. Read everything that you can about alternative billing methods, total quality management, and current practices of corporate legal departments in moving towards "partner ing" with outside law firms. 4. Think about the information you have or can gather about the cost of providing legal services for specific representa tions. Act to improve the cost-accounting aspects of your practice. Concentrate on determining the cost to produce legal services where the scope of the engagement can be reasonably defined. 5. Analyze the systems you now employ, whether manual or technology based, to determine the co=odity services you routinely perform. Co=odity services are services that are repeated regularly and often can be done by legal assistants or associates following prescribed practices or procedures. 6. List the twenty clients that produce the most fees for your firm. Then think ofwhat services are involved and how well you meet what you perceive are those clients' legal needs. 7. Then do a client surveyor client audit of those key clients and askthem how well they feel you are meeting their legal needs. Your perception of their legal needs may differ from their perception. Indicate a willingness to discuss ways that you could improve in order to meet those needs. 8. When you begin to feel that certain matters could be billed on other than an hourly basis, collect closed files that involved comparable services and analyze what was

Source: Reprinted with permission from Billing Innovations: New Win-Win Ways to End Hourly Billing,- a publication ofthe ABALaw Practice Management Section, by Richard C. Reed, 1996.

381 THE ESSENTIAL FORMBOOK, VOLUME II, PART II

involved, the charges you made, the common elements, and the variables. Determine whether there is enough similarity in the scope of the previous work to predict the cost of pro viding those services currently. 9. Depending on the size of your firm, determine whether there are specific lawyers, practice areas, or practice groups that might be particularly amenable to innovations in billing methods. Concentrate on those rather than trying to make the whole firm change initially. 10. Think about value and how it can best be measured. Are there clients who are extremely results oriented? Ask your self if you would be willing to share some of the risks, if there is a good possibility ofgetting a bonus based on favor able results. 11. Attend all the seminars offered on alternative billing meth ods. Talk to those in attendance, both speakers and regis trants, to learn how to use new methods and to hear oftheir personal experience. Many small firm practitioners have already successfully developed innovative billing and pric ing methods. Learn from those who know it works. 12. Think about how your marketing efforts could be enhanced by using innovative billing and pricing methods. Clients like to know in advance how much services will cost so they can judge whether the effort will be worth the cost and can plan ahead for their legal expense. 13. Ifyour client insists on having a cap or maximum fee quota tion and you are inclined to agree, rather than agree to hourly billing with a maximum, switch to a fixed fee. 14. Constantly ask yourself how your efficiency could be increased, including not only eliminating unnecessary work but also decreasing the time for resolution of the client's problem.

382 They Work Long Hours, but What About Results?

Robert C. Pozen The New York Times October 07, 2012

IT’S 5 p.m. at the office. Working fast, you’ve finished your tasks for the day and want to go home. But none of your colleagues have left yet, so you stay another hour or two, surfing the Web and reading your e-mails again, so you don’t come off as a slacker.

It’s an unfortunate reality that efficiency often goes unrewarded in the workplace. I had that feeling a lot when I was a partner in a Washington law firm. Because of my expertise, I could often answer a client’s questions quickly, saving both of us time. But because my firm billed by the hour, as most law firms do, my efficiency worked against me.

From the law firm’s perspective, billing by the hour has a certain appeal: it shifts risk from the firm to the client in case the work takes longer than expected. But from a client’s perspective, it doesn’t work so well. It gives lawyers an incentive to overstaff and to overresearch cases. And for me, hourly billing was a raw deal. I ran the risk of being underpaid because I answered questions too quickly and billed a smaller number of hours.

Firms that bill by the hour are not alone in emphasizing hours over results. For a study published most recently in 2010, three researchers, led by Kimberly D. Elsbach, a professor at the University of California, Davis, interviewed 39 corporate managers about their perceptions of their employees. The managers viewed employees who were seen at the office during business hours as highly “dependable” and “reliable.” Employees who came in over the weekend or stayed late in the evening were seen as “committed” and “dedicated” to their work.

One manager said: “So this one guy, he’s in the room at every meeting. Lots of times he doesn’t say anything, but he’s there on time and people notice that. He definitely is seen as a hardworking and dependable guy.” Another said: “Working on the weekends makes a very good impression. It sends a signal that you’re contributing to your team and that you’re putting in that extra commitment to get the work done.”

The reactions of these managers are understandable remnants of the industrial age, harking back to the standardized nature of work on an assembly line. But a measurement system based on hours makes no sense for knowledge workers. Their contribution should be measured by the value they create through applying their ideas and skills.

By applying an industrial-age mind-set to 21st-century professionals, many organizations are undermining incentives for workers to be efficient. If employees need to stay late in order to curry favor with the boss, what motivation do they have to get work done during normal business hours? After all, they can put in the requisite “face time” whether they are surfing the Internet or analyzing customer data. It’s no surprise, then, that so many professionals find it easy to procrastinate and hard to stay on a task.

There is an obvious solution here: Instead of counting the hours you work, judge your success by the results you produce. Did you clear a backlog of customer orders? Did you come up with a new idea to solve a tricky problem? Did you write a first draft of an article that is due next week? Clearly, these accomplishments - not the hours that you log - are what ultimately drive your organization’s success.

Many of your results-oriented strategies will be specific to your job and your company, but here are a few general ways that professionals across all industries can improve their efficiency.

LIMIT MEETINGS Internal meetings can be a huge waste of time. A short meeting can be useful for discussing a controversial issue, but long meetings - beyond 60 to 90 minutes - are usually unproductive. Leaders often spend too much time reciting introductory material, and participants eventually stop paying attention.

Try very hard to avoid meetings that you suspect will be long and unproductive. When possible, politely decline meeting invitations from your peers by pointing to your impending deadlines. If that’s not an option, make clear that you can stay for only the first 60 minutes, and will then have to deal with more pressing obligations. And be hesitant to call meetings yourself; you can deal with most issues through e-mail or a quick phone call.

If you’re involved in calling or planning a necessary meeting, make sure it’s productive. Create an agenda that organizes the meeting and keeps it moving briskly. Distribute that agenda, along with any advance materials, at least a day in advance. Appoint a “devil’s advocate” for every meeting, whose job is to make sure that the potential negatives are discussed. At the end of the meeting, make sure that everyone agrees on the next steps, with each step assigned to one participant and with a specific deadline.

REDUCE READING You don’t need to read the full text of everything you come across in the course of your work, even if it comes directly from the boss. Though reading a long article from cover to cover might make you feel productive, it might not be the best use of your time. Most likely, only a very small part of that article is vital to your work. Maybe you need to remember the big ideas, not the intricate details. Or maybe you need only to find one or two examples that illustrate a particular larger point. Once you start reading a text, make it a point to search for what’s important, while skipping sections that are less relevant.

Of course, some materials call for you to become totally immersed in the details. If you are reading an article directly related to the company’s newest blockbuster product, for instance, it probably makes sense to go over every word. But for less important tasks, this level of detail is often unnecessary. If you’re not careful, these tasks can take over your entire schedule.

And avoid rereading your e-mails. I am a great believer in the OHIO principle: Only handle it once. When you read an e-mail, decide whether or not to reply to it, and, if you need to reply, do so right then and there. I have found that about 80 percent of all e-mails, whether internal or external, do not require a response. Don’t let these extraneous communications clog your in-box and waste your time.

WRITE FASTER Even if you need to create A-plus work for a project, it needn’t be perfect right off the bat. When some people sit down to write a long memo, they insist on perfecting each sentence before moving to the next one. They want to complete all the stages of the writing process at the same time - a most difficult task. In my experience, this leads to very slow writing.

2 A better approach separates the main steps in the writing process. First, compose an outline for what you are going to say, and in what order. Then write a rough draft, knowing it will be highly imperfect. Then go back over your work and revise as needed. This is the time to perfect the phrasing of those sentences.

In general, don’t waste your time creating A-plus work when B-plus is good enough. Use the extra time to create A-plus work where it matters most.

AS you try these and other results-oriented strategies, you may well find yourself spending less time at the office - and that can make some bosses nervous. The traditional emphasis on face time, after all, is easy for managers: it takes much less effort to count hours than it does to measure results. That’s why you may need to forge a new relationship with your boss.

You must earn your boss’s trust that you can accomplish your work in less time. In part, you can do this by thinking about your organization and watching your boss. Ask yourself: What are the most important goals of your unit? What sort of pressure is your boss under - to expand globally, to introduce new products, to cut costs, or something else? How might the boss’s personality and management style shape these considerations?

But it’s not enough to think and observe. You need to communicate - often. Every week, write down a list of your assigned tasks - short-term assignments and long-term goals - and rank them by importance, from your perspective. Then ask your boss to weigh in on the list.

You and your boss should come to a consensus about the metrics for every project. If your boss doesn’t establish any, suggest them yourself. Metrics can include both qualitative and quantitative results. They provide objective measures for judging final results - and move your boss away from the crutch of face time. And the process of establishing these metrics can help you and your boss clarify how best to accomplish a project.

Once the boss is confident that you know what to do and how to do it, show that you can consistently create high-quality results on high-priority projects. There’s no particular secret here: you need to do your best to achieve the established goals. And remember that most projects run into potholes or even roadblocks on the way. Be quick to report problems to the boss and to suggest possible solutions, including a revision the project metrics themselves.

I KNOW that a change in focus from hours to results may be a challenge in some organizations. But your boss is likely to be receptive if you politely raise the question of productivity and show you’re willing to be held accountable for results, rather than hours worked. You may also be able to do more work from home, if that’s what you prefer.

Even in a culture oriented toward results, however, you sometimes will need to be physically present in the office to do your work. And some jobs absolutely depend on it. In almost all workplaces, colleagues need to get together to brainstorm ideas, solve tough problems or build communal bonds. But there’s no reason for these interactions to take up large amounts of time.

By emphasizing results rather than hours, I’m able to get home at 7 p.m. for dinner with my family nearly every night - except when there are true emergencies. This has greatly enhanced my family life, and has given me a secondary benefit: a fruitful mental break. I’ve solved some

3 of the thorniest problems in my home office at 10 p.m. - after a refreshing few hours chatting with my wife and children.

Focusing on results rather than hours will help you accomplish more at work and leave more time for the rest of your life. And don’t be afraid to talk to your boss about these issues. To paraphrase the management guru Peter Drucker, although you don’t have to like your boss, you have to manage him or her so you can have a successful career.

Robert C. Pozen, a senior lecturer at Harvard Business School and a senior fellow at the Brookings Institution, is the author of “Extreme Productivity: Boost Your Results, Reduce Your Hours” (HarperCollins).

4 Survey Shows the Bell Is Tolling for the Billable Hour

Amy Miller Corporate Counsel December 01, 2009

Companies are successfully pushing their outside counsel to abandon the billable hour, a new survey indicates.

In October, The American Lawyer and the Association of Corporate Counsel jointly surveyed 587 general counsel and chief legal officers, and found that 39 percent paid law firms more money this year under alternative fee arrangements than they did in 2008. Meanwhile, just over half (53 percent) said spending on alternative fee arrangements had stayed the same. Only 8 percent said it had fallen.

The results weren’t surprising to Susan Hackett, general counsel for the ACC. The increase might have been more substantial, had many cash-strapped general counsel not turned to the quick fix of rate discounts, rather than alternative fee arrangements. But the results nevertheless prove that the legal profession is finally moving away from the billable hour -- for good.

“People are assuming the change is here to stay,” Hackett says. “We’ve turned a corner, and I don’t think we’re going back.”

Spending off the clock wasn’t up drastically for most companies. The highest percentage of legal heads, 42 percent, said spending had increased 10 percent or less. Only 13 percent said it had increased more than 30 percent.

Legal chiefs used a variety of non-hourly arrangements, from contingency fees to retainers for a portfolio of services. But the most popular was the flat fee. Forty-eight percent of general counsel said they had paid a flat fee for an entire matter this year, and 36 percent had for some stages of a matter. Only 24 percent said they still paid all their law firms by the hour.

Flat fees were even more popular among the 149 legal chiefs at large companies that earned $1 billion or more in revenue. Sixty percent said they had used a flat fee for an entire matter, and 46 percent had for some stages of a matter. Only 12 percent of those in-house lawyers said they still paid firms solely by the hour this year.

And the survey results also show that in-house legal departments, not law firms, are taking the lead. Fifty-four percent of legal chiefs said they had initiated their arrangements, while only 3 percent said their law firms had. Eighteen percent said it was a combination of both. Twenty-six percent said the question did not apply.

Hackett says that finding was a surprise. When she goes out to talk to attorneys at law firms, she hears the opposite. Lawyers typically complain that in-house counsel are reluctant to try alternative arrangements, despite their best efforts. “Maybe this is the accurate reflection of the market,” she says. But no matter who initiates the arrangements, most in-house legal departments still aren’t using them extensively, the survey found. Sixty-nine percent said that 10 percent or less of their total spending on outside counsel was done off the clock in 2009. Only 6 percent said that more than half of their spending on law firms was done under alternative fee arrangements.

Hackett says that percentage will continue to climb though. She hopes that by 2010, general counsel will be spending a quarter of their budget for outside counsel under alternative fee arrangements. And a quarter of all their legal matters will be handled under them, too. “That’s a huge jump,” Hackett says. “But people can’t go back to spending like they did before.”

2 In Today’s Market, Clients Seeking Cost Certainty

Dan DiPietro and Gretta Rusanow The Legal Intelligencer December 15, 2010

The Citi Private Bank Law Watch Third Quarter 2010 results indicated that firms continue to experience flat revenue growth. The current state of the legal industry has been aptly described by a number of managing partners we’ve talked to as: “a smaller market with more competitors.” These factors, together with an increasing willingness on the part of general counsel to branch out beyond their traditional law firms, are forcing many law firms to compete on price, and others to innovate in order to be profitable and sustainable in this changed market.

Citi Private Bank provides financial services to more than 600 U.S. and U.K. law firms and over 35,000 individual lawyers. Each quarter, the Law Firm Group confidentially surveys firms in the Am Law 100 and Second Hundred, along with smaller firms. In addition, we conduct a more detailed annual survey. These reports, together with extensive discussions with law firm management conducted on an ongoing basis, provide a comprehensive overview of financial trends in the industry and insight into where it is headed.

Over the past three months, having traveled throughout the United States and London conducting roundtables with managing partners of over 150 firms, meeting with individual law firms, and learning how firms are responding to this flat market, we heard two themes. The first relates to the constant pricing pressures firms face, and how they are responding to these pressures. The second relates to how firms are seeking to differentiate themselves in ways other than just price.

New low-cost competitors

We hear continually from law firms about the unrelenting pricing pressures from clients. As a cost center, the corporate law department faces pressure internally to reduce its outside legal costs. General counsel have been open to other options given the availability of off-shore legal service providers, and Am Law Second Hundred firms prepared to offer services at a lower cost than the traditional law firms. Am Law 100 firms have commented to us about the increased competition from these alternative providers, as well as from smaller firms that are able to provide legal services at significantly lower rates because of lower cost structures.

Afas: pricing and project management

In addition to simply discounting fees, we see an increased focus on alternative fee arrangements (AFAs). We see this as a direct reaction to the war on pricing. While we are not predicting the end of the billable hour, we are seeing firms turn their attention to alternative fee structures, not only as a defensive strategy, but also as a means of strategically shifting their business model.

In so doing, firms have described two key challenges to us. The first is how to accurately price services at the outset. Firms have started to consider how they might mine data in their practice management systems and knowledge management systems to create accurate cost predictions for matters. Some firms have formed committees composed of IT, finance, knowledge management and practice group representatives working together to identify the common characteristics of various matters, and in so doing, improving the predictability of matter costs. In other words, these firms are moving from a reactive stance to a more strategic, scientific approach to pricing of legal services.

The second challenge firms confront is, once they have agreed to an AFA, how can they ensure that the work will be completed within the agreed scope and to budget. To do so, some law firms are retaining professional project managers. Other firms are placing that responsibility on lawyers by conducting project management training sessions for partners and attorneys in the firm.

The ‘apples to oranges’ dilemma

Despite all the noise in the industry around AFAs, and general counsel asking for innovative fee structures, we also hear how, for many firms, their experience has been that clients are using AFAs as code for seeking a deeper discount to the hourly rate. Firms describe responding to a client’s request for a more creative fee structure, only to find that the client is then unable to compare the proposed creative solution with other alternatives in the market. This “apples to oranges” problem can result in the client, who is unable to assess the value of what is being offered, simply reverting to a request for a deeper discount.

Lowering the law firm cost structure

To compete on price, we’ve heard a lot about how firms are lowering their cost base, focusing on operational efficiencies, or simply taking a hit to their profit margins (hopefully as a short-term solution with longer-term benefits).

Some firms have moved back office functions to cheaper locations, either within the United States (in-shore) or overseas (off-shore) in an effort to lower their cost structures. On this latter trend, we’ve seen firms outsource to third-party off-shore service providers, and others have created their own captive off-shore operations mimicking the outsourcing model. Although back office functions were typically the initial focus of these initiatives, firms are now beginning to outsource basic legal work.

Firms also have told us that they are looking at creating categories of lawyers at a lower cost structure than the traditional partner-track associate. This can enable firms to produce work at lower cost, but it also raises a number of “social contract” issues in firms where there have traditionally been just partner-track associates. Firm will need to consider several issues with this category of lawyer: exposure to clients and partners, professional development opportunities and a longer-term career path.

Two long-term approaches to generating profit

We have been hearing firms take a “loss leader” approach to pricing their services. Firms describe how, in markets where clients differentiate legal service providers based solely on price (not on quality), they are heavily discounting their fees during the initial stages of a relationship, just to get their foot in the door. Firms have taken this strategy, in the hope that eventually, clients will begin to see the difference in quality, and will then be more prepared to pay higher fees for higher quality work.

2 Firms also are taking a “venture capital” approach to winning work in markets outside of their traditional client base. We’ve heard how certain Am Law 50 firms are offering discounted services to startups, in an effort to start what they hope will become a long-term, and ultimately profitable, relationship with the next Google or Microsoft.

Who is your client?

We hear regularly about the increasing presence of the procurement team in client discussions about fees. Law firms describe how a discussion with procurement is much more focused around price than on the value of a long-standing relationship between the company and its external law firm. Nevertheless, with procurement at the table, law firms now need to consider who their client is — is it the general counsel or procurement? And what factors will drive a decision on which law firm the company chooses to use?

It’s not always about cost reduction.

We recently heard a firm describe how it entered into an arrangement with a client to work under a fixed budget for 2010, with the proviso that during the 2011 budget season, the client and law firm would meet to discuss whether the actual cost of legal services provided in 2010 (based on an agreed upon hourly rate) was higher or lower than the 2010 budgeted amount. The adjustment would then be made to the 2011 budget. What the client here was looking for was cost certainty, rather than cost reduction. By understanding its client’s need for certainty, the law firm was able to maintain its fee structure — and keep its client.

Underscoring this focus on price certainty, we recently heard about a corporate client, who, having invited law firms to tender for work under an AFA, did not select the lowest cost bid. In selecting a more expensive law firm rather than the lowest cost option, the general counsel explained how she was concerned that the low cost provider would not deliver at that price. She went further to say that she did not want to be embarrassed in front of her CEO, so opted for the higher bid, because she felt comfortable that the bid was more realistic. This story illustrated to us that while clients care a lot about cost, they are prepared to pay a premium for cost certainty.

Shifting the discussion to ‘value beyond price’

Beyond the focus on cost, clients also care a lot about the “value beyond price” that we are hearing firms offer to clients. Recognizing that their corporate law department clients have limited resources and budgets, law firms are seeking out ways that they can assist their clients beyond the delivery of core legal services. Where a client has a short-term need for extra in- house resources, law firms are offering to second associates to a client for a period of time at a negotiated rate that works for both the firm and the client. Where a client has a need for better knowledge tools, firms are offering knowledge management products and services to clients, such as databases of client work product, access to library/research assistance and CLE programs.

For major cases and matters, law firms are conducting end-of matter debriefs with clients at no charge, to identify what went well and what could be done better the next time. Law firms are also offering a set amount of “free” telephone advice — where the in-house lawyers can

3 comfortably pick up the phone and talk to their law firm about basic issues without fear of seeing a bill for it.

We’ve observed that the most successful programs are those where the law firm understands that, as an internal cost center, its corporate client may lack basic law practice tools, and actively engages their client in understanding what they lack, and how they can benefit, at no cost, from their law firm. While these initiatives may not be fee-generating, they strengthen the ties between law firm and client — and create opportunities for new fee-generating work.

It’s clear to us that in the process of figuring out how to compete on price, firms are looking more broadly than just offering deeper discounts to their hourly rates. The discussions we’ve had make us hopeful that firms are beginning to realize they will need to manage differently to maintain profit growth in this client-centric world. Even beyond AFAs, the increased focus on who is their client and what does their client want, suggests to us that firms are embracing the challenges they’ve faced in this soft demand market. In the process, they are being innovative in how they run their law firms, positioning their firms for future growth.

4 ! ! ! !! !

"#$!%#!&'()*%+!,)#-!.)*/'%'#0*1!2'11'0(!%#!31%+)0*%'4+!5++6! ! 74+)4'+$!

• 854'3'3(!*)5!(#270!

• 97233'3(!*)5!2$$)!

• :%$50!#4!27*5&32*';5!<'77'3(!0*&61*6&50!

• =5%!1#30'>5&2*'#30!*#!?55$!'3!@'3>!

8+,'0'0(!%9+!(#*16!!

! A5('3!B'*)!*)5!53>!'3!@'3>C!!D)2*!>#!%#6!055?!*#!21)'5;5E!!:)5!@#0*!1#@@#37%!1'*5>! 230B5&0!2&5!7'0*5>!<57#BF!27#3(!B'*)!?5%!0*&2*5('1!G650*'#30!*#!1#30'>5&C!

o H2;'3(0I!!J#B!B'77!%#6!211#@$7'0)!02;'3(0E!C!C!C!!

! A%!B#&?'3(!B'*)!%#6&!16&&53*!4'&@0!'3!50053*'277%!*)5!02@5!12$21'*%F!<6*! 63>5&!2!>'445&53*!<'77'3(!0*&61*6&5E!!A%!7##?'3(!4#&!1#0*!1#3*!@5206&50! *)2*!2&5!KL:!&2*5!&5>61*'#30!#&!<'77'3(!>'01#63*0!MB)'1)!2&5!<%!32*6&5! *5@$#&2&%!23>!@2%!3#*!752>!*#!<#**#@!7'35!1#0*!&5>61*'#3CN!!O4!0#F!>#! 02;'3(0!4#&!*)5!17'53*!26*#@2*'1277%!@523!&5>615>!$'*!4#&!*)5!4'&@E!!!

! "23!%#6!B#&?!!B'*)!%#6&!16&&53*!4'&@0!>'445&53*7%!*#!>57';5&!*)5!02@5! G627'*%F!<6*!B'*)!<5**5&!2$$)50!*#!211#@$7'0)'3(!*)5!B#&?E!!D)2*! B#67>!*)'0!7##?!7'?5!'3!*5&@0!#4!<5**5&!@232(5@53*!#4!$ל!23>! &50#6&150F!23>!'@$&#;5>!6*'7'P2*'#3!#4!*51)3#7#(%E!!D)2*!?'3>0!#4! 544'1'531'50!123!4'&@0!2>#$*!*)2*!16*!*)5!42*!<6*!3#*!*)5!<#35!M5C(C!75235&! 0*244'3(!0*&61*6&50F!<5**5&!?3#B75>(5!@232(5@53*!*#!2;#'>!&5'3;53*'3(! *)5!B)557F!$60)'3(!*#!#*)5&0!B#&?!*)2*!72B%5&0!>#3Q*!355>!*#!>#F!5*1CNE!!

! A%!B#&?'3(!B'*)!0#@5!35B!4'&@0!*)2*!@'()*!<&'3(!4&50)!2$$)50!23>! @#&5!5R$5&'5315!B'*)!27*5&32*';5!455!0*&61*6&50E!!:#!B)2*!5R*53*!B'77!%#6! 53(2(5!'3!0*&2*5('1!605!#4!1#@$5*'*';5!<'>>'3(!*#!'>53*'4%!*)5!&50$51*';5! 0*&53(*)0!#4!>'445&53*!4'&@0!'3!*)505!2&520E!!L&!5;53!*#!(26(5!'4!1#0*0!2*! #*)5&!4'&@0!@'()*!<5!7#B5&!<512605!#4!(5#(&2$)'1!7#12*'#3!#&!>'445&53*! <60'3500!@#>570!'3!$7215E!

"#$%&'()*!+,--.!/00#1'2*'#3!#4!"#&$#&2*5!"#63057! ! ! ! ! !! ! J#B5;5&!%#6!1)##05!*#!2$$)!'*F!*)5!$#*53*'27!02;'3(0!2&5!&527!S!TUV! 23>!6$!<205>!#3!$6<7'0)5>!06&;5%!>2*2!23>!1205!0*6>'50CT!!/3>!*)505! 02;'3(0!2&5!3#*!&2*5!>'01#63*0!*)2*!>#3Q*!&5277%!&5>615!#;5&277!<#**#@!7'35! 23>!2&53Q*!060*2'32<75!%52&!24*5&!%52&W!&2*)5&!*)505!02;'3(0!2&5!*&65!1#0*! 1#3*!@5206&50!*)2*!720*!23>!1&52*5!2!$72*4#&@!4#&!46&*)5&!544'1'531'50C!!

! o X#160!#3!&5067*0F!&'0?!0)2&'3(!Y!(&52*5&!27'(3@53*!#4!'3*5&50*0I!!!

! /&5!%#6!'3*5&50*5>!'3!)2;'3(!2!$#&*'#3!#4!72B!4'&@!1#@$5302*'#3!>5$53>! #3!21)'5;'3(!0611500467!#6*1#@50!*)2*!2&5!$&5Z>54'35>!<%!*)5!17'53*E!! D)2*!B#67>!*)'0!7##?!7'?5E!

! D)#!B'77!<52&!*)5!&'0?!#4!35B!$&'1'3(!23>!0*244'3(!0*&61*6&50E!!D)2*! 0)#67>!%#6!5R$51*!*)5!4'&@!*#![23*5!6$\!*#!1#3*!1#0*0F!23>!)#B!B'77! %#6!5'*)5&!0)2&5!*)5!&'0?!#&!&5B2&>!'*!'3!%#6&!B#&?E!!O3153*';5!4550E! A#36050E!!A%!#445&'3(!2!72&(5&!$#&*4#7'#!#4!B#&?!*#!@2?5!*)5!'@$&#;5>! $ל!@#&5!$'*2<75!4#&!*)5!4'&@E!

! J#B!123!%#6!200'(3!@2**5&0!2@#3(!%#6&!4'&@0!*#!<5**5&!'31&5205!*)5'&! 27'(3@53*!B'*)!%#6&!1#0*!1#3*!544#&*0E!X#&!5R2@$75F!%#6!123!#445&! *)5@!2!&5*2'35&!*#!@2?5!*)5@!&50$#30'<75!4#&!23!53*'&5!2&@!#4!75(27! 05&;'150F!B)'1)!531#6&2(50!*)5@!*#!)57$!*)5!17'53*!2;#'>!$&#<75@0!&2*)5&! *)23!@'3'@'P5!*)5!2@#63*!#4!1#63057'3(]05&;'15!*)5%!@60*!$&#;'>5!*#! &5@5>'2*5!$&#<75@0E!!J#B!123!%#6!7'3?!4'&@!4550!*#!@2**5&!#6*1#@50! 23>!0611500E!

! O4!%#6&!72B!4'&@0!2&5!B'77'3(!*#!$6*!2!72&(5&!$#&*'#3!#4!1#@$5302*'#3![2*! &'0?\!;'2!1#&&572*'#3!*#!0611500467!#6*1#@50F!2&5!%#6!B'77'3(!*#!$#0'*'#3! *)5@!*#!52&3!)'()5&!4550!*)23!*)5%!#*)5&B'05!B#67>!'4!*)5%!>57';5&! (&52*5&!51#3#@'1!;2765!<%!&5>61'3(!*)5!7'2<'7'*%!]!*#*27!&50#76*'#3!1#0*!#&! <%!'31&520'3(!$#*53*'27!&51#;5&'50!#&!(2'30E!

o 9&5>'1*2<'7'*%!Y!2>@'3'0*&2*';5!1#3;53'5315I!

! J#B!@61)!>#!%#6!;2765!*)5!$&5>'1*2<'7'*%!23>!2>@'3'0*&2*';5! 1#3;53'5315!*)2*!1#@50!B'*)!$2%'3(!2!05*!455!4#&!*)5!B#&?!>57';5&5>E!

! :#!21)'5;5!*)'0F!2&5!%#6!B'77'3(!*#!'3;50*!0#@5!*'@5!23>!544#&*!'3!$&#$5&7%! 1&24*'3(!*)5!*5&@0!6$Z4*!*#!;5&'4%!*)2*!*)5!455!2@#63*!'0![&'()*\!4#&!*)5! B#&?!>57';5&5>!23>!123!<5!2>)5&5>!*#E!!!

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! T!H55F!5C(CF!DH^I![A'772<75!J#6&!_3>5&!/**21?F\!/6(60*!,`F!,--.F!92(5!/TC!!O3!2!06&;5%!M3abc-NF!'3Z)#605!1#63057! &5$#&*5>!2;5&2(5!02;'3(0!#4!TUV!4&#@!27*5&32*';5!455!2&&23(5@53*0C!!! "#$%&'()*!+,--.!/00#1'2*'#3!#4!"#&$#&2*5!"#63057! ! ! ! ! !! ! /&5!%#6!B'77'3(!*#!'3;50*!2>>'*'#327!*'@5!72*5&!#3!*#!&5;'0'*!*)5! 2&&23(5@53*!20!3515002&%!'3!7'()*!#4!1)23(5>!1'&16@0*23150!2?>! @2**5&!21*';'*%!2006@$*'#30E!"23!%#6!1&52*5!2!$ל!4#&!&5Z5;2762*'#3! '3!*)5!5;53*!#4!32@5>!1#3*'3(531'50!M0#@5*)'3(!#4!2!>51'0'#3!*&55N!*)2*! 277#B0!2!0245*%!;27;5!<6*!0*'77!$7230!23>!>57';5&0!$&5>'1*2<75!1#0*0!23>! #6*1#@50!&572*5>!*#!27*5&32*';5!$2*)0E!

o L*)5&I!!*)'0![)#B!*#\!'0!1#30*23*7%!5;#7;'3(C!!D5!B571#@5!%#6&!'>520!#3! 2>>'*'#327!(#270!23>!20?!*)2*!%#6!4#&B2&>!23%!%#6Q>!7'?5!*#!0)2&5!*#! 211;27651)27753(5d211C1#@!23>!&545&5315!*)'0!e)#B!*#CQ!

:1*00'0(!%9+!*;;)#*<9!

:#!05751*!*)5!27*5&32*';5!455!0*&61*6&5!*)2*!'0!&'()*!4#&!%#6F!'*!'0!)57$467!*#I!MTN!'>53*'4%!$5#$75! *#!06$$#&*!*)5!2327%*'127!$לF!M,N!'>53*'4%!0#6&150!#4!>2*2F!23>!MbN!>54'35!*)5!01#$5!#4! B#&?!'3;#7;5>!'3!*)5!63>5&7%'3(!@2**5&M0NC!!:)505!0*5$0!B'77!)57$!*#!54451*';57%!>5;'05!*)5!455! *5&@0!23>!@#3'*#&!*)5@!20!*)5!53(2(5@53*!$›>0C!!!!!

! H*244'3(!%#6&!*52@I!!D)#!B'77!$5&4#&@!B)2*!ˮE!

o X*!7'35!72B%5&!C!C!C!0)#67>!)2;5!5R*530';5!?3#B75>(5!#4!@2**5&!21*';'*%!23>! 1#@$75R'*%F!23>!B#67>!<5!2!?5%!&50#6&15!'3!)57$'3(!*#!1&24*!*)5!$&#$5&!01#$5! 2006@$*'#30!*#!06$$#&*!*)5!27*5&32*';5!455C!!MO*!B'77!270#!<5!'@$#&*23*!*#!)2;5! 0'@'72&!$2&*'1'$2*'#3!4&#@!*)5!4*!7'35!72B%5&Q0!1#63*5&$2&*!S!*)5!72B!4'&@! 2**#&35%!@#0*!?3#B75>(52<75!2<#6*!*)5!@2**5&CN!!

o H53'#&!72B%5&!]!9&21*'15!f$!g52>5&!]!")'54!L$5&2*'3(!L44'15&]!g2B! 85$2&*@53*!hR516*';5!g52>5&]!f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𤨢C!

o X'32315!]!/11#63*'3(!]!9&5@53*!C!C!C!123!<5!)57$467!'3!$5&4#&@'3(! G623*'*2*';5!2327%0'0!*#!0)#B!B)2*!15&*2'3!@2**5&0!)2;5!1#0*F!#&!2&5!$&#i51*5>!*#! 1#0*F!63>5&!*)5!16&&53*!)#6&7%!&2*5!2$$)C!!:)5%!123!270#!<5!)57$467!'3! @#>57'3(!>'445&53*!4'R5>!455!27*5&32*';50!M1#@$2&'3(!1#0*!0'>5Z<%Z0'>5NF!23>!'3! 0*&61*6&'3(!$2%@53*0!23>!$&#;'>'3(!$5&'#>'1!4'3231'27!&5$#&*0C!!

"#$%&'()*!+,--.!/00#1'2*'#3!#4!"#&$#&2*5!"#63057! ! ! ! ! !! o 9&#i51*!j232(5&!C!C!C!0#@5#35!'3!%#6&!>5$2&*@53*!B)#!'0!0?'775>!2*!$&#i51*! @232(5@53*!123!<5!;5&%!)57$'3(!'3!*&21?'3(!$&#(&500!;5&060!*)5!'3'*'27! 2006@$*'#30!20!*'@5!$&#(&50050C!!/7*5&32*';57%F!%#6!123!20?!%#6&!72B!4'&@!*#! 2$$#'3*!0#@5#35!*#!>#!*)'0!#3!*)5'&!53>F!23>!$&#;'>5!%#6!B'*)!$5&'#>'1!6$>2*50C!

! H#6&150!#4!>2*2!

o "7'53*Q0!)'0*#&'127!'34#&@2*'#3!#3!B)2*!1#@$#353*!$'5150!#4!B#&?!)2;5!1#0*!'3! *)5!$20*!M*)'0!@2%!&5G6'&5!0#@5!>'(('3(!23>!2327%0'0N!

o "7'53*Q0!$&#i51*'#30!20!*#!B)2*!@2**5&0!#&!$&#i51*0!2&5!53;'0'#35>!*#!1#0*!'3!*)5! 46*6&5!M*)'0!B'77!&5G6'&5!0#@5!50*'@2*50!23>!1271672*'#30N!

o 9&#$#05>!455!0*&61*6&50!]!<'>!'34#&@2*'#3!0#7'1'*5>!4&#@!23>!$&#;'>5>!<%!4'&@0! B'*)!&50$51*!*#!2!$2&*'1672&!$'515!#4!B#&?!!#&!$#&*4#7'#!#4!B#&?!MB)'1)!123!05&;5! 20!2!)57$467![@2&?5*!$&'15\!&545&5315!!"#$!%&!#4!*)5!17'53*Q0!)'0*#&'127!>2*2!23>! B)'1)!123!)57$!<&'3(!*)5!4'&@Q0!<>5&!17'53*!5R$5&'5315!*#!<52&N!

! 854'3'3(!*)5!01#$5!#4!B#&?!

o /327%P5!*)5!63>5&7%'3(!<6>(5*'3(!#&!B#&?!$723!>#16@53*0!*#!63>5&0*23>!B)2*! 1#@$#353*!$'5150!#4!B#&?!2&5!$&#i51*5>!B'*)'3!*)'0!@2**5&C!!MO4!%#6!>#3Q*!)2;5! *)505!>#16@53*0!'3!$7215F!20?!#6*0'>5!1#63057!*#!72%!#6*!*)5!>5*2'70NC!!!

! hR2@$750!#4!7'*'(2*'#3!1#@$#353*0!]!@'750*#350!'3176>5I!J#B!@23%! 1#@$23%!B'*350050!B'77!<5!'3*5&;'5B5>!4#&!421*!'3;50*'(2*'#3!]! >5;57#$@53*E!!J#B!@23%!>5$#0'*'#30!>#!B5!$723!*#!*2?5!23>!>5453>!'3! *)'0!@2**5&E!!J#B!@23%!5R$5&*!B'*350050!>#!B5!$723!*#!B#&?!6$!M<#*)! #44530';5!23>!>54530';5NE!

! hR2@$750!#4!*&23021*'#30!1#@$#353*0!]!@'750*#350!'3176>5I!>&24*!*5&@! 0)55*W!$&#>615!'3'*'27!>&24*!#4!7'15305!2(&55@53*W!35(#*'2*5!#6*0*23>'3(! '00650!B'*)!#*)5&!0'>5W!$5&4#&@!>65!>'7'(5315W!4'327'P5!>#16@53*0!23>! 1#3>61*!17#0'3(!

o "#30*&61*!2!16&&53*!1#0*!$&#i51*'#3!C!C!C!60'3(!23%!23>!277!2;2'72<75!'34#&@2*'#3k <#*)!4&#@!*)5!17'53*!23>!*)5!72B!4'&@!<205>!#3!)'0*#&'127!1#0*0!23>!5R$5&'5315F! 23>!5;53!'4!'*!53*2'70!@67*'$7%'3(!50*'@2*5>!36@<5&!#4!)#6&0!*'@50!*#!1&24*!2! 0*2&*'3(!$#'3*!

o 85*5&@'35I!B)2*!'0!2![(##>\!M;2765N!2@#63*!&572*';5!*#!*)5!16&&53*!1#0*! $&#i51*'#3!

"#$%&'()*!+,--.!/00#1'2*'#3!#4!"#&$#&2*5!"#63057! ! ! ! ! !! ! "23!<5!<205>!#3!%52&0!#4!2116@672*5>!5R$5&*'05F!23>!2!05305!#4!B)2*! 0#@5*)'3(![0)#67>\!1#0*!'4!>#35!544'1'53*7%!

! "23!<5!<205>!#3!1271672*5>!$&#i51*'#30!23>!*2&(5*0!*)2*!*)5!17'53*!23>! 4'&@!$6*!'3!$7215!*#!(#;5&3!B)2*!*)5!17'53*!B'77!$2%!4#&!2!$2&*'1672&!'*5@!

! "23!<5!<205>!#3!1#@$5*'*';5!<'>>'3(!2@#3(!4'&@0!#4![7'?5\!G627'*%!23>! 5R$5&*'05!C!C!C!*#!50*2<7'0)!B)2*!@2&?5*!#445&0!20!*)5!(#'3(!$&'15!4#&!*)2*! $'515!#4!B#&?!

=#-+!>#--#0!.?;+6!#,!31%+)0*%'4+!#)!@*1A+B2*6+/!2'11'0(!=%)A<%A)+6!

! :#!172&'4%!C!C!C!2!!"#$%&'()%**)+%&,-.),/(0#)%,)1-0'!0!),/(0#!S!B)'75!)57$467!'3!$2&*!S!'0!3#*! 23!27*5&32*';5!#&![;2765Z<205>\!455C!!l2*)5&F!*)5!)277@2&?!#4!23!27*5&32*';5!455!0*&61*6&5! '0!*)2*F!'3!0#@5!B2%F!'*!6*'7'P50!2!63'*!#4!@5206&5!#*)5&!*)23!*'@5!0$53*!*#!>5*5&@'35! B)2*!*)5!17'53*!B'77!$2%!4#&!*)5!B#&?!$5&4#&@5>C!!O*!7##?0!2*!*)5!;2765!#4!*)5!05&;'15!*#! *)5!17'53*!#&!'*0!B#&*)!'3!*)5!72&(5&!@2&?5*$7215F!3#*!*)5!$'*2<'7'*%!#4!*)5!05&;'15!*#! *)5!72B!4'&@C!

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

! 4"50!)*00#!2&5!605>!*#!244'R!2!$2&*'1672&!$&'15!*#!2![>57';5&2<75\!#&!2!>'0*'31*!$'515!#4! B#&?C!!g'*'(2*'#3!5R2@$750!'3176>5!$2%'3(!m!20!*)5![277!'3\!455!4#&!2!72B!4'&@!*#!>&24*!23>! 2&(65!2!06@@2&%!i6>(@53*!@#*'#3F!$2%'3(!n!20!*)5![277!'3\!455!$5&!>5$#0'*'#3!*2?53F! 23>!$2%'3(!o!$5&!$2(5!#&!$5&!('(2<%*5!4#&!4'&0*!75;57!&5;'5B!#3!2!>#16@53*!$&#>61*'#3C!! :&23021*'#3!5R2@$750!'3176>5!$2%'3(!m!*#!$&#>615!'3'*'27!>&24*!#4!7'15305!2(&55@53*W!n! 35(#*'2*5!#6*0*23>'3(!'00650!B'*)!#*)5&!0'>5W!23>!o!*#!4'327'P5!>#16@53*0!23>!1#3>61*! 17#0'3(C!

! 6%,(*%-"%)*"50!)*007))H#@5!17'53*0!)2;5!'@$75@53*5>!2!<>5&!2$$7'12*'#3!#4!*)5!4'R5>! 455!2$$)!<%!200'(3'3(!72&(5!$#&*4#7'#0!#4!B#&?!*#!2!0'3(75!4'&@!4#&!2!4'R5>!455!M606277%! 24*5&!2!1#@$5*'*';5!<'>>'3(!$לNC!!:)'0!72&(5&!$##7!#4!B#&?!532<750!17'53*!23>!4'&@!*#!

"#$%&'()*!+,--.!/00#1'2*'#3!#4!"#&$#&2*5!"#63057! ! ! ! ! !! <5**5&!@232(5!23>![1#;5&\!#&![0574Z463>\!'3>';'>627!#6*7'5&0!B)5&5!*)5!21*';'*%! 2006@$*'#30!$&#;5>!*#!<5!#44C!!O*!270#!$&#;'>50!*)5!4'&@!B'*)!2!63'G65!'3153*';5!*#!)57$! *)5!17'53*!&5>615!75(27!&'0?0!23>!$&#<75@0!0'315!*)5%!2&5!<5'3(!$2'>!*#!05&;5!23!2&52!M5C(C! Jl!23>!5@$7#%@53*!7'*'(2*'#3F!#&!05&;'3(!*)5!1#@$23'50!O9!355>0NF!23>!*)5%!@2?5!@#&5! 23>!>#!<5**5&!B)53!*)5%!$&5;53*!$&#<75@0!&2*)5&!*)23!&2*'#3'3(!05&;'150C!!

! 60,)$/3"(/)*00#)8)9!)/:0'$.);%!0-7!!D)'75!*)5!4'R5>!455!@#>57!>501&'<5>!2<#;5!4#16050! 4'&0*!23>!4#&5@#0*!#3!*)5!$&#i51*!]!>57';5&2<75F!*)5!'%(#)*'!+*!2$$)!4#16050!#3!*)5! $ᆔ'#327M0N!$5&4#&@'3(!*)5!B#&?C!!:)5![2>!2(531%\!@#>57!4'R50!2!05*!$&'15!*#! [$6&1)205\!*)5!4677Z*'@5!#&!)274Z*'@5!05&;'150!#4!2!15&*2'3!$5&0#3!#&!*52@!#4!$5#$75F!#3! *)5!$&506@$*'#3!*)2*!*)5%!B'77!*)53!$&#>615!*)5!B#&?!&5G6'&5>C!!H2;'3(0F!4&#@!*)5! 17'53*Q0!$5&0$51*';5F!2&5!1271672*5>!;0C![&21?!&2*50\!4#&!23!5G6';2753*!2@#63*!#4!*)2*! $5&0#3Q0!*'@5C!!A6*!*)5!@#>57!'0!2&(62<7%!472B5>!'3!*)2*!'*!>#50!3#*!@5206&5!544'1'531%F! #&!1&52*5!'3153*';50!*#!$&#>615!*)5!B#&?!'3!7500!*'@5C!!!!!!

! 60,*%,;/'$0<1/#0!)+%-!1/$=7))/3%!#4!*)5!2$$)50!7'0*5>!2<#;5!123!<5! 06$$75@53*5>!B'*)!2!$&#;'0'#3!*%'3(!2!$#&*'#3!#4!72B!4'&@!1#@$5302*'#3!*#!21)'5;'3(! $&5Z>54'35>!#6*1#@50!#&!0611500!@5*&'10C!!:)'0!123!M23>!'0N!270#!>#35!'3!@#&5! 1#3;53*'#327!53(2(5@53*0!0*&61*6&5>!63>5&!*)5!)#6&7%!&2*5!@#>57C!!:)5!)#7><21?! 2@#63*!M5C(C!,-V!#4!4550!<'775>N!'0!*%$'1277%!065$53>'3(!#3!*)5!5R*53*!#4!0611500!21)'5;5>C!!hR2@$750!#4!$&5Z>54'35>!#6*1#@50!#&! 0611500!@5*&'10!'3176>5!#35!#&!@#&5!#4!*)5!4#77#B'3(I!!!!))

o D'33'3(!#3!06@@2&%!i6>(@53*F!2*!*&'27!#&!#3!2$$527!

o l50#7;'3(!2!@2**5&!2*!#&!<57#B!2!0$51'4'5>!2@#63*!

o "7#0'3(!#6*!2!@2**5&!B'*)'3!2!0$51'4'5>!$5&'#>!#4!*'@5!

o "#@$75*'3(!2!@5&(5&F!21G6'0'*'#3!#&!>527!

o j232('3(!*)5!53*'&5!@2**5&!2*!#&!<57#B!<6>(5*!

o H1#&'3(!B577!<205>!#3!$&5Z50*2<7'0)5>!17'53*!1&'*5&'2!M7'?5!&50$#30';53500F! 1&52*';'*%F!>';5&0'*%!5*1CN!#&!$לZ<205>!@5206&5@53*0!M7'?5!$5&4#&@'3(!h2&7%! "205!/00500@53*!'3!g'*'(2*'#3F!@232('3(!*#!<6>(5*F!23>!06<@'**'3(!&57'2<75! 4#&5120*0N!

"#$%&'()*!+,--.!/00#1'2*'#3!#4!"#&$#&2*5!"#63057! ! ! ! ! !! ! C+?!>#06'/+)*%'#06!%#!C++;!'0!&'0/!

! j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i60*5>C!!O4!#*)5&! 2&520!2&5!7500!21*';5!*)23!$&#i51*5>F!*)5!*B#!@2%!#4405*C!!!L&!'4!05&;'150!*)2*!2&5!'3!)#*! >5@23>!2&5!3#*!*)5!)'()5&!75;57!B#&?F!*)53!*)5%!@2%!3#*!2>>!$&#$#&*'#32*57%!)'()5&! 75;57!1#0*0!*#!*)5!$&#i51*C!

! h31#6&2(5!1#@$5302*'#3!23>!$5&4#&@2315!&5;'5B0!7'3?5>!*#!&5067*0F!23>!3#*!i60*!*#! [7#*0!#4!21*';'*%C\!!:)'0!2$$7'50!*#!<#*)!'3Z)#605!23>!#6*0'>5!1#63057C!!:##!#4*53!B5! 2006@5!*)2*!B5Q77!>&';5!1)23(5!<%!*577'3(!4'&@0!*#!>#!<5**5&F!<6*!'4!B5!2&53Q*!)#7>'3(!*)5! >5$2&*@53*!*#!*)5!02@5!0*23>2&>0!#4!@232(5@53*!23>!&5067*0!23>!$5&4#&@2315!*#! (#270F!*)53!*)5!@5002(5!B'77!<5!@523'3(7500!23>!*)5!#6*1#@50!B'77!<5!$##&C!

•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

• 9723!4#&!*)5!634#&50553C!!O*!'0!'@$#&*23*!*#!>5*5&@'35!)#B!%#6!B'77!2>>&500!@2*5&'27! 1)23(50!'3!1205!21*';'*%!#&!1#@$75R'*%!'4!*)5!@2**5&!;2&'50!0'(3'4'123*7%!4&#@!*)5!2(&55>Z 6$#3!2006@$*'#30C!

o H#@5*'@50!*)5!230B5&!7'50!'3!05**'3(!2![63'*!$&'15\!4#&!15&*2'3!B#&?!M5C(C![277!'3\! 455!$5&!>5$#0'*'#3NF!B)'1)!123!05&;5!20!*)5!<20'0!4#&!1271672*'3(!*)5!&5;'05>!*#*27! '4!*)5!36@<5&!#4!63'*0!1)23(50!0'(3'4'123*7%C!

o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pUV!#&! 2<#;5!TTUVNC!!O3!0#@5!'30*23150F!*)5!2$$#&*'#3@53*!&2*'#!'0!2(&55>Z6$#3!'3!

"#$%&'()*!+,--.!/00#1'2*'#3!#4!"#&$#&2*5!"#63057! ! ! ! ! !! 2>;2315C!!MH#@5!1&'*'10!2&(65!*)2*!$&#;'0'#30!061)!20!*)'0!2&5!472B5>!'3!*)2*!*)5%! 50053*'277%!&5;5&*!<21?!*#!*)5!)#6&7%!&2*5!0*&61*6&5F!23>!63Z>#!*)5!<5354'*0!#4!23! 27*5&32*';5!455!2$$)C!!L*)5&0F!)#B5;5&F!055!*)5@!20!2!B2%!*#!2>>&500!*)5! &'0?!#4!6315&*2'3*%F!B)'75!5306&'3(!*)2*!*)5!72B!4'&@!0*'77!)20!0#@5![0?'3!'3!*)5! (2@5\!'3!*5&@0!#4!1#;5&'3(!*)5!'3'*'27!$#&*'#3!M)5&5F!TUVN!#4!*)5!#;5&2(5C!

! X#160!#3!"#@$5*'*';5!/>;23*2(5C!!:)5!&527!7#3(Z*5&@!<5354'*!#4!27*5&32*';5!455!<'77'3(!'0! *)2*!'*!B'77!1&52*5!'3153*';50!4#&!72B!4'&@0!*#!'3;50*!'3!$𤨢F!0%0*5@0!23>! *51)3#7#('50!*)2*!21153*62*5!*)5'&!1#@$5*'*';5!2>;23*2(5F!532<7'3(!*)5@!*#!$&#>615! *)5'&!B#&?!@#&5!544'1'53*7%!S!$200'3(!27#3(!2!$#&*'#3!#4!*)5!;2765!*#!17'53*0!M20!02;'3(0N! 23>!?55$'3(!2!$#&*'#3!4#&!*)5@057;50!M20!$'*NC!!K#*!277!4'&@0!B'77!<5!2<75!*#!>#!*)'0!'3! 277!2&520C!!:#!(5*!*)5!4677!<5354'*!20!*)5!17'53*F!'*!B'77!<5!3515002&%!*#!$5&'#>'1277%!0123!*)5! @2&?5*!*#!4'3>!06$5&'#&!#445&'3(0!#3!23!2$$750Z*#Z2$$750!<20'0C!

! ")##05!$&#(&500!#;5&!$5&451*'#3C!!O3!05751*'3(!%#6&!&545&5315!$#'3*!4#&!@5206&'3(! 0611500F!7##?!*#!0)#B!'@$&#;5@53*!23>!02;'3(0!;5&060!B)2*!%#6!B5&5!0$53>'3(!<54#&5F! 20!#$$#05>!*#!#<0500'3(!#;5&!B)5*)5&!%#6!2&5!20!17#05!20!$#00'<75!*#!*)5!#$*'@27!$&'15! $#'3*C!!H611500!#3!*)5!72**5&!4*!B'77!1#@5!#;5&!*'@5C!!!

"#$%&'()*!+,--.!/00#1'2*'#3!#4!"#&$#&2*5!"#63057! ! 3 In-House Views of Alternative Fee Arrangements

Christian Lewis Law360 October 17, 2014

What does general counsel really think of alternative fee arrangements? The question was met with a fair amount of skepticism by a panel of general counsel Friday at the annual meeting of the Legal Marketing Association Southeastern Chapter.

Tactics such as blended billing and bonus arrangements do work in certain circumstances, according Dean Kim, general counsel of North American Business Units at Bridgestone Americas Inc., but the key is to remember that a corporation asks the same questions of its legal department as it would of any other division of the company: What was our spend? How does it compare historically? What was the level of service?

“If we come up with blended fee arrangements and end up spending the same amount at the end of the year, it’s not worth it,” Kim said. “If you really have a long view, you don’t want to just win the proposal — you want to actually have a relationship that lasts.”

Others were less receptive to the idea of alternative fee arrangements.

“The flat-fee thing normally doesn’t work for a law firm. A 10 percent discount doesn’t really work either,” said Christopher Kelly, general counsel of AmSurg Corp., one of the largest outpatient surgery companies in the U.S. “I haven’t seen anything innovative enough to replace the traditional model.”

Christopher Javillonar, general counsel of power wheelchair maker Permobil Inc., agreed: “I’m sticking with the traditional model now until someone proves otherwise.”

So if not on the billing side, how do law firms get the attention of in-house counsel? One suggestion was to tout those attorneys with experience regulating a specific industry.

“I work in the most highly regulated sector of the most highly regulated industry,” Kelly said. “Smart firms hire the people who used to work for the government regulators — people with relevant, recent experience. That’s who I want to hear from.”

He said he also looked for attorneys serving in some capacity as teachers — for example, subject matter experts presenting at conferences.

Javillonar agreed. Having recently moved in-house from the law firm side, Bryan Cave LLP, he said he was the one out there actively seeking information.

“How do you get my attention? Networking. Conferences. My goal is to meet you, meet people in your firm, see what services you provide,” he said.

All the panelists agreed that law firm attorneys needed to study and understand the company’s business. And to be effective, they should serve not only as legal experts but also as business advisers. “Our environment is a little bit irreverent,” said Michelle Kennedy, general counsel and chief financial officer of hockey team Nashville Predators. “If what you have is the stiff, in-the-box attorney, it’s just not going to work very well … This is not something that can be solved in a black-and-white way. You need to be comfortable existing in the gray areas.”

--Editing by Christine Chun.