Out-Of-State Law Firms In A New York State Of Mind Devika Kewalramani and Jordan Greenberger Think twice before opening an office in New York. And both times you think, think about the ethics rules. Devika Kewalramani is a partner at Moses & Singer LLP, co-chair of its le- OPENING A NEW YORK OFFICE of an out-of-state gal ethics and law firm practice, and the incoming chair of the Committee on Professional Discipline of or foreign law firm may involve various ethical consid- the New York City Bar. erations. Each U.S. jurisdiction has its own set of ethics rules. Many states follow the American Bar Association (“ABA”) Model Rules of Professional Conduct (“Model Rules”) but some states do not. New York has not adopted the Model Rules verbatim. Although the New York Rules of Professional Conduct (“NY Rules”) are largely based upon the Model Rules, the NY Rules differ in certain re- spects from the Model Rules and the ethics rules of some states. NY Rule 5.1 imposes responsibility for ethical compli- ance on “law firms” for the professional conduct of its lawyers. Assuming that a New York office of an out-of- state firm would be treated the same as a “law firm” for Jordan Greenberger purposes of the NY Rules, it appears that the New York is an associate in Moses & Singer’s litigation depart- office would be responsible for ensuring its New York-li- ment. censed lawyers comply with the NY Rules. So, out-of-state firms located or headquartered in ju- risdictions that follow or diverge from the Model Rules should be aware of some of the quirkier aspects of the NY Rules before opening its doors in New York. This ar- The Practical Lawyer | 43 44 | The Practical Lawyer October 2013 ticle highlights some of the ethical issues that are tion should ordinarily include no more than the often encountered when a New York office is estab- identity of persons or entities involved in a matter, lished, and draws attention to some of the distinc- a brief summary of the general issues, and whether tions between the NY Rules and the Model Rules to the matter has terminated, and may be disclosed illustrate how the ethical terrain in New York may only once substantive discussions regarding the not be consistent with the Model Rules or the eth- new relationship have occurred. See ABA Comm. ics rules in other jurisdictions where the out-of-state on Ethics & Prof ’l Responsibility, Formal Op. 09- firm may have offices. 455 (2009). It is unclear if New York and/or other jurisdictions around the country are considering CHECKING FOR CONFLICTS OF adopting Model Rule 1.6(b)(7). INTEREST • A New York office of an out-of-state law firm should consider implementing procedures and Conflicts System practices that comply with NY Rule 1.10(e) for its The duty of loyalty to clients requires avoid- New York engagements. ing conflicts of interest. Most states have conflicts of interest rules that generally require lawyers to LETTERS OF ENGAGEMENT • identify, analyze and resolve different types of con- flicts. Notably, New York’s conflicts checking rule, Writing Requirement NY Rule 1.10(e), expressly requires a law firm to Out-of-state firms having offices in states that make a written record of its engagements at or near have adopted Model Rule 1.5(b) may use forms of the time of each new engagement and to imple- engagement letters that follow the Model Rule’s ment and maintain a “system” by which proposed writing and other requirements. Note, NY Rule engagements are checked against current and pre- 1.5(b) is not identical to Model Rule 1.5(b). For ex- vious engagements in four specific situations: when ample, while NY Rule 1.5(b) requires a writing to the firm agrees to represent a new client or an ex- the client to communicate the scope of work and isting client in a new matter, hire or associate with the basis or rate of fees and expenses “where re- another lawyer, or an additional party is named or quired by statute or court rule,” Model Rule 1.5(b) appears in a pending matter. simply says such a communication shall be “prefer- ably in writing.” The exceptions to the writing re- ABA Amendment Permits Limited quirement and the criteria required for an updated Disclosure To Detect And Resolve Conflicts writing are not the same under the two rules. To permit sharing of limited information be- tween law firms to detect and resolve conflicts of New York’s Court Rule interests that may be triggered by lateral lawyer New York also has a long-standing court rule on movement or law firm mergers, the ABA recently written engagement letters which requires that, “an added an exception to Model Rule 1.6 (duty of con- attorney who undertakes to represent a client and fidentiality) to allow disclosure of client confidences enters into an arrangement for, charges or collects if reasonably necessary, and only to the extent the any fee from a client shall provide to the client a revealed information would not compromise the written letter of engagement before commencing attorney-client privilege or otherwise prejudice the the representation.” See 22 NYCRR §1215.1. A client. See Model Rule 1.6(b)(7). Comment [13] to signed written retainer agreement between the cli- Model Rule 1.6 explains that such limited informa- ent and the lawyer also satisfies the rule.Id. Engage- Practicing in New York | 45 ment letters and retainer agreements must be up- ADVANCE PAYMENT RETAINERS • dated if there is a significant change in the scope of services or in the fees to be charged. Id. This court Where To Deposit Retainers rule applies to all civil and criminal representations, Once engaged to represent a client, most law- unless certain exceptions apply. Domestic relations yers and firms ask for an advance retainer to begin or matrimonial matters are governed by a different the work. But which account should the retainer court rule, 22 NYCRR Part 1400. be deposited into — the firm’s operating account or the attorney trust account? Many states follow Client’s Right To Arbitrate the Model Rule approach: Model Rule 1.15(c) pro- Significantly, 22 NYCRR Part 1215 requires vides, “A lawyer shall deposit into a client trust ac- the engagement letter to provide notice of a client’s count legal fees and expenses that have been paid right to arbitrate fee disputes, where applicable. Un- in advance…” Unlike the Model Rules, New York der Part 137 of the Rules of the Chief Administra- does not expressly require any specific treatment of tor of the Courts, a client may be entitled to partici- advance fee payments. NY Eth. Op. 570 (N.Y. St. pate in the New York State Fee Dispute Resolution Bar. Assn. Comm. Prof. Eth.), June 07, 1985 and Program which provides for the formal and expedi- NY Eth. Op. 816 (N.Y. St. Bar. Assn. Comm. Prof. tious resolution of fee disputes between attorneys Eth.), October 26, 2007, conclude that a lawyer and clients through arbitration and mediation. The may ethically deposit advance retainers in the law program is limited to disputes over legal fees and firm’s operating account unless the client and law does not apply to amounts in dispute involving a firm have expressly agreed (i.e., in the engagement sum of less than $1,000 or more than $50,000. letter) that it be placed in an attorney trust account. Thus, in New York, a lawyer may place advance Monetary Threshold retainers in the law firm’s operating account or in In New York, a monetary threshold may deter- a trust account. This is not the rule in other states mine if an engagement letter or retainer agreement such as Massachusetts and Indiana where the funds is required in order to undertake a client engage- must be placed in a separate account. Massachu- ment. So, when the fee to be charged is expected to setts Bar Association Opinion No. 78-11 (1978); In- be less than $3,000, no engagement letter or retain- diana Judicial Ethics Advisory Opinion #4-77 (IN er agreement is normally required. See 22 NYCRR Comm. Jud. Qual.), 1998. Part 1215.2. Notably, depending on where the out- Lawyers in a New York office of an out-of-state of-state law firm has offices, there may be different firm should be aware that depending on how they monetary thresholds or no threshold at all (for ex- have agreed to treat advance retainers with clients, ample, California and Washington (State) require if the funds are placed in a trust account, there may engagement letters), thereby making engagement be additional obligations under the escrow account letters necessary for every client representation. requirements governed by NY Rule 1.15 that they Thus, a New York office of an out-of-state firm may need to understand and comply with. should be mindful of the applicable New York threshold and, what if any additional provisions the ESCROW ACCOUNT REQUIREMENTS • New York form of engagement letter or retainer agreement may need to include for clients repre- More Rules, More Compliance sented by the New York office that the firm’s exist- State ethics rules from around the country, ing form of engagement letter may not address. whether modeled after Model Rule 1.15 or not, 46 | The Practical Lawyer October 2013 prohibit commingling and misappropriation of Ethical Walls funds, and require safekeeping of client funds, The presumption of disqualification may be proper maintenance of bank accounts, and appro- overcome by, among other things, instituting an priate bookkeeping and record keeping practices.