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Advisory Ethics Opinions - 2010 to date

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OPINION 2012-1

SYNOPSIS: A lawyer may enter into a marketing agreement with a nonlawyer professional to share the cost of advertising, but the lawyer must ensure that the content of the advertising materials complies with the Rules, and all payments to the nonlawyer must be for actual marketing costs and services rendered. The advertisements must not state or imply that the lawyer is in business or partnership with the nonlawyer. Should the MSA result in an informal referral arrangement with the nonlawyer, the lawyer shall comply with the Rules regarding reciprocal referral agreements and shall disclose potential conflicts of interest to the client.
QUESTION PRESENTED: Whether an attorney or law firm may enter into a marketing agreement with non-lawyer professionals in order to share the cost of marketing and advertising expenses.
FACTS: Attorney has been approached by realtor to enter into a marketing agreement with realtor and lender. The agreement would include a mix of print and on-line marketing geared to buyers and sellers of real estate, and would advertise the services of the attorney, the realtor and a lender. All advertising materials would be posted, printed or sent by the realtor. The parties would split the cost of the advertising campaign three ways on a month to month basis. The payment of the attorney’s share of the marketing costs would not depend on whether any new clients or business came from the advertising, and payment for the advertising would not derive from the proceeds of any particular real estate transaction but would rather come from the attorney’s general office account.
ANALYSIS:
A lawyer may advertise his or her services through written, recorded or electronic communication, including public media. See Rule 7.2(a). However, the Rules set forth various restrictions on a lawyer’s marketing activities. Under Rule 7.1, for instance, a lawyer’s advertising materials shall not include any false or misleading information about the lawyer or the lawyer’s services (e.g. an indication that the attorney is an expert or specializes in a certain area of law unless permitted under Rule 7.4). Further, Rule 7.2(c) requires all advertisements to include the name and office address of at least one lawyer or law firm responsible for their content.
A lawyer may pay the reasonable costs for advertisement and marketing materials without running afoul of the prohibition in Rule 7.2 that a lawyer shall not give anything of value to a person for recommending the lawyer’s services. See 7.2(b)(1). But if a lawyer contracts and pays a nonlawyer to prepare marketing materials for the lawyer, the lawyer has an obligation to ensure that the content of the advertisements conforms to the Rules. See Rule 5.3.
Under the facts provided, the lawyer’s payments to the realtor would be permissible under the Rules, as the payments would be for actual costs of marketing services provided by the realtor, and would not be payments for specific or individual client referrals from the realtor. However, the lawyer must have access to and some control over the content of the advertising to ensure that it meets the requirements of Rules.  
In addition to confirming compliance with Rules 7.1 and 7.2, the lawyer must ensure that the marketing materials do not state or imply that the lawyer is in business or partnership with the realtor or lender listed on the advertisement, or any other nonlawyers included in or on the materials. It must be made clear that the lawyer and nonlawyers are separate businesses or entities providing distinct services. See Rules 5.4 and 5.7; also see New York County Lawyers’ Association Committee on Professional Ethics Formal Opinion No. 733, p. 6 (“the attorney must be circumspect about how the relationship with the non-legal professional is characterized in any communications with the public. . .In terms of public perception, both the law firm and the non-legal professionals must make clear to the public that the law firm and the non-legal professional service firm remain separate entities. . .With respect to mailing or dissemination of brochures or other literature . . . the attorney should review any brochures or advertising prepared by a non-legal professional to ensure that, insofar as they describe the relationship or refer to the attorney, their content is accurate and does not incorrectly characterize the relationship or the attorney’s credentials.”) The lawyer must at all times ensure his or her professional independence of judgment in accordance with Rule 5.4(c). The lawyer may not permit any person who recommends the lawyer to direct the lawyer’s professional judgment in rendering legal services to clients.
Finally, under the facts provided, this scenario would not implicate Rule 7.2(b)(4) regarding reciprocal referral agreements because the marketing agreement is for advertising purposes and not reciprocal referral purposes, and the lawyer would have no opportunity, duty, or obligation to refer anyone to the realtor. Any person who responded to the advertisements put out by the realtor under the marketing agreement would presumably only contact the attorney after going through the realtor’s office.
However, should any informal referral arrangement result from the business connection created by the marketing agreement, the lawyer must comply with Rules 7.2 (b)(1) and (4), 5.4 and 5.7. The lawyer must not give anything of value to the nonlawyer for referring potential clients to the lawyer, the informal referral arrangement must not be explicit, and the lawyer must disclose to the client the informal referral arrangement with the nonlawyer. The lawyer must protect his or her professional judgment at all times, must not enter into a business or partnership with the nonlawyer, and must be clear in all communications with the public about the separate and distinct nature of the lawyer’s services and the nonlawyer’s business. The lawyer should also disclose to the client that the business arrangement with the nonlawyer could potentially create a conflict of interest (e.g. if a real estate transaction in which the realtor referred the client to lawyer resulted in a dispute over the purchase and sale agreement drafted by the realtor, with potential claims against the realtor).
This advisory opinion does not opine whether the marketing agreement would comply with the current federal Real Estate Settlement Procedures Act, or other applicable state or federal laws. The lawyer should be aware that there may be such laws, apart from the ethical Rules, which could prohibit arrangements such as the marketing agreement. 

 



Communication with Unrepresented Party

OPINION # 2011-5

Synopsis:   An attorney representing parties being sued by a non-profit condominium association that is governed by a board of directors elected by the membership may communicate directly with non-board members of the association regarding facts relevant to the litigation without notifying the board’s attorney and without first obtaining the board’s attorney’s consent.
 Facts:    A Vermont non-profit condominium association governed by a board of directors elected by the membership has brought suit against multiple defendants, including the developers of the condominium, for a series of alleged construction defects.  The suit is being pursued by the Board of Directors on behalf of the Association.  The Board of Directors is authorized to act on behalf of the Association.  This is true even if individual members disagree. The Board has retained counsel to represent it in the litigation.  Counsel for the association has confirmed that counsel does not represent the individual owners, but the association counsel asserts that by representing the association he is de facto representing the owners as members of the association because the association is acting in what the association board of directors believes to be in the interests of the member owners. As such, the association’s attorney takes the position that his representation extends to the member owners for purposes of the application of the anti-contact provisions of V.R.P.C. 4.2.  Requesting attorney asks whether requesting attorney is required to seek the consent of the association counsel before contacting non-board members of the association to discuss issues relevant to the lawsuit.
Question:   Is the attorney for the defendants permitted to communicate with non-board members of the association without first obtaining the consent of the association’s attorney without violating Rule 4.2 of the Vermont Rules of Professional Conduct.
Analysis:    Rule 4.2 states as follows:
                         Communication with Person Represented by Counsel
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. (emphasis added).
The issue raised by the opinion request is whether the non-board members of the association are persons represented by the association’s lawyer within the meaning of Rule 4.2.  If so, then Rule 4.2 prohibits the defendant’s attorney from communicating with such persons without the association lawyer’s consent.  If not, then Rule 4.2 does not prohibit direct communication between the defendant’s attorney and the non-board association members.
When an organization is represented by counsel, Rule 4.2 prohibits the attorney for an adverse party from communicating directly with a constituent of the organization, if (1) the constituent supervises, directs or regularly consults with the organization’s lawyer concerning the matter in litigation, or (2) the constituent has the authority to obligate the organization with respect to the matter in litigation, or (3) the constituent’s act or omission in connection with the matter may be imputed to the organization for purposes of civil or criminal liability.  Rule 4.2, Comment 7.
The association acts through its board of directors.  The board of directors gives guidance to the association’s lawyer and makes decisions about the litigation.  Non-board members are in a totally different category. Non-board members interests may align fully with the association’s interests, but non-board members do not satisfy any of the three categories set forth above as guides to when a constituent is deemed to be within the scope of the prohibition of the Rule.
A test for the applicability of the anti-contact rule used in some cases is known as the “managing-speaking” test.  That test prohibits communications with any person who is a manager who is authorized to speak for the corporation.  Palmer v. Pioneer & Associates, 257 F.3rd 999 (9th Cir. 2001) (employees holding managerial positions which give them authority to speak for and bind a corporation may not be contacted by the opposing party’s attorney).  Applying that test here, the non-board members would not be deemed to be covered by the anti-contact provisions of Rule 4.2 because such members do not meet the managing-speaking test.
Additional guidance with respect to the scope of Rule 4.2 is obtained by reference to the attorney corporate client privilege set forth in 12 V.S.A. §1613.  That statute is entitled “Lawyer-Corporate Client Privilege.” The statute applies only to for-profit business corporations, but a review of its provisions is instructive because the protective purposes of the statutory evidentiary privilege is similar to, though not identical to, the protective purpose of the Rule. 
The statute states that communications between an attorney and a corporate employee are privileged if (1) the employee is a member of the control group of the corporation, acting in the employee’s official capacity, or (2) if the communications with a corporate employee are necessary to effectuate legal representation of the corporation.  This two-prong standard incorporates but expands upon the “control group” standard for determining the scope of the attorney client privilege in the corporate setting. 
The statute defines the control group as including (1) the officers and directors of a corporation and (2) persons within the corporation with authority to control or “substantially participate” in a decision regarding action to be taken on the advice of a lawyer, and persons who have the authority to obtain legal advice for the corporation or to act on advice rendered.  Thus, under the statutory definition, officers and directors of a corporation are, by definition, part of the control group and thus within the scope of the privilege, and others who have authority to act on the advice of corporate counsel are also included. 
In response to the statutory enactment, the Supreme Court amended V.R.E. 502 regarding the scope of the lawyer client privilege.  The court added a definition for a “representative of the client.”  VRE 502(a)(2).  The phraseology adopted by the court differs from the phraseology of the statute, but the Reporter’s Notes make clear that the scope of the evidentiary privilege under the Rule is intended to be seen as the same as the scope of the statutory privilege.        V.R.E. 502(a)(2) defines a “representative of a client” as (1) a person having authority to obtain legal services or act on legal advice on behalf of the client, and (2) a person who, while acting within the scope of employment, makes or receives confidential communications necessary to effectuate legal representation for the client.  In the case of a corporation, the officers and directors and those having authority to control or substantially participate in decisions responsive to the advice of a lawyer are also deemed to be representatives of the client.
If Rule 4.2 were deemed to be co-extensive with the evidentiary privilege, the non-board members would still not be within the Rule because they do not satisfy the evidentiary privilege definition of a representative client.
Court decisions have noted a distinction between the scope of the attorney client privilege and the scope of the anti-contact provisions of Rule 4.2.  Courts have observed that the attorney client privilege is broader in scope than the anti-contact rule.  Persons who are “clients” within the scope of the attorney client privilege in a corporate setting may not be “represented parties” for purposes of the anti- contact rule.    Wright v. Group Health Hospital, 691 P2d 564 (Wash. 1984).  (a corporate employee who is an “employee” under the attorney client privilege is not necessarily a “party” for purposes of the disciplinary rule).
The relationship here between an association member and the association is admittedly distinguishable from the relationship between an employee and a corporation; but that difference does not change the analysis.  The same test applies to both types of relationships for purposes of determining scope of representation and for deciding whether a person is a represented person within the meaning of Rule 4.2.
There is no indication in the language of Rule 4.2 or in the many cases interpreting it, that the scope of coverage should be different for members of an association than for employees of a corporation.  A California court has squarely rejected the assertion that members of a homeowners association are deemed to be clients of the association’s counsel for purposes of applying the protections of the attorney client privilege.  Smith v Laguna Sur Villas Cmty Ass’n, 79 Cal. App. 4th 639 (2000) (homeowners of represented association held not to be clients of the association’s attorney and, thus, not entitled to attorney client information developed in litigation).  It is clear from the facts presented by requesting attorney that non-board members of the association have no direct role in the conduct of the litigation and have no authority to speak for or act on behalf of the association with respect to the matter in litigation. 
Rule 4.2 is intended to strike a balance that preserves the integrity of the lawyer client relationship for matters in litigation by ensuring that persons represented by counsel may not be contacted directly by opposing counsel; but the Rule is not intended to create a blanket prohibition against contact by opposing counsel that would extend beyond persons actually represented by counsel.  In the case of an organization, such represented persons include representatives of the organization who meet the tests described above in this analysis.  Non-board members do not meet those tests.
A competing interest to the restriction imposed by Rule 4.2 is the goal that each party have access to information relevant to the matter in dispute and that each party be able to independently investigate facts important to preparation of the case.  Attempts to use Rule 4.2 as a blanket shield to block opposing counsel from gaining access to persons associated with an organization are generally rejected as over broad.  Terra International, Inc. v. Mississippi Chemical Corp., 913 F. Supp. 1306 (W.D. Ia. 1996) (claim that all employees were represented by corporate counsel by virtue of their employment rejected as over broad); Carter Herman v. City of Philadelphia, 897 F. Supp. 899 (E.D. Penn. 1995) (court rejects assertion that every employee of defendant city is deemed within the scope of representation by virtue of employment).  The court in Carter Herman observed that if the broad scope of representation claimed by the city were accepted, an organization could thwart the purpose of Rule 4.2 simply by unilaterally pronouncing its representation of all its employees.
The court in Terra observed that
an employer cannot unilaterally create or impose representation of an employee by corporate counsel.  Such a “automatic representation” rule would serve no universal purpose, but would instead impede the course of investigation leading to or following the filing of a lawsuit.
Requesting attorney has provided additional information about the role and status of non-board members.  Non-board members of the association do not supervise or direct the association’s lawyer, nor do they regularly consult with the association’s lawyer regarding the litigation.  Non-board members of the association have no authority to obligate the association, direct the lawsuit, enter into settlements, respond to discovery, or act in any way on behalf of the association with respect to the litigation.
Under these facts, Rule 4.2 does not bar defendant’s counsel from contacting non-board members of the association and discussing with non-board members issues relative to the matters in litigation directly and without the consent of the association’s counsel. 
We would note two further observations.  First, we would remind requesting counsel of the provisions of Rule 4.3 entitled, “Dealing with Unrepresented Person.”  That Rule imposes obligations on an attorney who is dealing with an unrepresented person to ensure that the person understands the lawyer’s role in the matter and cautions that an attorney must give no legal advice to an unrepresented person other than the advice to secure legal counsel.  Given that non-board members have ownership interests in the association and may be affected directly by the litigation, requesting attorney must take all necessary precautions to ensure that a non-board member understands the attorney’s position in the pending litigation.
Second, requesting attorney could seek clarification from the court as was done in Baisley v. Missisquoi Cemetery Assn., 167 Vt. 473 (1998), but a majority of the committee does not believe that such a request is necessary under the facts presented here.
Conclusion:     Requesting attorney may contact non-board members of a condominium association without the knowledge or consent of the association’s lawyer.

 


OPINION 2010-6

DIGEST:
Vermont attorneys can utilize Software as a Service in connection with confidential client information, property, and communications, including for storage, processing, transmission, and calendaring of such materials, as long as they take reasonable precautions to protect the confidentiality of and to ensure access to these materials.
 QUESTIONS PRESENtED
The Vermont Bar Association Professional Responsibility Section has been asked to address the propriety of use by attorneys and law firms of Software as a Service (“SaaS”) which is also known as Cloud Computing.  Subsidiary questions include whether client documents and information can be remotely stored and backed up using SaaS systems; whether there is any subset of client property that cannot be stored using SaaS; whether lawyers can use SaaS and web-based email and calendaring systems; and whether use of remote document synchronization systems is permissible.
 RELEVANT RULES
Rule 1.6. Confidentiality of Information
(a) A lawyer shall not reveal information relating to the representation of a client unless the client gives informed consent . . . .
 
Comments to Rule 1.6: Acting Competently to Preserve Confidentiality
[16]   A   lawyer   must   act   competently  to   safeguard   information   relating   to   the representation of a client against inadvertent or unauthorized disclosure by the lawyer or other persons who are participating in the representation of the client or who are subject to the lawyer’s supervision.
[17] When transmitting a communication that includes information relating to the representation of a client, the lawyer must take reasonable precautions to prevent the information from coming into the hands of unintended recipients. This duty, however, does not require that the lawyer use special security measures if the method of communication affords a reasonable expectation of privacy. Special circumstances, however, may warrant special precautions. Factors to be considered in determining the reasonableness of the lawyer’s expectation of confidentiality include the sensitivity of the information and the extent to which the privacy of the communication is protected by law or by a confidentiality agreement. A client may require the lawyer to implement special security measures not required by this rule or may give informed consent to the use of a means of communication that would otherwise be prohibited by this rule.
 
Rule 1.1. Competence
A lawyer shall provide competent representation to a client. Competent representation requires the legal knowledge, skill, thoroughness and preparation reasonably necessary for the representation.
 
Rule 1.15. Safekeeping Property
(a)(1) A lawyer shall hold property of clients or third persons that is in a lawyer’s possession  in  connection  with  a  representation  separate  from  the  lawyer’s  own property. . . .  [Client] property shall be identified as such and appropriately safeguarded.
 
Rule 5.3. Responsibilities Regarding Nonlawyer Assistants
With respect to a nonlawyer employed or retained by or associated with a lawyer:
(a) a partner, and a lawyer who individually or together with other lawyers possesses comparable managerial authority in a law firm shall make reasonable efforts to ensure that the firm has in effect measures giving reasonable assurance that the person’s conduct is compatible with the professional obligations of the lawyer;
(b)  a  lawyer  having  direct  supervisory  authority  over  the  nonlawyer  shall  make reasonable efforts to ensure that the person’s conduct is compatible with the professional obligations of the lawyer . . .
 
DISCUSSION
SaaS and Cloud Computing refer to a constellation of web-based data processing, transmission, and storage services that are available over the internet.  In the past, client property was handled and stored on site, and lawyer-client communications occurred in person. Technological advances, however, have changed the way data is transmitted and stored, and the ways lawyers communicate with clients.  These changes in technology have been accompanied by new questions about how lawyers should act to protect confidentiality of client information.
The propriety of lawyers using SaaS has attracted significant attention from Bar Association Ethics Committees in recent years, and a consensus position has been developing that allows lawyers to store client data in web based systems, and about the steps lawyers should consider and take when engaging in Cloud Computing.  This opinion therefore now turns to a summary of recent ethics decisions addressing SaaS.
 North Carolina Proposed Formal Ethics Opinion No. 6
Over  a  period  spanning  approximately  1½  years,  the  North  Carolina  State  Bar Association has issued successive drafts of a formal ethics opinion addressing attorney use of SaaS.  The third draft of this Formal Ethics Opinion, issued in October 2011, endorses the use of SaaS to store law firm data, including confidential client information, as long as steps are taken to protect the confidentiality of client information and to preserve client property.  Proposed NC FEO 6 steps back from a series of mandatory steps that lawyers would have been required to take in connection with use of SaaS, as set forth in the previous April 2011 draft of this Opinion. Instead, the Opinion now provides that lawyers:
“may use SaaS if reasonable care is taken to minimize the risks of inadvertent disclosure of confidential information and to protect the security of client information and client files.  A lawyer must fulfill the duties to protect client information and to safeguard client files by applying the same diligence and competency to manage the risks of SaaS that the lawyer is required to apply when representing clients.”
 
Because of the rapidly changing nature of technology, Proposed NC FEO 6 declines to impose specific requirements on lawyers who use Cloud Computing in connection with client data.  Instead, the Opinion identifies a series of steps that lawyers should consider taking before using SaaS, and requires lawyers to engage in ongoing due diligence and continuing legal education to ensure that remotely stored client data remains secure and accessible.  Factors identified in this Opinion for those who use SaaS include:
a.    Understanding and protecting against security risks inherent in the internet, including end-user vulnerabilities in the lawyer’s office;
b.   Including provisions about protection of client confidences in the agreement between the lawyer and the SaaS vendor;
c.   Ensuring that there are mechanisms for obtaining access to, retrieving, and protecting data if the lawyer terminates use of the SaaS product, or if the SaaS vendor goes out of business or experiences a break in continuity;
d.   Carefully reviewing the terms of the user agreement, including its security provisions;
e.   Evaluating the security measures used by the vendor; and
f.   Confirming the extent to which the SaaS vendor backs up the data it is storing.
 Iowa State Bar Association Ethics & Practice Committee Opinion 11-01
In September 2011, the Iowa State Bar Ethics and Practice Committee took a similar approach to Cloud Computing in Opinion 11-01.  Applying comment 17 to Rule 1.6, Opinion
11-01 recognized that:
“the degree of protection to be afforded client information varies with the client, matter and information involved.  But it places on the lawyer the obligation to perform due diligence to assess the degree of protection that will be needed and to act accordingly.”
The Opinion declines to address in detail the specifics of individual SaaS products, because such guidance would quickly prove outdated, and may be beyond the scope of a lawyer’s expertise. Instead, Opinion 11-01 suggests a series of matters into which lawyers should inquire before storing client data on remote servers they do not control, including:
a.   Availability of unrestricted  access to the data, and ability to access the data through alternate means;
b.   Performance of due diligence about the SaaS vendor, including its operating record, recommendations by other users, the provider’s operating location, its end user agreement  (including  provisions  on  choice  of  law,  limitations  on  liability  and damages, and rights in the stored data);
c.   Financial arrangements, including access to data in case of nonpayment or default;
d.   Arrangements upon termination of relationship with SaaS provider, including access to data; and
e.   Nature of confidentiality protections, including password protection and availability of different levels of encryption.
The Opinion further notes that lawyers may be able to discharge their responsibilities by relying on due diligence efforts by non-lawyer personnel with expertise in these areas.
 
Pennsylvania Bar Association Formal Opinion 2011-200
In its recent Formal Opinion 2011-200, the Pennsylvania Bar Association Committee on Legal Ethics and Professional Responsibility similarly concluded that attorneys can use cloud computing if stored materials remain confidential, and reasonable steps are taken to protect stored data from risks including security breaches and loss of data. This Pennsylvania Opinion recommends various steps the lawyer should explore with the SaaS vendor, including:
a.   the existence of an obligation imposed on the vendor to preserve security;
b.   a mechanism for the vendor to notify the lawyer if a third party requests access to the stored information;
c.   the existence of systems that are sufficient to protect the data from unauthorized access;
d.   an agreement about how confidential client information will be protected;
e.   the ability to review the vendor’s security systems; and
f.    tools to protect the lawyer’s ability to access and retrieve the data.
 California Bar Professional Responsibility and Conduct Committee Formal Op. 2010-179
Recognizing that a technology-specific opinion “would likely become obsolete shortly,” California Bar Ethics Opinion 2010-179 similarly endorses Cloud Computing, and then provides a general analysis of the considerations a lawyer should evaluate when using SaaS, including:
a.    The ability of the lawyer to assess the security provided by the provider, including the specifics of the technology, whether specific precautions can be used to increase the level of security, and limits on who is permitted to monitor use of the software, evaluated by someone who possesses a sufficient level of competence to address these issues;
b.   Availability of legal consequences for improper interception of or access to the data;
c.   Degree of sensitivity of the information being stored
d.   Potential impact of unauthorized disclosure on the client;
e.   Urgency of the situation; and
f.    Client circumstances and instructions.
 New York State Bar Professional Ethics Committee Opinion 842
In September 2010, the New York State Bar Professional Ethics Committee issued a similar opinion, adopting a reasonableness standard and discussing the following factors that a lawyer should consider when storing client information in the cloud:
a.  Confirming that the SaaS vendor has a enforceable duty to maintain security and confidentiality, including prompt notification of the attorney upon service of process requiring disclosure of the data;
b.   Investigating the provider’s security procedures, policies, and methods for recovering data;
c.   Guarding against infiltration attempts using available technology;
d.   Determining whether the vendor can transfer and then permanently delete the data if the lawyer changes providers;
e.  Periodically reconfirming that security and access measures remain sufficient as technologies change; and
f.    Remaining current on the law with respect to changing technologies to ensure that client data is not subject to legal risk, including waiver of confidentiality.
 
Other Opinions and Authorities
Ethics opinions issued by other State Bar Associations have taken similar positions.
State Bar of Arizona Ethics Opinion 09-04, for example, reaffirms the conclusion drawn in its prior Ethics Opinion 05-04, and concludes that attorneys can use online storage and retrieval  systems  for  client  documents  and  information  as  long  as  they  take  reasonable precautions to ensure that the materials are safe and confidential.  This Arizona Opinion further notes that lawyers should recognize that their expertise with respect to technology may be limited and should therefore ensure review of precautions by competent personnel, and periodically review systems to ensure that security precautions remain reasonable.
Opinion 701 of the New Jersey Advisory Committee on Professional Ethics discusses the benefits that may arise from web-based digital storage of and access to client documents and information, and then provides as follows:
“The critical requirement . . . is that the attorney ‘exercise reasonable care’ against the possibility of unauthorized access to client information.  A lawyer is required to exercise sound professional judgment on the steps necessary to secure client confidences against foreseeable attempts at unauthorized access.  ‘Reasonable care,’ however, does not mean that the lawyer absolutely and strictly guarantees that the information will be utterly invulnerable against all unauthorized access.   Such a guarantee is impossible, and a lawyer can no more guarantee against unauthorized access to electronic information than he can guarantee that a burglar will not break into his file rom, or that someone will not illegally intercept his mail or steal a fax.”
Opinion 701 continues by noting that the content of the obligation to exercise reasonable care depends on the circumstances and must be informed by the available technology, and personnel handling client information must be subject to an enforceable obligation to preserve confidentiality and security.  In addition, Opinion 701 excludes original “client property” from its holding, and notes that lawyers must continue to maintain certain original documents, like wills, trusts, deeds, contracts, and corporate bylaws and minutes, and cannot rely solely on digital storage of these materials.  This Opinion further stresses the importance of client consent with respect to remote storage of client information.
To similar effect are Ethics Opinion 2010-02 issued by the Alabama State Bar Association, and Formal Opinion No. 33 issued by the State Bar of Nevada Standing Committee on Ethics and Professional Responsibility.  Many other resources also are available about the use of SaaS, including the ABA Commission on Ethics 20/20 Working Group’s September 20, 2010 white papers discussing SaaS, and the Law Society of British Columbia’s July 15, 2011 Report of the Cloud Computing Working Group.
CONCLUSION
The Vermont Bar Association Professional Responsibility Section agrees with the consensus view that has emerged with respect to use of SaaS.  Vermont lawyers’ obligations in this area include providing competent representation, maintaining confidentiality of client information, and protecting client property in their possession.  As new technologies emerge, the meaning of “competent representation” may change, and lawyers may be called upon to employ new tools to represent their clients.  Given the potential for technology to grow and change rapidly, this Opinion concurs with the views expressed in other States, that establishment of specific conditions precedent to using SaaS would not be prudent.   Rather, Vermont lawyers must exercise due diligence when using new technologies, including Cloud Computing.  While it is not appropriate to establish a checklist of factors a lawyer must examine, the examples given above are illustrative of factors that may be important in a given situation.  Complying with the required level of due diligence will often involve a reasonable understanding of:
a.         the vendor’s security system;
b.         what practical and foreseeable limits, if any, may exist to the lawyer’s ability to ensure access to, protection of, and retrieval of the data;
c.         the material terms of the user agreement;
d.         the vendor’s commitment to protecting confidentially of the data;
e.         the nature and sensitivity of the stored information;
f.          notice  provisions  if  a  third  party  seeks  or  gains  (whether  inadvertently  or otherwise) access to the data; and
g.         other regulatory, compliance, and document retention obligations that may apply based upon the nature of the stored data and the lawyer’s practice.
In addition, the lawyer should consider:
a.         giving notice to the client about the proposed method for storing client data;
b.         having the vendor’s security and access systems reviewed by competent technical personnel;
c.         establishing a system for periodic review of the vendor’s system to be sure the system remains current  with evolving technology and legal requirements; and
d.         taking reasonable measures to stay apprised of current developments regarding
SaaS systems and the benefits and risks they present.
 In  summary,  and  with  respect  to  the  specific  questions  posed,  the  Professional
Responsibility Section responds as follows.
Vermont attorneys may use SaaS systems for storing, processing, and retrieving client property, as long as they take reasonable precautions to ensure the property is secure and accessible.  The nature of the precautions depends on the circumstances.  The ability to engage in Cloud Computing is not limited by the specific location of the remote server, although some of the factors noted above, including choice of law clauses, and concerns about access to data in the event of a service interruption or an emergency, may be implicated by the location of the storage server and the extent of backup service provided by the vendor.
Depending on the circumstances, there may be limits on systems that can be used and client property that can be stored with an SaaS vendor, and lawyers must assess each situation
based upon the specific facts and circumstances.  For example, it may not be appropriate to rely solely on remote digital storage for preservation of original client property like wills, or other client documents that are subject to permanent retention obligations.  Similarly, given that Cloud Computing involves storage of information in the hands of a third party, a lawyer handling particularly sensitive client property, like trade secrets may conclude after consultation with the client that remote SaaS storage is not sufficiently secure.
A  lawyer’s  use  of  email,  calendar,  and  remote  synchronization  systems,  including systems that are web-based and offered by SaaS vendors, is subject to the same inquiry.  Before using such systems, the lawyer should take reasonable precautions to ensure that information in the system is secure and accessible.
Finally, given the rapidly changing nature of technology and the significant manner in which new technologies impact the legal practice including the manner in which confidential client information is communicated and stored, the Professional Responsibility Section invites the Vermont Supreme Court to examine whether changes in applicable Rules of Procedure and Rules of Professional Conduct are warranted to address these issues.

 

Dual Professions

OPINION NO. 2011-1

 
Synopsis
 
An attorney who is a principal owner of a separate online service for the organization and storage of personal information and documents may refer clients and others to the service provided that the attorney takes objectively reasonable measures to assure that the referred individuals know that this law related online service does not provide legal services and that the protections of the client-lawyer relationship do not exist.
 
Facts
 
The requesting attorney has an estate planning practice and proposes to recommend to clients that they take advantage of an online web service that the attorney believes will benefit clients in organizing and storing their personal information and various types of documents.
 
The attorney is the principal owner of the web service; and is aware that there are ethical obligations imposed by Rule 5.7 of the Rules of Professional Conduct Regarding Law-Related Services.
 
Therefore, the attorney proposes to make the following statement to clients and others who are recommended to use the service:
 
“{Requesting Attorney} Esq. is a principal owner of [Name of online services], LLC, a for-profit business organized in the State of Vermont…[that]….does not provide legal services; accordingly, there is no attorney-client relationship or protections afforded to any individual interacting with the company or utilizing its services.
 
Questions Presented
 
             1.  Is the online service a law related service?
             2.  May the attorney refer clients and others to the online service?
3. Is the proposed disclosure adequate to meet the attorney’s ethical obligations under the Rules of Professional Responsibility?
 
Relevant Rules
 
Rule 5.7, Regarding Law-related Services:
 
(a) A lawyer shall be subject to the Rules of Professional Conduct with respect to the provision of law-related services, as defined in paragraph (b) if the law related services are provided:
(1) by the lawyer in circumstances that are not distinct from the lawyer’s    provision of legal services to clients; and
(2) in other circumstances by an entity controlled by the lawyer individually or with others if the lawyer fails to take reasonable measures to assure that person obtaining the law-related services know that the services are not legal services and that the protections of the client-lawyer relationship do not exist.
(b) The term “law-related services” denotes services that might reasonably be performed in conjunction with and in substance are related to the provision of legal services, and that are not prohibited as unauthorized practice of law when provided by a nonlawyer.
 
Discussion
 
1. Law Related Service. While the Committee has not previously reviewed the type of service described by the instant request, we conclude that it is a “law related service” because it enables clients who wish to use it to organize and save personal information that is relevant to the legal services that they may receive; and, for others who do not choose to obtain legal services from the requesting attorney, the on line service can be owned and/or operated by the attorney or persons who are not lawyers without engaging in the unauthorized practice of law.
 
2. Referral ObligationsOpinion No. 2009-2 reviewed a request concerning a separate business to be operated by an attorney involving a non-legal financial planning for college costs that might involve the sale of insurance products; we concluded that the lawyer could conduct such business provided reasonable measures where taken to assure that clients of the law practice or the financial planning practice understood that the businesses were separate and that the financial planning business did not provide legal advice with its attendant lawyer-client protections. The Opinion quoted directly from Rule 5.7 and its Comments (which we do not repeat here); and recommended that the attorney (a) advise the clients of the financial planning business who wished to obtain legal services that they were not obligated to use the services of the requesting attorney; and (b) bill separately for legal services and law-related services.
 
While the law related service involved in this request is quite different from that in 2009-2, we believe that the attorney may ethically recommend that clients and others use the online information storage service owned by the attorney and by non-attorneys. However, the attorney must take objectively reasonable measures, in writing, to assure that an individual obtaining the online services knows that the he or she is not receiving legal services with the attendant protections of the lawyer client relationship.
 
Rule 1.0(f) defines “knows” as “…actual knowledge of the fact in question…[which] may be inferred from the circumstances.
 
In order to discharge the requirements of “reasonable measures,” the attorney needs to exercise professional judgment and tailor the information to the specifics of the service recommended.
 
In this request, the Rules offer some guidance, in the context of duties related to informed consent. Rule 1.0(e) states:
 
(e) “Informed consent” denotes the agreement by a person to a proposed course of conduct after the lawyer has communicated adequate information and explanation about the material risks of and reasonably available alternatives to the proposed course of conduct.
 
3. Is the proposed disclosure adequate? To answer this question, the lawyer must provide enough information about what elements of client protections the lawyer-client relationship affords so that the individual can make an informed decision about whether, in deciding to use the recommended on line service, the individual wishes to forego such protections. See Rule 5.7 and Comments. If the lawyer does not fully discharge the obligation to assure that the client or another who is using the online service understands that legal services are not being provided, then the lawyer-owner of the law-related business will be treated as providing legal service and be subject to the Rules in all respects.
 
The requesting attorney does not provide any detail, other than the proposed two-sentence disclosure, to address the duty to reasonably assure understanding by persons obtaining the online service.
 
Inasmuch as the burden is on the lawyer to tailor the information to specific individuals and their degree of sophistication, Rule 5.7, Comment [7], we do not believe that the proposed disclosure, standing alone, will fulfill the lawyer’s obligations in all cases. Therefore, the requesting attorney should supplement the proposed disclosure with individualized information to each client, on a case-by-case basis, as well as advise individuals that they are not obligated to use the lawyer’s legal services if they choose to subscribe to the law related service.
 
 

Conflict of Interest

OPINION 2013-1

Synopsis

It would be a violation of Vermont Rule of Professional Conduct 1.8(e) for Plaintiff’s lawyer to sign a Hold Harmless Agreement agreeing to hold Defendant’s liability carrier harmless in the event his client (Plaintiff) fails to satisfy his health insurance carrier’s subrogation in a personal injury claim and in the further event the liability carrier is required to pay that claim.  Signing this document would constitute prohibited financial assistance in connection with litigation and would not be subject to one of the Rule 1.8’s exceptions.

Facts

Attorney represents Plaintiff in a personal injury action and has tentatively settled the case.  Plaintiff’s health insurer has notified Attorney it has a right to reimbursement for the medical bills it has paid for Plaintiff.  Defendant’s liability insurer has asked Attorney to sign a “Hold Harmless Agreement” that obliges Attorney “to resolve the full amount of any and all liens, by accord and satisfaction or otherwise, and … to save and forever hold harmless [at fault insured driver] and [auto insurer] from any and all liability.”  A full copy of the proposed “Hold Harmless Agreement” is attached to this Opinion.

Questions Presented

 

May Attorney sign the proposed Hold Harmless Agreement?  If so, is he obliged to?

Relevant Provision of the Vermont Rules of Professional Conduct

 

Rule 1.2  SCOPE OF REPRESENTATION AND ALLOCATION OF AUTHORITY BETWEEN CLIENT AND LAWYER

(a)  Subject to paragraphs (c) and (d) [not applicable here], a lawyer shall abide by a client’s decision concerning the objectives of representation….  A lawyer shall abide by a client’s decision whether to settle a matter….

Rule 1.7. CONFLICT OF INTEREST: CURRENT CLIENTS

(a) Except as provided in paragraph (b), a lawyer shall not represent a client if the representation involves a concurrent conflict of interest. A concurrent conflict of interest exists if:

….

(2) there is a significant risk that the representation of one or more clients will be materially limited by the lawyer's responsibilities to another client, a former client or a third person or by a personal interest of the lawyer.

(b) Notwithstanding the existence of a concurrent conflict of interest under paragraph (a), a lawyer may represent a client if:

(1) the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client;

(2) the representation is not prohibited by law;

(3) the representation does not involve the assertion of a claim by one client against another client represented by the lawyer in the same litigation or other proceeding before a tribunal; and

(4) each affected client gives informed consent, confirmed in writing.

Rule 1.8 CONFLICT OF INTEREST: CURRENT CLIENTS: SPECIFIC RULES

….

(e)  A lawyer shall not provide financial assistance to a client in connection with pending or contemplated litigation, except that:

(1) A lawyer may advance or guarantee court costs and expenses of litigation, including expenses of investigation, expenses of medical examination, and costs of obtaining and presenting evidence, the repayment of which may be contingent on the outcome of the matter; and

(2)  A lawyer representing an indigent client may pay court costs and expenses of litigation on behalf of a client.

Rule 1.15 SAFEKEEPING PROPERTY

….

(d)  Upon receiving funds or other property in which a client or third person has an interest, a lawyer shall promptly notify the client or third person.  Except as stated in this rule or otherwise permitted by law or by agreement with the client, a lawyer shall promptly deliver to the client or third person any funds or other property that the client or third person is entitled to receive and, upon request by the client or third person, shall promptly render a full accounting regarding such property.

(e)  When in the course of representation a lawyer is in possession of property in which two or more persons (one of whom may be the lawyer) claim an interest, the property 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.

Analysis

Upon receiving funds in which a third person has an interest, a lawyer shall promptly notify the third person and deliver the property to the third person, unless there is a dispute.  Rule 1.15(d).  In case of a dispute, the lawyer shall hold the property until the dispute is resolved.  Rules 1.15(e).  Since Attorney has been notified by his client’s health insurer that the health insurer has a right to reimbursement for the medical bills it has paid for Plaintiff, it is arguably entitled to notice of and payment from the settlement proceeds. Presumably, if all liens are paid out of the settlement in this fashion, there will be no need for anyone to hold Defendant’s liability carrier harmless.  However, the proposed Agreement goes beyond Attorney’s obligation under Rule 1.15(d) and seeks to oblige Attorney to hold the liability carrier harmless if the health insurance carrier is not satisfied from the settlement and if the liability carrier is later obliged to pay the health insurance carrier.

 

Numerous ethics opinions say such a commitment by a lawyer would violate Rule 1.8(e)’s prohibition against providing financial assistance to a client in connection with pending litigation.  “A plaintiff’s counsel’s agreement to hold harmless and indemnify a defendant from third party claims arising out of the defendant’s settlement payments to the plaintiff is not a court cost or expense of litigation.  Therefore it is prohibited by the rule.”  Florida Bar Staff Opinion 30310 (April 4, 2011).  Accord, Ohio Commissioners on Grievances and Discipline Opinion 2011-1 (February 11, 2011); Board of Professional Responsibility of the Supreme Court of Tennessee Formal Ethics Opinion 98-F-141 (February 4, 1998); Legal Ethics Committee of the Indiana State Bar Association Opinion 1 of 2005 (October. 2005); North Carolina State Bar Ethics Opinion RPC 228 (July 26, 1996); State Bar of Arizona Ethics Opinion 03-05 (March 29, 2011); Illinois State Bar Association Opinion 06-01 (July, 2006); Missouri S. Ct. Adv. Committee Formal Opinion No. 125 (November 13, 2008); South Carolina Bar Ethics Advisory Committee Opinion 08-07 (August 22, 2008); Board of Professional Responsibility of the Supreme Court of Tennessee Formal Ethics Opinion Number 2010-F-154 (September 10, 2010); State Bar of Wisconsin Formal Opinion E-87-11 (July 1998); Association of the Bar of the City of New York Committee on Professional and Judicial Ethics Formal Opinion 2010-3; Washington Ethics Advisory Opinion 1736 (January 1, 1997); Kansas Ethics Opinion No. 11-02 (April 12, 2011); Kansas Ethics Opinion No. 01-5 (2001);   Connecticut Informal Opinion 12-06 (June 20, 2012); and Utah State Bar Ethics Advisory Opinion Committee Opinion 11-01 (August 24, 2011).

 

In addition, these decisions say a lawyer’s signature on the Hold Harmless Agreement would create an impermissible conflict of interest under Rule 1.17(a)(2) between the client and the lawyer since it could pit the lawyer’s obligation to abide by his client’s decision to settle (Rule 1.2) against the potential financial risk to the lawyer as the result of the proposed Hold Harmless Agreement. 

Conclusion

Whether or not the potential conflict of interest between the lawyer and the client might be knowingly waived (a matter not discussed in the other opinions), it appears clear that a lawyer’s participation in the Hold Harmless Agreement would constitute a violation of Rule 1.18(e)’s prohibition against a lawyer giving financial assistance to the client.  Although not addressing the specific question raised, we also point out that several of the cited opinions go on to say it would be a violation of Rule 8.4(a) (inducing or assisting another lawyer to violate the Rules of Profession Conduct) for a defense lawyer to request a plaintiff’s lawyer to sign such an agreement. 

Since we conclude that participation in this Agreement would be a violation of Vermont’s Rules of Professional Conduct, we do not discuss the second part of Attorney’s question (if Attorney may sign the Agreement, is he obliged to?).

 

 

14034491

 

 

OPINION NO. 2011-2
 
Synopsis
 
Although there have been changes in the Rules of Professional Conduct and in the rules and regulations applicable to real estate closings, the Committee concludes the opinion expressed in Opinion 2001-02 remains valid under the present circumstances. The Committee continues to believe that an attorney may represent the lender and the buyer/borrower in a real estate closing if the attorney complies with the provisions of Rule 1.7. The requirements for representing multiple parties in a real estate transaction are set out in Rule 1.7. The additional issues raised by changes in various rules and regulations related to real estate closings are a factor in determining whether the possibility of conflicting interests is of such significance that an attorney cannot provide diligent and competent representation to both parties simultaneously.
 
Question Presented
 
An attorney inquires whether the attorney may continue to represent both the lender and the borrower/buyer in a real estate transaction, giving consideration to the changes in the rules and regulations applicable to real estate practice and the changes to the Rules of Professional Conduct.
 
Applicable Rules
 
Rule 1.0 (b) ‘‘Confirmed in writing,’’ when used in reference to the informed consent of a person, denotes informed consent that is given in writing by the person or a writing that a lawyer promptly transmits to the person confirming an oral informed consent. See paragraph (e) for the definition of ‘‘informed consent.’’ If it is not feasible to obtain or transmit the writing at the time the person gives informed consent, then the lawyer must obtain or transmit it within a reasonable time thereafter.
 
Rule 1.0 (e) ‘‘Informed consent’’ denotes the agreement by a person to a proposed course of conduct after the lawyer has communicated adequate information and explanation about the material risks of and reasonably available alternatives to the proposed course of conduct.
 
Rule 1.7. CONFLICT OF INTEREST: CURRENT CLIENTS
 
(a)        Except as provided in paragraph (b), a lawyer shall not represent a client if the representation involves a concurrent conflict of interest. A concurrent conflict of interest exists if:
 
(1)        the representation of one client will be directly adverse to another client; or
 
            (2)        there is a significant risk that the representation of one or more clients will be materially limited by the lawyer’s responsibilities to another client, a former client or a third person or by a personal interest of the lawyer.
 
(b)        Notwithstanding the existence of a concurrent conflict of interest under paragraph (a), a lawyer may represent a client if:
 
            (1)        the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client;
 
                        (2)        the representation is not prohibited by law;
 
                        (3)        the representation does not involve the assertion of a claim by one client against another client represented by the lawyer in the same litigation or other proceeding before a tribunal; and
 
                        (4)        each affected client gives informed consent, confirmed in writing.—
 
Amended June 17, 2009, eff. Sept. 1, 2009.
 
Discussion
 
Based on recent inquiry, the Committee was encouraged to review and reconsider the issues raised in PRC Opinion 01-02 which concluded that under many circumstances the Rules of Professional Conduct would allow the joint representation of the lender and the buyer/borrower in a real estate transaction. The current inquiry suggests that changes in the regulations applicable to residential real estate closings increase the possibility of a direct conflict arising in the course of the dual representation and the conclusion of PRC Opinion 01-02 should be revisited to account for the increased risk of conflicts.
 
PRC Opinion 01-02 relied in part upon the replacement of the Code of Professional Responsibility with the Rules of Professional Conduct creating a different standard for review of conflicts involving current clients. A significant element of the Committee’s decision in 2002 was the revision to Rule 1.7. The reason for the current request is that the Rules of Professional Conduct have been revised again, including substantial revisions to Rule 1.7, that became effective in September of 2009.  
 
The 2009 change in the language of Rule 1.7 did not alter the essential provisions of the Rule or the procedures for determining when it is appropriate to represent more than one party in a specific transaction. The new Rule 1.7 acknowledges that there is no absolute prohibition on representing multiple clients in a single matter by providing a method for assessing when representing multiple parties is appropriate. 
Prior to commencing the representation of multiple clients in a single transaction, the attorney must make an independent determination that the attorney will be able to provide “diligent and competent representation to each affected client.” This assessment must be made on a case by case basis; it can never be presumed that it is generally acceptable to represent two parties in a single transaction.   The assessment must be made based on the circumstances of each party, in particular, the sophistication and general knowledge of each party should be taken into account when making the assessment. Once the attorney makes the determination that both parties can be appropriately represented, the attorney must make a meaningful disclosure of the risks and benefits of the multiple representation to both parties and obtain each party's informed consent. The meaning of “informed consent” is found in Rule 1.0 as cited above.
 
The factual circumstances here are the same as those discussed in Opinion 01-02. The closing practices described in that opinion continue to be the norm. The number of firms involved in doing real estate closings is probably contracting so that the majority of closings are conducted by a relatively small number of firms. Those firms likely continue to view the lender as the primary client and the borrower as the second client. The services provided to the borrower are generally limited to completing the closing and providing title insurance. There is likely limited consultation with the borrower or buyer prior to the closing beyond confirming the need for a certain amount of money to finalize the closing.
 
The change in circumstances flowing from the adoption of the Good Faith Estimate under the RESPA rules introduces a new factor into the analysis but may not ultimately change the determination whether it is appropriate to represent the lender and the borrower/buyer in a real estate transaction. Very briefly, the changes in the Good Faith Estimate rules require the lender to provide a borrower with an estimate of the closing costs applicable to a specific transaction. With respect to some of those closing costs, the estimate is binding on the lender. If the lender provides an erroneous estimate, the lender may not amend the closing costs when the error is discovered absent certain extenuating circumstances. This would appear to create a clear opportunity for conflict. For example, if a lender underestimates and improperly discloses the Vermont Property Transfer Tax applicable to a transfer, the lender cannot collect a greater transfer tax at the closing without demonstrating a change in circumstances. The potential conflict arises when the same attorney represents the lender, whose interest is in collecting the increased transfer tax and at the same time represents the borrower who is interested in enforcing the provisions in the rule that require the lender to make up the difference between the low estimate and the actual amount of the tax. This circumstance is a good example of a situation in which the attorney cannot provide appropriate representation to both parties because only one party can prevail in this circumstance. If this situation is known in advance, the attorney cannot make the initial determination that the interests of one party will not interfere with the representation of the other. The real question for attorneys representing clients in real estate transactions is how frequently circumstances arise in which the interests of the lender are adverse to the interests of the borrower/lender.
 
The process of obtaining consent to multiple representations begins with an appropriate disclosure of the risks and benefits of the joint representation. The rules do not describe the contents of the disclosure, but the Comments do advise that the relative sophistication of the parties may be a factor in determining whether the consent was informed. If one party is relatively unsophisticated and has limited experience and understanding of general business affairs, the attorney must assess whether that party fully understands the potential risks of multiple representation. The attorney should also consider if the buyer’s consent is based on the increased cost of separate representation rather than a true consideration of potential conflicts. 
 
The consent to the representation of multiple parties must be memorialized in a writing. The best “written consent” includes a summary of the disclosures made by the attorney and includes a signature of the client. Rule 1.0 acknowledges that written consent may also be satisfied with a communication by the attorney to the client confirming an oral consent. Attorneys should be careful when using the later method, however, because the risk that the disclosure or consent was inadequate rests on the attorney.
 
As with PRC Opinion 01-02, there are additional issues which all attorneys should keep in mind. Several of these issues are closely related to the actual inquiry, but are not directly raised in the inquiry.
 
An attorney who undertakes the representation of the lender and borrower/buyer in a real estate transaction may find that a more extensive conflict arises during the course of the representation.   For example, the attorney may know that the lender does not allow concessions by the sellers to the buyers in excess of the closing costs, but the attorney is advised at the commencement of the representation that the first task will be to negotiate a substantial concession by the seller to the buyer well in excess of the estimated closing costs, and to disguise the concession to avoid the lender's rules. The attorney is now presented with a new conflict in which the rules permitting a waiver will not likely apply.   The attorney has information gained in the course of the representation which the attorney must now disclose to the lender client. However, having obtained the information from a current client, the attorney must first obtain consent, after disclosure from the borrower client before advising the lender of the circumstances. In this example, it is unlikely that the borrower will authorize the attorney to share the information with the lender. The attorney must now withdraw because the attorney can no longer provide competent representation to both parties. Whether the attorney can continue to represent one party after withdrawing is governed by the provisions of Rule 1.9.
 
Of equal importance is the issue that arises when the closing attorney elects to represent only the lender, leaving the borrower/buyer unrepresented. The attorney should be careful to comply with the provisions of Rule 4.3, including the newest addition to the rule. An attorney interacting with an un-represented person at a closing should be careful to disclose the attorney's role in representing only the lender. In addition, the attorney should be prepared to identify circumstances in which the attorney must advise the unrepresented person to seek counsel from an independent attorney.   The closing is a particularly stressful time for many people and the unrepresented may find that the attorney's explanations or discussions about the documents may seem like the attorney is representing them also.
 
 

Client Property

 

Advisory Opinion No 2013-1

Synopsis

It would be a violation of Vermont Rule of Professional Conduct 1.8(e) for Plaintiff’s lawyer to sign a Hold Harmless Agreement agreeing to hold Defendant’s liability carrier harmless in the event his client (Plaintiff) fails to satisfy his health insurance carrier’s subrogation in a personal injury claim and in the further event the liability carrier is required to pay that claim.  Signing this document would constitute prohibited financial assistance in connection with litigation and would not be subject to one of the Rule 1.8’s exceptions.

Facts

Attorney represents Plaintiff in a personal injury action and has tentatively settled the case.  Plaintiff’s health insurer has notified Attorney it has a right to reimbursement for the medical bills it has paid for Plaintiff.  Defendant’s liability insurer has asked Attorney to sign a “Hold Harmless Agreement” that obliges attorney “to resolve the full amount of any and all liens, by accord and satisfaction or otherwise, and … to save and forever hold harmless [at fault insured driver] and [auto insurer] from any and all liability.”  A full copy of the proposed “Hold Harmless Agreement” is attached to this Opinion.

Questions Presented

May Attorney sign the proposed Hold Harmless Agreement?  If so, is he obliged to?

Relevant Provision of the Vermont Rules of Professional Conduct

Rule 1.2  SCOPE OF REPRESENTATION AND ALLOCATION OF AUTHORITY BETWEEN CLIENT AND LAWYER

(a)  Subject to paragraphs (c) and (d) [not applicable here], a lawyer shall abide by a client’s decision concerning the objectives of representation….  A lawyer shall abide by a client’s decision whether to settle a matter….

Rule 1.7. CONFLICT OF INTEREST: CURRENT CLIENTS

(a) Except as provided in paragraph (b), a lawyer shall not represent a client if the representation involves a concurrent conflict of interest. A concurrent conflict of interest exists if:

….

(2) there is a significant risk that the representation of one or more clients will be materially limited by the lawyer's responsibilities to another client, a former client or a third person or by a personal interest of the lawyer.

(b) Notwithstanding the existence of a concurrent conflict of interest under paragraph (a), a lawyer may represent a client if:

(1) the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client;

(2) the representation is not prohibited by law;

(3) the representation does not involve the assertion of a claim by one client against another client represented by the lawyer in the same litigation or other proceeding before a tribunal; and

(4) each affected client gives informed consent, confirmed in writing.

Rule 1.8 CONFLICT OF INTEREST: CURRENT CLIENTS: SPECIFIC RULES

….

(e)  A lawyer shall not provide financial assistance to a client in connection with pending or contemplated litigation, except that:

(1) A lawyer may advance or guarantee court costs and expenses of litigation, including expenses of investigation, expenses of medical examination, and costs of obtaining and presenting evidence, the repayment of which may be contingent on the outcome of the matter; and

(2)  A lawyer representing an indigent client may pay court costs and expenses of litigation on behalf of a client.

Rule 1.15 SAFEKEEPING PROPERTY

….

(d)  Upon receiving funds or other property in which a client or third person has an interest, a lawyer shall promptly notify the client or third person.  Except as stated in this rule or otherwise permitted by law or by agreement with the client, a lawyer shall promptly deliver to the client or third person any funds or other property that the client or third person is entitled to receive and, upon request by the client or third person, shall promptly render a full accounting regarding such property.

(e)  When in the course of representation a lawyer is in possession of property in which two or more persons (one of whom may be the lawyer) claim an interest, the property 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.

Analysis

Upon receiving funds in which a third person has an interest, a lawyer shall promptly notify the third person and deliver the property to the third person, unless there is a dispute.  Rule 1.15(d).  In case of a dispute, the lawyer shall hold the property until the dispute is resolved.  Rules 1.15(e).  Since Attorney has been notified by his client’s health insurer that the health insurer has a right to reimbursement for the medical bills it has paid for Plaintiff, it is arguably entitled to notice of and payment from the settlement proceeds. Presumably, if all liens are paid out of the settlement in this fashion, there will be no need for anyone to hold Defendant’s liability carrier harmless.  However, the proposed Agreement goes beyond Attorney’s obligation under Rule 1.15(d) and seeks to oblige Attorney to hold the liability carrier harmless if the health insurance carrier is not satisfied from the settlement and if the liability carrier is later obliged to pay the health insurance carrier.

Numerous ethics opinions say such a commitment by a lawyer would violate Rule 1.8(e)’s prohibition against providing financial assistance to a client in connection with pending litigation.  “A plaintiff’s counsel’s agreement to hold harmless and indemnify a defendant from third party claims arising out of the defendant’s settlement payments to the plaintiff is not a court cost or expense of litigation.  Therefore it is prohibited by the rule.”  Florida Bar Staff Opinion 30310 (April 4, 2011).  Accord, Ohio Commissioners on Grievances and Discipline Opinion 2011-1 (February 11, 2011); Board of Professional Responsibility of the Supreme Court of Tennessee Formal Ethics Opinion 98-F-141 (February 4, 1998); Legal Ethics Committee of the Indiana State Bar Association Opinion 1 of 2005 (October. 2005); North Carolina State Bar Ethics Opinion RPC 228 (July 26, 1996); State Bar of Arizona Ethics Opinion 03-05 (March 29, 2011); Illinois State Bar Association Opinion 06-01 (July, 2006); Missouri S. Ct. Adv. Committee Formal Opinion No. 125 (November 13, 2008); South Carolina Bar Ethics Advisory Committee Opinion 08-07 (August 22, 2008); Board of Professional Responsibility of the Supreme Court of Tennessee Formal Ethics Opinion Number 2010-F-154 (September 10, 2010); State Bar of Wisconsin Formal Opinion E-87-11 (July 1998); Association of the Bar of the City of New York Committee on Professional and Judicial Ethics Formal Opinion 2010-3; Washington Ethics Advisory Opinion 1736 (January 1, 1997); Kansas Ethics Opinion No. 11-02 (April 12, 2011); Kansas Ethics Opinion No. 01-5 (2001);   Connecticut Informal Opinion 12-06 (June 20, 2012); and Utah State Bar Ethics Advisory Opinion Committee Opinion 11-01 (August 24, 2011).

In addition, these decisions say a lawyer’s signature on the Hold Harmless Agreement would create an impermissible conflict of interest under Rule 1.17(a)(2) between the client and the lawyer since it could pit the lawyer’s obligation to abide by his client’s decision to settle (Rule 1.2) against the potential financial risk to the lawyer as the result of the proposed Hold Harmless Agreement. 

Conclusion

Whether or not the potential conflict of interest between the lawyer and the client might be knowingly waived (a matter not discussed in the other opinions), it appears clear that a lawyer’s participation in the Hold Harmless Agreement would constitute a violation of Rule 1.18(e)’s prohibition against a lawyer giving financial assistance to the client.  Although not addressing the specific question raised, we also point out that several of the cited opinions go on to say it would be a violation of Rule 8.4(a) (inducing or assisting another lawyer to violate the Rules of Profession Conduct) for a defense lawyer to request a plaintiff’s lawyer to sign such an agreement. 

Since we conclude that participation in this Agreement would be a violation of Vermont’s Rules of Professional Conduct, we do not discuss the second part of Attorney’s question (if Attorney may sign the Agreement, is he obliged to?).


OPINION 2010-6

 DIGEST:

Vermont attorneys can utilize Software as a Service in connection with confidential client information, property, and communications, including for storage, processing, transmission, and calendaring of such materials, as long as they take reasonable precautions to protect the confidentiality of and to ensure access to these materials.

 

QUESTIONS PRESENTED

The Vermont Bar Association Professional Responsibility Section has been asked to address the propriety of use by attorneys and law firms of Software as a Service (“SaaS”) which is also known as Cloud Computing.  Subsidiary questions include whether client documents and information can be remotely stored and backed up using SaaS systems; whether there is any subset of client property that cannot be stored using SaaS; whether lawyers can use SaaS and web-based email and calendaring systems; and whether use of remote document synchronization systems is permissible.

 

RELEVANT RULES

Rule 1.6. Confidentiality of Information

(a) A lawyer shall not reveal information relating to the representation of a client unless the client gives informed consent . . . .

Comments to Rule 1.6: Acting Competently to Preserve Confidentiality

[16]   A   lawyer   must   act   competently  to   safeguard   information   relating   to   the representation of a client against inadvertent or unauthorized disclosure by the lawyer or other persons who are participating in the representation of the client or who are subject to the lawyer’s supervision.

[17] When transmitting a communication that includes information relating to the representation of a client, the lawyer must take reasonable precautions to prevent the information from coming into the hands of unintended recipients. This duty, however, does not require that the lawyer use special security measures if the method of communication affords a reasonable expectation of privacy. Special circumstances, however, may warrant special precautions. Factors to be considered in determining the reasonableness of the lawyer’s expectation of confidentiality include the sensitivity of the information and the extent to which the privacy of the communication is protected by law or by a confidentiality agreement. A client may require the lawyer to implement special security measures not required by this rule or may give informed consent to the use of a means of communication that would otherwise be prohibited by this rule.

 

Rule 1.1. Competence

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

Rule 1.15. Safekeeping Property

(a)(1) A lawyer shall hold property of clients or third persons that is in a lawyer’s possession  in  connection  with  a  representation  separate  from  the  lawyer’s  own property. . . .  [Client] property shall be identified as such and appropriately safeguarded.

Rule 5.3. Responsibilities Regarding Nonlawyer Assistants

With respect to a nonlawyer employed or retained by or associated with a lawyer:

(a) a partner, and a lawyer who individually or together with other lawyers possesses comparable managerial authority in a law firm shall make reasonable efforts to ensure that the firm has in effect measures giving reasonable assurance that the person’s conduct is compatible with the professional obligations of the lawyer;

(b)  a  lawyer  having  direct  supervisory  authority  over  the  nonlawyer  shall  make reasonable efforts to ensure that the person’s conduct is compatible with the professional obligations of the lawyer . . .

DISCUSSION

SaaS and Cloud Computing refer to a constellation of web-based data processing, transmission, and storage services that are available over the internet.  In the past, client property was handled and stored on site, and lawyer-client communications occurred in person. Technological advances, however, have changed the way data is transmitted and stored, and the ways lawyers communicate with clients.  These changes in technology have been accompanied by new questions about how lawyers should act to protect confidentiality of client information.

The propriety of lawyers using SaaS has attracted significant attention from Bar Association Ethics Committees in recent years, and a consensus position has been developing that allows lawyers to store client data in web based systems, and about the steps lawyers should consider and take when engaging in Cloud Computing.  This opinion therefore now turns to a summary of recent ethics decisions addressing SaaS.

North Carolina Proposed Formal Ethics Opinion No. 6

Over  a  period  spanning  approximately  1½  years,  the  North  Carolina  State  Bar Association has issued successive drafts of a formal ethics opinion addressing attorney use of SaaS.  The third draft of this Formal Ethics Opinion, issued in October 2011, endorses the use of SaaS to store law firm data, including confidential client information, as long as steps are taken to protect the confidentiality of client information and to preserve client property.  Proposed NC FEO 6 steps back from a series of mandatory steps that lawyers would have been required to take in connection with use of SaaS, as set forth in the previous April 2011 draft of this Opinion. Instead, the Opinion now provides that lawyers:

“may use SaaS if reasonable care is taken to minimize the risks of inadvertent disclosure of confidential information and to protect the security of client information and client files.  A lawyer must fulfill the duties to protect client information and to safeguard client files by applying the same diligence and competency to manage the risks of SaaS that the lawyer is required to apply when representing clients.”
 

Because of the rapidly changing nature of technology, Proposed NC FEO 6 declines to impose specific requirements on lawyers who use Cloud Computing in connection with client data.  Instead, the Opinion identifies a series of steps that lawyers should consider taking before using SaaS, and requires lawyers to engage in ongoing due diligence and continuing legal education to ensure that remotely stored client data remains secure and accessible.  Factors identified in this Opinion for those who use SaaS include:

a.    Understanding and protecting against security risks inherent in the internet, including end-user vulnerabilities in the lawyer’s office;

b.   Including provisions about protection of client confidences in the agreement between the lawyer and the SaaS vendor;

c.   Ensuring that there are mechanisms for obtaining access to, retrieving, and protecting data if the lawyer terminates use of the SaaS product, or if the SaaS vendor goes out of business or experiences a break in continuity;

d.   Carefully reviewing the terms of the user agreement, including its security provisions;

e.   Evaluating the security measures used by the vendor; and

f.   Confirming the extent to which the SaaS vendor backs up the data it is storing.

 

Iowa State Bar Association Ethics & Practice Committee Opinion 11-01

In September 2011, the Iowa State Bar Ethics and Practice Committee took a similar approach to Cloud Computing in Opinion 11-01.  Applying comment 17 to Rule 1.6, Opinion

11-01 recognized that:

 

“the degree of protection to be afforded client information varies with the client, matter and information involved.  But it places on the lawyer the obligation to perform due diligence to assess the degree of protection that will be needed and to act accordingly.”

 

The Opinion declines to address in detail the specifics of individual SaaS products, because such guidance would quickly prove outdated, and may be beyond the scope of a lawyer’s expertise. Instead, Opinion 11-01 suggests a series of matters into which lawyers should inquire before storing client data on remote servers they do not control, including:

 

a.   Availability of unrestricted  access to the data, and ability to access the data through alternate means;

b.   Performance of due diligence about the SaaS vendor, including its operating record, recommendations by other users, the provider’s operating location, its end user agreement  (including  provisions  on  choice  of  law,  limitations  on  liability  and damages, and rights in the stored data);

c.   Financial arrangements, including access to data in case of nonpayment or default;

d.   Arrangements upon termination of relationship with SaaS provider, including access to data; and

e.   Nature of confidentiality protections, including password protection and availability of different levels of encryption.

 

The Opinion further notes that lawyers may be able to discharge their responsibilities by relying on due diligence efforts by non-lawyer personnel with expertise in these areas.


Pennsylvania Bar Association Formal Opinion 2011-200

In its recent Formal Opinion 2011-200, the Pennsylvania Bar Association Committee on Legal Ethics and Professional Responsibility similarly concluded that attorneys can use cloud computing if stored materials remain confidential, and reasonable steps are taken to protect stored data from risks including security breaches and loss of data. This Pennsylvania Opinion recommends various steps the lawyer should explore with the SaaS vendor, including:

a.   the existence of an obligation imposed on the vendor to preserve security;

b.   a mechanism for the vendor to notify the lawyer if a third party requests access to the stored information;

c.   the existence of systems that are sufficient to protect the data from unauthorized access;

d.   an agreement about how confidential client information will be protected;

e.   the ability to review the vendor’s security systems; and

f.    tools to protect the lawyer’s ability to access and retrieve the data.

 

California Bar Professional Responsibility and Conduct Committee Formal Op. 2010-179

Recognizing that a technology-specific opinion “would likely become obsolete shortly,” California Bar Ethics Opinion 2010-179 similarly endorses Cloud Computing, and then provides a general analysis of the considerations a lawyer should evaluate when using SaaS, including:

a.    The ability of the lawyer to assess the security provided by the provider, including the specifics of the technology, whether specific precautions can be used to increase the level of security, and limits on who is permitted to monitor use of the software, evaluated by someone who possesses a sufficient level of competence to address these issues;

b.   Availability of legal consequences for improper interception of or access to the data;

c.   Degree of sensitivity of the information being stored

d.   Potential impact of unauthorized disclosure on the client;

e.   Urgency of the situation; and

f.    Client circumstances and instructions.

 

New York State Bar Professional Ethics Committee Opinion 842

In September 2010, the New York State Bar Professional Ethics Committee issued a similar opinion, adopting a reasonableness standard and discussing the following factors that a lawyer should consider when storing client information in the cloud:

a.  Confirming that the SaaS vendor has a enforceable duty to maintain security and confidentiality, including prompt notification of the attorney upon service of process requiring disclosure of the data;

b.   Investigating the provider’s security procedures, policies, and methods for recovering data;

c.   Guarding against infiltration attempts using available technology;

d.   Determining whether the vendor can transfer and then permanently delete the data if the lawyer changes providers;

e.  Periodically reconfirming that security and access measures remain sufficient as technologies change; and

f.    Remaining current on the law with respect to changing technologies to ensure that client data is not subject to legal risk, including waiver of confidentiality.


Other Opinions and Authorities

Ethics opinions issued by other State Bar Associations have taken similar positions.

 

State Bar of Arizona Ethics Opinion 09-04, for example, reaffirms the conclusion drawn in its prior Ethics Opinion 05-04, and concludes that attorneys can use online storage and retrieval  systems  for  client  documents  and  information  as  long  as  they  take  reasonable precautions to ensure that the materials are safe and confidential.  This Arizona Opinion further notes that lawyers should recognize that their expertise with respect to technology may be limited and should therefore ensure review of precautions by competent personnel, and periodically review systems to ensure that security precautions remain reasonable.

 

Opinion 701 of the New Jersey Advisory Committee on Professional Ethics discusses the benefits that may arise from web-based digital storage of and access to client documents and information, and then provides as follows:

“The critical requirement . . . is that the attorney ‘exercise reasonable care’ against the possibility of unauthorized access to client information.  A lawyer is required to exercise sound professional judgment on the steps necessary to secure client confidences against foreseeable attempts at unauthorized access.  ‘Reasonable care,’ however, does not mean that the lawyer absolutely and strictly guarantees that the information will be utterly invulnerable against all unauthorized access.   Such a guarantee is impossible, and a lawyer can no more guarantee against unauthorized access to electronic information than he can guarantee that a burglar will not break into his file rom, or that someone will not illegally intercept his mail or steal a fax.”

 

Opinion 701 continues by noting that the content of the obligation to exercise reasonable care depends on the circumstances and must be informed by the available technology, and personnel handling client information must be subject to an enforceable obligation to preserve confidentiality and security.  In addition, Opinion 701 excludes original “client property” from its holding, and notes that lawyers must continue to maintain certain original documents, like wills, trusts, deeds, contracts, and corporate bylaws and minutes, and cannot rely solely on digital storage of these materials.  This Opinion further stresses the importance of client consent with respect to remote storage of client information.

 

To similar effect are Ethics Opinion 2010-02 issued by the Alabama State Bar Association, and Formal Opinion No. 33 issued by the State Bar of Nevada Standing Committee on Ethics and Professional Responsibility.  Many other resources also are available about the use of SaaS, including the ABA Commission on Ethics 20/20 Working Group’s September 20, 2010 white papers discussing SaaS, and the Law Society of British Columbia’s July 15, 2011 Report of the Cloud Computing Working Group.

CONCLUSION

The Vermont Bar Association Professional Responsibility Section agrees with the consensus view that has emerged with respect to use of SaaS.  Vermont lawyers’ obligations in this area include providing competent representation, maintaining confidentiality of client information, and protecting client property in their possession.  As new technologies emerge, the meaning of “competent representation” may change, and lawyers may be called upon to employ new tools to represent their clients.  Given the potential for technology to grow and change rapidly, this Opinion concurs with the views expressed in other States, that establishment of specific conditions precedent to using SaaS would not be prudent.   Rather, Vermont lawyers must exercise due diligence when using new technologies, including Cloud Computing.  While it is not appropriate to establish a checklist of factors a lawyer must examine, the examples given above are illustrative of factors that may be important in a given situation.  Complying with the required level of due diligence will often involve a reasonable understanding of:

a.         the vendor’s security system;

b.         what practical and foreseeable limits, if any, may exist to the lawyer’s ability to ensure access to, protection of, and retrieval of the data;

c.         the material terms of the user agreement;

d.         the vendor’s commitment to protecting confidentially of the data;

e.         the nature and sensitivity of the stored information;

f.          notice  provisions  if  a  third  party  seeks  or  gains  (whether  inadvertently  or otherwise) access to the data; and

g.         other regulatory, compliance, and document retention obligations that may apply based upon the nature of the stored data and the lawyer’s practice.

In addition, the lawyer should consider:

a.         giving notice to the client about the proposed method for storing client data;

b.         having the vendor’s security and access systems reviewed by competent technical personnel;

c.         establishing a system for periodic review of the vendor’s system to be sure the system remains current  with evolving technology and legal requirements; and

d.         taking reasonable measures to stay apprised of current developments regarding

SaaS systems and the benefits and risks they present.

In  summary,  and  with  respect  to  the  specific  questions  posed,  the  Professional

Responsibility Section responds as follows.

Vermont attorneys may use SaaS systems for storing, processing, and retrieving client property, as long as they take reasonable precautions to ensure the property is secure and accessible.  The nature of the precautions depends on the circumstances.  The ability to engage in Cloud Computing is not limited by the specific location of the remote server, although some of the factors noted above, including choice of law clauses, and concerns about access to data in the event of a service interruption or an emergency, may be implicated by the location of the storage server and the extent of backup service provided by the vendor.

 

Depending on the circumstances, there may be limits on systems that can be used and client property that can be stored with an SaaS vendor, and lawyers must assess each situation


based upon the specific facts and circumstances.  For example, it may not be appropriate to rely solely on remote digital storage for preservation of original client property like wills, or other client documents that are subject to permanent retention obligations.  Similarly, given that Cloud Computing involves storage of information in the hands of a third party, a lawyer handling particularly sensitive client property, like trade secrets may conclude after consultation with the client that remote SaaS storage is not sufficiently secure.

A  lawyer’s  use  of  email,  calendar,  and  remote  synchronization  systems,  including systems that are web-based and offered by SaaS vendors, is subject to the same inquiry.  Before using such systems, the lawyer should take reasonable precautions to ensure that information in the system is secure and accessible.

Finally, given the rapidly changing nature of technology and the significant manner in which new technologies impact the legal practice including the manner in which confidential client information is communicated and stored, the Professional Responsibility Section invites the Vermont Supreme Court to examine whether changes in applicable Rules of Procedure and Rules of Professional Conduct are warranted to address these issues.

 
 

 

VBA OPINION 2011-4

SYNOPSIS

An attorney acting as the trustee of a trust funded upon a spouse’s death for the benefit of the surviving spouse and upon that spouse’s death to be distributed to other family members is governed by the Vermont Rules of Professional Conduct (the “VRPC”) and also the Vermont codification of the Uniform Prudent Investor Act, so must maintain a diversified portfolio and is not required to hold the funds in a “pooled interest” (IOLTA) account under VRPC 1.15B whereby interest or dividends would be paid to the Vermont Bar Foundation to support legal services to the needy or public education on legal matters only in financial institutions approved by the Vermont Professional Conduct Board.

FACTS

Without soliciting such appointment, Attorney A was named as the sole trustee of a client’s unfunded irrevocable trust.  Years later, the client died and the trust was funded.  Under the terms of the trust, income is to be paid to the surviving spouse during that spouse’s lifetime. Payments of the trust’s principal may also be made to the surviving spouse in the trustee’s discretion.  Upon the surviving spouse’s death, the remaining assets of the trust are to be distributed to other family members.

Attorney A, as the trustee, plans to invest the trust’s assets in one or more  mutual funds and arrange to have the income directly deposited to the surviving spouse’s bank account to maintain a diversified portfolio and otherwise to conform with the Vermont codification of the Uniform Prudent Investor Act, 14A V.S.A. Chapter 9.  These mutual fund investments may not be in financial institutions approved by the Vermont Professional Conduct Board (“VPCB”), but would be in compliance with the trust’s terms and the Vermont Uniform Prudent Investor Act.

ANALYSIS

VRPC 1.15, 1.15A, and 1.15B impose particular requirements on safekeeping client property, trust/fiduciary accounting systems, and pooled interest bearing accounts, respectively. If Attorney A were required to administer the trust in accordance with the pooled interest bearing account (IOLTA) rules, all interest and dividend income would be payable to the Vermont Bar Foundation, not as required by the trust.   Until June 17, 2009 the VRPC also included Rule

1.15C which could have been interpreted to force an attorney to make a choice between complying  with  the  VRPC  rules  governing  trust  funds  and  the  Vermont  Uniform  Prudent Investor Act as well as a trust’s particular terms which would require a diversified portfolio. (In

2006, this committee addressed the application of Rule 1.15C as well as Rules 1.15 and 1.15B in another context.)

The June 2009 amendments to the VRPC, however, eliminated the Rule 1.15C provision that would have established the arguable conflict.       Some of the terms of former Rule 1.15C were included in other Rules.   But the result of the amendment makes clear that the VPCB


approved  financial  institution  requirement  applies  to  “trust”  accounts  and  that  “fiduciary

accounts are separate.

Rule 1.15A defines the “trust’ and “fiduciary” accounts separately as follows:

An account in which funds are held that are in the lawyer’s possession as a result of a representation in a lawyer-client relationship shall be clearly identified as a

‘‘trust’’ account. An account in which funds are held that are in the lawyer’s possession as a result of a fiduciary relationship that arises in the course of a lawyer-client relationship or as a result of a court appointment shall be clearly identified as a ‘‘fiduciary’’ account.

Rule 1.15B(a) covers which funds must go into the “pooled interest” (IOLTA) account. It is clear that those are funds held as a result of a lawyer’s representation of a client in the defined “trust” capacity under Rule 1.15A(a)(1) not otherwise or as a result of the lawyer’s acting as fiduciary of a separate trust as is the case on the facts presented here.

Every lawyer or law firm holding funds in one or more trust accounts in accordance with Rule 1.15A(a) shall create and maintain a pooled interest-bearing trust account in a financial institution in Vermont that has been approved by the Professional Responsibility Board. Funds so held that are not reasonably expected to earn net interest or dividends, as defined in paragraph (2) of this subdivision, for the client or other person for whom they are held shall be deposited in that account. The interest or dividends accruing on this account, net of any transaction costs, as defined in paragraph (2) of this subdivision, shall be paid over to the Vermont Bar Foundation by the financial institution. No earnings of the account shall be made available to the lawyer or law firm.

The explicit application of the “pooled interest” (IOLTA) account rules to relationships defined only as “trust” (created “as a result of a representation in a lawyer-client relationship”) not as fiduciaries, in combination with the clear requirements of the trust’s terms, the  clear legal requirements of  the Vermont Uniform Prudent Investor Act, historical practice, and the absence of any clear intent to have the VRPC interpreted so as to conflict with the legal requirements in a lawyer’s acting as a fiduciary of a trust, as well as the elimination of any possible conflict with old Rule 1.15C as a result of the 2009 amendments to the VRPC 1.15C language, makes clear that Attorney A is not restricted to holding the trust’s assets in VPCB approved financial institutions.  Attorney A must comply with the Vermont Uniform Prudent Investor Act, and distribute  income  as  required  by  the  trust  over  which  he  is  acting  as  a  fiduciary.    The applicability of the Rule 1.15B requiring deposits only in VPCB approved financial institutions or only in “pooled interest” (IOLTA) accounts only to “trusts” as defined in Rule 1.15A is also clear from the separate Rules for other types of fiduciary relationships. If for example, a trust were established for a family member or third party with stock paying dividends instead of funds to be deposited, the Rules are clear on what an attorney must do and those Rules do not include the Rule 1.15B pooled interest (IOLTA) provisions. Obviously, Attorney A must also comply with the rest of the VRPC and Vermont law provisions governing maintenance of fiduciary accounts.

 
 

OPINION 2011-3
 
SYNOPSIS:
 
Lawyer may retain papers relating to a former client to the extent permitted by other law, provided that the former client is informed. 
 
FACTS:
 
Lawyer has been asked by a recent former client in a criminal case (resolved by nolo plea in open court) to destroy a portion of his file. After completion of the representation, Lawyer had forwarded a copy of the file to the former client. Within a short time thereafter, the former client requested that one piece of his file be destroyed or removed from Lawyer’s file and kept in a separate location in the office. 
 
Lawyer’s practice is to destroy a client’s entire file seven years after the same has been closed.
 
Lawyer is reluctant to abide by the former client’s request given that the former client may seek post judgment relief at some point in the future and may need testimony from Lawyer, or former client may make a claim against Lawyer for which Lawyer would want the complete file readily available.
 
QUESTION PRESENTED:
 
Whether a former client can require Lawyer to destroy a portion of his file. 
 
APPLICABLE RULES:
 
The relevant provision of the Vermont Rules of Professional Conduct that is applicable to the question presented includes Rule 1.16.
 
Rule 1.16 addresses declining or terminating representation and provides in relevant part as follows:
 
(d) Upon termination of representation, a lawyer shall take steps to the extent reasonably practicable to protect a client’s interests, such as giving reasonable notice to the client, allowing time for employment of other counsel, surrendering papers and property to which the client is entitled and refunding any advance payment of fee or expense that has not been earned or incurred. The lawyer may retain papers relating to the client to the extent permitted by other law.
 
VERMONT RULES OF PROFESSIONAL CONDUCT Rule 1.16(d). 
 
DISCUSSION:         
 
The Question as presented to us – the destruction of a portion of a former client’s file at the client’s behest – appears to be one of first impression. The Vermont Rules of Professional Conduct do not set forth particular rules or guidelines on the subject. 
 
In the past, the focus of inquiries with respect to the disposition of a client’s files and property have been centered on the issues of preservation, retention or destruction of the files and property of a former client. See, e.g., Opinion No. 1999-07 (upon request, lawyer must deliver to former client all property in his/her possession to which client is entitled to receive); Opinion No. 1997-08 (discussing necessary length of time for retention or disposition of client’s file); Opinion No. 1995-05 (obligation to turn over client’s papers and property only to Executrix of client’s estate); Opinion No. 91-3 (lawyer is obligated to return: (1) all property delivered to lawyer by client; (2) the “end product” of lawyer’s work; and (3) all other material useful to the client in fully benefiting from the services of lawyer); see also ABA Formal Opinion 92-369 (discussing the disposition of deceased solo practitioner’s client files and property); and ABA Informal Opinion 1384 (1977) (listing eight guidelines relating to the retention or destruction of old client files). 
 
We believe that two of the principles set out in ABA Informal Opinion 1384 provide some guidance in addressing the instant question. Those guidelines read as follows:
 
2. A lawyer should use care not to destroy or discard information that the lawyer knows or should know may still be necessary or useful in the assertion or defense of the client’s position in a matter for which the applicable statutory limitations period has not expired.
 
3. A lawyer should use care not to destroy or discard information that the client may need, has not previously been given to the client, and is not otherwise readily available to the client, and which the client may reasonably expect will be preserved by the lawyer.
 
ABA Informal Opinion 1384 (1977).
 
Further, Rule 1.16(d) of the Vermont Rules of Professional Conduct allows a lawyer “to retain papers relating to the client to the extent permitted by other law.” See VERMONT RULES OF PROFESSIONAL CONDUCT Rule 1.16(d).
 
In the present case, Lawyer has articulated concerns that the former client’s file in its entirety may be needed in the case of any future post judgment relief proceeding, or in defending a claim against Lawyer. Accordingly, the complete file will likely be necessary or useful in the case of either eventuality. In the circumstances, it is permissible for Lawyer to retain the client’s file in its entirety in one location, subject, of course, to the attorney-client privilege; provided, however, that Lawyer shall promptly inform the former client of the intention not to comply with the former client’s request to destroy or otherwise segregate a portion of the file. See VERMONT RULES OF PROFESSIONAL CONDUCT Rule 1.4.
 
CONCLUSION:
            In summary, Lawyer is not obligated to comply with the request of the former client that a portion of his file be destroyed or otherwise be segregated. The former client shall be promptly informed of Lawyer’s intention to retain the complete file. 
 

UNAUTHORIZED PRACTICE OF LAW

ADVISORY OPINION NO. 2013-2

SYNOPSIS

A Vermont licensed attorney may represent residents of Vermont and other states in administrative proceedings before the Social Security Administration Office of Disability Adjudication and Review as may an attorney not licensed in Vermont represent Vermont residents in such proceedings.

QUESTIONS PRESENTED

1.     May an attorney who is not licensed to practice in Vermont represent Vermont residents in administrative hearings before the Social Security Administration’s Office of Disability Adjudication and Review (ODAR)?

2.     May an attorney who is licensed to practice in Vermont represent residents of other states in administrative hearings before the Social Security Administration’s Office of Disability Adjudication and Review?

FACTS

A Vermont attorney describes the process of representing claimants for Social Security and Supplemental Security Income benefits who seek reviews by an Administrative Law Judge (ALJ) of claims that have been denied on initial application and review. 

We rely upon the requesting attorney’s representation that federal law permits both attorneys and paralegals to act as claimants ’ representatives in these proceedings.  For claimants who live in Vermont, the hearings are conducted out of the ODAR office in Manchester, New Hampshire; and most hearings are conducted by a video conference with the ALJ in a hearing room at the ODAR office in New Hampshire and the Vermont claimants at video conference sites in Vermont.

The requesting attorney is concerned that paralegals may represent claimants in different states because they are permitted under federal law to do so and do not need to meet the licensing and admission standards that apply to attorneys; and suggests that attorneys may only represent claimants in states where they are either licensed or otherwise permitted to represent claimants because of the practice rules of those states.

RELEVANT RULES OF PROFESSIONAL CONDUCT

RULE 5.5.  Unauthorized Practice of Law; Multijurisdictional Practice of Law

(a)   A lawyer shall not practice law in a jurisdiction in violation of the regulation of the legal profession in that jurisdiction, or assist another in doing so.

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       (d) A lawyer admitted in another United States Jurisdiction, and not disbarred or suspended from practice in any jurisdiction, may provide legal services in this jurisdiction that:

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(2) are services that the lawyer is authorized to provide by federal law or other law of this jurisdiction.

Comment [18]:  Paragraph (d)(2) recognizes that a lawyer may provide legal services in a jurisdiction in which the lawyer is not licensed when authorized to do so by federal or other law, which includes statute, court rule, executive regulation or judicial precedent.

DISCUSSION

Given the facts presented to us, the Committee concludes that a lawyer who is not licensed in Vermont may nevertheless provide representation throughout the administrative process to social security claimants who reside in Vermont, consistent with Rule 5.5(d)(2), because it is consistent with governing federal law.

Likewise, a Vermont lawyer may represent non-Vermont residents in such matters.

Therefore, the answer to both questions presented is “Yes.”  We underscore that the answers here are compelled by controlling federal law and not the Vermont Rules of Professional Conduct, which do not control admissions before federal courts and agencies.