Unfair Competition and Chapter 93A: Takeaways from Governo Law Firm LLC v. Bergeron
The Massachusetts Appeals Court recently reviewed a Chapter 93A Section 11 claim for a second time. Plaintiff Governo Law Firm LLC alleged that former employees secretly copied files while still employed by the firm and later used them to compete unfairly. After the initial trial, the jury found the defendant liable of conversion but determined that the former employees did not violate Chapter 93A Section 11. The Supreme Judicial Court vacated that portion of the judgment and remanded for a new trial on that claim.
After a subsequent bench trial, the trial judge found that defendants did not violate Section 11 because their unfair and deceptive conduct did not harm or injure plaintiff law firm.
On appeal, the court found that the trial court’s findings related to a lack of harm or injury was based on clear error. The appeals court reversed the Chapter 93A judgment and remanded for entry of a new judgment in plaintiff’s favor and an assessment of damages consistent with the court’s opinion.
The bench trial found that after failed sale negotiations at plaintiff law firm, defendants prepared to leave in order to begin their own firm. Prior to departing, the defendants copied electronic files to external drives that they brought with them to their new firm. Once the new firm was established, most clients that the departing attorneys represented decided to transfer their business to the new law firm. The trial court thus concluded that while defendants acted unfairly and deceptively when they secretly copied the electronic materials and took them to the new firm before they had any clients, the firm did not suffer a loss or injury since the defendants only accessed materials that belonged to clients who ultimately transferred their business.
The appeals court was not persuaded by this no-harm, no foul approach. Specifically, defendants took an organizational system they developed while employed at the plaintiff law firm in order to streamline their practice. This database was not the type of material that the Rules of Professional Conduct contemplate would be transferred when a client transfers their business to a new firm. The appeals court determined that the clients who ultimately left plaintiff firm were not entitled to the entire database that was developed to efficiently represent multiple clients defending against similar claims, even if those clients paid for some portion of the time used to create and update the database. While at the new law firm, the defendants did not rebuild the database and re-enter the data record by record from current client files. Instead, they used the copied materials to “find and access discovery materials, investigatory materials, [and] case history summaries.” That evidence was adequate to establish unfair and deceptive conduct and that the violation was willful or knowing. The use of the copied materials harmed plaintiff law firm. The appeals court then remanded for an assessment of damages (including attorney’s fees) based on a disgorgement of profits theory resulting from unfair competition. The parties may present experts on remand to determine the appropriate amount of damages. This case demonstrates the scope of the “loss of money or property” requirement for Section 11 claims.
Can AI Replace Lawyers? The UPL Challenge
Introduction
A popular refrain echoes through legal technology conferences and webinars: “Lawyers won’t be replaced by AI, but lawyers with AI will replace lawyers without AI.” This statement offers a degree of comfort to legal professionals navigating rapid technological advancement, suggesting AI is primarily an augmentation tool rather than a replacement. While many practitioners hope this holds true, a fundamental question remains: Is it legally possible for AI, operating independently, to replace lawyers under the current regulatory frameworks governing the legal profession? As it stands, the rules surrounding the unauthorized practice of law (UPL) in most jurisdictions present a significant hurdle.
The UPL Barrier: Protecting the Public, Impacting Access
All jurisdictions in the United States have established rules prohibiting the unauthorized practice of law. These regulations typically mandate that individuals providing legal services must hold an active license issued by the state bar association. The primary stated goal is laudable: to protect the public from unqualified practitioners who could cause significant harm through erroneous advice or representation.
However, these well-intentioned rules have downstream consequences, notably impacting efforts to broaden access to justice. By strictly defining what constitutes legal practice and who can perform it, UPL rules can limit the scope of services offered by non-lawyers and technology platforms, even for relatively straightforward matters. For instance, the State Bar of California explicitly notes on its website that immigration consultants, while permitted to perform certain tasks, “cannot provide you with legal advice or tell you what form to use” – functions often essential for navigating complex immigration procedures.1
Legal Tech’s Current Role vs. Direct-to-Consumer AI
Much of the legal technology currently deployed operates comfortably within UPL boundaries because it serves as a tool for lawyers. AI-powered research platforms, document review software, and case management systems enhance a lawyer’s efficiency and effectiveness. Crucially, the licensed attorney remains the ultimate provider of legal advice and services to the client, vetting and utilizing the technology’s output.
The UPL issue arises dramatically when the lawyer is removed from this equation. If a software platform or AI system interacts directly with a consumer, analyzes their specific situation, and provides tailored guidance or generates legal documents, regulators may argue that the technology provider itself is engaging in the unauthorized practice of law.
Historical Precedents: Technology Pushing Boundaries
This tension is not new. Technology companies have long tested the limits of UPL regulations. The experiences of LegalZoom offer a prominent example. The company faced numerous disputes with state bar associations regarding whether its automated document preparation services constituted UPL. In North Carolina, for instance, LegalZoom entered into a consent judgment allowing continued operation under specific conditions, including oversight by a local attorney and preserving consumers’ rights to seek damages.2
DoNotPay, once marketed as the “world’s first Robot Lawyer,” also faced and settled UPL lawsuits. Its potential as a UPL test case is complicated by recent regulatory action; DoNotPay agreed to a Federal Trade Commission (FTC) order to stop claiming its product could adequately replace human lawyers. The FTC complaint underpinning this order alleged critical failures, including a lack of testing to compare the AI’s output to human legal standards and the fact that DoNotPay itself employed no attorneys.3
The Patchwork Problem: State-by-State Variation
The LegalZoom saga underscores a critical challenge: UPL rules are determined at the state level. While general principles are similar, specific definitions and exemptions vary significantly, creating a complex regulatory patchwork for technology companies seeking national reach.
Texas, for example, offers a statutory exemption. Its definition of the “practice of law” explicitly excludes “computer software… [that] clearly and conspicuously states that the products are not a substitute for the advice of an attorney.”4 This suggests a pathway for sophisticated software, provided the appropriate disclaimers are prominently displayed.
A Proactive Model: Ontario’s Access to Innovation Sandbox
In contrast to reactive enforcement or broad statutory exemptions, some jurisdictions are exploring proactive, structured approaches. The Law Society of Ontario’s Access to Innovation (A2I) program provides an interesting example.5 A2I creates a regulatory “safe space” or sandbox, allowing approved providers of “innovative technological legal services” to operate under specific conditions and oversight.
Applicants undergo review by the A2I team and an independent advisory council. Approved participants enter agreements outlining operational requirements, such as maintaining insurance, establishing complaint procedures, and ensuring robust data privacy and security. During their participation period, providers serve the public while reporting data and experiences back to the Law Society. This process allows for real-world testing and informs future regulatory policy. Successful participants may eventually receive a permit for ongoing operation. Currently, 13 diverse technology providers, covering areas from Wills and Estates to Family Law, operate within this framework.
The AI Chatbot Conundrum and the Path Forward
Modern AI chatbots often exhibit behaviour that sits uneasily with UPL rules. Frequently, they preface interactions with disclaimers stating they are not providing legal advice, only then to proceed with analysis and suggestions that closely resemble legal counsel. While this might satisfy the Texas exemption, regulators in many other jurisdictions could view it as impermissible UPL, regardless of the disclaimer.
Ontario’s A2I model offers an appealing framework for fostering innovation while maintaining oversight. However, the core strength of many technology ventures lies in scalability. Requiring separate approvals and adherence to distinct regulatory frameworks in every jurisdiction presents a formidable barrier to entry and growth for AI-driven legal solutions intended for direct consumer use.
Conclusion
While AI is undeniably transforming the practice of law for existing attorneys, the notion of AI replacing lawyers faces a steep legal climb due to UPL regulations. The historical friction between technology providers and regulators persists. While some jurisdictions like Texas provide explicit carve-outs, and others like Ontario are experimenting with regulatory sandboxes, the lack of uniformity across jurisdictions remains the most significant obstacle.
For AI to move beyond being merely a lawyer’s tool and become a direct provider of legal guidance to the public at scale, a significant evolution in the regulatory landscape is required. Whether this takes the form of model rules, interstate compacts, or broader adoption of supervised innovation programs like Ontario’s A2I, addressing the UPL challenge will be critical to balancing public protection, access to justice, and the transformative potential of artificial intelligence in the legal sphere.
1 https://www.calbar.ca.gov/Public/Free-Legal-Information/Unauthorized-Practice-of-Law
2 Caroline Shipman, Unauthorized Practice of Law Claims Against LegalZoom—Who Do These Lawsuits Protect, and is the Rule Outdated?, 32 Geo. J. Legal Ethics 939 (2019).
3 https://www.ftc.gov/news-events/news/press-releases/2025/02/ftc-finalizes-order-donotpay-prohibits-deceptive-ai-lawyer-claims-imposes-monetary-relief-requires
4 Tex. Gov’t Code Ann. § 81.101 (West current through 2023)
5 https://lso.ca/about-lso/access-to-innovation
Updating Governing Documents for Law Firm Succession
Creating and updating governance documents, such as operating, partnership, and shareholder agreements, is vital for a founder-owned law firm’s long-term success. These documents define the firm’s structure, decision-making processes, and transition protocols. This guide outlines key areas to address, real-world examples, and actionable steps to help firms navigate generational transitions with confidence.
Mandatory Retirement Age
Including provisions for retirement age within your governing documents can help facilitate orderly transitions and prevent potential conflicts. While mandatory retirement ages may not be suitable for all first-generation firms, having a structured retirement planning process is crucial.
Action Steps:
Require partners to declare retirement intentions upon reaching a set age (e.g., 60)
Create a flexible “retirement window” to allow phased planning.
Example:
A law firm implemented a policy requiring partners to declare their retirement timeline upon reaching 60. A founding partner, unsure of exactly when and how to retire, created a retirement window with specific action steps keyed to the attainment of certain milestones over a 7-year period.
Return of Capital and Net Asset Interests
Retiring partners are typically owed a return of fixed capital and undistributed earnings. A clearly defined payout schedule protects the firm’s financial health during transitions.
Action Steps:
Define how and when capital will be returned to retiring partners.
Develop a recapitalization plan for new and remaining equity owners.
Establish a valuation process for Accounts Receivable (AR) and Work in Progress (WIP) interests.
Limit ownership in billing assets for future equity owners.
Create a payout schedule for AR and WIP, net of any related debt.
Example:
A mid-sized law firm faced financial difficulties due to ambiguous capital return policies and the challenge of replacing the capital owed to a retiring equity owner by the remaining equity owners. By updating its agreement with an extended payout schedule, the firm maintained financial stability while honoring its commitments.
. Post-Retirement Liability Obligations
Firms must address post-retirement liabilities, such as lease and debt guarantees, which are critical to protect both retiring partners and the firm. Clear policies governing these obligations should be included in the governance documents.
Action Steps:
Review and revise lease and debt guarantee policies.
Clearly define the conditions for releasing continuing guarantees.
Clearly define when obligations are released.
Establish contingency plans for unresolved liabilities.
Example:
A small law firm with younger, less established equity owners wanted to release the retiring founding equity owner from the line of credit. The firm’s bank was initially uncomfortable with a complete release. The retiring equity owner agreed to back the line of credit through the buyout period.
Post-Retirement Compensation
Providing post-retirement compensation options ensures fairness and clarity. This may include stipends or a share of the generated fees.
Action Steps:
Establish clear post-retirement compensation policies.
Limit the payment period to maintain financial balance.
Address post-retirement competition and its impact on retirement compensation.
Example:
A law firm offered a two-year stipend to retiring partners, conditional on full retirement. If they started a private practice or joined another firm post-retirement, the firm could void future payments.
Transfer of Equity Interests & Capital Requirements
An orderly transfer of equity interests ensures the firm’s longevity and growth. Clear policies for new and lateral partner equity are essential.
Action Steps:
Set equity contribution standards for new and lateral partners.
Use a common formula (e.g., ownership percentage or compensation basis) to equalize capital contributions.
Implement a vesting or buy-in process to ensure commitment.
Example:
A law firm needed a process to admit new equity owners. Without prior experience, they found it challenging to determine the timing and basis for ownership transfers. They adopted a three-year vesting approach and updated their governance documents with new owner admission policies. This provided clarity and eased the onboarding of future partners.
Firm Valuation Provisions
Valuing the firm is one of the most challenging yet vital elements of transition planning. Most firms begin with book value (e.g., AR and WIP), though this rarely reflects intangible assets such as the firm’s reputation,, systems and processes, people, brand equity and even the cost of starting a new firm. Difficult as it is, law firms should address this issue well in advance of founder retirements.
Action Steps:
Define a valuation approach for firm assets.
Define how this value is allocated to equity interests.
Example:
A group of founding equity owners nearing retirement decided to value the firm for sale to senior attorneys. Despite some contentious discussions, they agreed to value the firm based on book value plus a percentage of collected income post-retirement. Starting the process 5 years before any retirements allowed new equity owners time to adjust and plan.
Common Pitfalls to Avoid
No required planning or declaration age for retirement
Unclear capital return and payout policies.
Inadequate management of post-retirement liabilities.
Undefined post-retirement compensation plans.
Lack of clear equity transfer procedures.
Inaccurate valuation of firm assets.
Conclusion
Modernizing governing documents is a foundational step for law firms preparing for generational transitions. By addressing key areas such as retirement provisions, capital management, equity transfers, compensation, and firm valuation, firms establish a solid foundation for future growth and adaptability.
Opinion – Big Law’s DEI Crossroads: Resistance, Compromise, and the Trickle-Down Effect
In the wake of executive orders from the Trump administration targeting Diversity, Equity, and Inclusion (DEI) programs, Big Law is standing at a critical juncture. The legal industry, which has spent the last decade publicly embracing DEI as a moral and business imperative, is now navigating a politically charged environment where those same values have become liabilities.
While some top-tier firms are choosing to push back—defending their DEI commitments and pledging to continue inclusive hiring and leadership development—others are opting for compromise. Several firms have entered into quiet agreements with the administration, agreeing to either waive or significantly de-emphasize DEI requirements in their internal and external policies. In exchange, they’ve committed to invest between $40 million and $125 million in pro bono legal services, supporting causes mutually agreed upon by the White House and firm leadership.
These deals, while positioned as good-faith gestures, raise important questions about the future of DEI in law. Is the legal industry sacrificing long-term systemic change for short-term political appeasement? The good news for all of us is that President Trump has amassed a $600B war chest full of the best legal minds in America, which he says will work on the tariff and trade deals. I may question how that happened, but am happy they’ll have a seat at that table.
But the impact extends well beyond the firms themselves. It’s now trickled down to the legal recruiting space. According to Bloomberg Law and RollOnFriday, legal recruiting firm Major, Lindsey & Africa (MLA) “quietly removed all traces of DEI from its website—scrubbing internal employee groups and public statements without notifying staff”.
While financial settlements and pro bono commitments may offer a politically palatable alternative to outright resistance, they do not replace the transformative power of DEI initiatives that focus on equal access, representation, and inclusion. The real risk is that these behind-the-scenes compromises could set back years of progress, particularly in an industry already criticized for its lack of diversity at the top.
As legal employers and recruiters recalibrate, clients and candidates alike should be asking a difficult but necessary question: Are we witnessing the slow dismantling of DEI in law—or just a temporary detour on the road to progress at the intersection of Law, Politics, and Business?
The opinions expressed in this article are those of the author and do not necessarily reflect the views of The National Law Review.
What Legal Services Providers Need to Learn from OFSI’s Legal Services Threat Assessment
In its first-ever threat assessment of the UK legal sector, the UK’s Office of Financial Sanctions Implementation (OFSI) has raised red flags with regards to suspected sanctions breaches involving UK legal services providers since February 2022 (the Assessment).
Why Did OFSI Focus on Legal Services Providers?
Legal services providers play a crucial role in ensuring UK and international clients (including UK Designated Persons (DPs)) comply with UK financial sanctions. All legal services providers must ensure compliance not only with the Russian sanctions regime but also other threats to compliance relevant to the United Kingdom, including the UK’s sanctions regimes applicable to Libya, Belarus, Iran and South Sudan, amongst others.
OFSI’s Key Findings
The Assessment sets out four key findings relevant to UK legal services providers from February 2022 to present.
1. Underreporting of Breaches
OFSI found it was highly likely that UK trust and company services providers (TCSPs) may not fully disclose suspected breaches due to inconsistent detection policies and the failure to monitor clients’ sanctions status.
Since the reporting time frame of February 2022 until the publishing of this Assessment, OFSI identified that 16% of the total number of suspected breach reports received have come from the legal services sector (compared with 65% submitted by the financial services sector). 98% of these were submitted by law firms and barristers, while TCSPs and other types of legal services providers submitted only 2%. OFSI considered this as strongly suggestive that TCSPs were under-reporting.
2. Compliance Failures
OFSI stated that it was almost certain that most non-compliance by UK legal services providers has occurred due to the following:
Improper maintenance of frozen assets.
All DPs accounts, funds and resources, including those held by entities owned or controlled by DPs, must be operated in accordance with asset freeze prohibitions and OFSI licence permissions. OFSI observed legal services providers failing to adhere to asset freeze prohibitions, including delays in freezing funds belonging to DP clients and transferring frozen funds into accounts other than those specified in OFSI licences.
Breaches of specific and general OFSI licence conditions.
Receiving payment for legal services rendered to DPs, including services provided on credit, requires an OFSI licence. Specific compliance issues included billing sanctioned DPs more than the value limits set in the relevant licence or receiving payments after the relevant licence has expired.
Reporting.
OFSI encourages legal services providers to review licence reporting requirements, including making a report within 14 days of receiving payment under a general licence and providing relevant documentation that sets out the obligation under which the payment has been made.
Wind-down of Russia related operations.
Many UK legal services providers, including law firms, wound down their operations in Russia following its invasion of Ukraine and advised clients regarding the same. OFSI identified that legal services providers must ensure these activities were conducted in line with general and specific licence permissions and to report any suspected breaches which may have occurred as a result. The recent financial penalty imposed on HSF by OFSI in relation to the activities of HSF Moscow highlights these risks.
3. Complex Ownership and Control Structures
OFSI considered it was almost certain that complex corporate structures, including trusts, linked to Russian DPs and that their family members have concealed the ownership and control of assets which should have been frozen under UK financial sanctions. The Assessment encourages legal service providers to identify and report any suspected breaches, including those arising from non-designated individuals or entities dealing with frozen assets held through these complex structures.
4. Post-designation Ownership and Control Transfers
OFSI considered it likely that Russian DPs have sought to recoup frozen assets and even dissipate them beyond the reach of UK financial sanctions to non-designated individuals and entities. This generally requires the involved of other parties enabling these activities, including:
Professional enablers which provide professional services that enable criminality.
Non-professional enablers, such as family members, ex-spouses or associates.
Legal service providers need to ensure that they are not, directly or indirectly, enabling such activity by DPs or by non-professional enablers acting in support of DPs.
Intermediary Countries
Approximately 23% of the suspected breach reports identified by OFSI as involving UK legal services providers are connected to intermediary jurisdictions. The Assessment highlights a series of red flags for lawyers to look out for when dealing with jurisdictions such as: the British Virgin Islands, Guernsey, Cyprus, Switzerland, Austria, Luxembourg, United Arab Emirates and Turkey, as well as the Isle of Man, Jersey and the Cayman Islands.
Practical Steps
Legal services providers are obliged to make Suspicious Activity Reports to the National Crime Agency (NCA) under Part 7 of the Proceeds of Crime Act 2002 and the Terrorism Act 2000 if money laundering or terrorist financing activities are known or suspected. Further information about reporting to the NCA and OFSI can be found here and here.
Legal service providers should take the following steps, amongst others, to ensure compliance with the UK sanctions regime:
Monitor and identify any red flags;
Update client due diligence beyond basic ID checks to check beneficial owners and connected parties;
Screen every transaction against OFSI’s consolidated list (see here);
Complete a tailored risk assessment, incorporating the above findings, and undertake any remedial activities; and
Identify and comply with any applicable licence requirements.
Conclusion
OFSI’s Assessment builds on previous and related publications issued by OFSI and UK government partners, including the Financial Services Threat Assessment published by OFSI in February 2025 (see our corresponding alert here). OFSI encourages legal services providers to both report now and retrospectively, where appropriate and proportionate, if they suspect a breach linked to the content of this Assessment.
A Policy Guide for Transitioning Founder-Owned Law Firms
The purpose of this document is to provide a detailed listing and description of supporting policies needed when transitioning a founder-owned law firm. This guide aims to facilitate a smooth and orderly transition by outlining clear policies, actionable steps, and real-life examples. The scope of this document includes associate progression, origination sharing, equity transfer, lease and debt guarantees, post-retirement compensation, and contingency planning.
Associate and Income Partner Progression
When developing progression criteria for associate lawyers, it is crucial to consider what is at stake. Partnership admission criteria are critical long-term factors for talented young professionals deciding whether to invest in the firm’s success or seek opportunities elsewhere.
Action Steps:
Establish clear and detailed criteria for associate progression based on performance, client acquisition, and contribution to firm initiatives.
Create a partnership admission process that includes periodic evaluations, mentorship programs, and feedback mechanisms.
Communicate advancement opportunities and criteria transparently to all associates and potential lateral hires.
Incorporate regular training and professional development workshops to enhance the skills and knowledge of associates.
Implement incentives for senior partners to mentor associates and income partners, fostering a culture of growth and collaboration.
Develop a succession planning framework that identifies and nurtures potential future leaders within the firm.
EXAMPLE:
A founder-owned law firm with a highly concentrated business book successfully spread the business over three successor partners. The firm is well on its way to a second generation.
Origination Sharing Policies
Most firms compensate partners based on business originations. An essential component of any transition plan is a policy for sharing originations during the transition period.
Action Steps:
Develop a clear origination sharing agreement that outlines the percentage of credit transferred over the transition period.
Determine whether the firm or the successor partner will underwrite the transitioning partner’s compensation costs.
Regularly review and adjust the origination sharing policy to ensure it meets the firm’s evolving needs.
EXAMPLE:
A law firm established a three-year transition plan where the retiring partner’s origination credit declined by one-third yearly. This policy ensured a smooth transfer of client relationships and maintained firm stability.
Orderly Transfer of Equity
Equity transfers are typically more complicated in smaller law firms. A systematic process for transferring equity is essential for an orderly transition.
Action Steps:
Establish a basis for transferring equity between partners.
Develop policies for new partner equity, lateral partner equity, and capital requirements tied to ownership.
Implement a valuation approach to firm assets to ensure fair equity reallocation.
EXAMPLE:
A small/mid-sized founder-owned law firm implemented a process that facilitated admitting junior partners over a 3-year vesting period. This approach facilitated transparent and equitable equity transfers among partners.
Removing Retiring Partners from Leases and Debt Guarantees
Debt guarantees and office leases can pose challenges during the transition period.
Action Steps:
Review and update bank guarantees and office leases to reflect changes in firm ownership.
Ensure that senior partners support junior partner guarantees when necessary.
Develop agreements among partners regarding lease obligations and debt responsibilities.
EXAMPLE:
A firm negotiated with their bank to adjust the debt guarantees based on the current equity structure and the financial ability of junior partners, ensuring that retiring partners were relieved of their obligations.
Post-Retirement Compensation
Providing retiring partners with a post-retirement option can facilitate a gradual transition.
Action Steps:
Develop policies for post-retirement compensation and separate law practice options.
Ensure agreements are in place to govern competitive behavior and client relationships post-retirement.
EXAMPLE:
A law firm allowed retiring partners to maintain a small client base while providing mentorship to junior associates. This arrangement ensured continuity and leveraged the retired partners’ expertise.
Return of Capital and Interests in Billing Assets
Retiring founders with significant fixed capital and undistributed earnings invested in the firm need clear policies for the payout of these monies.
Action Steps:
Develop a process for valuing and returning fixed capital and undistributed earnings.
Implement payment schedules for returning fixed capital and billing assets (WIP and AR) net of liabilities.
Establish agreements for splitting net proceeds from contingent cases and addressing contingent liabilities.
EXAMPLE:
A firm created a detailed payout schedule for returning fixed capital over three years and interest in the net WIP and AR over 5 years, ensuring financial stability while honoring retiring partners’ investments.
Addressing Potential Challenges
Transitions can pose various challenges, including resistance from senior partners and communication breakdowns.
Action Steps:
Foster open communication among partners to address concerns and expectations.
Develop contingency plans to manage unexpected challenges during the transition process.
Engage external consultants to provide objective insights and facilitate smooth transitions.
EXAMPLE:
A firm experiencing resistance from founding partners hired PerformLaw to mediate discussions and develop a transition plan that addressed all parties’ concerns.
Importance of Communication
Effective communication is crucial during the transition process to ensure transparency and collaboration.
Action Steps:
Regularly update all stakeholders on the progress and changes related to the transition.
Encourage open dialogue and feedback to address any issues promptly.
Utilize multiple communication channels to reach all partners and associates effectively.
EXAMPLE:
A law firm conducted quarterly meetings to discuss transition updates and gather feedback, fostering a collaborative and supportive environment.
Conclusion
These supporting policies facilitate a smooth and orderly transition for founder-owned law firms. Clear advancement criteria, equitable origination sharing, systematic equity transfers, and well-defined post-retirement compensation are essential components. Addressing potential challenges and maintaining open communication ensures a successful transition that benefits both the firm and its partners.
Summary of Benefits:
Enhanced retention and recruitment of talented associates.
Stable financial performance during the transition period.
Transparent and equitable processes for all partners.
Continued client satisfaction and firm reputation.
Listen to this article
The Path & The Practice Podcast Episode 124: David Goroff, Partner [Podcast]
This episode of The Path & The Practice features a conversation with David Goroff. David is a litigation partner in Foley’s Chicago office where he is also chair of Foley’s appellate practice group. In this discussion, he reflects on growing-up in Skokie, IL, attending the University of Illinois for undergrad, earning his J.D. from Columbia Law School, and clerking for the U.S. Court of Appeals for the Seventh Circuit. David discusses starting his career at Hopkins & Sutter, a firm that subsequently merged with Foley in 2001. He also reflects on the early days of his career and what has kept him at the firm. Finally, David gives wonderful advice on the importance of being open to unexpected opportunities.
David’s Profile:
Law School: Columbia Law School
Title: Partner
Foley Office: Chicago
Practice Area: Litigation
Hometown: Skokie, IL
College: University of Illinois
Ethical Exits: ABA Formal Opinion 516, Permissive Withdrawal, and the Hot Potato Doctrine
Most attorneys have encountered, at one point or another, challenging client situations that prompt consideration of withdrawal. Unlike the relative freedom to decline new clients, terminating existing attorney-client relationships has long been governed by stricter ethical constraints. The rules governing withdrawal seek to strike a balance between an attorney’s autonomy and protecting the client.
The American Bar Association’s Standing Committee on Ethics and Professional Responsibility recently issued Formal Opinion 516, offering guidance on when attorneys may permissibly withdraw from client representations under Model R. Prof. Conduct 1.16(b)(1). The opinion examines the meaning of “material adverse effect on the interests of the client” – the key limitation on permissive withdrawal under Rule 1.16(b)(1). It explores the relationship between this ethical rule and judicial disqualification under the “hot potato” doctrine. It also includes a rare dissent by two members of the ABA standing committee. Below is a summary of the opinion and six practical takeaways for practicing attorneys navigating permissive client withdrawal decisions.
I. Permissive Withdrawal and “Material Adverse Effect”
The Model Rules establishes a framework for attorney withdrawal from representation. While clients possess the right to discharge a lawyer at any time, with or without cause, lawyers seeking to unilaterally terminate a representation are constrained by Rule 1.16.
First, under Rule 1.16(a), attorneys must withdraw in certain circumstances, such as when representation would result in ethical violations or when the attorney is discharged. Second, under Rule 1.16(b)(2)-(7), attorneys may withdraw for “good cause,” including when clients use services for criminal purposes, fail to pay fees, or when the representation creates an unreasonable financial burden. Third, under Rule 1.16(b)(1), attorneys may withdraw for any reason, provided there is “no material adverse effect on the interests of the client.”
For example, Rule 1.16(b)(1) allows attorneys to withdraw personal preference or business consideration as long as withdrawal doesn’t significantly harm the client’s legal interests. Whether the lawyer wishes to reduce workload, pursue other professional opportunities, or even avoid a potential conflict of interest by taking on a new client, the determining factor under Rule 1.16(b)(1) is whether the withdrawal will cause material harm to the existing client’s matter.
Formal Opinion 516 aims to provide greater clarity about what constitutes a “material adverse effect.” Withdrawal would have a material adverse effect if it resulted in (1) significant harm to the forward progress of the client’s matter; significant increase in the cost of the matter; and/or (3) significant harm to the client’s ability to achieve the legal objectives previously agreed upon. The opinion emphasizes that the adverse effect must relate to the client’s interests in the specific matter, not merely the client’s disappointment in losing the attorney’s services or perception of disloyalty.
II. Potential for Material Adverse Effects in Various Scenarios
Formal Opinion 516 identifies several scenarios where withdrawal would likely cause material adverse effects:
In transactional matters, where delay might jeopardize a deal’s completion or value
When no substitute lawyer is available or capable of completing the representation within necessary timeframes
When timing is objectively critical to the client’s matter
When the withdrawing attorney possesses unique abilities or knowledge that cannot be readily transferred
When successor counsel would need to duplicate substantial work, significantly increasing client costs
The opinion notes, however, that attorneys may be able to remediate these adverse effects through measures such as helping the client find substitute counsel, collaborating with successor counsel, or returning or foregoing fees for work that must be duplicated.
On the flip side, the opinion also identifies circumstances where withdrawal is unlikely to harm client interests and therefore would likely be permitted:
Early in the representation, before substantial work has been performed
When co-counsel can complete the remaining work without disruption
When the representation is substantially complete, with only ministerial tasks remaining
When there is no ongoing or imminent matter at the time of withdrawal
The opinion clarifies that Rule 1.16(b)(1) does not protect a client’s interest in maintaining an ongoing attorney-client relationship or shield clients from disappointment – it only prevents attorneys from withdrawing when doing so would materially harm the client’s legal interests in the specific matter.
III. The “Hot Potato” Doctrine and Rules of Ethics
Formal Opinion 516 concludes by addressing the relationship between Rule 1.16(b)(1) and the “hot potato” doctrine, which may disqualify attorneys who drop current clients to represent new clients with adverse interests to the then-current client.
Unlike other provisions of Rule 1.16(b), the attorney’s motivation for withdrawal under 1.16(b)(1) is irrelevant. Under the Model Rules, therefore, an attorney may withdraw from representing one client to represent another client with adverse interests, provided the withdrawal does not cause material adverse effect to the original client’s interests.
The opinion acknowledges that courts may still disqualify attorneys who drop clients to represent adverse parties pursuant to law of attorney disqualification. It distinguishes, however, between court disqualification decisions and violations of professional conduct rules, noting that the “hot potato” doctrine stems from common law duty of loyalty and the court’s efforts to maintain public confidence in the legal profession rather than the rules of professional conduct.
Whether and, if so, how courts apply the hot potato doctrine varies from jurisdiction to jurisdiction. See, e.g.:
California – of Trs. of Leland Stanford Junior Univ. v. Zhang, 659 F. Supp. 3d 1061 (N.D. Cal. 2023)
New York: Merck Eprova AG v. ProThera, Inc., 670 F. Supp. 2d 201, 207 (S.D.N.Y. 2009)
New Jersey: Santacroce v. Neff, 134 F. Supp. 2d 366 (D.N.J. 2001)
Pennsylvania: Int’l Longshoremen’s Ass’n, Loc. Union 1332 v. Int’l Longshoremen’s Ass’n, 909 F. Supp. 287, 293 (E.D. Pa. 1995)
Texas – Elec. Co. v. Mitsubishi Heavy Indus., Ltd., No. 3:10-CV-276-F, 2011 WL 13201855 (N.D. Tex. Sept. 12, 2011)
Florida – Lanard Toys Ltd. v. Dolgencorp LLC, No. 3:15-CV-849-J-34PDB, 2016 WL 7326855 (M.D. Fla. Dec. 16, 2016)
Illinois – Life Ins. Co. v. Guardian Life Ins. Co. of Am., No. 06 C 5812, 2009 WL 1439717 (N.D. Ill. May 18, 2009)
Massachusetts – Bryan Corp. v. Abrano, 474 Mass. 504, 509 (2016)
Rhode Island –Markham Concepts, Inc. v. Hasbro, Inc., 196 F. Supp. 3d 345 (D.R.I. 2016).
Attorneys should check their local rules and caselaw and consider consulting with local counsel before proceeding with a permissive withdrawal that may lead to disqualification.
IV. The Dissent
In a rare move, two ABA standing committee members wrote a dissent to Formal Opinion 516. They dissented from portions of the opinion, expressing concerns that the opinion (1) might discourage attorneys from properly closing files and transitioning dormant clients to former client status; (2) incompletely addresses the breadth of precedent on the hot potato doctrine; (3) fails to consider whether terminating a client to sue them could itself constitute a material adverse effect; (4) provides inadequate guidance for mandatory withdrawal situations; and (5) inadequately addresses transactional contexts. As noted above, these concerns, combined with the variable state-by-state caselaw concerning the hot potato doctrine, invite caution for any practitioner considering the use of permissive withdrawal to drop a first client to take on a second client in order to represent that second client in a matter adverse to the first client.
V. Six Practical Takeaways for Attorneys
Assess Material Adverse Effects Before Seeking to Withdraw
Before withdrawing from any representation, conduct a thorough analysis of potential adverse effects on the client’s interests, focusing specifically on the three criteria identified in Opinion 516: harm to case progress, increased costs, and jeopardized objectives.
Implement Remediation Measures When Necessary
When withdrawal might cause adverse effects, proactively seek to implement remediation measures. Try to assist the client in finding qualified successor counsel, offer case transition assistance, and consider reducing or waiving fees for work that must be duplicated. The more significant the potential adverse effect, the more robust your remediation should be such the withdrawal would be permitted under Rule 1.16(b)(1).
Establish Adequate File Closure Procedures
Develop systematic procedures for closing client matters when work is complete. Send a disengagement email or letter specifying when the representation has ended, return client materials when necessary, and provide final billing statements. This practice helps distinguish between current and former clients, potentially reducing conflict of interest complications that might necessitate withdrawal later.
Be Strategic About Timing
When possible, time your withdrawal to minimize adverse effects. Withdrawal early in the representation or after substantial completion is generally less problematic than withdrawal during critical phases. Consider natural breaking points in the representation when the client can more easily transition to new counsel.
Understand That Court Disqualification Standards May Differ
Recognize that courts may apply different standards when evaluating disqualification motions than those articulated in the ethical rules. Even if your withdrawal complies with Rule 1.16(b)(1), courts may still disqualify you from representing adverse parties under the “hot potato” doctrine. Consider both ethical compliance and potential court responses when planning withdrawal strategies.
Give Explanations to Clients When Appropriate
When withdrawing, consider providing clients with an explanation of your reasons for withdrawal, consistent with confidentiality obligations to other clients. While client consent is not required for permissive withdrawal under Rule 1.16, thorough communication helps maintain professional relationships and reduces the likelihood of grievances or disputes.
VI. Conclusion
ABA Formal Opinion 516 provides improved clarity on the circumstances under which attorneys may withdraw from client representations under Model Rule 1.16(b)(1). By providing context for the meaning of “material adverse effect” and distinguishing ethical rules from judicial disqualification standards, the opinion offers a framework for attorneys to navigate withdrawal decisions. Attorneys should approach withdrawal decisions carefully, considering both ethical compliance and potential judicial responses.
OPINION – The DEI Fight Escalates
In the week since “DEI and Bullying: Where Law, Politics, and Business Need To Align” was published in The National Law Review, the legal industry has seen a dramatic shift in its response to a concerted attack from the White House on law firm DEI practices. It has become a test of professional integrity and political influence as a divide has emerged between the approach of the largest law firms and the rest of the legal sector in managing this challenge.
Shortly after an Executive Order was issued by the Trump Administration against Paul, Weiss, the firm reached a deal with the White House—agreeing to relax DEI hiring policies and to provide $40 million in pro bono work directed toward causes politically aligned with the administration. In the days that followed, Skadden Arps, Wilkie Farr & Gallagher, and Milbank struck similar deals, each committing $100 million to more “administration friendly” pro bono causes.
And, as with the stock market, the world is watching. According to The Guardian, “The settlements come as many have expressed deep alarm at the US president’s effort to target law firms affiliated with his political rivals and see the actions as a thinly-veiled anti-democratic effort to intimidate lawyers from taking cases hostile to the administration.”
These settlements raise uncomfortable questions. What does it mean for DEI efforts when they can be bargained away? And what are the long-term implications of allowing the government to steer law firm priorities?
But in recent days, a powerful counterforce has emerged. On April 4th, in a show of unity, 500 law firms signed an amicus brief supporting Perkins Coie—a firm that has stood firm against political pressure. This collective legal move marks the first organized challenge to the executive order and a significant moment for the legal community. “The judiciary should act with resolve—now—to ensure that this abuse of executive power ceases,” the brief reads.
Notably absent from that list of 500: Big Law. According to Bloomberg Law: “None of the country’s 25 largest firms signed the friend-of-the-court brief, filed in federal court Friday. A total of eight of the 100 largest players joined the more than 500 firms on the brief, which was organized by Munger Tolles & Olson. Their absence speaks volumes as the rest of the industry mobilizes to fight back through the courts.”
Sharon Mahn, Esq., a leading legal recruiter and workplace expert, said “This is no longer just a policy scuffle. It’s now a legal and moral showdown, and we’re only in the opening rounds.”
Let’s hope it’s a short fight as the firms who signed the amicus brief press for a technical knockout. Meanwhile, this is one of several battles between politics and law, as USA Today points out in “Everything’s an ’emergency’: How Trump’s executive order record pace is testing the courts.”
The opinions expressed in this article are those of the author and do not necessarily reflect the views of The National Law Review.
When the Lawyer Is the Victim: ABA’s New Guidance on Confidentiality and Client-Perpetrated Crimes
When a client turns from seeking your counsel to victimizing you or your staff, what ethical obligations still bind you? The American Bar Association’s Standing Committee on Ethics and Professional Responsibility tackles this thorny dilemma in its recent Formal Opinion 515. The opinion addresses a scenario every attorney hopes to avoid but should be prepared to navigate: becoming the victim of a client’s crime. Whether it’s a sophisticated financial scam that empties your trust account, a violent outburst in your conference room, or theft of personal property during a consultation, the opinion provides important guidance on when attorneys can disclose information to protect themselves and seek justice without violating their professional obligations. The opinion acknowledges that while confidentiality remains sacrosanct in legal practice, lawyers should not be forced to remain silent when clients try to make victims of their lawyers and seek to weaponize the attorney-client relationship against them.
The opinion recognizes an implicit exception to the confidentiality duty under ABA Model Rule 1.6 when a client commits a crime against the lawyer. This exception permits disclosure of information relating to the representation to the extent reasonably necessary to seek investigation, prosecution, or other remedies when a client commits a crime against the lawyer or a related person witnessed by the lawyer. The opinion clarifies that this discretionary exception is intended to address situations not fully covered by existing explicit exceptions and acknowledges the lawyer’s right to seek recourse as a crime victim. It also states that this implicit exception is permissive, not mandatory, thus imposing no affirmative duty on attorneys to report clients’ crimes. Finally, it suggests that such criminal conduct by a client will likely impair the lawyer’s ability to continue representing the client, often necessitating withdrawal.
I. Duty of Confidentiality and the Attorney-Client Relationship
The attorney-client relationship rests upon the bedrock principle of confidentiality. Model Rule 1.6(a) states, “A lawyer shall not reveal information relating to the representation of a client unless the client gives informed consent […].” This obligation extends beyond current clients to prospective clients, defined in Rule 1.18(a) as individuals who consult with lawyers about potentially forming a professional relationship. Per Rule 1.18(b), even when no professional relationship materializes, attorneys must safeguard information learned from prospective clients, with limited exceptions governed by Rule 1.9. Such comprehensive protection fosters trust and encourages candor, essential elements in effective legal representation.
The opinion distinguishes scenarios involving purported clients with fraudulent intentions, where the fundamental duty of confidentiality may never arise. A legitimate attorney-client relationship requires good faith intent to seek legal services. When an individual engages a lawyer solely to perpetrate fraud – as illustrated in the opinion’s Hypothetical #1 (fraudulent foreign creditor scheme) and Hypothetical #2 (sham parties targeting lawyers) – several state ethics and disciplinary committees have concluded that no genuine professional relationship forms and, consequently, no duty of confidentiality attaches under Rule 1.6.
Similarly, someone attempting to defraud a lawyer would likely not qualify as a “prospective client” under Rule 1.18(a), lacking genuine intention to form a professional relationship. In such cases, attorneys generally remain free to report information about the fraudulent actor to law enforcement, financial institutions, and other relevant parties. The opinion encourages thorough initial inquiries, consistent with recent amendments to Rule 1.16(a), to identify such sham engagements early.
The opinion then addresses more challenging scenarios where actual clients commit crimes against their lawyers or associated individuals, as illustrated in Hypothetical #3 (violent office assault) and Hypothetical #4 (theft from lawyer’s desk). Here, the information attorneys would typically wish to report – such as the client’s identity, details of their meeting, and specifics of the criminal act – falls squarely within “information relating to the representation” protected by Rule 1.6(a).
II. Express Exceptions to Confidentiality under Rule 1.6(b)
Rule 1.6(b) provides several express exceptions permitting disclosure in specific circumstances where public interest outweighs confidentiality. The opinion examines potentially relevant exceptions. First, Rule 1.6(b)(1) allows disclosure to prevent reasonably certain death or substantial bodily harm, which is applicable in situations involving ongoing threats following a client’s assault, but limited to information reasonably necessary to prevent the threatened harm. Rule 1.6(b)(3) permits disclosure to prevent, mitigate, or rectify substantial financial injury resulting from a client’s crime or fraud where the lawyer’s services were used in furtherance of the wrongdoing. This might apply in certain financial crime scenarios but would not cover the hypotheticals, as they involve crimes where the lawyer’s services were not instrumentally used or where the primary harm befalls the lawyer. Rule 1.6(b)(5) allows disclosure to establish a claim or defense in a controversy between lawyer and client. While this exception would permit disclosure if the lawyer initiates civil litigation against the client for redress, it does not justify an initial report to law enforcement, to the extent a criminal investigation does not constitute a “controversy between the lawyer and the client.”
III. The Implicit Exception to Confidentiality for Reporting a Crime against a Lawyer or Their Associates under Formal Opinion 515
Recognizing that express exceptions in Rule 1.6(b) inadequately address situations where clients victimize their lawyers or those close to them, Formal Opinion 515 posits an implicit exception to confidentiality in these specific circumstances. This conclusion derives from the “reason” underlying the Model Rules, which, according to the Scope section, “should be interpreted with reference to the purposes of legal representation and of the law itself.” The opinion concludes that a lawyer who is the victim of a crime by a client or prospective client may disclose information relating to the representation to the appropriate authority in order to seek an investigation and potential prosecution of the alleged offender or other services, remedy, or redress.
The opinion notes that attorneys would naturally assume they possess the right to report a client’s crime against them or their staff – an assumption the opinion confirms as correct. It draws parallels to other previously recognized implicit exceptions, such as lawyers seeking ethics advice from outside experts (later codified in Rule 1.6(b)(4)) and disclosing limited client information for conflict checking when moving between firms (subsequently codified in Rule 1.6(b)(7)). It reasons that requiring lawyers to remain silent when victimized by their clients would be unreasonable, effectively making attorneys vulnerable targets and depriving them of rights afforded to other crime victims. Furthermore, maintaining confidentiality in such situations does not serve the rule’s fundamental purposes: encouraging clients to seek legal assistance and fostering trust. As the opinion states, while attorneys may occasionally “take a bullet for the client,” they cannot reasonably be expected to “take a bullet from the client and to keep quiet about it.”
This implicit exception extends to situations where lawyers witness clients’ crimes against associated individuals, such as staff members or family members. The opinion emphasizes that this exception, like express exceptions in Rule 1.6(b), is limited to disclosures the lawyer reasonably believes necessary to accomplish the permitted purpose, including enabling investigation and prosecution, securing medical treatment or insurance coverage, or obtaining other necessary redress, provided such information is not reasonably available elsewhere.
The opinion provides guidance on permissible disclosure scope under this implicit exception. In Hypothetical #1 (assuming, for the same of argument, a legitimate representation existed), disclosing certain representational details would likely be necessary to explain financial fraud. However, in Hypotheticals #3 and #4, involving violent crime and theft, far less detail would likely be required beyond the client’s identity and crime facts. While subsequent disclosures to authorities for investigation and prosecution may be necessary, attorneys should cautiously limit information to what is reasonably needed.
IV. Impact on the Attorney-Client Relationship
Formal Opinion 515 addresses the inevitable consequences of such disclosure on the professional relationship. It concludes that the relationship “almost certainly cannot continue” after an attorney reports a client’s crime against them or an associate. Under Rule 1.4, the lawyer ordinarily has a duty to inform the client that disclosure will be or was made. If the client then terminates the representation, Rule 1.16(a)(3) mandates withdrawal. Moreover, the crime and subsequent disclosure likely create a conflict of interest materially impairing the attorney’s ability to represent the client competently, also requiring withdrawal under Rule 1.16(a)(1). The opinion notes it is “hard to imagine a scenario in which a lawyer who is actively seeking the prosecution of a client would not be materially impaired in the ability to competently represent the client.” Even without mandatory withdrawal, Rule 1.16(b)(6) permits withdrawal if the client’s criminal conduct renders continued representation unreasonably difficult.
V. Practical Tips for Practicing Attorneys
ABA Formal Opinion 515 navigates the tension between attorney-client confidentiality and lawyers’ legitimate interests when victimized by clients. While reaffirming confidentiality’s paramount importance, the opinion recognizes a necessary implicit exception in these limited circumstances, allowing disclosure of reasonably necessary information to seek investigation, prosecution, services, or redress.
For practitioners navigating these challenging ethical waters, Formal Opinion 515 offers seven key takeaways:
Conduct Due Diligence Before Accepting New Clients
The opinion emphasizes the importance of conducting preliminary assessments before accepting new engagements. It references recent amendments to Rule 1.16(a) and notes that “lawyers who make initial inquiries and assessments before accepting a new engagement… may be able to more readily identify sham clients.”
Practical Tip: Implement a robust client intake process that includes verification of identity, checking for red flags in initial communications (such as vague details or unusual fee arrangements), and confirming the legitimacy of potential clients through referral sources or independent verification.
Know When No Confidentiality Duty Exists
The opinion clarifies that individuals who approach lawyers solely to perpetrate fraud are not “clients” or “prospective clients” under the ABA Model Rules. Conduct thorough initial inquiries to identify potential fraud, recognizing that confidentiality obligations do not attach to sham engagements lacking genuine intent to seek legal services.
Practical Tip: Document your basis for concluding someone is not a bona fide client when you identify fraud attempts. This documentation should include specific facts demonstrating the person never intended to seek actual legal services but only entered the engagement to defraud you.
Consider Whether Express Exceptions Apply First
Before relying on the implicit exception, evaluate whether one of the express exceptions in Rule 1.6(b) applies to your situation. Maintain familiarity with specific circumstances permitting disclosure without client consent, understanding their scope and limitations.
Practical Tip: Create a checklist based on the Rule 1.6(b) exceptions to systematically evaluate whether any apply before invoking the implicit exception. Document your analysis of why specific exceptions do or do not apply to your situation.
Understand the Scope of “Information Relating to Representation”
The protection of Rule 1.6 extends beyond attorney-client communications to include client identity and potentially any information that could lead to the discovery of protected information. The opinion emphasizes repeatedly that any disclosures must be limited to what is “reasonably necessary” for the permitted purpose.
Practical Tip: When contemplating disclosure of client information, analyze whether the information is “relating to the representation” under the broad interpretation of Rule 1.6. Avoid assuming that information is outside the scope of confidentiality simply because it seems peripheral to the legal advice provided.
Limit Disclosures to What Is “Reasonably Necessary”
The decision whether to report remains discretionary, requiring balanced consideration of personal safety, harmed parties’ interests, and professional principles. When invoking any exception, strictly adhere to the principle of disclosing only information reasonably necessary to achieve the permitted purpose, exercising judgment and erring toward caution.
Practical Tip: Before disclosing client information, identify specifically what information is truly necessary for the intended purpose. Draft written statements or prepare talking points when reporting crimes to ensure you don’t inadvertently disclose more than required. For instance, in a theft case, it might be necessary to disclose the client’s identity and the fact of theft, but not the substance of your legal consultation.
Properly Handle Withdrawal from Representation
The opinion acknowledges that after reporting a client’s crime, the attorney-client relationship will almost certainly need to end, requiring withdrawal under Rule 1.16. Anticipate that reporting a client’s crime will likely necessitate representation termination, requiring compliance with Rules 1.4 and 1.16 regarding client notification and withdrawal.
Practical Tip: Develop a protocol for managing client communications, case transitions, and court notifications when withdrawing after reporting client crimes. Ensure that withdrawal is handled in compliance with Rule 1.16, including obtaining tribunal permission where required and protecting client interests during the transition.
Maintain Limited Confidentiality Even After Disclosure
The opinion notes that even when disclosure is permitted under an exception, the information remains otherwise protected under Rule 1.6.
Practical Tip: Implement safeguards to ensure that information disclosed for permissible purposes (like reporting a crime) is not subsequently used or disclosed for other unauthorized purposes. Limit knowledge of the situation within your firm to those with a need to know, and remind those individuals of continuing confidentiality obligations.
VI. Conclusion
Formal Opinion 515 represents a practical approach to an ethical dilemma, balancing lawyers’ obligations to clients against their right to seek redress when they are victim of a crime. By recognizing an implicit exception to confidentiality rules, the Committee acknowledges that lawyers should not be uniquely vulnerable to client crimes due to their professional obligations.
The limited scope of the exception, however, reaffirms the fundamental importance of confidentiality in the attorney-client relationship. The opinion does not create a broad license to disclose client confidences whenever convenient. It specifically limits disclosures to what is “reasonably necessary” for pursuing redress for crimes directly against the lawyer or witnessed by the lawyer when committed against someone associated with or related to the lawyer.
For practitioners, understanding both the permissions and the limitations described in the opinion is essential to navigating these challenging situations ethically. For law firm management, the opinion highlights the importance of establishing protocols for responding to client misconduct, particularly when it threatens the safety or financial security of the firm, its partners, or its personnel. Firms should consider developing clear guidelines for when and how to report client crimes consistent with ethical obligations.
By recognizing this implicit exception, Formal Opinion 515 acknowledges the practical realities facing attorneys in these unfortunate situations while preserving the integrity of the confidentiality principle in all other contexts. This balanced approach serves both the legal profession’s core values and the individual attorney’s rights and responsibilities when confronted with client criminality directed at them or their associates.
Organizational Lawyers and the Organization/Constituent Divide: Five Takeaways from ABA Formal Opinion 514
The American Bar Association’s (ABA) Formal Opinion 514, issued on January 8, 2025, provides guidance on the ethical responsibilities of lawyers when advising organizational clients concerning future actions or conduct that may pose legal risks to the organization’s constituents, including employees, officers, or board members. The opinion emphasizes that while the organization is the lawyer’s client, the lawyer’s advice by necessity must be conveyed to the organization through duly authorized individual constituents who may have their own distinct legal interests. The fundamental challenge for the lawyer lies in ensuring these constituents understand the lawyer’s role – namely, that the advice is given solely in the organization’s interest and does not constitute personal legal counsel. The opinion emphasizes the importance of lawyers clearly defining their role as representatives of the organization to prevent misunderstandings that could lead to the organization’s constituents mistakenly relying on the lawyer’s advice in their personal capacities.
I. Challenges in the Lawyer’s Role in Organizational Representation
When representing an organization, lawyers necessarily must communicate through its constituents, such as employees, officers, or board members. This dynamic can lead to misunderstandings by the constituents regarding the lawyer’s role, especially when the organization’s decisions concerning future actions or conduct may have legal implications for the individuals.
For example, a constituent making representations on behalf of the organization to the government or a private party may face civil or even criminal liability if the representations are false or misleading. In many cases, the organization and the constituent have similar interests in avoiding misrepresentations. In some cases, however, the organization and constituent may have divergent interests regarding such representations, such as in situations where the organization may find taking a more aggressive approach in the interest of the organization, but the constituent may find that taking a more cautious approach and avoiding the potential personal consequences is in his or her personal interests. The divergence of interests may be driven in part by the availability of certain legal defenses, such as the advice-of-counsel defense, that may be available to the organization but unavailable to the individual constituent.
Formal Opinion 514 addresses this issue by highlighting the necessity for lawyers to clarify their role to avoid any misunderstandings. The opinion references several ABA Model Rules of Professional Conduct to outline the lawyer’s duties in such scenarios, including ABA Model Rules 1.1 (Competent Representation), 1.4 (Communication), 1.13 (Organization as Client), 2.1 (Candid Advice), 4.1 (Truthfulness to Others), and 4.3 (Dealing with Unrepresented Persons).
The opinion acknowledges that interactions between organizational lawyers and constituents can be complex and require the lawyer to exercise judgment, particularly when the lawyer’s advice to the organization may expose constituents to legal risks. For instance, if a lawyer advises an organization on a course of action that could result in legal liability for an employee executing that action, the employee might mistakenly believe the lawyer also represents their personal interests. Such misunderstandings can lead to unintended personal reliance by the constituent on the lawyer’s advice, potentially resulting in adverse consequences for the constituent and potential legal disputes down the line between the lawyer and the mistaken constituent.
To mitigate potential misunderstandings, Formal Opinion 514 recommends that lawyers proactively clarify their role to the organization’s constituents. This involves informing constituents that the lawyer represents the organization and not them individually. The opinion suggests that lawyers should provide this clarification “early and often” during their interactions with constituents, not solely when a conflict of interest arises. By doing so, lawyers can prevent constituents from mistakenly believing they can rely on the lawyer’s advice for personal legal matters.
II. Practical Tips for Practicing Attorneys
Based on the guidance from Formal Opinion 514, here are five takeaways for attorneys representing organizations
Clarify Your Role: Inform the organization and its constituents that you represent the organization, not the constituents individually. This clarification should be done early, not just when potential conflicts arise, and reiterated as necessary to prevent any misunderstandings. Develop a standard practice of explaining your role during initial interactions and subsequent meetings.
Identify Potential Legal Risks to Constituents: When advising the organization on proposed future actions or conduct, carefully assess and, when appropriate, communicate any potential legal risks these actions may pose to individual constituents, which will enable informed decision-making. This does not mean providing personal legal advice to the constituent but rather informing the organization through its decision-makers so that they understand the broader implications of their proposed future conduct or actions on the organization and constituents. As discussed further in the opinion, the question of whether the lawyer is obligated to identify the risks to constituents is a question of fact that varies depending on the circumstances.
Use Clear Disclaimers: When communicating with constituents of the organization concerning the legal implications of future contemplated organizational actions, provide disclaimers that clarify your role and inform them, where necessary, to seek independent legal counsel for personal matters, especially when their interests may not align with those of the organization. Such disclaimers may include that the lawyer represents only the organization, that constituents may have personal legal risks, that the advice is given solely from the organization, and that individual constituents may wish to seek independent counsel if concerned about personal legal issues.
Document Communications: Maintain thorough records of communications with both the organization and its constituents relating to your efforts to avoid misunderstandings in order to protect against potential present and future disputes regarding your role. These documentation practices can serve as crucial evidence of your scope of representation if questions arise later.
Seek Guidance When Uncertain: If you encounter complex situations where the distinction between organizational and individual representation becomes blurred, seek guidance from your firm’s ethics or general counsel or outside counsel.
Conclusion
Formal Opinion 514 serves as a crucial reminder for lawyers representing organizations to diligently clarify their role to the organization’s constituents. It provides a framework for organizational lawyers to navigate the complex ethical terrain of representing an organization while interacting with its constituents. The key is maintaining transparency, proactively managing expectations, and consistently reinforcing the boundaries of legal representation. By implementing these practical strategies and implementing proactive measures to prevent misunderstandings, attorneys can fulfill their professional obligations, protect their clients’ interests, and maintain the highest standards of ethical practice.
Illinois Supreme Court Approves Three Significant Proposals For Practicing Law In Illinois
Today, the Illinois Supreme Court announced the approval of “3 Proposals Impacting the Practice of Law in Illinois.” These are positive developments for Illinois lawyers and those needing legal assistance in Illinois, helping to bridge some gaps between the law and technology, and furthering the goal of addressing unmet legal needs in Illinois.
The approved proposals include: 1) Regulation of Intermediary Connecting Services (ICS), 2) New Supreme Court Rule 300, and 3) MCLE for Pro Bono Pilot Project.
As to the first proposal, according to the Court, ICS entities are “organizations which connect lawyers to clients, typically through the internet” and “have the potential to help address unmet legal needs by making it easier for consumers to find a lawyer.” However, as the existing Illinois rules did not clearly contemplate such arrangements, there was some uncertainty as to whether attorneys should participate. This proposal will amend Rules of Professional Conduct 1.6 and 7.2 to define ICS and permit attorney participation, assuming certain conditions, including the exercise of due diligence, are met.
The second proposal addresses the New Supreme Court Rule 300 Governing Attorney’s Fee Petitions and encourages alternative fee agreements beyond the standard billable hour, by clearly establishing that such alternative fee agreements may be the basis for recovery of attorneys’ fees. The change is intended to increase access to affordable legal services, providing consistency in the consideration of attorneys’ fee petitions.
Finally, the third proposal, the MCLE Pro Bono Pilot Project, adds a temporary category of Nontraditional Courses or Activities eligible for Continuing Legal Education credits pursuant to Illinois Supreme Court Rule 795(d)(14), for participation in Illinois Free Legal Answers, which is a “virtual, internet-based legal advice clinic administered by the Public Interest Law Initiative (PILI).” Attorneys participating in this program may earn one hour of MCLE credit for every two hours of pro bono work for Illinois Free Legal Answers, qualifying for up to five credits per two-year reporting period. This will be a two-year pilot program, and it will be monitored by PILI and the Supreme Court’s Executive Committee to see whether CLE credit will increase attorneys’ voluntary participation in such pro bono services, with a goal of broadening initiatives to help those in need.
You may read more about these proposals, which will take effect on July 1, 2025, in the Supreme Court’s press release.