Proposed Opinions

Council Actions

At its meeting on July17, 2015, the State Bar Council withdrew 2014 Formal Ethics Opinion 5, Advising a Client About Social Media (adopted 7/25/14), and adopted the ethics opinions summarized below:

2014 Formal Ethics Opinion 5 (substitute opinion)
Advising a Civil Litigation Client about Social Media

Opinion rules a lawyer must advise a civil litigation client about the legal ramifications of the client’s postings on social media as necessary to represent the client competently. The lawyer may advise the client to remove postings on social media if the removal is done in compliance with the rules and law on preservation and spoliation of evidence.

2014 Formal Ethics Opinion 9
Use of Tester in an Investigation that Serves a Public Interest

Opinion rules that a private lawyer may supervise an investigation involving misrepresentation if done in pursuit of a public interest and certain conditions are satisfied.

2015 Formal Ethics Opinion 4
Disclosing Potential Malpractice to a Client

Opinion analyzes a lawyer’s professional responsibilities when she discovers that she made an error that may adversely impact the client’s case.

Ethics Committee Actions
At its meeting on July 16, 2015, the Ethics Committee withdrew proposed 2014 FEO 11, Notice to Parents Prior to Seeking Nonsecure Custody Order, in light of recently adopted legislation that resolves the issue of professional responsibility raised in the proposed opinion. No substitute proposed opinion will be issued. The committee voted to ask a subcommittee to continue to study proposed 2014 FEO 1, Protecting Confidential Client Information When Mentoring. The committee also voted to publish four new proposed opinions.

The comments of readers on the proposed opinions are welcomed. Comments received before October 22, 2015, will be considered at the next meeting of the Ethics Committee. Comments may be emailed to ethicsadvice@ ncbar.gov.

Proposed 2015 Formal Ethics Opinion 5
Authority to Discuss Former Client’s Appellate Case with Successor Lawyer
July 16, 2015

Proposed opinion provides that in post-conviction or appellate proceedings, a discharged lawyer may discuss a former client’s case and turn over the former client’s file to successor counsel if the former client consents or the disclosure is impliedly authorized.

NOTE: As a general rule, lawyers representing a client in the pre-conviction stages of a case have more personal contact and receive confidential information that is not relevant to or shared with post-conviction lawyers. While the Rules of Professional Conduct are the same for each, the application of the relevant rules must be guided by the unique relationship that both the pre-conviction and the post-conviction lawyer have with the client. As a result, this opinion only applies to the situation where this issue arises between a discharged appellate lawyer and the subsequent appellate lawyer.

Inquiry:

Lawyer A is appointed to represent a criminal defendant in an appellate matter. Subsequently, Lawyer A withdraws from the representation of the client and Lawyer B is appointed successor appellate counsel.

Must Lawyer A obtain the former client’s consent prior to discussing the client’s case with Lawyer B or prior to turning over the former client’s file to Lawyer B?

Opinion:

No. Unless the former client specifically instructed Lawyer A not to discuss his case with Lawyer B or not to give his appellate file to Lawyer B, such actions are permissible without the former client’s express consent.

CPR 300 (1981), an ethics opinion adopted under that now superseded North Carolina Code of Professional Responsibility (in effect from 1973 to 1985), provides that a lawyer who withdraws from a client’s case may not discuss the client’s confidences and secrets with the client’s successor lawyer unless the client gives express consent. Although the Code has been superseded, the ethics opinions that were issued under the Code still provide guidance on issues of professional conduct except to the extent that a particular opinion is overruled by a subsequent opinion or by a provision of the current North Carolina Rules of Professional Conduct. See NC Rules of Prof’l Conduct, NC State Bar Lawyer’s Handbook (editor’s note) (2014).

CPR 300 analyzes a lawyer’s duty of confidentiality pursuant to the Code’s Disciplinary Rule 4-101, Preservation of Confidences and Secrets of a Client. DR 4-101(B)(1) provides that, with certain exceptions, a lawyer may not knowingly reveal “a confidence or secret of his client.” The duty to protect client confidences has been modified since the time of the Code and is currently embodied in Rule 1.6 of the Rules of Professional Conduct, Confidentiality of Information.

Rule 1.6(a) provides that a lawyer “shall not reveal information acquired during the professional relationship with a client unless the client gives informed consent, the disclosure is impliedly authorized in order to carry out the representation, or the disclosure is permitted by paragraph (b).” Thus, under the current confidentiality rule, a lawyer may disclose client information if the client consents or the disclosure is impliedly authorized. A disclosure is impliedly authorized if the disclosure is appropriate to carry out the representation and there are no client instructions or special circumstances that limit the lawyer’s authority. Rule 1.6 [cmt. 5].

Providing a client’s new appellate counsel with information about the client’s case, and turning over the client’s appellate file to the successor appellate counsel, is generally considered appropriate to protect the client’s interests in the appellate representation.

Proposed 2015 Formal Ethics Opinion 6
Lawyer’s Professional Responsibility When Third Party Steals Funds from Trust Account   
July 16, 2015

Proposed opinion rules that when funds are stolen from a lawyer’s trust account by a third party who is not employed or supervised by the lawyer, and the lawyer was managing the trust account in compliance with the Rules of Professional Conduct, the lawyer is not professionally responsible for replacing the funds stolen from the account.

NOTE: This opinion is limited to a lawyer’s professional responsibilities and is not intended to opine on a lawyer’s legal liability.

Inquiry #1:

John Doe, a third party unaffiliated with Lawyer, created counterfeit checks that were identical to Lawyer’s trust account checks. John Doe made the counterfeit checks, purportedly drawn on Lawyer’s trust account, payable to himself and presented the counterfeit checks for payment at Bank. Bank honored some of the counterfeit checks. As a consequence, client funds held by Lawyer in his trust account were utilized for an unauthorized purpose. Lawyer properly supervised all nonlawyer staff participating in the record keeping for the trust account. Lawyer also maintained the trust account records and reconciled the trust account as required by Rule 1.15-3. Lawyer had no knowledge of the fraud and had no opportunity to prevent the theft.

Does Lawyer have a professional responsibility to replace the stolen funds?

Opinion #1:

No.

A lawyer who receives funds that belong to a client assumes the responsibilities of a fiduciary to safeguard those funds and to preserve the identity of the funds by depositing them into a designated trust account. Rule 1.15-2, RPC 191, and 97 FEO 9. The responsibilities of a fiduciary include the duty to ensure that the funds of a particular client are used only to satisfy the obligations of that client. RPC 191 and 97 FEO 9. Rule 1.15-3 requires a lawyer to keep accurate records of the trust account and to reconcile the trust account. A lawyer has an obligation to ensure that any nonlawyer assistant with access to the trust account is aware of the lawyer’s professional obligations regarding entrusted funds and is properly supervised. Rule 5.3.

If Lawyer has managed the trust account in substantial compliance with the requirements of the Rules of Professional Conduct (see Rules 1.15-2, 1.15-3, and 5.3) but, nevertheless, is victimized by a third party theft, Lawyer is not required to replace the stolen funds. If, however, Lawyer failed to follow the Rules of Professional Conduct on trust accounting and supervision of staff, and the failure is a proximate cause of theft from the trust account, Lawyer may be professionally obligated to replace the stolen funds. Compare RPC 191 (if a lawyer disburses against provisionally credited funds, the lawyer is responsible for reimbursing the trust account for any losses caused by disbursing before the funds are irrevocably credited).

Under all circumstances, Lawyer must promptly investigate the matter and take steps to prevent further thefts of entrusted funds. Lawyer must seek out every available option to remedy the situation including researching the law to determine if Bank is liable;1 communicating with Bank to discuss Bank’s liability; asking Bank to determine if there is insurance to cover the loss; considering whether it is appropriate to close the trust account and transfer the funds to a new trust account; and working with law enforcement to recover the funds.

Inquiry #2:

Prior to learning of the fraud and theft from the trust account, Lawyer issued several trust account checks to clients and/or third parties for the benefit of a client. Despite the theft, there are sufficient total funds in the trust account to satisfy the outstanding checks. However, because of the theft, funds belonging to other clients will be used if the outstanding checks are cashed.

What is Lawyer’s duty to safeguard the remaining funds in the trust account?

Opinion #2:

Lawyer must take reasonable measures to ensure that funds belonging to one client are not used to satisfy obligations to another client. Such reasonable measures include, but are not limited to, requesting that Bank issue stop payments on outstanding trust account checks; providing Bank with a list of outstanding checks and requesting that Bank contact Lawyer before honoring any outstanding checks; and determining if Bank is liable and, if so, demanding the outstanding checks be covered by Bank. If Lawyer determines Bank is not liable or liability is unclear, Lawyer must maintain the status quo and prevent further loss by not issuing new trust account checks. If payment will be stopped on the outstanding checks, Lawyer must contact the payees and alert them to the problem.

Inquiry #3:

Assume the same facts in Inquiry #2 except there are insufficient funds in the trust account to satisfy the outstanding checks. Must Lawyer deposit funds into the trust account to ensure that the outstanding checks are not presented against an account with insufficient funds?

Opinion #3:

No. In addition to the remedial measures listed in Opinion #2, Lawyer should notify the payees if Lawyer knows that the checks will not clear.

Inquiry #4:

Hacker gains illegal access to Lawyer’s computer network and electronically transfers the balance of the funds in Lawyer’s trust account to a separate account that is controlled by Hacker. Lawyer’s trust account now has a zero balance. Lawyer has written several trust account checks to clients and/or third parties for the benefit of clients. Because of the theft, there are insufficient funds in the trust account to satisfy the outstanding checks.

Does Lawyer have a professional responsibility to replace the stolen funds?

Opinion #4:

No, Lawyer is not obligated to replace the stolen funds provided he has taken reasonable care to minimize the risks to client funds by implementing reasonable security measures in compliance with the requirements of Rule 1.15.

Rule 1.15 requires a lawyer to preserve client property, to deposit client funds entrusted to the lawyer in a separate trust account, and to manage that trust account according to strict recordkeeping and procedural requirements. To fulfill the fiduciary obligations in Rule 1.15, a lawyer managing a trust account must use reasonable care to minimize the risks to client funds on deposit in the trust account. 2011 FEO 7.

In 2011 FEO 7 the Ethics Committee opined that a lawyer has affirmative duties to educate himself regularly as to the security risks of online banking; to actively maintain end-user security at the law firm through safety practices such as strong password policies and procedures, the use of encryption and security software, and the hiring of an information technology consultant to advise the lawyer or firm employees; and to insure that all staff members who assist with the management of the trust account receive training on and abide by the security measures adopted by the firm.

If Lawyer has taken reasonable care to minimize the risks to client funds, Lawyer is not ethically obligated to replace the stolen funds. If, however, Lawyer failed to use reasonable care in following the Rules of Professional Conduct on trust accounting and supervision of staff, and the failure is a proximate cause of theft from the trust account, Lawyer may be professionally obligated to replace the stolen funds.

Inquiry #5:

Lawyer is retained to close a real estate transaction. Prior to the closing, Lawyer obtains information relevant to the closing, including the seller’s name and mailing address. Lawyer also receives into his trust account the funds necessary for the closing. Lawyer’s normal practice after the closing is to record the deed and disburse the funds. Lawyer then mails a trust account check to the seller in the amount of the seller proceeds.

Hacker gains access to information relating to the real estate transaction by hacking the email of one of the parties (lawyer, realtor, or seller). Hacker then creates a “spoof” email address that is similar to realtor’s or seller’s email address (only one letter is different). Hacker emails Lawyer with disbursement instructions directing Lawyer to wire funds to the account identified in the email instead of mailing a check to seller at the address included in Lawyer’s file as previously instructed. Lawyer follows the instructions in the email without first implementing security measures such as contacting the seller by phone at the phone number included in Lawyer’s file to confirm the wiring instructions. After the closing and disbursement, the true seller calls Lawyer and demands his funds. Lawyer goes to Bank to request reversal of the wire. Bank refuses to reverse the wire and will not cooperate or communicate with Lawyer without a subpoena.

While pursuing other legal remedies, does Lawyer have a professional responsibility to replace the stolen funds?

Opinion #5:

Yes. Lawyers must use reasonable care to prevent third parties from gaining access to client funds held in the trust account. As stated in Opinion #4, Lawyer has a duty to implement reasonable security measures. Lawyer did not verify the disbursement change by calling seller at the phone number listed in Lawyer’s file or confirming seller’s email address. These were reasonable security measures that, if implemented, could have prevented the theft. Lawyer is, therefore, professionally responsible and must replace the funds stolen by Hacker. If it is later determined that Bank is legally responsible, or insurance covers the stolen funds, Lawyer may be reimbursed.

Inquiry #6:

While pursuing the remedies described in Opinion #2, may Lawyer deposit his own funds into the trust account?

Opinion #6:

Yes.

Generally, no funds belonging to a lawyer shall be deposited in a trust account or fiduciary account of the lawyer. Rule 1.15-2(f). The exceptions to the rule permit the lawyer to deposit funds sufficient to open or maintain an account, pay any bank service charges, or pay any tax levied on the account. Id. The exceptions were expanded in 1997 FEO 9 to include the deposit of lawyer funds when a bank would not route credit card chargeback debits to the lawyer’s operating account. These exceptions to the prohibition on commingling enable lawyers to fulfill the fiduciary duty to safeguard entrusted funds.

Therefore, notwithstanding the prohibition on commingling, Lawyer may deposit his own funds into the trust account to replace the stolen funds until it is determined whether the Bank is liable for the loss, insurance is available to cover the loss, or the funds are otherwise recovered. If Lawyer decides to deposit his own funds, he must ensure that the trust accounting records accurately reflect the source of the funds, the reason for the deposit, the date of the deposit, and the client name(s) and matter(s) for which the funds were deposited.

Inquiry #7:

With regard to all of the situations described in this opinion, what duties does Lawyer owe to the clients whose funds were stolen?

Opinion #7:

Lawyer must notify the clients of the theft and advise the clients of the consequences for representation; help the clients to identify any source of funds, such as bank liability and insurance, to cover their losses; defer a client’s matter (by seeking a continuance, for example) if necessary to protect the client’s interest; and explain to third parties or opposing parties as necessary to protect the client’s interests. If stop payments are issued against outstanding checks, Lawyer must take the remedial measures outlined in Opinions #1 and #2 to protect the client’s interest. Finally, Lawyer must report the theft to the North Carolina State Bar’s Trust Accounting Compliance Counsel.

Endnote
1. See e.g. N.C. Gen. Stat. §25-4-406.

Proposed 2015 Formal Ethics Opinion 7        
Prior Business Relationships Permit In-Person Solicitation
July 16, 2015

Proposed opinion rules that the business relationships with health care professionals created by a lawyer previously employed as a health care consultant constitute prior professional relationships within the meaning of Rule 7.3(a) thus permitting the lawyer to directly solicit legal employment by in-person, live telephone, or real-time electronic contact with the health care professionals.

Inquiry:

Smith is a lawyer and also holds a graduate degree. Following her admission to the North Carolina bar, Smith worked as a health care consultant for a health care consulting firm. During her years as a consultant, she developed a number of professional relationships with health care professionals. Recently, Smith joined a law firm where she concentrates on health law. She now wishes to contact directly those health care professionals with whom she developed professional relationships when she was a health care consultant. Her purpose in doing so is to inform the health care professionals of her career change and her availability to provide legal services in health care related matters.

Rule 7.3(a) prohibits a lawyer from soliciting professional employment from a potential client for the lawyer’s pecuniary gain via “in-person, live telephone, or real-time electronic contact...” Among the exceptions to the rule, a lawyer is not prohibited from soliciting professional employment by direct contact if the person contacted “has a family, close personal, or prior professional relationship with the lawyer” [emphasis added].

Are Smith’s prior relationships with health care professionals “prior professional relationships” as that term is used in Rule 7.3(a), thereby allowing her to engage in in-person solicitation of the health care professionals?

Opinion:

Yes.

The purpose of the prohibition on in-person solicitation is to prevent undue influence, intimidation, and over-reaching by the lawyer. Comment [2] to Rule 7.3 provides:

There is a potential for abuse when a solicitation involves direct in-person, live telephone, or real-time electronic contact by a lawyer with someone known to need legal services....The situation is fraught with the possibility of undue influence, intimidation, and over-reaching.

The rule specifically exempts prior relationships because it is unlikely that a lawyer will engage in abusive practices when the lawyer has a family, close personal, or prior professional relationship with the person she is contacting. See Rule 7.3, cmt [5].

“Professional relationship” is not defined in the Rules of Professional Conduct. However, the Ethics Committee previously opined that a lawyer, who is also a certified public accountant working for an accounting firm, may call or visit a prospective client to solicit legal business if the lawyer established a “prior professional relationship” with the individual as a client of the accounting firm. See 2000 FEO 9. This indicates that the phrase “prior professional relationship” as used in Rule 7.3(a) is not limited to prior client-lawyer relationships, but includes business relationships such as client-accountant relationships. Therefore, the business relationships Smith developed while working as a health care consultant constitute “prior professional relationships” within the meaning of Rule 7.3(a), and Smith may directly contact these individuals to solicit legal employment.

Proposed 2015 Formal Ethics Opinion 8
Representing One Spouse on Domestic and Estate Matters after Representing Both Spouses Jointly
July 16, 2015

Proposed opinion considers when a lawyer, who previously represented a husband and wife jointly, may represent one spouse in subsequent estate and domestic matters.

Inquiry #1:

Over many years, Lawyer represented Husband and Wife1 jointly on various matters including the preparation of reciprocal wills, closing on the purchase of the marital home, and creation of a corporation for a family-owned business. Lawyer does not currently represent Husband and Wife on any matter.

Husband and Wife are having marital difficulties and have separated. Husband would like Lawyer to provide certain legal services to Husband individually.

Husband would like Lawyer to represent him in the domestic matter. The marital home and the corporate assets are subject to equitable distribution.

May Lawyer represent Husband in the domestic matter against Wife?

Opinion #1:

Yes.

Rule 1.9(a) provides that a lawyer who has formerly represented a client in a matter is prohibited from representing another person in the same or a substantially related matter in which that person’s interests are materially adverse to the interests of the former client unless the former client gives informed consent. Under this former client conflict rule, there are two questions that must both be answered affirmatively to conclude there is a conflict of interest: (1) is the current legal matter the same or substantially related to the former legal matter(s) upon which the former client was represented, and (2) are the current client’s interests materially adverse to the interests of the former client.

In the current inquiry, the answer to the second question is clearly “yes”: Husband’s and Wife’s interests in the domestic matter are materially adverse.

However, the answer to the first question—whether the domestic matter is the same or substantially related to the prior joint representations of Husband and Wife—is not so clear. Although the current domestic matter is not the same matter as any of the prior representations handled by Lawyer for Husband or Wife jointly, it must still be determined whether the domestic matter is “substantially related” to any of the prior representations.

Comment [3] to Rule 1.9 states that matters are substantially related “if they involve the same transaction or legal dispute or if there otherwise is a substantial risk that information as would normally have been obtained in the prior representation would materially advance the client's position in the subsequent matter.” To analyze “substantial relationship,” therefore, the nature of the transaction or legal dispute and the risk of misuse of the confidential information of a former client must both be examined.

There is a presumption in joint or common representation that there is no confidentiality as between the commonly represented clients. In the section entitled “Special Considerations in Common Representation” in the comment to Rule 1.7, Conflict of Interest: Current Clients, comment [31] explains:

The lawyer should, at the outset of the common representation and as part of the process of obtaining each client's informed consent, advise each client that information will be shared and that the lawyer will have to withdraw if one client decides that some matter material to the representation should be kept from the other.

Unless, during the joint representations of Husband and Wife, Lawyer received information from Wife that he was specifically instructed by Wife not to share with Husband, and that information would materially advance Husband’s position in the domestic matter, there is no risk of misuse of confidential information of Wife in the present representation because the information received by Lawyer during the joint representations was shared. In light of the legal matters involved in the joint representations (wills, real estate closing, creation of closely held corporation), it is unlikely that Lawyer received any confidential information from Wife individually that she instructed him not to share with Husband and that would materially advance Husband’s position in the domestic matter; however, Lawyer must analyze this question based upon his specific experience during the joint representations.

Assuming that the question of the misuse of confidential information is answered in the negative, the remaining question is whether the current domestic matter involves the same transaction or legal dispute in issue in any of the prior joint representations.

The federal court in Plant Genetic Sys., N.V. v. Ciba Seeds, 933 F. Supp. 514, 518 (M.D.N.C. 1996), when applying the North Carolina Rules of Professional Conduct, held that the “substantially related test” requires a “virtual congruence of issues,” and the relationship between the issues in the prior representation must be “patently clear.” In the context of a motion to disqualify, the court found that “substantially related” has been interpreted to mean “identical” or “essentially the same.” Id. The Ethics Committee applies the same analysis here.

The domestic matter is not “identical” or “essentially the same” as any of the prior matters upon which Lawyer jointly represented Husband and Wife. Therefore, Lawyer may represent Husband in the domestic matter against Wife.

In RPC 32 (1989) the Ethics Committee ruled that a lawyer who had jointly represented a husband and wife on a number of family matters, including will preparation and real estate closings, had a conflict of interest in representing the husband against the wife in a domestic action involving alimony and equitable distribution because the lawyer had previously represented the husband and wife on matters relevant to the spouses' financial circumstances and “[the lawyer] will necessarily have received confidential information relevant to the pending proceedings.” To the extent that the holding in this opinion conflicts with the holding in RPC 32, RPC 32 is overruled.

Inquiry #2:

May Lawyer prepare a new will for Husband?

Opinion #2:

Yes, if there is a separation agreement between Husband and Wife waiving claims against each other’s estates.

As noted in Opinion #1, Rule 1.9(a) prohibits a lawyer who has represented a client in a matter from representing another client in the same or a substantially related matter in which the new client's interests are materially adverse to those of the former client unless the former client consents. Lawyer’s prior representation of Husband and Wife on the preparation of reciprocal wills constitutes the same matter as the preparation of a new will for Husband. However, once the couple has executed an agreement to waive their claims against each other’s estates, the element of material adversity required for disqualification under Rule 1.9 is no longer present.

Inquiry #3:

Assume that in addition to the joint representation of Husband and Wife during the marriage, Lawyer also represented Wife individually on a criminal matter and as executrix of her mother’s estate. The couple is seeking to divorce.

May Lawyer prepare a new will for Husband?

Opinion #3:

See Opinion #2.

Inquiry #4:

Assume the same facts as in Inquiry #3. May Lawyer represent Husband in the domestic matter against Wife?

Opinion #4:

Although the criminal law and estate administration matters are not the same or substantially related to the current domestic matter, regardless of the relationship between the legal matters, Rule 1.9(c) prohibits a lawyer from using a former client's confidential information to the disadvantage of the former client unless the information has become generally known. Therefore, if, during Wife’s individual representation, Lawyer received any confidential information that could be used to the disadvantage of Wife in the domestic case, Lawyer is prohibited from representing Husband unless the information has become “generally known.”

Comment [8] to Rule 1.9 provides that, “the fact that a lawyer has once served a client does not preclude the lawyer from using generally known information about that client when later representing another client...If the information is known or readily available to a relevant sector of the public, such as the parties involved in the matter, then the information is probably considered ‘generally known.’"

Lawyer will have to consider the information he received during Wife’s individual representation. If Lawyer obtained confidential information from Wife that is relevant to the domestic matter and is not generally known, then Lawyer has a conflict and Wife’s informed consent to the representation of Husband, confirmed in writing, is required.

Endnote
1. This opinion applies to all domestic partner relationships.

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