Rules, Procedure, Comments
All opinions of the Ethics Committee are predicated upon the North Carolina Rules of Professional Conduct. Any interested person or group may submit a written comment – including comments in support of or against the proposed opinion – or request to be heard concerning a proposed opinion. The Ethics Committee welcomes and encourages the submission of comments, and all comments are considered by the committee at the next quarterly meeting. Any comment or request should be directed to the Ethics Committee at email@example.com no later than June 25, 2021.
At its meeting on April 16, 2021, the State Bar Council adopted the ethics opinion summarized below:
2021 Formal Ethics Opinion 1
Contemporaneous Residential Real Estate Closings
Opinion addresses conflicts of interest, communication, funding issues, and accountings in contemporaneous closings for residential real property.
At its April 15, 2021 meeting, the Ethics Committee received reports and recommendations from two subcommittees studying proposed rule amendments: one studying the adoption of anti-discrimination language in the Preamble of the Rules of Professional Conduct, and the other studying the adoption of language in the comment for Rule 1.1 (Competency) recognizing a lawyer’s responsibility to be aware of how implicit bias and cultural differences can impact the representation of a client. After discussion, the Ethics Committee voted to recommend the publication of the proposed amendments to the Preamble and the comment to Rule 1.1. The proposed amendments are published for comment in this edition of the Journal.
In addition to the proposed rule amendments, the Ethics Committee considered a total of 11 ethics inquiries, including the opinion adopted by the council referenced above. Six inquiries were sent or returned to subcommittee for further study, including inquiries addressing a lawyer’s professional responsibility when asked by a client to take possession of evidence constituting contraband, the confidentiality of information contained in the public record, and a lawyer’s professional responsibility in utilizing machine learning/artificial intelligence in a law practice. Lastly, the committee approved the publication of four proposed opinions which appear below.
Proposed 2019 Formal Ethics Opinion 4
Communications with Judicial Officials
April 15, 2021
Proposed opinion discusses the permissibility of various types of communications between lawyers and judges.
Note: In connection with the adoption by the council of the opinion below on [date to be determined], the following prior ethics opinions were withdrawn: RPC 237, 97 FEO 3, 97 FEO 5, 98 FEO 12, 98 FEO 13, 2001 FEO 15, 2003 FEO 17.
The Ethics Committee has issued a number of opinions interpreting and applying the Rules of Professional Conduct to various lawyer-judge communications. See RPC 237, 97 FEO 3, 97 FEO 5, 98 FEO 12, 98 FEO 13, 2001 FEO 15, 2003 FEO 17. However, these opinions—spanning 30 years—were based upon different iterations of the Rules of Professional Conduct. This opinion addresses and clarifies a lawyer’s responsibilities under the current Rules of Professional Conduct in communicating with a member of the judiciary while acting in a representative capacity. As a result, upon adoption of the present opinion, the State Bar Council withdrew the aforementioned opinions.
Additionally, this opinion addresses a lawyer’s professional responsibility in communicating with a member of the judiciary during the course of litigation where the opposing party is represented by counsel. While this scenario is common, it is very possible that a lawyer may need to communicate with a member of the judiciary during the course of litigation where the opposing party is self-represented. A lawyer’s professional responsibility to avoid improper communications with the tribunal applies equally to situations where the opposing party is represented and where the opposing party is pro se. To preserve the integrity of and instill confidence in the justice system, a lawyer should take great care to ensure his or her conduct in communicating with a tribunal is compatible with the Rules of Professional Conduct, particularly when dealing with an unrepresented party.
Lawyers communicate with judges on a daily basis. Communicating with members of the judiciary is required for the effective representation of clients and the administration of justice. Lawyers’ communications with judges generally fall into one of three categories: 1) clearly permissible communications, e.g., formal pleadings and arguments during public proceedings and other communications authorized by law or court order; 2) clearly prohibited communications, e.g., spontaneous, in-person ex parte communications about the merits of a case; and 3) informal communications (e.g., email communications about scheduling dilemmas). This opinion primarily addresses informal communications.
Communication between lawyers and the courts by way of formal filings are the backbone of an effective justice system. The submission to a tribunal of formal written communications, such as pleadings and motions, pursuant to the tribunal’s rules of procedure does not create the appearance of granting undue advantage to one party. Presuming the filings comply with the Rules of Civil Procedure, the local rules, and any other requirements imposed by law or court order, such communication is entirely permitted under the Rules of Professional Conduct.
The Rules of Professional Conduct impose some limits on lawyers’ communications with judges. These limits are designed to ensure fair and equal access to the presiding tribunal by the parties and their representative counsel. To this end, Rule 3.5(a)(3) prohibits a lawyer from communicating ex parte with a judge or other official unless authorized to do so by law or court order. Rule 3.5(d) defines “ex parte communication” as “a communication on behalf of a party to a matter pending before a tribunal that occurs in the absence of an opposing party, without notice to that party, and outside the record.”
The following are some common scenarios involving informal communications with judges.
Lawyer A represents Wife in a domestic case against Husband, who is represented by Lawyer B. Lawyer A’s young child is sick, requiring Lawyer A to stay home to care for his child for the rest of the week. Lawyer A is scheduled to appear in court for a hearing in Wife and Husband’s domestic case tomorrow, but can no longer attend the hearing due to childcare issues. May Lawyer A inform the court of his inability to attend court and informally request that the hearing be continued by email or text message to the judge presiding in the domestic case, without copying Lawyer B?
No. The definition of ex parte communications encompasses all communications concerning a matter that is pending before a tribunal, including scheduling issues. Rule 3.5(d). The Rules of Professional Conduct do not exempt scheduling matters from the prohibition on ex parte communications. Accordingly, although ex parte communications concerning scheduling matters are often limited and innocent in nature, they are prohibited unless authorized by law or court order. In this instance, Lawyer A’s communication is sent a) on behalf of himself and his client, b) concerning a matter pending before the tribunal (the domestic proceeding), c) outside of the record, d) without notice to the opposing counsel, and e) in the absence of opposing counsel. Accordingly, Lawyer A’s communication is an ex parte communication with the court, and thus prohibited unless authorized by law or court order. See Rules 3.5(a)(3) and (d).
Same scenario as Inquiry #1. Does Lawyer A cure the ex parte nature of his communication by sending an email or text message to all judges in his district concerning his inability to attend court that week and requesting all hearings for which he is responsible during the week be continued, without copying Lawyer B or any other opposing counsel or party?
No. If Lawyer A has a matter pending and the communication is sent to the judge presiding in that matter, amongst other judges, the communication remains ex parte and is prohibited. See Opinion #1. If Lawyer A has multiple cases pending, the single, generic communication described in this inquiry may constitute multiple instances of prohibited ex parte communication.
Same scenario as Inquiry #1. May Lawyer A inform the court of his inability to attend the day’s hearing and informally request that the hearing be continued via email or text message to the presiding judge, with Lawyer B copied on the email or text message?
Yes, provided the communication is not prohibited by law, local rules, or the presiding judge, and does not address the merits of the underlying case (see Opinion #4, below). Pursuant to Rule 3.5(d), a communication by a lawyer to a judge is a prohibited ex parte communication if made “in the absence of an opposing party” (or in the absence of opposing counsel). A communication to a judge that is simultaneously provided to the opposing party/counsel is not made “in the absence of an opposing party” and therefore is not an “ex parte communication” as defined in Rule 3.5. This is true of both hard copy communications and electronic communications, including text messaging and emails.
Lawyers are encouraged to remember that simultaneous provision of a communication does not necessarily result in simultaneous receipt of that communication. When possible and appropriate, a lawyer should provide reasonable advance notice to opposing counsel of the need and intention to communicate with the presiding judge about the subject of the communication.
However, even a communication that is not a prohibited ex parte communication may nevertheless be prohibited by law or court order, including local rules or administrative orders entered by the tribunal. A presiding judge or the rules of a tribunal may also provide guidance and/or instruction to lawyers concerning such communications, as the Rules of Professional Conduct are not meant to disable or abridge “the inherent powers of the court to deal with its attorneys.” N.C. Gen. Stat. § 84-36. Lawyers are advised to review all relevant laws and court orders, including local rules, prior to engaging in such communication.
Same scenario as Inquiry #1. May Lawyer A communicate his inability to attend the hearing and informally request a continuance via email or text message to the presiding judge, with Lawyer B copied on the email or text message, if the email or text message contains additional argument from Lawyer A on the matter to be heard by the court in the upcoming proceeding?
No. Even though such a communication may not be a prohibited ex parte communication, it is still improper. Unsolicited communications addressing the merits of the underlying matter made outside the ordinary or approved course of communication with the court are prejudicial to the administration of justice in violation of Rule 8.4(d). As noted above, the purpose of the prohibition on ex parte communications is to ensure fair and equal access to the presiding tribunal by parties and their counsel. Allowing one party unfettered access to make off-the-record arguments to the presiding judge via electronic communication undermines the principle of fair and equal access to the presiding judge. See Rule 3.5 cmt.  (“All litigants and lawyers should have access to tribunals on an equal basis. Generally, in adversary proceedings, a lawyer should not communicate with a judge relative to a matter pending before, or which is to be brought before, a tribunal over which the judge presides in circumstances which might have the effect or give the appearance of granting undue advantage to one party.”). It is also antithetical to the notion that cases are tried in a public forum rather than in private discussions behind closed doors. Providing notice and copying the opposing party/counsel on such a communication does not remedy these problems. Unless the communication is authorized by law or court order, or unless the communication is solicited by the presiding judge, informal communications that address the merits of the case are improper and constitute misconduct under Rule 8.4(d).
Judge has instructed Lawyers A and B to send trial briefs concerning a pending motion to the judge via email, with a copy to opposing counsel. May Lawyers A and B submit substantive argument on the merits of a pending matter via email as the court has requested?
Yes. If the presiding judge has instructed counsel to communicate directly with the court, the communication is not a prohibited ex parte communication under Rule 3.5 and is not prejudicial to the administration of justice under Rule 8.4(d) even if the requested communication will be on the merits of a pending matter. This conclusion applies to any appropriate request from a judge to all counsel for communication, including trial briefs and proposed orders. Again, the Rules of Professional Conduct are not meant to disable or abridge “the inherent powers of the court to deal with its attorneys.” N.C. Gen. Stat. § 84-36. The presiding judge has the authority to determine how counsel are to communicate with the court; except as prohibited by law or court rule, such communications are within the discretion and preference of the tribunal and the presiding official.
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Proposed 2020 Formal Ethics Opinion1
Responding to Negative Online Reviews
April 15, 2021
Proposed opinion rules that a lawyer is not permitted to include confidential information in a response to a client’s negative online review but is not barred from responding in a professional and restrained manner.
Lawyer’s former client posted a negative review of Lawyer’s representation on a consumer rating website. Lawyer does not have the ability to edit or remove reviews posted on the consumer rating website. Lawyer believes that the former client’s comments are false. Lawyer believes that certain information in Lawyer’s possession about the representation would rebut the negative allegations. The information in question constitutes confidential information as defined by Rule 1.6(a).
In what manner may Lawyer publicly respond to the former client’s negative online review?
In response to the former client’s negative online review, Lawyer may post a professional and restrained response that does not reveal any confidential information. Lawyer may deny the veracity of the review, but lawyer may not use confidential client information to contradict specific facts set out therein. Online reviews are written by current or past clients and posted publicly. Typically, reviews will include a comment from the client regarding the lawyer’s services as well as some type of “rating.” Once the review is posted, it is visible to the public. Online reviews are today’s personal recommendations. Many potential clients will read—and rely on—online reviews as the first step to finding a lawyer.
Because online reviews are so important to a lawyer’s practice, online reputation management is crucial. Therefore, it may be in the lawyer’s best interest to respond to a negative review. Nevertheless, the protection of client confidences is one of the most significant responsibilities imposed on a lawyer. Rule 1.6(a) of the Rules of Professional Conduct provides that a lawyer may not reveal information acquired during the professional relationship with a client unless (1) the disclosure is impliedly authorized in order to carry out the representation; (2) the client gives informed consent; or (3) one of the exceptions set out in Rule 1.6(b) applies. Rule 1.6(a) applies to all information acquired during the representation. Under Rule 1.9(c), a lawyer is generally prohibited from using or revealing confidential information of a former client. Responding to a negative online review is not necessary to “carry out the representation.” Therefore, Lawyer may not reveal confidential information in response to the negative online review unless the former client consents or an exception set out in Rule 1.6(b) applies. See 2018 FEO 1 (lawyers are cautioned to avoid disclosing confidential client information when responding to a negative review).
No exception in Rule 1.6(b) allows Lawyer to reveal confidential information in response to a former client’s negative review. The only exception potentially applicable to the facts presented is the “self-defense exception” set out in Rule 1.6(b)(6). Rule 1.6(b)(6) recognizes three circumstances in which the self-defense exception to the lawyer’s general duty of non-disclosure may apply: (1) in a controversy between the lawyer and client; (2) when a criminal charge or civil claim has been asserted against the lawyer based upon conduct in which the client was involved; or (3) in any proceeding concerning the lawyer’s representation of the client. Comment  to Rule 1.6 provides guidance as to the application of the self-defense exception. Pursuant to comment :
Where a legal claim or disciplinary charge alleges complicity of the lawyer in a client’s conduct or other misconduct of the lawyer involving representation of the client, the lawyer may respond to the extent the lawyer reasonably believes necessary to establish a defense. The same is true with respect to a claim involving the conduct or representation of a former client. Such a charge can arise in a civil, criminal, disciplinary or other proceeding and can be based on a wrong allegedly committed by the lawyer against the client or on a wrong alleged by a third person, for example, a person claiming to have been defrauded by the lawyer and client acting together. The lawyer’s right to respond arises when an assertion of such complicity has been made. Paragraph (b)(6) does not require the lawyer to await the commencement of an action or proceeding that charges such complicity, so that the defense may be established by responding directly to a third party who has made such an assertion. The right to defend also applies, of course, where a proceeding has been commenced.
Rule 1.6, cmt.  (emphasis added). Because online criticism, standing alone, does not constitute a “criminal charge,” “civil claim,” or “proceeding,” the remaining question is whether a negative online review creates a “controversy” between the lawyer and client as to which the lawyer may disclose otherwise protected client-related information in order “to establish a claim or defense.”
Several jurisdictions conclude that a negative online review does not amount to a controversy that triggers the self-defense exception. In addition, the ABA Standing Committee on Ethics and Professional Responsibility concludes that, “alone, a negative online review, because of its informal nature, is not a ‘controversy between the lawyer and the client’ within the meaning of Rule 1.6(b)(5), and therefore does not allow disclosure of confidential information relating to a client’s matter.” ABA Formal Op. 496 (2021). We agree with the analyses set out in these ethics opinions. For example, the Pennsylvania Bar Association concludes that while there are certain circumstances that would allow a lawyer to reveal confidential client information, a negative online client review is not a circumstance that invokes the self-defense exception. The committee states:
A disagreement as to the quality of a lawyer’s services might qualify as a “controversy.” However, such a broad interpretation is problematic for two reasons. First, it would mean that any time a lawyer and a client disagree about the quality of the representation, the lawyer may publicly divulge confidential information. Second, [Comment ] makes clear that a lawyer’s disclosure of confidential information to “establish a claim or defense” only arises in the context of a civil, criminal, disciplinary or other proceeding.
Penn. Bar Ass’n Ethics Comm. Op. 2014-200. Likewise, the New York State Bar Association opines that, “the mere fact that a former client has posted critical commentary on a website is insufficient to permit a lawyer to respond to the commentary with disclosure of the former client’s confidential information. . . . Unflattering but less formal comments on the skills of lawyers, whether in hallway chatter, a newspaper account, or a website are an inevitable incident of the practice of a public profession.” New York State Bar Ass’n Comm. on Prof’l Ethics Op. 1032 (2014). The Professional Ethics Committee for the State Bar of Texas opines that the self-defense exception “cannot reasonably be interpreted to allow public disclosure of a former client’s confidences just because a former client has chosen to make negative comments about the lawyer on the internet.” Texas Center for Legal Ethics Op. 662 (2016). Similarly, the Nassau County Bar Association states that the exception does not apply to “informal complaints such as posting criticisms on the Internet.” Bar Ass’n of Nassau County Comm. on Prof’l Ethics Op. 2016-1. The Restatement of the Law Governing Lawyers similarly states that the self-defense exception to the duty of confidentiality is limited to “charges that imminently threaten the lawyer or the lawyer’s associate or agent with serious consequences, including criminal charges, claims of legal malpractice, and other civil actions such as suits to recover overpayment of fees, complaints in disciplinary proceedings, and the threat of disqualification[.]” Restatement (Third) of the Law Governing Lawyers § 64, cmt. c. (Am. Law Inst. 2000).
We note that comment  to Rule 1.6 provides that a lawyer does not have to “await the commencement” of an action or proceeding to rely on the self-defense exception. Nonetheless, we agree with the Pennsylvania Bar Association that there must be an action or proceeding in contemplation for the exception to apply. See Penn. Bar Ass’n Ethics Comm. Op. 2014-200. The Restatement explains that, in the absence of the filing of a charge, there must be “the manifestation of intent to initiate such proceedings by persons in an apparent position to do so, such as a prosecutor or aggrieved potential litigant.” The Restatement (Third) of the Law Governing Lawyers § 64. As noted in the Restatement:
Use or disclosure of confidential client information . . . is warranted only if and to the extent that the disclosing lawyer reasonably believes necessary. The concept of necessity precludes disclosure in responding to casual charges, such as comments not likely to be taken seriously by others. The disclosure is warranted only when it constitutes a proportionate and restrained response to the charges. The lawyer must believe that options short of use or disclosure have been exhausted or will be unavailing or that invoking them would substantially prejudice the lawyer’s position in the controversy.
Id. It is the “manifestation of intent” that makes the disclosure of confidential client information “reasonably necessary” under Rule 1.6(b)(6). The online posting of negative comments about a lawyer does not amount to the requisite “manifestation of intent” to initiate proceedings against the lawyer that would permit the lawyer to rely on the self-defense exception. Furthermore, as noted in ABA Formal Op. 496, “even if an online posting rose to the level of a controversy between lawyer and client, a public response is not reasonably necessary or contemplated by Rule 1.6(b) in order for the lawyer to establish a claim or defense on behalf of the lawyer in a controversy between the lawyer and the client.”
An individual who is not a current or former client, and has never consulted with Lawyer with respect to a particular matter, posts a negative review of Lawyer’s legal services on a consumer rating website. May Lawyer respond to the post by stating that he has never represented the individual?
Yes. The duty of confidentiality set out in Rule 1.6 only applies to information obtained during a lawyer-client relationship.
A potential client contacts lawyer for representation. Lawyer declines the representation—perhaps because he does not practice in the relevant area of law, he has a conflict, or he does not believe the case has merit. The potential client posts a negative review of Lawyer on a consumer rating website.
May Lawyer respond to the post by stating that he has never represented the individual?
Yes, unless the client is entitled to the protections set out in Rule 1.18 for prospective clients. Comment  to Rule 1.18 provides:
A person becomes a prospective client by consulting with a lawyer about the possibility of forming a client-lawyer relationship with respect to a matter. Whether communications, including written, oral, or electronic communications, constitute a consultation depends on the circumstances. For example, a consultation is likely to have occurred if a lawyer, either in person or through the lawyer’s advertising in any medium, specifically requests or invites the submission of information about a potential representation without clear and reasonably understandable warnings and cautionary statements that limit the lawyer’s obligations, and a person provides information in response. In such a situation, to avoid the creation of a duty to the person under this Rule, a lawyer has an affirmative obligation to warn the person that a communication with the lawyer will not create a client-lawyer relationship and information conveyed to the lawyer will not be confidential or privileged. See also Comment . In contrast, a consultation does not occur if a person provides information to a lawyer in response to advertising that merely describes the lawyer’s education, experience, areas of practice, and contact information, or provides legal information of general interest. Such a person is communicating information unilaterally to a lawyer, without any reasonable expectation that the lawyer is willing to discuss the possibility of forming a client-lawyer relationship, and is thus not a “prospective client.”
Pursuant to Rule 1.18(a), a person who consults with a lawyer with respect to a particular matter is a prospective client. Prospective clients are entitled to some of the protections afforded clients. Rule 1.18, cmt. . Specifically, Rule 1.18(b) prohibits a lawyer from using or revealing information obtained during a consultation with a prospective client—except as permitted by Rule 1.9—even if the lawyer decides not to proceed with the representation. Notably, the duty exists regardless of how brief the initial conference may be. Rule 1.18, cmt. .
Lawyer may not confirm or deny his representation of a prospective client. Lawyer may, however, state that it is not possible for him to accept every prospective client’s case. Lawyer may enumerate the various reasons that a prospective client’s case may be declined.
A relative or a friend of a former client posts a negative review of Lawyer’s representation of the former client on a consumer rating website.
Lawyer believes that the comments are false. Lawyer believes that certain information in Lawyer’s possession about the representation would rebut the negative allegations. The information in question constitutes confidential information as defined by Rule 1.6(a).
In what manner may Lawyer publicly respond to the comments?
Lawyer may respond that he never represented the relative or friend. See Inquiry #2. In addition, Lawyer may post a professional and restrained response to the negative review but may not disclose confidential client information obtained during the representation of the former client, unless the former client consents. See Inquiry #1.
Lawyer’s former client posted a negative review of Lawyer’s representation on a consumer rating website. Lawyer believes that the former client’s comments are false and libelous. May Lawyer sue his former client for defamation and disclose confidential client information to establish the claim?
Yes. If there is a basis in law and fact for a defamation suit against the former client, the Rules of Professional Conduct do not prohibit Lawyer from filing such a suit. Pursuant to Rule 1.6(b)(6), Lawyer may reveal information protected from disclosure by Rule 1.6(a) to the extent the lawyer reasonably believes necessary to establish the defamation claim.
May Lawyer include the following provision in his representation agreement?
A lawyer is generally prohibited from using or revealing confidential information of a former client. Client agrees that confidential information may nonetheless be revealed by Lawyer in the event Client publishes or causes the publication of a claim on the internet that Client’s representation by Lawyer was deficient in some respect, but only to the extent reasonably necessary to directly rebut such a claim.
No. Rule 1.6(a) provides that a lawyer may not reveal information acquired during the professional relationship with a client unless (1) the client gives informed consent; (2) the disclosure is impliedly authorized; or (3) one of the exceptions set out in Rule 1.6(b) applies. Pursuant to Rule 1.0(f), “informed consent” denotes the agreement by the client to a proposed course of conduct “after the lawyer has communicated adequate information and explanation appropriate to the circumstances.” The proposed representation agreement provision does not provide adequate information and explanation such that the client could give informed consent to the prospective disclosure of confidential client information in the hypothetical circumstance set out in the proposed provision.
May Lawyer give a client something of value in exchange for the client altering or removing a negative online review?
No. Lawyer may respond to a negative online review with a request that the former client contact the lawyer to discuss the former client’s concerns, but there can be no quid pro quo for a revised or withdrawn review. See 2018 FEO 7.
A lawyer may, however, attempt to resolve disputes with an unhappy client, including disputes over the value of legal services provided by a lawyer. See ABA Formal Op. 496. A lawyer may not condition the negotiation, or his willingness to offer a refund, on a client’s withdrawal of a posted negative online review. If a lawyer is able to resolve such a fee dispute, the lawyer may request that the client remove the negative online review, but the lawyer may not provide anything of value in exchange for the removal.
Nothing in this opinion should be construed to prohibit a lawyer from pursuing and/or resolving a legitimate legal claim against the author of a negative review, which may include removal of the review as a term for the ultimate resolution of the claim. For example, Lawyer may offer to dismiss or not pursue a legitimate claim for defamation against the author of a false, negative online review in exchange for removal of the review.
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Proposed 2021 Formal Ethics Opinion 2
A Lawyer’s Professional Responsibility in Identifying and Avoiding Counterfeit Checks
April 15, 2021
Proposed opinion discusses a lawyer’s professional responsibility to safeguard entrusted funds by identifying and avoiding purported transactions involving counterfeit checks.
Client contacted Lawyer seeking to collect debt from a third party. Client’s communication with Lawyer was unsolicited—Lawyer does not advertise for his practice, and Lawyer had not previously solicited Client’s business. Client provided Lawyer with documentation supporting Client’s claim. Lawyer made preliminary investigation and verified the existence and address of third party. Lawyer contracted with Client to file a lawsuit against third party for the amount owed to Client. A few days after Lawyer sent third party a letter introducing himself as Client’s representative, third party contacted Lawyer stating that he wished to pay the amount owed to Client without the need for litigation, and that third party would be back in touch to make payment arrangements. Without further communication with third party, Lawyer subsequently received a cashier’s check from third party drawn on an out-of-country bank. The cashier’s check was dated prior to third party’s earlier conversation with Lawyer, and third party did not mention the cashier’s check to Lawyer. Third party’s note also stated that he would pay the remainder of debt owed to Client within weeks. Lawyer did no further investigation of third party and did not investigate the authenticity of the foreign bank cashier’s check.
Did Lawyer violate the Rules of Professional Conduct by not investigating the authenticity of the foreign bank cashier’s check?
Yes. Lawyer violated his duties of competency and diligence in representing Client because the scenario described above raises a number of red flags that should alert a lawyer practicing today to the potential for fraud in both the representation and the receipt and disbursement of funds. Rules 1.1 and 1.3.
A lawyer’s duty of competency requires the lawyer to have the necessary “legal knowledge, skill, thoroughness, and preparation reasonably necessary for the representation.” Comment 8 to Rule 1.1 further states,
To maintain the requisite knowledge and skill, a lawyer should keep abreast of changes in the law and its practice, including the benefits and risks associated with the technology relevant to the lawyer’s practice, engage in continuing study and education, and comply with all continuing legal education requirements to which the lawyer is subject.
The fraud accomplished through the counterfeit check scam described in the present inquiry is, unfortunately, not a new problem for the legal community. State and federal agencies have alerted the public to the existence and persistence of these counterfeit check scams for some time. See, e.g., Counterfeit Check Scams, North Carolina Department of Justice, https://ncdoj.gov/ protecting-consumers/sweepstakes-and-prizes/counterfeit-check-scams/; How to Spot, Avoid and Report Fake Check Scams, Federal Trade Commission, https://www. consumer.ftc.gov/articles/how-spot-avoid-and-report-fake-check-scams. Similarly, state and national bar associations, lawyer regulatory bodies, and malpractice carriers have reported on and alerted lawyers to the reality that such scams often target members of the legal profession. See, e.g., Six Indicted in $32M Internet Collection Scam That Snagged 80 Lawyers, ABA Journal (Nov. 22, 2010), https://www.abajournal.com/news/article/ six_indicted_in_32m_internet_collection_ scam_that_snagged_80_lawyers/; Counterfeit Check Scams Continue to Target Law Firms, California Bar Journal (January 2012),https://www.calbarjournal.com/ January2012/TopHeadlines/TH6.aspx; New York City Bar Formal Ethics Opinion 2015-3, Lawyers Who Fall Victim to Internet Scams (April 22, 2015), https://www.nycbar.org/ member-and-career-services/committees /reports-listing/reports/detail/formal-opinion-2015-3-lawyers-who-fall-victim-to-internet-scams; Laura Loyek, Counterfeit Check Scams are Still Snaring Lawyers, Lawyers Mutual North Carolina (March 22, 2019), https://www.lawyersmutualnc.com /risk-management-resources/articles/counterfeit-check-scams-are-still-snaring-lawyers; Joanna Herzik, Scams Continue to Target Texas Attorneys, Texas Bar Blog (July 14, 2020), https://blog.texasbar.com/2020/07/ articles/law-firms-and-legal-departments /scams-continue-to-target-texas-attorneys/; E-Mail Scams and Lawyer Trust Accounts, Illinois Attorney Registration and Disciplinary Commission, https://www. iardc.org/information/alert.html. The North Carolina State Bar has also published a number of warnings to the legal profession in North Carolina about these scams. See, e.g., New Variation of Fake Check Scam Targets Law Practices, North Carolina State Bar (December 6, 2010), https://www.ncbar. gov/news-publications/news-notices/2010/ 12/fake-check-scam/; Bruno Demoli, Bruno’s Top Tips: Protect Yourself from Financial Con-Artists, North Carolina State Bar Journal (Fall 2011 pp. 34 & 37); Alert: Beware of Scams that Target NC Law Practices, North Carolina State Bar (January 8, 2016), /news-publications/ news-notices/2016/01/scams-targeting-nc-law-practices/. These publications describe the scenarios associated with the scams and identify the relevant warning signs to assist lawyers in detecting and avoiding such scams.
Lawyer’s mistaken reliance on the counterfeit check is unexcused. Given the breadth of notice provided to the legal profession on this common scam, Lawyer should have realized that the circumstances surrounding this purported representation required additional investigation. As noted above, Lawyer has a duty to represent his clients with competency and diligence. Rules 1.1 and 1.3. Lawyer’s duty of competency includes the need to “keep abreast of changes in the law and its practice[.]” Rule 1.1. For at least ten years, lawyers have been warned about being targets of scams such as the one at issue in this inquiry. Lawyer should have been alerted to the suspicious nature of this transaction based upon the circumstances in this scenario, including the unsolicited request for the representation; the willingness of the purported defendant to quickly resolve the dispute without much effort from Lawyer; the cashier’s check drawn on an out-of-country bank; and the cashier check being dated prior to Lawyer’s conversation with the purported defendant. Although one of these circumstances standing alone may not give cause for suspicion, the totality of the circumstances should have alerted Lawyer to the suspicious nature of the representation and the transaction. Lawyer’s failure to recognize the scam given the vast notice and information directed to lawyers on the topic demonstrated his lack of competency in violation of Rule 1.1. Furthermore, given the suspicious nature of the representation and transaction, Lawyer should have diligently investigated the legitimacy of the cashier’s check. Lawyer could have accomplished this by contacting the bank that issued the cashier’s check to confirm authenticity, or Lawyer could have informed Client of his concerns and waited to see that the cashier’s check was in fact honored and accepted by the issuing bank.
Lawyer deposited the cashier’s check into his firm’s trust account. Lawyer notified Client of Lawyer’s receipt of payment from third party. Client directed Lawyer to promptly deduct 20% of the cashier’s check for Lawyer’s fee and to disburse the rest of the money via two disbursements: one to an account in another state and the remainder to an account in a different country. The day after Lawyer deposited the cashier’s check into his trust account, Lawyer called his bank and was informed that the funds from the cashier’s check were available. Without clarifying what available means, Lawyer then proceeded to make the disbursements from his trust account per Client’s direction.
Subsequently, the foreign bank upon which third party’s cashier’s check was drawn became suspicious and determined that the cashier’s check was counterfeit. Lawyer was unable to recall and recover the trust account disbursements made to Client’s accounts. Lawyer then replenished the disbursed funds, including his fee, to his trust account using funds from his operating account. Lawyer reported the incident to the State Bar’s Trust Account Compliance Counsel, expressing remorse and stating that his reliance on the counterfeit cashier’s check was an unintentional mistake.
Did Lawyer violate the Rules of Professional Conduct by depositing the check into his trust account and making the disbursements as directed by Client from the trust account?
Yes. By disbursing funds from Lawyer’s trust account on Client’s behalf when Lawyer did not actually have funds belonging to Client in Lawyer’s trust account, Lawyer disbursed entrusted funds belonging to other clients in violation of Rules 1.15-2(a), (k), and (n). Safeguarding entrusted client funds is one of the most important professional responsibilities that a lawyer possesses. The Rules of Professional Conduct require lawyers to deposit and hold entrusted client funds in the lawyer’s general or dedicated trust account, and to only disburse those funds for the client’s benefit upon the client’s directive. Rules 1.15-2(a), (b), and (n). Rule 1.15-2(k) specifically prohibits a lawyer from using “any entrusted property to obtain credit or other personal benefit for . . . any person other than the legal or beneficial owner of that property.”
Although Lawyer believed he was disbursing Client’s funds from his trust account after depositing the purportedly valid cashier’s check, Lawyer actually disbursed funds belonging to his other clients because the cashier’s check was counterfeit and resulted in no actual deposit of funds belonging to Client into Lawyer’s trust account. Lawyer’s disbursement of other clients’ funds to Client and to himself occurred without his other clients’ permission. By disbursing his other clients’ funds from his trust account without their permission and for the benefit of someone other than the client, Lawyer misappropriated entrusted client funds in violation of Rules 1.15-2(a), (k), and (n).
RPC 191 references N.C. Gen. Stat. § 45A-4 (Good Funds Settlement Act) and rules that a lawyer may make disbursements from his or her trust account in reliance upon the deposit of funds provisionally credited to the account if the funds are deposited in the form of cash, wired funds, cashier’s check, or by specified instruments which, although they are not irrevocably credited to the account upon deposit, are generally regarded as reliable. However, a lawyer should never disburse against any provisionally credited funds unless he or she reasonably believes that the underlying deposited instrument is virtually certain to be honored when presented for collection. RPC 191. When reasonably identifiable suspicious circumstances are present surrounding the receipt and disbursement of funds, a lawyer should not disburse on provisional credit—even if statutorily authorized to do so—until the lawyer satisfies him or herself that the instrument is authentic and the transaction is legitimate. Lawyer’s failure to do so in this situation not only unnecessarily put other clients’ funds at risk, but also resulted in actual harm to his clients through the misappropriation of his clients’ funds.
Does Lawyer have a duty to replace the funds that were improperly disbursed as a result of the counterfeit check scam?
Yes. Under these circumstances, Lawyer failed to follow the Rules of Professional Conduct with regards to competency, diligence, and safekeeping of funds. See Opinion #1. Because Lawyer’s failure to follow the Rules of Professional Conduct is a proximate cause of the loss of entrusted client funds, Lawyer is professionally obligated to replace the misappropriated funds. See 2015 FEO 6.
Does Lawyer have a duty to report to the State Bar’s Trust Account Compliance Counsel the misappropriation of funds from Lawyer’s trust account resulting from the deposit and disbursement of the fraudulent cashier’s check?
Yes. Rule 1.15-2(p) states that, “[a] lawyer who discovers or reasonably believes that entrusted property has been misappropriated or misapplied shall promptly inform the Trust Account Compliance Counsel (TACC) in the North Carolina State Bar Office of Counsel.” Even if Lawyer promptly replenished the funds disbursed after learning the cashier’s check was counterfeit, a misappropriation of funds belonging to other clients occurred that requires reporting to the State Bar under Rule 1.15-2(p).
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Proposed 2021 Formal Ethics Opinion 3
Charging Fees to Opposing Party in Residential Real Estate Closing
April 15, 2021
Proposed opinion rules that a closing lawyer representing the buyer in a residential real estate transaction may not charge a fee to a separately represented opposing party unless the party consents to the fee and the lawyer complies with Rules 1.5(a) and 1.8(f).
Buyer retained Lawyer A to represent Buyer in a residential real estate transaction. Seller declined to be represented by Lawyer A and retained separate counsel for the transaction, Lawyer B. Leading up to the closing, rather than using her standard documents for the transaction, Lawyer A received documents prepared by Lawyer B to be used at closing, which differed substantially from the documents Lawyer A planned to use at closing. As a result, Lawyer A was required to review Lawyer B’s work and make changes to the proposed documents for the benefit of her client, Buyer. At closing, Lawyer A charged a $100 fee to Seller for the work Lawyer A completed in reviewing and responding to Lawyer B’s proposed documents. Lawyer B and Seller objected to the fee charged by Lawyer A to Seller.
May Lawyer A charge a fee to Seller for the work completed in reviewing and responding to Lawyer B’s proposed documents?
No, unless a) Seller agrees to pay the fee, b) Buyer consents to Seller’s payment of Lawyer A’s fee, and c) the fee charged is not illegal or clearly excessive.
Rule 1.8(f) prohibits a lawyer from receiving compensation for representing a client from a person other than the client unless these three requirements are met: “(1) the client gives informed consent; (2) there is no interference with the lawyer’s independence of professional judgment or with the client-lawyer relationship; and (3) information relating to the representation of a client is protected as required by Rule 1.6.” Additionally, Rule 1.5(a) states that “[a] lawyer shall not make an agreement for, charge, or collect an illegal or clearly excessive fee[.]”
Lawyer A has been retained by Buyer to represent Buyer (and presumably Buyer’s lender, if applicable) in the acquisition of real property from Seller. Although representation of multiple parties to a real property transaction is possible without violating Rule 1.7’s prohibition on engaging in a concurrent conflict of interest during a representation (see, e.g., CPR 100, RPC 210, 2006 FEO 3, and 2013 FEO 4), Seller has elected to obtain separate counsel for the transaction. Accordingly, Lawyer A’s representation is limited to Buyer, and all work completed in the transaction by Lawyer A is for the benefit of her client, Buyer. Under these circumstances, the only way Lawyer A could collect a fee for the legal services provided to Buyer from anyone other than Buyer would be through compliance with Rule 1.8(f). Specifically, Lawyer A must a) obtain Buyer’s informed consent to Seller paying all or a portion of Lawyer A’s fee for completing her representation of Buyer in the transaction, b) ensure that Seller’s payment of Lawyer A’s fee does not interfere with lawyer’s independence of professional judgment or with the client-lawyer relationship; and c) ensure that all information deemed confidential pursuant to Rule 1.6 remains appropriately protected in accordance with that rule. Furthermore, any fee collected by Lawyer A from Seller or a third party for the benefit of Buyer must not be illegal or excessive pursuant to Rule 1.5(a). See 2006 FEO 3 and 2013 FEO 4.
Of course, the scenario contemplated by Rule 1.8(f) whereby a third party (or opposing party) pays the lawyer for legal services provided to the lawyer’s client presumes the third/opposing party is offering or agrees to pay the lawyer’s fee. Nothing in the Rules of Professional Conduct permits or empowers a lawyer to charge a third or opposing party for legal services performed for the benefit of her client without that party’s consent. This is true even if the work completed by the lawyer for the benefit of her client also benefits the opposing or a third party. Under the present inquiry, should Seller refuse to pay Lawyer A’s proposed fee, Lawyer A may not unilaterally charge a fee to Seller without Seller’s consent. Whether statutory law, court order, or some other legal obligation between the parties (such as a purchase agreement) permits Lawyer A to charge a fee to Seller in this or a similar scenario is a legal question outside the purview of the Ethics Committee. See 2006 FEO 3 and 2013 FEO 4.
May Lawyer A charge an additional fee to Buyer for the work completed in reviewing and responding to Lawyer B’s proposed documents?
Yes, provided the fee charged is not illegal or excessive. See Rule 1.5(a).
During Lawyer A’s review of the property’s title, Lawyer A discovered that Seller acquired the property from an estate. Lawyer A’s initial review revealed that the estate from which Seller acquired the property went through a highly contested probate proceeding, with the estate’s real property (including the property involved in the present transaction) divided amongst the heirs. As a result, Lawyer A spent additional time reviewing that estate to ensure her client (Buyer) will obtain clean title to the property from Seller.
May Lawyer A charge a fee to Seller for the time spent reviewing the estate to ensure Seller’s title was clean for Buyer’s transaction?
No, unless a) Seller agrees to pay the fee, b) Buyer consents to Seller’s payment of Lawyer A’s fee, and c) the fee charged is not illegal or clearly excessive. In this scenario, Lawyer A is completing work for the benefit of her client, Buyer, to ensure Buyer’s goals for the representation are realized (namely, obtaining clean title to the property sought). Any additional work completed that warrants an additional charge by Lawyer A should be addressed with Lawyer A’s client for whom the work is completed. See Rule 1.8(f) and Opinion #1.
When Seller originally acquired the subject property, Seller obtained a mortgage loan from a lender to fund his purchase of the property. As a result, Seller’s lender obtained a lien on the property to secure the loan to Seller. As part of closing, a portion of the proceeds from the sale of Seller’s property was paid to Seller’s lender in satisfaction of the mortgage loan Seller previously obtained to purchase the subject property. With Seller’s loan now satisfied, and to ensure Buyer obtains clean title from Seller, Lawyer A needs to file a cancellation of lien to remove the lien held by Seller’s lender.
May Lawyer A charge a fee to Seller for the work completed in cancelling Seller’s lender’s lien?
No, unless a) Seller agrees to pay the fee, b) Buyer consents to Seller’s payment of Lawyer A’s fee, and c) the fee charged is not illegal or clearly excessive. Similar to Inquiry #3, in this scenario, Lawyer A is completing work for the benefit of her client, Buyer, to ensure Buyer’s goals for the representation are realized (namely, obtaining clean title to the property sought). Any additional work completed that warrants an additional charge by Lawyer A should be addressed with Lawyer A’s client for whom the work is completed. See Rule 1.8(f) and Opinion #1.
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