When a lawyer makes a mistake or is accused of making one, the initial reactions can affect the lawyer’s ability to defend or resolve the claim.  Taking the wrong actions can compound expenses and liability; taking the right actions may avoid any payment whatsoever.  This article discusses considerations in deciding how to respond to a claim when it first becomes an issue.

Lawyers should think through how they will react to a claim in advance.  A solo practitioner may not need a formal process, but the larger the firm, the more complicated responding to claims can become.  Every firm should consider designating a lawyer or committee with whom other firm members will consult when there is a potential for law firm liability.  Increasingly, larger firms have an ethics counsel or a general counsel who handles such matters, as well as loss prevention activities.  Staff and younger lawyers should be encouraged to consult with their supervising lawyers, who can then determine if there is sufficient reason to discuss the matter with a designated lawyer or committee

When a potential claim arises, solo practitioners should consider discussing the matter with a peer, and members of a firm should be encouraged to consult with others in the firm.  Dealing with a potential claim alone risks either overconfidence or undue pessimism.  When a lawyer makes a mistake or a client complains, he or she may think they see an easy way to remedy the problem, when in fact the cure either creates its own problems or is ineffective.  Conversely, a lawyer can be so shaken by what seems to be an error that easy solutions may not be apparent.

Consulting with others at the early stages of a claim must be undertaken with care.  A privilege may attach to consulting with other firm members or an outside attorney when the consultation occurs in reasonable anticipation of litigation.  Several national cases have established that attorney-client privilege can attach to communications involving designated law firm internal counsel or a designated internal investigation team.  See, e.g. Nesse v. Shaw Pittman, 206 F.R.D. 325 (D.D.C. 2002). Cf. New York State Bar Op. 789 (consultation with in-house counsel does not create a conflict, though the conclusions reached after such consultation may warrant client disclosures).  Unfortunately, several cases also establish a fiduciary exception which renders discussions discoverable if consultations occur regarding a lawyer’s or a firm’s ethical responsibilities or malpractice liability while the client is still a client.

In VersusLaw, Inc. v. Stoel Rives, LLP, 127 Wash. App. 309, 111 P. 3d 866 (2005), rev. denied, 156 Wash. 2d 1008, 132 P.3d 147 (2006), a law firm had drafted agreements for a client, and the law firm represented the client in later litigation over those agreements.  Questions arose about whether the firm had asserted a claim on behalf of the client timely, and internal discussions that resulted in two memos occurred.  Because the memos were drafted while the client was still being represented, the court ruled that the firm had a fiduciary duty to share the memos with the client.

Other case law indicates that in certain circumstances when a firm consults with an ethics or claim adviser while still representing the client, the conclusions reached must be shared with the client.  In Thelen Reid & Priest LLP v. Marland, 2007 WL 578989 (N.D. Cal., Feb. 21, 2007)(slip op.), a case involving a dispute over fees, the court held that

While consultation with an in-house ethics adviser is confidential, once the law firm learns that a client may have a claim against the firm or that the firm needs client consent in order to commence or continue…then the firm should disclose to the client the firm’s conclusions with respect to those issues.

How should law firms deal with the potential that internal deliberations can be discovered?  One common sense approach is to avoid written memoranda about such situations.  In one recent case, a law firm was required to disclose an email in which a firm lawyer discussed “the major exposure here” arising from law firm actions.  Sonic Blue Case Costs Pillsbury $10 Million, National Law Journal March 11, 2009, available online at http://www.law.com/jsp/article.jsp?id=1202428967249.  Avoiding written memoranda does not, however, preclude the possibility of disclosure of internal discussions through depositions.

Some firms now include language in engagement agreements allowing the firm to engage in ethical and liability consultations without disclosure to the client.  The enforceability of such a waiver has not yet been tested. Prompt Action After Law Firm Errs Can Limit Potential Damage Exposure, ABA/BNA Lawyers’ Manual on Professional Conduct-Current Reports, Vol. 25 No. 6, pg. 5, 6, March 18, 2009 (includes sample language for waiver).

These issues regarding internal discussions once a potential claim arises point to a fundamental question lawyers must face when evaluating possible claims.  Lawyers and firms often have a conflict of interest in continuing to represent the client once a potential claim exists.  Texas Ethics Opinion 557 (May 2005) addresses the conflicts that can arise when a current client seeks counsel from a malpractice lawyer. The opinion states that there is a “likelihood that (the representation) could be adversely affected by (the lawyer’s) personal interest concerning a possible malpractice claim” under Texas Disciplinary Rule of Professional Conduct 1.06(b)(2).  Only if the lawyer reasonably believes that he or she can still effectively represent the client may the representation continue. Rule 1.06(c)(1)  In such a situation, the lawyer must obtain the client’s consent after full disclosure of the circumstances surrounding the potential conflict in order to proceed with further representation.  If the client has already hired other counsel, the opinion notes that “it may be prudent for (the lawyer) to recommend that (the client) consult with the malpractice lawyer concerning whether (the client) should consent to further representation….”

In most cases, once a potential claim exists the lawyer should not continue the representation.  The client’s later malpractice counsel will search for conduct that can be painted as favoring the lawyer over the client in the resolution of the continuing representation.  This may include failure to evaluate the possibility that the best solution is to sue the lawyer, rather than continue with other legal avenues.  Keep in mind that the lawyer’s judgment will be questioned in hindsight by a jury of non-lawyers relying on the plaintiff client’s hired experts.

Texas Opinion 557 notes that withdrawal is usually permitted when there is a potential conflict concerning a possible legal malpractice claim, and is required if continued representation violates the disciplinary rules. Withdrawal avoids the second guessing of the efforts to resolve the underlying matter successfully.  Of course, withdrawal must be carried out in a way that does not prejudice the client, with the consent of the court if the representation involves litigation.