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    Wisconsin Lawyer
    April 09, 2008

    Ethics: Part 2: A Dialog on the New Rules of Professional Conduct

    Dean Dietrich and Ralph Cagle discuss how breaching the professional conduct rules may affect legal malpractice claims, significant changes to the trust account rules, client confidentiality and conflict issues, and how the rules affect cross-border practice.

    Dean DietrichRalph Cagle

    Wisconsin LawyerWisconsin Lawyer
    Vol. 81, No. 4, April 2008


    Part 2: A Dialog on the New Rules of Professional Conduct

    In Part 2 of this two-part conversation, Dean Dietrich and Ralph Cagle discuss the impact of breaches of the Rules of Professional Conduct for Wisconsin attorneys on legal malpractice claims, significant changes to the trust account rules, duties owed to prospective clients, client confidentiality and conflict issues, and how the rules affect cross-border practice.


    by Ralph M. Cagle & Dean R. Dietrich

    On July 1, 2007, The Wisconsin Supreme Court adopted many changes to Chapter 20, the Rules of Professional Conduct for Wisconsin attorneys. Dean Dietrich, chair of the State Bar Professional Ethics Committee, and Ralph Cagle, a U.W. Law School professor and former reporter to the committee, frequently discuss the changes and how they affect lawyers. Here is Part 2 of a two-part dialog. Part 1 appeared in the March Wisconsin Lawyer.

    Cagle: What do you see as a change to the rules that may not be so apparent but that lawyers should be thinking about?

    Dietrich: One of the changes to the rules that is not discussed very often or given much consideration is the language change in the Preamble that makes it clear that a violation of the Rules of Professional Conduct may be a basis for proving the breach of a duty of care by the lawyer in a legal malpractice action. This change does not affect lawyer discipline, but it may be critical in a legal malpractice claim against a lawyer. It establishes a baseline for determining a possible breach of the lawyer's duty to a client. It also reemphasizes the importance of lawyers being aware of and fully complying with the rules.

    Cagle: How about the trust account rules - what significant changes occurred there?

    Ralph M. Cagle

    Ralph M. Cagle, U.W. 1974, is a professor at the U.W. Law School.

    Dietrich: The changes to the trust account rule were brought to the court by a special committee of the State Bar and the Office of Lawyer Regulation (OLR). One of the most significant changes is the addition of several definitions in the rule's definitions section (SCR 20:1.0). New additions define a retainer, a flat fee, and an advanced fee.

    The definitions also make it clear that a flat fee or an advanced fee must be placed in the lawyer's trust account until earned unless the lawyer agrees to follow a new procedure for handling these funds. Under this alternate protection procedure, a lawyer can place a flat fee or advanced fee in the lawyer's business account immediately if the lawyer agrees to several conditions, including mandatory fee arbitration if a dispute arises with the client and the client wishes to pursue fee arbitration. The lawyer also must advise the client of the availability of mandatory fee arbitration, agree to pay any arbitration award, and give a final accounting to the client when the representation has been completed. The final accounting might only be a confirmation that the work has been completed if the lawyer is charging a flat fee for the legal services provided. The trust account rule also was amended to allow the use of a credit card to pay an advanced fee if the lawyer establishes a separate credit card trust account to handle the charges from the credit card company for the advanced fee and costs.

    Cagle: How does the new rule regarding the duties owed to a prospective client work?

    Dietrich: SCR 20:1.18 is the new rule regarding a prospective client. This rule identifies the duty of confidentiality and conflicts of interest relating to a prospective client. In most instances, a lawyer owes the duty of confidentiality and loyalty to an individual even if the lawyer has decided not to represent that person. This new rule recognizes those duties. It also provides a procedure to avoid a conflict of interest with a prospective client if communication between the lawyer and the prospective client results in the lawyer gaining knowledge that could adversely affect the prospective client. The lawyer may be screened from any proceeding if another member of the firm is retained to represent someone in a matter that is discussed with the prospective client. Under these circumstances, another member of the firm may represent a party opposed to the prospective client if the attorney who communicated with the prospective client is screened from any participation in the representation and maintains confidentiality of any information disclosed by the prospective client. This rule should help lawyers understand the duties they may owe someone who they have decided not to represent.

    Cagle: Confidentiality is an important part of the attorney-client relationship. Have the rules changed the importance of client confidentiality?

    Dietrich: The new rules have not really changed the guiding principles of client confidentiality found in SCR 20:1.6. As you know, almost everything related to the attorney-client relationship is confidential; however, in Wisconsin, a lawyer may be obligated to disclose confidential information under very narrow circumstances, such as to prevent client conduct that would result in substantial bodily harm or substantial injury to the financial status of another person. The rules also have been amended to clarify that a lawyer may disclose confidential information to prevent serious bodily harm to or death of another person or to correct a client's fraudulent conduct or acts that have occurred as a result of using the attorney's services. These are instances, however, in which the disclosure of client confidential information is discretionary and should only take place after serious deliberation by the attorney.

    Dietrich: Conflict of interest is a very common problem faced by lawyers, especially in smaller communities. Have there been any notable changes to the conflict rules?

    Dean Dietrich

    Dean R. Dietrich, Marquette 1977, of Ruder Ware, Wausau, is chair of the State Bar Professional Ethics Committee.

    Cagle: As big as conflict issues are in day-to-day practice, they got virtually no attention in the revisions to the rules. The former-client conflict rule is unchanged (SCR 20:1.9). In Wisconsin, we created a little exception to the imputed disqualification rule for lawyers moving between firms. If a lawyer has moved from one firm to another and has had only minor and isolated contact with a client matter in that lawyer's prior firm, the rules now set out a process for screening that lawyer to avoid a conflict (SCR 20:1.10).

    The general conflict rule (SCR 20:1.7) was rewritten mostly to make it clearer, which I think it is. The rule now requires that conflict waivers be made with informed consent, which, as I indicated earlier, I see as a much more stringent standard for client consent. It also requires that conflict waivers be in writing and signed by the client. In regard to conflicts that arise because a lawyer's representation of a client might be limited by a lawyer's responsibilities to another client, a former client, a third person, or the lawyer's own interests, there is a word change that some people say may make a difference in the rule's enforcement standards. The old rule said that a conflict arose when the risk of limitation was material. Now the rule says that the risk of limitation must be significant. I will leave it to linguistics scholars to parse that out. Actually, I would be more curious to see whether the OLR interprets the difference as something new.

    Dietrich: The ABA also totally revised the comment to rule 1.7.

    Cagle: Right, and while the comment does not make any new law, it is a very good articulation of the general conflict rule. I think when people read the comment, it will help them better understand the conflict of interest rule. It also explains conflict principles in a number of specific contexts in which they arise. Kudos to whoever wrote that.

    Also, there is a change in the rule on diligence regarding insurance defense counsel and their insureds, which was so heavily lobbied by the insurance industry. I know what was finally enacted, but I'm not sure that I fully appreciate what the change means and I was not present when all that unfolded before the court. But you were. What does it all mean and what's the big deal?

    Dietrich: This was a big deal before the court. The insurance defense industry appeared before the court opposing the change in SCR 20:1.8 that would eliminate language that allowed consent to the representation of an insured party by an attorney selected by the insurance company as part of the terms of the insurance policy. The proposed change would require the insured party to give informed consent instead of consent being automatic as a condition of the insurance policy. The insurance defense industry proposed a compromise that the court accepted. Under new language in SCR 20:1.2, the insurance defense attorney must give written notice to the insured of the insurance defense attorney's role in providing representation and clarify the relationship between the attorney, the insured, and the insurance company. This is a requirement that is found only in the Wisconsin rules and that preserves the consent the insured/client automatically gives through the insurance policy. Because Wisconsin is a direct action state, it was felt that the current procedures and language should continue so long as this notice is given to the insured/client.

    Dietrich: A couple of rules were eliminated in the new version. Which ones were eliminated and why?

    Cagle: The intermediary rule [2.2] and the prohibition on threatening criminal prosecution [3.10] were eliminated. The American Bar Association (ABA) axed the intermediary rule because, frankly, no one really understood it in the 20 years it was in place. It was kind of a goody rule. Some people read it to suggest you could represent both sides in a transaction like a real estate deal or even a divorce. Whatever it was meant to do presumably is covered by the general conflict rules.

    The threatening prosecution rule was a Wisconsin rule, not an ABA rule. There were a fair number of grievances before the OLR dealing with this rule. The problem was that the rule prohibited threatening criminal prosecution solely to obtain an advantage in a civil matter. It was the word "solely" that made it almost impossible to enforce. You almost had to read someone's mind. So basically both rules got scrapped because they didn't work, which is a pretty good reason to get rid of rules.

    Cagle: Interstate or cross-border practice is an issue that is growing in importance. That was an issue that was not covered in the rules revision process per se, but I know a State Bar committee has been working on that for a very long time. What is the status of this change?

    Dietrich: The issue of multijurisdictional practices was not addressed in the July 2007 rule changes. In January 2008, the supreme court gave initial approval to changes to SCR 20:5.5, which would allow a non-Wisconsin licensed lawyer to engage in the occasional practice of law on behalf of a client in Wisconsin under limited circumstances. A Wisconsin lawyer could engage in the same type of practice in another state under the same circumstances. The supreme court also discussed the creation of a limited license for in-house counsel who are providing services to Wisconsin corporate entities but are not licensed to practice law in Wisconsin. The court amended SCR 20:5.5 to allow nonlicensed lawyers to provide such in-house legal services, but it is considering a registration or notice process so the Board of Bar Examiners (BBE) and the OLR are aware of lawyers providing those type of services. The court is continuing to discuss these issues, so no final rule changes have been approved.

    Cagle: The practice area in which the rules have always been most particularized have been those dealing with litigation and the courtroom. That didn't get a lot of attention in the Wisconsin revisions, but there are ABA changes that may bear some watching as to how they play out. Do you agree?

    Dietrich: One of the most significant rule changes affecting litigation is the new language in SCR 20:3.3 regarding candor to the tribunal. Under the new language, a lawyer is obligated to take corrective action if the lawyer becomes aware of any instance or circumstance in which someone (not just the lawyer's client) has engaged in fraudulent conduct before the court. The lawyer is obligated to take corrective action that may include disclosure to the tribunal. In addition, the language does not address an ending point to the lawyer's obligation, so it is possible that the lawyer must take corrective action at any time in the future even if the litigation has been finalized and the representation has been completed. It is not clear if this duty to correct fraudulent conduct will become a burden to trial lawyers even after the representation has been completed.

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