f/k/a . . . the archives

February 14, 2005

the lawyer’s fiduciary obligations to disclose

Filed under: — David Giacalone @ 7:19 pm

related posts & articles by David Giacalone:

Your Editor’s post the valentine-divorce lawyer (Feb. 12, 2005), led to a discussion at My Shingle over whether a lawyer doing uncontested divorces has an obligation to let a client know that self-help resources are available that would allow the client to proceed pro se. Here is the discussion between Eugene Lee and David Giacalone, which was started by an anonymous Comment by Eugene.

Eugene to David:

I don’t understand why people take issue with lawyer who are trying to earn a living. People can do their own taxes too, but does that mean H&R Block should push people out the door and direct them to their local library to pick up forms and do them on their own? People can express whatever opinions they want on their blog, you’d just hope they’d be informed and balanced opinions.
Posted by: | February 13, 2005 12:01 AM

David to Eugene:
Dear prior anonymous Commentor: Unlike H&R block, and most other sellers of products and services, lawyers have fiduciary duties toward their clients. [If you're a lawyer and don't know what that means, please go here or here, or to the "informed and balanced" source of your choice.]

Lawyers also proudly boast that they always put the client’s interests first. I assume, at the least, that this maxim applies when the lawyer is advising the client on alternative ways to address the client’s needs.

Are you suggesting that fiducial rights and priority status for clients exist except when they might reduce the lawyer’s income?. Isn’t that special. informed, balanced and objective, too.

Posted by: David Giacalone | February 13, 2005 10:36 AM

Eugene to David:

David,
Here’s the anonymous poster. Actually, I’m well aware of the fiduciary duties of lawyers. Please don’t assume H&R Block is under no fiduciary duties to their clients, I’m sure they’d be quite offended.

People should be aware that a lawyer’s ethical obligations are laid out, in quite extensive and painstaking detail, in the ABA Model Rules of Professional Conduct, and their individual state’s Rules of Professional Conduct. Here in California, we also have a Business and Professions Code. Finally, there is the Model Code of Professional Conduct, which is fast slipping into oblivion.

I see nowhere an ethical requirement that a lawyer recommend pro se representation to their clients as part of their fiduciary, or otherwise ethical, duty. If that’s good enough for the various bar committees, I suppose that’s good enough for me (and most other lawyers who earn a living). If you can point out the relevant ethics provision, be my guest.

Let’s keep in mind that lawyers are not public servants. They’re entrepreneurs who must appreciate the special moral duties raised by the type of special services they provide. Lawyers have the power to abuse and destroy their client’s property and lives, in a manner analogous to the power doctors have over their patient’s very life and death. But lawyers (and … yes, even doctors) have to eat too. I don’t think lawyers are under, nor should they be under, any ethical duty to affirmatively recommend pro se representation to their clients.

When’s the last time a doctor told you to try taking out your own appendix because it’s cheaper. And please don’t tell me legal service is something any joe schmoe can do, that really demeans our value. I couldn’t in good conscience recommend pro se representation to too many people on anything more complicated than arguing a traffic ticket in traffic court. That, I believe, is where lawyers’ ethical duties lie.

Posted by: Eugene Lee | February 14, 2005 09:33 AM

Eugene to David:

One more thing, David, you should be aware that under the ABA Model Rules of Professional Conduct, a lawyer may request “Permissive Withdrawal” from representation of the client when, among other things, their client becomes a financial burden on the lawyer. Who says the bar committees aren’t practical?

Lawyers have duties of loyalty, confidentiality, competence and fiduciary responsibility to their clients, but they’re also in business to make a buck.

Lawyers AND clients should be aware of that very important fact. Otherwise, someone is liable to get hurt.
Posted by: | February 14, 2005 09:39 AM

David to Eugene:

Eugene, Thank you for decloaking and responding at length. I have no doubt that you sincerely want to fulfill all professional obligations, but I think that you — like virtually all lawyers — may have a blind eye or deaf ear concerning fiduciary duties, when fees are involved or when advising clients about alternatives other than those offered by the lawyer himself or herself. Imagine a client came to you complaining about another fiduciary who holds himself out as an advisor or counselor, and said:

“The fiduciary knew information that I did not know and intentionally kept it from me; as a result, the fiduciary enriched himself directly at my expense. Did he breach his duties to me?”

What would your response be, if the other fiduciary was anyone other than a lawyer? What would it be if a financial advisor only suggested buying stock in his own company?

You assert that lawyers have very detailed ethical rules, but (1) like many observers, I believe that lawyer ethical Rules or Codes are in fact lowest common denominator prescriptions, made by a guild to protect the members’ interests, especially to avert outside regulation; (2) the Codes do almost no delineation of fiduciary duties; (3) [after trying to quickly research your jurisdiction today, it appears to me that] neither the California Rules of Professional Conduct, nor the California State Bar Act have anything to say about the scope of advice required by lawyers when telling clients of options available to them; and the California Rule 4-200 on Fees, is on its face the weakest in the nation (banning only fees that are “illegal or unconscionable”) — clearly far less than the standards required of a lawyer as fiduciary. However, the California rules specify that they are not exclusive and should be read in light of the rules and opinions of courts and ethics authorities, inside and outside the states.

My position is clearly not that of bar associations and bar counsel, and lawyers don’t like me betraying guild secrets. Mine is, however, a position that follows from the fundamental meaning of what a counselor-at-law and a lawyer-fiduciary owes the client — especially when they claim to uphold the highest standards and to put the client’s interests first. When it comes to a possible loss of business or fees, those claims ring hollow. For example, in my PrairieLaw.com article Pricey Contingency Fees (June 22, 2000), I point out that the bar (even ATLA) repeatedly says that contingency fee percentages must be based on an assessment of the risk involved, but nonetheless never goes after lawyers charging the local standard contingency fees. In “Counselors Oughtta Counsel (Not Conceal)” (Prairielaw.com, December 7, 2000), I argued:

“Used car dealers like uninformed customers. Medieval guilds were big on secrets. But, ethical “counselors-at-law” have a duty to fully inform and protect their clients — not to exploit client ignorance for their own financial gain or prestige.”

“Until universal notification rules exist, prospective clients can best protect themselves by learning and insisting on their rights, and by choosing attorneys who truly act like counselors, giving full information and a full choice of options to each client (based on the client’s circumstances, goals, and financial constraints). That’s the best clue as to who comes first in any law office.”

I believe that professional Rules and fiduciary duties — if logically followed — would require full disclosure to clients. Thus, ABA Model Rule 2.1 [Advisor] states “In representing a client, a lawyer shall exercise independent professional judgment and render candid advice. In rendering advice, a lawyer may refer not only to law but to other considerations such as moral, economic, social and political factors, that may be relevant to the client’s situation.”

The predecessor to Rule 2.1, is Model Code: Canon 5, Ethical Consideration 5-1, which is still followed in a number of states, including New York (update: In December 2008, New York adopted the Model Rules in place of the Model Code). It states:

“EC 5-1 The professional judgment of a lawyer should be exercised, within the bounds of the law, solely for the benefit of the client and free of compromising influences and loyalties. Neither the lawyer’s personal interests, the interests of other clients, nor the desires of third persons should be permitted to dilute the lawyer’s loyalty to the client.”

You would have to insert a lot of “except if it might lose you business or fees” clauses into EC 5-1 to give it your limited reading of fiduciary obligations.

I believe that the short definition of fiduciary from the Law.com dictionary of legal terms offers useful guidance on the particulars of this fiducial duty:

fiduciary n. from the Latin fiducia, meaning “trust,” . . . . Characteristically, the fiduciary has greater knowledge and expertise about the matters being handled. A fiduciary is held to a standard of conduct and trust above that of a stranger or of a casual business person. He/she/it must avoid “self-dealing” or “conflicts of interests” in which the potential benefit to the fiduciary is in conflict with what is best for the person who trusts him/her/it.

And, as discussed in the posting “Fees and the Lawyer Fiduciary” (Feb. 12, 2004), I think Prof. Lester Brickman got it right, while explaining lawyer fiduciary duties, in The Continuing Assault on the Citadel of Fiduciary Protection, (2003 U.Ill.L.Rev. 1181, at 1185-86) Prof. Lester Brickman explained:

“The principal fiduciary obligations imposed on the lawyer include the duties of confidentiality, loyalty, safeguarding property, giving disinterested advice, and acting fairly towards the client. The duties to act fairly and in a non-self-interested fashion, in particular, relate to the financial relationship between the lawyer and client and require that a lawyer present the client with information regarding the fee arrangement that approximates what the client would obtain if the client consulted a second lawyer for assistance in negotiating the fee arrangement with the primary lawyer. Fairness is to be determined according to a heightened fiduciary standard rather than the arms-length marketplace standard.”

Consumers are lucky that some courts have not waited for lawyers to step up to their obligations voluntarily or through bar rules. For example, since December, 2004, all couples filing for divorce and other family court matters in Ventura County, California, will now receive a letter providing information about alternatives, such as court-sponsored workshops, self-help centers, mediation, and unbundled legal services, etc.

In addition, as I explained in this posting from Dec. 2003, to encourage the consideration of mediation as a dispute resolution option in every case, all civil litigants in Chesterfield County (Virginia) Circuit Court are required to complete a Mediation Orientation Certification Form, and indicate their interest in participating in a mediation orientation session. According to a court newsletter announcing and describing the program “The Mediation Orientation Certification Form requires that Counsel certify to the court that they have discussed with their client the availability of mediation and also indicate the client’s willingness to participate in or opt out of an orientation session.”

You say say that you cannot “recommend” pro se alternatives, but a good faith, objective description of the options (and some help finding them, such as a website citation, or court brochure) would suffice. I understand your reluctance to “demean” lawyer services. However, the simple fact is, in most matters involving average consumers, lawyer services are indeed worth far less than in the age where few clients could read or write, much less now, when the digital revolution makes it very possible for the average consumer to solve everyday legal problems without little or no lawyer input.

I’m pleased that a few states — including your California, with its online self-help center — have helped achieve much of the promise of the self-help revolution in the areas of family/divorce law and small claims. Much more needs to be done. Are lawyer-fiduciaries going to protect their clients’ best interests or their own financial interests?

update: See our posting “contingency fees and the clueless fiduciary” (Sept. 4, 2007).
Posted by: David Giacalone | February 14, 2005 03:56 PM

p.s. A sad but amusing lawyer-disclosure anecdote: When I started my mediation practice in NY’s Capital Region around 1990, no lawyer was doing divorce mediation in the area, and not one member of the public out of 100 could tell you what mediation was. I checked out ethics opinions to see if there were any special rules for lawyer-mediators and got a surprise — a disclosure requirement imposed by a downstate ethics committee:

A lawyer-mediator must inform his/her prospective mediation client that they have the option to instead get a divorce lawyer and use the adversarial approach to divorce.

Divorce lawyers, of course, had no reciprocal obligation — and it was many years before I met a single attorney who suggested the mediation option to any client (who could afford the lawyer’s divorce fees).

Posted by: David Giacalone | February 14, 2005 05:53 PM

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