At some point all lawyers ask themselves, “Why did I accept that client in the first place?” Effectively screening prospective clients for red flags is perhaps the single most important tool for avoiding later fee disputes, malpractice claims, and ethics complaints. Making the following considerations part of evaluating new clients and matters will greatly reduce your risk, and lead to a more satisfying, less aggravating practice.

Ethical Evaluation
Consider the following for new matters: Have all appropriate entities/ individuals been checked for conflicts? Did the conflicts report disclose any actual or potential conflicts? Is proposed joint representation possible with informed written consent? Might the representation require taking positions on issues that are contrary to the positions of other clients?

Compatibility With Practice And Resources
Ask yourself: Is this matter within your present areas of expertise? If not, can you educate yourself promptly enough to handle it competently? Will the matter require time or special logistical or technical capabilities you presently lack?

Professional Desirability
Consider whether the following factors are positive, negative, or neutral in deciding whether to accept the prospective client: relationship and experience with prior and current attorneys (changing lawyers on this matter; suits against lawyers; references checked); relationship with other professionals (references checked); personality (motivation for using your services; reasonableness of expectations; degree of patience; insistence on controlling details of the representation); background and behavior (alcohol or drug abuse; excessive gambling; history of personal legal problems); business background (employment history; experience in the business involved or similar businesses); whether there will be any relationship other than that of attorney-client (officer/director/partner in the client’s organization; business transaction with or investing in the client; helping the client find funding sources or third parties to do business with); risk of claims against you by third parties (claimed third party beneficiaries; government entities like the SEC/FDIC; risk of sanctions or malicious prosecution claims); and your gut reaction (comfortable with the prospective client; willingness to follow advice).

Financial Review
Consider: the range of fees and costs you expect the matter to generate; ability to pay those fees and costs; ability to post an adequate retainer/deposit; business reputation and financial status (from credit report, Best’s Reports, Dunn & Bradstreet, Standard & Poor’s); and outstanding judgments or bankruptcies. A simple Google search may provide a wealth of relevant information.

For existing clients, consider whether outstanding bills have been written off and the client’s history of accounts receivable.

Other financial considerations include: the fee arrangement (hourly/rates, contingency, fixed fee); need for retainer/ deposit (amount, one time, replenishing); client’s reaction to proposed payment arrangement; in contingency cases estimate the amount of likely recovery, the time to conclude the matter, and the likelihood of obtaining no monetary recovery); and whether the matter appears to be a one-time representation or may develop into an on-going relationship.

Regularly considering these factors (and requiring other lawyers in your firm to do the same) will reduce the risk of taking on clients who are the most likely to trigger fee disputes, malpractice claims, and ethics complaints. When in doubt, trust your gut reaction; if a prospective client gives you a bad feeling, err on the side caution by tactfully declining the case.

– By Daniel W. Hager, Corporate Counsel, AHERN Insurance Brokerage

To download a copy of this AHERN Update, please click here.

 

The ACA’s individual mandate penalty no longer applies, beginning in 2019.  To download a copy of this ACA Compliance Bulletin, please click here.

We know that this time of the year is always extremely busy for everyone, so we wanted to be sure to let everyone know about our in-house Employee Benefits team.

Many of you may be working through your health insurance renewal or waiting fearfully for it to hit your desk!  If so, our dedicated team of experts is here to help ease your burden and find creative solutions to help mitigate your renewal increase.

Our AHERN Benefits team can not only help with your core offering like medical insurance, but also a wide array of solutions, including:

  • Payroll
  • Benefit Administration Systems
  • Guaranteed Issue Partner Disability Programs
  • HR Services and Support
  • Federal Compliance Concerns including ACA and ERISA
  • Self-Funding
  • Key Person Coverage
  • COBRA, FSA and HSA

If we can answer any questions or be of any assistance throughout the year, please do not hesitate to contact Reid A. Middleton, JD, Executive Vice President of Employee Benefits, at rmiddleton@aherninsurance.com or (858) 514-7132.

Comprehensive Changes to Rules of Professional Conduct Become Operative Next Month

By Douglas A. Pettit, Shareholder and Vice President of Pettit Kohn Ingrassia Lutz & Dolin PC

To download a copy of this AHERN Update, please click here.

On May 10, 2018, the California Supreme Court approved the first comprehensive changes to the Rules of Professional Conduct since 1989.  The new or amended rules are completely renumbered, a number of past rules have been changed, and there are new rules. Previously, there were 46 rules.  There will now be 69 new or amended rules, which will become operative in November 2018, bringing the California rules into closer alignment with the ABA’s Model Rules.  We refer to the Rules being replaced as the “Past Rule” even though they are effective through October 31, 2018.

Here are some of the more significant differences as of November 1, 2018.

Communication with Clients (Rule 1.4)

Past Rule 3-500, “Communication,” required that a lawyer shall keep a client reasonably informed about “significant developments” relating to the employment or representation. Otherwise, the Rule was fairly non-specific.

New Rule 1.4 is more specific and in line with the Model Rule.  In addition to requiring lawyers to keep the client reasonably informed about significant developments, the lawyer must also:

  • Promptly inform the client of any decision or circumstance requiring either disclosure or the client’s informed consent;
  • Reasonably consult with the client about the client’s objectives and the manner of achieving them; and
  • Advise the client of relevant limitations on the lawyer’s conduct, such as those methods of assistance requested by the client which are prohibited by the rules.

The most significant difference is the need to consult with the client about objectives and how to achieve them. The new Rules place an emphasis on allowing the client to make informed decisions with an understanding of the costs involved. While we always have encouraged attorneys to clearly communicate with their clients, this now makes it unethical not to have discussions with the client about objectives and how to manage them. In litigation cases this practically mandates some form of a litigation management plan.

Scope of Representation and Allocation of Authority (Rule 1.2)

This new Rule, without a prior counterpart, follows the theme of allowing clients to take control of litigation objectives and costs in two ways. First, it expressly permits a limited scope of retention if it is reasonable under the circumstances, not otherwise prohibited, and informed consent is obtained. Identifying the scope of the representation has long been recommended as a way to avoid exposure when clients make claims that they expected advice beyond that which the attorney felt he/she agreed to provide. An example is tax advice in a personal injury matter. The new rule however, also allows the client to authorize the attorney to take specific actions on the client’s behalf without taking on general retention. This allows a client to keep litigation costs controlled.

Second, this Rule also states that a lawyer shall aide by a client’s decisions concerning the objectives or representation and shall consult with the client as to the means by which they are to be pursued. Again, the Rules are emphasizing that decision making rests with the clients and that attorneys discuss not only the objective, but the means.

Unconscionable Fees (Rule 1.5)

Past Rule 4-200 states that an attorney may not charge or collect an unconscionable fee.  The past rule lists factors that may be considered in determining whether a fee is unconscionable. Establishing that fees were unconscionable under the prior factors was fairly difficult. (While disputes that fees were not earned because of negligent conduct and/or alleged ethical breaches were common, it was rare to have successful arguments that fees were unconscionable under Rule 4-200).

New Rules 1.5(b)(1) and 1.5(b)(2) add the following factors to the list: (1) whether the lawyer engaged in “fraud or overreaching” in negotiating or setting the fee; and (2) whether the lawyer has failed to disclose material facts.

These changes would appear to make it easier to argue unconscionability. The “overreaching” and failure to disclose “material” facts may allow for a variety of arguments claiming a fee to be unconscionable.  The first factor may allow for arguments as to whether the fee “over reaches” in relation to the amount at issue in the engagement or other reasons. The second factor could allow for arguments about whether the attorney disclosed all facts material to the representation. This could include facts regarding the attorneys’ experience in the area of retention, trial experience, or anticipated or estimated fees.

Fee Sharing (Rule 1.5.1)

Fee sharing and referral fees are still permitted under new Rule 1.5.1.  However, to divide fees for shared work or responsibility, attorneys need to obtain informed written consent from the client at the time of the agreement or as soon as reasonably practicable after full disclosure of the fact a division of fees will be made, the identity of the lawyers or firm, and the terms of the division. The lawyers also need to enter into a written agreement to divide the fee and the fee cannot be increased as a result of the division.

There are three differences from past Rule 2-200. First, there now must be a written agreement between the attorneys. Second, the written consent must be obtained at the beginning of the agreement or as soon as reasonably practicable. Third, the new Rule omits language about “gifts” for the referral of cases. This would seem to confirm that gifts are still permitted but if there is a firm agreement for a referral fee, that the requirements above must be met.

Conflicts of Interest

Past Rules implement a “checklist” approach to conflicts, listing the instances in which informed written consent is required to accept or continue representation and/or when written disclosure of a potential conflict is required.

The new rules take a similar approach to conflicts but add some twists. Preliminarily, they are organized differently, drawing distinctions between current and former clients. Here is a listing of the new applicable Rules:

  • Rule 1.7: Current Clients
  • Rule 1.8.1: Business Transactions with Clients
  • Rule 1.8.6: Payment of Fees by Third Party
  • Rule 1.8.7: Aggregate Settlements
  • Rule 1.8.10: Sexual Relations with a Client
  • Rule 1.9: Duties to Former Clients
  • Rule 1.10: Imputation of Conflicts
  • Rule 1.18: Duties to Prospective Clients

For current clients (where the duty of loyalty is typically at issue) new Rule 1.7 requires the attorney to consider first whether the representation is “directly adverse to another client in the same or a separate matter.”  Comment [2] expands the definition of “matter” to encompass “any judicial or other proceeding, application, request for ruling or other determination, contract, transaction, claim, controversy, investigation, charge, accusation, arrest, or other deliberation, decision, or action that is focused on the interests of specific persons, or a discrete and identifiable class of persons.”  The new conflict rule therefore prohibits representation of a client if that client’s interests are adverse to those of another client the lawyer has counseled or represented in almost any capacity.

Additionally, a lawyer may not accept representation without obtaining informed written consent where “there is a significant risk the lawyer’s representation of the client will be materially limited by the lawyer’s responsibilities to or relationships with another client, a former client or a third person, or by the lawyer’s own interests.” (For an example of where an attorney has conflicts with representation of a current client due to relationships with non-clients, review the recent case of Knutson v. Foster (2018)).

Rule 1.7 also continues to cast a wide net on when written disclosures are required. The Rule reiterates the requirements of past Rule 3-310 in noting that written disclosures are required when:

1) The lawyer has, or knows that another lawyer in the lawyer’s firm has, a legal, business, financial, professional, or personal relationship with or responsibility to a party or witness in the same matter or;

2) The lawyer knows or reasonably should know that another party’s lawyer is a spouse, parent, child, or sibling of the lawyer, lives with the lawyer, is a client of the lawyer or another lawyer in the lawyer’s firm, or has an intimate personal relationship with the lawyer

Further, Rule 1.7 adds a “catch all” provision.  If any scenarios are covered by the rule, representation is only permitted if:

1) The lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client;

2) The representation is not prohibited by law; and

3) The representation does not involve the assertion of a claim by one client against another client represented by the lawyer in the same litigation or other proceeding before a tribunal.

Thus, even if the client is willing to sign a conflict waiver, an attorney is under a duty to independently consider, and confirm, that the lawyer will be able to provide competent and diligent representation in light of the potential or actual conflicts. Use of the term “reasonable” also implies that this analysis will be judged on an objective and subjective basis.

Rule 1.8.10 is slightly different than its past counterpart, Rule 3-120.  Previous Rule 3-120 allowed an attorney to continue representation of a client with whom he/she had developed sexual relations if the attorney felt he/she could continue to act competently. (Sexual relations is defined as intercourse or the touching of an intimate part of another person for the purpose of sexual arousal).  Rule 1.8.10 expressly prohibits an attorney from a sexual relationship with a client unless the consensual sexual relationship preexisted the attorney-client relationship.

Rule 1.9 addresses duties to former clients where the duty of confidentiality is the concern. It contains the similar language to that as contained in past Rule 3-310.

Rule 1.18 is a new Rule and significant addition. It spells out the duties that an attorney owes to a prospective client even if the attorney and/or client decline the representation. Notably, information obtained by a prospective client may result in a conflict and bar retention or continued representation for another client. Rule 1.18 designates any person who consults a lawyer for the purpose of retaining a lawyer or securing legal advice as a “prospective” client.

Lawyers are prohibited from disclosing or using confidential information obtained from the prospective client. Lawyers are also prohibited from accepting representation of a client with interests materially adverse to those of a prospective client, even if the lawyer does not actually accept representation of the prospective client unless all affected parties have given informed written consent, or if the lawyer took reasonable measures to avoid obtaining more information than necessary from the prospective client, is timely screened from the matter, and written notice is provided.

Safekeeping of Client Property (Rule 1.15)

Past Rule 4-100, which governed the safekeeping of client property, required that funds received or held for the benefit of the client be segregated in a client trust account.  However, the past rule did not require that advance deposits on fees be held in a client trust account.  The flexible nature of the past rule meant that firms could deposit advance fee payments into the firm’s operating accounts.

As of November 1, 2018, this practice would violate the Rules: new Rule 1.15 explicitly adds “advances for fees” as client property that must be held in trust, thus requiring that essentially all funds received from a client be maintained in a client trust account in California.  The only exceptions are flat fees (if disclosed in writing that the client has the right to have the flat fee deposited in a trust account) and true retainers, which are classified not as funds belonging to the client but rather funds belonging to the lawyer because the retainer is earned upon receipt.

The new rule also keeps the language regarding funds “received or held for the benefit of the client.”  This suggests that when the new rules go into effect, client funds already held in a firm’s operating account and not yet earned, will likely need to be identified, segregated, and moved to a trust account maintained in California.

Delay of Litigation (Rule 3.2)

A Rule with no prior counterpart, Rule 3.2 sets forth that an attorney shall not use means that have no substantial purpose other than to delay proceedings or cause needless expense.

Truthfulness to Others (Rules 4.1 and 4.3)

Two new Rules without prior counterparts, both Rules emphasize an attorney’s need to be honest with third parties and move beyond an attorney’s duty of candor to a tribunal and/or client. Rule 4.1 sets forth that an attorney shall not make false statements of material fact or law to a third person or fail to disclose a material fact to a third person where disclosure is necessary to avoid assisting a criminal or fraudulent act by a client unless disclosure is prohibited by the Business and Professions Code.

Notably, case law has typically restricted claims by third parties based on the failure of attorneys to disclose information to nonclients. The new Rules reiterate the same provision contained in the previous Rules that they are not intended to create private causes of action. But it still leaves a much broader range for non-clients to submit complaints to the State Bar based on alleged violations of this section.

Rule 4.3 states that an attorney, speaking on behalf of a client to a third party, may not state or imply that he or she is disinterested. Further, if the attorney believes that the third party believes the attorney is disinterested, the attorney must take reasonable steps to correct the misunderstanding.

Inadvertent Emails (Rule 4.4)

Rule 4.4, without a prior counterpart, sets forth an ethical obligation that echoes duties previously established by case law. When it is reasonably apparent to a lawyer that a privileged communication was inadvertently sent, the lawyer shall refrain from examining the writing any more than is necessary to determine that it is privileged or subject to the work product doctrine and shall promptly notify the sender.

Responsibilities of Managerial and Supervisory Lawyers (Rule 5.1)

Another new Rule without a prior counterpart, Rule 5.1 requires that an attorney who has managerial authority in a law firm shall make reasonable efforts to ensure the firm has procedures in effect giving reasonable assurances that all lawyers comply with the Rules of Professional Conduct and State Bar Act. The Rule also requires that direct supervisors make reasonable efforts to ensure lawyers they supervise comply with both.  Supervising attorneys are responsible if they ratify conduct or know of the conduct at a time when its consequences could have been avoided or mitigated and failed to take reasonable remedial action.

Prohibition on Discrimination (Rule 8.4.1)

Past Rule 2-400 prohibited discrimination in the management or operation of a law practice, and required a prior adjudication of unlawful conduct by a tribunal of competent jurisdiction before a lawyer could be subject to discipline by the State Bar.  The past rule provided a due process ‘buffer’ between attorneys and disgruntled employees or clients alleging discrimination.

New Rule 8.4.1 dramatically expands the scope of the rule and eliminates the requirement that there be a final determination of unlawful discrimination before the State Bar can impose discipline.  Rule 8.4.1 prohibits unlawful discrimination, harassment, and retaliation in connection with the representation of a client, the refusal to accept a client, termination of a client, and in law firm operations.

Under the new rule, there is no need for a prior adjudication before a State Bar complaint is filed or investigated.  Moreover, the alleged discrimination need not be just in the operation of a law practice; it could arise from the choice to represent or not represent a client as well. Rule 8.4.1 also recognizes a much wider range of “protected characteristics” than are recognized by Rule 2-400.

This Rule is likely the one that could have the most profound impact on the State Bar Staff. It essentially puts the State Bar Attorneys and Investigators in the position of investigating a broad range of potential accusations that until November 1 have never been part of their purview and were typically in the hands of investigators trained specifically to deal with harassment and discrimination claims. The new Rule also likely emphasizes the need for attorneys to retain files for potential clients who are turned away with notes setting forth the reasons. Otherwise, the attorney could be faced with trying to explain to the State Bar a reason for rejecting a potential client where the attorney may not even recall the client and has no means of refreshing his/her memory.

**No portion of this article is intended to constitute legal advice. Be sure to perform independent research and analysis. Any views expressed are those of the author only.

To download a copy of this AHERN Update, please click here.

 

Plan sponsors of group health plans providing prescription drug coverage to individuals who are eligible for Medicare Part D prescription drug coverage are required to satisfy certain notice requirements.

Background
Individuals must enroll in Medicare Part D prescription drug coverage when first eligible (generally, at age 65). If they do not do so, they are subject to a permanently higher monthly premium when enrolling at a later date. A key exception to this general rule is for individuals who do not enroll when initially eligible because they are enrolled in other prescription drug coverage which is creditable. Coverage is considered creditable if it is at least as good or better than the actuarial value of Medicare Part D prescription drug coverage. The required notice of creditable coverage (or notice of non-creditable coverage) is designed to help individuals determine the timing of when they must enroll in Medicare Part D.

Determining whether a prescription drug plan is creditable
Generally, prescription drug coverage under an employer group health plan will be creditable. There is a safe harbor method of determining creditable coverage status. The requirements are easily satisfied. However, for qualifying high deductible health plans (HDHPs) offered in connection with a health savings account (HSA), the HDHP may not be creditable unless it is expected to pay, on average, at least 60% of participants’ prescription drug expenses. It may be necessary to obtain actuarial advice to make this determination in connection with an HDHP.

Notice requirements

  • Who provides? The notice must be furnished by the employer/plan sponsor. It is possible to arrange to have a third party such as an insurer or third party administrator provide the notice on the employer/plan sponsor’s behalf.
  • Which group health plans? The notice requirement applies to all employer group health plans providing prescription drug coverage. Medical FSAs and HSAs are not included (but the HDHP connected to the HSA is included).
  • Who is entitled to receive the notice? The only individuals who are required to receive the notice are those participants who are eligible for Medicare Part D. But making this determination, particularly in the case of dependents, may be challenging. As a result, most employer/plan sponsors choose to provide the notice to all employees to facilitate compliance. CMS has issued model notices for disclosing whether coverage is creditable or non-creditable. Once the employer/plan sponsor makes the determination, the applicable notice should be used (Model Creditable Coverage Disclosure Notice or Model Non-Creditable Coverage Disclosure Notice, as applicable).
  • When is the notice required to be provided? The notice is required to be provided in several circumstances, most importantly, upon initial enrollment in prescription drug coverage under the employer’s group health plan, upon a participant’s request and annually before October 15th.

Penalty for Noncompliance
Fortunately, there is no penalty for employer/plan sponsors who do not comply with the notice requirement. However, if the employer provides retiree prescription drug coverage and claims a subsidy under Medicare Part D (only a minority of employers do so) providing the notice is a precondition to obtaining the subsidy. Even though there is no penalty for noncompliance for most employers, it is still advisable to comply to assist participants in helping them to determine when they need to enroll Medicare Part D.

CMS Reporting
In addition to the participant notice requirement, employer/plan sponsors are also required to disclose to CMS whether their prescription drug coverage is creditable or non-creditable. The disclosure is required on an annual basis within 60 days after the beginning of each plan year. The CMS reporting is electronic. (Visit the below website for more information.)

cms.gov/Medicare/Prescription-Drug-Coverage/CreditableCoverage/CCDisclosure.html

 

Click here to download a copy of this Benefits Brief.

A leading insurance professional organization recently recognized AHERN’s own, Tamara L. Bartels, CIC, for dedication and ongoing leadership in the insurance industry.

The Society of Certified Insurance Counselors (CIC) honored Tamara L. Bartels, CIC for five years of successfully maintaining the Certified Insurance Counselor (CIC) designation, denoting significant commitment to advanced knowledge and customer service.

“This honor is an acknowledgement of the priority that Ms. Bartels places on education and professional growth,” cited the Society’s President, Dr. William T. Hold, CIC, CPCU, CLU. “Customers, associates and the insurance profession as a whole benefit from such a strong commitment to continuing education.”

The CIC Program is nationally recognized as the premier continuing education program for insurance professionals, with programs offered in all 50 states and Puerto Rico. Headquartered in Austin, Texas, the Society of CIC is a not-for-profit organization and the founding program of The National Alliance for Insurance Education and Research.

Where are law firm employee benefits heading? What new benefits are being offered and what’s being taken away? Join us as we take a comprehensive look at the latest trends arising in the legal market.

PRESENTED BY:
Reid Middleton | AHERN Insurance Brokerage

DATE:
Tuesday, June 26, 2018

TIME:
11:30 am to 12:00 pm | Check-In/Networking
12:00 pm to 1:00 pm | Lunch and Program

LOCATION:
Bonne Bridges Mueller O’Keefe & Nichols
355 S. Grand Avenue, Suite 1750
Los Angeles, CA 90071-1562

Hosted parking available at Wells Fargo Center.
Entrance to parking at 330 S. Hope Street.

COST: Free

CLM: Pending

RSVP BY: June 22, 2018 at www.glaala.org

Click here for more information.

 

On Jan. 5, 2018, the Department of Labor (DOL) announced that, effective April 1, 2018, employee benefit plans must comply with new requirements for disability benefit claims.

Click here to read the latest Compliance Bulletin from Ahern|ELT.