The Prudent Course: Ethical and Practical Considerations in Client Selection
By Devarieste Curry
This article was originally published in the November 2003 issue of Washington Lawyer. It was revised in September 2007, by the author, to reflect amendments to the D.C. Rules of Professional Conduct, effective February 1, 2007.
In mid-August 2007, the Federal Reserve cut its discount rate (the rate it charges banks that borrow from it) by one half percentage point and encouraged the nation’s banks to borrow directly from it, and on September 18, 2007, it cut the benchmark interest rate by one-half percentage point, which was the first rate reduction in four years. Both moves were designed to prop up the economy.
As with other segments of society, lawyers and law firms keenly feel the effects of economic downturns. Corporations and individuals are carefully examining their bottom line, and they are expecting lawyers to deliver more for less. At the same time, a law firm’s partners and staff, accustomed to inflated salaries and extravagant fringe benefits, have been reluctant even to consider voluntary downward adjustments. Added to this mix are cost increases imposed by the firm’s vendors as they seek to stem the tide of their own losses.
With all these factors impinging upon a law firm’s profitability and attorneys’ personal earnings, what’s a law firm to do? There are, of course, several options. Seeking to enhance or establish a practice in an area of law that seems impervious to economic swings, or in an emerging area with a high demand for legal services, is one logical response. In fact, it is a most prudent response if a firm is willing to expend the resources—time and money—to become immersed in the area, or associate with attorneys who have the requisite experience. Firms with a long-range plan are generally better positioned to make the necessary transitions and weather economic changes.
A problem arises, however, when a firm, without a plan for survival, reacts precipitously when its client base and/or revenues begin to decrease dramatically. For example, panic or precipitous reaction may cause a firm that focuses on regulatory or transactional work—confident of its attorneys’ analytical, research, and writing abilities—to decide that it is not too much of a stretch to begin a litigation practice. Such a firm is not likely to appreciate the nuances of the practice area, the importance of being familiar with how the court systems work, and the in-depth knowledge required of the procedural and evidentiary rules.
A second reaction to changes in the legal or economic landscape that result in fewer new clients or matters is to keep existing clients when prudence and objectivity counsel withdrawal from the representation. Another option is to become less discriminating in accepting clients with problems within the firm’s area of expertise.
Feeling the effects of a weakened economy should not cause a firm to panic and resort to accepting clients indiscriminately. Likewise, if ethical or practical concerns dictate that a firm should withdraw from representation (to guard against later charges of malpractice or ethical violations or to improve the morale of firm attorneys), the firm should not allow the amount of revenue it receives from the client to cloud its judgment. On the contrary, rather than relax its client-screening standards, a firm needs to remain vigilant in client screening and follow a rigorous client selection process.
Failure to maintain rigorous standards for client selection can jeopardize an attorney’s professional license and reputation, increase stress and decrease firm morale, and ultimately have a negative financial impact on the firm, rather than provide the financial remuneration the firm envisioned in entering into a relationship with an improperly screened client. If a firm has to assign lawyers to represent it in charges of malpractice or ethical violations, or has to retain outside counsel for that purpose, its resources are being diverted and, consequently, its bottom line is being adversely affected.
The firm’s resources also are being drained if several lawyers must spend several hours each day documenting every detail of every conversation with in-house counsel or other client representative, and a substantial amount of time apprising management of evolving issues and discussing how to resolve them in a way to protect the firm. For example, in the early years of Curry & Wilbourn, PLLP, the firm found itself in just such a predicament. The firm had a client who was unreasonable and contentious, demanding that attorneys and staff spend several hours weekly, sometimes daily, listening to diatribes about problems unrelated to his legal matter and subjecting them to verbal abuse. The firm, however, was realizing substantial revenue from that client, approximately $10,000 monthly, an amount that seemed appealing to what was then a much smaller business. Nonetheless, the firm realized that its revenue would be much greater if it spent an equal amount of time on less troublesome clients; it thus withdrew from the representation.
The process of selecting clients is influenced by a host of factors. The District of Columbia Rules of Professional Conduct provide a framework for evaluating potential clients and existing clients seeking representation on new matters. The rules, however, do not “exhaust the moral and ethical considerations that should inform a lawyer, for no worthwhile human activity can be completely defined by legal rules.” A law firm, therefore, would do well to consider the following practical guidelines, in addition to the dictates of the rules, before agreeing to represent a particular individual or organization.
Applicability of the Rules
In the District of Columbia a lawyer’s decision to represent a particular client may be influenced by at least 14 rules of the Rules of Professional Conduct. In interpreting the rules, “the specific shall control the general in the sense that any rule that specifically addresses conduct shall control the disposition of matters and the outcome of such matters shall not turn upon the application of a more general rule that arguably also applies to the conduct in question.” The rules, however, are interrelated, and often a violation of one rule implicates several rules. The commentary to Rule 1.16 summarizes what should be a lawyer’s guiding principle in screening, selecting, and representing clients: “A lawyer should not accept representation in a matter unless it can be performed competently, promptly, without improper conflict of interest, and to completion.” The following broad guiding principles are dictated by the 14 applicable rules.
Exercise caution in areas where the firm has little expertise. Under Rule 1.1, a lawyer should agree to represent a client only in those matters in which the lawyer is competent. Competence “requires the legal knowledge, skill, thoroughness, and preparation reasonably necessary for the representation.” During times of economic difficulties or other changes that drastically affect a firm’s bottom line, such as the loss of a major client, the temptation may exist, for small as well as large firms, to accept matters outside the scope of the firm’s area of expertise. In determining competence, the relative complexity and specialized nature of the matter are important factors. Although the rules recognize that “[a] lawyer can provide adequate representation in a wholly novel field through necessary study,” before accepting a client in an area in which a firm does not have expertise, it is critical that the firm properly assess the resources needed to undertake the “necessary study.” A lawyer is obligated to undertake whatever extra preparation is necessary to ensure competent representation, including associating with another lawyer.
One government lawyer who wanted to make the transition from regulatory matters to an estates and trust practice began by taking numerous continuing legal education courses in the area and, until she felt competent and had established a reputation for herself, worked in a collaborative relationship with a highly regarded estates and trust attorney. Established firms may believe that they can move into a new area simply by hiring an attorney with experience in the area and assigning firm attorneys to commit to undertaking the necessary study to learn the area. Firms, however, must give due consideration to the extent to which their ability to continue representing other clients zealously may be affected by the time committed to such study.
If a firm decides to represent a prospective client in an area that is not within the firm’s regular practice area, it should clearly communicate to the client the firm’s relative level of expertise in the new area. Agreeing to represent a client in a particular area naturally leads the client to infer expertise in that area. In fact, the rules recognize that “[e]xpertise in a particular field of law may be required in some circumstances [such as] where the lawyer, by representations made to the client, has led the client reasonably to expect a special level of expertise in the matter undertaken by the lawyer.” A client’s perception of a certain level of expertise shapes the client’s expectations as to the quality of service he expects to receive and what he expects to pay. When there is a disconnect between the perceived level of expertise and the quality of service, or the outcome, a client feels justified in not paying its bill. Worse, the client may be inclined to sue for malpractice.
Carefully evaluate conflicts and potential conflicts of interest. Every lawyer knows that the rules prohibit representation of a client whose interests conflict with those of another client. But many lawyers do not fully grasp the many nuances of the rules and their ramifications, or understand what distinguishes a conflict from permissible representation under the rules.
Rule 1.7 addresses general conflicts of interest. The source of the conflict under Rule 1.7(b) may derive from existing or prospective clients or other parties in a matter (where representation of a new client is even likely to be affected by representation of an existing client, or vice versa). It may derive from the position to be taken in the matter (a firm cannot take a position adverse to an existing client, even if it does not represent that client in the matter), or from the nature of the proposed interaction between the lawyer and the client (a lawyer cannot allow his professional judgment to be impaired by responsibilities to a third party or his own interests).
Rule 1.7(b)(4) provides that a lawyer may not represent a client if the lawyer’s professional judgment may be adversely affected by the lawyer’s interest in a third party, or the lawyer’s financial, personal, or business interest. The rule, however, makes the lawyer the arbiter of whether his judgment may be impaired. The express language of the rule leaves plenty of room for a lawyer blinded by opportunity to violate the spirit, if not the letter, of the rule. The comment is not more helpful. On the one hand, it discusses the many ways a lawyer’s judgment could be compromised, recognizing that “interests in enterprises” such as accounting firms, consultants, and real estate brokerages “raise several questions under this Rule.” On the other hand, the comment leaves solely to the lawyer the evaluation of any conflict, stating that the lawyer should not make a recommendation that a client seek services from a related enterprise “unless able to conclude that the lawyer’s professional judgment on behalf of the client will not be adversely affected.”
Although the rule and the comment vest that discretion in the lawyer, the prudent course for the lawyer and the firm is to seek an independent evaluation of whether the lawyer’s judgment is likely to be impaired by the lawyer’s having an interest in a third party to which the firm refers the client. If Enron and similar cases have taught any lesson, it surely is that lawyers should more carefully screen clients and matters in which the law firm stands to gain financially by referring clients to closely related non-legal service providers.
Rule 1.7(c) provides that a lawyer may represent a client in the circumstances described in Rule 1.7(b) if the attorney fully discloses the conflict and each of the potentially affected clients provides informed consent to the representation. On first blush, this appears to provide the safety net a law firm needs to expand or retain its client base in these challenging times. But legal representation today is fraught with so many hazards that it is wise to resort to the waiver provision only when the firm has assessed the totality of the circumstances and is certain it can meet its ethical obligations to both clients.
When a firm decides to proceed under Rule 1.7(c), the firm should make sure it has made the proper disclosure such that, objectively evaluated, each client’s consent was informed consent. As stated in the commentary to the rule,
The underlying premise is that disclosure and informed consent are required before assuming a representation if there is any reason to doubt the lawyer’s ability to provide wholehearted and zealous representation of a client. . . . Although the lawyer must be satisfied that the representation can be wholeheartedly and zealously undertaken, if an objective observer would have any reasonable doubt on that issue, the client has a right to disclosure of all relevant considerations and the opportunity to be judge of its own interests.
Thus, at a minimum, at the initial meeting a lawyer must clarify the scope of the firm’s relationship with each prospective client (or existing and prospective client) and provide sufficient information for the potential client to give informed consent, including an explanation of material risks and reasonably available alternatives to the proposed course of conduct. The lawyer must make sure that all representations or explanations are presented to the affected clients in writing.
The reality is that in multiparty matters, a genuine conflict of interest is likely to surface. A large firm must ensure that its conflicts committee keeps current on ethical issues and is empowered—and has the courage—to reject problematic clients or matters. A small firm needs to be astute enough to realize when it needs an independent conflicts analysis and should readily seek ethical advice through the bar or its liability carrier.
Limit or avoid business transactions with clients. In addition to the general prohibitions in Rule 1.7, Rule 1.8 enumerates nine types of transactions between client and lawyer that are regulated to ensure fairness to the client. Although the types of regulated transactions vary, underlying them all is that a lawyer is prohibited from elevating his or her pecuniary interests over the interests of the client. As a safeguard against this, the revised Rules of Professional Conduct, that became effective in February 2007, require lawyers to obtain “informed” consent before entering into a transaction with a client. Comment 2, which also is new, is instructive. In addition to stating that the lawyer should explain the material risks and reasonably available alternatives, the comment states that the lawyer should explain that the client may wish to seek the advice of independent counsel.
Rule 1.8(a) and (b) deserve particular attention as lawyers operate in a changing legal and economic landscape. Rule 1.8(a) prohibits a lawyer from entering into a business transaction with a client or knowingly acquiring a security or other interest adverse to the client, absent use of certain safeguards. The safeguards may be described as a form of due process for the client: the transaction must be fair and reasonable, and its terms must be fully disclosed in a writing that the client can understand; the client must have a reasonable opportunity to seek the advice of other counsel; and the client must provide informed consent in writing to the transaction.
Lawyers must be cognizant of the many types of transactions that fall within Rule 1.8(a). The District of Columbia Court of Appeals interprets the rule broadly. In In re Viehe the Court found that the lawyer had engaged in a prohibited “business transaction” when the lawyer, representing the party in a real estate transaction, wrote two checks to himself, which he characterized as a $77,500 loan. The client had no knowledge of the transaction or the financial circumstances that led to the transaction.
A lawyer who buys or accepts an equity interest from a client in lieu of fees also is entering into a business transaction with the client, which implicates Rule 1.8(a). A lawyer is not prohibited from accepting the equity interest as long as the lawyer complies with the pre-acquisition conditions of the rule. Notwithstanding that the rule permits conditional acquisition of an equity interest, the conventional wisdom is that such a transaction is fraught with so many ethical and practical perils a lawyer should eschew such arrangements, or go to extra measures to ensure compliance with the letter and spirit of Rule 1.8 and other rules that are implicated.
Another prohibition of Rule 1.8 that frequently causes problems for lawyers is found in Rule 1.8(b), which provides that a lawyer shall not prepare an instrument that provides for a “substantial” gift from an unrelated client to the drafting attorney or a close family member. If the client’s only means of payment is a gift (or if the client insists on donating a gift) and the client proposes to engage the attorney on such terms, the attorney must counsel the client about the restrictions and/or prohibitions concerning such transactions and refuse any impermissible offers. Also, because the rule prohibits a substantial gift, the lawyer must evaluate whether the value of his or her services will exceed the value of the gift. Actions that appear reasonable and in full compliance with the rules at their inception become suspect during an inquiry or litigation. A lawyer must always evaluate potential damage to an unblemished career that can flow from interpreting the rules in their broadest sense.
Avoid clients who want you to engage in illegal or unethical conduct. Assisting a client in determining the proper scope and application of the law, or representing a client in a “good-faith argument for an extension, modification, or reversal of existing law,” is entirely appropriate conduct. A lawyer, however, shall not knowingly counsel or assist a client in furtherance of criminal or fraudulent means, or in litigating frivolous claims. Rule 1.16(a) provides that a lawyer shall not represent a client where the representation will lead to a violation of the rules or other law. Rules 3.3 and 3.5 specify particular illegal and unethical conduct from which an attorney must refrain. An attorney shall not knowingly “make a false statement . . . to a tribunal,” “offer evidence that the lawyer knows to be false,” or “seek to influence a judge, juror, prospective juror, or other official by means prohibited by law.”
For the most part, Rule 3.4 prohibits an attorney from destroying, concealing, restricting access to, or falsifying evidence or disobeying the rules of court. Likewise the attorney shall not “counsel or assist a witness to testify falsely.”
As facts unfolded about Enron and similar corporate scandals and lawyers’ roles in those scandals, legitimate questions surfaced as to whether the lawyers were representing their clients zealously or were engaging in prohibited activity under professional rules of conduct.
Where it appears during a screening conference that a potential client seeks assistance in furthering illegal or fraudulent activity or unethical conduct, the lawyer must probe the potential client, without giving legal advice, to discern whether the client is open to ethical and legal representation. If the client is not, the attorney must decline to represent the client. The legal fees that a firm may realize in the short term may not be worth the cost to extricate the firm from a later legal quagmire and repair its and its lawyers’ reputations. If the conflict arises only after the attorney has begun representing the client, then the attorney may be compelled or permitted to withdraw from the representation under Rule 1.16.
An attorney may be able to avoid client representation that will likely culminate in mandatory or permissive withdrawal by following several practical considerations that, though noncompulsory, are equally as important in the client-screening process.
Avoid clients who have a poor credit history. Except in cases of pro bono representation, a prospective client in a position of relative financial instability or who has a history of not honoring legal or financial obligations should be rejected. If at all possible, a firm wants to avoid having to devote resources to trying to collect legal fees, whether through its own accounting department, an independent collection agency, or the District of Columbia Bar Attorney/Client Arbitration Board.
There are practical reasons for wanting to avoid this course. First, devoting financial and other resources to recovering fees affects a firm’s operating budget, and if a firm has to devote extensive time to trying to recover fees, it is unlikely it will be able to recover the entire amount of fees earned. Second, pursuing fees through a collection agency or the Attorney/Client Arbitration Board increases the chances that the firm will be sued for malpractice.
Not only is it entirely appropriate, but it is advisable to request a Dunn & Bradstreet report for an organizational client and to obtain a credit report for an individual client. Firms also should demand a retainer from organizational as well as individual clients. For individual and small business clients in particular, their attitude about paying a substantial retainer speaks volumes about their commitment to legal matters and about their willingness to honor invoices.
Avoid clients who are angry with the world or grievance prone. Some people possess what may be referred to as a never-satisfied personality. The initial interview and background research should probe whether the prospective client is litigious, has a propensity to file grievances on the job or complaints against neighbors, or generally is a critical or negative person. Such persons may engage in lawyer bashing, or have previously sought counsel from or hired and fired several other attorneys. Even in the best of circumstances and with delivery of top-quality service, such persons are more likely to find dissatisfaction with legal service from a new firm and to look for justification not to pay for the service. In a worst-case scenario, they may file a disciplinary action.
Avoid clients who attorney hop. If a prospective client has had a number of different attorneys for the same or a similar matter or issue, the lawyer should smell trouble. One popular reason clients attorney hop is to avoid meeting their financial obligation; they use each stage of the case to look for new counsel if the present counsel presses for payment.
Another reason clients may attorney hop is to find a lawyer who is more amenable to their need to control every aspect of the case. Among other things, the controlling client engages in evasive or delaying tactics, wants to know minute details, and wants to tell the lawyer how to do his or her job or, worse, to assist the lawyer in performing the job. Although “[t]he client has ultimate authority to determine the purposes to be served by legal representation, within the limits imposed by law and the lawyer’s professional obligations . . . [and] has a right to consult with the lawyer about the means to be used in pursuing those objectives,” the lawyer is the officer of the court and has the legal training. The lawyer thus must make the legal decisions. As the rules recognize, although “[a] client is entitled to straightforward advice expressing the lawyer’s honest assessment . . . a lawyer should not be deterred from giving candid advice by the prospect that the advice will be unpalatable to the client.”
Avoid clients who have unreasonable expectations. When the client’s expectations are unrealistic or costly relative to the redress sought, the client must be so advised. Moreover, if a prospective client wants a result that the legal system does not provide, or that cannot reasonably be achieved, the lawyer is advised to reject the client. By advising the client of the unrealistic or cost-inefficient nature of the representation sought, the attorney may alter the expectations of the client and thereby avoid a disciplinary action or malpractice claim. “In a way, all malpractice claims are the result of unmet expectations, some reasonable and some not. If the expectations that clients have for their matters and for the lawyers they retain cannot be adjusted to attainable levels, and then met, a high malpractice claim risk exists.”
Carefully evaluate clients who need “emergency service.” If a prospective client is not seeking reasonable injunctive relief, a firm should carefully evaluate why the client is seeking its service at the last minute. The firm may not have adequate time to assess or prepare for the representation. Without adequate time to conduct the necessary research, the firm may be undertaking representation that is fraught with problems. Worse, if the firm is so pressed to initiate action that it cannot perform necessary due diligence, it opens itself to the risk of a malpractice claim. Attorneys are well advised to decline representation of prospective clients who are evasive or have last-minute needs.
Carefully evaluate the background or employment history of potential
clients. If a prospective client is seeking representation on
a business or commercial matter, especially assistance with small or start-up
businesses, the client’s background is important in determining
whether to accept the representation. If the client has little or no business
skills, or has a questionable employment history, a genuine question arises
as to that person’s ability to run a business. If the business is
not successful, such a person is more likely to look for a scapegoat,
and the firm that provided supporting legal advice is the likely target.
No discussion of client screening would be complete without a brief discussion of a firm’s obligation and option to withdraw from the representation when representation has become hazardous to the health of the firm and/or the individual lawyers. Whether the hazard the firm faces results from its failure to employ a rigorous screening process or from the very human inability to screen with precision, withdrawal may be compulsory under the rules, or desirable as the only prudent course.
Rule 1.16 governs mandatory and permissible withdrawal from representation. Under the rule a lawyer must withdraw from representation when “the representation will result in violation of the Rules of Professional Conduct or other law. . . .” “[A] lawyer may withdraw from representing a client if withdrawal can be accomplished without material adverse effect on the interests of the client. . . .” The same provision, however, enumerates several circumstances in which withdrawal is permissible even if withdrawal would adversely affect the client, such as where the client has previously used or persists in using the lawyer’s services for criminal or fraudulent purpose; the client fails substantially to fulfill an obligation of the representation, including timely payment of fees or an agreement defining the parameters of representation; or “obdurate or vexatious conduct on the part of the client has rendered the representation unreasonably difficult.”
A predicate to the ability to withdraw with comparative ease is an engagement letter that clearly states the conditions under which the firm may withdraw its representation. Moreover, when it becomes clear during the course of representation that the attorney–client relationship is degenerating or that the representation is becoming hazardous to the firm’s health, the firm should make an extraordinary effort to document communications and actions. Finally, once a decision has been made to withdraw, the firm should send a disengagement letter briefly setting forth the reasons for withdrawal, and should ensure that it has met the conditions precedent in Rule 1.16(d) for withdrawal from representation.
Although the prospect of declining or withdrawing from representation may seem unappealing, particularly when an unfavorable legal or economic landscape might tempt a firm to accept or retain clients whom it otherwise would not, the cost of not doing so can be substantial. In addition to the stress and aggravation that a difficult, demanding, controlling, manipulative, or vengeful client can create for a firm, a client’s generally disgruntled disposition may subject the lawyer to unwarranted malpractice claims or Bar complaints. Other hazardous clients may cause the firm to devote substantial time and money attempting to collect unpaid fees, thus affecting the firm’s realization rate.
The Bottom Line
Lawyers have an ethical obligation to screen clients before agreeing to represent them. Lawyers must understand the nature of the representation sought, and before agreeing to represent clients in an area in which the firm has little or no expertise, the firm must perform certain preliminary steps, such as associating with a knowledgeable lawyer or undertaking the necessary study. The firm must communicate to the potential client the relative level of expertise in the new area. This single important step could later encourage a client to pay its legal bills and make the client less inclined to institute a malpractice claim or file a complaint with the Bar.
Screening clients to avoid conflicts or potential conflicts and avoiding business transactions with clients are two other prerequisites to accepting representation. Whether the issue involves a conflict of interest in which a lawyer requests and receives a waiver, or a business transaction between a client and the lawyer, the burden of providing full disclosure, explaining potential risks, and obtaining informed consent rests with the lawyer. The risks of long-term damage to the lawyer or the firm are too great to minimize potential conflicts that are likely to blossom into full-blown conflicts, or to manipulate ethical rules in a manner to sanction an otherwise questionable business transaction.
Lawyers also have an ethical obligation not to represent clients if the representation will cause the lawyer to engage in fraudulent, criminal, or unethical conduct. If, after fully vetting the potential representation, the law firm is left with the uncomfortable feeling that the client is seeking assistance in engaging in prohibited conduct, the firm may ultimately be better served to forgo the representation, even if the potential client is ready to write a check for a sizable retainer.
Potential clients who do not honor their obligations to creditors or employers, who attribute all of their problems to someone else, who have a history of filing grievances or lawsuits, who move from attorney to attorney looking for relief, generally are not reliable, paying clients who will work with the lawyer as part of a team to resolve issues. Further, they are more likely to be hypercritical of the services they receive. A firm representing such clients could find itself spending an inordinate amount of time taking preventive measures to protect the firm, time that translates into money that could be better spent on other matters that will improve the firm’s delivery of legal services to all of its clients.
To survive in today’s marketplace, a law firm, like any other business, must regularly evaluate whether accepting a particular type of client or matter fits within its long-term goals and contributes to its bottom line. To that end, the firm must carefully screen every new client or face an uncertain future.
 See generally Fearing Slide in Economy, Fed Cuts Its Discount Rate, nytimes.com Aug.18, 2007 at C1; Fed Cuts Rate Half Point, and Markets Soar, Sept. 19, 2007, nytimes.com.
Devarieste Curry was a founding partner of Curry & Wilbourn, PLLP when this article was originally published. She now is a partner with McLeod, Watkinson & Miller.