Introduction
Apart from laws, professionals today also face the need to comply with ethical standards. Such standards are not always as strict as laws, and ethical principles may come into conflict with one another in specific real-life situations (such situations are called ethical dilemmas). For example, there are so-called model rules issued by the American Bar Association (ABA); they contain various guidelines for lawyers, and following the guidelines helps professionals ensure that their activities comply with ethical standards. ABA rules are not legally binding, which means that violations of those rules will not necessarily constitute a crime or lead to punishment. However, the notion of reputation is playing a growingly important role in the work of lawyers today, and a professional who wants to build a favorable image of himself or herself among current and potential customers as well as the members of the professional community should adhere to ABA rules.
In the presented case, Richard McClintock, the owner of a firm that provides legal services, McClintock & Associates (MCA), engages in a series of activities that are questionable from the perspective of ethics. Richard accepts payments in the form of equity/stock, collects contingent fees, gets his wife involved in working with a client, assigns a first-year associate to review an important contract, and participates in the client’s illicit activities. To analyze that case and identify the violations of the ABA rules that Richard commits, it is necessary to discuss each event in the issue-rule-application-conclusion (IRAC) format.
Equity/Stock
First of all, the very idea of accepting payments for legal services in the form of equity/stock may raise ethical issues. Since MCA works with startup companies, Richard is used to accepting portions of companies in lieu of hourly-rate payments. According to ABA rules, such a form of payment cannot be regarded as inappropriate in case equity/stock is purchased under open market conditions. However, when receiving such payments directly from a client, the lawyer should ensure that there is no conflict of interest; specifically, that the lawyer’s ownership of a part of a company is not potentially harmful to the client. In this context, the client should fully understand the consequences of granting stock-equity to the legal services provider, and the provider is not allowed to prevent the client from seeking professional third-party consultation on what such consequences may be. Generally, the rule requires the lawyer to be transparent and open, and it is also important that the client provides written consent, which should be composed as an informed consent and should explicitly entitle the legal services provider to accept equity/stock as a form of payment.
If one applies the rules described above to the presented case, no blatant violations will be revealed. As it will be demonstrated below, Richard can enter into agreements by shaking hands with a client. Although handshake (and oral consent that accompanies it) can constitute a proper, legally binding agreement, it is always better to obtain written consent from a client. Therefore, whether Richard is used to signing written consents or used to entering into contracts via oral consent, the MCA’s practice of accepting equity/stock as a form of payment cannot be viewed as a violation of ABA rules.
Contingent Fees
One of Richard’s clients (Donna Walters) agreed to the conditions of a contingent fee; Donna initially stated the price of her business (as she was selling it) and entrusted MCA with negotiating the deal. She also agreed that, if the business is sold for more than the stated price, MCA will receive two percent of every dollar above the initially stated amount. Donna confirmed her consent by shaking hands on the deal with Richard. From the perspective of ABA rules, it is generally expected that, for their provision of legal services, lawyers will be provided with a certain predetermined amount of compensation. This norm refers to fixed fees, and it is usually expressed in an hourly rate, to which a client agrees before receiving any legal services from the provider. However, the ABA admits that contracts on the provision of legal services can be concluded under contingency conditions sometimes; it means that the lawyer’s compensation will depend on the way a deal progresses. First of all, rule 1.5(c) explicitly states that a contingent fee agreement should be written and signed.
Evidently, Richard failed to comply with the requirement. Moreover, the fact that he ultimately sold the business for more than twice the price expected by the client (which makes him entitled to receive 30,000 USD as a contingent fee) indicates that the client might not be initially informed properly on the progress of the deal. To avoid being seen as an unethical lawyer, Richard should have obtained Donna’s written consent and should have initially informed her of how much her business would actually cost.
Involving Jessica
One of MCA’s major clients had an issue that was privately disclosed to Richard: some of the executives of the client’s company had been accused of sexual harassment. Eventually, this became known to the general public (because MCA was hacked), and an important purchase deal with Apple was canceled. Apart from addressing Apple’s cancellation of the purchase contract, MCA’s client, Michael, wants Richard to address the sexual harassment accusations. Since MCA has no experience with the subject, Richard gets his wife, Jessica, involved in the case as a co-counsel because she specializes in sexual harassment defense. According to the ABA rule 1.8, the involvement of an “individual with whom the lawyer or the client maintains a close, familial relationship” may be unethical. The two lawyers, Richard and Jessica, now represent the same client, which can lead to a conflict of interest. To avoid the perception of their activities as unethical, Richard and Jessica should obtain Michael’s written consent to being represented by a married couple, in which each spouse defends the client’s position in separate cases.
Rachel Zane
First year associate at MCA, Rachel Zane, reviewed the purchase agreement sent by Apple to Michael. This is the first such agreement Rachel reviews, as she recently graduated from a law school. Although the further development of the case did not reveal any incompetence demonstrated by Rachel in the process of reviewing the contract, it can still be considered inappropriate that Richard assigned such an important task to a recent graduate. Various interpretations of ABA rules suggest that recent graduates should be given preference in the process of assigning tasks; from this perceptive, Richard complied with the rules. However, it can also be argued that Rachel had not been properly prepared for reviewing the documentation generated by such a large and experienced corporation as Apple. To avoid complications, Richard should have assigned the task of reviewing the contract to a more experienced employee; this way, the ABA’s requirement that suggests serving the client’s best interested would have been more properly followed.
Client’s Illicit Activities
At some point, Michael asked Richard to hide a laptop in MCA’s office. The laptop contained information of Michael’s illegal transactions; the client had paid hackers according to their request so that the hackers did not reveal stolen information that could have harmed Michael’s business. According to ABA rule 1.6, the lawyer is entitled to protecting the client’s confidentiality. However, this may not apply to cases in which clients commit crimes; for example, rule 3.4 suggests that a lawyer should not obstruct justice. Applied to the case, ABA rules mean that Richard has every right to protect Michael’s confidential information but must not cover for crimes; an example of such covering is concealing evidence of the client’s illegal transactions. Therefore, if Richard wants to adhere to the ABA rules, he should not keep Michael’s laptop; however, Richard may refuse to reveal the things he knows about Michael’s intention to pay hackers by illegal means.
Conclusion
It can be argued that Richard and his employee, Rachel, committed several ethical violations. First of all, Richard’s practices of accepting stock/equity as payment and receiving contingent fees may be regarded as unethical by the professional community. To prevent damage to MCA’s reputation, Richard should ensure that written consents are received from all his clients regarding payment practices that may be found illicit. Further, Richard got his wife involved in the case and assigned an important contract to a first-year associate, and it can be argued that these decisions fail to comply with ABA rules. Finally, Richard seems to conceal his client’s illegal activities, and this demonstrates a lack of adherence to professional ethical standards, too. To avoid damage to MCA’s reputation, Richard should review ABA rules and make efforts aimed at complying with those rules in the presented case.