Chair Williams called the meeting to order at 10:00 a.m. and drew Committee members' attention to Attachment B (July 30, 2004) - Minutes of the April 16, 2004, meeting.
It was moved by Alice Senechal, seconded by Randy Lee, and carried unanimously that the minutes be approved.
Chair Williams then drew attention to Attachment A (August 2, 2004) - Minutes of the June 8, 2004 meeting.
It was moved by Sandi Tabor, seconded by Randy Lee, and carried unanimously that the minutes be approved.
Multi-Jurisdictional Practice Proposals - Update
Chair Williams informed Committee members the SBAND Board of Governors had reviewed the Committee's multi-jurisdictional practice proposals, which consisted of changes to the rule amendments recommended by the SBAND MJP Task Force. He said the Board had only a few questions with respect to the proposals and offered support for them. He said the Committee's recommendations now would be forwarded to the Supreme Court.
Rule 7.3 - SBAND General Assembly Action
Chair Williams explained that the SBAND General Assembly had adopted a resolution at its June Annual Meeting regarding Rule 7.3 of the Rules of Professional Conduct governing solicitation of clients. He said Rule 7.3 had been adopted by the Supreme Court as recommended by the Committee, but had garnered a dissenting opinion to the adoption. He said the resolution, as amended, requested that the Committee explain the process it undertook in developing the changes to Rule 7.3 in light of the specific concerns raised by the dissent. He said the resolution essentially places issues concerning Rule 7.3 back before the Committee. The Board, he said, would like information concerning how many other states have adopted an approach similar to that in Rule 7.3 and if there have been any constitutional challenges to such provisions. He said if the Board had understood the Committee's actions with respect to Rule 7.3 and the numerous discussions regarding the rule there probably would have been less controversy. He said it appears there is some interest in perhaps reviewing an "educated client" exception to the restrictions included in Rule 7.3 with respect to solicitation. He noted that such an exception has been discussed and rejected by the ABA. He said the exception is intended to address situations in which there is likely little or no threat of over-reaching with respect to a sophisticated client. One other question raised by the Board, he said, concerned whether a presentation by a lawyer at a seminar could constitute solicitation under the rule. The more obvious response, he said, is that a seminar is not a solicitation and it is unlikely that the rule, upon a fair reading, could be interpreted to apply to that situation. He said he is willing to assemble historical information with respect to the Committee's review of Rule 7.3 and present it to the Board of Governors. Additionally, he noted that approximately 40 states have adopted a rule similar to recently adopted Rule 7.3.
Randy Lee said he is unaware of a single state that has adopted the "educated client" exception. Additionally, he said, there were very few states, perhaps two, that had provisions similar to North Dakota's previous rule governing solicitation (Rule 7.1). And, he said, Rule 7.3 as recently adopted is similar to the rule adopted by nearly every other state. He noted the ABA maintains a website that sets out the full text of rules governing lawyer advertising in all states. He suggested providing the Board with the website address.
After further discussion, it was moved by Alice Senechal, seconded by Randy Lee, and carried that the Committee accept the request to examine recently adopted Rule 7.3 in light of the concerns expressed in the dissenting opinion regarding adoption and to do so by providing additional background information to the Board of Governors.
Rule 1.8 - Conflict of Interest: Prohibited Transactions
Chair Williams drew attention to Attachment C (July 30, 2004) - ABA Model Rule 1.8 and revised North Dakota Rule 1.8. Specifically, he said, the unresolved issue with respect to the revised rule is with respect to whether to include paragraph (i) of the Model Rule which prohibits a lawyer from acquiring a proprietary interest in a cause of action.
Randy Lee observed that minutes of previous meetings indicate the Committee had not discussed inclusion of paragraph (i) and it likewise appears that paragraph (i) was not specifically discussed during the 1980's rule revision work leading to the current rules. The provision is not, he said, particularly controversial since most would agree that lawyers ought not be able to acquire subject matter interest in litigation. He said the question is whether to now include paragraph (i) in the rule.
Sandi Tabor said that if the decision is not to include it, it should be clearly reflected in the minutes that the issue was discussed.
It was moved by Alice Senechal and seconded by Tim Priebe that paragraph (i) of the model rule be included in revised Rule 1.8.
In response to a question from Bob Udland regarding when the provision would apply, Randy Lee said the prohibition is intended to address some of the old common law actions concerning champerty, barratry, and maintenance.
David Hogue noted subparagraph (2) of paragraph (i), which permits a lawyer to contract with a client for a reasonable contingent fee. He asked whether that language could give license to contract for a fee in administrative cases, for example, where a statute caps the fee. He suggested modifying the language to permit a contingent fee "which is reasonable and not otherwise prohibited."
Alice Senechal noted that Rule 1.5 addresses fees and paragraph (c) specifically addresses contingent fees. She suggested if any limiting language is to be included, the more appropriate place might be Rule 1.5.
Randy Lee said a possible approach would be to substitute "permitted" for "reasonable", which would draw in and link the provisions of Rule 1.5.
Judge Braaten suggested deleting the reference to "reasonable" in paragraph (i)(2) and inserting "as permitted by Rule 1.5" at the end of the provision. Randy Lee noted that Rule 1.5 does incorporate the concept of a "reasonable" contingent fee. Judge Braaten's suggestion was accepted as a friendly amendment to the motion.
The motion, as amended, carried unanimously.
Rule 1.10 - Imputed Disqualification: General Rule
At the request of Chair Williams, staff reviewed Attachment D (July 30, 2004) - additional revisions to Rule 1.10(a). Staff recalled the Committee's earlier review of revisions to Rule 1.10 and the issue of a personal interest-based exception to disqualification under the rule. He said the model rule broadly provides an exception to disqualification based on personal interest and the Committee's earlier conclusion was to attempt to list the kinds of personal interests involved, as opposed to the model rule's general reference. He said the italicized language in paragraph (a) would incorporate the model rule exception followed by a definition of "personal interest" that tracks language from the Comment to Rule 1.7 and language in Rule 1.10. He noted that the list is an exclusive one.
Randy Lee said the objective, which is a complicated one, is to distinguish personal interests that will stave off vicarious disqualification (Rule 1.10) from those personal interests that constitute direct conflicts of interest under Rule 1.7. He said the list should be short with respect to those kinds of personal interests that would not result in vicarious disqualification under Rule 1.10.
It was moved by Tim Priebe, seconded by Randy Lee, and carried unanimously that the additional language to paragraph (a) be adopted.
Rule 1.14 - Client Under a Disability
Chair Williams drew attention to Attachment E (July 30, 2004) - North Dakota Rule 1.14 and ABA Model Rule 1.14. He said consideration of Rule 1.14 had been postponed pending a consideration of the model rule's reference to "diminished capacity." He said "diminished capacity" is a criminal law concept and is defined under North Dakota law as "a person who lacks substantial capacity to comprehend the harmful nature of his or her actions or the consequences of his or her conduct" (N.D.C.C. §12.1-04.1-01). He said the focus of Rule 1.14, however, seems to be how a lawyer should deal with the client who has difficulty making decisions. He suggested these situations are more analogous to guardianship issues. He said the Comment to the model rule in paragraph (7) refers to guardianship in discussing when the lawyer should consider if appointment of a guardian ad litem, guardian, or conservator is necessary to protect the client's interests. The model rule, he said, contemplates the circumstances of a client whose decisionmaking capacity is limited in such a way as to cause the lawyer to seek some form of assistance for the client. He noted that he had talked with several disability advocates and the general conclusion was that the "diminished capacity" reference in the model rule carried a demeaning and negative connotation. He suggested "limited capacity" likely describes the focus of the rule in a more helpful way.
In response to a question from Alice Senechal, Mike Williams said the other provisions of the model rule are worthwhile additions and he suggested adopting the model rule with a change to the reference to the "diminished capacity".
It was moved by Alice Senechal, seconded by Judge Braaten, and carried unanimously that Model Rule 1.14 be adopted with "limited capacity" substituted for "diminished capacity" where appropriate.
New Rule 4.5 - Inadvertent Receipt of Documents
Randy Lee distributed and reviewed his report regarding a new Rule 4.5 concerning a lawyer's receipt of documents that are inadvertently or mistakenly sent. A copy of the report is attached as Appendix A.
Randy Lee said Model Rule 4.4(b), which was discussed at the last meeting, addresses inadvertent receipt of documents and establishes a requirement to notify the sender. He said the Comment to the Rule defines "document" to include electronic communications. He said the June meeting discussion indicated a general agreement that the issue should be addressed in a separate rule, but there was no agreement with respect to the lawyer's use of the information after receiving it. He said the opening paragraph of the draft is taken from Model Rule 4.4(b), but paragraph (b) in the draft is entirely new language and would require the lawyer to comply with the sender's request to return the document. He said language is included to address reimbursement of out-of-pocket expenses incurred by the receiving lawyer in the return of the document. He said the concluding large paragraph would elevate to the black-letter rule the definition of "document" set out in the model rule Comment. He said the language also includes an explanation of what is meant by "inadvertently sent". The last sentence, he said, would clarify, in the black-letter rule, that the lawyer has no professional responsibility duty to the client to disclose the receipt or return of the document. He emphasized, however, that this is something of a "trap" under agency law because the provision will not excuse the lawyer, as the fiduciary to the client, from having failed to discuss the matter with the client. Thus, he said, an allegation of malpractice would still be possible if it could be shown the lawyer passed up an opportunity to benefit the client (e.g., obtaining damages or diminishing damages), which could be seen as a breach of the lawyer's fiduciary obligation to inform the client of all material facts known to the lawyer.
Mike Williams asked why the use of the inadvertently received information could not be addressed by rule. Randy Lee recalled general discussion at the last meeting of this issue and noted that caselaw and ethics opinions regarding the matter are very divided. Mike Williams observed that because there are conflicting authorities, lawyers would likely look to the rule for direction. Randy Lee agreed, but said it would probably be inadvisable to propose a rule that, for example, simply allows the lawyer unfettered use of the information. The more likely alternative, he said, would be a rule that in some way limits or forbids use of the information. The disciplinary enforcement issue, he said, would then be how to build a factual record to support the proposition that a lawyer used the information in an inappropriate way or to prohibited effect.
Mike Williams wondered about a situation in which a lawyer "inadvertently" sends information to the opposing party to protect the information, if the party could not disclose it, or perhaps to trap the other party.
Sandi Tabor said it is troubling that a lawyer who has innocently received information inadvertently sent by another could be held to account for having received that information. Randy Lee agreed and said that one option may be to provide that if there is no request for return or the lawyer has complied with a request to return, then the lawyer's responsibility with respect to the information is satisfied. However, he said, that would leave the rule silent on the issue of use.
Alice Senechal suggested some of the issues could be discussed in the Comment. Mike Williams said Comment language could make clear that the rule does not address how the information can be used and perhaps include citations to the relevant caselaw and ethics opinions. Alice Senechal noted that the model rule provides that whether the lawyer is required to take additional steps, such as returning the document, is a matter of law beyond the scope of the rules, as is the question of whether the privileged status of the document has been waived. She noted further that there are some jurisdictions that would likely conclude there is no waiver by virtue of inadvertent disclosure. Randy Lee agreed, but said other jurisdictions have concluded that the privilege is waived.
Sandi Tabor said the basic concern is to provide direction for the innocent recipient who receives the document and who would like to dispose of it properly and avoid trouble. It should be clear, she said, whether the recipient can or cannot use the information.
With respect to draft paragraph (b), Mike Williams wondered what would happen to any copies received or made of a document.
Sandi Tabor noted there is another issue concerning electronically received documents and that is the difficulty involved in actually and completely "deleting" the document.
Chair Williams asked whether there was general agreement regarding further consideration of the draft. Judge Braaten said she preferred the draft to the model rule. Sandi Tabor agreed, but expressed uncertainty about the requirements set out in paragraph (b). Jean Hannig suggested there should be an obligation to at least comply with a request to return an inadvertently sent document. Sandi Tabor noted that an email document, for example, can be "returned", but it is, in fact, still retained in a number of places in the recipient's computer network.
Judge Braaten suggested the draft should be restructured to include paragraphs (a) and (b) in a new paragraph (a) with subparagraphs (1) and (2). She said the large concluding paragraph would then be set out in subsequent paragraphs, i.e., paragraph (b) - the definition of "document", paragraph (c) - the explanation of "inadvertently sent", and paragraph (d) - the application of Rules 1.2 and 1.4.
Alice Senechal suggested the reference in draft paragraph (b) to "through the same method by which the lawyer received it" should be deleted. For example, she said, returning a document by fax that has been received by fax would not accomplish much.
After further discussion, it was moved by Alice Senechal, seconded by Jean Hannig, and carried unanimously that draft Rule 4.5 be restructured as suggested and, with the recommended deletion in paragraph (b), be adopted as modified.
Chair Williams said the revised draft would be reviewed at the September meeting.
Rule 5.1 - Responsibility for an Associated Lawyer's Compliance with Rules
Alice Senechal then reviewed Attachment F (July 30, 2004) - her report concerning Rule 5.1. She said Rule 5.1 governs a lawyer's responsibility for the action of other lawyers in the law firm. The current rule, she said, provides that every lawyer in the firm has some responsibility or potential responsibility for actions of other lawyers. The model rule, she said, limits that responsibility to lawyers who are partners or in a similar supervisory or managerial role. She said the initial decision concerns the general approach to be followed, as that decision has implications for subsequent rules. Sandi Tabor agreed there is a similar decision to be made with respect to Rule 5.2.
David Hogue said he is troubled by the concept of vicarious liability of one lawyer for another. He noted there is a duty to report ethical violations by other lawyers and current Rule 5.1(c) seems contrary to the concept of what a professional should be. He said lawyers, as licensed professionals, have individual responsibilities and the current rule and the model rule are troubling in creating a kind of collective responsibility. He suggested that paragraph (c) be eliminated entirely.
Sandi Tabor said the central issue with respect to Rules 5.1 and 5.2 is whether each lawyer is responsible for the lawyer's own action, regardless of where orders or directions may come from. For example, she said in current Rule 5.2 there is no distinction based on the source of authority - an individual lawyer is responsible for that lawyer's actions. Rule 5.1, she said, addresses the issue from the point of the supervisor's responsibility.
Alice Senechal noted more specifically that Rule 5.1(a) addresses the responsibility to have in place a system to ensure that lawyers in a firm follow ethical rules. The model rule, she said, places that responsibility with the partner or those in similar managerial positions, while the current rule places that responsibility with every lawyer in the firm. There are related issues, she said, in Rules 5.2 and 5.3.
Sandi Tabor described a situation in which a senior partner directs a junior partner to undertake a certain action based on the senior partner's interpretation of ambiguous or unclear application of ethical rules. The practical question, she said, is who will be held responsible - the senior partner, the junior partner, or both - if a related disciplinary issue arises later.
Jean Hannig observed that all lawyers in a firm have the duty to practice law in an ethical manner and the pressure from other lawyers in the firm to do the right thing could prevent ethical violations. Sandi Tabor agreed that is the likely theory underlying North Dakota's previous departure from the model rule. But, she said, the question is whether that is a reflection of real practice.
Bob Udland observed that all three rules, Rules 5.1, 5.2, and 5.3, concern the responsibilities of partners, managers, and supervisors. He said the model rules seem to loosen the ethical restrictions by placing primary responsibility for ensuring ethical rules are followed with the "control group" of partners, managers, and supervisory lawyers, rather than with all lawyers in the firm.
In response to a question from Judge Braaten, David Hogue said he had no objections to paragraphs (a) and (b) of the model rule, but was concerned about the scope of liability placed on a lawyer in paragraph (c) for the actions of another lawyer. In response to a question from Randy Lee, he said there may be some merit in sheltering the non-acting lawyer from discipline under paragraph (c) if that lawyer promptly reports misconduct under Rule 8.3.
Sandi Tabor reiterated that the basic issue is whether to continue the current rule approach of placing responsibility with each individual lawyer or consider the model rule approach of placing more responsibility with lawyers in a managerial or supervisory position.
In response to a question from Chair Williams, a majority of Committee members agreed the model rule approach should be followed.
It was moved by Alice Senechal, seconded by Sandi Tabor, and carried unanimously that Rule 5.1 be modified to incorporate the Model Rule title and to amend paragraph (a) to conform to paragraph (a) of the Model Rule.
It was moved by Alice Senechal and seconded by Randy Lee that paragraph (c) of Model Rule 5.1 be adopted, with the substitution of "these rules" for "the Rules of Professional Conduct."
David Hogue reiterated that paragraph (c), and particularly the expanded scope of subparagraph (2), is troublesome in providing that a lawyer who has any authority or ability to direct the actions of another lawyer is vicariously liable for the actions of that lawyer. Being philosophically opposed to that approach, he said he could not support including the model rule changes.
In response to a request from Sandi Tabor, Randy Lee reviewed the previously discussed approach of sheltering a lawyer from ethical liability if the lawyer has promptly reported the misconduct under Rule 8.3.
Alice Senechal observed that a lawyer should be responsible if the lawyer is managing a firm and knows someone in the firm is violating an ethical rule. Jean Hannig agreed and said simply reporting the misconduct should not help the lawyer evade responsibility.
Following further discussion, the motion carried. (David Hogue - No).
Rule 5.2 - Responsibilities of a Subordinate Lawyer
Sandi Tabor then reviewed Attachment B (August 2, 2004) - her report regarding Rule 5.2. In keeping with the Committee's previous action with respect to Rule 5.1, she recommended following the approach set out in Model Rule 5.2.
It was moved by Sandi Tabor, seconded by Jean Hannig, and carried unanimously that Model Rule 5.2 be adopted with the substitution of "these rules" for "the Rules of Professional Conduct" where appropriate.
Rule 5.3 - Responsibilities Regarding Non-Lawyer Assistants
Judge Braaten then distributed and reviewed her report regarding Rule 5.3. A copy of the report is attached as Appendix B. She said the changes to Rule 5.3 follow from the changes made to Rules 5.1 and 5.2. As explained in her report, she recommended that paragraph (a) of the model rule be adopted; that paragraph (b), which is essentially the same as the model rule provision, remain unchanged; that paragraph (c) of the model rule be adopted; and that paragraph (d) remain unchanged.
It was moved by Jean Hannig, seconded by Randy Lee, and carried unanimously that paragraphs (a) and (c) of the Model Rule be adopted and incorporated in current Rule 5.3 as recommended.
Rule 5.4 - Professional Independence of a Lawyer
Bob Udland then reviewed Attachment C (August 2, 2004) - his report concerning Rule 5.4. He said the model rule changes add paragraph (a)(4), which allows a lawyer to share fees with a non-profit organization that employs or retains the lawyer. Additionally, he said, the model rule changes add language to paragraph (d)(2) which describes an additional situation in which a lawyer must not practice with or in the form of a professional corporation. He said the language is more general in expression and is intended to expand the prohibition in the paragraph beyond involvement in corporate entities.
It was moved by Bob Udland, seconded by Randy Lee, and carried unanimously that the Model Rule changes to paragraphs (a) and (d) be adopted.
Rule 5.6 - Restrictions on Right to Practice
Jean Hannig reviewed Attachment G (July 30, 2004) - her report concerning Rule 5.6. She said the North Dakota and Model Rule 5.6 are very similar with the exception of two small changes in the model rule. She said the first change would include in paragraph (a) additional kinds of agreements that would be prohibited under the rule, i.e., shareholders, operating, and other similar types of agreements. The second change, she said, would replace the reference in paragraph (b) to a controversy "between private parties" with a reference to "client" controversy.
It was moved by Jean Hannig and seconded by Alice Senechal that the Model Rule changes to paragraphs (a) and (b) be adopted.
David Hogue drew attention to the exception language in paragraph (a) regarding agreements concerning benefits upon retirement and wondered whether the reference should refer instead to "benefits upon departure".
Jean Hannig said the purpose of the rule is to prohibit restrictions on a lawyer's ability to continue the lawyer's practice because to do otherwise would prevent clients from making the choice of which lawyer to continue representation. She said an agreement regarding retirement benefits might be considered to be different because the lawyer is retiring from the practice of law and a retirement agreement could, in fact, include a restriction against practicing law in order to obtain the benefits.
David Hogue said the exception in paragraph (a) appears to allow the curtailment of benefits and wondered why it would not allow curtailment for any type of departure, as opposed to only retirement. Jean Hannig observed that such matters would likely be addressed in a buy-out provision, which would not restrict the ability to practice law.
Judge Braaten said the retirement exception in paragraph (a) likely addresses the fact that a lawyer could be restricted from practicing law if the lawyer intends to retire and draw benefits.
David Hogue said a firm should have the flexibility to reward lawyers who remain with the firm longer by providing more fringe benefits. He said the retirement exception in paragraph (a) seems to permit control of fringe benefits only when a lawyer finally retires. Randy Lee observed that replacing the reference to "retirement" in paragraph (a) with a reference to "departure" would not offend the policy of the rule. Tim Priebe noted that paragraph (a) refers generally to "termination of the relationship" and suggested replacing the reference to "retirement" with a reference to "such termination", which would track the general reference in the rule.
Following further discussion, it was moved by David Hogue and seconded by Randy Lee that the motion be amended to include replacing the reference to "retirement" with a reference to "such termination".
Mike Williams asked whether the suggested language would swallow the entire rule. Randy Lee said it should not because the retirement exception allowed agreements addressing benefits in that circumstance. He suggested the change would not affect the ability of the lawyer to continue to practice or the ability of a client to continue to employ the lawyer.
Jean Hannig said the law firm should not be required to provide the same level of benefits regardless of whether the lawyer chooses to continue in the practice of law. She said the proposed language does not affect the ability to practice, but may affect decisionmaking about the choice between a certain level of benefits and practicing law in another manner.
After discussion, the motion to amend carried unanimously. The main motion, as amended, then carried unanimously.
Rule 5.7 - Responsibilities Regarding Law-Related Services
Tim Priebe then reviewed Attachment H (July 30, 2004) - his report regarding Rule 5.7. He said the current rule and the model rule are nearly identical and only relatively minor changes are recommended. For the reasons explained in his report, he recommended adoption of the changes in the model rule. Consistent with the Committee's previous action, he also recommended that "these rules" be substituted for "the Rules of Professional Conduct".
It was moved by Tim Priebe, seconded by Bob Udland, and carried unanimously that North Dakota Rule 5.7 be amended to include the recommended changes.
Rule 6.2 - Appointment by a Tribunal
Mike Williams next reviewed Attachment I (July 30, 2004) - his report regarding Rule 6.2. He said the North Dakota and Model Rule are very similar except for differences in the title, a reference to "these rules" rather than "the Rules of Professional Conduct", and initial capitalization in North Dakota's rule.
He recommended the North Dakota title be retained, that the reference to "these rules" be retained, and that the initial capitalization be removed from the paragraphs in the current rule.
It was moved by Sandi Tabor, seconded by Randy Lee, and carried unanimously that current Rule 6.2 be modified in the manner described.
Rule 6.3 - Membership in Legal Services Organizations
Sandi Tabor reviewed Attachment D (August 2, 2004) - her report regarding Rule 6.3. She said the North Dakota and Model Rule are identical except for the apparent unintentional omission in the current rule of a reference to "or action" in paragraphs (a) and (b).
It was moved by Sandi Tabor, seconded by Alice Senechal, and carried unanimously that current Rule 6.3 be modified to include "or action" after "decision" in paragraphs (a) and (b).
Rule 6.4 - Law Reform Activities Affecting Client Interests
Alice Senechal briefly discussed Attachment J (July 30, 2004) - her report regarding Rule 6.4. She said there are no changes to the Model Rule and the North Dakota Rule and Model Rule are the same.
It was moved by Alice Senechal, seconded by Sandi Tabor, and carried unanimously that no changes be made to current Rule 6.4.
Comment Review and Rule Assignments
Mike Williams said he is currently working on reviewing the Comments to the Rule 2 series. Jean Hannig said she would review the Comments for the Rule 3 series.
The following rule review assignments for the September 24 meeting were made: Preamble - Tim Priebe; Scope - Mike Williams; Terms - Alice Senechal; Model Rule 7.6 - David Hogue; Rule 8.1 - Jean Hannig; Rule 8.2 - Judge Braaten; Rule 8.3 - Bob Udland; Rule 8.4 - Sandi Tabor; and Rule 8.5 - Randy Lee. Chair Williams said consideration of Rule 6.1, scheduled for review at this meeting, would be deferred until the September meeting.
There being no further business, the meeting was adjourned at 1:50 p.m.