Four 2004 N.Y.S. Ethics Opinions

[Originally published in NYPRR February 2005]

Lawyers May Retain Copies of Client’s File

Opinion 780 (Dec. 8, 2004)

In Opinion 780, issued Dec. 8, 2004, the NYSBA Committee on Professional Ethics considered two questions: (1) May a lawyer retain copies of a client’s file over the client’s objections? (2) May the lawyer insist on a release from liability for past conduct as a condition of giving up his copies?

When a representation ends, the lawyer is obligated to return to the client property and papers to which the client is entitled as a matter of law. Several provisions of the Code make this obligation clear. Thus, DR 2-110(A)(2), which deals with a lawyer’s withdrawal from employment, conditions the lawyer’s withdrawal, among other things, on “delivering to the client all papers and property to which the client is entitled…” DR 9102(C)(4), part of the Rule governing a lawyer’s obligation to preserve a client’s funds and property, creates the lawyer’s duty to: “promptly pay or deliver to the client…the funds, securities, or other properties in the possession of the lawyer which the client…is entitled to receive.”

Disputes over specific documents and property between lawyer and client are “questions of law, not ethics.” [See, NYSBA Opinion 766 (1993), Opinion 623 (1991), Restatement (Third) of the Law Governing Lawyers §46(2).]

The New York Code provides no specific guidance on whether a lawyer may make and keep copies of the client’s file. However, several factors suggest that the lawyer may retain copies. EC 4-6, for example, distinguishes between “personal papers of the client” and “papers of the lawyer” when discussing the obligation of the lawyer to protect the client’s confidences following the termination of the lawyer’s practice. Also, implicit in the lawyer’s right to reveal the secrets and confidences of the client in order to collect a fee or to defend against an accusation of wrongful conduct [DR 4-101(C)(4)], is the right to retain copies of relevant documents in the client’s file. And nothing prevents a lawyer from providing for the retention of file copies in the letter of engagement or in a retainer agreement.

The Committee agreed with opinions in other jurisdictions that, as a general rule, a lawyer may retain copies of the client’s files, at the lawyer’s expense. This general rule may be subject to exceptions, as when a client has a legitimate and reasonable interest in ensuring that no copies of a particular document be available to anyone under any circumstances.

Lawyer May Insist on Release

In NYSBA Opinion 339 (1974) the Committee had held that a lawyer may not insist on a general release as a condition of surrendering a client’s files. But this is a different issue than whether a lawyer may insist on a release before surrendering his right to retain copies. Because a lawyer has a right to retain copies, he has a right to insist on a release before surrendering that right, even though the release may foreclose any claims for past malpractice.

DR 6-102(A) of the Code prohibits a lawyer from seeking to limit liability for malpractice “prospectively” but not for work already completed.

A lawyer may “ethically negotiate with a former client for the settlement or release of potential malpractice claims, but only after the lawyer takes specific steps to insure that the negotiations are fair,” which steps include advising the client to seek independent counsel in the negotiation and consummation of the release. [Quoting N.Y. State 591 (1988).]

Opinion 780 concludes:

A lawyer may generally retain copies of documents in the client’s file at the lawyer’s own expense, even over the client’s objections. As a condition of foregoing this right, a lawyer may seek to have the client release the lawyer from malpractice liability.

Lawyer May Negotiate Interest on Delinquent Accounts

NYSBA Opinion 783 (Jan. 12, 2005)

In NYSBA Opinion 783, dated Jan. 12, 2005, the Committee on Professional Ethics took up this simple question: In the absence of a provision to the contrary in the letter of engagement or in the retainer agreement, may a lawyer negotiate with the client for the payment of interest on past due balances before he goes on with the representation?

The Committee had previously held [N.Y. State 399 (1975)] that in order to charge interest on a delinquent account the lawyer had to: (1) advise the client that interest would be charged; (2) define the terms of delinquency; (3) obtain the client’s consent; and (4) limit the interest and fee to a reasonable rate.

The Committee recognized that a lawyer may have the option of withdrawal when a client refuses or neglects to pay a bill for services. If the rules of a tribunal require its permission before withdrawal, the lawyer may not withdraw from a proceeding in that tribunal without its consent [DR 2-110(A)(1)]. Otherwise, the lawyer may withdraw if… “the client deliberately disregards an agreement or obligation to the lawyer as to expenses or fees.” [DR 2-110(C)(1)(f).]

But a lawyer whose bills are not paid has another option than withdrawal — to negotiate a reasonable interest charge with the client. The Committee said:

We believe it is permissible for a lawyer to negotiate the terms of an amended agreement with a deliberately delinquent client and, in consideration of the attorney’s not withdrawing, for the client to agree to pay reasonable interest prospectively on any past due balance for services previously rendered or to be rendered in the future.

The Committee noted that this flexibility in the negotiation of interest would avoid disruption of the client-lawyer relationship and provide the attorney “with an alternative to the prejudgment interest rule of CPLR 5001 so that the attorney is not forced to withdraw and sue the client in order to be made whole.”

What about the requirements of New York’s rules on letters of engagement, which stipulate that these letters include “an explanation of attorney’s fees to be charged, expenses and billing practices.” [22 NYCRR, §1215.1(b)(2).] These rules anticipate that there may be a significant change in the terms of engagement:

Where there is a significant change in the scope of services or the fee to be charged, an updated letter of engagement shall be provided to the client. [22 NYCRR §1215.1(a).]

The Committee recognized that it would appear that a new agreement imposing a charge for interest would constitute a significant change requiring an updated letter, but it also recognized that this was an issue of law beyond its jurisdiction.

The Committee expressed no opinion on whether it would be ethical for a lawyer to impose a charge for interest unilaterally when the letter of engagement or the retainer agreement is silent on the issue of interest. The Committee quoted an earlier opinion of the City Bar [N.Y. City 2002-2], which would permit a lawyer to charge interest unilaterally provided the lawyer notifies the client that he intends to charge interest and gives the client a reasonable opportunity to pay the outstanding bills before accruing interest. [See, footnote [6].]

In all events, “a lawyer shall not enter into an agreement for, charge or collect an illegal or excessive fee.” [DR 2-106(A).]

Duty to Correct False Statement

Opinion 781 (Dec. 8, 2004)

In N.Y. State Opinion 781, Dec. 8, 2004, the NYSBA Committee on Professional Ethics considered the responsibility of a lawyer who has certified the accuracy of a financial statement submitted to the family court and who later finds that the statement contains a material error in omitting substantial client assets.

The Committee cited DR 7-102 (B) (1) of the New York Code:

A lawyer who receives information clearly establishing that: … (1) the client has, in the course of the representation, perpetrated a fraud upon a person or tribunal shall promptly call upon the client to rectify the same, and if the client refuses or is unable to do so, the lawyer shall reveal the fraud to the affected person or tribunal, except when the information is protected as a confidence or secret.

The first question for the lawyer who suspects a client’s fraud is to determine whether there is evidence “clearly establishing the fraud.” Under the New York Code, fraud requires “an element of scienter, deceit, intent to mislead, or knowing failure to correct misrepresentations which can be reasonably expected to induce detrimental reliance by another.” [22 NYCRR 1200.1(i), Definitions.] Unless it satisfies this definition, conduct characterized as fraudulent by statute or administrative rule is not included.

If the lawyer is not certain that the client’s state of mind exhibited intent to deceive, he should “resolve reasonable doubts in favor of the client.” [EC 7-6.] If the lawyer is satisfied that the evidence clearly establishes fraud, he must call upon the client to rectify the fraud. If the client refuses, the lawyer must “reveal the fraud to the affected person or tribunal, except when the information is protected as a confidence or secret.” [DR 7-102 (B) (1), supra.]

This exception in DR 7-102(B)(1) requires a balancing of interests: (1) protect the integrity of the proceeding by revealing the client’s fraud to the court; or (2) preserve the client’s confidence and withhold the evidence of fraud. The Committee quoted an earlier opinion, N.Y. State 674 (1995):

In order to balance the attorney’s dual duties to preserve confidences and reveal frauds, we interpret the phrase “confidences and secrets” in DR 7-102 (B) to mean those confidences and secrets that must be preserved by DR 4-101. In a case where the lawyer is permitted to reveal a confidence or secret under DR 4-101(C), disclosure of the fraud is mandatory under DR 7-102 (B).

Under DR 4-101(C)(5), a lawyer is permitted to reveal a confidence

…to the extent implicit in withdrawing a written or oral opinion or representation previously given by the lawyer and believed by the lawyer still to be relied upon by a third person where the lawyer has discovered that the opinion or representation was based on materially inaccurate information or is being used to further a crime or fraud.

Whenever the facts come within DR 4-101(C)(5), disclosure becomes mandatory under DR 7102(B) “because the statement is still being relied upon by the court and because the lawyer certified the accuracy of the statement in submitting it to the court.” The Opinion states:

In short, permissive disclosure under DR 4101(C)(5) mandates disclosure under DR 7102(B)(1).

How does the client’s fraud affect the lawyer’s right to withdraw? A lawyer may withdraw if (1) withdrawal can be accomplished without material adverse effect on the client’s interests, or (2) if the client persists in involving the lawyer’s services in conduct the lawyer reasonably believes is criminal or fraudulent, insists that the lawyer engage in illegal conduct or in conduct violating the Disciplinary Rules, or has used the lawyer’s services to perpetrate a crime or fraud. [DR 2-110 (C)(1)(b, c, and g) — Permissive Withdrawal.] The lawyer must withdraw if the lawyer knows or it is obvious that continued employment will result in violation of a Disciplinary Rule. [DR 2-110(B)(2) — Mandatory Withdrawal.]

Beware of Metadata In Email Documents

Opinion 782 (Dec. 8, 2004)

In Opinion 782, Dec. 8, 2004, the Committee on Professional Ethics turned to the issue of metadata in email documents. Both MS Word and WordPerfect include features that enable the recipients of email to view metadata. Metadata is generally defined as “data about data” and concerns the content, quality, condition, and other characteristics of data. The Committee defined metadata more precisely as any “data hidden in documents that is generated during the course of creating and editing such documents.”

It may include fragments of data from files that were previously deleted, overwritten or worked on simultaneously. Metadata may reveal the persons who worked on a document, the name of the organization in which it was created or worked on, information concerning prior versions of the document, recent revisions of the document, and comments inserted in the document in the drafting or editing process. The hidden text may reflect editorial comments, strategy considerations, legal issues raised by the client or the lawyer, legal advice provided by the lawyer, and other information.

The problem for lawyers is that the email they transmit may contain metadata which reveals information that is privileged, or the disclosure of which would be detrimental or embarrassing to the client. For example, a document transmitted to a party other than the client may contain as metadata prior edits and comments that would be protected as privileged attorney-client confidences. Or, a prosecutor may transmit to a second confidential witness a cooperation agreement which reveals within its metadata the name of the first confidential witness, thus exposing the first witness to extreme risk.

DR 4-101(B) prohibits a lawyer from “knowingly” (1) revealing a client’s confidence or secret, and (2) using a confidence or secret of a client to the disadvantage of the client. DR 4-101(D) states:

A lawyer shall exercise reasonable care to prevent his or her employees, associates, and others whose services are utilized by the lawyer from disclosing or using confidences or secrets of a client…

EC 4-5 instructs that “care should be exercised by a lawyer to prevent the disclosure of the confidences and secrets of one client to another.” Also, several earlier Ethics Opinions have confirmed the responsibility of the lawyer to take reasonable steps to ensure the integrity of a client’s confidences and secrets. [See, N.Y. State 709 (1998); N.Y. City 94-11.]

The use of email presents special problems because it depends so extensively on technology beyond a lawyer’s general knowledge or training. Nevertheless, “reasonable care may, in some circumstances, call for the lawyer to stay abreast of technological advances and the potential risks in transmission in order to make an appropriate decision with respect to the mode of transmission. [See, N.Y. State 709 (1998), supra.] The Committee noted but did not adopt the suggestions of some commentators that a lawyer has an affirmative duty to remove metadata whenever documents are exchanged with opposing counsel or disclosed to the public. The Committee said:

While exercising reasonable care under DR 4-101 may, in certain circumstances, require the lawyer to remove metadata (for example, where the lawyer knows that the metadata reflects client confidences and secrets, or that the document is being sent to an aggressive and technologically savvy adversary), in general the level of care required varies with the particular circumstances of the transmission. [Footnote [3].]

The lawyer who receives inadvertent or unauthorized metadata revealing an adversary’s confidences or secrets is under a duty not to exploit the information. Use of the information constitutes “an impermissible intrusion on the attorney client relationship in violation of the Code” [quoting N.Y. State 749 (2003)]. A lawyer who exploits an unauthorized communication of confidential information is guilty of conduct “involving dishonesty, fraud, deceit or misrepresentation” [DR 1-102 (A) (4)], and of conduct which is “prejudicial to the administration of justice” [DR 1-102 (A) (5)]. [See, N.Y. State 700 (1997).]

Opinion 782 concluded, “Lawyers have a duty under DR 4-101 to use reasonable care when transmitting documents by email to prevent the disclosure of metadata containing client confidences or secrets.”

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