LAW FIRM MANAGEMENT & SUPERVISION:
WHERE WE ARE & WHERE WE’RE HEADED
38th National Conference on
Professional Responsibility
Boston, Massachusetts
June 2, 2012
TODAY’S SESSION
 Management/Supervision Update
 Recent Cases, Developments, and Trends
 Global Developments: Management-Based Regulation
 Australia
 U.K.
 Impact on U.S. Firms
 Relevance (if any) to U.S. Regulation
PANELISTS
 Art Lachman, Moderator
 Henry Dinger
 Susan Fortney
 Doug Richmond
NO GOOD DEED GOES UNPUNISHED
 You are a partner at Hale & Hardy LLP, and you
serve as the firm’s pro bono coordinator
 Two firm litigation associates, Josh Callenbach
and Megan Riggs, defended Ralph Juhnke in a
highly publicized criminal case
 Although Josh & Megan performed admirably,
Juhnke was convicted
 Josh & Megan have since left the firm
NO GOOD DEED GOES UNPUNISHED
 One day, the two firm partners who manage Josh &
Megan’s departments when they worked at the firm
come to your office & show you a letter they received
from the state supreme court’s disciplinary administrator
 The letters state that:
 Josh & Megan failed to file a notice of appeal in Juhnke’s
case prior to their departure from the firm
 No one else in the firm assumed responsibility for the
representation after they departed
 As a result, Juhnke lost his appellate rights
 The department heads are charged with violating RPC
5.1(a) & 5.1(b)
 You begin to wonder when your mail will be delivered
NO GOOD DEED GOES UNPUNISHED

A.
B.
C.
D.
Which of the following correctly describes your
potential exposure to discipline under the Model
Rules?
Because this matter was handled without a fee, you
face no exposure under the RPCs
If you were not directly involved in supervising the
associates’ work on this project, you face no
exposure under the RPCs
Assuming that the associates’ conduct violated the
RPCs, you cannot be disciplined for that conduct
unless you knew about the violation at a time
when its consequences could be avoided
None of the above is correct
DUTY TO MANAGE & SUPERVISE LAWYERS
 Duty to Manage Lawyers: RPC 5.1(a)
 A partner in a law firm, and a lawyer who individually or
together with other lawyers possesses comparable managerial
authority in a law firm, shall make reasonable efforts to
ensure that the firm has in effect measures giving reasonable
assurance that all lawyers in the firm conform to the Rules of
Professional Conduct.
 Duty to Supervise Lawyers: RPC 5.1(b)
 A lawyer having direct supervisory authority over another
lawyer shall make reasonable efforts to ensure that the other
lawyer conforms to the Rules of Professional Conduct.
RESPONSIBILITY FOR ANOTHER LAWYERS’
RPC VIOLATIONS
 RPC 5.1(c): A lawyer is responsible for another
lawyer’s violation of the RPCs if:
 the lawyer orders or, with knowledge of the specific
conduct, ratifies the conduct involved; or
 the lawyer is a partner or has comparable managerial
authority in the law firm in which the other lawyer
practices, or has direct supervisory authority over the
other lawyer, and knows of the conduct at a time when
its consequences can be avoided or mitigated but fails to
take reasonable remedial action
NO GOOD DEED GOES UNPUNISHED
When the associates left the firm, what, if anything,
should the firm have done?
A. Nothing if the associates, not the firm, had actually
appeared in the case on behalf of Juhnke
B. Nothing if the associates informed you that they were
taking responsibility for Juhnke’s representation or
obtaining new counsel for him after leaving the firm
C. If the associates would not be taking responsibility for
Juhke’s representation after their departure, inform the
client in writing of the associates’ departure and the
firm’s intent to withdraw as a result
D. B. & C.
E. None of the above

SUBORDINATE LAWYER DUTIES
 RPC 5.2
(a) A lawyer is bound by the Rules of Professional Conduct
notwithstanding that the lawyer acted at the direction of
another person.
(b) A subordinate lawyer does not violate the Rules of
Professional Conduct if that lawyer acts in accordance
with a supervisory lawyer's reasonable resolution of an
arguable question of professional duty.
NO GOOD DEED GOES UNPUNISHED
Which of the following correctly describes the potential
legal liability of the firm (an LLP) and the partners in
this scenario?
A. The partners may be liable for their negligent conduct in
managing or supervising the firm’s associates
B. Vicarious liability of managing and supervisory partners
for any legal malpractice of the associates is limited to
the partners’ capital contributions to the firm
C. The firm itself is liable in full for any legal malpractice of
the associates
D. All of the above
E. B. and C.

MANAGEMENT IS OVERRATED
 One of your firm’s longest-serving secretaries, Roberta
Nelson, embezzled $130,000 from the firm by creating
fake invoices from fictitious companies & having the firm
issue checks to those companies, all of which existed
only as the owners of post office boxes she rented
 As the firm’s GC, you reported Roberta’s crime to the
DA, who obtained an order of restitution as part of
Roberta’s plea bargain
 She has paid back $87,000 she had not spent when caught
 Roberta’s lawyer has filed a bar complaint against the
firm’s Executive Committee, which includes the
Managing Partner, alleging violations of RPC 5.3(a) &
5.3(b)
MANAGEMENT IS OVERRATED
 You expect that once the local disciplinary
committee, chaired by Bob Frye, receives the
thoughtful and well-argued response of the firm’s
outside counsel, Doug Bryans, the matter will be
dismissed
 Instead, Bob tells you that if the charges are
proven, the committee will seek suspensions from
practice for the firm’s Executive Committee
members
 And a longer suspension for the firm’s Managing Partner
 Bob tells you that he sees no reason the charges
won’t be proven
 You call Doug again
DUTY TO MANAGE & SUPERVISE NONLAWYERS
 Duty to Manage Nonlawyers: RPC 5.3(a)
 A partner, and a lawyer who individually or together with
other lawyers possesses comparable managerial authority in a
law firm, shall make reasonable efforts to ensure that the
firm has in effect measures giving reasonable assurance that
the [employed, retained, or associated nonlawyer’s] conduct
is compatible with the professional obligations of the lawyer.
 Duty to Supervise Nonlawyers: RPC 5.3(b)
 A lawyer having direct supervisory authority over the
nonlawyer shall make reasonable efforts to ensure that the
[employed, retained, or associated nonlawyer]'s conduct is
compatible with the professional obligations of the lawyer.
RESPONSIBILITY FOR A NONLAWYERS’
RPC VIOLATIONS
 RPC 5.3(c): a lawyer is responsible for conduct of
a nonlawyer that would be a violation of the RPCs
if engaged in by a lawyer if:
 the lawyer orders or, with knowledge of the specific
conduct, ratifies the conduct involved; or
 the lawyer is a partner or has comparable managerial
authority in the law firm in which the nonlawyer is
employed, or has direct supervisory authority over the
nonlawyer, and knows of the conduct at a time when its
consequences can be avoided or mitigated but fails to
take reasonable remedial action
MANAGEMENT IS OVERRATED
True or False: The Managing Partner and
members of the firm’s Executive Committee
have a heightened duty, in comparison to other
firm partners, to comply with the obligation to
manage nonlawyers set forth in RPC 5.3(a).
A. True
B. False

MANAGEMENT IS OVERRATED
True or False: It is a valid defense in the
disciplinary proceeding against Managing
Partner for allegedly violating RPC 5.3(a) and
5.3(b) that MP delegated supervision of
Roberta to the firm’s experienced nonlawyer
Executive Director.
A. True
B. False

THANK GOODNESS WE PRACTICE HERE
 You serve as your firm’s Managing Partner
 Jerry, a highly regarded partner at the firm with whom
you’ve worked for 30 years, admits to you that he
improperly paid himself $77,500 in conservatorship
fees
 He is distraught, telling you that his wife is divorcing him
& that his son has been diagnosed with aggressive,
untreatable cancer
 He also tells you that between the alcohol and the
antidepressants, he is barely able to function
 After calming Jerry and telling him to say nothing to
anyone about the purloined fees, you quickly summon
Mary, your most trusted colleague on the firm’s
Management Committee
THANK GOODNESS WE PRACTICE HERE
 You make a plan:
 Jerry will repay the fees over a 6-month period
 You view this as a 1-time mistake, so you’ll tell the firm’s
Executive Director & CFO but no one else
 Jerry will take a leave of absence to be with his son
 The firm will continue to pay his draws while he’s away
 Mary says: “I agree with all of that, but shouldn’t
we tell Chris? I mean, he’s our General Counsel.”
 You respond: “We best leave Chris out of this.
He doesn’t need to know about any of this and this
is the sort of thing that should be handled on a
need-to-know basis.”
THANK GOODNESS WE PRACTICE HERE
 All is fine until 2 months later, when the firm’s
Executive Director & CFO come into your office
and close the door
 “You don’t want to hear this,” says your CFO, “but
I’ve done some discreet checking and it looks like
there is another $85,900 that’s missing from
accounts Jerry controls.”
THANK GOODNESS WE PRACTICE HERE
It would have been a good idea for you to consult Chris, the
firm’s General Counsel, when you first heard about the
purloined fees from Jerry because:
A. Chris might have proposed immediately conducting a full
investigation to ensure that the firm knew the full extent of
the problem & could promptly take any necessary corrective
action.
B. Chris might have been able to offer objective, candid, and
practical advice to minimize the harm to clients and to the
firm of Jerry’s misconduct.
C. Chris might have explained the potential liability risks
associated with Jerry’s professional misconduct
D. Chris might have explained professional duties to report
misconduct to the bar, as well as dealing with impairment
issues.
E. All of the above

THANK GOODNESS WE PRACTICE HERE

A.
B.
C.
D.
Did Managing Partner violate RPC 5.1(a), and
if so, what should the sanction be?
No violation
Violation; diversion
Violation; public reprimand
Violation; suspension
BOARD OF OVERSEERS v. WARREN
 Decision of “single justice” (12/29/10):
 No violation of Maine Bar Rules
 Decision of Maine Supreme “Law Court” panel (12/8/11):
 No violation of duty to report
 No violation of duty to prevent or rectify harm caused by rule
violation when there is an opportunity to take corrective action
 Partner members of the firm’s Executive Committee violated
management duties
 Remand for entry of judgment & “appropriate sanction”
 On remand to same “single justice” (2/24/12):
 “As to each of the named respondents, this proceeding is dismissed
with a warning regarding the violation of the Bar Rule identified in
the Law Court opinion.” [emphasis added]
PEOPLE WHO ARE GOOD AT MATH
BECOME DOCTORS
 Everyone liked Jack, although the young man
never seemed happy as an associate at your firm,
although he’s much less popular now that his
fraudulent billing scheme has been discovered &
publicly reported
 Jack falsified 2,100 billable hours over 3 years
(about a third of his time), & then succeeded in
writing off the time before clients were billed
 Unfortunately, his false entries for 1 invoice
slipped through, & the client detected the
overbilling
 That sparked an internal investigation
PEOPLE WHO ARE GOOD AT MATH
BECOME DOCTORS
 Jack seemed relieved that he was caught
 He was trying to keep his hours up to avoid the
consequences of being viewed as unproductive
 Also, he didn’t like practicing law, was depressed, &
had expected to be caught & punished sooner
 He didn’t even seem bothered by his 2-year suspension
from practice
 But now you’ve received an inquiry from the
disciplinary board about Jack’s supervision
 You call a meeting with the 2 partners whose
clients were affected & the head of the firm’s
litigation group
PEOPLE WHO ARE GOOD AT MATH
BECOME DOCTORS
 Meeting Agenda:
 (1) “How the hell could this have happened?”
 (2) “How the hell could this have happened?”
 (3) “How the hell could this have happened?”
Australia Regulatory Developments
 Catalyst: legislation allowing incorporation
and nonlawyer ownership
 Approach: (state/territory basis)
Regulator as proactive consultant who works
with Incorporated Legal Practices (ILPs) in
developing firm ethical infrastructure
Requirements for ILPs in Australia
 Must appoint a Legal Practitioner Director
 Must identify and report professional
misdeeds
 Must implement and maintain Appropriate
Management Systems
Appropriate Management Systems
 Not defined in the legislation but regulators
& professional groups identified 10
objectives of sound legal practice
 ILPs use self-assessment forms to rate
compliance with objectives
Positive Track Record
of the ILP Regulatory Regime
 Complaints rate for self-assessed ILPs
dropped by two-thirds
 Majority of ILPs assessed themselves to be
in compliance on all ten objectives
 Self-assessed ILPs had one-third the number
of complaints as compared to nonincorporated firms
U.K. Regulatory Developments
 Outcome-Focused Regulation
Focus of regulation is on complying with principles
rather than enforcing rules
 Requires the designation of firm managers
 COLP (Compliance Officer for Legal Practice)
 COFA (Compliance Officer for Finance &
Administration)
Using MBR in the U.S.?

A.
B.
C.
D.
Which of the following BEST describes your feelings
about U.S. jurisdictions shifting to managementbased regulation (putting aside the issue of
nonlawyer ownership of law firms)?
It’s a great idea & we should work to make it happen.
We should incorporate some aspects of managementbased regulation into the existing regulatory
framework here.
It would represent an improvement over existing
regulation, but such an approach is impracticable here.
It’s a bad idea & should not be adopted here.