On Oct. 21, there was a news report that President Donald Trump would be personally providing a legal defense fund of several hundred thousand dollars for White House staffers and campaign aides in need of legal representation, see https://tinyurl.com/y9vymxx8. Unless you are living under the proverbial rock in the proverbial cave, you know that these staffers and aides need lawyers to represent them in the investigations of the Trump campaign’s alleged collusion with Russia during the 2016 presidential election. With Trump’s promise to pay their fees, staffers and aides facing potential legal bills well beyond the reach of their government paychecks can breathe a sigh of relief. The president has their back. Or does he?
Putting aside the question of whether this pledge of support is just a passing whim which will never actually occur, the pledge of legal fees from Trump raises numerous questions. First, to be clear, the payment of legal fees by a third party is not uncommon and is not, on its face, unethical. In the context of criminal investigations, it is not unusual for family members or friends to pay fees for an individual in trouble. In white collar cases, which often begin with government investigations of companies, rather than individuals, the company employer may choose to indemnify its employees and commit to paying all the legal fees. In Delaware, home to many large corporations, state law provides for both permissive and mandatory indemnification of directors and officers. See 8 Del. C. Section 145 (c) (“To the extent that a present or former director or officer of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in subsections (a) and (b) of this section, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorney fees) actually and reasonably incurred by such person in connection therewith.”).
According to the Restatement of the Law Governing Lawyers, a lawyer may not represent a client where someone else pays, unless the client consents and knows the circumstances and conditions of the payment. Restatement (Third) of the Law Governing Lawyers Section 134 (2000). The restatement goes further and permits a payor to exercise “direction” if the direction does not interfere with the lawyer’s independence, is not in conflict with the interests of the client, and is consented to by the client. The move from payment to direction leads to murky and troubling areas, especially in the context of a criminal investigation. Assuming the president is the target of the various investigations into alleged collusion with a foreign power to influence our elections, would he be the right person to “direct” the lawyers of the witnesses?
In Wood v. Georgia, 450 U.S. 261, 268 – 71 (1981), the court raised the conflict issue sua sponte recognizing “the inherent dangers that arise when a criminal defendant is represented by a lawyer hired and paid by a third party, particularly when the third party is the operator of the alleged criminal enterprise.” In Wood, the defendants were “employees performing the most routine duties, yet they received heavy fines on the apparent assumption that their employer would pay them. They now face prison terms solely because of the employer’s failure to pay the fines, having been represented throughout by a lawyer hired by that employer. The potential for injustice in this situation is sufficiently serious to require us to consider whether petitioners have been deprived of federal rights under the Due Process Clause of the Fourteenth Amendment.” See also, Strickland v. Washington, 466 U.S. 668, 688 (1984) (“Representation of a criminal defendant entails certain basic duties. Counsel’s function is to assist the defendant, and hence counsel owes the client a duty of loyalty, a duty to avoid conflicts of interest.”)
So how can the lawyers representing Trump’s employees and paid by Trump avoid a conflict? Here, the Rules of Professional Conduct provide the parameters for representation paid for by a third party who has an interest in the litigation. The important rules to look at, and, if you find yourself in this situation, to reference in your engagement letter, are Rules 1.8 (f) and 5.4 (c).
Rule 1.8 prohibits conflicts of interest with current clients. The rule describes several things a lawyer “shall not” do, sometimes ever, and sometimes only under certain limited circumstances. Listed in order of appearance in the Rule, these prohibitions are: entering a business transaction with a client; using confidential information to the client’s disadvantage; soliciting a gift from a client or drafting an instrument giving the lawyer a gift; acquiring literary or media rights in the representation of a client; advancing or guaranteeing financial assistance to a client; accepting
compensation from a third party for representing a client; making an aggregate settlement; prospectively limiting a lawyer’s malpractice liability to a client, or settling a malpractice claim with an unrepresented client; acquiring a proprietary interest in a client’s cause of action and entering into sexual relations with a client.
Pursuant to RPC 1.8 (f) a lawyer can accept payment from a third party if three conditions are present: the client gives informed consent; there is no interference with the lawyer’s independence of professional judgment or with the client‑lawyer relationship; and information relating to representation of a client is protected as required by Rule 1.6. Rule 5.4 (c) is a separate rule which again requires independence of judgment in the lawyer’s representation: “a lawyer shall not permit a person who recommends, employs or pays the lawyer to render legal services for another to direct or regulate the lawyer’s professional judgment in rendering such legal services.”
Proof of informed consent and the requirement of maintaining confidentiality and independence should be in writing provided to both the client and the payor. An engagement letter counter-signed by both parties can provide simple language that includes the following: there is an understanding that a third party is paying the fees; notwithstanding who pays the fees, the party receiving the services is the client with whom there is an attorney-client relationship; the duties of the attorney-client relationship, including the duties of communication and confidentiality are only between the represented party and the attorney; the represented party directs the attorney’s representation in conformity with the Rules of Professional Conduct, including the requirement of independence of professional judgment. If this language is not in the engagement letter, then it should be in a separate document, referenced in the engagement letter, that is sent to, and preferably counter-signed, by both parties. These simple precautions and disclosures should pave the way to a conflict-free representation.
In our work as lawyers, we have two bedrock resources: the facts and the law. Respect for both is the enduring principle of our profession and the ground on which we stand. Our commitment to this ground enables us to act, even when we are in situations, like the third-party payor relationship, which are susceptible to conflicts and misunderstandings. However, in the third-party payment context, all the parties to this relationship must share and adhere to that respect for facts and law. It would be unwise for any lawyer to enter into a third-party payment relationship with someone who had a history of disregard for these principles on which our professional integrity rests. As lawyers, we can never waver in our commitment to the verifiable facts and the rule of law. Without this commitment, our profession, our values, and our country, will be lost.
Reprinted with permission from the October 27, 2017 issue of The Legal Inteligencer. © 2017 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.
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