The preemployment ethical role of lawyers: are lawyers really fiduciaries?

• Author: Zacharias, Fred C.

ABSTRACT

This Article considers the nature and extent of lawyers' obligations to prospective clients. Most jurisdictions have rules forbidding certain kinds of representation, requiring that particular information be given clients in writing, and regulating fees. Professional code drafters, courts, and commentators, however, have never addressed the broader issue of the lawyer's role at the retainer stage of representation, including whether lawyers have responsibility for providing prospective clients with candid advice regarding the course they should pursue.

The issue is important to clients. A lawyer's action may determine whether a client obtains any representation, competent representation, or a lawyer well suited to the task. It also affects the client's consideration of alternatives--including alternative methods of resolving the legal matter and whether lower cost or specialized representation might be available.

The issue is equally important to the bar. Most legal ethics codes free lawyers to compete for all types of legal work, regardless of how experienced or qualified they are. The fiction that lawyers are fungible, or (at some level) equally competent, underlies the current regime of lawyer regulation and is designed, at least in part, to protect the guild. Although legal ethics regulation places restrictions on how lawyers may solicit business, once a prospective client comes to a lawyer, virtually the only explicit constraint on the lawyer's ability to accept the case is that the lawyer provide minimally competent service.

This Article argues that the professional regulatory scheme should clarify and facilitate enforcement of lawyers' preemployment obligations. Depending on one's view of existing law, this can be accomplished either through refined interpretation of the professional rules and common law standards or through amendments to the legal ethics codes. The Article then analyzes the significance of defining a lawyer's preemployment role for the legal ethics regime and external law regulating the bar. The Article concludes by offering options, some designed to enhance enforcement of lawyers' preemployment obligations and others that might serve as independent alternatives for achieving client protection.

TABLE OF CONTENTS I. DO CLIENTS NEED REGULATORY PROTECTION AT THE RETAINER STAGE OF REPRESENTATION? A. Clients' Stake in Lawyers' Approaches to Their Preemployment Role B. Reasons Why Prospective Clients Might Not Protect Themselves 1. The Nature of Lawyers, Their Work, and the Role They Have Been Assigned 2. The Nature of Prospective Clients 3. Does the Market Enable Lawyers' Potential Clients To Protect Themselves? II. THE CURRENT REGULATORY REGIME A. The Status Quo B. The Conflicting Assumptions of the Professional Codes C. Person-specificity of Representation Under the Legal Ethics Codes D. Common Law Regulation 1. Malpractice 2. Fiduciary Duties 3. Fraud and Other Consumer Remedies E. Conclusions About the Current Regulatory Regime III. WHAT IS THE APPROPRIATE ETHICAL POSTURE FOR LAWYERS AT THE PREEMPLOYMENT STAGE? IV. CURRENT REMEDIES FOR VIOLATIONS OF THE PREEMPLOYMENT ETHICAL DUTY AND ALTERNATIVES FOR PROTECTING PROSPECTIVE CLIENTS' INTERESTS A. Remedies Under the Current Regime B. How Might Legal Standards Be Changed To Support Lawyers' Preemployment Duties? C. Ramifications of Changing the Law D. Alternatives 1. Grading Lawyers 2. Publishing Information About Lawyer Reputations 3. Cataloguing Success Information on a Scientific Basis 4. Making Use of Fee-sharing Practices E. An Observation About the Proposed Alternatives CONCLUSION This Article raises an issue long neglected in legal ethics regulation: what is a lawyer's role at the retainer stage of representation? Most jurisdictions have rules forbidding certain kinds of representation, (1) requiring particular information to be given to clients in writing, (2) and regulating fees. (3) A few judicial opinions and scholarly works have also asserted either that retainer agreements are arm's length in nature, (4) on the one hand, or that lawyers have fiduciary responsibilities even before formal employment, on the other. (5) No one, however, has directly addressed the broad core question of the lawyer's ethical role when clients come to discuss potential representation. (6)

The issue is important to clients. A lawyer's preemployment conduct may determine whether a client obtains any representation, competent representation, or a lawyer well-suited to the task. It also affects the client's consideration of alternatives--including alternative methods of resolving the legal matter--and whether lower cost or specialized representation might be available.

The issue is equally important to the bar. Most legal ethics codes free lawyers to compete for all types of legal work, regardless of how experienced or qualified they are. (7) The fiction that lawyers are fungible, or (at some level) equally competent, underlies the current regime of lawyer regulations and is designed, at least in part, to protect the guild. (9) Although legal ethics regulation places restrictions on how lawyers may solicit business, (10) once a potential client comes to a lawyer, virtually the only explicit regulatory constraint on a lawyer's ability to accept the case is that the lawyer provide minimally competent service. (11)

Complicating the issue is the fact that clients differ. One might expect a lawyer's obligations at the retainer stage to vary with a potential client's sophistication, experience in legal matters, the representation options the client might have, and the complexity of the matter. For the most part, however, the legal ethics codes do not--on the surface, at least--make these distinctions. (12)

This Article argues that the professional regulatory scheme should clarify and facilitate enforcement of lawyers' preemployment obligations. Resolving all questions pertaining to a lawyer's ethical role at the retainer stage, however, is not the Article's purpose. The issues are complex. Any resolution will have significant effects on legal practice and the common law and, as a consequence, is likely to prove controversial. The Article's primary goal is simply to make sure the subject receives the attention it deserves.

Part I of the Article considers why it makes sense to impose obligations on lawyers at the retainer stage of representation. (13) Part II describes the current regulatory scheme. Part III sets forth this Article's view of the appropriate contours of lawyers' obligations, either under a refined interpretation of existing law or through amendments to the professional standards. Finally, Part IV examines the significance of defining a lawyer's preemployment role for the legal ethics regime and for external law regulating the bar. Part IV tentatively offers several options, some designed to enhance enforcement of lawyers' preemployment obligations and others that might serve as independent alternatives for achieving client protection.

1. DO CLIENTS NEED REGULATORY PROTECTION AT THE RETAINER STAGE OF REPRESENTATION?

   Before examining the current regulatory scheme and considering its amendment, it is worth considering why regulation might even be contemplated. The answer to that question turns on two factors: (1) the importance to clients of making good decisions and receiving the assistance of objective legal advice at the preemployment stage of representation; and (2) the reasons why consumers of legal services might be prone to poor decision making in the absence of their prospective lawyers' help. The following sections address each factor in turn.

   1. Clients' Stake in Lawyers' Approaches to Their Preemployment Role

      In discussing lawyers' obligations when setting fees, the Restatement of the Law Governing Lawyers distinguishes between sophisticated and unsophisticated clients. (14) That distinction may be insufficiently nuanced. Clients can be sophisticated--in other words, intelligent and worldly--without truly grasping what lawyers do, how they operate, and when they are needed. Other clients may know and understand the pertinent information, but still not be in a position to act on their knowledge.

      Prospective clients can be categorized in one of the following five ways, with each category reflecting the clients' need for protection against bad decision making at the retainer stage. Most vulnerable are potential clients who are completely unsophisticated. Next come intelligent potential clients, but those who have had no experience with lawyers. The middle group consists of potential clients of reasonable intelligence who have had some legal experience, but who simply have no way of identifying alternative representation. Repeat clients probably require somewhat less protection because they at least have specific experience with a particular lawyer, which gives them some feel for the lawyer's qualities. (15) Needing the least protection are highly sophisticated clients who have both the knowledge and wherewithal to select the best lawyer for a particular matter, such as corporate clients who rely on in-house counsel to select outside representation.

      Just as there is a range of prospective clients, there is a range of matters about which clients need information before hiring a particular lawyer. A consulted lawyer often will have personal incentives not to address a prospective client's lack of information because the client's focus on the information may cause her to seek representation elsewhere or not to seek legal representation at all. (16)

      Initially, it is important for prospective clients to know whether it is necessary, or wise, to hire a lawyer (or a particular type of lawyer). This issue encompasses several considerations. The merits of the client's position may determine whether the matter is worth pursuing. Alternatively, the case may call for the prospective client to employ a strategy for which no lawyer...