Illinois Bar Journal

The Magazine of Illinois Lawyers

June 2016Volume 104Number 6Page 22

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Ethics

Preventive Regulation

By
Ed Finkel

The Illinois ARDC is taking a hard look at "proactive management-based regulation," an approach that would encourage - and perhaps someday require - lawyers to put systems in place that help prevent ethical missteps before they happen.

artwork for articleLike most state agencies of its ilk, the Illinois Attorney Registration and Disciplinary Commission (ARDC) traditionally has taken a reactive approach. Someone brings a complaint against an attorney and if it's found to be warranted, punishment is meted out-ranging from reprimand to disbarment.

Given the legal profession's challenging times in the 2010s, and based on successful models in jurisdictions including New South Wales, Australia, the Illinois ARDC is among the state-level attorney disciplinary agencies that are considering retooling their regulatory approach to make it more proactive.

They see opportunities to assist attorneys and firms in better managing themselves to head off potentially actionable disciplinary issues-ranging from maintaining client confidentiality to managing case files to safeguarding client trust money-before they metastasize. The New South Wales experience underscores the promise, with complaints against attorneys reduced by about two-thirds since the system's implementation in the 1990s.

Dubbed Proactive Management-Based Regulation (PMBR) in a widely circulated 2013 Hofstra Law Review article written by University of Arizona law professor Theodore Schneyer, the proponents of this approach say it gives attorney-regulators the leeway and wherewithal to design self-assessment tools to prompt attorneys to evaluate their practices and improve them as needed.

"You have the lawyer sit down with checklists: Have you thought about this? Have you thought about that?" says Jim Grogan, deputy administrator and chief counsel at ARDC, who spoke on the subject April 6 at "The Future is Now: Legal Services 2.016" conference organized by the Illinois Supreme Court Commission on Professionalism and co-sponsored by the Commission, the ISBA, and others. "ARDC's goal is to create an interactive, online self-assessment to allow lawyers to assess and improve their law practices and report suggestions in this regard."

Grogan sees PMBR as having particular relevance to sole practitioners and small firms, who lack the institutional capacity to track potential trouble spots. He notes that of 129 attorneys sanctioned by ARDC in 2015, 61 percent were sole practitioners. Most complaints involved poor attorney-client relations, concerns about fees, and failure to communicate about key elements in a matter.

ARDC's research has found that of the state's 68,000 practicing attorneys, nearly 20 percent are sole practitioners and another 19 percent are in firms with between two and 10 attorneys, Grogan says. Of the 13,500 sole practitioners, 41 percent said they did not have malpractice insurance and 77 percent said they lacked a succession plan, both of which raised bright red flags for ARDC.

"I'm not trying to sell you malpractice insurance, but if you have a policy, someone is looking at what you're doing [and determining] that you have a protocol, that you're not a risk to clients," he says. "That [figure] means that 41 percent of people don't go through a process of analyzing how their systems fit, analyzing whether they're operating their practice in a way that's a good risk for insurance companies."

As for succession plans, Grogan says, "Dozens and dozens of lawyers ask, 'What's a succession plan?' Do you have a buddy? If you get sick or your significant other gets sick and you have to take care of them, who's going to take over and help you out during that period?" Even worse, he adds, "If you're a partner at Jenner & Block and you're hit crossing the street, they'll take over your files. But if you're…a small practice dealing with adoption law, what happens if you die or you're disabled?"

The ultimate goal of PMBR is to build better professionals, says Grogan, who attended a session at the National Organization of Bar Counsel meeting in February that covered the topic and reflected widespread interest around the country.

The ARDC "believes that your law license is there because of a lot of hard work and sacrifice. You don't want to set people up to fail," he says. "I think regulators realize the old model is insufficient to meet the needs of the profession. We're reactive, and that's good in many ways-if someone steals money, you need to deal with that vigorously-but otherwise, we wait until someone files a complaint. Lawyers have fewer and fewer opportunities for mentoring."

Insurers raise questions

The Attorneys Liability Assurance Society agrees that PMBR could be helpful for solos and small firms in Illinois but doubts ARDC would end up providing much help for ALAS' 216 mostly larger policyholders, says Robert Denby, senior vice president, loss prevention.

"They will probably help the small firms that don't really have an infrastructure in place," he says. "No one is getting into ALAS as a member unless they have in place the basic ground strokes that these regulatory schemes are addressing. From my perspective, it's probably an additional layer of bureaucracy that's not going to help the firms I deal with."

For example, most larger firms have detailed systems in place to capture conflicts of interest such as databases that show the corporate affiliates of the firm's clients or matters that attorneys may have handled as law clerks, Denby says. "To have a generic statement that you should have a system in place to capture conflicts of interest, that's not going to hurt my firms, but it's not going to do anything for them."

ALAS is also concerned that if state regulatory commissions start implementing differing versions of PMBR, firms with multiple offices could face a bewildering maze trying to keep it all straight, Denby says. "You're going to have a situation at some point where one state will say you must do 'X' in order to comply with this touchstone regulatory purpose, and another state is going to say you must do 'Y.' And it may not be completely inconsistent, but it's going to cause problems."

If such regulatory purposes are not requirements, Denby is less concerned. "If it's just an admonition-do these things-OK, that's not necessarily going to add a lot of administrative burden," he says. "Although someone still needs to be thinking about, here's 10 items in New York, 23 items in South Carolina, let's come up with a memo to show [the firm's activities]. It's not the end of the world, but it's a hoop to leap through."

Companies like ALAS require firms to walk them through what systems they have in place, not necessarily expecting all of them to be identical but to gain an assurance that the firm's system is working to protect it against potential liability, Denby says. "That's part of the game," he adds. "We have underwriting standards, and we're not going to bring you into our little club unless you've got these things. But it's clear that a lot of small firms and midsized firms are hit or miss."

Jeff Strand, chief financial officer of the ISBA Mutual Insurance Company, says talking about PMBR is "like preaching to the choir." ISBA Mutual, which serves the smaller firm market, "has always encouraged lawyers to avoid both malpractice and ethical problems by implementing good practice management and effective communication with their clients," Strand says. "The adage 'an ounce of prevention is worth a pound of cure' is certainly true in lawyers malpractice insurance."

Lawyer concerns

Apart from insurers, lawyers have concerns as well. For example, would their responses to PMBR questions about management practices come back to haunt them if there's a disciplinary complaint?

Theodore Schneyer, the Arizona law professor whose law review article helped spark interest in PMBR in the U.S., says it's likely that Illinois and other states attempting to implement such a system-Colorado is probably farthest down the road at this point-will experience resistance, at least at first.

"There are some pretty conservative people…when it comes to lawyer regulation," he says. "They cling to tradition and are very suspicious about new thinking that would involve significant reforms of the regulatory system."

Illinois is not the only place where solos and small firms are disproportionately subject to disciplinary complaints, and some claim that bigger firms are "given a pass" due to a biased system, Schneyer says.

"But it's probably because larger firms have resources and see the need to have internal controls in place," he says. "Although [smaller firms] might not welcome [PMBR], they ought to because it involves a relationship with regulators that's considerably more collaborative than adversarial. They might get significant help from regulators, who wouldn't view discipline as by far the chief method of regulation."

Schneyer's article argues that PMBR could improve legal services by increasing attorney compliance with legal and ethical obligations, reducing the number of complaints and the costs associated with them, and increasing the public's regard for the profession.

"Whether our state supreme courts, working in tandem with the bar, should build a [New South Wales]-style PMBR program into their regulatory framework depends, of course, on what the program could add at what cost and whether it would complement, rather than weaken, the disciplinary process," he wrote.

The move toward PMBR has stemmed from dissatisfaction with perceived regulatory ineffectiveness of disciplinary systems in states that are not well funded, fall behind in investigations, and pursue a fairly narrow range of complaints, Schneyer says. That can lead to unwelcome meddling from other branches of government, he says.

"It seems to me like self-regulatory systems that exist in the states should be motivated to try to improve what they're doing by way of regulation in hopes of warding off interventions by executive branch agencies or state legislatures," Schneyer says. Nonetheless, he predicts, "It'll be controversial, at least for some time."

Not new in New South Wales

Any widespread controversy is long since past in the state of New South Wales, Australia, which implemented a system akin to PMBR in the 1990s that's since been imitated around the country, says Steve Mark, former commissioner of legal services who now heads up a consulting firm called Creative Consequences.

"The reality is that it's not all that difficult" to implement, he says. "It's difficult for people to get their head around. But the regulatory regime is not all that difficult to put in place. It takes time, it takes will, and it takes the ability to see a different way of regulation."

As commissioner, Mark says he worked to bring positive outcomes to consumers and reduce the number of complaints filed, rather than bringing about more prosecutions. "Consumers benefit much more by not having to lodge a complaint in the first place because they're getting an ethical service," he says. "We made sure it would work by creating what Ted Schneyer termed 'ethical infrastructure.' We created a mechanism by which we assisted law firms to be better managed, in a way that delivered better services to consumers, reduced stress, and improved profits."

Malpractice insurance is mandatory in Australia, and insurers have been "incredibly involved" in first designing and since then fine-tuning PMBR, Mark says. "Most sensible insurers have, for many years, been trying to focus on reducing their claims," he says. "We try to get them to work with the regulators: They have educational programs, we have educational programs, we should be totally in sync to assist firms so they don't get complaints."

While the legal services commission still punishes individual attorneys when it's necessary, regulators spend more of their time working with law firms and the larger legal system to create a positive ethical culture and help entities look at appropriate management systems and practice reviews, Mark says.

"The big resistance to this is simple resistance to change. In the legal profession that is large," he says. "It's not because lawyers are stupid. It's because they're people who are part of the justice system, and you don't change laws too radically, too quickly.… The profession is conservative generally."

On the docket in Nova Scotia

A second group, the Nova Scotia Barristers' Society (NSBS), expects to begin implementing PMBR through a pilot project starting in July that would run through April 2017 with a limited sampling of 50 attorneys. The NSBS has approved overall regulatory objectives as well as a 10-item short list of management goals and aspirations for lawyers and firms to use for self-assessment. And the society is providing online resources as well as consultations with lawyers and firms.

"It's about [firms and lawyers] sitting back and reflecting on how you and your legal entity does in that area, and then along with that, [the system] providing resources in those areas," says Jill Perry, NSBS president. "It's thinking about how you meet these overall objectives, contributing to access to justice, communicating with clients in a timely way-big, important ideas that nobody can argue with."

"We believe very, very strongly in the concept of ethical infrastructure and the impact that a lawyer's environment, and role models, and policies within the firm have on a lawyer's conduct and decision making," says Victoria Rees, director of professional responsibility for the NSBS. "It seems logical to us that if we want to change…decision making, we need to create some standard."

The NSBS envisions an allowance for different firm contexts within that standard, Rees emphasizes. "What a sole practitioner needs to do and what a large, multijurisdictional law firm needs to do are quite different," she says. But overall, "We want to spend more time being the fence at the top of the hill than the ambulance at the bottom of the hill."

Particularly for larger multijurisdictional firms, making this system work will mean working hand-in-hand with other provinces, and to date, Nova Scotia has been in discussions with five others that are exploring PMBS. The society has also been engaged in "intensive discussions" with a sampling of different types of firms and geographies to build buy-in, she adds.

This has included solos and small firms, Rees says. "We did not want to increase the burden for solos and small firm lawyers because that would have the exact opposite impact of what we were aiming for" in terms of access to justice, she says.

That will be especially important next spring, when the NSBS hopes to expand the system beyond the pilot project to make it profession-wide, which would necessitate legislation if, in fact, it is to become a requirement.

PMBR in Colorado

Although Illinois has begun talking seriously about implementing a PMBR system, Colorado is further down the path. The state Office of Attorney Regulation Counsel subcommittee established to address the issue has identified 10 common principles to encourage, based heavily on the principles in place in New South Wales and Nova Scotia.

For Colorado, these are: 1) developing competent practices, 2) communicating in an effective, timely, and civil manner, 3) ensuring confidentiality, 4) avoiding conflicts of interest, 5) maintaining appropriate file and records management systems, 6) ensuring effective management of the legal entity and staff, 7) charging appropriate fees and disbursements, 8) having appropriate systems in place to safeguard client trust money and property, 9) working to improve the administration of justice and access to legal services, and 10) creating a culture of wellness.

The subcommittee has broken into 10 working groups to address these issues, and the office overall has developed a self-audit checklist for small practices, worked proactively to raise awareness of common tools to prevent ethical missteps, and begun offering educational programs on professionalism, ethics, and trust account issues. The self-audit checklist is on the Colorado Supreme Court website under Lawyers/Practice Resources/Practice Management - see http://bit.ly/1UVJjU0.

James Coyle, attorney regulation counsel, reports a high level of enthusiasm in the Mile High State about moving forward with PMBR. "Our goal is to keep it voluntary but also to incentivize it," he says. For example, the self-assessment could bring continuing legal education credit or even a certification program "so they can hold themselves out like a Better Business Bureau member," he says.

The Office of Attorney Regulation will be working with insurance carriers like ALAS to get their input and collaboration and ask what they would be interested in seeing-and whether rate reductions could be in the offing for those who participate, Coyle says. "Then you can go to sole practitioners and firms to say, 'There are lots of different reasons to do this,'" he says. "I'm concerned that if we make it mandatory, people will go through the steps but not really use it."

Coyle hopes the self-assessment form could be completed by later in the summer, and he envisions working with local business schools around marketing the tools included to create an interest among lawyers and firms. "Language is so important, and the terms we use are so important," he says. "It's not enough to say, 'I'm from the government, and I'm here to help.' We've got to get them to want to become involved. That's the unknown."

Next steps in Illinois

The effort in Illinois is a bit more early-stage at the moment, but Grogan expects ARDC to make recommendations to the state supreme court some time this fall. "You're going to see, at the very least, the commission recommend some sort of self-assessment tool," he says. "The whole thing is intended to get people to self-assess, 'How do I make this better? How can I get help? Who can I talk to? What should I read?'"

This spring ARDC has been in the process of gathering input on model self-assessment forms, Grogan says. "The supreme court has to look at this and say, 'We think this is a good idea,'" he says. "We want input from the organized bar. There has to be buy-in from the profession."

Ultimately, however, "It seems to make a lot of sense to not throw people out on the streets and allow them to fail," Grogan concludes. "Being proactive is a good way to avoid malpractice, and if a lawyer makes a great effort to insulate themselves from malpractice liability, they're going to insulate themselves from regulatory concerns as well."

Ed Finkel
Ed Finkel is an Evanston-based freelance writer.
edfinkel@earthlink.net

Member Comments

Will everyone be winners or are losers needed to pay the price for this ? "I cannot give you the formula for success, but I can give you the one for failure which is try to please everyone all the time" Herbert Swope. Today's defensive medicine provides some clues. Another effect of such micro-regulation is how the cost of it is already putting the regulated out of business driving their clients into the hands of the unregulated. The practitioner becomes the equivalent of a bank employee managed by a swarm of state and federal compliance and regulatory bureaucrats depriving the public of effective advocacy. james n. mulvaney, a.r.d.c. # 01988921
1. I will be 87 years old this month of March, 2017. I graduated De Paul Law School and passed the bar exam in 1953. I worked and paid for all college and law school bills while attending school. I have never had a valid claim against me personally. There was a bogus claim filed by a lady because she objected to my law suit and settlement (approved by her attorney). I made her pay back about $45,000 of over $90,000 that she wrongfully obtained from my client, a senior elderly lady, for services performed. The ARDC advised that it would not process her claim.
2. I worked hard to get my active license, and I would like to keep it. I am semi-retired, but I donate some pro bono services, I advise some old clients, I advise some relatives and friends, and I prepare wills, trusts, POAs and POAHs. And I may make a court appearance on a minor matter like a traffic ticket. If I were handling divorces, I would quickly buy insurance. I have the knowledge, and I have the experience to know when to refer cases that need more experienced handling. I have been complying with the MCLE requirements to keep an active license.
3. The new and proposed rules put me in the same class as someone shortly out of law school with a lot of bills (because he or she didn't work his or her way thru and pay the bills like many of us did). The rules put me in the same class as someone who is trying to start a law practice without experience (rather than work for peanuts in a law firm to get experience like I did). Working in a law office should teach one to refer cases for which the firm has no experience.
4. The new and proposed rules are adding to the time and cost of practicing law, which cost is to be passed on to the clients. Added costs passed on to clients are fueling the complaint that legal services cost too much. Added costs to clients are also causing people to look for more ways to avoid lawyers and to accept more help from non-lawyers.
5. There should be publication of how many ARDC cases fit the facts that prompted the new rules. A new rule will not stop a bad apple from getting in the barrel.
6. Please pass on my suggestion that there should be an exception to the new and proposed rules for experienced lawyers to be excused from compliance when an application can show that he or she (1) has a reasonable amount of law practice experience, (2) has had no valid claims against him or her, and (3) has no large amount of unpaid bills. A home mortgage on a starter home should be an exception that is not included in unpaid bills. Income of a spouse is another factor to be considered to see if there is stress from unpaid bills.
Thank you for considering my comments and suggestion.