Bank of America’s new plan to seek reductions in its legal fees from certain outside law firms have some experts questioning the ethics of this unusual practice.  The bank is seeking a credit on its annual legal fees based on the amount of customer business it sends to the law firms.  According to the report, Bank of American has threatened to stop using law firms that refuse to sign onto the one year deal. 

The Bank of America agreement is believed to state that the credit sought is calculated based on the total amount of legal fees passed on to third-party customers.  Bank of America generally does not comment on specific arrangements with its legal providers; however, a source familiar with the agreement said that, the credit being sought is relationship based rather than percentage based. 

Cornelius Hurley, Director of the Boston University, Center for Finance, Policy, and Law opines that if the agreement is based on the amount of fees paid by customers, such an arrangement would be unethical and a “form of pay to play for the law firms.”  University of California’s Hastings Law School professor, Geoffrey Hazard explains that the agreement seems to violate the American Bar Association’s rules of Professional Conduct in a least two ways: (1) the bank is getting a reduction in legal fees; (2) and there is a referral in return for money.  

Not everyone sees this as an ethical issue.  Thomas Spahn, a commercial litigation partner at McGuireWoods in Virginia, said his law firm accepted the agreement and does not an issue.  He does not share the concern that this arrangement violates the rule that “a lawyer cannot give anything of value” to someone who sends him business.  Spahn’s reasoning is that “most law firms will give benefits to a company that sends them a lot of work such as free legal seminars or cocktail parties.”  He justified this position by stating that the agreement is sound as long as the credit is not tied to a particular fee. 

Bank of America does offer some notice to its customers that it is receiving a benefit.  Hurley feels the notice is “too vague and not a full-fledged disclosure...” and Hazard comments that “its getting the reduction that matters, not who knows about it.” 

The bank defended the agreement in a statement issued to Corporate Counsel.  “We do not require clients to retain particular law firms and we are committed to transparency in disclosing fee arrangements, as well as, potential benefits to our company.  We are confident that our agreements with external legal services providers are appropriate.”  Eric Cooperstein, a legal ethics practitioner in Minneapolis sees this agreement as raising serious ethical concerns as the rules do not have an exception for client consent.  “Quite simply, a legal client’s business cannot be bought and sold.”  




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Suppose your client, a lawyer, has been sued for malpractice. Could the alleged malpractice be a basis for discipline? Alternatively, is a disciplinary complaint likely to give rise to a malpractice suit? This article will attempt to shed some light on the distinction between attorney malpractice on one hand and professional misconduct on the other, as well as the types of conduct that may constitute both.

1. What is attorney malpractice?

Simply stated, attorney malpractice is a failure to exercise ordinary skill and knowledge, where that failure damages a client. “To state a cause of action to recover damages for legal malpractice, a plaintiff must allege: (1) that the attorney ‘failed to exercise the ordinarily reasonable skill and knowledge commonly possessed by a member of the legal profession’; and (2) that the attorney's breach of the duty proximately caused the plaintiff actual and ascertainable damages.” Schurz v. Bodian, 2012 WL 502680, *1 (N.Y. App. Div. 2012) (internal citations omitted). See also Legacy Healthcare, Inc. v. Barnes & Thornburg, 837 N.E.2d 619, 624 (Ind. Ct. App. 2006). (attorney malpractice claim involves “failure of the attorney to exercise ordinary skill and knowledge (the breach of the duty).”).

2. What is attorney misconduct?

By contrast, attorney misconduct is the failure to comply with the rules of conduct adopted by a court to which an attorney has been admitted to practice. Because all states except California have adopted some version of the American Bar Association’s Model Rules of Professional Conduct (the “Rules of Professional Conduct”), they will be the focus of this article. A failure to abide by the rules subjects the attorney to discipline by the highest court of that jurisdiction. “Failure to comply with an obligation or prohibition imposed by a Rule is a basis for invoking the disciplinary process.” Rules of Professional Conduct, Preamble, ¶ 19. See also Rule 9, American Bar Association’s Model Rules for Disciplinary Enforcement (“Enforcement Rules”) (“It shall be a ground for discipline for a lawyer to: (1) violate or attempt to violate the [State Rules of Professional Conduct], or any other rules of this jurisdiction regarding professional conduct of lawyers…”). The Enforcement Rules also provide for discipline for refusal to cooperate in the disciplinary process itself. See Enforcement Rule 9 (3), providing for discipline for disobeying a subpoena or order from a bar disciplinary authority.

Of course, the potential consequences of an attorney discipline case are very different from those of an attorney malpractice case. In the worst outcome of an attorney malpractice case, the attorney must pay monetary damages to the plaintiff. By contrast, attorney discipline actions place the attorney’s law license in jeopardy. An attorney who has been found to have violated the Rules of Professional Conduct faces a range of sanctions from a private reprimand up to disbarment, depending on the severity of the violation. See Enforcement Rule 10.

3. Does malpractice equal misconduct, or vice versa?

As noted above, attorney malpractice occurs where an attorney fails to exercise ordinary skill and care, and thereby causes damage to a client. Rule of Professional Conduct 1.1 provides "A lawyer shall provide competent representation to a client. Competent representation requires the legal knowledge, skill, thoroughness and preparation reasonably necessary for the representation."

Furthermore, Rule of Professional Conduct 1.3 provides "A lawyer shall act with reasonable diligence and promptness in representing a client."

Thus, it would seem that Rule 1.1 and Rule 1.3 may codify the requirement that an attorney exercise ordinary skill and care, and that failure to do so may constitute misconduct as well as malpractice. It is difficult to imagine a failure to exercise ordinary skill and care that is not also a failure to employ the “legal knowledge, skill, thoroughness and preparation reasonably necessary for the representation.”

Some courts have indeed treated isolated mistakes as misconduct and punished it accordingly. For instance, in Board of Professional Responsibility, Wyoming State Bar v. Vreeland, 2012 WL 662236 (Wyo. 2012), an attorney represented a client in a criminal trial. Id. at *1. The jury returned a conviction on February 4, 2010. Wyoming Rule of Criminal Procedure 29(c) required that a motion for judgment of acquittal be made within 10 days of the jury’s verdict, and Rule 33(b) required a motion for new trial to be filed within 15 days of the verdict. However, Vreeland did not file the motions for judgment of acquittal and for a new trial until March 3, 2010; hence, the motions were untimely. Id. The Wyoming Supreme Court found that Vreeland violated Rules 1.1 and 1.3 of the Wyoming Rules of Professional Conduct (based on the Model Rules) and imposed a sanction of public censure. Id. at *2. See also Board of Professional Responsibility, Wyoming State Bar v. Dunn, 262 P.3d 1268 (Wyo. 2011) (attorney received public reprimand for failing to file timely governmental claims notice and complaint); In the Matter of Brown-Williams, 2012 WL 366587 (Ga. 2012) (attorney received public reprimand for missing statute of limitations in workers' compensation case).

By contrast, some courts have explicitly held that an isolated mistake is not a proper basis for discipline. For instance, in In the Matter of the Application for Disciplinary Action Against William E. McKechnie, 656 N.W.2d 661 (N.D. 2003), the Supreme Court of North Dakota addressed a mistake similar to the mistake made by Vreeland, but found that the mistake did not constitute misconduct. "In this case, McKechnie gave Follman incorrect legal advice about the statute of limitations and Follman's case was dismissed for failure to file within the limitations period. This evidence shows nothing more than an isolated instance of ordinary negligence, or error of judgment. We conclude there is no clear and convincing evidence that McKechnie violated N.D.R. Prof. Conduct 1.1." Id. at 669.

Even in jurisdictions whose highest courts have not specifically stated that isolated attorney mistakes should not give rise to discipline, attorneys are not typically sanctioned under Rule 1.1 or 1.3 for simple negligence. More commonly, it appears that attorneys are disciplined for violations of Rule 1.1 or 1.3 in addition to numerous other violations of the Rules of Professional Conduct that involve intentional misconduct, dishonesty, ongoing failure to communicate with clients, or chronic neglect of clients’ interests. For instance, in In Re Adinolfi, 934 N.Y.S.2d 94 (N.Y. App. Div. 2011), an attorney was sanctioned for violating New York Rule of Professional Conduct 1.3 where at least 26 of the attorney’s 103 cases before the Second Circuit Court of Appeals had been dismissed for failure to file a brief. 95.

Finally, the Preamble to the Rules themselves suggest that isolated mistakes should not subject a lawyer to discipline: “Moreover, the Rules presuppose that whether or not discipline should be imposed for a violation, and the severity of a sanction, depend on all the circumstances, such as the willfulness and seriousness of the violation, extenuating factors and whether there have been previous violations.” Rules of Professional Conduct, Preamble, ¶ 19. Thus, those courts that have either explicitly stated that an isolated mistake is not a basis for discipline, or at least typically decline to sanction lawyers for such mistakes, appear to employ an approach more in keeping with the spirit of the Rules.

What about the reverse question: can an act or omission that constitutes attorney misconduct give rise to a malpractice action? The Preamble to the Rules of Professional Conduct provides that violation of a Rule should not in itself give rise to a cause of action. “Violation of a Rule should not itself give rise to a cause of action against a lawyer nor should it create any presumption in such a case that a legal duty has been breached.” However, violation of a Rule can be evidence of the breach of the standard of ordinary care. The Preamble provides that though “[the Rules] are not designed to be a basis for civil liability,…[n]evertheless, since the Rules do establish standards of conduct by lawyers, a lawyer's violation of a Rule may be evidence of breach of the applicable standard of conduct.” Furthermore, some kinds of attorney misconduct have nothing to do with attorney malpractice. For instance, a felony conviction for operating a vehicle while intoxicated will certainly result in discipline, but would provide no basis for a malpractice claim.

Dina M. Cox is a partner with Lewis Wagner, LLP in Indianapolis, who focuses her practice on the defense of complex litigation, including legal malpractice, drug and medical device, product liability, consumer class actions, and insurance coverage and bad faith lawsuits.

Neal Bowling, attorney with Lewis Wagner, LLP, focuses his practice on complex business litigation as well as defense of lawyers in malpractice and disciplinary matters. He has extensive experience advising and representing clients in complex and challenging litigation including: securities matters; employment litigation involving breach of noncompete and wrongful termination claims; and representation of lawyers in malpractice actions and disciplinary investigations and proceedings. 

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Marcellus Shale Drilling Regulation

Posted on February 23, 2012 01:59 by Charles R. Bailey

The West Virginia Legislature recently passed a bill designed to regulate Marcellus Shale Drilling. The City of Wellsburg West Virginia just passed an ordinance that bans hydraulic fracturing in the City Limits. The City of Morgantown passed a similar ordinance but was struck down by a circuit court judge and the time for appeal elapsed and the Supreme Court of Appeal for West Virginia did not have the opportunity to rule on the trial court’s decision. The Wellsburg ordinance will be challenged. Meanwhile cities and counties in West Virginia and in surrounding states are leasing its properties to oil and gas developers to shore up depleting city coffers and as a means to finance public projects. Airports and County park systems are leasing undeveloped land as well. Meanwhile the plaintiffs’ bar in West Virginia, Maryland, Pennsylvania, and Ohio are having public meetings to sign up potential litigants. The lawsuits range from allegations of contaminated water, property destruction, nuisance, trespass, and personal and bodily injury. Owners of the surface have created groups and organizations to fight the ability of the producers to construct the large drilling pads on the property. The surface owners contend that when the minerals were severed from the surface there was no intent to permit large drilling pads that sometimes exceed an acre or more to be placed on the surface One of the arguments is that the technology in use today was never contemplated as being possible at the time the surface was separated from the minerals. Moreover, as drilling has increased so has the number of injuries to workers. OHSA and other regulatory agencies are investigating the conduct of the producers and their contractors. Personal injury suits are on the rise and insurers are beefing up their reserves in anticipation of the increased number of lawsuits. State environmental agencies are being pressured to step up monitoring of drilling activities and fines and penalties are being levied in record numbers.

The biggest source of controversy is the alleged water contamination to water caused by hydraulic fracturing or also known as “fracking.” Many environmental groups are filing actions to limit or all together ban “fracking” because of charges the well water and streams are being contaminated. There are even charges that “fracking” is causing earth quakes. Yet, the economic boom that the Marcellus Shale and the Utica Shale exploration has brought to rust belt areas in West Virginia, Pennsylvania, and Ohio, as well as other states has pitted public officials and local business supporters against the anti-drilling advocates. Labor unions who may benefit from the increased drilling are at odds with some of their traditional allies that support union labor. However, unions are fighting the out of state developers demanding that jobs go to local workers and not “out of state scabs.” Most of the states within the Marcellus Shale region are heavily unionized. The states mentioned above are all vying for the construction of a “Cracker” facility in their state. WV has passed specific legislation to induce the construction of a “Cracker” facility, which will create an economic boom to any area where it is built. A cracker plaint can turn the bi-products of Marcellus shale gas drilling into plastics and other industrial items. See “Pennsylvania in Running for Cracker Plant,”, “Cracker plant tax break passes West Virginia Legislature,” http:// The, “Start-up waiting on funds for plant,, February 16, 2012

Law firms are flocking to regions where the drilling activities occur. Many of these towns and municipalities would have never attracted major firms to open their doors there. Papers in Pennsylvania, West Virginia, Ohio, and Maryland are announcing the hiring of specialized energy lawyers. Courthouse record rooms are so crowded in some areas that waiting times have been established. Locals comment about the number of out of state license plates seen in the local restaurants and taverns; complaints that it is hard to find hotel rooms in the near vicinity; traffic jams are now common in towns with only one stop light, crossing the road is hazardous for the first time in years and yes rental and home values are increasing and so are property taxes. The word boomtown is being used in Appalachia and western Pennsylvania for the first time since the decline in the steel and coking industry. Go to any courthouse in the region and the legal talk is about Marcellus Shale. There is only one thing to do, I suggest we all dust off our property law textbooks and reacquaint ourselves with transfer rights.

For more information on Hydraulic Fracturing you can request a paper prepared by our firm. Send requests to

Charles R. Bailey is a managing member of Bailey & Wyant, P.L.L.C. We have offices in Charleston and Wheeling WV. David Wyant past president of the West Virginia Defense Trial Lawyers is the managing member of the Wheeling office. Web site is , phone 304 345 4222, fax 304 345 3133, visit our facebook page Bailey & Wyant. 

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In its 2011 legislative session, the Alabama Legislature made significant changes affecting the construction industry, specifically relating to the Prompt Payment Act and the Statute of Repose.  This article provides practitioners with an update on those amendments.

A. Prompt Payment Act

Since 1995, Alabama law has provided a Prompt Payment Act, Ala. Code § 8-29-1 et seq., to assist contractors and subcontractors with recovering prompt payment for their services on construction jobs.  The 2011 amendments modified the maximum retainage provisions included in the Act.  These amendments went into effect on September 1, 2011, and apply to contracts entered into on or after that date. 

The maximum retainage allowed to be withheld by the owner is 10% of the estimated amount of work properly done and the value of materials stored onsite or suitably stored and insured offsite.  Ala. Code § 8-29-3(i).  After 50% project completion has been accomplished, no further retainage may be withheld.  Id.

In practical terms, therefore, an owner is limited to retaining 5% of the total contract sum as security for proper completion of the job (10% of earned payments for the first half of the job). 

Contractors and subcontractors are limited by the same caps.  Any retainage withheld in excess of the allowable amount will accrue interest at the rate of 1% per month (12% per annum).

The owner is required to release and pay retainage to the contractor for work completed on any construction contract no later than sixty (60) days after completion of the contractor's work as defined in its contract or "substantial completion" of the project, whichever occurs first.  Ala. Code § 8-29-3(l)(1).  "Substantial completion" means "the stage in the progress of the project when the project or designated portion thereof is sufficiently complete in accordance with the contract documents with all necessary certificates of occupancy having been issued so that the owner may occupy or use the project for its intended purpose."  Ala. Code § 8-29-3(l)(2).

The contractor is required to release and pay retainage to its subcontractors for work completed in accordance with the payment terms agreed to in the parties' contract, but if payment terms are not agreed to, then within seven (7) days of receipt of payment from the owner.  Ala. Code § 8-29-3(l)(1); Ala. Code § 8-29-3(b).  Owners, contractors, and subcontractors may condition payment on the receipt of a full release of any lien of the contractor, subcontractor, or sub-subcontractor for the amount of work being paid.  Ala. Code § 8-29-3(n).

The Prompt Payment Act does not apply to:  (1) residential home builders; (2) improvements to real property intended for residential purposes which consist of 16 or fewer residential units; (3) contracts, subcontracts, or sub-subcontracts in the amount of $10,000.00 or less; or (4) contracts with state or local governments (although these contracts do have the benefit of payment bonds under Alabama's Little Miller Act, Ala. Code § 39-1-1 et seq.).  Ala. Code § 8-29-7. 

In addition, the Prompt Payment Act is not applicable in civil actions to enforce mechanics' or materialmen's liens under Ala. Code § 35-11-210 et seq.  Ala. Code § 8-29-8.  Finally, the retainage caps and 60-day rule do not apply to construction projects for or by an electric utility regulated by the Public Service Commission.  Ala. Code § 8-29-3(m).

B. Statute of Repose.

The 2011 legislative session also saw amendments to the Statute of Repose that significantly limit the potential liability of architects, engineers, and general contractors for damages relating to their work on construction projects.  Ala. Code § 6-5-220 et seq.

The amendments provide that no lawsuit may be filed against any architect, engineer, or licensed general contractor for any cause of action (whether in contract, tort, or otherwise) which arises more than seven (7) years after substantial completion of the construction project.  Ala. Code § 6-5-221(a).  (Formerly, lawsuits could be filed up to thirteen (13) years after substantial completion of a project.) 

Under the statute, a cause of action "arises" at the time of injury or, where the injury is latent in nature, at the time the injury should reasonably be discovered.  Ala. Code § 6-5-220(e).  In general, a lawsuit must be brought within two (2) years after the cause of action arises, Ala. Code § 6-5-221(a), but a latent defect may not cause any actual injury or be discovered for many years after the project has been completed. 

Before the current legislation, a latent defect could create a situation where potential liability could go on almost indefinitely.  Under the amended Statute of Repose, however, if the cause of action does not arise within seven (7) years of substantial completion of the project, then the injured party is forever barred from filing a lawsuit against the architect, engineer, and general contractor on the project. 

The amendments are not retroactive, so the new time limits will only apply to projects that are substantially completed on or after September 1, 2011.

Jaime W. Betbeze
Hand Arendall LLC
Mobile, AL

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Virginia is in the minority of states that generally permit parties to be contractually indemnified for their own negligence, as long as the provision is clear and explicit.   In 2007, the Virginia Supreme Court upheld contractual indemnification clauses which shift the burden of liability to the indemnitor, even though the injury was the fault of the indemnitee.  Estes Exp. Lines, Inc. v. Chopper Exp., Inc., 273 Va. 358, 641 S.E.2d 476 (2007); W.R. Hall, Inc. v. Hampton Roads Sanitation Dist., 273 Va. 350, 641 S.E.2d 472 (2007).

In Estes Exp. Lines, Inc. v. Chopper Exp., Inc., a Chopper employee was injured while operating a truck leased from Estes.  The employee filed a personal injury action against Estes and a repair company on the basis that their negligence was the proximate cause of his injuries.  The parties settled their claims and, Estes then requested that Chopper reimburse it for the settlement amount and attorneys' fees in reaching settlement pursuant to the indemnification clause in the lease agreement.  Chopper had agreed to indemnify Estes for:

C. Any and all loss, cost, claim, expense, cause of action, loss of use and liability by reason of injury (including death) to persons or damage to property arising out of the use, operation, ownership, maintenance or control of a [leased] Vehicle whether covered by insurance or not, including claims in excess of insurance limits and all claims determined not to be covered by insurance irrespective of who, among [Chopper] or its insurance carrier or others, may be the cause for such failure of coverage or recovery in excess of coverage.

D. Any liability by reason of any claim asserted by an agent or employee of [Chopper].

Chopper refused, and Estes filed suit. 

The Virginia Supreme Court stated that indemnity provisions, including those indemnifying a party against future liability for personal injury caused by its own negligence, do not invoke the same public policy concerns as pre-injury release agreements.  The primary reason for this distinction is that, unlike pre-injury release provisions, indemnity provisions do not bar or even diminish an injury party's ability to recover from a tortfeasor.  The Court found that the indemnification was enforceable even to the extent that it would entitle Estes to be reimbursed for its own negligence.

On the same day as it rendered its Estes opinion, the Virginia Supreme Court issued its opinion in W.R. Hall, Inc. v. Hampton Roads Sanitation Dist.  In this case, the Hampton Roads Sanitation District (“HRSD”) hired W. R. Hall, Inc. to replace sewer lines.  W. R. Hall’s employee was injured when a train hit him.  The employee sued Belt Lines.  HRSD assumed Belt Line’s defense pursuant to the utility line agreement between them.  HRSD then sought indemnity from W. R. Hall for its expenses incurred in defending Belt Line under two indemnity provisions in favor of HRSD.

Article 6.16 specified that W. R. Hall

Shall assume full responsibility for any damage to any such land or area [on which the work is to be done], or to the owner or occupant thereof.  [W.R. Hall] shall indemnify and hold harmless [HRSD] from and against all claims . . . brought by any such owner or occupant against [district] to the extent caused by or based upon [W. R. Hall’s] performance of the Work.

Article 6.31 required W. R. Hall to indemnify and hold harmless HRSD against any claim or loss for bodily injury "arising out of or resulting from the performance of the Work," provided that the claim or loss was caused in whole or in part by any negligent act or omission of W. R. Hall regardless of whether or not caused in part by any negligence or omission of a person or entity indemnified.  The Court noted that this provision operates to place the ultimate burden for  personal injury upon the negligent party causing said injury.

The Virginia Supreme Court found both Articles enforceable. The Court found that HRSD held harmless Belt Line against the consequences of its operations.  HRSD then sought to transfer that risk to the entity actually performing the operations (i.e. W. R. Hall) using Article 6.16.  The Court held that this transfer of risk to the active party is not repugnant to public policy.  Similarly, Article 6.31 sought to place the ultimate burden for a personal injury upon the negligent party causing that injury, but only if the indemnitor was at least in part responsible for the injury.  Consistent with Estes, the Court held that a contractual provision whereby a party is indemnified against losses incurred as a result of personal injury caused by its own future negligence is enforceable and does not violate public policy.

It is important to ensure that clients doing business in the Commonwealth of Virginia are clear about the language of the agreements in these cases and indemnification agreements in their own contracts.  While the indemnification language in these cases may not be suitable for the needs of all clients, it provides an important foundation for creating indemnification language in other contracts.  Moreover, when a client is faced with potential liability, an understanding of the language in these cases proves important in recognizing whether a clients’ current contract will exempt them from (or expose them to) liability.

I find it important to note, however, that Virginia does have a statutory limitation on indemnification of one's own negligence specifically for construction contracts.  VA. CODE. ANN. § 11 4.1.  Otherwise, pursuant to Estes and W.R. Hall, there is no public policy in Virginia that prohibits a party from negotiating away its own negligence in indemnity agreements.

Kevin M. Cox
Semmes Bowen & Semmes


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