Ethics and Social Media - ABI materials

Concurrent Session
Ethics and Social Media
Hon. Melanie L. Cyganowski (ret.), Moderator
Otterbourg P.C.; New York
Hon. Thomas J. Catliota
U.S. Bankruptcy Court (D. Md.)
Hon. Rosemary Gambardella
U.S. Bankruptcy Court (D. N.J.)
Hon. S. Martin Teel, Jr.
Richard M. Meth, Facilitator
Fox Rothschild LLP; Roseland, N.J.
2014
U.S. Bankruptcy Court (D. D.C.)
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American Bankruptcy Institute
Bankruptcy 2014: Views From The Bench
Georgetown University Law Center
Washington, DC
October 24, 2014
“Ethics and Social Media”
Hon. Thomas J. Catliota
U.S. Bankruptcy Court (D. Md.)
Hon. Rosemary Gambardella
U.S. Bankruptcy Court (D.N.J.)
Hon. S. Martin Teel, Jr.
U.S. Bankruptcy Court (D.D.C.)
Melanie L. Cyganowski, Esq.
Moderator
Otterbourg P.C.
New York, NY
Richard M. Meth, Esq.
Facilitator
Fox Rothschild LLP
Roseland, NJ
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Disclosure, disclosure, disclosure …
Failing which you may be disqualified.
Or…
By Hon. Melanie L. Cyganowski (Ret.), Otterbourg P.C.,
Richard M. Meth, Fox Rothschild LLP, and Lloyd M. Green, Otterbourg P.C.
The issue of just how much disclosure is required of bankruptcy professionals by Bankruptcy Rule 2014 was put front and center earlier this year by the U.S. District Court’s partial affirmance (and remand) of the Bankruptcy Court’s decision in KLG Gates LLP v. Brown, 506 B.R. 177
(E.D.N.Y. 2014).1 Bankruptcy Rule 2014 requires, among other things, disclosure by the professional of “all of the person’s connections with the debtor, creditors, any other party in interest, their
respective attorneys and accountants, the United States trustee, or any person employed in the office
of the United States trustee.” The term “connections” is ill-defined and amorphous, and that is why
counsel need to be particularly careful as to what, and how, they disclose regarding their relationships with various entities.
A. In KLG Gates, the District Court reviewed the disqualification of Debtors’ counsel
under Rule 2014 for failing to adequately disclose the prior representation of two of Debtors’ creditors in separate, unrelated bankruptcy cases. In the District Court’s view, the law firm should have
disclosed the identity of the individual lawyer who had performed work for the creditors in question.
KLG Gates turned on the sufficiency of the disclosures made by the law firm’s lead
partner handling the bankruptcy cases. In his Bankruptcy Rule 2014(a) affidavit, he stated that the
Debtors had 1,250 creditors, 483 of which were being, or had been, represented by his firm in unrelated matters. What was left unsaid was the nature and description of those representations.
Significantly, PNC and Wilmington Trust were the agents for the first and second
lien lenders in the Debtors’ pending bankruptcy cases, respectively. But, the partners’ affidavit did
not spell out K&L Gates’ prior role in its representations of PNC in the Enron bankruptcy and Wilmington Trust in the Delphi bankruptcy. Against this factual backdrop, the Bankruptcy and District
Courts held that the law firm’s disclosure was insufficient. However, the District Court ultimately
remanded the issue back to the Bankruptcy Court to determine whether disqualification was appro-
1
The correct name of the appellant law firm is K&L Gates LLP. The District Court’s
Memorandum of Decision And Order, upon which the official reported decision is based, misidentified the law firm as “KLG Gates LLP”.
© Hon. Melanie L. Cyganowski (Ret.), Otterbourg P.C., Richard M. Meth, Fox Rothschild LLP, and Lloyd M. Green, Otterbourg P.C., September,
2014
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American Bankruptcy Institute
priate.
Notably, the issue of what constituted sufficient disclosure only arose after the Debtors’ Chapter 11 Plan had been confirmed and a trust had been formed to pursue claims against the
Debtors’ insiders. It was at this juncture that an insider sought law firm disqualification and raised
the issue of sufficiency of disclosure. For the Bankruptcy Court, it was the letter and spirit of Rule
2014 that proved to be overriding factors in its decision to disqualify counsel.
In light of the various issues and concerns noted by the District Court, it is suggested that, going forward, disclosures may also need to identify “who” was involved – as opposed
to just listing past representations. Bureaucratically, that may be the one safe path to avoid disqualification and judicial rebuke. As the decision makes clear, there is a distinction between a disclosed
prior representation and a non-disclosure giving rise to disqualification.
B.
Alleged excessive professional fees received the Bankruptcy Court’s attention in In
re GSC Group, Inc., 502 B.R. 673 (Bankr. S.D.N.Y. 2013). The Court reduced more than a quarter
of the $5.9 million in fees requested by a debtor’s advisory firm on the grounds that it had failed to
disclose its actual relationship with a consultant overseeing the debtor’s restructuring efforts. The
Court also disparaged the consultant’s request for a 50 percent bonus for its work on the case. In
contrast, one law firm’s fee application was approved after it had previously agreed to reduce that
application.
The genesis of the case is as follows. A hedge fund represented by Kaye Scholer
filed for bankruptcy during the summer of 2010. It retained Capstone Advisory Group LLC as its
financial adviser, led by Robert Manzo. The hedge fund’s assets were subsequently liquidated at
auction. Thereafter, the debtor’s plan of liquidation was confirmed and a limited liability company
whose sole member was Manzo became the liquidating trustee. The detailed relationship between
Manzo and Capstone was not fully disclosed.
Capstone eventually sought a $3.25 million success fee. When viewed against the
$5 million initial stalking horse bid and the $235 million recovered at auction, the success fee appeared reasonable – at least to Capstone. However, the U.S. Trustee had a different perception
and objected to the advisor’s request. Over the course of time, the purchaser of the debtor’s assets
brought to the Court’s attention Manzo’s fee arrangements with Capstone.
Following a trial, the Court disallowed $4.27 million in fees for Capstone and also
reduced Kaye Scholer’s fees. In reaching its conclusion, the Court highlighted the interrelationship
between Section 504 of the Bankruptcy Code, which governs the sharing of compensation, and
Bankruptcy Rule 2016, which governs fees applications. As Judge Chapman wrote: “Thus, while
the Court agrees that the Capstone/Manzo arrangement does not run afoul of the letter or spirit of
section 504, the Court strongly disagrees with Capstone’s further conclusion that it had no obligation to disclose the existence (if not the details) of the arrangement. Simply put, Capstone’s analysis
of the interplay between section 504 and Rule 2016 is incorrect.”
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The Rules of Professional Conduct and their impact on social media
C.
Social Media Falls Within the Scope of the Rules of Professional Conduct. As the
American Bar Association has observed, websites may inadvertently create attorney-client relationships:
Websites have become a common means by which lawyers
communicate with the public. Lawyers must not include
misleading information on websites, must be mindful of the
expectations created by the website, and must carefully manage inquiries invited through the website. Websites that invite
inquiries may create a prospective client-lawyer relationship
under Rule 1.18. Lawyers who respond to website-initiated
inquiries about legal services should consider the possibility
that Rule 1.18 may apply.
ABA Formal Opinion 10-457
In this same spirit, the South Carolina Bar issued the following opinion (Ethics Advisory Opinion 12-03) with regard to legal websites that serve as conduits for specific questions and
detailed answers:
Because this specific website asks lawyers to provide specific
legal advice in response to detailed questions, it is substantively inviting the creation of attorney-client relationships
despite its likely ineffective attempts to disclaim them. Initial
boilerplate responses to questions include requests for “more
details about your situation” and the advice provided is often
specific and contains legal conclusions based on application
of the law to the facts presented. At a minimum, justanswer.
com provides, not just question-and-answer, but a specific
question-and-paid-professional-answer service that removes
it from the radio call-in show/public seminar paradigm described in prior advisory opinions and is irreconcilable with
the site’s disclaimers.
D.
Attorney Advertising. Beyond establishing an attorney-client relationship, an attorney needs to be mindful of properly labeling attorney advertising as such when using the internet to
get the word out. The California State Bar issued Formal Opinion No. 2012-186, which provided,
in part:
Material posted by an attorney on a social media website will
be subject to professional responsibility rules and standards
governing attorney advertising if that material constitutes a
“communication” within the meaning of rule 1-400 (Advertising and Solicitation) of the Rules of Professional Conduct
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of the State Bar of California; or (2) “advertising by electronic
media” within the meaning of Article 9.5 (Legal Advertising)
of the State Bar Act. The restrictions imposed by the professional responsibility rules and standards governing attorney
advertising are not relaxed merely because such compliance
might be more difficult or awkward in a social media setting.
Consistent with this approach, the New York State Bar Association relied upon Rule
7.4 and issued Opinion 972 (6/26/13), which provided that a “[l]aw firm may not list its services
under heading of Specialties” on a social media site, and a lawyer may not do so unless certified as
a specialist by an appropriate organization or governmental authority.”
However, the NYSBA further explained that a lawyer may identify his/her areas of
practice, without ascribing to himself/herself/the firm a particular expertise: “A lawyer or law firm
may publicly identify one or more areas of law in which the lawyer or the law firm practices, or may
state that the practice of the lawyer or law firm is limited to one or more areas of law, provided that
the lawyer or law firm shall not state that the lawyer or law firm is a specialist or specializes in a
particular field of law, except as provided in Rule 7.4(c).” (emphasis in original).
E.
Social Media is Not a Place for Airing Grievances With a Client. Social media is
now a recognized vehicle for advertising, and that is a two-edged sword. Under Connecticut Informal Opinion 2012-3 (2012), a lawyer may ask a client to post favorable ratings online. Obviously,
those posts cannot contain any false or misleading materials. But by putting themselves “out there”
for comment and praise, a lawyer or law firm is also making itself a target for less than completely
satisfied clients.
In Formal Opinion 41 (2009), the Nevada State Bar Standing Committee on Ethics
and Professional Responsibility made clear that Ethics Rule 1.6 was even broader in its scope than
DR4-101, which had simply prohibited the disclosure of client secrets. In fact, the Opinion went so
far as to say that leaving a voicemail on a client’s answering machine warranted extra consideration
in the absence of client consent. As for listing a client in a firm brochure, the Opinion took a dim
view of that practice unless the law firm had first obtained client consent.
To put things in context, if leaving a message on a home answering machine triggers
ethical concerns, then public push-back will likely evoke ethical review. In In re Skinner, 292 Ga.
640 (2013), the Georgia Supreme Court formally reprimanded a lawyer who posted information
about a former client who had posted a negative online review about the lawyer. Although the
Court considered the lawyer’s personal circumstances, it surveyed similar cases and determined
that discipline was warranted, stating:
While this Court has not been faced with a violation of Rule
1.6 by means of internet publication, the supreme courts of
two states have. The Supreme Court of Illinois accepted a
petition to impose a 60-day suspension on consent of an attorney who, among other things, had published in a blog related
to her legal work confidential information about her clients
and derogatory comments about judges, and had included
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information from which the identity of the clients and the
judges could be discerned. The Supreme Court of Wisconsin imposed reciprocal discipline, i.e., a 60-day suspension,
for the attorney’s conduct, quoting extensively in its opinion
from documents filed in the Illinois proceeding. See Office
of Lawyer Regulation v. Peshek, 2011 WI 47, 334 Wis.2d
373 (798 NW2d 879) (2011). In In re Quillinan, 20 DB Rptr.
288 (2006), summarized by the State Bar of Oregon in http://
www.osbar.org/publications/bulletin/07jan/discipline.html,
the Oregon disciplinary board approved a stipulation for discipline that suspended for 90 days an attorney who drafted
and transmitted an e-mail disclosing to members of the Oregon State Bar’s workers’ compensation listserve personal
and medical information about a client whom she named, and
suggesting the client was seeking a new lawyer.
In re Skinner, 292 Ga. at 641.
Following the issuance of a Special Master’s Report, the Georgia Supreme Court
revisited the lawyer’s case and filled in missing details. In re Skinner, 295 Ga. 217 (2014). Apparently, the attorney was retained to represent a client in an uncontested divorce. For over a month the
client heard nothing, and then was advised that the lawyer had lost the file. A dispute emerged over
fees and retention. In the end, the client posted a negative review of the attorney, which triggered
the lawyer’s public disclosure the client’s name, her employer, and details about her personal life.
F.
Attorneys, Clients and the First Amendment. Still, not every disclosure is about settling a score or setting the record straight. Practitioners and academics alike have taken to blogging.
As public speech, blog posts are entitled to First Amendment protection. But, where the purpose
of the blog is to serve as an advertising adjunct, the speech may be treated as commercial speech
and, where a client is involved, Rule 1.6 stands to be implicated. All of these issues came together
in Hunter v. Va. State Bar ex rel. Third Dist. Comm., 744 S.E.2d 611 (Va.), cert. denied, 133 S. Ct.
2871 (2013), where the Virginia Supreme Court appears to have carved out an exception to the nondisparagement of clients, if the disclosures made are predicated upon public documents. Beyond
that, the Court continued the regulation of attorney speech.
The genesis of Hunter is as follows. Hunter, a Virginia lawyer, authored a trademarked blog titled “This Week In Richmond Criminal Defense,” in which he discussed various
cases, including numerous matters in which he had represented the defendant. In 2011, a disciplinary committee found that Hunter’s blog lacked an advertising disclaimer, and that his posts
disclosed confidential client information. Thereafter, an intermediate state appellate court upheld
the disciplinary committee’s determination that the blog constituted attorney advertising, but found
that blog posts based upon the public record were protected by the First Amendment.
On appeal, the Virginia Supreme Court upheld the Circuit Court, and in doing so
devoted extensive consideration to the First Amendment:
To the extent that the information is aired in a public forum,
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privacy considerations must yield to First Amendment protections. In that respect, a lawyer is no more prohibited than
any other citizen from reporting what transpired in the courtroom. Thus, the circuit court did not err in concluding that the
VSB’s interpretation of Rule 1.6 violated the First Amendment.
Hunter, 744 S.E.2d at 503.
Suffice it to say that Hunter has not met with universal approval. See L. Jacobowitz
and Kelly Rains Jesson, “Fidelity Diluted: Client Confidentiality Gives Way to the First Amendment & Social Media in Virginia State Bar, ex rel. Third District Committee v. Horace Frazier
Hunter”, 36 Campbell L. Rev. 75 (Fall 2013).
More recently, the Third Circuit in Dwyer v. Cappell, 2014 U.S. App. LEXIS
15361(3rd Cir. Aug. 11, 2014), reminded the bar that the disciplinary rules pertaining to lawyer
advertising must be read in the context of the First Amendment, and that commercial speech is still
protected speech. In Dwyer, the Third Circuit invalidated a New Jersey guideline which barred attorneys from including in advertisements (including websites) portions of opinions which lauded
the attorney’s services unless the attorney included the quoted Court’s full opinion.
The Court of Appeals framed the issue as follows:
Attorney Andrew Dwyer, lauded by New Jersey judges in
separate judicial opinions, published on his law firm’s website those complimentary remarks. One of the judges objected
to this, and ultimately the New Jersey Supreme Court adopted an attorney-conduct guideline that bans advertising with
quotations from judicial opinions unless the opinions appear
in full. Is the guideline an unconstitutional infringement on
speech as applied to the advertisements of Mr. Dwyer and his
firm? We believe it is and thus reverse the contrary decision
of the District Court.
G. Facebook and Unrepresented Adversaries. Finally, a lawyer should be careful in
reaching out to a potential unrepresented litigant through Facebook. In a recent ethics opinion, the
Massachusetts Bar Association ruled that “[a] lawyer for a party may ‘friend’ an unrepresented adversary in order to obtain information helpful to her representation from the adversary’s nonpublic
website only when the lawyer has been able to send a message that discloses his or her identity as
the party’s lawyer.” Mass. Bar Assn. Comm. on Prof’l Ethics, Op. 2014-5. In reaching its conclusion, Massachusetts adopted the approaches of the Philadelphia and San Diego Bar Associations’
ethics committees, while rejecting approaches taken by similar bodies in New York and Oregon.
The Massachusetts Committee stated:
In the Committee’s view, it is not permissible for the lawyer
who is seeking information about an unrepresented party to
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access the personal website of X and ask X to “friend” her
without disclosing that the requester is the lawyer for a potential plaintiff. In so doing, the lawyer would be engaging
in deceit forbidden by Rules 4.1 and 8.4(c). See Philadelphia
Bar Association Opinion 2009-2 and San Diego County Bar
Association Legal Ethics Opinion 2011-2.
***
We do not agree with the conclusion of the Oregon Ethics Committee in its Opinion No. 2013-189 that the burden
should be on the unrepresented party to ask about the inquirer’s purpose rather than on the lawyer to disclose her identity
and/or purpose. We believe that it is permissible to “friend” X
in this situation in order to access nonpublic information only
when the lawyer has been able to send a message that discloses her identity as the plaintiff’s lawyer. Facebook, LinkedIn
and other social media sites allow the invitation to include a
message. We also do not agree with the suggestion in Formal Opinion 2010-2 of the New York City Bar Association’s
Committee that the lawyer’s identification message may be
contained in a “profile” created on the lawyer’s personal social media page. It is well known that “friending” requests are
often granted quite casually, and viewing the invitee’s profile
is not necessarily a mandatory step in accepting a “friend”
request. The lawyer’s message must accompany the “friending” request in order to avoid the very real possibility that
the recipient will be deceived. Although this communication
medium is obviously different, the bottom line resembles a
telephone call in which the lawyer does not adequately identify herself.
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