Does a North Carolina lawyer who realizes they made an error that might be malpractice have to tell the client, keep representing them, and refund fees?

Plain-English summary

The opinion addresses a lawyer's professional responsibilities after the lawyer realizes she may have committed legal malpractice. It opens by distinguishing malpractice from misconduct: per comment [9] to Rule 1.1, a breach of the civil standard of care does not necessarily violate the ethical duty of competence, and a good-faith single error is not usually a disciplinary matter. The opinion does not address malpractice-insurance reporting or settlement of a claim, though it reminds lawyers that Rule 1.8(h)(2) bars settling a malpractice claim with an unrepresented client or former client without advising them in writing to seek independent counsel.

On disclosure (Inquiries #1, #5, #6), the opinion grounds the duty in Rule 1.4. It uses a "spectrum" borrowed from Colorado Formal Ethics Op. 113: material errors that prejudice the client's rights or clearly give rise to a malpractice claim (for example, missing the statute of limitations) must always be disclosed; minor, harmless errors (a typo, a delay-only missed deadline) need not be. For errors in between, the duty to keep the client reasonably informed controls: if the error will cause financial loss, substantial delay, or material disadvantage, or if disclosure is needed for the client to make an informed decision, the lawyer may not withhold it; when in doubt, the lawyer should err toward disclosure or seek outside advice. Disclosure must come as soon as possible (Rule 1.4(a)(1)), and if a corrective motion (such as one based on excusable neglect) is needed, the client must be told before it is filed.

On continuing the representation (Inquiry #2), disclosure does not automatically require withdrawal. An error that may give rise to a malpractice claim creates a Rule 1.7(a)(2) personal-interest conflict, because the lawyer's interest in avoiding liability may impair her judgment. But often the lawyer can mitigate the loss (repair a title error, move in limine), and where the interests align the lawyer may proceed if she reasonably believes she can give competent and diligent representation and the client gives informed consent confirmed in writing (Rule 1.7(b)). If the client's objective can no longer be achieved, the lawyer must disclose and terminate. On the content of disclosure (Inquiries #3, #4, #7), following Colorado Op. 113 the lawyer states the operative facts of the error and recommends independent legal advice, but does not opine on whether a malpractice claim exists or admit liability; the lawyer may refer the client to another lawyer if she can do so with impartial judgment. On fees (Inquiry #8), under Rule 1.5(a) and 2000 FEO 5 the lawyer must determine whether a refund is needed to avoid a clearly excessive fee and must never charge for work needed to mitigate her own error.

In practice

Under the North Carolina rules as they stood at the time of the opinion, the committee holds that whether an error must be disclosed turns on its place on a spectrum from material (always disclose) to negligible (need not disclose), with in-between errors governed by the Rule 1.4 duty to keep the client reasonably informed. Per the opinion, disclosure must be made as soon as possible and, where a corrective motion is contemplated, before that motion is filed so the client can decide whether to let the lawyer attempt the fix or retain other counsel.

The opinion holds that disclosure does not require withdrawal unless the Rule 1.7 conditions for continuing a conflicted representation cannot be met: the lawyer may continue only if she reasonably believes she can provide competent and diligent representation and the client gives informed consent confirmed in writing, and must terminate if the client's objective can no longer be achieved. Per the opinion, the lawyer discloses the operative facts of the error and recommends independent counsel but does not assess whether a malpractice claim exists or admit liability, and under Rule 1.5(a) must refund fees as needed to avoid a clearly excessive fee and may not charge for work to mitigate the error.

Common questions

Q: Does a North Carolina lawyer have to tell the client about an error that might be malpractice?

A: It depends on the error. The opinion holds material errors that prejudice the client's rights or clearly give rise to a malpractice claim must always be disclosed, while negligible, easily corrected errors need not be; in-between errors must be disclosed if they cause loss, substantial delay, or material disadvantage, or if needed for an informed client decision under Rule 1.4.

Q: If the lawyer must disclose, does the lawyer also have to withdraw?

A: Not necessarily. Opinion #2 holds the error creates a Rule 1.7(a)(2) personal-interest conflict, but the lawyer may continue if she reasonably believes she can give competent, diligent representation and the client gives informed consent confirmed in writing. If the client's objective can no longer be achieved, the lawyer must disclose and terminate.

Q: What exactly must the lawyer tell the client?

A: The operative facts of the error and its effect on the representation, plus a recommendation to consider independent counsel. Per Opinion #3 (following Colorado Op. 113), the lawyer should not opine on whether a malpractice claim exists or admit liability.

Q: Does the lawyer have to refund fees?

A: Under Rule 1.5(a) and 2000 FEO 5, the lawyer must determine whether a refund is necessary to avoid a clearly excessive fee, and the opinion states the lawyer should never charge for legal work or expenses needed to mitigate the consequences of the lawyer's own error.

Background and rules framework

The opinion interprets several rules. Rule 1.4 (Model Rule 1.4) requires keeping the client reasonably informed (1.4(a)(3)) and explaining matters enough for informed decisions (1.4(b)); comment [7] bars withholding information to serve the lawyer's own interest. Rule 1.7 (Model Rule 1.7) governs the personal-interest conflict an error creates (1.7(a)(2)) and the conditions for proceeding with informed consent (1.7(b)). Rule 1.5(a) (Model Rule 1.5) bars a clearly excessive fee. Rule 1.8(h)(2) (Model Rule 1.8) restricts settling a malpractice claim with an unrepresented client. Comment [9] to Rule 1.1 distinguishes malpractice from a competence violation, and Rule 1.6(b)(5) permits disclosing confidential information to get ethics advice.

The committee adopts the "spectrum" framework and disclosure approach of Colorado Formal Ethics Op. 113 (2005), and quotes N.Y. State Bar Ass'n Op. 734 (2000) on when disclosure is required; it relies on 2000 FEO 5 for the fee-refund analysis.

Citations and references

Rules of Professional Conduct:

• Model Rule 1.4 / NC Rule 1.4(a)(1), 1.4(a)(3), 1.4(b) and cmts. [3], [7] (duty to keep client informed)
• Model Rule 1.7 / NC Rule 1.7(a)(2), 1.7(b) (personal-interest conflict; informed consent)
• Model Rule 1.5 / NC Rule 1.5(a) (clearly excessive fee)
• Model Rule 1.8 / NC Rule 1.8(h)(2) (settling a malpractice claim with an unrepresented person)
• Model Rule 1.1 / NC Rule 1.1, cmt. [9] (malpractice versus competence) and NC Rule 1.6(b)(5) (disclosure for ethics advice)

Other opinions cited:

• Colorado Formal Ethics Op. 113 (2005): the error "spectrum" and the rule that a lawyer discloses the facts of the error but does not opine on liability.
• N.Y. State Bar Ass'n Op. 734 (2000): factors that determine whether a mistake must be disclosed.
• 2000 FEO 5: a lawyer must review the representation and refund any fee needed to avoid a clearly excessive fee.

See also

• ABA Formal Op. 481: Duty to Inform a Client of a Material Error
• NY State Bar Op. 1092: Duty to Disclose Co-Counsel's Malpractice
• Colorado Bar Op. 85: Settlement of Malpractice Claims

Source

• Landing page: https://www.ncbar.gov/for-lawyers/ethics-and-governing-rules/ethics-opinions/opinions/2015-formal-ethics-opinion-4/

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

Introduction:

Lawyers will, inevitably, make errors, mistakes, and omissions (referred to herein as an “error” or “errors”) when representing clients. Such errors may constitute professional malpractice, but are not necessarily professional misconduct. This distinction between professional or legal negligence and professional misconduct is explained in comment [9] to Rule 1.1, Competence:

An error by a lawyer may constitute professional malpractice under the applicable standard of care and subject the lawyer to civil liability. However, conduct that constitutes a breach of the civil standard of care owed to a client giving rise to liability for professional malpractice does not necessarily constitute a violation of the ethical duty to represent a client competently. A lawyer who makes a good-faith effort to be prepared and to be thorough will not generally be subject to professional discipline, although he or she may be subject to a claim for malpractice. For example, a single error or omission made in good faith, absent aggravating circumstances, such as an error while performing a public records search, is not usually indicative of a violation of the duty to represent a client competently.

Although an error during the representation of a client may not constitute professional misconduct, the actions that the lawyer takes following the realization that she has committed an error should be guided by the requirements of the Rules of Professional Conduct. This opinion explains a lawyer’s professional responsibilities when the lawyer has committed what she believes may be legal malpractice.

This opinion does not address requirements under a lawyer’s malpractice insurance policy to give the insurer notice or to report a potential claim. Lawyers are encouraged to read their policies. This opinion also does not address settlement of a malpractice claim. Lawyers are reminded that Rule 1.8(h)(2) prohibits settlement of a malpractice claim with an unrepresented client or former client unless the person is advised in writing of the desirability of seeking and given a reasonable opportunity to seek the advice of independent legal counsel.

Inquiry #1:

When the lawyer determines that an error that may constitute legal malpractice has occurred, is the lawyer required to disclose the error to the client?

Opinion #1:

Disclosure of an error to a client falls within the duty of communication. Rule 1.4(a)(3) requires a lawyer to “keep the client reasonably informed about the status of the matter,” while paragraph (b) of the rule requires a lawyer to “explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation.” Comment [3] to the rule explains that paragraph (a)(3) requires that the lawyer keep the client reasonably informed about “significant developments affecting the timing or the substance of the representation.” Comment [7] to Rule 1.4 adds that “[a] lawyer may not withhold information to serve the lawyer's own interest or convenience or the interests or convenience of another person.”

In the spectrum of possible errors,1 material errors that prejudice the client’s rights or claims are at one end. These include errors that effectively undermine the achievement of the client’s primary objective for the representation, such as failing to file the complaint before the statute of limitations runs. At the other end of the spectrum are minor, harmless errors that do not prejudice the client’s rights or interests. These include nonsubstantive typographical errors in a pleading or a contract or missing a deadline that causes nothing more than delay. Between the two ends of the spectrum are a range of errors that may or may not materially prejudice the client’s interests.

Whether the lawyer must disclose an error to a client depends upon where the error falls on the spectrum and the circumstances at the time that the error is discovered. The New York State Bar Association, in a formal opinion, described the duty as follows:

[W]hether an attorney has an obligation to disclose a mistake to a client will depend on the nature of the lawyer’s possible error or omission, whether it is possible to correct it in the present proceeding, the extent of the harm resulting from the possible error or omission, and the likelihood that the lawyer’s conduct would be deemed unreasonable and therefore give rise to a colorable malpractice claim.

N.Y. State Bar Ass’n Comm. Prof’l Ethics, Op. 734 (2000). Under this analysis, it is clear that material errors that prejudice the client’s rights or interests as well as errors that clearly give rise to a malpractice claim must always be reported to the client. Conversely, if the error is easily corrected or negligible and will not materially prejudice the client’s rights or interests, the error does not have to be disclosed to the client.

Errors that fall between the two extremes of the spectrum must be analyzed under the duty to keep the client reasonably informed about his legal matter. If the error will result in financial loss to the client, substantial delay in achieving the client’s objectives for the representation, or material disadvantage to the client’s legal position, the error must be disclosed to the client. Similarly, if disclosure of the error is necessary for the client to make an informed decision about the representation or for the lawyer to advise the client of significant changes in strategy, timing, or direction of the representation, the lawyer may not withhold information about the error. Rule 1.4. When a lawyer does not know whether disclosure is required, the lawyer should err on the side of disclosure or should seek the advice of outside counsel, the State Bar’s ethics counsel, or the lawyer’s malpractice carrier.2

Inquiry #2:

Applying the analysis in Opinion #1, the lawyer has determined that her error must be disclosed to the client. Is the lawyer also required to withdraw from the representation?

Opinion #2:

No, unless the conditions in Rule 1.7, Conflict of Interest: Current Clients, that allow a representation burdened with a conflict to proceed cannot be satisfied.

Rule 1.7(a)(2) states that a lawyer may not represent a client if the representation of a client may be materially limited by a personal interest of the lawyer. When a lawyer realizes that she made an error that may give rise to a malpractice claim against her, the lawyer’s personal interest in avoiding liability may materially impair her professional judgment. Specifically, she may take actions that are contrary to the interests of the client to protect herself from liability. This is the essence of a conflict of interest.

Nevertheless, in many instances the lawyer may reasonably believe that she can mitigate or avoid any loss to the client by taking corrective action.3 For example, an error made in a title search may be readily repaired or a motion in limine may prevent the use of privileged communications that were improperly produced in discovery. It is often in the best interest of both the lawyer and the client for the lawyer to attempt such repair. When the interests of the lawyer and the client are aligned in this way, withdrawal is not required if the conditions for consent in Rule 1.7(b) are satisfied.

Rule 1.7(b) allows a lawyer to proceed with a representation burdened by a conflict if the lawyer reasonably believes that she will be able to provide competent and diligent representation to the client and the client gives informed consent, confirmed in writing. If the lawyer reasonably concludes that she is still able to provide the client with competent and diligent representation—that she can exercise independent professional judgment to advance the interests of the client and not solely her own interests—the lawyer may seek the informed consent of the client to continue the representation.

Of course, when an error is such that the client’s objective can no longer be achieved, as when a claim can no longer be filed because the statute of limitations has passed, the lawyer must disclose the error to the client and terminate the representation.

Inquiry #3:

If an error must be disclosed to a client, what must the lawyer tell the client?

Opinion #3:

The lawyer must candidly disclose the material facts surrounding the error, including the nature of the error and its effect on the lawyer’s continued representation. If the lawyer believes that she can take steps to remedy the situation or mitigate or avoid a loss, the lawyer should discuss these with the client while informing the client that the client has the right to terminate the representation and seek other counsel. Rule 1.4.

Whether a lawyer must inform the client that the client may have a malpractice action against the lawyer was addressed in Colorado Formal Ethics Opinion 113. The opinion states that

The lawyer need not advise the client about whether a claim for malpractice exists, and indeed the lawyer’s conflicting interest in avoiding liability makes it improper for the lawyer to do so. The lawyer need not, and should not, make an admission of liability. What must be disclosed are the facts that surround the error, and the lawyer should inform the client that it may be advisable to consult with an independent lawyer with respect to the potential impact of the error on the client’s rights or claims.

Co. Formal Ethics Op. 113 (November 19, 2005). The Colorado approach appropriately limits the possibility that a lawyer will attempt to give legal advice to a client about a potential malpractice claim against the lawyer. To do so would place the lawyer squarely in a nonconsentable conflict between the client’s interest and the lawyer’s personal interest. However, the lawyer is required to tell the client the operative facts about the error and to recommend that the client seeking independent legal advice about the consequences of the error.

Under this approach, the lawyer is not required to inform the client of the statute of limitations applicable to legal malpractice actions, nor is she required to give the client information about the lawyer’s malpractice insurance carrier or information about how to file a claim with the carrier. Nevertheless, the lawyer should seek the advice of her malpractice insurance carrier prior to disclosing the error to the client, and should discuss with the carrier what information, if any, should be provided to the client about the lawyer’s malpractice coverage or how to file a claim.

Inquiry #4:

Is there any information that the lawyer should not provide to the client when disclosing her error to the client?

Opinion #4:

The lawyer should not disclose to the client whether a claim for malpractice exists or provide legal advice about legal malpractice. See Opinion #3.

Inquiry #5:

When is the lawyer required to inform the client of the error?

Opinion #5:

The error should be disclosed to the client as soon as possible after the lawyer determines that disclosure of the error to the client is required. See Rule 1.4(a)(1) (lawyer shall promptly inform the client of any decision requiring consent).

Inquiry #6:

Is filing a motion to undo the error based upon excusable neglect sufficient disclosure to the client if the client is copied with the motion? May the lawyer wait until the court has ruled on the motion to send a copy of the motion and order to the client?

Opinion #6:

As noted above, comment [3] to Rule 1.4 explains that a lawyer must keep the client reasonably informed about “significant developments affecting the timing or the substance of the representation.” If the client will lose a significant right or interest if the motion fails, the client is entitled to know about the error in order to determine whether the client is willing to allow the lawyer to attempt to correct the error or would prefer that the motion be handled by another lawyer. The client must be advised of the error prior to filing the motion to allow the client to make an informed decision about the representation. Rule 1.4(b).

Inquiry #7:

When disclosing the error to the client, may the lawyer refer the client to another lawyer for advice?

Opinion #7:

Yes, if the lawyer concludes that she can exercise impartial, independent professional judgment in recommending other counsel to the client. See Opinion #2.

Inquiry #8:

If the client has paid legal fees to the lawyer, is the lawyer required to return some or all of the fees that she received?

Opinion #8:

Rule 1.5(a) prohibits a lawyer from collecting a clearly excessive fee. As stated in 2000 FEO 5,

there is always a possibility that a lawyer will have to refund some or all of any type of advance fee, if the client-lawyer relationship ends before the contemplated services are rendered. At the conclusion of the representation, the lawyer must review the entire representation and determine whether, in light of the circumstances, a refund is necessary to avoid a clearly excessive fee.

Therefore, the lawyer must determine whether, in light of the lawyer’s error and its consequences for the client’s interests and legal representation, a refund is necessary to avoid a clearly excessive fee. In addition, the lawyer should never charge or collect legal fees for any legal work or expenses necessitated by the lawyer’s attempts to mitigate the consequences of the lawyer’s error.

End Notes

• The “spectrum” concept of legal errors is borrowed from Colorado Formal Ethics Op. 113 (November 19, 2005).

• Rule 1.6(b)(5) allows a lawyer to disclose confidential client information to secure legal advice about the lawyer's compliance with the Rules of Professional Conduct.

• Insurance carriers are experienced at repairing malpractice. A lawyer should seek the advice and assistance of her carrier.