Recognize the Signs Your Legal Practice is Exposed to Liability for Aiding and Abetting
Updated: Apr 26, 2022
The frequency of aiding-abetting claims against attorneys related to their clients’ alleged misconduct has risen sharply since 2010. The lawsuits are expensive to defend, damaging to reputation, and injurious to client relations. Accordingly, attorneys need to recognize the risk factors for aiding and abetting liability exposure. Risk assessment begins with evaluating three aspects of the attorney-client relationship: (i) client characteristics; (ii) nature of our legal engagement, and; (iii) conduct of the client (or the attorney):
Client characteristics: Liability exposure is relatively higher if you represent the following: fiduciaries, entrepreneurs, professionals, partners, or directors and officers. Clients in these roles often owe a fiduciary duty to employers or business partners, and when clients breach such duties their lawyer may face liability as a “secondary actor.” Exposure is heightened where the client is thinly capitalized, for a victim who cannot recover from your client may be inclined to sue you and your firm to ensure a deep pocket for any judgment.
Nature of the engagement: Liability exposure rises when the engagement is outside the scope of ordinary legal representation (as when the attorney primarily is executing business functions), or involves creation of front companies without legitimate purpose, preparation of “offering memoranda” and similar disclosures, or when the attorney is self-interested or conflicted. While courts have held that attorneys have a limited “privilege” to abet wrongdoing, that privilege has been forfeited when the attorney acted in a primarily non-legal role.
Conduct of client or attorney. Liability exposure increases when the client engages in atypical business practices, such as employing non-standard accounting procedures. Attorney conduct also can increase exposure. In particular, attorneys who initiate business strategy have proven susceptible to liability. Exposure also rises when the attorney has a duty to speak to third parties or engages in self-dealing.
Attorneys seeking in-depth analysis regarding these indicia of exposure, as well as how to mitigate risk, while navigating relevant Rules of Professional Conduct, may register here https://masonadr.inreachce.com for my new CLE, “Attorneys’ Liability for Aiding and Abetting a Client’s Misconduct: Law and Ethics” which has been formally approved by Pennsylvania and Texas for 1 substantive CLE credit and 1 ethics CLE credit, and qualifies for these CLE credits in "reciprocal" states (such as New York).