THE NATURE OF LEGAL AGENCY AND THEREFORE LAWYERS

The RESTATEMENT is as good as any other source. Here is what § 1(1) says:

“Agency is the fiduciary relationship which results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control and consent by the other so to act.”

Notice that agency is in general a voluntary relationship. It is to be conceived in fundamentally dyadic ways. The agent acts on behalf of the principal. And the principal has the right to control the conduct of the agent. In fact, the law of many states, including Texas, is that a principal has the right to control the details of an agent’s activities. See State Farm Mut. Auto. Ins. Co. v. Traver, 980 S.W.2d 625, 627 (Tex. 1998). There is a school of thought and a strand of the law, which creates a division of labor between clients and lawyers. It has been variously described as “ends-means,” substance-procedure, strategy-tactics, or objective-means[,]” Wolfram at 156, with the client in control of what comes before the hyphens and the lawyer in control of what comes after the hyphens. TxDR 1.02(a)(1) provides that “a lawyer shall abide by a clients decision . . . concerning the objectives and general methods of representation[.] Cmt. #1 for this rule states the following: “The lawyer should  assume responsibility for the means by which the client’s objectives are best achieved thus, a lawyer has very broad discretion to determine technical and legal tactics, subject to the client’s wishes regarding such matters as the expense to be incurred and concern for third-persons who might be adversely affected.” Similarly, Hazard and Hodes comment on these matters in their commentary, THE LAW OF LAWYERING. Some Central Rules (etc.) of the Law of Agency: Duties of Agents. The most central of all is this one: Agents are always bound by a “Fiduciary Rule.” An Agent (“A”) has a duty to his Principal (“P”) to act solely and only for P’s benefit in all matters related to the agency, absent an informed agreement between P and A to some other effect. Here are some components of that Rule: A. A is always a fiduciary of P. (All agents are fiduciaries of their principals, but not all fiduciaries are agents.) B. A is not a fiduciary with respect to everything pertaining to P but only that which is within the scope of the agency. C. Every agency has some scope, whether express or implied. D. The scope of an agency is not always obvious or easy to determine. E. “However, an agent may be in such a confidential relationship to the principal that he has a duty of disclosure and fair dealing as to all matters.” RAg § 390 Cmt d.  This kind of rule will apply to some lawyers under some circumstances. F. Agents are in general not in a fiduciary relationship with their principals before the formation of the contract of agency and while they are negotiating the fee arrangements. The fee agreement is not (usually) within the scope of the agency. Sub-parts: 

“If, however, as in the case of attorney and client, the creation of the relation involves peculiar trust and confidence, with reliance by the principal upon fair dealing by the agent, it may be found that a fiduciary relationship exists prior to the employment and if so, the agent is under a duty to deal fairly with the principal and arranging the terms of the employment.” Id. at Cmt. e. Fees of agents can be percentages, e.g., of profits.

G. Obviously, agents must subordinate their interests to the interests of their principals, at least with respect to anything affecting matters within the scope of the agency. Sub-parts

For this reason, A may not compete with P, if the competition would affect matters within the scope of the agency, absent a fully informed agreement. A may not undertake an activity for a third party (“X”), where A’s activities for X are outside the scope of his agency arrangements with P, if those activities for X would have consequences for matters within the scope of A’s relationship with P, absent fully informed agreement.

H. A cannot serve the interests of someone other than P, if that service would adversely affect the interests of P, insofar as they pertain to matters within the scope of the agency, absent . . . . I. A’s duty to P are the same as those of a trustee to a beneficiary. J. A may lawfully injure the interests of P if A is acting in good faith, is acting outside the scope of the agency, and the interests of P are not interests related to the scope of the agency. K. If A acquires confidential information pertaining to P as a result of the existence of the agency relationship, you may not use that information to the disadvantage of P.(For this reason, A may not compete with P, if the competition would affect matters within the scope of the agency, absent a fully informed agreement. L. Because they are fiduciaries, agents have a duty of uberrima fidei (or, uberrima fides, or uberrimae fidae) with respect to their principals. Here is how the terms are defined: “Of the utmost good faith, a term applied to a category of contracts and arrangements where each party must not only refrain from misrepresenting to the other but must voluntarily and positively disclose any factor which a reasonable person in the position of the other party might regard as material in determining whether or not to undertake the contract. This requirement applies to contracts of guarantee, insurance, partnership, family arrangements, and certain others, but not such contracts as sale.” David M. Walker, THE OXFORD COMPANION TO LAW 1245 (1980). Or this:

“The most abundant good faith; absolute and perfect candor openness and honesty; the absence of any concealment or deception, however slight. A phrase used to express the perfect good faith, concealing nothing, with which a contract must be made; for example, in the case of insurance, the insured must observe the most perfect good faith towards the insurer.”BLACK’S LAW DICTIONARY 1690 (1968). See Mayes v. Mass Mut. Life Ins. Co., 608 S.W.2d 612, 616-17 (Tex. 1980), citing Stipcich v. Metro. Life Ins. Co., 277 U.S. 311(1927).

What might “utmost good faith” mean? Obviously something more than merely good faith, the Latin phrase for which is usually bona fides. The Latin phrase is not much used in discourse upon the law of agency, but if agents are fiduciaries with respect to their principals, then they have a duty of utmost good faith.  

A duty of utmost good faith requires that high level of good faith none higher than which the community can conceive. Otherwise, what would utmost really mean? In the end, if this suggestion actually were taken up by a court, a court would affirm my suggestion, but then temper with some remark about how everyone had to be reasonable (realistic, common sensical [if that’s a word], &c.) at all times. The court’s position would be inconsistent. –MSQ

 M. A fiduciary (and therefore an agent so hence a lawyer) can fail to succeed as a fiduciary and not be subject to blame.  Probably, if A has made a very reasonable attempt to act for the benefit of his P, then he is not blameworthy. Energetic trying counts for something. There is some blame if he is merely reasonable and not very reasonable. If he is negligent there is more blame. Some genuine trying counts for something, just a little less. At least the last one is a failure to be a fiduciary, but it is not a violation of the fiduciary duty. The violation is still not a refusal or even a refraining.

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Problems of Judges: Criminal–Performance & Victim

Judicial Poison

An Ohio judge, 72 years old, was poisoned by his wife. She used antifreeze that she poured into his drink. The marriage has lasted 45 years up until then. She did it as a device to secure medical treatment for him, not just for the poisoning but for other medical problems, as well. One wonders what the other medical problems were.  Any chance it was alcoholism?  She pleaded guilty to “felonious assault.”

October 2014. A Pa. judge, age 41, faced minor criminal charges when she side-swiped a car after crossing the center line and then took off. The other driver followed her and claims to have observed several other similar swerves.  On the other driver, there was a smell of booze.

The side-swiper was a “Magisterial District Judge,” no less. The charge was obstruction of justice. His lawyer said that this was private and did not reflect the way she would discharge her judicial duties.

To be sure, the charge is unusual, but doesn’t it fit? And surely it is better, in some ways, for her than DUI/DWI. Then again, maybe not.  If a judge obstructs justice in any part of his/her life, perhaps that person should not continue being a judge.  Better a drunk judge than a one with proclivities to injustice.

September 2014. A municipal judge in Philly, Pa. 61 years old, plead guilty to various federal charges–the usual, I guess mail fraud, wire fraud, etc.–arising out of his offering his “services” (judicial influence) in exchange for campaign contributions. He is scheduled for sentencing in January 2015, and the prosecutors are said to be recommending 2 yrs.

Municipal judges in Pa. must have a lot of judicial power since it was a gun charge involved. In some states, the usual type of case many judges hear is tipping over on a sidewalk while tying your shoes.

September 2014. A Nevada judge gave up his law license and his judgeship after pleading guilty to one count of a 19-count indictment, to wit: a wire fraud conspiracy charge. The case arose out of a $3M investment scheme. I guess he made a bet on an investment, of sorts. The prosecution will, it is reported, suggest 27 months at his January sentencing, and J. keeps his $150T yearly pension. (He must have been a judge a long time. Maybe he just got bored and decided to gamble.

If I were in LV, where he was a judge, I would bet he’s squealing. Wouldn’t you?

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In-House Counsel–Future Growth v. Inferior Status–Part I

In the last several years approximately 50-58%  of larger companies have moved legal work in-house.  That is what this blog is about.  Part II will concern new work for in-house legal departments in large businesses.

The “bring-in” might be as much as $6.9B according to WSJ on September 15, 2014.  Granted this is only a small fraction of the  $100B+ corporations will spend on legal fees this year. Still, “[c]orporate law departments also are tackling increasingly complex matters that were once the province of major law firms. Some are hiring seasoned attorneys with pedigrees from big law firms to come work inside companies, where they advise on  everything from mergers and acquisitions to advertising rules and antitrust matters.” See B6.

I wouldn’t be surprised if this didn’t happen more in the insurance industry.  If so it will involve larger in-house departments doing larger and larger defense-of-the-insured cases.

Why? Lower cost? Obviously. Supervising the brigade’s contract lawyers hired by the companies? WSJ says so, and the brigades will grow to divisions or armies in the next decades if the trend continues. Shorter hours: Maybe. Room to rise? Wouldn’t be surprised. Less management? Bet so. More flexible time off? Don’t know. Easier access to corporate meetings in exotic places? Possible. Cyber-based research tools? I wonder.  All of the above? Virtual certainty.

As disappointed as I am to have to admit this, Richard Susskind, one of the world’s leading egotistical narcissists—not far behind Ralph Lauren–if his marketing ploys are any indication, turns out to be right about this. This will become “more true” if the trend continues.  Myself, I’m convinced that it will. (With regard to Susskind, I can still say that his current book, TOMORROW’S LAWYERS: AN INTRODUCTION TO YOUR FUTURE (Oxford U.P. 2003) erroneously says a number of condescending and false things about in-house lawyers of previous and current generations.)

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Insurance: IPOs & Attorney Malpractice

IPOs from Silicon Valley are worrisome these days, says the WALL STREET JOURNAL. (October 9th, 2014 at A1). Now suppose cyber insurance could be created for the perils in situations like this. Obviously, the stock selling well below the price tentatively predicted (with heavy qualifications, of course) by the financial company and perhaps the law firm. There can be huge, even ruinous loss. It could wreck the company.  The Facebook case was not that bad, but it was startling.  Zynga was even worse.

Insurers could analyze the probabilities of initial pricing independently.  They could issue insurance as the usual layered way to protect from losses, the primary using a substantial SIR.

In addition, the insurers could demand specified safety precautions. This would be good for the market.  The insurer could demand contracts from the financial entities and the law firms to it. These would be very difficult lawsuits to win, but complex IPO demand very special, advanced, highly specialized work.  E & O cases can be won in that domain.

Now for the most interesting problem.  Usually, only clients can sue their lawyers for negligence performance, and that is a tort, not a breach of contract. In fact, most states refuse to let clients use breach of contract as a device for recovery.

So why not create a new set of relationships? The law firm contracts with a non-client to perform services of a specified type at a pre-agreed level of performance for its client, the “IPOing biz.,  and if that requirement is not met, there is a breach of the contract between the law firm and the insurance contract.  No subrogation is needed; no assignment is involved.

The IPO-ing biz will have consented to this arrangement, though it need not be a party to the contract. 
Of course, none of the 3 entities (or three divisions of entities) could object to or attack the arrangement.  This waiver, or something like it, “a rule-out,” would be especially important with the law firm that entered into the contract.  After all, it is a sophisticated entity, so much so that injury to public policy in the arrangement is an unlikely judicial finding.

And even the big law firms need this kind of business so they will do it voluntarily. They will be able to get malpractice insurance for the project on a case-by-case business. They can live with the huge SIRs that is a certainty, and they will protect themselves from the enormous losses which they will be facing in the relatively near future.

All underwriting on matters of this sort will be difficult and highly speculative, but so is all underwriting of the new.

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Deposition Questions for “Obligation to Hurry Situations”

The reason is that the idea of the possible is a very complex one.  The term “possible” is ambiguous, and can easily create confusion.  If the term “possible” means “as quickly as it could be done,” then such a decision can be made in a matter of minutes, and that is the intent of the lawyer for the policyholder.  Rhetorically, the goal is to create a trap where the testifying adjuster or expert will be committed to an absurdly short period of time. Against that background, consider this question:

Is it important for an insurer to determine their coverage position as quickly as possible?

The correct answer to this question is an expanded version of “Yes,” matters are actually more complicated than answering a  simple “Yes.” Now for the problem. In depositions, examining counsel always tries to get “Yes” answers to questions like this one.  This “push” needs to be resisted.

Here are some of the components that need to be added: (1) being able to make the decision based upon evidence and reason is crucial, (2) the use of evidence and reason requires access to relevant information, and this often means documents and people, (3) the analysis at the insurance company (or its managing general agent or its independent adjuster and then itself) needs stop being able to think about it, and (4) trying to do something in a reasonable manner takes time. 

In other words, the answer should include all of (1)-(4), it may be advisable to include the word “dispatch,” or a word equivalent to or like it.  So here are some other possibilities:

Yes and No.
No and Yes.
It depends on what one means by “possible.”

I tend to prefer #(3).  Often the next question is:

What do you mean by “possible”?

In that case, the answer begins with “It depends on the situation.”  A witness could stop there, but that’s ill-advised.  It looks like the witness is trying to avoid answering the question forthrightly.  It’s better to go this way:

When I say “possible” in dealing with questions like this, I mean to be saying “when it can be done reasonably on the basis of actual information provided to or obtained by the carrier. Trying to do something right may take time.”*
It’s fine to stop right there, but if examining counsel really wants an answer, give counsel this:
In this context “possible” means commencing the adjustment process directly, seeking the information as part of that process, thinking about the problems objectively, obtaining help as needed, and then drawing a conclusion.  All of this should be done with dispatch.

Many lawyers still object to this answer: “Objection, not responsive.” And if the lawyer is a donkey’s behind, this will say, “Now, listen to my question.” 

In my opinion, the best response is simply to say,

I don’t have anything else to say. I’ve answered your question.

If the lawyer is a large donkey with a huge behind, he might say,  Repeat back to my question.

This is not a question, so the witness does not need to respond. Our large donkey might

ask, “What question do you think I asked?“

At this point, the witness has three choices. (1) Try to repeat it. (2) Ask the court reporter to read it. (3) Ask counsel to ask it again. Of these #(3) is the best.

Above all, simply keep repeating what you have said, in one way or another.  Examining counsel is eating up his clock.

There is variation in this discussion. Suppose the lawyer’s question is this:

It’s important for an insurer to try and determine and announce its coverage position asap, true.

This is a leading question, and a “Yes” or “No” answer should be avoided. Here are options:
(1) I don’t understand your question, please spell it out for me.

(2) Depends

(3) Depends on the circumstances

(4) Can’t be answered that way.

(5) I don’t know how to answer what you’ve asked when you put it this way.

Any of these will do. There is no—really, NO!–such thing as a “’Yes’ or ‘No’” question.  There are always several more answers, e.g.:

(6) I don’t know.

(7) I don’t understand.

(8) I don’t remember what “asap” means.

(This is a nice way into the idea of the “possible.”)

Examining lawyers will almost always tell a witness that if he does not understand a question, ask him/her to explain it. So do this:

(9) I don’t understand how the term “try” is figuring in here.

(10) I don’t really see how the term “possible” works in this sentence.

(11) Wait, what does “possible” mean in your questions.

 
Try not to fall into deposition traps.  Go slow, and listen carefully.

 

 

 

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Quinn Quotes

A variation is never identical to that which is being varied upon.  This too is probably a necessary truth.  Both variances can be true at the same time. Then again sometimes they are something like contradictory, though probably not completely, given the meaning of “variation.”~Michael Sean Quinn, PhD, JD, CPCU, Etc.Tweet

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Michael Sean Quinn, PhD, JD, CPCU, Etc*., is available as an expert witness in insurance disputes and other litigation matters. Contact