The following article appeared in Law360’s Expert Analysis section on October 14, 2021.

Former plaintiffs lawyer Thomas V. Girardi spent decades as one of the nation's best-known attorneys, representing plaintiffs in mass tort and high-profile class actions and inspiring the blockbuster film "Erin Brockovich."

Girardi and his eponymous firm, Girardi Keese, now face involuntary bankruptcy proceedings and related litigation stemming from decades of allegations that Girardi misused and misappropriated clients' funds. The maelstrom of litigation and press surrounding the saga provides myriad ethics and professional responsibility lessons for practitioners today.

A Brief Overview

Numerous clients have alleged that Girardi misappropriated funds that rightfully belonged to them.

Girardi, the former plaintiffs attorney famed for spearheading major class actions and for appearing alongside ex-wife Erika Girardi, aka Erika Jayne, on the reality TV show "The Real Housewives of Beverly Hills," was placed into a conservatorship earlier this year after being diagnosed with Alzheimer's disease and dementia.

The State Bar of California has deactivated Girardi's law license, and Girardi was also recently disbarred from the U.S. District Court for the Central District of California.

Girardi's unraveling began last year when he was found to have failed to distribute $2 million in settlement monies to the families of victims of the 2018 Lion Air Flight 610 crash.

U.S. District Judge Thomas Durkin of the U.S. District Court for the Northern District of Illinois, who is presiding over In re: Lion Air Flight JT 610 Crash, froze both the firm's assets, as well as those of Girardi himself.

Girardi's assets are now the subject of involuntary Chapter 7 bankruptcy proceedings in the Los Angeles Division of the U.S. Bankruptcy Court for the Central District of California.

The state bar has acknowledged that its investigators mishandled the complaints levied against Girardi, and the litigations are ongoing.

Reporting Professional Misconduct

Since the Lion Air revelations, many former clients have come forward to accuse Girardi and his firm of misappropriating funds generated through litigation.

Similarly, attorneys and peers have come forward to report that they had been aware of Girardi's misconduct for years.

Indeed, it appears that the State Bar of California has been investigating allegations of misconduct against Girardi for decades, and all the while Girardi continued to practice law and represent clients.

These revelations have elevated the ethical debate over misconduct reporting within the legal profession.

Girardi's high-profile practice and the volume of the allegations against him illustrate the stakes of the debate over professional responsibility rules that either encourage or mandate lawyers to report other attorneys for misconduct.

Many States Follow ABA Model Rule 8.3 and Its Duty to Report

The American Bar Association has modeled an affirmative duty for lawyers to report another attorney's misconduct in certain situations. ABA Model Rule 8.3, titled "Maintaining the Integrity of the Profession," directs a lawyer who knows that another lawyer has committed a violation of the Rules of Professional Conduct that raises a substantial question as to the lawyer's honesty, trustworthiness or fitness as a lawyer in other respects, shall inform the appropriate professional authority.[1]

Taking a closer look, Model Rule 8.3 has two key features. First, Rule 8.3 does not just suggest, but affirmatively mandates that attorneys in possession of such knowledge shall inform the appropriate professional authority. This is a requirement, not a suggestion.

In other words, an attorney with the requisite knowledge who fails to report a fellow attorney may be subject to professional discipline.

Second, the model rule specifies that attorneys will be obligated to report such conduct not just for any violation of the rules of professional conduct at all, but only those wherein the violation "raises a substantial question as to the lawyer's honesty, trustworthiness or fitness as a lawyer in other respects."

When it first promulgated the model rules in 1983, Rule 8.3 replaced Disciplinary Rule 1-103, which created a much broader mandate for lawyers to report knowledge of serious misconduct, and was therefore criticized for its unenforceability.[2]

With Rule 8.3's "substantial question" language, the ABA sought to focus specifically on severe conduct that touches on the core of a lawyer's fitness to practice law.

Under the model rules, a lawyer would likely be deemed to be in violation of the rules if they had knowledge that another attorney, such as Girardi, was pilfering or misappropriating client funds.

The model rules, however, have not been adopted in every state, and some open questions remain for practitioners, such as at what point a suspicion rises to the level of knowledge, and whether a single instance of misconduct triggers the requirement.

State Laws and the Debate Over Rule 8.3

Many states have adopted a version of Rule 8.3, requiring that attorneys who have knowledge of significant misconduct must report such conduct to appropriate bar associations. Softening the model rule, Georgia and Washington say that lawyers should report such misconduct but do not require that they do so.[3]

By contrast, California has not adopted any reporting rule at all. As a result, some lawyers who admit that they had actual knowledge of Girardi's misconduct have stated that they did not report such conduct because they did not believe that they were required to do so.

In light of these admissions, proponents of a reporting rule might argue that absent clear guidance from the rules of professional conduct, lawyers may not know how best to proceed amid the ethical and political quandaries. In other words, a reporting rule may provide the necessary cover for lawyers who believe that they should report, but may not want to for fear of professional consequences.

However, even in states that do mandate reporting, attorneys are often disincentivized from reporting, given both personal and financial implications as well as the fear of stigmatization within the attorney community. 

Further, reporting alone does not serve as a panacea, as Girardi's predicament illustrates. Girardi was under investigation by the California State Bar for alleged misconduct but was not suspended until very recently.

California, like many jurisdictions, allows the state bar to seek a lawyer's interim suspension pending a formal disciplinary investigation where there would be an ongoing threat to the public if the lawyer was permitted to continue to practice.

However, for reasons unknown, the state bar did not seek any type of interim relief until very recently.

Mandatory Professional Liability Policies

The Girardi dispute also raises another controversial issue in professional responsibility — namely, whether jurisdictions should require lawyers and law firms to carry professional liability insurance.

The estate of both the firm and Girardi are currently embroiled in involuntary Chapter 7 bankruptcy proceedings in the Central District of California.

In sum, the creditors' claims against the firm total $130 million, according to documents filed in the action. And while the firm claims an interest in high-value class actions, the extent to which creditors will be able to recoup their losses remains unclear.  

Moreover, despite the firm's size and renown after decades in practice, Girardi Keese did not carry professional liability insurance. As a result, the bankruptcy trustee must now attempt to disburse recoupment to lenders, shareholders and individual creditors.

The creditors' predicament raises the issue of whether firms should be required to carry professional liability insurance. Given the allegations of intentional misconduct at play in Girardi's case, it is unclear whether such a mandate would help any of the firm's creditors, given that a policy may not cover the losses at issue here.

Idaho and Oregon have passed rules mandating that lawyers carry legal malpractice insurance, though other states have not followed suit yet. In Idaho, a 2016 rule requires that lawyers engaged in private practice must submit proof of liability insurance with minimum limits of liability of $100,000 per occurrence and $300,000 for annual aggregate claims.[4] Similarly, Oregon private practice attorneys must maintain insurance coverage, and the state has established the Oregon State Bar Professional Liability Fund.[5]

California has looked at this issue, going so far as to convene a Malpractice Insurance Working Group. However, upon investigation, the working group concluded that it needed more information before entering any recommendations either way.[6]

Other states have followed suit in researching the issue, though none have yet joined Oregon and Idaho.[7]

Proponents of mandatory insurance policies argue that such a mandate provides consumer protections for clients, offering even minimal recovery options in the event of malpractice.

Further, an insurance mandate may provide incentives for attorneys to represent plaintiffs in legal malpractice cases on a contingency basis, given that it creates additional security that a judgment against an attorney-defendant will be enforceable and, ultimately, collectible. In turn, proponents argue, this fosters confidence in the integrity of the legal profession.[8]

By contrast, those who disagree with proposals for mandatory insurance policies often argue that aggrieved clients do have meaningful recourse in the form of legal malpractice litigation, and that such a mandate might incentivize unnecessary litigation.

Further, many lawyers argue that such a mandate presents an unaffordable cost for many attorneys, particularly small firms and solo practitioners.

For creditors seeking recoupment from Girardi and the law firm, this debate provides cold comfort. But for practitioners today, the case provides fertile ground for engagement on some of today's most pressing professional responsibility issues.

[1] ABA Model Rules of Prof'l Conduct R. 8.3(a) (1983).

[2] ABA Model Code of Prof'l Resp. R. 1-103 (1980).

[3] Ga. Code of Prof. Conduct R. 8.3(a) (2001); Wash. R.P.C. R. 8.3(a) (2015).

[4] Idaho Bar Comm. R. 302(a)(5) (2021).

[5] See Oregon State Bar Professional Liability Fund, available at https://www.osbplf.org/.

[6] State Bar of Cal. Malpractice Insurance Working Group, "Report to Board of Trustees" (Mar. 7, 2019), available at https://www.calbar.ca.gov/Portals/0/documents/reports/Malpractice-Insurance-Report_Summary_and_Supreme-Court-Cover-Letter.pdf.

[7] See, e.g., Wash. State Bar Assoc. Mandatory Insurance Task Force, available at https://www.wsba.org/connect-serve/committees-boards-other-groups/mandatory-malpractice-insurance-task-force.

[8] Susan Saab Fortney, Mandatory Legal Malpractice Insurance: Exposing Lawyers' Blind Spots, 9 St. Mary's J. on Legal Malpractice and Ethics 190 (2019).