||Los Angeles Lawyer
The Magazine of the Los Angeles County Bar Association
March 2009 Vol. 32, No. 1
MCLE Article: 2008 Ethics Roundup
The punishment of several prominent members of the bar in 2008 offers a reminder to all attorneys of the duties owed to clients
By John W. Amberg and Jon. L. Rewinski
John W. Amberg is a partner in the Los Angeles office of Bryan Cave LLP, and Jon L. Rewinski is a partner in the Los Angeles office of Locke Lord Bissell & Liddell LLP. Both are former chairs and current members of the Los Angeles County Bar Association's Professional Responsibility and Ethics Committee. Rewinski is a member of the State Bar of California's Committee on Professional Responsibility and Conduct, of which Amberg is a former chair.
By reading this article and answering the accompanying test questions, you can earn one MCLE legal ethics credit. To apply for credit, please follow the instructions on the test.
2008 was a year of great highs and lows in legal ethics. Venerable California law firms were not immune from the collapse of the economy, as 118-year-old Heller Ehrman and 84-year-old Thelen voted to dissolve and other firms announced mergers, defections, layoffs, delayed employment starts, cancellations of bonuses, and salary freezes.1
Moreover, prominent lawyers were punished for serious misconduct. Convicted of conspiring to wiretap his client Kirk Kerkorian's former wife, Terry Christensen was sentenced to three years in prison and fined $250,000 by U.S. District Judge Dale Fischer, who excoriated Christensen for "deliberately, repeatedly and happily violat[ing] the law" and failing to show remorse.2 U.S. District Judge John Walter sentenced Melvyn Weiss, cofounder of the class action law firm Milberg Weiss, to 30 months in prison and ordered him to forfeit $9.75 million and pay a $250,000 fine for secretly paying class representatives.3 Judge Wallace Tashima, sitting as a special master, found that Thomas Girardi, Walter Lack, and their associates had filed suit to enforce a $489.4 million Nicaraguan court judgment against two nonparties based on false and incomplete translations of the foreign court records, ghost-written expert declarations, and misleading briefs, and recommended sanctions.4 After Judge Tashima made his findings, the Ninth Circuit Court of Appeals opened a disciplinary matter and appointed Hastings College of Law Professor Rory Little as an independent prosecutor. Beleaguered U.S. District Judge Manuel Real was removed from five cases in 2008 by the Ninth Circuit, the Federal Circuit, and the U.S. Supreme Court.5 However, the Ninth Circuit's judicial council dismissed misconduct charges against Judge Real that were based on 38 cases. The council failed to find "clear and convincing evidence of willfulness..." under court rules.6 The State Bar's Board of Governors voted to support a new rule of professional conduct, overcoming resistance that had doomed the proposal in 2007. If approved by the California Supreme Court, the new rule would require lawyers in private practice to disclose whether they carry professional liability insurance to new clients in nonemergency engagements lasting longer than four hours.7 The State Bar also approved a proposal by its Office of Chief Trial Counsel to post pending disciplinary charges on a member's personal profile page on the State Bar's Web site.8 The heated national debate over the propriety of ethical screens when lawyers switch private firms was fought to a draw when the American Bar Association's House of Delegates voted 192 to 191 to postpone indefinitely the consideration of an amendment to the ABA's Model Rules of Professional Conduct that would have permitted ethical screens.9 Meanwhile, California still lacks a definitive rule or state supreme court decision on the subject. The U.S. Department of Justice announced new guidelines regarding the cooperation of corporate defendants with federal prosecutors. Under the guidelines, credit for the cooperation will not depend on the corporation's waiver of the attorney-client privilege or the protection for attorney work product.10 The Justice Department acted under pressure from the legal profession and the business community as well as from Congress, which had threatened legislation to protect the attorney-client privilege and attorney work product. Moreover, the department was responding to the dismissal by the Second Circuit Court of Appeals of charges against 13 former partners and employees of KPMG as a sanction for the government's pressure on the accounting firm to terminate payment of their legal fees.11 Conflicts of Interest With continuing lawyer mobility and law firm consolidation, it is no surprise that conflicts of interest continue to be a hot topic. The fundamental principles set forth in Rule 3-310 of the Rules of Professional Conduct have not changed. During 2008, the Second and Fourth District Courts of Appeal had occasion to analyze them in published opinions. In Sharp v. Next Entertainment, Inc.,12 the defendants--producers of reality television programs--moved to disqualify the lawyers representing the named plaintiffs in a putative class action alleging that the defendants failed to pay class members for overtime in accordance with applicable law. The law firm representing the plaintiffs also represented the Writers Guild of America in unrelated matters. The guild wanted to unionize reality TV employees and set up the meetings between its lawyers and the employees that led to the lawsuit. The guild also agreed to pay the legal fees and costs incurred in the class action. Arguing that the plaintiffs and the guild had conflicting interests, the producers moved to disqualify the plaintiffs' law firm. The court denied the motion but ordered the law firm to erect an ethical screen that would preclude communications about the class action between the lawyers handling the class action and the lawyers handling the guild's matters, with an exception for the issue of fees and costs, because the guild had agreed to pay them. The Second District Court of Appeal affirmed. The trial court found that the Writers Guild and the plaintiffs did not have conflicting interests within the meaning of Rule 3-310 of the Rules of Professional Conduct. The court of appeal declined to review this finding because it concluded that the guild and the plaintiffs had signed consents waiving any actual or potential conflicts and, therefore, it was unnecessary to decide whether there was a conflict. The Rules of Professional Conduct do not specifically address conflict waivers in the context of a class action,13 and neither the California Supreme Court nor a California court of appeal had done so in a published case before Sharp. In Sharp, the Second District held that the law firm was not required to obtain conflict waivers from all putative class members. It only needed to obtain waivers from the named plaintiffs and the guild.14 The court of appeal reasoned that because the class had not yet been certified, unnamed members of the putative class were not parties. Obtaining consent from all putative class members would have been impractical, and requiring all putative members to sign conflict waivers would have, in effect, created an inappropriate opt-in class action. Further, if there are conflict-of-interest issues, the ability of a named plaintiff to represent class members adequately would be sufficiently vetted through the class certification process.15 In Gong v. RFG Oil, Inc.,16 the Fourth District Court of Appeal considered a motion to disqualify defense counsel because of a conflict arising in litigation over the management of a closely held corporation. Two brothers owned all the defendant corporation's stock--one held 51 percent, the other, 49 percent. The majority owner managed the business. After a dispute arose between the brothers, the minority owner sued the company and his brother, alleging that his brother had mismanaged the business, wasted corporate assets, used company assets to buy real estate for himself, and improperly ran him out of the business. He asserted claims for declaratory relief, breach of fiduciary duty, wrongful termination, and dissolution. With a conflict waiver in hand, a lawyer attempted to represent both defendants--the majority-owning brother and the company. Indeed, as a practical matter, to communicate with the company, the lawyer had to communicate with the majority-owning brother. Arguing that the interests of his brother and the company were in conflict and that the conflict could not be waived, the minority-owning brother moved to disqualify the defendants' lawyer. Although the trial court denied the motion, the Fourth District Court of Appeal issued a writ, ordering the trial court to grant the motion. In cases involving concurrent representation of clients with actual or potential conflicting interests, the primary concern is the duty of loyalty that the lawyer owes to each client.17 The appellate court reasoned that even though the plaintiff had not asserted a derivative claim, his allegations of waste and mismanagement created an actual conflict that prevented a single lawyer from satisfying a duty of loyalty to both the company and the majority owner. For example, if the plaintiff established that his brother had used corporate assets to buy real estate for himself, his brother would owe money to the company. An actual conflict between the interests of the two defendants precluded one lawyer from jointly representing them. In another matter, Justice Arthur Gilbert, writing for the Second District Court of Appeal, continued his tradition of deciding attorney misconduct cases without reference to the Rules of Professional Conduct or the State Bar Act. The appellate court affirmed judgment against an attorney, Eddie B. Jamison, for malpractice, breach of fiduciary duty, and financial abuse of an elder in Wood v. Jamison.18 The attorney simultaneously represented a 78-year-old woman and an imposter claiming to be the woman's nephew. During the representation he helped procure a $250,000 loan at 18.41 percent interest for his elderly client, secured by her house, so she could invest in the phony nephew's night club. The lawyer received $14,000 from the loan proceeds, which he did not disclose. The woman defaulted on the first installment. After she died, the lender moved to foreclose on her home, and the executor of her estate sued the lawyer. The appalled appellate court rejected a document--which the lawyer claimed he received seven months after the trial from an anonymous source--in which his deceased client supposedly acknowledged that the lawyer did not represent her in the loan transaction. The court chastised the lawyer for failing to disclose his conflict of interest to his client, thereby "bring[ing] financial harm to his client, institutional harm to his profession, and catastrophic harm to himself."19 However, the court ignored Rule 3-310 of the Rules of Professional Conduct, in which informed written consent, not just disclosure, is required. Moreover, under the circumstances, not even consent would have cured the conflict. Motions to Recuse Prosecutors In criminal prosecutions, Penal Code Section 1424 authorizes the court under certain circumstances to recuse a prosecutor because of a conflict. During 2008, the California Supreme Court issued three significant opinions on motions to recuse prosecutors pursuant to Section 1424. In two of them, Haraguchi v. Superior Court20 and Hollywood v. Superior Court,21 the court considered the extent to which prosecutors may risk recusal by engaging in extracurricular activities. Haraguchi22 involved a deputy district attorney who routinely prosecuted defendants accused of committing rape. The attorney was the author of a novel titled Intoxicating Agent, an account of the rape of an intoxicated person. The novel features the efforts of the heroine--an intrepid deputy district attorney modeled on the author--to bring the rapist to justice. Three months before the novel was published, the defendant in Haraguchi was charged with raping an intoxicated victim. Claiming similarities between himself and his case and the characters and events depicted in Intoxicating Agent, the defendant moved to recuse the deputy district attorney pursuant to Section 1424. He argued that his prosecution by the deputy district attorney could be swayed by her interest in generating publicity for herself and her novel and thus he would be precluded from receiving a fair trial. In Hollywood,23 another deputy district attorney from the same office prosecuted defendant Jesse James Hollywood on charges of kidnapping and first degree murder of a 15-year-old boy. The motive for the crimes appeared to be the bungling by the victim's older brother of a drug deal. While Hollywood was on the lam, the deputy district attorney helped filmmaker Nick Cassavetes make Alpha Dog, a movie based on the crimes. The prosecutor gave the filmmaker a copy of his trial notebook, transcripts of testimony from the previous trials, contact information for witnesses, police reports, probation reports, and other materials. In his zeal for justice, however, the prosecutor may have gone too far. Disseminating confidential criminal records, such as police reports and probation reports, is unlawful and may constitute a misdemeanor.24 The movie vilified Hollywood. After he was caught, Hollywood moved to recuse the deputy district attorney. In both Haraguchi and Hollywood, the trial courts denied the recusal motions, and the appellate courts reversed. In Haraguchi, the appellate court reasoned that the prosecutor's "views of the justice system, as reflected in her novel, were so one-sided as to raise a reasonable possibility she would not exercise her discretion even-handedly, and her interest in promoting her book presented a conflict so great it was unlikely that the defendant could receive a fair trial."25 In Hollywood, the appellate court commented that "[i]n this case of first impression, we should not give our imprimatur to [the prosecutor's] conduct or embolden other prosecutors to assist the media in the public vilification of a defendant in a case which is yet to be tried."26 However, in both cases, the California Supreme Court reversed, because the appellate courts failed to accord sufficient deference to the trial court findings.27 In Haraguchi, the supreme court noted that although there was sufficient evidence in the record upon which a trial court could have found that the novel created a reasonable possibility that the deputy district attorney would have handled the defendant's prosecution differently, the trial court found otherwise--and its findings also were supported by the record.28 According to the court, "That a prosecutor may pursue an independent writing career does not alone create a conflict with the public interest and disqualify her from future prosecutions, absent proof her writings create a material conflict in a particular case."29 In Hollywood, the court noted that "[c]ertainly, a case might arise in which a trial court could order recusal based on the prosecution's attempt to manipulate the prospective jury pool by disseminating inflammatory portrayals of the defendant."30 But substantial evidence supported the trial court's findings that the deputy district attorney wanted to facilitate Hollywood's capture and portray his character as accurately as possible. Still, the court had stern words for the prosecutor:
This is not to say that [the prosecutor] should escape censure. We find his acknowledged actions in turning over his case files without so much as an attempt to screen them for confidential information highly inappropriate and disturbing. The trial court made no findings as to whether this omission in fact resulted in the illegal or unethical disclosure of confidential documents, and we certainly are not situated to do so here. If it did result in such a disclosure, sanctions are available, as are authorities whose function it is to pursue those sanctions.31
For these and other similar situations, the district attorney's office has the authority to investigate and prosecute illegal conduct, and the State Bar has the authority to investigate and prosecute unethical conduct. Last year the supreme court also had an opportunity to consider whether a prosecutor's advocacy of a victim's rights may create a conflict of interest requiring recusal. In People v. Superior Court (Humberto S.),32 the prosecutor filed a motion to quash a defense subpoena for the victim's medical and psychotherapy records. When the motion was not granted, the prosecutor filed a writ petition with the court of appeal and moved for the appointment of a guardian ad litem for the victim. With these actions, had the prosecutor undertaken the representation of the victim? No, the supreme court concluded, and therefore the trial court had abused its discretion in recusing the prosecutor because of a conflict. By making arguments that others also support, "the prosecution does not...assume representation of those third parties any more than an amicus curiae whose interests align with a party represents that party by submitting arguments that support its position."33 The court noted, however, that "the persistent, bad faith use of litigation tactics lawful in and of themselves might in some circumstances evidence an underlying conflict that renders a fair trial unlikely and warrants recusal...."34 Business Transactions with a Client Rule 3-300 of the Rules of Professional Conduct, "Avoiding Interests Adverse to the Client," has long been a trap for lawyers who confuse their role as a professional adviser to their clients with the role of business partner. The rule prohibits a member of the bar from entering into a business transaction with a client or "knowingly acquir[ing] an ownership, possessory, security, or other pecuniary interest adverse to a client" unless 1) the terms are fair and reasonable to the client, 2) the client has been advised in writing of the terms and of the right to seek advice from an independent lawyer, and has been given an opportunity to do so, and 3) the client consents in writing. Even when a transaction is not governed by the rule, however, lawyers must meet fiduciary duties to their clients, as the State Bar Court ruled in an unpublished decision, In the Matter of Clifford Lee Casey.35 In that case, an 80-year-old woman retained attorney Casey to file an unlawful detainer action when the woman's tenants fell behind in their rent of a Palm Springs condominium. Casey's client continued to experience problems managing the condominium, so Casey arranged for her to sign a grant deed conveying the property to two new owners--a company he represented and his minor son. The client remained liable on the deed of trust, which was not canceled or reconveyed to her, and never received a promised $500 reimbursement for taxes she had paid. The client sued Casey, incurring legal fees of at least $67,000, and won a judgment of $1 but not legal possession of the condominium. The State Bar filed disciplinary charges against Casey and, after a hearing, the judge recommended three years' probation. Casey appealed, and the three-judge review panel concluded that the lawyer did not violate Rule 3-300 because he had not acquired a pecuniary or financial interest in his client's property since he was neither a party to the transaction nor a third-party beneficiary. However, the court concluded Casey had significantly harmed his financially and emotionally vulnerable client and was guilty of moral turpitude under Business and Professions Code Section 6106. The court reached this result because Casey had 1) failed to inform his client that she would no longer have any interest in the condominium but would remain on the deed of trust and would continue to receive the tax bills, 2) failed adequately to document the transaction, and 3) had a conflict of interest due to his divided loyalties to her, his corporate client, and his son. The panel was particularly troubled by Casey's insensitive assertion, in his opening brief, that "it is nice to protect little old ladies, but it is very common that many people use the age of the client as a ploy to win lawsuits." In a second pyrrhic victory for the long-suffering client, the panel recommended actual suspension for Casey in addition to probation, though no restitution was required beyond the $500 tax payment. A challenge to lawyers' compensation based on an alleged violation of Rule 3-300 was rejected in Shopoff & Cavallo LLP v. Hyon.36 After lengthy litigation involving five successive teams of lawyers for the prevailing plaintiff, the lawyers sought their contingent fees from the multimillion-dollar settlement through an interpleader action. Faced with fees totaling 48.5 percent of the recovery, the client sought to evade payment by arguing that the lawyers had violated Rule 3-300. They did so, according to the client, by acquiring attorney's liens on the proceeds without complying with the disclosure and consent requirements of the rule. The First District Court of Appeal rejected this argument, noting that while the California Supreme Court had applied Rule 3-300 to charging liens in hourly fee cases in Fletcher v. Davis,37 it had not done so for contingent fee cases, and even if the liens were unenforceable, the underlying fee agreements remained valid and enforceable.38 Attorney-Client Privilege and Work Product In a case now on review by the supreme court, the Second District Court of Appeal denied a petition for extraordinary relief by a client who sought to prevent production of an opinion letter from its lawyers. In Costco Wholesale Corporation v. Superior Court,39 a purported wage and hour class action, the plaintiffs moved to compel production of a 22-page opinion letter prepared at Costco's request by its outside employment counsel at Sheppard Mullin. The opinion letter reflected the lawyer's factual investigation, including interviews of company employees, as well as the lawyer's legal research and expertise regarding wage and hour law. Costco asserted the protection of the attorney-client privilege and work product doctrine for the letter. In response, the plaintiffs argued that the letter was discoverable because Costco had waived the privilege by placing its knowledge and expectations regarding the managerial tasks performed by employees at issue--and this was based on its counsel's input. Over Costco's objection, the superior court ordered the company to produce the letter for in camera inspection by a discovery referee. The referee redacted the letter to remove those parts she believed were protected by the privilege or work product doctrine and concluded that the remaining content was obtained by the lawyer "in her role as fact-finder rather than attorney, a role that could have been performed by a non-attorney."40 This finding trivializes the importance of a lawyer's factual investigation. Moreover, it suggests that whenever a court decides in hindsight that a particular task could have been performed by a nonlawyer, the client should lose the protection of the privilege and the work product doctrine. The superior court ruled that Costco had not waived the privilege but nevertheless ordered the redacted letter to be produced. Costco petitioned for a writ of mandate. The court of appeal denied Costco's petition on the narrow ground that the petitioner had not met its burden to show that release of the redacted letter would cause irreparable harm, minimizing the concern that once a privileged communication is disclosed, the privilege is lost. The appellate court stated that the trial court had used the D.I. Chadbourne, Inc.41 factors to determine if the lawyer's communications with company employees were privileged. But the superior court never reviewed the redacted document, and the appellate court offered its own conclusion that the unredacted parts did not reveal the lawyer's mental processes or impressions and contained information available elsewhere.42 The question remains: Why not require the plaintiffs to obtain the discovery they seek from a nonprivileged source? The supreme court has granted review.43 In a case of first impression in California, the Fourth District Court of Appeal held that a trial court did not abuse its discretion when it denied a motion to compel production of attorney-client privileged documents in a civil antitrust case, despite the fact that the holders of the privilege previously had produced the same documents to the federal government. In The Regents of the University of California v. Superior Court,44 the plaintiffs sued a group of energy suppliers, alleging they unlawfully inflated the retail price of natural gas in California between 1999 and 2002. The defendants were also the subject of an investigation by a federal Corporate Fraud Task Force composed of the U.S. Department of Justice, the Federal Energy Regulatory Commission, the Commodity Futures Trading Commission, and the Securities and Exchange Commission. At the time, it was the Justice Department's policy to consider a corporation's willingness to waive the attorney-client privilege when determining whether it would indict. All the defendants waived the privilege and produced documents in response to government subpoenas. The plaintiffs moved to compel production of the same documents. They relied on McKesson HBOC, Inc. v. Superior Court45--which held that when a holder of the privilege waives it with respect to one party, the holder cannot assert the privilege against others--and Evidence Code Section 912(a), which provides that a privilege is waived "if any holder, without coercion, has disclosed a significant part of the communication...." The superior court denied the motion, and the appellate court affirmed, finding that the defendants had produced the documents to the government because they believed there would be severe regulatory or criminal consequences if they were labeled as uncooperative by the government.46 Therefore, according to the appellate court, no waiver occurred under Section 912(a) because the production of the privileged documents was coerced by the federal government's policies.47 Contact with a Represented Party Rule 2-100 of the Rules of Professional Conduct provides that when a lawyer represents a client, the lawyer may not communicate directly or indirectly about the subject of the representation with a party the lawyer knows to be represented in the matter by another lawyer, unless the client's lawyer has the consent of the other party's lawyer.48 What happens when a litigant appearing in propria persona uses shadow counsel? What should be done if a lawyer violates Rule 2-100? How does Rule 2-100 affect criminal investigations? Courts addressed these issues during 2008. In McMillan v. Shadow Ridge at Oak Park Homeowner's Association,49 the plaintiff for a time pursued her claims in propria persona with the assistance of a lawyer who wrote a letter to defense counsel stating that he would defend depositions that had been scheduled. When defense counsel contacted the plaintiff directly to give notice of his intent to file an ex parte application to compel the depositions of the plaintiff's expert witnesses, the plaintiff moved to disqualify defense counsel for violating Rule 2-100. The Second District Court of Appeal held that the trial court did not abuse its discretion in denying the motion. The court stated that the plaintiff "has every right to be assisted by an attorney not of record, but neither she nor the assisting attorney could unilaterally limit the ability of opposing counsel to confer with the attorney of record. As [the plaintiff] was at all times relevant the attorney of record, [opposing counsel] was duty bound to recognize her as such and to treat her accordingly."50 With respect to ethical boundaries, the court noted that "a bright line test is essential. As a practical matter, an attorney must be able to determine beforehand whether particular conduct is permissible; otherwise, an attorney would be uncertain whether the rules had been violated until...he or she is disqualified."51 A party in a case is either represented by counsel or not. If the party is not represented, opposing counsel may communicate directly with him or her without violating Rule 2-100. In Myerchin v. Family Benefits, Inc.52 and United States v. Carona,53 courts concluded that lawyers violated Rule 2-100. In Myerchin, the defendant's lawyer, who had known the plaintiff for many years, left a voicemail message for the plaintiff after the plaintiff filed his lawsuit. In it, the lawyer said, "I am trying to help you and your attorney doesn't know what he is doing and is just ripping you off and will just run up a big bill...Your only chance to settle is to deal with me."54 The plaintiff then signed a settlement proposal that the defendant's lawyer sent to him without consulting with his own lawyer. In Carona, while a grand jury was investigating possible corruption within the Orange County Sheriff's Office, a government lawyer wired one of the target defendant's cronies, armed him with phony subpoena documents intended to trick the target defendant into believing that the crony was about to testify before the grand jury, and sent him to talk with the target defendant with the hope of soliciting evidence to support a charge of obstruction of justice. The government lawyer knew at the time that the target defendant was represented by counsel. Not surprisingly, the courts in Myerchin and Carona found that the lawyers violated Rule 2-100. Indeed, the courts wrestled more with the appropriate remedy for the violations. In Myerchin, the Fourth District Court of Appeal agreed with the trial court that notwithstanding the ethical violation, the settlement agreement was still enforceable. This is not a surprising result given the circumstances. The defendant paid a significant sum in settlement that the plaintiff did not want to give back. The plaintiff wanted "to both keep the money and maintain the war."55 If the plaintiff had returned the settlement proceeds, no doubt a more appropriate remedy would have been to void the settlement agreement. In Carona, U.S. District Court Judge Andrew Guilford denied a defense motion to suppress the tape-recorded statements. In doing so, the judge ruled that "the harm caused by suppression is too high a price to pay" and "[t]he State Bar of California has a very effective system for disciplining and deterring attorney misconduct...."56 Lawyers Behaving Badly Attorney Anthony Pagkas was sued for malpractice after a default judgment of $730,466 was rendered against his client, Mumbert, by the plaintiff, Styles. When Mumbert appealed the judgment in Styles v. Mumbert,57 Pagkas displayed the kind of initiative that had been sadly lacking in his representation of his former client and bought Styles's rights to the judgment for an undisclosed sum. He then sought leave of court to substitute himself as respondent in the appeal "to offset any [future malpractice] award against him."58 The Sixth District Court of Appeal denied the motion, holding that as Mumbert's former lawyer, Pagkas continued to owe his client fiduciary duties, including a duty of confidentiality. The appellate court rejected Pagkas's argument that he was entitled to reveal confidences to defend himself because it distinguished between the malpractice action and the case in which the lawyer was seeking to step into the position of Mumbert's adversary. Unimpressed by Pagkas's ingenuity, the court held that Pagkas had "violated a myriad of ethical duties" by buying an interest in the judgment against his former client and sanctioned both Pagkas and his lawyer for making a mockery of the Rules of Professional Conduct.59 The court ordered Styles, who had sold her interest and failed to file a respondent's brief, to show cause why her default should not be entered, setting up a potential new claim against Pagkas.60 In Sheller v. Superior Court,61 a Texas lawyer admitted pro hac vice as lead counsel in a class action against Farmers New World Life Insurance Company and Farmers Group, Inc., was sanctioned by the Los Angeles Superior Court when he sent out an advertising flyer to 350 policyholders, seeking additional class representatives. The flyer stated falsely that "Farmers may have given you misleading information about this lawsuit" and that if a policyholder was accepted as a class representative, "you are paid for your time in an amount set by the judge."62 After the lawyer's explanations proved contradictory and inadequate, he was formally reprimanded and ordered to pay Farmer's attorney's fees of $95,009. Writing for the Second District Court of Appeal, Justice H. Walter Croskey agreed that the flyer was "completely false" but held that the superior court lacked authority to impose the sanctions, which were vacated. However, because a court has the inherent power to revoke an attorney's pro hac vice admission, the appellate court remanded the case for further proceedings.63 The First District Court of Appeal set aside a default judgment as an abuse of discretion in Fasuyi v. Permatex, Inc.64 Three weeks before the statute of limitations expired, the plaintiff filed a personal injury action. Despite being provided with the address of the agent for the defendant, Permatex, by the legal department of the parent company of Permatex for service of process, the plaintiff's lawyer, Robert J. Hooy, did not serve the lawsuit until after the time set forth in the California Rules of Court and the issuance of the case management order by the superior court. The complaint was forwarded to the defendant's insurer, but it failed to file a responsive pleading. Without further notice to Permatex or its parent, the plaintiff's lawyer filed a request for default and, 13 days later, obtained a default judgment for $236,500. Within days, Permatex learned of the judgment and asked Hooy voluntarily to set it aside, but he refused. Permatex filed a motion for relief from default, but it was denied in a four-word order. The court of appeal reversed, noting that there was no lack of cooperation from the defense side: "No deception. No duplicitousness. No stonewalling. No evasion. No disregard of any warning. In fact, no warning."65 It concluded that the plaintiff's counsel had an ethical obligation to warn Permatex before he took the default, quoting Weil and Brown's treatise66 and the California Attorney Guidelines of Civility and Professionalism: "An attorney should not take the default of an opposing party known to be represented by counsel without giving the party advance notice."67 Lawyer Joanna Mendoza and her clients were jointly and severally sanctioned $43,678 for violating a protective order by disclosing trade secret information to third parties. In Wallis v. PHL Associates, Inc.,68 an attorney for the opposing parties filed a declaration with 800 pages of attached trade secret documents. Although the declaration plainly stated that it was filed under seal and was sent to the court in a sealed envelope, the documents appeared in a court file available to the public. Learning of the public availability of the trade secret documents, Mendoza arranged for her clients and third parties to copy them. After being sanctioned, they appealed. The Third District Court of Appeal affirmed, holding that their argument that the appearance of the documents in the court file allowed them to disclose the trade secrets was frivolous, and their disclosure of the information was in bad faith. In her defense, Mendoza claimed that she had spoken to someone at the State Bar's Ethics Hotline, who advised her that her paramount duty was to tell her clients about the public availability of the trade secret information. Taking this step, she argued, showed her good faith. The appellate court concluded, however, that Mendoza did not discuss with the person at the Ethics Hotline that she was subject to a protective order, which she was bound to obey, and this supported the conclusion that she had acted in bad faith. Moreover, as the court noted, the Ethics Hotline is a confidential research service, "not a source of legal advice."69 Getting Paid Several legal authorities govern fee agreements. Business and Professions Code Section 6148 sets forth certain requirements for most noncontingency fee agreements.70 Business and Professions Code Sections 6146, 6147, and 6147.5 contain requirements applicable to most contingency fee agreements. Rule 2-200 of the California Rules of Professional Conduct applies to agreements between lawyers to split fees. In 2008, courts analyzed these authorities and reinforced the general principle that lawyers who fail to comply with applicable rules risk some or all of their fees. In Stroud v. Tunzi,71 the Second District Court of Appeal held that a lawyer may not enforce the terms of an amendment to a contingency fee agreement unless the amendment satisfies all the requirements of Section 6147.72 This is true even if the original agreement fully complied with Section 6147. Applying Section 6147 to the original agreement only "would too easily allow an attorney to frustrate the statute's purpose."73 Rule 2-200 of the Professional Rules of Conduct provides that without full disclosure and client consent, a lawyer may not split a fee with a lawyer who is not part of the same firm. In 2008, in a matter of first impression, the Fourth District Court of Appeal concluded in Strong v. Beydoun74 that a lawyer could not even assert a quantum meruit claim against a client because the fee agreement failed to comply with Rule 2-200. In Strong, the plaintiff, a lawyer, entered into a written fee-splitting agreement on a contingent fee case with another lawyer. The plaintiff agreed to assist the other lawyer in prosecuting a case on behalf of two clients. After the other lawyer promised the plaintiff that he would get the clients' signatures on the fee-splitting agreement, the plaintiff began to work on the matter. The clients never signed the agreement. As a result, the fee-splitting agreement violated Rule 2-200.75 After about a year, the other lawyer terminated the plaintiff's services. Thereafter, the clients settled, and the other lawyer collected the contingency fee. Notwithstanding the work that the plaintiff had devoted to the case, the plaintiff received nothing. She sued the clients and her former cocounsel. The trial court sustained the former clients' demurrer to her complaint, and the Fourth District Court of Appeal affirmed: "It makes no sense to allow an attorney whose only connection to the client is through an unenforceable fee-sharing agreement to recover fees directly from that client. [The plaintiff's] recourse is against [the other lawyer]."76 Other rules may also apply, as illustrated in Mark v. Spencer.77 Two lawyers and their client agreed in writing that all fees awarded by the court to the lawyers for prosecuting a class action with their client as the class representative would be evenly split between them. The agreement complied with Rule 2-200, but the lawyers failed to disclose the agreement to the court when they moved to approve the class action settlement, as required by California Rule of Court 3.769(b).78 Based on their fee declarations, the court handling the class action awarded $401,000 in fees to one lawyer and $76,000 to the other. The one receiving the lower amount of fees did not know about Rule of Court 3.769(b) and deferred to his cocounsel, who was more experienced in class action litigation. What price did he pay for his lack of experience? His cocounsel refused to honor the fee-splitting agreement. The lawyer receiving the lower award sued but without success. In affirming a dismissal of the lawsuit on demurrer, the Fourth District Court of Appeal wrote, "We are not persuaded to protect [the lawyer's] interest in the fee splitting agreement at the expense of the...class members."79 Experience comes at a price. When a client disputes a fee, the client has the option to force his or her lawyer to arbitrate the fee dispute through a local bar association pursuant to the Mandatory Fee Arbitration Act (MFAA).80 Under the MFAA, the fee award becomes final if neither party rejects it and requests a trial de novo within 30 days after the mailing of the appropriate statutory notice of the award.81 In Perez v. Grajales,82 a client was awarded $124,000 against her lawyer after an MFAA arbitration. The lawyer filed a lawsuit challenging the award and requested a trial de novo within 30 days, but ultimately his action was dismissed for failure to prosecute. What effect did the involuntary dismissal have on the lawyer's challenge to the MFAA award? Analyzing this issue of first impression, the Sixth District Court of Appeal concluded that the involuntary dismissal constituted a repudiation of the lawyer's challenge to the award, thereby empowering the client to petition to confirm the award--even though the client's cross-complaint also had been dismissed for failure to prosecute. The court noted that "[a]llowing a party to avoid the adverse consequences of an MFAA arbitration award by failing to prosecute the case to a de novo trial would 'produce absurd consequences and promote mischievous lawyering.'"83 Once an MFAA award in favor of a client becomes final, it behooves the lawyer to pay it. In fact, as illustrated in Chandler v. State Bar,84 if a lawyer fails to satisfy a final monetary award in favor of a client under the MFAA, the State Bar can initiate proceedings before the State Bar Court to place the lawyer on inactive status. Chandler also illustrates that lawyers cannot object properly to an MFAA award by simply filing a lawsuit seeking the reasonable value of their services. Lawyers must specifically object to the award and request a trial de novo. Revision of the Rules of Professional Conduct The Commission on the Revision of the Rules of Professional Conduct continued its multiyear task of revising California's ethics rules by publishing new rules for public comment. It also held regular meetings around the state and will continue to do so in 2009. The public is invited to attend.85
1 A Year of Uncertainty, L.A. Daily J., Dec. 31, 2008, at 1.
2 Lawyer Gets 3 Years in Wiretap Case, L.A. Times, Nov. 25, 2008, at B3.
3 Milberg Weiss Co-Founder Sentenced to 2-1/2 Years for Kickback Schemes, 24 Laws. Man. on Prof. Conduct (ABA/BNA) 295 (June 11, 2008).
4 In re Girardi, Ninth Circuit Ct. of App. Case No. 08-80090; Independent Prosecutor Will Investigate Whether Lawyers Prolonged Frivolous Appeal, 24 Laws. Man. on Prof. Conduct (ABA/BNA) 327 (June 25, 2008); Franco v. Dow Chem. Co., Thomas V. Girardi, et al. Respondents, Ninth Circuit Ct. of App. Case No. 03-57038, "Report and Recommendation of The Special Master" (filed Mar. 21, 2008).
5 Controversial Judge Splits Bar, National L. J., Aug. 11, 2008; Supreme Court Weighs In on the Conduct of Judge Real, L.A. Daily J., July 28, 2008.
6 In re Complaint of Judicial Misconduct, Ninth Circuit Ct. of App. Case No. 07-89000 (Dec. 12, 2008).
7 Calif. Bar Votes to Require Client Disclosure on Malpractice Insurance, http://www.Law.com (May 20, 2008).
8 Calif. Bar OKs Posting Discipline Charges Online, http://www.Law.com (July 14, 2008).
9 ABA Stands Pat on Lateral Lawyer Rules, ABA J., Aug. 12, 2008.
10 Principles of Federal Prosecution of Business Organizations, U.S. Attorneys Manual tit. 9, ch. 9-28.000 (2008).
11 DOJ Backs Off Privilege Waiver Policy, L.A. Daily J., Aug. 29, 2008; United States v. Stein, 541 F. 3d 130 (2d Cir. 2008).
12 Sharp v. Next Entm't, Inc., 163 Cal. App. 4th 410 (2008). In January 2009 the parties reached a settlement in which the defendants agree to pay the plaintiffs more than $1.5 million to resolve their claims of unpaid overtime. See http://www.law.com/jsp/nlj/PubArticleNLJ
13 Sharp, 163 Cal. App. 4th at 433.
14 Id. at 431-32, 433.
15 Id. at 432-33.
16 Gong v. RFG Oil, Inc., 166 Cal. App. 4th 209 (2008).
17 Id. at 214.
18 Wood v. Jamison, 167 Cal. App. 4th 156 (2008).
19 Id. at 158.
20 Haraguchi v. Superior Court, 43 Cal. 4th 706 (2008).
21 Hollywood v. Superior Court, 43 Cal. 4th 721 (2008).
22 Haraguchi, 43 Cal. 4th 706.
23 Hollywood, 43 Cal. 4th 721.
24 See, e.g., Penal Code §§1203.5, 11105, 11140-11144.
25 Haraguchi, 43 Cal. 4th at 711.
26 Hollywood, 43 Cal. 4th at 727.
27 Haraguchi, 43 Cal. 4th at 711; Hollywood, 43 Cal. 4th at 725.
28 Haraguchi, 43 Cal. 4th at 717.
30 Hollywood, 43 Cal. 4th at 732.
31 Id. at 735.
32 People v. Superior Court (Humberto S.), 43 Cal. 4th 737 (2008).
33 Id. at 752.
34 Id. at 747.
35 In the Matter of Clifford Lee Casey, Review Dep't of State Bar Ct. Case No. 04-O-11237 (Dec. 4, 2008).
36 Shopoff & Cavallo LLP v. Hyon, 167 Cal. App. 4th 1489 (2008).
37 Fletcher v. Davis, 33 Cal. 4th 61 (2004).
38 Shopoff, 167 Cal. App. 4th at 1522-23.
39 Costco Wholesale Corp. v. Superior Court, 161 Cal. App. 4th 488, review granted, 186 P. 3d 392 (Cal. 2008).
40 Id. at 498.
41 D. I. Chadbourne, Inc. v. Superior Court, 60 Cal. 2d 723 (1964).
42 Costco, 161 Cal. App. 4th at 506-07.
43 Costco, 186 P. 3d 392.
44 The Regents of the Univ. of Cal. v. Superior Court, 165 Cal. App. 4th 672 (2008).
45 McKesson HBOC, Inc., v. Superior Court, 115 Cal. App. 4th 1229 (2004).
46 Regents, 165 Cal. App. 4th at 677-78.
47 Id. at 683-84.
48 Cal. Rules of Prof'l Conduct R. 2-100(A).
49 McMillan v. Shadow Ridge at Oak Park Homeowner's Ass'n, 165 Cal. App. 4th 960 (2008).
50 Id. at 965.
51 Id. at 966.
52 Myerchin v. Family Benefits, Inc., 162 Cal. App. 4th 1526 (2008).
53 United States v. Carona, Case No. SA CR 06-224 AG (C.D. Cal. May 2, 2008) (unpublished). On January 16, 2009, former Orange County Sheriff Michael S. Carona was convicted of one count of witness tampering and acquitted on five counts of conspiracy, mail fraud, and witness tampering. See http://www.latimes.com.
54 Myerchin, 162 Cal. App. 4th at 1531.
55 Id. at 1533.
56 See also McMillan, 165 Cal. App. 4th at 968 ("The court's goal is not to impose a penalty, as the propriety of punishment for violation of the Rules of Professional Conduct is a matter within the purview of the State Bar, not of a court presiding over the affected case. Instead, what the court must do is focus on the appropriate remedy for whatever improper effect the attorney's misconduct may have had in the case before it.") (emphasis in original) (citations omitted)).
57 Styles v. Mumbert, 164 Cal. App. 4th 1163 (2008).
58 Id. at 1166.
59 Id. at 1169.
60 Id. at 1170.
61 Sheller v. Superior Court, 158 Cal. App. 4th 1697, as modified (2008).
62 Id. at 1703.
63 Id. at 1718.
64 Fasuyi v. Permatex, Inc., 167 Cal. App. 4th 681 (2008).
65 Id. at 701.
66 Weil & Brown, Civil Procedure before Trial 5:68-5:70 (2007).
67 Fasuyi, 167 Cal. App. 4th at 701-02.
68 Wallis v. PHL Assocs., Inc., 168 Cal. App. 4th 882 (2008).
69 Id. at 900.
70 Section 6148 generally requires that noncontingency fee agreements be memorialized in writing (signed by the lawyer and the client). The agreement must include 1) a disclosure of the fees and charges applicable to the case, 2) a description of the services to be rendered, and 3) the respective duties of the lawyer and the client. Bus. & Prof. Code §6148(a). A fee agreement that fails to satisfies all the applicable requirements is voidable at the client's option, but the lawyer is nevertheless entitled to recover a reasonable fee for any work performed. Bus. & Prof. Code §6148(c).
71 Stroud v. Tunzi, 160 Cal. App. 4th 377 (2008).
72 Section 6147 requires that a contingency fee agreement must be memorialized in a writing (signed by the lawyer and the client). The agreement must include 1) a disclosure of the contingency rate, 2) an explanation of how disbursements will be handled, 3) a statement regarding what extent, if any, the client could be required to pay any compensation to the lawyer for related matters falling outside the contingency fee, and 4) a disclosure that the fee is not set by law but rather is negotiable (unless a certain limited exception applies). Bus. & Prof. Code §6147(a). A contingency fee agreement that fails to satisfy all the applicable requirements is voidable at the client's option, but the lawyer is entitled to recover a reasonable fee for any work performed. Bus. & Prof. Code §6147(b).
73 Stroud, 160 Cal. App. 4th at 383.
74 Strong v. Beydoun, 166 Cal. App. 4th 1398 (2008).
75 See Cal. Rules of Prof'l Conduct R. 2-200(A)(1) (requiring the client to consent in writing to the fee-splitting arrangement).
76 Strong, 166 Cal. App. 4th at 1404.
77 Mark v. Spencer, 166 Cal. App. 4th 219 (2008).
78 Rule 3.769(b) of the California Rules of Court provides: "Any agreement, express or implied, that has been entered into with respect to the payment of attorney's fees or the submission of an application for the approval of attorney's fees must be set forth in full in any application for approval of the dismissal or settlement of an action that has been certified as a class action."
79 Mark, 166 Cal. App. 4th at 229.
80 Mandatory Fee Arbitration Act, Bus. & Prof. Code §§6200 et seq.
81 Bus. & Prof. Code §6203(b). For a summary of the MFAA, see Chandler v. State Bar, 2008 WL 901865 (N.D. Cal. 2008). The MFAA provides that a client or lawyer may reject an MFAA fee award and seek de novo review in court. On January 26, 2009, the California Supreme Court concluded that a binding arbitration clause in an engagement letter overrides the MFAA's right to de novo review. Schatz v. Allen Matkins Leck Gamble & Mallory LLP, __ Cal. 4th __, 2009 WL 161199 (Jan. 26, 2009).
82 Perez v. Grajales, 169 Cal. App. 4th 580 (2008).
83 Id. at 602 (quoting Herbert Hawkins Realtors, Inc. v. Milheiser, 140 Cal. App. 3d 334, 339-40 (1983) (footnote omitted)).
84 Chandler, 2008 WL 901865.
85 For the proposed new rules and a schedule of the commission's public meetings, see http://www.calbar.ca.gov.
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