The Question of the Sophisticated Client
The Question of the Sophisticated Client
By Joel A. Osman, managing attorney of Osman & Associates, part of St. Paul Travelers’ staff counsel organization. Osman represents defendants in legal malpractice cases and is an active member of the Los Angeles County Bar Association’s Professional Responsibility and Ethics Committee. The opinions expressed are his own.
The Rules of Professional Conduct and statutory law require attorneys to make a variety of written disclosures to their clients. Examples of such requirements abound: See Business & Professions Code Section 6068 (written disclosure of status and significant developments), Sections 6147 and 6148 (written disclosure of the terms of a retainer agreement), Section 6201 (written disclosure of the right to arbitrate a fee dispute); Rule of Professional Conduct 3-300 (written disclosure of an adverse business interest and the client’s right to seek independent counsel to advise re same), Rule 3-310 (written disclosure of a conflict of interest), and Rule 3-500 (written disclosure of significant developments and/or documents and in response to the client’s reasonable requests for information).
For decades, a number of legal ethicists and legal malpractice lawyers in California and several other jurisdictions have struggled to determine whether the relative sophistication of the client does or should affect the requirement for or content of such disclosures. In its simplest terms, ethicists and malpractice attorneys alike want to know whether an attorney’s duty to make such disclosures is lessened or perhaps even eliminated if the client is “sophisticated.” There seem to be as many answers to this question as there are folks to ask it,1 which creates a ripe topic for discussion. Before attorneys, as a profession, go there, perhaps we should ask whether a sophisticated client exception would best promote ethical practice and the public perception of the same.
At the outset, we must ask, “Who or what is a ‘sophisticated client’?” California case law and the Rules of Professional Conduct implicitly recognize that some clients are more sophisticated than others without yet defining the “sophisticated client.” Rule of Professional Conduct 4-200 tells us that one of the 11 criteria for determining the conscionability of a fee is “the relative sophistication of the member and the client” but provides no insight as to what “sophistication” means. Similarly, a number of reported cases bandy the term about without ever defining it.2 Comment 22 to ABA Model Rule 1.7 (the Model Rule equivalent of California Rule of Professional Conduct 3-310) suggests that if “the client is an experienced user of the legal services involved and is reasonably informed regarding the risk that a conflict may arise,” even an open-ended conflict waiver may be effective. Unfortunately, this comment provides no definition of “an experienced user.” Other jurisdictions suffer from a similar dearth of definition. The Law Society of British Columbia, in Rule 6.31 of its Professional Conduct Handbook, provides a sophisticated client exception to its rule against an attorney acting against a current client. Even here, the sophisticated client is only defined as one whom, “to the knowledge of the lawyer, regularly engages another lawyer.” This seems to be an insufficient basis on which to rest such an important exception.
Recognizing a sophisticated client defense or exception to disclosure requirements of Rules of Professional Conduct 3-300 or 3-310 would be a significant departure from current practice. It is worth asking whether this would be a good thing. The sad truth is that despite the best efforts of the bar, “lawyers are not generally regarded by the public as particularly ethical.”3 The written disclosures required by these rules promote the dual goals of helping attorneys discharge their fiduciary duties to their clients and promoting the perception of ethical behavior by making counsels’ conduct more transparent. A sophisticated client exception to these disclosure requirements would, to some extent, detract from these goals without conferring a benefit to the profession that would balance out this cost.
The simple fact of the matter is that compliance with written disclosure requirements is not onerous and is the kind of best practice all attorneys should strive to achieve. Drawing a distinction between the disclosures owed to less sophisticated clients as opposed to more sophisticated clients opens a can of worms that we, as a profession, simply don’t need.
To be sure, there have been, are, and will be situations in which sophisticated clients seek compensation from their lawyer for a lack of disclosure that did not, in fact, cause them harm because they already knew the information that was not disclosed again in writing as required by the Rules of Professional Conduct. Such claims are inherently unfair to the lawyer involved. The solution to such unfairness should lie not in drawing distinctions between clients; instead, the solution lies in recognition of an actual knowledge defense. It should be recognized that clients are not harmed by a failure to disclose information of which they already have actual knowledge. Such a defense would pose obvious problems of proof, but such problems of proof are insignificant when compared to the problems that drawing distinctions between sophisticated and unsophisticated clients would cause and to the damage such distinctions might cause to our profession’s already shaky public image.
1 A recent query to Google.com reveals that at least three current or former members of LACBA’s Professional Responsibility and Ethics Committee have published articles that at least mention this issue in passing. They all reach different conclusions: Ellen Peck, MCLE Self-Study: Avoiding Risky Business, Cal. B.J. (November 1997); Diane Karpman, Ethics Byte: Inspiration from Erin Brockovich, Cal. B.J. (May 2000); Ellen Pansky, Bonus Points, Los Angeles Lawyer (September 2000).
2 See, e.g., Ramirez v. Sturdevant (1994) 21 Cal. App. 4th 904, or Richards, Watson & Gershon v. King (1995) 39 Cal. App. 4th 1176.
3 ABA Standing Comm. on Ethics and Prof’l Responsibility, Formal Op. 93-379 (1993).
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