2006 was an active year for professional ethics.
In a scandal that made national headlines, Hewlett-Packard's in-house
ethics counsel, along with others, was indicted by California's attorney
general for using a form of deceit known as pretexting to obtain phone
records of board members suspected of leaking information to reporters.1
Informed by one of the company's investigators that the investigators
were lying to obtain confidential information, the HP lawyer reportedly
e-mailed the informant: "I shouldn't have asked…."2
A Ninth Circuit Court of Appeals judicial discipline council voted to publicly censure Judge Manuel L. Real of the U.S. District Court for the Central District of California for improperly seizing control of a bankruptcy case to protect a probationer he was supervising. This action was taken during the sixth review of the case, after the Ninth Circuit was criticized for its prior handling of the matter by a committee chaired by U.S. Supreme Court Justice Stephen Breyer, and Real was threatened with impeachment by the Judiciary Committee of the House of Representatives. The order, which was not officially published due to the judge's appeal, was accidentally posted on the Internet. It stated that the testimony given by Real to the four-judge investigating committee had been "inaccurate and misleading."3
Culminating years of investigation, the U.S. attorney in Los Angeles indicted plaintiffs' class action firm Milberg Weiss Bershad & Shulman and two name partners on conspiracy and money laundering charges.4 In the continuing probe of illegal wiretapping by private investigator Anthony Pellicano, a federal grand jury indicted attorney Terry Christensen for allegedly hiring Pellicano to bug the phone of the ex-wife of Christensen's client Kirk Kerkorian.5
Last year also saw the Department of Justice announcing in its McNulty Memorandum that it would revise its official policy of pressuring corporations to waive the attorney-client privilege by requiring U.S. attorneys to consult with the assistant attorney general for the Criminal Division before asking for those waivers. By doing so the DOJ was reacting to pressure from the American Bar Association and business and professional leaders across the political spectrum. Nevertheless, this limited reform did not allay the ABA's concerns that the government's policy erodes the ability of corporate officers and directors to obtain legal advice to comply with the law.6 The U.S. Sentencing Commission, however, voted to delete language from its sentencing guidelines encouraging federal prosecutors to demand that corporations waive the attorney-client privilege in exchange for more lenient sentences.7
Conflicts of Interest
Increased lawyer mobility coupled with the enormous growth of private, government, and public interest law offices in recent years continues to present lawyers and the courts with challenges in interpreting traditional conflicts rules. During 2006, the California Supreme Court and First, Second, and Fifth District Courts of Appeal published opinions on these and related topics, including screening in a government law office, standing to move for a lawyer's disqualification, the sufficiency of evidence needed to disqualify a lawyer, and the standard for assessing a client's written waiver of a conflict.
Every lawyer owes his or her current clients a duty of loyalty and current and former clients a duty of confidentiality.8 Rule 3-310(C) of the California Rules of Professional Conduct prohibits the concurrent representation of two clients with adverse interests, absent the informed written consent of both clients. Rule 3-310(E) prohibits a lawyer from representing a client in an engagement adverse to a former client without the former client's informed written consent if the lawyer obtained from the former engagement confidential information material to the new engagement. Violations of conflicts rules may result in lawyer discipline, disqualification of a lawyer, disqualification of the lawyer's firm or law office, disgorgement of fees, and malpractice exposure.
In City and County of San Francisco v. Cobra Solutions, Inc.,9 the California Supreme Court concluded that a conflict disqualifying the head of a government law office requires the disqualification of the entire office--notwithstanding the office's attempt to avoid conflicts by creating an ethical screen. A lawyer and his firm represented Cobra Solutions in negotiations with the city over a technology agreement. The lawyer billed minimal time on the engagement, just four-tenths of an hour. He was subsequently elected San Francisco city attorney. After the election, the city attorney's office began an investigation concerning the city's contract with Cobra Solutions. The city attorney erected an ethical screen that prevented him from accessing the office's paper and electronic files on the matter, required office personnel to refrain from talking to him about the matter, and directed all inquiries about the matter to a senior assistant city attorney. After finding evidence of kickbacks, the city attorney's office filed an action for fraud, breach of contract, and statutory violations against Cobra Solutions. Citing a conflict of interest, Cobra Solutions moved to disqualify the city attorney and the entire office.
The trial court disqualified both, and the court of appeal and supreme court affirmed. The reasons for disqualifying the city attorney himself were relatively straightforward. He and his prior law firm represented Cobra Solutions on a matter substantially related to the lawsuit being pursued by the city attorney's office. Because of the substantial relationship, the city attorney was presumed to possess material confidential information about Cobra Solutions. Lacking Cobra's consent, he was disqualified. The supreme court, in disqualifying the entire city attorney's office despite the presence of the ethical screen, noted: "Individuals who head a government law office occupy a unique position because they are ultimately responsible for making policy decisions that determine how the agency's resources and efforts will be used." The attorneys who serve directly under the head attorney cannot be entirely insulated from policy decisions, nor free from real or perceived concerns as to what their boss wants. Hence, a former client "might legitimately question" whether a government law office has an unfair advantage when the chief attorney possesses confidential information about his or her former client that pertains to the government law office's current matter.10 As a result, the entire office in Cobra Solutions had to be disqualified. The court reserved for later determination whether ethical screening might suffice to shield a senior supervisory attorney (as opposed to the head of the office) with a personal conflict.11 Justice Corrigan, joined by Chief Justice George, dissented, citing Formal Opinion No. 342 of the American Bar Association's Committee on Ethics and Professional Responsibility. Justice Corrigan suggested that an automatic disqualification rule unreasonably impairs the government's ability to function.12
Disqualification can be a potent weapon that impairs a party's right to choose its own counsel, imposes a financial burden on a party needing to replace disqualified counsel, and has the potential for tactical abuse. In Dino v. Pelayo,13 a litigant, after participating in a mediation, sought to disqualify a lawyer jointly representing two other parties because of an alleged conflict between those parties. The First District Court of Appeal concluded that the litigant, whom the lawyer had never represented, lacked standing to do so. Only a person who has or had a fiduciary relationship with a lawyer has standing to disqualify the lawyer.
As noted in Cobra Solutions, to disqualify one's former lawyer from representing an adversary in a pending litigation, a litigant must establish that the subject of the current litigation is substantially related to the subject of the prior litigation, which generally triggers a presumption that the lawyer possesses confidential material information about the litigant. Failure to prove a substantial relationship between the two engagements generally leads to the denial of a disqualification motion, as happened in Fremont Indemnity Company v. Fremont General Corporation14 and Faughn v. Perez.15 In Fremont Indemnity, the lawyers' prior representation of the moving party, who was the plaintiff in a legal malpractice action, was not substantially related to the lawyers' current defense of the moving party's parent corporation against the moving party's claims for misappropriation. Similarly, in Faughn, the lawyer's prior defense of the moving party's parent and sister corporations in multiple medical malpractice actions was not substantially related to the lawyer's current representation of a mother and her child in a medical malpractice action against the moving party. The court in Faughn concluded that the moving party's motion relied too heavily on inferences about facts that were within its control and could have been disclosed without compromising confidential information.16 In both these cases, the courts rejected the moving parties' "playbook" arguments that the former lawyers had gained some special understanding of the moving parties' method of litigating from the prior engagements.17
To avoid disqualification in the face of a conflict, a lawyer must obtain written client consent. What must the consent say? The First District Court of Appeal analyzed this issue in People v. Baylis.18 The defendant's brother had been prosecuted in two assault cases. The brother's lawyer claimed mistaken identity and suggested that the defendant, who was then represented by another lawyer, committed the crimes. Thereafter, the defendant was prosecuted in connection with a third assault. The defendant wanted to retain his brother's former lawyer. The brother signified his consent with this language: "I have been advised that a conflict of interest may exist with [the lawyer] representing [the defendant]. I am aware of this and herby [sic] waive any conflict of interest regarding same." Notwithstanding the brother's consent, the trial court denied the request because the defendant intended to argue mistaken identity--that his brother may have committed the crime. The court of appeal affirmed, holding the consent failed to satisfy "the exacting standard…calculated to ensure a legitimate waiver of a defendant's constitutional right to conflict-free counsel and to insulate any conviction from a later challenge on appeal based on the conflict." The exacting standard requires that:
• The defendant discuss the potential drawbacks of joint representation
with the defendant's attorney or outside counsel.
•Counsel advise the defendant of the dangers and possible consequences
of joint representation in the case.
• The defendant knows of his or her right to conflict-free representation.
• The defendant voluntarily wishes to waive that right.19
An attorney's duty of confidentiality is set forth in Business and Professions Code Section 6068(e)(1): "It is the duty of an attorney…[t]o maintain inviolate the confidence, and at every peril to himself or herself to preserve the secrets, of his or her client." Several cases in 2006 explored the limits of protection for confidential client information.
In People v. Navarro,20 a family of car thieves was prosecuted after an anonymous informant tipped off police. The defendants moved to suppress the evidence, arguing that the police informant was their sister, who also happened to be their lawyer. They argued that their rights under the Fifth and Sixth Amendments and the statutory attorney-client privilege, Evidence Code Section 952, were violated because the search warrant was obtained with confidential information from their attorney. Without deciding whether the lawyer was the informant, the Second District Court of Appeal rejected these arguments. It held that the Fifth Amendment was not violated because the informant initiated the contacts and had not acted at the behest of the government.21 Further, it ruled that the Sixth Amendment was not violated because no right to counsel arises before a defendant is charged.22 Also, the court held that the "fruit of the poisonous tree" doctrine does not apply to violations of evidentiary privileges, so confidential client information could be used to obtain a search warrant. The appellate court noted the defendants could sue their lawyer for malpractice and breach of fiduciary duty and seek State Bar discipline--remedies that the court recognized would be "a pyrrhic victory from behind bars."23
In Tien v. Superior Court,24 a putative class action suit for alleged wage and hour violations by subsidiaries of Tenet Healthcare, the parties sparred over the right to learn the names, addresses, and phone numbers of potential class members. Initially, the plaintiffs served an interrogatory on Tenet seeking the identity and contact information of approximately 50,000 potential class members, and Tenet objected. The parties agreed to send a neutral letter to a random sample of 3,300 potential class members selected by Tenet. The letter invited those in the sample to contact the plaintiffs' lawyers. Eighty-one responded and 49 retained the plaintiffs' counsel to represent them. Tenet then served an interrogatory on the plaintiffs, seeking the names of and contact information for all class members who responded to the neutral letter. Of the 81, 24 consented to the disclosure of their identities, and the rest refused or did not respond. The superior court denied a motion for a protective order and directed the plaintiffs to provide the information to Tenet. The Second District Court of Appeal reversed.
The appellate court held that the identity of the class members did not constitute attorney work product or, on the facts of this case, attorney-client privileged information.25 However, it held that disclosure of the identity of the class members would invade the individuals' right of privacy, which outweighed Tenet's interest in the information. Withholding the identities would not affect Tenet's ability to defend itself, the court confidently stated, since Tenet knew the identity of the 50,000 potential class members, including the 3,300 recipients of the neutral letter, and was free to contact all of them. Moreover, the court noted that Tenet should be aware of the relevant facts in the case, including whether it gave all of the employees proper meal and rest breaks.26 Apparently alarmed by the implication of its analysis, the court added: "We do not mean to suggest that Tenet has no right to conduct discovery in the case."27
Too much zeal on behalf of a client can give rise to liability to third parties, as a pair of cases illustrated. In Flatley v. Mauro,28 Michael Flatley, a popular Irish entertainer known as the Lord of the Dance, fought back when he received a histrionic demand letter from a lawyer charging that the dancer had raped his client. Several months earlier, in October 2002, Flatley spent a consensual night with a woman in his Las Vegas hotel bedroom. The next morning, she kissed him goodbye and said she hoped she would see him again. Soon thereafter, she called the Las Vegas police to report a rape but provided insufficient information for an investigation. In January 2003, her lawyer D. Dean Mauro sent Flatley a demand letter that bluntly threatened to sue the dancer for rape--citing the report to the Las Vegas police--and to expose him to worldwide media attention unless he settled the claim for a huge sum. The letter referred to the recent settlement of a punitive damage claim in the amount of "$100,000,000," and in subsequent telephone calls with Flatley's counsel Bertram Fields, Mauro asked for "seven figures."29 Flatley rejected the demand and sued Mauro for extortion, intentional infliction of emotional distress, and interference with prospective business advantage. Mauro filed a motion to strike under the anti-SLAPP (Strategic Lawsuit Against Public Participation) statute,30 arguing that the prelitigation demand letter was an exercise of his constitutionally protected rights of speech and petition.
The California Supreme Court disagreed, stating that attorneys are not exempt from liability because they are engaged in professional conduct, and Rule 5-100 of the California Rules of Professional Conduct prohibits attorneys from "threaten[ing] to present criminal, administrative, or disciplinary charges to obtain an advantage in a civil dispute."31 The court held that the lawyer's letter, though "half-couched in legalese," constituted criminal extortion as a matter of law and was neither protected by the Constitution nor the anti-SLAPP statute.32 In a footnote, the court noted that Mauro was no longer licensed to practice law, having voluntarily retired during the pendency of the lawsuit.33
A partner in the Los Angeles law firm Parker, Milliken, Clark, O'Hara & Samuelian was found to have breached his fiduciary duty to a third party when acting as an escrow holder in Virtanen v. O'Connell.34 The partner, O'Connell, represented the buyer in a stock sale transaction. He also agreed to act as escrow holder by holding the seller's stock certificates until the sale closed. Before the conditions of the sale were met, the seller, Virtanen, decided to terminate the sale and sent a written notice rescinding the transaction and demanding return of his stock. Notwithstanding the notice, O'Connell proceeded to close the sale and delivered the certificates to a transfer agent to effectuate the transfer of the stock to his client. The seller sued O'Connell and his law firm for negligence, breach of fiduciary duty, and conversion, and recovered nearly $2 million in compensatory damages. The court of appeal affirmed, holding that the lawyer could not favor his own client and disregard the rights of the other party to whom he owed duties as an escrow holder. Faced with conflicting instructions, the lawyer must file an interpleader action and cannot convert the stock to his client's use. Delivering the stock to the transfer agent was not the "functional equivalent" of interpleader, as O'Connell contended.35 The court rejected O'Connell's "fantastical defense" and remanded the case for retrial of punitive damages against the lawyer.36
Bad Acts by Lawyers
Regrettably, some attorneys need to be reminded that they must tell the truth to a court. Business and Professions Code Section 6068(d) states: "It is the duty of an attorney…[t]o employ, for the purpose of maintaining the causes confided to him or her those means only as are consistent with truth, and never to seek to mislead the judge or any judicial officer by an artifice or false statement of fact or law." Under Rule 5-200 of the Rules of Professional Conduct, misleading a judge or jury makes a lawyer subject to discipline.
In Mammoth Mountain Ski Area v. Graham,37 a ski instructor injured by a teenage snowboarder sued the snowboarder and his parents for damages. The 17-year-old admitted he was engaged in a snowball fight with his younger brother when he collided with the instructor. The superior court granted the defendants' motion for summary judgment based on the primary assumption of risk doctrine--namely, that the injury resulted from an inherent risk in the sport.38 On appeal, the issue was whether the teenager's conduct was so reckless as to be totally outside the range of normal activity involved in the sport and, therefore, not protected by the assumption of risk doctrine. The appellate court concluded the evidence could lead to a reasonable inference that the collision was neither inadvertent nor unavoidable and so held that a triable issue of fact barred summary judgment.39
The court of appeal also found that a serious mischaracterization of the record had occurred during oral argument. The defendants' lawyer, Ross Paulson, stated that there was no evidence in the record that the snowboarder who collided with the plaintiff had ever thrown a snowball, but in rebuttal, a witness's declaration was read stating that the snowboarder and his brother were throwing snowballs at each other. The court concluded that Paulson had "misrepresented the record on a crucial point."40 Noting that some appellate counsel had recently found it convenient to misrepresent the record, either to gain an advantage or because they were reckless with the truth, the court declared that cavalier mischaracterizations of the record must cease, and directed the clerk to forward a copy of the opinion to the State Bar for possible discipline under Section 6068(d).41
Different duties were breached in In the Matter of Julie L. Wolff,42 a disciplinary action heard by the State Bar Court. For nine years Wolff was a member of the Indigent Defense Program (IDP) of Sacramento County, which selected attorneys to represent parents and children in dependency matters. In 1999, the presiding judge of the juvenile court decided to contract with one law firm instead of using the IDP. Wolff's bid to be the law firm was rejected, and one month later, she submitted a document to the superior court in which she attempted to resign from all of her 319 IDP-appointed cases. The presiding judge refused to file the document and informed Wolff that it was not a proper motion to withdraw from representation because it did not identify the cases by name or number or request a hearing date, and she had not informed any of her clients of her intent to withdraw. Indeed, she never submitted a proper motion to withdraw and the court never authorized her withdrawal. Nevertheless, she ceased making appearances in all cases and returned the files to the IDP.
After Wolff had missed 39 appearances, she was ordered by the court to show cause why she should not be held in contempt. Ultimately, in 2000 Wolff stipulated to an order imposing sanctions. Four years later, the State Bar filed a notice of disciplinary charges, and Wolff was found to have violated Business and Professions Code Section 6068(m) (an attorney must keep clients reasonably informed of significant developments), Rule 3-110(A) of the Rules of Professional Conduct (an attorney shall not intentionally, recklessly, or repeatedly fail to perform legal services with competence), Rule 3-700(A)(1) (an attorney shall not withdraw without the tribunal's permission), and Rule 3-700(A)(2) (an attorney shall not withdraw until taking steps to avoid reasonably foreseeable prejudice, including giving notice to the client and allowing the client time to employ other counsel), among other rules and statutes. The Review Department further found that Wolff's failure to accept responsibility for her actions as well as her "tangled web of excuses" demonstrated her indifference and lack of remorse and recommended stern sanctions--including suspension from the practice of law for 18 months, three years' probation, quarterly reports showing her compliance with legal ethics rules, and taking and passing the Multistate Professional Responsibility Examination.43
Unfortunately, this was not Wolff's only public sanction by a court in 2006. In In re S.C.,44 the Third District Court of Appeal found that Wolff's appellate brief in the case--containing 76,235 words and characterized by the court as "rambling and ranting" over its 202 pages--was so egregious it warranted referral to the State Bar for discipline. The court wrote:
This is an appeal run amok. Not only does the appeal lack merit, the opening brief is a textbook example of what an appellate brief should not be….[The] appellants' lawyer has managed to violate rules of court; misrepresent the record; base arguments on matters not in the record on appeal; fail to support arguments with any meaningful analysis and citation to authority; raise an issue that is not cognizable in an appeal by her client; unjustly challenge the integrity of the opposing party; make a contemptuous attack on the trial judge; and present claims of error in other ways that are contrary to common sense notions of effective appellate advocacy….45
Prosecutors speak not solely for the victim or the police, or those who support them. They represent the people.46 Because prosecutors possess the power and duty to charge individuals with crimes and to conduct the prosecution, the attorneys who make those decisions must not only be impartial but also maintain the appearance of impartiality.47 Professional misconduct may result in attorney discipline, as happened to a former Sonoma County prosecutor in a murder trial who was suspended for three years and given five years' probation for secretly coaching a coroner on how to answer questions concerning past employment and failing to turn over or disclose the existence of a videotape of the coaching session.48 In addition, if the circumstances demonstrate that a prosecutor cannot exercise his or her discretionary function in an evenhanded manner so that it is unlikely the defendant will receive a fair trial, the prosecutor may be recused pursuant to Penal Code Section 1424. In three opinions published in 2006, the Second District Court of Appeal disqualified deputy district attorneys for misconduct.
The Second District issued two decisions based on events in the Santa Barbara district attorney's office. In Haraguchi v. Superior Court,49 the prosecutor wrote a novel that was published in early 2006. The novel described the exploits of the heroine--like the author, a female Santa Barbara deputy district attorney--as she prosecuted a rape by intoxication case. The plot bore several similarities to a rape by intoxication case that the author was prosecuting against Haraguchi. As a result, Haraguchi moved to recuse her and the entire district attorney's office. The trial court denied the motion, but the Second District issued a writ instructing the trial court to disqualify the author only. Expressing its hope that "this case of first impression will make a case of lasting impression,"50 the Second District reasoned that the publication of the novel, and some of the views expressed in it by the author, created a disabling conflict of interest and a reasonable argument that the author could not exercise her discretionary functions in an evenhanded manner. Indeed, the publicity resulting from a conviction could garner her additional royalties, so the author had no incentive to enter into a negotiated settlement with the defendant. Also, in her acknowledgements, the author, identifying herself with the heroine, demonstrated a strong bias toward the prosecution and victims and characterized her antidefendant description of the criminal justice system as "trustworthy."51 Characterizing these actions by the author as a "single lapse of judgment," the court disqualified the author in the defendant's case but not in all criminal or sexual assault cases.52
On the same day as its Haraguchi decision, the same panel from the Second District issued an opinion chastising a second deputy district attorney from the Santa Barbara office. Hollywood v. Superior Court53 involved Jesse James Hollywood, one of five young men charged with a brutal kidnapping and murder. He fled the country, and in his absence the deputy district attorney prosecuted his four codefendants. The four were convicted. While Hollywood was still in hiding, a screenwriter solicited assistance from the prosecutor to write a movie about the crime. The prosecutor gave the screenwriter his trial notebook and various files relating to the investigation, including photographs, tapes, police and probation reports, psychiatric reports, and possibly even rap sheets. The prosecutor received no money for his assistance. He helped the screenwriter because the prosecutor hoped that widespread publicity regarding the crime might lead to the capture of Hollywood. The film, although purportedly factually accurate, used pseudonyms. It painted the fugitive as manipulative, vicious, selfish, and without any redeeming characteristics--a portrayal described as a "public vilification of a defendant in a case which is yet to be tried."54 The credits expressed gratitude to the prosecutor and his office for their assistance.
Five years after the crime and shortly before the release of the film, Hollywood was arrested in Brazil, deported to California, and faced prosecution on felony murder charges as the film was being released. The trial court denied the defendant's motion to recuse the prosecutor and his entire office. The Second District initially denied the defendant's writ petition. However, the California Supreme Court granted review and directed the court of appeal to issue an order to show cause. The Second District proceeded to reevaluate the case and issue the writ, finding that the prosecutor, in his zeal to apprehend the fugitive, had improperly given away public property in a pending case, disclosed his work product, and potentially infected the jury pool with his views on the strength of the people's case. The Second District, however, declined to recuse the entire district attorney's office because Hollywood failed to establish an "especially persuasive" showing of a causal connection between the prosecutor's conduct, the elected district attorney, and other deputies in that office.55
In the third case,56 a different panel of the Second District Court of Appeal denied a writ petition, thereby affirming the recusal of several members of the Los Angeles district attorney's office. These attorneys had blocked the efforts of a minor charged with violations of Penal Code Section 288.5 from gaining access to the medical and psychotherapy records of the victim, who was also a minor. The court reasoned that the prosecutors had aligned themselves too closely with the parents of the victim and thereby threatened the ability of the minor to receive a fair trial.
Interestingly, the California Supreme Court recently granted review in Haraguchi and Hollywood. The court granted the prosecutor's petition for review in Hollywood to consider three questions:
1) Was the trial court's ruling subject to independent review or reviewable
only for an abuse of discretion?
2) Was recusal appropriate under either standard?
3) If recusal was required, was it error not to recuse the entire district
On its own motion, the court granted review in Haraguchi to determine the appropriate standard of review and whether recusal was appropriate under either standard.
In 2004, the California Supreme Court in Fletcher v. Davis concluded--to the surprise of many--that a lawyer's charging lien (that is, a lien upon a fund or judgment the lawyer receives to ensure compensation for recovering the fund or judgment) created at the commencement of an hourly fee engagement constitutes an adverse interest within the meaning of Rule 3-300 of the Rules of Professional Conduct.57 As a result, for this type of lien to be enforceable, the lawyer must comply with all the requirements of Rule 3-300--including, for example, advising the prospective client that he or she may seek the advice of yet another lawyer about the lien and obtaining the client's written consent. In Fletcher, the agreement between the lawyer and the corporate client was oral. As a result, the supreme court concluded that the lawyer's charging lien was invalid.
During 2006, the State Bar's Committee on Professional Responsibility and Conduct (COPRAC) issued an opinion on an issue not addressed in Fletcher--whether a charging lien in a contingent fee case constitutes an adverse interest within the meaning of Rule 3-300.58 In Formal Opinion 2006-170, COPRAC concluded that it does not.
COPRAC distinguished Fletcher because of material differences between hourly and contingent fee arrangements. A charging lien is almost always found in contingent fee contracts and is generally uncontroversial, but it is relatively rare in a hourly fee agreement. Also, the percentage fee owed in a contingent fee case is fixed at the commencement of the engagement, which reduces the likelihood of fee disputes that could cause a delay in a client's recovery. Business and Professions Code Section 6147 sets forth several requirements and client protections for contingent fee contracts that are not applicable to hourly agreements. Finally, COPRAC reasoned that requiring compliance with Rule 3-300 in contingency fee contracts would cause clients to seek independent consultations without any discernible benefit because charging liens are so prevalent and well accepted in contingent fee contracts. To date, neither the supreme court nor the intermediate appellate courts have addressed the distinction adopted by COPRAC.
Under certain circumstances, a lawyer seeking payment for fees may also have an equitable lien against a judgment in favor of his or her client. In County of Los Angeles v. Construction Laborers Trust Funds for Southern California Administrative Company,59 a lawyer represented a construction company in various matters, including a dispute with the County of Los Angeles. The lawyer and his client had a written fee agreement giving the lawyer a lien on the client's recovery not in the county dispute but in a separate federal court proceeding. The client lost the federal case, but in the other matter the lawyer negotiated a settlement in which his client was to receive $255,361 from the county. Although his attorney's lien did not apply against this settlement payment, the lawyer sent the county a letter advising the county that the lawyer had a lien on the settlement proceeds. The lawyer copied his client's president on the letter. In the meantime, a judgment creditor of the client also claimed a right to the settlement proceeds. Faced with conflicting claims, the county interpleaded the funds. The court of appeal concluded that the lawyer had an equitable lien on the settlement funds, which attached when the lawyer sent the letter advising the county of the lien. Because the lawyer's equitable lien attached before the judgment creditor's lien, the lawyer's lien had priority.
It is not unusual for a lawyer working on an hourly basis to require the client to pay a retainer as security for the lawyer's fee. In Rus, Milliband & Smith PC v. Yoo,60 a bankruptcy appellate panel concluded that a prepetition security retainer, properly disclosed and documented, is not subject to disgorgement. The panel also held that determining whether a professional with a security retainer is "disinterested" within the meaning of the Bankruptcy Code or otherwise impaired by a conflict of interest is necessarily fact-specific. However, a finding of disinterest is not in itself disqualifying.61
Code of Civil Procedure Section 1021.5 empowers a court to "award attorneys' fees to a successful party against one or more opposing parties in any action which has resulted in the enforcement of an important right affecting the public interest…." Does the lawyer of a prevailing party have a right to intervene in litigation to move for statutory fees? Courts have expressed different views on this. In Lindelli v. Town of San Anselmo,62 the First District Court of Appeal concluded that the word "party" in Section 1021.5 includes a litigant and the litigant's lawyer. Thus, in Lindelli, the lawyers for the prevailing petitioners in litigation over a voter referendum were permitted to intervene for the purpose of filing a motion for statutory fees, even though the petitioners themselves had decided to accept the town's settlement without filing a motion for statutory fees. In reaching this decision, the court of appeal disagreed with a 2004 Ninth Circuit holding that Section 1021.5 "confers no legally enforceable interest on the attorneys themselves."63 The First District reasoned that denying a lawyer the right to intervene and move for fees would "dilute section 1021.5's effectiveness at encouraging counsel to undertake litigation enforcing important public policies" and "provide a windfall to the wrongdoing defendant, at the expense of the attorneys who labored in the public interest."64 The court warned, however, that a trial court might be justified in denying intervention to a lawyer seeking to move for fees when intervention would interfere with settlement.65
A provision in an engagement letter irrevocably assigning to the lawyer the client's rights to a statutory fee award created an obstacle to settlement in Pony v. County of Los Angeles.66 The lawyer filed an action on behalf of the plaintiff's minor daughter against the County of Los Angeles for intentional torts and violations of 42 U.S. Code Section 1983. In the retainer agreement, the mother irrevocably assigned to the lawyer her rights "to waive, apply for, obtain judgment upon, collect, and/or receive any statutory attorney's fee award" on the claims.67 During the litigation, the county offered to settle for $29,999.99, including attorney's fees. The mother wanted to accept the amount. The lawyer refused, claiming that his fees amounted to roughly $50,000. In light of the conflict, the lawyer withdrew from the case but still objected to the settlement. The mother thereafter settled with the county but had to indemnify it against the possibility that her former lawyer might pursue a claim for fees. The former lawyer objected when the district court dismissed the case upon the settlement, but the district court denied the lawyer's objection for lack of standing. The Ninth Circuit affirmed. Citing cases from the U.S. Supreme Court and the Ninth Circuit, the court reasoned that the provision permitting a plaintiff prevailing on a Section 1983 claim to recover attorney's fees vests the right in the client, not the lawyer. Also, a claim for fees, which is derivative of a claim under Section 1983, cannot be assigned under California law. Therefore, the court concluded that the assignment in the retainer agreement was void as a matter of law.68
Regarding financial arrangements between lawyers and their clients, LACBA's Professional Responsibility and Ethics Committee reached two conclusions in Formal Opinion No. 517. First, a lawyer may agree to advance the reasonable expenses of prosecuting or defending a client's matter and waive the right of repayment by the client if there is no recovery. Second, at the inception of the representation or during the course of the litigation, a lawyer may agree to indemnify the client for court-ordered costs if the client is not the prevailing party. The committee reasoned that Rule 4-210 of the Rules of Professional Conduct permits a lawyer to agree to pay a client's reasonable litigation costs, and indemnification is not materially different from advancing costs. Also, the committee reasoned that these agreements did not create an adverse interest within the meaning of Rule 3-310.69
Client Trust Accounts
Rule 4-100 of the Rules of Professional Conduct requires all funds received or held for the benefit of a client to be deposited in a trust account and not commingled with the attorney's personal or office funds. Indeed, Rule 4-100(A)(2) states that any portion of the funds belonging to the lawyer must be withdrawn "at the earliest reasonable time" after the member's interest becomes fixed. The rule further states that if the lawyer's right to the funds is disputed by the client, the disputed funds may not be withdrawn from the trust account until the dispute is finally resolved. If an attorney has withdrawn his or her fee from the trust account, and the client later disputes the fee, does the lawyer have to put the money back into the account? In its Formal Opinion No. 2006-171, COPRAC said no. Having properly withdrawn the fee, the lawyer neither received nor held the funds for the benefit of the client. At the moment of withdrawal, the funds were the attorney's personal property. COPRAC noted there is no authority to suggest that funds regain trust account status simply because the client later expresses remorse, regret, or other dissatisfaction with the attorney's fee.70
Unauthorized Practice of Law
In Benninghoff v. Superior Court71--a decision that serves as a coda to the Federal Circuit Court of Appeals' 2005 decision in Augustine v. Department of Veterans Affairs72--the Fourth District Court of Appeal considered the State Bar's jurisdiction over a former lawyer's practice before state and federal administrative agencies. Following his guilty plea to several federal felonies, Benninghoff resigned from the State Bar with disciplinary charges pending against him. He began to represent persons before administrative agencies, styling himself a "professional advocate" and "lay representative," until the State Bar charged him with the illegal practice of law, and a superior court assumed jurisdiction over his practice under Business and Professions Code Section 6180.73 In his petition for an extraordinary writ, Benninghoff argued that laypeople may represent parties in state administrative proceedings, but the court of appeal distinguished between "true laypeople" and "defrocked lawyers" who have lost their bar membership.74 It concluded that Benninghoff was practicing law by representing parties in state administrative proceedings--and the superior court had not abused its discretion in assuming jurisdiction over Benninghoff's state practice.75
The appellate court reached a different conclusion regarding Benninghoff's practice before federal agencies. Citing Birbrower, Montalbano, Condon & Frank v. Superior Court76--the seminal California case governing the unauthorized practice of law--the Benninghoff court stated that the State Bar Act does not regulate practice before U.S. courts and, more specifically, state law cannot regulate the right of federal agencies to control who practices before them.77 Therefore, the superior court had erred by assuming jurisdiction over Benninghoff's federal practice, and the appellate court granted a writ of mandate requiring the State Bar to return any seized materials regarding his federal practice.78
Under Rule 3-110 of the Rules of Professional Conduct, a lawyer has an ethical obligation to perform legal services with competence, which means applying 1) diligence, 2) learning and skill, and 3) the mental, emotional, and physical ability reasonably necessary for the performance of his or her services.79 In Formal Opinion No. 06-441, the ABA Standing Committee on Ethics and Professional Responsibility analyzed similar, although not identical, provisions on lawyer competence in the Model Rules of Professional Conduct in the context of representing indigent persons charged with criminal offenses.
Although neither the Model Rules nor ABA ethics opinions construing the Model Rules are binding in California, ABA Formal Opinion 06-441 makes several noteworthy comments. It confirms that a lawyer's duty of competence does not vary based on the client's net worth or the lawyer's caseload.80 A lawyer owes a duty of competence to all clients. If the lawyer's workload is such that he or she is unable to meet the basic ethical obligations required in the representation of a client, the lawyer must not continue the representation of that client--or, if the representation has not yet begun, the lawyer must decline the representation.81 If the lawyer works for the public defender's office, the lawyer must ask his or her supervisor for assistance and, if necessary, continue to advance up the chain of command within the office until the lawyer has obtained relief or has sought relief from the head of the office. If the office head's response is not reasonable, the public defender must take further action, which might include appealing to the office's governing board or filing a motion with the court for permission to withdraw.82
Revision of the Rules of Professional Conduct
During 2006, the Commission on the Revision of the Rules of Professional Conduct formally published for public comment its first installment of proposed revisions. The response included numerous comments in writing and during scheduled public meetings throughout the state. The commission is expected to consider the comments and publish successive sets of revised rules in the years to come.83