March 2008     Vol. 31, No. 1

MCLE Article: 2007 Ethics Roundup

Recent decisions on legal ethics offer important guidance for attorney behavior.

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 shareholder in the Los Angeles office of Heller Ehrman LLP. Both are former chairs and current members of the Los Angeles County Bar Association's Professional Responsibility and Ethics Committee. Amberg is former chair and current advisor to the State Bar of California's Committee on Professional Responsibility and Conduct, of which Rewinski is also a member.

By reading this article and answering the accompanying test questions, you can earn one MCLE ethics credit. To apply for credit, please follow the instructions on the test.

Legal ethics experienced another busy year in 2007. The State Bar of California's Board of Governors adopted the California Attorney Guidelines of Civility and Professionalism which, though advisory, were widely predicted to lead to new sanctions against lawyers. Whether this punishment would fall on the truly deserving was less certain.1 The Civility Guidelines were adopted despite unexpected criticism by the Los Angeles County Bar Association's Professional Responsibility and Ethics Committee (PREC), which found them unnecessarily duplicative of existing law, and by the State Bar's Committee on Professional Responsibility and Conduct (COPRAC), which saw the guidelines' admonition against disrespectful comments about judges as a heavy-handed restriction on lawyers' free speech. The State Bar Board of Governors was unable to reach agreement on another controversial measure that would have required all California lawyers to advise their clients whether they carried malpractice insurance, but the board vowed to revisit the issue in 2008.2

Cases involving legal ethics caught the attention of the legal and mainstream media. In the Qualcomm-Broadcom patent litigation, Qualcomm's lawyers argued they should be permitted to defend themselves against charges of withholding evidence by using privileged communications, without a waiver by their client, but a federal magistrate judge ruled that a self-defense exception to the attorney-client privilege did not apply to third-party claims.3

Capping a long investigation into his former firm Milberg Weiss, securities class action lawyer William S. Lerach pleaded guilty to conspiracy to obstruct justice and to making false statements under oath and will pay an $8 million fine and be sentenced to more than one year in prison.4 Civil rights lawyer Stephen Yagman, who achieved notoriety by suing the Los Angeles Police Department and lambasting federal judges, was convicted of income tax evasion, bankruptcy fraud, and money laundering.5 Troy Ellerman—an attorney for the Bay Area Laboratory Co-operative (BALCO), the company at the center of an investigation regarding the use of performance-enhancing drugs in sports—was convicted of obstructing justice by leaking grand jury testimony to journalists about the investigation and was sentenced to two years in prison and community service in the form of 10 ethics talks to law students.6

As lawyers in Pakistan demonstrated for judicial independence, here in the United States Attorney General Alberto Gonzales resigned amid charges of politically motivated prosecutions, Department of Justice purges involving U.S. attorneys in San Diego and San Francisco, and perjured congressional testimony.7 A Pentagon lawyer was condemned by the American Bar Association and resigned after he suggested corporate clients should boycott law firms providing pro bono legal services to Guantanamo prisoners.8 A survey found that 90 percent of in-house counsel believe the attorney-client privilege in government investigations is nonexistent or severely damaged. Bills were introduced in Congress to bar the DOJ from pressuring companies for waivers.9

Conflicts of Interest

Paramount among a lawyer's ethical duties is the duty to avoid the representation of clients with adverse interests.10 Lawyers owe current clients a duty of undivided loyalty and owe former clients a duty of loyalty regarding matters in which the lawyers previously represented them. Lawyers owe all clients a continuing duty of confidentiality.11 A violation of these duties may lead to disqualification.

Because disqualification has a drastic effect on both the lawyer and client, it is "generally disfavored" and should only be imposed "when absolutely necessary."12 One commentator, Richard E. Flamm, suggests that "[c]ourts have begun to register growing dissatisfaction with the use of disqualification as a remedy for ethical misconduct" and recommends that courts "take a 'functional approach,' pursuant to which disqualifications are evaluated with a keen sense of practicality."13 Whether courts are doing so is unclear.

The usual concern in cases addressing successive representations and a lawyer adverse to a former client is the duty of confidentiality. However, in Knight v. Ferguson,14 the Second District Court of Appeal affirmed an order disqualifying a lawyer based on the duty of loyalty. The plaintiff moved to disqualify a lawyer representing certain defendants because prior to the lawsuit, the lawyer had given the plaintiff legal advice regarding the business that was the subject of the new dispute. The defendants argued that they had been present at all meetings between the lawyer and the plaintiff and, therefore, none of the advice was confidential. The appellate court found a substantial relationship between the former advice and the new dispute. Without citing the California Rules of Professional Conduct or the State Bar Act, the court held that the lawyer's duty of loyalty precluded him from doing anything that would injure his former client, at least with respect to the same matter.15

In Med-Trans Corporation, Inc. v. City of California City,16 the Fifth District Court of Appeal reversed an order disqualifying a lawyer who had an initial consultation with a potential client but was not retained. According to the court, when a preliminary conversation does not result in professional employment, no presumption exists that confidential information had passed to the lawyer, even though the current and prior matters had a substantial similarity of issues. The burden is on the party seeking disqualification to show that the lawyer acquired confidential information.17 Because the city failed to meet this burden, the lawyer should not have been disqualified.18

Conflicts of interest often arise when lawyers move from one law firm to another. Nevertheless, disqualification is not always required when lawyers switch firms. In Ochoa v. Fordel, Inc.,19 the Fifth District Court of Appeal refused to disqualify the plaintiffs' law firm after it hired attorney Shelley Bryant from the defendants' law firm. Bryant had not worked on the defendants' matters at his prior firm. Although Bryant had access to the defendants' files, the plaintiffs satisfied their burden of demonstrating that Bryant did not have knowledge of the defendants' confidential information.20 Access alone was not enough to warrant disqualification.

By contrast, in Lucent Technologies, Inc. v. Gateway, Inc.,21 a San Diego federal court disqualified Gibson, Dunn & Crutcher from representing a defendant after the firm hired a lawyer from the plaintiff's law firm, Kirkland & Ellis. The ex-Kirkland lawyer had worked on the plaintiffs' legal team for three years, billing about 2,300 hours. Gibson's conflict-checking system failed to detect the conflict. The court concluded that Gibson's disqualification was automatic, even though the side-switching associate worked in a different office and was not part of the team Gibson put together to represent the defendant.22

In several appeals by the Children's Law Center of Los Angeles, the Second District Court of Appeal considered whether the center could represent children with conflicting interests in concurrent or successive proceedings by erecting ethical screens. The center has three units of lawyers and staffs, each with a separate administrator responsible for all legal representation provided by the lawyers in his or her unit. Each unit maintains separate files and lacks access to the case files of the other units. The center has corporate officers and directors, including an executive director, who handle strictly administrative matters and do not participate in the representation of individuals. With this ethical screening, the center attempts to provide legal representation to siblings in concurrent and successive dependency proceedings, even if the siblings have conflicting interests.

Litigants in several proceedings moved to disqualify the Children's Law Center based on evidence that the ethical wall had been breached. The Second District issued three published opinions, all reversing disqualification orders: In re Jasmine S.,23 In re Charlisse C.,24 and In re Zamer G.25 In the first, In re Jasmine S., two siblings in a single dependency proceeding sought placement with the same maternal aunt. The appellate court concluded that the trial court erred in ordering disqualification of two of the center's units concurrently representing the two siblings because there was no evidence of an actual conflict. The court concluded that an appearance of impropriety alone resulting from the breach of the ethical wall was insufficient to warrant disqualification in the absence of an actual conflict. In the latter two cases, the Second District reversed disqualification orders notwithstanding some evidence of an actual conflict. By granting review in both In re Charlisse C. and In re Zamer G., the California Supreme Court will have the opportunity to provide additional guidance on ethical screening.

Disqualification on Other Grounds

Litigants also seek to disqualify an opponent's lawyer as a way of punishing or deterring lawyer misconduct. For example, in Rico v. Mitsubishi Motors Corporation,26 the California Supreme Court expressed no hesitation in disqualifying the plaintiffs' lawyer for improperly retaining and using opposing counsel's notes describing an expert meeting. In the process, the court reconciled two conflicting lines of authority: one based on the 1993 decision in Aerojet-General Corporation v. Transport Indemnity Insurance,27 the other stemming from the 1999 decision in State Compensation Insurance Fund v. WPS, Inc. (State Fund).28 In Aerojet, the First District, citing a lawyer's ethical duty to represent his or her client zealously, held that a lawyer could use an internal memorandum written by opposing counsel identifying witnesses that was inadvertently produced in discovery. In State Fund, the Second District concluded that the defendant's lawyer was not ethically permitted to use the opposing party's confidential civil litigation claims summaries that were inadvertently produced.

Distinguishing Aerojet because the underlying information (witnesses' names and addresses) was not confidential, the state supreme court in Rico endorsed the approach articulated in State Fund as "reasonable and fair":

When a lawyer who receives materials that obviously appear to be subject to an attorney-client privilege or otherwise clearly appear to be confidential and privileged and where it is reasonably apparent that the materials were provided or made available through inadvertence, the lawyer receiving such materials should refrain from examining the materials any more than is essential to ascertain if the materials are privileged, and shall immediately notify the sender that he or she possesses material that appears to be privileged. The parties may then proceed to resolve the situation by agreement or may resort to the court for guidance with the benefit of protective orders and other judicial intervention as may be justified.29

This approach, the court reasoned, protects attorney work product, avoids imposing additional burdens on mass document productions, and acknowledges a lawyer's need "to respect the legitimate interests of fellow members of the bar, the judiciary, and the administration of justice."30 The court did not mention the ethical duty of zealous representation relied on in Aerojet.

The Rico court also provided little discussion on the appropriate remedy for a violation. Citing State Fund, the court noted that mere exposure to an adversary's confidences is insufficient on its own to warrant disqualification. On the other hand, "disqualification might be justified if an attorney inadvertently receives confidential materials and fails to conduct himself or herself in the manner specified above, assuming other factors compel disqualification."31 Citing the "unmitigable damage caused by [the plaintiffs' lawyer's] dissemination and use of the document,"32 the court affirmed the disqualification of the plaintiffs' lawyers and experts. Other than this terse reference to unmitigable damage, the court did not identify what other factors compel disqualification. Nor did the court analyze alternative remedies short of disqualification, such as monetary or evidentiary sanctions.

Lawyers also can become ensnared when experts forget which side they work for. In Shandralina G. v. Homonchuk,33 the Fourth District Court of Appeal, in a thoughtful opinion, reviewed the legal test applicable when both sides unknowingly speak with a potential expert witness, and attorney work product is disclosed. A minor, Shandralina G., sued Dr. Homonchuk for medical malpractice and the wrongful death of her mother. In February 2005, Dr. Landers was retained by Dr. Hononchuk as a defense expert, and the expert reviewed medical records and discussed his opinions on medical and legal issues and confidential defense strategies with counsel. In May 2005, as he was boarding a plane, Dr. Landers received a call from the plaintiff's counsel, who asked for his help on the case. The expert testified he did not recognize Dr. Homonchuk's name or the facts and agreed to review the records. On August 9, the plaintiff designated Dr. Landers as her expert. The defendant's counsel immediately wrote to Dr. Landers, demanding he cease contact with the plaintiff, and moved to disqualify Dr. Landers and the plaintiff's counsel. The defendant's counsel, citing Shadow Traffic Network v. Superior Court,34 based the disqualification request on the ground that Shandralina G.'s lawyer had improperly obtained the defendant's confidential information from the expert.

The court of appeal refused to presume that the plaintiff's lawyer had received confidential information from the expert. Unlike the facts in Shadow Traffic, Dr. Landers remained under the control of the defense, and there was no legal impediment to the defendant's ability to obtain his evidence by declaration or deposition. Citing Collins v. State of California,35 the court held that the burden remained with the defendant to show that the confidential information imparted by his lawyers to the expert was transmitted to the plaintiff's lawyer.36 The defendant failed to meet this burden, so the court reversed the disqualification of the plaintiff's lawyer.

Client Secrets and Lawyer Work Product

Business and Professions Code Section 6068(e)(1) provides that a lawyer has an ethical obligation to preserve the secrets of his or her client "at every peril to himself or herself." This ethical obligation is reiterated in Rule 3-100 of the Rules of Professional Conduct. Unlike the evidentiary protection afforded to attorney-client communications and attorney work product, the ethical rule of confidentiality has only a single exception—one that permits, but does not require, a lawyer to reveal confidential information to the extent the lawyer reasonably believes is necessary to prevent a criminal act likely to result in death or substantial bodily harm.37 Highlighting the narrow scope of this exception, the County Bar's PREC opined last year that in defending against third-party claims, a lawyer may not disclose confidential information relating to the representation of a client without the client's consent.38

In PREC's Formal Opinion 519, a corporate lawyer assisted her client in preparing a private placement memorandum that was distributed to purchasers of the client's notes. After the client experienced financial difficulty, a class action on behalf of the note purchasers was filed naming the client, several of its officers and directors, and the lawyer. The lawyer asked PREC whether she was ethically permitted to disclose the client's confidential information to defend the claims asserted against her. PREC concluded that she could not do so without the client's consent. Neither Business and Professions Code Section 6068(e)(1) nor Rule 3-100 include a self-defense exception. And although Evidence Code Section 958 permits disclosure of client information in a dispute with a client, it is not applicable to third-party disputes. PREC further opined that the lawyer should advise her client in writing about the existence and nature of any actual or potential conflict with respect to the disclosure, the reasonably foreseeable adverse consequences of the client's consent, and the client's right to seek independent legal advice concerning the consent.

Although Section 6068(e)(1) and Rule 3-100, and not the Evidence Code, set forth a lawyer's ethical obligation to preserve client secrets, the evidentiary protections afforded to attorney-client communications and attorney work product often have ethical implications. Evidence Code Section 954 codifies the attorney-client privilege, providing that "the client...has a privilege to refuse to disclose, and to prevent from disclosing, a confidential communication between client and lawyer if the privilege is claimed by...the holder of the privilege."39 In Zurich American Insurance Company v. Superior Court,40 the Second District Court of Appeal analyzed the scope of the privilege when the client is an entity.

The Zurich court issued a writ and concluded that the discovery referee and lower court improperly limited application of the privilege to communications in which a lawyer participated. Noting that "[i]t is neither practical nor efficient to require that every corporate employee charged with implementing legal advice given by counsel for the corporation must directly meet with counsel or see verbatim excerpts of the legal advice given," the court reasoned that Evidence Code Section 952, which defines "confidential communication" for purposes of the privilege, contemplates that such communications may be shared with persons "to whom disclosure is reasonably necessary for the transmission of the information" for "the accomplishment of the purpose for which the lawyer is consulted."41

The court articulated a two-part test. First, does the document contain a discussion of legal advice or strategy? If so, has the holder waived the privilege by disclosing the information to unnecessary third persons?

The work product doctrine, codified in Code of Civil Procedure Sections 2018.010 et seq., shelters the mental processes of the lawyer, providing a privileged area within which he or she can analyze and prepare the client's case.42 A writing that reflects a lawyer's "impressions, conclusions, opinions, or legal research or theories is not discoverable under any circumstances."43 Other work product may be discoverable if "the court determines that denial of discovery will unfairly prejudice the party seeking discovery in preparing that party's claim or defense or will result in an injustice."44 In its Rico decision, the California Supreme Court not only affirmed the disqualification of the plaintiffs' lawyer and experts for discovery misconduct but also noted that the privilege afforded to a lawyer's impressions, conclusions, opinions, legal research, and theories is absolute.45 Thus, no one may seek discovery of absolutely privileged work product in state court civil proceedings by relying on the crime-fraud exception. The result may be different in federal court because under federal common law, the crime-fraud exception does apply to attorney work product.46

In Thelen Reid & Priest LLP v. Marland,47 U.S. District Court Judge Vaughn Walker of the Northern District addressed whether a law firm could refuse to produce to its client certain internal firm memoranda on the basis of the attorney-client or work product privileges. The client, dissatisfied with the $19 million payment he received for serving as the relator in a False Claims Act case, commenced an arbitration proceeding in New York against his lawyers, the Thelen firm. The client alleged that during the engagement, Thelen coerced him through misrepresentations into modifying the original engagement letter, thereby reducing his share of the recovery. Thelen responded by filing a lawsuit in district court seeking to enjoin the client from pursuing the arbitration and enforce the modification of the engagement letter. Citing the attorney-client and work product privileges, Thelen refused to produce certain internal memoranda and e-mails created when the firm was negotiating the modification to the engagement letter with the client—that is, during the firm's representation of the client. These communications analyzed Thelen's ethical and legal duties to the client as well as the firm's options.

Judge Walker recognized that the disclosure of these communications "would dissuade attorneys from referring ethical problems to other lawyers, thereby undermining conformity with ethical obligations."48 Nevertheless, he ordered production of the documents: "Thelen must produce any communications discussing claims that [the client] might have against the firm or discussing known errors in its representation of [the client]. Thelen must produce any communications discussing known conflicts in its representation of [the client] or other circumstances that triggered Thelen's duty to advise [the client] and obtain [the client's] consent."49

The judge's order is, without question, a harsh result. He reasoned that once the law firm learned that its client might have a claim against it, the firm had a conflict requiring client consent if it wished to continue representing the client. To obtain the client's informed consent, the firm was required to describe the nature of the conflict, including the firm's own analysis of any claims that the client might have against it.50 The court suggested that Thelen could have avoided this problem by terminating the client relationship or retaining an outside lawyer to analyze the firm's ethical duties.51

Duties

To whom does a lawyer owe a duty, and when? In Zenith Insurance Company v. Cozen O'Connor,52 the law firm Cozen O'Connor was hired by an insurer to represent its insured. After the case concluded, the law firm was sued for legal malpractice by the insurer's reinsurer, Zenith Insurance Company. Zenith contended that it was owed a duty of care by the firm because it had discussed the underlying litigation with the lawyers, the firm knew the reinsurer was 100 percent liable for the loss, and the reinsurer had "reasonably relied" on the firm to protect its interests. Finally, Zenith argued, the law firm had never said it was not representing the reinsurer. The Second District Court of Appeal disagreed. Rejecting Zenith's theories of third-party beneficiary and implied contract, the court held that there was no attorney-client relationship between the law firm and Zenith, and the lawyers owed no duty of care to the reinsurer. Mere knowledge that the reinsurer would benefit by the performance of the lawyers was insufficient.

In PCO, Inc. v. Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro LLP,53 the Second District Court of Appeal held that a law partnership was vicariously liable for the alleged wrongful acts of a partner acting in the ordinary course of the partnership. Robert Shapiro, a named but nonequity partner in the Christensen law firm, was the attorney for David Laing, who was convicted of engaging in fraudulent activities through PCO, Inc. The receiver for PCO sued Shapiro and the Christensen law firm, alleging that Shapiro directed persons to remove 12 duffel bags from Laing's Palm Springs home—with each bag containing $500,000 in cash belonging to PCO—and used the cash to post bail for Laing and pay the lawyers' fees. The superior court granted the law firm's motion for summary judgment, based on Shapiro's declaration that 1) he represented Laing in his "private" capacity, 2) his criminal practice was separate from the firm, and 3) he deposited the monies in his personal account.

The appellate court reversed, concluding that a jury could find that Shapiro had removed the money from Laing's residence to help a client of the Christensen firm post bail and to ensure that the firm's fees were paid. Shapiro's acts were "typical or broadly incidental" to the firm's white collar criminal defense practice and within the scope of a law partner's authority.54 The court held that the Christensen firm could be vicariously liable for a partner's acts, even if those acts were willful, malicious, and criminal.55

Getting Paid

State and federal courts, as well as COPRAC, published opinions in 2007 analyzing a lawyer's ability to collect fees. Business and Professions Code Sections 6146 et seq. set forth requirements for various types of fee agreements. Section 6147 applies to most contingency fee agreements. Among other requirements, a contingency fee agreement must be in writing and include several items:

1) The agreed-upon contingency rate.
2) A statement on how disbursements and costs will affect the contingency.
3) A statement as to what extent, if any, the client could be required to pay any compensation to the lawyer "for related matters."
4) A statement that the contingency percentage was not set by law but was negotiable (unless Section 6146 applies, which sets maximum contingency percentages for claims against a healthcare provider).
5) If Section 6146 applies, a statement that the client and lawyer may negotiate a rate below the maximum.

According to Section 6147(b), "Failure to comply with any provision of this section renders the agreement voidable at the option of the plaintiff, and the attorney shall thereupon be entitled to collect a reasonable fee."

In Alioto v. Hoiles,56 the U.S. District Court for the District of Colorado confirmed that strict, rather than substantial, compliance with Section 6147(a) is required. The court refused to allow a lawyer to enforce a contingent fee agreement because his retainer agreement failed to include a statement about "related matters," as required by Section 6247(a)(3)--even though the lawyer had no such "related matters" to discuss with the client. Fortunately, the court permitted the lawyer to pursue a quantum meruit claim. But the invalid agreement's contingent fee could not be considered in awarding quantum meruit damages.57

To further a lawyer's interest in getting paid, can the lawyer include an enforceable, binding arbitration clause in an engagement letter and, if so, what is the impact of the Mandatory Fee Arbitration Act (MFAA)58 on the operation of the clause? This issue was addressed by the Second and Fourth District Courts of Appeal during 2007. Under the MFAA, a client has a statutory right to force a lawyer's claim for fees and/or costs to nonbinding arbitration administered through the state or local bar. After the conclusion of the MFAA arbitration, subject to certain restrictions, either the client or lawyer may seek a trial de novo. The purpose of the MFAA is to provide an "effective, inexpensive remedy to a client which does not necessitate the hiring of a second attorney."59

In 2004, California Supreme Court Justice Ming Chin, in his concurring opinion in Aguilar v. Lerner,60 noted that "California case law is presently in a state of confusion over the interaction of the MFAA with private arbitration clauses in attorney-client engagement agreements."61 Clearly, the confusion continued last year. The Second District Court of Appeal concluded in Ervin, Cohen & Jessup, LLP v. Kassel62 that because the client waived his right to MFAA arbitration, a predispute binding arbitration clause in an engagement letter was enforceable. The Second District reversed the superior court's order denying the law firm's petition to compel arbitration before the American Arbitration Association (AAA) in accordance with the engagement letter. The court noted that "[the client] could have forced [the law firm] to go to nonbinding arbitration before a local bar association under the MFAA. Had he done so, there is no doubt he would have been entitled to a trial after arbitration."63

Around the same time as the Ervin, Cohen decision, the Fourth District Court of Appeal in Schatz v. Allen Matkins Leck Gamble & Mallory LLP64 affirmed an order denying a law firm's motion to compel binding arbitration before the AAA pursuant to the engagement letter. The law firm brought the motion following nonbinding arbitration under the MFAA. The Fourth District reasoned that the MFAA invalidates every predispute arbitration clause in an engagement letter. The California Supreme Court, however, subsequently granted the law firm's petition for review. Thus, the interaction of the MFAA with binding arbitration clauses remains in a state of confusion, but the supreme court hopefully will provide further guidance when it decides Schatz.

The Ninth Circuit commented on various billing issues in reviewing a fee application by a party prevailing on her claim under the Employee Retirement Income Security Act of 1974 (ERISA). In Welch v. Metropolitan Life Insurance Company,65 the plaintiff requested $39,112 in fees, based on her lawyer's stated hourly rates of $375 and $400. The district court awarded only $10,762, after cutting the hourly rate to $250, imposing one 20 percent across-the-board reduction for block-billing, imposing a second 20 percent across-the-board reduction for billing in quarter-hour intervals, and finding certain activities (such as internal meetings) unnecessary. The Ninth Circuit affirmed in part, reversed in part, and remanded the decision for reconsideration by the trial court.

The Ninth Circuit concluded that the district court clearly erred in cutting the lawyer's hourly rate to $250 because the plaintiff had submitted ample evidence, including declarations from other ERISA lawyers, that $375 to $400 an hour was "in line with the prevailing market rate." The Ninth Circuit noted, however, that on remand, the district court may reduce the requested rates if the court finds that the plaintiff's lawyer performed below the level of expertise that would command those rates or considers other evidence undermining the reasonableness of the requested rate. According to the Ninth Circuit, it was reasonable for the district court to reduce the requested fees due to block billing "because block billing makes it more difficult to determine how much time was spent on particular activities."66 However, the appellate court held that the district court clearly erred in its across-the-board 20 percent cut for block-billing, because not all time entries included multiple tasks. But the Ninth Circuit affirmed the district court's 20 percent across-the-board reduction for billing in 15-minute increments, a practice that resulted in a request for excessive hours.

In Hyon v. Selten,67 the Second District Court of Appeal analyzed the restrictions imposed by Business and Professions Code Section 6155 on lawyer referral services, which charge fees for referring clients to lawyers. The plaintiff and his business partner hired the nonlawyer defendants to find a lawyer to represent the plaintiff and his partner in business litigation. The defendants, who were not licensed with the State Bar as required by Section 6155, agreed to receive 12 percent of any recovery in the litigation. The superior court found the referral agreement unlawful under Section 6155 and dismissed the defendants' cross-complaint to recover 12 percent of the settlement the plaintiff ultimately received in the litigation. The appellate court agreed that the referral agreement was unlawful but concluded that the defendants could pursue a quantum meruit recovery for the reasonable value of any lawful services rendered.

In Formal Opinion 2007-172,68 the State Bar's COPRAC analyzed whether a lawyer may ethically accept client payments by credit card in view of Rule 4-100 of the Rules of Professional Conduct, which requires lawyers to hold funds received from clients for the benefit of clients in identifiable trust accounts. COPRAC concluded that a lawyer may ethically accept payment by credit card of earned and unearned fees and for costs and expenses already incurred but not for advances for costs and expenses—at least to the extent that funds received via credit card were subject to a "chargeback" by the merchant bank servicing the lawyer's credit card transactions.

Under Rule 4-100, a lawyer is ethically required to 1) deposit advances for costs and expenses into a client trust account and 2) protect the funds deposited into those accounts. In a credit card transaction, a merchant bank is commonly empowered to invade deposited funds when, for example, a credit card holder disputes a charge. Therefore, if a client advances costs or expenses by credit card, the funds are not under the lawyer's exclusive control, and the lawyer cannot satisfy his or her ethical obligation under Rule 4-100. Credit card payments for earned and unearned fees and reimbursements for costs and expenses already incurred are different, because Rule 4-100 does not require these items to be deposited into a client trust account.

Client Files

In Formal Opinion 2007-174, COPRAC addressed a lawyer's ethical duties regarding the release of electronic documents in the client's file at the conclusion of the attorney-client engagement. Rule 3-700(D) of the Rules of Professional Conduct provides that "an attorney whose employment has terminated shall...promptly release to the client, at the request of the client, all the client papers and property." The rule defines "client papers and property" to include "correspondence, pleadings, deposition transcripts, exhibits, physical evidence, expert's reports, and other items reasonably necessary to the client's representation...." It notes that the attorney must release these items whether the client has paid for them or not. In Formal Opinion 2007-174, COPRAC concluded that Rule 3-700 requires the release of electronic versions of the documents identified in the rule as well as electronic versions of any other documents "reasonably necessary" to the client's representation.

The committee added, however, that the lawyer is not obligated to release electronic documents in any application (such as Word and WordPerfect) other than the one in which the lawyer possesses them, because the obligation is to release items, not to create them or change the application. Also, COPRAC advised lawyers, pursuant to their duty of confidentiality under Business and Professions Code Section 6068(e)(1), to take reasonable steps to strip any metadata from the electronic documents that might reflect confidential information belonging to other clients.

Legal Malpractice

In Beal Bank SSB v. Arter & Hadden LLP,69 the California Supreme Court resolved a split in decisions by courts of appeal regarding the interpretation of Code of Civil Procedure Section 340.6(a)(2), which tolls legal malpractice claims as long as "[t]he attorney continues to represent the [client] regarding the subject matter in which the alleged wrongful act or omission occurred." Arter & Hadden represented Beal Bank until a lawyer left the Arter firm, formed his own firm, and transferred the Beal Bank matter to his new firm. More than a year later, Beal Bank sued Arter & Hadden and others for legal malpractice based on conduct that in part occurred during the Arter firm's representation. The bank argued that its malpractice claim was tolled under Section 340.6(a)(2) because the lawyer who left Arter continued to do legal work for the bank.

The supreme court considered the text of the statute and its legislative history, in which the legislature had sought to protect lawyers from escalating malpractice insurance premiums by making the limitations period more certain.70 It held that when a lawyer leaves a law firm and takes a client with him or her, the firm's representation ceases, and the statute for a claim against the firm is no longer tolled.

In a coda to Beal Bank, the Second District Court of Appeal in Nielsen v. Beck71 construed the "continuous representation" clause in Section 340.6 and reversed summary judgment in favor of a law firm. By doing so, the court reinstated a malpractice claim. Attorney Paul Beck defended Robert and William Nielsen against a claim for unpaid rent until the Nielsens became unhappy with the lawyer's services and substituted in new counsel. After Beck turned over his files to the new lawyer and signed the substitution-of-attorney form in August 2004, Robert Nielsen telephoned Beck for advice on three occasions in September 2004, and the lawyer billed him for the conversations. On September 2, 2005, Nielsen sued Beck for malpractice, and the lawyer moved for summary judgment on the ground the lawsuit was barred by the one-year statute of limitations, based on his execution of the substitution-of-attorney form. The lawyer explained that he did not consider himself to be acting as Nielsen's lawyer after he substituted out—but "professional courtesy" required him to take the former client's calls.

The appellate court held there were triable issues of fact concerning whether the professional relationship continued after the substitution-of-attorney form was signed, tolling the statute of limitations.72 Although Beck claimed he was merely being cordial when he discussed the pending suit with Nielsen, he nevertheless billed for his advice, and the court concluded that a jury could find a continuing relationship.73

Revision of the Rules of Professional Conduct

The Commission on the Revision of the Rules of Professional Conduct continued its multiyear effort to revise California's ethics rules. It considered the public comments received in response to its initial drafts and prepared new draft rules for publication and comment.74

Endnotes

1 The California Attorney Guidelines of Civility and Professionalism, at http://www.calbar.ca.gov/calbar/pdfs/reports/Atty-Civility-Guide.pdf.
2 Board Ducks Malpractice Disclosure, California Bar J., Dec. 2007, at 1.
3 Judge's Ruling Puts Qualcomm Lawyers in a Tight Spot, L.A. Daily J., Oct. 4, 2007.
4 Prosecutors Will File Plea Deal for Lerach, L.A. Daily J., Sept. 19, 2007.
5 Jury Convicts Civil Rights Lawyer of Tax Evasion, Fraud, L.A. Daily J., June 25, 2007.
6 BALCO Leaker Held to "Higher Standard" with Prison Sentence, L.A. Daily J., July 13, 2007.
7 Embattled Attorney General Resigns, N.Y. Times, Aug. 27, 2007.
8 Defense Official Resigns over Remarks, http://www.washingtonpost.com, Feb. 2, 2007.
9 In-House Counsel Believe Privilege Is "Severely Damaged" Survey Finds, 23 ABA/BNA Lawyers Manual of Professional Conduct 391 (July 25, 2007).
10 Cal. Rules of Prof'l Conduct R. 3-310(C).
11 Bus. & Prof. Code §6068(e)(1); Cal. Rules of Prof'l Conduct R. 3-310(E).
12 See, e.g., UMG Recordings, Inc. v. MySpace, Inc., 2007 WL 4305929, at *16 (C.D. Cal. 2007) (denying motion to disqualify O'Melveny & Myers).
13 Richard E. Flamm, Lawyer Disqualification: Conflicts of Interest and Other Bases §23.1, at 443-45 (2003).
14 Knight v. Ferguson, 149 Cal. App. 4th 1207 (2007).
15 Id. at 1215-16.
16 Med-Trans Corp. v. City of Cal. City, 156 Cal. App. 4th 655 (2007).
17 Id. at 668.
18 Id. at 668-69.
19 Ochoa v. Fordel, Inc., 146 Cal. App. 4th 898 (2007).
20 Id. at 907-08.
21 Lucent Techs. v. Gateway, Inc., 2007 WL 1461406 (S.D. Cal. 2007).
22 Id. at *4.
23 In re Jasmine S., 153 Cal. App. 4th 835 (2007).
24 In re Charlisse C., 149 Cal. App. 4th 1554, rev. granted, 63 Cal. Rptr. 3d 296 (2007).
25 In re Zamer G., 153 Cal. App. 4th 70, rev. granted, 153 Cal. 4th 1253 (2007).
26 Rico v. Mitsubishi Motors Corp., 42 Cal. 4th 807 (2007).
27 Aerojet-General Corp. v. Transport Indem. Ins., 18 Cal. App. 4th 996 (1993).
28 State Comp. Ins. Fund v. WPS, Inc. (State Fund), 70 Cal. App. 4th 644 (1999).
29 Rico, 42 Cal. 4th at 817 (quoting State Fund, 70 Cal. App. 4th at 656-57).
30 Id. at 817-18 (quoting Kirsch v. Duryea, 21 Cal. 3d 303, 309 (1978)).
31 Id. at 819.
32 Id.
33 Shandralina G. v. Homonchuk, 147 Cal. App. 4th 395 (2007).
34 Shadow Traffic Network v. Superior Court, 24 Cal. App. 4th 1067 (1994).
35 Collins v. State of Cal., 121 Cal. App. 4th 1112 (2004).
36 Shandralina G., 147 Cal. App. 4th at 415.
37 Bus. & Prof. Code §6068(e)(2); see also Cal. Rules of Prof'l Conduct R. 3-100(B) & (C).
38 Los Angeles County Bar Association, Professional Responsibility & Ethics Committee, Formal Op. 519 (Feb. 26, 2007).
39 Thelen Reid & Priest LLP v. Marland, 2007 WL 578989, at *6 (N.D. Cal. 2007).
40 Zurich Am. Ins. Co. v. Superior Court, 155 Cal. App. 4th 1485 (2007).
41 Id. at 1495.
42 See, e.g., Thelen Reid, 2007 WL 578989, at *6 (citing In re Grand Jury Subpoena, 357 F. 3d 900, 907 (9th Cir. 2004)).
43 Code Civ. Proc. §2018.030(a).
44 Code Civ. Proc. §2018.030(b).
45 Rico v. Mitsubishi Motors Corp., 42 Cal. 4th 807, 820 (2007).
46 See, e.g., In re Green Grand Jury Proceedings, 492 F. 3d 976, 979-80 (8th Cir. 2007).
47 Thelen Reid & Priest LLP v. Marland, 2007 WL 578989 (N.D. Cal. 2007).
48 Id. at *7.
49 Id. at *8.
50 Id.
51 See id.
52 Zenith Ins. Co. v. Cozen O'Connor, 148 Cal. App. 4th 998 (2007).
53 PCO, Inc. v. Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro LLP, 150 Cal. App. 4th 384 (2007).
54 Id. at 393-94.
55 Id. at 391.
56 Alioto v. Hoiles, 488 F. Supp. 2d 1148, 1151-52 (D. Colo. 2007).
57 Id. at 1155-57.
58 Bus. & Prof. Code §§6200 et seq.
59 Schatz v. Allen Matkins Leck Gamble & Mallory LLP, 146 Cal. App. 4th 674, 679-80, rev. granted, 59 Cal. Rptr. 3d 437 (2007).
60 Aguilar v. Lerner, 32 Cal. 4th 974 (2004).
61 Id. at 992.
62 Ervin, Cohen & Jessup, LLP v. Kassel, 147 Cal. App. 4th 821 (2007).
63 Id. at 828.
64 Schatz, 146 Cal. App. 4th at 679-80.
65 Welch v. Metropolitan Life Ins. Co., 480 F. 3d 942 (9th Cir. 2007).
66 Id. at 948.
67 Hyon v. Selten, 152 Cal. App. 4th 463 (2007).
68 State Bar of California, Standing Committee on Professional Responsibility & Conduct, Formal Op. 2007-172.
69 Beal Bank SSB v. Arter & Hadden LLP, 42 Cal. 4th 503 (2007).
70 Id. at 509-10.
71 Nielsen v. Beck, 157 Cal. App. 4th 1041 (2007), modified and petition for rehearing denied, __ Cal. App. 4th __, 2008 WL 62604 (Jan. 7, 2008).
72 Id., 157 Cal. App. 4th at 1050.
73 Id. at 1052.
74 For the proposed new rules and a schedule of the commission's public meetings, see http://www.calbar.ca.gov.

Copyright 2008, Los Angeles Lawyer magazine. All Rights Reserved.