Avoiding the Unauthorized Practice of Law
LACBA Update, August 2015
By Carole J. Buckner, member, LACBA Professional Responsibility and Ethics Committee; Principal of Buckner Law Corp.; and Dean of St. Francis School of Law. The opinions expressed are her own.
Proper management of your legal practice requires diligence to avoid the unauthorized practice of law. Recent cases involve two common scenarios including first, the delegation of legal work to those not authorized to practice law, sometimes without adequate supervision; and second, the representation of out-of-state clients in matters involving out-of-state law, without compliance with out-of-state requirements for the practice of law. These cases illustrate pitfalls to navigate in avoiding the unauthorized practice of law.
Beyond the Border
Lawyers licensed in California are prohibited from practicing law in another jurisdiction where to do so would violate the regulations for practice in that jurisdiction.1 Charging and collecting fees based on the unauthorized practice of law violates Rule 4-200, which prohibits illegal fees.2 California attorneys must comply with the law of other states, including both statutes and ethics rules governing the unauthorized practice of law. Many other jurisdictions follow rules patterned after ABA Model Rule 5.5 (with some notable variations). Generally, Rule 5.5 provides that lawyers who are not admitted to practice law in a jurisdiction may not hold out to the public or otherwise represent that they are admitted to practice law in the jurisdiction.3 An exception in some states allows lawyers to practice on a temporary basis, but only if the matter arises from or reasonably relates to the lawyer’s practice in the jurisdiction where the lawyer is admitted (a safe harbor provision).4 Other laws may also permit California lawyers to practice outside the state in limited practice areas.5
In In re Ferko,6 the Review Department of the State Bar Court ordered disbarment after 30 years with no prior discipline after the California attorney represented a Utah resident in connection with the death of her nephew in Utah, working to obtain insurance benefits from Progressive Insurance, among other serious misconduct. To do so, Ferko contacted the claims agent in Utah, sent a letter demanding $50,000 in uninsured motorist benefits, and sent a letter interpreting Utah statutes. The court found that Ferko engaged in the unauthorized practice of law in Utah in violation of Rule 1-300 and received illegal fees from the unauthorized practice of law in Utah.
The court in In re Lenard 7 found the safe harbor provision did not apply to a California lawyer representing out-of-state clients in consumer debt matters, where the clients did not live in California, had no substantial contact with the state, California law was not relevant to the consumer debt matters, and where the lawyer had no knowledge of the law of the states where the clients lived and faced collection actions. In In re Scholl, the court found that a California lawyer had engaged in the unauthorized practice of law and collected an illegal fee when he represented an Illinois resident to modify a loan on his Illinois home.8 In In re Clarambeau,9 a California attorney involved in loan modification engaged in UPL in violation of Rule 1-300 by violating versions of Rule 5.5 in seven states.
A mere recital of compliance will not suffice. In In re Scheer,10 the lawyer represented in her fee agreements that she would engage or affiliate with local counsel pursuant to Rule 5.5 but failed to do so, violating versions of Rule 5.5 in 10 states.11
Lawyers engaged in the unauthorized practice of law are also subject to discipline in other states. In In re Discipline of Qadri,12 the Supreme Court of Nevada imposed reciprocal discipline on a lawyer licensed in California for violation of Rule 1-300, where the attorney, who was not licensed to practice in New York or Virginia, contracted with clients in those states to perform loan modification services.
In In re Wells,13 the court found that a California attorney who set up an “administrative office” near her home after moving to South Carolina engaged in the unauthorized practice of law and collected an illegal fee when she represented a client regarding federal and state law without disclosing that she was not authorized to practice law in South Carolina. The court further rejected Wells’ argument that her conduct was permissible as preliminary to obtaining pro hac vice status in South Carolina because she was a South Carolina resident.
A California lawyer is prohibited from aiding or abetting another person in the unauthorized practice of law.14 In addition, lawyers have a duty of competence that includes a duty of supervision.15 Several cases illustrate the risks of lawyers’ over-delegation of responsibility for client matters to legal assistants, secretaries, paralegals and other non-lawyer personnel, and how a lack of adequate supervision of subordinates can result in the unauthorized practice of law, subjecting lawyers to discipline and sanctions.
The lawyer in In re Huang16 established a high-volume loan modification practice generating $50,000 per month with more than 500 clients. He failed to supervise non-lawyers who were operating his practice. The court found that Huang aided and abetted the unauthorized practice of law in violation of Rule 1-300(B) by allowing non-attorneys to practice law. He had set up procedures for non-lawyers to meet with clients, give advice, collect legal fees, prepare loan modification packages, and negotiate with lenders. The court also found that Huang violated Rule 3-110(A) of the California Rules of Professional Conduct when he failed to supervise his non-attorney staff, resulting in the provision of inconsistent legal advice and inaccurate communications with clients. For these and other violations, the court suspended Huang from the practice of law for two years.
In In re Black,17 a secretary met with and helped her friend file for bankruptcy, preparing the bankruptcy pleadings and filing them with the court using an attorney’s password and virtual signature, listing the attorney as of record. The court scheduled a meeting of creditors, which the attorney failed to attend, triggering a motion to dismiss. Although the attorney indicated this was a one-time incident, he acknowledged that he was too busy to know who his clients are or what work flowed through his office. The court sanctioned the lawyer $2,000, finding that he had “created a culture in his office which allowed secretaries and paralegals to take actions without his knowledge,” and expressing the hope that the sanction would motivate the attorney to operate his office within the rules.18 The court further directed the U.S. Trustee to file a bill of costs incurred in the investigation, to be opposed or paid by the attorney.
In In re Romano,19 the attorney failed to supervise her paralegal by reviewing bankruptcy petitions prepared by the paralegal, which turned out to be incomplete and contained false statements, violating the attorney’s duty of competence. In addition, the attorney’s failure to supervise aided the paralegal’s unauthorized practice of law, allowing the paralegal to practice law on the attorney’s behalf. In In re Valinoti,20 the court held that a lawyer aided and abetted the unauthorized practice of law by relying on or permitting the preparation and filing of immigration documents by non-lawyers.
Aiding and abetting the unauthorized practice of law may also constitute an unfair business practice and can subject a law firm to liability.21 The unauthorized practice of law is best avoided by diligent management and supervision of staff, as well as by compliance with applicable out-of-state rules when venturing beyond California borders to advise out-of-state clients.
1 Cal. R. of Prof’l Conduct R. 1-300(B).
2 Cal. R. of Prof’l Conduct R. 4-200(A).
3 For a summary of the rules and applicable law by state, CLICK HERE.
4 ABA Model Rules of Prof’l Conduct R. 5.5(c).
5 See, e.g., Sperry v. Florida ex rel. Florida Bar (1963) 373 U.S. 379 [83 S.Ct. 1322] (non-lawyer patent practitioners).
6 In re Ferko, 2014 Calif. Op. LEXIS 22 (2014).
7 In re Lenard, 5 Cal. State Bar Ct. Rptr. 250 (Rev. Dept. 2013) (lawyer engaged in 12 instances of UPL).
8 In re Scholl, 2013 Calif. Op. LEXIS 15 (2013).
9 In re Clarambeau, 2014 Calif. Op. LEXIS (2014).
10 In re Scheer, 2014 Calif. Op. LEXIS (9th Cir. 2014).
11 Colorado permitted attorneys licensed out of state to practice in Colorado as long as they do not establish a domicile or place for the regular practice of law. Id. at 6.
12 In re Qadri, 2014 Nev. Unpub. LEXIS (2014).
13 In re Wells, 4 Cal. State Bar Ct.Rptr. 896 (2006).
14 Cal. R. of Prof’l Conduct R. 1-300(A).
15 Cal. R. of Prof’l Conduct R. 3-110, Discussion.
16 In re Huang, 5 Cal. State Bar Ct. Rptr. 296 (2014).
17 In re Black, 2012 Bankr. LEXIS 6139 (E.D. Cal. 2012).
18 Id. at 26.
19 In re Romano, 2015 Calif. Op. LEXIS 11 (2015).
20 In re Valinoti, 4 Cal. State Bar Ct. Rptr 498 (Rev. Dept. 2002).
21 People ex rel. Herrera v. Stender, 212 Cal.App.4th 614 (2012).
LACBA's Professional Responsibility and Ethics Committee welcomes new inquiries from LACBA members regarding ethical issues or concerns about professional responsibilities. The identity of the inquirer is kept confidential within the committee. The committee, however, does not publish formal opinions that are the subject of any pending litigation involving the inquirer. If you have an ethical question that you would like the committee to consider, you can mail your written inquiry to Los Angeles County Bar Association, Professional Responsibility and Ethics Committee, P.O. Box 55020, Los Angeles, CA 90055-2020, or e-mail your inquiry marked “Confidential” to Member Services at firstname.lastname@example.org.