Unicorn Sighting: Discipline for Conflict of Interest

It is has been an item of conventional wisdom that conflicts of interests, while presenting many interesting ethical issues, are mostly dealt with through civil remedies, such as disqualification and actions for breach of duty, not discipline.  This is evidenced by a relative paucity of discipline case law dealing with conflict of interest, at least with types of conflict of interest addressed by Rule of Professional Conduct 1.7 and its forbearer, former Rule 3-310. A recent unpublished case from the Review Department runs against the conventional wisdom;  unicorns, it seems, do exist.

In the Matter of Foster, filed 3/16/20, is not a precedential decision, being public but not “published” under State Bar Rule of Procedure 1.159  but follows in the wake of a published Court of Appeal decision Knutson v. Foster (2018) 25 Cal.App.5th 1075.  The Review Department succinctly summarized the underlying facts.

Respondent Richard James Foster is charged with multiple counts of professional misconduct involving conflicts of interest arising from his representation of a professional swimmer and his failure to provide her with written disclosure of his relationships in the professional swimming world. Foster’s client was in a contract dispute with USA Swimming, an organization within which Foster maintained close professional relationships. He also previously represented the USA Swimming coach who tendered the contract offer to his client.

The Court of Appeal reversed the trial court’s granting of Foster’s motion for a new trial, finding ample evidence that Foster’s conflicts of interest in led to young swimmer Knutson’s damages, including emotional distress damages suffered when she learned that he lawyer had betrayed her in negotiating a settlement with a party that Foster’s had formerly represented, including revealing her confidential information and taking actions to actively assist the other party to the settlement.  A rather long list of the bad stuff can be found in the slip opinion at pages 18-19.  The Court of Appeal found Knutson entered into the settlement based on her lawyer’s concealment of these materials facts.  It did not find that Knutson had to prove that she would have achieved a “better result” but for Foster’s actions.  The Court of Appeals referred the matter to the State Bar as provided in Business and Professions Code section 6086.1.

The State Bar Court hearing judge found Foster culpable of five counts of misconduct : (1) former rule 3-310(B)(1) for failing to disclose a relationship with a party or witness; (2) former rule 3-310(B)(3) for failing to disclose a relationship with an interested person or entity); (3) former Rule 3-310(E) for representation adverse to a former client) and (4) and (5) two counts of revealing client confidences in violation of Business and Professions Code section 6068(e), subdivision (e).  The hearing judge did not find culpability on a moral turpitude charge (Bus.& Prof. Code section 6106) for concealing documents. She recommended 60 days actual suspension.

Both Foster and the Office of Chief Trial Counsel (OCTC) appealed.  OCTC sought the moral turpitude violation and one year of actual suspension.  Foster sought an admonition, a non-disciplinary disposition that itself has just about unicorn status.  The Review Department noted that “few published California disciplinary opinions deal with disclosure, client conflicts, and client confidences under rule 3-310.” It supported the hearing judge’s analytic approach of looking to the rather more established disciplinary case law dealing the business transaction rule -former Rule 3-300, current Rule 1.8.1 – in support of the discipline recommendation.

Given the paucity of discipline case law dealing with conflicts of interests in the discipline context, should In the Matter of Foster been a published decision.  Rule of Procedure 1.159(d) sets forth publication criteria:

Criteria for Publication. By majority vote, the Review Department may designate for publication an opinion which:
(1) Establishes a new rule, applies an existing rule to a set of facts significantly different from those stated in published opinions, or modifies, or criticizes with reasons given, an existing rule;
(2) Resolves or creates an apparent conflict in the law;
(3) Involves a legal issue of continuing interest to the public generally and/or to attorneys of the State Bar, or one which is likely to recur;
(4) Makes a significant contribution to legal literature by collecting and analyzing the existing case law on a particular point or by reviewing and interpreting a statute or rule; or
(5) Makes a significant contribution to the body of disciplinary case law by discussing the appropriate degree of discipline based on a set of facts and circumstances materially different from those stated in published opinions.

It seems to me that Rule 1.159(d)(4) and (d)(5) should apply.  It wouldn’t be a surprise if OCTC moves to publish this case.  It is possible that a petition to the California Supreme Court will be made.  Unfortunately, the Court’s own criteria for accepting review under California Rule of Court 9.16 are rather limited.  It is stretch to say that the review is necessary to resolve important questions of law and the facts would make it unlikely that this recommendation would be deemed unsupported by the weight of  the evidence.

So it seems likely that this unicorn will remain a rarity.

 

Failure to Disclose Lack of Insurance Makes Fee Agreement Unenforceable – Fifth DCA

Hance v. Super Store Industries, Fifth Appellate Dist, case no. F075852, filed 1/23/20.

Lawyers in a class action case agree to divide fees.  They have the class representatives sign fee agreements.   One of the lawyers does not disclose in the fee agreement that he does not have legal malpractice insurance, as required by former Rule 3-410 (current Rule 1.4.2.)  The class representatives approved the fee division agreement, although one class representative later retracted consent.

Needless to say, the lawyers later dispute the fee division agreement.  The trial court approves the class action settlement and the division of fees, awarding 30% ($1.29 million) to the lawyer with the non-compliant fee agreement.  The other lawyer appealed.

The Court of Appeal reversed and remanded. It found it unnecessary to reach arguments that there had been inadequate compliance with former Rule 2-200 (now 1.5.1) and went straight to the heart of the failure to disclose the lack of malpractice insurance.

Noting that the duty disclose was mandatory and a Rule of Professional Conduct, the Court acknowledged the public policy purpose of allowing the client to make an informed choice of counsel, aware of that counsel’s insurance status.  Finding no cases directly addressing the failure to disclose insurance under Rule 3-410, the decision cited a number of cases where the failure to comply with Rules of Professional Conduct resulted in an unenforceable fee agreement, including the California Supreme Court’s recent decision in Shepard Mullin v. J-M Manufacturing (2018) 6 Cal.5th 59.  It found the in pari delicto exception (McInto.sh v. Mills (2004) 121 Cal.App.4th 333, 347) inapplicable; because this was an absolute duty under the Rules, the offending lawyer could not be “less morally blameworthy” than his opponent, the one seeking enforcement, despite the opponent’s actions.  Finally, the Court noted that important public purpose of the Rule, overcoming the incentive the uninsured attorneys would have to avoid disclosure.  The agreement was held to be unenforceable.

But all was not lost for the non-compliant lawyer.  Violations of the Rules of Professional Conduct don’t always result in loss of all right to compensation, despite the uncompromising language of some of the earlier cases (see Clark v. Millsap (1926) 197 Cal. 765.) Citing Sheppard, the Court of Appeal found the factors to be addressed in deciding whether the offending lawyer might recover in quantum meruit, for the reasonable value of the lawyer’s services, as “the egregiousness of the attorney’s conduct, its potential and actual effect on the client and the attorney-client relationship, and the existence of alternative remedies” (Sheppard at 89.)  The trial court never considered recovery in quantum meruit.  The Court remanded the case back to the trial court for consideration of possible quantum meruit recovery, giving the lawyer another bite at the apple but almost certainly less than a $1.9 million bite; while the offending lawyer was counsel of record, most of the work on the case was apparently done by his opponent.

Reversal Reversed: Bradshaw Case Heads Back to State Bar Court

 

The Drexel Bradshaw case was examined in an earlier post on this blog, Reversal of Fortune. Now, fickle Fortune reverses itself again, the California Supreme Court granting a petition from the Office of Chief Trial Counsel by remanding the case back to the Review Department for reconsideration of its July 2019 decision that dismissed the case after a disbarment recommendation from the Hearing Department.  A unanimous Supreme Court asked the Review Department to reconsider the dismissal ‘in light of the June 14, 2019, Amended Statement of Decision on Petition After Trial And Order in San Francisco Superior Court Case No. PTR-17-301118.” It also directed the Review Department to consider whether to return Bradshaw to inactive enrollment under Business and Professions Code section 6007, subdivision (c)(4), pending its reconsideration of the underlying disciplinary matter.  That section provides for automatic inactive enrollment whenever a disbarment recommendation is made in the State Bar Court.

While the State Bar functions as the California Supreme Court’s administrative arm in the area of discipline, the high court seldom grants petitions for review by either respondents or the Office of Chief Trial Counsel, although it reviews all the disciplinary recommendations made by the State Bar Court.

Can the Discipline System Address Extreme Incivility?

 

For every wrong, there is a remedy

Civil Code section 3523 Maxims of Jurisprudence

This is a little more than the average “lawyer does bad thing” story that is a staple of the legal press.  A Culver City lawyer who abused opposing counsel with a number of highly offensive email messages, the content of some you can read about here.  A Federal District Court Judge was so incensed (and rightfully so) by this bizarre and over top parade of offensiveness that he has vowed to remove this lawyer from the profession.

Can he do that?

The local rules of the Central District of California provide that “An attorney in practice before this court will… a. Be courteous and civil in all communications, oral and written, and in all proceedings conduct herself/himself with dignity and respect.” (Local Rule 83.4 av1)(a).)  Telling opposing counsel to “eat a bowl of dicks” certainly violates the rule.

But how is it to be enforced?  The preamble to the Code of Conduct in Rule 83.4 is equivocal in its approach

Compliance with high standards of professionalism depends primarily upon understanding the value of clients, the legal system, the public, and lawyers of adhering to the voluntary standards. Secondarily, compliance depends upon reinforcement by peer pressure and public opinion, and finally, when necessary, by enforcement by the courts through their powers and rules already in existence. This code of conduct is not intended to be a set of rules that lawyers can use to incite ancillary litigation on the question of whether the standards have been observed by an adversary, but the court may take any appropriate measures to address violations of the rules.

Emphasis added. Casting even more uncertainty on the process is Local Rule 83.4(b)

Standards of Professional Conduct. Every member of the bar of this court and any attorney permitted to practice in this court must be familiar with and comply with the standards of professional conduct required of members of the State Bar of California, which are now adopted as standards of professional conduct of this court. No attorney permitted to practice before this court will engage in any conduct which degrades or impugns the integrity of the court or in any manner interferes with the administration of justice within the Court.

Before 1996, the answer might have been more clear.  Former California Business and Professions Code section 6068(f) provided that “it is the duty of an attorney to… avoid all offensive personality.”  Mr. Culver City has almost certainly established a new upper bound to the concept of offensive personality.  Prior to 1997, the State Bar of California regularly prosecuted lawyers for violating the offensive personality statue, albeit with mixed results.  But in 1995, the Ninth Circuit rules that the offensive personality stature was unconstitutionally vague in United States v. Wunsch 84 F.3d 1110 (9th Cir. 1995).  Section 6068(f) was amended to omit the prohibition on offensive personality.

Since then, many civility codes have been promulgated in well-intentioned attempts to address the perceived increase in incivility in the legal profession.  But enforcement has largely been a matter of voluntary adherence or peer pressure, consistent with the preamble of Rule 83.4(a).

The nasty sexist note at issue in Wunsch pales compared to the insane over-the-top rantings in Mr. Culver City’s case. Some attempt will be made by someone to sanction this conduct, to deter others from committing similar conduct.  The State Bar has other tools it can bring to bear, including the prohibition of conduct involving moral turpitude contained in Business & Professions Code section 6106In the Matter of Elkins (Review Dept. 2009) 5 Cal. State Bar Ct. Rptr. 160, involved discipline based on section 6106, among other rules, imposed on a California lawyer who, after being removed as co-executor of his father’s estate sent 53 threatening and abusive voicemail messages to the successor administrator of the estate, the attorney for the administrator, and the ex officio judge of the Forsyth County Superior Court of North Carolina.  The Review Department bottomed its analysis on the threatening nature of these voicemail messages, which caused the recipients to fear for their personal safety.  Review Department also dismissed Elkins’s First Amendment argument.

Another possibility is new Rule of Professional Conduct 8.4(d), which states that it is professional misconduct to “engage in conduct that is prejudicial to the administration of justice.”  Long present in the ABA Model Rules of Professional Conduct, the import of this new section is not yet clear.  But other states have used it to impose discipline and the Supreme Court, which approved this rule, has reminded this that these are intended to be discipline rules, not just statements of aspiration. Not every instance of discourtesy or incivility would prejudice the administration of justice but a prolonged campaign of abuse with the purpose of beating a settlement out of the other side just might.

Those who labored long and hard to bring civility codes into existence may not have labored in vain. Clearly, discipline is an extreme remedy, as Rule 83.4 indicates, but it just might be available in extreme cases.


 

Court of Appeal Finds LegalMatch.com an Unauthorized Legal Referral Service

A very significant new decision from the First Appellate District, Division 4 has found LegalMatch to be an unauthorized legal referral service (Jackson v. LegalMatch.com, case no. A152442, filed 11/26/19.)  The decision reverses a trial court decision after trial that LegalMatch.com was not engaged in referral service activity within the meaning of Business and Professions Code section 6155 and remands the case back to the trial court on the issue of whether LegalMatch is culpable of “unclean hands” that bar its ability to recover unpaid subscription fees from attorney Dorian Jackson.

The Court of Appeal bottomed its analysis on the plain language of section 6155.  The section says that “[a]n individual, partnership, corporation, association, or any other entity shall not operate for the direct or indirect purpose, in whole or in part, of referring potential clients to attorneys, and no attorney shall accept a referral of such potential clients,” unless “[t]he service is registered with the State Bar of California and . . . is operated in conformity with minimum standards for a lawyer referral serviceestablished by the State Bar” or “is operated in conformity with” standards set by the Supreme Court.  The Court of Appeal noted that section 6155(h)(1) provides that “[p]ermissible joint advertising,among other things, identifies by name the advertising attorneys or law firms whom the consumer of legal services may select and initiate contact with,” while subdivision (h)(2) statesthat “[c]ertifiable referral activity involves, among other things, some person or entity other than the consumer and advertising attorney or law firms which, in person, electronically, or otherwise, refers the consumer to an attorney or law firm not identified in the advertising.”

The appellate court agreed with Jackson the trial court  erred when it found that LegalMatch did not engage in referral activity because it did not exercise judgment on a client’s legal issues. It also found that the term “referral” was not ambiguous and that the “plain and commonsense” meaning of “referral” was clearly applicable to the services that LegalMatch provided, referring clients to lawyers who paid a fee to be matched to clients

Section 6155 provides no definition of “referring” or “referral.” Instead, the statutory text appears to focus on the actof connecting potential clients with attorneys, with the additional requirement that the covered individual or entity operate for the direct or indirect purpose of doing so. (§ 6155, subd. (a).) Read in the context of the statute, the plain meaning of the term “referral” means no more than the “act or an instance of sending or directing to another for information, service, consideration, or decision.” (Black’s Law Dict. (11th ed.Westlaw2019).)

LegalMatch.com is only one of many similar services that have proliffered in the last two decades.  One can wonder that it took the civil courts so long to interpret the very broad and very clear language of the statute.

Moreover, as paying for referrals from an uncertified legal referral service is a cause for discipline under Rule of Professional Conduct 7.2(b)(2), lawyers who are paying subscription fees to services like LegalMatch are subject to potential State Bar action.  The Office of Chief Trial Counsel (OCTC) has shown no interest in prosecuting such cases since 1996 when it initiated several such cases against lawyers participating in uncertified legal referral service.  Those cases were settled for low-level discipline, private and public reprovals.  This opinion, assuming it survives the inevitable appeal, may push OCTC to prosecute these types of cases again.

On the other side of the equation, the LegalMatch opinion comes at a time when the various groups are pushing for a relaxation of the rules regarding non-lawyer participation in the marketing and delivery of legal services., under the rubric of increasing access to legal services.  It can be expected that those forces will meet this opinion with calls for the amendment or repeal of section 6155, The certification process for legal referral services is cumbersome and only a few legal referral services operating on a for-profit basis have been certified.  I have counseled many lawyers interested in establishing referral services who have abandoned the idea after an exploration of just what is required.

The LegalMatch opinion is certainly timely and any lawyer utilizing such services should be aware of its implications.

 

Court of Appeal Test Drives New Candor Rule

 

 

The First District Court of Appeal, Div. 2, issued a Halloween-eve decision that surely qualifies as some lawyers’ horror story. The decision Davis v. TWC Dealership Group, Inc., case no. A155030, filed 10/30/19, involved arbitration clauses in employment contracts, but it was published to “also affirm—and remind the profession of—the importance of candor toward the court.”

The underlying thicket is a series of employment agreements signed by the Plaintiffs when they began their ultimately unhappy relationship with their employer.  Those agreements purported to bind Plaintiffs to arbitrate their claims in language the Court described as a “paragon of prolixity,” whose substance is “opaque,” and which has sentences that are “complex, filled with statutory references, and legal jargon.” But the Court of Appeal had some help in reaching its description because the same paragraph had been the subject of a California Supreme Court opinion OTO, L.L.C.v. Kho (2019) 8Cal.5th 111, 128) (Kho).  In fact, the same law firm had argued the Kho case before the Supreme Court. The TWC Court noted no complete version of any of the three fee agreements appeared in the record, and that extensive use of ellipsis was made in the briefing to omit large parts of the contracts.

The Kho decision was filed shortly after the close of briefing in the TWC case but it was not brought to the appellate court’s attention.  In its order, the Court asked the parties to address the impact of Kho but the associate attorney dispatched to argue the case was unprepared.  Neither of the attorneys who signed briefs appeared, having left the firm.

The Court of Appeal found the failure to inform the Court of the Kho decision was an “obvious” violation of Rule of Professional Conduct 3.3(a)(2), given that the same law firm had appeared in Kho:

A lawyer shall not …fail to disclose to the tribunal legal authority in the controlling jurisdiction known to the lawyer to be directly adverse to the position of the client and not disclosed by opposing counsel. or knowingly misquote to a tribunal the language of a book, statute, decision or other authority. . . .’ ” ..”

This rule is new in California.  Prior Rule of Professional Conduct 5-200 contained a similar prohibition against “intentionally” misquoting to a tribunal the language of a book, statute, or decision but no positive duty to disclose known adverse authority. It also contained the same general prohibition against using means inconsistent with truth or seeking to mislead a judicial officer with ” by an artifice or false statement of fact or law” contained in Business & Professions Code section 6068(d).  The origin of the new rule is Model Rule 3.3.

“Known” is a defined term in the new Rules; Rule 1.0.1(f): “Knowingly,”“known,” or “knows” means actual knowledge of the fact in question. A person’s knowledge may be inferred from circumstances.”

Since the same law firm argued Kho and the Court of Appeal specifically asked counsel to address Kho (as well as counsel’s failure to bring Kho to the court’s attention) finding knowledge isn’t much of a stretch.  One feels for the firm associate who appeared at the oral argument.

The Court of Appeal finding of lack of candor wasn’t necessary to decide TWC; the law of unconscionability, exemplified by Kho, supplied the necessary rule of decision.  The Court of Appeal also did not refer the matter to the Office of Chief Trial Counsel (OCTC), despite the “obvious” rule violation.  No sanction was sought or imposed and the conduct does not otherwise meet the statutory reporting requirements of Bus. & Prof. Code section 6086.7.  OCTC will surely see this decision and has the power to open its own investigation.

Whether or not discipline results, the Court of Appeal has given us a significant test drive of one of the new rules, meant to send a message that the duty of candor has some new teeth in California.

Daughter of “Fortune”: Disbarment Recommendation Reduced to 60 Days Actual

A previous post “Reversal of Fortune” discussed the Review Department’s unpublished decision in the Bradshaw matter that reversed a Hearing Judge’s recommendation of disbarment and dismissed the matter, finding no culpability.

Now in a similar case, the Review Department has reversed another Hearing Judge’s disbarment recommendation and recommended discipline to include 60 days actual suspension, now in a published decision (In the Matter of Lingwood, filed August 27, 2019.) The decision is based on an admission and finding that the respondent violated former Rule of Professional Conduct 3-300 (now Rule 1.8.1.)

Both Bradshaw and Lingwood are cases where a lawyer was serving as trustee of a trust.  Both cases involved allegations that the lawyer engaged in self-dealing and misappropriated funds from the trust, acts of moral turpitude, in violation of Business and Professions Code section 6106.  Both resulted in culpability findings on this issue that were ultimately reversed, based on part of the specfic authorizations in the trust instruments that authorized the trustee to engage in “self dealing” consistent with the trustee’s fiduciary responsibility.  The clause in Bradshaw’s case provided

As long as the Trustee does not act in bad faith or in disregard of the purposes of the Trust, it is not a breach of the Trust for the Trustee to take any of the following actions: ¶ Employ the Trustee, a relative of the Trustee, or a business in which the Trustee has an interest, to perform needed services for the Trust or any business in which the Trust has an interest and pay compensation not exceeding fair market value . . . .

What can explain the blind spot that has now led to two significant reversals?   Part of the answer may lie with the Review Department’s decision in In the Matter of  Schooler (Review Dept. 2016) 5 Cal. State Bar Ct. Rptr.__, 2016 WL 7176690 (filed December 6, 2017.)  Schooler involved a lawyer acting as trustee and conservator of a family trust who committed multiple breaches of fiduciary duty and made misrepresentations to the Court.  Schooler was disbarred after Office of Chief Trial Counsel (OCTC) appealed a hearing recommendation of two years actual suspension.

Schooler was, rightly, regarded as an important opinion.  Published opinions in State Bar Court are meant to provide guidance to the litigants. Unfortunately, Schooler appears to have furnished a convenient prism distorting the view of subsequent cases involving attorney as trustee misconduct.  Precedent is a tricky thing in an environment where the correct decision involves a “on a balanced consideration of the unique factors in each case.”  In the Matter of Van Sickle (Review Dept. 2006) 4 Cal. State Bar Ct. Rptr. 980, 2006 WL 2465633 (pet. review denied.)

Van Sickle is an echo of the same phenomenon.  The opinion on remand came about because OCTC appealed the first Van Sickle decision to the California Supreme Court because it ran afoul of the bright and shiny toy that OCTC thought it had been given by the Supreme Court, In Re Silverton (2005) 36 Cal.4th 81, which was interpreted as making the discipline Standards as binding law.  The Supreme Court sent Van Sickle back for reconsideration in light of Silverton, and the Review Department met the serve with an well researched opinion demonstrating why Silverton was really just a re-cap of existing law and not the revolutionary decision as hailed. But for awhile Silverton was everywhere being cited as authority that the Standards just had to be complied with.

Guidance is especially hard to come by in the murky land of moral turpitude.  The Lingwood Review Department finds it necessary to remind us that “mere negligence in making a representation does not constitute a violation of section 6106″citing In the Matter of Respondent K (Review Dept. 1993) 2 Cal. State Bar Ct. Rptr. 335, 353), in concluding that Lingwood’s statements were made with no intent to deceive.  it is a welcome taste of common sense in the face of the elastic concept of “moral turpitude through gross negligence.” (See In Matter of Yee (Review Dept. 2014) 5 Cal. State Bar Ct. Rptr. 330, 2014 WL 3748590 (Remke, PJ, dissenting.)

You might argue that the system worked as it should.  Until you consider the costs to the Respondents for fighing it out. Ms. Lingwood, found culpable on the count she admitted to, will pay the State Bar’s costs despite having much of case thrown out.

Reversal of Fortune: Disbarment Becomes Dismissal on Appeal

A recent unpublished but public opinion from the State Bar Court Review Department tells a story unique in most observer’s experience:  a disbarment recommendation from the Hearing Department is completely overturned on appeal and the case is dismissed.

The case is In the Matter of Bradshaw, State Bar Court case no. 16-O-15588, opinion filed July 30, 2019.

Bradshaw created testimentary documents, including a revocable living trust, for his client Ora Gosney in 2006.  After she fell and became incapacitated in August 2013, he became her conservator and spent money from her trust for repairs on her house,  contracting the work to a company he had played some role in setting up.  After he was removed as conservator by the San Francisco Superior Court, the State Bar Office of Chief Trial Counsel brought discipline charges alleging misrepresentations, a scheme to defraud the trust and misappropriation of money from the trust, all acts of moral turpitude in violation of Business and Professions Code 6106 the amounts paid for the repair work done on Ms. Gosney’s home.  Mr. Bradshaw’s State Bar member page was tagged with a “Consumer Alert” badge when the discipline charges were filed.  After a three week trial, the hearing judge issued her deciscion recommending disbarment and placing Bradshaw in involuntary inactive enrollment on August 30, 2018.

The Review Department reversed, finding that the evidnce for moral turpitude was not clear and convincing, the burden of proof in a disciplinary proceeding.  It noted that Ms. Gosney wanted to keep living at home, that the work was necessary and priced at fair market value.  Moreover, there was no evidence that Bradshaw, while involved in its creation, had an ownership interest, as found by the Hearing Judge.

The dismissal means that Bradshaw will be able to recover some of his out of pocket costs for the long trial and appeal but not his attorney fees.  There will be no compensation for being branded as a consumer threat and for the year of ineligibility to practice law.

The Superior Court decision to remove Bradshaw as conservator undoubtedly loomed large in the decision to prosecute this case and the Hearing Judge’s decision as well.  But civil and criminal courts do get it wrong and cutting through the deference given those decisions in the discipline system takes hard work and the skill of an experienced discipline defense lawyer.  Bradshaw luckily had one and apparently the resources to keep fighting after a bruising trial.  Yes, the system did work as it was supposed to but you can’t help wondering if this trip was really necessary.

 

Stranger Things: Will California Legalize Nonlawyer Ownership of Law Firms?

On July 11, 2019, the State Bar Board of Trustees voted to put out for public comment the recommendations of the Task Force on Access Through Innovation of Legal Services (ATILS).  ATILS was formed in July 2018 following the Board’s consideration of a report from Prof. William Henderson of the University of Indiana Maurer School of Law.

Prof. Henderson is well known for the groundbreaking scholarly work on the dynamics of the legal marketplace and the effect those dynamics have on the legal profession.  The Board commissioned Prof. Henderson to report on those changing dynamics.  His Legal Market Landscape Report concluded that

There is widespread consensus among lawyers, judges, legal academics, regulators and sophisticated clients that the legal market is in a period of significant tumult.  Further, there is also agreement that this tumult may be the early stages of a fundamental transformation. Yet, what is new and disconcerting for many is that these changes are not being driven by licensed lawyers or the organized bar. Rather, the causes are powerful external market forces that cannot be easily categorized using our familiar and well-established frameworks. At a minimum, our frameworks need updating.

Now, after a year of study, ATILS has produced an outline of how those frameworks could be updated.  The recommendations, while still tentative, are nothing less than revolutionary.  They include creating new exceptions that authorize the practice of law by nonlawyers in specified areas, allowing certified nonlawyers to provide legal services through technology (e.g. Legal Zoom), and changing the rules that prohibit nonlawyers from having ownership interest in entities providing legal services, principally California Rule of Professional Conduct 5.4 “Financial and Similar Arrangements with Nonlawyers.”

There is a lot to unpack in the ATILS report. It deserves close attention from every lawyer who represents private clients, and especially from lawyers who represent real people as clients, what Prof. Henderson calls the PeopleLaw sector of the profession. These changes could fundamentally change your professional life.

The proposed changes to Rule 5.4 are perhaps the most revolutionary. The current Rule, only adopted November 1, 2018, but reflecting legal principles long held, says

(a) A lawyer or law firm shall not share legal fees directly or indirectly with a nonlawyer or with an organization that is not authorized to practice law, … [limited exceptions];

(b) A lawyer shall not form a partnership or other organization with a nonlawyer if any of the activities of the partnership or other organization consist of the practice of law.

(c) A lawyer shall not permit a person who recommends, employs, or pays the lawyer to render legal services for another to direct or regulate the lawyer’s independent professional judgment or interfere with the lawyer-client relationship in rendering legal services.

(d) A  lawyer  shall  not  practice  with  or  in  the  form  of  a  professional  corporation  or other organization authorized to practice law for a profit if: (1) a nonlawyer owns any interest in it, except that a fiduciary representative of  a  lawyer’s  estate  may  hold  the  lawyer’s  stock  or  other  interest  for  a reasonable time during administration; (2) a  nonlawyer  is  a  director  or  officer  of  the  corporation  or  occupies  a position of similar responsibility in any other form of organization; or (3) a  nonlawyer  has  the  right  or  authority  to  direct  or  control  the  lawyer’s independent professional judgment.

(e) The Board of Trustees of the State Bar shall formulate and adopt Minimum Standards for Lawyer Referral Services, which, as from time to time amended, shall be binding on lawyers.    A lawyer shall not accept a referral from, or otherwise participate in, a lawyer referral service unless it complies with such Minimum Standards for Lawyer Referral Services.

(f) A  lawyer  shall  not  practice  with  or  in  the  form  of  a  nonprofit  legal  aid,  mutual benefit or advocacy group if the nonprofit organization allows any third person to interfere with the lawyer’s independent professional judgment, or with the lawyer-client  relationship,  or  allows  or  aids  any  person  to  practice  law  in  violation  of these rules or the State Bar Act

Rule 5.4 has been described as a rule necessary to preserve lawyer control over the provision of legal services because nonlawyers, not being fiduciaries, might not provide those services consistent with the best interest of the clients but in the best interest of the entity providing those services. Put another way, in the ever-present tension between law practice as profession and law practice as business, non-attorney ownership or control will tilt things too much to the business side.

With that in mind, ATILS proposes two alternative ways to change Rule 5.4.

Alternative 1 would continue to impose a general prohibition against forming a partnership with, or sharing a legal fee with, a nonlawyer. “The Alternative 1 amendments would: (1) expand the existing exception for fee sharing with a nonlawyer that allows a lawyer to pay a court-awarded legal fee to a nonprofit organization that employed, retained, recommended, or facilitated employment of the lawyer in the matter; and (2) add a new exception that a lawyer may be a part of  a  firm in which a nonlawyer holds a financial interest, provided that the lawyer or law firm complies with certain requirements including among other requirements, that: the firm’s sole purpose is providing legal services to clients; the nonlawyers provide services that assist the lawyer or law firm in providing legal services to clients; and the nonlawyers have no power to direct or control the professional judgment of a lawyer.”

Alternative 2 reflects a more radical revision. “Alternative 2…would largely eliminate the longstanding general prohibition and substitute a permissive rule broadly permitting fee sharing with a nonlawyer provided that the lawyer or law firm complies with requirements intended to ensure that a client provides informed written consent to the lawyer’s fee sharing arrangement with a nonlawyer.”

The bedrock of these proposed changes is the idea that the current regulation scheme is preventing the efficient delivery of legal services and access to justice. “To the extent these rules promote consumer protection, they do so only for the minority of citizens who can afford legal services. Modifying the ethics rules to facilitate greater collaboration across law and other disciplines will (1) drive down costs; (2) improve access; (3) increase predictability and transparency of legal services; (4) aid the growth of new businesses; and (5) elevate the reputation of the legal profession.” Henderson Legal Market Landscape Report, at page 7.

These changes, along with the others recommended by ATILS, would erode the monopoly over the provision of legal services currently held by lawyers.  Of course, any change in the Rules of Professional Conduct must be approved by the California Supreme Court (Bus. & Prof. Code § 6077).  There will be winners and losers if these ideas are enacted, and some of those losers are going to be lawyers.

The independence of the legal profession has almost become a religious principle to some lawyers.  Yet, the marketplace changes described by Prof. Henderson are very real.  Rule 5.4, and its equivalent in other states, is being violated every day by hundreds, if not thousands, of legal services providers.

Avvo Legal Services prompted a backlash that resulted in a number of legal ethics opinions (including San Diego County Bar Association formal ethics opinion 2019-2).  The new owner of Avvo Legal Services pulled the plug on the business, but a similar model exists for many others.  And there are many other legal services providers where non-lawyer participation and control is hidden.

Will California allow legalize non-lawyer ownership of legal services providers?  We don’t know, but stranger things have happened.

 

Price of Domestic Violence Goes Up in State Bar Court

A large part of the work of the California discipline system is dealing with attorneys who are convicted of crimes. This part hasn’t always gotten a lot of attention, something that may have changed with the highly publicized retroactive fingerprinting of attorneys by the State Bar of California. Perhaps that is because it doesn’t deal with the application of the Rules of Professional Conduct, which are the focus of many of the people in the ethics world. Committing crimes is so self-evidently wrong that it may seem uninteresting. Of course, it is extremely interesting to those directly involved. And should be to others because the criminal conviction cases can raise issues relevant to the wider society outside the confines of law practice.

A recent unpublished decision of the Review Department of the State Bar deals with one of the issues: domestic violence.  In the Matter of Khaliq involves an attorney who was convicted of violating Penal Code section 273.5 after a plea.  That section makes wilful infliction of corporeal injury on a spouse, co-cohabitant or other defined persons that results in a traumatic condition a “wobbler” crime, one that can be charged either as a felony or misdemeanor.

One of the most interesting things about Khaliq is that the hearing judge’s  recommendation was disbarment, based on her findings that the surrounding circumstances involved moral turpitude. Discipline Standard 2.15(b) states that “[d]isbarment is the presumed sanction for final conviction of a felony in which the facts and circumstances surrounding the offense involve moral turpitude, unless the most compelling mitigating circumstance clearly predominate, in which case actual suspension of at least two years is appropriate.”  Discipline Standard  reThe Standards, despite their name, being merely guidelines, don’t control the result; the Supreme Court has said that appropriate discipline in a given case depends on “on a balanced consideration of the unique factors in each case.” In the Matter of Van Sickle (Review Dept. 2006) 4 Cal. State Bar Ct. Rptr . 980, 2006, WL 2465633.  That means that comparable discipline case law must be looked at as well.

The problem is that there is very little comparable discipline case law that comes anywhere close to imposing disbarment for an act of domestic violence.

The harshest reported discipline imposed has been In the Matter of Otto (1989) 48 Cal.3d 970 where State Bar recommendation of six months actual suspension was adopted by the Supreme Court in a one-page opinion.  Otto had been found guilty of two felonies, violations of section 273.5 and Penal Code section 245, both reduced to misdemeanors.  The State Bar found no moral turpitude, but we don’t know why, as the Otto decision contains no facts.   Neither side appealed, and the Court was reviewing the case under its plenary power to review all discipline matters.

 

Another case of the same relative vintage, In Re Hickey (1990) 50 Cal.3d 571 involved a nolo contendere plea to a concealed weapon charge and an improper withdrawal in a client matter.  Included in the surrounding facts and circumstances were, in the Supreme Court’s words, “evidence that the attorney had repeatedly engaged in acts of physical violence toward his wife and others and that his conduct arose from repeated abuse of alcohol, discipline was warranted….from which he had recovered, and was related to marital difficulties that had been resolved.”  Although Hickey was charged with misdemeanor violations of Penal Code sections 245, subdivision (a)(1) (assault with a deadly weapon) and 273.5 (spouse abuse) “the criminal proceedings against petitioner were suspended pursuant to Penal Code section 1000.6, for the purpose of granting diversion, and petitioner was referred to the Anger Awareness Program.”  Hickey, at 576. The recommended discipline, including 30 days of actual suspension, was adopted and imposed.

Looking Hickey with contemporary eyes, the level of discipline seems astonishingly low, especially given the evidence of chronic violence toward his wife, notwithstanding that it was connected with an alcohol abuse problem that was ostensibly mitigated.  The Review Department in Khaliq noted:

We also acknowledge that prior discipline in domestic violence cases often has not reflected the changes in society and the current recognition of the seriousness of domestic violence. Many earlier cases resolved such matters with low levels of discipline, including minimal or no suspension. We agree with the hearing judge that it is important to reevaluate the appropriate discipline by considering current societal values and changing mores.

Khaliq, slip opinion at 17.

Yet, disbarment was a bridge too far for the Review Department majority.  It noted that only two California discipline cases have imposed disbarment for acts of domestic violence, both involving homicide.  It noted that Khaliq’s felony conviction was reduced to a misdemeanor at the time of sentencing;  Standard 2.16(c) says that disbarment or actual suspension is the presumed sanction for final conviction of a misdemeanor involving moral turpitude.  It agreed with the hearing judge that moral turpitude was involved in the surrounding circumstances,  including a “prank” where respondent sent text messages to his former girlfriend purportedly from a potential employer, and a lie told about a domestic violence incident that occurred 12 years earlier in undergraduate school.  As part of its balanced consideration of all relevant factors, it gave less weight to aggravating factors and more weight to mitigating factors, including character witness testimony from Khaliq’s family.  The court looked at discipline decisions from other states, filling in the gaps in California case law.  It ultimately recommended two years of actual suspension with probation and the requirement that the respondent prove his rehabilitation, fitness to practice and current learning and ability in the law in a petition under Standard 1.2.(c)(1) before resuming active status.  Judge Purcell, dissenting, would have imposed three years of actual suspension.   Not disbarment but not a cake walk, especially given the Office of Chief Trial Counsel’s zeal in opposing Standard 1.2(c)(i) petitions.

Khaliq is not citable as precedent, but in the small world of State Bar Court jurisprudence where everybody, including hearing judges, read Review Department decisions with great interest, it will have an impact.  Lawyers who commit criminal acts of domestic violence will find tougher sledding in State Bar Court.