Reeve v. Meleyco, Third App. Dist., case no. C085867, filed 3/24/20. Client contacts lawyer 1 about a serious traffic accident inuring the client’s wife and child. Client and lawyer 1 meeting with lawyer 2 about the case and discuss a division of fees, 35% to lawyer 1. Lawyer 2 and client sign a fee agreement without any discussion of the fee division. Lawyer 1 continues to work on the case. Client becomes nervous that he will have to pay lawyer 1 in addition to paying lawyer 2 his contingent fee. Lawyer 2 sends client a document that asks him to certify his “understanding” that lawyer 1 would receive 25% of the fees and that the total fee would not be increased because of the division. Client signs the following acknowledgment “I, [client], acknowledge receipt of this letter and understand the contents.” The case settles, the money is disbursed but lawyer 1 is not paid. He files an action against lawyer 2 and recovers a judgment based on breach of the fee splitting agreement and quantum meruit. On appeal, the judgment is reversed. The Court of Appeal finds the fee-splitting agreement is unenforceable because the client did not expressly approve the terms of the division, as required by former Rule of Professional Conduct 2-200 (now Rule 1.5.1. It also found that the quantum meruit claim was barred by the two-year statute of limitations (Code Civ. Proc. §339.)
On March 12, 2020, the Board of Trustees of the State Bar of California voted to shelve consideration of most of the proposals contained in the final report of the State Bar’s Task Force on Access Through Innovation of Legal Services (ATILS). Among the most heralded of those proposals was the the so-called “sandbox”, a program that would relax regulatory standards for certain projects designed to test the efficacy of innovation in the delivery of legal services, including their potential for harm to the public. The exact nature of these sandbox proposals was not precisely defined but presumably with revolve around one or more of these three axes – non-attorney ownership of legal service providers, relaxed unauthorized practice of law of rules, and commodification of legal services through technological platforms. Utah and then Arizona had adopted the sandbox concept. ATILS did not in its initial set of recommendations released for public comment in July 2019. Those recommendations prompted a tsunami of negative comment, mostly from practicing lawyers. and largely about the proposed changes to Rule 5.4, the rule forbidding non-lawyers from owning a stake in law firms or dividing fees with lawyers
This seemed to be a surprise to the advocates of legal reform. But it should not have been. The crisis in “PeopleLaw” sector, to use Prof. Henderson’s nomenclature, is not only about clients who can’t get access to justice but about lawyers who can’t make a living serving those markets. Opening up PeopleLaw to competitors fired with non-lawyer investment would make even more difficult for these lawyers to compete. Not being able to beat them, they would be compelled to join them, becoming employees in larger, more bureaucratic legal service providers designed around efficiency, at less compensation with no control over their working conditions. A similar path to that followed in recent decades by our fellow professionals in the medical field.
Moreover, ATILS did not present much evidence to support its view that relaxation of ownership rules would decrease the costs of legal services. The evidence it did marshall was a law review article examining the implementation of “Alternative Legal Structures” in Great Britain which found that most non-lawyer investment went not to grossly underserved PeopleLaw sectors like family law but to areas that were much more lucrative like personal injury, products liability and mass torts (Robinson When Lawyers Don’t Get All The Profits, 29 Georgetown Journal of Legal Ethics 1.
Not exactly a surprise; investors, like Willy Sutton, go where the money is.
Hence, the sandbox, a safe space where entrepreneurs would be allowed to develop the evidence supporting the structural change advocated by the legal reformers. It is a curious concept, and not only the name, which conjures up children engaged in enjoyable frivolity. Perhaps this is meant to evoke the child-like creativity of the entrepreneurs who will find use it to find new ways to deliver legal services at low cost, without much need for expensive lawyers. It falls into place a little more neatly when you learn that “sandbox” is a software development jargon: “A sandbox is a testing environment that isolates untested code changes and outright experimentation from the production environment or repository, in the context of software development including Web development and revision control” as defined by Wikipedia. The ATILS proposals are being pushed by the tech industry and software developers are very clearly in touch with their inner children.
Which is part of why they are going nowhere, for now. Certainly, the intervention of Covid 19 pandemic played a part in putting the “sandbox” on hold. But the backdrop is a growing disillusion with technology and its alleged benefits, growing skepticism that the tech industry really has society’s best interests at heart. Disruptive technologies have made people fearful, not more secure.
At some point, the “sandbox” is probably inevitable and a good thing. There is no path backwards for lawyers, only forward, and that path is not going to be easy. Technology products may help to bring down the costs of some legal services (see Sally and Johnny, above.) Limited license practitioners could bring down the costs of routine services as well. Legal education may transform itself into practical training without the academic excesses that make it needlessly expensive. Lawyering is not going to be the same; it will be smaller, more focused, less independent. It’s been moving that way for some time now. The challenge is preserving some shreds of humanity amid the economic pressure to commodify and tech-up. For that reason alone, tapping the brakes on dramatic restructuring of the profession is a good thing.
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.
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.
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.
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 6106. In 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.
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.