End-of-life notice: American Legal Ethics Library
As of March 1, 2013, the Legal Information Institute is no longer maintaining the information in the American Legal Ethics Library. It is no longer possible for us to maintain it at a level of completeness and accuracy given its staffing needs. It is very possible that we will revive it at a future time. At this point, it is in need of a complete technological renovation and reworking of the "correspondent firm" model which successfully sustained it for many years.
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California Legal Ethics
5.1:100 Comparative Analysis of CA Rule
Although California does not have a direct counterpart to MR 5.1, CRPC 1-120 and CRPC 3-110 impose certain supervisory duties on lawyers and partners. CRPC 1-120 provides that "[a] member shall not knowingly assist in, solicit, or induce any violation of these rules or the State Bar Act." Moreover, CRPC 3-110 prohibits a member from "intentionally, recklessly, or repeatedly fail[ing] to perform legal services with competence." "Competence" means "to apply the 1) diligence, 2) learning and skill, and 3) mental, emotional, and physical ability reasonably necessary for the performance of such service." The Discussion to CRPC 3-110 specifies that "[t]he duties set forth in rule 3-110 include the duty to supervise the work of subordinate lawyer and non-lawyer employees or agents." Although CRPC 3-110 is a prohibition against acting incompetently, inferentially it imposes a duty of competent performance.
Hence, the California Rules impose more limited responsibilities on partners and supervisory lawyers than do the Model Rules. MR 5.1 imposes a duty on partners to "make reasonable efforts to ensure that the firm has in effect measures to give reasonable assurance that all lawyers in the firm conform to the rules of professional conduct." MR 5.1 also imposes on all lawyers with supervisory authority a duty to "make reasonable efforts to ensure that the other lawyer conforms to the rules of professional conduct."
When comparing the rules as to liability, CRPC 3-110 can be read to impose greater liability than MR 5.1. MR 5.1 imposes liability on one lawyer for another lawyer's violations of the rules of professional conduct in only two specific instances: (1) when the lawyer orders or ratifies the conduct and (2) when a partner or lawyer with direct supervisory authority knows of the conduct at a time when its consequences can be avoided or mitigated and fails to take action. In contrast, CRPC 3-110 imposes a duty on all lawyers to supervise the work of not only subordinate lawyers but also non-lawyer employees and agents. Moreover, CRPC 3-110 imposes primary liability on partners and lawyers with supervisory duties for inadequate supervision more broadly than MR 5.1 imposes vicarious liability for the acts of others. For example, California courts have imposed liability on lawyers with supervisory duties whether or not the lawyer had knowledge of the specific conduct and whether or not the lawyer could take remedial action. See, e.g., In the Matter of Hindin (Review Dept. 1997) 3 Cal. State Bar Ct.Rptr. 657 (involving the failure of an associate to file appellate papers and another associate leaving a courtroom prior to the court calling and hearing the motion); Trousil v. State Bar (1985) 38 Cal.3d 337, 211 Cal.Rptr. 525, 695 P.2d 1066 (secretarial errors delay the mailing of a settlement check); Crane v. State Bar (1981) 30 Cal.3d 117, 177 Cal.Rptr. 670, 635 P.2d 1163 (lawyer's staff contacts individuals represented by another lawyer).
MR 5.1 has no direct counterpart in the Model Code. However, several Model Code provisions impose similar duties on lawyers in specific situations. For example, DR 1-103(A) requires disclosure of ethical violations by others. Specifically, DR 1-103(A) provides that a lawyer "possessing unprivileged knowledge or evidence concerning another lawyer or judge shall reveal such knowledge or evidence to . . . other authority empowered to investigate or act upon such violation." Further, EC 4-5 provides that a lawyer should make a diligent effort to prevent the misuse of information acquired by the lawyer's employees and associates during the course of representing a client. DR 4-101(D) provides that "a lawyer shall exercise reasonable care to prevent his employees, associates, and others whose services are utilized by him from disclosing or using confidences or secrets of a client . . . ." DR 7-107(J) provides that "[a] lawyer shall exercise reasonable care to prevent his employees and associates from making an extrajudicial statement that he would be prohibited from making under DR 7-107." DR 1-102(A)(2) provides that "[a] lawyer shall not . . . [c]ircumvent a Disciplinary Rule through actions of another." Finally, DR 7-108(E) provides that a "lawyer shall not conduct or cause, by financial support or otherwise, another to conduct a vexatious or harassing investigation of either a venireman or a juror."
California has no similar rules regarding lawyers in non-supervisory roles. See S.D. Op. 1992-3 (California lawyers have no affirmative obligation to report another lawyer's misconduct, and the failure to report misconduct does not constitute a violation of this rule).
5.1:200 Duty of Partners to Monitor Compliance with Professional Rules
[See 5.1:300 Monitoring Duty of Supervising Lawyer, infra]
5.1:300 Monitoring Duty of Supervising Lawyer
While the text of the CRPC is silent on the issue, the CRPC 3-110 Discussion imposes a duty upon all California lawyers to supervise the work of both subordinate lawyers and non-lawyer employees and agents.
In the Matter of Hindin (Review Dept. 1997) 3 Cal. State Bar Ct.Rptr. 657, the California State Bar Court found a number of instances in which a lawyer failed to supervise the performance of subordinate lawyers. The court found that one associate failed to file appellate papers in two cases, another associate left a courtroom prior to the court calling and hearing the motion, and another associate misunderstood a file and prepared an opposition to a discovery motion, rather than complying with the court order to provide discovery. The court disciplined the partner for this misconduct, finding that he failed to adequately supervise the associates: "where an attorney has been alerted to problems and does not adequately address them, then such gross neglect may be disciplinable as a failure to perform services competently." In Spindell v. State Bar (1975) 13 Cal.3d 253, 118 Cal.Rptr. 480, 530 P.2d 168. The lawyer was representing a client in divorce proceedings. The client had difficulty contacting the lawyer and the lawyer's secretary assured the client that she could legally remarry even though this information was erroneous. The Court disciplined the lawyer for this misconduct because the lawyer had a duty to supervise his employees, even though the misconduct was partially attributable to the secretary. See also Trousil v. State Bar (1985) 38 Cal.3d 337, 211 Cal.Rptr. 525, 695 P.2d 1066 (lawyer is responsible for secretarial errors that delayed the mailing of a settlement check because the lawyer failed to adequately supervise secretary); Vaughn v. State Bar (1972) 6 Cal.3d 847, 1100 Cal.Rptr. 713, 494 P.2d 1257 ("Even though an attorney cannot be held responsible for every detail of office procedure, he must accept responsibility to supervise the work of his staff."); In the Matter of Acuna (Review Dept. 1996) 3 Cal. State Bar Ct.Rptr. 495 (either intentionally allowing secretary to interview and process clients during suspension from practice or grossly negligent failure to ensure that secretary stopped such activities violates B&PC ¤ 6125 Necessity of active membership in state bar and B&PC ¤ 6126 Unauthorized practice, advertising or holding out; penalties); In the Matter of Bragg (Review Dept. 1997) 3 Cal. State Bar Ct.Rptr. 615 (allowing non-lawyer to accept clients, negotiate and settle "pre-litigation" matters with little or no supervision violates CRPC 1-300 Unauthorized Practice of Law); In the Matter of Respondent F (Review Dept. 1992), 2 Cal. State Bar Ct.Rptr. 17; In the Matter of Sullivan II (Review Dept. 1997) 3 Cal. State Bar Ct.Rptr. 608, 1997 Calif. Op. LEXIS 184, 5-6 (the "failure to maintain an effective calendaring and follow-up system as a means of supervising employees and monitoring cases places the attorney at risk of violating Rule 3-110(A) regardless of whether the attorney has actual knowledge of the status of the case") (secretary's misconduct of hiding and throwing away files, incoming pleadings, notices and other documents did not excuse attorney's failure to seek court approval of client's settlement).
Courts have found that isolated instances of negligence resulting from staff errors do not amount to disciplinable offenses. See, e.g., In the Matter of Fonte (Review Dept. 1993) 2 Cal. State Bar Ct.Rptr. 752 (one failure to answer interrogatories due to calendaring error); In the Matter of Ward (Review Dept. 1992) 2 Cal. State Bar Ct.Rptr. 47 (one error in calendaring a five-year statute of limitations).
The following text is taken from Karpman and Margolis pg. 33 with certain conforming changes:
Failure to Supervise Associate Attorney
Gadda v. State Bar (1990) 50 Cal.3d 344, 353, 267 Cal.Rptr. 114, 787 P.2d 95 (lawyer cannot relinquish responsibility for client's matter "simply by punting the file downfield to whomever catches it"); In the Matter of Whitehead (Review Dept. 1991) 1 Cal. State Bar Ct.Rptr. 354 (even though lawyer acted in good faith, and was actively misled by his associate lawyer as to work being performed, the lawyer's prolonged failure to supervise the associate's work warranted finding of violation of this rule).
Failure to Supervise Office Staff
Spindell v. State Bar (1975) 13 Cal.3d 253, 118 Cal.Rptr. 480, 530 P.2d 168, Layton v. State Bar (1990) 50 Cal.3d 889, 268 Cal.Rptr. 845, 789 P.2d 1026
Vaughn v. State Bar (1972) 6 Cal.3d 847, 100 Cal.Rptr. 713, 494 P.2d 1257.
In the Matter of Jones (Review Dept. 1993) 2 Cal. State Bar Ct.Rptr. 411; In the Matter of Bouyer (Review Dept. 1991) 1 Cal. State Bar Ct.Rptr. 404 (lawyer who repeatedly failed to distribute settlement funds and pay medical liens promptly as a result of his grossly negligent office practices and failure to supervise employees violated this rule).
5.1:400 Failing to Rectify the Misconduct of a Subordinate Lawyer
The CRPC do not articulate a duty to rectify the misconduct of a subordinate lawyer. However, the CRPC 3-110 Discussion states that all lawyers must act competently, and competence under CRPC 3-110 includes supervising the work of subordinate lawyers and non-lawyer employees or agents. Such supervising activities may include an obligation to rectify the misconduct of subordinate lawyers. [See 5.1:300 Monitoring Duty of Supervising Lawyer, supra].
5.1:500 Vicarious Liability of Partners
The CRPC do not impose vicarious liability on partners for another lawyer's violations of the rules of professional conduct. However, California courts have imposed liability on lawyers that do not adequately supervise other lawyers or staff or fail to implement adequate office procedures. [See 5.1:300 Monitoring Duty of Supervising Lawyer, supra]. Moreover, California courts have imposed primary liability for inadequate supervision on partners and lawyers with supervisory duties for violations by both other lawyers and non-employee lawyers or agents even when the partner or lawyer does not have knowledge of the specific conduct. [See 5.1:300 Monitoring Duty of Supervising Lawyer, supra].
5.2:100 Comparative Analysis of CA Rule
CRPC 1-120 and CRPC 3-110 are somewhat analogous to MR 5.2(a), in that such rules, although stated in the negative, contain an absolute responsibility for all lawyers to uphold the rules of professional responsibility and act competently. The California Rules have no direct counterpart to MR 5.2(b), which provides that a subordinate lawyer does not violate the rules of professional conduct if that lawyer acts in accordance with a supervisor's reasonable resolution of an arguable question of professional duty. However, CRPC 1-120 prohibits lawyers from engaging in a knowing violation of the rules of professional responsibility, which is somewhat analogous to MR 5.2(b), which allows a subordinate lawyer to rely on a reasonable conclusion regarding a questionable ethical issue.
The California Rules and MR 5.2 have no counterpart in the Model Code.
5.2:200 Independent Responsibility of a Subordinate Lawyer
The CRPC impose duties on subordinate lawyers to (1) uphold the rules of professional responsibility and to not knowingly assist in, solicit, or induce any violation of such rules, see CRPC 1-120, and (2) act competently, see CRPC 3-110. This is similar to MR 5.2(a)'s statement that a lawyer is bound by the CRPC even in the face of contrary direction by a supervisor.
5.2:300 Reliance on a Supervisor's Resolution of Arguable Ethical Issues
California has no direct rule pertaining to the reliance on a supervisor's resolution of arguable ethical issues. CRPC 1-120 states, however, that a lawyer may not knowingly violate a rule of professional conduct. This knowledge component can be analogized to the component of MR 5.2(b) that allows a subordinate lawyer to rely on a supervisory lawyer's judgment on questionable ethical issues. Indeed, the Comments to MR 5.2(b) state that "if the [ethical] question can reasonably be answered only one way," each lawyer is responsible for fulfilling his or her duty in accordance with the rules of professional conduct. Any action to the contrary would be a knowing violation of the rules. This is consistent with CRPC 1-120. Conversely, if an ethical question can be resolved more than one way, CRPC 1-120 and MR 5.2(b) would render the same result: any decision, or the decision to rely on the judgment of a supervising lawyer, would not result in a knowing violation of the rules of professional conduct.
5.3:100 Comparative Analysis of CA Rule
Although the CRPC does not have a direct counterpart to MR 5.3, the Discussion to CRPC 3-110 states that the duties under 3-110 include a duty upon all California lawyers to supervise the work of non-attorney employees and agents. [See 5.1:300 Monitoring Duty of Supervising Lawyer, supra].
In contrast to California's general supervisory duty, the Model Rules contain explicit provisions regarding supervision of non-lawyer assistants. MR 5.3(a) provides that a partner in a law firm shall make reasonable efforts to ensure that the firm has in effect measures giving reasonable assurance that the behavior of non-lawyers will be compatible with the professional obligations of the lawyer. MR 5.3(b) provides that a lawyer with direct supervisory authority over non-lawyers shall make reasonable efforts to ensure that the person's conduct is compatible with the professional obligations of the lawyer. MR 5.3(c) provides that a lawyer shall be responsible for the misconduct of non-lawyers if the lawyer: (1) orders or with the knowledge of the specific conduct, ratifies the conduct; or (2) is a partner in the law firm in which the person is employed, or has direct supervisory authority over the person, and knows of the conduct at a time when its consequences can be avoided or mitigated but fails to take reasonable remedial action.
The CRPC and MR 5.3 have no direct counterpart in the DR. However, DR 4-101(D) provides that a lawyer "shall exercise reasonable care to prevent his employees, associates and others whose services are utilized by him from disclosing or using client confidences or secrets of a client," and DR 7-107(J) provides that "[a] lawyer shall exercise reasonable care to prevent his employees and associates from making an extrajudicial statement that he would be prohibited from making under DR 7-107."
5.3:200 Duty to Establish Safeguards
California does not have a rule pertaining to the duty to establish safeguards. [See 5.1:300 Monitoring Duty of Supervising Lawyer, supra]
5.3:300 Duty to Control Nonlawyer Assistants
California has no rule pertaining to the duty to control non-lawyer assistants. However, the Discussion to CRPC 3-110 states that the duties under CRPC 3-110 include a duty upon all California lawyers to supervise the work of non-lawyer employees and agents, and some courts have imposed liability on lawyers both for failure to supervise non-lawyer assistants and for failure to rectify a non-lawyer's misconduct. [5.1:300 Monitoring Duty of Supervising Lawyer, supra]. Ordinarily, a non-lawyer, including law clerks and paralegals, would be conducting the unauthorized practice of law by performing legal duties in their capacity as non-lawyers. See B&PC ¤ 6125, CRPC 1-300. However, O.C. Op. 94-002 and the discussion to the above-referenced sections state that "non-attorneys . . . may draft legal pleadings and do work preparatory to providing legal services, as long as an attorney supervises and approves the work." See also Jacoby v. State Bar (1977) 19 Cal.3d 359, 138 Cal.Rptr. 77, 526 P.2d 1326; People v. Perez (1979) 24 Cal.3d 133, 155 Cal.Rptr. 176, 594 P.2d 1.
5.3:400 Responsibility for Misconduct of Nonlawyer Assistants
[See 5.1:300 Monitoring Duty of Supervising Lawyer, supra]
5.4:100 Comparative Analysis of CA Rule
CRPC 1-320(A)(1), (2) and (3) are substantially similar to the provisions contained in MR 5.4(a), but MR 5.4(a) does not contain provisions analogous to CRPC 1-320(A)(4), CRPC 1-320(B) or CRPC 1-320(C).
CRPC 3-310(F) is similar to MR 5.4(c), but in addition to the prohibition on influencing a lawyer's professional judgment contained in MR 5.4(c), CRPC 3-310 requires the client's informed written consent in order to accept third party compensation. CRPC 3-310(F) is more in line with MR 5.4(f), although it is unclear whether "consent after consultation" in MR 1.8(f) differs from "informed written consent" under CRPC 3-310(F). However, CRPC 3-310(F) requires the consent to be in writing, whereas MR 1.8(f) is silent on the requirement of written consent.
CRPC 1-320(A) is similar to EC 3-8, but EC 3-8 does not include provisions comparable to CRPC 1-320(A)(2) or (4). CRPC 1-320(A)(1), (2) and (3) are substantially identical to DR 3-102(A), but DR 3-102(A) does not include provisions comparable to CRPC 1-320(A)(4), CRPC 1-320(B) or CRPC 1-320(C).
CRPC 3-310(F) is similar to DR 5-107(A) and (B). However, CRPC 3-310(F) goes further than DR 5-107(A) in that it requires the client's informed written consent in order to accept third party compensation rather than merely the client's informed consent, written or oral.
5.4:200 Sharing Fees with a Nonlawyer
¥ Primary California References:
CRPC 1-320, 3-120,
B&PC ¤¤ 6152, 6155,
¥ Background References: ABA Model Rule 5.4(a), Other Jurisdictions
¥ Commentary: ABA/BNA ¤ 41:801, ALI-LGL ¤ 60, Wolfram ¤¤ 16.4, 16.5
In Emmons, Williams, Mires & Leech v. State Bar (3rd Dist. 1970) 6 Cal.App.3d 565, 573, 86 Cal.Rptr. 367, the court articulated a rationale for regulating fee splitting with non-lawyers:
Prohibited fee-splitting between lawyer and layman carries with it the danger of competitive solicitation; poses the possibility of control by the lay person, interested in his own profit rather than the client's fate; facilitates the lay intermediary's tendency to select the most generous, not the most competent, attorney.
For cases dealing with fee splitting with non-lawyers, see In the Matter of Bragg (Review Dept. 1997) 3 Cal. State Bar Ct.Rptr. 615 (allowing non-lawyer to receive a percentage of fees on "pre-litigation" matters violates CRPC 1-320); C.O.P.R.A.C. Op. 1992-126 pg. 5 (temporary employment agency owned by both lawyers and non-lawyers which places lawyers with law firms violates CRPC 1-320 by receiving a percentage of fees collected from a law firm's client; law firms should make separate payments to temporary lawyer and employment agency to minimize risk of illegal fee splitting); C.O.P.R.A.C. Op. 1977-44 pg. 2, C.O.P.R.A.C. Op. 1981-60 p. 1 (payment of a percentage of lawyer's fee to organization which "exchanges" legal services and products is improper); C.O.P.R.A.C. Op. 1984-79 p. 3 (fee payable to "medical-legal" consulting service may not be taken "in whole or in part from lawyer's fee). L.A. Op. 1990-457 p. 164 (lawyer may not give paralegal a "bargained for" bonus based on her fee in a particular case; bonus must be based solely on lawyer's assessment of paralegal's productivity and performance); C.O.P.R.A.C. Op. 1997-148 (non-lawyer trust "marketer," who directs lawyer to prepare trusts for clients, may not circumvent fee splitting prohibition by collecting funds from client and dividing and distributing them to lawyer); In the Matter of Steele (Review Dept. 1997) 3 Cal. State Bar Ct.Rptr. 708 (impermissible to pay office manager a percentage of fees in certain cases).
Compare, L.A. Op. 1988-447 p. 153 (lawyer may remit difference between amount of court awarded fees and amount dictated by contingency agreement to private individual client if action was brought in good faith and new fee was not contemplated prior to court award); L.A. Op. 1985-437 p. 140 (lawyer may pay non-lawyer client for research and investigatory work on his own case so long as payment is not contingent upon or determined by amount of fees to be received by lawyer); L.A. Op. 1991-461 p. 170 (client who provides lawyer with office services in return for reduced fee rate may recoup expense of lawyer's office services from client's limited partners for whom lawyer also provides services at reduced rate).
In addition to those allowances contained in MR 5.4(a), CRPC 1-320(A)(4) allows the payment of referral fees to a lawyer referral service "established, sponsored and operated in accordance with the State Bar of California's Minimum Standards for a Lawyer Referral Service in California." CRPC 1-320(A)(4) therefore prohibits referral fees from doctors, see L.A. Op. 1988-443, see also C.O.P.R.A.C. Op. 1995-143 pg. 3 ("medical liaison" who gives presentation to physicians on behalf of lawyer may not offer any form of benefit to physicians for recommending lawyer to physician's patients) and real estate brokers, see L.A. Op. 1991-461. In addition, B&PC ¤ 6154 prohibits the employment of a "runner" or "capper" to solicit business for a lawyer or law firm, see In the Matter of Nelson (Review Dept. 1990) 1 Cal. State Bar Ct.Rptr. 178, CRPC 1-320(B) prohibits compensation to any person who recommends or secures the employment of a lawyer or law firm by a client, and CRPC 1-320(C) prohibits compensation to any representative of the press, radio, television or other communication medium in anticipation of or in return for publicity.
The following comments on CRPC 3-120 Financial Arrangements With Non-Lawyers are taken from Karpman & Margolis pages 10-11 with certain conforming changes:
A lawyer formed a partnership with his father, a disbarred lawyer; the father worked as law clerk, bookkeeper and office manager for his son, and also ran his own business as a tax consultant. Profits from the business were divided equally. This arrangement was found to violate this rule, to encourage improper solicitation and to constitute the practice of law by a layperson. Crawford v. State Bar (1960) 54 Cal.2d 659, 7 Cal.Rptr. 746, 355 P.2d 490.
A lawyer formed a partnership for the practice of law with a non-lawyer, split fees with the non-lawyer, and used the non-lawyer as a "runner" and "capper". The non-lawyer signed up clients, developed medical information and negotiated settlements. Six-month actual suspension was imposed. In the Matter of Nelson (Review Dept. 1990) 1 Cal. State Bar Ct.Rptr. 178, 184-185.
CRPC 1-300 (aiding the unauthorized practice of law).
Splitting Fees with Non-Lawyers
See Gassman v. State Bar (1976) 18 Cal.3d 125, 132 Cal.Rptr. 675, 553 P.2d 1147 (fee-splitting with non-lawyer assistant poses "serious danger to best interests of client and warrants discipline in itself"); Crawford v. State Bar (1960) 54 Cal.2d 659, 7 Cal.Rptr. 746, 355 P.2d 490 (fee-splitting with disbarred lawyer providing tax consulting services).
A lawyer formed a partnership with a law clerk, used him as a runner and capper, and divided legal fees with him in violation of the rule. The State Bar Court held that the lawyer's activities constituted moral turpitude, and noted that such activities affect the lawyer's independent professional judgment and can lead to loss of control over the lawyer's law practice. In the Matter of Nelson (Review Dept. 1990) 1 Cal. State Bar Ct.Rptr. 178.
An investigator who had an agreement with a lawyer to receive 1/3 of net lawyer fees in exchange for investigation services was entitled to sue for unpaid fees. The prohibition against fee-splitting applied to the lawyer, not to the investigator, and the lawyer was barred from raising the defense of illegality of contract. Cain v. Burns (1st Dist. 1955) 131 Cal.App.2d 439, 280 P.2d 888.
Payment to Lawyer Referral Services
Emmons, Williams, Mires and Leech v. State Bar (3rd Dist. 1970) 6 Cal.App.3d 565, 86 Cal.Rptr. 367 (collection of a forwarding fee by a Bar Association operating a lawyer referral service was not an illegal fee-sharing arrangement under the rule).
CRPC 1-320(A)(1) and CRPC 1-320(A)(2) (Division of fees with estate or spouse of deceased lawyer), see Estate of Linnick (2nd Dist. 1985) 171 Cal.App.3d 752, 217 Cal.Rptr. 552; C.O.P.R.A.C. Op. 1975-34; L.A. Op. 1976-361.
CRPC 1-320(A)(4): (Payment of referral fee to Lawyer Referral service), see B&PC ¤ 6155; CRPC 1-600 (participation of lawyers in lawyer referral services); State Bar's "Minimum Standards for a Lawyer Referral Service in California".
O.C. Op. 93-002 (payment by a lawyer of a service charge to a financial institution, in conjunction with the institution financing client fees, is not a violation as it would be deemed a separate business transaction between the lawyer and the bank to wit, a financial charge for services rendered).
L.A. Op. 1988-443 (lawyer may not accept a referral fee from a doctor).
L.A. Op. 1991-461 (lawyer may accept space and support staff from a property management firm in exchange for reduced rates for the performance of legal services).
S.D. Op. 1989-2 (lawyer may not accept referral fee from real estate broker).
C.O.P.R.A.C. Op. 1981-60 (lawyer's participation in a service exchange or barter program).
5.4:300 Forming a Partnership with Nonlawyers
CRPC 1-310 is identical to MR 5.4(b), which prohibits a partnership with a non-lawyer if any of the activities of the partnership consist of the practice of law. See, e.g., In the Matter of Steele (Review Dept. 1997) 3 Cal. State Bar Ct.Rptr. 708, 16 (allowing office manager to refer to himself as lawyer's partner and handle much of the office affairs including trust and office accounts, and splitting fees with office manager violates prohibition on forming partnership with a non-lawyer).
[See also 5.4:200 Sharing Fees with a Non-lawyer, supra].
5.4:400 Third Party Interference with a Lawyer's Professional Judgment
CRPC 3-310(F) prohibits accepting compensation for representation of a client from third parties where such compensation would interfere with the lawyer's professional judgment. See, e.g., C.O.P.R.A.C. Op. 1997-148 (allowing non-lawyer "marketer" of living trust packages to unilaterally determine the terms of trust plans lawyer prepares for client constitutes an interference with independent judgment in violation of CRPC 1-600 Legal Service Programs). In addition, in all instances of accepting third party compensation, the lawyer must obtain the client's informed written consent, unless nondisclosure of the relationship is otherwise authorized by law or the lawyer is rendering services on behalf of a public agency that provides legal services to the public.
The following comments on a lawyer's duty to maintain professional independence while serving as defense counsel for an insurance company, are taken from Karpman and Margolis page 55 with certain conforming changes:
Intricate balancing is inherent in the tripartite relationship of client, insurer, and defense counsel in insurance defense matters.
In the landmark case of San Diego Navy Fed. Credit Union v. Cumis Ins. Soc. (4th Dist. 1984) 162 Cal.App.3d 358, 208 Cal.Rptr. 494,, the insurance company reserved rights because the policy did not cover willful conduct. Consequently, the insurance company provided counsel for covered acts, but denied the duty to provide counsel for conduct beyond the scope of policy. The insured retained independent counsel and, upon the refusal of the insurer to compensate, brought suit to compel payment which was sustained.
There is little commonality of interest, and opposing poles of interest are represented in a true Cumis fact situation; therefore the duty of loyalty owed by the lawyer to the insured is not compromised. Giannini, Chin & Valinoti v. Superior Court (1st Dist. 1995) 42 Cal.Rptr. 394 ordered not to be officially published.
In a personal injury action, an insured's lawyer, who manifested his intent to represent only the interests of insurer and who suggested to the jury at trial that defendant was in collusion with plaintiff to defraud carrier, had a duty to withdraw from representation of the insured. Pennix v. Winton (1st Dist. 1943) 61 Cal.App.2d 761, 143 P.2d 940; see also State Farm Fire & Cas. Co. v. Superior Ct. (2nd Dist. 1997) 54 Cal.App.4th 625, 62 Cal.Rptr.2d 834 (refusing to expand the Cumis doctrine to apply to insurance adjusters).
5.4:500 Nonlawyer Ownership in or Control of Profit-Making Legal Service Organizations
[See 5.4:510 Group Legal Services, infra].
CRPC 1-600 prohibits a lawyer from participating in a group legal service where the service (1) allows a third party to interfere with the lawyer's independence of professional judgment or with the client-lawyer relationship, or (2) allows non-lawyers to practice law, or (3) allows a third party to receive any part of the consideration provided to the lawyer, except where such third party compensation is permitted by the California Rules. See, e.g., C.O.P.R.A.C. Op. 1997-148 (allowing non-lawyer "marketer" of living trust packages to unilaterally determine the terms of trust plans lawyer prepares for client constitutes an interference with independent judgment in violation of CRPC 1-600 Legal Service Programs). MR 5.4(d) and DR 5-107(C) similarly prohibit a lawyer's practice with group legal services if (1) a non-lawyer owns any interest therein; (2) a non-lawyer is a corporate director or officer thereof; or (3) a non-lawyer has the right to direct or control the professional judgment of a lawyer.
Article 10 of the B&PC establishes the conditions under which a law corporation may be formed and allows lawyers licensed to practice law in California to render legal services as officers or employees of a law corporation, and to participate as directors, shareholders and officers thereof. The B&PC requires that each of the corporation's directors, shareholders and officers must be licensed lawyers, and provides that the conduct of the law corporation's business shall be bound by the CRPC to the same extent as the conduct of a lawyer. See also Law Corporation Rules of the State Bar of California (providing further rules and regulations) and Limited Liability Partnership Rules and Regulations (adopted by the State Bar Board of Governors and providing for registration of California lawyers to practice law as a limited liability partnership).
The California Rules do not address nonprofit organizations delivering legal services.
The following excerpts are taken from Karpman & Margolis page 23 with certain conforming changes:
A lawyer may not initiate the organization of prospective litigants to provide employment to himself. Mitton v. State Bar (1958) 49 Cal.2d 686, 321 P.2d 13, 15.
A county bar association can require lawyers on a referral panel to pay a 1/3 "forwarding fee" when they are referred cases. This requirement does not violate fee-splitting canons. Emmons, Williams, Mires and Leech v. State Bar of California (3rd Dist. 1970) 6 Cal.App.3d 565, 86 Cal.Rptr. 367.
State Bar Rules of Procedure 750-756.
"Minimum Standards for a Lawyer Referral Service in California", adopted by the Board of Governors June 18, 1988 and approved by Supreme Court Order dated October 26, 1989.
5.5:100 Comparative Analysis of CA Rule
CRPC 1-300(A) is substantially similar to DR 3-101(A). CRPC 1-300(B) is substantially similar to DR 3-101(B). Like the CRPC and the MR, the DR also requires that a lawyer (1) not aid a non-lawyer in the unauthorized practice of law and (2) not practice law in a jurisdiction where to do so would be in violation of regulations of the profession in that jurisdiction.
5.5:200 Engaging in Unauthorized Practice
¥ Primary California References: CRPC
¤¤ 6125, 6104, 6132-6133,
6062, 6126-6128, 6064, 6130,
California Rules of Court 983, Cal. Code Regs. Tit. 8 ¤ 10779, Lab. Code 133,
¥ Background References: ABA Model Rule 5.5(a), Other Jurisdictions
¥ Commentary: ABA/BNA ¤ 21:8001, ALI-LGL ¤¤ 3, 4, Wolfram ¤ 15.1
MR 5.5, B&PC ¤ 6125 and CRPC 1-300 each prohibit the unauthorized practice of law. Both the Model Rule and the California Rule include in such unauthorized practice (a) aiding any person or entity in the unauthorized practice of law and (b) practicing law in a jurisdiction where to do so would be in violation of regulations of the profession in that jurisdiction.
The following excerpts are taken from Karpman & Margolis pages 7-8 with certain conforming changes:
B&PC ¤ 6133 provides that a law firm may not allow a suspended, resigned, or disbarred lawyer to practice law. Cases interpreting CRPC 1-300 state that the "practice of law" includes not only court appearances but also the giving of legal advice and the preparation of legal instruments and contracts by which legal rights are secured. In addition, the practice of law also includes engaging in negotiations with opposing counsel regarding settlement. Morgan v. State Bar (1990) 51 Cal.3d 598, 274 Cal.Rptr. 8, 797 P.2d 1186.
In addition to the performance of legal work, the unauthorized practice of law includes (a) the express or implied representation of one's ability to practice law, see In re Naney (1990) 51 Cal.3d 186, 270 Cal.Rptr. 848, 793 P.2d; and (b) a lay person, suspended lawyer or soon to be suspended lawyer holding himself or herself out as practicing or entitled to practice law, see Farnham v. State Bar (1976) 17 Cal.3d 605, 131 Cal.Rptr. 661, 552 P.2d 445; In re Cadwell (1975) 15 Cal.3d 762, 125 Cal.Rptr. 889, 543 P.2d 257; In the Matter of Johnston (Review Dept. 1997) 3 Cal. State Bar Ct.Rptr. 585 (lawyer's misleading client into believing he was working on client matter during suspension constitutes improperly holding oneself out as entitled to practice law); In the Matter of Wyrick (Review Dept. 1992) 2 Cal. State Bar Ct. Rptr. 83. B&PC ¤ 6126(a) provides that "[a]ny person advertising or holding himself or herself out as practicing or entitled to practice law or otherwise practicing law who is not an active member of the State Bar, is guilty of a misdemeanor." B&PC ¤ 6126(b) provides that "[a]ny person who has been involuntarily enrolled as an inactive member of the State Bar, or has been suspended from membership from the State Bar, or has been disbarred, or has resigned from the State Bar with charges pending, and thereafter advertises or holds himself or herself out as practicing or otherwise entitled to practice law, is guilty of a crime punishable by imprisonment." See also In the Matter of Mason (Review Dept. 1997) 3 Cal. State Bar Ct.Rptr. 639 (engaging in the practice of law while suspended is an act of moral turpitude under B&PC ¤ 6106). Under B&PC ¤ 6133, any law firm that employs a disbarred, suspended or resigned lawyer is subject to discipline for not properly supervising the lawyer to ensure that he or she does not engage in the unauthorized practice of law.
The following comments on CRPC 1-300 Unauthorized Practice of Law are taken from Karpman & Margolis pages 7-8 with certain conforming changes:
Non-lawyers, such as law clerks, paralegals, and law students, may draft legal pleadings and do work preparatory to providing legal services, as long as a lawyer supervises and approves the work. For use of paralegals, see Jacoby v. State Bar (1977) 19 Cal.3d 359, 363, 138 Cal.Rptr. 77, 526 P.2d 1326 and People v. Perez (1979) 24 Cal.3d 133, 143, 155 Cal.Rptr. 176, 594 P.2d 1 (leading to enactment of Rules Governing the Practical Training of Law Students, and regulating the use of certified law students, approved by the Supreme Court of California on October 21, 1983).
B&PC ¤ 6133 provides that a law firm may not allow a suspended, resigned, or disbarred lawyer to practice law; see also C.O.P.R.A.C. Op. 1988-103.
A law firm may, after full disclosure to the client, delegate authority to paralegals to make appearances at Workers' Compensation Appeals Board hearings, if they are adequately supervised. However, the Workers' Compensation Appeals Board may prohibit suspended or disbarred attorneys from making appearances. See Lab. Code ¤ 133, 4907, 5307. See also Cal. Code Regs. tit. 8 ¤ 10779.
The unauthorized practice of law was found when a lawyer, after disclosure of suspension to the client, received legal fees in a dissolution, assisted in preparation of legal documents, entered an appearance, and discussed settlement with opposing counsel. "Practice of law" encompasses more than just court appearances, and includes the giving of legal advice and the preparation of legal instruments and contracts by which legal rights are secured. Engaging in negotiations with opposing counsel regarding settlement also constitutes the practice of law. Morgan v. State Bar (1990) 51 Cal.3d 598, 274 Cal.Rptr. 8, 797 P.2d 1186.
Both express and implied representations of ability to practice law are prohibited. In re Naney (1990) 51 Cal.3d 186, 270 Cal.Rptr. 848, 793 P.2d 54.
The unauthorized practice of law includes the mere holding out by a layperson or suspended lawyer that he is practicing or is entitled to practice law. Farnham v. State Bar (1976) 17 Cal.3d 605, 612, 131 Cal.Rptr. 661, 665, 552 P.2d 445. See also In re Cadwell (1975) 15 Cal.3d 762, 770-771, 125 Cal.Rptr. 889, 543 P.2d 257 (one engages in the unauthorized practice of law not only when he expressly represents to another that is he is entitled to practice law, but also when he impliedly makes such a representation).
An eviction service offered by a company to assist landlords in preparing, filing and resolving unlawful detainer actions did not amount to the practice of law as long as the service was merely clerical and no personal advice was given with respect to any individual case. People v. Landlords Professional Services (4th Dist. 1989) 215 Cal.App.3d 1599, 264 Cal.Rptr. 548.
A lawyer cannot expressly or impliedly create or leave undisturbed the false impression that he or she has the present or future ability to practice law when in fact he or she is or will be on suspension. In the Matter of Wyrick (Review Dept. 1992) 2 Cal. State Bar Ct.Rptr. 83, 91.
A lawyer set up a law corporation with a non-lawyer and delegated all aspects of a personal injury law practice to the non-lawyer. The non-lawyer improperly solicited cases, engaged in forgery, engaged in acts constituting the practice of law, and misappropriated nearly $60,000.00 in medical lien money. The lawyer was suspended for two years for aiding the unauthorized practice of law. In the Matter of Francis E. Jones III (Review Dept. 1993) 2 Cal. State Bar Ct.Rptr. 411.
A lawyer was disbarred for repeatedly practicing law while under suspension for non-payment of bar dues. The State Bar Court held that the Rule regarding failure to act competently has no applicability to a lawyer practicing law while under suspension. A suspended lawyer's only duty is to stop practicing until he or she is re-established in good standing. Suspended lawyers must, however, refund unearned fees and communicate with clients to minimize prejudice to their cases. Those communications may not take the form of legal advice. In the Matter of Taylor (Review Dept. 1991) 1 Cal. State Bar Ct.Rptr. 563.
See also Bluestein v. State Bar (1974) 13 Cal.3d 162, 118 Cal.Rptr. 175, 529 P.2d 599 and Crawford v. State Bar (1960) 54 Cal.2d 659, 666-669, 7 Cal.Rptr. 746, 355 P.2d 490 (aiding and abetting unauthorized practice of law). In the Matter of Tandy (Review Dept. 1992) 2 Cal. State Bar Ct.Rptr. 121 (discussion of whether member on voluntary inactive status may provide legal services to family member).
O.C. Op. 94-002 (activities performed by a paralegal, such as visiting clients and answering their estate planning questions should not be construed as the unauthorized practice of law, particularly where the lawyer maintains proper supervision and a direct relationship with the client).
The following comments on B&PC ¤ 6125 Restriction of practice of law to active members of State Bar are taken from Karpman & Margolis pages 230-233 with certain conforming changes:
"Practice of law" is a term almost incapable of precise definition, but recent cases seem to be narrowing this concept beyond the traditional bright line of court appearances or being the signatory upon pleadings. Unauthorized practice of law can include both express and implied representations of the ability to practice, i.e. a suspended, disbarred, or resigned lawyer should affirmatively deny oral or written statements implying active status contained in letters or telephone calls. Note letterhead, signs, etc. should be changed or this is construed as a holding out or the appearance of the ability to practice.
This rule is strictly construed, as the unauthorized practice of law may involve disciplinary charges, civil liability, and significant criminal sanctions. Misrepresentations concerning a lawyer's status or suspension are governed by a substantial and long-standing body of case law.
Unlicensed representation may void a judgment obtained against the clients of the unlicensed practitioner; depending upon whether the clients were co-participants of the fraud or victims. Russell v. Dopp (4th Dist. 1995) 36 Cal.App.4th 765, 42 Cal.Rptr.2d 768. However, see Alexander v. Robertson (9th Cir. 1989) 882 F.2d 421 where the court declined to void the judgment because it did not impact upon the integrity of the judiciary system or vindicate the interests of the party.
As to the client's obligation to discover a fraud, clients should not be forced to act as hawk-like inquisitors of their own counsel, suspicious of every step and quick to switch lawyers. The legal profession knows no worse headache than the client who mistrusts his or her lawyer. "The lay litigant enters a temple of mysteries whose ceremonies are dark, complex and unfathomable." Daley v. Butte County (3rd Dist. 1964) 227 Cal.App.2d 380, 38 Cal.Rptr. 693.
Members who have selected inactive status violate this statute and can be charged with violation of a lawyer's oaths and duties (B&PC ¤ 6068(a) if they practice law while inactive. In the Matter of Tandy (Review Dept. 1992) 2 Cal. State Bar Ct.Rptr. 121.
Practicing law while suspended for non-payment of dues (often referred to an administrative suspension) may sustain this charge. In the Matter of Heiner (Review Dept. 1990) 1 Cal. State Bar Ct.Rptr. 301.
The requirements of competent performance or the rule prohibiting withdrawal to avoid foreseeable client prejudice have little if any applicability to suspended lawyers, although client harm or prejudice should be minimized; their only duty is to cease practice until they regain their good standing status. Any unearned fees must be returned to the client In the Matter of Taylor (Review Dept. 1991) 1 Cal. State Bar Ct.Rptr. 563. However, as to an appearance in court for a client post suspension, the lawyer should do anything possible to avoid harm to the client and obey the court's order, i.e. explaining his ineligibility to practice to the court. This does not violate this statute. In the Matter of Hunter (Review Dept. 1994) 3 Cal. State Bar Ct.Rptr. 63.
Contacting an insurance company to negotiate settlement without consent of new counsel and while on suspension constitutes violation of this statute. In the Matter of Snyder (Review Dept. 1993) 2 Cal. State Bar Ct.Rptr. 593.
Allowing a complaint bearing his name to be filed while the lawyer was suspended violates this statute, even though the complaint was actually prepared prior to the effective date of suspension. Also, sending a counteroffer in settlement the day after suspension took effect or using a secretary to contact opposing counsel violates this statute. In the Matter of Rodriguez (Review Dept. 1993) 2 Cal. State Bar Ct.Rptr. 480.
A suspended lawyer is prohibited from discussing a legal matter with a client, accepting legal fees, or filing a suit. Such conduct also constituted moral turpitude due to the lawyer's deceit in allowing the client to believe he was an active member. In the Matter of Taylor (Review Dept. 1991) 1 Cal. State Bar Ct.Rptr. 563. Making a court appearance while on inactive status is almost a per se violation of this statute In the Matter of Heiner (Review Dept. 1990) 1 Cal. State Bar Ct.Rptr. 301.
CRPC 1-300 Unauthorized Practice of Law.
B&PC ¤ 6068(a) Duty to support Constitution and State and Federal Laws.
B&PC ¤ 6104 Appearance absent client consent or authority.
Defense or Counterclaim Based on Ground that Opposing Party or Counsel is Engaged in Unauthorized Practice of Law (1981) 7 A.L.R. 4th 1146.
O.C. Op. 94-002 (activity performed by a paralegal, including visiting clients and answering their estate planning questions should not be considered the unauthorized practice of law, particularly where the lawyer is both supervising the paralegal and maintaining a direct relationship with the client).
B&PC ¤ 6126 Advertising or holding oneself out as practicing or entitled to practice law without being active member of State Bar
Making a court appearance while under interim suspension violates B&PC ¤ 6126. In the Matter of Lynch (Review Dept. 1995) 3 Cal. State Bar Ct.Rptr. 287.
B&PC ¤ 6127 Contempt of court: acts or omissions in practice of law; proceedings
Practicing law, or holding oneself out as practicing or entitled to practice law, while under suspension or transfer to inactive statute by virtue of submission of one's resignation with charges pending, is both unlawful (B&PC ¤ 6127) and a contempt (B&PC ¤ 6127).
B&PC ¤ 6062 governs the admission requirements of out-of-state attorneys.
A person who has been admitted to practice law "in a sister state, United States jurisdiction, possession, territory, or dependency the United States may hereafter acquire" must: (1) be at least 18 years of age, see B&PC ¤ 6062(a)(1); (2) be of good moral character, see B&PC ¤ 6062(a)(2); (3) have been admitted to practice in "sister state, United States jurisdiction, possession, territory or dependency of the United States may hereafter acquire for at least four years immediately preceding the filing of his or her application" to take the California bar examination, see B&PC ¤ 6062(a)(3) (teaching in an ABA accredited law school and serving as a judge of a court of record of any sister state, United States jurisdiction, possession, or territory shall be considered "practice," within the statutory meaning); (4) "have passed such examination as in the discretion of the examining committee may be required," see B&PC ¤ 6062(a)(4).
A person who has been admitted to practice law in a "jurisdiction other than in a sister state, United States jurisdiction, possession or territory" must (1) be at least 18 years of age, see B&PC ¤ 6062(b)(1); (2) be of good moral character, see B&PC ¤ 6062(b)(2); (3) have been admitted either to the "highest court of any foreign state or country" and have been an active member in good standing for at least four years immediately preceding the filing of his or her application to take the California bar, see B&PC ¤ 6062(b)(3); (4) have passed the California bar, see B&PC ¤ 6062(b)(4); have passed "an examination in professional responsibility of legal ethics as the examining committee may prescribe," see B&PC ¤ 6062(b)(5).
[See 8.1:240 Admission Pro Hac Vice, infra].
Both MR 5.5 and CRPC 1-300 find it did unauthorized practice of law to practice law in a jurisdiction in a manner that violates the regulations of the profession in the lawyer's resident jurisdiction. So long as a person is qualified to practice law in another jurisdiction, California law does not appear to prohibit such practice.
5.5:300 Assisting in the Unauthorized Practice of Law
¥ Primary California References:
CRPC 1-300, 1-150,
B&PC ¤¤ 6133, 6068,
¥ Background References: ABA Model Rule 5.5(b), Other Jurisdictions
¥ Commentary: ABA/BNA ¤ 21:8201, ALI-LGL ¤ 4, Wolfram ¤ 15.1
Both MR 5.5 and CRPC 1-300 prohibit assisting a non-lawyer in the unauthorized practice of law. B&PC ¤ 6133 prohibits lawyers and law firms from employing a disbarred, suspended or resigned lawyer. Under this section, any lawyer or law firm that violates this rule is subject to discipline for failing to ensure that the disbarred, suspended or resigned lawyer-employee does not engage in the unauthorized practice of law. Aiding in the unauthorized practice of law includes setting up a law corporation with a non-lawyer and delegating all aspects of a practice to the non-lawyer. See In the Matter of Jones (Review Dept. 1993) 2 Cal. State Bar Ct.Rptr. 411; see also Bluestein v. State Bar (1974) 13 Cal.3d 162, 118 Cal.Rptr. 175, 529 P.2d 599; Crawford v. State Bar (1960) 54 Cal.2d 659, 7 Cal.Rptr. 746, 355 P.2d 490 (aiding and abetting unauthorized practice of law); In the Matter of Steele (Review Dept. 1997) 3 Cal. State Bar Ct.Rptr. 708 (impermissible to allow office manager to "take over" practice including conducting initial interviews, writing demand letters and negotiating settlements).
5.6:100 Comparative Analysis of CA Rule
MR 5.6 states that "[a] lawyer shall not participate in offering or making: (a) a partnership or employment agreement that restricts the right of a lawyer to practice after termination of the relationship, except an agreement concerning benefits upon retirement; or (b) an agreement in which a restriction on the lawyer's right to practice is part of the settlement of a controversy between private parties."
California's counterpart to MR 5.6 is CRPC 1-500. There are several differences between the two rules, some superficial and some more substantive. The first difference appears in the respective prohibitions of agreements restricting the right to practice law when such agreements are made in connection with the settlement of a lawsuit. While CRPC 1-500 prohibits agreements made in connection with the settlement of a lawsuit without limitation, MR 5.6 on its face prohibits only agreements made in connection to the settlement of a private lawsuit. In 1995, however, an ABA ethics opinion relegated this difference to one of semantics when it released an opinion holding that, despite the explicit language within MR 5.6, "[t]he prohibition of a lawyer's participating in offering or making an agreement in which a restriction on the lawyer's right to practice is part of the settlement of a controversy applies not only where the controversy is between private parties, but also where a party is a governmental entity." ABA Formal Op. 95-394. The opinion concludes by stating that "the phrase [private lawsuits] is sensibly to be read as merely descriptive rather than prescriptive: i.e., as referring to the circumstances where such a provision, as a condition of settlement, is most likely to be proposed; rather than as limiting the kinds of settlements to which the prohibition is applicable." Id.
A second facial difference between MR 5.6 and CRPC 1-500 is the scope of the exceptions that the respective rules carve out from their general prohibitions. Both rules allow restrictions on the right to practice law in employment and partnership agreements so long as the restriction does not extend beyond the termination of the employment or partnership. Both rules also allow restrictions on the right to practice with regard to agreements concerning benefits upon retirement. Only CRPC 1-500, however, specifically exempts agreements in lieu of disciplinary prosecution entered into between lawyers and the State Bar, see B&PC ¤ 6068(l), and conditions of probation imposed by the State Bar Court incident to discipline, see B&PC ¤ 6093, from its prohibition. Karpman & Margolis pg. 21. Again, however, ABA Formal Op. 95-394 minimizes the effect of this difference by closing the gap between the two statutes:
[w]hile [the Comment to MR 5.6] makes no reference to the nature of the parties or clients involved in a settlement to which the Rule would apply, it does make clear that the prohibition is intended to apply in circumstances where the lawyer is 'settling a claim on behalf of a client.' [footnote omitted]. Thus, it would not apply to disciplinary proceedings brought by bar disciplinary authorities or by an administrative agency with jurisdiction over some part of the lawyer's practice, where the lawyer himself is a party. In such proceedings, it will often be the case that a settlement will involve the lawyer's agreeing to suspension or disbarment from practice before the agency itself; [footnote omitted] and this is plainly not forbidden by Rule 5.6(b).
The third difference is more meaningful, as CRPC 1-500 is broader in scope than MR 5.6. Both rules bar all restrictions on the right to practice law in agreements that are made in connection with the settlement of a lawsuit and MR 5.6 further prohibits restrictions on the right to practice law that are made in partnership and employment agreements and that extend beyond the termination of the employment or the partnership. CRPC 1-500, however, does not limit its prohibition to these types of agreements, stating simply that a lawyer may not offer or make "an agreement" that restricts the right of an attorney to practice law. This broader language could encompass agreements having an effect, even incidental or indirect, on the right to practice though the agreements do not come within the categories expressly prohibited by MR 5.6. [See 5.6:200 Restrictions on Lawyers Leaving a Firm, infra].
Another difference lies in CRPC 1-500(B)'s prohibition of collateral agreements precluding the reporting of a violation of the rule.
Finally, a difference may exist between MR 5.6 and CRPC 1-500 with regard to agreements not to compete that are made in connection with the sale of a law practice. The MR 5.6 Comment states that (consistent with the limited language of the Rule) "[t]his Rule does not apply to prohibit restrictions that may be included in the terms of the sale of a law practice pursuant to Rule 1.17." CRPC 1-500, on the other hand, is silent as to its application to the sale of a law practice, so facially it is in conflict with CRPC 2-300. [See 1.17:100 Comparative Analysis of CA Rule, infra].
CRPC 1-500 is substantially similar to DR 2-108, and the analysis of the differences between CRPC 1-500 and DR 2-108 is essentially the same as the analysis of the differences between CRPC 1-500 and MR 5.6 . [See 5.6:101 Model Rule Comparison, infra]. There is, however, one additional point of difference. Whereas CRPC 1-500 and MR 5.6 prohibit both the offering and making of an agreement that restricts the right to practice, DR 2-108 prohibits only the making of such agreements. The effect of this difference is to subject a lawyer to discipline for unsuccessful efforts towards a prohibited agreement. Under CRPC 1-500(B), a lawyer to whom such an effort is directed cannot by agreement extinguish any ethical obligation of that lawyer to report the improper offer.
5.6:200 Restrictions on Lawyers Leaving a Firm
CRPC 1-500 prohibits a lawyer from "offering or making an agreement, whether in connection with the settlement of a lawsuit or otherwise, if the agreement restricts the right of an attorney to practice law." CRPC 1-500(A). The purpose of CRPC 1-500 is to "protect the historic right of the public to counsel of choice," under the belief that restrictive covenants "not only interfere with a member's professional autonomy, but also interfere with the public's right to counsel of choice." Karpman & Margolis pg. 21.
While CRPC 1-500 prohibits restrictive covenants in all agreements not specifically excepted from the rule, most California cases that deal with non-excepted agreements have arisen in connection with partnerships agreements that restrict a lawyer leaving a partnership from taking clients from his or her former firm. In the departing-lawyer scenario, B&PC ¤ 16600's prohibition of non-competition agreements in all occupations also applies, meaning that a restriction on a departing lawyer's right to compete must satisfy both the CRPC and the B&PC. B&PC ¤ 16600, however, is made inapplicable in the departing-lawyer scenario by B&PC ¤ 16602, an exception to B&PC ¤ 16600, which states (as to partnerships generally, without specific reference to partnerships among lawyers) that "any partner may, upon or in anticipation of a dissolution of the partnership, agree that he will not carry on a similar business within a specified county or counties, city or cities, or a part thereof, where the partnership business has been transacted, so long as any other member of the partnership, or any person deriving title to the business or its goodwill from any such other member of the partnership, carries on a like business therein." In reconciling CRPC 1-500 with B&PC ¤ 16602, California courts have held that B&PC ¤ 16602 applies to law partnerships to the extent that agreements made pursuant to B&PC ¤ 16602 do not "restrict" the right of a lawyer to practice within the meaning of CRPC 1-500. Howard v. Babcock (1993) 6 Cal.4th 409, 25 Cal.Rptr.2d 80, 863 P.2d 150.
Addressing the scope of the term "restrict" in CRPC 1-500, the California Supreme Court held that, while an outright prohibition of future representation would violate CRPC 1-500, "[a]n agreement that assesses a reasonable cost against a partner who chooses to compete with his or her former partners does not restrict" a lawyer from practicing law in the sense contemplated by CRPC 1-500 because (i) a reasonable cost assessed against a departing lawyer would not discourage the lawyer from representing those clients who wished to continue using his or her services, and (ii) "[t]he traditional view of the law firm as a stable institution with an assured future is now challenged by an awareness that even the largest and most prestigious firms are fragile economic units" that require compensation from a departing partner in order to maintain stability. Howard v. Babcock (1993) 6 Cal.4th 409, 420, 424, 25 Cal.Rptr.2d 80, 863 P.2d 150. Rather, a reasonable cost merely "attaches an economic consequence to a departing partner's unrestricted choice to pursue a particular kind of practice." Howard v. Babcock (1993) 6 Cal.4th 409, 419, 25 Cal.Rptr.2d 80, 863 P.2d 150; L.A. Op. 1995-450 (partnership agreement that imposes only reasonable costs on a departing partner is enforceable).
While the courts have allowed the placement of financial burdens on a departing partner, there are limits to the burdens which may be placed upon a lawyer before an agreement becomes unreasonable and, therefore, "restrictive" in violation of CRPC 1-500. One court used the test for unconscionable fee-splitting to hold a restrictive covenant in a law partnership agreement invalid because the covenant in question granted fees to the partner's former firm in an amount disproportionate to the firm's role in representing the client. Champion v. Superior Court (1st Dist. 1988) 201 Cal.App.3d 777, 247 Cal.Rptr. 624. Under the restrictive covenant at issue in Champion, all fees earned from clients of the partnership would remain the property of the partnership after a partner withdrawal even if the case preparation was performed by the departing partner after withdrawal.
While Champion provides an example of a financial burden on departing partner income which was not allowed, the case is not typical of the approach taken by the courts in analyzing restrictive covenants. Rather than testing restrictive covenants based on proportionate fee-splitting, most courts treat restrictive covenants as liquidated damage clauses to test their validity. Thus, restrictive covenants become unreasonable and unenforceable at such point at which they constitute a "penalty" or a "forfeiture" rather than a measure of damages suffered by the departing partner's former firm. See Haight, Brown & Bonesteel v. Fitzgerald (2nd Dist. 1991) 234 Cal.App.3d 963, 960, 285 Cal. Rptr. 845. The California Supreme Court adopted this test in 1993. Howard v. Babcock (1993) 6 Cal.4th 409, 425, 25 Cal.Rptr.2d 80, 863 P.2d 150.
Even where the courts determine that an agreement restricts a lawyer's ability to practice law, CRPC 1-500 provides exceptions that allow some such agreements to stand. The first of these exceptions allows an agreement to restrict the right of a lawyer to practice law if such an agreement "[i]s part of an employment, shareholders' or partnership agreement among members provided the restrictive agreement does not survive the termination of the employment, shareholder or partnership relationship." CRPC 1-500(A)(1). Because the CRPC 1-500 Official Discussion makes clear that a restrictive agreement under this exception may not survive either a voluntary or an involuntary termination of the relationship, however, the exception does not actually apply in the circumstance of a departing lawyer.
Another exception to CRPC 1-500 does, however, apply in the instance of a lawyer departing his or her former firm. This exception allows an agreement to restrict the right of a lawyer to practice after departure if the departure is due to retirement and the agreement "[r]equires payments to a member upon the member's retirement from the practice of law." CRPC 1-500(A)(2). This exception provides assurance to the lawyer's former firm that the departing lawyer is truly retiring and not merely moving on to another practice setting. See also L.A. Op. 1991-460 (requiring a member to forego or defer bona fide retirement payments solely on the basis of continued practice of law is permissible).
In addition to the statutory and rule exceptions to CRPC 1-500, there is another area of law relating to restrictions upon a departing lawyer in which the application of CRPC 1-500 is unclear. This area is the sale of a law practice. Generally, California does allow the sale of a law practice [see Rule 1.17 Sale of a Law Practice, infra] and California also generally allows covenants not to compete to accompany the sale of a business. Furthermore, B&PC ¤ 16602 was amended in 1996 to allow restrictive covenants in anticipation of a sale of a partner's interest in a partnership as well as in anticipation of the dissolution of the partnership. Thus, financial burdens like those allowed upon a partner's departure from a partnership should also be allowed upon the sale of a law partnership.
Unlike MR 5.6, CRPC 1-500 makes no mention of the sale of a law practice in either its text or its Official Discussion. Thus, the sale of a law practice would appear to fall within the broad spectrum of agreements to which CRPC 1-500 applies to prohibit restrictive covenants. This suggests that, while financial assessments may be allowed in connection with the sale of a law practice, overbroad geographic prohibitions or complete prohibitions on future competition may not.
5.6:300 Settlements Restricting a Lawyer's Future Practice
A second area of the use of restrictive agreements involves settlement agreements in which the settlement is conditioned on the promise of plaintiff's counsel not to represent future clients against the same defendant. CRPC 1-500(A) includes in its general prohibition the clause "whether in connection with the settlement of a lawsuit or otherwise." The CRPC 1-500 Official Discussion states that this clause "makes clear that the practice, in connection with settlement agreements, of proposing that a member refrain from representing other clients in similar litigation, is prohibited. Neither counsel may demand or suggest such provisions nor may opposing counsel accede or agree to such provisions."
C.O.P.R.A.C. Op. 1988-104, found that a settlement agreement which prohibited the plaintiff's attorney from representing future litigants against the defendant restricted the attorney's right to practice law in violation of the terms of former CRPC 2-109 (1975) (the predecessor to CRPC 1-500, which is substantially similar with regard to settlement agreements). The opinion acknowledged that the "plaintiff's attorney may find him or herself in an uncomfortable position if faced with a settlement offer that is in the best interests of the client but which includes the provisions being considered. However, . . . defendant's attorney may not directly propose such a provision, nor may plaintiff's attorney accept it." Such provisions, the opinion determined, "den[y] a potential client access to an attorney of their [sic] choice. This is especially important where the attorney has previous experience in pursuing a matter against the particular defendant."
L.A. Op. 1993-468 deals with a scenario in which there is complex litigation involving multiple defendants and each defendant is represented by separate counsel. This opinion states that both the following types of settlement agreements are violative of CRPC 1-500: (1) an agreement that prevents settling defendant's lawyers from representing other non-settling defendants, (2) an agreement requiring settling defendants to assert a conflict of interest claim against their lawyers if their lawyers attempt to represent a non-settling defendant in the same case.
Where a settlement agreement is found to be restrictive in the sense contemplated by CRPC 1-500, there is one important exception contained within the text of the rule that applies to settlement agreements. This exception to the general prohibition is stated in CRPC 1-500(A)(3) and allows restrictive agreements that are authorized by B&PC ¤ 6092.5(i), or B&PC ¤ 6093. Karpman & Margolis explain this exception by stating that CRPC 1-500(A)(3) "specifically exempts agreements in lieu of disciplinary prosecution entered into between attorneys and the State Bar [B&PC ¤ 6068(l)] and conditions of probation imposed by the State Bar Court incident to discipline [B&PC ¤ 6093] from this rule's prohibitions." Karpman & Margolis pg. 21 (with certain conforming changes). Thus, a lawyer can agree not to practice law when such an agreement is made in connection with a state bar disciplinary proceeding.
The following comments on CRPC 1-500 Agreements Restricting a Member's Practice are taken from Karpman & Margolis pages 21-22 with certain conforming changes:
Restrictive covenants not only interfere with a member's professional autonomy upon leaving a law firm, but also interfere with the public's right to counsel of choice without restriction. This rule protects the historic right of the public to counsel of choice. However, see case notes, below.
This rule, as amended effective September 14, 1992, adding subsection CRPC 1-500(A)(3), specifically exempts agreements in lieu of disciplinary prosecution entered into between lawyers and the State Bar [B&PC ¤ 6068(l)] and conditions of probation imposed by the State Bar Court incident to discipline [B&PC ¤ 6093] from this rule's prohibitions.
In a recent case settling a conflict among the courts of appeal as to whether B&PC ¤ 16602 (relating to the enforceability of noncompetition agreements) is applicable to lawyers, the California Supreme Court held that an agreement among law partners imposing a reasonable cost on departing partners who compete with the firm is enforceable. In this case, a law firm included in the partnership agreement a provision that should a partner, associate, or individual withdraw from the firm prior to age 65 and thereafter within a period of one year practice law together or in combination with others, including former partners or associates of the firm, in a practice engaged in the handling of liability insurance defense work within the Los Angeles or Orange County Court system, the partner or partners would be subject, at the sole discretion of the remaining non-withdrawing partners, to forfeiture of all their rights to withdrawal benefits other than capital as provided in another article of the agreement. That article provided that a general partner who withdrew from the partnership would be paid his or her capital interest, and a sum equal to the share in the net profit of the firm that the withdrawn partner would have received during the first 12 months following the withdrawal if he or she had remained with the firm during that 12 month period. Rejecting the contention that CRPC 1-500 prohibits partners in law firms from entering into noncompetition agreements, the California Supreme Court held that an agreement that assesses a reasonable cost against a partner who chooses to compete with his or her former partners does not restrict the practice of law. Rather, it attaches an economic consequence to a departing partner's unrestricted choice to pursue a particular kind of practice. The court noted that California has a settled policy in favor of open competition (citing B&PC ¤ 16600). The court stated that a revolution in the practice of law has occurred requiring economic interests of the law firm to be protected as they are in other business enterprises. Howard v. Babcock (1993) 6 Cal.4th 409, 25 Cal.Rptr.2d 80, 863 P.2d 150.
A labor relations firm could not, through a covenant not to compete, restrict a former officer/attorney's right to provide legal services in labor relations field. John F. Matull and Associates, Inc. v. Cloutier (2nd Dist. 1987) 194 Cal.App.3d 1049, 240 Cal.Rptr. 211.
C.O.P.R.A.C. Op. 1988-104 (settlement agreement restricting a lawyer's right to bring subsequent litigation violates this rule).
L.A. Op. 1993-468 (unethical to require, as condition of settlement of lawsuit, that lawyers representing settling defendants agree not to assist or represent any non-settling defendants).
5.7:100 Comparative Analysis of CA Rule
There is no California rule or statute that corresponds
There was no counterpart to MR 5.7 in the Model Code.
5.7:200 Applicability of Ethics Rules to Ancillary Business Activities
C.O.P.R.A.C. Op. 1995-141 provides persuasive authority regarding the CRPC and B&PC sections that may govern the ethical responsibilities of a lawyer, law firm or other entity providing non-legal services. The opinion specifically addresses ethical issues regarding "(1) conflicts of interest and undue influence[,] (2) maintenance of client confidences and secrets[,] (3) improper solicitation of clients[,] and (4) financial relationships between a lawyer and non-lawyer[,]" in connection with the rendering of non-legal services. See C.O.P.R.A.C. Op. 1995-141.
The following text was excerpted from C.O.P.R.A.C. Op. 1995-141, with certain conforming changes:
Lawyers in California have been allowed historically to practice law and to pursue other business activities at the same time. See Wolfram ¤ 16.4. Although the current CRPC do not contain specific restrictions on dual practices, ethics opinions have warned dual practitioners that the CRPC place constraints on their activities in other businesses and professions. See C.O.P.R.A.C. Op. 1982-69 and C.O.P.R.A.C. Op. 1991-123; L.A. Op. 331, L.A. Op. 351, L.A. Op. 446 and L.A. Op. 447; S.D. Op. 1975-2.
A member of the State Bar must conform to the professional standards of a lawyer when rendering professional services that involve a fiduciary relationship, even if the services performed could also be rendered by one licensed in a different profession. Sodikoff v. State Bar (1975) 14 Cal.3d 422, 429, 121 Cal.Rptr. 467, 535 P.2d 331; Libarian v. State Bar (1945) 21 Cal.2d 862, 865, 136 P.2d 321; Jacobs v. State Bar (1933) 219 Cal. 59, 25 P.2d 401; see C.O.P.R.A.C. Op. 1991-123 and C.O.P.R.A.C. Op. 1982-69.
The provision of non-legal professional services to a client, such as real estate brokerage services or accounting services, is a business transaction with a client under CRPC 3-300. See L.A. Op. 477. The applicability of CRPC 3-300 stems from the fiduciary nature of the lawyer-client relationship. Id. The relationship between a lawyer and client is a fiduciary relationship of the highest character. Clancy v. State Bar (1969) 71 Cal.2d 140, 146, 77 Cal.Rptr. 657, 454 P.2d 329. It is a relationship in which the lawyer is apt to have considerable influence over the client, especially in transactions which are a part of or intimately connected with the very business for which the lawyer-client relationship exists. Beery v. State Bar 43 Cal.3d 802, 239 Cal.Rptr. 121, 739 P.2d 1289.
The California Supreme Court has observed that "[t]here is always a danger to the fiduciary relationship between an attorney and his client when the two enter into business dealings." Rodgers v. State Bar (1989) 48 Cal.3d 300, 314, 256 Cal.Rptr. 381, 768 P.2d 1058. As a result," '[a]ll dealings between an attorney and his client that are beneficial to the attorney will be closely scrutinized with the utmost strictness for any unfairness.'" Ritter v. State Bar (1985) 40 Cal.3d 595, 602, 221 Cal.Rptr. 134, 709 P.2d 1303 (quoting Clancy v. State Bar (1969) 71 Cal.2d 140, 146, 77 Cal.Rptr. 657, 454 P.2d 329). "The burden is on the attorney to show that the transaction between them was at `arm's length.'" Clancy, 71 Cal.2d at 147.
The rule should not apply to transactions which do not typically involve the fiduciary relationship such as when a lawyer purchases a meal at a restaurant owned by a client or when the client pays for parking in a parking lot owned by the lawyer. However, where the rendition of non-legal professional services by the lawyer directly or through a non-lawyer employee or a lawyer or law firm owned entity involves a fiduciary relationship between the lawyer and the client, compliance with CRPC 3-300 is required.
When a lawyer provides non-legal services that are related to or are involved in the lawyer's legal representation of a client, the lawyer may have a legal, business, financial, or professional interest in the subject matter of the representation that requires written disclosure to the client under CRPC 3-310(B)(4). For example, if a lawyer has been rendering accounting services for a client and later represents the client in litigation in which the accounting work is an issue, the lawyer would at least have a business or professional interest in the representation that warrants disclosure under the rule.
CRPC 3-310 is primarily directed to situations that commonly interfere with a lawyer's loyalty and independent judgment on behalf of a client. L.A. Op. 477. When a lawyer's rendition of non-legal services becomes involved in the legal representation of a client, the lawyers interest in justifying those services in one way or another may adversely affect the lawyer's judgment, and, in turn, the legal advice given. Id. Similarly, when a lawyer-owned or controlled entity provides non-legal services in connection with a legal representation, the lawyer may tend to favor the interests of the entity over the interests of the client through the referral of work to the entity, lack of objectivity about the entity's work product or in other ways. Id. In each case, there is at least a question whether the lawyer can represent the client with the same degree of loyalty and independent judgment that would be expected from a lawyer who did not have a relationship with the entity providing the non-legal service or who did not have an interest in the subject matter of the representation.
Under B&PC ¤ 6068(c) a lawyer has a duty to maintain a client's confidence inviolate and preserve a client's secrets at every peril. As one court observed, " . . . the protection of confidences and secrets is not a rule of mere professional conduct, but instead involves public policies of paramount importance . . . ." In re Jordan (1974) 12 Cal.3d 575, 580, 116 Cal. Rptr. 371, 526 P.2d 523 (quoting In re Jordan (1972) 7 Cal. 3d 930, 940-941, 103 Cal.Rptr. 949, 500 P.2d 873). Part of that duty involves preserving the privileged nature of lawyer-client communications. The provision of non-legal services presents the potential for the erosion of the privilege and the loss of confidentiality resulting either from a blurring of the distinction between the provision of legal and non-legal services or from the rendition of services by non-lawyers.
In the first instance, a lawyer rendering non-legal services directly or through an employee or entity has a duty to make it clear whether and to what extent a lawyer-client relationship exists. Butler v. State Bar (1986) 42 Cal.3d 323, 329, 228 Cal.Rptr. 499, 721 P.2d 585. This is particularly true when a lawyer knows or reasonably should know that a person receiving non-legal services has an expectation that there is a lawyer-client relationship or that his or her communications will be privileged.
The CRPC 1-400(C) ban on solicitations applies when legal employment is solicited of someone with whom the lawyer or firm does not have an existing or prior lawyer-client relationship. As a result, the rule applies when such solicitations occur in the course of rendering non-legal services.
The prohibition of solicitations in CRPC 1-400(C) excludes solicitations of persons with whom a lawyer has a prior professional relationship, i.e., relationships with a lawyer in his or her professional capacity as a lawyer and not in other professional capacities. Thus, on the one hand, a lawyer/realtor who renders only realty services to a client does not have a prior professional relationship for purposes of CRPC 1-400(C). On the other hand, a lawyer who has represented a corporation has a professional relationship with the individuals at the corporation involved in the representation for purposes of CRPC 1-400(C). In the former situation the lawyer may not solicit legal employment of the realty client, while in the latter scenario the lawyer may solicit legal employment from the corporate representatives.
CRPC 1-400 applies to solicitations and communications made on behalf of a lawyer or law firm by a non-lawyer employee or a lawyer or law firm owned entity. Thus, a law firm or lawyer cannot use a non-lawyer employee or a separate entity to solicit business for a lawyer or firm in a manner that violates CRPC 1-400. See L.A. Op. 474.
Based on these principles, CRPC 1-400 does not apply to solicitations or communications regarding the availability of non-legal services rendered by a lawyer, a non-lawyer employee or an entity owned by a lawyer or law firm. However, the rule does apply to solicitations and communications regarding the availability of legal services which are made by the lawyer or a non-lawyer employee in the course of rendering non-legal services or otherwise. For example, a lawyer who owns an accounting service is not subject to CRPC 1-400 when communicating about the availability of such services. However, the lawyer and the accounting service are subject to CRPC 1-400 when communicating about the availability of the lawyer's legal services to a prospective client of the lawyer.
A lawyer providing non-legal services through non-lawyer employees or business entities in which non-lawyers also have an interest must also comply with the CRPC governing the financial relationships between lawyers and non-lawyers. First, a non-lawyer cannot obtain an ownership interest in a law firm. CRPC 1-310 states that "[a] member shall not form a partnership with a person who is not a lawyer if any of the activities of that partnership consist of the practice of law." In the case of a law corporation, the State Bar Act requires each director, shareholder and officer to be a lawyer. B&PC ¤ 6165; Corp. Code. ¤ 13401 (c). There are a number of professional services that may be performed by both lawyers and non-lawyers, such as tax preparation or lobbying. A lawyer who forms a business with a non-lawyer to perform such services is not subject to CRPC 1-310 and CRPC 1-320 and B&PC ¤ 6165 unless the provision of those services is deemed to be the practice of law. However, in conducting dual professional services, the lawyer may still be subject to those rules that apply to a lawyer's fiduciary obligations, as noted in the discussion on the scope of the rules at the outset of this opinion.
Second, non-lawyers cannot share in the profits of a law practice. CRPC 1-320 prevents a member from directly or indirectly sharing legal fees with a non-lawyer. CRPC 1-320 does not prevent a lawyer from compensating a non-lawyer employee. CRPC 1-320(A)(3). The rule also allows a lawyer to include non-lawyer employees in profit-sharing and retirement plans provided the plan does not circumvent the CRPC or the State Bar Act. Id. At a minimum, the rule prohibits profit-sharing arrangements that would effectively give a non-lawyer an ownership interest in a law practice or would involve a division of fees. See L.A. Op. 457.
C.O.P.R.A.C. Op. 1995-141.