Your Ethical Duties to Plan for Law Practice Succession
Unlike some states, California does not have specific legal ethics rules that require attorneys to adopt a law practice succession plan, there are several Rules of Professional Conduct that impose equivalent duties to plan. It’s not always easy to think about circumstances that could render you unable to continue practicing law–accidents, illness, disability, planned or unplanned retirement, or untimely death– but these events do occur. Under any of these circumstances, your clients’ interests, as well as your own, must be protected.
Every California has a duty of competence under CRPC Rule 3-110, which means that you have an obligation to take reasonable steps to ensure that client matters will not be neglected in the event of death or disability. Unexpected events could have serious impacts on your clients. Important client matters, such as court dates, statutes of limitations, or document filings, could be neglected if you fail to plan for these contingencies. California attorneys have a separate duty to keep clients informed of significant developments, under CRPC Rule 3-500. This rule has been interpreted to impose duties on attorneys to advise clients regarding change of employment, and generally also implies a duty to plan for client communications in the event of your death or incapacity. You also have a fiduciary duty and duty of loyalty to your clients, which means you must protect your clients’ interests in various contingent circumstances, including your death or incapacity. CRPC Rule 3-700, related to termination of employment, provides an analogous scenario. That rules requires attorneys to take reasonable steps to avoid reasonably foreseeable prejudice to client related situation in which they will no longer be able to represent client.
Protecting the Attorney-Client Privilege for In-Firm Ethics Communications
When a client matter raises a legal ethics issue or, in the worst-case scenario, when a client accuses you of malpractice, it’s a good idea seek the advice of other lawyers at your firm. But maintaining the privilege of those communications within your firm, related to legal ethics issues or malpractice, is more difficult than it may seem at first glance. Until relatively recently, California cases suggested that the attorney-client privilege for attorneys seeking legal ethics advice within their own firm regarding ethics issues about current clients necessarily gave way to the firm’s fiduciary duties to its client.
This generally meant that when a lawyer sought in-firm legal advice from another attorney, even one designated as the firm’s general counsel, there would be no attorney-client privilege for those communications. This seemed an odd result, since we would expect courts to encourage attorneys to seek advice internally when an ethical issue, or a malpractice issue, arises. If those communications are not privileged, and beyond that, if you had an affirmative duty to disclose all of them to the clients, how likely would you be to seek that advice?
California courts are now clearly moving in the direction of recognizing the attorney-client privilege for in-firm communications regarding legal ethics issues. Following similar trends in other jurisdictions, including New York, Massachusetts, and Georgia, recent California opinions suggest that courts will recognize the attorney-client privilege for in-firm ethics advice and communications. So you can assert and protect the attorney-client privilege for in-firm ethics advice, but successfully asserting the privilege in these situations requires advance planning.
Tracking Proposed Revisions to California’s Rules of Professional Responsibility
California’s Commission for the Revision of the Rules of Professional Responsibility has proposed 68 new and amended rules for attorneys, and is seeking public comment on the proposed rules. California is the only state that whose professional responsibility rules do not track the ABA Model Rules. The Commission has issued an Executive Summary detailing the proposed and amended rules, comments, and dissenting views. The Commission also issued a detailed list of rule revisions considered, but rejected. Among other things, the proposed rules include suggested revisions to rules related to personal relationships with clients, conflicts imputed through a law firm, attorney’s fees, and handling clients with diminished capacity. The public comment period expires September 27.
Mistakes were Made? Learn from the Post-Mortem Analysis
Assume that your firm has made a mistake that led to an ethical lapse: a conflict of interest with no informed consent, or a similar misstep. Once the actual fallout from the situation subsides, from a compliance perspective the relevant question is whether you can learn from these circumstances and avoid similar issues. For any law firm in similar situations (and there are many, since California law firms deal with similar issues nearly every day) if it appears that your firm may have made mistakes that led to ethical lapses, once you move beyond the paranoia and anxiety phase it is critical to conduct a thorough and objective post-mortem analysis to prevent similar occurrences in the future. To do this, you must ask, and answer, some potentially difficult questions.More
Advance Conflict Waivers, Arbitration–and Fees–Tossed for Conflicts
The recent Second District Court of Appeal opinion in Sheppard, Mullin, Richter & Hampton, LLP v J-M Manufacturing Co., Inc. sent a shock wave through California law firms. The case started when a firm sued a former client for $1.3 million in unpaid fees, after it had been disqualified from a matter for that client because of conflicts. The case ended (at least for now) with an order from the Court of Appeal that rejected the firm’s advance conflict waivers and neutered the arbitration provision in its fee agreement. Instead of collecting an additional $1.3 million in fees, the firm has to refund nearly all of the $3.8 million in fees it collected for the underlying matter. Among other things, the case illustrates the limited application of advance conflict waivers and what happens when they are not effective to prevent or to cure conflicts. It also may portend a much more difficult landscape for analyzing conflicts of interest, and what is now at stake if that analysis turns out to be incorrect.More
How to Stay on Top of New Rules Affecting Your Practice
Several significant amendments to the Federal Rules of Civil Procedure became effective on December 1, changing obligations for attorneys and parties in civil litigation in federal court. Significant amendments to California’s Code of Civil Procedure, affecting demurrer procedure, 998 offers, peremptory challenges, expedited trials in limited jurisdiction cases, among other changes, also took effect this year. These changes have the potential to be quite important, ranging from duties of the attorneys and parties to limit the scope of discovery to duties to preserve electronically stored information, which is an emerging change that heightens the competence obligations of attorneys dealing with this technology. Litigators know that significant amendments to the federal rules are rare, but even small revisions have the potential to dramatically change how their cases are litigated. From a practice management perspective, here’s how to make sure your firm has the right systems and procedures in place to monitor and to incorporate new rules into your practice in a comprehensive way.More
5 Reasons to Seek Independent Outside Ethics Counsel
Attorneys tend to view ethics compliance as something very personal, and firms correctly views ethics issues as an internal matter. Attorneys would not hesitate to engage outside counsel if a legal malpractice claim arose, but many do not yet have dedicated outside ethics counsel to advise as part of ongoing daily firm operations. Increasingly, there are compelling reasons for attorneys and firms to engage outside independent ethics counsel, as a confidential resource in the event that an ethical issue arises, to advise on ethics compliance systems, and to help prevent ethics problems.More
5 Issues to Analyze When Your Law Firm is Considering a Merger
Law firm mergers are a fact of life for modern law practice. News of law firm mergers, or news of merger discussions, are a daily staple of practicing law. If your firm is considering a merger with another firm, you should independently analyze how the merger may impact your clients and your practice, and how to resolve any issues that arise. From a legal ethics perspective, law firm mergers are extremely complex, and fraught with inherent ethical dilemmas. These issues can, and often are, resolved; sometimes with beneficial effects on partners, sometimes not.
If you are not actively involved in the management of your firm, you may not know all of the details about the merger discussions, or even know about a proposed merger deal, until late in the process. Don’t rely on your firm’s analysis, or the other firm’s analysis. When you learn about merger discussions or about a proposed merger deal, you should independently analyze 5 issues regarding how to protect your clients during the merger discussions and how the merger would impact your clients, and your practice.More
Analyzing Conflicts of Interest When You Join a Matter in Progress
It is axiomatic that for new matters, attorneys and firms perform a conflicts check to determine whether there are any actual or potential conflicts, because the California Rules of Professional Conduct, Rules 3-310(B), (C), and (E), prohibit attorneys from representing clients with adverse interests, absent informed written consent of the clients. But when an attorney substitutes in to a matter in progress, the conflicts check should be even more rigorous. In Formal Opinion 2011-182, the State Bar of California’s Standing Committee on Professional Responsibility and Conduct analyzed the conflicts presented by discovery served by one client against another, and outlined the heightened obligations to perform conflicts checks when substituting in or associating in to an ongoing matter.
When an attorney represents a party at the outset of a matter, little may be known about additional parties or witnesses beyond plaintiff and defendant. But when an attorney substitutes in as counsel to a matter in progress, there is much more information about parties who are involved, or may reasonably be expected to become involved, in the matter. And all of this additional information should be considered in the conflicts check. Specifically, the Opinion provides that when an attorney is substituting in as counsel for a matter in progress, the conflicts check should encompass not only actual or potential conflicts with clients, but also actual or potential conflicts with “reasonably foreseeable parties and witnesses.”
So, third party witnesses, party witnesses, discovery targets, experts, cross-defendants and counter-defendants, intervenors, and similar parties should all be considered in a proper conflicts check at the outset of representation for matters in progress. Similarly, the Opinion confirms the ongoing duties to check conflicts as any matter progresses: “The attorney should also refresh conflict checks upon the appearance of new parties and witnesses during the pendency of a representation.”
Can You Sue Your Own Current Clients? Umm…No.
In Abedia v. Sheikhpour, the California Court of Appeal addressed, and resolved, an issue that may seem self-evident: an attorney cannot sue his or her own current clients, and a client cannot waive actual conflicts in that circumstance. In Abedia, in the underlying case, plaintiffs sued defendant alleging fraud related to an investment in a gas station near Disneyland. Defendant Sheikhpour substituted new counsel during the case: an attorney who was “Of Counsel” to his law firm. Sheikhpour and that law firm soon had a fee dispute, and Sheikhpour substituted into the underlying case in pro per. The law firm then sued Sheikhpour in a separate action for the alleged unpaid fees and obtained a judgment against him, apparently by default, for about $300,000. That law firm also sought to intervene in the underlying action to protect its fee claim against Sheikhpour. On this Motion to Intervene, the very same Of Counsel attorney who had previously represented Sheikhpour in the underlying action now represented the law firm against him in that action.
The court in the underlying action denied the Motion to Intervene, but the law firm sued Sheikhpour again, this time alleging a fraudulent conveyance of his house to a relative, allegedly to evade payment of the law firm’s judgment against him. Then, the very same Of Counsel attorney from that firm substituted back in to the underlying action seeking to represent Sheikhpour again in the underlying action, asserting that Sheikhpour had waived any conflicts related to this attorney’s representation. On its own Motion, the court in the underlying action disqualified the Of Counsel attorney, rejecting the purported client waiver. The Court of Appeal considered whether the court’s disqualification order was an abuse of discretion and concluded that it was not.More