Sharing Confidential Information with a new Firm Can Create Risks
An increasingly common problem for partners considering departing a law firm and joining another is whether and to what extent the partner can share confidential business information about the lawyer’s practice with the new firm without violating legal and ethical obligations. It is difficult to imagine any law firm agreeing to bring in a lateral partner or group of lawyers without reviewing detailed information about the prospective practice, including financial information like revenue and profitability details, client details, staffing considerations, and related business information. But for a partner at a firm, disclosing any of these categories of information to a new firm in negotiations can implicate the partner’s duties to the old firm and to clients.
California’s Rules of Professional Conduct include some of the strictest client confidentiality requirements in the country, making this issue especially relevant for California partners. What are the risks of disclosing information in negotiations with a potential new firm? In summary, there are several:
- Potentially violating your fiduciary duties, duties of confidentiality, and similar obligations to your firm and violating other partnership agreement provisions;
- Potentially violating your ethical obligations of client confidentiality and loyalty; and
- Potentially revealing your departure planning just by accessing the confidential information at your firm.
You can mitigate these risks, but it requires detailed advance effort and practical planning. You need to know the rules governing these potential disclosures and develop a specific strategy to navigate them.
California Supreme Court Approves Major Revisions to Ethics Rules
The California Supreme Court yesterday approved a significant overhaul of California’s legal ethics rules, moving California’s rules closer to the structure of the ABA’s Model Rules for the first time. The Court’s Order approved 27 rules as submitted last year by the State Bar’s Commission for the Revision of the Rules of Professional Conduct, 42 rules as revised by the Court, and denied approval of one proposed rule (regarding a lawyer’s obligations representing a client with diminished capacity). The revised rules, effective November 1, 2018, change the numbering and format of California’s rules. Substantively, the revised rules relate to personal relationships with clients, conflicts imputed through a law firm, attorney advertising, and attorney’s fees, and represent a years-long effort to simplify and to update the rules that govern California lawyers.
California Supreme Court Overturns Jewel Doctrine
The Jewel doctrine is no more in California. In Heller Ehrman v. Davis Wright Tremain, the California Supreme Court held that a dissolved law firm has no property interest in fees generated after dissolution for hourly matters that were in progress when the firm dissolved. The immediate implication is that a lawyer who leaves a dissolved law firm and takes clients to a new law firm does not have to give back profits earned on those matters at the new firm. The case also has significant implications for partners departing even when the firm is not dissolving, since it confirms that client matters are not the property of the firm.
The Legal Ethics of Lawyer Wellness
The recent report of the ABA’s National Task Force for Lawyer Well-Being, entitled “The Path to Lawyer Well-Being: Practical Recommendations for Positive Change,” is striking for several reasons. It’s the detailed description of the scope of the crisis in lawyer wellness, examined in a comprehensive analysis. It’s the tone of the report–an urgent call to action–which is rare for any ABA committee. But perhaps most striking is the fact that, for anyone who is a lawyer or who knows or works with lawyers, the scope of the problem and the crisis it has created matches familiar experience. Addiction, anxiety, stress, depression, and suicide are familiar to the profession and have been for some time, which makes the report required reading for any lawyer.
Significantly, the report makes the compelling point that “lawyer well-being influences ethics and professionalism,” directly linking a lawyer’s wellness to the affirmative ethical duties of competence, diligence, truthfulness, communications, and relationships with people other than clients. This highlights the ethical responsibilities of lawyers, law firms, law schools, regulators, judges, and bar associations to “build a more sustainable culture” for the legal profession in a five-step call to action:
“(1) Identifying stakeholders and the role that each of us can play in reducing the level of toxicity in our profession.
(2) Ending the stigma surrounding help-seeking behaviors. This report contains numerous recommendations to combat the stigma that seeking help will lead to negative professional consequences.
(3) Emphasizing that well-being is an indispensable part of a lawyer’s duty of competence. Among the report’s recommendations are steps stakeholders can take to highlight the tie-in between competence and well-being. These include giving this connection formal recognition through modifying the Rules of Professional Conduct or their comments to reference well-being.
(4) Expanding educational outreach and programming on well-being issues. We need to educate lawyers, judges, and law students on well-being issues. This includes instruction in recognizing mental health and substance use disorders as well as navigating the practice of law in a healthy manner. To implement this recommendation effectively, more resources need to be devoted to promoting well-being.
(5) Changing the tone of the profession one small step at a time. This report contains a number of smallscale recommendations, such as allowing lawyers to earn continuing legal education (CLE) credit for well-being workshops or de-emphasizing alcohol at bar association social events. These small steps can start the process necessary to place health, resilience, self-care, and helping others at the forefront of what it means to be a lawyer. Collectively, small steps can lead to transformative cultural change in a profession that has always been, and will remain, demanding.”
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