Current and Timely Information and Analysis About
California Attorney Ethics in Practice

Worry About the Conflicts that Your Software Probably Won’t Detect

Any law firm’s goal should be to avoid conflicts.  That starts with detecting them, and today, most law firms have relatively robust conflicts-checking systems in place and in regular use.  It’s fairly straightforward to deploy software that will keep a record of clients and permit searches to detect conflicts, or potential conflicts, when a new matter arises.  But like all software, its output is only as good as the information you input.  Some supplements are fairly easy, and you may already be doing them.  Entering multiple variations, and spellings, even mis-spellings, of client names will increase the accuracy of your system.  But recent conflict cases suggest that law firms should also be considering more than just the parties when entering client conflict data.  A robust client conflicts system should give you a clear picture of your clients and their businesses, including subsidiaries, parents, affiliates, and potentially even other parties with whom they do business or compete.

Consider an example.  If your current conflicts system does not include names of client subsidiaries, when you check party names for a new matter where the client would be adverse to a client’s subsidiary, the system won’t alert you to anything.  And it’s true that conflicts are not always imputed from subsidiary to parent.  But sometimes they are: if a subsidiary uses the same internal counsel, or shares confidential information, or otherwise looks and acts the same as the parent for legal matters, this should set off alarms about the potential conflict for your firm.  So taking in a new matter for a client whose interests may be adverse to one of your current client’s subsidiaries is a potential problem.  If the current design of your current conflicts-checking system, or the current implementation of it, would not signal this issue, you need to make it more robust.

Fortunately, it’s not that difficult to examine your current system to determine potential weak spots, and to fix them.More

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.

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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.

California Supreme Court Will Review Arbitration, Advance Conflict Waivers, and Disgorgement of Fees

The California Supreme Court has granted review in Sheppard, Mullin, Richter & Hampton, LLP v J-M Manufacturing Co., Inc. to address several legal ethics issues of critical importance to California law firms.  The Court of Appeal in the case below held that the question of whether the firm’s arbitration provision was enforceable was for the court, not the arbitrators, to decide; that the firm’s simultaneous representation of J-M and another client violated California Rules of Professional Conduct 3-310(C)(3); and that the firm’s violation of Rule 3-310(C) made the entire fee agreement unenforceable, meaning the firm was not entitled to any fees related to the matter from the date of the conflict forward.

The Supreme Court’s review will consider the following: “(1) May a court rely on non-legislative expressions of public policy to overturn an arbitration award on illegality grounds? (2) Can a sophisticated consumer of legal services, represented by counsel, give its informed consent to an advance waiver of conflicts of interest? (3) Does a conflict of interest that undisputedly caused no damage to the client and did not affect the value or quality of an attorney’s work automatically (i) require the attorney to disgorge all previously paid fees, and (ii) preclude the attorney from recovering the reasonable value of the unpaid work?”More

Can Advance Conflict Waivers Ever Be Informed Consent?

Recent examples in California courts have demonstrated the limits of advance conflict waivers and the effects of these limits.  Needless to say, finding out that an advance conflict waiver is not effective to resolve a conflict can come as a shock, because it generally happens after-the-fact. Recent cases suggest that attorneys and firms who use advance conflict waivers should go back to the drawing board to evaluate how they are used and, more importantly, what they can accomplish and what they cannot.

Start at the beginning. California Rules of Professional Conduct Rule 3-310(C) provides that attorneys cannot represent clients with conflicting or potentially conflicting interests “without the informed written consent of each client.” Rule 3-310(A)(2) provides that “‘Informed written consent’ means the client’s or former client’s written agreement to the representation following written disclosure.”  In general terms, an advance conflict waiver is a provision in an attorney-client fee agreement that notifies the client of the potential for conflicts and ostensibly gets the client to waive those potential conflicts in advance. But waiving potential conflicts in advance is the trick. Before a conflict arises, how can you adequately describe the circumstances of the conflict to a client so that the client can give informed consent? The answer is fairly straightforward: you can’t. This does not mean that advance conflict waivers are worthless, however.More