Ethics Interim Opinon 1997-2
May a lawyer employed by a public agency which represents clients in civil or criminal cases accept a compensation bonus pursuant to a county-wide bonus program (hereafter "bonus program") that ties the bonus, either in whole or in part, to savings achieved in the agency's budget? (1)
An attorney can participate in such a bonus program only so long as such participation is consistent with his/her (2) obligation to avoid conflicts of interest under California Rules of Professional Conduct ("CRPC") Rule 3-310 (B) (3) and 3-310 (F) (1), his common law duty of loyalty to the client, and his duty to competently perform legal services (CRPC Rule 3-110).
STATEMENT OF FACTS
A county-wide program offers annual lump-sum compensation bonuses to certain executive or managerial county employees for exceptional performance. The program includes employees of public agencies which represent clients in civil and criminal cases. The awarding and amount of bonuses is based, in whole or in part, on the achievement of quantitative financial objectives. The bonuses can range from 1% to 30% of the executive's or manager's salary. The criteria for measuring the achievement of the financial objectives include managing and stabilizing the budget, building management reserves, and increasing revenue earned per staff-year. Quantitative financial objectives carry a weight of 60%; qualitative performance objectives carry a weight of 40%. The expectation is that the greater the savings to the county, the greater the bonus for the eligible employee.
Lawyers employed in the public sector work in a structural environment that affects the lawyers' ethical duties. Typically, there is one individual who is the head of the agency and on whom ultimate responsibility rests. This individual is usually identified as counsel on all pleadings filed on behalf of the agency or those it is charged with representing. Assisting this individual are supervisory-level attorneys with responsibility for supervising the lawyers who represent, on a day-to-day basis, the agency or those it is charged with representing. The head of the agency and supervisory-level attorneys make decisions as to resource allocation. Some or all of these employees are eligible to participate in the type of bonus program at issue in this opinion.
Another group of lawyers has direct contact with individual case files. They represent, on a day-to-day basis, the agency or those it is charged with representing. These attorneys frequently appear on pleadings with the agency head. They have direct responsibility for the handling of the legal matters. The lawyers in this group do not make decisions as to resource allocation and, accordingly, are ineligible to participate in the bonus program. (3)
2. The duty of loyalty
All attorneys owe a duty of loyalty to their clients (4) and, in the context of appointed counsel for criminal defendants, that duty is also constitutionally grounded. (4) Any decision as to whether or not to participate in the bonus program must be made by the lawyer with an eye firmly fixed on satisfying that duty of loyalty. While it is true that all attorneys have a duty of loyalty to their clients, in the context of this discussion the duty of loyalty would seem to be the predominant concern for the agency head and lawyers with supervisory responsibility described above, because it is the lawyers in this group who: (i) may be eligible to participate in the bonus plan, and (ii) have authority and responsibility to make personnel, case management, and case resource allocation decisions which can directly impact the bonus plan criteria.
In the context of the type of bonus program at issue in this opinion, the duty of loyalty is at least potentially grounded on three (3) sources: (i) CRPC Rule 3-310 (B) (3); (ii) CRPC Rule 3-310 (F) (1); and (iii) California common law.
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B. CRPC Rule 3-310 (B) (3)
All members of the State Bar of California have a duty to avoid conflicts of interest in their representation of clients. That duty is contained in CRPC Rule 3-310 which, in pertinent part, states:
(B) "A member shall not accept or continue representation
of a client without providing written disclosure to the client where:
(3) The member has or had a ... business [or] financial ...
relationship with another person or entity the member knows
or reasonably should know would be affected substantially by
resolution of the matter ...."
It is significant that CRPC 3-310 (B) (3) speaks in terms of the other person or entity, or the business or financial relationship with that other person or entity, being affected substantially by the resolution of the matter. The focus of the rule is on the extent to which the outcome of a particular matter affects the lawyer's outside business or financial relationship with others.
While the common law duty of loyalty and the duty to competently perform legal services both focus on the lawyer's handling of a matter, that is not the case with Rule 3-310 (B) (3). Resource allocation decisions such as those implicated by the bonus program primarily impact the handling of matters, and would therefore seem to relate to the common law duty of loyalty and the duty to competently perform legal services rather than to Rule 3-310 (B) (1). Moreover, it is hard to imagine, except in extraordinary circumstances, how the outcome of a particular matter could have a substantial impact on the bonus received by a resource-allocating attorney, given the bonus program criteria described above, unless the resource allocation decision in a particular case is a part of a broad policy, the cumulative effect of which substantially impacts the bonus plan.
Although there is no California case directly on point, it seems that Rule 3-310 (B) (3) applies to a situation where the lawyer or one with whom he has a relationship has a personal stake in the outcome of a particular case rather than to the situation presently under discussion. Unless the resolution of a particular matter affects the specific criteria underlying the bonus plan, the elements of Rule 3-310 (B) (3) are not satisfied. (6) This latter situation would be highly unusual; if present, it would call upon the attorney to provide the written disclosure required by CRPC Rule 3-310 (B) (3) in the civil context and, in the criminal appointed counsel context, to provide the disclosure and offer the client the opportunity to elect to be represented by other appointed counsel selected from an alternative panel maintained for that purpose. In the absence of such an alternative panel, the attorney's only option would be to decline to participate in the bonus plan until the client representation terminated.
In the context of criminal proceedings, there is an additional overlay which must be considered namely, the defendant's right to effective assistance of counsel. (7) While there is no California case directly addressing the question presented, conflicts involving the effect of financial considerations on criminal defense counsel's ethical obligations have been considered by California courts in a variety of contexts. (8) The issue is whether or not the particular financial considerations under scrutiny present an intolerable conflict of interest which deprives the defendant of his right to effective assistance of counsel.
In People v. Barboza, 29 Cal. 3d 375 (1981) the California Supreme Court considered a situation illustrative for our purposes. In that case Madera County entered into a contract under which the Public Defender was paid a fixed amount per year, from which he was required to establish and maintain a reserve account to be used to pay other defense counsel in cases where he determined he had a conflict of interest. To the extent deficiencies came to exist in the reserve account, the Public Defender was required to make them up from his monthly salary. If a surplus existed at the end of the fiscal year, the unexpended balance in the reserve account had to be paid to the Public Defender. The California Supreme Court held that the Madera County contract created an intolerable conflict of interest for the Public Defender because it pitted his financial interests against the interests of specific clients. The court reasoned that the Public Defender's financial interest in the reserve account provided an inherent financial disincentive to investigate fully or declare the existence of actual or potential conflicts of interest. Barboza at 379.
Barboza, while helpful to the analysis, does not provide the answer to the question presented here. It is distinguishable in two crucial respects.
First, in Barboza there was a dollar for dollar correlation between the decision whether or not to declare a conflict and retain alternative counsel, on the one hand, and the decision-maker's financial interests on the other. Here, there is no such correlation. Under the bonus program, no attorney has any certainty of receiving additional compensation directly resulting from any decision they make. Whatever their decision, they may receive no bonus at all, or one in an immaterial amount. Thus, the situation in the question presented is more remote than Barboza.
Second, and more importantly, the Barboza court was faced with a contract which pitted the financial interests of the lawyer against "the interests of certain of his client-defendants." Barboza at 380 (emphasis added). Discrete decisions pertaining to a limited number of client files placed the Public Defender in a position of conflict with those particular clients. There was a direct and intolerable tension between those conflicting interests. By contrast, the personnel, case management and case resource allocation decisions under consideration here have no direct connection to any individual client files, but rather are law office-wide management decisions. This adds a second layer of remoteness which further limits the risk of client prejudice.
The Committee is mindful that this bonus plan, as do all compensation programs, contains an element of personal incentive. Such is the nature of compensation in the legal profession. That does not per se give rise to an intolerable conflict.
"[A]lmost any fee arrangement between attorney and client
may give rise to a 'conflict.' An attorney who received a flat
fee in advance would have a 'conflicting interest' to dispose of
the case as quickly as possible, to the client's disadvantage; and
an attorney employed at a daily or hourly rate would have a
'conflicting interest' to drag the case beyond the point of maximum
benefit to the client.
The contingent fee contract so common in civil litigation creates
a 'conflict' when either the attorney or the client needs a quick
settlement while the other's interest would be better served by
pressing on in the hope of a greater recovery. The variants of
this kind of 'conflict' are infinite...." (9)
To scrutinize law office-wide management decisions, generally, through the lens of a conflicts analysis would create an unworkable morass because virtually all such decisions impact, at least remotely, the attorney's "bottom line." It would paralyze the ability of office managers to manage. This paralysis would redound to the detriment of the very clients intended to be served.
C. CRPC Rule 3-310 (F) (1)
CRPC Rule 3-310 (F) (1) focuses on the relationship between the lawyer's professional judgment, on the one hand, and the source of his compensation, on the other. It provides that the lawyer shall not accept compensation from someone other than the client unless acceptance of that compensation would not interfere with the independence of his professional judgment or with the attorney-client relationship.
Under the type of bonus program here under discussion, the bonus is paid to the lawyer by someone other than the client, namely, the county. (10) However, as with CRPC 3-310 (B) (3), the focus of Rule 3-310 (F) (1) is case-specific, i.e. it is concerned with the lawyer's professional judgment and the attorney-client relationship in a particular matter. Unless payment of the bonus affects the lawyer's professional judgment or the attorney-client relationship in a particular matter, an unlikely occurrence, or unless the resource allocation decision in a particular case is a part of a broad policy, the cumulative effect of which substantially impacts the bonus plan, the elements of Rule 3-310 (F) (1) are not satisfied.
D. Common Law Duty of Loyalty
California law recognizes a common law duty of loyalty apart from the Rules of Professional Conduct. (11) Therefore, an attorney could engage in conduct that does not violate the Rules of Professional Conduct, but still violates his duty of loyalty. It is possible to imagine such conduct within the context of the bonus program under discussion.
As noted above, the kinds of decisions which could impact the specific criteria of the bonus program are law office-wide management decisions. While we are loathe to scrutinize such decisions through the lens of a conflicts analysis for the reasons discussed above, and believe such decisions can be made consistently with the duty of loyalty, it is conceivable that while separate law office-wide management decisions may not individually violate the duty of loyalty, the cumulative effect of a number of those decisions could violate that duty. In making such individual decisions the lawyers must be sensitive to their cumulative impact on the duty of loyalty, since all of them in one way or another impact the office budget, which in turn provides the economic support for the attorneys carrying out their duty of loyalty to the clients.
With regard to personnel, decisions whether to augment or restrict the number of attorneys, investigators or clerical personnel directly affect the budget. The timing of filling authorized positions may create a savings based on the delay. Similarly, decisions regarding hiring levels and the timing of promotions translate directly to the budget. Assignments of administrative and caseload duties also may impact the budget. To the extent participants in the bonus program make personnel decisions while representing clients, the decision implicates the duty of loyalty.
With respect to case management, in the criminal law context a Public Defender's decisions concerning guilty pleas or other resolutions short of trial has an impact on the budget. A decision not to fill or to delay filling budgeted positions might allow caseloads to grow to the extent that staff attorneys are unduly, however subtly, influenced to manage an increasing caseload by increasing non-trial dispositions. Decisions regarding whether or not to declare conflicts requiring appointment of another office or the private bar also directly affect caseloads. Again, client interests, office/budgetary interests, and the decision-makers personal incentive may be in tension.
With respect to case resources, decisions regarding the hiring by staff lawyers of experts and, if experts are hired, at what rates, impact both the service to the clients and the budget. Purchases of office upgrades and other resources, such as computer hardware and software, are yet additional examples of service considerations and budgetary considerations meeting.
All law office-wide management decisions influence, in some way, the "bottom line." In the question presented, their resolution could affect, in some way, the bonus the supervisory lawyer receives. How then can the attorney harmonize these various considerations? He can do so by remaining mindful that his fundamental duty is his duty of loyalty to his client. This means the attorneys in the supervisory group must constantly test their personnel, case management and case resource allocation decisions against their duty of loyalty, giving priority to the duty of loyalty. In the event a situation presents itself in which a decision or a group of decisions under consideration may favor the bonus plan criteria, at the expense of the duty of loyalty to the client, the attorney must make the decision which satisfies the duty of loyalty.
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3. Duty To Perform Legal Services Competently
All attorneys have a duty to perform legal services competently. (12) In the situation under discussion, the duty to perform competently would seem to be the predominant concern for the group of lawyers who have direct day-to-day contact with the case files.
It is stating the obvious to say that these lawyers have a duty to each client to marshal adequate available resources, human and otherwise, and to devote sufficient attention to the matter, to competently represent the client. If at any point the lawyer believes that for whatever reason, including inadequacy of resources provided by the supervisory personnel, he is unable to competently represent the client, he is required to withdraw from the representation. (13)
The supervisory group, by virtue of its supervisory role, shares in the duty to competently perform legal services. Given that it shoulders ultimate responsibility for the running of the office, and makes resource allocation decisions, it has responsibility to make those decisions so as to assure the availability of adequate resources to the attorneys with day-to-day contact with the case files so they can competently perform legal services for the clients. If a decision or group of decisions is presented which may positively impact the bonus plan criteria, at the expense of the duty to perform competently, that decision must be made so as to satisfy the duty to perform competently.
In any law office, efficiency and cost-savings are certainly an acceptable, and laudable, objective to the extent client interests are not otherwise impaired. Participation by an attorney in a bonus program in the circumstances described above must at all times be consistent with the attorney's ethical obligations outlined above.
(1) This opinion is expressly limited to publicly-paid lawyers representing clients in the public sector. It does not address compensation arrangements for attorneys in the private sector, no analysis of compensation issues in the private sector having been made.
(2) For the sake of linguistic convenience, further references to the masculine gender should be read to refer to both the masculine and feminine genders.
(3) There may be a third group of attorneys who are neither in the supervisory category nor have direct responsibility for case management, but are responsible for supervising or providing such activities as continuing legal education. This opinion does not address these lawyers as a distinct category, however, because these lawyers typically have authority to make resource allocations and are, therefore, analytically similar to the supervisory attorneys described above.
(4) See Flatt v. Superior Court, 9 Cal. 4th 275, 289 (1994) (addressing a simultaneous representation issue and affirming a duty of undivided loyalty to the client); Cal. State Bar Form Opn. 1984-83 (affirming the duty of loyalty in a case in which defense counsel and the prosecutor were married to each other). Additionally, ABA Model Rule 1.7, Comment 1 states that "[l]oyalty is an essential element in the lawyer's relationship with a client."
(5) California Constitution, Article I, Sec. 15.
(6) See Vapnek, Tuft, Peck & Wiener, CAL. PRAC. GUIDE: PROFESSIONAL RESPONSIBILITY (The Rutter Group 1997), par. 4:1.
(7) California Constitution, Article I, Sec. 15.
(8) See Maxwell v. Superior Court of Los Angeles County, 30 Cal. 3d 606 (1982); People v. Barboza, 29 Cal. 3d 375 (1981); People v. Knight, 194 Cal. App. 3d 337 (1987).
(9) Maxwell v. Superior Court, supra at 618-619, fn. 8.
(10) The same can be said for the attorney's basic salary and benefits; however, since they are negotiated and contracted for in advance, they are not capable of manipulation, conscious or unconscious, and therefore could not call into question the attorney's professional judgment.
(11) Metro-Goldwyn-Mayer, Inc. v. Tracinda Corp., 36 Cal. App.. 4th 1832, 1839 (1995); Stanley v. Richmond, 35 Cal. App. 4th 1070, 1086-1087 (1995).
(12) CRPC Rule 3-110.
(13) CRPC Rule 3-700 (2).
Disclaimer: This opinion was issued by the Legal Ethics Committee of the San Diego County Bar Association. It is advisory only and is not binding upon any member of the SDCBA, any other member of the State Bar of California, the State Bar of California or its Board of Governors, or any persons or tribunals charged with regulatory responsibilities. The SDCBA, its officers, directors, agents, and the Legal Ethics Committee members assume no responsibility or liability in rendering this opinion.