July 2016 Vol. 16, No. 2

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Editors: David Majchrzak and Edward McIntyre


This quarter, we included three appellate discipline cases both to highlight the issues involved and also to underscore how seriously the court takes certain kinds of misconduct. In two instances, the appellate court reversed the trial court’s recommendation of a lesser sanction and opted for disbarment. In the third, the court upheld an actual six-month suspension. One of the cases, DeClue, is also a stark reminder that advance fees for loan modification representation is not allowed, as well as a practical example of how not to allow laymen to manage a law practice.

Osborne carries with it a warning to trial lawyers about testing the limits of a judge’s orders and patience — and the terrible cost to the client, with potential future liability for the lawyer. Overreaching, both in an attorney fee application (569 East County Boulevard LLC) and preparing a client’s estate plan (Butler) carries its own penalty: significant fee reduction in one case; invalidation of a trust in another.

Finally, we have included a new ABA Formal Ethics Opinion on sharing referral fees. While the ABA Model Rules are not binding on California attorneys, at least while practicing in California, they and ABA ethics opinions interpreting them can be authoritative guidance for California lawyers.

We welcome your comments and suggestions about recent decisions, authority, or issues we might address in future editions. For immediate questions, the Legal Ethics Committee maintains a hotline that SDCBA members can call at any hour (619) 231-0781 x4145. Just follow the instructions and a Committee member will get back to you with ethics authority you might consider.

Case Notes

16.2.1 In the Matter of Michael R. Carver (2016) __State Bar Ct. Rptr. __ State Bar Court of California Review Department (April 12, 2016)

Does a third State Bar discipline strike mean “out?” 

Yes. Carver, admitted to practice in California in 1999, received a public reproval, with conditions, in 2011 for a misdemeanor conviction (driving without a license and resisting arrest) (Carver I). Then, in 2015, he was suspended for 90 days for failing to comply with those conditions (Carver II). In 2016, the hearing judge found Carver culpable of moral turpitude (Bus. & Prof Code, § 6106) by intentionally or with gross recklessness engaging in the unauthorized practice of law while suspended (Bus. & Prof. Code, §§ 6125, 6126).

The hearing judge, however, did not take Carver II into account as an aggravating factor when considering an appropriate level of discipline because it was on appeal. Instead, the hearing judge recommended a 90-day suspension as discipline. The Office of Chief Trial Counsel appealed.

The Review Department reversed, holding that Carver’s unauthorized practice of law was “with willful blindness to his ineligible status, equivalent to knowledge, and not through gross negligence.” He had not only filed pleadings in court but held himself out to a judge as eligible to practice law.

The Review Department also held that the trial judge erred in not considering Carver II, because, under State Bar rules of procedure, prior discipline is admissible whether final or not. Noting that the purpose of attorney discipline is not to punish the attorney, but to protect the public, the courts, and the legal profession, the Review Department recommended disbarment. “His misconduct over several years demonstrates that he is unable or unwilling to follow ethical rules.” 

The California Supreme Court has the ultimate authority to impose such discipline; hence, the State Bar Court Hearing and Review Departments “recommend” proposed discipline for the Court to impose, modify, or reject.

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16.2.2 DP Pham LLC v. Cheadle (2016) 246 Cal. App. 4th 653 Fourth Appellate District, Division Three (April 15, 2016)

May a trial court rely on the content of communications to determine whether they are privileged?

No. An estate administrator contended that opposing counsel should be disqualified because counsel improperly obtained copies of privileged communications between the decedent and his attorney, and used those communications to oppose another party’s motion for summary adjudication. The court acknowledged that the administrator presented evidence making a prima facie showing that an email and letter were confidential communications between an attorney and a client. But the court’s in camera review of the communications led it to conclude that the privilege did not apply because the attorney’s statements in the communications suggested he was not representing the decedent concerning the subject matter of the communications. So, as to that subject, no attorney-client relationship existed. Upon that basis, the trial court denied the disqualification motion.

Analyzing the proceedings, the Court of Appeal remarked that a court may not review the contents of a communication to determine whether the attorney-client privilege protects that communication. The attorney-client privilege is absolute and prevents the disclosure of any part of a privileged communication regardless of its content or any particularized need for disclosure. The privilege attaches to all confidential communications between an attorney and a client regardless of whether the information communicated is in fact privileged. Accordingly, it is neither necessary nor appropriate to review a communication to determine whether the attorney-client privilege protects it. As such, a review may not be conducted for any reason until the court determines the privilege does not apply or has been waived.

Once a proponent makes a prima facie showing of a confidential attorney-client communication, it is presumed the communication is privileged and the burden shifts to the opponent to establish waiver, an exception, or that the privilege does not for some other reason apply. The opponent may not rely on the communication's content to make that showing.

Here, the trial court relied exclusively on the content of the communications to conclude they were not privileged. The trial court therefore was not permitted to review the contents of the email and letter, and the court’s ruling they were not privileged attorney-client communications must stand or fall based on other evidence in the record. There was no other evidence showing the email and letter were not confidential communications between an attorney and a client made during the course of the attorney-client relationship. And, prima facie evidence supported the existence of an attorney-client relationship between the decedent and his counsel. Accordingly, the Court of Appeal reversed.

Though the order was reversed, the matter was remanded for the trial court to determine whether counsel’s receipt and use of the communications warranted disqualification. The decision whether to disqualify counsel is based on a balancing of a variety of factors concerning the disclosure and use of the privileged information that were not considered given the trial court’s determination that he communications were not privileged.

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16.2.3 Osborne v. Todd Farm Service (2016) 2016 Cal.App.LEXIS 350 Second Appellate District, Division Six (May 2, 2016)

Are terminating sanctions as to a client's matter an appropriate response to flagrant and repeated attorney misconduct? 

Yes. The court properly dismissed with prejudice a complaint for personal injuries in response to a plaintiff lawyer’s repeated flagrant misconduct. A trial court has inherent authority to compel obedience to its judgments, orders and process. In this matter, the attorney repeatedly violated the court’s orders regarding hearsay and opinion testimony.

Ignoring admonitions from the court, in opening statement, the lawyers asserted that the evidence would reflect information that was to be excluded and stated what certain witnesses would testify to, knowing that the court would not allow such testimony. Opposing counsel objected and the court instructed the jury to ignore those portions of the opening statement. But within a few minutes of the exchange, the lawyer again began discussing the excluded evidence. The court again instructed the jury and told counsel to “move on, please.”

The court repeatedly admonished the lawyer that its rulings on in limine motions would not change. Still, counsel sought to solicit the same information from witnesses during their examination. By repeatedly attempting to solicit testimony that had been excluded, the lawyer was attempting to give jurors the impression that the opposing parties were hiding the truth.

An attorney is an officer of the court. He or she must respect and follow court orders whether they are right or wrong. (People v. Pigage (2003) 112 Cal.App.4th 1359, 1374; Bus. & Prof. Code, § 6068, subd. (b).) The trial court rationally determined counsel would continue to feign misunderstanding its evidentiary rulings and to solicit testimony on excluded matters. In these circumstances, the dismissal order was not an abuse of discretion.  

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16.2.4 In re DeClue (2016) __State Bar Ct. Rptr.__ State Bar Court of California Review Department (May 10, 2016)

May a lawyer charge a client an advance fee to negotiate a loan modification?

No. The Review Department upheld a hearing judge’s recommendation of a six-month actual suspension for DeClue’s charging two separate clients advance fees to negotiate loan modifications.

In October 2009, Civil Code section 2944.7 became effective. Its purpose was and is to “prevent persons from charging borrowers an up-front fee, providing limited services that fail to help the borrower, and leaving the borrower worse off than before he or she engaged the services of a loan modification consultant.” Business & Professions Code section 6106.3 makes violation of section 2944.7 a ground for discipline.

DeClue wanted to expand his foreclosure defense practice. So, he entered into an agreement with two non-lawyers who he knew were experienced in loan modification negotiation to manage his law practice. But, at the time, he knew that the two non-lawyers had previously been involved with another lawyer (Huang) and that Huang had been subject to State Bar discipline for violating loan modification laws, for failure to supervise the two non-lawyers, and for aiding and abetting them in the unauthorized practice of law.

In his effort to significantly expand his solo practice, DeClue allowed the two non-lawyers and their staff to effectively take over his practice, to collect advance fees for loan modification services, and to engage in the unauthorized practice of law, and admittedly did not supervise them.

In aggravation, in an earlier discipline case (DeClue I), which overlapped some of the conduct here, DeClue received a two-year stayed suspension for violations of the loan modification statute and aiding and abetting the unauthorized practice of law. So, the Review Department increased his discipline and approved a six-month actual suspension.

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16.2.5 569 East County Boulevard LLC v. Backcountry Against the Dump, Inc. (2016) 248 Cal.App.4th 125 Fourth Appellate District, Division One (May 18, 2016)

Should a court apply the provisions of Rules of Professional Conduct, rule 2-400 (Illegal/Unconscionable Fee) to determine the appropriate amount of recovery in an anti-SLAPP fee application?

Yes. Having succeeded in its anti-SLAPP motion, a law firm submitted a $152,529 fee application. The senior lawyer charged $750 per hour. Three five-year associates charged $350 per hour. Of the almost 214 hours of claimed work, 80 percent was performed by the $750-per-hour senior lawyer.

The trial court determined that the reasonable hourly rate was $275 and that 103.6 hours were reasonable for the anti-SLAPP motion. Accordingly, it awarded $28,290 in fees, a reduction of almost $125,000.

The court of appeal affirmed, holding that, competing expert testimony notwithstanding, the trial court did not abuse its discretion in finding that $275 was a reasonable hourly rate for the work performed and that 103 hours were reasonable to do the work. The court noted that when senior lawyers do a substantial amount of the work on a specific project, frequently they do it at a reduced rate. Otherwise, such lawyers with lower billing rates do the work in the first instance. Here, the record demonstrated the reverse. The court of appeal concluded that, in cutting the hours so drastically, the trial court must have found that they were padded.

As the Fourth Appellate District noted, courts can, and often do, look to the criteria in Rules of Professional Conduct, rule 4-200 when determining a “reasonable fee,” whether to determine a quantum meruit fee award or a reasonable fee in other circumstances. Those criteria include: the amount of the fee in proportion to the value of the services; time and labor required; and the reputation, experience, and abilities of the lawyers (Rule 4-200 (1), (10), (8)).

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16.2.6 In re Burke (2016) __State Bar Ct. Rptr.__ State Bar Court of California Review Department (June 3, 2016)

Can failure to pay court-ordered sanctions, among other things, lead to disbarment?  

Yes. Burke faced his third disciplinary proceeding since his 1997 admission to practice law in California. Here, the Office of Chief Trial Counsel demonstrated that he had violated three separate court orders to pay sanctions. The first time, he did not pay until two years after the date the sanctions were due. The second time, he waited eleven months. And in the third, he had not paid until the time of his disciplinary hearing.

Burke also engaged in the unauthorized practice of law by continuing to try to negotiate the settlement of a pending case after he had been suspended (Bus. & Prof. Code, §§ 6125, 6126) and, according to a court of appeal, pursued a frivolous appeal (Bus. & Prof. Code, § 6068, subd. (c) [pursuing a civil action based on allegations he knew he could not prove].)

Burke’s earlier entanglements with the State Bar discipline system included a 60-day actual suspension for client trust account violations (Burke I) and a nine-month suspension for the unauthorized practice of law while suspended and failure to pay court-ordered sanctions (Burke II).

The Hearing Judge recommended one year actual suspension to continue until all the sanctions were paid. But the Review Department reversed. Given Burke’s record of aggravation, it concluded that disbarment was the only appropriate sanction.

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16.2.7 Butler v. Lebouef (2016) 2016 Cal.App.LEXIS 480 Second Appellate District, Division Six (June 20, 2016)

Should a trust be invalidated where an attorney drafted the instrument for his own benefit? 

Yes. The Second Appellate District made clear from the first two sentences of the opinion that the attorney had engaged in improper conduct. An ethical estate planning attorney will plan for his client, not for himself. A license to practice law is not a license to take advantage of an elderly and mentally infirm client.

The trial court found that Lebouef had participated in drafting a trust that provided donative transfers to him. Lebouef then “lost” his client’s original trust intentionally, making it impossible to determine the true terms of the earlier trust.

Indeed, this was not the first time that Lebouef was so fortunate as to have a client generous toward him. In at least two other matters, Lebouef befriended an elderly person and drafted or helped draft a trust that benefited himself or his associates.

Because Lebouef was unsuccessful in rebutting the presumption of fraud that attaches to drafters of instruments benefiting themselves, under Probate Code section 21380, subdivision (d), he was found liable for $1,256,971 in attorney’s fees, plus reasonable fees and costs associated with the appeal.

This case does not present a terribly nuanced ethical issue. Clearly, attorneys should not use undue influence or defraud their clients. But it serves as a great reminder that there may be substantial consequences to pay if an attorney cannot rebut a presumption of fraud in drafting testamentary instruments. 

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16.2.8 American Bar Association Standing Committee on Ethics and Professional Responsibility Formal Opinion 474 Referral Fees and Conflict of Interest – April 21, 2016

Under what circumstances may lawyers divide a fee when one lawyer refers a matter to another lawyer outside the firm?

Model Rule 1.5(e), provides that a division of a fee between lawyers who are not in the same firm may be made only if (1) the division is in proportion to the services performed by each lawyer or each lawyer assumes joint responsibility for the representation; (2) the client agrees to the arrangement, including the share each lawyer will receive, and the agreement is confirmed in writing; and (3) the total fee is reasonable. Comment [7] to Rule 1.5 explains that lawyers in different firms may divide a legal fee. This practice is often used when the fee is contingent and the division is between a referring lawyer and a trial lawyer.

The Rule permits a lawyer to associate with another lawyer in a different firm, refer a client to that lawyer, and divide a fee either in proportion to the services performed by each lawyer, or by having each lawyer involved in the representation assume joint responsibility for the matter, so long as the fee is reasonable and the client consents in writing to the arrangement. The agreement regarding the division of fees, including the client consent, must be completed within a reasonable time after the representation begins.

Model Rule 1.5(e) does not define joint representation. But, Comment [7] notes that “Joint responsibility for the representation entails financial and ethical responsibility for the representation as if the lawyers were associated in a partnership.” Accordingly, the committee determined that, implicit in the terms of the fee division Rule 1.5(e) allows is the concept that the referring lawyer who divides a legal fee has undertaken representation of the client.

Because the client is represented by both the referring lawyer and the lawyer to whom the client was referred, a referral fee arrangement under Model Rule 1.5(e) subjects both lawyers to the conflict provisions of Rule 1.7. So, unless a client gives informed written consent, a lawyer may not accept a fee when the lawyer has a conflict of interest that prohibits the lawyer from either performing legal services in connection with or assuming joint responsibility for the matter.

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Please note that, due to the break in continuity of publications, the volume number of Ethics Quarterly now matches the calendar year of publication and does not reflect the number of years that Ethics Quarterly has been published.