October 2016 Vol. 16, No. 3
|Download PDF Here||
Editors: David Majchrzak and Edward McIntyre
This Quarter we featured the new State Bar Formal Opinion on the duty of confidentiality because of its importance to California lawyers. Most of us are familiar with the attorney-client privilege. We would not divulge something a client confided to us in seeking legal advice. But our duty of confidentiality, as found in Rule of Professional Conduct 3-100 and the State Bar Act, Business and Professions Code section 6068(e)(1), is much broader in scope than the testimonial privilege. Our duty of confidentiality includes any potentially embarrassing or detrimental information about the client, including publicly available information the lawyer learned during the course of the representation. And the duty endures beyond the representation. The opinion is a timely reminder to all of us of both the scope of the duty and its seriousness.
We have also included a few State Bar discipline cases to underscore the kind of conduct that can lead to discipline, including severe discipline.
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.
In This Issue
Among the questions answered by rulings abstracted in this issue of Ethics Quarterly are:
16.3.1 City of Petaluma v. Superior Court (2016) 248 Cal.App.4th 1023 – First Appellate District, Division Three (June 8, 2016)
May a city appropriately claim that its outside counsel’s pre-litigation investigation of a former employee’s complaint be protected from disclosure?
Yes. Andrea Waters was the first and only woman to serve as a firefighter and paramedic for the City of Petaluma. After approximately six years on the job, she took a leave of absence, complained that she had been harassed and discriminated against from the beginning of her employment, and then resigned.
The City investigated the claims using an outside counsel, Amy Oppenheimer. This was consistent with its practice to look into every claim, sometimes with outside investigators. Oppenheimer was engaged to “interview witnesses, collect and review pertinent information, and report.” The written agreement specified that the investigation would be subject to the attorney-client privilege.
Waters ultimately filed a complaint. The City answered, including an affirmative defense that Waters had failed to take mitigate damages and asserted the avoidable consequences doctrine. Waters sought to discover Oppenheimer’s report. The City refused, claiming it was protected by the attorney-client privilege and the work product doctrine.
The trial court compelled production of the report, because Oppenheimer’s engagement agreement specified that she would not render legal advice. Moreover, the court opined that, even if advice had been offered, the privilege would not extend to the investigation because it was fact-based. And, the court also concluded that the City had waived the privilege by asserting the avoidable consequences doctrine since the investigation is the best evidence of what the City would have done had Waters complained earlier.
The First District reversed. The attorney-client privilege applies to any who engage counsel to provide legal service or advice. (Evid. Code, § 951 [italics added]; cf. Code Civ. Proc., § 2018.010 [client defined similarly in work product analysis].) So, the rendering advice is not a precondition of the privilege. And Oppenheimer’s primary purpose was to accumulate and interpret information to determine what happened.
The Court of Appeal likewise concluded that an employer does not waive any applicable privilege associated with an investigation after an employee leaves employment and the employer asserts an avoidable consequences defense. In such a case, the adequacy of the investigation cannot be at issue because the doctrine focuses on the employee’s and employer’s conduct while employment continued. So, the adequacy of a post-employment investigation has no bearing on the pertinent questions. By extension then, raising the defense cannot waive the privilege.
16.3.2 In the Matter of Shpall – (Unpublished – case no. 15-O-12637) State Bar Court of California Hearing Department (July 8, 2016)
Can the failure to pay a client’s medical liens in a single case result in a recommendation for disbarment?
Yes. A client engaged Roger Shpall to represent him in a personal injury action. It settled for $80,000 and Shpall deposited the defendant’s $80,000 in his client trust account. After paying his client the client’s share of the settlement, and withdrawing from the trust account his contingency fee and costs advanced, Shpall should have had approximately $8,800 remaining from the $80,000 to pay his client’s medical liens. He did not pay those liens and he allowed the trust account balance to fall as low as $35.
The State Bar charged him with failure to maintain client funds in a trust account (Rule 4-100(A)); failure to keep trust account records (rule 4-100(C); moral turpitude — misappropriation (Bus. & Prof. Code, § 6106); and commingling personal expenses and personal funds with client trust account funds (Rule 4-100(A)) because he sometimes used his client trust account as his personal checking account. The hearing department judge found that the State Bar had met its burden, proving the charges by clear and convincing evidence.
Misappropriation, absent compelling mitigating evidence predominating, generally calls for disbarment. Here, one prior instance of discipline — also involving his trust account — and the repeated use of his trust account for personal banking purposed, caused the court to recommend disbarment and to order his immediate inactive enrollment.
16.3.3 In the Matter of Hibbard – (Unpublished – case no. 15-O-11486) State Bar Court of California Hearing Department (July 13, 2016)
Can twenty-five years of discipline free practice, demonstrable remorse, and cooperation in the State Bar prosecution prevent disbarment when trust account violations are found?
No. Clients hired Daniel Hibbard, in two separate personal injury matters. He settled both.
In the first, after paying settlement funds from his client trust account to his client he held about $1,300 in the account to pay his client’s medical expenses. But he did not and allowed the trust account balance to drop to $0. Eventually he paid the medical bill.
In the second case, two clients hired him in another personal injury case. As settlement funds came to him, he made partial distributions to his clients; ultimately he should have had about $23,000 in his client trust account for the benefit of those clients. He allowed it to drop to $63. His reasons for taking the money from his client trust account was personal financial difficulties — mortgage; office rent, etc.
The court found Rules of Professional Conduct, rule 1-400 trust account violations and moral turpitude under Business and Professions Code section 6106 in both cases. It acknowledged Hibbard’s twenty-five years without discipline, his demonstrable remorse at trial, and his cooperation. Those factors notwithstanding, the court focused on the seriousness of misappropriation and the fact that Hibbard had yet to make restitution. So, it recommended disbarment and ordered his immediate inactive enrollment.
16.3.4 JAMS, Inc. v. Superior Court (2016) 1 Cal. App. 5th 984 – Fourth Appellate District, Division One (July 27, 2016)
Does being engaged specifically for litigation provide an anti-SLAPP escape from a charge of false advertising on a website?
No. The court of appeal held that JAMS’ website statements, the fact that it is in the business of promoting its neutrals for arbitration and mediation, and the allegedly false statements in the retired justice’s biographical information fell within the commercial speech exception to protected activity of Code of Civil Procedure section 425.16, subsection (c).
Kinsella alleged in his suit against JAMS and Justice Sonenshine (Ret.) for, among other causes of action, false advertising and fraud that he relied on statements on the JAMS website about integrity, honesty and fairness and more specifically statements in the justice’s biographical information about her credentials in choosing her to adjudicate, among other issues involving valuable assets in a marital dissolution. Specifically, he alleged that, although the biography mentioned certain business activities in which the justice had been involved, it did not disclose that those businesses had, in fact, failed.
The court rejected JAMS’ argument that the commercial speech exception only applies to representations of fact and not to alleged failures to disclose information or to mere puffery. Rather looking at the Legislative History of subsection (c), the court found no such intent to narrow the commercial speech exception. The court also found that JAMS and Justice Sonenshine posted the information on the website, at least in part, to market and sell ADR services.
The court of appeal decision does not cite any Rule of Professional Conduct or provision of the State Bar Act; none was germane to the issues before the court. We included this case, however, because the Rules of Professional Conduct, rule 1-400, and the Standards adopted pursuant to rule 1-400(E), specifically govern lawyer advertising, including website content, as does the State Bar Act, Business & Professions Code sections 6157 through 6159. This decision suggests that such advertising will fall within the commercial speech exception to anti-SLAPP protection, subjecting lawyers and their firms to civil false advertising claims in addition to potential State Bar discipline.
16.3.5 United States of America v. Richard Medina, Jr.(Unpublished) – United States District Court for the Southern District of California, Case No. 14-CR-2936. (September 6, 2016)
Can misuse of an IOLTA client trust account result in professional and personal jeopardy?
Yes. IOLTA stands for “Interest on Lawyers’ Accounts.” The State Bar Act, Business and Professions Code sections 6091.2, 6211 and 6213 require California lawyers to place client trust funds which are nominal or which the lawyer will hold for a short time in an IOLTA account; the interest earned goes to the State Bar for distribution to legal programs that provide free legal services to indigent Californians.
On September 6, 2016, District Judge Benitez sentenced Richard Medina to 60 months in prison for using his IOLTA accounts to help clients illegally transfer almost $12 million from the United States to overseas destinations. Indicted by a grand jury in October 2014, Medina pleaded guilty in September 2015. The State Bar then obtained his interim suspension from the practice of law (Case No. 14-C-6112) and, upon the finality of his conviction, will seek his summary disbarment.
Medina’s case allegedly involved 47 deposits of almost $12 million into IOLTA accounts at four banks. IOLTA accounts can be a tempting vehicle for those engaged in money laundering because they can mask the identity of the client from both the financial institutions and law enforcement. Accordingly, law enforcement has recently focused its attention on these once-obscure IOLTA accounts because of their potential for laundering large sums of money.
16.3.6 In the Matter of Hansen (2016)__State Bar Ct. Rptr.__ – State Bar Court of California Review Department (September 14, 2016)
Is “zealous representation” of a client an excuse for making literally true, but deceptive and misleading statements to a tribunal?
No. Hansen represented an employer and its insurer in workers compensation proceedings. During the proceedings, Hansen failed to disclose to the Workers Compensation Appeals Board certain procedural facts surrounding the scheduling of a Qualified Medical Evaluator Panel, including that her firm had twice been timely advised that requests were deficient or that a panel had been assigned three months earlier. As a result of concealing this, a petition for removal was granted on the grounds that the ALJ should have ordered the matter off calendar to allow a panel review. “Although one could argue that [D]efendant’s statements regarding the Medical Director’s failure to issue a panel were literally true, those statements were deceptive and misleading.”
Hansen claimed that she made no misrepresentations; rather she was zealously representing her clients. The hearing judge concluded that Hansen was not merely zealously representing her client, she misled the Workers Compensation Appeals Board by concealing material facts and supported her clients’ position with half-truths. Hansen’s dishonesty constituted moral turpitude under Business and Professions Code section 6106, recommended 18-month actual suspension. The Review Department agreed that the discipline was appropriate and declined to disbar in this matter because other misconduct occurred after this matter.
16.3.7 City of San Diego v. San Diegans for Open Government (2016) __Cal.App.4th __, 2016 Cal. App. LEXIS 783, 2016 WL 5231822 – Fourth Appellate District, Division One (September 22, 2016)
May an attorney properly file a verified answer on behalf of a suspended corporation?
No. The trial and appellate courts both found that lawyers who knowingly file a verified answer on behalf of a corporation that had been suspended act unethically and engage in possible “criminal behavior.” Here, between them, they disallowed more than $862,000 in attorney fees, even though the corporation — after reinstatement — was the prevailing party.
The City filed a validation action seeking court approval of a special tax plan; interested parties had to file answers by a date certain if they wished to challenge the plan. San Diegans for Open Government (SDOG), then suspended, filed a verified answer shortly before the deadline. The trial court later found that SDOG’s lawyers knew it was suspended when they filed the verified answer. In fact, its lawyers filed five other actions while it was suspended.
SDOG eventually prevailed in its challenge to the City’s special tax plan (City of San Diego v. Shapiro (2014) 228 Cal.App.4th 756) and sought more than $862,000 in attorney fees under Code of Civil Procedure section 1021.5, which codifies the private attorney general doctrine.
Only then did the City discover — in other litigation with SDOG — about its suspension. The suspension and the lawyers’ knowledge notwithstanding, the trial court awarded SDOG more than $258,600 in fees — for the period after its corporate status was revived.
The Court of Appeal reversed and eliminated all attorney fees awarded to SDOG. Its rationale:
[S]ection 1021.5 clearly operates as a financial incentive for attorneys to protect the public against certain government encroachment or missteps. However, it should not be such a tantalizing carrot that it causes an attorney to behave unethically and unprofessionally or otherwise forget his or her role as an officer of the court. In the instant matter, this is precisely what occurred as to BLC's representation of SDOG.
The Court of Appeal did not identify the specific Rule of Professional Conduct or provision of the State Bar Act it believed the lawyers had violated. Perhaps it thought the answer obvious.
Business and Professions Code section 6068(d) provides that a lawyer has the duty:
To employ, for the purpose of maintaining the causes confided to him or her those means only as are consistent with truth, and never to seek to mislead the judge or any judicial officer by an artifice or false statement of fact or law.
From the court’s opinion, knowingly filing a verified answer for a suspended corporation fell squarely within the State Bar Act provision and parallel Rule of Professional Conduct.
16.3.8 State Bar of California Standing Committee on Professional Responsibility and Conduct Formal Opinion 2016-195
“What duties does a lawyer owe to current and former clients to refrain from disclosing potentially embarrassing or detrimental information about the client, including publicly available information the lawyer learned during the course of his representation?”
“A lawyer may not disclose his client’s secrets, which include not only confidential information communicated between the client and the lawyer, but also publicly available information that the lawyer obtained during the professional relationship which the client has requested to be kept secret or the disclosure of which is likely to be embarrassing or detrimental to the client. Even after termination of the attorney-client relationship, the lawyer may not disclose potentially embarrassing or detrimental information about the former client if that information was acquired by virtue of the lawyer’s representation.”
In this hypothetical, a lawyer defended a hedge fund manager who was alleged to have committed fraud. The client confided in the attorney that he had defrauded other people, but not these particular plaintiffs. One of the former investors told attorney that the client had settled with her, and forwarded a link to her blog post about the subject. The attorney could not share the information from the client or from the former investor because both were client secrets obtained during the course of representation. Similarly, it would be improper to make comments about the representation that reflected such facts, such as the client was lucky to get a settlement for just a seven-figure number.
The lawyer, however, ethically could comment on a story about the client being arrested for drunk driving after the representation ended because it would not be about a current client, not include information learned during the representation, and would not be related to the subject matter of the representation.
This opinion provides a foundation for anybody seeking information about the scope of the duty of confidentiality and a reminder that it is considerably broader than just that encompassed by the attorney-client privilege. Of note, it does not reach a conclusion whether attorneys may discuss information that would otherwise be protected once it has become “generally known.” Such a standard applies in several other jurisdictions (see ABA Model Rule 1.9(c)(1)) but there may be some debate whether such a rule applies in California, especially with its broader duty of confidentiality.
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.