October 2017 Vol. 17, No. 3
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Editors: David Majchrzak and Edward McIntyre
This quarter, relatively few California authorities offer new guidance for lawyers. But one published Fourth Appellate District opinion, an unpublished State Bar Review Department opinion, and two ethics opinions provide important reminders. These address significant issues involving the duty of confidentiality when representing an entity and its insiders in successive matters, parameters of the obligation to inform clients and courts of a suspension, the disclosures required to clients when consulting with outside counsel about the lawyer’s own conduct in representing the client, and steps that should be taken to safeguard client confidences.
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:
17.3.1 Beachcomber Management Crystal Cove, LLC v. Superior Court (2017) 13 Cal.App.5th 1105 – Fourth Appellate District, Division Three (June 28, 2017)
Should a law firm be disqualified from representing company insiders in a derivative lawsuit after representing a limited liability company in substantially related matters?
Not necessarily. The duty of confidentiality generally precludes lawyers from representing a new client if it conflicts with the previous representation of another client in a related matter. That is because usually it is presumed that the lawyer receives confidential information that is material to the second.
In this matter, the law firm originally represented an entity to respond to requests for information and challenges to its management. In a second action, the law firm agreed to represent company insiders brought in a derivative action alleging mismanagement. Of course, in such an action, the former entity client was the real party in interest. The matter involved some of the same issues raised in the initial representation of the entity. The trial court concluded that it was mandatory to disqualify the law firm based on successive representation in related matters.
The Court of Appeal reversed, noting that case law provided an exception where company insiders already know the company’s confidential information. In such cases, there is no threat to the firm’s continuing duty of confidentiality to the company. In fact, the insiders will often be the source of the lawyer’s knowledge. Accordingly, the appropriate inquiry is whether the insiders already possessed or had access to the same confidential information as the lawyer who previously represented the entity.
17.3.2 In the Matter of Eldridge (unpublished) – California State Bar Court, Review Department, August 2, 2017
Is a lawyer’s “honest, but mistaken belief” that she complied with a Supreme Court disciplinary order sufficient to avoid more severe State Bar discipline?
No. In an unpublished — but public — opinion, the State Bar Court Review Department, after de novo review, determined that a lawyer had acted with “gross negligence amounting to moral turpitude” because she failed to carefully and accurately fill out a declaration she filed with the State Bar Court. The Court recommended, among other discipline, a three-year actual suspension from the practice of law.
In a 2010 discipline matter, the Supreme Court had suspended a lawyer from practice for two years and ordered her to comply with rule 9.20, subdivisions (a) and (c), of the California Rules of Court — requiring her to notify all clients, co-counsel, opposing counsel and courts in pending cases about her disciplinary suspension within 30 days of the effective date of the Court’s order. She was also required to file an affidavit with the State Bar Court showing compliance with the rule within 40 days.
Later, the State Bar charged that the lawyer remained attorney of record in a case until the day before her actual suspension became effective, substituting out at the last minute. She testified at her State Bar trial that she believed that by substituting out of the case before the effective date of the Supreme Court’s order, rule 9.20, subdivision (a)’s notice provision was not triggered; that thus she did not have to send rule 9.20 notices; and that she did not realize that she had to give the rule 9.20 notice for any case pending as of the date the Supreme Court’s suspension order was filed. Due to this misunderstanding, the lawyer filed an affidavit stating under penalty of perjury that she had complied with the rule, when she had not.
The Review Department agreed with the hearing judge’s finding that, having not provided written notice of her suspension to her client, opposing counsel, or the court, the lawyer willfully failed to comply with rule 9.20 as the Supreme Court had ordered. Unlike the hearing judge, the Review Department concluded that Eldridge’s statements under penalty of perjury about her rule 9.20 compliance constituted moral turpitude because she made her misrepresentations with gross negligence and acted recklessly in preparing the declaration — even though no client was adversely affected. It did not matter whether the lawyer honestly believed that she had no clients based on her misunderstanding about the operative date for identifying pending cases. A lawyer’s statement under penalty of perjury provides an imprimatur to that statement, which places the lawyer on notice to ensure that the statement is accurate, complete, and true.
Although disbarment is generally the appropriate discipline for misconduct of this nature, the Court found sufficient evidence in mitigation that it recommended a three-year actual suspension, a year longer than the hearing judge had recommended.
17.3.3 Los Angeles County Bar Association Opinion No. 529 – August 23, 2017
Ethical Risks in Using Social Media
This opinion reminds us that lawyers should not disclose client confidences, even when using social media. In particular, it cautions that sharing confidential information, even without disclosing a client’s name, could violate the duty of confidentiality. That is particularly true when the totality of the information the lawyer provides would enable a person familiar with the client to correctly conclude who the information concerns.
The duty of competence also requires lawyers to take reasonable precautions against the unintended sharing of confidential information. But, as the opinion points out, discretion is often the key.
17.3.4 State Bar Standing Committee on Professional Responsibility and Conduct (COPRAC) Formal Opinion Interim No. 12-0005 — August 25, 2017
Must a lawyer disclose to a client that the lawyer sought the advice of outside counsel: (1) to determine the lawyer’s ethical obligations in addressing discovery issues while representing the client; and (2) to determine whether the lawyer’s conduct constitutes possible negligence in representing the client? Would the analysis differ if the lawyer consulted the law firm’s in-house counsel instead?
No. This COPRAC opinion poses three hypotheticals. In the first, the lawyer seeks legal advice from outside counsel concerning the lawyer’s ethical obligations concerning discovery while representing a client in contract litigation. The lawyer does not tell the client about the consultation with outside counsel, but does tell the client about the steps that the client must take to comply with the lawyer’s ethical obligations — including how document collection should proceed and the production of additional documents.
In the second hypothetical, the lawyer becomes aware that the period for the client’s bringing a cross-complaint may have lapsed. If the lawyer is correct, that could give rise to the client’s potential claim against the lawyer. The lawyer consults with outside counsel whether the client has a potential claim and the scope of the lawyer’s ethical obligations. Outside counsel concludes that the limitations period has in fact lapsed, precluding filing a cross-complaint; this could potentially damage the client depending on the future course of the litigation. Outside counsel tells the lawyer to disclose to the client the fact (1) that the lawyer failed to file a cross-complaint; (2) that the statute of limitations has likely now run on the claim; (3) that, because of these facts, there is a potential conflict between the client and the lawyer such that the lawyer may not continue to represent the client without the client’s informed written consent; and (4) that the client is encouraged to seek the advice of independent counsel.
The duty of communication, which includes the duty to inform clients about “significant developments relating to the representation,” requires a lawyer to disclose the facts giving rise to any legal malpractice claim against the lawyer. A lawyer is not required specifically to disclose that the client may have a malpractice claim against the lawyer; to do so would be giving legal advice to the client on an issue on which the lawyer’s interests squarely conflict with the client’s. Rule of Professional Conduct 3-310, however, may require the lawyer to advise the client of the fact of the conflict and disclose the fact that the lawyer is not advising the client about potential claims against the lawyer or law firm.
Pursuant to Rule 3-310(B), a lawyer must disclose to a client any legal, business, financial or professional interest the lawyer has in the subject matter of the representation, including any personal relationship or interest the lawyer knows or reasonably should know could substantially affect the exercise of the lawyer’s professional judgment. So, where the lawyer’s personal interests — including interests actually or potentially adverse to the client’s — may affect a client’s representation, a conflict of interest may exist requiring written disclosure and perhaps additional steps.
Applying these principles to the first hypothetical — advice from outside counsel about discovery obligations — there is no conflict of interest. A lawyer seeking legal advice to ensure compliance with ethical obligations does not in itself create adversity between the lawyer’s interests and the client’s. Moreover, so long as the lawyer communicates the conclusions reached as a result of the consultation with outside counsel, the lawyer has fulfilled the lawyer’s duty to communicate.
In the second hypothetical, there are two interactions to consider. When a lawyer first consults outside counsel because the lawyer believes the limitations period may have run, there is no conflict. The concern may be unfounded, or there may still be options for relief for the client. At that point, the lawyer has no duty to inform the client about seeking advice, but does have a duty to investigate further.
The ethical obligations the lawyer owes the client require action once the lawyer is aware that the lawyer erred, including the duty to disclose the relevant facts to the client. Since what information the lawyer must disclose is fact-intensive, the COPRAC opinion does not attempt to instruct about what facts a lawyer must disclose in all circumstances. But the fact that the lawyer consulted with outside counsel is not a significant fact that the lawyer must disclose.
Once the lawyer knows that the client has a potential claim, the lawyer must then consider carefully whether the lawyer may ethically continue to represent the client. Important to this consideration is whether the potential claim will materially affect the lawyer’s representation of the client and whether the lawyer can exercise independent judgment. If the lawyer concludes that the lawyer can ethically continue, then the lawyer must make all appropriate disclosures, advise the client of the right to seek independent counsel about such continued representation, and obtain the client’s informed written consent.
Finally, as a third hypothetical examines whether any of its conclusions or analyses would change if the lawyer consults with a law firm’s in-house counsel instead of outside counsel. There is no reason to treat differently a consultation with in-house counsel and, thus, no ethical obligation to reveal the fact of the consultation.
This is an opinion that has been circulated for public comment. It has not been voted for publication, nor approved by the State Bar. If the State Bar formally adopts this opinion, Ethics Quarterly will analyze any modifications.
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.