January 2020 Vol. 19, No. 4

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Editors: David Majchrzak and Edward McIntyre

Introduction

The final edition of 2019 has raised some interesting and far-reaching issues. The LegalMatch case, holding that subscription lawyer referral services must comply with Business and Professions Code section 6155—registration with the State Bar—will have broad implications if it reaches the Supreme Court and is upheld. Another case of statutory interpretation, O&C Creditors’ Group, is a stark reminder that failure to comply with each provision of Business & Professions Code section 6147—contingent fee agreement—renders the whole agreement voidable; in that case, the lawyer failed to sign the agreement even though the client did. Two cases, Litinsky and Sprengel were lawyer-favorable, holding in one instance that a lawyer may rely on client-sourced information as a defense to malicious prosecution and, in another, reiterating that a lawyer representing an entity does not owe ethical duties to a 50% owner.

The two COPRAC opinions address listings on third-party websites and candor to the court when a lawyer suspects the client’s honesty or knows of its perjury. The ABA opinion focuses on lawyers changing firms, a recurring event. Finally, the San Diego Ethics Opinion gives guidance about how to calculate the amount of the unearned portion of a flat fee that must be returned to the client under the current—as of November 1, 2019—rule; the Los Angeles opinion discusses indemnification among opposing 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.

In This Issue

Among the questions answered by rulings abstracted in this issue of Ethics Quarterly are:

Case Notes

19.4.1 Litinsky v. Kaplan (2019) 40 Cal.App.5th 970 – Court of Appeal of California, Second Appellate District (October 4, 2019)
                                                                                     
Issue:
May a lawyer who reasonably relies on a client’s information nonetheless be liable for malicious prosecution?

Analysis:      
No. Following dismissal of a civil complaint, the former defendant sued her litigation adversary and opposing counsel for malicious prosecution and intentional infliction of emotional distress. In the original action, the lawyer had relied on evidence primarily from her client. That evidence was contradicted by testimony from the defendant and some third parties but was not indisputably false.

The trial court granted the lawyer’s special motion to strike (anti-SLAPP motion), concluding that it was appropriate for a lawyer to accept the client’s version of events, so long as the factual allegations are reasonable, and continue advocating for the client’s claims so long as they are arguably meritorious.

The Court of Appeal affirmed. It concluded that a lawyer may reasonably rely on a client, even in instances when the client is the only source of evidence supporting a claim. Evidence that the client is lying is not unequivocal simply because there are no corroborating witnesses and there are several opposing witnesses. Whereas a lawyer may not present or rely evidence the lawyer knows to be false, that knowledge is not proven merely by the fact that the opposing party offers evidence of a different version of events.

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19.4.2 Sprengel v. Zbylut (2019) 40 Cal.App.5th 1028 - Court of Appeal of California, Third Appellate District (September 10, 2019 [modified September 17, 2019 and November 4, 2019])

Issue:
Do lawyers potentially owe duties to a member of a limited liability company when the lawyers’ representation of the company causes the member to incur expenses to defend personally owned copyrights?

Analysis:
Potentially, yes. Former Rule of Professional Conduct 3-600 provides that lawyers representing an entity owe no duties to the entity’s constituents unless there is an implied relationship, such as one arising from conduct reasonably suggesting that the lawyers will protect the constituent’s interests.

The manager of a two-member LLC engaged counsel to represent the company in actions to dissolve the company and to hold the other member liable for infringing the company’s copyrights. But the LLC’s operating agreement stated that each was a 50% owner, neither having authority to bind the company without the consent of the other. After the litigation ended, the other member sued the lawyers, claiming they acted without the member’s consent and acted against the member’s interests.

But in this case, the lawyers represented only the company and there was no conduct suggesting that the lawyers represented the non-manager lawyer. Rather, they had taken a position directly adverse to her and the company, not she, had paid the fees.

Whereas shareholders may, in such circumstances, have standing to bring a derivative suit against lawyers for damages caused to the entity by negligent representation, they do not have standing to bring claims based on their own personal losses. There is no authority providing that, “standing alone, a lawyer’s representation of a closely-held corporation gives rise to professional duties to the individuals shareholders with respect to personally-held rights that are both separate from, and adverse to, the corporation itself.”

Notwithstanding this, it was proper to disqualify lawyers who had not obtained consent of both 50% members in an LLC where the LLC had no legitimate interest independent of the owners in the copyright action. The court remarked that, if the two members could not agree on a lawyer to represent the entity’s interests, then they could have stipulated to appointment of independent counsel.

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19.4.3 O&C Creditors Group, LLC v. Stephens & Stephens XII, LLC (2019) 42 Cal.App.5th 546 - Court of Appeal of California, First Appellate District, Division Four (November 25, 2019)

Issue:
Does a lawyer’s failure to sign a contingency fee engagement agreement nullify a lawyer’s charging lien on the proceeds of a settlement?

Analysis:
Yes. Amidst a convoluted factual scenario—involving a deceased lawyer, a bankruptcy, another lawyer’s purchase of a contingent fee claim in the bankruptcy case, complex anti-SLAPP analysis, disbursement of settlement proceeds in the face of a lien claim and more—was that the original lawyer’s failure to sign the written contingency fee agreement, notwithstanding the fact that the client signed it, knew and agreed to the terms of the contingent fee, allowed an insurance company to void the agreement, with its lien provision. Business and Professions Code section 6147, subdivision (a), provides that a written fee agreement must be “signed by both the attorney and the client.” The lawyer’s failure to sign, therefore, renders the agreement voidable for “failure to comply with any provision of [that] section.”

The Court of Appeal held that it was required to presume that a statute says what the legislature means and “means in a statute what it says there.” The Court held that “signed by both” made clear that a single signature was insufficient.

Notes:
The dissent—which concurred on a most of the issues addressed in the opinion—focused on the insurance company’s disbursement of settlement proceeds in the face of an attorney-lien claim. It concluded this should have given rise to a cause of action that should have prevented application of the anti-SLAPP statute, the mechanism used to defeat the claim for unpaid fees.

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19.4.4 Jackson v. LegalMatch.com (2019) 42 Cal.App.5th 760 - Court of Appeal of California, First Appellate District, Division Four (November 26, 2019 [modified December 17, 2019])

Issue:
Does an online service that provides to potential clients the names of lawyers who provide services in a particular practice area and geographic region provide lawyer referral services within the meaning of Business and Professions Code section 6155?

Analysis:
Yes. LegalMatch, an online service company, connects individuals seeking legal assistance to lawyers who purchase a LegalMatch subscription. Potential clients fill out a prescribed form giving geographic location and type of legal service desired (e.g., criminal law, intellectual property, family law, etc.) and, if the potential client chooses, additional information about the client’s needs. The potential client must accept LegalMatch’s terms and conditions, including that Legal Match does not screen or vouch for any of its lawyer users or screen the potential client’s information. LegalMatch then provides the potential client’s information to subscribing lawyers in the geographic area and legal area of expertise that matches the potential client’s information. Lawyers may then evaluate the information and decide whether to communicate with the potential client. If they do, they must use LegalMatch’s platform for at least the first communication. Lawyers, whose numbers are limited within their geographic area and category of expertise by an algorithm, must pay an annual or multi-year subscription.

When LegalMatch sued Jackson for non-payment of his subscription, he cross-claimed that LegalMatch was an uncertified lawyer referral service, operating in violation of Business & Professions Code section 6155, which, inter alia, requires registration with the State Bar.

The trial court determined that LegalMatch did not engage in referral activity and that it did not operate for the direct or indirect purpose of engaging in referral activity because LegalMatch did not exercise any judgment on any legal issue and did not evaluate the consumer’s input to generate a conclusion that a legal issue was presented.

On an issue of first impression, the Court of Appeal reversed. In its statutory interpretation, the First Appellate District gave a “plain and commonsense” meaning to the term “referral”—not defined in section 6155—that focused on “the act that an individual or entity commits in sending potential clients to an attorney.” It also found this reading of the term “referral” consistent with section 6155’s purpose to regulate unlawful solicitation and “ambulance chasing.” Among other things, it allows lawyer referral services to operate only so long as they registered with the State Bar and comply with standards the State Bar or Supreme Court set.

The court further found that its interpretation was consistent with section 6155’s Legislative history. The court rejected LegalMatch’s argument that the court had to use the ABA Model Rules’ definition of a referral service because, for statutory interpretation, the text and purpose control. Further, while the ABA Model Rules may be helpful, they are not binding in California. The court remanded to the trial court LegalMatch’s unclean hands argument to bar Jackson’s claim that section 6155 prohibited enforcement of his subscription contract.

Notes:
As of the date of this publication, a petition for review was pending before the Supreme Court of California.

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19.4.5 American Bar Association Standing Committee on Ethics and Professional Responsibility Formal Opinion 489

Issue:
What ethical obligations regarding notice arise when lawyers change firms?  

Analysis:
Just as lawyers may switch law firms, clients may switch lawyers or law firms. Rule of Professional Conduct 5.6 makes non-competition clauses in partnership, member, shareholder, or employment agreements permissible. Such agreements would impermissibly restrict a client’s choice of counsel, and chill a lawyer’s right to change firms.

Lawyers and law firm managers must transition client matters when lawyers notify a firm they intend to move to a new firm. Any notice requirements should be the minimum period necessary for clients to decide who will represent them, and firms to secure firm property in the departing lawyer’s possession, assemble files, and adjust staffing in circumstances where the firm will continue on matters previously handled by the departing attorney. These notice requirements may not be so rigid that they restrict or interfere with a client’s choice of counsel or the client’s choice of when to transition a matter.

Firms also may not restrict a lawyer’s ability to represent a client competently during notification periods by restricting the lawyer’s access to firm resources necessary to represent the clients during the notification period. Rather, the representation should continue as normally as possible. The departing lawyer may be required, pre- or post-departure, to assist the firm in assembling files, transitioning matters that remain with the firm, or in the billings of pre-departure matters.

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19.4.6 State Bar of California Standing Committee on Professional Responsibility and Conduct Opinion No. COPRAC 2019-199

Issue:
What are a lawyer’s ethical obligations regarding the lawyer’s profile on a professional third-party directory website?

Analysis:
A lawyer is not responsible for the content of the lawyer’s profile on a professional third-party directory and rating website. But, if the lawyer controls the profile’s content by “adopting” the profile or otherwise using it to market the lawyer’s practice, then the lawyer is responsible for its content. When a lawyer uses the profile to market the lawyer’s practice, the profile becomes a communication about the lawyer’s services by or on behalf of the lawyer and so must comply with advertising rules. This means the lawyer cannot post or induce another to post content that is false or misleading, and must undertake reasonable efforts to correct any false or misleading content.

In addition, if third-party testimonials are posted on the profile, the lawyer should take reasonable steps, such as through an appropriate disclaimer or qualifying language, to ensure that such testimonials are not presented so as to lead a reasonable person to form an unjustified expectation that the same results could be obtained for other clients.

A lawyer who abandons a profile on a third-party website has no further obligation to correct false or misleading content contained in the profile. But the lawyer should take reasonable steps to alert the public that the lawyer is no longer monitoring the profile. This may include posting a notice of that fact on the profile as well as ceasing to use it in marketing the lawyer’s practice.

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19.4.7 State Bar of California Standing Committee on Professional Responsibility and Conduct Opinion No. COPRAC 2019-200

Issues:

Issue #1: What are a lawyer’s duties when the lawyer suspects, but does not know, a client’s witness who is expected to testify at a civil trial has testified falsely at deposition in the case, albeit favorably, for the lawyer’s client?

Issue #2: What are a lawyer’s duties when the lawyer knows, rather than merely suspects, the same witness has committed perjury, but the client instructs the lawyer to use the witness’s known false testimony at the upcoming civil trial?

Issue #3: The facts are the same as Issue #2, except the lawyer first learns of the perjury after the witness has testified at trial. Thus, what are the lawyer’s duties, if any, after lawyer has gained knowledge of the witness’s perjury at trial, the client nonetheless has instructed the lawyer to continue to use the perjured testimony in the remainder of the trial?

Analysis: Because a lawyer must vigorously represent a client, the lawyer may offer testimony of questionable credibility. But, because of the duty of candor to the court, a lawyer may not present or use testimony known by the lawyer to be false even if the client has instructed the lawyer to do so.

If the lawyer offered testimony that is material to the proceeding and later learns that the testimony was false, then the lawyer must take reasonable remedial measures to correct the record without violating the duty of confidentiality. If such measures fail or are impossible because of duties owed to the client, the lawyer may need to withdraw from the representation.

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19.4.8 San Diego County Bar Association Legal Ethics Committee Opinion 2019-3

Issue: How should a lawyer calculate the amount of the unearned fee due to the client where the fee agreement provides for a flat fee paid in advance and the lawyer does not complete all services required under the flat fee agreement?

Analysis: A lawyer may agree with client in the attorney fee agreement as to a method of calculating the unearned portion of the fee if services in the flat fee engagement are not completed before the termination of the lawyer’s employment, provided that the methodology results in a fee commensurate with the reasonable value of the lawyer’s services and is not unconscionable.

In the absence of an agreed upon method, the amount of unearned fee that must be returned will depend on a number of factors similar to the factors used in the evaluation of whether the fee paid to the lawyer represents the reasonable value of the lawyer’s services and is not unconscionable.

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19.4.9 Los Angeles County Bar Association Professional Responsibility and Ethics Committee Opinion 532 (December 11, 2019)

Issue: May lawyers agree to or seek an agreement to have plaintiff’s counsel defend and indemnify defendants, defense counsel, or defendants’ insurers against actions brought by third parties to recover a debt owed by the plaintiffs?

Analysis: No. Rule of Professional Conduct 1.8.5(a)(1) prohibits such an agreement since it would be for payment of the client’s personal and business expenses. By extension, since such an agreement is prohibited, Rule of Professional Conduct 8.4(a), which prohibits lawyers from soliciting or inducing a violation of the Rules of Professional Conduct, precludes any lawyer from suggesting such an agreement.

Additionally, such an agreement would create a conflict of interest between the lawyer and the client by compromising the lawyer’s exercise of independent professional judgment, which would be compromised if a lawyer agrees to indemnify defendants. Accordingly, if the client demands that a lawyer enter into such an agreement, Rule of Professional Conduct 1.16(a)(2) would require the lawyer to withdraw.

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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.