May 2016

Ethics Rules Can Be “Friends”

By Edward McIntyre

Attorney at Law

Oxymoron? Not really.

The Rules of Professional Conduct aren’t necessarily an impediment to getting things done in the “real world.” Rather, they can serve as a template for sound risk mitigation and practice management.

Let’s start at the beginning. You have a new client. Great—business!

Assume your client isn’t a corporation; instead, an individual; a partnership; even an LLC. The State Bar Act, the other set of rules governing us, requires a written fee agreement for all non-contingency matters (Bus. & Prof. Code section 6148). A pain? No. Think opportunity!

The agreement has to state your compensation (hourly; statutory; flat fee) and other charges. Good practice management—and risk mitigation in any future dispute—commends clarity about the money at the start.

Next, the agreement must say what services you’ll provide. Here, a bit of forethought can prevent grief down the road. If the representation involves litigation, does it include the trial itself, bench or jury; what about post-trial motions; interlocutory writ practice; appeal; pursuit of any judgment? If that’s not your intention, this is the place to say it—clearly. Later, a court will likely construe ambiguity against the drafting lawyer (Mayhew v. Beninghoff (1997) 53 Cal.App.4th 1365, 1370).

If you’re forming a corporation, does that include post-formation tax filings; obtaining a business license; preparing the minutes for the first meeting of shareholders and election of directors? If the engagement is for a flat or fixed fee—e.g., drafting a simple will—does the fee include costs, or just your work?

Finally, the written agreement has to spell out the respective responsibilities of lawyer and client. This becomes important when a client commits to certain undertakings. For example, the client agrees to accomplish all title recordings in a real estate transaction. Or, importantly, acknowledges responsibility to pay directly experts in litigation, even if you engage them. 

The risk of not having a written fee agreement? The client can void any fee agreement you have. If there’s a dispute—not just about money, but scope of work or who was to do what—you’re at the mercy of a court or arbitrator to award what your work was “worth” on a quantum meruit basis.  Not the best practice management.

Almost all engagements end well. But for the few that don’t, your client will have agreed in writing to your fee, the scope of work and who was responsible for what. Not bad if there’s a dispute. The rule actually makes some sense. And if your new client is a corporation, although the Act doesn’t mandate a written fee agreement, prudence might.

Now assume you have two new clients in the same matter—double business; even better! But that triggers a separate consideration: conflicts of interest and Rule 3-310. Critically, the rule treats both potential and actual conflicts the same: each client must give informed written consent or you can’t represent them (Rule 3-310(C)(1) and (C)(2)). Whenever two possible clients appear, think potential conflict, no matter how seemingly allied their interests may appear.

Informed consent means telling them, in writing, about actual and reasonably foreseeably adverse consequences of joint representation. Like what? For example, serious disagreement on objectives after you start, or strategy. Importantly, they waive the attorney-client privilege between themselves for any dispute arising out of the representation (Evid. Code section 962); you will share with the other what each tells you; if one wants something held confidential, you’ll keep that confidence (Rule 3-100 and Bus. & Prof. Code section 6068(e)(1)), but you’ll then have to decide if you can continue to represent both while withholding information from the other. If one severs the relationship, she or he must keep confidential everything learned during the representation. An aggregate settlement of any claims will require the informed written consent of both. (Rule 3-310(D).)

While the rule doesn’t require it—Rule 3-300 (business transactions with clients) does—prudent risk mitigation suggests telling each to seek the advice of independent counsel before agreeing to the potentially adverse joint representation.

And then, to work for both.

**No portion of this article is intended to constitute legal advice. Be sure to perform independent research and analysis. Any views expressed are those of the author only and not of the SDCBA or its Legal Ethics Committee.**