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Ethics update

By Sandra Boerio

Check 21 Act – Public Law 108-100

Under California Rules of Professional Conduct Rule 4-100 and the accompanying standards, lawyers have a duty to maintain complete records of all client funds including bank statements and cancelled checks. A new federal law that took effect Oct. 28, 2004, changed the way that banks are permitted to handle original checks. The Check Clearing for the 21st Century Act, Public Law 108-100, gives banks the option to abandon the practice of returning original checks to customers with their monthly statements.

Under the new law, banks are allowed to destroy original checks and use a special digital image called a substitute check. This substitute check is a negotiable instrument and is deemed to be the legal equivalent of the original check. Banks must notify customers concerning changes in policy due to Check 21. The new law also expressly supersedes any contrary state law. To remain in compliance with the rule 4-100 record- keeping obligations, lawyers should make every effort to determine their bank’s policy regarding the availability of original cancelled check and/or the new substitute checks.

In Re North, (Aug. 25, 2004, 9th Cir. Ariz.) 2004 C.D.O.S. 7835, 2004 WL 1886398, 2004 U.S. App. Lexis 18029

The appellant, Mr. North, was suspended twice from the practice of law in Arizona. Because of his suspension, he was also not allowed to practice in the federal district court. When eligible for reinstatement, he elected not to reinstate active status and remained on inactive status. Due to his inactive status, the federal district court determined that he was ineligible to practice in the district courts. North objected to the determination of his ineligibility based solely on his inactive status.

The federal district court entered a formal order rejecting North’s objection, stating that under local rule 1.5(a) an attorney must be an active member of the Arizona bar in order to practice in the district courts in that state. 

The 9th Circuit Court of Appeal upheld the suspension. North asserted the contention that the district court is acting irrationally and improperly by limiting its membership to active members of the State Bar of Arizona. The court rejected this contention, reasoning that the district court is justified by the legitimate interest of ensuring that all attorneys practicing before the courts clear the standards required by the respective state bar associations. It also serves the purpose of facilitating regulation and discipline of those attorneys practicing in the federal court system.

Venture Law Group v. Superior Court (April 7, 2004, 6th District) 118 Cal.App. 4th 96, 12 Cal.Rptr. 3d 656.

In this action, minority shareholders sought discovery of legal advice given to a corporation by a former lawyer before a merger with a larger corporation. The attorney claimed the attorney/client privilege under Cal. Evid. Code ยง953(d) and refused to answer questions during a deposition. The trial court granted a discovery motion compelling testimony by the former attorney. The attorney applied for a writ of mandate.

The court of appeal granted the writ and held that the privilege passed from the former corporation to the successor corporation after the completion of the merger. Absent waiver from the successor corporation, former managers of the merged corporation are not entitled to depose the attorney who represented the merged corporation.

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