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New State Bar Reporting Requirements

New rules on conflicts of interest, Client Security Fund as well as IOLTA and e-mail address requirements

By Ellen R. Peck
©2009. All rights reserved.

Ellen R. Peck
Peck

On California Joan’s first Monday back at the office after two blissful weeks at Lake Tahoe, Meryl Terpitude was waiting in the guest armchair of her office. “Cali,” he exclaimed, “I heard something about a new rule of court requiring lawyers to report their e-mail addresses to the State Bar by Feb. 1, 2010.”

“Yes, new California Rule of Court 9.7 provides that by Feb. 1, 2010, all members of the State Bar must create an online profile through the bar’s secure membership system, which must include a valid e-mail address. Moreover, on and after Feb. 1, lawyers must update any address and phone number changes only through their profile,” Cali answered.  (CRC 9.7(a).)

“But,” wailed Meryl, “I do not want my e-mail published to the public.”

“You don’t have to. Your profile and your private e-mails will be recorded in the bar’s database and will be used only for official communications, such as courtesy reminders related to deadlines and updates of new regulations that affect members. You will also have the option to provide a public e-mail address, which will be available to the public on the bar’s Web site, but this is not required,” Cali pointed out. (CRC 9.7(b).)

“If a lawyer does not have online access or an e-mail address, the lawyer may claim an annual exemption from the reporting requirements of this rule but must request an exemption for each year to which it applies,” Cali added. (CRC 9.7(d).)

“Lawyers are required to keep changes to their addresses and phone numbers updated within 30 days of any change (Bus. & Prof. C., §6002.1); failure to do so can be cause for discipline,” Cali warned. (Bus. & Prof. C., §§6068(j); 6103.)

“If I am prosecuted, will the State Bar send the charges by e-mail?” Meryl queried.

“No. Unless otherwise permitted by law or the Supreme Court, the State Bar may not use e-mail as substitute means of providing a notice required to initiate a State Bar disciplinary or regulatory proceeding or to otherwise involuntarily enroll a lawyer as an inactive member,” Cali responded. (CRC 9.7(c).)

Cali told Meryl of another new reporting requirement: Effective Jan. 1, 2010, a lawyer or law firm that maintains one or more Interest on Lawyer Trust Account (IOLTA) accounts, has a duty to report IOLTA account compliance and all other IOLTA account information required by the State Bar in the manner specified by the State Bar. (New Bus. & Prof. C., §6212(d).)

Just then, Darla Doorite, the partner in charge of pro bono activities walked in and presented yet another ethical issue for the firm:

“Cali, because of the severe downturn in the economy, the legal services delivery system is facing significant reductions in grants and contributions at the same time that there is a huge increase in the numbers of eligible clients facing serious legal issues. Those clients are contacting advice and counsel clinics seeking legal assistance. These programs are asking law firms to assist. Our firm would be available to provide assistance, but it is impractical to conduct thorough conflict checks in a limited legal services situation. Our firm could face serious conflicts of interest as a result of one of its lawyers helping out at a clinic. We want to help, but are concerned about our professional responsibilities. What can we do?”

“Darla, on July 29, 2009, the California Supreme Court adopted new rule 1-650, California Rules of Professional Conduct (CRPC). The new rule applies to conflicts of interest by lawyers who provide short-term limited legal services to a client under a program sponsored by an organization identified in the rule, where there is no expectation by the lawyer or client that the lawyer will provide continuing representation,” Cali pointed out.

“Under these circumstances, a lawyer is subject to the conflict of interest provisions of CRPC 3-310 only if the attorney knows that the representation of the client involves a conflict of interest. This rule recognizes that when lawyers are providing short term limited representation on a pro bono basis under one of the authorized programs, it is just not possible to conduct a systematic conflict of interest check,” Cali added. (CRPC 1-650(A)(1); Comment [3].)

“What if a firm lawyer assisting at a legal services clinic has an unknown imputed conflict of interest?” Darla asked.

“A lawyer has an imputed conflict of interest only if the lawyer knows that another lawyer associated in the law firm would be subject to a conflict of interest under CRPC 3-310 with respect to the matter,” Cali replied. (CRPC 1-650(A)(2).)

“My biggest worry is that a firm member will give limited legal advice which will create a conflict of interest, keeping the firm from taking on new engagements,” Darla said.

“This rule will help. Except for the imputed conflict of interest in CRPC 1-650(A)(2), a conflict of interest arising from the lawyer’s services will not be imputed to the attorney’s law firm. (CRPC 1-650(B).) Therefore, the firm’s participation in pro bono legal services under this rule should not affect the firm’s abilities to accept new engagements based upon conflicts of interest in providing those pro bono services,” Cali noted.

“The personal disqualification of a lawyer providing services under this program is also not imputed to other lawyers in the program,” Cali added. (CRPC 1-650(C).)

“What if the legal services program asks one of our participating firm lawyers to take on a case on a longer term basis?” Darla asked.

“Then we would have a risk management issue. If a firm member undertakes the representation of a legal services client on an ongoing basis, rather than a short term limited basis, CRPC 3-310 and all other professional standards apply,” Cali responded. (CRPC 1-650, Comment [5].)

Darla smiled brightly, put her hand on Meryl’s shoulder, and as she was leaving, said, “Well, Meryl, I am going to count on you to set a good example to associates by participating in our pro bono program. This new rule makes it much more viable for law firm lawyers to pitch in and assist in providing access to justice for more Californians.”

Meryl collected himself after looking like a deer caught in the headlights. “Cali, I have one more problem. I represent a trust against an attorney that converted significant trust assets. The attorney has limited assets that are insufficient to cover the trust’s losses. The trust wants to settle with the lawyer for the assets it can get, which are less than its losses. I feel terrible about settling for less than the amount taken. Is there anything else I can do?”

“You can make an application to the State Bar Client Security Fund (CSF) on behalf of the trust,” Cali suggested. “In 1971, the Legislature enacted Business and Professions Code §6140.5, authorizing the creation of the CSF. The purpose of the CSF is to compensate victims who have incurred monetary loss as the result of their attorneys’ dishonest conduct. (Bus. & Prof. C., §6140.5, subd. (a).)

“In order to qualify for reimbursement from the CSF, an applicant must establish the loss of money or property which came into the hands of an active member of the bar by dishonest conduct while the member was acting as a lawyer, trustee or fiduciary. (CSF rule 2.) Dishonest conduct includes, among other things, wrongful acts committed by a lawyer in the nature of theft or embezzlement of money or the wrongful taking or conversion of money or property.” (CSF rule 6(a).)

“Isn’t my client limited to a pay-out of $50,000?” Meryl asked.

“No! The rules have recently been amended. The maximum reimbursement is now $100,000. Moreover, the new rule eliminated the ‘marriage penalty,’ and now allows the application of a husband and wife to be considered as the application of two persons, resulting in a recovery for the actual loss up to a total of $200,000 ($100,000 per applicant),” Cali responded. (CSF rule 4.)

“So, I could settle for whatever assets we can squeeze out of this attorney, and then we can also apply to the CSF for another $100,000,” Meryl pondered.

“Yes, as long as the trust can show that its losses due to the attorney’s dishonest acts exceeded the settlement amount by at least $100,000,” Cali responded.

“The lawyer could object to my client’s claims. Should I think about putting some language in the settlement agreement about the lawyer not impeding the trust’s application?” Meryl asked.

“In State Bar v. Statile (2008) 168 Cal.App.4th 650, 655-656, the court discussed the civil settlement terms that CSF applicants had used: Their settlement agreement provided that (1) the lawyer would not object to any notice of intention to pay sent by the CSF for any claims made by the clients for reimbursement from the fund; (2) the lawyer agreed to cooperate in obtaining or providing any additional documentary evidence required by the CSF in connection with claims made by the client; (3) the lawyer’s failure to object to any notice to pay did not constitute an admission of the truth of anything alleged in the civil cases or in the application to the CSF; and (4) each party was to execute a mutual general release of claims, except that the lawyer’s release would contain no provision precluding the client from claiming and receiving the maximum allowable reimbursement from the CSF,” Cali reported.

“If my client were to enter into a similar settlement, would that limit the State Bar’s subrogation rights against the lawyer for recovery of sums paid out by the CSF?” Meryl asked.

“No. The State Bar is entitled to full reimbursement of the payments made to CSF applicants and is not limited to the amount of a settlement between the lawyer and the applicants,” Cali replied. (State Bar v. Statile, supra, 168 Cal.App.4th at 669.)

Meryl then posed yet another question. “I have been engaged by a defendant in a civil action involving a ‘fee shifting statute,’ granting a successful plaintiff a right to seek an award of attorney’s fees. I want to make a settlement offer that includes the plaintiff’s fee waiver. Is it ethical for me to recommend and convey such a settlement offer?”

Cali responded: “Formal Opinion No. 2009-176 of the State Bar’s Standing Committee on Professional Responsibility and Conduct concluded that (1) a lawyer does not violate any ethical obligation by recommending or conveying a fee-waiver settlement offer in a given case and (2) a lawyer does not violate any ethical obligation by recommending or conveying fee-waiver settlement offers in cases generally.

Additionally, the opinion concluded that the plaintiff’s lawyer must inform the client of a fee-waiver settlement offer and consummate the settlement in accordance with the client’s wishes even if it reduces the likelihood of recovering some or all of his or her fees.”

Over his shoulder, Meryl mumbled his thanks as he rushed off to continue drafting his settlement offers, consistent with these new authorities. Before the phone rang again, Cali reflected that while the law of lawyers increasingly regulated every aspect of a lawyer’s practice, some new authorities had provided helpful guidance in finding new remedies for clients.

• Ellen R. Peck, a former State Bar Court judge, is a sole practitioner in Escondido and a co-author of The Rutter Group California Practice Guide: Professional Responsibility.

Certification

  • This self-study activity has been approved for Minimum Continuing Legal Education credit by the State Bar of California in the amount of one hour of legal ethics.

  • The State Bar of California certifies that this activity conforms to the standards for approved education activities prescribed by the rules and regulations of the State Bar of California governing minimum continuing legal education.

Self-Assessment Test

Indicate whether the following statements are true or false after reading the MCLE article. Use the answer form provided to send the test, along with a $25 processing fee, to the State Bar. If you do not receive your certificate within four to six weeks, call 415-538-2504.

  1. By Feb. 1, 2010, all members of the State Bar must create an online profile through the bar’s secure membership system.
  2. By Feb. 1, 2010, all California lawyers must include in their profile a valid e-mail address.
  3. Any changes to a lawyer’s contact information can only be made  through their profile.
  4. An attorney’s e-mail address must be a matter of public record.
  5. If a lawyer does not have online access or an e-mail address, the lawyer must obtain online access and a valid e-mail address.
  6. A lawyer cannot be subject to discipline for a failure to report changes to her address and phone number within 30 days.
  7. Unless otherwise permitted by law or the Supreme Court, the State Bar may not use e-mail as substitute means of providing a notice required to initiate a State Bar disciplinary proceeding.
  8. Effective Jan. 1, 2010, a lawyer or law firm that maintains one or more Interest on Lawyer Trust Account (“IOLTA”) accounts has a duty to report IOLTA account compliance.
  9. A lawyer who provides short-term limited legal services to a client under a designated legal services program where there is no expectation by the lawyer or client that the lawyer will provide continuing representation is not subject to conflict of interest provisions.
  10. Lawyer provides short-term limited legal services to a client under a designated legal services program where there is no expectation by the lawyer or client that the lawyer will provide continuing representation. Lawyer does not know that another lawyer associated in his law firm would be subject to a conflict of interest under CRPC 3-310 with respect to the matter. Lawyer has no imputed conflict of interest.
  11. Lawyer provides short-term limited legal services to a client under a designated legal services program where there is no expectation by the lawyer or client that the lawyer will provide continuing representation and the lawyer knows of no imputed conflict of interest. Lawyer’s limited representation will be imputed to the law firm.
  12. Lawyer volunteers to provide short-term limited legal services to Client under a designated legal services program. Lawyer determines that she has a conflict of interest and cannot assist Client. Lawyer’s personal conflict of interest is imputed to all other lawyers providing services under the program.
  13. Lawyer volunteers to provide short-term limited legal services to Client under a designated legal services program and thereafter continues to represent Client on an ongoing basis. Lawyer is subject to the conflict of interest provisions in the Rules of Professional Conduct.
  14. The purpose of the State Bar’s Client Security Fund (CSF) is to compensate victims who have incurred any monetary loss as the result of any attorney misconduct.
  15. In order to qualify for CSF reimbursement, the applicant must establish loss of money which came into the hands of an active member of the bar by dishonest conduct while the member was acting as a lawyer, trustee or fiduciary.
  16. The maximum reimbursement for a CSF application is $50,000.
  17. A husband and wife can each claim up to $100,000 for their actual loss up to a total of $200,000.
  18. The State Bar is entitled to full reimbursement of the payments made to CSF applicants and is not limited to the amount of a civil settlement between the lawyer and the applicants.
  19. It is unethical for a lawyer to recommend or convey a fee-waiver settlement offer in civil case.
  20. A plaintiff’s lawyer must inform the client of a fee-waiver settlement offer and consummate the settlement in accordance with the client’s wishes even if it reduces the likelihood of recovering some or all of his or her fees.
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