California Bar Journal
OFFICIAL PUBLICATION OF THE STATE BAR OF CALIFORNIA - FEBRUARY 2000
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California Bar Journal

The State Bar of California


REGULARS

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Front Page - February 2000
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News Briefs
Appeal court denies bar's petition to reverse Brosterhous
Fee bill introduced
Bar fee arb program gears up
David Bryson, Loren Miller recipient, dies at 58
Board to name one to Judicial Council
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You Need to Know
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Opinion
From the President - For our system to work, we need to be involved
Let's let public lawyers take a seat at the table
The illusion of a cosmetic fix
Letters to the Editor
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MCLE Self-Study
The Supreme Court and the ADA
Self-Assessment Test
MCLE Calendar of Events
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Appointments
Access commission seeks members for 2 positions
Apply to serve on a bar committee
Bar seeks applicants for ABA delegates
Judge evaluation positions open
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Discipline
Ethics Byte - 'Rampant' conflicts in a new economy
Attorney suspected of soliciting murder of bar prosecutor
Attorney Discipline
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Legal Tech - If the hype is right, ASPs are H-O-T
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Public Comment

ETHICS BYTE

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'Rampant' conflicts in a new economy
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Major accounting firms and some ABA attorneys assert that the wave of the future involves partnerships, strategic alliances and entrepreneurial unions between lawyers and other professionals, giving clients “one-stop shopping.” This is known as multidisciplinary practice. Those promoting the concept maintain that it’s already a done deal. Still, traditional lawyers adhere to the core values of confidentiality, loyalty and independent judgment. They are reticent to abdicate control to nonlawyers.

Diane KarpmanOn Jan. 2, the New York Times reported, “Most partners [at] the world’s largest accounting firm violated rules” prohibiting conflicts of interest by possessing investments in companies for which they performed “independent audits.” An estimated 86.5 percent of the 2,698 partners had at least one such violation, for a total of 8,064 cases.

Lawyers are tightly bound by conflict of interest restrictions, currently contained in Rules of Professional Conduct 3-300 and 3-310. These rules mandate that we refuse business, terminate existing relationships, cautiously hire staff (from clerks to librarians) and walk a tight rope because of the mergers and acquisitions occurring among our clients in this constantly “morphing” economy.

Attorneys can be disciplined, disqualified and required to disgorge fees for having a conflict of interest without proper consent. Disgorge-ment is not considered punitive but a contractual remedy. The client bargained for a lawyer with the full panoply of fiduciary obligations and did not get the benefit of that bargain — conflict-free representation. Fees are generally disgorged from the occurrence of the conflict.

“Conflicts come in all shapes and sizes.” (Manfredi & Levine v. Superior Court (1998) 66 Cal.App. 4th 1128, quoting Aceves.) Beyond an impermissible unconsented conflict between clients, even more egregious conduct involves hidden kickbacks, secret profits or personal conflicts. Each company involved paid the accounting firm for an “independent audit.” How should the additional profit the accountants enjoyed from the inflated value of the stock be characterized?

More importantly, if the accountants were lawyers, or were in business with lawyers (a multidisciplinary scenario), would not the lawyers also be guilty of a hidden kickback, a secret profit, from the accountant’s conduct being imputed to the lawyers as well?

Although fee forfeiture for a violation of an ethical rule is not “automatic” (Pringle v. La Chapelle (1999) 73 Cal.App.4th 1000), if the conduct is inconsistent with the character of the profession, tainted with fraud or shrouded in unfairness, it is likely. The Restatement of the Law of Lawyer-ing requires a “clear and serious violation,” and discusses criteria such as wilfulness, actual harm, gravity and timing. The accounting firm knew it was under scrutiny, because of a prior SEC investigation, yet most partners still had improper investments.

If the accountants were partners with lawyers, the lawyers would now be drafting 8,064 refund checks, representing the disgorged fees, or face even worse consequences from the “rampant” conflicts.