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Ethics update


This feature highlights recent authorities in the area of attorney professional responsibility.

Rules of Professional Conduct

Rule 3-310 (Avoiding the Representation of Adverse Interests)

In an order filed Jan. 10, the Su-preme Court of California approved an amendment to the discussion section of Rule of Professional Conduct 3-310. The amendment adds a new paragraph to the discussion section clarifying the rule's intended application to certain representations in the insurance defense context.

The amendment was recommended by the State Bar following study by a Joint Task Force of the Judicial Council and the board of governors and by the State Bar's Committee on Professional Responsibility and Conduct. The court's order indicated an effective date of March 3.

California Statutes

Business & Professions Code §801(e)

B&P Code §801(e) has been amended concerning mandatory reporting of medical malpractice actions to the Medical Board of California. The amended law requires liability insurance carriers to notify a plaintiff's lawyer that a report to the Medical Board has been made concerning a medical malpractice settlement (over $30,000), judgment or arbitration award (any amount).

If the lawyer does not receive such notice, the lawyer is required to make the report to the Medical Board. The amendment took effect Jan. 1.

Business & Professions Code §6072

Amendments to B&P Code §6072 have modified the eligibility of law firms to serve as state contractors.

Under the amended law, a contract with the state for legal services that exceeds $50,000 shall include a certification by the contracting law firm that the firm agrees to make a good faith effort to provide, during the duration of the contract, a minimum number of hours of pro bono legal services during each year of the contract equal to the lesser of either (1) 30 multiplied by the number of full-time attorneys in the firm's offices in the state, with the number of hours prorated on an actual day basis for any contract period of less than a full year, or (2) 10 percent of its contract with the state.
The amendment took effect Jan. 1.

Case law

Chambers v. Kay (2002) 29 Cal.4th 142 [126 Cal.Rptr.2d 536]

A client retained an attorney to handle a litigation matter. The retained counsel brought in a co-counsel to assist on the matter. The co-counsel was to be compensated by receiving a percentage of the contingent fee paid by the client. Neither attorney obtained the client's consent to the fee split arrangement as required by Rule of Professional Conduct 2-200.

Upon co-counsel's action alleging breach of agreement for division of attorney fees, the California Supreme Court held that the fee split arrangement was unenforceable.

Significantly, the court cited with approval State Bar Formal Op. No. 1994-138 in concluding that the scope of rule 2-200 extends beyond referral fees and reaches arrangements in which attorneys divide work.

Ethics opinion

State Bar Formal Opinion No. 2002-159

The State Bar has issued a formal opinion concluding that a lawyer may refer potential clients to a broker for a real property loan to pay for attorney's fees and costs "so long as the lawyer does not provide legal representation or receive compensation with regard to the referral or the resulting loan or escrow transactions and has no undisclosed business or personal relationship with the broker."

State Bar Formal Opinion No. 2002-160

The State Bar has issued a formal opinion on the ethical constraints governing settlement procedures and the collection of legal fees when a client disappears or communication becomes impossible.

According to the opinion, if the client has specifically authorized settlement without litigation, an attorney has an ethical obligation to "act competently and avoid reasonably foreseeable prejudice to the client." An offer at variance with the authority given by the client or unanticipated conditions may render that settlement beyond the attorney's authority.

If the fee agreement is enforceable, and the client has authorized the attorney to be paid from the settlement, then the proceeds must be placed in the attorney's client trust account and attorney's fees promptly withdrawn from the account.

Federal law

Securities and Exchange Commission — Rules Adopted Pursuant to the Sarbanes-Oxley Act of 2002

The Securities and Exchange Commission has adopted a new rule implementing §307 of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7245). Under §307 of the act, the SEC must prescribe minimum standards of professional conduct for attorneys appearing and practicing before the SEC in any way in the representation of issuers.

To implement this directive, the SEC adopted 17 CFR Part 205 that details requirements for an attorney to report evidence of a material violation of securities laws or breach of fiduciary duty or similar violation by the issuer up-the-ladder within the company to the chief legal counsel or the chief executive officer of the company (or any equivalent). If there is no appropriate response, then the attorney must report the evidence to an audit committee, another committee of independent directors, or the full board of directors.

The new rule becomes operative 180 days after publication in the Federal Register.

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