California Bar Journal
OFFICIAL PUBLICATION OF THE STATE BAR OF CALIFORNIA - DECEMBER 2000
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MCLE SELF-STUDY

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Self-Assessment Test
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Answer the following questions after reading the MCLE article on legal ethics. Use the answer form provided to send the test, along with a $20 processing fee, to the State Bar. Please allow at least eight weeks for MCLE certificates to reach you in the mail.


1. California’s professional standards expressly prohibit lawyers from taking equity positions in client companies or organizations.

2. Acquisition of stock in a client company in lieu of fees for legal services creates a presumption of undue influence.

3. Generally, business clients are concerned that awarding their lawyers stock in lieu of attorneys’ fees will heighten their lawyer’s focus on their own self-interest and create divided loyalties.

4. Some policies for legal malpractice insurance exclude coverage for legal malpractice claims in which the lawyer or law firm acquired an equity position in a client company.

5. Some policies of legal malpractice insurance exclude coverage for legal malpractice claims in which the lawyer or law firm acquired an equity position in a client company which was outside the terms specified in the policy.

6. California’s ethics committee has opined that taking an equity position in a client company creates an inherent conflict of interest and is therefore prohibited. 

7. In taking stock in a client company in lieu of attorneys’ fees, a lawyer should ensure that the transaction does not result in the collection of an unconscionable fee.

8. Lawyer’s firm represents ABC Corp. Lawyer purchases 1,000 shares of ABC’s publicly traded stock on the New York Stock Exchange. This purchase does not violate any professional obligations the attorney may have.

9. In order for rule 3-300 to apply to a financial transaction with a client, the lawyer’s acquisition must be “adverse” to the client.

10. “Adverse” to the client means that the lawyer has acquired the ability to summarily extinguish the client’s interest in the client’s property.

11. A lawyer attempting to secure the payment of past due fees through the acquisition of stock in the client company does not have to comply with rule 3-300.

12. A lawyer who intentionally entered into an agreement for an unreasonable fee, which is not unconscionable, is subject to discipline in California.

13. The terms of a lawyer’s acquisition of stock in a client’s company in lieu of fees must be fair and reasonable to the client.

14. A lawyer’s acquisition of stock in a client’s company in lieu of fees does not have to be documented, since the face of the shares show the amount of the stock and the client’s direction to issue the shares demonstrate the client’s consent.

15. A lawyer who is acquiring stock in a client’s company in lieu of fees must advise the client to seek the advice of an independent lawyer.

16. If a client does not have the advice of independent counsel about a lawyer’s acquisition of stock in a client’s company in lieu of fees, the lawyer is subject to discipline. 

17. A client must consent, in writing, to a lawyer’s acquisition of stock in the client’s company in lieu of fees in order for the lawyer to comply with rule 3-300.

18. Some clients perceive giving stock in their companies to lawyers in lieu of legal fees as a means of gaining access to legal services.

19. Giving lawyers stock in a client company in lieu of fees is a benefit to the client because it enables the company to reserve operating cash. 

20. Ethics opinions of other jurisdictions cannot be consulted for guidance by California attorneys.