by Suzanne Burke Spencer
The most recent ethics opinion issued by the State Bar of California addresses a thorny issue: an attorney’s ethical duties upon discovering a mistake in an ongoing matter that may give rise to a client malpractice claim against the attorney. May attorneys ethically consult with their own counsel in determining whether they made a mistake and what to do about it? Must they tell their clients about such consultations? Do these obligations change if the erring lawyer consults in-house versus outside counsel? These and more questions are addressed in the State Bar Standing Committee on Professional Responsibility and Conduct (COPRAC)’s Formal Opinion No. 2019-197, and some may be surprised at the answers.
The opinion addresses an attorney’s ethical obligations in three scenarios. The first is where an attorney seeks advice from outside counsel about the attorney’s ethical obligations in discovery and how to meet those obligations. The second is where the attorney consults with outside counsel after the attorney becomes aware of a missed filing deadline that could give rise to a claim by the client against the law firm. The third scenario is a variation on the first two—specifically, whether the ethical obligations change when the attorney consulted is not outside counsel but rather in-house counsel for the law firm. The primary ethical considerations that arise in each of these scenarios are the attorney’s duty to communicate under Rule 1.4 of the Rules of Professional Conduct and Business & Professions Code § 6068(m) and the attorney’s duty of loyalty to the client.
Are Any Ethical Obligations Triggered When a Lawyer Consults His Own Counsel for Advice on How to Comply with Ethical Obligations?
In the first scenario, a lawyer is concerned about how to meet ethical obligations in discovery and seeks outside counsel for advice on what those ethical obligations are and how to satisfy them. Does the lawyer have an actual or potential conflict of interest with the client by virtue of this consultation with counsel? The opinion concludes no. Following the lead of the American Bar Association and other jurisdictions addressing the question, the opinion concludes that “a lawyer seeking legal advice to ensure compliance with ethical obligations does not in itself create adversity between the client’s and lawyer’s interests.” State Bar of California Standing Committee on Professional Responsibility and Conduct, Formal Opinion No. 2019-197 (hereinafter, “Opinion”) at 6. Rule 1.7(b) of the Rules of Professional Conduct, which prohibits lawyers without informed, written client consent from representing a client “if there is a significant risk the lawyer’s representation of the client will be materially limited by the lawyer’s . . . own interests,” is not implicated. This is because a client’s and lawyer’s interests in the lawyer acting ethically is, or should be, shared, and the lawyer seeking advice as to how to act ethically in a certain situation is not contrary to the client’s valid interests. An ethical conflict of interest, accordingly, does not arise in this situation.
With respect to the duty to communicate, the hypothetical lawyer in the opinion discloses to the client the conclusions reached from the consultation but does not disclose that the lawyer consulted with outside counsel. The opinion concludes that, while the lawyer may disclose the fact of consultation with outside counsel, the lawyer is not required to do so under these circumstances. The duty to communicate under Rule 1.4 requires, among other things, that lawyers communicate “significant developments” concerning the representation. Because complying with ethical obligations and professional rules is inherently a part of a lawyer’s representation of a client, a consultation with outside counsel concerning the attorney’s ethical duties and how to satisfy them would generally not constitute a “significant development.” That said, the conclusion reached as a result of the consultation would ordinarily be communicated to the client, particularly if the conclusions would require additional documents to be produced or the client’s discovery responses to be presented in a certain way.
Are Any Ethical Obligations Triggered When a Lawyer Consults Her Own Counsel When She Suspects She Has Committed an Error That May Harm a Client?
In the second scenario presented in the opinion, the lawyer suspects that the deadline to file a cross-complaint for breach of contract has passed and that the cross-claim may now be barred by the statute of limitations. The lawyer consults with outside counsel, who confirms that the deadline has been missed and concludes that the client may be prejudiced by the error, depending on how the litigation progresses. If, for example, certain other issues are resolved in the client’s favor, such as those related to the validity of the contract in issue, the failure to file a cross-complaint may not result in any harm to the client. Outside counsel advises the lawyer to inform the client of the missed deadline and the consequence that the statute of limitations has likely run on the claim. Outside counsel further advises that the lawyer explain to the client that these facts give rise to a potential conflict of interest between the client and the law firm and that the firm may only continue representing the client after obtaining the client’s informed, written consent. The client is encouraged to consult with independent counsel concerning these matters. The opinion concludes that the lawyer has acted ethically under the circumstances.
A conflict of interest arises under the Rules of Professional Conduct where “there is a significant risk” that the lawyer’s representation will be “materially limited . . . by the lawyer’s own interests.” Rule 1.7(b). Where an attorney has erred and that error may give rise to a claim by the client against the attorney, a conflict arises because there is a significant risk that the attorney’s self-protective interests will materially limit the ability to represent the client. Under such circumstances, the attorney may continue the representation only with the informed, written consent of the client. Another question addressed by the opinion, though, is whether, before a determination is made that the lawyer has erred and the client may be prejudiced, the lawyer has a conflict of interest or is prohibited from consulting with outside counsel concerning the suspected error. The opinion concludes the lawyer has no conflict at that point. To the contrary, “[i]f a lawyer becomes aware of facts that may give rise to a conflict, the lawyer must take action to investigate, analyze the situation, and take any additional steps required by the rules.” Opinion at 8. However, the lawyer may not during that investigation and analysis “take any actions that could prejudice the interests of his or her client in the ongoing representation.” Opinion at 8.
At the point where the lawyer raises the possibility of an error that could prejudice the client, but is not certain that an error occurred or that the error may prejudice the client, the opinion concludes that any conflict between the lawyer and client is only a possible one and has not yet affected the representation. At this point, the lawyer does not yet know if there is a significant risk that the law firm’s and client’s potentially divergent interests will materially limit the lawyer’s representation. The opinion concludes that seeking legal advice concerning whether an error occurred, the lawyer’s ethical obligations to the client, and remedial measures to protect the client is not adverse to the client; thus, no conflict exists at that point. However, once a determination is made that the lawyer has made an error, and that the error may prejudice the client, the lawyer must tread carefully.
First, the lawyer has a duty to communicate to the client the relevant facts concerning the lawyer’s error. In the scenario addressed by the opinion, these facts would include that the law firm did not file a cross-complaint before the deadline to do so and the deadline has now passed; that the error cannot be remedied; and that the client cannot now bring its own claim or cross-claim for breach of contract against its adversary. The lawyer and law firm may also disclose other facts, including how the inability to bring the cross-complaint may have an impact on the litigation and potential recovery.
The lawyer may not, however, advise the client on the merits, or lack of merit, of any potential claim by the client against the lawyer or whether the lawyer’s acts constitute malpractice. This is because the lawyer has a conflict of interest with respect to that subject matter and is prohibited by that conflict from advising the client on the subject. In this way, the lawyer’s ability to represent the client under these circumstances is limited, likely triggering an obligation to inform the client of the limitation on the lawyer’s ability to advise the client. Rule 1.4(a)(4) (lawyers must “advise the client about any relevant limitation on the lawyer’s conduct when the lawyer knows that the client expects assistance not permitted by the Rules of Professional Conduct or other law”). Advising the client of this limitation may also be required under Rule 1.4(a)(3), which requires lawyers to keep their clients “reasonably informed” concerning significant developments.
Must the lawyer also disclose that outside counsel was consulted about the potential error? The opinion concludes that, in some cases, the fact of consultation with outside counsel may be a significant development that must be disclosed to the client under Rule 1.4, but under the facts presented in the opinion, the answer is no. As long as the lawyer discloses the information about the error and the consequences outlined in the opinion, the additional fact that outside counsel assisted in coming to the conclusions that a mistake had been made and the options for proceeding is not a significant development.
While the opinion raises the possibility that the fact of consultation may in some circumstances be a significant development, it does not expand on what those circumstances may be. In the scenario presented in the opinion, outside counsel determines an error is made and that disclosure to the client is necessary. It does not really matter who made the determination to disclose, so the fact of consultation is not significant. But what if outside counsel had determined that no error was made or that an error made is not prejudicial to the client? Under those circumstances, a client may very well find significant that a potential error in the representation occurred that its lawyer thought was significant enough to seek advice from the law firm’s own counsel. That may be a circumstance in which the fact of consultation may be a significant development under Rule 1.4. Even though the law firm’s counsel determined that no mistake was made or no harm could result, that conclusion may be incorrect and the client may well be interested in getting their own opinion on the subject. If the fact of consultation is not disclosed to the client, however, the client has no opportunity to do so.
The determination that the lawyer made a potentially prejudicial error not only triggers the duty to communicate but also implicates the lawyer’s duty of loyalty. In light of the significant risk of material limitation on the lawyer’s representation of the client, the lawyer cannot continue with the representation without the client’s informed, written consent. Rule 1.7(a). The opinion further concludes, though, that the lawyer must carefully consider whether, even with that consent, the firm can continue in the representation or must withdraw. Opinion at 9. The firm may continue in the representation only if it reasonably believes it can provide competent and diligent representation to the client. Rule 1.7(d)(1). Given the nature of the conflict and self-protective instincts that may arise, this may not be possible.
Do the Ethical Obligations Change When the Attorney Consulted Its Law Firm In-House Counsel?
Many law firms have in-house general counsel who are responsible for representing the firm and will typically be consulted by the firm’s other lawyers when conflicts or other ethical questions arise, when fee or other disputes arise between the law firm and its clients, and in other situations where the attorneys in the firm need advice on how to discharge their ethical obligations. Because attorney-client relationships are imputed among all lawyers in a firm (see COPRAC Formal Opinion No. 2014-190 at 4), a firm’s in-house general counsel (or comparable position) not only represents the law firm but, by imputation, also represents the firm’s client about whom the advice is sought. Special issues may therefore arise where the counsel giving ethics or other advice to the law firm is another lawyer of the same firm, rather than outside counsel.
Generally speaking, conflicts rules prohibit an attorney from concurrently representing two clients whose interests are adverse to one another unless informed, written consent to that representation is first obtained from each client. See Rule 1.7(a). For example, if a potential client contacts a lawyer and asks for legal advice about whether the potential client may be liable to his neighbor for building his house over the property line, and that lawyer happens to represent the neighbor in an unrelated matter, the lawyer cannot undertake the new matter or provide any advice without first getting the informed, written consent of both the neighbor and the potential client. Similarly, when a lawyer walks into the law firm’s general counsel’s office for advice as to whether another client of the firm may have a claim against the law firm, because in-house general counsel also represents that other client, by imputation, the in-house general counsel would have a conflict of interest under Rule 1.7(a) that would prohibit counsel from going further without informed, written client consent.
However, the opinion concludes with respect to the first scenario (where the attorney seeks advice concerning ethical obligations in responding to discovery) that, because “the act of seeking advice regarding a lawyer’s ethical obligations does not create a conflict,” the consultation may proceed, whether with in-house or outside counsel. With respect to the second scenario, the opinion concludes that no conflict of interest arises in undertaking the “preliminary task” of evaluating whether a mistake has occurred and the firm’s ethical obligations to the client and options for proceeding. Thus, either in-house or outside counsel may engage in that preliminary task without violating the firm’s duty of loyalty. Opinion at 11. However, once a law firm’s in-house counsel “concludes that [the] lawyer committed an error, at that point, just as when outside counsel is involved, [the law firm must disclose material facts to the client], and must carefully consider whether continued representation is possible and under what terms, or whether [the law firm] must withdraw.” Opinion at 11.
The opinion concludes that, just as when outside counsel was consulted in scenarios one and two, the fact that in-house counsel was consulted is not a significant development that must be disclosed under Rule 1.4, although there may be circumstances in which that fact could fall within the duty to communicate.
COPRAC Formal Opinion No. 2019-197 makes clear that lawyers are free to consult with outside or in-house counsel concerning their ethical duties to clients, and generally are not required to communicate to the client the fact of consultation with an ethics attorney, unless that consultation is a significant development in the case. With respect to potential attorney errors, lawyers are free to consult with outside or in-house counsel as to whether a mistake occurred and the lawyer’s ethical duties to the client if the mistake could be prejudicial to the client. These duties include communicating to the client the facts of the mistake and the resulting limitations on the lawyer’s duty to advise the client. Once a determination is made that a mistake has been made, lawyers must carefully consider whether their conflicted duty of loyalty permits them to continue in the representation or whether they must withdraw. However, lawyers could breach their duty of loyalty to a current client if they begin to take protective measures or consult with counsel—whether in-house or outside—for advice on how to minimize their exposure or set up a defense to potential client claims against the firm because such action could prejudice their current client’s interests. In short, when a lawyer makes a mistake in an ongoing matter that could give rise to a malpractice claim by the client, the erring lawyer and law firm must tread carefully.
Suzanne Burke Spencer is a certified specialist in Legal Malpractice Law by the State Bar of California Board of Legal Specialization and the Managing Shareholder of Sall Spencer Callas & Krueger in Laguna Beach, where she focuses her practice on business litigation, legal malpractice, and professional ethics. She is the former chair of California’s Standing Committee on Professional Responsibility and Conduct (COPRAC) and Co-Chair of the OCBA’s Professionalism & Ethics Committee. The views expressed herein are her own.