Ethically Speaking

The Coming New Ethics Rules–New Concepts

by Robert K. Sall

It has been 19 years since the last major revision to California’s Rules of Professional Conduct but we’re soon in for a change. Since 2001, the State Bar’s Commission for the Revision of the Rules of Professional Conduct (the “Rules”) has been working on a proposed new set of ethics rules to govern the conduct of California lawyers. The Commission has already begun the process of issuing the drafts of the Rules for preliminary rounds of public comment. In March, the State Bar posted the second batch of draft rules for public comment, thirteen in all (the “Draft Rules”). The comment period is open until June 6, 2008.

            The State Bar provides a detailed analysis and discussion of the Draft Rules, which may be found on the website under the Attorney Resources/Public Comment section, at the following link: http://www.calbar.ca.gov/state/calbar/calbar_generic.jsp?cid=10145&n=9084.2. Members of the bar are encouraged to submit public comment to assist the Commission in making appropriate further revisions before ultimate submission to the Supreme Court.

            Some readers may be disinterested in drafts and will pay little attention until the Rules are adopted. Unfortunately, some lawyers will pay too little attention even when the Rules are final. But, as one Commission member, San Francisco lawyer Mark Tuft, has stated, the Draft Rules in this release are “some of the most important rules that go to the core of lawyer conduct.” Those presently out for public comment include the critically important areas of communication with persons represented by counsel (Rule 4.2), fees and unconscionable fees (Rule 1.5), withdrawal, representing an entity as the client (Rule 1.13), conflicts with current clients (Rule 1.7), business transactions with clients (Rule 1.8.1), and the lawyer’s duty of independent judgment (Rule 5.4). Among these Draft Rules are those that most affect your day to day practice. Thus, readers are encouraged to go to the State Bar’s website and take a closer look.

            The numbering system for the Draft Rules mentioned above is dramatically different from the rules with which you are presently familiar. An early decision of the Commission this time around was to make California’s Rules conform to the topical numbering system of the ABA Model Rules, while not adopting necessarily the content of the Model Rules. This is calculated to make it easier for out of state lawyers to know where to look for California rules, by numbering them as in virtually all other states. Thus, California lawyers will need to learn not only a new set of rules with some very significant changes but become familiar with the reorganization and numbering as well. It is likely that these draft rules will be adopted in something close to their current form. Since the Rules will govern the conduct of California lawyers for the next few decades, there is no time like the present to begin studying them. Members of the bar are encouraged to make suggestions for revisions and improvements.

One of the most significant of the Draft Rules is Rule 1.7, pertaining to conflicts. Some Commission members have expressed an ongoing concern that conflicts rules are used in litigation to seek disqualification of opposing counsel. A view held by some ethics lawyers is that the right to counsel of the client’s choice is a paramount consideration, and thus the Rules pertaining to conflicts should not be so constrictive as to allow them to be turned into offensive weapons in support of unwarranted motions for disqualification. While the primary purpose of the Rules is to establish standards of conduct to guide attorneys in the ethical practice of law and establish unambiguous standards for the purpose of discipline, the Rules inevitably find their way into the civil arena. They are cited and used as strategic tools to seek disqualification of opposing counsel and as a basis to seek damages in actions for legal malpractice and breach of fiduciary duty.

The American Bar Association, in the Preamble to its Model Rules, has attempted to address such concerns about potential misuse of the Rules with the following cautionary statement:

“The Rules are designed to provide guidance to lawyers and to provide a structure for regulating conduct through disciplinary agencies. They are not designed to be a basis for civil liability. Furthermore, the purpose of the Rules can be subverted when they are invoked by opposing parties as procedural weapons.  * * * Nevertheless, since the Rules do establish standards of conduct by lawyers, a lawyer’s violation of a Rule may be evidence of breach of the applicable standard of conduct.”

In an attempt to place the Rules in context, the official comment to California’s current Rule 1-100 refers to Noble v. Sears Roebuck & Co. ((1973) 33 Cal.App.3d 654, 658-659), and Wilhelm v. Pray, Price, Williams & Russell ((1986) 186 Cal.App.3d 1324, 1333, fn.5), both of which are frequently cited for the proposition that violation of a particular rule does not establish a civil cause of action. Despite these holdings, courts have come to accept the Rules as establishing standards of conduct in civil cases. See, for example, Mirabito v. Liccardo ((1992) 4 Cal.App.4th 41 (“Those rules, together with statutes and general principles relating to other fiduciary relationships, all help define the duty component of the fiduciary duty which an attorney owes to his client.”)).  In Mirabito, the Court of Appeal found that, where a Rule provides a standard by which an attorney’s breach of fiduciary duty would be measured, a jury instruction based upon the Rule would be proper.

Cases like Mirabito lead to concerns among some lawyers that rules designed primarily for discipline are being used outside the disciplinary arena as a tool to expand the reach of civil liability for lawyers. The debate over the use or misuse of disciplinary rules in non-disciplinary contexts is far from over. The Commission struggles with how it will phrase the final version of its introductory statements as to the nature, the purpose and the use of the Rules.

The Draft Rules are far too detailed to address fully in this article. By accessing the State Bar’s website, you can view the proposed changes to conflicts disclosure in Draft Rule 1.7. There, the Commission has attempted to introduce a few new concepts to our conflicts rules, including one that that appears calculated to limit the use of the Rules to support disqualification of counsel.

Draft Rule 1.7 retains California’s concept of requiring written disclosure regarding the actual and reasonably foreseeable adverse consequences of “actual conflicts” and “potential conflicts” that may exist when representing multiple clients in a single matter. (For a good explanation of the types of factors to be disclosed in joint client representation, see Formal Opinion 1999-153 of the State Bar’s Standing Committee on Professional Responsibility and Conduct.)

Sections 1.7(a) and (c) of the Draft Rule introduce a new concept to California’s Rules, being that of “direct” adversity. (“A lawyer shall not accept or continue representation of a client in a matter in which the lawyer’s representation of that client in that matter will be directly adverse to another client the lawyer currently represents in another matter, without informed written consent from each client.”) The Draft Rule also introduces new terminology in the prohibited representation of a “client’s adversary.” This too focuses on direct rather than indirect forms of adversity. (“A lawyer shall not, while representing a client in a first matter, accept in a second matter the representation of a person or organization who is directly adverse to the lawyer’s current client in the first matter, without the informed written consent of each client.”)

There are 39 detailed comments to Rule 1.7. One obvious trend in all of the Draft Rules is to have extensive explanatory comments, not unlike the ABA Model Rules. These extensive interpretive discussions are far more comprehensive than in the current Rules. Several comments attempt to parse the distinction between “direct” and “indirect” adversity, which is difficult, at best. Comment 5 says that “direct adversity” is a term that reflects a balancing of competing interests to take into account the public policy favoring the right to select counsel of one’s choice. In what may prove to be less than helpful, it suggests that “as a consequence of this balancing and a variety of situations in which the issue can arise, there is no single definition of when a lawyer’s actions are directly adverse to a current client for purposes of the Rule.”

In Comment 6, the Commission has attempted to explain “direct adversity” by reference to whether or not a client or other affected person is a party to the matter in which the representation is being provided. If a non-party’s interests could be adversely affected, then the adversity is merely indirect, not direct. The comment then goes on to suggest that the adversity could be direct as to a non-party if the non-party is an identifiable target of the litigation or non-litigation representation, or a competitor for a particular transaction. The examples provided in the Comments are somewhat complex and require thoughtful analysis for the proposed distinction between direct and indirect adversity.

In reaching these distinctions and drafting the Comments, the Commission appears to limit the use of Rule 1.7 in disqualification situations only to where there is direct adversity. Comment 7 suggests circumstances where, although the representation of one client could have an impact adverse to another client who is not a party to the matter, such adversity would only be indirect. Therefore, the law firm would not be disqualified, for example, just because it happens to also represent another client that is a lender, a landlord or a competitor of the current client, whose interests might be indirectly but adversely affected by the outcome of the current representation.  These attempted distinctions between direct and indirect adversity are bound to be the subject of extensive public comment.

Another intriguing area of focus in Rule 1.7 is Comment 33 which endorses the use of “advance waivers.” It has become standard practice at some firms, especially the major national firms, to have a client sign a waiver at the time of retention acknowledging that the firm may in the future represent a different client adverse to that client, and that the current client consents in advance to such undefined future representation. Advance waivers take many forms. Some ethics lawyers believe that there can never be an adequate disclosure of reasonably foreseeable consequences of future unknown circumstances. The debate over advance waivers is whether sufficient information is disclosed to yield a truly informed consent by the client.

In Comment 33, the Commission suggests that advance waivers may be proper under the Draft Rule, but still require informed consent. An advance consent that is so general and open-ended that it is unlikely the client would have understood the potential consequences of granting advance consent will not satisfy the Rule. Validity of the consent may be dependant upon such things as whether there was an adequate statement of the actual and reasonably foreseeable adverse consequences, the relative sophistication of the client to understand the nature and extent of the advance waiver, whether there will be a conflicts screen and a number of other factors. Undoubtedly, the Commission is leaning toward the recognition of advance waivers as a permissible means of planning for future law firm business. Perhaps ethical screens should be recognized as an appropriate method of preventing unauthorized transmittal of confidential information in the event of conflicting representations.

Robert K. Sall is a member of the OCBA’s Professionalism and Ethics Committee, and a recent past member of the State Bar’s Committee on Professional Responsibility and Conduct. He is a principal in The Sall Law Firm in Laguna Beach where his emphasis of practice is in lawyer conduct cases and attorney-client fee disputes.