February 2022 Ethically Speaking - Ethical Rules for Paralegals and Other Paraprofessionals

by Paul A. Stewart

As you most likely have learned by now, last September 23, the State Bar of California Board of Trustees approved for public comment a proposal that would permit paralegals and others not licensed as attorneys to practice law in the State of California, without supervision, under limited circumstances. Under the proposal, paralegals, law school graduates who have not passed the bar exam or who have been suspended from practice, and certain other nonlawyers would be entitled to practice law unsupervised in limited areas after meeting educational requirements and passing a paraprofessional examination. Permitted areas of practice include family law, consumer debt, landlord/tenant law, and wage and hour disputes. Paraprofessionals would not be permitted to conduct jury trials, but otherwise would be able to provide full legal representation in these specified areas of practice.

The proposal also includes a new set of ethical rules for paraprofessionals, to be known as the “Rules of Professional Conduct for Licensed Paraprofessionals.” The Proposed Rules would govern the conduct only of paraprofessionals licensed to engage in the limited practice of law and not paralegals who opt to work in a more traditional paralegal role. The Proposed Rules are modeled closely after the California Rules of Professional Conduct for Lawyers. For example, licensed paraprofessionals would be governed by essentially the same rules as attorneys regarding conflicts of interest and preservation of client confidences. However, there are some significant differences.

Proceeding numerically through the Proposed Rules, the first major difference is found in Proposed Rule 1.1, governing competence of licensed paraprofessionals. Like Rule 1.1 for lawyers, Proposed Rule 1.1 requires licensed paraprofessionals to give legal advice only within areas in which they have competence or acquire competence for the specific task at hand. However, unlike the rules governing lawyers, Proposed Rule 1.1 does not authorize licensed paraprofessionals to give legal advice outside their areas of competence in emergency situations where it would be impractical to refer the matter to a competent legal advisor. The concern here appears to be that paraprofessionals are licensed only in limited areas of practice and therefore should not be providing advice outside those practice areas in any circumstances. In contrast, lawyers are licensed in all areas of practice and are therefore permitted by the Rules to give legal advice outside their areas of competence in emergencies.

Proposed Rule 1.4.2 begins a running theme throughout the Proposed Paraprofessional Rules—licensed paraprofessionals must notify their potential clients and clients that they are not lawyers. Specifically, Proposed Rule 1.4.2 requires licensed paraprofessionals to provide such a notice “[p]rior to a prospective client’s consultation with a licensed paraprofessional or securing legal services or advice from the licensed paraprofessional.” The notice must state: (1) that the paraprofessional is not a lawyer; (2) that the paraprofessional’s license is limited to certain practice areas, and that the paraprofessional cannot provide all services that a lawyer can provide; (3) that the client may need to hire a lawyer if the legal services exceed the scope of the paraprofessional’s license; and (4) that the client may have other affordable options for legal services, including pro bono representation and free services from a Self Help Center.

Proposed Rule 1.4.3 requires a paraprofessional to obtain a prospective client’s “informed written consent to representation” before the engagement begins, disclosing any actual or reasonably foreseeable adverse consequences of proceeding with a nonlawyer in the matter. The request for consent must be accompanied by a written disclosure that repeats the warnings required by Proposed Rule 1.4.2. This written disclosure must be separate from the paraprofessional’s written engagement agreement.

This theme of disclosure is continued in Proposed Rule 1.5.2. This proposed rule requires the licensed paraprofessional’s written engagement agreement to reiterate the disclosures of Proposed Rule 1.4.2. More fundamentally, Proposed Rule 1.5.2 requires licensed paraprofessionals to maintain a written engagement agreement with each client. In addition to the mandatory disclosures of Rule 1.4.2, the engagement agreement also must include an explanation of the general nature of the legal services to be provided. It must also include an explanation of some of the Rules of Professional Conduct for Paraprofessionals, including the paraprofessional’s obligation to keep the client informed of significant developments, the paraprofessional’s duty of confidentiality, and the client’s right to terminate the relationship. Finally, the agreement must include a disclosure of whether the paraprofessional has liability insurance, and an explanation of how to file a complaint with the State Bar.

Many of these same disclosure concepts are repeated in Proposed Rule 7.2, governing advertising by licensed paraprofessionals. Under Proposed Rule 7.2(c), all advertising must state that the licensed paraprofessional is not a lawyer. In addition, under Rule 7.2(d), if the licensed paraprofessional’s law firm maintains a website advertising the paraprofessional’s services, the website must include all of the disclosures required by Proposed Rule 1.4.2. Proposed Rule 7.2(d) appears to be directed both to law firms comprised entirely of paraprofessionals, and those which are a mix of both paraprofessionals and lawyers.

Proposed Rule 1.5 governs fees charged by licensed paraprofessionals for legal services. It is similar in many respects to the Rule governing attorneys’ fees. But an important difference is the treatment of contingent fees. Under Proposed Rule 1.5(c), a licensed paraprofessional may not charge a contingent fee “except in an enforcement of judgment matter within the scope of the licensed paraprofessional’s license.” Even then, the contingent fee may not exceed one-third of the total value of the judgment.

Proposed Rule 1.5.1 governs the division of fees by licensed paraprofessionals. It permits paraprofessionals to divide a fee with other paraprofessionals outside of their firm, but only if the division is in proportion to the legal services performed by each licensed paraprofessional or each paraprofessional assumes joint responsibility for the representation. In addition, as is the case for fee divisions among lawyers, the client must consent in writing to the arrangement. Proposed Rule 1.5.1 also permits licensed paraprofessionals to divide fees with lawyers outside their law firm under essentially the same conditions.

Proposed Rule 3.1 governs the assertion of meritless claims in litigation. The analogous Rule 3.1 governing lawyers prohibits a lawyer from bringing or maintaining an action without probable cause for the purpose of harassing or maliciously injuring any person, or from presenting a claim or defense that is not warranted under existing law or supported by a good faith argument for a change in the law. Proposed Rule 3.1 declares that a licensed paraprofessional shall not “assist” with any of these improper activities, but says nothing about paraprofessionals engaging in this misconduct on their own. It is unclear why the State Bar is proposing this change in language. Licensed paraprofessionals will be able to present arguments on their own in litigation. Thus, a prohibition identical to the one restricting lawyers would seem to be appropriate. Nevertheless, under the Proposed Rule, paraprofessionals are prohibited only from assisting others in presenting improper arguments.

Proposed Rule 5.4 governs financial arrange­ments between licensed paraprofessionals, lawyers, and others. The Proposed Rule would permit licensed paraprofessionals to own an interest in a law firm that includes lawyers. However, under Proposed Rule 5.4(e), the licensed professionals in a law firm that includes lawyers may not possess a majority ownership interest in the firm or exercise controlling managerial authority. In addition, no individual paraprofessional may have supervisory authority over any attorney.

Because licensed paraprofessionals will not be governed by the State Bar Act, the Proposed Rules also include restrictions modeled after provisions of the State Bar Act. For example, Proposed Rule 8.4(g) would prohibit a licensed paraprofessional from reporting or threatening to report the immigration status of a witness or party “because the witness or party exercises or has exercised a right related to his or her employment, broadly interpreted.” Identical language pertaining to lawyers appears in the State Bar Act. Also, Proposed Rule 8.4(h) would prohibit a licensed paraprofessional from advocating the overthrow of the government by force, violence, or other unconstitutional means. Again, identical language pertaining to lawyers appears in the State Bar Act.

While the Proposed Rules will apply only to licensed paraprofessionals, it is important to bear in mind that all paralegals and all other employees of attorneys are at least indirectly covered by some of the restrictions contained in the California Rules of Professional Conduct for Lawyers. The leading case in this area is In re Complex Asbestos Litigation, 232 Cal. App. 3d 572 (1991). That case involved a paralegal who worked for a law firm defending against a series of asbestos litigation cases who then joined a law firm handling asbestos litigation for plaintiffs. While the paralegal did not work on any of his old defense cases while at the plaintiffs’ firm, the two firms were in active asbestos litigation against each other. Moreover, the paralegal possessed confidential information from the defense firm about the strengths and weaknesses of the cases being handled by his new firm.

The trial court disqualified the plaintiffs’ firm in nine separate cases, and the court of appeal affirmed. The court of appeal recognized that the Rules of Professional Conduct for Lawyers do not apply to paralegals. But to fulfill the paramount policy of protecting client confidences, the court imposed ethical obligations upon attorneys and law firms who hire non-attorney employees. The court concluded that when an attorney or law firm hires an employee possessing confidential attorney-client information that is materially related to pending litigation, the attorney or firm is obligated to obtain the informed written consent of the former employer. If the lawyer fails to obtain the required consent, the lawyer and law firm are subject to disqualification unless they can rebut a presumption that the attorney-client information has been used or disclosed in the new employment. The court explained that this rebuttal will typically be shown through the timely creation of an ethical screen, which the court described as a “cone of silence.”

There are at least two important distinctions between this rule governing the hiring of non-attorneys and the ordinary rule governing lateral attorney hires. The first is that the hiring of a conflicted non-attorney without consent leads only to a rebuttable presumption of disqualification, not the automatic disqualification that has traditionally resulted from the hiring of a conflicted lateral attorney. The court justified this difference based upon the differing responsibilities of lawyers and nonlawyers. Second, when consent is obtained, it must be obtained from the paralegal’s former employer, not the client. This is because the new employer is ethically precluded from directly contacting an opposing party.

In addition, all paralegals are directly regulated by Chapter 5.6 of the California Business & Professions Code (Cal. Bus. & Prof. Code § 6450, et seq.). Of particular importance, section 6453 obligates paralegals, like attorneys, “to maintain inviolate the confidentiality” of any client for whom the paralegal has performed services, and “at every peril to himself or herself to preserve the attorney-client privilege” of those clients. These requirements apply to all paralegals, regardless of whether they become licensed paraprofessionals. Section 6452(b) makes clear that an attorney who uses the services of a paralegal is liable for any breach of these requirements by the paralegal, or any other misconduct or negligence by the paralegal. No showing of misconduct or negligence by the attorney is necessary for the imposition of liability on the attorney. These provisions are in addition to Rule 5.3 of the Rules of Professional Conduct for Lawyers, which also provides that a lawyer may be responsible for a nonlawyer’s misconduct under certain circumstances.

In conclusion, if nonlawyers are going to be licensed to provide certain legal services, it is essential that some form of Rules of Professional Conduct be adopted to govern them. Whether the currently proposed Rules will be sufficient remains to be seen.

Paul A. Stewart is a partner in the law firm of Knobbe, Martens, Olson & Bear, LLP, based in Irvine, California. Mr. Stewart’s practice focuses on intellectual property litigation. In addition, he serves as Chairman of the firm’s Ethics Committee and is a member of the Orange County Bar Association Professionalism and Ethics Committee. Paul can be reached at paul.stewart@knobbe.com.