ARBITRATORS DISCLOSURES – ATTORNEY FEES MAY EXCEED AMOUNT INCURRED

Nemecek & Cole et. al. v. Steven J. Horn, 208 Cal.App.4th 641 (2012) serves as a reminder that not every professional relationship with a party or witness amounts to “necessary information which would cause a reasonable person to doubt the impartiality of an arbitrator, and require disclosure.” Code Civ. Proc., § 1281.9, subd. (a)-(b).)

Horn handled a neighbor dispute and lost the case. Appealed by different counsel, it was reversed. Horn sued for fees and the clients sued for fraud in misrepresenting his real estate experience. Nemecek represented Horn in the jury trial which returned a verdict of $42,282.56 to Horn and the exact amount to the clients. The judgment entered was “zero” due to the offset. On appeal the clients were found to be the prevailing party. On remand Horn was ordered to pay the clients approximately $380,000 in attorneys fees. While on appeal Horn settled with the former clients for $250,000. Horn blamed Nemecek for the “disastrous results” and demanded arbitration with JAMS as specified in their retainer agreement. Nemecek countered for fees and costs. The parties chose retired U.S. District Judge George Schiavelli who presented a disclosure statement. Horn requested additional disclosure of all matters in which Nemecek appeared before the arbitrator and JAMS responded that no case was found.

The arbitrator found Horn’s credibility to be lacking and ordered the parties to take nothing on their respective claims but allowed each of them to seek attorneys fees. The arbitrator found Nemecek was entitled to $289,028.85.. Horn’s offset  was denied as Nemecek was the prevailing party granted virtually all relief sought.

“Shocked” by the award Horn hired a private investigator to find undisclosed relationships between the arbitrator and Nemecek, its counsel or its witnesses

and discovered: (1) the arbitrator and a member of Nemecek’s firm, Mark Schaeffer were both members of the LACBA Appellate Executive Committee; (2) the arbitrator and Edith Mattai, Nemecek’s expert witness, appeared together as panelists in seminars and were board members of the Association of Business Trial Lawyers; (3) the arbitrator was once employed as an attorney at a firm that represents lawyers in malpractice actions; and (4) Nemecek had appeared before the arbitrator when he was a district court judge in 2006.

Horn petitioned to vacate the award and opposed Nemecek’s petition to confirm. The trial court found for Nemecek, and Horn appealed.

I. Failure to Disclose

The California Arbitration Act Code Civ. Proc., § 1280 et seq. requires that an arbitrator disclose within 10 days of being chosen “all matters that could cause a person aware of the facts to reasonably entertain a doubt that the proposed neutral arbitrator would be able to be impartial.” Code Civ. Proc., § 1281.9, subd. (a)-(b).)

The obvious in §1281.9 (1)-(5) are: (1) any ground specified in Section 170.1 for disqualification of a judge; (2) matters required to be disclosed by the ethics standards for neutral arbitrators adopted by the Judicial Council; (3) any prior or pending arbitration in which the proposed arbitrator served as a party arbitrator for any party or their lawyer; (4) any prior or pending arbitration in which the proposed arbitrator served as a neutral arbitrator for any party or their lawyer; and (5) any attorney-client relationship with any party or attorney involved in the arbitration. From there  the description get a little hazy: (6) any professional or significant personal relationship the proposed neutral arbitrator or his or her spouse or minor child living in the household has or has had with any party to the arbitration proceeding or lawyer for a party.  Code Civ Proc., § 1281.9, subd. (6).

The ethics standards adopted by the Judicial Council also require the disclosure of “specific interests, relationships, or affiliations” and other “common matters that could cause a person aware of the facts to reasonably entertain a doubt that the arbitrator would be able to be impartial.” Cal. Rules of Court, Ethics Stds. for Neutral Arbitrators in Contractual Arbitration, Ethics Stds, com. to std. 7.

If an arbitrator “failed to disclose within the time required for disclosure a ground for disqualification of which the arbitrator was then aware,” the trial court must vacate the arbitration award. Code Civ Proc., § 1286.2, subd. (a)(6)(A).)

The court reminded us that the disclosure requirements were intended to ensure the impartiality of the arbitrator, not to mandate disclosure of “all matters that a party might wish to consider in deciding whether to oppose or accept the selection of an arbitrator.” Haworth v. Superior Court (2010) 50 Cal.4th 372, 393. and that `”ordinary and insubstantial business dealings”‘ arising from participation in the business or legal community do not necessarily require disclosure.” Luce, Forward, Hamilton & Scripps, LLP v. Koch (2008) 162 Cal.App.4th 720, 733. .

A. Relationship with Mark Schaeffer

Schaeffer and the arbitrator were members of an appellate committee of the LACBA, comprised of 186 members. The arbitrator had to weigh Schaeffer’s credibility against Horn’s with respect to appellate matters while they were both members of an appellate committee. The court concluded the arbitrator’s participation in a group comprised of 186 members, of which Schaeffer was one, did not require disclosure.

Serving on professional boards together without personal friendships or any kind of business relationships created no requirement that those affiliations be disclosed, particularly where the contact was “slight or attenuated.” Koch, supra, at p. 734. “Membership in a professional organization does not provide a credible basis for inferring an impression of bias.” Ray Wilson Co. v. Anaheim Memorial Hospital Assn. (1985) 166 Cal.App.3d 1081, 1087-1088 “The fact that an arbitrator and a party to the arbitration are members of the same professional organization `is in itself hardly a credible basis for inferring even an impression of bias.”; San Luis Obispo Bay Properties, Inc. v. Pacific Gas & Elec. Co., (1972) 28 Cal.App.3d 556, 567.

The arbitrator’s membership with Schaeffer in the appellate committee of the county bar association was found to be too “slight or attenuated” to require disclosure. There was no indication of any personal or other professional relationship between them. The arbitrator was not required to disclose his “relationship” with Schaeffer.

B. Relationship with Edith Matthai

Horn contended the arbitrator should have disclosed his “prior long standing professional relationship” with Edith Matthai, an expert witness for Nemecek with whom the arbitrator had served on the litigation committee and the executive board of the LACBA and as panelists in a seminar put on for the Association of Business Trial Lawyers. The arbitrator had also served with Matthai’s husband Robie on a LACBA committee. According to Horn it was no stretch to believe that if the Arbitrator and Matthai shared a presence on at least one panel, had known each other over the course of years, and the Arbitrator had worked with Matthai’s husband and law partner Robie, then they had a personal relationship and mutual professional respect. Such may reasonably be deduced from the facts.” The arbitrator’s participation in the same panels or bar association committees did not provide a credible basis for inferring an impression of bias. From these facts, it was an unreasonable stretch of the imagination to assume that the arbitrator had a relationship with Matthai that required disclosure.

C. Law Firm Employment

The court rejected Horn’s contention that the arbitrator should have disclosed his employment at a law firm that has represented clients in the area of legal malpractice defense based upon evidence and a factual finding that the firm did not engage primarily in the defense of lawyers in professional responsibility matters and had handled only two of such cases. Benjamin, Weill & Mazer v. Kors (2011) 195 Cal.App.4th 40

D. Prior Appearance By Nemecek

In an argument that bordered on frivolous, Horn suggested that the arbitrator should have disclosed that Nemecek previously appeared before him in one case while he was on the district court bench. Neither JAMS nor the arbitrator made any representations about his time on the bench. There was no requirement that an arbitrator disclose that attorneys appeared before the arbitrator in one case during his four years as a district court judge.

II. Attorney Fee Award

Horn also challenged the trial court’s award of attorney fees incurred in connection with the petition to confirm the arbitration award. When Horn presented his claim, Nemecek referred it to Lawyers Mutual Insurance Company which contracted with Murphy, Pearson, Bradley & Feeney to provide the defense. In Nemecek’s motion for attorney fees, it presented Murphy’s billing statements and a declaration from Harlan Watkins, Nemecek’s which stated that he had been practicing in California since 1995 with a focus on malpractice litigation and presented a general schedule and pay table for attorneys put out by the Department of Justice, called the Laffey Matrix. Based on the Laffey Matrix, Watkins urged the court to adopt an hourly rate of $419.43 per hour for his work for a total of $45,759.81 in attorney fees. Watkins did not state what his actual hourly rate in the matter was.

In opposition, Horn presented the declaration of Joel Mark, an expert regarding billing and fee disputes and Horn’s expert witness in the arbitration. Mark reviewed Murphy’s billing statements and concluded that Murphy billed Lawyers Mutual between $100 to $215 per hour for attorney services in the arbitration. The trial court awarded Nemecek $42,207.31 in reasonable attorney fees and costs. Contending the amount awarded was more than double the amount actually incurred, Horn claimed the trial court abused its discretion. In short, Horn urged a cap on the attorney fee award to that which was actually incurred. The retainer agreement specified that the “prevailing party in the arbitration and any ancillary proceeding shall recover reasonable attorney’s fees.” Civil Code§ 1717 provides in part: “Reasonable attorney’s fees shall be fixed by the court, . . . and shall be an element of the costs of suit.” “`The reasonable market value of the attorney’s services is the measure of a reasonable hourly rate. This standard applies regardless of whether the attorneys claiming fees charge nothing for their services, charge at below-market or discounted rates, represent the client on a straight contingent fee basis, or are in-house counsel. ” Chacon v. Litke (2010) 181 Cal.App.4th 1234, 1260. Vella v. Hudgins, 151 Cal.App.3d at page 520, acknowledged that “the trend of the cases, however, is toward the conclusion that a trial court may consider the terms of the parties’ contract, along with other factors, but that the terms of the contract do not compel any particular award.”.

There was also no support for Horn’s argument that Nemecek cannot be reimbursed for attorney fees which were not actually paid. Indeed, this argument runs counter to the authority discussed above. The court also rejected Horn’s contention that the attorney fee request should have been denied because the fees were paid by Lawyers Mutual rather than Nemecek itself. Staples v. Hoefke (1987) 189 Cal.App.3d 1397, 1410. “Plaintiffs were not entitled to avoid their contractual obligation to pay reasonable attorney fees based on the fortuitous circumstance that they sued a defendant who obtained insurance coverage providing a defense.”.

Despite the availability of MCLE, the State Bar’s Handbook on Client Traust Accounting for California Attorneys (the Handbook) and the Ethics Hotline, there continues to be a significant problem in the mismanagement of funds, amounting to 12% of all State Bar complaints. The Commission for the Revision of the Rules Of Professional Conduct has created and submitted for public comment Proposed Rule 1.15 in a bold attempt to provide detailed standards for client protection and guidance for lawyers in handling funds and property of clients and other persons. The proposed rule is designed to instruct the lawyer as to the minimum standards at every phase of handling funds and property.

I.          THE CURRENT RULES:

Current CRPC Rule 4-100 (A) mandates that all funds held for the benefit of a client by an attorney, including advances for costs and expenses, shall be deposited into a Trust Account. No funds belonging to the attorney shall be deposited or otherwise commingled, except funds reasonably sufficient to pay bank charges. In the case of funds belonging in part to the client and in part to the attorney, the portion belonging to the attorney MUST be withdrawn at the earliest reasonable time after the attorney’s interest becomes fixed. The attorney must promptly pay or deliver, as requested by the client, any funds, securities, or other properties which the client is entitled to receive. CRPC Rule 4-100(B)(4)

CRPC Rule 3-700 (D)(2) requires the prompt refund of any part of a fee paid in advance that has not been earned. This section is specifically made inapplicable to the “true retainer” paid solely for the purpose of ensuring the availability of the attorney for the matter.

Illegal and unconscionable fees may not be agreed upon, charged, or collected, and are proscribed by CRPC Rule 4-200 (A). Among the factors for determination of unconscionability enumerated under subsection (B) of that Rule is the amount of fee in proportion to the value of the services, the actual time and labor spent, and whether the fee is fixed or contingent. The mere use of such terms as non-refundable, paid on receipt, true retainer, or minimum fee, do not make fees which are paid in advance automatically fall into such a “protected” category.

II.        HISTORY:

In the legislative history of Rule 3-700 (D)(2) and Rule 4-100 (A), inclusion of “advances for fees” was considered, and then intentionally excluded. Matters have come before the State Bar Court in which attorneys have been disciplined for not refunding fees, without ever reaching the issue of failure to deposit in trust as a disciplinary offense. In the Matter of Fonte (Rev. Dept 1994) 2 Cal. State Bar Ct. Rptr 752.

The State Bar Association’s Committee On Professionalism and Conduct (COPRAC) also grappled with the apparent conflict between the need to have the use of such funds and the duty to refund unearned fees upon termination. Over the years proposed changes to Rule 3-700 and Rule 4-100 were struck down each time they were presented to the California Supreme Court for review. Three basic forms of fees paid in advance were recognized:

• A “true retainer,” that is, funds paid solely to reserve the attorney’s availability, whether any are performed or not. These fees are earned upon receipt and therefore need not be deposited into trust nor refunded upon termination. Baranowski v State Bar (1979) 24Cal.3d 153, CRPC Rule 3-700 (D)(2). If the attorney accepts such a fee and then places it into his or her trust account, or then renders an hourly or other billing against the funds received, the funds are treated as an advance, rather than a true retainer. S.E.C. v Interlink Data Network of Los Angeles, Inc. (9th Cir 1996) 77 F.2d 1201.

• A “security retainer”, that is, funds paid in order to secure the future payment of services to be performed. This type of payment constitutes funds held “for the benefit of the client”, not the attorney, and therefore must be placed in trust. In re Montgomery Drilling Co (1990) 121 B.R. 32.

• An “advance payment retainer” that is, funds which constitute payment for services is made in advance of performance. In re Montgomery Drilling Co, infra. Whether this latter advance payment is for the benefit of the client as opposed to the attorney has been the subject of much debate. There is no California Supreme Court case or State Bar Court decision on point to date. In fact, in several matters the State Bar Court has modified its decisions to remove a finding of disciplinary offense for failure to place advance fees into the attorney-client trust account. Baker v State Bar (1989) 49 Cal.3d 804, op. mod. 50 Cal.3d 30, Read v. State Bar (1991) 53 Cal.3d 1009.

We do have an actual finding that Rule 4-110 requires the deposit of advance payment retainer fees into trust, but it was made in a matter involving alleged legal malpractice, not discipline. T & R Foods Inc. v. Rose (1996) 47 Cal.App.4th Supp 1. In T&R Foods, for the first time, a court actually decided whether or not CRPC Rule 4-100 requires advances for attorneys’ fees be kept in trust accounts, segregated from money belonging to an attorney.  In T & R Foods, $25,000 had been paid to an attorney, the sole shareholder in his law corporation, who subsequently died. The funds were not placed in a trust account. Fees were to be charged against the retainer so paid. The court held that since fees were to be charged against the funds paid, it was not a “true retainer.” It further held that failure to place the funds into trust constituted a breach of fiduciary duty and professional negligence.

The court went through a discussion of the Baranowski and Montgomery Drilling cases, and then favorably mentioned the San Francisco Bar’s Legal Ethics Opinion SF 1980-1 (Opin SF 1980-1), as supporting its views. The court analyzed the difference between the security retainer and advance payment retainer, stating that under the latter, the intent is to pass ownership to the attorney upon receipt. The court concluded, however, that the intent of the State Bar under the Rule was that “funds” retain their ownership identity with the client until earned. In considering whether the failure to segregate funs constituted negligence or breach of fiduciary duty, the Court recognized the purpose served by Rule 4-100, to safeguard the client’s money “to provide against the probability in some cases, the possibility in many cases, and the danger in all cases that such commingling will result in the loss of client’s money.” Hamilton v. State Bar (1979) 23 Cal.3d 868, 876.  Opinion SF 1980-1, was cited in support of the court’s position in T & R Foods, yet Opinion SF 1980-1 includes both majority and dissenting minority opinions on the issue. The majority concluded that the advance payment retainer was in fact “held for the benefit of” the attorney, and not the client, and should be deposited into the general account. This was the exact opposite of the holding in T & R Foods. The dissent came to a contrary conclusion.  COPRAC’s Formal Opin. 01-02, referring to T&R Foods , advised lawyers to be safe rather than sorry, and to place fees paid in advance in trust.

Regardless of the fact that no current or proposed rule requires placement of  funds into trust, the potential for disaster is great where funds are received, and not accounted for, nor available for refund upon termination of employment. The case in point is In the Matter of Fonte (Rev. Dept. 1994) 2 Cal. State Bar Ct Rptr. 752. Mr. Fonte, when confronted with several allegations of misconduct, including the failure to account for, and to refund unearned fees, alleged that the advance fees paid to him were earned upon receipt, and that they did not have to be refunded nor accounted for. He seized upon the lack of the word “fees” in Rule 4-100 (B)’s accounting requirement. The court held, that the word “funds” in the Rule includes all money received, whether they had to be placed into trust, or not and imposed a six month actual suspension

The Montgomery Drilling case involved bankruptcy debtor’s counsel’s application for fees, and the trustee’s opposition to same on various grounds, including duplicative and unnecessary work, and excessive charges. At issue was whether funds paid, one day pre-petition, by the debtor to it’s counsel, would be considered a “security retainer” to secure payment of future services and therefore property of the estate, and not a “classic retainer” (true retainer), paid to reserve the availability of the attorney’s time. Since payments were to be made against the funds received, it fell into the security retainer category. The court made it clear that where advance payments are security for future payments and not present payments for future services, the fees are held for the benefit of the client and not the attorney, and are not a classic retainer which is earned upon receipt.  The court reasoned that under former Rule 8-101 (Repealed), such fees remained the property of the client until applied to charges for services actually rendered, and that the language of the Rule was such as to indicate an intent on the part of the State Bar that funds received from the client retain an ownership identity with the client until earned.

The court never decided whether such fees must be deposited into trust. Montgomery Drilling was a federal bankruptcy matter, not a discipline case.

III.       THE PROPOSED CHANGES:

(1)        When may fees paid in advance be placed in a trust account?

Proposed Rule 1.15 draws a clear distinction between fees that are paid in advance and an advance for costs and expenses, mandating the deposit of costs and expenses into a trust account in proposed Rule 1.15(a).  As to advances for fees, Proposed Rule 1.15 gives the member the same choice as was afforded in the State Bar Handbook, at page 14. Advance fees may be placed in either the trust or general account. Proposed Rule 1.15(d).

(2)        When must fees paid in advance be placed into trust?

Proposed Rule 1.15(d)(2) provides that “if a client or other person disputes a lawyer’s entitlement to a fee, any disputed portion of an advance for fees not yet fixed must be deposited into a trust account.” Whether entitlement to fees has been fixed is usually determined by resort to the language of the contract and performance there under by the parties.  Proposed Rule 1.15 (g)(4), carries forward  COPRAC Formal Opin. 2006-171 and provides that funds properly withdrawn from trust need not be replaced when the client later disputes fees.  The Opinion pre-supposes a proper withdrawal only after the amount has been fixed.

One area of concern may still lie in the use of language in agreements that call for immediate withdrawal of funds on specified dates with no warning or consent by the client as that date approaches. The danger in such advance consents is that an attorney may withdraw funds based upon the sum being “fixed” by contract, but the client may not know about it until much later through an accounting, at a time the money is gone and spent, never to be retrieved and repaid.  Another potential issue that might be addressed is the fact Proposed Rule 1.15 does not require that funds must be placed in trust where the fee agreement so specifies. The attorney is bound to do so whether CRPC Rule 4-100(A) requires it or not. S.E.C. vs. Interlink Data Networking of Los Angeles Inc. (9th Cir. 1996) 77 F.3d 1201.

(3)        What are the client protections?

Proposed Rule 1.15 (d)(1) protects the client with an accounting: “subject to Business and Professions Code §6068(e) the lawyer must account to the client or other person who advanced the fees. (Third parties who pay the fees for a client share the same protections as the client.)

Proposed Rule 1.15 (e) confirms the lawyer’s duty to maintain inviolate all funds on account in a trust account and all property entrusted to the lawyer for the benefit of the client or other person until distributed according to the Rule.

Proposed Rule 1.15 (f) restates the prohibition on commingling lawyers funds with trust funds, except (1) for funds necessary to pay bank charges, (2) deposits for an exact amount of overdraft protection plus bank charges, (3) funds deposited to restore entrusted funds improperly withdrawn, (4) funds n which the lawyer claims an interest but which are disputed by the client or other person (5) funds belonging in part to a client and in part presently or potentially to the lawyer but which are claimed by a third party. This provision sanctions the commingling of funds to pay bank charges or overdraft protection. The restoration of funds as non-commingling is in accord with current case law.

Proposed Rule 1.15 (g) provides “Duties when lawyer’s entitlement to funds becomes fixed or the lawyer’s entitlement is disputed: In the case of funds held in a trust account that belong in part to a client or other person and in part to a lawyer, the lawyer shall withdraw the portion belonging to the lawyer at the earliest reasonable time after the lawyer’s interest in that portion becomes fixed, provided that:

Proposed Rule 1.15 (g)(1) states that ” the client or other person may still dispute that the lawyer has earned the funds,”  This is true regardless of whether the fees have become fixed and have by necessity been withdrawn from trust..

Proposed Rule 1.15 (g)(2) continues the lawyer’s obligation to distribute any undisputed portion of funds to the client or other person and the lawyer’s duty not to withdraw the disputed portion until the dispute is finally resolved or the withdrawal is authorized by law or court order. Under case law the lawyer may withdraw disputed fees only with the client’s consent and a lawyer’s “honest” but mistaken belief the client authorized application of funds to pay outstanding fees is not a defense. Dudgjian vs. State Bar (1991) 52 Cal.3d 1092.

Proposed Rule 1.15 (g)(3) is consistent with case law in Garlow vs. State Bar (1988) 44 Cal.3d 698, in that it requires ” a lawyer shall take reasonable steps promptly to resolve any dispute regarding entrusted funds in the circumstances of paragraph (g)(2).

Proposed Rule 1.15 (h) deals with situations where the entitlement to funds or property is disputed by one client or other person against another client or other person. The lawyer is required to keep the funds on deposit until the matter is resolved or distribution authorized by law or court order. Undisputed funds are excepted.

Proposed Rule 1.15 (i) similarly protects against premature distribution where a third party disputes the client or other person’s entitlement to funds or property where that third party has a security or ownership interest or where the property is subject to a court order.

Proposed Rule 1.15 (j) sets forth the rules in regard to the acceptance of credit cards for fees and costs. As credit card issuers may be able to invade a merchant account, the use of credit cards for advance fees or costs is limited to situations where ” the lawyer’s obligations for any charges, chargebacks and offsets be paid from a source that is not a trust account.”  This provision adopts the reasoning of COPRAC Formal Opinion 2007-172.

Proposed Rule 1.15 (k) requires the management recordkeeping and accounting of funds and property held in trust, not just in response to a request as is presently called for under Business and Professions Code § 6148 (b). The Proposed Rule Section (k)(4) specifies that ” a lawyer shall (4) account to the client or other person for whom the lawyer hold funds or property. An accounting shall include but is not limited to a statement of all funds and property received, by source, amount, date, distributions by date and amount and payee, and trust account check number and any balance remaining,

Proposed Rule 1.15 (l) limits the application of the Rule in regard to multijurisdictional lawyers. Non-California lawyers, with non-California clients, arising from non-California legal representation, who handle property or funds in accordance with another jurisdiction’s laws are exempt, as are funds entrusted to such multijurisdictional lawyers regarding matters being litigated outside of CA even though the firm maintains an office in California, and lawyers practicing under California Rules of Court 9.47.

Proposed Rule 1.15 (m) allows the Board of Governors to formulate and adopt standards for what “records” need to be maintained.

IV.       CONCLUSIONS AND CONCERNS:

All considered, the Proposed Rule 1.15 is a very well thought out procedural guide that will serve the legal profession and clients well.  However, several aspects of the Proposed Rule could create a trap for the unwary lawyer, in several areas.

• There is no definition of the term “fixed” which might be provided to the membership. Whether a fee is “fixed” is determined by looking to the agreement of the parties and their performance there under.

• The words “unless as otherwise provided by contract” need to be read alongside section (a) since an agreement calling for deposit of entrusted funds into trust requires that client funds be handled in that fashion under SEC v Interlink.

• Compliance with the Proposed Rule does not change the law in regard to State Court civil liability towards clients for the mishandling of funds and property, per T&R Foods, despite the federal cases to the contrary.  Both Montgomery Drilling Co.  and T & R Foods v. Rose came to the opposite conclusion. The Proposed Rule may provide lawyers with a false sense of security.

A member shall keep a client reasonably informed about significant developments relating to the employment or representation and promptly comply with reasonable requests for information and copies of significant documents. CRPC 3-500. A parallel duty is imposed to respond promptly to reasonable status inquiries of clients and to keep clients reasonably informed of significant developments under B&P §6068 (m). The key to effective communication is that the client must have an honest assessment of the risks and benefits in order to provide informed consent. Lysick v Walcolm (1968) 258 Cal.App.2d 136, 147. There must also be a discussion of peripheral matters outside the scope of representation that are reasonably apparent and that may require legal assistance elsewhere. Nichols v Keller (1993) 15 Cal.App.4th 1672.

COMPETENCY

A repeated or habitual failure to possess and use diligence, learning, and skill may lead to discipline.  One such act or omission may lead to malpractice liability. Competence requires the mental, emotional and physical ability and the time and resources reasonably necessary to perform. CRPC Rule 3-110. It is therefore important to know your potential clients and their resources, the needs of the matter to be undertaken, and your own abilities and limitations. Consultation or association with another lawyer reasonably believed to be competent is one way to act competently. CRPC 3-110 (C).

CONFLICTS

An attorney must disclose in writing any legal, business, financial, professional, or personal relationship with a party, witness, or someone who would be affected substantially by resolution of the matter, or has such an interest of their own. CRPC Rule 3-310 (B). The purpose of disclosure is to give the client an opportunity to intelligently weigh the importance of the past or present connection, and have the option to decline representation under such circumstances. The timing of the disclosure must be such that the client has a reasonable opportunity to object and find other counsel and must inform the client of all relevant circumstances and of the actual and reasonably foreseeable adverse consequences of representation.  CRPC Rule 3-310 (A)(2).

Informed written consent is required in order to accept representation of more than one client in a matter in which the interests of the clients actually or potentially conflict or to represent a client and at the same time accept representation of another client, in a separate matter, whose interest is adverse to that of the first client. CRPC Rule 3-310(C).  Where the attorney has obtained confidential information as a result of representation, which is material to the employment of another client whose interests are adverse to the first client, such informed written consent is also required. CRPC Rule 3-310(E)

CONFIDENTIALITY

An attorney must maintain inviolate the confidence, and at every peril to himself or herself to preserve the secrets, of his or her client. B&P§6068 (e); CRPC Rule 3-100. This duty continues beyond termination of the relationship, and extends to both former and present clients. Flatt v Superior Court (1994) 9 Cal.4th 275.

An attorney may not reveal knowledge of a client’s commission of a crime or fraud or an intention to commit it.  There is no exception in California permitting disclosure, unlike many jurisdictions. If a client consults the attorney for the purpose of assisting the client to commit a crime or fraud, there is no attorney-client privilege under EC§956, and the attorney may be compelled to testify against the client. Note that this exception to the privilege does not abrogate the attorney’s duty to keep the secrets inviolate at every peril to him or herself.  The attorney may not disclose the information unless and until a court makes the determination above.  B.P. Alaska Exploration, Inc. v Superior Court (1988) 199 Cal.3d 1240. Although there is a duty not to disclose certain information, such duty does not also extend to affirmative acts, which further a client’s unlawful conduct. In re Young (1989) 49 C3d 257, 265. [Attorney disciplined for providing financial assistance to fugitive client.] The client’s confidences may be divulged if relevant and necessary to defend against a claim of legal malpractice.  Schlumberger Ltd. v Superior Court (1981) 115 Cal.App.3d 386, 392-393.

COMMINGLING

Funds held for the benefit of a client including advances for costs and expenses must be deposited into an account labeled  ”Trust Account” or “Attorney Trust Account” or words of similar import and maintained in this State or with the client’s consent in another state having a substantial relationship with the client or the client’s business. No funds belonging to the attorney shall be deposited or otherwise commingled, except funds reasonably sufficient to pay bank charges. In the case of funds belonging in part to the client and in part to the attorney, the portion belonging to the attorney must be withdrawn at the earliest reasonable time after the attorney’s interest becomes fixed. However, where the right to receive a portion of the funds is disputed by the client, the disputed portion shall not be withdrawn until the dispute is finally settled. CRPC Rule 4-100, The attorney must promptly pay or deliver, as requested by the client, any funds, securities, or other properties which the client is entitled to receive. CRPC Rule 4-100(A)(1), (2) CRPC Rule 4-100(B)(4). If funds are to be held for more than a “short period of time”, or are more than a “nominal” amount, it is necessary and proper to open an interest bearing account in the name of the client and attorney. Such an alternate account is allowed under B&P§6211(b) and CRPC Rule 4-100 (A). Funds are considered nominal or short term if it is “not practicable to segregate them to earn income.”  Under CRPC 4-100, a member may not deviate from the unqualified duty to place funds in a client trust account even with a client’s authorization. In the Matter of Lilly (Rev. Dept. 1992) 2 State Bar Ct. Rptr. 185.

CONSCIONABILITY OF FEES:

An attorney shall not enter into an agreement for, charge or collect an illegal or unconscionable fee. CRPC Rule 4-200(A) Unconscionability is determined on the basis of all of the facts and circumstances existing at the time of contracting, except where the parties contemplate that the fees will be affected by later events. There are eleven factors enumerated among those to be considered in determining the conscionability of a fee. CRPC Rule 4-200(B). “Non-refundable” fees, those “earned upon receipt”, and “minimum fees” all have been the subject of unconscionability claims, regardless of the language of the agreement. Unconscionable fees may constitute a breach of fiduciary duty.

CUTTING LOOSE

Termination of employment may not take place if a court’s permission is required. The attorney must take reasonable steps to avoid reasonably foreseeable prejudice to the client. CRPC Rule 3-700 (A).

Under CRPC Rule 3-700 (B) termination through withdrawal is mandated if a client insists on bringing an action, conducting a defense, asserting a position in litigation or taking an appeal without probable cause and for the purpose of harassing or maliciously injuring any person. CRPC Rule 3-700(C) provides that permissive withdrawal is proper for actions of the client (1) where continued employment is likely to result in violation of the rules (2) where there is an inability to work with co-counsel (3) where the mental or physical health makes it difficult to perform effectively (4) if the client knowingly and freely assent to termination and (5) where other good cause exists.

Upon termination, the attorney must promptly release to the client all “papers and property”, which includes correspondence, pleadings, deposition transcripts, exhibits, physical evidence, expert’s reports, and other items reasonably necessary to the client’s representation, whether the client has paid for them or not. CRPC Rule 3-700 (D)(1). An attorney must promptly refund any part of a fee paid in advance that has not been earned. This provision is not applicable to a “true retainer” which is paid solely to ensure the availability of the attorney.

A “non-engagement” letter is often necessary and good practice in order to protect the potential client, and oneself, from misunderstandings regarding responsibility for taking any action or measures on behalf of a potential client whose matter has been rejected. State that the decision is not to be construed as a comment on the merits of their case and that certain pressing time limits may apply. Tell them of the need to act promptly to secure other counsel. It is very important to clearly tell the potential client that you are not in charge of their affairs so as to avoid any misunderstandings.

CONCLUSIONS

This is an age of legal specialization. It is difficult enough to keep abreast of developments in one or two practice areas. The general practitioner may find it difficult or even impossible to stay current in every area of the law. Beware of your own limitations. Even if you think you can do it, the chances are that there may be trouble just lurking around the corner.

GOOD LUCK, and HAPPY LAWYERING!

Spouses represented by separate counsel in a dissolution proceeding wish to communicate without the lawyers present regarding the issues in dispute. One of the parties seeks  guidance from their lawyer regarding the strategy and content of a meeting with the ex spouse. Public policy strongly favors the settlement of disputes, especially where the parties are in an ongoing relationship. The parties here need to communicate with each other, without their lawyers present. Discouraging the client from direct communication with the opposing party may constitute incompetent representation as it may foreclose “opportunities to efficiently settle or resolve” disputes.

Rule 2-100 of the California Rules of Professional Conduct states that while representing a client, a member shall not communicate directly or indirectly about the subject of the representation with a party the member knows to be represented by another lawyer in the matter, unless the member has the consent of the other lawyer. This “no contact” rule is necessary to preserve the attorney client relationship, confidentiality of communications between lawyer and client, and the proper administration of justice. Direct communications are prohibited and easily identified. This article explores the extent, if any, to which the lawyer may provide such advice and guidance without violating Rule 2-100 of the California Rules of Professional Conduct as an indirect communication by counsel with a represented party. By comparison, Rule 4.2 of the American Bar Association, Model Rules of Professional Conduct omits the reference to direct or indirect communication. “In representing a client, a member shall not communicate about the subject of the representation with a party the member knows to be represented by another lawyer in the matter, unless the member has the consent of the other lawyer or is authorized by law to do so.”

What constitutes an indirect communication has been the subject of several ethics opinions. One such opinion concluded that where the content of the communication originates with or is directed by the client and not the attorney it is permitted under the rule. A California State Bar Ethics Opinion provides that,”When the content of the communication to be had with the opposing party originates with or is directed by the attorney it is prohibited by rule 2-100. Thus, an attorney is prohibited from drafting documents, correspondence or other written materials, to be delivered to an opposing party represented by counsel even if they are prepared at the request of the client, are conveyed by the client and appear to be from the client rather than the attorney. An attorney is also prohibited from scripting the questions to be asked or statements to be made in the communications or otherwise using the client as a conduit for conveying to the represented party words or thoughts originating with the attorney. When  the content of the communication originates with or is directed by the client and not the attorney it is permitted by rule 2-100. Thus, an attorney may confer with the client as to the strategy to be pursued in, the goals to be achieved by and the general nature of the communication the client intends to initiate with the opposing party as long as the communication itself originates with and is directed by the client and not the attorney.” Cal. State Bar Formal Op. No.  1993-131, at  3.

Addressing indirect communication, California State Bar Formal Opinion 1993-131 (Opinion 1993-131) acknowledges that where the “line is drawn is more easily determined in some cases than others.”  Opinion 1993-131 flatly prohibits (1) communication by a client with the opposing party that is originated with or directed by the attorney, (2) an attorney drafting documents to be delivered to an opposing party represented by counsel, (3) an attorney sending documents to an opposing party even where the party’s counsel is simultaneously copied, (4) scripting questions to be asked or statements to be made in client-to-client communications, and (5) actively using the client to communicate words and thoughts originating with the lawyer.  Id.  In contrast, client-to-client communication initiated or directed by the client is permissible.  Id.  at 2.  In addition, the lawyer may provide the client with guidance regarding client-to-client communications.  Id.

Initiating a settlement conference or indirectly participating in negotiations through instructions to the client is impermissible. Id. It was improper for a lawyer to use the client to lure the opposing party into a settlement conference behind opposing counsel’s back.  Abeles v. State Bar (1973) 9 Cal.3d 603, 108 Cal. Rptr. 359, 510 P.2d 711. The test as to when a communication originates with or is directed by a lawyer remains unclear and is subject to interpretation. Even if a lawyer prepares a communication at the client’s request, the communication may still have “originated from” and been “directed by” the lawyer.

In response to the lack of clarity regarding the no contact rule and the topic of indirect communications, the Rules Revision Commission drafted  PROPOSED RULE 4.2 – Communication with a Person Represented by Counsel [2-100]. The proposed rule 4.2 would replace rule 2-100, change “party” to “person”, and add a  requirement that the lawyer shall not imply that he or she is disinterested when communicating. As before, the lawyer shall not seek to obtain privileged or confidential information, under paragraph (e). Proposed California Rules of Professional Conduct, rule 4.2, com. 7, available at http://ethics.calbar.ca.gov/Committees/RulesCommission/ProposedRulesofProfessionalConduct.aspx.

The comments to proposed rule 4.2 have been expanded to twenty four, including numbers five and seven, which deal directly with our particularly thorny issue. Comment [5] provides that “The prohibition against ‘indirect’ communication with a person represented by counsel in paragraph (a) is intended to address situations where a lawyer seeks to communicate with a represented person through an intermediary such as an agent or investigator.”  Comment [7] would provide, “This Rule does not prohibit represented persons form communicating directly with one another, and a lawyer is not prohibited from advising the lawyer’s client that such communication may be made. A lawyer may advise a client about what to say or not to say to a represented person and may draft or edit the client’s communications with a represented person subject to paragraph (e).”

These proposed changes are more  in line with the Model Rules and the ABA position. ABA FORMAL OPINION 11-461, issued August 4, 2011 states: “Parties to a legal matter have the right to communicate directly with each other. A lawyer may ethically advise a client of that right and may assist the client regarding the substance of any proposed communication. Such assistance may not, however, result in overreaching by the lawyer.” The ABA Opinion goes so far as to permit the presentation of settlement papers for signature so long as the represented party has been given the chance to speak with his or her own lawyer before signing the papers. There is no requirement of knowledge of the meeting on the part of the lawyer who has not participated in the communication.

The Restatement (Third) of the Law Governing Lawyers, § 99 comes to similar conclusions as the ABA.  Illustration 6 states that a lawyer may redraft a letter to be sent to a represented person by his or her client. The proposed rule 4.2 changes, the ABA position, and the Restatement all consider the indirect communications proper so long as confidentiality and privilege are kept, and there is no overreaching. The source of the communication would no longer matter. Although there are times where parties need to communicate between themselves, it would be improper for an attorney to get so involved in preparing the client for the meeting that his or her own knowledge and skill is to be used against the unsuspecting represented party. To even the playing field, opposing counsel must be informed of the meeting to similarly prepare their own client. Absent such equality and fairness, the extent of lawyer participation should be limited as set forth in Formal Opinion 1993-132 to general considerations only, and not be expanded to drafting, scripting, agreement writing, and otherwise as perhaps implied by California’s proposed new rule.

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Joel M. Pores is a sole practitioner in Irvine, handling Legal Malpractice, Ethics and Fee Disputes. Mr. Pores has served as Co-Chair of the OCBA Client Relations Committee, as a member of the State Bar Committee on Mandatory Fee Arbitration, and is a member of the OCBA Ethics and Professionalism Committee. Mr. Pores may be reached at 949.609.0300 or via email to JPores@Poreslaw.com. The views expressed are his own.

1. Communication: Paramount in any relationship and the essential basis of any agreement or argument, the client is to be kept informed of events as they unfold, so misunderstandings are less likely. “A member shall keep a client reasonably informed about significant developments relating to the employment or representation, including promptly complying with reasonable requests for information and copies of significant documents when necessary to keep the client so informed. “CRPC Rule 3-500. Business and Professions Code § 6068 (m) mandates a parallel civil duty to respond promptly to reasonable status inquiries of clients and to keep clients reasonably informed of significant developments. A client must have an honest assessment  of the RISKS and BENEFITS or a course of conduct in order to give informed consent.  Lysick v Walcolm  (1968)  258 CA2d 136, 147, 65 CR 406, 414. This includes PERIPHERAL matters outside the scope of representation that are reasonably apparent and that may require legal assistance elsewhere.  Nichols v Keller (1993) 15 CA4th 1672.So what is a significant development? Matters such as the goals of the litigation or transaction, who to sue and for what reason, as opposed to the manner in which the attorney is to achieve those goals meet this test, whereas matters of “routine judgment” such as the questions to ask at a deposition are typically within the discretion of the attorney. And what is “prompt”? Twenty four hours is courteous, considerate and probably within the meaning of “prompt.” If you cannot return the call yourself, have someone call to let the client know that you received the message and will call back ASAP.

2. Competency: Being competent means Diligence, Learning &. Skill and Mental, Emotional & Physical Ability. All three are required, as is reasonably necessary for the performance of services. CRPC Rule 3-110  It is not enough to know your craft  You must act, and have the time, resources and mental and physical ability to do so. Consultation or association with another lawyer reasonably believed to be competent is an approved method of competent performance. CRPC 3-110 (C). Know the needs of your case. Know your own resources and those of your client. Can you afford to pay for all of the costs to be incurred? Can the client? Know your client. Can your personality handle such an individual? Can your staff? The areas of practice are as diverse as the personalities of the attorneys who practice them. Choose an area that fits you as a person. Some people are just not cut out for the combative nature of litigation, or for the rigorous time limitations and client demands of transactional work. If you find something that you actually like to do, you will avoid burnout, and be a better lawyer, too. Based upon current statistics, personal injury and domestic relations are the leaders in complaints to the Bar. Malpractice claims, however, were brought more often by large clients, such as corporations. Expect to have three claims in your career, if you are starting out today.

3. Conflicts: You are not to accept or continue representation of a client without providing WRITTEN DISCLOSURE if the attorney has or had a legal, business, financial, professional, or personal relationship with a party, witness, or someone who would be affected substantially by resolution of the matter, or has such an interest of their own. CRPC Rule 3-310 (B). The purpose of such disclosure is to give the client an opportunity to intelligently weigh the importance of the past or present connection, and have the option to decline representation under such circumstances. The timing of the disclosure must be such that the client has a reasonable opportunity to object, and to find other counsel, if need be. The meaning of disclosure, pursuant to CRPC Rule 3-310 (A)(2) is that the writing must inform the client of all relevant circumstances and of the actual and reasonably foreseeable adverse consequences of representation. Under subpart (C) of CRPC Rule 3-310, informed WRITTEN CONSENT is required in order to accept representation of more than one client in a matter in which the interests of the clients actually or potentially conflict or to represent a client and at the same time accept representation of another client, in a separate matter, whose interest is adverse to that of the first client. Where the attorney has obtained confidential information as a result of representation, which is material to the employment of another client whose interests are adverse to the first client, such consent is required. CRPC Rule 3-310 subpart (E) The adequacy of a conflicts check is a source of concern in today’s corporate and business community, given the number of officers, directors, shareholders, subsidiaries, divisions, and other sub-parts which may have sought consultation, advice or representation in the past, or in the present. Everyone possibly connected to the client or potential client needs to be included on the master conflicts list. All facts and circumstances necessary to INFORMED CONSENT must be disclosed or consented to. The ramifications and adverse consequences must be spelled out. Such things as the division of loyalty for settlement purposes, conflicting instructions on how to handle the litigation, costs to incur, waivers of confidentiality, claims for indemnification, and the possible need to withdraw whereby one will stay and the other go are all part of the “reasonably foreseeable adverse consequences”. Each conflict letter consent must be tailored to the facts and circumstances of the individual case, and clients.

4. Confidentiality: It is the DUTY of an attorney under Business and Professions Code § 6068 (e) “To maintain inviolate the confidence, and at every peril to himself or herself to preserve the secrets, of his or her client.” An attorney’s broad duty to protect a client’s confidences and secrets continues beyond termination of the relationship, and extends to both former and present clients. Flatt v Superior Court (1994) 9 C4th 275. An attorney may NOT reveal knowledge of a client’s commission of a crime or fraud or an intention to commit it. Although you are duty bound to support the Constitution, the public good is subordinated to the rights of your client, to undivided loyalty. There is NO “whistle-blower” exception in California, unlike many jurisdictions, which allow an attorney to reveal such secrets where they involve commission of a crime or fraud. If a client consults the attorney for the purpose of assisting the client to commit a crime or fraud, there is no attorney-client privilege under Evidence Code § 956, and the attorney may be compelled to testify against the client. Note that this exception to the privilege does not abrogate the attorney’s duty to keep the secrets inviolate at every peril to himself. The attorney may not disclose the information unless and until a court makes the determination above. B.P. Alaska Exploration, Inc. v Superior Court (1988) 199 C3d 1240. Some would argue that the duty withstands even a court order and possible contempt citation, thus falling within the meaning of “every peril to himself or herself”. Although there is a duty not to disclose certain information, such duty does not also extend to affirmative acts, which further a client’s unlawful conduct. In re Young (1989) 49 C3d 257, 265. [Attorney disciplined for providing financial assistance to fugitive client.] The client tells you something that will defeat his or her claim. A client insists upon filing papers with the court that you know are false. What are your obligations under these circumstances?  Beyond the necessary counseling on the risks attendant to the anticipated conduct, you may be able to prevail upon the client to act otherwise, or to try a different approach. If unsuccessful in this endeavor, your option is probably limited to a no-noise withdrawal. This means setting forth an innocuous reason for departure in any motion to withdraw. State that you have had a breakdown in the relationship, and not more. If you join in the false claim or defense, or present false testimony, you are in violation of your oaths as set forth in the opening section, and a good candidate for a malicious prosecution suit, discipline and malpractice. And if the client sues the attorney for malpractice, the attorney will not be able to shield his or her work product from the client in the course of discovery. CCP 2018(f) Your intimate thoughts regarding the impropriety of the conduct will be revealed. The client’s confidences may be divulged if necessary to defend against a claim of legal malpractice. But the privileged communications are not automatically discoverable solely because they are related to the issues raised in litigation. Schlumberger Ltd. v Superior Court (1981) 115 CA3d 386, 392-393. If an attorney participates in a pre-litigation investigation, and the dominant purpose of it was routine fact gathering, as opposed to the giving of legal advice, the attorney-client privilege may not apply. Wellpoint Health Networks, Inc. vs Superior Court (1997) 54 CA4th 110.

5. Commingling Funds: It is your DUTY under CRPC Rule 4-100 as to funds held for the benefit of a client including advances for costs and expenses, to deposit them into a Trust Account. The account must be labeled “Trust Account” or “Attorney Trust Account” or words of similar import and maintained in this State or with the client’s consent in another state having a substantial relationship with the client or the client’s business. No funds belonging to the attorney shall be deposited or otherwise commingled, except funds reasonably sufficient to pay bank charges. In the case of funds belonging in part to the client and in part to the attorney, the portion belonging to the attorney MUST be withdrawn at the earliest reasonable time after the attorney’s interest becomes fixed. However, where the right to receive a portion of the funds is disputed by the client, the disputed portion shall not be withdrawn until the dispute is finally settled. CRPC Rule 4-100(A)(1), (2) Record maintenance of all funds, securities and other property coming into the possession of the attorney is also required, as is the rendering of appropriate accounts to the client regarding them. Such records must be maintained for at least five years after final distribution. CRPC Rules 4-100(B)(3 Records, according to the Standards portion of the above Rule, include, as to funds: a) A written ledger containing the name of the client, date, amount and source of all funds received, date, amount payee and purpose of al disbursements; b) A written journal for each bank account which sets forth the name, date, amount, and client affected by each credit and debit and the current balance; c) All bank statements and canceled checks for each account, and; d) All monthly reconciliations (balancing) of a), b), and c). A similar record keeping system is required for securities and other properties of a client coming into the possession of the attorney. CRPC Rule 4-100(B)(4) requires that the attorney promptly pay or deliver, as requested by the client, any funds, securities, or other properties which the client is entitled to receive. Most attorneys probably know that the costs and expenses paid in advance as well as a settlement check constitute “funds” coming into their possession, which have to be placed into the Client Trust Account. If funds are to be held for more than a “short period of time”, or are more than a “nominal” amount, it may be necessary and proper to place same into an interest bearing account in the name of the client and attorney, to avoid any allegation of impropriety on the part of the client. Such an alternate account is allowed under Business and Professions Code  6211(b) and CRPC Rule 4-100 (A) Funds are considered nominal or short term if it is “not practicable to segregate them to earn income”. Under Rule 4-100, a member may not deviate from the unqualified duty to place funds in a client trust account even with a client’s authorization. In the Matter of Lilly (Rev. Dept. 1992) 2 State Bar Ct. Rptr. 185.

6. Conscionable Fees: An attorney shall not enter into an agreement for, charge or collect an unconscionable fee. CRPC Rule 4-200(A) Unconscionability is determined on the basis of all of the facts and circumstances existing at the time of contracting, except where the parties contemplate that the fees will be affected by later events. There are eleven factors enumerated among those to be considered in determining the unconscionability of a fee. CRPC Rule 4-200(B). The factors, in shorthand form, are: 1 Amount of fee in proportion to the value of services, 2 Sophistication of parties, 3 Novelty and difficulty of task, and skill required, 4 Appearance to client that other employment likely be precluded, 5 Amount in controversy and result obtained, 6 Time limitations imposed, 7 Nature and length of relationship with client, 8 Experience, reputation and ability of attorney, 9 Fee fixed or contingent, 10 Actual time and labor spent, 11 Informed consent to the fee. Fee disputes occur most often as an outgrowth of an unsuccessful, or less than successful handling of a legal matter. An attorney’s value should not be measured by the outcome alone, which is usually uncertain. As a practical matter, the unconscionability of a fee may boil down to a comparison of the amount spent on legal fees versus the amount sought. A Cost Benefit Analysis is an important tool to avoid these disputes. The factors are to be taken together as a whole and none is controlling over another. High contingent fees may be considered conscionable simply because of the risk taken, and the public access to the court system that it affords. Overreaching or churning of a fee is a different matter altogether. If a client is charged twenty thousand dollars to recover five thousand dollars, with no possibility of an attorney fee award, even if the attorney puts in twenty thousand dollars worth of time, he is subject to claims of unconscionability, churning, and disserving the client through malpractice by failure to perform a cost/benefit analysis. Be fair and reasonable. Secretary time should not be charged at attorney rates. A standard letter that is punched up on the computer by the receptionist to remind the client of a court hearing, although originally written by the attorney, and signed by the attorney, did not actually take .3 hours of attorney time to send out on this occasion. That is not to say that the time, or some portion thereof, to prepare a research document or a complex complaint, which was expended in another case, cannot be charged to the present client. The real question is what is fair to the client under the circumstances. If a review and some hand tailoring are required, it is possible that even more than the original amount of time spent to create the first document might be a necessary and proper charge. “Non-refundable” fees, those “earned upon receipt”, and “minimum fees” all have been the subject of unconscionability claims. If the actual time does not add up to the fees charged, they may be considered to be unconscionable, regardless of the language of the agreement. Make sure that your retainer agreement complies with Business and Professions Code § 6148. Failure to comply makes the agreement voidable at the option of the client under section (c). Spell out the rates and charges in terms of those who will be working on the case, associate, partner, secretary, and paralegal. The services to be rendered should be described generally enough to authorize the work needed to accomplish the goals, yet be specific enough to have the client appreciate the goals and potential obstacles in the case or transaction to be undertaken. Billings must also conform to certain standards under the above code subsection (b). Clarity is the key. Who did the work, at what rate, and a description of the services rendered on behalf of the client must be set forth. Fee agreements are generally required in cases where the fee is anticipated to exceed one thousand dollars, and are excepted in the cases of emergency, or prior relationship, or a corporate client under subsection (d).  An attorney who billed for unperformed work, billing in excess of 100 hours per day and charging hourly rates higher than those set forth in the retainer was disbarred for fraudulent billing practices. Matter of Berg (Rev. Dept. 1997) 3 State Bar Rptr. 725.

7. Cutting Loose: Termination of employment must be taken seriously, whether for monetary reasons, ethical reasons, or differences of opinion as to the manner in which a matter should proceed under. CRPC Rule 3-700 provides  that withdrawal may not take place if a court’s permission is required. Prior to any withdrawal, the attorney must take reasonable steps to avoid reasonably foreseeable PREJUDICE to the client, with due notice given, along with an opportunity to employ other counsel, turning over files, property and unearned fees paid in advance, in addition to whatever other laws or rules may apply to the situation. CRPC Rule 3-700 (A). Under CRPC Rule 3-700 (B) termination of employment through withdrawal is mandated in situations involving a client who insists on bringing an action, conducting a defense, asserting a position in litigation, or taking an appeal without probable cause and for the purpose of harassing or maliciously injuring any person. Note that this is also the definition of MALICIOUS PROSECUTION! CRPC Rule 3-700 (C) provides that permissive withdrawal is proper for actions of the client (1), where continued employment is likely to result in violation of the rules (2), where there is an inability to work with co-counsel (3), where the mental or physical health makes it difficult to perform effectively (4), if the client knowingly and freely assent to termination (5), and where other good cause exists. Upon termination, the attorney must promptly release to the client all “papers and property”, which is defined to include correspondence, pleadings, deposition transcripts, exhibits, physical evidence, expert’s reports, and other items reasonably necessary to the client’s representation, whether the client has paid for them or not. CRPC Rule 3-700 (D)(1) In addition to the release of papers and property, an attorney must promptly refund any part of a fee paid in advance that has not been earned. This provision is no applicable to a “true retainer” which is paid SOLELY (emphasis added) for the purpose of ensuring the availability of the attorney for the matter. The issues surrounding Fees Paid In Advance, including the policy considerations, attempts at amendment of the rules, the present state of the law regarding placement into trust, are all discussed later on in the program. Withdrawal from representation may be necessary even before it begins. A “disengagement” letter is standard fare for those attorneys who interview a client and decide, for whatever reason, to decline representation. The same applies to potential clients who never call back after the first interview. Attorneys are often a sitting duck, waiting to be accused of some failure to follow through, advise, counsel, or warn about any number of things. Statutes of limitations, other available legal rights, or alternative courses of action, are typical.

8. Conclusions: Practicing law is difficult enough, without having to worry about running afoul of the Rules of Professional Conduct, The State Bar Act, Legal Malpractice, and challenges to the Fees for which you worked so hard. The State Bar has an Ethics Hotline, which will allow you to ask questions concerning your professional duties. There is also a Compendium on Professional Responsibility, which is made available to the general public for a nominal sum, and is present in most law libraries. The Compendium has the latest Rules, with a Discussion section after each, as well as helpful Opinions from each of the major County Bar Associations of California. The Orange County Bar Association has a Mentor Program, which will enable an attorney to call an experienced attorney for assistance in any area of the law, including Ethics. Know when to ask for help. When you or your staff are too busy, or you are feeling financially strapped, it may be time to take a deep breath and reassess your work habits, office staffing, and/or practice areas. This is an age of legal specialization. It is difficult enough to keep abreast of developments in one or two practice areas. The general practitioner may find it difficult or even impossible to stay current in every area of the law. Beware of your own limitations. Even if you THINK you can do it, the chances are that there may be trouble just lurking around the corner.