Farah Khaled
Associate Fellner Law Group
Picture this: A young entrepreneur walks into your office. She dreams of breaking free from her father's shadow--a celebrated businessman--to carve out her own path and start a business of her own. She seeks your guidance, and together, you're excited about the potential of her vision. You enter into a fee agreement with the young woman to provide legal consulting to help her build her dream. But there is a catch: her father, the one footing your bill, thinks the idea is nonsense and insists you steer things in a completely different direction. Now, ask yourself: where does your loyalty lie? What would YOU do to address the inherent conflict?
A. Support the young woman's dream and advise her on the business venture, even if it goes against the father's wishes.
B. Follow the father's instructions since he's paying the bills, prioritizing his vision over the daughter's.
C. Explain to the father that while he is providing the payment, your client is his daughter, and your obligation is to act in accordance with the daughter's best interests.
D. I don't know, please tell me!
When a lawyer represents a client and agrees to accept compensation from a third party, the potential for ethical missteps looms large. CRPC Rule 1.8.6 (formerly Rule 3-310(F)), which governs third-party payor arrangements, is clear in its purpose: to protect clients from undue influence and ensure transparency in attorney-client dealings. But understanding the rule is only the first step--compliance requires vigilance. This article explores the key considerations and best practices for avoiding conflicts under CRPC Rule 1.8.6.
Understanding CRPC Rule 1.8.6: The basics
CRPC Rule 1.8.6 prohibits lawyers from entering into relationships with clients while accepting payment from a third party, unless they (1) obtain consent, (2) retain independence, and (3) preserve confidentiality.
Client consent is key!
Before accepting payment from anyone other than your client, you must obtain your client's informed, written consent. A well-crafted agreement will help the client and payor better understand and manage expectations, and reduce the risk to the lawyer. The agreement should reassure the client that the attorney-client relationship remains solely between the lawyer and the client, and affirm that the payor will not influence the attorney-client relationship, compromise the lawyer's independent professional judgment, or gain access to confidential client information.
Retain independence - your client is king
Your professional judgment must remain impartial and unaffected by the payor's influence. The client's best interests must always take precedence, regardless of who is footing the bill.
Preserve confidentiality at all costs
The duty to safeguard your client's confidential information under CRPC Rule 1.6 does not change simply because a third party is involved. Any payment arrangement must strictly adhere to confidentiality obligations under the rules and applicable law.
Exceptions to prior informed consent
CRPC Rule 1.8.6 identifies limited scenarios where a lawyer may not be able to secure a client's informed written consent before accepting payment from a third party. For example, where a family member is paying for legal representation on behalf of an incarcerated client, the lawyer may need to act quickly to begin representation, even if obtaining the client's written consent is not immediately possible. Similarly, in complex commercial settings, such as corporate debt restructuring, a lawyer might be retained by a creditors' committee, where the agreement includes compensation for services provided to other creditors who are not yet identified. In such cases, CRPC Rule 1.8.6(c) permits the lawyer to proceed, provided they secure the necessary consent as soon as reasonably practicable.
So, what does compliance look like in the case of our ambitious entrepreneur?
If you chose Option C, you are on the right track. But let's revisit the young woman's story and explore a couple of scenarios.
The father's influence dominates
You side with the father, ignore the young woman's goals, and neglect to execute a written conflict waiver. You redirect the business strategy per the father's instructions, prioritizing his vision over your client's desires. The father, pleased with your compliance, continues to pay your fees. But the young woman--your actual client--grows frustrated and feels unheard. When she learns of your divided loyalty, she files a complaint with the state bar.
The fallout? You face disciplinary action for breaching your ethical duties, specifically for allowing the payor to interfere with your professional judgment and failing to obtain your client's informed consent. Worse, your client's business dreams may be derailed because of your choice.
Confidentiality is compromised.
The father starts asking questions about the business plan, financial projections, and your client's personal goals. Without thinking, you share details to appease him, believing that as the one funding the venture, he has a right to know. When the young woman learns his confidential information was disclosed, she accuses you of ethical violations. You could face civil and criminal charges, as well as state bar discipline. Additionally, your reputation for discretion and professionalism may be affected and negatively impact future client relationships.
Common pitfalls and how to dodge them
To protect your reputation, your clients, and your law license, here are some common pitfalls for third-party payor arrangements under CRPC Rule 1.8.6 and ways to avoid them:
1. Skipping informed written consent:
The rule prohibits representation without informed written consent. Verbal agreements or unclear disclosures can lead to misunderstandings and potential exposure for the lawyer and client. Follow the rules and keep everything in writing. Ensure that the terms and scope of the third-party payor arrangement are fully explained in writing. Use plain language and provide examples if necessary to help the client understand. Secure the client's consent in writing before, or at the time of accepting payment. If it is not immediately feasible, ensure compliance as soon as reasonably practicable. Additionally, recommend that the client consult independent counsel regarding the third-party payor arrangement, give them adequate time to do so, and retain documentation of the same.
2. Failing to maintain independence:
Letting the payor influence your legal decisions is a surefire way to violate your ethical duties. Instead, keep your professional judgment solely focused on the client's best interests, regardless of who's paying the bill. Make this clear to all parties upfront. Familiarize yourself with relevant California Bar ethics opinions to ensure you are interpreting the rule correctly in specific situations.
3. Breaching confidentiality:
Just because your client is not the one paying for your services does not mean their business is free to share. You must rigorously protect client confidentiality, and avoid sharing sensitive details unless explicitly authorized by the client or required by law. It's attorney-client privilege, not attorney-payor privilege.
4. Ignoring conflicting obligations:
You cannot represent both the client and the payor without first addressing any potential conflicts of interest. Consult CRPC Rule 1.7 if you are representing both parties to identify and resolve any conflicts. Clearly define your role to each party to avoid confusion and mixed loyalties.
Navigating CRPC Rule1.8.6 may seem daunting, but with the right
practices in place, lawyers can avoid ethical conflicts and build trust with
their clients. So, take a moment to review your current practices and ensure
they align with CRPC Rule 1.8.6. It could save you significant headaches and
safeguard your professional reputation.