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self-study / Legal Ethics

Oct. 17, 2018

The disruptive and controversial new rules

Neil J Wertlieb

Wertlieb Law Corp.

15332 Antioch St #802
Pacific Palisades , CA 90272

Phone: (424) 265-9659

Fax: (310) 454-7772


UC Berkeley Boalt Hall

Neil is a founding member and co-chair of the California Lawyers Association Ethics Committee. He is an experienced transactional lawyer, educator and ethicist, who provides expert witness services in disputes involving business transactions and corporate governance, and in cases involving attorney malpractice and attorney ethics. For additional information, please visit The views expressed herein are his own.



(Parts II and III)

On May 10, the California Supreme Court has approved the first comprehensive rewrite of the attorney Rules of Professional Conduct in nearly three decades. Last year, the State Bar of California submitted 70 proposed new and amended Rules of Professional Conduct to the California Supreme Court. On May 10, the court approved 27 of the proposed rules in the form submitted by the State Bar, approved another 42 of the proposed rules as modified by the court, and denied one proposed rule.

On Nov. 1, these 69 approved rules will replace the 46 Rules of Professional Conduct that currently govern the conduct of all attorneys in California. Several of the new rules implement important changes to the current rules or impose new obligations in California. Every California attorney should be aware of these changes, as failure to comply with the rules may result in discipline, including being disbarred from the practice of law. See new Rule 8.5(a). Failure to comply in a litigation matter may also result in disqualification from a matter.

California is the only state that does not base its rules on the American Bar Association's Model Rules of Professional Conduct. Until the new rules take effect, California remains the only state with its own unique set of rules.

The last comprehensive revision of the California rules became operative in 1989. Since then, numerous changes have influenced the practice of law, including technological advances, multijurisdictional practices, and a focus more on the practice of law as a business -- all with potential ethical implications.

In 2001 and 2002, the ABA revised its Model Rules, which prompted the State Bar Board of Governors to appoint a Commission for the Revision of the Rules of Professional Conduct to do a comprehensive review of the California rules. After more than a decade of work, however, in 2014 the California Supreme Court granted the State Bar's request to restart the effort. In January 2015, a second commission was appointed with the goal of submitting proposed rules by March 2017. After soliciting public comment, the commission presented a set of proposed rules to the Board of Trustees (the successor to the Board of Governors), which (with some modification) became the set of rules the Supreme Court approved last week.

One of the most significant (although nonsubstantive) changes is to the numbering scheme of the new rules. The commission determined that the rules should generally conform to the organization and rule numbering of the Model Rules. This change allows for easier comparison and review across various jurisdictions.

Today we begin a three-part series discussing the new rules. In part one, we will consider some of the most controversial rules adopted by the Supreme Court. In parts two and three we will consider some of the less controversial, yet important changes as well as the entirely new rules adopted by the state Supreme Court.

Sexual Relations with Current Client

Current Rule 3-120 effectively permits a lawyer to engage in "sexual relations" (as defined in the rule) with a client, provided that the lawyer does not: "(1) Require or demand sexual relations with a client incident to or as a condition of any professional representation; (2) Employ coercion, intimidation, or undue influence in entering into sexual relations with a client; or (3) Continue representation of a client with whom the [lawyer] has sexual relations if such sexual relations cause the member to perform legal services incompetently in violation of rule 3-110 [Failing to Act Competently]."

Most other jurisdictions have adopted a version of Model Rule 1.8(j), which imposes a bright-line standard that generally prohibits all sexual relations between a lawyer and client unless the sexual relationship was consensual and existed at the time the lawyer-client relationship commenced.

New Rule 1.8.10 reflects a major shift from current Rule 3-120, and substantially adopts the bright-line prohibition approach of Model Rule 1.8(j): "A lawyer shall not engage in sexual relations with a current client who is not the lawyer's spouse or registered domestic partner, unless a consensual sexual relationship existed between them when the lawyer-client relationship commenced."

The new prohibition carries forward the exceptions in current Rule 3-120 for spousal and preexisting sexual relationships. Also, under both the current and new rule, when the client is an organization, the person overseeing the representation is considered to be the client. Current Rule 3-120, Discussion; new Rule 1.8.10, Comment [2].

This change attracted much commentary during the public review process and in the press. The commission itself recognized that the change represents a significant departure from California's current rule, and may implicate important privacy concerns. The members of the commission, however, concluded that the current rule had not worked as intended -- evidenced by the fact that in the 25 years since the rule's adoption, there had been virtually no successful disciplinary prosecutions under Rule 3-120.

Prohibited Discrimination, Harassment and Retaliation

New Rule 8.4.1, like current Rule 2-400 (which it replaces), will prohibit unlawful discrimination, harassment and retaliation in connection with the representation of a client, the termination or refusal to accept the representation of any client, and law firm operations. However, new Rule 8.4.1 reflects a fundamental change from current Rule 2-400. New Rule 8.4.1 eliminates the current requirement that there be a final civil determination of such unlawful conduct before a disciplinary investigation can commence or discipline can be imposed.

In addition, new Rule 8.4.1 expands the scope of current Rule 2-400, which only applies to "the management or operation of a law practice," and does not expressly cover retaliation.

The current rule requires a prior adjudication by a tribunal of competent jurisdiction (i.e., not the State Bar Court): "No disciplinary investigation or proceeding may be initiated by the State Bar against a member under this rule unless and until a tribunal of competent jurisdiction ... shall have first adjudicated a complaint of alleged discrimination and found that unlawful conduct occurred." Current Rule 2-400(C).

A majority of the members of the commission believed that the prior adjudication requirement rendered the current rule difficult to enforce. The commission cited to the fact that no discipline appears to have ever been imposed under the current rule. Further, no other rule contains a similar limitation on the original jurisdiction of the State Bar Court.

New Rule 8.4.1 was one of the more controversial proposed rules. In fact, the Board of Trustees, on its own initiative, mandated that an alternative version of this rule be sent out for public comment -- the only rule as to which the board took such action. In its final vote on the proposal, the board was evenly split 6-to-6, with the State Bar president breaking the tie in favor of the version of the rule proposed by the commission.

Some of the primary concerns raised by the elimination of the prior adjudication requirement include the following: First, State Bar complaints may be filed by aggrieved clients and employees without the usual concern for the negative consequences typically associated with filing complaints in litigation, such as being subject to claims for malicious prosecution or attorney fees. Second, the State Bar Court is not properly experienced or staffed to become the forum of first resort for a victim of discriminatory, harassing or retaliatory conduct committed by a lawyer. And third, the disciplinary process before the State Bar Court does not provide for the same due process protections to lawyers as a tribunal of competent jurisdiction. For example, lawyers are afforded only limited discovery in matters before the State Bar Court. On the other hand, the deficiencies identified in the current rule (with respect to enforceability) led several commission members, as well as members of the public (as reflected in public commentary), to view the current rule as discriminatory in and of itself.

In response to the public concern with respect to the elimination of the prior adjudication requirement, the commission modified the rule to impose a self-reporting obligation on a lawyer who receives notice of disciplinary charges for violating the rule. This modification requires the lawyer to provide a copy of a notice of disciplinary charges pursuant to new Rule 8.4.1 to the California Department of Fair Employment and Housing, the U.S. Department of Justice, Coordination and Review Section, or to the U.S. Equal Employment Opportunity Commission, as applicable. New Rule 8.4.1(e). The purpose of this modification is to provide to the relevant government agencies an opportunity to become involved in the matter so that they may implement and advance the broad legislative policies with which they have been charged. Further, a comment to the new rule clarifies that the rule would not affect the State Bar Court's discretion in abating a disciplinary investigation or proceeding in the event that a parallel administrative or judicial proceedings arises from the same lawyer misconduct allegations (new Rule 8.4.1, Comment [7]), thus giving a tribunal of competent jurisdiction an opportunity to adjudicate the matter before the State Bar Court takes action.

Safekeeping Funds and Property of Clients and Other Persons

Current Rule 4-100 requires that all funds received or held for the benefit of clients by a lawyer or law firm be deposited into a client trust account. Such funds include settlement payments and other funds received from third parties as well as advances for costs and expenses. But while best practices may dictate otherwise, the current rule does not require the lawyer or law firm to deposit into a client trust account advance fee retainers or deposits. Such payments are not currently required to be segregated from the lawyer's or law firm's funds, and may be deposited into a law firm's operating account. By including the word "fees," new Rule 1.15 mandates that advances for legal fees be deposited into a client trust account. Comment [2] to the new rule defines "advances for fees" as "a payment intended by the client as an advance payment for some or all of the services that the lawyer is expected to perform on the client's behalf."

The permissive nature of current Rule 4-100 has led many lawyers and law firms to simply deposit all such fees into their operating accounts, some due to the operational needs of the type of practice at issue. In fact, lawyers in certain practice areas have not even needed to maintain a trust account due to the nature of their practices. This will change under new Rule 1.15.

Similar to current Rule 4-100, new Rule 1.15 applies to funds "received or held" by a lawyer or law firm, and requires that the bank account into which funds are deposited be "maintained in the State of California" (subject to a limited exception). New Rule 1.15(a). The addition of a simple four-letter word (i.e., "fees") to the rule may cause material disruption to practitioners in California. First, because new Rule 1.15 is not just prospective (by applying to funds received following the effectiveness of the new rule), but applies to funds "held" by a lawyer or law firm for the benefit of a client, funds received prior to the effectiveness of the new rule and deposited into the firm's operating account would have to be identified, traced and deposited into a trust account. The formulation of new Rule 1.15 means this would essentially be given retroactive effect. Second, because the trust account must be maintained in California, firms based outside of the state or that otherwise maintain their banking relationships outside of the state will be required to establish new banking relationships within the state.

The requirement to deposit advance fees into a trust account does not apply to a "true retainer," which is defined in new Rule 1.5 as "a fee that a client pays to a lawyer to ensure the lawyer's availability to the client during a specified period or on a specified matter." Such a fee is earned upon receipt, not as compensation for legal services to be performed, and as such may be deposited directly into a firm's operating account. Similarly, new Rule 1.15 permits a flat fee paid in advance for legal services to be deposited into an operating account, but only if the lawyer discloses to the client in writing that (i) the client has a right to require the flat fee be deposited into a trust account until the fee is earned and (ii) the client is entitled to a refund of any unearned amount of the fee in the event the representation is terminated or the services for which the fee has been paid are not completed; and if the flat fee exceeds $1,000, the client must consent in writing. New Rule 1.15(b).

In part two of this three-part series, we will consider some less controversial changes that are nevertheless important for all California attorneys to know.


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