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Seal of The State Bar of California The State Bar of California

Proposed Amendments to Standards 2.2, 2.5, 2.6, 2.13, 2.15, and 2.21 of the Standards for Attorney Sanctions for Professional Misconduct

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The State Bar of California seeks public comment on proposed amendments to Standards for Attorney Sanctions for Professional Misconduct.

Deadline: March 17, 2019

Background

The proposed change to Standards 2.2, 2.5, 2.6, 2.13, and the addition of Standard 2.21 are, in the view of OCTC, required because of the adoption of new Rules of Professional Conduct.The change to Standard 2.15 is required because of a change to Business and Professions Code section 6102.

Discussion

This item proposes changes to eliminate the use of the term “member” and adopt the term “lawyer” or “licensee” in Standards 2.5, 2.6, and 2.13.

In addition, this item proposes other amendments to the Standards for Attorney Sanctions for Professional Misconduct.

Proposal

1.Standard 2.2

The primary change to this standard is to incorporate the new requirement that attorneys place advanced fees in the client trust account.While case law for failure to deposit client funds or fiduciary funds into a client trust account has gone as low as a public reproval (See Dudugjian v. State Bar (1991) 52 Cal.3d 1092), depositing client funds, including advance fees, into an account other than a client trust account is essentially commingling (i.e., mixing client or entrusted funds with other funds) or worse, a misappropriation.

As a result, OCTC proposes changing Standard 2.2, which pertains to commingling, to apply to the failure to deposit funds received for a client, including advance fees, in a client trust account.

During our meetings with the ADDC and State Bar Court, the ADDC expressed concern that the presumed sanction for commingling, actual suspension of three months, was more severe than the presumed sanction for misappropriation, actual suspension without a three month minimum suspension.However, this perceived incongruity exists in the standards as they are currently drafted and is not the product of OCTC’s proposed changes.We declined to address this issue because we believed that altering the Standard to eliminate the minimum period of actual suspension, or adding a longer minimum period of actual suspension to Standard 2.1, may represent a major policy shift that was beyond the scope of this item.

Discipline system partners also voiced a concern that placing failure to deposit advance fees into the client trust account in Standard 2.2 would result in a minimum 90-day suspension even where the deposit went into the wrong account as a result of mere negligence.However, the State Bar would not discipline an attorney for a merely negligent deposit into the wrong account.For example, if the attorney pulled the wrong deposit slip and deposited the funds into the firm operating account instead of the client trust account, but found the mistake and corrected it upon promptly reconciling his or her account statements, as required, the erroneous deposit would be deemed to be mere negligence.The attorney would not be prosecuted for that violation because attorneys are not generally subject to discipline for mere negligence. In the Matter of Yagman (Review Dept. 1997) 3 Cal. State Bar Ct. Rptr. 788, 803.If, however, the attorney fails to reconcile his or her accounts and does not discover the error, such conduct would be reckless or grossly negligent.Further, even when disciplined for depositing client funds into an account other than a client trust account, the standard creates only the presumed sanction, or the starting point of the analysis, and does not prevent the imposition of lesser discipline.

Following our discussion with the court and the ADDC, we altered our proposal to clarify that Standard 2.2(a) would not apply where there is evidence of misappropriation.If evidence of misappropriation exists, Standard 2.1 would be used.

Another proposed change merely substitutes the new rule number (1.15) for the old rule number (4-100).The new rule (rule 1.15 [Safekeeping Funds and Property of Clients and Other Persons]) also has additional requirements (e.g., the accounting must be in writing, etc.).Violations of these requirements appear to be adequately covered under Standard 2.2(b), so OCTC proposes to include them there.After consulting with the State Bar Court and the ADDC, we also sought to clarify which violations of the new rule would be subject to Standard 2.2(b).

As a result of these substantial changes from the prior version of our proposal, we are asking that this standard be re-circulated for public comment.

2.Standard 2.5

The terminology and methodology of the new conflicts rules suggests that we need new language in the Standards. This proposal would align Standard 2.5(a) with violations of rule 1.7(a) [represent a client directly adverse to a concurrent client in the same or separate matter]; rule 1.7(b) [represent a client when there is a significant risk the lawyer's representation of the client will be materially limited by the lawyer's representation or responsibilities to another client or a former client, a third person, or the lawyer's own interest] and 1.7(d). Rule 1.7(d) prohibits certain conflicts even if there are waivers, for example, when a lawyer does not believe the lawyer is able to provide competent and diligent representation to each client; the representation is prohibited by law; or the representation involves the assertion of a claim by one client against another in the same litigation or other proceeding before a tribunal. (See also rule 1.10 [applying rule 1.7 to lawyers in firm with conflicted attorney].)

Proposed Standard 2.5(a) is also consistent with the Supreme Court’s discussion of the most serious types of conflicts. (See People ex rel. Dept. of Corporations v. SpeeDee Oil Change Systems, Inc. (1999) 20 Cal.4th 1135, 1147 [“The most egregious conflict of interest is representation of clients whose interests are directly adverse in the same litigation.”].)

Proposed paragraph (b) of Standard 2.5 covers rule 1.9(a), 1.9(b) and other conflicts that are materially adverse to former clients, especially those where confidential information may be used. (See also rules 1.10 [Imputation of Conflicts of Interest: General Rule] and 1.11 applying rule 1.9 to lawyers in firm with conflicted attorney or with government conflicts.) Paragraph (b) would apply to:

  • New rule 1.9(a) - Representation of clients with interests that are materially adverse to the interests of former clients in the same or substantially related matters;
  • New rule 1.9(b) - Knowing representation of a client in the same or substantially related matters in which a firm with which the lawyer was formerly associated previously represented a client.

During our discussions with the ADDC and the State Bar Court, both expressed concern that current clients should not be included in Standard 2.5(b) because rule 1.9 of the new Rules of Professional Conduct only applies to former clients.We do not disagree, but we were attempting to craft the rule to cover both violations of the new rule (1.9) and the former conflict rules.In order to address the concern of the ADDC, we created a subdivision (d) to cover violations of the former rules.We propose to order the paragraphs in this manner (i.e., paragraph (d) coming after the “catch-all” paragraph (c)) to avoid future confusion associated with reordering paragraphs.There is a potential for confusion because, in time, violations of the old rules will no longer be charged and paragraph (d) can be deleted.Placing that paragraph last avoids the need to reorder the paragraphs in the future.

Proposed new paragraph (c) of Standard 2.5 addresses all other conflicts and the breach of the common law duty of loyalty, e.g. aggregate settlements (rule 1.8.7), compensation from other than the client (rule 1.8.6), conflicts by former judges (1.8.12), conflicts involving prospective clients (1.18), and the common law duty of loyalty. (See Santa Clara County Counsel Attys Assn. v. Woodside (1994) 7 Cal.4th 525, 548.)

In our initial proposal, we included violations of rule 1.9(c) in Standard 2.5(c), however, following our discussion with the State Bar Court and the ADDC, we removed rule 1.9(c) because we agreed that it was more properly considered a breach of confidentiality under Standard 2.6.

The above changes are substantial and were made following the public comment period.As a result, we are asking that this standard be sent back out for public comment.

3.Standard 2.6

Substantive changes include altering paragraphs (a) and (b) to cover rules 1.8.2 [Use of Current Client’s Information] and 1.18(b) [Duties to Prospective Client]. Proposed new paragraph (c) would address new rule 4.4, which addresses an attorney's duties regarding inadvertently transmitted writings.

Following our discussions with the discipline system partners, we removed “the magnitude of” from subdivisions (a) and (b) because it was unnecessary.

Following the submission of the original Board of Trustees and Regulation and Discipline Committee agenda items, we determined that including “unless the current, former, or prospective client gives informed consent” at the end of subdivisions (a) and (b) was unduly confusing because there are other circumstances that may warrant revealing confidential information.As a result, we are eliminating that clause from those two subdivisions.While this change appears to eliminate an exception, the change will not broaden the application of the Standard because before the Standard can be applied, a rule orr statute violation must be established. If there is legal authority allowing the disclosure of confidential information, the Standard would not be applicable.

4.Standard 2.13

A proposed amendment to Standard 2.13 was previously circulated for public comment, but following our discussions with discipline-system partners, we have significantly altered the proposal.As a result, we believe this Standard should be circulated for public comment again.

Paragraph (a) parallels parts of Business and Professions Code sections 6106.9(a)(1), 6106.9(a)(2), and old rule 3-120 and involve outrageous and overreaching conduct. The conduct in paragraph (a) is particularly egregious and probably involves moral turpitude.

In our initial proposal, in an attempt to minimize modification of the standard, we simply added “requests” to “requires or demands sexual relations with a client incident to or as a condition of professional representation.”This was done to incorporate the implied coercion associated with a request that is “incident to or as a condition of professional representation;” however, during our discussions with the ADDC, we became convinced that the language was too vague.As a result, we have modified our proposal to directly track the relevant language of Business and Professions Code section 6106.9.

The new rule, rule 1.8.10 [Sexual Relations with Current Client], prohibits all sex with clients except for spouses and people already in a relationship prior to the representation. Violations of Business and Professions Code section 6106.9 that do not fall within paragraph (a) are not as egregious.As a result, paragraph (b) applies to violations of rule 1.8.10 and Business and Professions Code section 6106.9 not covered by paragraph (a).

As a result of the substantial changes to our proposal since it was last circulated for public comment, we are asking that it be circulated for additional public comment.

5.Standard 2.15

The proposed change was not part of our original proposal and is not required by a change to the Rules of Professional Conduct.This proposed change is due to a change to Business and Professions Code 6102 which had not been passed at the time the other Standards were sent out for public comment.Effective January 1, 2019 subdivision (c) of Business and Professions Code section 6102 has been amended to read:

After the judgment of conviction of an offense specified in subdivision (a) has become final or, irrespective of any subsequent order under Section 1203.4 of the Penal Code or similar statutory provision, an order granting probation has been made suspending the imposition of sentence, the Supreme Court shall summarily disbar the attorney if the offense is a felony under the laws of California, the United States, or any state or territory thereof, and either: (1) an element of the offense is the specific intent to deceive, defraud, steal, or make or suborn a false statement, or involved moral turpitude, or (2) the facts and circumstances of the offense involved moral turpitude.

The proposed changes to the standard reflect that summary disbarment is the actual sanction, instead of the presumed sanction, for such convictions.Further, we have proposed changes to the Standard so that it tracks the statute because the same sanction now applies to crimes where the facts and circumstances of the crime involve moral turpitude.

This Standard was not sent out for public comment in September 2018.

6. NEW Standard 2.21

This proposed new Standard is to address violations of new rule 8.4(d).As this rule is similar to Business and Professions Code section 6106, moral turpitude, the proposed new Standard is similar.Nonetheless, the purpose of having a separate Standard was to allow the case law to develop separately and to minimize confusion.

During our discussions with the ADDC and the State Bar Court, the ADDC expressed concern about the definition of “prejudicial to the administration of justice.”Initially, we sought to allay their concerns by dividing the standard up into different subdivisions for intentional or reckless conduct versus aberrational and negligent conduct.However, after further discussion, we came to the conclusion that this approach is untenable because such distinctions do not exist in the underlying rule.Further, new rule 8.4(d) utilizes the phrase “prejudicial to the administration of justice” and we do not believe the Standards for Attorney Discipline for Professional Misconduct is the appropriate place to define phrases used in the rules.Instead, the Court should define the terms used in the rules.

It is important to note that throughout the country, Rule 8.4(d) generally requires substantial harm or substantial potential harm and is intended to address moral turpitude-type conduct.As a result, we believe that this Standard, like 2.11, which applies to moral turpitude, warrants actual suspension to disbarment as the presumed discipline.However, the purpose of drafting a separate standard for Rule 8.4(d) is so that this Standard can be adjusted independently of Standard 2.11 as the case law develops.

This proposed Standard has not changed from our initial Standards agenda item at the September 2018 Regulation and Discipline Committee meeting, and therefore has been out for public comment previously.However, because of the discussions with the ADDC, our initial attempt to modify the proposal, and our later rejection of that approach, we believe that in the interests of transparency and fairness, the proposal should be sent out for public comment again.

Any fiscal/personnel impact

None

Background material

Attachment A

Attachment B

Source

Regulation and Discipline Committee

Deadline

March 17, 2019

Direct comments to

Office of Chief Trial Counsel
State Bar of California
180 Howard St.
San Francisco, CA 94105
Email: OCTC_Rules@calbar.ca.gov

Please reference the specific Standard number and title in your comments.

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