Welcome to the Ethics Lawyer Newsletter for August 2017!
Court of Appeal Remands Disqualification Case Involving Close Corporation
Beachcomber Management Crystal Cove v. Superior Court (Salisbury), Fourth Dist. Court of Appeal, Div. 3, case no. G054078, filed (as modified) 7/28/17. Defendants successfully moved to disqualify the attorney representing the defendant in a derivative action, based on the attorney’s prior representation of the Beachcomber business entity. The trial court employed traditional successive representation conflict analysis including the “substantial relation” test. On appeal, the Fourth District found that the trial court failed to consider a more specific line of cases that govern an attorney’s successive representation of clients in a derivative lawsuit brought on a small or closely held company’s behalf against the insiders who run the company. “Under these cases, an attorney may represent the insiders in a derivative lawsuit by the company despite the attorney’s previous representation of the company regarding issues raised in the suit. Unlike the ordinary successive representation case,
these cases recognize the attorney’s representation of the insiders does not threaten the attorney’s duty of confidentiality to the company because the insiders already are privy to all of the company’s confidential information. Indeed, any attorney representing the insiders would discover the company’s confidential information because the insiders are the source of that information.” The Court of Appeal remanded the matter back to the trial court for reconsideration in light of these authorities.
New York Joins New Jersey in Saying No to Avvo
The New York State Bar Association has issued two opinions dealing with lawyer referral services. New opinion 1131 discusses the participation of a lawyer in such services, sometimes called “lead generators” in general terms. It concludes that New York lawyers can participate in such platforms if (i) the lawyer who contacts the potential client has been selected by transparent and mechanical methods that do not purport to be based on an analysis of the potential client’s legal problem or the qualifications of the selected lawyer to handle that problem; (ii) the service does not explicitly or implicitly recommend any lawyer, and (iii) the website of the service complies with the requirements of New York Rule of Professional Conduct Rule 7.1. A lawyer who purchases such a lead to a potential client may ethically telephone that potential client if the potential client has invited the lawyer selected by the service to make contact by telephone. New opinion 1132 tackles the question of whether a New York lawyer can participate in Avvo Legal Services, Avvo’s new platform that purports to connect clients to well-qualified lawyers at less cost to the legal consumer. The opinion concludes that New York lawyers may not participate because A lawyer may not pay the current marketing fee to participate in Avvo Legal Services because the fee includes an improper payment for a recommendation in violation of New York Rule of Professional Conduct 7.2(a).
Caveat: these opinions do not discuss California law and should not be relied on by any California lawyer.
State Bar Court Places Former Contra Costa District Attorney on Interim Suspension
The State Bar Court has placed former Contra Costa District Attorney Mark Peterson on interim suspension pursuant to Bus. & Prof. Code section 6102(a). Peterson pleaded no contest to felony perjury for filing a false campaign disclosure statement in June 2017. Because the current Chief Trial Counsel of the State Bar Steven Moawad worked in the Contra Costa District’s Attorney’s office, the prosecution is being handled by outside counsel. Conviction of a felony involving dishonesty typically results in summary disbarment.
Supreme Court Affirms “Interim Adverse Judgment Rule” in Malicious Prosecution Case
Parrish v. Latham & Watkins California Supreme Court, case no. S228277, filed 8/10/17. In a malicious prosecution case, the plaintiff must show a lack of probable cause in the original action. Case law provides that if the original action survives a hearing on the merits, probable cause is established as a matter of law and the subsequent malicious prosecution action is untenable, even if the result in the original action is overturned on appeal or by subsequent action of the trial court. This is known as the “interim adverse judgment rule.” In the case, the action commenced by the defendants survived a motion for summary judgment. After trial, the judge concluded that the action had been brought in “bad faith” because the claims lacked evidentiary support. The Supreme Court affirmed the appellate court’s finding that the interim adverse judgment rule applied here and affirmed the order from the trial court striking the malicious prosecution action.
That’s Why They Call It Practice: Fight of the Century — State Bars v. Avvo
New York now joins New Jersey, Ohio, Pennsylvania, and South Carolina in expressing disapproval of Avvo’s new legal services program. California has yet to join their ranks, although there is a draft COPRAC opinion (12-0003) out for public comment that discusses the ethical responsibilities of California lawyers when it comes to their profiles on third party websites like Avvo.
The opinion’s number shows you how long COPRAC has been working on that issue. Avvo began life as a website purporting to rate lawyers performance by assigning them a number from one to ten. Ostensibly the goal was to help consumers find qualified lawyers. Lawyers themselves had no choice as to whether they would appear on Avvo; a profile was created for all or almost all lawyers in the United States and a rating created based on public records. Lawyers were encouraged to “claim” their profiles and become active participants in Avvo’s business, which it soon developed, was actually selling advertising services to lawyers. By means of the ratings gimmick and universal profiling, Avvo ingeniously created a captive market; not participating in Avvo soon became not an option for many lawyers, especially lawyers who serve real persons in areas like personal injury, family law and estate planning.
Now Avvo has gone beyond simply providing advertising services to actually delivering clients to lawyers. This includes a feature on the Avvo website that can be referred to as “instant connection mode”. A consumer can click on a button that will connect the consumer with the next available participating lawyer who will contact the consumer by telephone within a few minutes for a 15 telephone conversation at a cost of $39.99 to the consumer. In this mode, the participating lawyers are not identified and the choice of lawyer is made by the website based on the speed with which participating lawyers respond. There is no opportunity for lawyer to conduct a conflict check regarding the client before the telephone call occurs. Once contact is made, services beyond the brief telephone consultation can be ordered. The client remits the entire amount of the fixed fee to Avvo . When services are completed, Avvo remits the entire amount of the fee to the lawyer by way of a direct deposit into the attorney’s bank account, then withdraws an amount from the lawyer’s bank account for a “marketing fee” payable to Avvo that is calculated as a percentage of the flat fee. The marketing fee varies depending on the nature of the service but generally ranges between 20% and 30% of the fixed fee charged for the service.
This has proved a bridge too far for several states. Most dramatically, New Jersey has not just issued an advisory opinion, the New Jersey Supreme Court has actually forbidden New Jersey lawyers from participating in Avvo’s legal services programs and two others:
In sum, the Committees find that the Avvo website offers an impermissible referral service, in violation of Rules of Professional Conduct 7.2(c) and 7.3(d), as well as improper fee sharing with a nonlawyer in violation of Rule of Professional Conduct 5.4(a). LegalZoom and Rocket Lawyer avoid those problems but appear to be offering legal service plans that have not been registered pursuant to Rule of Professional Conduct 7.3(e)(4)(vii). New Jersey lawyers may not participate in the Avvo legal service programs. In addition, New Jersey lawyers may not participate in the LegalZoom or Rocket Lawyer legal service plans because they are not registered with the New Jersey Supreme Court (Administrative Office of the Courts).
What would California do if asked to evaluate Avvo’s business model? We don’t follow the ABA Model Rules but the following California authorities would be relevant:
(A) Neither a member nor a law firm shall directly or indirectly share legal fees with a person who is not a lawyer, except that: (1) An agreement between a member and a law firm, partner, or associate may provide for the payment of money after the member’s death to the member’s estate or to one or more specified persons over a reasonable period of time; or (2) A member or law firm undertaking to complete unfinished legal business of a deceased member may pay to the estate of the deceased member or other person legally entitled thereto that proportion of the total compensation which fairly represents the services rendered by the deceased member; or (3) A member or law firm may include non-member employees in a compensation, profit-sharing, or retirement plan even though the plan is based in whole or in part on a profit-sharing arrangement, if such plan does not circumvent these rules or Business and Professions Code section 6000 et seq.; or (4) A member may pay a prescribed registration, referral, or participation fee to a lawyer referral service established, sponsored, and operated in accordance with the State Bar of California’s Minimum Standards for a Lawyer Referral Service in California.
(B) A member shall not compensate, give, or promise anything of value to any person or entity for the purpose of recommending or securing employment of the member or the member’s law firm by a client, or as a reward for having made a recommendation resulting in employment of the member or the member’s law firm by a client. A member’s offering of or giving a gift or gratuity to any person or entity having made a recommendation resulting in the employment of the member or the member’s law firm shall not of itself violate this rule, provided that the gift or gratuity was not offered or given in consideration of any promise, agreement, or understanding that such a gift or gratuity would be forthcoming or that referrals would be made or encouraged in the future.
(a) An individual, partnership, corporation, association, or any other entity shall not operate for the direct or indirect purpose, in whole or in part, of referring potential clients to attorneys, and no attorney shall accept a referral of such potential clients, unless all of the following requirements are met: (1) The service is registered with the State Bar of California and (a) on July 1, 1988, is operated in conformity with minimum standards for a lawyer referral service established by the State Bar, or (b) upon approval by the Supreme Court of minimum standards for a lawyer referral service, is operated in conformity with those standards. …
(h) This section shall not be construed to prohibit attorneys from jointly advertising their services. (1) Permissible joint advertising, among other things, identifies by name the advertising attorneys or law firms whom the consumer of legal services may select and initiate contact with. (2) Certifiable referral activity involves, among other things, some person or entity other than the consumer and advertising attorney or law firms which, in person, electronically, or otherwise, refers the consumer to an attorney or law firm not identified in the advertising.