Editor's Note:
State Bar Ethics Opinions cite the applicable California Rules of Professional Conduct in effect at the time of the writing of the opinion. Please refer to the California Rules of Professional Conduct Cross Reference Chart for a table indicating the corresponding current operative rule. There, you can also link to the text of the current rule.
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Is it ethically proper for a group of attorneys and/or non- attorneys to form an employment agency which contracts out attorneys to law offices on a temporary basis, and (1) charges an hourly rate for attorney services to be paid directly to the agency with a service surcharge paid to the agency, or (2) charges a single hourly rate from which it pays the hired attorney as the agency's hourly employee?
Lawyers may organize and/or participate in an employment agency which hires out attorneys on a temporary basis so long as they pay special attention to the potential for ethical violations which may arise and take reasonable precautions to avoid them.
Rules 1-120, 1-320, 1-600, 2-200, 3-110 and 3-310 of the California Rules of Professional Conduct.
California Business and Professions Code sections 6068, subdivision (e); 6125; 6126; and 6148, subdivision (b).
The Committee has received inquiries regarding the ethical propriety of attorneys organizing and participating in temporary employment agencies. Such agencies, operating both regionally and statewide, are becoming more common in California. For purposes of this opinion, it is assumed that the agency is operated to some extent by non-attorneys who are not subject to the Rules of Professional Conduct.1 This opinion is, therefore, intended to advise contract attorneys who might seek employment through such an agency. It is further assumed that the agency will deal only with attorneys and their staff in a firm which engages a temporary attorney. The agency, therefore, will never deal directly with a firm's client. Finally, it is assumed that the contract attorney is an independent contractor and not an employee of the agency.2
Several ethics issues are raised when an employment agency3 hires out or places attorneys on a temporary basis.4 The Committee considers that the following issues present the greatest danger of ethical violations: breach of confidentiality, conflicts of interest, independence of professional judgment, competence and fee splitting prohibitions.
Business and Professions Code section 6068, subdivision (e) states:
It is the duty of an attorney to do all of the following:
(e) To maintain inviolate the confidence, and at every peril to himself or herself to preserve the secrets, of his or her client.
California Business and Professions Code section 6068, subdivision (e), and rule 3-310(E)(2) impose a duty on both the contract attorney and the firm which engages the agency. (See footnote 10, infra, for text of rule 3-310 (E)(2).) While the agency should not itself ever be in a position to directly learn the secrets of firm clients, it should implement procedures to avoid any breach of confidence by its independent contractor, the contract attorney. As to secrets learned in the course of representation, the contract attorney bears the burden of non-disclosure while the firm has the obligation to screen the contract attorney from client secrets unrelated to a particular engagement.
A potential breach of client confidentiality could occur if a dispute arises between the agency and the contract attorney, the resolution of which requires the contract attorney to divulge confidential client information. An example would be where the agency pays the contract attorney directly and a payment dispute arises between the agency and the contract attorney. Absent a waiver from the client, the contract attorney would not be permitted to divulge the confidences of the client to resolve the conflict even though the client's communications "are related to issues raised in the litigation" of a payment dispute. (Schlumberger Ltd. v. Superior Court (1981) 115 Cal.App.3d 386, 393 [171 Cal.Rptr. 413].) To minimize the potential of a payment dispute between the contract attorney and the agency and the potential for a breach of client confidences, the Committee recommends that the hiring firm pay the contract attorney directly and make a separate payment to the agency. The client is, of course, entitled to full disclosure of the amounts paid to each and should receive documentation of all amounts charged and paid on the client's behalf. (See Business and Professions Code section 6148, subdivision (b).)
The duty to honor the secrets and confidences of a client also applies to former clients and only the client can release the attorney from this duty. (See Commercial Standard Title Co. v. Superior Court (1979) 92 Cal. App. 3d 934, 945 [155 Cal.Rptr. 393].) Privileged communications do not become discoverable solely because they are related to issues raised in litigation. (See Schlumberger Ltd. v. Superior Court, supra, 115 Cal.App.3d at p. 393.) However, an attorney may divulge confidential client communications as a "self-defense" in actions brought by the client. (Id. at p. 392.)
The contract attorney, by definition, will frequently move from firm to firm, or perhaps work for more than one firm at a time. It should be clear that a contract lawyer who temporarily works on a matter for a firm's client represents that client under rule 3-310. As a consequence, conflicts of interest may arise.
Rule 3-310 (A) and (B) state:
(A) If a member has or had a relationship with another party interested in the representation, or has an interest in its subject matter, the member shall not accept or continue such representation without all affected clients' informed written consent.
(B) A member shall not concurrently represent clients whose interests conflict, except with their informed written consent.
In the context of litigation, an attorney may not simultaneously represent both parties if there is an actual conflict between the parties. "However, if the conflict is merely potential, there being no existing dispute or contest between the parties represented as to any point in litigation, then with full disclosure to and informed consent of both clients there may be dual representation at a hearing or trial." (Klemm v. Superior Court (1977) 75 Cal.App.3d 893, 899 [142 Cal.Rptr. 509].)
The contract attorney is more likely to face a conflict not from dual representation, but from moving from one firm to another firm which represents the opposing side in a matter represented by the first firm. In Global Van Lines, Inc. v. Superior Court (1983) 144 Cal.App.3d 483 [192 Cal.Rptr. 609], former in-house counsel for Global represented the opposing side in a contract dispute. The former counsel had worked for Global for 15 years and had negotiated the contract in question, albeit a standard contract. The court, while disqualifying counsel, stated:
When a substantial relationship has been shown to exist between the former representation and the current representation, and when it appears by virtue of the nature of the former representation or the relationship of the attorney to his former client confidential information material to the current dispute would normally have been imparted to the attorney or to subordinates for whose legal work he was responsible, the attorney's knowledge of confidential information is presumed. (Id. at p. 489.)
(See also Jeffry v. Pounds (1977) 67 Cal.App.3d 6 [136 Cal.Rptr. 373] [a law firm was representing conflicting interests when it represented personal injury client's wife in dissolution]; Dill v. Superior Court (1984) 158 Cal.App.3d 301 [205 Cal.Rptr. 671] [a new associate in a firm who, while at prior firm, took depositions, made a court appearance and dealt with "random matters" for opposite side, is disqualified]; State Bar Formal Opinion Nos. 1981-63, 1981-57, 1984-84; Los Angeles County Bar Association Formal Opinion No. 418.)
The court in River West, Inc. v. Nickel (1987) 188 Cal.App.3d 1297 [234 Cal.Rptr. 33], disapproved a "balancing test" for disqualification as had been approved in William H. Raley v. Superior Court (1983) 149 Cal.App.3d 1042 [197 Cal.Rptr. 232], Elliott v. McFarland Unified School Dist. (1985) 165 Cal.App.3d 562 [211 Cal.Rptr. 802], and Maruman Integrated Circuits, Inc. v. Consortium Co. (1985) 166 Cal.App.3d 443 [212 Cal.Rptr. 497]. The River West court stated: "[T]he 'substantial relationship' test is a strict, prophylactic rule . . . . If a substantial relationship is established, the discussion should ordinarily end. The rights and interests of the former client will prevail. Conflict will be presumed; disqualification will be ordered." (River West, Inc. v. Nickel, supra, 188 Cal.App.3d at pp. 1308-1309.)5
An attorney must protect the confidences of his/her clients and avoid employment adverse to the client's interest, except as permitted by rule 3-310(D), which states:
A member shall not accept employment adverse to a client or former client where, by reason of the representation of the client or former client, the member has obtained confidential information material to the employment except with the informed written consent of the client or former client.
To minimize the chance of the contract attorney unnecessarily learning confidential information, the firm must make a concerted effort to screen the contract attorney from confidential information that is unnecessary to the attorney's assignment at the firm. The firm should limit the contract attorney's access to office files unrelated to the assignment and the contract attorney should not attend meetings at which unrelated cases are discussed. The contract attorney must remain mindful of the rule that "[a]n attorney may not use confidential information of a former client against the former client in any matter." (See State Bar Formal Opinion No. 1984-84.)
The contract attorney may arrive at a firm with confidential information derived from employment at a prior firm which may create a conflict of interest with the second firm and create vicarious disqualification problems. In addition to being disqualified from working on the matter in question, even with screening, it is possible that the second firm could be vicariously disqualified.
The court in William H. Raley Co. v. Superior Court, supra, 149 Cal.App.3d at p. 1048, suggested a balancing of interests approach, and stated:
The court must weigh the combined effect of a party's right to counsel of choice, an attorney's interest in representing a client, the financial burden on a client of replacing disqualified counsel and any tactical abuse underlying a disqualification proceeding against the fundamental principle that the fair resolution of disputes within our adversary system requires vigorous representation of parties by independent counsel unencumbered by conflicts of interest.
(Contra, River West, Inc. v. Nickel, supra, 188 Cal.App.3d at p. 1307.)
In Klein v. Superior Court (1988) 198 Cal.App.3d 894 [244 Cal.Rptr. 226], the court permitted the recusal of the entire firm as a result of the disqualification of one of its partners. The Klein court stated, however, that ". . . California law clearly prohibits continued representation . . . where a partner in a law firm has been disqualified from representation because of his prior receipt of confidential information, and where there has been no attempt to screen him from the litigation at hand." (Id. at pp. 913-914). This language implies that if a firm screens the attorney who is privy to the disqualifying confidential information, the entire firm would not be disqualified.6
This Committee believes that the responsibility for checking conflicts of interest falls on both the firm and the contract attorney.7 While the agency should monitor for potential conflicts, it might prove difficult for the agency to keep records on all clients handled at all firms engaged for all of their contract attorneys. A prior employment client/case review between the firm and the contract attorney concerning potential conflicts of interest should be part of the hiring process. To facilitate identification of conflicts, the contract attorney should maintain a personal record of clients and firms for whom he/she has worked, in addition to a general description of the work performed for the clients.8 The firm engaging a contract attorney has the most direct obligation to maintain an accurate record of the contract attorney's work for each of its clients and to monitor for conflicts on a routine basis.
Rule 3-310(E)9 prohibits a member from accepting compensation from one other than a client for representing a client unless there is no interference with the member's independent professional judgment, client confidences are maintained and the client consents where disclosure is required.
Even though paid by a third party for legal services, an attorney owes the ". . . same obligations of good faith and fidelity [to the client] as if he had retained the attorney personally." (Betts v. Allstate Ins. Co. (1984) 154 Cal.App.3d 688, 716 [201 Cal.Rptr. 528].) An attorney may not defend a client if the fees are being paid by a third party who tries to control the actions of the attorney. (State Bar Formal Opinion No. 1975-35.)
The agency should not attempt, and the contract attorney should not allow the agency, to influence the temporary attorney's independent judgment in providing legal services to the actual client.10 An attorney must provide an independent professional judgment to the client at all times. The agency and the contract attorney should be especially circumspect since the association between the agency and the contract attorney will be continuous with the contract attorney dependent on the agency for future engagements. To minimize any potential interference with the contract attorney's professional judgment or attorney-client relationship, this Committee suggests as stated above that the firm pay the contract attorney directly with a separate payment to the agency for services rendered.
In agreeing to render legal services to the client, the contract attorney impliedly agrees to use such skill, prudence and diligence as lawyers of ordinary skill and capacity and he or she may be subject to liability for failure to perform. (Betts v. Allstate Ins. Co., supra, 154 Cal.App.3d at p. 715.)
The court in Betts further stated that:
. . . it is an attorney's duty to protect his client in every possible way, and it is a violation of that duty for the attorney to assume a position adverse or antagonistic to his client without the latter's free and intelligent consent given after full knowledge of all the facts and circumstances. The attorney is precluded from assuming any relation which would prevent him from devoting his entire energies to his client's interest. (Betts v. Allstate Inc. Co., supra, 15 Cal.App.3d at pp. 715-716.)
The firm and contract attorney have the same obligation to act competently under rule 3-110, as would co-counsel in any other circumstances.
Therefore, the contract attorney and firm should carefully consider and resolve in advance the potential for any dispute between them over fees, costs, strategy or related matters.
Rule 3-110 requires that an attorney perform legal services "competently." Competently is defined by rule 3-110 as " . . . diligently to apply the learning and skill necessary to perform the member's duties arising from employment or representation." If the attorney lacks the skills necessary, the attorney may acquire them in the course of representation or associate additional counsel.
The Discussion under rule 3-110 explains that the duties set forth in rule 3-110 include the duty to supervise the work of subordinate attorneys and non-attorney employees. Additionally, the court in Pollack v. Lytle (1981) 120 Cal.App.3d 931 [175 Cal.Rptr. 81] stated:
The associate's [contract attorney] duty to exercise reasonable professional care, skill and diligence on behalf of the client is precisely equivalent to the duty he owes his principal [firm] in dealing with the subject matter of the agency . . . Moreover, in view of the principal attorney's liability for the acts of subordinate counsel under the doctrine of respondeat superior, it would be manifestly unfair to relieve an agent-associate of accountability to his principal. (Id. at pp. 942-943.) (Bracketed language added.)
Both the firm and the contract attorney must comply with rule 3-110 in performing their duties to the client. The contract attorney, however, should be particularly cautious to decline an assignment from the agency absent sufficient learning and skill, except as provided by rule 3-110.
Rule 1-600 permits members of the State Bar to participate in an attorney referral service if it is in conformity with the Minimum Standards for a Lawyer Referral Service in California.
Section 3.1 of the Minimum Standards states:
The purposes of the Service are:
. . .
(c) to inform the public when and where to seek legal services;
(d) to provide general and legal information needed by the public; and
(e) to improve the quality of legal services available to the public [emphasis added.]
The agency will not deal directly with the "public" for whom the Minimum Standards were promulgated to protect. Instead it will deal with attorneys who were not the persons the rule was intended to protect. Consequently, the agency will not be in violation of rule 1-600 because the agency will not be referring attorneys to the public.11
Rule 2-200 prohibits the division of fees between attorneys not in the same firm unless the client consents and the total fee charged is not unreasonable. An illegal fee-splitting agreement is contrary to public policy and, hence, unenforceable. (See Kallen v. Delug (1984) 157 Cal.App.3d 940 [203 Cal.Rptr. 879].) A California "resident partner" in New York based law firm may divide fees with the New York law firm, provided the fee sharing arrangement is disclosed to clients. (See Los Angeles County Bar Association Formal Opinion No. 385.)
Rule 1-320 prohibits an attorney from dividing fees with a non- attorney even with the consent of the client. Consequently, an attorney who paid his secretary a percentage of his legal fees was guilty of the illegal division of fees. (See Gassman v. State Bar (1976) 18 Cal.3d 125 [132 Cal.Rptr. 675]; see also Cain v. Burns (1955) 131 Cal. App.2d 439 [280 P.2d 888] [it is impermissible for an attorney to pay an investigator a percentage of legal fees]; Los Angeles County Bar Association Formal Opinion No. 423 [it is impermissible for a franchisee to pay a franchisor a percentage of legal fees].)12
Rule 1-320 would be violated if the payment to the agency is a percentage of the fees collected from the client.13 To minimize the potential for illegal fee splitting, the Committee again recommends that the temporary attorney be paid directly by the firm with a separate payment to the agency.14
For the reasons stated in this opinion, the Committee advises attorneys involved in any way with temporary attorney agencies to carefully monitor their actions to guard against the dangers of ethical violations identified and implement the procedures suggested herein to avoid them.
This opinion is issued by the Standing Committee on Professional Responsibility and Conduct of the State Bar of California. It is advisory only. It is not binding upon the courts, the State Bar of California, its Board of Governors, any persons or tribunals charged with regulatory responsibilities, or any member of the State Bar.
For purposes of this opinion, "firm" refers to any individual attorney, law firm, organization or corporate legal department already having a client that contracts with an agency to hire a contract attorney.
For purposes of this opinion, "contract attorney" refers to an attorney who requests an agency to secure engagement on a temporary basis with a firm.
(E) A member shall not accept compensation for representing a client from one other than the client unless:
(1) There is no interference with the member's independence of professional judgment or with the client-lawyer relationship; and
(2) Information relating to representation of a client is protected as required by Business and Professions Code section 6068, subdivision (e); and
(3) The client consents after disclosure, provided that no disclosure is required if;
(a) such nondisclosure is otherwise authorized by law,
or
(b) the member is rendering legal services on behalf of any public agency which provides legal services to other public agencies or members of the public.
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