New Mandatory Bar Ethics Reporting Rules

The California Bar has adopted a new Rule of Professional Conduct 8.3 which requires that bar members report ethical breaches of other lawyers about which they are aware. This rule brings California into line with most other jurisdictions which require such reporting. The rule goes into effect on August 1, 2023. Several subsidiary rules related to client trust funds were also put in place at the same time.

The rule changes appear to be still more efforts of the bar to target misconduct of the type in which Tom Girardi engaged over a long period of time and which generated headlines last spring and fall. The California Bar has adopted mandatory reporting regarding client trust accounts for every lawyer at a firm beginning this January, and the revised Rules of Professional Conduct 1.4 and 1.15. Revised Rule 1.4 now clearly indicates that the receipt of client funds is a “significant development” in the case which requires client reporting. Rule 1.15 now requires that any notification of receipt of client (or third party) funds must take place within 14 days of receipt of those funds and requires disbursement of those funds (unless otherwise directed) within 45 days. there is some leeway for funds that the client is not entitled to for other reasons (e.g. liens), but the presumption is against the attorney holding the funds and must be rebutted by a preponderance standard or the attorney will be found to have misallocated client funds. Disputed funds (e.g. funds which may be the lawyers or the client’s) are excluded from this rule.

Corresponding Rule of Court 9.8.5 and State Bar Rule 2.5 (referred to above) require mandatory reporting of client trust accounts, and the balances of those accounts, as well as a mandatory questionnaire for all active bar members each year at bar renewal. Again, all of these changes appear intended to address the “black eye” that the State Bar received after the public became aware of its handling of the numerous ethical complaints against Tom Girardi.

Regarding Rule 8.3, the primary thrust is somewhat strangely organized. The old Rule 8.3 is essentially “pushed down” one bullet, so point (b) indicating that a lawyer may report ethical issues to the State Bar remains. But, bullet (a) now requires reporting, without unreasonable delay if the lawyer knows of credible evidence of a criminal act, or a lawyer engaged in dishonesty, fraud, deceit, or reckless or material misrepresentation or misappropriation of funds or property that raises a “substantial question” as to that lawyer’s honesty, trustworthiness, or fitness as a lawyer in other respects. The Rule seems particularly pointed, rather than to impose an open-ended obligation on lawyers to report. But, the language covers much ground with deceit or material misrepresentation in a general sense, and misappropriation of funds in a specific sense.

There are also some interesting footnotes or other considerations:

1. Note 3 indicates that one charged with an obligation to report should consider the interests of the client as paramount. And, that the duty to report “as soon as the lawyer reasonably believes” there is an ethical breach can be delayed if there is a reasonable belief that reporting will engender material prejudice to the client’s interest in the relevant matter (or another matter).
2. Note 6 indicates that a lawyer may discharge their obligation to report to a “tribunal” instead of the State Bar itself so long as the reporting pertains to the relevant case (e.g. litigation misconduct) and the tribunal is capable of adequately investigating the alleged ethical issue.
3. Note 10 indicates that criminal penalties and discipline are possible recourse for false statements or evidence submitted in an attempt to have an attorney investigated or disciplined.

Ethics Opinion re Confidential Information of and Conflicts Between Actual and Prospective Clients

The California Bar has written a formal opinion relating to the obligations owed by an attorney to prospective clients from which that lawyer has received confidential information or has otherwise consulted in furtherance of a prospective engagement. In short, the lawyer owes the same obligations they would owe to an actual client vis-a-vis any confidential information or prospective conflict (e.g. using information obtained in a consult for a new client against that prospective client). When ethically possible, a written waiver is possible to begin the engagement. Otherwise, an attorney may be required to forego a subsequent representation, for example, if two sides of the same dispute consulted with the lawyer and only the second hired the lawyer.

The Ethics of “Blogging” and Similar Activities

The California Bar also has written a formal opinion delineating the ethical obligations of “blogging” lawyers to comply with (then-rule) 1-400 pertaining to attorney advertisements. The thrust of the opinion is that the line is whether an attorney is actively seeking engagement or offering engagement (e.g. “Call now for a free consult!”) on that blog. If the lawyer is seeking engagement with new or prospective clients, then it is an attorney advertisement and must conform to those rules. If it is merely informational and informative, without directly or indirectly seeking work from prospective or current clients, then it need not comply with such rules.

Jonathan Pearce, the author of this post, will lead a discussion of these ethical issues at our weekly SoCal IP Institute Meeting on July 24, 2023 which will qualify for 1 hour of ethics MCLE for the State Bar of California.