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MCLE Self-Study: California Rules of Professional Conduct Overhauled

The State Bar of California's new and amended Rules of Professional Conduct took effect November 1, 2018—the first overhaul in nearly 30 years. Sixty-nine approved rules replace the 46 that previously governed the conduct of California's more than 250,000 licensed attorneys.

The changes seek to align California's rules with legal standards across the country. Previously, California was the only state that did not base its rules on the American Bar Association's Model Rules of Professional Conduct. Still, California's new rules are not a verbatim copy of the ABA Model Rules. For example, the new rules do not adopt ABA Model Rule 1.14, addressing the duties of counsel representing clients with diminished capacity. There are other nuances.

One of the biggest (though non-substantive) changes is to the new numbering scheme. The new rules generally conform to the organization and numbering of the ABA Model Rules, switching out dashes for periods (e.g., instead of Rule 1-100 it is now Rule 1.0). This change allows for easier comparison and review across various jurisdictions.

Every California attorney needs to be aware of the changes, as failure to comply with the new rules may result in discipline, including disbarment. See Rule 8.5(a). Failure to comply in a litigation matter may result in disqualification from a matter.

Rule 1.2 - Limited Scope of Representation and Allocation of Authority

This new rule, without a prior counterpart, allows clients to take control of litigation objectives and costs in two ways. First, it expressly permits a limited scope of retention if it is reasonable under the circumstances, not otherwise prohibited, and informed consent is obtained. The new rule also allows the client to authorize the attorney to take specific actions on the client's behalf without taking on general retention. This allows a client to limit litigation costs.

Second, this rule also states that a lawyer shall abide by a client's decisions concerning the objectives or representation and shall consult with the client as to how they are to be pursued. Again, the rules are emphasizing that decision-making rests with the clients and that attorneys should discuss with their clients both the means and objective.

Rule 1.2.1 - Guidance to California Attorneys Advising Clients Where State Law Differs from Federal Law

This new rule does not specifically mention marijuana, but it seems aimed at lawyers who advise those in California's legal cannabis industry. Rule 1.2.1, Advising or Assisting the Violation of Law, applies where state laws conflict with federal or tribal laws, specifically allowing attorneys to "discuss the legal consequences of any proposed course of conduct with a client." An attorney cannot, however, advise a client to break— or how to break—the law. (See Across the Bar [4th Qtr. 2018] for a detailed treatment of Rule 1.2.1.)

Rule 1.4 - Required Communication with Clients

Former Rule 3-500—"Communication"—required a lawyer to keep a client reasonably informed about "significant developments" relating to the employment or representation, but it was not very specific.

New Rule 1.4 is specific and in-line with the ABA Model Rule. Besides lawyers having to keep clients reasonably informed about significant developments, they must promptly inform clients of any decision or circumstance requiring either disclosure or the client's informed consent; reasonably consult with the client about the client's objectives and the manner of achieving them; and advise the client of relevant limitations on the lawyer's conduct (e.g., methods of assistance requested by the client that are prohibited by the rules).

The most significant difference is the need to consult with the client about objectives and how to achieve them. The new rules emphasize allowing the client to make informed decisions, including the costs involved. While California attorneys were previously encouraged to clearly communicate with their clients, the new rule makes it unethical not to have discussions with the client about objectives and how to manage them. As a practical matter, the new rules effectively mandate a litigation management plan.

Rule 1.5 - California Unconscionability Standard for Fees Retained; Rejects Model Rules Unreasonableness Standard; Requires Informed Consent for "True Retainers"

Rule 1.5 contains several factors for determining whether fees are unconscionable that are not included in the ABA Model rules, including: whether the client gave informed consent to the fee, failure to disclosure material facts, and engagement in fraud or overreaching in negotiating fees. Additionally, Rule 1.5(d) states that "earned on receipt" or "non-refundable" retainers are permitted and must be true retainers (to assure the lawyer's availability only). These require a client's agreement, after disclosure, that the client will not be entitled to a refund of all or part of the fee charged.

Rule 1.5.1 - Agreements to Divide Fees Require Client Written Consent Former Rule 2-200 did not require that an agreement between the lawyers be in writing or the identification of the parties to the division; it also permitted client consent at the time of the fee split (which is oftentimes at the end of a case, when all the work has been done). New Rule 1.5.1 requires that agreements between lawyers to divide fees must in writing; the client must also consent, in writing at the time of the agreement, or as soon thereafter as reasonably practicable. The client's consent may be given only after full written disclosure to the client of the fact that a fee division will be made, the identity of the lawyers or law firms that are parties to the division, and the terms of the division.

While California attorneys were previously encouraged to clearly communicate with their clients, the new rule makes it unethical not to have discussions with the client about objectives and how to manage them.

Rule 1.7 - New Approach for Determining Client Conflicts of Interest

Rule 1.7 adopts the straightforward ABA Model Rules based trigger: whether there is a direct adversity to another current client in the same or separate matter; or whether there is a significant risk that the lawyer's representation of the client will be materially limited by the lawyer's responsibilities to or relationship with another client, a former client, or a third person, or by the lawyer's own interests. It moves away from former Rule 3-310's "checklist" approach.

Rule 1.7 retains California's "informed written consent" standard (cf. Model Rules "informed consent, confirmed in writing" standard). Comment [9] recognizes the validity of advance waivers under certain circumstances and that client experience and sophistication, as well as independent representation, factor into determining whether consent is informed.

Rule 1.8.10 - Stricter Rule Against Sex with Clients, Bans Sexual Relationships Unless a Prior Consensual Relationship Existed

California had one of the most relaxed standards related to sexual relationships between attorneys and clients. The previous rule focused on quid pro quo arrangements, coercion, or incompetence resulting from sex with clients. 

The new rule is much more restrictive. Attorneys are now prohibited from engaging in sexual relationships with current client unless a relationship pre-existed the attorney/client relationship or the attorney and client are married.

Rule 1.15 - Must Deposit Advance Fee Deposits in Client Trust Accounts Maintained in California

Former 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, including settlement payments, other funds received from third parties, and advances for costs and expenses. Rule 4-100 did not require that advance fee retainers or deposits be placed in client trust accounts.

With the word "fees," new Rule 1.15 mandates that advances for legal fees be deposited into a client trust account. Comment [2] 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."

By adding the simple four-letter word, "fees," the rule may disrupt California law practices. First, new Rule 1.15 does not only apply to funds received following the effectiveness of the new rule), it 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 a firm's operating account must be identified, traced, and deposited into a trust account.

Second, rule requirement that the bank account into which funds are deposited be "maintained in the State of California," mean that firms based outside of California or maintain banking relationships outside the state, must establish trust accounts with banks in California.

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(d) 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." A true retainer is earned upon receipt; it is not compensation for legal services to be performed, so it may be deposited directly into a firm's operating account.

New Rule 1.15 does permit 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 the client has a right to require the flat fee be deposited into a trust account until the fee is earned and that 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. If the flat fee exceeds $1,000, client consent must be in writing.

Rule 1.18 - Duty of Confidentiality as to Confidential Information Received from Prospective Clients

Rule 1.18 codifies common law that a lawyer owes a duty of confidentiality as to confidential information received from prospective clients. A lawyer is prohibited from representing a client with material adverse interests to a prospective client in the same or a substantially-related matter if the lawyer received confidential information material to the matter from the prospective client—even if the lawyer was never actually hired! Rule 1.18 defines "prospective client" as someone who consults the lawyer to hire the lawyer or secure legal services/advice. Comment [2] excludes those who communicate information (a) unilaterally without a reasonable expectation that the lawyer is willing to be retained, (b) after the lawyer had stated an unwillingness or inability to consult, or (c) without a good-faith intention to seek legal advice or representation.

Rule 3.2 - Conduct with no Substantial Purpose Other than to Delay or Cause Needless Expense Prohibited

There is no prior counterpart to Rule 3.2, which states that an attorney shall not use means that have no substantial purpose other than to delay proceedings or cause needless expense.

Rule 3.3 - Candor Toward the Tribunal Another new rule with no prior counterpart

While the general rule is clear (of course, all attorneys know that lying in court is against the rules), the Rules Committee added this rule to clarify the specifics and the scope of an attorneys' duty of candor.

An attorney cannot 'knowingly' make a false statement of law or fact or fail to correct a false statement of material fact or law previously made to the tribunal, fail to disclose binding authority controlling in the jurisdiction, or offer evidence that the attorney knows to be false.

Rules 4.1 and 4.3 - Truthfulness to Others

Rules 4.1 and 4.3, both without prior counterparts, emphasize an attorney's need to be honest with third parties and move beyond an attorney's duty of candor to a tribunal or client. Rule 4.1 prohibits an attorney from making false statements of material fact or law—or failing to disclose a material fact—to a third person where disclosure is necessary to avoid assisting a criminal or fraudulent act by a client, unless disclosure is prohibited by the Business and Professions Code.

Case law typically restricts claims by third parties that assert attorney failure to disclose information to non-clients. The new rules reiterate the provision contained in the previous rules that they are not intended to create private causes of action. Still, the new Rule 4.1 creates much broader grounds for non-clients to file complaints to the State Bar alleging violations.

Under new Rule 4.3, an attorney speaking on behalf of a client to a third party may not state or imply that he or she is disinterested. If the attorney believes that the third party believes the attorney is disinterested, the attorney must take reasonable steps to correct the misunderstanding.

Rule 4.4 - Lawyers Shall Refrain from Examining Inadvertently-Sent E-mails

New Rule 4.4 establishes an ethical obligation that echoes duties previously established by case law. When it is reasonably apparent that a privileged communication was inadvertently sent, the lawyer shall refrain from examining the writing any more than is necessary to determine that it is privileged or subject to the work product doctrine and shall promptly notify the sender.

Rule 5.1 - Lawyers Must Make Reasonable Efforts to Assure Compliance by Other Lawyers and Staff under Their Management or Supervision

A lawyer's duty to supervise the work of subordinate attorneys and non-attorney employees or agents was previously only in a comment to former Rule 3-310. Now, in step with the Model Rules, these duties are separate Rules 5.1 and 5.3, while subordinate attorneys now have a similar duty under Rule 5.2.

New Rule 5.1 makes lawyers vicariously responsible for another lawyer's violation if "(1) the lawyer orders or, with knowledge of the relevant facts and of the specific conduct, ratifies the conduct involved; or (2) the lawyer, individually or together with other lawyers, possesses managerial authority in the law firm in which the other lawyer practices, or has direct supervisory authority over the other lawyer, whether or not a member or employee of the same law firm, and knows of the conduct at a time when its consequences can be avoided or mitigated but fails to take reasonable remedial action."

Under new Rule 5.2(a), a subordinate lawyer has an independent duty to comply with the Rules of Professional Responsibility and cannot simply follow the instruction of his or her superior. The only exception is where a subordinate lawyer acts in accordance with a supervisory lawyer's "reasonable" resolution of an arguable question of professional duty. However, the comment to 5.2 cautions that "[i]f the subordinate lawyer believes that the supervisor's proposed resolution of the question of professional duty would result in a violation of these rules or the State Bar Act, the subordinate is obligated to communicate his or her professional judgment regarding the matter to the supervisory lawyer."

Rule 5.3 clarifies that attorneys managing non-lawyer staff are responsible for taking reasonable efforts to assure that non-lawyer staff comply with the Rules of Professional Conduct. If a lawyer learns of the conduct at a time when its consequences can be avoided or mitigated but fails to take reasonable remedial action, then the managing lawyer is responsible for violations committed by the lawyer's staff, whether the lawyer was aware of the misconduct or not.

Rule 8.4.1 - Harassment and Discrimination Prohibited in Representation of Clients and Law Firm Operations

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 is prohibited under Rule 8.4.1, and the protected categories are expanded to include gender identity and expression. Rule 8.4.1 is limited to unlawful conduct as determined by applicable state and federal statutes and decisions, and excludes conduct protected by the First Amendment. Rule 8.1.4 gives "all law firm attorneys the responsibility to advocate corrective action to address known harassing or discriminatory conduct by the firm or any of its attorneys or non-attorney personnel."

New rule 8.4.1 eliminates the requirement that there be a final civil determination of such unlawful conduct before a State Bar disciplinary investigation can commence or discipline be imposed. Citing concern that the State Bar Court may not be the best venue to take over the initial determination of unlawful conduct, Rule 8.4.1 contains self-reporting obligations that require a lawyer to provide a copy of a State Bar notice of disciplinary charges 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, to give a tribunal of competent jurisdiction an opportunity to adjudicate the matter before the State Bar Court acts.

A Few Others

There are other important changes that apply to more specialized circumstances, such as: Rule 1.8.7 specifies that an attorney needs a client's informed written consent in criminal cases for guilty or nolo contendere pleas; Rules 7.1, 7.2, 7.3, 7.4, and 7.5 clarify rules about solicitation and advertising with comprehensive guidance for information about legal services; Rule 3.8 provides guidance about the special responsibilities of prosecutors in criminal cases around discovery and exculpatory evidence (effective November 2017, in advance of the other rules); Rules 1.1 and 1.3 separate and clarify an attorneys' duties of competence and diligence; and Rules 1.10, 1.11, and 1.12 deal with determining imputation of conflicts of interests of prior firms and prior clients.


California's rules are among the strictest in the nation and are intended to maintain the integrity of the profession and protect the public. As a result, they can be complex. Even so, the new rules offer simplicity and clarity the prior rules lacked. The terrain has changed, and all attorneys need to be familiar with it. This article merely highlights most of the major changes in the new rules; it is not an exhaustive list of things to know about the new Rules. To view the new Rules in their entirety, visit California State Bar website (www.calbar.ca.gov).



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Tuesday, 26 October 2021

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