Deep Thoughts on AB 1515

The short yet eventful life of AB 1515 raises many interesting issues in the jurisprudence of lawyer ethics in our Golden State.

The Latest Version

First, the most current version of AB 1515 as amended on May 8, from the Legislative Analysis (201320140AB1515_Assembly Judiciary-) which is well worth the read.

Author’s Technical Amendments. To avoid potential ambiguity, the author proposes the following technical revisions:

(p) To deposit into a client trust account funds received in advance from or for the client for fees, costs and or expenses that have been paid in advance for legal services into a client trust account, which shall be withdrawn by the attorney only as fees are earned or costs or expenses incurred.
(1) For purposes of this subdivision, any fee that is paid in advance as the set amount of the fee for specified legal services, whether paid as a “fixed” fee, a “flat” fee, or under any other label, is earned only when the attorney has performed and completed the legal services agreed to be provided in exchange for that fee. The specified legal services may be provided in stages, and the fee may be withdrawn when the attorney has performed and completed the specified stage or stages, provided the agreement with the client specifies each stage and sets the amount of the advance fee for each stage. For purposes of this subdivision, any fee that is paid in advance as the set amount of the fee for specified legal services, whether paid as a “fixed” fee, a “flat” fee, or under any other label, is earned only when the attorney has performed and completed the legal services agreed to be provided in exchange for that fee.
(2) The State Bar shall adopt for approval by the Supreme Court any necessary amendments to its rules of professional conduct to conform with this subdivision.

This language will almost certainly be amended again in light of action taken by the Board Operations Committee on Thursday to recommend sponsoring AB 1515 with exemptions for criminal defense, bankruptcy practitioners.

More IOLTA Funds  = More Money For Legal Services

The Legislative Analysis states that advanced unearned legal fees would have to be maintained in an account “consistent with” Bus. & Prof Code section 6211 until earned.  These funds would presumably be nominal in amount and on deposit for a short period of time and required to be placed in an IOLTA account where the interest would be paid to the State Bar for the provision of free legal services to the disadvantaged.  Mr. Dunn refers to finding ways to increase that funding in his testimony before the Assembly Judiciary Committee on May 8.

The Legislature is Firmly In Control

The Legislature is firmly in control of lawyer regulation.  And its clear that the Executive Director is the Legislature’s man.  While the concept of requiring advanced fees to be placed in trust was discussed with general approval by the RADO Committee of the Board, the committee with charged with oversight of the discipline system, no proposal was presented prior to AB 1515 springing to life.  The Board’s process was only formally invoked after opposition to the Bill developed and RADO was bypassed in favor of the Board Operations Committee.  The cooperative relationship between the Executive Director and the Assembly Judicial Committee is apparent from the hearing video and remarked upon by the Chair.

Separation of Powers Smackdown?

Forgive the headline; I just wanted to use the word “smackdown.” AB 1515 directs the State Bar to adopt for approval any amendments to the Rules of Professional Conduct that may be necessary to conform to the new statutory duty.

But the Legislature doesn’t have the power to make the Supreme Court adopt those amendments.  The Supreme Court has had the chance to adopt this rule before, first in Baranowski, and again when presented with an explicit amendment to Rule 4-100 in the early 1990’s.  Both times it declined.  Might it do so again? Might it regard this as an unreasonable infringement on the Court’s inherent power in the discipline arena (see Obrien v. Jones.)

The Legislature has directed the State Bar to propose Rules of Professional Conduct before, with mixed results.  Rule 5-200, the trial publicity rule, was spawned by Judge and former state senator Quentin Kopp, in the wake of the O.J. Simpson media circus.  The Supreme Court rejected the Rule proposed by the State Bar and adopted a version closer to the ABA Model Rule.

Why is Client Trust Account Education is Ignored?

One very foreseeable consequence of adopting this rule:  more client trust accounts will be opened as they will be necessary for lawyers to take flat or fixed fees (it is unclear whether the proposed rule as amended would apply to an advance fee paid for work done on on an hourly basis.)

More client trust accounts naturally translates to more grist for the discipline mill.  A big part of the reason is that many lawyers are ignorant of the client trust accounting rules.  They don’t teach these rules in law school; young lawyers don’t learn these rules working at law firms.

Driving a client trust account is as serious as driving car.  If we are going to require attorneys to open a client trust account,  we should require them to complete a client trust acount course before they do so.  Such a course could easily be developed by the State Bar from its existing client trust accounting school and administered on line.

Is the Rules Revision Officially Dead?

The Board of Trustees just voted to repudiate the version of proposed Rule 1.5 that it approved in July 2010.   Only a handful of the proposed revised rules have been sent to the California Supreme Court for approval and none have been approved.  Now the Legislature is moving to impose its own version of Model Rule 1.5(c) on the State Bar and the Supreme Court.

The tea leaves are murky as always when dealing with Supreme Court but this cannot bode well for the adoption of the revised rules.  Events have outraced them.

More Lawyers Will Leave Practice; Do We Care?

The Rules Revision Commission rejected a California duplicate of Model Rule 1.5(c) because it was concerned about access to justice.  The Supreme Court rejected a proposed revision of Rule 4-100 because it was concerned that it would make it more difficult for lawyers depending on advanced fees to remain in business.

Many lawyers moved to flat fees because they believed that the fee was earned on receipt and because it did not have to placed in a client trust account, relieving them of the burden of client trust accounting.   Adoption of AB 1515 would change this and would almost certainly result in further financial pressure that would result in lawyers leaving practice. The California Supreme Court and the Rules Revising Commission cared about this.  Do we? Or is this just a product of a lawyer-centric era that has faded into history?

On the bright side, policing the lawyers that remain, almost all of whom will now have client trust accounts, will continue to create work for the discipline system, is prosecutors, its judges and its defense counsel.


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