Lawyers Practicing Where They Are Not Licensed

The Unauthorized Practice of Law Thursday, September 29, 2011 4:44 PM

Lawyers Practicing Where They Are Not Licensed  Birbower  QP = whether an out-of-state law firm, not licensed to practice law in California, violated section 6125 when it performed legal services in California for a California-based client under a fee agreement stipulating that California law would govern all matters in the representation.  Holding = To the extent that Birbower practiced law in California without a license, it engaged in the unauthorized practice of law in this state, however, the court did not believe that the Legislature intended section 6125 to apply to those services an out-of-state firm renders in its home state. Therefore, Birbower's fee agreement with real party in interest ESQ, is invalid to the extent it authorizes payment for the substantial legal services Birbower performed in California. If, however, Birbower can show it generated fees under its agreement for limited services performed in NY, and it earned those fees under the otherwise invalid fee agreement, it may, on remand, present to the trial court evidence justifying its recovery of fees for those New York services. . B&P Code 6125 states: "No person shall practice law in California unless the person is an active member of the State Bar."  Since the Act's passage, the general rule has been that, although persons may represent themselves and their own interests regardless of State Bar membership, no one but an active member of the State Bar may practice law for another person in California.  Moreover, "[n]o one may recover compensation for services as an attorney in [California] unless [the person] was at the time the services were performed a member of the State Bar."  Court applied the Merchants two-part definition of the "practice of law."  In addition, the practice of law "in California" entails a sufficient contact with the California client to render the nature of the legal service a clear legal representation. In addition to a quantitative analysis, the court must consider the nature of the unlicensed lawyer's activities in the state. Mere fortuitous or attenuated contacts will not sustain a finding that the unlicensed lawyer practiced law "in California."  The primary inquiry is whether the unlicensed lawyer engaged in sufficient activities in the state, or created a continuing relationship with the California client that included legal duties and obligations.  This definition does not necessarily depend on or require the unlicensed lawyer's physical presence in the state.  Physical presence is one factor in the determination, but it is by no means exclusive. . Exceptions to B&P Code 6125: (1) trial judges may consent to limited appearances by an out-of-state attorney; (2) pro hac vice appearances in court; (3) federal courts may permit, but generally reject, appearances by counsel not licensed in the state where the federal court sits; (4) foreign legal consultants; and (5) arbitration and conciliation of international commercial disputes according to CCCP, sections 1297.11 et seq.  Justice Kennard, dissenting: . Would have adhered to the court's decision in Baron v. City of Los Angeles… more narrowly defining the practice of law as the representation of another in a judicial proceeding or an activity requiring the application of that degree of legal knowledge and technique possessed only by a trained legal mind. . Under this definition, this case presents a triable issue of material fact as to whether the NY lawyers' California activities constituted the practice of law.  The general rule is that a lawyer may not practice law in a jurisdiction where he or she is not licensed. ABA MR 5.5(a); CRPC Rule 1-300(B).  ABA MR 5.5 Comment 4, which was added after Birbower was decided, prohibits "systematic and continuous presence in a jurisdiction were a lawyer is not licensed," and recognizes that such presence can occur even if the lawyer "is not physically present."  Birbower intensified a national debate on what is now called multijurisdictional practice.  In 2002, the ABA added MR 5.5(c) to permit the rendition of legal services on a temporary basis under the following circumstances in jurisdictions where the attorney is not licensed: (1) an attorney who is licensed in that jurisdiction is associated and actively participates in, and shares responsibility for, the representation of the client (Comment 8); or (2) the services are related to court proceedings in any jurisdiction and the attorney, or a person the attorney is assisting, is authorized, or is likely to be authorized, to appear in those proceedings; or (3) the services are related to a dispute resolution procedure in any jurisdiction, provided pro hac vice status is not required; or (4) the services are related to the lawyer's practice in a jurisdiction where the attorney is licensed.  The ABA also added MR 5.5(d), which allows an attorney to practice on more than a temporary basis in a jurisdiction where the attorney is not licensed in two situations. . First, the services are provided for the attorney's employer and pro hac vice status is not required. (Think in-house counsel, especially for large companies with offices in several states) . Second, the lawyer is authorized to provide those services by federal law or other law of that jurisdiction.  In 2004, the California Supreme Court adopted Rules of Court permitting four categories of out-of-state lawyers to engage in limited practice in California: . Legal Services Attorneys  Rule 9.45 permits lawyers licensed in other jurisdictions, who have not taken and failed the California bar examination within the previous five years, to practice for three years at qualifying non-profits whose primary purpose is to provide free legal services to indigents.  Must be supervised by a licensed California attorney - includes court appearances;  Must register with the State Bar and submit Moral Character Application;  May simultaneously practice as in-house counsel under Rule 9.46 . In-House Counsel  Rule 9.46 permits lawyers licensed in other jurisdictions to act in California as in-house counsel only for the entity-client, including its subsidiaries and organizational affiliates.  Cannot appear in court; cannot personally represent Corporate constituents;  Lawyer may practice under this rule for any period of time, but must register annually with State Bar. . Litigation Attorneys  Rule 9.47 permits out-of-state litigation attorneys to practice out-of- court in California on a temporary and limited basis in anticipation of filing a lawsuit in California, or as part of litigation in another state, provided this work is supervised by a California lawyer.  An appearance in court is governed by the pro hac vice requirements of Rule 9.40.  No registration is required. . Non-litigation Attorneys  Rule 9.48 permits a lawyer licensed in another jurisdiction to practice in California on a temporary basis in three situations.  First, when a client has a legal dispute in another jurisdiction where the lawyer is licensed, the lawyer may engage in transaction or other non-litigation matters in California on behalf of the client relevant to that dispute.  Second, when an employer-client, or that client's subsidiary or organizational affiliate, needs transactional legal work performed in California.  Third, a lawyer licensed in another jurisdiction may advise or assist California lawyers on an issue of federal law, or the law of another state or country where the lawyer is licensed.  Registration is not required. Non-Lawyers Practicing Law  Estate of Marks (preparation and completion of will kit)  The rules regulating the conduct of lawyers are applicable to lay people who engage in the practice of law…The Rules of Professional Conduct govern the conduct of lawyers and in part prohibit a lawyer from preparing an instrument giving the lawyer or a person related to the lawyer (parent, child, sibling, or spouse) any substantial gift from a client, including a testamentary gift, except where the client is related to the donee. ABA MR 1.8(c). . In 2002, ABA MR 1.8(c) was amended to provide that "related" now includes an "individual with whom the lawyer or the client maintains a close, familial relationship." . However, CRPC Rule 4-400 permits an attorney to prepare an instrument containing a gift provided there is no undue influence.  The court found the selection and completion of preprinted form legal documents to be practice of law. . The court found the Blanford's activities in selecting a will kit, discussing the distribution of assets and whether is was fair, obtaining the inventory of investments, typing the will, and arranging for the signing and witnessing of the will constituted the unauthorized practice of law.  While no single act, in and of itself, may constitute the practice of law, taken cumulatively the acts may have passed the threshold for the unauthorized practice of law.  Preprinted Legal Documents and Do it Yourself Books Containing Legal Forms:  Distinguish between clerical work and merely acting as a scrivener (typing in the long hand statement of another) on the one hand, and between advice, consultation, explanation, recommendations or other actions that go beyond thee functions. . Mere clerical services = making forms available for a client's use, filling in the forms at the specific direction of the client, and filling filing and serving the forms as directed by the client. . Courts have permitted "do-it-yourself" books containing legal forms and a manual about how to fill them out provided there is not personal contact with a client.  General Rule = the "practice of law" does not include the design, creation, publication, distribution, display, or sale, including publication, distribution, display, or sale by means of an Internet website, of written materials, books, forms, computer software, or similar products if the products clearly and conspicuously state that the products are not the substitute for the advice of an attorney  Moreover, publication of general advice on legal matters on a web site is not the unauthorized practice of law. . One key element of the practice of law is missing in published advice offered to the general public: the tailoring of that advice to the needs of a specific person. The practice of law involves the rendering of legal advice to an individual. Legal publications offering general advice or opinions do not purport to customize the advice to the particularized needs of the reader.  Benninghoff v. Superior Court  The court declined to answer the question whether laypeople can represent parties in state administrative proceedings (but assumed that lay people may do so), and instead, answered the specific question whether Benninghoff, who resigned from the State Bar of California while disciplinary proceedings were pending against him, may represent parties in state administrative proceedings. . Benninghoff is different than a typical layperson because he used to be a lawyer. . The statute prohibiting the unauthorized practice of law treats true laypeople differently than lawyers who have lost their bar membership.  Section 6126(a) address true laypeople - it provides that "any person… practicing law who is not a member of the State Bar, or otherwise authorized pursuant to statute or court rule to practice law in this state at the time of doing so, is guilty of a misdemeanor."  Section 6126(b) address lawyers like Benninghoff - it provides that "any person who…has resigned from the State Bar with charges pending, and thereafter practices or attempts to practice law…is guilty of a crime punishable by imprisonment in the state prison or county jail." . Thus, a true layperson may practice law when "authorized pursuant to statute or court rule"; a defrocked lawyer like Benninghoff may not practice law at all.  Next, the court had to decide whether the representation of parties in state administrative proceedings constitutes practicing law. . Benninghoff practiced law by representing parties in state administrative proceedings:  He used is legal knowledge to offer legal advice and counsel, prepare legal documents, and attempt to secure his clients' legal rights.  However, see Augustine v. Department of Veteran Affairs, which held that B&P Code 6125 regulates practice before California courts and administrative agencies; it does not regulate practice before federal courts and administrative agencies.  A person who appears as an attorney in a state administrative proceeding that applies federal law may be denied attorney's fees (see Z.A. v. San Bruno Park School Dist.) - California does not allow recovery of compensation for services rendered as an attorney unless the attorney is a member of its state bar. Lawyers Aiding and Abetting Non-Lawyers  An ethical violation occurs when a licensed lawyer aids or abets a non-lawyer in the practice of law by the non-lawyer.  ABA MR 5.5(a) prohibits a lawyer from assisting a non-lawyer in an activity that could constitute the practice of law.  Comment 2 and 3 state that this Rule does not prohibit (1) the employment of paraprofessionals and delegation of work to them, provided the work is supervised by a licensed attorney who retains responsibility for the work; (2) giving legal advice to non- lawyers whose jobs require legal knowledge, such as claims adjusters, accountants, and mortgage brokers; and (3) counseling non-lawyers who proceed pro se at trial.  CRPC Rule 1-300(A) briefly states that "a member shall not aid any person or entity in the unauthorized practice of law."  Although the exceptions notes in the Comments to ABA MR 5.5(a) are not mentioned, they most likely would apply in California as well.  In re Carlos - Where a law firm negotiates a contract on behalf of a client, this conduct constitutes the practice of law - therefore, an attorney may not delegate such functions to a non- attorney. Dual Practice  An attorney who is also a member of another profession must be careful in satisfying the ethical mandates of both professions.  Today, lawyers may practice in two professions, and they may advertise both professions even though the non-legal business may attract clients for the legal business.  A lawyer who wears two hats must still obey the ethics rules of the legal profession even though he or she may be practicing the non-legal business.  The lawyer generally takes his license with him when he enters into any relationship to provide a client with what the client may reasonably believe are law-related services. Lawyers Sharing Fees with Non-Lawyers  It is unethical to share fees with a non-lawyer. ABA MR 5.4(a); CRPC Rule 1-320.  "Fee Sharing" v. "Division of Fees"/"Fee Splitting" . Fee Sharing - is the term used when a lawyer gives a portion of a fee to a non- attorney. . Whereas "division of fees" or "fee splitting" are the terms used when a portion of the fee is given to another attorney and are governed by CRPC 2-200; MR 1.5(e). . However, courts use the terms interchangeably.  There are some important exceptions to the prohibition against sharing fees.  ABA MR 5.4(a)(1) and CRPC Rule 1-320(A)(1) permit a law firm to make an agreement to pay more money to the estate or beneficiary of a lawyer in the firm over a reasonable period of time after the lawyer's death - allows for vested rights of legal fees earned by the lawyer prior to his or her death to be paid to the estate, even though it may be distributed to a layperson.  ABA MR 5.4(a)(2) permits an attorney who purchases the law practice of a deceased, disabled, or disappeared lawyer under MR 1.17 to pay the purchase price to the estate or to the representative of that lawyer.  CRPC Rule 1-320(A)(2) permits an attorney who completes the unfinished business of a deceased lawyer to pay the estate or other designated person "that portion of the total compensation which fairly represents the services rendered by the deceased lawyer."  The prohibition against fee sharing with non-lawyers does not cover certain benefits for the employees and staff. . ABA MR 5.4(a)(3) and CRPC Rule 1-320(A)(3) permit a law firm to include non- lawyer employees in compensation or retirement plans, even though the plan is based partially or entirely on a "profit sharing arrangement."  Other exceptions exist: . MR 5.4(a)(4) permits an attorney to share court-awarded legal fees with non- profit organizations that "employed, retained, or recommended" the attorney's representation in the case. . CRPC Rule 1-320(A)(4) establishes an exception for the payment by a lawyer of a prescribed fee to a State Bar recognized lawyer referral service.  Under this exception, attorneys may also pay flat fees as rates for advertising in newspapers, magazines, television or other media outlets. Lawyers and Non-Lawyers in Business Together  ABA MR 5.4(b) and CRPC Rule 1-310 prohibit any business arrangement where a non-lawyer owns an interest in the business, or has some management and/or control over the professional activities of a lawyer, if any of the activities of the business involve the practice of law.  Therefore, neither of these rules would prohibit a lawyer and non-lawyer from opening a restaurant together because no part of the business involves the practice of law.  BUT, these rules would prohibit a lawyer and an accountant from opening a business together as partner where the lawyer provides legal advice and the accountant provides financial planning because this arrangement would involve fee-sharing with a non-lawyer, lay interference in the independence of the attorney's judgment, and compromise of confidential and privileged information because the business itself is engaged in the practice of law as one of the services it provides to clients.  May a California law firm general partnership, limited liability partnership, or professional corporation has as partners (or shareholders) members of the bar of a foreign country who are not also members of the California State Bar?  There is good reason to believe that the ABA and California would acknowledge such business relationships. . The CRPC Rule 1-100(B)(3) defines a "lawyer" to include persons who have been admitted in California pursuant to California's own requirements, as well as those admitted in other states or foreign jurisdictions. . Although the CRPC does not expressly provide when a California lawyer is entitled to enter into a partnership with a foreign lawyer, or split fees with that foreign lawyer, its list of prohibited partnerships and fee splitting arrangement does not include forming a partnership with, or splitting a fee with, a foreign lawyer.  Both Rule 1-310's (forming a partnership) and Rule 1-320's (fee splitting) prohibitions apply to non-lawyers, without further distinction. . Therefore, because a lawyer licensed in another country is a lawyer within the meaning of the CRPC, it is likely that a court would find that a partnership between that lawyer and a California lawyer is ethical, and the partners would be permitted to split fees.  This result is buttressed by the California law which allows California lawyers to form limited liability partnerships with foreign laws (Limited Liability Partnership Regulation 3.2) and California law regarding the formation of Professional Law Corporations (B&P Code 6165). . In sum, although no court directly has addressed the question of whether a California law firm partnership or professional corporation may have as partners or shareholders members of a foreign bar, it appears this arrangement would not violate California law.  The ABA MR's also do not specifically prohibit foreign lawyers as partners.  Ancillary Businesses: Law Related Services  Law firms establish subsidiary organizations to provide law-related services to their clients, such as the employment of specialists including accountants, engineers, financial advisors, and others.  Ancillary businesses, which provide law related services, supply clients with the combined expertise of many professionals in a "one stop shopping" package that can reduce the total cost of such services - law firms benefit from the increased revenue, and the non- lawyer professionals benefit from increased compensation generated by the additional business.  ABA MR 5.7 permits ancillary businesses under certain conditions: . The services performed by these businesses must be distinct from the provision of legal service; . The client must be informed that the ancillary businesses are not part of the law work and therefore not covered by the attorney-client privilege or ethical duty of confidentiality; . The business must not interfere with the independent judgment of the lawyers; . The business must not solicit clients for the lawyers; and . Any ancillary business must comply with ABA MR 1.8(a) which deals with business relations between lawyers and clients.  Ancillary businesses, which are not directly addressed in the CRPC, have been approved by California State Bar Opinion, provided they comply with the requirements of CRPC 3-300 and that (1) the terms of the agreement between the ancillary business and the client are fair and reasonable; (2) the terms are fully disclosed in writing; (3) the client is advised in writing to seek that advice of an independent lawyer; and (4) the client consents in writing. Lawyers Restricting the Practice of Law  Employment Opportunities - May a law firm protect itself by imposing a restriction on a departing attorney's competing against it?  ABA MR's . Direct restrictive covenants impose temporal, practice and geographical limitations on the right of departing lawyers to practice law, or they forbid departing attorneys from taking law firm clients with them - cases overwhelmingly reject the use of direct restrictive covenants. . Financial disincentive clauses, by contrast, do not impose a blanket ban on the practice of law, and they do not directly prohibit an attorney from continuing to represent former clients in the new law firm - instead, they impose a financial penalty by withholding some termination benefits if the departing lawyer practices in competition with the former firm - thus, there is a financial disincentive to leave the law firm, especially with some of its clients.  Courts generally interpret ABA MR 5.6 as prohibiting such restrictions on law practice.  However, facially neutral provisions which do not prohibit or restrain the representation of clients, and allow the continued payment of fees earned but collected after the partner's departure, but seek to reasonably compensate the firm for reasonable losses may be upheld by courts. . Law firms may avoid the prohibition against restrictive covenants in termination agreements by labeling such clauses as "retirement benefits" and thereby take advantage of the exception for such benefits contained in the ethics rules.  ABA MR 5.6 Comment 1 permits restrictive covenants that are retirement benefits, and Comment 3 states that the prohibition on restrictive covenants does not apply to provisions incident to the sale of a law practice under MR 1.17.  Whether a benefit is truly a "retirement" benefit is determined by examining the existence of minimum age and service requirements, the existence of other provisions dealing with withdrawal for other reasons, and the time period over which the benefits are to be paid (the longer the period, the more likely the payment is for the purpose of funding retirement).  Restrictive Covenants and California Law Firms . B&P Code 16600 prohibits covenants not to compete except in two situations:  16601 - permits covenants not to compete when a person sells the goodwill of a business.  16602 - permits restrictive covenants prohibiting competition when either the partnership dissolves, or when there is a "dissociation of the partner from the partnership." . CRPC Rule 1-500(A) states in part that an attorney licensed to practice in California may not "be a party to…an agreement..if the agreement restricts the right of a member to practice law."  Rule 1-500(A)(1), however, states that such restrictive covenants are not prohibited if the agreement "is a part of a…partnership agreement among members provided the restrictive agreement does not survive the termination of the partnership relationship."  In other words, while practicing in a firm, a lawyer may be prohibited from having an additional practice separate from that of the firm. But, when the lawyer leaves the firm, the lawyer is "free to practice law without any contractual restriction except in the case of retirement from the practice of law." . Howard v. Babcock addressed the potential conflict between B&P Code 16602 and Rule 1-500(A).  Here, the California Supreme Court held that "an agreement among law partners imposing a reasonable toll on departing partners who compete with the firm is enforceable."  Therefore, reasonable temporal, geographic, and practice restrictions in a partnership agreement may be enforceable under this decision provided they have reasonable accommodations and acts a liquated damages provision, rather than as a forfeiture or penalty.  Accordingly, "a partners agreement to pay former partners, or to forego benefits otherwise due under the contract, in an amount that at the time of the agreement is reasonably calculated to compensate the firm for loses that may be caused by the withdrawing partner's competition with the firm, would be permitted."  Settlements . ABA MR 5.6(b) and CRPC Rule 1-500(A) Discussion prohibit the "offering" or "making" or "entering" of restrictions on lawyer employment by providing in an overly generous settlement agreement that the lawyer will agree to refrain from bringing any similar lawsuits against the settling party on behalf of other clients. . Additionally, CRPC Rule 1-500(B) prohibits a lawyer's involvement in an agreement which precludes an attorney from reporting an ethics violation by another attorney.