Mcle Self-study Article: Attorney Ethics and Cannabis: Conflicts of Laws, Conflicts of Interest, and Attorney-client Privilege for Cannabis Practitioners
| Jurisdiction | California,United States,Federal |
| Author | Jessica C. McElfresh |
| Publication year | 2020 |
| Citation | Vol. 38 No. 4 |
Check the end of this article for information on how to access one MCLE self-study ethics credit.
Jessica C. McElfresh
Jessica C. McElfresh of McElfresh Law, Inc. has focused on cannabis licensing, regulatory compliance, land use, business transactions, and license discipline defense since 2010. She represents clients throughout California and the cannabis supply chain, from cultivators to storefront retailers. Jessica has consulted for the American Civil Liberties Union Foundation of Northern California regarding California's Proposition 64, and she is a member of the International Cannabis Bar Association's Professional Responsibility and Ethics Committee.*
All California attorneys must follow the Rules of Professional Conduct.1 The Rules of Professional Conduct require attorneys to advise their clients to act lawfully, manage conflicts of interest, and protect attorney-client privilege. Cannabis lawyers must pay special attention to these ethical obligations for three reasons. First, although cannabis is legal in the State of California, it remains illegal under federal law. Accordingly, attorneys representing cannabis clients risk running afoul of federal law, even if they are acting in line with state law, and must advise clients not only to follow state law, but also to consider the consequences of violating federal law. Second, the conflict between state and federal law means cannabis lawyers face the risk of the crime-fraud exception vitiating attorney-client privilege. Third, cannabis is a rapidly-growing industry. This rapid growth in the industry results in two conflicts pitfalls for attorneys: one, the potential conflicts that arise when representing clients who wish to obtain cannabis licenses, and two, the allure of entering a business agreement with a client.
Though cannabis is legal under many circumstances in California, it remains illegal under federal law. Therefore, California lawyers looking to represent legal cannabis clients should look to comment 6 to California Rule of Professional Conduct 1.2.1, Advising or Assisting the Violation of Law. The comment states that California lawyers may advise a client on complying with California laws, even if the client's actions may violate a conflicting federal law. However, in doing so, lawyers must inform clients of the conflicting federal law—and the perils of violating it.
Lawyers may fear that clients will run away if they begin the attorney-client relationship by disclosing that cannabis clients could face prosecution or more under federal law even if they follow California law perfectly, and that privilege may not exist in federal court. However, California's Rules of Professional Conduct mandate such disclosures, and lawyers who fail to advise a client of the risks of business decisions shirk their duties of competence, diligence, and candor.
The State Bar of California's Standing Committee on Professional Responsibility and Conduct recently provided its first detailed overview of the ethics of cannabis practice in Formal Opinion No. 2020-202. The opinion expands on comment 6 to rule 1.2.1 and states that California lawyers can advise cannabis clients if they believe the clients are making a good faith effort to follow California law. The opinion emphasizes that lawyers must diligently help clients understand California's cannabis laws and that lawyers may help clients follow those laws by performing services including drafting contracts, assisting clients in negotiating deals, and representing clients in licensing applications. However, similar to comment 6, the opinion is clear that cannabis lawyers must counsel clients about federal cannabis laws and the many penalties for violating federal law, including criminal prosecution and asset forfeiture. The opinion concludes that cannabis lawyers must inform their clients of how the conflict between federal and state law could affect lawyers' duties to their clients. For example, federal courts may not honor the attorney-client privilege for California lawyers and their cannabis clients. Lawyers themselves must know that federal authorities could investigate or prosecute cannabis lawyers in federal court alongside their clients.
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Attorney-client privilege is not sacrosanct; the law provides exceptions to the privilege as well as mechanisms for courts to forcibly breach the privilege. One such mechanism is the crime-fraud exception under California Evidence Code section 956. Under this provision, courts, investigators, opposing counsel, and prosecutors can force an exception to the attorney-client privilege, if they present evidence of a crime or a fraud.
California practitioners are fortunate that the California Evidence Code provides a specific carve-out for cannabis practice at section 956(b):
the crime-fraud exception shall not apply to legal services rendered in compliance with state and local laws on medicinal cannabis or adult-use cannabis, and confidential communications provided for the purpose of rendering those services are confidential communications between client and lawyer, [...] provided the lawyer also advises the client on conflicts with respect to federal law.
Despite this robust language, California practitioners must still be mindful of the crime-fraud exception in California state court. Though Evidence Code section 956(b) is a firewall—and one we should assist our colleagues in other states with legalized cannabis to promote as law there—life and legal practice are messier and more complicated than bright line rules.
No ethical California cannabis lawyer would ever try to help a client commit a crime or fraud under state law; however, cannabis lawyers face greater scrutiny and risk because of controversial and rapidly-changing cannabis laws. Even the most careful of cannabis lawyers could have to defend against a claim that communication between attorney and client falls under the crime-fraud exception to attorney-client privilege. For example, if opposing counsel or law enforcement disagree with the lawyer's advice; if the laws or regulations are subject to interpretation; or if a client fails to follow legal counsel? These scenarios—coupled with the illegality of cannabis under federal law—could mean that an attorney will have to protect attorney-client privilege in the face of a claim that the crime-fraud exception applies in either federal or state court. This means cannabis lawyers must be familiar with the exception and the steps they would have to take in federal or state court to protect privilege and fulfill their duties to clients.
A. Federal Law 1. Federal law allows courts to examine privileged communications in camera to determine if privilege exists and if evidence of crime-fraud justifying an exception to privilege exists.United States v. Zolin held that the court is the ultimate arbiter of whether something is privileged under federal law, under rule 104(a) of the Federal Rules of Evidence.2 To determine if the crime-fraud exception applies, the court can review privileged communications as part of its review of whether crime-fraud occurred.3 This is a weaker standard than California's. A federal court can farm out review of documents to a special master or a taint team, though Federal Rule of Evidence rule 104(a) seems to require that the court make final decisions about privilege. If review will occur, the lawyer must push for the court to make the final decision, even if a taint team or special master completes the initial review.
2. Before this examination can occur, the party seeking to defeat privilege must offer some evidence of crime-fraud and its relationship to items protected by privilege....
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