Tax Lawyers Be Aware of New Ethical Rules Governing Law Practice in California

• Publication year: 2020
• Author: By Richard A. Shaw

Tax Lawyers Be Aware of New Ethical Rules Governing Law Practice in California

By Richard A. Shaw¹

I. INTRODUCTION

A California lawyer engaged in tax practice is subject to Treasury Regulation Circular 230 rules that set forth ethical standards governing practice and discipline before the Internal Revenue Service.² However, the lawyer must first and foremost always accept being subject to the California Rules of Professional Conduct, which regulate the attorney's right to practice law and may prescribe discipline for noncompliance.³

As of November 1, 2018, attorneys practicing in California are governed by new Rules of Professional Conduct that provide significantly more detailed ethical guidelines and required standards for practice, compliance and related disciplinary guidelines.

The new rules approved by a California Supreme Court order result in the first comprehensive revision of the Rules of Professional Conduct in three decades. At the time of the adoption of the new rules by on May 10, 2018, California remained as the only state which had not yet adopted some version of the ethical rules of the American Bar Association. The ABA had conducted its own modernization of ethical standards back in 2001 and 2002. California State Bar subsequently elected to commence its own review taking into account the latest ABA revisions.

The following represents a summary of some significant ethical standards that need careful attention by attorneys practicing in California under the Revised California Rules of Professional Conduct. These rules are intended to regulate professional conduct of lawyers through discipline. They are designed to protect the public, the courts, and the legal profession and to protect the integrity of the legal system. They are expected to promote confidence in the administration of justice and legal profession.

Consistent with these policies, it is important to recognize that disciplinary authority of the California ethical rules is extended to lawyers from other jurisdictions who provide or offer to provide legal services in California; and a California lawyer disciplined in another jurisdiction may be subject to discipline for the same conduct in California.⁴

Although a breach of a rule may give rise to disciplinary action under new rule 8.5, a violation of a rule does not itself give rise to a civil cause of action for enforcement, or for damages under civil law.⁵ However, any action or inaction of an attorney that violates the new ethical rules may still independently result in liability for breach of fiduciary or other applicable legal duty or obligation.

Among the charges earlier given to the California Rules Revision Commission by the State Board of Trustees was an instruction that revisions should focus on changes in the law and eliminate unnecessary differences between California rules and rules applied by a preponderance of states, including appropriate reliance on the ABA Model Rules. The ultimate goal was to help promote a national standard on professional responsibility issues whenever possible. One of the early decisions was to disregard the California numbering system for rules and replace it with the ABA Model Rule numbering structure and incorporate the existing California provisions of the old rules within the new system. The decision to adopt the organizational and numbering structure of the ABA Model Rules was also intended to permit easier comparison review with ethical guidelines and decisions in other jurisdictions that look to the guidelines of the ABA, including federal judicial and administrative courts, where applicable.

As finally adopted the Supreme Court approved 27 of 70 proposed rules without change and adopted another 42 of minor modifications.

The revised Rules of Professional Conduct include refined enforceable standards for conduct that create new specific duties that may result in a disciplinary reprimand, suspension and conceivably disbarment, if not followed.⁶

Among significant new additional rules discussed herein are of those providing guidelines for lawyer screening and the imputation of conflicts to other firm lawyers,⁷ duties to prospective clients,⁸ duties to unrepresented persons,⁹ duties concerning inadvertently transmitted writings,¹⁰ responsibilities in the management and supervision of subordinates,¹¹ responsibilities relating to non-lawyer assistance,¹² and the lawyer's duty of truthfulness in statements to others.¹³

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In the process of modernizing the rules and conforming with the ABA format there are many other important modifications that warrant prompt attention including some which have been somewhat controversial in adoption. Among the most commonly discussed are those revised duties which relate to a sexual relation with clients,¹⁴ safekeeping of client funds,¹⁵ communication standards with clients,¹⁶ dealing with conflicts of interest with current clients,¹⁷ duties to former clients,¹⁸ duty to organizations as the client,¹⁹ the attorneys' duty of cantor towards the tribunal,²⁰ and the handling of fees with your clients and division among lawyers.²¹

II. NEW SUBJECTS COVERED IN THE REVISED RULES

The new additions in the amended California Rules of Professional Conduct have been deemed necessary by the Commission and the California Supreme Court to expand and more clearly define the ethical obligations of lawyers practicing in California. These provisions require prompt attention. Following are some material additions to the rules.

A. Imputation of Conflicts of Interests: General Rule 1.10

New rule 1.10 has the dual purpose of preventing internal conflicts within a firm and establishing guidelines and restrictions for screening lawyers with conflicts. A conflict of interest by one attorney in a law firm may be imputed to all of the attorneys in the firm. While attorneys are associated in a firm, none of them shall knowingly represent a client when any one of them practicing alone would be prohibited from doing so by the conflict rules.

The prohibited attorney cannot have substantially participated in the same or substantially similar manner and must be screened from participation on the manner within the firm, with required notices. In determining whether a prohibited lawyer's previous participation was substantial, a number of factors should be considered: (1) the lawyers level of responsibility in the prior matter; (2) the duration of participation; (3) the extent the lawyer advised or had personal contact with the former client; and (4) the extent to which confidential information viewed is likely to be material in the current matter.²²

The rule and its comments establish firm guidelines for assuring that the screened attorney is isolated from current representation within the firm, and the Rules of Professional Conduct are applied where applicable. For example, one lawyer in a law firm may not enter into a business transaction with a client of another lawyer associated in the law firm, even if the first lawyer is not personally involved in the representation of the client, without complying with ethical business relation transaction restrictions. Ethical rules limiting one attorney are thereby imputed to all attorneys in the firm, where appropriate.

Rule 1.10 (a) expressly provides that "While lawyers are associated in a firm, none of them within shall knowingly represent a client when any one of them practicing alone would be prohibited from doing so. . . ." The provision also makes direct reference to rule 1.9 which controls the duty of attorney to its former clients, discussed later.

In dealing with the problem of screening lawyers from a prior practice with confidential information, new rule 1.0.1 (k) defines the term "screened" to mean as "the isolation of a lawyer from any participation in a matter, including the timely imposition of procedures within a firm that are adequate under the circumstances (i) to protect information that the isolated lawyer is obligated to protect under these rules or any other rule; and (ii) to protect against any other law firm lawyers and nonlawyer personnel communicating with the lawyer with respect to the matter."

Although the new screening standard in the rules is intended to provide clearer ethical guidance that firms can rely on in practice, the subject of attorney screening has been a significant controversial issue within the bar and the courts for a long time.

B. Duties to Prospective Clients: Rule 1.18

New rule 1.18 provides ethical standards for dealing with prospective clients. Rule 1.18(a) explains that "a person who directly or through an authorized representative, consults a lawyer for the purpose of retaining the lawyer or securing legal service or advice from the lawyer in the lawyer's professional capacity" is thereby deemed a prospective client. The primary purpose of the role is to assure that a lawyer preserves confidentiality of any information which is acquired during the course of the consultation, whether or not the consultation results in the establishment of an attorney-client relationship. The lawyer is prohibited from using or revealing any information which is protected by Business and Professions Code 6068 (e) or rule 1.6 that the lawyer learned in the consultation.²³

Rule 1.18 goes further to restrict representation of a client with interests which are materially adverse to those of the prospective client on the same or a substantially related matter, if the lawyer received from the prospective client confidential information that is prohibited by Business and Professions Code section 6086 (e) or rule 1.6 discussing confidential information of a client; unless informed written consent has been obtained.

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The "materially" test in new rule 1.18 is different from the normal ABA Model Rule that measures the prohibition by whether the information "could be significantly harmful to that person in the matter." If the lawyer is prohibited from such representation, then no lawyer in...