Lawyers Are Not Allowed to Speak with Their Clients about the Client’s Intention to File a State Bar Complaint!

Business and Professions Code § 6090.5 prohibits an attorney from seeking a client’s written or oral agreement not to file a State Bar complaint against that attorney. The reason for this is the discussion could produce an impermissible chilling effect on the client’s future filing of a State Bar complaint.

Even worse, if you have already done this, you can’t take it back! Withdrawal of your request does not reverse the ethical violation.

“Seeking” an agreement includes any attorney communication to a client proposing or suggesting a prohibited agreement. “Seeking” also may encompass factual recitations in the settlement agreement that the client has not filed a State Bar complaint, or concerning the client’s future intentions regarding filing a State Bar complaint.

The long version (which is a summary of the actual advisory opinion, link at the bottom):

California Business and Professions Code § 6090.5 provides, in relevant part:

(a) It is cause for suspension, disbarment, or other discipline for any member, whether as a party or as an attorney for a party, to agree or seek agreement, that

(1) The professional misconduct or the terms of a settlement of a claim for professional misconduct shall not be reported to the disciplinary agency.

This section applies to all settlements, whether made before or after the commencement of a civil action.

In re McCarthy (Review Dept. 2002) 4 Cal. State Bar Ct. Rptr. 364 involved an attorney who committed defalcation against a business partner while acting as a fiduciary. While attempting to settle the dispute, the attorney offered a settlement term that would have the complaining witness “contact the State Bar to withdraw any claims.” The complaining witness refused, and settlement was never consummated. In disciplinary proceedings, the court held that the attorney’s intent to agree to withdrawal of the State Bar complaint in the civil settlement agreement was itself a violation of section 6090.5. In In re Brockway (Review Dept. 2006) 4 Cal. State Bar Ct. Rptr. 944, an attorney violated section 6090.5(a)(2) when he entered into a settlement agreement resolving a fee dispute in that the client “agreed to settle [the fee] dispute and to withdraw the complaint pending before the State Bar, all in accordance with the terms of this Agreement.”

Business and Professions Code section 6090.5 bars an attorney’s attempt, in settling a dispute with his or her client, to seek or obtain a client’s oral or written agreement not to make a State Bar complaint. Section 6090.5 may also prohibit a lawyer from seeking representations of the client’s intentions or actions regarding filing a complaint with the State Bar. Even a simple contractual factual recitation that the client has not yet made a State Bar complaint in the past may be an ethical violation since it could produce a chilling effect on the client’s future actions. Once a lawyer seeks such an oral or written agreement, the withdrawal of that request will not cure the ethical violation.

The full ethics opinion can be found here.

Employers Must Accommodate Pregnant Workers!

The Pregnancy Discrimination Act added new language to the definitions subsection of Title VII of the Civil Rights Act of 1964. The first clause of the Pregnancy Discrimination Act specifies that Title VII’s prohibition against sex discrimination applies to discrimination “because of or on the basis of pregnancy, childbirth, or related medical conditions.”

The Act’s second clause says that employers must treat “women affected by pregnancy . . . the same for all employment-related purposes . . . as other persons not so affected but similar in their ability or inability to work.”

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Meet the New Face of the IRS in the Central District

Last Saturday I attended the CDCBAA CLE on “Handling Tax Debt Dischargeability and Bankruptcy Tax Disputes.”

The speakers were Judge Kwan, Arnold H. Wuhrman, Esq. of Serenity Legal Services, P.C., and assistant U.S. Attorneys Robert F. Conte, Esq. and Najah Shariff. Judge Saltzman and Judge Houle’s former law clerk, Jolene Tanner also made a special guest appearance. Najah and Jolene are the two new faces of the IRS. They will have the primary responsibility for all bankruptcy related litigation in the entire Central District of California.

(from far left to right: Jolene Tanner, Robert Conte, Najah Shariff, Judge Kwan, and Arnold H. Wuhrman)

A lot was learned but a few tips which and reminders I found interesting:

Most attorneys file a power of attorney so they can access their client’s transcripts. This makes them general counsel before the IRS/tax court with respect to representation of their client. It also subjects them to particular tax related standards. An alternative is to file a for 8821 which is a tax information authorization request. Click here for a copy.

Not paying taxes, by itself, is not fraud. Even if you know you have a huge tax burden accruing and you don’t file taxes, that’s not fraud because the 9th Circuit has said there needs to be specific intent. The IRS will need to prove the intent by the preponderance of evidence. It appears their case in chief will be to look for some indicia of intentional tax evasion. They are looking for an affirmative act. Examples include: opening new bank accounts, purchasing property under someone else’s name, or moving some money out of the country.

Apparently there is a case out there that says a Trustee cannot sell property subject to a tax lien if general unsecured creditors will not be paid a dime. More on that in a future blog but that can’t be, can it!?

Finally, Judge Kwan said that lawyers and judges are a lot like professional golfers, they are always working on their game.

I agree. This is particularly important for us younger attorneys. If the guy with 30 years of experience is attending 1 hour of CLE per month, we should be attending 3-5 hours per month! How else are you going to catch up to that guy or stand toe to toe with him in court? I guess you can wait 30 years!

Finally, a plug for the CDCBAA. The CDCBAA provides 16 hours of CLE per year through 8 events for $250. That is $31.25 per event + $10 for parking. You also get a free ticket to the Calvin Ashland Awards Dinner and access to its listserv where many seasoned attorneys will answer bankruptcy related questions. The listserv is saved so that all prior posts can be browsed through, this is a great resource. On top of that, you get to meet excellent attorneys. I highly recommend it.

Can I Sue My Attorney For Failing To Object To A Bogus Lien?

We all know the general statute of limitations for suing attorneys is within after one year of discovering the facts constituting the wrongful act or within one year of when the client should have discovered the facts constituting the wrongful act through the use of reasonable diligence but never more than four years from the date of the wrongful act or omission. See Code Civ. Proc. § 437c.

The limitations period is tolled if, among other reasons, the plaintiff has not sustained an actual injury or if the attorney continues to represent the plaintiff regarding the specific subject matter in which the alleged wrongful act or omission occurred. See Code Civ. Proc. § 340.6.

In the scenario discussed today, the attorney forgets the deadline to file an objection to a bogus lien. Because of the missed deadline, the client hires a different firm and ultimately agrees to accept $1.6 million less than it would otherwise have received.

The problem is even though the client knew his former attorney missed the deadline to object to the bogus lien, he waited over a year, until after the $1.6 million hit, to file a malpractice action. So is the malpractice action timely since the client had not sustained an actual injury?

The California Court of appeals said it was untimely because what matters is “discovery of the fact of damage, not the amount.” (Laird v. Blacker (1992) 2 Cal.4th 606, 612 (Laird);

As long as that amount is more than nominal, actual injury exists even if the client has yet to sustain all, or even the greater part, of the damages occasioned by his attorney’s negligence. Even if the client will encounter difficulty in proving damages and even if that damage might be mitigated or entirely eliminated in the future. This is because an existing injury is not contingent or speculative simply because future events may affect its permanency. However, actual injury does not exist where the attorney’s negligence may have created only the potential for future harm.

The Court found two reasons for the existence of an actual injury. First, the loss or diminution of a right or remedy constitutes injury or damage. In this case, the right to challenge the lien was the loss of a right. Second, the absence of the ability to challenge the lien substantially weakened plaintiff’s negotiating position in the ensuing mediation, and the loss of considerable settlement value also constitutes an actual loss.

The full case can be found here.

California Supreme Court Overrules 50 Year Precedent Regarding Unambiguous Wills

Irving Duke prepared a holographic will providing that, upon his death, his wife would inherit his estate and that if he and his wife died at the same time, specific charities would inherit his estate.

This will is not ambiguous, there are two options here: Option 1, when Irving dies, his wife will inherit his estate. Option 2, if they die at the same time, specific charities will inherit the estate.

What about Option 3? What if his wife dies before he dies? That is not covered by the will and so the will is not applicable to this situation and must be disregarded.

The California Supreme Court rejected this argument. Despite being unambiguous, it ruled that an unambiguous will may be reformed if clear and convincing evidence establishes that the will contains a mistake in the expression of the testator’s intent at the time the will was drafted and also establishes the testator’s actual specific intent at the time the will was drafted.

Author’s comment: Last week, SRH was discussing the validity of oral operating agreements in Delaware when Jon Hayes made a mind blowing statement, “Remember, the piece of paper is never THE CONTRACT. It is always evidence of the promises the parties made to each other which is THE CONTRACT.” Wait, so this piece of paper is not the contract? It is only evidence of our mutual understanding? Then it makes sense to allow other evidence in to support whatever the parties purport their understanding or intent was.

The conservatives would say this is a contradiction because if the written document is not ambiguous, it is not only evidence of the parties’ understanding but it is conclusive evidence of their understanding. The reason this logic is flawed is because I can write something that is not ambiguous thinking it meant something else. If you accept this, then an unambiguous contract only shifts the burden to the other party to overcome what is written with clear and convincing evidence.

You can read the full opinion here.