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.