Risk Update

Ethics & Rules Updates — Non-lawyer Law Firm Ownership in Florida, California Misconduct Reporting Rule

Ethics opinion to allow Florida lawyers to passively invest in out-of-state firms that include nonlawyer owners to be published for comment” —

  • “The Board of Governors has approved publishing proposed Advisory Opinion 23-1, which would allow a Florida lawyer to be a passive investor in an alternative business structure (ABS) in another state that allows non-lawyer ownership of law firms.”
  • “Last October, the PEC voted 26-9 to direct committee staff to work on a draft opinion using ABA Formal Ethics Opinion 499 for guidance. The committee was scheduled to hear the draft at the Bar’s Winter Meeting in January, but a lawyer for the inquirers requested more time to gather additional information to support the position.”
  • “Meeting the day before, the Board Review Committee on Professional Ethics voted 6-0 to recommend that the board approve publishing the proposed opinion.”
  • “As approved, the proposed advisory opinion states that a Florida lawyer may passively invest in an ABS in another jurisdiction, so long as: the ABS satisfies certain requirements. Specifically, the proposed opinion says the ABS cannot have any presence in Florida nor can it provide Florida legal services, the ABS must comply with all requirements of the jurisdiction that permits it, the Florida investor cannot have a managerial role, or provide legal services through the ABS, the Florida lawyer cannot be involved in the daily operations of the ABS, and the Florida lawyer may not have access to any confidential information regarding the ABS.”
  • “The staff’s draft opinion also cautions that ‘it does not address the propriety of investing Florida lawyer’s firm receiving referrals from the alternative business structure as those referrals may implicate concerns regarding solicitation, impermissible ‘feeder’ arrangements, and payments in exchange for referrals,’ according to a staff analysis.”

California Supreme Court Approves New Rule Compelling Attorneys to Report Misconduct by Other Attorneys” —

  • “The California Supreme Court has approved a new rule of professional conduct, rule 8.3 of the California Rules of Professional Conduct, that requires California attorneys to report any lawyer who commits a criminal act, engages in fraud, misappropriates funds or property, or engages in conduct involving ‘dishonesty, deceit, and reckless or intentional misrepresentations.'”
  • “The court’s decision was based on one of two recommendations (Alternative Two) approved for submission to the court by the Board of Trustees of the State Bar of California on May 18. The court modified the State Bar’s proposal by adding additional provisions and comments to the proposed rule, including:
    • Adding the courts as an additional avenue to report misconduct. When misconduct occurs during litigation, the court may have the power to investigate or act upon the alleged misconduct and to take appropriate corrective action.
    • Adding commentary to the new rule to note that a court’s finding of misconduct may be used as evidence to facilitate subsequent State Bar disciplinary proceedings.
    • Requiring attorneys to report others if their misconduct “raises a substantial question as to that lawyer’s honesty, trustworthiness, or fitness as a lawyer in other respects,” which is the same standard employed by other states with a similar reporting rule.
    • Citing another rule of professional conduct that requires a lawyer to take remedial measures if the lawyer knows someone who has or will engage in criminal or fraudulent conduct related to pending litigation.
    • Adding commentary to the new rule to make clear that a false report to the court, like a false report to the State Bar, can subject the lawyer to discipline or other criminal penalties.”
  • “The new rule follows several other directives from the court for the State Bar, including on noticing about attorney suspensions; updating its conflict of interest code for the Board of Trustees; and to develop new rules requiring candidates for the Board of Trustees and State Bar Court be screened for potential conflicts of interest.”