Ethics Byte

Lawyers increasingly exposed to Unfair Competition Law liability

By Diane Karpman

Diane KarpmanThere is a new case out from the California Appeal Court, First District, People ex rel. Herrera v. Stender (2013) that is chock-a-block with remarkable ethics concepts. The Los Angeles County Bar Association sought depublication or review, and both were denied. The problem with Stender is that it was engendered by lawyers in immigration law, who were very possibly preying upon their vulnerable clients. Far too much predatory lawyering seems to occur in this area of practice. According to many studies, immigration law is in a state of crisis with overburdened judges, stressed-out prosecutors, and terribly stressed-out lawyers.

Martin Resendez Guajardo, who resigned from the California State Bar in 2008, allegedly continued to prey on unsuspecting “clients.” Guajardo changed the name of his firm to “Immigration Practice Group, P.C.” That entity was registered as a law corporation, and Christopher Stender, an out-of-state lawyer, became the sole shareholder. In 2010, People v. Stender was filed alleging violations of the Unfair Competition Law, (UCL), Business and Professions Code § 17200 based upon Guajardo’s unauthorized practice of law. The prosecutors sought disgorgement of all profits and restitution, in conjunction with several different charges, including aiding and abetting the unlawful practice of law and fraud. Basically, they tossed in the entire kitchen sink. 

Rules of Professional Conduct, Rule 1-100, maintains that the rules cannot be employed to create newfangled causes of action against lawyers. Unfair competition allegations must be supported by the violation of a rule, which permits the UCL statute to “borrow.” Using UCL jurisprudence opens up a whole new panorama of liability. Remember, this is not an action by a client against their lawyer. These claims are being asserted by attorneys acting for “the people” against a California law corporation and an out-of-state lawyer, not a California-admitted lawyer.

There are a handful of out-of-state cases where a state bar will impose discipline on a non-admitted lawyer. In the Matter of John P. Coale and Phillip B. Allen (2002) No. 98S00-9303-DI-309, Indiana disciplined Greta Van Susteren’s spouse, a member of the firm, for sending advertising materials to widows, widowers and surviving parents of airplane crash victims. The court found misconduct, but since he was not admitted to practice law in Indiana, the court found it could not impinge his law license and barred him soliciting in Indiana for a period of time.

Stender is not an admitted California lawyer. However, the court found that the law corporation was a “member,” pursuant to becoming a registered California law corporation pursuant to Business and Professions Code § 6167. The court relied upon a 1975 Opinion of the Attorney General, 58 Ops. Cal Atty Gen. 665, that a law corporation is a “member of the State Bar.”

Some have speculated that could mean that law corporations can be expected to attend MCLE programs, pay dues, and comply with a host of other “privileges” (echoing the old American Express ad slogan,  “membership has its privileges” ).

“Privileges” also means there are liabilities. University of Arizona College of Law Professor Ted Schneyer, author of the seminal law review article about law firm discipline, and I agree that this case can stand for the proposition that a law corporation is subject to discipline. This is a nationally controversial issue. New York and New Jersey permit law firm discipline. The Commission for the Revision of the Rules of Professional Conduct soundly rejected this concept here in California, where the basis of our discipline is personal accountability. 

Generally, lawyers are not subject to UCL liability. Well, maybe in one or two unpublished cases from a decade ago involving a website. Also, the basis would not have been a rule of professional conduct but the Business and Professions Code section on advertising.

Stender is one of those cases that just keeps on giving. The law corporation attempted to protect the clients’ identities based on privilege and privacy concerns, because many of their clients could face deportation. In a flat response to that argument, the court rejected this, saying, “It is not necessarily the case, however, that all of appellants’ clients are present in the United States illegally. . . ” (pg. 40, emphasis in original). Who knew there was a sort of 100 percent rule about attorney-client privilege? And wouldn’t you think it would be prudent to err on the side of people who could be deported?

But wait, the entire UCL trend gets better. Sacramento Assemblyman Roger Dickinson has introduced a new bill, AB 888, that would allow the State Bar to prosecute some of the fly-by-night rogue paralegal operations, pursuant to UCL or § 17200. The State Bar would become one of the approved UCL prosecutors. Lots of lawyers I know would love to see these illegal paralegal operations shut down. 

However, the proposed bill would require the State Bar to disclose “in confidence” the information from their investigation to an agency responsible for the criminal enforcement of those provisions. The bill would also allow for the recovery of monetary fines and enforcement costs.

It’s my experience that the more people who have information, the less confidential it is. If you have a chance, take a look at the bill, and let me know what you think.

Sometimes you can see clear trends developing in legal ethics. We are seeing an explosion of unfair competition law claims against lawyers, by lawyers, and against online legal service providers. By the way, according to insurance mavens, your coverage should include UCL claims, since they are incurred in the performance of legal services.

Legal ethics expert Diane Karpman can be contacted at 310-887-3900 or karpethics@aol.com.