Exercise caution when a
third party foots the bill
By Diane Karpman
Highly placed sources at the
State Bar Court (who are often seen in black robes) have remarked that suddenly
the Office of Chief Trial Counsel is actually charging violations of Rule 3-310
(F) of the Rules of Professional Conduct.
This is known as the
third-party payer rule and is triggered when someone other than the client is
paying the lawyer’s fees. For example, Mom and Pop are paying for their minor’s
DUI/shoplifting offense, or Dad is paying for his daughter’s dissolution of marriage. Or, on a
much more sinister level, a crime boss is paying for a minion’s silence, or a drug
cartel is paying for a mule’s (carrier’s) defense.
Sidebar: Long ago during a more
innocent time, your author in several MCLE programs mentioned an
internationally infamous drug cartel in South America to illustrate this topic.
Guess what? Cartels have real lawyers in Los Angeles who may have sought ethics
legal advice at one time or another. We all know lawyers who are or are rumored
to be all “mobbed up,” but some people may not want to be remotely involved
with drug cartels. Thus, the particular name of that cartel has been dropped
from your author’s vocabulary.
Third-party payments should
trigger alarm bells arousing any lawyer’s suspicion. If a criminal organization
promised a defense to a member on arrest, and you are the “defense,” arguably
you may be a link in the criminal conspiracy. In U.S. v. Hodge and Zweig,
548 F. 2d 1347 (9th Cir. 1977), the lawyer was deemed to be furthering the
criminal conspiracy by providing representation.
Do not become a criminal
collaborator or confederate in a crime. For an outstanding analysis of this
quagmire, see: David Orentlicher, “Fee Payments to Criminal Defense
Lawyers from Third Parties.” Orentlicher
maintains that just because it’s a family member does not mean it’s kosher.
Often, Mafia bosses direct their business to their family members, which is of
course why there are “crime families.”
Nevertheless, it is
surprising to see prosecutors going after violations of the third-party payer
prohibition. In terms of practice areas, criminal defense lawyers are woefully
thin, if not anorexic about having the proper paperwork such as retainers and
third-party payer written consents. It’s understandable, because when you are
pulling on your jeans at 3 a.m. to bail someone out of jail you may not have
ready access to the proper forms in your back pocket.
The most ubiquitous scenario
involving third-party payers on a national level is the typical insurance
defense scenario known as the tripartite relationship. The carrier designates
and pays a lawyer to defend claims against the insured policyholder. However,
in California there is a special carve out making it clear that Rule 3-310 (F)
is not intended to abrogate existing insurance relationships (see the Official Discussion, 3-310 F).
If a third party is paying
legal fees, certain conflicts are anticipated. Compliance with the rule is
intended to address, expose, and minimize those problems. Remember, accepting
payment from a third party does not inherently create an attorney-client
relationship. Still, it’s a good idea to notify the payer regarding the absence
of “clienthood” for risk management purposes. Importantly, if there is a
refund, determine how that will be disposed of at the beginning of the
relationship.
In order to prevent being prosecuted
for a failure to comply with Rule 3-310 (F), the lawyer must obtain an informed
written consent from the client. That consent must reassure the client that
their confidences will be protected and that the lawyer’s independent judgment
will not be impaired due to the payment of fees by a third party.
Generally, a generic conflict
(Rule 3-310) will not result in discipline. About five years ago at a National
Ethics Conference, there was an entire program addressing the dearth of
prosecutions for conflicts violations. Think about all the disqualification
motions all over the country. The lawyers involved are generally not subject to
discipline. In or around 2000, in assisting the American Bar Association Ethics
2000 Committee, I researched the status of California’s conflicts prosecutions.
There was not a single stand-alone reported decision for conviction of a Rule
3-310 violation. There were reported cases noting convictions for Rule 3-310 in
conjunction with much more serious acts of misconduct like trust account
violations. In those cases, the conflict violation looked like just another
garish ornament on an already overly decorated Christmas tree.
Legal ethics expert Diane Karpman can be
contacted at 310 887-3900 or at karpethics@aol.com