More, More, More: The Future of Lawyer Regulation in California
By David C. Carr
As flowers follow spring rain, scandal involving government regulation (or a lack of regulation) inevitably creates more regulation. So it is with the State Bar of California as we enter the third year of Girardi-gate.
In the wake of that scandal, significant new lawyer regulations have now been enacted (CTAPP), significant new regulations are being discussed (proposed Rule 8.3), and the Girardi scandal has apparently influenced a significant policy change in the principal regulation affecting disbarred, resigned, or suspended attorneys (Cal. Rule of Court 9.20.) While the events surrounding Girardi precipitated these changes, they also represent the fruition of seeds planted when Girardi was just a daffy TV husband married to a flashy reality star “housewife.”
CTAPP
The Client Trust Account Protection Program (CTAPP) is the first new regulation approved that relates to the scandal. Its genesis was an internal review conducted within the Office of Chief Trial Counsel (OCTC) in 2001.
Part of that internal review was the Lazar Report, an audit and analysis of the closed Girardi investigations conducted by former Assistant Chief Trial Counsel Alyse Lazar.[1] In July 2021, the Board of Trustees established a Board-level committee, the Committee on Special Discipline Case Audit, to further analyze the handling of the Girardi files and recommend “corrective action … aimed at strengthening the regulatory framework for client trust account (CTA) management through proactive oversight and intervention.” (Emphasis added.)
The Special Committee presented its plan in November 2021[2]. These recommendations would grow into the CTAPP, consisting of new State Bar Rule 2.5, amended California Rule of Court 9.8.5, and amended Rule 1.15 of the California Rules of Professional Conduct, which were unveiled at the July 2022 Board of Trustees meeting and ultimately approved in late 2022 after public comment.
The essence of the regulatory component of CTAPP is that lawyers now have an affirmative obligation to register their CTAs and annually certify their compliance with the CTA rules and regulations. On the discipline side, the State Bar amended Rule 1.15 to provide new deadlines for informing clients of the receipt of their funds and a new presumptive deadline for distributing funds held in trust.
The emphasized words show the difference in CTAPP. Instead of waiting for clients or others to complain, the State Bar (through its newly established Division of Regulation) is going to proactively monitor CTAs to ensure they are appropriately managed.
The discipline system has been analogized to a fire department that shows up after the house has burned down: active management is the notion that we can enact regulations that help keep the house from catching fire in the first place. In July 2020, not long before the Girardi supernova exploded, the State Bar first explored the idea of “active management” in the final report of the Governance in the Public Interest Task Force (GITPIT).
While GITPIT looked closely at the Australian lawyer regulatory system, the report focused on the preliminary step of data collection regarding “at risk” populations with the vague prospect of “feasible and effective intervention to follow.”[3] So, too, with CTAPP.
It is first a data collection program with the vague prospect that some kind of intervention will follow – such as a CTA audit at the lawyer’s expense – but with no explanation of how the data will be analyzed and the triggers that result in “intervention.” That is probably because the regulators have not thought that far ahead and are waiting to see the data – especially the number of lawyers not compliant – before finalizing a set of “triggers.”
Rule 8.3
Currently out for public comment are two possible California versions of Rule 8.3[4]. This is the rule that requires lawyers to report the misconduct of other lawyers to the disciplinary authorities. The Commission that wrote the current version of the California Rules of Professional Conduct (enacted in November 2018) rejected a California version of the ABA Rule based on the perceived enforcement issues and California’s historical lack of such a rule.
The idea lay dormant until the Los Angeles Times published an article on California’s peculiar status as the one state with no version of Rule 8.3 in October 2022. Since then, the race has been on to enact a version of Rule 8.3, which is made more urgent by Senate Bill 42, introduced by the chair of the Senate Judiciary Committee, Senator Tom Umberg, which would impose a version of Rule 8.3 as new Business and Professions Code section 6090.8.[5]
Some version of Rule 8.3 will likely come to exist, perhaps more than one, as the Legislature can enact SB 42 no matter what the State Bar and the California Supreme Court do with the two other versions of Rule 8.3 now out for public comment.
Rule 8.3 is a discipline rule, but it serves the data collection function described in GITPIT’s final report, as well. It makes all lawyers informers, required on pain of discipline to report information whose parameters are vaguely defined by the Rule.
That vagueness will likely lead to a bias toward the over-reporting of information. Like CTAPP, the process leading from information gathering to intervention (in this case, a disciplinary intervention against the lawyer informed on) is opaque.
Also like CTAPP, the process may be effective only as an in terrorem mechanism, scaring lawyers straight based upon the prospect of Big Brother being informed of a bad thing, rather than any dramatic increase in disciplinary prosecutions, whether of the informed-upon for the bad thing being reported, or those who know but fail to report under Rule 8.3.
Rule 9.20 and the California Supreme Court
Rule 9.20 of the California Rules of Court allows the Supreme Court to order a disciplined attorney to notify clients, opposing counsel, and courts of an attorney’s actual suspension, disbarment, interim suspension, or involuntary inactive enrollment. Traditionally, such notice has generally been ordered where the actual suspension is 90 days or more (In the Matter of Copren (Review Dept. 2005) 4 Cal. State Bar Ct. Rptr. 861, 865.)
Chief Justice Patricia Guerrero assumed her duties on January 2, 2023. On or about that date, the Supreme Court began ordering compliance with Rule 9.20, even if the suspension was less than 90 days and even where the State Bar Court had not recommended compliance with Rule 9.20. While no rule changes have been proposed, the high Court has indicated this will be the policy going forward.
The Future?
These three developments are likely to be followed by other changes in regulations, disciplinary rules, and disciplinary enforcement policy that will more closely regulate the lawyering profession. CTAPP is a feasibility study for more intrusive “active management” measures that put the burden on lawyers to prove that no misconduct is occurring.
Active management rules have been adopted in at least one other American jurisdiction. As part of Arizona’s reform allowing non-lawyers to have ownership interests in legal service providers, known as Alternative Business Structures (ABS), each ABS must have a legal compliance lawyer with the duty to report misconduct to the State Bar of Arizona.[6] Regulation-style rules like CTAPP could be implemented for many aspects of law office management. For instance, every law firm, regardless of size, may be required to have an office management plan that meets requisite standards and file that plan with the State Bar. Random audits in areas beyond client trust accounts may one day occur.
From the regulators’ viewpoint, such “active management” regulation appealingly shifts costs from the regulating body to the regulated. This is tempting for a discipline system that is spending $80 million a year and disciplining proportionately fewer lawyers than ever. For lawyers, especially solo and small firm lawyers, the prospects are increased cost and decreased independence. Active regulation may ultimately lead to the extinction of many solo practices.
[1] https://www.calbar.ca.gov/Portals/0/documents/reports/Lazar-Report-and-Attachment-Redacted.pdf
[2] https://board.calbar.ca.gov/docs/agendaItem/Public/agendaitem1000028317.pdf
[3] https://www.calbar.ca.gov/Portals/0/documents/reports/2020-Governance-in-the-Public-Interest-Task-Force-Report.pdf. (GITPIT final report at page 12.)
[4] https://www.calbar.ca.gov/About-Us/Our-Mission/Protecting-the-Public/Public-Comment/Public-Comment-Archives/2023-Public-Comment/Proposed-New-Rule-of-Professional-Conduct-83
[5] https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=202320240SB42
[6] Arizona Code of Judicial Administration section 7-209(G)(3).