By Neil J Wertlieb
Happy Holidays! Season’s Greetings! Happy Kwanzaa! Merry Christmas! Happy Hanukkah!
Regardless of your religious affiliation or beliefs, this time of year is often a time of celebration, family togetherness … and the exchange of gifts. However, for those of us who are members of the California State Bar, the receipt of gifts can be problematic if the gift-giver is a client. Yes, there’s a rule on that!
Rule 1.8.3 (Gifts from Client) of the California Rules of Professional Conduct prohibits a lawyer from soliciting a client to make a “substantial gift” to the lawyer. So, yes, even in this time of holiday gift-giving, lawyers should be cautious.
Let’s break this down so that you can enjoy the holidays without concern of a disciplinary proceeding by the State Bar for violation of the rule.
Solicit: The prohibition in the rule applies to the solicitation of a substantial gift, but not necessarily to the receipt of such a gift. No definition of “solicit” is included in the rules, but some guidance has been provided by the State Bar in Formal Opinion No. 2011-180. This State Bar opinion from 2011 was based on the predecessor to Rule 1.8.3, which prohibited lawyers from inducing a substantial gift from a client. The opinion analyzes the term “induce” in the context of the goal of the prohibition, which “is to prohibit lawyers from exerting undue or impermissible influence on their clients.” This is consistent with the comments to Rule 1.8.3, which provide that a lawyer “does not violate this rule merely by engaging in conduct that might result in a client making a gift, such as by sending the client a wedding announcement.” As a result, it is clear that the rule is intended to prevent lawyers from taking some form of action, directly or indirectly, in an attempt to cause a client to make such a gift. However, caution is still warranted, as there is a presumption of undue influence if there is a substantial gift by a client to an attorney.
Substantial: The prohibition is limited to substantial gifts. Rule 1.0.1 (Terminology) defines “substantial” as a “material matter of clear and weighty importance.” By design, this definition does not provide a bright-line test or dollar threshold. However, the State Bar has also provided guidance on this issue, in Formal Opinion No. 2011-180: “The determination of whether a gift is substantial should depend on the surrounding circumstances of the event, … [including] the monetary value of the gift, nature of the gift, the fairness of the transaction, the appropriateness of the lawyer’s actions or behavior, the sophistication of the client, the emotional or sentimental value of the gift, whether the gift is substantial from the perspective of the client, and whether the gift is substantial from the perspective of the attorney.”
Gifts to Related Persons: The rule also prohibits a lawyer from soliciting a client to give a substantial gift to a person related to the lawyer. Such persons include those “related by blood or affinity” to the lawyer, defined in California Probate Code Section 21374 as the spouse or domestic partner of the lawyer, or a relative (or spouse or domestic partner of a relative) “within a specified degree of kinship” to the lawyer (or the lawyer’s spouse or domestic partner). Although neither the rule nor the Probate Code specifies the degree of kinship applicable here, the rule’s language demonstrates it is intended to prohibit the solicitation of substantial gifts not only for the benefit of the lawyer but also for the benefit of a close relative of the lawyer.
Gifts from Related Persons: On the other hand, the rule does not prohibit solicitations of substantial gifts from clients who are related to the lawyer. Although the degree of kinship is not specified in this context either, you can (at least under Rule 1.8.3) solicit a substantial gift from a close relative even if you have an attorney-client relationship with such relative. Such a solicitation is specifically excluded from the application of the rule.
Instrument: The Rule also prohibits a lawyer from preparing an instrument on behalf of a client which gives the lawyer (or a person related to the lawyer) any substantial gift. However, this prohibition again does not apply if the lawyer is related to the client. In addition, this prohibition does not apply if the client has been advised by an independent lawyer who has provided a certificate of independent review in compliance with the requirements of California Probate Code Section 21384.
Testamentary Gifts: The rule also applies to testamentary gifts. As a result, not only is it a violation of the rule to solicit a client to make a current gift, but a lawyer could be subject to discipline for soliciting a client to make a gift by will effective upon or after the client’s death.
Executor: The rule does not prohibit a lawyer from seeking to be named as the executor of the client’s estate, or to another potentially lucrative fiduciary position (or from seeking to have a colleague of the lawyer appointed to such a position). Any such appointment, however, will be subject to compliance with the conflict of interest rules.
Attempt: The language of the rule, read literally, suggests that a lawyer could be disciplined for soliciting a substantial gift from a client – even if the client does not make the gift. Although the lawyer’s failure to succeed in securing a gift may evidence the absence of undue or impermissible influence on the client, the rule does not require the lawyer to be successful in soliciting such a gift in order for discipline to be imposed.
Example: Formal Opinion No. 2011-180 presents an illustrative example of impermissible conduct: “Attorney represents Client in a real estate litigation matter in California that involves a second home that Client owns in Santa Barbara, California. Over the last year, Client has paid Attorney roughly $20,000 in fees. During the course of negotiations regarding the Santa Barbara property, Attorney tells Client that although the house is normally rented for $5,000 per week, Attorney feels that she has really earned a break and explains to Client that she would really be able to recharge her batteries and dive back into the case after relaxing for a week at the Santa Barbara property. Client, deeply invested in the result of the litigation but also facing difficult economic times herself, reluctantly hands Attorney the keys to the Santa Barbara house, agreeing that Attorney deserves a vacation and that she is free to stay there for one week without charge. Attorney gratefully accepts Client’s offer, not having the funds to pay the $5,000 for a week.” Formal Opinion No. 2011-180 concludes that, because “the gift was induced by Attorney and appears to be substantial to Attorney and also to Client,” Attorney is in violation of the rule.
Conclusion: Now that we have clarified what you should resolve to not be doing this holiday season, go relax with that cup of eggnog, and contemplate your other New Year’s resolutions.
Neil J Wertlieb is a founding member and co-chair of the California Lawyers Association Ethics Committee. Mr. Wertlieb is an experienced transactional lawyer, educator and ethicist, who provides expert witness services in disputes involving business transactions and corporate governance, and in cases involving attorney malpractice and attorney ethics. For additional information, please visit www.WertliebLaw.com. The views expressed herein are his own.