June 01, 2020

MONTH-IN-BRIEF: Legal Opinions & Ethics

Keith Fisher, Christina Houston

Professional Responsibility

California Bar Records Historically Low Pass Rate

By Keith R. Fisher

According to a press release from the State Bar of California, the overall pass rate for the February 2020 bar exam was a mere 26.8 percent.  Disaggregating the data further, the pass rate for first-time takers was 38 percent, but the pass rate for retakers was an astonishingly low 22 percent.  By way of comparison, the overall pass rate for the February 2019 bar exam was 31.4 percent. 

The pass rate for graduates of CA-accredited but not ABA accredited schools was only 17% for first timers and 10% for repeaters.  Pass rates for graduates of the various categories of unaccredited schools were even lower. 

The current results mark the second-lowest pass rate since the February 1982 exam and the second time since 1986 that the overall pass rate has fallen below 30 percent.  The February 2020 exam boasts the lowest pass rate since 1951, the oldest date listed in the data summarizing pass rates released by the California Bar’s Committee of Bar Examiners.

New ABA Opinion Significantly Expands Transactional Lawyers’ Duty of Inquiry

By Keith R. Fisher

On April 29, 2020, the Standing Committee on Ethics and Professional Responsibility issued  Formal Opinion 491 (“Op. 491”), addressing the obligations of lawyers who have reason to believe their clients may be involved in fraudulent or criminal behavior.  This opinion should be of particular interest to business lawyers, as it focuses on transactional settings rather than litigation. 

The opinion is potentially controversial.  Even after 2010’s Good Practice Guide by the Task Force on Gatekeeper Regulation and the 2013 endorsement of that document by the Ethics Committee in Formal Opinion 483, Op. 491 shows the ABA bowing to continued pressure from the Treasury Department and the OECD’s Financial Action Task Force to deputize the bar as gatekeepers in the fight against money laundering.   Formal Opinion 483 recognized that “the Model Rules do not require a lawyer to fulfill a gatekeeper role, nor do they permit a lawyer to engage in the reporting such a role would entail.”  That opinion endorsed the Good Practice Guide and exhorted lawyers to engage in client due diligence “in appropriate circumstances.”

Op. 491, however, significantly expands a lawyer’s ethical obligations by positing a duty of inquiry going well beyond the requirements of Model Rule 1.2(d), which prohibits counseling a client to engage in, or assisting a client in, conduct that a lawyer “knows is criminal or fraudulent” (emphasis added).  Bear in mind that Model Rule 1.0(f) in the Terminology Section defines “knows” as actual knowledge. 

Op. 491 proclaims that a “high probability” that a client is seeking the lawyer’s services in a transaction to further criminal or fraudulent activity triggers an affirmative duty to investigate.  Failure to make a reasonable inquiry is characterized—indiscriminately, in my view—as constituting “willful blindness,” an outcome-determinative depiction that potentially will subject a lawyer to disciplinary action in any jurisdiction that adopts this approach.  This duty arises, according to Op. 491, not just from Model Rule 1.2(d) but from a penumbra emanating from Model Rules 1.1 (competence), 1.3 (diligence), 1.4 (communications), 1.13 (organization as client), 1.16 (declining or terminating representation), and 8.4(b)-(c) (committing a criminal act reflecting adversely on a lawyer’s honesty or trustworthiness and engaging in conduct involving dishonesty, fraud, deceit, or misrepresentation, respectively).

But Op. 491 goes even further:  A lawyer must investigate from sources other than the client if the latter is not forthcoming and if the lawyer can do so without revealing client confidences (the opinion mentions the possibility of “informed consent,” but why would anyone expect a client engaged in shady activity to give that?).  Lawyers are safe who conduct “reasonable inquiry” and can “credit an otherwise trustworthy client” if the information from third-party sources does suggest otherwise.  What constitutes a “reasonable inquiry” or adequate indicia of “trustworthiness” may, however, prove to be rather slippery determinations.

Op. 491 provides some valuable hypotheticals drawn from the Good Practice Guide, which are worthy of study.  Nevertheless, the opinion, while well-motivated, may constitute an exaggerated view of lawyer’s ethical obligations; it merits further thought and a more extensive analysis in a future issue of BLT.

Keith Fisher

Principal Consultent and Senior Counsel, National Center for State Courts

An honors graduate of Princeton University and Georgetown University Law Center, Keith Fisher joined the National Center for State Courts in 2015 as Principal Consultant and Senior Counsel for Domestic and International Court Initiatives.  He is an experienced lawyer and law professor and is a nationally known expert on domestic and international financial services regulation and legal and judicial ethics.  Recent speaking engagements on domestic and international  ethics issues include the Center for Judicial Ethics National Judicial College, the International Conference on Court Excellence in Singapore, the Professional Responsibility Training Session for Immigration Judges, an American-Hellenic Chamber of Commerce Symposium on Improving the Greek Court System, the Magistrature de Quebec’s Colloque soulignant les 40 ans du Conseil de la magistrature, the U.N.’s Global Judicial Integrity Network conference on social media in Vienna, and the Konrad Adenauer Stiftung’s conference on judicial ethics and social media..  He also serves on the Board of Editors for UNESCO publications on judicial bioethics.

Christina Houston

Counsel, DLA Piper

Christina’s practice focuses on legal opinions, LLCs, partnerships, trusts and corporations and general commercial transactions. Christina is a member of the Partnership and Limited Liability Company Committee of the Corporation Law Section of the Delaware State Bar Association, which is responsible for annually reviewing and updating Delaware’s partnership and LLC statutes. Christina also is actively involved in the Legal Opinions Committee of the American Bar Association Business Law Section, the Committee on LLCs, Partnerships and Unincorporated Business Associations and the Business Law Basics Committee of the Business Law Section of the American Bar Association. She is the current Chair of the Opinion Issues in LLCs Subcommittee. Christina is a member of the TriBar Opinion Committee.