BILL ANALYSIS �
AB 1515
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ASSEMBLY THIRD READING
AB 1515 (Gonzalez)
As Amended May 12, 2014
Majority vote
JUDICIARY 10-0
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|Ayes:|Wieckowski, Wagner, | | |
| |Alejo, Chau, Dickinson, | | |
| |Garcia, Gorell, | | |
| |Maienschein, Muratsuchi, | | |
| |Stone | | |
|-----+--------------------------+-----+--------------------------|
| | | | |
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SUMMARY : Clarifies attorney duties regarding advance fees,
costs and expenses. Specifically, this bill :
1)Provides that it is the duty of an attorney to deposit into a
client trust account funds received in advance from or for the
client for fees, costs or expenses that have been paid in
advance for legal services, which shall be withdrawn by the
attorney only as fees are earned or costs or expenses
incurred.
2)Provides that the specified legal services may be provided in
stages, and the fee may be withdrawn when the attorney has
performed and completed the specified stage or stages,
provided the agreement with the client specifies each stage
and sets the amount of the advance fee for each stage. For
purposes of this subdivision, any fee that is paid in advance
as the set amount of the fee for specified legal services,
whether paid as a "fixed" fee, a "flat" fee, or under any
other label, is earned only when the attorney has performed
and completed the legal services agreed to be provided in
exchange for that fee.
3)Provides that the State Bar of California (State Bar) shall
adopt for approval by the Supreme Court any necessary
amendments to its rules of professional conduct to conform to
this subdivision.
EXISTING LAW :
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1)Provides pursuant to the State Bar Act for the regulation and
licensure of attorneys by the State Bar, imposes various
duties on an attorney, including the duty to maintain the
confidences and preserve the secrets of his or her client at
every peril to himself or herself, and authorizes the Board of
Trustees of the State Bar, with the approval of the Supreme
Court, to formulate and enforce rules of professional conduct
for all members of the State Bar.
2)Provides for the establishment of client trust accounts.
FISCAL EFFECT : None
COMMENTS : The author states that this bill would clarify that
an attorney has a clear and explicit statutory duty to deposit
fees and expenses that a client has paid in advance for legal
services into a client trust account, to be withdrawn by the
attorney only as fees are earned or expenses incurred.
The State Bar notes:
Rule 4-100(A) of the Rules of Professional Conduct
provides, in part: "All funds received or held for
the benefit of clients by a member or law firm,
including advances for costs and expenses, shall be
deposited in one or more identifiable bank accounts
labelled 'Trust Account,' 'Client's Funds Account' or
words of similar import, maintained in the State of
California, or, with written consent of the client, in
any other jurisdiction where there is a substantial
relationship between the client or the client's
business and the other jurisdiction."
According to the State Bar, "Although the safest thing for an
attorney to do - and the customary practice by many - is to hold
advance fees (as well as costs and expenses) in a client trust
account and draw them out as they are earned, Rule 4-100(A) does
not clearly and explicitly refer to 'advance fees.' This bill
would clarify the situation by explicitly imposing a duty to
deposit into a client trust account fees and expenses that a
client has paid in advance for legal services, to be withdrawn
by the attorney only as fees are earned or expenses incurred."
These funds are to be held in client trust accounts consistently
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with Business and Professions Code Section 6211.
The State Bar observes that in Baranowski v. State Bar (1979) 24
Cal.3d 153, 163, the California Supreme Court found that the
predecessor to Rule 4-100 (former Rule 8-101, with the same
language as current Rule 4-100 to the extent relevant here)
"expressly requires that sums advanced to pay costs or expenses
be placed in a separate trust account; it does not expressly
deal with advance legal fees."
It should be noted that while the Baranowski court commented
that the rule did "not expressly deal with advanced legal fees,"
the court explicitly declined to decide the question of whether
the rule covers advanced legal fees. (Baranowski, 24 Cal.3d at
164.) Thus, the question appears to be an open one under the
Rules of Professional Conduct.
The State Bar comments that this bill is consistent with ABA
Model Rule of Professional Conduct, Rule 1.15(c), which it
states is the rule in at least 30 other states requiring an
attorney to deposit and hold legal fees paid in advance in a
client trust account and not withdraw them until they are
earned. Imposing this obligation explicitly in California will
serve to further public protection and public confidence in the
legal profession, the State Bar argues.
According to the State Bar, the language in this bill would not
apply to a "true retainer." Under Rule 3-700(D)(2), the State
Bar states, a "true retainer" is one that is paid "solely for
the purpose of ensuring the availability of the member." The
State Bar states that this definition of a "true retainer" was
adopted by the California Supreme Court in Baranowski: "An
'advance fee payment' as used in this context is to be
distinguished from a classic 'retainer fee' arrangement. A
[classic] retainer is a sum of money paid by a client to secure
an attorney's availability over a given period of time. Thus,
such a fee is earned by the attorney when paid since the
attorney is entitled to the money regardless of whether he
actually performs any services for the client." (Baranowski v.
State Bar, supra, 24 Cal.3d at p. 164 fn.4).
Analysis Prepared by : Kevin G. Baker / JUD. / (916) 319-2334
FN: 0003408
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