Can a law firm send client billing and accounting records to an outside data processing service without breaching the duty to preserve client confidences?

Currency note

This opinion was issued in 1971, before the State Bar of California's adoption of the November 1, 2018 revisions to the Rules of Professional Conduct. The opinion analyzes the lawyer's confidentiality duty under Business and Professions Code section 6068(e), Evidence Code section 912, and the ABA Code of Professional Responsibility (Canon 4 / Disciplinary Rule 4-101), the framework predating current Rule 1.6 (Model Rule 1.6). It addresses 1971-era data processing technology; subsequent rule amendments and later opinions on technology and confidentiality may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule or requirement mentioned here.

Disclaimer: This is an advisory ethics opinion. Advisory opinions are not binding; they interpret the State Bar of California's rules of professional conduct and are persuasive authority. This summary is for research purposes only and is not legal advice. Verify current rules before acting on any specific guidance.

About this page: The plain-English summary and Q&A below were written by Ezel based on the official opinion. The opinion text is reproduced at the bottom; the official source (linked) controls.

View original opinion

Plain-English summary

The committee was asked whether a law firm could ethically send its records (client names and addresses, the nature of matters, time and hourly charges, estimated fees, costs, and prior unpaid fees) to an outside data processing center for bookkeeping, billing, accounting, and statistical purposes, given the lawyer-client privilege and the duty to preserve client secrets. The committee separated two issues: whether transmitting communications to the data processor, with the client's consent, risks waiving the lawyer-client privilege under Evidence Code section 912; and whether transmitting without consent violates the duty under Business and Professions Code section 6068(e).

On the privilege question, the committee declined to decide the underlying legal question of waiver, but, reading Evidence Code section 912(d) with its Legislative Committee Comment, concluded that disclosure to a data processor reasonably necessary to accomplish the purpose for which the lawyer was consulted should not waive the privilege any more than disclosure to a secretary, clerk, or bookkeeper. It relied on ABA informal opinions Nos. 1002 (1968) and 1127 (1970), which held that using a central data processor is not improper if no confidential information is disclosed, or only limited information is disclosed, with appropriate selection of and warning to the agency.

On the section 6068(e) duty, the committee emphasized that the ethical obligation is broader than the evidentiary privilege and, unlike ABA Ethical Consideration 4-3, contains no exceptions. Furnishing a data processor with bookkeeping data that contains no confidences or secrets does not violate section 6068(e), even if it includes client names, addresses, and the nature of matters, because such items usually are neither confidential communications nor secrets. But where peculiar circumstances make a client's name, address, or matter confidential (which the lawyer must determine at his peril), the committee concluded that, unless the client otherwise directs, such confidences or secrets must be eliminated from the data or coded so they are not disclosed.

Common questions

Q: Can a law firm use an outside data processing service for billing and accounting?

A: Yes, the committee concluded it is not ethically improper, provided the firm selects the agency with due care and warns it to keep the information confidential, consistent with ABA informal opinions Nos. 1002 and 1127.

Q: Does the client's consent to disclosure waive the lawyer-client privilege?

A: The committee treated waiver as a legal question it would not decide, but reasoned that, under Evidence Code section 912(d), disclosure reasonably necessary to the representation should not waive the privilege any more than disclosure to a secretary or bookkeeper would.

Q: What must the firm do about actual client secrets in the data?

A: Because Business and Professions Code section 6068(e) has no consent exception, the committee concluded that any client confidences or secrets must be eliminated from the transmitted data or coded, unless the client otherwise directs, since disclosing them without consent would violate the section.

Background and rules framework

The opinion analyzes the duty to preserve client confidences under Business and Professions Code section 6068(e) and Evidence Code sections 912, 953, and 954, alongside the ABA Code of Professional Responsibility (Canon 4, Ethical Considerations 4-3 and 4-4, Disciplinary Rule 4-101) and former Canon 37. These confidentiality duties are now embodied, in altered form, in Model Rule 1.6 and California Rule 1.6.

Citations and references

Rules of Professional Conduct:

• ABA Code of Professional Responsibility, Canon 4, Ethical Considerations 4-3 and 4-4, Disciplinary Rule 4-101; former Canon 37
• Current analog: Model Rule 1.6 / California Rule 1.6

Statutes:

• California Business and Professions Code section 6068, subdivision (e)
• California Evidence Code sections 912 (including subdivision (d)), 953, and 954

Cases:

• Himmelfarb v. United States (9th Cir. 1949) 175 F.2d 924
• Satterlee v. Bliss (1869) 36 Cal. 489; City and County of San Francisco v. Superior Court (1951) 37 Cal.2d 227
• Sharon v. Sharon (1889) 79 Cal. 633, presumption that attorney-client communications are confidential

Other opinions cited:

• ABA Committee on Professional Ethics, informal opinions Nos. 1002 (1968) and 1127 (1970); Opinion No. 320 (1968)
• State Bar of Arizona Ethics Committee Opinion No. 192 (1966)
• L.A. County Bar Association Committee on Legal Ethics Opinions Nos. 159 (1945), 259 (1959), 266 (1959), 287 (1965)

Other authorities:

• Drinker, Legal Ethics (1953) p. 132

See also

• CA Ethics Op. 1969-18: Lawyer Joining a Nonlawyer Consulting Firm

Source

• Landing page: https://www.calbar.ca.gov/legal-professionals/ethics-compliance-practice-resources/ethics/ethics-opinions
• Original opinion: https://www.calbar.org/ethics/Opinions/1971-25.htm

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

Ethical propriety of the use by a law firm of the services of an outside data processing center in view of lawyer-client privilege and lawyer's duty to preserve the secrets of his client.

American Bar Association Code of Professional Responsibility, Disciplinary Rule 4-101.

Business and Professions Code section 6068 and Evidence Code section 912.

The opinion of this Committee has been requested concerning the ethical propriety of a law firm's use of the services of an outside data processing center in the light of the restrictions of section 912, subdivision (d), of the Evidence Code and section 6068 of the Business and Professions Code.

The code sections pertinent to the question read as follows:

Evidence Code section 912:

"(a) Except as otherwise provided in this section, the right of any person to claim a privilege provided by section 954 (lawyer-client privilege) ... is waived with respect to a communication protected by such privilege if any holder of the privilege, ... has disclosed a significant part of the communication or has consented to such disclosure made by anyone. Consent to disclosure is manifested by any statement or other conduct of the holder of the privilege indicating his consent to the disclosure, . . ."

"(d) A disclosure in confidence of a communication that is protected by section 954 (lawyer-client privilege), . .. when such disclosure is reasonably necessary for the accomplishment of the purpose for which the lawyer... was consulted, is not a waiver of the privilege."

Business and Professions Code section 6068:

"It is the duty of an attorney:

. . .

"(e) To maintain inviolate the confidence, and at every peril to himself to preserve the secrets of his client."

We will assume that a lawyer-client relationship has been established and that the information transmitted between the client and his lawyer includes confidential communications or secrets consisting of one or more of the following: the client's identity or address, the nature of the matter concerning which the client has consulted the attorney, or the legal fee.

It also will be assumed, for the purpose of answering the inquiry, that a law firm transmits its records to a data processing center for bookkeeping, billing, accounting, and statistical purposes, which contain, among other items of information, the client's name and address, the nature of the matter, the time devoted by one or more attorneys to a case, their respective hourly charges, the amount of the estimated fee, costs and disbursements, and prior unpaid fees, if any.

Such use of a data processing center involves (a) the propriety of the conduct of a lawyer in subjecting his client to a possible waiver of the lawyer-client privilege with respect to his confidential communications, in the event the client consents to such use, and (b) whether such use, without the client's consent, constitutes a violation by the lawyer of his duty to maintain inviolable the confidences and secrets of his client.

"The rule ... that confidential communications by or on behalf of a client may not be disclosed without his consent, has long been a rule of common law; and is in many jurisdictions the subject of statute. As such, its application is usually a question of law rather than ethics." (Drinker, Legal Ethics (1953) p. 132.)

One of the rules governing the jurisdiction of this Committee provides that it will decline to issue opinions when the activities, the propriety of which are in question, depend principally on questions of law rather than ethics. But here, similarly, as stated in Los Angeles County Bar Association Committee on Legal Ethics Opinion No. 259 (1959), "The question of ethics is so closely interwoven with and related to the legal question as to justify an advisory opinion for the consideration of the inquiring attorney."

If it is assumed that the client has not given his consent, either expressly or impliedly, to disclosure to the data processor, it would appear as a matter of law that the client, as the holder of the privilege, would not thereby be deemed to have waived his privilege to refuse to disclose or prevent another from disclosing a confidential communication. But if the client, expressly or by implication, consents to disclosure to the data processor of his communications, is it ethically proper for the lawyer to thus subject his client to the possible loss of the lawyer-client privilege under section 912, subdivision (d), of the Evidence Code? Whether there is a waiver depends upon whether there is a distinction between having employees keep the books and records within the office of the law firm and using an outside data processor for the same purpose. That question involves a question of law, which we do not determine. However, in answering the ethical question, an examination of the California Legislative Committee Comment (Sen J. 4/21/65) is useful in considering the legal question, on which we have found no California case law.

The Legislative Committee Comment states that Evidence Code section 912, subdivision (d), is designed to maintain the confidentiality of communications in certain situations where the communications are disclosed to others in accomplishing the purpose for which the lawyer was consulted. For example, when a confidential communication from a client is related by his attorney to a physician, appraiser or other expert, in order to obtain that person's assistance, so that the attorney will be better able to advise his client, the disclosure is not a waiver of the privilege, even though it is made with the client's knowledge and consent. Communications such as these, the Legislative Committee Comment observes, when made in confidence, should not operate to destroy the privilege, even where made with the consent of the client. The client has not evidenced any abandonment of secrecy. The Legislative Committee Comment concludes the client should be entitled to maintain the confidential nature of his communication to his attorney despite the necessary further disclosure. The Committee suggests that Evidence Code section 912, subdivision (d), may change California law. Himmelfarb v. United States (9th Cir. 1949) 175 F.2d 924, applying the California law of privilege prior to the enactment of the Evidence Code, held that a lawyer's revelation to an accountant of a client's communication to the lawyer waived the client's privilege, if such disclosure was authorized by the client.

In the accomplishment of the purpose for which the lawyer is consulted by his client, a lawyer requires the services of nonlawyer employees to enable him to conduct his law practice. The services of such nonlawyers may be equally as reasonably necessary to the accomplishment of the purpose for which the lawyer was consulted as the services of a doctor, appraiser or other expert. There are necessary intermediate steps between the original consultation with the client and the ultimate accomplishment of the client's purpose in which a client's confidential communications are necessarily disclosed by the lawyer. Such disclosures may consist of dictation of memoranda and correspondence requiring the services of a secretary, the services of a clerk who is given copies of letters and memoranda containing confidential communications for the maintenance of a client's files, and entries in books and records by a bookkeeper taken from the attorney's notes and records which may contain the client's confidential communications. Disclosures such as these, made to a lawyer's employees who have been instructed to keep clients' matters confidential, are necessarily involved in the conduct of a law practice. The client's consent, express or implied, to such disclosures evidences no intent by the client to abandon the confidentiality of his communications to his lawyer.

If the aforesaid disclosures to an attorney's employees are necessarily involved in accomplishing the client's purposes, and if such disclosures to the employees do not constitute a waiver by the client under Evidence Code section 912, subdivision (d), even with the client's consent, then the privilege should be preserved if a public accountant (not an employee of the lawyer) is engaged by the lawyer to perform the same duties as the lawyer's bookkeeper. There should be no difference based on whether the independent accountant's work is performed in the lawyer's office or in the accountant's office, if the accountant is instructed by the lawyer to keep all client's matters in confidence.

If a law firm were to install data processing equipment in its office, and a confidential communication of a client were disclosed, with the client's consent, to the clerk operating the equipment, this should not cause the loss of the lawyer-client privilege. As stated in American Bar Association Committee on Professional Ethics, informal opinion No. 1002 (1968), rendered under former canon 37: "The law office bookkeeper ... must treat matters disclosed in confidence, and the right of a lawyer to make disclosures in no way turns on whether a pen or a modern processing machine is used." It would seem to follow that, if an independent contractor were employed to program and operate a law firm's data processing equipment, disclosures to him, made in confidence, with the client's consent, of the firm's records which contain confidential communications, likewise should not destroy the privilege. Consent in all such instances no more evidences the client's intent to abandon the secrecy of his confidential communication to the lawyer than does the client's consent to such disclosure to the lawyer's secretary, clerk, or bookkeeper. The operation of the equipment is one of the steps reasonably necessary in the accomplishment of the purposes for which the lawyer was consulted.

For the same reasons, we are of the opinion that the client should not be deemed to waive his privilege if he consents to the disclosure of his confidential communications to a central data processor. American Bar Association Committee on Ethics and Professional Responsibility, informal opinion No. 1002, supra, interpreting former Canon 37, further states "...the Committee recognizes that the present inquiry pertains to modern business practices and, while the practice of law is a profession and not a 'business', nevertheless, the Committee recognizes also that law offices must necessarily be operated as efficiently and economically as is possible within the framework of the Canons of Ethics." One member of the American Bar Association Committee reasoned that, "It is not unethical to dictate to a secretary ... about confidential matters essential to the work of the typist ... as it relates to the client. The data processor stands in the shoes of such an employee. Just as a secretary who wrongfully discloses confidences should no longer be employed, so a lawyer should no longer deal with a data processor who could not or did not comply with the confidences." The member further stated that "... it makes no real difference whether the contemplated data processing is done in the law office or in the place of business of the data processor... The bookkeeping is a part of the practice of law. The disclosures in the process are in confidence." The opinion concluded that disclosures to a central data processor as to the nature and extent of services rendered clients for the purpose of billing is not professionally improper unless such disclosures include matters communicated to the attorney in confidence. In opinion No. 192 (1966) the Ethics Committee of the State Bar of Arizona reached a similar conclusion; namely, that it is not improper for a law firm to supply data concerning legal matters being handled by the firm to an outside data processing service center, provided data supplied is in such form as not to involve a breach of confidential relationships with clients.

The second American Bar Association Committee on Professional Ethics opinion on the subject of data processors, informal opinion No. 1127 (1970), was rendered after the effective date of the American Bar Association Code of Professional Responsibility. Ethical Consideration 4-3 of that Code provides:

"Unless the client otherwise directs, it is not improper for a lawyer to give limited information from his files to an outside agency necessary for statistical bookkeeping, accounting, data processing, banking, printing or other legitimate purposes, provided he exercises due care in the selection of the agency and warns the agency that the information must be kept confidential." (Emphasis added.)

The question in informal opinion No. 1127, supra, was whether it is proper for attorneys to use a central facility for the storage of files in a computer memory, the material to be available to no one other than the facility's employees and the particular attorney who owns the governing file. The opinion stated that there is some risk of a failure to preserve the client's confidence, whether the disclosures are made to an employee in the lawyer's office or to an outside data processor. The Committee determined that, under former canon 37, so long as arrangements are made so that the information transmitted to the data processor shall be kept in confidence, and the employees of the law firm and the data processor do keep them in confidence and do not permit disclosure to any unauthorized person, there is no violation of the American Bar Association Canons of Ethics. The Committee cautioned that the same burden of secrecy exists in the case of all employees of the data processor, with respect to all information given the data processor, as exists for employees of the law firm and all information held strictly in the law firm's files.

The American Bar Association Committee on Professional Ethics' analysis, as it pertains to the American Bar Association Code of Professional Responsibility, is based on canon 4, which provides that "[a] lawyer should preserve the confidence and secrets of a client." The Committee pointed out that ethical considerations under former canon 37 and the new canon 4 are similar: lawyers should be diligent in their efforts to prevent misuse of information by their employees. American Bar Association Code of Professional Responsibility, Ethical Consideration 4-3, quoted above, specifically states that it is not improper for a lawyer to give limited information from his files to an outside data processor for certain purposes. That committee stated that the test under canon 4 is the appropriate selection of the agency, the appropriate rules within the agency for the preservation of secrecy, the appropriate warning to the agency, and the ability of the agency to keep the matters secret; if the agency meets such tests, it is proper for the lawyer to give limited information to an outside agency.

Thus, American Bar Association Committee on Professional Ethics informal opinions have held that, both under the old and new canons, the use of a central data processor is not improper if no disclosures of confidential information are made (informal opn. No. 1002, supra,) and if only limited information is disclosed (informal opn. No. 1127, supra).

Whether disclosure to a data processor with a client's consent constitutes a waiver of the lawyer-client privilege is a question of law which we do not determine. The final answer undoubtedly lies either in a California decision on the question or in an appropriate amendment of the Evidence Code. Assuming, however, that this Committee's interpretation of Evidence Code section 912, subdivision (d), is correct in the light of the Legislative Committee Comment and in view of American Bar Association Committee on Professional Responsibility informal opinions Nos. 1002 and 1127, supra, we are of the opinion that, subject to Business and Professions Code section 6068, subdivision (e), it is not ethically improper for a lawyer to use the services of a central data processor.

The second part of the inquiry concerns the use of a central data processor in the light of Business and Professions Code section 6068, subdivision (e).

No ethical question is involved with respect to Business and Professions Code section 6068, subdivision (e), if the client consents to disclosure by his attorney of the client's secrets and confidences. (ABA Committee on Prof. Ethics, Opn. No. 320 (1968).) The American Bar Association Code of Professional Responsibility, Canon 4, Disciplinary Rule 4-101(B), provides that "a lawyer shall not knowingly reveal a confidence or secret of his client." Disciplinary Rule 4-101(C)(1) states the exception to the above cited disciplinary rule; namely, that a lawyer may reveal his client's confidences or secrets "with the consent of the client or clients affected but only after a full disclosure to them."

In determining the propriety of the use of a central data processor in the light of Business and Professions Code section 6068, subdivision (e), it is necessary to compare the attorney-client privilege with a lawyer's obligation under that section. American Bar Association Code of Professional Responsibility, Ethical Consideration 4-4 states, "The attorney-client privilege is more limited than the ethical obligation of a lawyer to guard the confidences and secrets of his client. The ethical precept, unlike the evidentiary privilege, exists without regard to the nature and source of information or the fact that others share the knowledge." (See Satterlee v. Bliss (1869) 36 Cal. 489; City and County of San Francisco v. Superior Court (1951) 37 Cal.2d 227.) The purpose of Business and Professions Code section 6068, subdivision (e), is not to prevent a person from testifying to a confidential communication in any proceeding; its purpose is to permit the fullest and freest disclosures between the attorney and the client of the client's objects, motives and acts, so that the lawyer may be better able to exercise his professional judgment and so that the client will be secure in the knowledge that his confidences and secrets will ever thereafter be held in confidence and will not and cannot be used for any other person's advantage (L. A. Co. Bar Assn. Committee on Legal Ethics, Opn. No. 159 (1945)).

The furnishing by a law firm to a central data processor of the firm's bookkeeping, billing, accounting and statistical data, which contain no confidential communications or secrets of the client, without its clients' consent, does not violate Business and Professions Code section 6068, subdivision (e), even though such data may contain the names, addresses, and nature of the clients' matters. Usually communications as to such matters constitute neither confidential communications nor secrets. However, there are instances in which, because of peculiar circumstances, a client's name, address or the nature of the matter about which the client consulted the lawyer have been held both by judicial decision and ethics committee opinions to be confidential communications.

It is the opinion of this Committee that, in the absence of such peculiar circumstances (the absence of which it is the duty of the lawyer to determine at his peril), it is not ethically improper under Business and Professions Code section 6068, subdivision (e), for a law firm to use the services of a central data processor for the above-described purpose.

It should be noted that, unlike American Bar Association Code of Professional Responsibility, Ethical Consideration 4-3, Business and Professions Code section 6068, subdivision (e), contains no exceptions. The duty of a lawyer not to disclose his client's confidences or secrets applies even when the facts are of public record or there are other sources of the same information (L.A. Co. Bar Assn. Committee on Legal Ethics, Opns Nos. 266 (1959) and 287 (1965); see also ABA Code of Prof. Responsibility, EC 4-4, Michigan State Bar Ethics opn. No. 45).

Further, a lawyer must be aware of the rebuttable presumption that all communications between the attorney and client are confidential. (Sharon v. Sharon (1889) 79 Cal. 633, 638.)

The disclosure of a client's secrets and confidences to a data processor, without the client's consent, would violate the client's right to have his confidences and secrets preserved and would violate Business and Professions Code section 6068, subdivision (e).

We conclude that, unless and until Business and Professions Code section 6068, subdivision (e), is amended so as to permit the use of a central data processor which meets standards promulgated by the State Bar, and unless the client otherwise directs, any confidences or secrets of the client contained in data to be supplied to the data processor either should be eliminated from such data or should be coded so that the client's confidences and secrets will not be disclosed.