When a California client tells her new lawyer not to notify her prior lawyer (who has a valid charging lien on the recovery) of a settlement, what may and must the successor lawyer do with the disputed fees held in her trust account?

Currency note

This opinion was issued in 2008, before the State Bar of California's adoption of the November 1, 2018 revisions to the Rules of Professional Conduct. The opinion interprets former Rules 3-100 (confidentiality), 3-110 (competence), 3-500 (keeping the client informed), 4-100 (client trust accounts), and 5-200 (truthfulness), together with Business and Professions Code sections 6068(d), (e), and (m), 6106, and 6147. Functionally, current California Rules 1.4 (communication), 1.6 (confidentiality), 1.15 (safekeeping funds), and 4.4 (respect for third persons) now address these issues. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule, deadline, or procedural step 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.

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Plain-English summary

The hypothetical: Client retains Attorney A on a contingency-fee legal malpractice claim against Former Attorney, with a fee agreement complying with Business and Professions Code section 6147 and a valid charging lien. After investigation, Attorney A recommends settlement for $150,000 before suit. Client (believing the case is worth $1 million) terminates Attorney A and retains Attorney B on the same contingency terms, also with a valid charging lien. After intensive litigation, Client settles with Former Attorney for $150,000. Attorney A has not filed a notice of lien (the suit was filed after his discharge), so the settlement check is made payable to Client and Attorney B. Attorney B presents an accounting showing $100,000 to Client and $50,000 in attorney's fees to be divided between Attorney A and Attorney B. Client deposits the check into Attorney B's CTA but adds a handwritten instruction prohibiting payment of any fee to Attorney A and prohibiting Attorney B from disclosing the fact or the amount of the settlement to Attorney A.

The committee splits the analysis into four issues.

Issue 1 (undisputed portion): Attorney B must promptly pay Client the undisputed $100,000 under former Rule 4-100(B)(4). Because both lawyers contracted for 1/3, the total fee is limited to 1/3 of the recovery, with the prior lawyer's share determined by quantum meruit (Fracasse v. Brent, Spires, Cazares v. Saenz).

Issue 2 (fiduciary duty to prior counsel): Under Johnstone v. State Bar, when a lawyer holds funds on behalf of a non-client third party, the funds are impressed with a trust and the lawyer is a fiduciary. The Supreme Court and State Bar Court have applied former Rule 4-100 (and predecessor Rule 8-101) to obligations owed to third parties, including lienholders. In In the Matter of Riley, the State Bar Court Review Department held that an attorney's duty includes notifying the lienholder if a judgment, award, or settlement is pending; that failure to pay a third-party lien promptly without justification violates former Rule 4-100(B)(4); and that where a lien dispute cannot be resolved through negotiations, the attorney must either pay in full or take appropriate steps to resolve the dispute promptly while leaving disputed funds in trust. Virtanen v. O'Connell (involving an attorney acting as escrow holder) held that a lawyer's duties to clients do not excuse violation of duties to a third party for whom the lawyer holds funds in trust, and that interpleader is a statutorily sanctioned method for dealing with conflicting demands. Under Weiss v. Marcus, a valid attorney's charging lien in a contingency case survives discharge to the extent of the reasonable value of services rendered. The duty under Business and Professions Code section 6068(d) and former Rule 5-200(A) to employ only means consistent with truth, together with Civil Code section 1710(3), prohibits an attorney in a fiduciary relationship with a third party from concealing material facts.

Issue 3 (duty to client): Under In the Matter of Riley and Nichols v. Keller, an attorney has a duty to advise the client of the reasonably foreseeable adverse consequences of concealment, including the risk of being sued by the discharged attorney for failure to honor the lien. This is consistent with former Rule 3-500 and Business and Professions Code section 6068(m) (duty to keep the client reasonably informed). Successor counsel should attempt to persuade the client to permit disclosure. As to confidentiality: under Business and Professions Code section 6068(e)(1) and former Rule 3-100, the lawyer must maintain client confidence, but the 2004 Discussion to former Rule 3-100 allows disclosure "as authorized or required by the State Bar Act, these rules, or other law." Disclosure to enforce or defend against fee claims has long been recognized as authorized by decisional law (Glade v. Superior Court, Carlson, Collins, Gordon & Bold v. Banducci, Brockway v. State Bar).

Issue 4 (synthesis): Disclosure of the fact and amount of the settlement to Attorney A is both required and authorized. Required because Attorney B is a fiduciary to Attorney A with affirmative duties to notify the lienholder of the settlement (Riley, Nunez) and not to conceal material facts (Bus. & Prof. Code § 6068(d), Civ. Code § 1710(3), former Rule 5-200(A), Johnstone, Goodman v. Kennedy). Authorized because Attorney B cannot unilaterally calculate her own quantum meruit share without disclosure, and California law releases attorneys from the duty to maintain client secrets in order to obtain compensation (Carlson). However, successor counsel may not disclose anything more than the fact and amount of the settlement without the client's consent; in particular, the client's demand for concealment is itself privileged confidential information that Attorney B must keep confidential, even though disclosure could benefit Attorney B in negotiating with Attorney A.

After notification, both lawyers must remain mindful of confidentiality in negotiating allocation. If they resort to legal process, successor counsel should provide the client with notice and opportunity to participate; the tribunal will limit disclosure of confidential information appropriately. The committee adds that earlier opinions (1981-58, 1983-74, 1986-87, 1988-96, 1995-139, 1996-146) consistently structure the lawyer's options so the lawyer is not pressured by a client to violate the State Bar Act, the rules, or other law in order to preserve confidentiality, and that withdrawal is unavailable here because Attorney B has completed her handling of the matter.

Common questions

Q: Must successor counsel honor a client's instruction not to tell prior counsel about a settlement that prior counsel has a lien against?

A: Per the opinion, no. Successor counsel must first advise the client of the adverse consequences of concealment, including the risk of being sued by the discharged attorney. If the client persists, successor counsel must nonetheless disclose the fact and the amount of the settlement to prior counsel, because disclosure is required by law to fulfill fiduciary duties to the lienholder and authorized by law to allow both attorneys to protect their fee recovery.

Q: How much may successor counsel disclose to the prior lawyer?

A: Per the opinion, only the fact and the amount of the settlement. Successor counsel may not disclose, without the client's consent, additional confidential information, including the client's demand that the fact and amount be concealed from prior counsel, even where disclosure would benefit successor counsel in negotiating quantum meruit with prior counsel.

Q: How does the total fee get allocated when both contingency-fee lawyers contracted for the same percentage?

A: Per the opinion, the total fee is capped at the contracted percentage (here 1/3) and the discharged lawyer's share is determined by quantum meruit under Fracasse v. Brent, Spires v. American Bus Lines, and Cazares v. Saenz. Successor counsel must pay the client the undisputed portion (here $100,000) promptly under former Rule 4-100(B)(4) and must hold the disputed $50,000 in trust until allocation is resolved.

Q: What does the committee say successor counsel should do if she and prior counsel cannot agree on allocation?

A: Per the opinion, successor counsel must either pay the lien in full or take appropriate steps to resolve the dispute promptly, while leaving disputed funds in trust during the pendency (citing In the Matter of Riley). If the lawyers resort to legal process, successor counsel should give the client notice and an opportunity to participate; the presiding officer can limit disclosure of confidential information appropriately. The committee notes Virtanen's reference to interpleader as one statutorily sanctioned mechanism for dealing with conflicting demands.

Q: Why is disclosure permitted under the lawyer's confidentiality duty?

A: Per the opinion, paragraph [2] of the Discussion of former Rule 3-100 (approved by the California Supreme Court in 2004) provides that a lawyer may reveal confidential information "as authorized or required by the State Bar Act, these rules, or other law." Decisional law has long recognized that attorneys are authorized by law to disclose confidential information in defense of malpractice claims (Glade v. Superior Court), in support of fee-collection claims (Carlson, Collins, Gordon & Bold v. Banducci), and in defense of client-initiated disciplinary proceedings (Brockway v. State Bar).

Q: What is the basis for the lawyer's fiduciary duty to a non-client lienholder?

A: Per the opinion, Johnstone v. State Bar holds that when a lawyer receives money on behalf of a non-client third party, the funds are impressed with a trust and the lawyer is a fiduciary. Former Rule 4-100 has been construed to apply not only to client funds but to funds held in trust for third parties such as lienholders (Guzzetta v. State Bar, In the Matter of Mapps, Baca v. State Bar, In the Matter of Respondent F, In the Matter of Respondent P). Under Weiss v. Marcus, a valid charging lien in a contingency case survives the client's discharge of the lawyer, and the discharged attorney may sue successor counsel for failure to honor it.

Background and rules framework

The opinion interprets former California Rules 3-100 (confidentiality), 3-110 (competence), 3-500 (keeping the client reasonably informed), 4-100 (client trust accounts, including 4-100(B)(4) on prompt payment of funds in the lawyer's possession to which the recipient is entitled), and 5-200(A) (employing only means consistent with truth), together with Business and Professions Code sections 6068(d) (means consistent with truth), 6068(e) (confidentiality), 6068(m) (keeping the client reasonably informed), 6106 (moral turpitude, dishonesty, corruption), and 6147 (contingency-fee agreement requirements). Functionally, the framework now corresponds, in current California numbering, to Rules 1.4, 1.6, 1.15, and 4.4. The opinion situates its analysis in California Supreme Court and State Bar Court Review Department authority on lawyer fiduciary duties to lienholders.

Citations and references

Rules of Professional Conduct (former, in effect at time of opinion):

• Former California Rule 3-100 (confidentiality)
• Former California Rule 3-110 (competence)
• Former California Rule 3-500 (keeping the client reasonably informed)
• Former California Rule 4-100, including 4-100(B)(4) (client trust accounts; prompt payment)
• Former California Rule 5-200(A) (means consistent with truth)
• Former California Rule 8-101 (predecessor to Rule 4-100), referenced

Statutes:

• California Business and Professions Code section 6068, subdivisions (d), (e), and (m)
• California Business and Professions Code section 6106 (moral turpitude, dishonesty, corruption)
• California Business and Professions Code section 6147 (contingency-fee agreement requirements)
• California Civil Code section 1710, subdivision (3) (concealment as deceit)

Cases:

• Fracasse v. Brent (1972) 6 Cal.3d 785, quantum meruit for discharged contingency-fee lawyer
• Spires v. American Bus Lines (1984) 158 Cal.App.3d 211, total fee capped at contracted percentage
• Cazares v. Saenz (1989) 208 Cal.App.3d 279, same
• Johnstone v. State Bar (1966) 64 Cal.2d 153, lawyer as fiduciary to third-party recipient of funds
• Guzzetta v. State Bar (1987) 43 Cal.3d 962, former Rule 8-101 applied to third parties
• Baca v. State Bar (1990) 52 Cal.3d 294, attorney who fails to honor valid liens violates Rule 4-100
• In the Matter of Mapps (Review Dept. 1990) 1 Cal. State Bar Ct. Rptr. 1
• In the Matter of Nunez (Review Dept. 1992) 2 Cal. State Bar Ct. Rptr. 196, duty to communicate with lienholder
• In the Matter of Respondent F (Review Dept. 1992) 2 Cal. State Bar Ct. Rptr. 17
• In the Matter of Respondent P (Review Dept. 1993) 2 Cal. State Bar Ct. Rptr. 622
• In the Matter of Riley (Review Dept. 1994) 3 Cal. State Bar Ct. Rptr. 91, attorney must notify lienholder of pending settlement
• Virtanen v. O'Connell (2006) 140 Cal.App.4th 688, escrow-holder duties; interpleader as remedy
• Weiss v. Marcus (1975) 51 Cal.App.3d 590, charging lien survives discharge; claims of discharged attorney
• Nichols v. Keller (1993) 15 Cal.App.4th 1672, attorney's duty to volunteer advice on adverse consequences
• Glade v. Superior Court (1978) 76 Cal.App.3d 738, disclosure in defense of malpractice action
• Carlson, Collins, Gordon & Bold v. Banducci (1967) 257 Cal.App.2d 212, disclosure in support of fee claim
• Brockway v. State Bar (1991) 53 Cal.3d 51, disclosure in defense of disciplinary proceeding
• Goodman v. Kennedy (1976) 18 Cal.3d 335, duty not to conceal material facts
• Hobart v. Hobart Estate Co. (1945) 26 Cal.2d 412, deceit by concealment
• People v. Johnson (1998) 62 Cal.App.4th 608, narrative testimony where withdrawal is not permitted
• Fletcher v. Davis (2004) 33 Cal.4th 61, charging lien definition

Other opinions and authorities cited:

• California State Bar Formal Opinion 1981-58
• California State Bar Formal Opinion 1983-74
• California State Bar Formal Opinion 1986-87
• California State Bar Formal Opinion 1988-96
• California State Bar Formal Opinion 1988-101 (interpleader for funds subject to third-party lien)
• California State Bar Formal Opinion 1995-139
• California State Bar Formal Opinion 1996-146 (lawyer may not disclose, but may not further, client's fraudulent conduct)
• Bar Association of San Francisco Legal Ethics Committee Opinion 1989-1 (successor attorney's duty to alert client to lien risk)

See also

• CA COPRAC Op. 2006-170: Charging lien in contingency fee agreement
• CA COPRAC Op. 2006-171: Fee dispute after trust account withdrawal
• CA COPRAC Op. 2005-169: Client trust account overdraft protection
• CA COPRAC Op. 2002-160: Missing client settlement authority and fees

Source

• Landing page: https://www.calbar.ca.gov/legal-professionals/ethics-compliance-practice-resources/ethics/ethics-opinions
• Original PDF: https://www.calbar.ca.gov/sites/default/files/portals/0/documents/ethics/Opinions/2008-175_05-0005_Final_Publication_Draft-PAW.pdf

Original opinion text

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

THE STATE BAR OF CALIFORNIA
STANDING COMMITTEE ON
PROFESSIONAL RESPONSIBILITY AND CONDUCT
FORMAL OPINION NO. 2008-175

ISSUES: What are a successor attorney's ethical obligations when her client in a contingency fee matter instructs her not to notify prior counsel, who has a valid lien against the recovery, of the fact or the amount of a settlement?

DIGEST:
1. When a client instructs successor counsel not to disclose a settlement to a prior counsel with a valid lien, successor counsel must advise the client of the adverse ramifications of concealing the settlement, including a potential claim by prior counsel against the client. Should the client persist, successor counsel must nevertheless disclose the settlement to prior counsel.

2. A lawyer may not reveal confidential client information except with the consent of the client or as authorized or required by the State Bar Act, the Rules of Professional Conduct, or other law. Disclosure is required by law to fulfill the attorney's fiduciary duties to prior counsel. Disclosure is also authorized by law to enable both attorneys to protect their right to recover fees.

3. While the successor attorney is both obligated and permitted to disclose the fact and the amount of the settlement to the prior attorney, successor counsel may not disclose anything more to the prior attorney, without the client's consent, including the client's demand that the fact and the amount of the settlement be concealed from the prior attorney.

4. Once prior counsel is notified, both attorneys must remain mindful of their duty of confidentiality to the client in attempting to reach an accord, amicably or through legal process, on the proper allocation of fees. Moreover, should the attorneys resort to legal process to resolve any dispute over allocation of the fee, successor counsel should provide the client with notice and an opportunity to participate. In any legal proceeding, the presiding officer will be in a position to limit the disclosure of confidential information appropriately.

AUTHORITIES INTERPRETED: Rules 3-100, 3-110, 3-500, 4-100, and 5-200 of the Rules of Professional Conduct of the State Bar of California. Business and Professions Code sections 6068, subdivisions (d), (e), and (m), 6106, and 6147.

STATEMENT OF FACTS

Client retains Attorney A to represent him in a legal malpractice claim against Former Attorney. A written fee agreement between Client and Attorney A states that Attorney A will be paid a contingency fee of 25% of Client's recovery against Former Attorney if settled before the filing of a complaint, and 1/3 of any recovery obtained after suit is filed. Attorney A's fee agreement complies in all respects with Business and Professions Code section 6147 and includes a valid and enforceable charging lien.

Attorney A undertakes an extensive review of the underlying matter in which Former Attorney represented Client. Upon completion of that review, Attorney A advises Client of problems with the case against Former Attorney, and asks Client to authorize him to settle for $150,000 before filing suit. Client, who believes his case against Former Attorney is worth at least $1 million, rejects Attorney A's advice, promptly terminates Attorney A, and demands the return of his file. Attorney A complies.

Thereafter, and unbeknownst to Attorney A, Client retains Attorney B to pursue the malpractice case against Former Attorney. Attorney B's fee agreement with Client also calls for Attorney B to receive 1/3 of any recovery after suit is filed and includes a valid charging lien. In the course of one of their early consultations, Client tells Attorney B about Attorney A's prior involvement in the matter.

After months of intensive litigation, Client settles his malpractice case against Former Attorney for $150,000. Attorney A is not aware that the legal malpractice case has been filed so he has not filed a notice of lien. On the defense side, no one is aware of Attorney A's lien as he was discharged prior to suit being filed. As a result, the settlement check is made payable solely to Client and Attorney B.

Having learned of the terms of the original fee agreement between Client and Attorney A, Attorney B presents Client with an accounting showing $100,000 payable to Client and $50,000 in attorney's fees to be divided between Attorney B and Attorney A.

Client endorses the $150,000 check for deposit into Attorney B's Client Trust Account ("CTA"), demands the immediate payment of the $100,000 due him, and signs the accounting after adding the following handwritten statement: "I authorize the payment of $50,000 in attorneys' fees to Attorney B. I prohibit payment of any fee to Attorney A, and I prohibit Attorney B to disclose the fact or the amount of the settlement to Attorney A."

The Committee has been asked to provide guidance to Attorney B on her ethical responsibilities in this situation.

DISCUSSION

1. Attorney B's Ethical Responsibilities to Client Regarding Disbursement of the Undisputed Funds Held in Attorney B's CTA

Pursuant to Rule of Professional Conduct 4-100(B)(4), an attorney must promptly pay, as requested by the client, any funds in the attorney's possession which the client is entitled to receive. Settlement funds in an attorney's CTA are funds in an attorney's possession.

Both Attorney A and Attorney B contracted to receive 1/3 of the recovery after suit was filed. As a result, the total due to both attorneys is limited to 1/3 of the recovery with the amount owing to Attorney A to be determined based upon a quantum meruit analysis. (Fracasse v. Brent (1972) 6 Cal.3d 785, 791 [100 Cal.Rptr. 385]; Spires v. American Bus Lines (1984) 158 Cal.App.3d 211, 215-216 [204 Cal.Rptr. 531]; Cazares v. Saenz (1989) 208 Cal.App.3d 279, 288-289 [256 Cal.Rptr. 209].) As there is no dispute as to Client's right to receive $100,000, representing 2/3 of the recovery, Attorney B is ethically obligated to release $100,000 to Client promptly.

The ethical dilemma concerns how Attorney B should handle the remaining $50,000 in her CTA. We begin by analyzing Attorney B's ethical obligations to Attorney A. We then examine Attorney B's ethical obligations to Client regarding those funds.

2. Attorney B's Ethical Responsibilities to Attorney A Regarding Disbursement of the Disputed Funds Held in Attorney B's CTA

In Johnstone v. State Bar (1966) 64 Cal.2d 153, 155-156 [49 Cal.Rptr. 97], the Supreme Court held:

"When an attorney receives money on behalf of a third party who is not his client, he nevertheless is a fiduciary as to such third party. Thus the funds in his possession are impressed with a trust, and his conversion of such funds is a breach of the trust."

Applying this principle, the Supreme Court disciplined a lawyer for failing to honor the lien of a workers' compensation carrier after settling a personal injury action, concluding that the attorney was guilty of commingling funds as well as dishonesty and moral turpitude in violation of Business and Professions Code section 6106. (Id. at p. 156.) It is also settled that an attorney who settles a personal injury action and holds funds in her or his CTA is under a fiduciary duty to the medical lienholders. (See, e.g., In the Matter of Nunez (Review Dept. 1992) 2 Cal. State Bar Ct. Rptr. 196, 200.)

Although rule 4-100(B)(4) speaks only in terms of the duty to promptly pay or deliver funds held in trust to the client, the Supreme Court and State Bar Court have both repeatedly confirmed that the rule applies to third parties, such as lienholders, as well as to clients. (See, Guzzetta v. State Bar (1987) 43 Cal.3d 962, 979 [239 Cal.Rptr. 675]; In the Matter of Mapps (Review Dept. 1990) 1 Cal. State Bar Ct. Rptr. 1, 10; Baca v. State Bar (1990) 52 Cal.3d 294, 299 (fn. 3) [276 Cal.Rptr. 169]; In the Matter of Respondent F (Review Dept. 1992) 2 Cal. State Bar Ct. Rptr. 17, 19; and In the Matter of Respondent P (Review Dept. 1993) 2 Cal. State Bar Ct. Rptr. 622, 633.)

In California State Bar Formal Opinion No. 1988-101, this Committee addressed the ethical issue posed when a client instructs an attorney not to disburse funds to satisfy a health care provider's lien, but instead to disburse the funds to the client. In that opinion, the Committee cited the comment to ABA Model Rule 1.15 to the effect that a lawyer may have a duty under applicable law to protect third-party claims against funds in the attorney's possession from "wrongful interference by the client" and that lawyer's duties with respect to trust funds held in the lawyer's possession "go beyond those limited solely to the client." The Committee then concluded that this commentary was "consistent with California law" that an attorney who holds funds on behalf of a non-client third party "is a fiduciary as to that party and is governed by the California Rules of Professional Conduct, even when not acting as an attorney per se in the transaction." (Citations omitted.) In that regard, the Committee specifically noted that without the consent of both parties who had an interest in the funds (the client and the medical lienholder), the attorney was not authorized to hold the funds in his or her client trust account. The Committee therefore opined that the safest course was for the attorney to interplead the funds so that ownership could be determined by a court.

Consistently, the State Bar Court Review Department ("Review Department") has stated that in order to meet the fiduciary duty owed to a third party for whom the lawyer holds funds in trust, the attorney has a duty to communicate with the lienholder as to the subject of the fiduciary obligation. (In the Matter of Nunez (Review Dept. 1992) 2 Cal. State Bar Ct. Rptr. 196, 200-201.) (See also Bus. &. Prof. Code § 6068, subd.(m) and rule 3-500.)

Additionally, in In Matter of Riley (Review Dept. 1994) 3 Cal. State Bar Ct. Rptr. 91, 111-115, the Review Department found that: (a) an attorney's duty to the lienholder is not limited to withholding funds for the benefit of the lienholder, but also includes a duty to notify the lienholder if a judgment, award or settlement is pending; (b) failure to pay a third-party lien promptly, without justification, constitutes a violation of rule 4-100(B)(4); (c) where a dispute over a lien cannot be resolved through negotiations, the attorney must either pay the lien in full or take appropriate steps to resolve the dispute promptly, leaving the disputed funds in trust during the pendency of the dispute; and (d) a client's wrongful act, in that case deception, does not justify a failure to promptly resolve a lienholder's claim.

In Virtanen v. O'Connell (2006) 140 Cal.App.4th 688 [44 Cal.Rptr.3d 702], the court of appeal addressed a conflict arising from an attorney's duty to a client, on the one hand, and to a client's adversary, on the other hand, when the attorney took on the fiduciary obligations of an escrow holder to both parties.

"The fact that [the attorney] owed duties to his clients does not excuse him for violating his duty to [the third party] . . . [I]f [the attorney] believed that no joint resolution of the conflicting demands was forthcoming, he could have filed an interpleader action. He had a statutorily sanctioned method for dealing with conflicting demands, even when one of those demands came from his own clients. He just chose not to take advantage of that method." (Id. at pp. 701-702.)

The attorney in Virtanen also claimed that he should not be held liable for breach of his duty to the third party for whom he held funds in trust because he could not defend against the third party's claim without breaching his duty not to reveal confidential communications with his client. The Virtanen court rejected that argument, noting that no disclosure of confidential information was necessary for the attorney to address whether he (a) owed a fiduciary duty to the third party with regard to property held in trust, and (b) breached that duty. (Id. at p. 702.)

A valid attorney's charging lien in a contingency fee case survives discharge of the lawyer by the client, to the extent of the reasonable value of services rendered prior to discharge. (Weiss v. Marcus (1975) 51 Cal.App.3d 590, 598 [124 Cal.Rptr. 297].) Thus, a discharged attorney who obtains a lien in a contingency fee case may maintain claims for money had and received, conversion, constructive trust, and intentional interference with a contractual relationship against the client's successor attorney who fails to honor the charging lien. (Id.)

We also note that it is the duty of an attorney to employ, for those matters confided to him or her, those "means only as are consistent with truth." (Bus. & Prof. Code, § 6068, subd. (d); rule 5-200(A).) Thus, an attorney in a fiduciary or confidential relationship with a third party not only must refrain from affirmative misrepresentations, but also has a duty not to conceal material facts. (Civ. Code § 1710, subd. (3); Goodman v. Kennedy (1976) 18 Cal.3d 335, 346-347 [134 Cal.Rptr. 375]; Hobart v. Hobart Estate Co. (1945) 26 Cal.2d 412 [159 P.2d 958].)

3. Attorney B's Ethical Responsibilities to Client Regarding the Disputed Funds

A. Duty to Advise Client of Reasonably Foreseeable Adverse Consequences of Concealing the Settlement from Attorney A

In the Matter of Riley, supra, the Review Department held that an attorney who fails to ensure the payment of medical liens breaches ethical duties owed to the lienholders. In that decision, the Review Department also held that the attorney breaches an ethical duty to the client to perform services competently (rule 3-110) by exposing the client to the lienholder's collection efforts. Similarly, in Opinion 1989-1 of the Legal Ethics Committee of the Bar Association of San Francisco, that Committee concluded (citing Weiss v. Marcus, supra) that a successor attorney should alert the client to the risk of being sued by a discharged attorney should the discharged attorney's lien not be satisfied. (Id. at p.2.)

In Nichols v. Keller (1993) 15 Cal.App.4th 1672, 1683-1684 [19 Cal.Rptr.2d 601], the court stated:

"One of an attorney's basic functions is to advise . . . Not only should an attorney furnish advice when requested, but he or she should also volunteer opinions when necessary to further the client's objectives. The attorney need not advise and caution of every possible alternative, but only of those that may result in adverse consequences if not considered."

The holding in Nichols is consistent with the attorney's ethical duty to keep a client reasonably informed about significant developments relating to the representation. (Bus. & Prof. Code, § 6068, subd. (m); rule 3-500.) Based on these authorities, as well as the authorities discussed with respect to Issue No. 2 above, we conclude that Attorney B has a duty to inform Client of the risks to Client inherent in the Client's demand to conceal the settlement from Attorney A.

Attorney B should therefore attempt to persuade Client to permit disclosure, explaining the applicable legal and ethical principles, the policies underlying those principles, and the potential adverse ramifications to Client and Attorney B of pursuing the proposed course of conduct. In most cases, a client will heed the attorney's advice and grant permission for the settlement to be disclosed to the discharged attorney, thus resolving the matter. We next examine the ethical considerations at play in the situation where Client, having received Attorney B's advice, nevertheless persists in his demand that Attorney B conceal the settlement from Attorney A.

B. Attorney B's Duty to Maintain Client Secrets and Confidences

Pursuant to Business and Professions Code section 6068, subdivision (e)(1), attorneys have a duty "To maintain inviolate the confidence, and at every peril to himself or herself to preserve the secrets, of his or her client." The statutory duty of attorneys to preserve client secrets was first codified in California in 1872, and was not qualified by a statutory exception until 2004, when the Legislature carved out an exception permitting disclosure when an attorney reasonably believes disclosure is necessary to prevent a crime the attorney reasonably believes is likely to result in death or serious bodily harm. (Bus. & Prof. Code, § 6068, subd. (e)(2); see also rule 3-100.)

In 2004, the California Supreme Court approved the following language limiting the attorney's ethical duty of confidentiality by approving paragraph [2] of the Discussion of newly adopted rule 3-100: "[A] member may not reveal . . . [confidential] information except with the consent of the client or as authorized or required by the State Bar Act, these rules, or other law." (Emphasis added.)

Although recent, rule 3-100's Discussion paragraph [2] is hardly novel. It has long been recognized that attorneys are authorized by law (specifically, decisional law) to disclose confidential information in aid of their defense to a client malpractice action (e.g., Glade v. Superior Court (1978) 76 Cal.App.3d 738, 746-747 [143 Cal.Rptr. 119]), in support of a claim for unpaid legal fees against a client (e.g., Carlson, Collins, Gordon & Bold v. Banducci (1967) 257 Cal.App.2d 212, 227-228 [64 Cal.Rptr. 915]), and in defense of a client-initiated disciplinary proceeding (e.g., Brockway v. State Bar (1991) 53 Cal.3d 51, 63-64 [278 Cal.Rptr. 836]).

4. Is Disclosure of the Receipt of Settlement Proceeds to Attorney A, Who Has A Valid Lien Against Those Proceeds, Authorized or Required by the State Bar Act, the Rules of Professional Conduct or Other Law?

Based upon the authorities cited in our discussion of Issue No. 2 above, we conclude that disclosure to Attorney A of the fact and amount of the settlement between Client and Former Attorney is both authorized and required under applicable ethical rules and case law.

First, Attorney B is required by law to take affirmative steps to permit Attorney A to assert any claims he has pursuant to his valid lien against the $50,000 attorney's fee recovery. In this regard, Attorney B is required by law to disclose the fact and the amount of the settlement to Attorney A because, as a fiduciary to Attorney A, Attorney B has an affirmative duty to notify the lienholder of the settlement (In the Matter of Riley, supra, 3 Cal. State Bar Ct. Rptr. at pp. 111-115; In the Matter of Nunez, supra, 2 Cal. State Bar Ct. Rptr. at pp. 200-201) as well as an affirmative duty not to conceal material facts from Attorney A (Bus. & Prof. Code, § 6068, subd. (d); Civ. Code, § 1710, subd. 3; rule 5-200(A); Johnstone v. State Bar, supra, 64 Cal. 2d at pp. 155-156; Goodman v. Kennedy, supra, 18 Cal. 3d at pp. 346-347).

Second, disclosure of the fact and amount of settlement to Attorney A is authorized by law. Attorney B cannot unilaterally decide what portion of the $50,000 total fee can be disbursed from trust to pay her own fee. Thus, without disclosure to Attorney A, Attorney B has no basis upon which to calculate and to remove from trust the portion of the fee she earned, leaving both attorneys uncompensated. In that regard, we note that under California law attorneys are expressly released from the duty to maintain client secrets in order to obtain compensation for services rendered. (See, e.g., Carlson, Collins, Gordon & Bold v. Banducci, supra, 257 Cal.App.2d at pp. 227-228.)

While Attorney B is both authorized and required to disclose the fact and the amount of the settlement, there is no justification for her to disclose to Attorney A, without Client's consent, privileged confidential information such as the Client's demand that the fact and the amount of the settlement be concealed from Attorney A. Thus, Attorney B must keep that statement confidential even though it could potentially work to Attorney B's advantage in negotiating with Attorney A over his quantum meruit claim.

Once Attorney A has been notified of the settlement, both attorneys must remain mindful of their duty of confidentiality to Client in attempting to reach an accord, amicably or through legal process, on the proper allocation of fees. Moreover, should the attorneys resort to legal process to resolve any dispute over allocation of the fee, Attorney B should provide Client with notice and an opportunity to participate should Client so desire. In any legal proceeding, the presiding officer will be in a position to limit the disclosure of confidential information to the greatest extent possible.

In reaching our conclusion we have undertaken a thorough review of the Committee's prior ethics opinions. Those opinions support our conclusion here as they adopt approaches designed to ensure the attorney is not pressured by a client to engage in conduct that violates the State Bar Act, the rules, or other law in order to preserve client confidential information. (See, e.g., Cal. State Bar Formal Opn. No. 1981-58; Cal. State Bar Formal Opn. No. 1983-74; Cal. State Bar Formal Opn. No. 1986-87; Cal. State Bar Formal Opn. No. 1988-96; Cal. State Bar Formal Opn. No. 1995-139.)

Finally, and of particular significance here, we note that in California State Bar Formal Opinion No. 1996-146, the Committee stated that: (1) a lawyer may not disclose a client's fraudulent conduct; but (2) the lawyer also may not participate in or further such conduct, citing Business and Professions Code section 6068, subdivision (d). (See also rule 5-200(D).) The Committee further found that when a client is engaging in an ongoing fraud, the attorney "must be careful to avoid furthering the fraud in any way." Finally, the Committee concluded that where the fraud persists, the attorney must either limit the scope of the representation to matters that do not involve participation in or furthering of the fraud, or withdraw.

Of course, in our hypothetical, unlike the hypotheticals in most of the Committee's earlier opinions, withdrawal does not prevent Attorney B from participating in or furthering the client's fraud as: (1) there is no representation from which to withdraw as Attorney B has completed her handling of Client's case; and (2) even though Attorney B is no longer attorney of record for Client, she continues to further the fraud by holding attorneys' fees subject to Attorney A's lien in her client trust account without so advising Attorney A or providing him with an accounting.

Applying these authorities to the facts of our hypothetical, it follows that Attorney B had both a legal and an ethical duty to notify Attorney A of the pendency of the lawsuit against Former Attorney once it was filed and now has both a legal and an ethical duty to notify Attorney A of the receipt of funds subject to Attorney A's valid lien so that he may assert his rights to the funds Attorney B is holding in trust for his benefit.

While Attorney B must account to Attorney A for the funds held in trust, she may not disclose to Attorney A, Client's confidential communications regarding Client's desire to conceal all information about the settlement. (Cal. State Bar Formal Opn. No. 1996-146.)

CONCLUSION

A lawyer may not reveal client confidential information except with the consent of the client or as authorized or required by the State Bar Act, the rules, or other law.

An attorney cannot follow a client's direction not to pay a lienholder from settlement proceeds because to do so would be a breach of the attorney's fiduciary duty to the lienholder. The fact that the client directs the attorney not to tell the lienholder about the settlement does not change the result. The attorney is ethically prohibited from concealing from the lienholder funds she holds in trust. The attorney has a duty to render an accounting to the lienholder.

We conclude that disclosure of the fact and amount of the settlement to Attorney A is required by law. More specifically, Attorney B cannot conceal the settlement from Attorney A because in doing so she would be in breach of her own independent ethical duties: (1) not to conceal material information she has a duty to disclose as a fiduciary to Attorney A; (2) to render an accounting disclosing the fact and the amount of the settlement to Attorney A, in his capacity as a lienholder; (3) to pay Attorney A's lien or to take appropriate steps to resolve any dispute over Attorney A's lien promptly so long as the disputed fees remain in her client trust account. (See Bus. & Prof. Code, §§ 6068, subd. (d), 6106, rules 4-100 and 5-200, and other law, including the case law and Review Department authorities cited above.)

We also conclude that disclosure is authorized by law because Attorney B cannot unilaterally determine what portion of the $50,000 held in trust belongs to Attorney A and what portion belongs to her, and thus disclosure of the settlement represents the only way that Attorney A and Attorney B can protect their respective rights to recover unpaid fees.

Finally, Attorney B cannot disclose the privileged confidential information disclosed to her by Client to the effect that Client sought to defraud Attorney A by concealing the settlement from him

This opinion is issued by the Standing Committee on Professional Responsibility and Conduct of the State Bar of California. It is advisory only. It is not binding upon the courts, the State Bar of California, its Board of Governors, any persons, or tribunals charged with regulatory responsibilities, or any member of the State Bar.