LK Operating, LLC v. Collection Group, LLC

*96¶102 (dissenting) — The majority holds that contract rescission was a proper remedy for an attorney’s violation of the Rules of Professional Conduct (RPC). These rules, however, were never intended to serve as the basis for civil law actions or remedies. Because using the RPCs in this manner is contrary to both their scope section and this court’s decision in Hizey,22 I dissent.

Madsen, C.J.

¶103 Paragraph 20 to the RPCs’ scope section reads:

Violation of a Rule should not itself give rise to a cause of action against a lawyer nor should it create any presumption in such a case that a legal duty has been breached. . . . The Rules are designed to provide guidance to lawyers and to provide a structure for regulating conduct through disciplinary agencies. They are not designed to be a basis for civil liability. Furthermore, the purpose of the Rules can be subverted when they are invoked by opposing parties as procedural weapons.

¶104 Strong policy justifications support the scope section’s preference for separating the law of ethics codes from other civil law decisions. See Stephen E. Kalish, How To Encourage Lawyers To Be Ethical: Do Not Use the Ethics Codes as a Basis for Regular Law Decisions, 13 Geo. J. Legal Ethics 649 (2000). In Hizey, 119 Wn.2d at 263, this court expressed a concern that if ethics violations may result in civil actions, attorneys will likely overemphasize their clients’ interests in order to protect themselves from judgments against them. This would result in attorneys focusing on the interests of their clients to the detriment of others, including the general public. Hizey involved a legal malpractice action against an attorney who allegedly had an impermissible conflict of interest in a real estate transaction. The court held that in legal malpractice actions, expert witnesses may neither explicitly refer to the CPR (Code of Professional Responsibility) or the RPCs, nor may their existence be revealed to the jury via instructions. Id. at 254.

*97¶105 Based on the scope section of the RPCs, most courts considering this issue have held that violations of the CPR or RPCs do not give rise to an independent cause of action against the attorney. Id. at 258-59. The Hizey court noted that

[t]he result of such holdings, with which we concur, has been that breach of an ethics rule provides only a public, e.g., disciplinary, remedy and not a private remedy. Because the CPR and RPC explicitly, and in what we deem to be clear and unambiguous language, disclaim any intent to create civil liability standards, we refuse to hold their violation creates a cause of action for malpractice.

Id. at 259 (citations omitted).

¶106 In addition to the admonition of the scope section to the RPCs, the Hizey court also noted public policy grounds for separating disciplinary actions from civil actions. The CPR and RPCs are not statutes or administrative regulations. They were adopted by this court, rather than the legislature, pursuant to our power to regulate the practice of law. Id. at 261. The Supreme Court has the inherent power and sole jurisdiction to regulate the practice of law. Id. (citing Graham v. State Bar Ass’n, 86 Wn.2d 624, 631, 548 P.2d 310 (1976)).

f 107 Furthermore, the CPR and RPCs often contain only vague guidelines since they were never intended to be the basis for civil liability. Id. There are differences between a civil action and disciplinary action, which advise against the use of the RPCs in this manner. For example, lawyers can be disciplined even if they do not cause damage. Id. at 262 (quoting 1 Ronald E. Mallen & Jeffrey M. Smith, Legal Malpractice § 1.9, at 33 (3d ed. 1989)). Moreover, the use of the rules in civil actions throws off the balance they intend to create and instead misaligns lawyer incentives. Using the RPCs as the basis for civil liability overemphasizes the attorney/client relationship over other important responsibilities such as those to the legal system at large. Id. at 263 (quoting Jean E. Faure & R. Keith Strong, The Model Rules *98of Professional Conduct: No Standard for Malpractice, 47 Mont. L. Rev. 363, 375 (1986)). Finally, plaintiffs already have other available theories under which to bring malpractice actions. Id. at 263-64 (collecting cases).

¶108 The Hizey court held that experts and judges could rely on the CPR and RPCs but could not specifically refer to them. Id. at 265. The court “realize [d] courts have relied on the CPR and RPC for reasons other than to find malpractice liability and our holding today does not alter or affect such use.” Id. at 264. Although Hizey did not definitively foreclose future courts from using the RPCs as the basis for civil actions, it does indicate this court’s desire to keep separate disciplinary and civil actions rather than follow the Restatement’s approach, which conflates the two. See Kalish, supra, at 662; Restatement (Third) of the Law Governing Lawyers (Am. Law Inst., Proposed Final Draft No. 2 1998).

¶109 One of the principal cases cited by The Collection Group LLC (TCG) to justify rescission is In re Corporate Dissolution of Ocean Shores Park, Inc., 132 Wn. App. 903, 134 P.3d 1188 (2006). The majority in this case, however, declines to meaningfully address either Ocean Shores or Hizey. Whether the RPCs can justify rescission of a third party contract is an issue of first impression for this court. The majority has missed an opportunity to thoughtfully consider this issue.

¶110 In Ocean Shores, a couple deeded real property to a corporation. When issuing shares, the attorney deeded some shares to himself and his wife. He later died, and his clients sued his widow to void the land transfer and dissolve the corporation. The Court of Appeals held that the issuance of shares was void as against public policy if the attorney violated the RPCs by failing to give adequate advice and consideration. The case was remanded for a determination of whether the attorney could produce evidence to avoid summary judgment in favor of the clients. Id. at 906.

*99¶111 The Court of Appeals held that agreements violating the RPCs are contrary to public policy. Id. at 910 (citing Danzig v. Danzig, 79 Wn. App. 612, 617, 904 P.2d 312 (1995)). “Courts generally do not enforce contracts that are contrary to public policy.” Id. (citing Danzig, 79 Wn. App. at 616). Ocean Shores appears to stand for the proposition that transactions that occur in violation of the RPCs are generally void as against public policy and may be rescinded even to the detriment of innocent third parties. Ocean Shores, however, relies heavily on Danzig, which indicated reluctance to use rescission as a remedy to an RPC violation when it would deprive a third party of the benefit of his bargain.

¶112 In Danzig, a lay “runner” who solicited clients for an attorney filed a breach of contract claim against the attorney for failing to pay him. The trial court dismissed his contract claim but ordered the attorney to pay $89,000 into the court’s registry pending investigation of the propriety of the fee. The Court of Appeals reversed the trial court’s dismissal of the contract claim and reversed the order to pay money into the court registry. Danzig, 79 Wn. App. at 615. The Court held that the contract was not void as against public policy under the specific facts of the case. Id. at 618-19.

¶113 As the Danzig court observed,

“[A] superior court lacks authority to conduct disciplinary proceedings. It has, of course, the authority and duty to see to the ethical conduct of attorneys in proceedings before it. Upon proper grounds, it can disqualify an attorney. It has the power to punish for contempt. But as to matters which do not affect those proceedings, the disciplinary power rests exclusively in [the Supreme Court].”

*100Id. at 620 (first alteration in original) (quoting Hahn v. Boeing Co., 95 Wn.2d 28, 34, 621 P.2d 1263 (1980)).23

¶114 The court’s decision to reverse the $89,000 payment rested, in part, on the fact that the trial court was not attempting to fashion a proper remedy or policing the conduct of an attorney in an action before it. Instead, the court was attempting to discipline the attorney for his conduct. “The superior court did not have authority to do so; that power rests exclusively with the supreme court. Thus, the superior court did not have cognizance of this type of case.” Id. at 621.

f 115 In my view, Ocean Shores stretched Danzig too far, improperly stepping back from this court’s decision in Hizey, which intended to keep separate the law of ethics codes from civil law actions.

¶116 In this case, the majority affirms rescission as the proper remedy for Leslie Powers’ former RPC 1.8 (2000) violation. Due in part to LK Operating’s (LKO) investment funding and arrangement of legal services, TCG’s value increased from the original cash investment to approximately $1.5 million. “Under the principle of freedom to contract, parties are free to enter into, and courts are generally willing to enforce, contracts that do not contravene public policy.” Keystone Land & Dev. Co. v. Xerox Corp., 152 Wn.2d 171, 176, 94 P.3d 945 (2004). “ Tn general, a contract which is not prohibited by statute, condemned by judicial decision, or contrary to the public morals contravenes no principle of public policy.’ ” State Farm Gen. Ins. Co. v. Emerson, 102 Wn.2d 477, 481, 687 P.2d 1139 (1984) (quoting 17 C.J.S. Contracts § 211, at 1024 (1963)). Rescission improperly prevents LKO from realizing the benefit of its bargain. The lawful contract between LKO and TCG *101should not have been invalidated based on a third party-attorney’s purported violation of the RPCs. There is no basis in the law for such a remedy.

1117 In blurring the lines between this court’s disciplinary authority and trial courts’ civil decision-making, the majority undoubtedly creates confusion for both judges and practitioners. The majority’s complicated analysis of the purported RPC violations spans many pages, yet it is unclear whether such decisions will be left to judges or juries. It is unreasonable to expect a jury to perform such an analysis, especially in light of Hizey’s directive that juries be shielded from the particulars of the RPCs. It is equally untenable to expect a trial judge to determine if an RPC violation has occurred when such disciplinary discretion is vested solely in this court. The unfortunate effect of the majority is to leave more questions unanswered than resolved.

Conclusion

1118 This court’s decision in Hizey as well as the scope section to the RPCs provide strong policy reasons to separate the law of ethics codes from civil actions. Although the majority relies on public policy grounds to justify rescission, the public policy in this case favors maintaining the separation between attorney discipline and civil actions. Because rescission is an improper remedy for Powers’ purported RPC violation, I dissent.

Hizey v. Carpenter, 119 Wn.2d 251, 830 P.2d 646 (1992).

While Eriks v. Denver, 118 Wn.2d 451, 462, 824 P.2d 1207 (1992), allows trial courts to disgorge fees from attorneys who have violated the RPCs, Danzig plainly rejects trial court actions that are disciplinary in nature. Danzig, 79 Wn. App. at 620-21.