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California Asserts State’s Rights in an Unusual Place: The Ethic Rules

July 23, 2018 Gregory J. Brandes

New Rule Gives Attorneys Room to Maneuver on Marijuana-Related Practice

 

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When we think of state’s rights, it is usually in connection with big constitutional issues, like abortion rights and gun control. But California’s recent revisions to its rules of ethics grappled with an issue faced by an increasing number of states: balancing state de-criminalization of marijuana with the duty of attorneys not to help clients violate the law – any law.

California adopted new Rules of Professional Conduct, effective November 1, 2018. These were the product of an intense, 2-year re-drafting effort, led by the State Bar of California, at the direction of the Supreme Court of California to take an updated and comprehensive look at the public protection afforded by the Rules.

As the rules revision was underway, following the trend of other states, California decided to permit personal possession of limited amounts of marijuana and permit and regulate commercial growing, processing, distribution, and marketing of marijuana and its derivative products. Prop 64, approved by California voters in 2016, took effect January 1, 2018.

The federal Controlled Substances Act of 1970, however, still criminalizes most activities related to marijuana. It is listed on Schedule 1, right alongside heroin and ecstasy, as a drug with “high abuse potential with no accepted medical use.”1 So, when a lawyer acts to aid a client in matters related to growing, processing, distributing or retailing marijuana (and related products containing the active substance in marijuana — THC), the lawyer is violating federal law even if state law now allows the activity. Until recently, those in the marijuana industry relied on the so-called Cole memorandum, issued August 29, 2013 by United States Deputy Attorney General James M. Cole, during the Obama administration, which suspended federal prosecution actions for marijuana-related violations in those states which had legalized it.2 The Justice Department issued a direct rescission of the Cole memorandum on January 4, 2018.3 It is now up to local federal prosecutors to decide where and when to commit federal resources to prosecuting federal crimes, including the Controlled Substances Act and the various money laundering and other financial crimes laws related to the illegal drug industry.

It’s nothing new for lawyers to advise clients on the validity of the law and the consequences of violation. In addition, the knowledge or strong suspicion that clients are engaged in illegal activity does not render a lawyer in violation of the ethics rules or incapable of continuing representation, except in certain situations. That knowledge is, in fact, protected as a client confidence and cannot be disclosed (again, except in certain circumstances.) The lawyer does not commit an ethical violation by possessing the knowledge, or rendering advice, so long as that advice is limited to analyzing the validity of a law and explaining the legal consequences of breaking it. But the lawyer must not help the client break the law.

That standard remains for most situations, but revised Rule 1.2.1 adds a new twist that directly addresses the situation of a lawyer representing clients involved with activity that is legal under state law and illegal under federal law (without mentioning the marijuana industry.) The rule begins, in paragraph (a) with the standard described above, and then goes on:

Rule 1.2.1 Advising or Assisting the Violation of Law
(a) A lawyer shall not counsel a client to engage, or assist a client in conduct that the lawyer knows is criminal, fraudulent, or a violation of any law, rule, or ruling of a tribunal.
(b) Notwithstanding paragraph (a), a lawyer may:
(1) discuss the legal consequences of any proposed course of conduct with a client; and
(2) counsel or assist a client to make a good faith effort to determine the validity, scope, meaning, or application of a law, rule, or ruling of a tribunal.

 
All well and good, but the Comments reveal the intent of this “notwithstanding” section as now written:

[6] Paragraph (b) permits a lawyer to advise a client regarding the validity, scope, and meaning of California laws that might conflict with federal or tribal law, and, despite such a conflict, to assist a client in conduct that the lawyer reasonably believes is permitted by California statutes, regulations, orders, and other state or local provisions implementing those laws. If California law conflicts with federal or tribal law, the lawyer should also advise the client regarding related federal or tribal law and policy. (Emphasis added.)

 
The key word here is “assist.” Lawyers advising those in the marijuana industry could always tell clients about both federal and state law, noting conflicts between the two and the consequences of a violation. But now – without committing an ethical violation – California lawyers can “assist” a client in accomplishing activities which violate federal law. Lawyers in California may set up businesses, facilitate transactions, write contracts, and engage in other activities they know to violate federal law because of their connection to marijuana, if they reasonably believe that the activity is legal under state law, without incurring the wrath of the disciplinary authorities. That’s a big change.

Of course, ethics rule changes can only shield lawyers from discipline, not from prosecution. If a lawyer’s activities directly violate bank secrecy or money laundering laws, for example – easy to do, as these were broadly written to make it easy to conduct the “war on drugs” – then the lawyer is subject to direct federal prosecution. Conspiracy and accomplice liability, among other vicarious liability theories, might also apply.

Further, the new rule poses some interesting puzzles. For example, is the lawyer protected for any activity related to marijuana simply because state law now allows its possession? What about areas of law where the state law has not yet specifically addressed the legality of an action? Can a lawyer, for example, prepare a trust document where she knows that the property that will be placed in the trust (the “res”) is money derived from marijuana operations that are legal in California, but remain illegal federally?

Assuming federal law decriminalizing marijuana is unlikely soon, the states will continue to struggle with accommodating state-mandated legalization to federal limits. Rule 1.2.1 is an important, but limited, step for lawyers, because it takes one aspect – ethics violation – off the table.

The new California Rules of Professional Conduct, taking effect in November, 2018, can be found at: https://assets.documentcloud.org/documents/4457946/Rules-of-Professional-Conduct.pdf

Rule 1.2.1, with its explanatory Comments, can be found at: http://www.calbar.ca.gov/portals/0/documents/rules/rrc2014/final_rules/rrc2-1.2.1_[3-210]-all.pdf


Greg BrandesGregory J. Brandes is a law professor and Dean of St. Francis School of Law. He is an expert on legal education and admission to the bar and is admitted to the bars of the United States Supreme Court, Colorado, and Illinois.