When Professional Misconduct = Unfair Trade Practices

The California Court of Appeals recently concluded that an attorney’s professional malpractice and ethical violations may give rise to liability for unfair trade practices.  In the underlying dispute, attorney Martin Guajardo, the sole shareholder in his own law firm, sold his practice because he faced disciplinary action brought by the state bar.  Although Attorney Guajardo ultimately resigned from the bar, he continued to practice law following the sale of his firm.  The People of the State of California filed a complaint against Guajardo, and the new firm, alleging unlawful, unfair, and deceptive business practices based upon Guajardo’s unauthorized practice of law.  On appeal, the court concluded that Guajardo’s ethical violations also supported a claim under the state’s unfair trade practices act.

According to the complaint, Guajardo continued to practice law after his resignation from the bar and led his former clients to believe that he maintained control over their cases. The plaintiffs sought to enjoin Guajardo and the firm from continuing to engage in fraudulent conduct.  The plaintiffs also demanded that the new firm notify all of its clients that Guajardo was no longer licensed to practice law in California.  

The court granted the injunction because it determined that the plaintiffs were likely to prove that Guajardo and the new firm engaged in unlawful and unfair business practices. The court relied upon the defendants’ multiple violations of the California Rules of Professional Conduct to support its conclusion.  

The case is a good teaching tool for professionals in all jurisdictions.  A violation of the rules of professional conduct may be used as evidence to support civil remedies (i.e. breach of fiduciary duty, professional negligence and other torts) in addition to disciplinary action. Professionals must remember that they provide business services.  Avoid the mistakes that former attorney Guajardo made; mistakes that cost him his privilege to practice law and, to add insult to injury, civil exposure as well.