Gregory J. Ryan and Timothy Nolen of Tesser, Ryan & Rochman, LLP, New York, NY write……
The expansion of the legalization of cannabis, both for medical and recreational use, has created an emerging industry. By 2020, experts predict legal market sales to exceed $20 billion. Although several states have fully legalized marijuana for recreational and medical use, the issue of legalization for recreational use will appear on referendums this fall in five states, including most notably California, while additional states are considering authorizing its use for medical reasons, marijuana remains an illegal Schedule I drug under Federal law.
This has resulted in a problematic situation where legitimate businesses acting in accordance with state law are encountering difficulty in obtaining financing and other services routinely available to other businesses because of this cloud of Federal criminality. Entrepreneurs and owners of businesses sanctioned by state law face the threat of Federal sanctions, including criminal prosecution; insurance companies, tax advisors, and banks are uncertain how to service these businesses. Legal professionals also face the uncertainty of possible professional ethical violations that may result from assisting client in a business of ambiguous legality.
An August 5, 2016 opinion from the Ohio Board of Professional Conduct hi-lights this dilemma and controversy. The Ohio BPC decision reopened the debate surrounding the ethical implications for attorneys who assist a client in opening and operating a medical marijuana business. The opinion—which concluded that an attorney could not ethically assist a client in operating a state-approved marijuana business—highlighted a split in jurisdictions about the role of attorneys in the cannabis industry, the ethics of advising state sanctioned marijuana businesses, and even the meaning of the term “criminal” in the Rules of Professional Conduct.
For legal professionals, one of the seemingly “obvious” ethical prohibitions is found in ABA Model Rule of Professional Conduct 1.2(d): “[a] lawyer shall not counsel a client to engage, or assist a client, in conduct that the lawyer knows is criminal or fraudulent…” (Emphasis added). Some jurisdictions, such as New York State, have prohibited attorneys from assisting clients in “illegal” (rather than “criminal”) conduct, an apparently even broader prohibition.[2] In practice, though, defining the scope of Rule 1.2(d) can be difficult, and raises unique problems. For example, what constitutes “assistance” or “knowledge?”[3]
But the enactment of laws authorizing the use of medicinal or recreational marijuana has created another Rule 1.2 dilemma: does an attorney violate ABA Rule 1.2(d) by assisting a client in conduct expressly permitted by state law but prohibited by federal criminal law? Several bar associations have addressed this very question, coming to conflicting conclusions. Attorneys in jurisdictions which have not addressed this question must proceed with the utmost caution (or request advisory rulings in advance), as it is difficult to predict how any jurisdiction will handle the interplay between Rule 1.2(d) and state laws authorizing the use or sale of marijuana.
Jurisdictions Holding that Rule 1.2(d) Prohibits Attorneys from
Assisting Clients in the Operation of Marijuana Enterprises
Before reviewing jurisdiction-specific findings, it is worth observing that there is a general pattern in the opinions which have found that ABA Rule 1.2 prohibits an attorney from assisting a client in state-approved marijuana distribution activities. Generally, the states break down the issue into two questions:
[1] May an attorney advise a client about what the state law provides (e.g., its filing or licensing requirements) and explain the likely legal ramifications of the client’s distribution of marijuana?
[2] May an attorney provide legal assistance to the client in the distribution of marijuana (e.g., through negotiating or drafting sale contracts, storage and facility lease agreements, financing, etc.)?
The states approach the first question in almost the exact same fashion. Relying on state-specific commentary similar or identical to ABA Model Rule 1.2 Comment [9], states have generally reasoned that it is permissible for an attorney to explain the state law to clients, including the requirements for compliance with the state law, and the likelihood of federal action against them. See, e.g., Ill. Op. No. 14-07 (2014) (an attorney may provide “strictly advisory” services to the client). This is because, as Comment [9] explains, Rule 1.2 “does not preclude [a] lawyer from giving an honest opinion about the actual consequences that appear likely to result from a client’s conduct.”
Concerning the second question, the states which prohibit an attorney from “assisting” a client’s distribution of marijuana—even when compliant with state law—have generally taken a textual approach to analyzing Rule 1.2. In other words, they have reasoned that because the Federal government makes distribution of marijuana “criminal,” and Rule 1.2 prohibits attorneys from assisting clients in “criminal” conduct (without distinguishing between state and Federal law or enforced and unenforced laws), the Rule prohibits an attorney from assisting in the distribution of marijuana even if it is permitted by the state.
The first jurisdiction to consider this question was the state of Maine. In a July 7, 2010 opinion, the Maine Board of Overseers of the Bar Professional Ethics Commission observed that Federal law made it a crime to distribute marijuana, but that the United States Attorney General’s Office had issued a memorandum in 2009 directing United States Attorneys that prosecutorial “priorities should not focus resources… on individuals whose actions are in clear and unambiguous compliance with existing state laws providing for the medical use of marijuana.” See Maine Op. No. 199 (2010). However, “the Federal law against the distribution of marijuana is still in effect.”
The Board of Overseers framed the issue as follows: “whether and how an attorney might act in regards to a client whose intention is to engage in conduct which is permitted by state law and which might not, currently, be prosecuted under federal law, but which nonetheless is a federal crime.” The Board noted that “the proposed client conduct [distribution of marijuana] is known to be a violation of federal criminal law. In those circumstances, the role of the attorney is limited.” Therefore, “the Rule forbids attorneys from counseling a client to engage in the business or to assist a client in doing so.” The Board explained, “the Rule which governs attorney conduct does not make a distinction between crimes which are enforced and those which are not,” and seemed to warn other jurisdictions which would make a contrary determination: “there is no guarantee that, with a change in policy, administration, or resources, the federal law might ultimately be enforced to the chagrin of lawyers whose conduct enabled the dispensaries.”
In 2013, Connecticut took a similar approach as Maine. The Connecticut Bar Association Professional Ethics Committee noted that “[t]hough, perhaps, subject to legal and political challenges, the Controlled Substances Act [the Federal law prohibiting distribution of marijuana] stands. Whether or not the CSA is enforced, violation of it is still criminal in nature.” Ct. Inf. Op. 2013-02 (2013). Based on the language Rule 1.2, Connecticut determined that if an attorney advised their client that distribution of marijuana would violate the Federal law, the attorney could “advise clients of the requirements of the Connecticut [medical marijuana law],” but “may not assist clients in conduct that is in violation of federal criminal law.” (Emphasis added).
In August of 2013, Colorado reached a similar conclusion as Maine and Connecticut. Unlike Connecticut and Maine, Colorado had passed a law permitting marijuana consumption for recreational use. The Colorado Bar Association Ethics Committee readily acknowledged that “members of the public need legal advice on how to apply or reconcile conflicting Federal and state laws regarding… marijuana.” Co. Op. 125 (2013). However, “the plain language of [Rule] 1.2(d) prohibits lawyers from assisting clients in structuring or implementing transactions which by themselves violate federal law.” (Emphasis added). The Colorado Bar Association was well-aware of the risks which its interpretation of Rule 1.2 involved: “Colorado risks conducting this [marijuana] experiment either without the help of its lawyers or by putting its lawyers in jeopardy of violating its rules of professional conduct.” The Bar Association concluded by recommending that the Colorado Supreme Court amend its Rules of Professional Conduct to address the dilemma posed by the enactment of its marijuana laws.
Since 2013, the textual approach adopted by Maine, Connecticut and Colorado has become the predominant view, and other state bar associations have issued consistent opinions every year since, including the Disciplinary Board of the Hawaii Supreme Court, the Pennsylvania Bar Association Legal Ethics and Professional Responsibility Committee, and the Supreme Court of Ohio Board of Professional Conduct. See Hawaii Formal Op. No. 49 (2015) (Rule 1.2 permits attorneys to “advise a client with regard to legality under state and federal law on the subject of marijuana production and distribution… but a lawyer may not ‘provide legal services to facilitate the establishment and operation of a medical marijuana business…”); PA Formal Op. No. 2015-100 (2015) (“[g]iven that it is a federal crime to manufacture, distribute, dispense, or possess marijuana, PA RPC 1.2(d) forbids a lawyer from counseling or assisting a client in such conduct by, for example, drafting or negotiating contracts for the purchase, distribution or sale of marijuana”); Ohio Op. No. 2016-6 (2016) (“the Board concludes that a lawyer violates Prof. Cond. R. 1.2(d) when he or she transitions from advising a client regarding the consequences of conduct under federal and state law to counseling or assisting the client to engage in conduct the lawyer knows is prohibited under federal law”).
Jurisdictions Holding that Rule 1.2(d) Does Not Prohibit Attorneys
From Assisting Clients in the Operation of Marijuana Enterprises
At least three jurisdictions[4] have rejected the strictly textual approach employed by Maine, Connecticut and Colorado, and have concluded that attorneys may assist clients in the operation of state-approved marijuana businesses, although the jurisdictions have not used the same reasoning.
The first jurisdiction to reach this conclusion was Arizona in 2011. In its opinion, the State Bar of Arizona initially framed the issue incredibly narrowly and observed that:
[N]o prior Arizona ethics opinions… have addressed the novel issue presented by the adoption of the [medical marijuana] Act—whether a lawyer may ethically “counsel” or assist” a client under the following conditions: (1) the client’s conduct complied with a state statute expressly authorizing the conduct at issue; (2) the conduct may nonetheless violate federal law; (3) the federal government has issued a formal “memorandum” that essentially carves out a safe harbor for conduct that is in “clear and unambiguous compliance” with state law, at least so long as other factors are not present (such as unlawful firearm use, or “for profit” commercial sales”); and (4) no court opinion has held that the state law is invalid or unenforceable on federal preemption grounds.
Az. Op. No. 11-01 (2011). The Arizona State Bar then, without much analysis, “decline[d] to interpret and apply [Rule] 1.2(d) in a manner that would prevent a lawyer” from assisting a client in activities which were compliant with state law. The State Bar appeared to base its conclusion on policy grounds, observing that “[l]egal services are necessary or desirable to implement and bring to fruition that conduct [which is] expressly permitted under state law.” See also PA Bar Op. 2015-100 (2015) (“It is interesting to note that Arizona’s conclusion is premised on access to legal services and the role of lawyers provide those services…”). The Arizona State Bar did, however, include a caveat to its conclusion, suggesting that the Arizona state law had not been ruled preempted by Federal law at the time the Opinion was issued. It is unclear whether Arizona would have reached a different conclusion if a judicial opinion had found that the Arizona state law was preempted. See also King County (Washington) Bar Association Op. No. I-502 FN 17 (2013) (disagreeing with Arizona’s suggestion that it is relevant that no court has ruled on whether state medicinal marijuana laws are preempted).
In 2013, the King County (Washington) Bar Association followed Arizona’s approach. The Bar Association acknowledged that “the rule [1.2] on its face does not seem to distinguish between violations of state and federal law,” but appears, like Arizona, to have employed a policy exception: “an attorney advising a client on complying with I-502 [the marijuana law] and the Cole Memorandum’s objectives [Attorney General’s guidance about non-enforcement of the Federal marijuana law] would be helping a client avoid prosecution, even if technically counseling or assisting the client to violate the letter of federal law. This state should reject a formalistic reading of RPC 1.2(d) that would prohibit such conduct.” (Emphasis in original).
The King County Bar Association also expressed a separate policy basis for permitting an attorney to assist a client in the operation of a marijuana business. In essence, the Association suggested that because attorney discipline is state-based, Rule 1.2 should be interpreted consistent with the state’s policy rather than the Federal government’s policy when there is a conflict: “attorney discipline is state-based, and the state should interpret its own rules in accordance with the state policy that favors strong regulation of legalized marijuana and, by inference, attorney assistance in this regime.”
In a 2014 opinion, the Illinois State Bar Association’s Professional Conduct Committee took a different approach. Although it acknowledged that “a lawyer who performs such work [drafting legal documents and contracts] would be assisting the client in conduct that violates federal criminal law,” it nevertheless found that such work would be helping the client conform their conduct to state law in order to avoid federal prosecution and that such activities would amount to a lawyer assisting the client to make a good-faith effort to determine the validity, scope, meaning or application of the law. See Ill. Op. No. 14-07 (2014).
In a lengthy 2014 opinion, the New York State Bar Association (NYSBA) agreed with Washington and Arizona. “The difficult question arises if the lawyer knows that the client’s proposed conduct, although consistent with state law, would violate valid and enforceable federal law.” NYSBA Op. No. 1024 (2014) (emphasis in original). The NYSBA initially explained that “[o]rdinarily, in that event, while the lawyer could advise the client about the reach of the federal law and how to conform to the federal law, the lawyer could not properly encourage or assist the client in conduct that violates the federal law.” This “would ordinarily be true even if the federal law, although applicable to the client’s proposed conduct, was not rigorously enforced and the lawyer anticipated that the law would not be enforced in the client’s situation.”
The NYSBA found, however, that it was determinative that the federal government had declined to fully enforce the federal law: “the situation is different where the state executive branch determines to implement the state legislation by authorizing and regulating medical marijuana, consistent with current, published federal executive-branch enforcement policy, and the federal government does not take effective measures to prevent the implementation of the state law.” The NYSBA then framed the issue narrowly: “the question under Rule 1.2(d) is whether a lawyer may assist in conduct under the state medical marijuana law that the lawyer knows would violate federal narcotics law that is on the books but deliberately unenforced as a matter of federal executive discretion.”
The NYSBA concluded that Rule 1.2(d) would not prohibit an attorney from assisting a client in the distribution of marijuana permitted under New York State law. The NYSBA’s reasoning was three-fold. First, the NYSBA stated that state ethics rules are intended to promote state policy, not stall it (“[i]n general, state professional conduct rules should be interpreted to promote state law, not to impede its effective implementation”). Via approval of the state medicinal marijuana law, New York State had expressed its state policy on the matter. Second, the NYSBA suggested that New York State has impliedly authorized New York attorneys to assist clients in state-approved marijuana distribution: “[i]mplicitly, [by creating a complex regulatory scheme,] the state law authorizes lawyers to provide traditional legal services to clients seeking to act in accordance with the state law.” And finally, the NYSBA believed it was significant that attorneys’ assistance would not frustrate the purpose of Rule 1.2: “crucially, in this situation the federal enforcement policy also depends on the availability of lawyers to establish and promote compliance with the ‘strong and effective regulatory and enforcement systems’ that are said to justify deferral forbearance from enforcement of narcotics laws that are technically applicable. The contemplated legal work is not designed to escape law enforcement by avoiding detection.”
Analysis
The split of authorities has created substantial uncertainty for the practitioner about the applicability of Rule 1.2 in the context of state-legalized marijuana distribution. How should a lawyer respond when he or she receives a call from a new client who is seeking to open a state sanctioned business which will dispense marijuana? On the one hand, it appears from the language of the ABA Rule itself that a lawyer’s assistance in such marijuana distribution activities is banned as it will constitute assisting the client in an act which is in violation of Federal law. And several state bar associations have agreed with this analysis. However, on the other hand, since a state has explicitly approved the distribution of marijuana, either for recreational or medicinal purposes, has the state not also sanctioned the bar of that state that it may provide legal services and assistance to these businesses in a manner no different that it may for any other business? The bar associations of many of the states which have passed marijuana laws have found that these laws provide some implicit understanding that attorneys will assist clients in state-approved marijuana distribution.
Given the split, it is difficult (if not impossible!) to predict whether jurisdictions will determine if ABA Rule 1.2 prohibits an attorney from assisting a client in marijuana distribution. Attorneys in jurisdictions which have not explicitly addressed the issue should proceed with the utmost caution.
But a potentially broader problem created by this split is that it may have greater implications than intended for interpreting the meaning of ABA Rule 1.2. In jurisdictions which have permitted attorney assistance, there is a potential for a lack of predictability concerning the application of the Rule. In other words, by declining to follow the literal language of the Rule, it may be difficult for attorneys to predict when else they could assist clients in conduct which may constitute a violation of Federal criminal law, regardless of whether such law is being enforced by the Federal Government. This is because it is unclear what the determinative factor is for permitting attorney assistance:
- If the determinative factor is the Federal Government’s current relaxed enforcement policy, which states such as Maine have warned could always change in a new administration or the appointment a new US Attorney General and result in a reversal in the interpretation and application of ABA Rule 1.2, it is unclear whether non-enforcement of a criminal law alone permits attorney assistance.
- If the determinative factor is the implicit state legislative policy which overrides a literal interpretation of the state’s own Rule (the Pennsylvania Bar Association has described other bar associations as taking this approach), it can be hard to assess what the implicit state policy is.
- If the determinative factor is that public policy weighs in favor of greater access to legal assistance, it can also be difficult to assess when that is the case.
- If the determinative factor is that state law or policy overrides federal law or policy when it comes to application of Rule 1.2, it is unclear why the opinions or the Rule did not say so explicitly.
Given the potential for lack of predictability created by states’ failure to follow the literal language of the ABA Rule and the legitimate interests of clients’ access to legal services, the authors believe that the best policy would be to either include a protection for attorney assistance in the marijuana legislation itself (this has been done by states such as Minnesota) or for states which permit medicinal or recreational marijuana to either add an amendment to the state’s adopted version of ABA Rule 1.2 or an official Comment to the Rule permitting assistance.
States which have amended Rule 1.2 or which have proposed an amendment include Colorado (following its ethics opinion), Connecticut (following its ethics opinion), Nevada, Washington, Pennsylvania, Illinois (in order to provide clarity), Alaska, Oregon and Hawaii (following its opinion). Such amendments balance the need to provide legal services and also comply with state law with the need for clarity and predictability in the governing Rules of Professional Conduct.
As the movement toward legalization and expansion of the marijuana industry continue, it may be appropriate for the ABA to reconsider Rule 1.2 as well. Entrepreneurs engaged in a state sanctioned industry have a right to legal advice, counsel, and service, as well as access to necessary other services such as banking and insurance services. The legal profession, as well as other service providers, have the right to the assurance that their conduct in the provision of services to legitimate, state authorized businesses will not give rise to claims of violation of professional misconduct. It will be an area to closely monitor.
[1] Mr. Ryan is a member and managing partner of Tesser, Ryan & Rochman, LLP, a New York, NY law firm. Timothy Nolen is a senior associate in the firm. The authors are admitted to practice law in the State of New York and qualified to opine on the law of New York; no opinion is made herein on the law of any other jurisdiction.
[2] New York’s use of the more vague term “illegal” has left open the possibility that a wide array of civil wrongs, regulatory violations and non-criminal statutory violations may be covered by Rule 1.2. See Tesser, Lewis and Nolen, Timothy “Illegal” Conduct Under Rule 1.2: When Does Advice to a Client Violate an Attorney’s Ethical Obligations? New York Legal Ethics Reporter (Apr. 1, 2015).
[3] A frequently-raised issue involved whether a lawyer believes (even strongly) that the conduct is criminal but does not know it is criminal. At least in New York State, advising or aiding a client in conduct that a lawyer believes is criminal but does not know is criminal does not violate Rule 1.2(d). See NYSBA Op. No. 1024 ¶ 22 (2014).
[4] The Bar Association of San Francisco determined that under California’s ethics rules, an attorney could assist a client in the operation of a marijuana enterprise. The wording of California’s ethics rules is different from Rule 1.2.
Tesser, Ryan & Rochman, LLP
509 Madison Avenue
New York, NY 10022
Fax: (212) 754-5906
1. Mr. Ryan is a member and managing partner of Tesser, Ryan & Rochman, LLP, a New York, NY law firm. Timothy Nolen is a senior associate in the firm. The authors are admitted to practice law in the State of New York and qualified to opine on the law of New York; no opinion is made herein on the law of any other jurisdiction.
