Roughly a year ago, I wrote a column discussing how Morris and others reportedly met to plan out a scorched earth strategy to attack and threaten critics. The Washington Post reported that the discussion included targeting or threatening critics with defamation lawsuits.
In his letter, Sullivan attacks my reference to ethics rules as unworthy of a professor as well as “blatantly misleading and just bad lawyering.” That tirade about my lack of knowledge and principles is followed by a demand for an immediate retraction and adds “if you repeat your baseless charges, you understand that accusing someone of violating the law is defamation per se.”
I will not issue a retraction despite the threats of Morris and Sullivan. I did, however, publish another column repeating my objections to Morris’s blurry representational claims.
The effort in such threats is to silence or chill critics in their criticism of a wealthy, powerful public figure like Mr. Morris.
Since Morris may repeat such threats against other columnists and critics, I wanted to give a full account of his claims that his transactions with his client are entirely in compliance with California bar rules. For that reason, this is a bit lengthy but it may help others receiving such letters from Morris and Sullivan.
Unfortunately, after I responded to the counter arguments by Sullivan under the ethics rules, he expressly refused to address glaring problems in applying exceptions to the general rule against lawyers paying personal costs of their clients.
The Original Column
The letter was triggered by my column in The Hill in which I criticized Morris for maintaining an array of alleged different roles while serving as counsel. Notably, the letter does not appear to deny the roles, but focuses on a brief reference to the general rule against paying personal costs of clients.
Here is the original graph:
Lawyers are not supposed to pay the bills of their clients. Specifically, California Bar Rule 1.8.5(a) states that “[a] lawyer shall not directly or indirectly pay or agree to pay, guarantee, or represent that the lawyer or lawyer’s law firm will pay the personal or business expenses of a prospective or existing client.” They are required to maintain clear representational boundaries. This is also now the subject of a new bar complaint filed by a conservative legal group this week.
Sullivan suggests that Morris is not subject to this general prohibition because he could claim exceptions to the rule against such payment of personal costs or bills of a client. He stated:
“In your Column, you reiterate the inaccurate, uninformed, and frivolous claim made in the recent California bar complaint that Mr. Morris violated California Bar Rule 1.8.5(a) by allegedly ‘paying the bills’ for Mr. Morris’ client, R. Hunter Biden. In doing so, you completely ignored the remaining portions of Rule 1.8.5 in which it is expressly provided in subsection (b).”
There certainly are such exceptions or allowances but some of us reject their applicability to Morris or to these payments or loans. Indeed, we believe that Morris’s ill-defined representational relationship is precisely what these rules strive to avoid. As discussed below, those concerns were magnified by Morris’s recent deposition where he seemed to struggle to separate matters falling under his roles as friend, donor, investor, and lawyer.
Rule 1.8.5(b)
Sullivan primarily objected that his client could claim exemption under Rule 1.8.5(b). I disagree, but first here is that second provision.
Notwithstanding paragraph (a), a lawyer may:
(1) pay or agree to pay such expenses to third persons,* from funds collected or to be collected for the client as a result of the representation, with the consent of the client;
(2) after the lawyer is retained by the client, agree to lend money to the client based on the client’s written* promise to repay the loan, provided the lawyer complies with rules 1.7(b), 1.7(c), and 1.8.1 before making the loan or agreeing to do so;
(3) advance the costs of prosecuting or defending a claim or action, or of otherwise protecting or promoting the client’s interests, the repayment of which may be contingent on the outcome of the matter; and
(4) pay the costs of prosecuting or defending a claim or action, or of otherwise protecting or promoting the interests of an indigent person* in a matter in which the lawyer represents the client.
I still do not see how this exception would apply to these payments. Again, I sent questions on these provisions and their conditions to ask how Morris could justify his claim for an exemption. Sullivan refused to supply those answers.
Mr. Sullivan included only the first three provisions. The first provision references a circumstance when a lawyer can pay bills “from funds collected or to be collected for the client as a result of representation.” If reports are accurate, Morris is alleged to have given Hunter millions for taxes and expenses. It is not clear what representation would generate millions to repay such money as a loan.
The second provision refers to a written agreement on payment that can be made, but notes that the agreement must be reached “before making the loan or agreeing to do so.” As discussed below, it does not appear that such an agreement on the loans existed during part of the representational period. As to the later written agreement, Morris admitted that the loan would not be due until 2025, after the next election, and could be excused by Morris. Moreover, as Sullivan acknowledged, any failure to comply with these rules allows Hunter to unilaterally void the conditions under California precedent cited in the letter.
The third provision refers to advancing the costs of the litigation to the extent that they are contingent on “the outcome of the matter.” Again, it is not clear what matter that would be and whether the costs paid were indeed in the millions.
Sullivan’s letter omitted the fourth provision, which refers to the applicability to an indigent person. While Hunter was in debt, it is hard to see how he was indigent given his various assets and holdings.I specifically asked Sullivan if Morris treated Hunter as an indigent person despite his assets and lavish lifestyle. The rule was changed around six years ago to remove barriers for clients who could not afford to face litigation. This rule has been subject to considerable discussion by California bar members and experts. However, analysts at the time warned that this applied only to the indigent and not even to pro bono clients.
Finally, the rule also has a provision that expressly states that:
“Costs” within the meaning of paragraphs (b)(3) and (b)(4) are not limited to those costs that are taxable or recoverable under any applicable statute or rule of court but may include any reasonable* expenses of litigation, including court costs, and reasonable* expenses in preparing for litigation or in providing other legal services to the client.
Note that this provision specifically refers to the third provision specifically cited by Sullivan. The amount of money that has been attributed to Morris would seem to exceed any “reasonable” cost under this rule. I also asked Sullivan if Morris was claiming that supporting Hunter’s expenses and paying his taxes fell into this definition.
Sullivan simply states that “in California, there is no prohibition on an attorney lending money to their client despite your misguided attempt to give the appearance of some sort of prohibition.” In reality, Rule 1.8.5(a) does state the general bar on such payments. There is also an exception, but I disagree that the exception would apply to Morris’s payments and loans.
Rule 1.8.1
That may explain why, after citing Rule 1.8.5, Mr. Sullivan’s letter also refers to Rule 1.8.1 providing in part: “A lawyer shall not enter into a business transaction with a client, or knowingly acquire an ownership, possessory, security or other pecuniary interest adverse to a client.” Sullivan notes that the rule allows for such business transactions with clients with informed written consent.
It is important to note that this rule does not deal with giving clients money to cover personal expenses or taxes. It concerns business transactions with a client under very specific conditions. It is not clear if Sullivan is arguing that the loans to Hunter Biden are a business deal made for the pecuniary benefit of Morris. As discussed below, there appears to be a mix of loans and acquisitions related to his client.
Sullivan stresses that any arrangement was not adverse. Of course, it presupposes that some or all of these payments were business transactions under Rule 1.8.1 and not a cost under Rule 1.8.5.
The use of Rule 1.8.5 raises other concerns. Morris reportedly was introduced to Hunter at a Democratic fundraiser and later started to give him money while serving as his counsel. If he also did business with Hunter, the question is whether he acquired any assets of Hunter that were the subject of federal or congressional investigation. It would raise concerns if he saw a good business opportunity in any distressed assets of a client. However, Sullivan would not confirm whether they attributed most of the payments to business dealings with Hunter.
In the House transcript below, Morris admits that, after he started his representation of Hunter, he did not have any written agreement dealing with the loans and payments. Despite being told that he was going to be asked about the loans, Morris could not recall how much money he has given Hunter in loans. Then they had this telling exchange:
Q Was that loan agreement, that [sic] in place in January of 2020 when you first began giving loans out to Hunter Biden?
A No, we documented it a little later.
Q When you say “a little later,” what’s a little later?
A I don’t remember, counsel.
Q A year later? Six months later?
A It might have been.
Q …So, again, just to clarify, because your attorney asked, but I want you to answer the question again. It’s your testimony that in January of 2020, when you first began giving loans to Hunter Biden, there was no written loan agreement in place at that time, correct?
Mr. Morris. Correct.
So Morris did not secure a written agreement before making these loans and was not even sure when the agreement was eventually crafted later in the course of his representation.
Morris and Sullivan insist that this is all in compliance with the rules. They are suggesting that a lawyer can just give massive amounts of money to a client to cover everything from taxes to personal expenses without any written agreement detailing the conditions and expectations with the client. Morris could not remember if that agreement came as much as a year later.
Finally, the transcript refers to Morris investing or assuming interest in entities associated with Hunter’s foreign partners or businesses. It is not clear what financial interest Morris assumed with regard to any real property owned by Hunter. I specifically asked Sullivan about such transactions. These business interests appear to have arisen after Morris delved into his client’s finances as his counsel. His client was in obvious financial distress at the time. It is important to determine if Morris assumed interest or purchased assets due to his knowledge of Hunter’s past dealings.
Again, there is a telling exchange with Morris of his ownership of 10% of Bohai Harvest RST LLC (BHR), through his acquisition of interest in Skaneateles LLC. Those are business interests associated with Hunter Biden. Note the apparent confusion of Morris in his knowledge and claims of privilege (emphasis added):
Q What kind of company was Skaneateles?
A I mean, I don’t know. An LLC, I think.
Q But did it sell shirts? What was it? I mean, what was the purpose of the company?
A I think it’s — again, I’m not — you know, I’m not to the point sure, but it was an LLC and — you know, I think it — Hunter actually had a very simple corporate structure personally. I think this was one that was for some purpose that I can’t remember. I — you know, anyway.
Q Do you know what Hunter Biden’s role was with Skaneateles?
A No. I think he was the sole, sole member of an LLC.
Q And are you aware of an investment fund Bohai Harvest?
A Yes.
Q What is that? It’s a Chinese — it’s a hedge fund of Chinese Nationals, I believe, that raise money to make investments in public-private, and infrastructure programs.
…
Q And do you know what kind of investments that BHR makes?
A I knew better at one time. I remember going through them. I don’t remember exactly what they were. I think they were — I don’t know. I think they were infrastructure.
Q But at some point, you were aware of the different types of projects that the Chinese National fund was investing in?
A Oh, well, yeah. When I was reviewing the investment I was going to make, I did it in — as part of my diligence on evaluating that transaction.
Q Did there come a time when you took over the interest for Skaneateles, which held BHR, the investment in BHR?
A The way I think it was, counsel, that I acquired, I acquired Skaneateles, which as I understand it owned the BHR piece.
Q What else did Skaneateles own?
A I don’t know.
Q Does it own anything else?
A I don’t think so.
Q But sitting here today, you’re not exactly sure what Skaneateles —
A I’m pretty sure it doesn’t have anything else.
Q And does it sound right to say that Skaneateles held a 10 percent stake in BHR?
A It sounds right.
Q So you currently own that 10 percent stake in BHR?
A Correct, through one of my corporate entities.
Q Which purchased Skaneateles, which held the BHR investment?
A Uh-huh.
Q Do you know when you — when did you purchase Skaneateles?
A Was it — I — you know, in 2021.
Q How did it come up that you were going to purchase Skaneateles? Or why did you buy Skaneateles of all the companies that Hunter Biden was involved with? Why that one?
A That’s privileged. I am not going to answer that because of attorney-client privilege.
Mr. Sullivan. No, no, no, why did you buy it? Like what?
Mr. Morris. I’m not going to answer it.
Q No I am going to ask about your communication —
A The —
Q The communication is privileged.
Mr. Sullivan. Can we go off the record for 2 minutes of the —
Mr. Off the record. [Discussion off the record.]
…Q You’re fine. Back on the record. Why did you buy BHR?
A I did the transaction because, you know, I evaluated it as a businessman, and I thought it was something that could be a very successful investment. I — you know, but I did diligence on the assets. I knew what — I knew what Hunter paid for it in the beginning, and I saw, and I still see upside.
Q What did you pay for Skaneateles?
A I think. 157K.
…Mr. Liner. You don’t know when. Do you know when you actually bought this interest?
Mr. Morris. No….
Q Did you have a written agreement with Hunter Biden regarding the sale of Skaneateles?
A I don’t know. I don’t believe so. Or — I don’t know. Probably, yeah. Probably, it was the — I would imagine I had to — okay, yeah. The answer is yes.
Mr. Liner. You had legal counsel as well.
Mr. Morris. Correct. A lot of them.
Q Does that contract allow for Hunter Biden to purchase back BHR at a certain time point?
A That I don’t — I can’t tell you, Counsel.
Mr. Liner. Meaning you don’t know?
Mr. Morris. Meaning I don’t know.
This is an exchange after Morris was told weeks in advance that he would be asked about his payments, loans, and agreements with Hunter Biden. Yet, Morris is still not clear on what agreements he had with his client or key details on those transactions. He is not even sure if he is holding an asset (that is the subject of congressional inquiry into his client’s dealings) that he might just give back to his client at some point.
Summary
Mr. Sullivan also insists that, under California Rule 1.7, there is no conflict of interest in any of these dealings and that they are certainly not adverse to Hunter Biden. That will require more information on the full array of business, personal, and legal arrangements that Morris maintained with his client.
In the end, we are left with more questions than answers, even after Morris’s long deposition. The six basic questions on the applicability of claimed exceptions for payments or loans to clients may have clarified some of these points. However, Sullivan refused to answer and accused me of trying to trick him and his client. He objected that I was “clearly engaging in that old trick to pry into alternative matters and misconstrue my letter, which we will ignore.”
There is no trick — new or old. Mr. Sullivan is contesting the application of the cited rule to his client. There is a general rule stating lawyers “shall not” pay personal expenses as quoted in the column. California Bar Rule 1.8.5(a) (“[a] lawyer shall not directly or indirectly pay or agree to pay, guarantee, or represent that the lawyer or lawyer’s law firm will pay the personal or business expenses of a prospective or existing client.”). There are exceptions, but I fail to see how they would cover Morris’s payments or loans. Indeed, the applicability of exceptions requires underlying conditions that could add to the concerns for some of us on the multifaceted relationship between Morris and Biden.
The assertion of Sullivan and Morris that any of this is defamation is itself unsettling. They are now suggesting that exceptions to a general rule against paying personal costs of clients are applicable to these payments. I disagree. While his public figure standing under New York Times v. Sullivan requires satisfaction of the actual malice standard, that higher standard is not necessary to discard this claim. This is an interpretative disagreement in a matter of great public interest and columnists are allowed to express their opinions on Morris’s conduct.
The original column only made passing reference to this rule, but the threat has allowed for a more comprehensive discussion of the rule and possible counter arguments. For those who might be targeted next by such letters from Sullivan or Morris, I hope that this analysis will reinforce your own position in discussing these issues. Morris would be better served by offering answers rather than threatening lawsuits.
Obviously, as we learn more, this will be an ongoing discussion on the ethics of this relationship. This is an issue that has come up in practice for many of us under different variations of this rule. However, given our California lawyers who are regulars on this blog, I look forward to discussing these issues further in whether Morris’s relationship is consistent and compliant with California bar rules.
Here is the transcript so that you can read Morris’s own words explaining his representational arrangement with Hunter Biden: Morris_Redacted