(This article appeared in Journal 14,3, September 2009)
Given the current state of the economy, law firms are looking for ways to expand their business opportunities. One approach is for the law firm to begin offering law-related services. Law-related services consist of services that "might reasonably be performed in conjunction with and in substance are related to the provision of legal services, and that are not prohibited as unauthorized practice of law when provided by a nonlawyer." Rule 5.7(b). Sometimes called ancillary businesses, law-related services range from financial planning to lobbying to psychological counseling.
There are many ethical issues a law firm should consider when deciding to offer law-related services. An initial consideration should be whether to offer the services "in-house" or through a separate entity. When law-related services are provided under circumstances that are not distinct from the provision of legal services (in-house), the law firm will be subject to all of the Rules of Professional Conduct with respect to the provision of the law-related services. The primary ethical concerns present in such an arrangement are avoiding conflicts of interest and maintaining client confidentiality.
If the law-related services are provided by a separate entity, the law firm will still be subject to all of the Rules of Professional Conduct unless the law firms takes "reasonable measures" to ensure that a person obtaining the law-related services knows that the services are not legal services and that the protections of the lawyer-client relationship (i.e., the protection of client confidences, prohibition against representation of persons with conflicting interests, protection of the attorney-client privilege, and obligation of a lawyer to maintain professional independence) do not exist. See Rule 5.7(a)(2). The communication should be made before entering into an agreement for provision of or providing law-related services. It is best if the communication is in writing. Rule 5.7, cmt. [7]. Remember that a lawyer is always subject to those ethical rules that apply generally to a lawyer's conduct, irrespective of whether the conduct relates to the provision of legal services. Rule 5.7, cmt. [3].
The decision of whether to provide the law-related services internally or through a separate entity also implicates the law firm's duties when referring legal clients to the ancillary business. Referrals of clients from the law firm to a separate law-related business in which the lawyer has an ownership interest constitute business transactions with a client and are subject to the requirements of Rule 1.8(a) (the transaction must be fair to the client, the lawyer must explain the terms of the relationship in writing, and the client must consent in writing and have the opportunity to consult with independent counsel.) When law-related services are provided in-house, the law firm does not have to comply with Rule 1.8(a).
Regardless of whether the law-related services are provided as an in-house service or through a subsidiary of the law firm, the law firm must comply with Rule 1.7(b) regarding conflicts of interest caused by a lawyer's financial interests. In 2000 FEO 9 the Ethics Committee held that a lawyer who was also a certified public accountant could provide legal services and accounting services from the same office. The opinion cites Rule 1.7 and provides that the lawyer may offer accounting services to his legal clients, provided the lawyer fully discloses his self-interest in making a referral to himself and the lawyer determines that the referral is in the best interest of the client. The opinion, in reliance on Rule 7.3, also permits in-person solicitation of the business customers for legal services, but only if a "prior professional relationship" had been established.
2000 FEO 9 also touches on the issue of whether a law firm and an ancillary business can advertise together. The opinion holds that advertisements for the lawyer's services may indicate that the lawyer offers both legal and accounting services, subject to any requirements of the State Board of Certified Public Accountant Examiners.
The law firm must also be careful to avoid violations of Rules 5.3, 5.4, and 5.5. Pursuant to Rule 5.4, lawyers are prohibited from sharing legal fees with a nonlaywer or from forming a partnership with a nonlawyer, if any of the activities of the partnership consist of the practice of law. In RPC 238, the ethics committee held that a lawyer specializing in estate planning could employ a nonlawyer financial advisor so that the law firm could offer its clients financial planning. The opinion states that the nonlawyer financial advisor may be an employee of the law firm but may not become a partner, shareholder, or otherwise own an interest in the law firm and that legal fees may not be shared with the nonlawyer employee.
RPC 238 also cautions that the law firm must have in effect measures giving reasonable assurance that the conduct of a nonlawyer financial advisor will be compatible with the lawyer's professional obligations. Rule 5.3. In particular, the financial advisor may not be held out as offering legal services. Rule 5.5 Also, reasonable measures must be taken to explain to the client that the financial advisor is a nonlawyer who cannot provide legal advice.
If your law firm is thinking of moving towards a "value meal" approach to providing legal services, carefully consider how the ancillary business(es) will be structured. Specifically, the law firm should consider (1) whether the services will be provided in-house or through a separate entity; (2) if the firm will use a separate entity, whether the entity will be wholly or partially owned by the law firm; (3) if the law firm will use a separate entity, and will not have 100% ownership, whether the remaining owners will be lawyers or nonlawyers.
Suzanne Lever is assistant ethics counsel at the State Bar.