Role of Lawyer for Public Interest Law Organization
Adopted: October 25, 2013
Opinion provides guidance to lawyers who work for a public interest law organization that provides legal and non-legal services to its clientele and that has an executive director who is not a lawyer.
Facts:
Attorney A is a staff lawyer for Immigrant Aid Corporation (IAC), a public interest, nonprofit corporation that provides services to immigrants with limited income. Public interest law firms are subject to the requirements of NC Gen. Stat. §84-5.1.
IAC is tax exempt under 26 U.S.C. §501(c)(3). A nonlawyer is the executive director of IAC. IAC has satellite offices that are managed by nonlawyers. The services provided by the organization to immigrants include legal assistance with immigration matters. These services are provided by staff lawyers and by Board of Immigration Appeals (BIA) representatives. BIA representatives are nonlawyers who are authorized by the federal government to handle certain immigration matters.
IAC charges its clients nominal fees for the legal services it provides. There is a separate, predetermined fee for each separate aspect of a case or task to be performed by a lawyer or a BIA representative. The organization does not have income qualification guidelines and does not use a sliding income scale to determine what a client will pay for a service.
A new client of the corporation is asked to sign a document entitled “Retainer Agreement” for the services to be provided by staff lawyers. The agreement states that “if the process to obtain the benefit I seek requires more than one step, each step will be a separate case with a separate fee and separate service plan.” A schedule of the separate fees is not provided with the agreement. Instead, the agreement specifies a total fee, which is the aggregate of the fees for the various legal services that it is anticipated the client will need.
The Retainer Agreement states that the executive director or the office manager will determine the outcome of a client’s request for a waiver of a legal fee, a client’s complaint regarding legal services, and any dispute regarding legal fees. In the case of a fee dispute, a disgruntled client speaks first to a supervising staff lawyer, then, if the dispute is not resolved, to an office manager who is not a lawyer, and finally to the executive director.
When a client pays a fee by cash or check, the cash or check is locked in a staff member’s desk until the funds can be deposited in IAC’s operating account.
Inquiry #1:
Are North Carolina lawyers who work for IAC subject to the North Carolina Rules of Professional Conduct although they are not employed by a law firm?
Opinion #1:
Yes. The North Carolina Rules of Professional Conduct apply not only to lawyers working at law firms, but also to lawyers working in-house at public and private companies and for non-profit organizations. See Rule 1.0(d) (“‘Firm’ or ‘law firm’ denotes a lawyer or lawyers in a law partnership, professional corporation, sole proprietorship, or other association authorized to practice law; or lawyers employed in a legal services organization or the legal department of a corporation, government entity, or other organization.”) See also Preamble, Rule 0.1 (“Every lawyer is responsible for observance of the Rules of Professional Conduct”).
Inquiry #2:
Is a North Carolina lawyer allowed to work for a 501(c)(3) corporation in which a nonlawyer serves as the executive director or as the manager of the satellite office where the lawyer works?
Opinion #2:
Yes. Pursuant to NC Gen. Stat. §84-5.1, a nonprofit corporation, tax exempt under 26 U.S.C. §501(c)(3), organized or authorized under Chapter 55A of the General Statutes of North Carolina, and operating as a public interest law firm as defined by the applicable Internal Revenue Service guidelines, may render legal services provided by lawyers licensed to practice law in North Carolina for the purposes for which the nonprofit corporation was organized. “The nonprofit corporation must have a governing structure that does not permit an individual or group of individuals other than an attorney duly licensed to practice law in North Carolina to control the manner or course of the legal services rendered and must continually satisfy the criteria established by the Internal Revenue Service for 26 U.S.C. §501(c)(3) status, whether or not any action has been taken to revoke that status.” NC Gen. Stat. §84-5.1(a). See also Rule 5.4, cmt. [3] (nonlawyer may serve as a director or officer of a professional corporation organized to practice law if permitted by law).
Inquiry #3:
If the answer to Inquiry #2 is “yes,” to what extent may the executive director or office manager supervise or instruct the staff lawyers in the performance of legal services?
Opinion #3:
The nonlawyers associated with the IAC may not “direct or regulate” the staff lawyer’s professional judgment in rendering legal services. Rule 5.4(c). As required by NC Gen. Stat. §84-5.1, the IAC “must have a governing structure that does not permit an individual or group of individuals other than an attorney duly licensed to practice law in North Carolina to control the manner or course of the legal services rendered.”
Inquiry #4:
The fees to be charged for a legal service performed by a staff lawyer or by a BIA representative are finally approved by the executive director. May a staff lawyer permit a nonlawyer to have final approval authority for fees to be charged for the lawyer’s work?
Opinion #4:
A nonlawyer may have final approval authority for fees to be charged for the lawyer’s work only if the approval process does not interfere with the staff lawyer’s exercise of professional judgment and there is a method for the lawyer to object if the fee is clearly excessive in violation of Rule 1.5(a).
Inquiry #5:
By allowing IAC to collect and retain legal fees, is a staff lawyer participating in fee-sharing with a nonlawyer which is prohibited by Rule 5.4?
Opinion #5:
No. As noted in comment [1] to the Rule 5.4, the traditional limitations on sharing fees prevent interference in the independent professional judgment of a lawyer by a nonlawyer. NC Gen. Stat. §84-5.1 prohibits a nonprofit public interest law corporation from having a governing structure that permits such interference. So long as IAC is complying with the statutory requirements, the fee-splitting prohibition is not triggered by this arrangement.
Inquiry #6:
If money is collected in advance from clients of IAC to pay for legal services to be provided by staff lawyers, does the staff lawyer have to insure that money is deposited into a trust account established and managed pursuant to Rule 1.15 of the Rules of Professional Conduct?
If money is collected for a consultation with an IAC client at the time of the consultation, does the staff lawyer have to insure that the money is deposited into a trust account or may it be deposited into the corporation’s operating account?
Does the title “Retainer Agreement” allow the staff lawyer to consider the payment a true retainer, which is earned upon payment, and which may be deposited in IAC’s operating account?
Opinion #6:
If money is collected for a staff lawyer’s services, the lawyer must insure that IAC handles the money in a manner that is consistent with the lawyer’s duty to safekeep client property. Rule 1.15. Comment [2] to Rule 1.15 provides that “[a]ny property belonging to a client or other person or entity that is received by or placed under the control of a lawyer in connection with the lawyer's furnishing of legal services or professional fiduciary services must be handled and maintained in accordance with this Rule 1.15.” Pursuant to Rule 1.15-2(b), “[a]ll trust funds received by or placed under the control of a lawyer shall be promptly deposited in either a general trust account or a dedicated trust account of the lawyer.” “Entrusted property” includes “trust funds, fiduciary funds, and other property belonging to someone other than the lawyer which is in the lawyer's possession or control in connection with the performance of legal services or professional fiduciary services.” Rule 1.15-1(e).
The title of the representation agreement, in this case “Retainer Agreement,” does not determine the actual nature of the agreement. Whether money paid in advance by a client is “entrusted property” that must be placed in a trust account will depend on the nature of the advance payment (advance fee, general retainer, flat fee, or minimum fee) and whether the fee is earned upon payment. The IAC must follow the guidelines set out in 2008 FEO 10 as to fees paid in advance and place any fees that are not earned immediately into a trust account.
Inquiry #7:
If money is collected for costs that may be incurred in conjunction with the provision of legal services, should the staff lawyer insure that the money is deposited into a trust account?
Opinion #7:
Yes. Any portion of a payment that is intended to cover costs must be deposited in a trust account. If IAC receives a check from a client that represents costs and fees, the check must be deposited in a trust account before IAC may withdraw that portion of the funds that constitutes immediately earned legal fees. See RPC 158.
Inquiry #8:
Until the money is deposited in a bank account, may a client’s cash or check be locked in a staff member’s desk?
Opinion #8:
A lawyer has a duty to safekeep client funds and property. Rule 1.15-2. Rule 1.15-2(b) provides that”[a]ll trust funds received by or placed under the control of a lawyer shall be promptly deposited in either a general trust account or a dedicated trust account of the lawyer.” Any check representing any portion of legal fees that are not earned immediately must be promptly deposited in a trust account. In the event that trust funds cannot be immediately deposited in a trust account, the funds should be securely maintained until they can be deposited.
Inquiry #9:
Should a staff lawyer require that a schedule of the fees for services be included in the Retainer Agreement or discussed with the client at the time of execution of the agreement?
Opinion #9:
Yes. Rule 1.4(b) provides that a lawyer shall “explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation.” In this scenario, the client cannot make an informed decision about entering into the representation agreement without sufficient knowledge of the legal fees being charged for each specific service.
Inquiry #10:
May the agreement include the following statement: “If I decide not to continue a case with the agency and the service I requested has been performed or completed, I will not be entitled to a refund, full or partial, of the fee”?
Opinion #10:
The use of the term “nonrefundable fee” in fee agreements is prohibited because a fee is always subject to refund, in whole or in part, if the fee is clearly excessive under the circumstances. 2008 FEO 10. Therefore, a fee agreement may state that a client “will not be entitled to a refund of any portion of a fee unless it can be demonstrated that the total fee was clearly excessive under the circumstances.” See “Model Fee Provisions” in 2008 FEO 10.
Inquiry #11:
May a staff lawyer ask a client to sign the “Retainer Agreement” if it states that IAC “is not obligated to continue representing me in all steps of the legal process, and may withdraw its representation and close my case upon written notification to the client and to the administrative law agency”?
Opinion #11:
No. The statement in the Retainer Agreement misrepresents the ethical duties owed by the staff lawyer to the client and the administrative law agency or tribunal by the staff lawyer.
Pursuant to Rule 1.2(c), “[a] lawyer may limit the scope of the representation if the limitation is reasonable under the circumstances.” When the scope of representation is limited, it is appropriate to define the scope of representation in the representation agreement. The agreement should set forth the “steps of the legal process” for which IAC will provide a lawyer to represent the client. The representation may be limited to those “steps” if reasonable under the circumstances.
If the staff lawyer withdraws from the matter before completing the “steps,” the lawyer must comply with Rule 1.16(c) requiring notice to or permission of the tribunal, consistent with applicable law, when terminating a representation. In addition, Rule 1.16(d) requires a lawyer to “take steps to the extent reasonably practicable to protect a client's interests, such as giving reasonable notice to the client, allowing time for employment of other counsel, surrendering papers and property to which the client is entitled, and refunding any advance payment of fee or expense that has not been earned or incurred.”
Inquiry #12:
May a staff lawyer agree to or participate in IAC’s process for resolving fee disputes with clients? Should the agreement reference the fee dispute resolution program of the State Bar required by Rule 1.5(f) of the Rules of Professional Conduct?
Opinion #12:
The IAC may establish an internal mechanism for reviewing clients’ complaints about legal fees. However, that mechanism will not replace the obligation of a North Carolina lawyer to participate in the North Carolina State Bar’s fee dispute resolution program. Participation in the fee dispute resolution program of the North Carolina State Bar is mandatory for the lawyer when a client requests resolution of a disputed legal fee. Rule 1.5(f).
Inquiry #13:
If a client disputes a fee, should the amount of any fee previously paid by the client and converted to IAC’s use be deposited in a trust account?
Opinion #13:
No. If fees have been deposited in IAC’s operating account based on a contract providing that the fees were earned upon receipt, there is no requirement to deposit the funds into a trust account pending the resolution of a fee dispute.
Inquiry #14:
A lawyer who is not a director, officer, or manager of IAC is designated as the supervising lawyer for the other lawyers on the staff. Is the supervising lawyer responsible for IAC’s compliance with the Rules of Professional Conduct?
Opinion #14:
Pursuant to Rule 5.1(a), “[a] lawyer who individually or together with other lawyers possesses comparable managerial authority, shall make reasonable efforts to ensure that the firm or the organization has in effect measures giving reasonable assurance that all lawyers in the firm or the organization conform to the Rules of Professional Conduct.” Pursuant to Rule 5.1(b), “[a] lawyer having direct supervisory authority over another lawyer shall make reasonable efforts to ensure that the other lawyer conforms to the Rules of Professional Conduct.”
Inquiry #15:
What are the duties and responsibilities of the subordinate lawyers in the organization relative to compliance with the Rules of Professional Conduct?
Opinion #15:
Rule 5.2 sets out the responsibilities of subordinate lawyers regarding compliance with the Rules of Professional Conduct. Rule 5.2(a) states that a lawyer “is bound by the Rules of Professional Conduct notwithstanding that the lawyer acted at the direction of another person.” However, Rule 5.2(b) states that a subordinate lawyer does not violate the Rules of Professional Conduct “if that lawyer acts in accordance with a supervisory lawyer's reasonable resolution of an arguable question of professional duty.”
Inquiry #16:
IAC maintains a referral list of private lawyers to use when it is necessary to refer a person elsewhere. At the request of management, may a staff lawyer refer an inquiring person to one or two specific lawyers on the list?
Opinion #16:
Yes, if the lawyers are qualified to handle the client’s matter and nothing of value has been given by the lawyers for the referral. Rule 7.2(b).
Inquiry #17:
A BIA representative is designated by IAC as an “Immigration Specialist” on business cards, email, and other written communications to clients and prospective clients. Is a staff lawyer required to take any action to prevent or challenge such designation?
Opinion #17:
Rule 5.5(d) provides that a lawyer “shall not assist another person in the unauthorized practice of law.” If, in the context of IAC’s operations, the use of the term “Immigration Specialist” by a BIA representative is misleading as to the representative’s authority to practice law in North Carolina, then a staff lawyer must take steps to remedy the misrepresentation.
Inquiry #18:
IAC advertises that its legal services are provided at “reasonable prices” without explanation or clarification. Does such a statement violate the advertising rules for lawyers?
Opinion #18:
The statement that legal services are provided at “reasonable prices” is permissible so long as it is truthful. Whether a fee is reasonable depends upon a number of factors, including the current rates in the particular community. See also Rule 1.5(a) (listing factors to be considered in determining whether a fee is clearly excessive).
Inquiry #19:
What duty does a staff lawyer or a supervising lawyer have to review notices that IAC places in newspapers and social media about its legal services for compliance with the advertising rules?
Opinion #19:
A lawyer employed by IAC has a duty to ensure that the content of any information IAC provides to prospective clients about the lawyer or the lawyer's services is truthful and not misleading. Rule 7.1; 2004 FEO 1.
Inquiry #20:
IAC posts the following announcement on Facebook: “IAC will be hosting a FREE citizenship workshop on [date] at [address]. We will help applicants fill out their applications for citizenship and a lawyer will review each application. If you or a friend are interested in getting help with your citizenship application at the workshop, please contact [lawyer].” Does this announcement violate the advertising rules for lawyers?
Opinion #20:
No. IAC may conduct educational workshops for non-clients and may offer to provide free legal services. See RPC 36. IAC may advertise the seminars so long as the advertisements comply with the Rules of Professional Conduct. 2007 FEO 4. To comply with the rules, it may be necessary for the announcement to include any limitations on the free services IAC will provide.
Inquiry #21:
If a staff lawyer concludes that IAC’s current fee structure violates IRS and BIA regulations, what should the staff lawyer do?
Opinion #21:
Pursuant to Rule 1.13(b), if a lawyer for an organization knows that an officer, employee, or other person associated with the organization is engaged in action that:
is a violation of law which reasonably might be imputed to the organization, and is likely to result in substantial injury to the organization, then the lawyer shall proceed as is reasonably necessary in the best interest of the organization. Unless the lawyer reasonably believes that it is not necessary in the best interest of the organization to do so, the lawyer shall refer the matter to higher authority in the organization, including, if warranted by the circumstances, to the highest authority that can act on behalf of the organization as determined by applicable law.
Rule 1.13(c) further states that:
If, despite the lawyer's efforts in accordance with paragraph (b), the highest authority that can act on behalf of the organization insists upon action, or a refusal to act, that is clearly a violation of law and is likely to result in substantial injury to the organization, the lawyer may reveal such information outside the organization to the extent permitted by Rule 1.6 and may resign in accordance with Rule 1.16.