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A PRACTICING ATTORNEY MAY NOT ETHICALLY FORM A CORPORATION WITH
OTHER INDIVIDUALS TO MARKET ITS SERVICES TO PROFESSIONAL ATHLETES
WHICH WOULD INCLUDE CONTRACT NEGOTIATION, FINANCIAL PLANNING,
ESTATE PLANNING, TAX RETURN PREPARATION, BUDGETING, PERSONAL APPEARANCES,
PRODUCT ENDORSEMENTS AND OTHER MANAGEMENT FUNCTIONS, THE LEGAL
OR QUASI-LEGAL ASPECTS OF WHICH WOULD BE HANDLED BY THE ATTORNEY
FROM HIS PRIVATE LAW OFFICE.
You have requested an opinion of The Advisory Committee of the Nebraska
State Bar Association concerning the propriety of an attorney entering
into a business relationship as set forth below while continuing
in the private practice of law.
FACTS
An attorney, who is presently in the private practice of law, desires
to form, by incorporation, a company with several other individuals
the purpose of which would be to enter into the field of sport commodity
marketing. The company would provide and market its services to
professional athletes. These services would include contract negotiations,
financial planning, estate planning, tax return preparation, budgeting,
personal appearances, product endorsements, and other management
functions. The company would advertise its services primarily through
a direct mail campaign and would also promote its activities through
the use of personal solicitation.
The attorney would direct and provide all necessary legal and quasi-legal
activities as they were encountered in the management of the athlete's
affairs. In addition to his duties with the company, the attorney
would continue to practice law privately. All company related activities
would be conducted from his private law office.
APPLICATION DISCIPLINARY RULES
DR 2-101 Publicity in General
DR 2-102 Professional Notices, Letterheads,
offices and Law Lists
DR 2-103 Recommendation
of Professional Employment
DR 3-101 Aiding Unauthorized Practice of
Law
DR 3-102 Dividing Legal Fees with a Non-Lawyer
DR 3-103 Forming a Partnership with a Non-Lawyer.
QUESTIONS PRESENTED
(1) Is it permissible for the attorney to
be associated with the sport management company and to continue
in the private practice of law? To what extent is such participation,
if any, permissible; (director, officer, employee, shareholder)?
(2) May company advertising and solicitation
refer to the attorney and/or his qualifications? May it refer
to a non-descript "legal staff"?
(3) Is it permissible for the attorney
to remain separate and apart from the company and yet to make
an arrangement with the company which, in effect, ties the company
to the attorney as exclusive legal services representative for
the company and its clients? May the company solicit clients and
then retain the attorney to perform the legal and quasi-legal
management functions for these clients?
DISCUSSION
The questions presented above cover a broad range of ethical considerations.
While the question of a practicing attorney participating in a
sport management company as a legal consultant has never in the
past been presented to this committee nor to the committee on
Professional Ethics of the American Bar Association, these committees
have, many times, considered the problem of a practicing attorney
who wishes to also engage in another business. A general statement
of the problem in found in Legal Ethics by Henry S. Drinker at
page 221:
... There is, of course, nothing in the Canons to prevent this (a
practicing lawyer carrying on another business) as to an occupation
entirely distinct from and unrelated to his law practice. Thus,
no one would dispute the right of a lawyer to be a teacher or a
violinist or doctor or a farmer, or to sell rare postage stamps,
provided he in no way used such occupation to advertise, or as a
feeder to his law practice .... Where, however, the second occupation,
although theoretically and professedly distinct, is one closely
related to the practice of law, and one which normally involves
the solution of what are essentially legal problems, it is inevitable
that, in conducting it, the lawyer will be confronted with situations
where, if not technically, at least in substance, he will violate
the spirit of the Canons, particularly that precluding advertising
and solicitation. The likelihood of this is the greatest when the
collateral business is one which, when engaged in by a lawyer, constitutes
the practice of law, and when engaged in from his law office...
This Committee has stated in its Formal Opinions No. 72-4
relating to an attorney engaging both in general practice and in
the operation of an insurance investigation and adjustment bureau
(citing Formal Opinion No. 57 of the American Bar Association Committee
on Professional Ethics):
. It is not necessarily improper for an attorney to engage in a
business; but impropriety arises when the business is of such a
nature or is conducted in such a manner as to be inconsistent with
the lawyers duties as a member of the Bar. Such an inconsistency
arises when the business is one that will readily lend itself as
a means for procuring professional unemployment for him, is such
that it can be used as a cloak for indirect solicitation on his
behalf, or is of a nature that, if handled by a lawyer, would be
regarded as the practice of law.... Some businesses in which laymen
engage are so closely associated with the practice of law that their
solicitation of business may readily become a means of indirect
solicitation of business for any lawyer that is associated with
them.... It is difficult to conceive how a lawyer could conduct
a claim adjustment bureau, a company for the organization of corporations,
or a bureau for securing income tax refunds, without practicing
law. In performing the services which he would ordinarily render
in connection with any of these activities, his professional skill
and responsibility as a lawyer would be engaged. The fact that a
layman can lawfully render certain service does not necessarily
mean that it would not be professional service when rendered by
a lawyer. On the contrary, lawyers are frequently called upon to
render such service for the very reason that it can be better rendered
by a lawyer...
The American Bar Association Committee on Ethics has concluded that
the following occupations are so closely related to the practice
of law that a practicing attorney cannot ethically engage in them
as a second occupation:
Opinion 75 (March 19, 1932) - Insurance claims adjuster, Opinion
31 (March 2, 1931) - A corporation service business, Opinion 225
(July 12, 1941) - A collection agency, Opinion 234 (February 21,
1942) - An income preparation service, Opinion 269 (June 21, 1945)
- A lawyer may not, at the same time, practice law and engage in
the practice of accounting in partnership with a non-lawyer, Opinion
272 (October 25, 1946) - A practicing lawyer may not, at the same
time, hold himself out as a lawyer and as a CPA even from different
office locations.
A summary of the criteria developed over the years by the ABA Committee
to be used in determining whether a particular second occupation
is ethically permissible is set forth in ABA Formal Decision No.
775 (February 15, 1965). A practicing attorney will not necessarily
be in violation of the Code of Professional Responsibility if the
second occupation:
1 . Is clearly not necessarily the practice
of law when conducted by a lawyer, and
2. Can be conducted in accordance with and
so as not to violate the (Code of Professional Responsibility),
and
3. Is not used or engaged in in such a manner
as to directly or indirectly advertise or solicit legal matters
for the lawyer as a lawyer, and
4. If it will not "inevitably serve"
as a feeder to the lawyers law practice, and
5. If it is not conducted in or from a lawyer's
law office, except in cases where the volume of the law practice
and business is so small that separate quarters for either is not
economically feasible and where, even in such cases, there is no
indication on shingle, office, door, letterhead or otherwise that
the lawyer engages in any activity therein except the practice of
law.
This Committee has adopted in general the foregoing criteria in
its Formal Opinions Nos. 68-3, 72-4, 72-5, 74-3 and 75-5.
It is the opinion of this Committee that, under the criteria set
forth above, the participation by a practicing attorney in the sports
management company, as proposed, is prohibited by the Code of Professional
Responsibility. First, the attorney's express function in the company
will be to render legal advice to company clients. Clearly the lawyer's
duties will constitute the practice of law. Second the company proposes
to advertise and solicit for clientele. Such advertising would constitute
indirect advertising and solicitation of legal matters for the benefit
of the attorney and his legal practice. Advertising and solicitation,
whether direct or indirect is prohibited by Disciplinary Rules 2-101
and 2-102. Third, it appears to this Committee that the proposed
sport management company would "inevitably serve" to feed
the law practice of the attorney. Fourth, the attorney proposes
to conduct the business of sport management from his present law
office. Such an a arrangement would create the appearance of a feeder
business and improper solicitation. In summary, it is the view of
this Committee that the proposed company and the practice of law
are so closely related that a practicing attorney could not engage
in the sports management business without violating the provisions
of the Code of Professional Responsibility.
The extent of participation by the attorney in the company would
not alter the Committee's conclusion as stated herein. It is obvious
that as a director, officer or employee of the company, the attorney
would be in a position to feed his private law practice and, as
proposed, the company would do so. In addition, the attorney's private
practice would benefit from the sports management company's solicitation
and advertising.
In its Formal Opinions No. 72-4 this Committee considered
the propriety of a practicing attorney engaging also in the insurance
adjusting business where the business was incorporated and where
the attorney was a shareholder in the business. The attorney, in
that case, proposed to withdraw as an officer or director of the
corporation. The Committee held that the incorporation of such a
business would not remove the objectionable features of the situation
since the attorney would remain an owner of the second business.
The same reasoning can be applied to the present case. As a shareholder
of the sports management company the attorney would be in a position
to utilize the business as a feeder to and as a means of utilizing
indirect solicitation for the benefit of his private practice.
The factual situation posed does not indicate
whether the other individuals involved in the formation of the company
are attorneys or laymen. DR 3-103 provides that, "... A lawyer
shall not form a partnership with a non-lawyer if any of the activities
of the partnership consist of the practice of law..." BC 3-8
states in part, "...Since a lawyer should not aid or encourage
a layman to practice law, he should not practice law in association
with a layman or otherwise share legal fees with a layman..."
Under these provisions of the Code the attorney would be in violation
of the Code if he formed a corporation or partnership with laymen
to provide legal services to its clients. Since the sports management
company, as proposed, would provide legal service to its clients
it would be impermissible under DR 3-103 and EC 3-8 for the attorney
to participate in such a company if the other individuals involved
are laymen.
In response to the second question posed, any advertising or solicitation
by the sports management company which refers to the attorney by
name and/or to his qualifications as an attorney would directly
violate the provisions of DR 2-101 of the Code of Professional Responsibility.
You have also asked whether the company could, in its advertising,
make reference to a non-descript "legal staff". It should
first be noted that this Committee can only consider questions concerning
professional ethics of members of the legal profession. It cannot
consider questions of law. Assuming that no attorney was participating
in the company, no issue of legal ethics would be presented even
if the company advertised itself as having a legal staff. While
such an advertisement would certainly be misleading to the public
this Committee would have no authority to prohibit the advertisement's
use as no member of the legal profession would be involved. In the
event, however, that an attorney became involved in the situation
by accepting referrals from the company using the advertisement
or otherwise, a question of professional conduct would be presented.
In such a case this Committee would have the jurisdiction to rule
on the propriety of the attorney's participation. It is the opinion
of this Committee that any attorney accepting referrals from a company
advertising a non-descript "legal staff" would thereby
be benefiting from the company's solicitation of clients and by
accepting such referrals would be in violation of the provisions
of the Code of Ethics against indirect advertising or solicitation.
Finally, you have asked what arrangements are permissible to "tie"
the management company to the attorney so that he will be the exclusive
legal services representative for the company and its clients. An
attorney is not prohibited, under the Code, from contracting with
a client who has requested his legal service to provide the requested
service. In the present case there would be no unethical conduct
if the attorney would contract with the company to provide legal
services for the company itself. In such a case the company would
be the client and the arrangement would amount to nothing more than
a common retainer. Where, however, the attorney desired to enter
into an agreement with the company whereby the company would be
bound to refer not only its own legal work but that of its clients
to the attorney, the Code of Ethics would be violated.
Disciplinary Rule 2-103 states in part:
(A) A lawyer shall not recommend employment,
as a private practitioner, of himself, his partner or associate
to a non-lawyer who has not sought his advice regarding employment
of a lawyer.
(B) Except as permitted under DR 2-103 (C)
a lawyer shall not compensate or give anything of value to a person
or organization to recommend or secure his employment by a client,
or as a reward for having had a recommendation resulting in his
employment by a client.
(C) A lawyer shall not request a person
or organization to recommend employment, as a private practitioner,
of himself, his partner, or associate ...
(D) A lawyer shall not knowingly assist
a person or organization that recommends, furnishes or pays for
legal services to promote the use of his services or those of his
partners or associates ...
(E) A lawyer shall not accept employment
when he knows or it is obvious that the person who seeks his services
does so as a result of conduct prohibited under this Disciplinary
Rule.
This rule makes it clear that an attorney is prohibited from recommending
his employment as a private practitioner both personally or indirectly
through another person or organization. The attorney cannot request
a person or organization to recommend his employment nor can the
attorney assist any person or organization in the promotion of the
use of his services.
It is the opinion of this Committee that any arrangement between
the company and the attorney whereby the company agreed to refer
its clientele to the attorney would violate the provisions of DR
2-103 (A), (C), (D) and (E). In addition, DR 2-103 (B) prohibits
the payment of compensation to the company by the attorney for clients
referred and DR 3-102 prohibits the sharing or splitting of legal
fees for services rendered by the attorney with the company. The
attorney may, however, accept referrals from the company provided
such referrals are not in conflict with DR 2-103 and DR 2-101 of
the Code.
It should be noted that the attorney must be very careful to avoid
any appearance of a tacit agreement for client referrals from the
sports management company since he has participated in the company's
formation. The burden will be upon the attorney to refuse the referral
of any employment if the attorney knows or has reason to know that
the referral is being made as a result of any conduct prohibited
under DR 2-103.
CONCLUSION
Answers to the questions presented are as follows:
1. Not permissible
to any extent.
2. Not permissible.
3. It is permissible for the attorney to
enter into a contract amounting to a retainer with the company whereby
the attorney provides the company with legal service as to company
affairs only. It is not permissible for the attorney and the company
to enter into an agreement whereby the company agrees to exclusively
refer its clientele to the attorney. The attorney may accept referrals
of company clientele conditioned, however, upon complete compliance
with the provisions of DR 2-103 and DR 2-101. The attorney may not,
under any circumstances, enter into a fee splitting arrangement
with the company for referrals made nor should he in any way compensate
the company for such referrals.
76-7, June 9, 1976
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