UPON THE REQUEST OF A MEMBER OF THE SOUTH CAROLINA BAR, THE ETHICS ADVISORY COMMITTEE HAS RENDERED THIS OPINION ON THE ETHICAL PROPRIETY OF THE INQUIRER鈥橲 CONTEMPLATED CONDUCT. THIS COMMITTEE HAS NO DISCIPLINARY AUTHORITY. LAWYER DISCIPLINE IS ADMINISTERED SOLELY BY THE SOUTH CAROLINA SUPREME COURT THROUGH ITS COMMISSION ON LAWYER CONDUCT.
Ethics Advisory Opinion 00-16
Attorney, the owner of a small law firm, who practices exclusively in the area of consumer bankruptcy, has been approached by an out-of-state law firm (A Firm, which has asked Attorney to assist Firm with regard to a limited area of Firm's practice. Firm is a for profit law firm that provides debt management services for a fee. No attorney or member of Firm is licensed to practice in South Carolina, and Attorney is not licensed to practice in the jurisdiction of Firm. Attorney would be paid a referral fee for any potential client interviewed by Attorney who Attorney decides would not be a good candidate for bankruptcy, but who may in fact benefit from a debt management service.
In return, Firm would refer potential clients to Attorney if Firm believes the client may be better served by bankruptcy filing than by a debt management service. Firm will receive no fee for its referral to Attorney.
Firm has also asked Attorney to be of counsel to assist Firm with any litigation Firm may encounter in its debt management service cases. For this service, Firm would pay Attorney a monthly retainer.
QUESTION:
Does the above-described arrangement conflict with any ethical rules?
Assuming that Firm's debt management services do not amount to the unauthorized practice of law, Attorney may ethically receive a fee from Firm for referring clients who Attorney decides would not be good candidates for bankruptcy and who may benefit from debt management, provided the lawyer complies with Rule 1.7(b). Attorney may accept referrals of potential clients from the Firm, as long as the referral of those potential clients is not contingent upon, or in exchange for, the Attorney having referred customers to the Firm. The proposed "Of Counsel" arrangement might involve the lawyer in assisting Firm in the unauthorized practice of law, but could be restructured to avoid this problem.
OPINION:
An initial question is whether Firm's debt management services constitute the practice of law. While debt management services would not seem to be the practice of law, when conducted by a Law Firm without separation from its general practice, they might be treated differently. If so, Attorney could not ethically participate in the arrangement because he would be assisting in the unauthorized practice of law in violation of Rule 5.5(b). What constitutes the unauthorized practice of law is a question of law which the Committee cannot address.
Assuming that Firm's debt management services do not amount to the unauthorized practice of law, Attorney may ethically receive a fee from Firm for referring clients who Attorney decides would not be good candidates for bankruptcy and who may benefit from debt management. The lawyer must comply with the requirements of Rule 1.7(b), which requires disclosure and consent of the client when the lawyer's representation may be materially limited by the "lawyer's own interests." In the Committee's opinion the referral fee involved in this situation is similar to commissions from title insurance companies, which the Committee has found to be ethical provided they are fully disclosed and consented to by the client. See S.C. Ethics Adv. Op. #92?03 and 82?20.
It might be argued that Attorney is indirectly giving something of value by referring potential debt management clients to Firm. Mutual referrals between firms are not necessarily unethical, if there is no quid pro quo for the referrals. However, if the referral of clients to Attorney by the Firm is contingent upon Attorney, in return, referring debt management clients to Firm, then the relationship would violate Rule 7.2(c). See S.C. Ethics Adv. Op. 90-40 (finding it improper for a lawyer to agree to protect a doctor's fees in exchange for doctor referring patients to lawyer). From the facts given, the committee cannot determine in this case whether an inappropriate quid pro quo exists for the referral of clients to Attorney.
The proposed "Of Counsel" relationship is somewhat more troubling to the Committee. The Committee assumes from the question that under the proposed arrangement Firm would enter an appearance in South Carolina on behalf of debt management clients involved in litigation though Attorney as local counsel. If the Firm plans to appear in South Carolina to represent these clients in litigation through Attorney, the Firm is 91黑料爆料arly practicing law in South Carolina. The Committee questions whether an out-of-state firm can practice law in South Carolina when the only South Carolina lawyer is neither a partner nor an associate of the firm but is of counsel. This question is beyond the scope of the Committee's jurisdiction. Rather than appearing in South Carolina, Firm could simply refer debt management clients to Attorney to handle in South Carolina. These clients could pay Attorney directly for his services, or Firm could agree to pay Attorney for his services on an hourly basis or pursuant to a retainer. If Firm is paying Attorney's fees, Attorney must comply with Rule 1.8(f).