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Ethics Opinions from the Bar Association of San Francisco

INFORMAL OPINION 1973-27

A non-profit organization which actively solicits persons with consumer complaints contacted a law firm requesting that it undertake representation of a specific group of consumers in connection with fraudulent sales practices. The firm agreed to represent the consumers and signed individual retainer contracts on a contingent fee basis. A successful settlement of the issues was obtained. The firm directly paid a volunteer for the organization for investigative services performed in connection with the legal suits. The organization has now requested a contribution from the law firm in direct proportion to the fees which it earned as a result of representing the consumers with the implied understanding that if the contribution is made, further case referrals will be made by the organization to the law firm.

  1. It would be improper for the law firm to make the requested contribution.
  2. If a continuing referral relationship were established between the organization and the law firm, it would be improper to pay the organization for investigative services and to make contributions to it as proposed.

FACTS:

A nonprofit organization which actively solicits persons with consumer complaints contacted a law firm requesting that it undertake representation of a specific group of consumers in connection with fraudulent sales practices. The firm agreed to represent the consumers and signed individual retainer contracts on a contingent fee basis. A successful settlement of the issues was obtained. The firm directly paid a volunteer for the organization for investigative services performed in connection with the legal suits. The organization has now requested a contribution from the law firm in direct proportion to the fees which it earned as a result of representing the consumers with the implied understanding that if the contribution is made, further case referrals will be made by the organization to the law firm.

QUESTION:

  1. Would it be improper for the law firm to make the requested contribution? Yes.
  2. Should there be a continuing referral relationship between the organization and the law firm, would future payments for investigative services and contributions be improper? Yes.

DISCUSSION:

The proposed questions are covered by Rules 2, 3 and 20 of the California Rules of Professional Conduct and Disciplinary Rule 2-103 and Ethical Consideration 2-8 of ABA Code of Professional Responsibility. The applicable provisions of these rules are as follows:

California Rule 2

A member of the State Bar shall not solicit professional employment by advertisement or otherwise.

California Rule 3

A member of the State Bar shall not employ another to solicit or obtain, or renumerate another for soliciting or obtaining, professional employment for hirn; nor, except with a person licensed to practice law shall he directly or indirectly share compensation arising out of or incidental to professional employment, nor shall he directly or indirectly aid or abet any person not so licensed, or any association or corporation, to practice law or to receive compensation therefrom.

California Rule 20

The furnishing of legal services by a member of the State Bar pursuant to an arrangement for the provision of such services to the individual members of a group as herein defined, at the request of such group, is not of itself a violation of Rules 2 or 3 of these rules . . . if the arrangement:

(2) is so administered and operated as to prevent:

(a) such group, its agents or any member thereof from directly or indirectly deriving a profit from or receiving any part of the consideration paid to the member of the State Bar for the rendering of legal services thereunder.

As used in this Rule a group means a professional association, trade association, labor union or other nonprofit organization or combination of persons, incorporated or otherwise, whose primary purposes and activities are other than the rendering of legal services.

ABA Code DR 2-103(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 made a recommendation resulting in his employment by a client.

DR 2-103(C) A lawyer shall not request a person or organization to recommend employment, as a private practitioner of himself, his partner, or associate, except that he may request referrals from a lawyer referral service . . .

DR 2-103(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. However, he may cooperate in a dignified manner with the legal service activities of any of the following . . . :

(5) Any other nonprofit organization that recommends, furnishes or pays for legal services to its members or beneficiaries, . . . only if the following conditions . . .are met:

  • Such organization does not derive a financial benefit from the rendition of legal services by the lawyer.

EC 2-8 In order that a recommendation (of a lawyer) be disinterested, a lawyer should not seek to influence another to recommend his employment. A lawyer should not compensate another person for recommending him, for influencing a prospective client to employ him, or to encourage further recommendations.

The ethical propriety of representing members of or persons solicited by organizations which recommend legal services has been presented in a series of cases involving The Brotherhood of Railroad Trainmen and which led to the adoption of the California and ABA rules regarding group legal practices. The leading California case is Hildebrand v. State Bar , 36 Cal 2d 504, 225 P2d 508 (1950) in which an arrangement between the Union and its regional counsel originally called for a contract to be concluded directly between an injured Union member and the counsel providing for a contingent fee of 20% to cover compensation for legal services and expense of the suit including court costs. 1/4 of the net fee was to be turned over to the Union as a contribution for the maintenance of its legal aid department, which provided an investigative service to the counsel with investigators assigned to report on the facts of an accident case. A subsequent change in the plan called for two separate contingent fee contracts, one signed by the Union member with the attorney covering legal services for 19% of the recovery, and one signed with the Union for 6% of the recovery constituted a contingent contribution to the Union for maintenance of its legal aid department. A final plan called for a 25% contingent fee to accrue to the attorney and required him to compensate the investigators employed by the Union. The Court held the attorneys involved had violated both Rule 2 against solicitation and Rule 3 forbidding fee splitting with laymen, at least as to the first two plans and by implication as to the third plan, since the general channeling of legal work continued as a prevailing procedure.

In 1958, an Illinois case, In Re Brotherhood of Railroad Trainmen , 13 111.2d 391, 150 N.F.2d 163 (1958) cited in In Re Ratner , 194 Kan, 369, 399 P.2d 865 (1965) further held, "No financial connection of any kind between the Brotherhood and any lawyer is permissible. No lawyer can properly pay any amount whatsoever to the Brotherhood or any of its departments, officers or members as compensation, reimbursement of expenses or gratuity in connection with the procurement of a case". This case is cited as the basis for DR 2-103(B) of the ABA Code.

In 1964, however, in the case of Brotherhood of Railroad Trainmen v. Virginia , 377 US 1 (1964), the Supreme Court held that the 1st and 14th Amendments protected the Union's right to maintain a plan for advising workers who were injured to obtain legal advice, and attorneys accepting employment under such plans were held to have like protection. ABA, DR 2-103 and California Rule 20 were promulgated in order to clarify the ethical practices in connection with group legal services. Although the arrangement in question does not fall within the exact language of DR 2-103(B) and Rule 20, because the consumers represented apparently were not members of the nonprofit organization, nevertheless, it is concluded that both Rules were meant to cover such an arrangement, which is similar to the activities of the NAACP which has been involved in cases concerning the ethical propriety of its group legal services. See NAACP v. Button , 371 US 415 (1963).

Accordingly, to make a contribution to the nonprofit organization with the implied understanding of continued case referrals would be a clear violation of DR 2-103(B) and California Rules 2 and 3, and even without such understanding it would appear to be a violation of California Rule 20 and DR 2-103 (D)(5)(C). The issue with respect to direct compensation of the volunteer for the organization for investigative services is somewhat closer. However, it is believed that the volunteer could be found to be an agent of the group under California Rule 20 resulting in its violation. Also, on the basis of Hildebrand v. State Bar , supra , continuing payments for investigative services under a continuing referral relationship could be found to be a violation of Rules 2 and 3. Moreover, Canon 9 of the ABA Code provides that a lawyer should avoid even the appearance of professional impropriety and EC 9-2 states that when explicit ethical guidance does not exist, a lawyer should determine his conduct by acting in a manner that promotes public confidence in the integrity and efficiency of the legal system and the legal profession. Accordingly, it is believed that future payments for investigative services under a continuing referral relationship would be ethically improper.

 

All opinions of the Committee are subject to the following disclaimer:
Opinions rendered by the Ethics Committee are an uncompensated service of The Bar Association of San Francisco. Opinions are advisory only, and no liability whatsoever is assumed by the Committee or The Bar Association of San Francisco in rendering such opinions, and the opinions are relied upon at the risk of the user thereof. Opinions of the Committee are not binding in any manner upon the State Bar of California, the Board of Governors, any disciplinary committee, The Bar Association of San Francisco, or the individual members of the Ethics Committee.

In using these opinions you should be aware that subsequent judicial opinions and revised rules of professional conduct may have dealt with the areas covered by these ethics opinions.

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