AUGUST 28, 1996 FORMAL OPINION 96-39

Transcription

1 AUGUST 28, 1996 FORMAL OPINION The, Coordinator of the Committee on Legal Ethics and Professional Responsibility, has referred to me, a member of that Committee, your law firm's inquiry concerning the operation of a center for mediation (the "Service"), in which the mediators would be members of the firm. Since the firm foresees the Service as a separate entity not subject to the Rules of Professional Conduct (RPC), you received from us and completed the Committee's "Questionnaire Concerning Proposed Ancillary Business." On August 14, 1996, the Pennsylvania Supreme Court adopted new Rule 5.7 of the RPC, entitled Responsibilities Regarding Nonlegal Services, which shall become effective on August 31, A copy of the Rule including the Comments is Appendix A to this letter. Your inquiry has been considered in terms of the new Rule, which was originally drafted by a subcommittee of this Committee. My understanding of the proposed mediation service is based on your completed questionnaire, on a recent phone conversation with you, and on the Fee Agreement- Mediation which customers of the Service are to sign. A corporation created by your law firm is to own and operate the Service, in which you and the leader of the law firm will act as mediators. The leader will be President and will receive 75% of the "receipts of the corporation". You will bear the title of Executive Director, receiving 25%. You advise that in any engagement involving a matrimonial dispute, persons served (sometimes called "customers") will normally be the spouses' attorneys and their clients although on occasion the engagement will involve spouses only. Under no circumstances will the Service serve clients of the law firm, and the law firm will not accept as new clients persons served by the Service. Therefore, no one will receive billings which cover services of both the law firm and the Service. Before the Service approves a new engagement, it will require the prospective parties to mediation to sign the Fee Agreement-Mediation, which specifies, inter alia, that although the mediators are attorneys, no attorney-client relationship shall exist. You have also supplied a Mediation Agreement, which provides the mediator cannot be the individual attorney for any of the parties to mediation. Your advice continues that although the Service and the law firm will share the same premises, they will have separate phone numbers, stationery and malpractice insurance. While mediation sessions will occur in the law firm's conference room, the persons served will under no circumstances enter the individual offices of the lawyers. The Service's separate stationery does name you and the law firm's leader as principals of the Service and does identify each of you as "Esquire." In our conversation you explained the purpose is to make clear that the two of you bring knowledge of the law to the mediation practice.

2 Finally, you advise that non-lawyer personnel of the Service will be instructed to avoid any implication that the persons served are receiving legal services. Mediation appears to be among nonlegal services as defined in the Comment to the new Rule: "... those that are not prohibited as unauthorized practice of law when provided by a nonlawyer." When a lawyer provides the nonlegal service, there is a risk that persons served will assume the service carries with it the protection normally afforded by the attorney-client relationship. Of the three arrangements addressed by, respectively, paragraphs (a), (b) and (c) of Rule 5.7, the mediation service would appear to be an affiliated entity regulated by paragraph (c). The question is whether the lawyer knows or reasonably should know that the recipient might believe the recipient is receiving the protection of a client-lawyer relationship. A similar criterion is in paragraph (a) (2) of Model Rule 5.7 recently adopted by the American Bar Association, which reads as follows: RULE 5.7 RESPONSIBILITIES REGARDING LAW-RELATED SERVICES (a) A lawyer shall be subject to the Rules of Professional Conduct with respect to the provision of law-related services, as defined in paragraph (b), if the law-related services are provided: (1) by the lawyer in circumstances that are not distinct from the lawyer's provision of legal services to clients; or (2) by separate entity controlled by the lawyer individually or with others if the lawyer fails to take reasonable measures to assure that a person obtaining the law-related services knows that the services and that the protections of the client-lawyer relationship do not exist. (b) The term "law-related services" denotes 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. Thus, in both Pennsylvania's new Rule and the ABA Model Rule, there is an emphasis on how a separate entity's customers would perceive the services rendered. The question is whether, notwithstanding your precautionary steps, including the customers' express acknowledgements, the customers could believe they are receiving legal services. Your design for the mediation service does diminish many of the hazards inherent in rendering non-legal services. By barring law firm clients from using the Service and barring the Service's customers from becoming clients, you have taken steps to avoid issues relating to conflict of interest, confidentiality and sharing of fees with non-lawyers.

3 While the use of common premises is often considered misleading, it appears you have taken adequate cautionary measures. However, it would seem that the acknowledgements in the Fee Agreement-Mediation and the Mediation Agreement do no go far enough. Mediation service when performed by a non-lawyer are not the unauthorized practice of law. Furthermore, an attorney who provides mediation can structure the activity in a manner which is not the practice of law or the rendering of legal services. If, however, the activity constitutes the rendering of legal services, the attorney cannot effectively disclaim the attorney-client relationship. The Fee Agreement-Mediation states that the mediators are attorneys and that the mediators will provide information as to "legal rights, the law and procedures." Rather than dispelling any inference that the mediators will be providing legal services, this text seems to reinforce such an inference. With regard to the stationery, you have also acknowledged that one purpose is to call attention to the legal practices of the mediators and to make a distinction from mediation services lacking attorney mediators. The possible message is that the customers will receive more than they would receive from non-attorneys. It is respectfully recommended that you consider altering the stationery and that the Fee Agreement-Mediation contain the additional customer acknowledgement that the customer will not be receiving legal services. Once these suggested changes have been made, it would appear that the recipient should not believe the recipient is receiving the protection of a client-lawyer relationship. Critical to this appraisal, however, is your assurance that no customer of the Service can become a client of the law firm and that no law firm client can become a customer. In the foregoing analysis there has been no consideration of such legislation as may apply to mediation. CAVEAT: THE FOREGOING OPINION IS ADVISORY ONLY AND IS NOT BINDING UPON THE DISCIPLINARY BOARD OF THE SUPREME COURT OF PENNSYLVANIA OR ANY COURT. IT CARRIES ONLY SUCH WEIGHT AS AN APPROPRIATE REVIEWING AUTHORITY MAY CHOOSE TO GIVE IT. MOREOVER, THIS IS THE OPINION OF ONLY ONE MEMBER OF THE COMMITTEE AND IS NOT THE OPINION OF THE FULL COMMITTEE. Annex A RULE 5.7 Responsibilities Regarding Nonlegal Services (a) A lawyer who provides nonlegal services to a recipient that are not distinct from legal services provided to that recipient is subject to the Rules of Professional Conduct with respect to the provision of both legal and nonlegal services. (b) A lawyer who provides nonlegal services to a recipient that are distinct from any legal services provided to the recipient is subject to the Rules of Professional Conduct with

4 respect to the nonlegal services if the lawyer knows or reasonably should know that the recipient might believe that the recipient is receiving the protection of the client-lawyer relationship. (c) A lawyer who is an owner, controlling party, employee, agent, or is otherwise affiliated with an entity providing nonlegal services to a recipient is subject to the Rules of Professional Conduct with respect to the nonlegal services if the lawyer knows or reasonably should know that the recipient might believe that the recipient is receiving the protection of a client-lawyer relationship. (d) Paragraph (b) or (c) does not apply if the lawyer makes reasonable efforts to avoid any misunderstanding by the recipient receiving nonlegal services. Those efforts must include advising the recipient that the services are not legal services and that the protection of the client-lawyer relationship does not exist with respect to the provision of nonlegal services to the recipient. COMMENT: For many years, lawyers have provided to their clients nonlegal services that are ancillary to the practice of law. Nonlegal services are those that are not prohibited as unauthorized practice of law when provided by a nonlawyer. Examples of nonlegal services include providing title insurance, financial planning, accounting, trust services, real estate counselling, legislative lobbying, economic analysis, social work, psychological counseling, tax return preparation, and patent, medical or environmental consulting. A broad range of economic and other interests of clients may be served by lawyers participating in the delivery of these services. In recent years, however, there has been significant debate about the role the Rules of Professional Conduct should play in regulating the degree and manner in which a lawyer participates in the delivery of nonlegal service. The ABA, for example, adopted, repealed and then adopted a different version of Rule 5.7. In the course of this debate, several ABA sections offered competing versions of Rule 5.7. One approach to the issue of nonlegal services is to try to substantively limit the type of nonlegal services a lawyer may provide to a recipient or the manner in which the services are provided. A competing approach does not try to substantively limit the lawyer's provision of nonlegal service, but instead attempts to clarify the conduct to which the Rules of Professional Conduct apply and to avoid misunderstanding on the part of the recipient of the nonlegal services. This Rule adopts the latter approach. The Potential for Misunderstanding Whenever a lawyer directly provides nonlegal services, there exists the potential for ethical problems. Principal among these is the possibility that the person for whom the nonlegal services are performed may fail to understand that the services may not carry with them the protection normally afforded by the client-lawyer relationship. the recipient of the nonlegal services may expect, for example, that the protection of client

5 confidences, prohibitions against representation of persons with conflicting interests, and obligations of a lawyer to maintain professional independence apply to the provision of nonlegal services when that may not be the case. The risk of such confusion is especially acute when the lawyer renders both types of service with respect to the same matter. Providing Nonlegal Services That Are Not Distinct From Legal Services Under some circumstances, the legal and nonlegal services may be so closely entwined that they cannot be distinguished from each other. In this situation, confusion by the recipient as to when the protection of the client-lawyer relationship applies are likely to be unavoidable. Therefore, Rule 5.7 (a) requires that the lawyer providing the nonlegal services adhere to all of the requirements of the Rules of Professional Conduct. In such a case, a lawyer will be responsible for assuring that both the lawyer's conduct and, to the extent required by Rule 5.3, that of nonlawyer employees comply in all respects with the Rules of Professional Conduct. When a lawyer is obliged to accord the recipients of such nonlegal services the protection of those Rules that apply to the clientlawyer relationship, the lawyer must take special care to head the proscriptions of the Rules addressing conflict of interest (Rules 1.7 through 1.11, especially Rules 1.7(b) and 1.8 (a), (b) and (f)), and to scrupulously adhere to the requirements of Rule 1.6 relating to disclosure of confidential information. The promotion of the nonlegal services must also in all respects comply with Rules 7.1 through 7.3, dealing with advertising and solicitation. Rule 5.7 (a) applies to the provision of nonlegal services by a lawyer even when the lawyer does not personally provide any legal services to the person for whom the nonlegal services are performed if the person is also receiving legal services from another lawyer that are not distinct from the nonlegal services. Avoiding Misunderstanding When A Lawyer Directly Provides Nonlegal Services That Are Distinct From Legal Services Even when the lawyer believes that his or her provision of nonlegal services is distinct from any legal services provided to the recipient, there is still a risk that the recipient of the nonlegal services will misunderstand the implications of receiving nonlegal services from a lawyer; the recipient might believe that the recipient is receiving the protection of a client-lawyer relationship. Where there is such a risk of misunderstanding, Rule 5.7 (b) requires that the lawyer providing the nonlegal services adhere to all the Rules of Professional Conduct, unless exempted by Rule 5.7 (d).

6 Avoiding the Application of Paragraphs (b) and (c) Paragraphs (b) and (c) specify that the Rules of Professional Conduct apply to a lawyer who directly provides or is otherwise involved in the provision of nonlegal services if there is a risk that the recipient might believe that the recipient is receiving the protection of a client-lawyer relationship. Neither the Rules of Professional Conduct nor paragraphs (b) or (c) will apply, however, if pursuant to paragraph (d), the lawyer takes reasonable efforts to avoid any misunderstanding by the recipient. In this respect, Rule 5.7 is analogous to Rule 4.3 (c). In taking the reasonable measures referred to in paragraph (d), the lawyer must communicate to the person receiving the nonlegal services that the relationship will not be a client-lawyer relationship. The communication should be made before entering into an agreement for the provision of nonlegal services, in a manner sufficient to assure that the person understands the significance of the communication, and preferably should be in writing. The burden is upon the lawyer to show that the lawyer has taken reasonable measures under the circumstances to communicate the desired understanding. For instance, a sophisticated user of nonlegal serves, such as a publicly-held corporation, may require a lesser explanation than someone unaccustomed to making distinctions between legal services and nonlegal services, such as an individual seeking tax advice from a lawyeraccountant or investigative services in connection with a lawsuit. The Relationship Between Rule 5.7 and Other Rules of Professional Conduct Even before Rule 5.7 was adopted, a lawyer involved in the provision of nonlegal services was subject to those Rules of Professional Conduct that apply generally. For example, Rule 8.4 (c) makes a lawyer responsible for fraud committed with respect to the provision of nonlegal services. Such a lawyer must also comply with Rule 1.8 (a). Nothing in this rule is intended to suspend the effect of any otherwise applicable rule of Professional Conduct such as Rule 1.7 (b), Rule 1.8 (a) and Rule 8.4 (c). In addition to the Rules of Professional Conduct, principles of law external to the Rules, for example, the law of principal and agent, may govern the legal duties owed by a lawyer to those receiving the nonlegal services. CODE COMPARISON: There is no counterpart to this Rule in the Code.