Editor's Note:
State Bar Ethics Opinions cite the applicable California Rules of Professional Conduct in effect at the time of the writing of the opinion. Please refer to the California Rules of Professional Conduct Cross Reference Chart for a table indicating the corresponding current operative rule. There, you can also link to the text of the current rule.
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May an attorney ethically become a member of a service exchange?
It is improper for an attorney to participate in a service exchange in which a portion of the fees earned by the attorney is paid directly to the exchange.
Rules 2-101, 2-104(B)(C) and 3-102 of the Rules of Professional Conduct of the State Bar.
The Committee has been asked for an opinion on the propriety of a lawyer participating in a service exchange business which operates in the following fashion: A potential member is charged a fee for membership and pays a substantially larger amount annually for dues. Members are asked to perform services for other members of the organization. An attorney member would be asked by the exchange to perform legal services for another member charging his normal fee. The amount of the fee would be entered into the books of the exchange as a credit which the attorney member may use to obtain products or services from any other member of the exchange. However, when the amount of the "credit" in the exchange is to be utilized for purchases, ten percent of the amount of the purchase must be paid in cash to the exchange. The questioner asks if there are any ethical problems involved and further asks if it is appropriate to do legal work for the exchange itself, in addition to being a member of the organization.
It is the opinion of the Committee that participating in such an organization is a violation of rules 2-104(B) and 3-102 of the Rules of Professional Conduct.
Rule 2-104(B) of the Rules of Professional Conduct provides as follows:
"Except as permitted under Rule 2-104(C), a member of the State Bar 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."
Rule 2-104(C) of the Rules of Professional Conduct states that it is not a violation of the rules for a California lawyer to participate in an approved lawyer reference service.
Rule 3-102 of the Rules of Professional Conduct provides, in pertinent part:
"A member of the State Bar or a firm of which he is a member shall not directly or indirectly share legal fees except with a person licensed to practice law."
It is the opinion of this Committee that membership by a lawyer in a group as described is improper for at least two reasons. First, the service exchange appears to be a form of solicitation of professional employment contrary to the provisions of rule 2-101 of the Rules of Professional Conduct which provides that "a member of the State Bar shall not solicit professional employment by advertisement or otherwise." The membership of the exchange organization is a captive clientele; because of the exchange arrangement, it is forced to utilize the services of a lawyer-member of the exchange in order to make better use of credits accumulated by the members.
Second, the arrangement appears to violate rules 2-104(B) and 3-102 of the Rules of Professional Conduct because the lawyer-member is giving ten percent of his fee to the organization which has, in effect, secured employment for him. The use of ten percent payment is also a form of fee sharing explicitly prohibited by rule 3-102 of the Rules of Professional Conduct. The Committee's opinion would not be different even if the payment were made at the time the credit was entered for the billings to clients. No matter how viewed, the payment of a percentage of the lawyer's fee is improper under the Rules of Professional Conduct.
The Committee notes that informal opinion No. 1965-18 of the Committee on Legal Ethics of the Los Angeles County Bar Association is to the same effect, finding violation of former canons 27 and 34 of the American Bar Association Canons of Ethics. An analgous situation is discussed in American Bar Association Committee on Ethics and Professional Responsibility, informal opinion No. 1236 (1972), in which the attorney-member gave a discount on his services to members of the organization. The conclusions expressed in this opinion are similar to ours. The Committee is aware of, but disagrees with, the opinion of the Committee on Professional Ethics of the Association of the Bar of the City of New York No. 273, issued April 20, 1933, in the midst of the Great Depression. While the analysis of the problem and the application of the appropriate standards of conduct to the fact situation is correct, the conclusion appears to have been colored by the effects of the Depression on the economic situation of both lawyers and their clients.
With respect to the question posed as to whether or not the lawyer could represent the organization itself, the Committee is of the opinion that it is entirely appropriate that the organization itself have legal counsel, but this is separate from the question of the lawyer himself becoming a member of the organization. In the question presented, it is not clear as to whether or not the lawyer contemplates being hired on a fee basis to represent the members of the organization. If interpreted in this manner, the question presents substantial problems with respect to a lay intermediary coming between a lawyer and his clients as well as the further problems of a lay organization obtaining clients, for a fee, for the lawyer. Interpreted in this light, the question seems to go beyond the scope of the basic problem posed by the inquiry.
As described in the inquiry letter, the exchange is a profit-making organization. It is further the opinion of this Committee that the identical ethical problems would arise even if the exchange were a nonprofit organization run solely for the benefit of its members
Nothing in this opinion should be taken as precluding any lawyer from agreeing to accept goods or services in exchange for the lawyer's services, but such an agreement should be made only in direct negotiations between client and lawyer.
This opinion is issued by the Standing Committee on Professional Responsibility and Conduct of The State Bar of California. It is advisory only. It is not binding upon the courts, The State Bar of California, its Board of Governors, any persons or tribunals charged with regulatory responsibilities, or any member of the State Bar.
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