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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(1) May one law firm be "of counsel" to another law firm?
(2) Is the answer the same if the "of counsel" firm is not located in California?
While a law firm may be "of counsel" to another regardless of the situs of the "of counsel" firm, in undertaking such an arrangement, care must be taken to ensure that the designation of a law firm as "of counsel" does not confuse, mislead or deceive the public: that the fee splitting rules are complied with and that clients are advised of any conflicts of interests that may arise as a result of the "of counsel" arrangement with another law firm.
Rules 2-101(A)(2), 2-101(A)(3), 2-108 and 5-102(B) of the Rules of Professional Conduct of the State Bar of California.
The Committee's opinion has been requested about the propriety of a law firm establishing an "of counsel" relationship with an out of state law firm. Although it finds no per se ethical impropriety, there are several Rules of Professional Conduct which may determine whether such an affiliation would be proper.
The term "of counsel" is not subject to a clear definition of a legal relationship such as "partnership" and "law corporation." It is not defined in any statute or case. At one time, however, the American Bar Association in its Model Code of Professional Responsibility, which is not binding upon members of the State Bar, (State Bar of California Formal Opinion 1983-71) addressed the term "of counsel." In relevant part DR 2-102(A) provided:
. . . [a] lawyer may be designated "Of Counsel" on a letterhead if he has a continuing relationship with a lawyer or law firm other than as a partner or associate.
The American Bar Association in Formal Ethics Opinion 330 described an "of counsel" relationship as follows:
The lawyer who is described as being "Of Counsel" to another lawyer or law firm must have a continuing semi-permanent) relationship with that lawyer or firm, and not a relationship better described as a forwarder-receiver of legal business. His relationship with that lawyer or firm must not be that of partner (or fellow member of a professional legal corporation) nor that of employee. His relationship with the lawyer or law firm must be a close, regular, personal relationship like for example, the relationship of a retired or semi-retired former partner, who remains available to the firm for consulting and advice, or a retired public official who regularly and locally is available to the firm for consultation and advice. While it would be misleading to refer to a lawyer who shares in the profits and losses and general responsibility as being "Of Counsel" the lawyer who is of counsel" may be compensated either on a basis of division of fees in particular cases or on a basis of consultation fees.
Subsequently, the American Bar Association issued Informal Ethics Opinion 1173 which concluded that under no circumstances could one law firm be "of counsel" to another. It wrote:
The literal language of DR 2-102(A)(4) provides only that a lawyer may be designated "of counsel." The Code, in our opinion, precludes the use of such designation "of counsel" by the very omission of the words "law firm" in such privileged designation. The second sentence of DR 2-102(A)(4) confirms this interpretation by permitting a "lawyer or law firm" to be designated "General Counsel." In our opinion it is clear by specification as well as by implication that the term "Of Counsel" does not encompass law firms. Because the practice of law is personal in nature and a law firm as such is never admitted to practice in any state, it would be improper, in our judgment, to permit a law firm ever to be designated "Of Counsel" in legal directories, on shingles, letterheads or cards of another lawyer or law firm, wherever located.
DR 2-102(A) was itself deleted prior to the adoption in 1983 of the Model Rules. There is no counterpart to DR 2-102(A) in the Model Rules. The American Bar Association in Formal Opinion 84-351 overruled in part its Informal Ethics Opinion 1173 acknowledging that there can be no per se bar to one firm being "of counsel" to another. It opined, however, that the relationship must still comply with the standards set forth in Formal Opinion 330.
Notwithstanding the absence of a universally accepted definition of the term "of counsel" the term is generally used to describe a relationship between a lawyer or law firm and one listed as "of counsel" in which the person listed as "of counsel" has: (1) a close and personal relationship with the law firm; (2) is available to the listing firm or attorney for consultation and advice; (3) is not a partner, associate, or mere forwarder-receiver of legal business; (4) is compensated on the basis of individual cases; and (5) does not in other respects or in other cases share the continuing obligations of the listing lawyer or law firm.
This customary definition has not been codified by the California Rules of Professional Conduct, by any statute, nor by any decision of the California Supreme Court. Thus, no ethical rule is directly applicable to the posited situation.
Nevertheless, the use of the term does have other ethical implications.1 Lawyers and law firms must use the designation "of counsel" subject to considerations of Rules of Professional Conduct 2-101, 2-108, and 5-102.
Rule 2-101 provides:
(A) A communication is a message concerning the availability for professional employment of a member or member's firm. A communication made by or on behalf of a member shall not:
(1) Contain any untrue statement; or
(2) Contain any matter, or present or arrange any matter in manner or format which is false, deceptive, or mislead the public; or
(3) Omit to state any fact necessary to make the statements made, in light of the circumstances under which they are made, not misleading to the public, . . . [Emphasis added.]
Rule 2-101 applies to what is commonly understood to be "advertising," such as, paid advertisements in newspapers, magazines, and on television and radio. It is also applicable to other messages "concerning the availability for professional employment," such as letterheads. (See State Bar of California Formal Opinions 1971-27 and 1982-66.)
Consistent with Bates v. State Bar of Arizona (1977) 433 U.S. 350 [97 S.Ct. 2691], In re R.M.J. (1982) 455 U.S. 191 [1055 S.Ct. 929], and Zauderer v. Office of Disciplinary Counsel (1985) 105 S.Ct. 2265, the State Bar may regulate the advertising of its members, consistent with the First Amendment, to ensure that it is not false, deceptive, or misleading. (See also, Jacoby v. State Bar (1977) 10 Cal.3d 359, 366; Leoni and Slate v. State Bar (1985) 39 Cal.3d 609; State Bar of California Formal Opinion 1971-27 [lawyers may not use a firm name which implies the existence of a partnership where none exists]; State Bar of California Formal Opinion 1982-66 [a lawyer or law firm may use a trade name as long as it complies with rule 2-101]; State Bar of California Formal Opinion 1982-67 [a lawyer may send letters to potential clients advising of fees and costs as long as it complies, inter alia, with rule 2-101]; American Bar Association Formal Opinion 84-351.)
The Committee is of the opinion that an advertisement or a letterhead which identifies an "of counsel" relationship, however defined, might be, if not false or deceptive, at least a situation ". . which tends to confuse, deceive, or mislead the public in several ways."
To avoid misleading the public, a lawyer or law firm contemplating listing an out of state law firm as "of counsel" must negate any impression that the firm is a California firm, that the firm employs lawyers licensed to practice in California (unless true), or that the firm is available for employment in California when it is not. (Bus. & Prof. Code, 6126.) When a California firm lists on its letterhead an attorney who is not licensed to practice law in California, an appropriate disclosure must be made. (Los Angeles Formal Opinion 332 (January 18, 1973); cf. Los Angeles Formal Opinion 391.)
Language designed to clarify the status of the "of counsel" law firm (such as "A New York Law Firm") would be sufficient to make clear to the public that the "of counsel" firm is not a California firm, and thus avoid confusing, deceiving, or misleading the public.
Rule 2-101(A)(1) may also apply if the "of counsel" firm is not reasonably available to the listing firm. A member of the public could be influenced to retain the listing firm due to expected availability of the "of counsel" firm. This would be misleading if the listing firm knows or reasonably should know that the "of counsel" firm is not actually available to assist its clients.
Rule 2-108 provides that no attorney shall divide a fee with another lawyer who is not a partner or associate of the firm unless (1) the client consents in writing after full disclosure, and (2) the total fee is not increased solely because of the agreement to divide fees. (See Moran v. Harris (1982) 131 Cal. App.3d 913.) Because a law firm which is described as "of counsel" is not a partner or associate of the listing firm, rule 2-108 must be complied with. Rule 2-108 requires written consent to divide fees when the "of counsel" relationship refers to forwarding and receiving legal business. (See American Bar Association Informal Opinion 1315.) On the other hand, if the relationship contemplates that the "of counsel" firm will be compensated at straight hourly rates by the client (directly or indirectly) without any share paid to the listing firm, rule 2-108 would not apply. (Los Angeles Bar Association Formal Opinion 392.)
In any "of counsel" relationship, care must be taken to ensure that both firms comply with rules 4-101 and 5-102.2 (See e.g., Raley v. Superior Court (1983) 149 Cal. App.3d 104; Chambers v. Superior Court (1981) 121 Cal. App.3d 893; Dill v. Superior Court (1984) 158 Cal.App.3d 301.) Whether the conflict of interest rules are applicable will depend upon the particular relationships of the law firms to their respective clients and to themselves.
If the relationship being described conforms to the traditional definition of "of counsel," then rule 5-102(B) is applicable, as concluded in Bar Association of San Francisco Formal Ethics Opinion 1985-51. On the other hand, application of rule 5-102 to non-traditional relationships is problematic. The two law firms may be sufficiently separate and distinct to avoid any conflict of interest considerations.
The prudent lawyer would, however, err on the side of disclosing to all affected clients any actual or potential conflicts of interest that may arise due to the "of counsel" arrangement.
This opinion is issued by the 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.
1 Although there is no statutory or strictly legal basis to adopt the ABA's definition, the Committee believes that the ABA's definition is useful and commonly understood by members of the bar in this state. Consequently, as a matter of effective and clear communication to fellow attorneys - as well as to the general public - a prudent lawyer should use the term "of counsel" only when the relationship substantially conforms to the ABA definition in former DR 2-102. Such a restrictive usage can eliminate confusion and ensure that it remains a meaningful term, even among attorneys themselves.
2 Rule of Professional Conduct 5-102 provides:
(A) A member of the State Bar shall not accept professional employment without first disclosing his relation, if any, with the adverse party, and his interest, if any, in the subject matter of the employment. A member of the State Bar who accepts employment under this rule shall first obtain the client's written consent to such employment.
(B) A member of the State Bar shall not represent conflicting interests, except with the written consent of all parties concerned.
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