State Bar of Arizona Ethics Opinions

03-03: Unauthorized Practice of Law; Nonlawyers; Paralegals; Creditors of Client
4/2003

Where an Arizona lawyer is asked to assist a non-lawyer in collecting a fee for services that the lawyer believes constitute the unauthorized practice of law ("UPL"), the lawyer may not assist the non-lawyer in drafting or seeking to enforce a contingent fee agreement for services rendered. Nor may a lawyer honor a claim asserted against the lawyer's client for a contingent interest in litigation as compensation for services that constitute UPL.

FACTS [1]

This Opinion concerns an independent paralegal working in Arizona, although not under the supervision of an attorney. The paralegal was hired by several individuals on their behalf, or on behalf of an estate. The individuals and decedents have developed life threatening, and/or life terminating diseases in the course of their occupation. The paralegal conducted a lengthy investigation, piecing together facts and evidence. The paralegal has gathered the opinions of leading expert witnesses in support of the proposition that certain manufacturers and distributors of a particular product are legally responsible for the life-threatening and life-terminating diseases experienced by the individuals and/or their decedents.

The paralegal has entered into a contingent percentage fee agreement with each of the individuals. Each individual assigned to the paralegal a contingent percentage interest in any future recovery that they may obtain from the manufacturers, distributors, or other liable parties. This contingent interest is secured by a lien in the future recovery.

The paralegal is assisting the individuals in interviewing attorneys. The individuals are free to select any attorney and to enter into any appropriate agreement with counsel. The paralegal is not interested in splitting, sharing, or otherwise participating in any fees received by any law firm. The paralegal is, however, concerned about protecting the paralegal's contingent interest in the recoveries and the lien securing that interest.

QUESTIONS PRESENTED

  1. Is it a violation of ER 5.5(b) for an Arizona lawyer to assist the non-lawyer in drafting or seeking to enforce the contingent fee agreement for services that the Arizona lawyer believes constitute the unauthorized practice of law?
  2. Is it a violation of ER 5.5(b) for an Arizona lawyer confronted with a claim by a non-lawyer for services that the lawyer believes constitute the unauthorized practice of law against funds of a client to honor and direct payment of the non-lawyer's claim?

RELEVANT ETHICAL RULES

ER 1.16. Declining or Terminating Representation

(a) Except as stated in paragraph (c), a lawyer shall not represent a client or, where representation has commenced, shall withdraw from the representation of a client if:

(1) the representation will result in violation of the Rules of Professional Conduct or other law;

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ER 5.5. Unauthorized Practice of Law

A lawyer shall not:

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(b) assist a person who is not a member of the bar in the performance of activity that constitutes the unauthorized practice of law.

ER. 8.4. Misconduct

It is professional misconduct for a lawyer to:

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(d) engage in conduct that is prejudicial to the administration of justice;

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OPINION

The Arizona Supreme Court has recently amended Supreme Court Rule 31 to define the unauthorized practice of law. A lawyer or person concerned about whether activities constitute UPL should consider this Rule. The balance of this Opinion will assume that the non-lawyer's activities constitute UPL and that the lawyer has so concluded.

1. Assisting the Paralegal Would Constitute Assistance of the Unauthorized Practice of Law

Ethical Rule 5.5 prohibits the lawyer from assisting in the performance of UPL activity. Drafting a contract to obtain a contingent fee for practices that constitute the unauthorized practice of law, or representing the non-lawyer in an action to collect upon the debt, would constitute such assistance.

The Arizona Court of Appeals explained that a contract to pay fees to a person not admitted to practice law in Arizona for legal services is void. Peterson v. Anderson, 155 Ariz. 108, 111, 745 P.2d 166, 169 (App. 1987) (improper fee splitting between Arizona lawyer and lawyer not licensed to practice in Arizona).

In Ariz. Op. 99-07, negotiating with a public adjuster engaged in the unauthorized practice of law constituted facilitating the unauthorized practice of law in violation of ER 5.5(b). So would participation in an arbitration hearing where the other side was represented by a non-lawyer adjuster. Id.

2. Honoring the Contract Would Constitute Assistance of the Unauthorized Practice of Law

To the extent that the non-lawyer has an interest in funds held by the lawyer, and the attorney has actual knowledge of that alleged interest, ER 1.15 and Ariz. Op. 98-06 direct how the lawyer must respond to the claim. The lawyer is not free to simply arbitrate or ignore the claim, and the lawyer's proper action depends upon the facts and circumstances.[2] But simply paying the claim would be improper assistance of UPL under the authority cited above.

CONCLUSION

An Arizona lawyer may not assist the unauthorized practice of law. Drafting or seeking to enforce a contract for UPL services, or directing payment of client funds for UPL services, would constitute such prohibited assistance.

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[1] Formal Opinions of the Committee on the Rules of Professional Conduct are advisory in nature only and are not binding in any disciplinary or other legal proceedings. ? State Bar of Arizona 2003

[2] This Opinion does not address the situation where a non-lawyer seeks representation in a situation where the lawyer has a good faith belief that the non-lawyer's activities either do not constitute UPL or there is a good faith basis for arguing so. This Opinion does not suggest that such a lawyer must decline to represent the non-lawyer as a client under those circumstances.