State Bar of Arizona Ethics Opinions
85-05: Conflicts; Advertising
Attorney may not sell insurance policies or publicly promote an “open panel” pre-paid group legal insurance program where such activities would render the program a vehicle for the promotion of his own legal services.
An insurance company based in another state has recently received approval from the Arizona Department of Insurance to sell prepaid·group legal insurance in the State of Arizona under the provisions of A.R.S. §§ 20-1097.et seq. The particular insurance plan utilizes an open panel of attorneys, which means that the insured person may retain any attorney of his choice. The insurance is sold on a multi-level or pyramid basis in which senior sales people obtain the benefits of sales by those below them in the pyramid. In other words, as a salesperson moves up the pyramid, he obtains a percentage of the income generated by the salespersons beneath him.
The insurance company in question is sponsoring sales presentations in which attorneys are asked to speak concerning the merits of the program. The objective of the presentation is to solicit the purchase of insurance by individuals in attendance. The attorney who participates in the program hopes to have potential policyholders remember him when they encounter legal problems.
1. What is the ethical propriety of an attorney and/or his or her spouse becoming a participant in the program as a salesperson?
2. Assuming that participation is ethically permissible, what ethical considerations are involved when an attorney-salesperson is retained by a policyholder to represent him?
3. What is the ethical propriety of an attorney speaking on behalf of the program at promotional presentations when the attorney is not a salesperson in the program?
4. What is the ethical propriety of an attorney speaking on behalf of the program at promotional presentations when the attorney is a salesperson with a financial interest in the program?
ETHICAL RULES INVOLVED
ER 1.7, 1.8, 5.5, 7.2, 8.4
A. The Issue of Dual Careers Under The New-Rules Of Professional Conduct
The Committee has frequently considered questions relating to the ethical propriety of an attorney engaging in a second professional or business pursuit. The general rule that we have adopted and followed under the prior Code of Professional Responsibility (the “Code”) is that simultaneous engagement in both non-legal business activities and the practice of law is permissible so long as the activities are conducted in an appropriately distinct manner that avoids confusion regarding the dual roles of the individual attorney-businessperson. See, e.g.,
Opinion No. 77-1 (February 14, 1977); Opinion No. 76-4 (March 26, 1976); Opinion No. 75-10 (May 27, 1975); Opinion No. 73-23 (July 25, 1973).1 Simultaneous engagement in a business career and the practice of law is also permissible under the new Rules of Professional Conduct (the “Rules”), which became effective on February 1, 1985.
For example, in our recent Opinion No. 84-16 (November 13, 1984) the Committee considered whether an attorney who is also a securities dealer could, in the course of representing a client, recommend that the client invest in particular securities and then obtain a sales commission if
that advice were followed. The Committee concluded, under the prior Code, that if the attorney's practice of law and activities as a broker were appropriately separated, and if the client consented to the business transaction after full disclosure of the attorney-dealer's interests, the conduct was ethically permissible. The Committee also determined that, under the new Rules, dual careers would be ethically permissible if the provisions of ER 1.8 were satisfied. In pertinent part, those provisions provide as follows:
(a) A lawyer shall not enter into a business transaction with a client or knowingly acquire an ownership, possessory, security or other pecuniary interest adverse to a client unless:
(1) the transaction and terms on which the lawyer acquires the interest are fair and reasonable to the client and are fully disclosed and transmitted in writing to the client in a manner which can reasonably be understood by the client;
(2) the client is given a reasonable opportunity to seek the advice of independent counsel in the transaction; and
(3) the client consents in writing thereto.
Although a provision corresponding to DR 2-102(E) – which expressly provided that an attorney's separate business could not be identified, inter alia, on his letterhead or office card -- does not appear in the new Rules, it is clear from the provisions of ER 1.8 that a careful separation of legal and business activities is still required. The new Rules do not focus on the physical aspects of the legal and business activities as much as they center on the conduct of the attorney himself by imposing what is, in essence, a fiduciary duty of disclosure and of obtaining informed consent to any business transaction with a client.
Regardless of the nature of the business arrangements involved, it is obvious that a lawyer who engages in a separate business would still be subject to applicable prohibitions against unethical solicitation of employment as a lawyer. ER 7.3 provides as follows:
A lawyer may not solicit professional employment from a prospective client with whom the lawyer has no family or prior professional relationship by mail, in person, or otherwise, when a motive for the lawyer's doing so is the lawyer's pecuniary gain. The term "solicit” includes contact in person, by telephone or telegraph, by letter or other writing, or by other communication directed to a specific recipient, but does not include letters addressed or advertising circulars distributed generally to persons not known to need legal services of the kind provided by the lawyer in a particular matter, but who are so situated that they might in general find such services useful.
We believe the expression “prior professional relationship” is intended to refer to a lawyer-client relationship rather than some other relationship formed in connection with a business transaction. Accordingly, under the new Rules, the attorney-businessperson must distinguish
1 In its Formal Opinion 328 (August, 1972), the ABA Committee on Ethics and Professional Responsibility observed that "if the second occupation is so law-related that the work of the lawyer in such occupation will involve, inseparably, the practice of law," the lawyer would be "held to the standards of the bar while conducting that second occupation from his law offices." Id. at 4.
business contacts and customers from clients. The potential difficulty in making the distinction does not diminish the ethical duty to do so.
A final general concern relating to the issue of dual careers is the lawyer's duty to exercise independent professional judgment on behalf of clients. ER 1.7 provides that
(b) A lawyer shall not represent a client if the representation of that client may be materially limited by the lawyer's responsibilities to another client or to a third person, or by the lawyer's own interests, unless:
(1) the lawyer reasonably believes the representation will not be adversely affected; and
(2) the client consents after consultation. * * *
See also ER 1.8(f) (a lawyer shall not accept compensation for representing a client from a third person unless, inter alia, there is no interference with the lawyer's independence of professional judgment). Corresponding provisions under the prior Code were DR 5-101(A) and DR 5-105. Where the potential for divided loyalty exists, the attorney should make disclosure and obtain any necessary consent to representation prescribed by the applicable ethical rules.
In short, it is apparent that the new Rules of Professional Conduct impose no per se restriction on an attorney's engaging in a second career, provided that applicable ethical standards are observed. We now must consider whether specific provisions of the new Rules would render the proposed conduct unethical.
B. The Application of ER 7.2(g)
The principal issue related to the present inquiry is the extent to which the proposed conduct may be limited by the provisions of ER 7.2(g), which provides, in pertinent part, as follows:
(g) A lawyer or his partner or associate or any other lawyer affiliated with him or his firm may be recommended, employed or paid by, or may cooperate with, one of the following offices or organizations that promote the use of his services or those of his partner or associate or any other lawyer affiliated with him or his firm if there is no interference with the exercise of independent professional judgment in behalf of his client:
* * * * *
(4) Any bona fide organization that recommends, furnishes or pays for legal services to its members or beneficiaries, provided the following conditions are satisfied:
(A) Such organization, including any affiliate, is so organized and operated that no profit is derived by it from the rendition of legal services by lawyers, and that, if the organization is organized for profit, the legal services are not rendered by lawyers employed, directed, supervised or selected by it, except in connection with matters where such organization bears ultimate liability of its members or beneficiary;
(B) Neither the lawyer, nor his partner or associate, nor any other lawyer affiliated with him or his firm, nor any non-lawyer, shall have initiated or promoted such organization for the primary purpose of providing financial or other benefit to such lawyer, partner, associate or affiliated lawyer;
(C) Such organization is not operated for the purpose of procuring legal work or financial benefit for any lawyer as a private practitioner outside of the legal services program of the organization;
(D) The member or beneficiary to whom the legal services are furnished, and not such organization, is recognized as the client of the lawyer in the matter;
(E) Any member or beneficiary who is entitled to have legal services furnished or paid for by the organization may, if such member or beneficiary so desires, select counsel other than that furnished, selected or approved by the organization for the particular matter involved; and the legal service plan of such organization provides appropriate relief for any member or beneficiary who asserts a claim that representation by counsel furnished, selected or approved would be unethical, improper or inadequate under the circumstances of the matter involved and the plan provides an appropriate procedure for seeking such relief;
(F) The lawyer does not know or have cause to know that such organization is in violation of applicable laws, rules of court and other legal requirements that govern its legal service operations; and
(G) Such organization has filed with the appropriate disciplinary authority at least annually a report with respect to its legal service plan, if any, showing its terms, schedule of benefits, subscription charges, agreements with counsel, and financial results of its legal service activities, or if it has failed to do so, the lawyer does not know or have cause to know of such failure.
Corresponding provisions were contained in DR 2-103(D) of the prior Code. In the Code, these provisions constituted exceptions to the restrictions against unethical solicitation found in DR 2-103, and elsewhere. That is, an attorney's cooperation with, or promotion of, certain organizations was not deemed to be unethical under the Code if the organization met the requirements of DR 2-103(D). See ABA Formal Opinion 332 (February 1973) and ABA Formal Opinion 333 (February 1973). In an opinion under the prior Code, this Committee observed that, in the interest of avoiding “divided loyalties,” DR 2-103(D) provided that “lawyers are only to cooperate with, and accept fees from, certain persons or organizations for the representation of, or rendition of legal services to, others." Opinion No. 82-12 (May 28, 1982) at 4. The Committee noted that the Disciplinary Rule identified certain organizations that were excluded from this prohibition, but stated: "There are no additional exceptions, nor is there 'room for' creating added exceptions by way of implication or interpretation.” Id. In that Opinion, the Committee concluded that lawyer participation in a private referral service, organized by and for the benefit of participating lawyers, was unethical. See also Opinion No. 81-34 (December 9, 1981).
The retention, almost unchanged, of the language of DR 2-103(D) in the new Rules indicates that a lawyer's conduct in cooperating with or promoting an organization "that recommends, furnishes or pays for legal services to its members or beneficiaries" will be unethical unless that organization satisfies the standards listed in ER 7.2(g)(4).
It is apparent from the facts that the prepaid group legal insurance organization in question is an organization that is established to pay for legal services rendered to its policyholders. It would therefore come within the description of organizations covered by ER 7.2(g)(4). However, it can be plausibly contended, from a reading of the introductory language of ER 7.2(g), that the Rule does not apply to prepaid legal service arrangements that feature an “open panel” of attorneys. In such a situation, it may be argued that the freedom to select an attorney means that the organization does not “promote” the use of the services of a particular attorney or of his associate or affiliate. Nonetheless, we do not believe that the standards prescribed in ER 7.2(g)(4) were intended to be limited to "closed panel' arrangements for the provision of legal services. Such a construction would render unnecessary the language of ER 7.2(g)(4)(A), which by its terms, contemplates that organizations subject to the Rule that are organized for profit may still qualify for an exemption if the legal services are not rendered by lawyers “employed, directed, supervised, or selected" by the organization itself. As we construe this language, it appears to mean that a “for profit" Rule 7.2(g)(4) organization may qualify under the Rule by utilizing an open panel. There would be no reason to be concerned about such a qualification if open panel arrangements were automatically exempt from the Rule.
Under the facts presented, it appears that the inquiring attorney intends to promote the group legal insurance program in a way that focuses on his own status as an attorney. He proposes to sell insurance for legal services, to speak in promotional meetings on behalf of the program, or to do both. Obviously, the attorney hopes to obtain financial benefit from his sales efforts. It seems clear that he also hopes that his promotional efforts on behalf of the plan will also result in new clients for his law practice. Under the circumstances, it is reasonable to conclude that a significant effect of the attorney's proposed promotion of the program would be the promotion of the use of his own professional services. In such a situation, the program itself would become a vehicle for the promotion of the attorney's legal services. If the program is not fully qualified under the Rule, then, in our opinion, such promotional conduct would be unethical.
We are unable, on the facts before us, to determine whether the insurance program in question complies with each of the requirements for a qualified organization under ER 7.2(g)(4). However, we believe that the proposed conduct of the inquiring attorney in promoting the program at sales meetings and selling insurance policies would violate the requirement of ER 7.2(g)(4)(B). Such activities would be for the “primary purpose of providing financial or other benefit to” the lawyer. Therefore, in our opinion, the proposed promotional efforts of the inquiring attorney would serve to disqualify the insurance program under ER 7.2(g)(4).
We also note that the new Rules, like the prior Code, prohibit an attorney from utilizing an agent to engage in unethical conduct on his behalf. See ER 5.5, ER 8.4(a) and DR 1-102(A)(2), DR 3-101(A). In addition, the provisions of ER 7.2(g)(4)(B) prohibit a “non-lawyer" from promoting an ER 7.2(g)(4) organization “for the primary purpose of providing financial or other benefit” to the lawyer. These provisions are relevant to the inquiring attorney's question whether there would be any ethical restrictions applicable to the participation of his spouse in the program. It is clear that the attorney may not utilize his spouse in the program as an agent for conduct which would be unethical if engaged in by the attorney himself.
In summary, it is our opinion that an attorney may not sell insurance policies or publicly promote an “open panel" prepaid group legal insurance program where such activities would render the program a vehicle for the promotion of his own legal services. Under such circumstances, our response to the questions presented by the inquiry are as follows:
1. The attorney may not become a participant in the program as a salesperson. A similar ethical proscription would not apply to the participation of the attorney's spouse in the program as a salesperson, provided that the spouse does not, in such capacity, act as an agent for the attorney.
2. Since the attorney may not participate in the program as a salesperson, we need not consider the ethical considerations that would be involved in the attorney-salesperson’s being retained by a policyholder to represent him.
3. The attorney may not ethically speak on behalf of the program at promotional presentations even though the attorney is not a salesperson in the program.
4. The attorney may not ethically speak on behalf of the program at promotional presentations when the attorney is a salesperson with a financial interest in the program.
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 proceeding. This opinion is based on the Ethical Rules in effect on the date the opinion was published. If the rule changes, a different conclusion may be appropriate.
© State Bar of Arizona 1985