State Bar of Arizona Ethics Opinions
85-07: Advertising; Professional Independence Fees
Law firm may not enter into an arrangement for representation of company supplying non-lawyer agents who appear and represent clients before Department of Economic Security.
A Company providing services relating to employment compensation matters ("the Company”) has approached the Law Firm with the request that the Law Firm represent the Company.
One of the services provided by the Company to its clients is representation of the client before the Department of Economic Security (“DES”) in matters pertaining to unemployment compensation. The Arizona statutes permit representation before such an agency by a duly authorized agent who is not a member of the State Bar of Arizona. A.R.S. § 23-674(B). Arizona Supreme Court Rule 31(a)(4)(A) mandates supervision of the agent by an attorney under the foregoing circumstances. The Law Firm proposes to advise and supervise the Company in all matters related to the Company's representation of clients before the DES.
It is further contemplated that, where necessary, the supervision by the Law Firm will include discussions with the Company concerning a given fact situation and the proposed course of action to be taken by the Company in relation to that fact situation. The Law Firm's fees will be paid by the client.
The Law Firm is aware of the State Bar of Arizona's previous position on this matter set forth in this Committee's Opinion No. 84-4 of March 28, 1984. In response to the adverse conclusions in that Opinion, the Law Firm makes the following proposals:
1. Contracts entered into with a client will be as follows:
a. A three-party agreement will be entered into between the Law Firm, the Company and the client.
b. The agreement will provide that the Law Firm will be hired in a supervisory capacity as required by Arizona Supreme Court Rule 31(a)(4)(A).
c. By the terms of the agreement, the client will be provided access to the Law Firm, should he or she deem it necessary to have direct contact with it.
d. A provision in the agreement will state that the Law Firm will not permit the Company to direct or regulate its professional judgment in rendering services to the client.
e. A provision will be inserted concerning the division of fees, stating specifically what percentage of the fee will be retained by the Company and what percentage will be retained by the Law Firm.
f. Fees payable to the Law Firm for all supervisory activities provided on a client's behalf will be as follows:
i. The Company will assume sole responsibility for all matters related to billing the client, but will indicate specifically what portion of the amounts due is payable to the Law Firm and what portion is payable to the Company.
ii. Payments on the amounts due to the Law Firm and on those due to the Company will be made separately.
iii. The Company will reimburse the Law Firm in the exact amount charged to the client for the Law Firm's services.
May the Law Firm, with ethical propriety, enter into and perform such contracts with the Company and its clients?
ETHICAL RULES INVOLVED
ER 7.2(g), ER 5.4(a)
As noted above, similar inquiries have been considered by this Committee (see our Opinions Nos. 84-4, 81-34, 79-8, 76-18, 75-19, 75-11, 73-2k and 70-6). The principal change in the intervening months since our last opinion on this natter is the adoption, effective February 1, 1985, of the Model Rules of Professional Conduct, as amended, by the Arizona Supreme Court. The Law Firm posing the inquiry relies mainly on the lack of any provision in the Model Rules as adopted by the American Bar Association paralleling DR 2-103(D) of the Arizona Code of Professional Responsibility in effect prior to February 1, 1985. The inquiring Law Firm argues that the lack of any such parallel provision evinces an intent by the Arizona Supreme Court not to regulate the area previously covered by DR 2-103(D).
In fact, the Rules of Professional Conduct as adopted by the Arizona Supreme Court are not the same as the ABA's Model Rules. In this particular case, the Arizona Supreme Court amended the Model Rules to add ER 7.2(g) which is substantially the same as DR 2-103(D). This adoption of the language of DR 2-103(D) in the new rule soon after the issuance of our Opinion No. 84-4 on March 28, 1984, is persuasive evidence that our Supreme Court intended that the precepts of DR 2-103(D) as articulated in Opinion No. 84-4 remain in effect under the new Ethical Rules. Based upon this evidence, we follow our Opinion No. 84-4 and find that the proposed arrangement violates the provisions of ER 7.2(g).
In particular, it appears from the description provided by the inquiring Law Firm that the Company is organized for profit and that lawyers are employed, directed, and supervised by it for matters in which the Company does not bear the ultimate responsibility in violation of ER 7.2(g)(4)(A). Secondly, the proposed arrangement does not allow the employer-client the freedom of choice as to his lawyer in violation of ER 7.2(g)(4)(E). Even if these objections could be satisfied, the Company would be required to file a report with the State Bar concerning its plan as required by ER 7.2(g)(4)(G), and the Law Firm would be required to ascertain that in fact, the Company had complied with this requirement before entering into the arrangement or be in violation of ER 7.2(g)(4)(F).
Finally, we have some additional concerns with the fee arrangement proposed, even assuming the other ethical improprieties could be solved. First, the pre-arranged fee division arrangement [Paragraph 1(e), Facts] and the billing arrangement [Paragaraph·1(f)(i)] leave open the possibility that the Company could derive some financial benefit from the services rendered by the Law Firm. Unless the fees charged and received by the Law Firm bear some direct demonstrable relationship to the service it renders, and similarly the fee the Company charges bears a direct relationship to the services it, in turn, renders, the arrangement could violate the prohibition against splitting fees with a non-lawyer found in ER 5.4(a). Allowing the Company to perform all billing and entering into a "pre-arranged" fee splitting agreement lends itself to a violation of ER 5.4(a).
It is therefore the Committee's opinion that, under the Model Rules of Professional Conduct as amended and adopted by the Arizona Supreme Court on September 7, 1984, to become effective February 1, 1985, the arrangement described in the inquiry would violate ER 7.2(g).
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