State Bar of Arizona Ethics Opinions
93-01: Non-Lawyer Assistants; Unauthorized Practice of Law; Lawyer Referral Service
Lawyer may not cooperate with a non-lawyer-generated business which prepares documents and gives advice to landlords in landlord/tenant matters.
February 18, 1993
The inquiring attorney asks about the ethical propriety of her associating with a nonlawyer-operated business which represents itself to be a "complete eviction service." The information submitted with the request discloses that this business provides landlords with the following services:
1. Tenant screening: the service conducts background checks of prospective tenants to help landlords screen out those who may cause problems in the future;
2. Process service: the service will effect service of process in any legal actions between the landlord and its tenants;
3. Collections: the service will pursue collection efforts on behalf of a landlord, short of instituting litigation against the debtor. The service offers to provide attorney representation in any matter in which a lawsuit is filed.
4. Document preparation: the service has created many forms relating to legal actions and disputes between landlords and tenants. The service drafts termination notices citing nonpayment of rent or other failure to comply with the rental agreement, satisfactions of judgment, writs of restitution, voluntary dismissal pleadings for collection actions, and documents relating to forcible entry and detainer actions.
5. Attorney representation: the service offers to provide the legal assistance of an attorney in some circumstances. For example, the service promises to have one of its "attorneys or paralegals" answer legal questions over the telephone. All other questions are answered by its nonlawyer staff. With respect to the exact nature of the service's business relationship with the attorneys involved, the service has prepared an informational brochure which advises prospective customers that it will perform the following tasks:
Prepare your summons and complaint forms. Have them reviewed and signed by an attorney. Issue them at the court. Advance your filing fee for you. Issue and deliver a copy of the complaint to you. Effect service on the tenant. Prepare an affidavit of service. Deliver a copy of the affidavit to you File the original affidavit with the court. Review your supporting documents. Have an attorney review your case. Have an attorney represent you in court. Notify you of the court decision. Provide you with a copy of the judgment. Call you to determine if a writ is needed. If a writ is needed, prepare the writ. Issue the writ at the court. Advance your filing fee for the writ for you.
The service quotes fixed fees in some matters where attorney representation is provided. For example, the fee for an attorney's representation of a customer, in court, in a forcible detainer action is $50.00. If the forcible detainer action is canceled prior to a court appearance, the fee is only $25.00.1 Collection actions are pursued on a 25% contingent fee basis, except for "skips or nonjudgment debts" where a 30% contingent fee is charged. In other legal actions, the service recommends that the prospective customer call for a quotation.
6. Advancing court costs: The service charges a 20% fee on any advanced court costs and expenses.
May the inquiring attorney ethically associate with the above-described eviction service for the purpose of providing "attorney representation" for the eviction service's customers?
ETHICAL RULES INVOLVED
ER 5.3. Responsibilities Regarding Nonlawyer Assistants
ER 5.4. Professional Independence of a Lawyer
ER 5.5. Unauthorized Practice of Law
ER 7.1(r) Communications and Advertising Concerning a Lawyer's Services
Several issues arise under the Rules of Professional Conduct when a lawyer wishes to associate with a nonlawyer-operated business. We will address the most important of them below.
I. The Lawyer's Duty of Supervision
The ethics rule central to any business relationship between a lawyer and a nonlawyer assistant is ER 5.3, which applies whenever a nonlawyer is "employed or retained by or associated with" a lawyer. ER 5.3 requires that the lawyer exercise certain supervisory powers over the nonlawyer:
"(a) a partner in a law firm shall make reasonable efforts to ensure that the firm has in effect measures giving reasonable assurance that the person's conduct is compatible with the professional obligations of the lawyer;
"(b) a lawyer having direct supervisory authority over the nonlawyer shall make reasonable efforts to ensure that the person's conduct is compatible with the professional obligations of the lawyer;..."
The Comment to ER 5.3 describes the scope of this duty in greater detail:
"A lawyer should give such assistants appropriate instruction and supervision concerning the ethical aspects of their employment, particularly regarding the obligation not to disclose information relating to representation of the client, and should be responsible for their work product. The measures employed in supervising nonlawyers should take account of the fact that they do not have legal training and are not subject to professional discipline."
In our Opinion No. 86-7 (June 26, 1986), this committee considered the ethical propriety of an attorney cooperating with a nonlawyer "consulting service," which provided expert testimony to its customers for a contingent fee. We determined that ER 5.3 applied to the lawyer's business relationship with the consulting service, even though the service contracted directly with the customer. We concluded that the lawyer would violate ER 5.3 in so cooperating in view of the facts that the consulting service was a completely independent entity, and that the lawyer had no means of ensuring that the consulting service's conduct was compatible with the lawyer's professional obligations. That opinion stands for the proposition that an attorney may not provide legal services in association with a nonlawyer unless the nonlawyer's activities relating to the lawyer's representation of the client are subject to the attorney's supervision and control. See also Matter of Galbasini, 163 Ariz. 120, 786 P.2d 971 (1990) (lawyer who accepts work from a nonlawyer debt collection agency, and who fails to supervise nonlawyer assistants, violates ER 5.3).
In the facts submitted, the members of the eviction service are members of a business completely separate from the inquiring attorney's law firm; thus, the eviction service is a "completely independent entity" much like the prohibited arrangement in Opinion No. 86-7. Further, it appears that the lawyer's role in the provision of legal assistance to the service's customers is limited and secondary. For example, the service prepares summons and complaint forms, and only later has them reviewed and signed by an attorney. The service then takes all subsequent action on the customer's case except where the service states that it will "have an attorney review [the customer's] case" and will "have an attorney represent [the customer] in court." Statements such as this infer that the nonlawyer eviction service is employing and supervising the lawyer, when the dictates of ER 5.3 require just the opposite. We believe that the inquiring lawyer would violate ER 5.3 were she merely to be "on call" to perform legal tasks if and when a nonlawyer determines that the services of a lawyer are necessary. As the Comment to ER 5.3 advises, an attorney must be ultimately responsible for the nonlawyer's work product. We believe that fulfilling this responsibility requires a greater degree of supervision than that contemplated by the inquiring attorney's association with the eviction service.
To comply with ER 5.3, the inquiring attorney should, at a minimum, become familiar with the employment responsibilities of the nonlawyer members of the eviction service, and she must inform them of the fundamentals of professional responsibility, especially the duty to maintain client confidences. See Comment to ER 5.3. Further, she must establish procedures by which she can monitor the operations of the eviction service with reasonable frequency and thoroughness, to the extent that she will be responsible for the work product of the nonlawyers. If she cannot effectively establish such a degree of supervision, her association with the eviction service would violate ER 5.3.
II. Forming a Partnership with a Nonlawyer
Assuming the proposed association with the eviction service can be brought into compliance with ER 5.3, there are other ethics rules that may prevent the inquiring attorney from assisting a nonlawyer-operated business. For example, ER 5.4 (b) prohibits a lawyer from forming a partnership with a nonlawyer if any of the activities of the partnership consist of the practice of law. Therefore, to the extent that the inquiring attorney's association with the eviction service can be construed to be a "partnership," e arrangement is improper.
This committee has construed the term "partnership" broadly. In our Opinion No. 82-18 (December 1, 1982), a lawyer proposed to join two paralegals in a corporation which contracted with attorneys to provide legal services on an as-needed basis. The attorney planned to be a salaried employee of the paralegals' corporation, and not a shareholder or officer. We determined that the proposed employment violated DR 3-103(A), the former Code of Professional Responsibility provision identical to current rule ER 5.4(b).
Although we do not have enough information concerning the inquiring attorney's specific financial relationship to the eviction service to determine whether her proposed association with the service constitutes a "partnership," the facts suggest that it may be. ER 5.4 (b) is designed to protect a lawyer's independent professional judgment by prohibiting nonlawyers from having a financial stake in a lawyer's practice. See G. Hazard, Jr. and W. Hodes, The Law of Lawyering, at 5.4:101; ABA/BNA Lawyers' Manual on Professional Conduct at 91:402. The eviction service quotes fees for various legal services, and charges the customer directly for these services, while entering into some other financial agreement with the attorney involved. If the inquiring attorney collects a salary or earns a fee from the eviction service, this arrangement potentially gives the eviction service a financial interest in the lawyer's law practice. For example, the eviction service may have an interest in the amount of time devoted by the inquiring attorney with respect to each individual client referred to her ( and the amount of legal fees generated by her in each such representation), so that it can determine whether its business relationship with the attorney is economically viable. If this is so, the inquiring attorney's association with the eviction service violates ER 5.4 (b).
III. Sharing Legal Fees with a Nonlawyer
ER 5.4(a) prohibits a lawyer from sharing legal fees with a nonlawyer, except for three limited exceptions not relevant to this inquiry. We note that, even if the inquiring attorney charges a separate fee, her association with the eviction service may violate this provision. In our Opinion No. 82-18, discussed supra, this committee was skeptical of the lawyer's claim that he would receive the "entire fee" for his legal services. We believed that the obvious intent of the attorney's association with nonlawyers was to generate fees for the nonlawyers' corporation, thus making the arrangement a violation of DR 3-102 which, like current rule ER 5.4(a), prohibits a lawyer from sharing legal fees with a nonlawyer. Therefore, if the eviction service charges its customer fees directly for the provision of attorney representation, the reasoning of Opinion No. 82-18 suggests that there would be a violation of ER 5.4(a).
IV. Lawyer Referral Service
ER 7.1 (r) (4) permits an attorney to work with organizations that promote the use of his services in certain narrow circumstances:
"A lawyer ... 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 . . . 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(sic);
(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;
In our Opinion No. 84-4 (March 28, 1984 ), an attorney proposed to represent a nonlawyer-operated "unemployment compensation tax service," an organization that provided lay representation in administrative hearings before the Department of Economic Security.2 The primary responsibility of the attorney in that opinion was to supervise the lay representatives. This committee determined that this arrangement violated DR 2-103 (see now ER 7.1(r)(4)), because (1) the member or beneficiary to whom the legal services would be furnished was the client of the unemployment compensation tax service rather than of the lawyer, and (2) the unemployment compensation tax service was a for-profit organization.
A similar result was reached in our Opinion No. 85-7 (October 21, 1985), where we determined that an arrangement similar to that in Opinion No. 84-4 violated ER 7.2(g) (4)(now ER 7.1(r)(4)), even though that attorney proposed to enter into a three-way agreement between himself, the organization, and the client in an attempt to ensure that the beneficiary of the legal services was actually the lawyer's client.
Other business associations between lawyers and nonlawyers have been found to run afoul of ER 7.1(r)(4) or its predecessors. See our Opinion No. 81-34 (December 9, 1981) (attorney may not provide legal services to the customers of a financial services organization); American Bar Association Informal Opinion 1463 (February 11, 1981) (attorney may not contract with a labor management relations consulting service to provide legal services to its customers).
Under the facts of the present inquiry, the inquiring attorney will be on call to an organization that will refer customers to her to perform legal services when the organization determines such legal services to be necessary. All other services to the customer are apparently performed by nonlawyer members of the organization. None of the information supplied by the inquiring attorney indicates that a separate attorney/client relationship will be established between the inquiring attorney and the customer. Additionally, the eviction service appears to be a for-profit entity. We believe this arrangement falls within the reasoning of our Opinions Nos. 84-4 and 85-7, supra. Therefore, we conclude that it would violate ER 7.1(r) for the inquiring attorney to cooperate with the eviction service in the manner described.
V. Assisting the Unauthorized Practice of Law
ER 5.5 (b) prohibits a lawyer from assisting a person who is not a member of the Bar in the performance of activity that constitutes the unauthorized practice of law. The question of what activities are the practice of law in Arizona is a legal issue outside the jurisdiction of this Committee. See Statement of Jurisdictional Polices, paragraph 6(a). However, we note that many of the eviction service's activities, especially the preparation of legal documents and the provision of assistance and advice in collection matters, probably do constitute the unauthorized practice of law. In State Bar of Arizona v. Arizona Land Title & Trust Co., 90 Ariz. 76, 95, 366 P.2d 1, 14 (1961), the Arizona Supreme Court defined the practice of law as "those acts, whether performed in court or in the law office, which lawyers customarily have carried on from day to day through the centuries ....” The court held that "Such acts include, but are not limited to, one person assisting or advising another in the preparation of documents or writings which affect, alter or define legal rights;[and] the direct or indirect giving of advice relative to legal rights or liabilities ...." Even if an attorney's relationship with a nonlawyer-operated business passes muster under all the other ethics rules, he or she must be especially careful, given the broad definition of the "practice of law" in Arizona, that none of the nonlawyers engage in the practice of law. An attorney has an obligation to take reasonable steps to supervise such nonlawyers to ensure that they do not practice law. See ER 5.3.
In conclusion, it would be improper for the inquiring attorney to associate with the nonlawyer-operated "complete eviction service" described above, because such arrangement would violate ER 5.3, ER 5.4, and ER 7.1. The association would also potentially violate ER 5.5.
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 1993
1 These fees are sufficiently small that we assume they represent only the fee charged by the eviction service for referring the customer to an attorney, who will charge an additional fee for the actual representation. However, the reasoning of our opinion applies even if these fees represent the customer's entire cost of attorney representation.
2 Such representation was permitted at that time by A.R.S. Section 23-674(B), and is now permitted by Supreme Court Rule 31(a) (4).
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