State Bar of Arizona Ethics Opinions
93-05: Employment of Non-Lawyers; Trial Consultants
Lawyer may employ a non-testifying trial consultant, and pay him a prearranged bonus fee of if the case settles or is won at trial, subject to certain guidelines.
The inquiring attorney would like to engage a trial consultant under a shared risk, bonus payment plan. The consultant would undertake pretrial jury research focus groups and would perform attitude surveys and other consultative services. The consultant would not serve as an expert witness at the trial, only serving as a non-testifying consultant. Under the proposed arrangement, a portion of the consultant's fees would be paid only if the case settles or is won. The consultant would be paid a base fee, and would be paid a pre-arranged "bonus fee" over and above the base fee only if the case settles or is won. The "bonus fee" would not be tied to the dollar amount of the settlement amount or award, but would be a pre-arranged flat fee.
May the inquiring attorney ethically engage the services of the consultant under the terms of the proposed compensation arrangement?
ETHICAL RULES INVOLVED
ER 1.4. Communication
(a) A lawyer shall keep a client reasonably informed about the status of a matter and promptly comply with reasonable requests for information.
(b) A lawyer shall explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation.
ER 1.5. Fees
(a) A lawyer's fee shall be reasonable. ...
ER 1.8. Conflict of Interest: Prohibited Transactions
(e) A lawyer shall not provide financial assistance to a client in connection with pending or contemplated litigation, except that:
(1) a lawyer may advance court costs and expenses of litigation, provided the client remains ultimately liable for such costs and expenses; and
(2) a lawyer representing an indigent client may pay court costs and expenses of litigation on behalf of the client.
ER 2.1. Advisor
In representing a client, a lawyer shall exercise independent professional judgment...
ER 3.4. Fairness to Opposing Party and Counsel
A lawyer shall not:
(b) falsify evidence, counsel or assist a witness to testify falsely, or offer an inducement to a witness that is prohibited by law;
Comment to ER 3.4
The common law rule in most jurisdictions is that it is improper to pay an occurrence witness any fee for testifying and that it is improper to pay an expert witness a contingent fee.
ER 5.4. Professional Independence of a Lawyer
(a) A lawyer or law firm shall not share legal fees with a nonlawyer, except that:
(1) an agreement by a lawyer with the lawyer's firm, partner, or associate may provide for the payment of money, over a reasonable period of time after the lawyer's death, to the lawyer's estate or to one or more specified persons;
(2) a lawyer who undertakes to complete unfinished legal business of a deceased lawyer may pay to the estate of the deceased lawyer that proportion of the total compensation which fairly represents the services rendered by the deceased lawyer; and
(3) a lawyer or law firm may include nonlawyer employees in a compensation or retirement plan, even though the plan is based in whole or in part on a profit-sharing arrangement.
(b) A lawyer shall not form a partnership with a nonlawyer if any of the activities of the partnership consist of the practice of law.
(d) A lawyer shall not practice with or in the form of a professional corporation or association authorized to practice law for a profit, if:
(1) a nonlawyer owns any interest therein, except that a fiduciary representative of the estate of a lawyer may hold the stock or interest of the lawyer for a reasonable time during administration;
(2) a nonlawyer is a corporate director or officer thereof; or
(3) a nonlawyer has the right to direct or control the professional judgment of a lawyer.
ER 5.5. Unauthorized Practice of Law
A lawyer shall not:
(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 7.1. Communications and Advertising Concerning a Lawyer's Services
(j) A lawyer shall not give anything of value to a person for recommending the lawyer's services,...
The Arizona Rules of Professional Conduct1 do not expressly prohibit an attorney's entering into a contingent fee arrangement, as contemplated by the inquiring attorney, with a non-witness trial consultant.
Our opinion herein is in accord with, and supported by, a previous opinion of this committee. See our Opinion No. 84-9 (July 30, 1984). Our opinion is also supported by, and in accord with, decisions and opinions from other jurisdictions. See Ojeda v. Sharp Cabrillo Hospital, 10 Calif. Rptr. 2d 230 (Ct. App. 1992); see also Maine Board of Overseers of the Bar Opinion 124 (5/6/92) (ABA/BNA Lawyers' Manual on Professional Conduct at pp. 1001:4202-1001:4203); American Bar Association Standing Committee on Ethics And Professional Responsibility, Formal Opinion 87-354 (1987); Connecticut Bar Association Committee On Professional Ethics, Informal Opinion 86-14 (1986); Georgia State Bar Disciplinary Board, Opinion No. 48 (7/26/85) (ABA/BNA Lawyers' Manual, supra, at p. 801:2705); California State Bar Opinion 1984-79 (1984) (ABA/BNA Lawyers' Manual, supra, at pp. 801:1606-801:1607); Connecticut Bar Association Informal Opinion 82-7 (11/23/81) (ABA/BNA Lawyers' Manual, supra at p. 801:2055); Board of Professional Responsibility of the Supreme Court of Tennessee, Advisory Ethics Opinion 82-A-170; Indiana State Bar Association Opinion 1 of 1981 (ABA/BNA Lawyers' Manual, supra, at pp. 801:3302-801:3303); District of Columbia Bar Legal Ethics Committee, Opinion No. 55 (1978).
Although we have concluded that the proposed consulting arrangement is ethically permissible, the inquiring attorney is cautioned that the proposed consulting arrangement potentially implicates a number of ethical rules, as discussed below.
A lawyer may advance court costs and expenses of litigation on behalf of a client provided that the client, unless indigent,2 remains ultimately liable therefore. Consequently, if the inquiring attorney's client is not indigent, the client, not the attorney, must be ultimately liable for payment of the consultant's fees. Because of the client's ultimate responsibility for payment, the client should be a party to the contract with the consultant. In addition, the client should be fully advised by the inquiring attorney as to the terms of that contract and as to the client's ultimate financial responsibility thereunder. ER 1.4.
In representing a client, a lawyer must exercise independent professional judgment. ER's 2.1 and 5.4(d) (3). Consequently, the consultant may not, and the inquiring attorney must ensure that the consultant does not, infringe upon the attorney's ethical duty to retain full control of the litigation.
A lawyer may not offer an inducement to a witness that is prohibited by law. ER 3.4 (b). The Comment to ER 3.4 notes that: "The common law rule in most jurisdictions is that ...it is improper to pay an expert witness a contingent fee." Because the consultant will not be a witness, ER 3.4(b) is not implicated. However, to avoid any uncertainty on this issue, the contract with the consultant could specify that the consultant will not testify.
A lawyer is generally prohibited from sharing fees directly or indirectly with a nonlawyer. ER 5.4(a). Consequently, the consulting agreement may not be used as a subterfuge for fee splitting between the inquiring attorney and the consultant. In order to ensure compliance with ER 5.4(a), the fees charged by the inquiring attorney should be computed and paid without reduction by the fees paid to the consultant.3
A lawyer may not assist another in the unauthorized practice of law. ER 5.5. Consequently, in performing services for the inquiring attorney, the consultant may not engage in any activity that constitutes the practice of law.4
Additional ethical concerns may arise regarding an improper partnership between the inquiring attorney and the consultant, or the improper referral of business between them. See ER's 5.4(b) and 7.1(j). The substantiality of these concerns would depend upon a number of factual matters, including the number of repetitive engagements of the consultant by the inquiring attorney and the business relationship that exists or develops between them.
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 The Arizona Rules of Professional Conduct are found at 17A A.R.S., Rules of the Supreme Court, Rule 42. An individual ethical rule under the Arizona Rules is referred to herein as an "ER."
2 "Indigent" is not defined in the Arizona Rules and is a factual-legal question that is 6utside the jurisdiction of this committee. See our Statement of Jurisdictional Policies, para. 6(a).
3 Of course, the services provided by the consultant, although not legal in nature, may displace work typically performed by the inquiring attorney. Consequently, the reasonableness of the attorney's fee may need to be reconsidered and re-evaluated by the attorney in light of the services provided by the consultant. ER 1.5(a).
4 What constitutes the practice of law is a legal issue and, as such, is outside the jurisdiction of this committee. See our Statement of Jurisdictional Policies, para. 6(a).
Assuming, however, that the foregoing ethical concerns do not arise with respect to the proposed consulting arrangement, the arrangement appears to be ethically permissible.
Call the State Bar of Arizona Ethics Department at (602) 340-7236 for a copy of this Opinion.