State Bar of Arizona Ethics Opinions

94-14: Donating Fee to Charity; Advertising Donation
12/1994

An attorney may offer to donate 10% of a legal fee to the charity of a client's choosing as long as: 1) the total fee charged is reasonable; 2) the attorney's independent professional judgment is not affected; 3) charities are not paid for referrals; and 4) the advertisement of the offer complies with ER 7.1.



FACTS[1]

The inquiring attorney would like to advertise on radio and television that the law firm will donate 10% of its legal fees to the charitable organization of the client's choice.

 

QUESTION PRESENTED

Whether an attorney may offer to donate 10% of a legal fee to the charity of the client's choosing?

 

ETHICS RULES INVOLVED

 

ER 1.5(a)              Fees

(a) A lawyer's fee shall be reasonable. The factors to be considered in determining the reasonableness of a fee include the following:

(1) the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly;

(2) the likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer;

(3) the fee customarily charged in the locality for similar legal services;

(4) the amount involved and the results obtained;

(5) the time limitations imposed by the client or by the circumstances;

(6) the nature and length of the professional relationship with the client;

(7) the experience, reputation, and ability of the lawyer or lawyers performing the services; and

(8) whether the fee is fixed or contingent.

 

ER 5.4(a)              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.

 

ER 7.1(d) (9), (j), (k)        Communications and Advertising Concerning a Lawyer's Services

(d) The following information in advertisements and written communications, if truthful, shall be presumed not to violate the provisions of ER 7.1:

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(9) a listing of a lawyer or law firm as a sponsor of charitable, civic or community program or event or public service announcement. Such listing shall not exceed the traditional description of sponsors of or contributors to the charitable, civic or community program or event or public service announcement, and such listing must comply with the provisions of these rules;

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(j) A lawyer shall not give anything of value to a person for recommending the lawyer's services, except that a lawyer may pay the reasonable cost of advertising or written or recorded communications permitted by these rules and may pay the usual charges of a lawyer referral service or other legal service organization.

(k) This rule does not apply to identification of a lawyer as a lawyer as well as by name:

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(7) in a brief announcement in any of the public media that identifies a lawyer or law firm as a contributor to a specified charity or as a sponsor of a specified charitable, community or public interest program, activity or event.

 

OPINION

 

Donating Fee Does Not Constitute "Sharing" Fees with Nonlawyer

The first issue that must be addressed in this inquiry is whether the proposed donation to a charitable organization constitutes an improper "sharing" of fees with a nonlawyer, in violation of ER 5.4(a). Lawyers cannot "share" fees with non-lawyers except in limited circumstances that are not applicable to this analysis. See ER 5.4(a). ER 5.4(a) is derived directly from its predecessor DR 3-102(a) Model Code of Professional Responsibility (1969, amended 1980).

Other states that have considered this issue are in disagreement as to whether "donating" to a charity is "sharing" a fee. Ethics Opinions from the Illinois State Bar Assn. and the State Bar of Nevada determined that similar proposals would be impermissible fee-sharing with non-lawyers. See Ill. Op. 92-24, Laws. Man. On Prof. Conduct (ABA/BNA) 1001:3012 (May 12, 1993); Nev. Op. 5, Laws. Man. on Prof. Conduct (ABA/BNA) 901:5602 (June 16, 1987). Conversely, the Michigan Bar Association found that lawyers could advertise such donations. Mich. Op. RI-163, Laws. Man. on Prof. Conduct (ABA/BNA) 1001:4767 (April 30, 1993). Similarly, the Philadelphia Bar Association determined that it was acceptable for an attorney to advertise that the attorney will prepare a living will for "free" provided that the client has made a donation to a charitable organization within the preceding three months. Phila. OP. 91-34, Laws. Man. on Prof. Conduct (ABA/BNA) 1001:7504 (December, 1991).

The Philadelphia Opinion is persuasive in that it addresses the purposes behind ER 5.4(a) in prohibiting the sharing of fees with a nonlawyer. The Philadelphia Opinion determines that ER 5.4(a) is "directed to prohibiting a different type of fee splitting, such as the sharing of fees within a law firm between attorneys and non-attorneys or the sharing of fees by a lawyer or law firm with a business enterprise." The Philadelphia Opinion goes on to note that the proposed donation of fees to a charity "does not offend the principle sought to be protected, by Rule 5.4. . ."

The principles behind ER 5.4 are: 1) to avoid having a nonlawyer interfere with the lawyer's independent professional judgment; and 2) to ensure that the total fee paid by the client is reasonable. See ABA Comm. on Ethics and Professional Responsibility, Formal Op. 87-355 (1987). The Rule is intended to prevent non-lawyers from affecting either a representation or amount charged to a client. A nonlawyer with his or her own pecuniary gain at interest could injure the client if the nonlawyer were permitted to have a stake in the representation. If, however, certain conditions are satisfied (which are discussed below), these concerns will not develop from an arrangement such as the one proposed by the inquiring attorney.

To limit the applicability of ER 5.4(a) is within the purposes of the rule and supports public policy. If ER 5.4(a) were interpreted literally and taken to its most ludicrous extreme, it would mean that lawyers cannot donate any of their income to charities because it would be "sharing" a fee with a nonlawyer. Thus, lawyers who derive their income from fees never can donate money. This interpretation of ER 5.4 not only is beyond the intended purposes of the Rule, but is against public policy.

Moreover, this interpretation of ER 5.4(a) would suggest that ER 7.1(d) (9) is superfluous. That Rule provides:

(d) The following information in advertisements and written communications, if truthful, shall be presumed not to violate the provisions of ER 7.1: .(9) a listing of a lawyer or law firm as a sponsor of charitable, civic or community program or event or public service announcement. Such listing shall not exceed the traditional description of sponsors of or contributors to the charitable, civic or community program or event or public service announcement, and such listing must comply with these rules. . . (emphasis added).

Why have a rule that permits advertising contributions to charities if, by a strict reading of ER 5.4, such contributions always are impermissible?

If ER 5.4 was meant to prohibit all sharing of fees with non-lawyers, why then are there three exceptions to the Rule? See ER 5.4(a) (1) - (3). One noted treatise on lawyer's ethics also mentions this irrationality as well as other reasons why ER 5.4 is flawed. Geoffrey C. Hazard Jr. & W. William Hodes, The Law of Lawyering, § 5.4:102-103 (2d ed. 1992 supp.). Simply, ER 5.4(a), alone, cannot prohibit donating money to charities unless to do so would violate another Ethical Rule.

The Committee acknowledges that previously in our Opinion 79-15 we concluded that donating legal services to a charity auction would violate ER 5.4's predecessor, DR 3-102. See Arizona Op. 79-15 (June 6, 1979). Additionally, the Committee determined in our Opinion 165 that an attorney could not have clients pay the attorney's bill directly to a charity as a donation. See Arizona Op. 165 (March 15, 1965).

Upon further consideration of the principles underlying ER 5.4(a), we believe that those principles are not served by prohibiting donations of the type described in this inquiry. Accordingly, this opinion overrules Ops. 165 and 79-15. If the safeguards discussed below are satisfied, the proposed donations to charities would not violate ER 5.4.

 

The Total Fee Charged Must Be Reasonable

One of the considerations behind ER 5.4(a) is that a nonlawyer should not be able to affect the fee charged to a client for legal services. Regardless of who may or may not get a portion of the fee, the ultimate consideration in fee issues is that the total fee charged to a client must be reasonable. See ER 1.5(a). This means that the lawyer may not add a surcharge or otherwise try to inflate the fees charged to offset the 10% donated to the charity. Moreover, the intended donees cannot have any input in the amount of fees charged. Assuming that the inquiring attorney follows these standards, the proposal complies with ER 1.5.

 

Charity May Not Be Paid For Referrals

ER 7.1(j) states that a lawyer "shall not give anything of value to a person for recommending the lawyer's services. . .”[2] As presented in the inquiry, there is no indication that charities will be involved in the proposed advertisement. To quote from the Michigan Opinion, supra, Rule 7.1 is not violated "[s]ince the charitable organization is not involved in the communication of the pledge by the lawyer, the organization is not using the lawyer's offer as an incentive, is not endorsing the lawyer's qualifications, and is in no way encouraging the use of the lawyer's services."

From the facts in this inquiry, there is no indication that the law firm is working with a particular charity or that a particular charity is encouraging the law firm to make such an offer. Where the firm is advertising the offer to the general public and there is no intent to have certain charities feed work to the firm, the offer would not offend ER 7.1(j).

 

Charity May Not Interfere With Representation

The ultimate concern in any situation where a nonlawyer is involved is that the lawyer's independent professional judgment cannot be affected by the nonlawyer. Once a charity is designated by a client to receive a donation, the lawyer should assure that both the client and the charity understand that the attorney has loyalties only to the client and will only consider what is in the best interests of the client; the charity cannot and will not play any role in determining what occurs in the attorney-client representation. ER 5.4(a) is explicit in its requirement that a nonlawyer not interfere with a lawyer's independent professional judgment.

 

Advertising of Offer Must Comply with ER 7.1

In addition to all of the safeguards noted above, the actual advertising of the offer must comply with ER 7.1 in that the offer cannot be false or misleading. If the attorney advertises that a portion of the fee will be donated to the client's chosen charity - he must do so; the advertisement cannot be a false inducement to retain that attorney versus another attorney who does not advertise the same donation.

In summary, as long as 1) the total fee charged is reasonable; and 2) the donees do not interfere with the attorney's independent professional judgment, the proposed offer to donate 10% of the fee charged to the client's chosen charity is within the bounds of the Rules of Professional Conduct.

  

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 1994

 


[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.

[2] This rule is numbered ER 7.2(c) in the ABA Model Rules of Professional Conduct.




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