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130 N.J.L.J. 656
February 24, 1992
1 N.J.L. 129
February 17, 1992
ADVISORY COMMITTEE ON PROFESSIONAL ETHICS
Appointed by the New Jersey Supreme Court
OPINION 657
Conflict of Interest: Lawyers
rendering Non-Legal Services
to Their Clients
This Opinion arises from two separate inquiries which present
substantially similar questions. Specifically, they ask whether or
to what extent lawyers may offer or render non-legal services to
their clients.
The first inquiry concerns an attorney who for many years
prior to her admission to the bar was, and since becoming an
attorney and stockholder in her husband's law firm has been, the
proprietor of a business which furnishes medical-legal consulting
services to various law firms. The consulting business, which
employs registered nurses and/or physicians, proposes to render
services to her law firm and the firm's clients pursuant to written
contracts under the terms of which some or all of the following
services may be provided:
A. Literature searches of all technical sources
in particularly medical and environmental
sources;
B. Preparation of abstracts of appropriate
technical sources which are relevant to
the case;
C. Obtaining expert witnesses;
D. Working with expert witnesses and
obtaining expert witness reports -
particularly in medical and environmental
cases;
E. Obtaining hospital records and
preparation of complete analysis of
hospital records by registered nurses,
physicians or hospital administrators
where appropriate;
F. Preparation of life care plans;
G. Preparation of demonstrative evidence and
particularly medical and environmental
graphics and illustrations;
H. Conferences with client, physicians and
experts as to treatment modalities and
rehabilitation programs;
I. With the approval of the Law Firm and
Client, [the consulting business] may
advance costs for experts and case
preparation in connection with the case
and shall be entitled to receive
reimbursement of these costs with a
floating interest rate of 2% over prime.
The law firm and the client would agree to pay the consulting
business specified hourly rates, but only the law firm would be
obligated in the event there were no recovery in a plaintiff's
case. In the event of recovery, the liability of the client would
be limited to an amount no greater than 5% of the gross recovery.
The second inquiry, received from the Committee on Attorney
Advertising (CAA), concerns two attorneys with a matrimonial law
practice who also own and operate a divorce mediation service.
According to the CAA, the attorneys represent that the mediation
service is operated as an entirely separate business entity with
its own name, letterhead and bank accounts. Moreover, consistent
with Opinion 521, 112 N.J.L.J. 394 (October 6, 1983), the attorneys
do not accept as clients any individuals who have employed the
services of the mediation service.
However, the mediation service is operated out of the same
location as, and jointly advertises and apparently shares the same
telephone lines with, the law offices. The attorneys also advise
the service's clients that they are matrimonial lawyers.
In Opinion 532, 113 N.J.L.J. 544 (May 17, 1984), the inquirer
asked whether he could establish a separate business to print,
market and distribute Miranda rights cards to persons charged with
criminal offenses. Inquirer relied upon the then current DR 2-
102(D) as authority for a lawyer engaging in a business other than
the practice of law as long as the business is kept separate from
the professional practice. The disciplinary rule provided that:
A lawyer who is engaged both in the practice
of law and another profession or business
shall not so indicate on his letterhead,
office sign, or professional card, nor shall
he identify himself as a lawyer in any
publication in connection with his other
profession or business.
The Committee concluded that DR 2-102(D) was clear authority
for the proposition that inquirer could not market the card as a
lawyer. While there was no prohibition against his creating
another business to produce and market the card, that business and
his law office had to be kept entirely separate.
In Opinion 540, 114 N.J.L.J. 387 (October 11, 1984), the
inquirer asked whether he could organize and operate a for-profit
corporation to provide programs for the public concerning "... the
law, the legal process and intelligent selection of counsel .... "
The inquirer also asked whether it would be proper to advertise in
the print media the names of the attorneys who would be
participating in the educational programs.
Citing DR 2-102 and DR 2-103, the Committee concluded that the
attorney could establish and operate the for-profit corporation and
advertise its services in the print media. However, because of the
potential for abuse, the Committee held that the corporation's
organizational activity and support staff had to be separate and
distinct from those of the attorney's office.
DR 2-102(D) was not expressly retained by our Supreme Court
when the Rules of Professional Conduct were adopted in 1984. The
pertinent rule history is devoid of any indication as to why this
provision was not included.See footnote 1
1
In any event, the rule was
essentially an advertising restriction, now within the exclusive
jurisdiction of the CAA. R. 1:19-2; R. 1:19A-2.
The starting point for addressing the question raised by the
present inquiries must be RPC 1.8(a), which provides:
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 in which the lawyer
acquires the interest are fair and reasonable to the
client and are fully disclosed and transmitted to the
client in manner and terms that should have reasonably
been understood by the client, (2) the client is advised
of the desirability of seeking and is given a reasonable
opportunity to seek the advice of independent counsel of
the client's choice on the transaction, and (3) the
client consents in writing thereto.
In its Report, which appeared as a supplement to the July 28,
1983 New Jersey Law Journal, the New Jersey Supreme Court Committee
on the Model Rules of Professional Conduct ("Debevoise Committee")
noted that the language of RPC 1.8(a) represented a "much broader
prohibition" than its predecessor rule, DR 5-104(A). The Debevoise
Committee viewed this change as consistent with the philosophy of
the New Jersey courts which "have given close scrutiny to
transactions between lawyer and client, or between the lawyer and
one who reasonably relied upon the lawyer's professional judgment
in the matter." Report, supra., July 28, 1983 N.J.L.J. Supp. at 6.
Where, as here, the subject matter of the legal representation
and the services to be provided by the business entity are related,
special precautions must be provided beyond those detailed in the
rule. Absent the safeguards to be discussed below, lawyers should
not be able to freely refer a client in need of a service related
to the legal representation or its subject matter to any business
enterprise in which they maintain an ownership or controlling
interest, or from which they derive income or profit.
It is clear that a client has a special trust in, and is
frequently dependent upon, the independent judgment of the lawyer,
which is always to be exercised in the client's best interests,
free from any outside influences. The possibility of referral of
legal clients to another business of the lawyer introduces an
extraneous and potentially conflicting motive, which can threaten
or interfere with the lawyer's independence of judgment. At the
same time, because of the trust and dependence that the client must
place on the lawyer, a client's ability to independently evaluate
the desirability or necessity of following through on such a
referral is presumptively impaired. The situation is inherently
coercive rendering even the standard approach of full disclosure
and informed consent suspect.
Without barring the possibility of such a referral entirely,
we conclude that a lawyer may only refer a legal client to a
business the lawyer owns, operates, controls, or will profit from,
if the lawyer has (1) disclosed to the client in writing,
acknowledged by the client, the precise interest of the lawyer in
the business, and that the same services may be obtained from other
providers, and (2) advised the client, orally and in writing, of
the desirability of seeking and is given a reasonable opportunity
to seek the advice of independent counsel of the client's choice as
to whether utilization of the business in question is in the
client's interest.
We also reaffirm the conclusions reached in Opinion 532, 113
N.J.L.J. 544 (1984) and Opinion 540, 114 N.J.L.J. 387 (1984) that
lawyers must keep their law practices entirely separate from their
business enterprises. Consequently, lawyers must operate their
practices and businesses in physically distinct locations, refrain
from joint advertising or marketing of the two, and avoid any other
demonstration of a relationship between them.
* * *
Footnote: 1 1 For a more detailed analysis of the history of the rule,
see Opinion 589, 118 N.J.L.J. 94 (July 24, 1986).
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