Link to original
174 N.J.L.J. 460
November 3, 2003
12 N.J.L. 2134
November 3, 2003
Advisory Committee on Professional Ethics
Committee on Attorney Advertising
Appointed by the Supreme Court of New Jersey
JOINT OPINION
Opinion 694
Advisory Committee on Professional Ethics
Opinion 28
Committee on Attorney Advertising
“Affiliation” as description of relationship of law
firms; fee sharing, mutual referrals,
and confidentiality; communications concerning
law firms’ service
The Advisory Committee on Professional Ethics has been asked by two law firms
whether they may use the term “affiliated” to describe their relationship on their
letterheads and in their joint marketing. While such an inquiry is in some
sense limited to its particular facts, the described relationship of the two inquiring
firms here raises significant issues of fee sharing, mutual referrals and confidentiality which
could arise in other contemplated arrangements between law firms, and thus merit a
formal opinion in order to provide guidance to the bar. Since part of
the inquiry deals with communication concerning the law firms’ service, this is being
published as a joint opinion of both the Advisory Committee on Professional Ethics
and the Committee on Attorney Advertising.
Although “affiliated” is not a recognized term of art in defining law firm
relationships, the inquirers regard it as describing a “well-documented close personal and continuing
relationship”. Nevertheless in their detailed Law Firm Affiliation Agreement (the “Agreement”) the firms
are careful to acknowledge that
...[T]he terms of this Agreement do not create a partnership in that there
is not to be a sharing of profits and losses; there is not
to be joint ownership and control of firm capital or property; and there
is not to be joint control and management of firm business except in
the limited sense as set forth herein. [emphasis theirs]
Firm A practices only personal injury work and its lawyers include three certified
civil trial attorneys. Firm B, which has several lawyers but is owned by
a single proprietor, has an established workers compensation and Social Security disability law
department chaired by a lawyer who is a certified workers compensation attorney. Firm
B is presently located in a town (the “Town”) where Firm A does
not have, but would like to have, additional offices.
Under the Agreement, Firm B will lease new office space in the Town
which it will share with certain Firm A lawyers. Firm A will pay
rent to Firm B. The two firms will share conference rooms, library and
mail room facilities, a receptionist and reception area, an “intake” room, a kitchen,
a file storage area, part time file clerks, copying equipment and telephone equipment.
It is contemplated that on the first business day of the affiliation Firm
B will turn over all of its personal injury files to Firm A,
and counsel fees as earned on these files will be shared 75% to
Firm A and 25% to Firm B. Costs of losing cases will be
shared equally. There are special fee sharing percentages for certain special circumstances not
here relevant. On new personal injury cases there will be mandatory referrals from
Firm B to Firm A with the 75%-25% fee sharing continuing. All workers
compensation and Social Security clients are to be referred to Firm B by
Firm A with reciprocal 75%-25% fee sharing. In certain circumstances, the receiving firm
may refuse to accept a referral. It is noted that the referrals are
described as firm to firm and not to specific certified attorneys. (There is
no certification procedure for Social Security disability practitioners.) It is expressly provided that
apart from personal injury matters, Firm B retains the “right” to handle or
refer elsewhere other types of cases.
There are detailed provisions for joint marketing, separate professional liability insurance coverage, and
an option in favor of Firm A to “purchase” Firm B’s “assets” which
include its open and active Social Security and workers compensation files in the
event of the death or retirement of the sole proprietor of Firm B
or if he “elects to sell” to a third party. There is also
a restrictive covenant which would bar Firm A from the personal injury practice
for 30 months in the geographic area surrounding the Town in the event
it does not exercise its option to purchase Firm B.
The Agreement speaks to “ethical responsibilities” only to the extent that the firms
agree to be treated “as the equivalent of two offices of the same
firm as a matter of law for purposes of conflict and disqualification.” No
mention is made of disclosures to clients or of obtaining their consent with
respect to the reciprocal referrals or any other matters covered by the Agreement.
The Nature of the Relationship
As we noted in Opinion 681, 141 N.J.L.J. 1540 (July 17, 1995), the
concept of an “affiliation” of law firms does not fit easily into any
of the historical categories of lawyer relationships, such as partnerships, professional corporations, limited
liability companies and limited liability partnerships. See R. 1:21-1(c), 1A, 1B and 1C.
Nor does it fit into the common understanding of the “of counsel” concept,
which this Committee has described as a “close, ongoing and regular relationship” with
hands on responsibility for firm matters, which alerts clients that the designated attorney
may perform work on their matters. Opinion 689, 161 N.J.L.J. 255 (July 17,
2000); and see, generally, Michels, New Jersey Attorney Ethics, Chapter 5, pp 51-59
(2002 Ed.). In the instant matter there is no such commonly understood meaning
of “affiliated”.
As in Opinion 681, for present purposes, we accept the inquirers’ statement that
they are not creating a partnership or general joint venture, but rather are
limiting their relationship to the terms of the Agreement. We take no position
as to the nature of the relationship for other purposes, such as taxation
or liability. We conclude that since the term “affiliated” currently has no inherent
meaning in the legal profession, it therefore would be misleading and improper to
utilize it on law firm letterheads or advertising and marketing materials, including websites.
We take no position as to whether use of a term such as
“affiliated” might be proper if it were accompanied by a precise and detailed
description of the exact nature of the relationship in a particular situation.
Mutual Referrals
The Agreement essentially mandates referrals between the two separate firms, including a bulk
transfer to Firm A of all personal injury files of Firm B on
the effective date of the affiliation. There is no provision for communication with
the client (RPC 1.4) or the client’s consent to the referral and the
economic arrangement (RPC 1.5(e)(2). And, of major significance, there appears to be no
provision for the referring lawyer to exercise an independent judgment as to the
appropriateness of the referral on a case to case basis.
As we said in Opinion 681:
[A] lawyer who refers a client to another lawyer...has several duties to that
client. First are the core duties of competence (RPC 1.1) and diligence (RPC
1.3)-the lawyer must exercise appropriate care and inquiry, or disclose clearly that the
referral is being made in the absence of same. Second, the lawyer owes
a duty to make an independent judgment concerning what kind of referral will
be in the clients best interests, completely free from any economic or other
incentive that might weigh on the lawyer’s judgment. See, RPC 1.7(b), RPC 1.8(f)
and RPC 5.4 (c). [Emphasis added.]
The referral obligations of the parties to each other under the Agreement are,
in the opinion of the Committee, inconsistent with the obligations of lawyers under
the Rules of Professional Conduct.
Fee Sharing
The Agreement contemplates a 75%-25% fee sharing on the mandated referrals. While R.
1:39-6(d) permits the division of fees upon referral to a certified attorney, and
there are certified trial attorneys in Firm A and a certified workers compensation
attorney in Firm B, the contemplated referrals in this case are to each
firm rather to the certified lawyers. Obviously this defect is curable. However, the
fee sharing arrangement has the additional shortcoming of lacking the requirement of client
consent. RPC 1.5(e)(2)
In the case of certified attorneys, R. 1:39-6(d) eliminates only the requirement that
the division of fees be in proportion to the services performed by each
lawyer, or that each assumes joint responsibility for the representation under RPC 1.5(e)(1).
The conditions of client consent and reasonableness of the total fee remain relevant.
The Committee is concerned that fee sharing under a comprehensive mutual referral plan
such is intended here goes beyond what is contemplated by R. 1:39-6(d) by
presenting clients with an accomplished fact. And, we note again that Social Security
disability matters do not fall at all within the scope of R. 1:39-6(d),
and apparently Firm B does not claim to have a certified attorney in
that field.
Shared Facilities
The sharing of office space and facilities by Firms A and B under
the Agreement is extensive. Apart from the separate offices for individual attorneys and
separate work stations for their respective support staffs and Firm B’s financial administrator,
(there is no indication as to how these offices and work stations are
to be interspersed within the office space), the balance of the facilities are
apparently to be shared without limitation. The latter include a common client reception
area and a shared receptionist; a mail area, file cabinets and equipment area;
closed file storage area and file clerks; telephones and telephone equipment; ordinary and
usual firm “supplies”; fax machines; photocopier; a kitchen and a library (“spread through
[the] office”).
The firms agree that for purposes of conflicts and disqualifications they are to
be treated as offices of the same firm. There is also no doubt
that they would be so treated for purposes of R. 1:15 and RPC
1.10 all of which have to do with limitations on their respective practices.
The more encompassing question, however, is whether two sets of lawyers who deny
they are members of the same firm may nevertheless practice law together in
facilities which they share so pervasively and still maintain the confidentiality of information
about their respective clients that is required under RPC 1.6(a). The question is
further complicated by the intent of the firms to publicize their relationship as
an “affiliation”, a term whose meaning is elusive to lawyers themselves, not to
mention their clients who may believe the designation involves a hands on responsibility
for the cases of each other when under the Agreement it does not.
See Opinion 522, 112 N.J.L.J. 384 (1983).
Conclusion
We believe that in the circumstances presented the use of the term “affiliated”
can be misleading in view of the fact that the parties are in
fact contractually involved solely in a mutual referral, fee sharing and cost sharing
arrangement. We find that the contractual referrals mandated by the Agreement deprive the
client in each instance of the independent judgment of the referring attorney concerning
what kind of referral is in the client’s best interest. We further find
that the contractual reciprocal fee sharing, even if the referrals were to be
directly to certified attorneys, would nevertheless require the consent of the client in
each instance which does not appear to be a requirement under the Agreement.
Finally, we find that the pervasive sharing of facilities by the two separate
firms as described in the Agreement give rise to a serious risk of
a breach of confidentiality that their respective clients are entitled to. In view
of all of the foregoing we find that the proposed Agreement and the
accompanying proposed publication of an “affiliated” relationship by the firms are inconsistent with
the Rules of Professional Conduct.
We do not comment on the sale of the practice and restrictive covenant
provisions of the Agreement except to note that such matters are strictly governed
by rule (RPC 1.17) and case law. (See Michels, op. cit supra at
Chapter 9.)
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