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                                         130 N.J.L.J. 656
                                        February 24, 1992

                                        1 N.J.L. 129
                                        February 17, 1992


Appointed by the New Jersey Supreme Court


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.
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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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