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


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.
    We now turn our attention to the Agreement itself as it relates to the Rules of Professional Conduct.
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).

    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.)


9/26/2003 10:46:55 AM    10/21/2003 11:05 AM

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