Ethics Opinon 1975-18
December 22, 1975
SUBJECT: UNAUTHORIZED PRACTICE OF LAW BY HOUSE COUNSEL
Does rendering of legal services to employees of a corporation on their own personal legal problems by house counsel in the scope of his employment constitute an unauthorized practice of law? Does representation by house counsel in the scope of his employment of other parties or co-defendants in litigation where the employer owes a duty of defense constitute an unauthorized practice of law?
Representation and counseling of employees by house counsel in the scope of his employment appears to be prohibited conduct absent a State Bar approved group plan. On the second question, assuming no unwaived conflict of interest, it would seem that there is no authority to directly proscribe representation of a party or co-defendant to whom the employer owes a duty of defense by corporate counsel in the scope of his employment.
LEGAL ADVICE TO EMPLOYEES
A. Canons, Rules and Decisional Law
Canon 3 of the A.B.A. Canons provides:
A lawyer should assist in preventing the unauthorized practice of law.
Disciplinary Rule 3-101(A) states:
Lawyers are prohibited from aiding laymen in the unauthorized practice of law.
Canon 3 and DR 3-101 simplify the old 1908 A.B.A. Canon 35 which stated:
The professional services of a lawyer should not be controlled or exploited by any lay agency, personal or corporate, which intervenes between client and lawyer. A lawyer's responsibility and qualifications are individual. He should avoid all relations which direct the performance of his duties by or in the interest of such intermediary. A lawyer's relation to his client should be personal, and the responsibility should be direct to the client. (Emphasis added.)
Rule 3 of the Rules of Professional Conduct of the State Bar of California provides, in part, as follows:
A member of the State Bar shall not employ another to solicit or obtain . . . professional employment for him . . . nor shall he knowingly accept professional employment on behalf of any person, firm or corporation offered to him as the result of or as an incident to the activities of an unlicensed person, firm or corporation that for compensation controls, directs or influences such employment.
A.B.A. Canon 2 provides:
A lawyer should assist the legal profession in fulfilling its duty to make legal counsel available.
Disciplinary Rule 2-103 states, in pertinent part, as follows:
(A) A lawyer shall not recommend employment, as a private practitioner, of himself, his partner, or associate to a nonlawyer who has not sought his advice regarding employment of a lawyer.
(D) A lawyer shall not knowingly assist a person or organization that recommends, furnishes, or pays for legal services to promote the use of his services or those of his partners or associates. However, he may cooperate in a dignified manner with the legal service activities of any of the following, provided that his independent professional judgment is exercised in behalf of his client without interference or control by any organization or other person:
(1) A legal aid office or public defender office:
(a) Operated or sponsored by a duly accredited law school.
(b) Operated or sponsored by a bona fide nonprofit community organization.
(c) Operated or sponsored by a governmental agency.
(d) Operated, sponsored, or approved by a bar association representative of the general bar of the geographical area in which the association exists.
(2) A military legal assistance office.
(3) A lawyer referral service operated, sponsored, or approved by a bar association representative of the general bar of the geographical area in which the association exists.
(4) A bar association representative of the general bar of the geographical area in which the association exists.
(5) Any other nonprofit organization that recommends, furnishes, or pays for legal services to its members or beneficiaries, but only in those instances and to the extent that controlling constitutional interpretation at the time of the rendition of the services requires the allowance of such legal service activities, and only if the following conditions, unless prohibited by such interpretation, are met:
(a) The primary purposes of such organizations do not include the rendition of legal services.
(b) The recommending, furnishing, or paying for legal services to its members is incidental and reasonably related to the primary purposes of such organization.
(c) Such organization does not derive a financial benefit from the rendition of legal services by the lawyer.
(d) The member or beneficiary for whom the legal services are rendered, and not such organization, is recognized as the client of the lawyer in that matter.
Paragraph D of DR 2-103 and particularly Section 5 of paragraph D, were enacted in response to a series of cases commencing with NAACP v. Button, 371 U.S. 415 (1963) and Brotherhood of R.R. Trainmen v. Virginia, 377 U.S. 1 (1964). These cases held that prohibiting group legal services to members of a nonprofit association was a denial of the First Amendment rights to free speech, petition and assembly.
In A.B.A. Informal Opinion No. 469, an attorney was allowed to accept employment when fees were paid by a corporation, when the client selected his own attorney, but not if the employer dictated the attorney.
In A.B.A. Formal Opinion 273, the Committee held that the opinion of general counsel to a manufacturers association published in their journal was in violation of old Canon 35, prohibiting lay intermediaries. The Committee found that counsel could give opinions on matters of general interest to members, but to answer individual problems violated the last phrase of Canon 35 prohibiting advice to members "in respect to their individual affairs."
Los Angeles County Bar Association Opinion No. 292 (December 9, 1965), prohibited an attorney from participating in a plan whereby a corporation refers employees to the attorney and pays part of the fee. Earlier, in Opinion No. 137 (February 8, 1941), in a case more on point, Los Angeles County Bar Association found that a lawyer may not accept employment from a corporation to give advice to its employees. It is immaterial whether the advice is limited to office consultation or whether it involves representation in Courts.
San Diego County Bar Association Opinion EO 1973-11 (July 24, 1973), dealt with an attorney retained as legal counsel to a student association of a college. It was held that he could not counsel students in a no-fee advisory capacity, including advice as to the need for private counsel.
Although Brotherhood of R.R. Trainmen and related cases have arguably overturned a number of the cited opinions, Brotherhood of R.R. Trainmen can probably be limited to group legal services to a nonprofit organization. In a for-profit corporation, such as here, any group legal services would have to be approved in advance and governed strictly by the Rules of the California State Bar Association. Since there is no indication that such a plan has been approved, as to this corporation, the cited Canon, Rules and Opinions are controlling.
The rendering of advice to employees therefore seems clearly violative of old Canon 35, and State Bar Rule 3. DR 2-103(D) sets forth the organizations for whom an attorney may represent its members. The corporation is not included. The opinions, although not all directly in point factually, emphasize that advice to members of a group, whether paid for or not, is barred.
Besides elements of indirect solicitation, and unauthorized practice of law by the employer, counsel would have difficulty rendering independent advice to employees. When does counsel's corporate responsibility end and duties to the employee-client begin? A clear conflict of interest would arise if counsel was consulted on employment grievances by employees. However, counsel raises the fact that he is rendering advice to employees concerning legal entities of which they are members. What if these entities are in competition with the corporation? Counsel seems not only to be precluded by the previously cited rules, but by the fact that he is "house counsel" for the corporation not employed for the sole purpose of rendering advice to employees, but rather to advise the corporation.
REPRESENTATION OF CO-DEFENDANTS
A. Canons, Rules and Decisional Law
(See citations under III above)
Other than the opinions cited above, the only other opinion on this question is an abstract of Missouri Bar Opinion No. 6, found in Maru, Digest of Bar Association Ethics Opinions, Sec. 1393, which states:
It is unethical for a lawyer to accept salaried employment from a corporation to render legal services to the corporation's customers, the customers paying fees to the corporation for such services. The corporation is engaged in the unauthorized practice of law.
Although there is paucity of authority on this question, it seems that there might be a distinction whether the employer has solicited the legal business. If the employer is seeking clients for their house counsel to represent and charging fees for the legal services, then there would be violations of the Canons and Rules discussed in the first part of this opinion. On the other hand, if counsel appears for co-defendants or parties because of a contractual, statutory or common law duty to defend, then no authority can be found to prohibit such representation.
Counsel has asked this committee to interpret the impact of Laskin v. Home Savings and Loan Association, 49 C.A. 3d 788 (1975), and whether by inference appearance on behalf of co-defendants is barred. (Counsel also cites Matter of Thompson from the New York Law Journal, which publication is not in the San Diego County Law Library.)
In Laskin the purchaser of a home in Glendale brought suit against the developer, Home Savings, to determine the applicability of the Unruh Act to the sale of their home. Home Savings' cross-claimed for attorney's fees. The trial court found that the Unruh Act did not apply and denied Home Savings' cross-claim for fees.
In affirming, the Court of Appeals stated that the claim for attorney's fees only was applicable in the note and deed of trust for collection upon the notes or foreclosure. The Court then added as an additional ground to deny fees, "Moreover, Home was represented by house counsel and thus acted as its own attorney. Since no special or identifiable fee relating to this cause was incurred, Home is not entitled to reimbursement." Id. at 794.
From this brief quote, it is too great of a step to infer that henceforth corporate counsel is appearing in propria persona for all purposes and to appear for a co-defendant is therefore an unauthorized practicing of law. All that the Laskin dictum says is that house counsel is on a salary anyway, and Home Savings should not collect an additional attorney's fees. It would be a windfall to Home Savings.
This opinion is advisory only. It is not binding upon the State Bar, the Board of Governors, its agents or employees.
EDITOR'S NOTE: State Bar Rule 3 is now found in Rules 2-104 and 3-101 through 3-103.
Disclaimer: This opinion was issued by the Legal Ethics Committee of the San Diego County Bar Association. It is advisory only and is not binding upon any member of the SDCBA, any other member of the State Bar of California, the State Bar of California or its Board of Governors, or any persons or tribunals charged with regulatory responsibilities. The SDCBA, its officers, directors, agents, and the Legal Ethics Committee members assume no responsibility or liability in rendering this opinion.