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Ethics Opinon 1978-5

July 17, 1978

SUBJECT: LEGAL ETHICS AND UNLAWFUL PRACTICE COMMITTEE, SAN DIEGO COUNTY BAR ASSOCIATION

I
QUESTION PRESENTED

An attorney has developed a concept for a "public interest law firm" (hereinafter the "Service") whereby the Service advertises to the general public that its office is available to the public for the performance of "diagnostic" legal services. The attorney envisions the Service as being the equivalent to the practice of a general practitioner in the medical profession in that the Service will engage in an initial 20 minute consultation with the client and thereafter makes a recommendation regarding the approach to a solution. The attorney for the Service either suggests self help, agency help or further action by an attorney. In the case where the decision is that an attorney should handle the matter, the attorney for the Service will either handle the matter himself or, when the matter is outside his area of expertise, refer the client to outside counsel in the particular area.

The attorney contemplates that the Service will maintain a referral relationship with many attorneys in the Bar Association to whom these particular matters are referred. These "referee" attorneys will be attorneys in private practices of their own but will be included in the Service's list of attorneys to whom it refers matters; based upon their previous request that they be so included. There is no indication that any fee will be paid by these attorneys to be included on this referee list. In the case where a matter is referred out from the Service, the Service will share fees with the referee attorney based upon the Service's part in follow-up and diagnosis as well as continuing support services actually performed by the service.

At the time of the diagnostic review of the client's problem, if the Service makes the determination that the matter must be handled by an attorney (either the attorney running the Service or one of its referee attorneys), the Service has the client sign a "Fee Agreement and Power of Attorney" (hereinafter the "Agreement"). The Agreement is entered into between the client and the service and establishes the method or rate of compensation for the total services to be performed, whether they be rendered by the Service or the referee attorney. Specifically this Agreement will authorize legal work to be performed at a specific rate or fixed amount of compensation. The Agreement discloses that, where the Service attorney remains associated with the client's case, the client agrees that the Service shall receive 20% of the fee paid the referee attorney.

These circumstances present the following questions for consideration:

I. "Does the Service constitute a 'lawyer referral service' subject to compliance with the Minimum Standards for a Lawyer Referral Service in California promulgated by the Board of Governors of the State Bar of California?

II. "Does the method of fee sharing contemplated in the proposed "Fee Agreement and Power of Attorney" violate Rule 2-108 "Division of Fees Among Lawyers"?

II
CONCLUSION

The Service as presented would constitute a lawyer referral service and thus is subject to compliance with the Minimum Standards for a Lawyer Referral Service in California (see the attached copy). Further, the fee sharing as presented would violate Rule 2-108 of the Rules of Professional Conduct of the State Bar of California in both its present and proposed form.

III
STATUTES AND CANONS

A. The Minimum Standards for a Lawyer Referral Service in California (hereinafter the "Minimum Standard) are attached hereto.

B. Rule 2-108 of the Rules of Professional Responsibility of the State Bar of California in its present and proposed form is set out as follows:

"Rule 2-108. Division of fees Among Lawyers Financial Arrangements Among Lawyers.

(A) A member of the State Bar shall not divide a fee for legal services with another person licensed to practice law who is not a partner or associate of his or her law firm or law office unless,

(1) The client consents to employment of the other person licensed to practice law after a full disclosure that a division of fees will be made; and

(2) The division is made in proportion to the services performed or responsibility assumed by each; and

(3) The total fee charged by all persons licensed to practice law is not increased solely by reason of the provision for division of fees.

(B) A member of the State Bar shall not compensate, give or promise anything of value to any person licensed to practice law for the purpose of recommending or securing employment of the member or the member's firm by a client, or as a reward for having made a recommendation resulting in employment of the member or securing employment of the member or the member's firm by a client, or as a reward for having made a recommendation resulting in employment of the member or the member's firm by a client." (Underlined portion represents the new provisions proposed by the Board of Governors' Committee on Professional Responsibility, tentatively approved on April 28, 1978.)
IV
DISCUSSION

The State Bar of California has recognized the general public's need for accessible legal services and to that end has established a policy that all communities shall be served by lawyer referral services, ". . . to make legal services more available to the general public by providing a way in which any person may be referred to a member of the Bar consistent with the relevant circumstances, such as they type and degree of difficulty of the legal problem presented by such person, and his or her spoken language, geographical convenience and financial ability to pay for desired services." (See paragraph 1.2 of the Minimum Standards.) To facilitate and implement this policy, the State Bar of California has adopted specific rules and regulations regarding the minimum standards for the operation of such referral services. These rules appear to be carefully calculated to satisfy the public's need for available legal services while at the same time protecting the public from the abuses and evils traditionally associated with client solicitation, capping and fee sharing arrangements between attorneys (see specifically paragraphs 8.1 and 8.2 of the Minimum Standards).

Under the facts as presented, the function of the proposed Service is to provide a needed place in the community for intermediate income people to inquire and receive a diagnostic analysis of their legal problem and be directed to one or more attorneys capable of handling their matter. There appears to be no discernible distinction between the functions to be performed by the proposed Service and a "lawyer referral service" as contemplated by the State Bar of California. Accordingly, we conclude that the proposed Service would constitute a "lawyer referral service" and as such, will be subject to the Minimum Standards.

It is clear that if the Service receives a flat 20% fee (as is set out in its proposed "Fee Agreement and Power of Attorney") that arrangement violates Rule 2-108 in both its present and proposed form. The rule requires that the division of fees must be in proportion to the services performed or the responsibility assumed by each attorney. A flat fee of 20% does not necessarily bear any relationship to the services performed or responsibilities assumed by the Service.

Additionally, Rule 2-108 requires that the total fee charged by all attorneys in the matter should not be increased solely by reason of the provision for the division of fees. Although the language of the provision in the proposed Agreement is somewhat ambiguous, it appears that there is substantial danger that the total fee charged by all the attorneys will be increased solely by reason of the involvement of the Service. For example, it appears that if the referee attorney is billing the client on an hourly basis, the client is also obligated to pay 20% of the amount billed to the Service if it remains associated with the case. It is apparent that the intent of Rule 2-108 is that the total fee paid by the client to all attorneys involved with his matter should not exceed the amount paid to a single attorney if he were handling the entire matter himself. It appears to this Committee that under the fee arrangement as proposed by the service, this objective will not be accomplished.

It should be additionally noted that Rule 2-108 requires that the client must consent to the employment of the additional attorney after a full disclosure that the division of fees will be made. Because of the ambiguity in the language and structure of the proposed Agreement, we are unable to conclude that the proposed agreement will effectively make the required full disclosure.

Finally this Committee has considered whether the conduct of the Service as proposed would constitute a violation of proposed subdivision (B) to Rule 2-108, if the referee attorneys pay a fee or provide any other consideration to the service for making the referral to them. Proposed paragraph (B) provides that no such compensation shall be given by any member of the State Bar to any other member of the State Bar for the purpose of recommending or securing employment or as a reward for having done so.

We state at the outset that there is no factual information available to the Committee to indicate that any such fee is contemplated by the proposed Service. Under these circumstances clearly, no violation of Subdivision (B) could result.

The Minimum Standards (paragraph 8.1) contemplate and authorize the payment of an initial Registration Fee from referee attorneys to be placed on appropriate panels. Accordingly, so long as any membership fees (and fee sharing arrangements) are conducted by the Service in accordance with the provisions of the Minimum Standards, neither the initial fee nor subsequent sharing of fees would result in a violation of the Rules of Professional Conduct. Absent a full compliance with the Minimum Standards, any initial fee (i.e., for membership on the Services' list of "referee" attorneys) would constitute a violation of proposed subdivision (B) to Rule 2-108.

This opinion is advisory only. It is not binding upon the State Bar, the Board of Governors, its agents or employees.

* * * * * * * * * *

MINIMUM STANDARDS
FOR A LAWYER REFERRAL SERVICE IN CALIFORNIA
Effective May 14, 1976,
Amended December 16, 1978, Amended April 3, 1982

Policy of the State Bar

1.1 It is the policy of the State Bar of California that every community be served by a Lawyer Referral Service (hereinafter referred to as "Service"). Where the size of the community or the number of lawyers serving it makes the establishment of a separate Service impractical, the State Bar encourages the establishment of a regional Service embracing two or more such communities.

1.2 The purpose of the Service shall be to make legal services more available to the general public by providing a way in which any person may be referred to a member of the Bar consistent with relevant circumstances, such as the type and degree of difficulty of the legal problem presented by such person, and his or her spoken language, geographical convenience and financial ability to pay for desired services.

Authority to Operate a Service

2.1 A Service may be established, sponsored, and supervised or operated upon specific authorization by the Board of Governors of the State Bar, provided, however, that each Service operating as of the effective date of these Minimum Standards pursuant to the Standards previously in effect since January 19, 1973, shall automatically be authorized to continue such operation if the Service complies with Sections 3 through 9 hereof on or before January 1, 1977.

Authorization to establish and operate a Service shall be granted only to a bar association that meets the requirements specified in Article VI, Section 4, subdivision A(1), (3), (4), (5), (6), (8) and (9) of the Rules and Regulations of the State Bar, or to a legal aid plan or program for the furnishing of services to indigents or to a nonprofit organization formed for charitable or other public purposes which furnishes legal services to persons only in respect of their civic or political or constitutional rights and not otherwise in furtherance of such charitable or other public purposes of such organization. Such authorization shall be considered on the basis of a written application which contains an adequate showing that the proposed Service will conform to these Minimum Standards.

2.2 Authority to operate a Service may be withdrawn by the Board of Governors if, after notice and an opportunity to be heard, it determines that the Service or its sponsor has violated any of these Minimum Standards. The Board of Governors may also issue such other remedial orders as it deems appropriate under the circumstances.

Supervision by the Lawyer Referral Committee

3.1 The Service shall be supervised in its establishment and operation by a committee or board of directors (hereinafter referred to as a "Lawyer Referral Committee") having full authority to make all decisions necessary to the conduct of the Service. Such decisions are subject to review or modification by the Service's sponsor(s).

3.2 Members of the Lawyer Referral Committee shall be appointed by the sponsor(s) and may include non-lawyer public representatives. At least 50% of the Committee members must be active members of the State Bar of California.

3.3 The Lawyer Referral Committee shall meet at regular intervals. At least annually, the Committee shall review the operating records kept by the Service pursuant to Section 9.1 of these Standards, supplemented by a sampling of information as to whether appointments have been kept, whether the client was satisfied with the lawyer's handling of the case and whether the fee was within the client's means. Based on its review, the Committee shall make such alterations in the operation of the Service as it deems necessary.

3.4 Where two or more Services operate within the same county, their respective Lawyer Referral Committees shall seek to make cooperative arrangements in order to improve their collective capability for serving the public. Consideration should particularly be given to joint efforts for providing emergency services.

Eligibility and Approval of Panel Attorneys

4.1 Membership on any panel operated by the Service shall be open to all active members of the State Bar of California who regularly practice and maintain an office in the area served, except that the Service may impose additional requirements of experience or special education and training with respect to "special qualifications" panels established and operated in conformity with Section 5.2 of these Standards, provided that the number of years an attorney has been admitted to practice shall not be the sole criterion or qualification for "special qualifications" panels. Membership on a panel may not be made contingent upon membership in a sponsoring association; however, a separate charge may be made to non-members of the sponsoring association to reimburse the association for services rendered by it to the Service.

4.2 Each applicant for panel membership shall agree in writing to abide by all rules and regulations of the Service which shall include the requirement that each panel member submit any fee dispute arising between such member and a client referred by the Service, if the client so elects, to binding arbitration by a Fee Arbitration Committee or other body established or approved by the sponsor.

4.3 Each Service shall establish a uniform procedure for review of refusals to admit to, and decisions to suspend or remove from, membership on any panel. In every case where a Service refused to admit an attorney to a panel or suspends or expels an attorney from a panel, the Service must give the attorney a written statement of the reasons for its decision and offer the attorney a meaningful opportunity to be heard in his or her defense.

4.4 Every panel member shall be provided by the Service with a copy of the Minimum Standards for a Lawyer Referral Service in California that are then in effect at the time they become a member of the Service. Additionally, the Service shall continue to provide every panel member with copies of all changes that the Board of Governors thereafter may make to said Minimum Standards.

Organization of Panels

5.1 Each Service shall establish such number and variety of panels as the Lawyer Referral Committee determines will best enable the Service to make referrals that are responsive to individual client needs (see Section 1.2).

5.2 Each Service is encouraged to establish "special qualifications" panels representing different fields of law and limited to attorneys found to be experienced or to have special education or training in the respective fields, provided that the number of years an attorney has been admitted to practice shall not be the sole criterion or qualification for "special qualifications" panels, and provided further that an attorney who is certified by the California Board of Legal Specialization as a specialist in a particular field shall be qualified for membership on the panel for such field by virtue of his or her certification. For each "special qualifications" panel, the Lawyer Referral Committee shall establish and file with the State Bar standards and procedures for:

(a) determining the qualifications for membership on the panel;

(b) reviewing the qualifications of a member to remain on or to be removed from the panel; and

(c) appealing decisions to suspend or remove a member from the panel (see Section 4.3 of these Standards).

5.3 Each Service is encouraged to establish other separate panels including, but not limited to: a free-service-to-indigents panel, a reduced-fee panel, an inmate assistance panel, a legal services for the aged panel, or an attorney-to-attorney consultation panel.

Referral Procedures

6.1 The Lawyer Referral Committee shall establish procedures assuring that each referral is made by the Service in a fair and impartial manner to a member of the appropriate panel. To the extent feasible, such procedures shall be designed to respond to all circumstances of the client, including the type and degree of difficulty of the legal problem presented, geographical convenience, language needs and the ability to pay for desired services.

6.2 No referral shall be made on the basis of race, sex, age, religion or national origin.

6.3 No referral shall be made by the referrer to himself, his associates or employees.

Publicity

7.1 Each Service shall develop and maintain an active publicity program through communications media designed to inform the general public in the area served of the existence, purpose and advantages of the Service. Each Service should also make specific arrangements for receiving referrals from legal aid programs, criminal justice agencies, hospitals, jails, employers, and other appropriate public and private agencies and institutions in the area served.

7.2 The form and content of all publicity shall be dignified and shall not be misleading. In particular, any Service operating with special qualifications panels pursuant to Section 5.2 of these Standards may publicize that it will make referrals to attorneys "experienced" in particular substantive areas, but shall not use such terms as "specialist" or "special qualifications" that may be confused with specialty certification conferred by the California Board of Legal Specialization unless such panels contain only the names of certified specialists. All advertising shall identify the sponsor(s) of the Service.

7.3 No publicity about the Service shall identify the attorneys participating in it, except that this shall not prohibit a participating attorney from acting as a spokesperson for the Service if authorized by the Lawyer Referral Committee.

Operating Fees and Use of Proceeds

8.1 A Lawyer Referral Service may require that:

(a) each panel member pay to the Service a registration fee, "referral" fee (computed on a percentage basis or otherwise), or other like participating fee, or any two or more of such fees, as a condition to panel memberships; and

(b) each applicant pay a registration fee, initial consultation fee, or other like referral fee, or any two or more of such fees, as a condition to referral;

provided, however, that no Service may require any fee which is, or any combination of fees which are, either in conflict with statutory or other legal provisions for the award of attorney fees or unreasonable, whether those fees be required of applicants, panel members or both. The primary criterion for determining whether a Service has failed to comply with this provision shall be whether the fee or combination of fees in question increases an applicant's cost for legal services beyond that which he or she would normally pay, or decrease the quantity or quality of services which he or she would otherwise receive, absent involvement of the Service.

8.2 The proceeds derived from the operation of the Service may be used only for the following:

(a) payment of the actual expenses of operating, conducting, promoting and developing the Service, including expenditures for capital purposes for the Service, as determined on a reasonable accounting basis and with provision for reasonable reserves;

(b) support of activities or programs

(i) for the furnishing of legal services to persons and entities financially unable to pay for all or part of such services or conducted by a legal aid plan or program for the furnishing of services to indigents or by a nonprofit organization formed for charitable or other public purposes which furnishes legal services to persons only in respect of their civic or political or constitutional rights and not otherwise in furtherance of such charitable or other public purposes of such organization, or

(ii) designed to educate members of the public with respect to the law, the judicial system, the legal profession, or the need, manner of obtaining and availability of legal services, or

(iii) designed to advance the science of jurisprudence, improve the administration of justice, or aid in relations between the Bar and the public; or

(c) support of other activities in the public interest.

In no event shall proceeds from the Service be used to defray the costs of operating the sponsoring association (other than those properly apportionable as expenses for the purposes described in subsections (a), (b) and (c) hereof) or be used solely for the benefit of the members of such association or members of the State Bar.

Records and Reports

9.1 Each Service shall maintain records of its operation including at least the following information:

(a) the name, address and pertinent qualifications of each panel member, and the number and types of matters referred to such panel members;

(b) the name, address and type of matter presented by each client referred, the name of the panel member to whom the referral was made, the date the referral was made and the date the case was resolved or otherwise closed as reported by the panel member;

(c) the total fee charged as shall be reported by the panel member in the event such member is required to pay a forwarding fee to the Service.

9.2 The Lawyer Referral Committee of each Service shall annually file with the State Bar, on a form to be supplied by it, a report on the activities of the Service and of the Committee. Such report shall include at least the following:

(a) statistics derived from the operating records required by Section 9.1 hereof and what, if any, alterations have been made in the conduct of the Service by the Lawyer Referral Committee pursuant to Section 3.3 hereof;

(b) a detailed accounting of all income to the Service (and sources thereof), all expenses related to the operations or promotion of the Service, the amount of current reserves held by the Service, and the specific disposition over the past two years of any reserves and/or surpluses derived from the Service.

The State Bar shall have the right at any time to conduct an independent audit or investigation of any Service at State Bar expense, and the Service and its sponsoring association shall have the obligation to cooperate fully therewith.

 

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.