Ethics Opinion 1974-20

November 11, 1974



Two proposals have been submitted for an opinion on the ethical problems involved.

Proposal No. 1. "It has been proposed that client would pay a monthly retainer to our firm, in return for which our firm would agree to offer estate planning consultation services for up to ten of client's customers each month. If client's customers are represented by legal counsel, then the services provided by our firm are limited to providing assistance, if requested or desired, to the customer's personal attorney. Any of client's other customers who desire to utilize our services would be treated as normal client referrals, except that persons referred to us would not be charged for the initial consultation; and, if an unfunded life insurance trust is recommended, there would be no charge for the drafting of such trust agreement. Any additional estate planning, and the drafting of any additional instruments, or any other legal services performed, would be billed directly to the person referred. The nature of our retainer agreement with client and the possibility of potential conflicts of interest would be fully disclosed to all parties.
"Our client's immediate goal by this proposal is to provide an inducement to people who would ordinarily not seek legal counsel to do so, and to provide life insurance trust instruments to those of client's customers who would benefit from such devices."

Proposal No. 2. "It has been proposed that client pay our firm a monthly retainer in exchange for which our firm would provide up to five hours per month for consultation with client's officers, agents and representatives with respect to corporate legal matters and general estate and tax planning advice. Additionally, our firm would agree to accept referrals from client for the purpose of providing estate planning services, including the drafting of various testamentary and inter vivos instruments, and it further being agreed that our firm would give a stated reduced rate to referred clients for initial consultations, and the drafting of specified documents. The client would disclose to his customers the fact that it had negotiated the stated rate reduction. All persons referred to our offices, and accepted, would become clients of our firm and would be billed for all services rendered on their behalf. Except for the reduced rates specified, charges for all work performed would be at our normal rates. As with Proposal No. 1, the relationship between our firm and the client would be fully disclosed in writing to all parties."


Both of the proposals violate the Code of Professional Responsibility and the Committee strongly suggests that neither proposal be implemented.


Disciplinary Rule 5-107(A) and (B) of the American Bar Association provides:
(A) Except with the consent of his client after full disclosure, a lawyer shall not:
(1) Accept compensation for his legal services from one other than his client.
(2) Accept from one other than his client anything of value related to his representation of or his employment by his client.
(B) A lawyer shall not permit a person who recommends, employs, or pays him to render legal services for another to direct or regulate his professional judgment in rendering such legal services.
Ethical Considerations 5-1, 5-21, 5-22 and 5-23 seem applicable in that they deal with the obligation of a lawyer to exercise professional judgment solely on behalf of his client. Ethical Consideration 5-1 provides as follows:
"The professional judgment of a lawyer should be exercised, within the bounds of the law, solely for the benefit of his client and free of compromising influences and loyalties. Neither his personal interests, the interests of other clients, nor the desires of third persons should be permitted to dilute his loyalty to his client."
Ethical Consideration 5-21 provides as follows:
"The obligation of a lawyer to exercise professional judgment solely on behalf of his client requires that he disregard the desires of others that might impair his free judgment. The desires of a third person will seldom adversely affect a lawyer unless that person is in a position to exert strong economic, political, or social pressures upon the lawyer. These influences are often subtle, and a lawyer must be alert to their existence. A lawyer subjected to outside pressures should make full disclosure of them to his client; and if he or his client believes that the effectiveness of his representation has been or will be impaired thereby, the lawyer should take proper steps to withdraw from representation of his client."
Ethical Consideration 5-23 provides as follows:
"EC 5-23 A person or organization that pays or furnishes lawyers to represent others possesses a potential power to exert strong pressures against the independent judgment of those lawyers. Some employers may be interested in furthering their own economic, political, or social goals without regard to the professional responsibility of the lawyer to his individual client. Others may be far more concerned with establishment or extension of legal principles than in the immediate protection of the rights of the lawyer's individual client. On some occasions, decisions on priority of work may be made by the employer rather than the lawyer with the result that prosecution of work already undertaken for clients is postponed to their detriment. Similarly, an employer may seek, consciously or unconsciously, to further its own economic interests through the action of the lawyers employed by it. Since a lawyer must always be free to exercise his professional judgment without regard to the interests or motives of a third person, the lawyer who is employed by one to represent another must constantly guard against erosion of his professional freedom."
(Also see A.B.A. Informal Opinion No. 1212.)
Disciplinary Rule 2-103(D) provides in part that:
"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."


A.B.A. Informal Opinion No. 1236 addresses the issue of fee "discounts." Citing DR 2-103(B), DR 2-106(B), EC 2-17 and Formal Opinion 323, the committee concluded that:
"It is improper for a lawyer to agree in advance that services rendered to members of a group will be provided for fees less than those customarily being charged in the neighborhood. Because of the wide variation in services required in particular types of work, any such agreement could not help but lead an attorney bound by such an agreement either to perform services for some of the club members at a substantial loss or to not take the time required to perform them properly."


At the outset, it should be stated that both of these proposals are so obviously improper, especially with regard to the solicitation aspects, that it is difficult to understand why the questions need to be asked. Both proposals obviously contemplate the advertising by corporate clients, either formally or informally, of the fact of the legal services being available for customers. In fact, the letter requesting the opinion states candidly "our client prefers the first proposal as it has the greatest public relations effect on the client's customers."
In addressing the conflict of interest issue, Canon 5 of the Code provides the best guidance. The law firm would be representing the corporate client whose business it is to sell insurance as well as the individual who will be a potential purchaser of insurance depending on the recommendation for his estate plan. This situation in itself may present a conflict of interest. However, the potential for impropriety increases when the fees for initial consultant and unfunded life insurance trusts are paid by the corporate client whose interests may conflict with those of the individual. Seeking estate planning guidance where one party pays another's fee, the pressures exerted on an attorney make the exercise of independent professional judgment especially difficult.
The effect of the first proposal is to direct the first ten customers of the corporate client needing estate planning services to the law firm. Clearly, the corporate client is one who "recommends, furnishes, or pays for legal services," and the firm's actions should be guided by Disciplinary Rule 2-103(D), Recommendation of Processional Employment which provides that a lawyer should not assist in such a promotion of services.
The main problem with the second proposal is the reliance on "discounted" fees and the channeling of customers to the firm by the client. Informal Opinion 1236 points out the problems involved. In addition, the second proposal would violate professional rules regarding solicitation. The corporate client would most assuredly refer all of its customers to the firm because it appears from the proposal that the firm is the only one providing a discount. Without repeating the text of DR 2-103(D), suffice it to say that this committee feels it would be violated by the second proposal.
This opinion is advisory only. It is not binding upon the State Bar, the Board of Governors, its agents or employees.

EDITOR'S NOTE: The Committee reviewed this opinion in July, 1976 and determined that the conclusion is still valid.


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.