UPON THE REQUEST OF A MEMBER OF THE SOUTH CAROLINA BAR, THE ETHICS ADVISORY COMMITTEE HAS RENDERED THIS OPINION ON THE ETHICAL PROPRIETY OF THE INQUIRER’S CONTEMPLATED CONDUCT. THIS COMMITTEE HAS NO DISCIPLINARY AUTHORITY. LAWYER DISCIPLINE IS ADMINISTERED SOLELY BY THE SOUTH CAROLINA SUPREME COURT THROUGH ITS COMMISSION ON LAWYER CONDUCT.
Ethics Advisory Opinion 01-07
Facts
Attorney is an associate in a personal injury law firm (the “Firm”). Attorney’s wife (“Wife”) desires to become a part investor in a Chiropractic clinic (the “Clinic”), using funds of both Wife and Attorney. Wife will not be involved in the day-to-day operations of the Clinic, but will instead participate in its overall management and investment decisions. Wife’s profits from the Clinic will be shared with Attorney. It is expected that Attorney and Clinic will have mutual clients/patients, partially as a result of cross-referrals to one another.
Questions
In light of the Attorney’s and Wife’s relationship with the Clinic, do the South Carolina Rules of Professional Conduct (“SCRPC”):
a) prohibit such cross-referrals?;
b) prohibit Attorney’s representation of a patient of the Clinic?;
c) require disclosure of the Attorney’s relationship with the Clinic to clients who are also patients of the Clinic?
Summary
The Attorney may refer clients to the Clinic so long as (i) such referrals are not made as part of a quid pro quo reward for referrals received from the Clinic, and (ii) the Attorney discloses his financial relationship with the Clinic to such clients.
The Attorney may represent patients of the Clinic only if (i) the Attorney reasonably believes such representation will not be adversely affected by his financial relationship with the Clinic, and (ii) the client consents after consultation.
Opinion
I. Cross-Referrals Generally.
With regard to the propriety of cross-referrals generally, SCRPC Rule 7.2(c) prohibits a lawyer from giving anything of value to a person for recommending the lawyer’s services. Therefore, this Rule would not prohibit Attorney’s referrals to the Clinic so long as they were not made as a quid pro quo reward for referrals received from the Clinic.
II. Propriety of Attorney’s Representation of Clinic Patients; Disclosure Requirements.
Although it is the Wife, and not the Attorney, who is designated in the facts as the proposed investor in the Clinic, it is clear that the Attorney will have a continuing financial interest in the Clinic by virtue of his arrangement with Wife to share in the Clinic’s profits. SCRPC Rule 1.7(b) prohibits a lawyer from representing a client where such representation may be materially limited by the lawyer’s own interests, unless (i) the lawyer reasonably believes such representation will not be adversely affected, and (ii) the client consents after consultation. The Comment to said Rule states:
A lawyer may not allow related business interests to affect representation, for example, by referring clients to an enterprise in which the lawyer has an undisclosed interest. (Emphasis supplied.)
Since the Attorney will share in the profits of the Clinic, the aforementioned Comment requires that the Attorney’s financial relationship with the Clinic be disclosed to any client referred to the Clinic by the Attorney. It is this Committee’s opinion that such Comment also implicitly requires such disclosure to all clients of the Firm who are known to be patients of the Clinic. In addition to disclosing his financial relationship with the Clinic, the Attorney may represent a client who is, or has become, a patient of the Clinic, only if (i) the Attorney reasonably believes such representation would not be adversely affected by the Attorney’s financial interest in the Clinic, and (ii) the client consents after consultation.
The Attorney’s reasonable belief that his representation would not be adversely affected by his financial interest in the Clinic must necessarily be made on a case-by-case basis. This Committee cautions the Attorney that, in certain situations, his financial interest in the Clinic might indeed adversely affect his representation of a particular client, especially where the treatment and diagnosis to be rendered by the Clinic to the client is directly relevant to the subject matter of the Attorney’s representation of that client. For example, a conflict may be inherent in a situation where the Clinic’s treatment or diagnosis of a client undermines damages sought in the client’s personal injury suit being brought by the Attorney, yet, at the same time, generates profits to the Attorney as a result of Client’s payment of treatment fees to the Clinic.