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 90-03
The Code of Professional Responsibility, through Canons 3, 4 and 5, specifically seeks to prevent a lawyer's independent professional judgment from being influenced by others.
Canon 3 prohibits a lawyer form sharing legal fees or practicing law in association with a nonlawyer; Canon 4 prohibits the revelation of confidences and secrets of corporation clients; and Canon 5 prohibits a lawyer from practicing in a corporation if nonlawyers have the right to control his professional judgment.
Moreover, S.C. Code Ann. § 40-5-320 (1976), as amended, prohibits a corporation from providing legal services through a lawyer in its employ.
Facts:
E corporation is to be formed by three shareholders, an engineer, a regulatory specialist and a lawyer. It is being formed for consulting purposes to industry, lenders and others with environmental concerns. Mr. B is concerned that he not violate any ethical matters as the lawyer among the three individuals aforementioned, who will be asked to give advice to clients of E corporation, represent them on occasions, and whose name and picture may be included in promotional advertisements of E corporation. Mr. B is, and will continue to be, a practicing lawyer in a firm in South Carolina.
The corporation will bill its clients for services rendered based on its fee schedule developed by its shareholders, who are the three individuals aforementioned. Each shareholder will perform for the corporation the tasks requested by the client and be compensated by the corporation upon receipt of the fee from the client. It is anticipated that the advertising material will include a narrative concerning Mr. B and his qualifications. It will also include a description of the services offered by E corporation.
It is also anticipated that Mr. B will be called upon to represent clients before regulatory agencies and various courts.
Question:
Will Mr. B violate any ethical standards concerning the following, or any other ethical standard apparent from the factual setting:
(1) Lawyer advertising (2) Professional notices (3) Specialized practice (4) Division of fees (5) Nonlawyer business relationship (6) Other ethical considerations.
Opinion:
This request has already identified the areas in which problems are likely to arise as a result of the proposed arrangements for E corporation.
One serious problem with t;he proposed arrangement is its potential for violating Canon 5 of the Code of Professional Responsibility. DR 5-107(C) provides that:
A lawyer shall not practice with or in the form of a professional corporation or association authorized to practice law for a profit, if:
(1) a non-lawyer owns any interest therein, except that a fiduciary representative of the estate of a lawyer may hold the stock or interest of the lawyer for a reasonable time during administration; (2) a non-lawyer is a corporate director or officer thereof; or (3) a non-lawyer has the right to direct or control the professional judgment of a lawyer.
In addition, DR 5-107(B) provides that:
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.
As is set forth in EC 5-24, the intent of these provisions is to prevent a lawyer's independent professional judgment from being influenced by others since "... the responsibility of the lawyer to maintain his professional independence remains constant, and the legal profession must insure that changing circumstances do not result in loss of the professional independence of the lawyer." Since Mr. B will be asked to give (presumably legal) advice to clients of E corporation and represent them on occasions, it is clear that Mr. B would be practicing law under the proposal. See In Re: Duncan, 83 S.C. 186, 65 2d 210 (1909). Though neither DR 5-107, nor any other DR, expressly prohibits the proposed arrangement, S.C. Code Ann. § 40-5-320 (1976), as amended, provides that:
It shall be unlawful for any corporation or voluntary association (a) to practice or appear as an attorney at law for any person other than itself in any court in this State or before any judicial body, (B) to make it a business to practice as an attorney at law for any person other than itself in any of such courts, (c) to hold itself out to the public as being entitled to practice law or render or furnish legal services or advice or to furnish attorneys or counsel or render legal services of any kind in actions or proceedings of any nature or in any other way or manner (d) in any other manner to assume to be entitled to practice law or to assume, use or advertise the title of lawyer or attorney, attorney at law or equivalent terms in any language in such manner as to convey the impression that it is entitled to practice law or to furnish legal advice, services or counsel or (e) to advertise that either alone or together with or by or through any person, whether a duly and regularly admitted attorney at law, or not, it has, owns, conducts or maintains a law office or an office for the practice of law or for furnishing legal advice, services or counsel. Any person violating the provisions of this section shall be guilty of a misdemeanor and, upon conviction, shall be punished in the discretion of the court.
Since the only way in which a corporation can act is through its agents, the obvious import of this statute is that a corporation may not provide legal services through an attorney in its employ. With certain limited exceptions, a corporation may not perform legal services for others; it is also clear that a corporation may not indirectly practice la through the employment of qualified lawyers to perform services for others. 7 Am. Jur. 2d Attorneys at Law § 109.
Moreover, the proposal is not materially different than what is expressly forbidden by DR 5-107(C), which prohibits a lawyer form practicing in a "professional corporation or association authorized to practice law for a profit" if non-lawyers hold certain specified positions or have the right to direct or control the professional judgment of the lawyer. Of course, E corporation would not be a "professional corporation or association," though, by offering legal consulting services for a fee, one of its functions would certainly involve the practice of law for a profit. In addition, non-lawyers will own interests in E corporation and presumably would be corporate directors or officers of the corporation.
In State v. Buyer Services Co., 292 S.C. 427, 357 S.E.2d 15 (1987), the South carolina Supreme Court held that a commercial title company was engaged in the unauthorized practice of law in preparing deeds, mortgages, notes and other legal instruments related to mortgage loans and transfers of real property; in preparing title abstracts without the supervision of a licensed attorney; in handling real estate and mortgage loan closings; and in transporting or mailing documents to the courthouse as part of a real estate transfer. See also S.C. Bar Ethics Advisory Opinions, 82-5, 84-3, 84-9, 84-22, copies of which are attached.
Presumably, E corporation would want to market its services. Thus, another problem with the proposal is that of insuring that the recently promulgated rules on lawyer advertising, copies of which are attached, are not violated. Moreover, precautions would have to be taken to avoid running afoul of Canon 2's prohibitions against solicitation. "A lawyer shall not ... circumvent a Disciplinary Rule through actions of another." DR 1-102(A)(2).
Lawyer advertising is permitted under Rule 7.2, with certain restrictions as set forth in Rule 7.1 and 7.3. Rule 7.1 prohibits false or misleading communications about the lawyer or the lawyer's services, then defines "false or misleading communications." Mr. B would also have to make sure that all advertisements are kept for at least two years, along with a record of when and where they were used, that his name is included all such communications, and that nothing whatsoever of value is given to anyone for recommending his services, in accordance with Rule 7.2(b)-(d). Mr. B would also have to scrupulously adhere to the requirements of Rule 7.3 through 7.5. In addition to avoiding violations of these rules himself, Mr. B would also have to make certain that the other shareholders, officers, directors, or employees of the corporation do not violate them. These rules are self- explanatory and are attached hereto. See also EC 208. In addition, EC 2-3 provides in part that:
A layer should not initiate an in-person contact with a non- client, personally or through a representative, for the purpose of being retained to represent him for compensation.
Mr. B would also have to review all advertising materials and fee schedules to make sure they do not violate DR 2-105(A) and DR 2-106(A), (B), respectively. See In the Matter of Reaves, 272 S.C. 213, 250 S.E.2d 329 (1978).
Other major, and perhaps insurmountable, difficulties with the proposed E corporation are found in Canons 3 and 4. The request at least implies that each shareholder would perform the tasks in his or her specialty and receive all fees paid to the corporation as a result of the respective tasks. Special care would have to be taken to make sure that this is the case in order not to violate DR 3-102(A), which provides that "a lawyer or law firm shall not share legal fees with a non-lawyer ..." with certain inapplicable exceptions. More troubling is DR 3- 103(A), which says that "a lawyer shall not form a partnership with a non-lawyer if any of the activities of the partnership consist of the practice of law." Of course, Mr. B does not plan to form a "partnership" with non-lawyers. However, he proposes to form a small corporation with them and the net result is basically the same as that which is specifically prohibited by DR 3-103(A). That is, Mr. B will have entered into a business arrangement with non-lawyers and one aspect of the business is the practice of law. EC 3-8 provides in part that "since a lawyer should not aid or encourage a layman to practice law, he should not practice law in association with a layman or otherwise share legal fees with a layman." Another major problem posed by the proposal for E corporation is DR 4-101's prohibition against the revelation of confidences and secrets of clients, unless the client consents after full disclosure. Thus, Mr. B would have to take steps to insure that the confidences and secrets of E corporation's clients for whom he is performing legal services are protected from disclosure to the other shareholders, officers, or directors unless the client consents after full disclosure.
In conclusion, in light of the above, it is the opinion of this Panel that Mr. B, or any other lawyer, could not participate in this arrangement without violating S.C. Code Ann. § 40-5-320 (1976), as amended. Furthermore, there is no question but that the proposed arrangement violates the spirit and intent, though not the letter, of DR 3-103(A). DR 5-107(C) poses similar difficulties.