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 99-07
Preface
The issue of a multi-disciplinary practice raised by this opinion has commanded increasing attention within, and is a significant matter for, the legal profession. A special commission of the American Bar Association is at work on the issue and plans to make recommendations to the ABA House of Delegates at the August 1999 meeting of the ABA. A special committee of the New York State Bar Association recently released a comprehensive report, calling the issue "extraordinarily complex." One law review of the issue notes that "(t)he rules prohibiting lawyer-nonlawyer combinations practicing law were implemented to guard against several potential ethics problems. The restrictions in the Model Rules and Model Code have survived despite several years of discussions by state bar committees concerning multi-professional offices." Only the District of Columbia, through a specific amendment to its Rule 5.4, allows lawyers and nonlawyers to become partners in providing legal services. The opinion that follows is based on the current South Carolina Rules of Professional Conduct.
Facts
L is a lawyer whose practice consists of estate planning and probate, business and personal tax planning, general business organization and planning, and tax representation. L wishes to enter into a legal relationship with a certified public accounting firm.
Questions
A: May a lawyer engage in the practice of law in the capacity of an employee of a certified public accounting firm?
B: May a lawyer engage in the practice of law in a position of equity (partner, shareholder, or member) in a certified public accounting firm?
C: May a lawyer engaged in the practice of law enter into an exclusive referral relationship with a certified public accounting firm?
D: If not, what form of professional relationship would be acceptable under the Rules of Professional Conduct?
Summary
A lawyer may not engage in the practice of law as either an employee of or an equity holder in a certified public accounting firm. A lawyer may not enter into an exclusive referral relationship with a certified public accounting firm as such an arrangement would be tantamount to receiving something of value for the referrals received and could jeopardize the lawyer's ability to render independent professional judgment to his client concerning referrals.
The lawyer may enter into some form of relationship with a certified public accounting firm in which the lawyer has confidence, provided the relationship would not give rise to a violation of the Rules of Professional Conduct including Rule 1.5 (a lawyer's fees shall be reasonable, division of fees), Rule 1.6 (confidentiality of a client's information), Rule 1.7 (loyalty to the client), Rule 1.8 (conflicts of interest - prohibited transactions), Rule 2.1(scope of advice), Rule 5.4 (professional independence), and Rule 5.5(unauthorized practice of law). Within the above context, a lawyer engaged in the practice of law may accept referrals of clients from a certified public accounting firm and may refer clients to a certified public accounting firm in which he has confidence.
Opinion:
A & B: A lawyer may not engage in the practice of law either in the capacity of an employee of or as an equity holder in a certified public accounting firm. Rule 5.4 of the South Carolina Rules of Professional Conduct states in pertinent part:
"(b) A lawyer shall not form a partnership with a non-lawyer if any of the practices of the partnership consist of the practice of law.
(c) A lawyer shall not permit a person who recommends, employs, or pays the lawyer to render legal services for another to direct or regulate the lawyer's professional judgment in rendering such legal services.
(d) A lawyer shall not practice with or in the form of a professional corporation or association authorized to practice law for profit, if:
(1) a nonlawyer 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."
While the rule does not specifically mention LLPs, LLCs, or similar entities, the rule would apply to these forms of professional organization as well. Rule 5.4 prohibits a lawyer from engaging in the practice of law when an employee of an entity other than a law firm. (For the purpose of this opinion, the Committee assumes that the inquirer's prospective conduct would constitute the practice of law.)
C: A lawyer may not enter into an exclusive referral relationship with a certified public accounting firm, where "exclusive referral" means that Lawyer would refer his clients only to the named certified public accounting firm and the certified public accounting firm would refer its clients only to Lawyer. Rule 7.2(c) provides that "a lawyer shall not give anything of value to a person for recommending the lawyer's services . . ." A lawyer's promise to refer any and all clients to a specific certified public accounting firm is something of value. In addition, Rule 2.1 provides that "(i)n representing a client, a lawyer shall exercise independent professional judgment and render candid advice." An exclusive referral arrangement, by definition, could deter the lawyer from giving such candid advice.
A lawyer who is engaged in the practice of law may, of course, accept referrals from a certified public accounting firm, provided the lawyer does not pay the certified public accountant anything of value for the referral. Similarly, a lawyer may recommend to his clients the use of other professionals such as certified public accountants, when the lawyer has confidence in their ability.
D: It is possible that formal and permanent relationships between lawyers and certified public accounting firms could be arranged to comply with the current Rules of Professional Conduct. The determination as to whether a particular arrangement between a lawyer and a certified public accounting firm is permitted under the rules depends on the application of the rules to the facts and circumstances. The possible alternatives are too numerous to cover and lie outside the scope of this opinion.