Opinion 88-26

You have requested a formal opinion on certain issues involved in your accepting employment with a consulting company. The consulting company helps foreign businesses to develop business opportunities in the United States, and performs this service on a flat fee basis. The consulting company also has a contract with a government agency whereby it provides a similar service to foreign businesses in a certain region of the foreign country. The consulting company has been referring legal work which arises from the aforementioned services to you for handling. Now the consulting company wishes to bring you in-house and to offer your legal services, as well as your services as a business consultant, to its clients as part of a package deal. You have inquired as to the ethical implications of your involvement with the consulting firm, specifically in the areas of fee-splitting, confidentiality, and conflicts of interest.

Aside from the ethical areas that you have mentioned, it appears that other provisions of the Rules of Professional Conduct may be implicated by your proposed course of action. For example, Rule 5.5(a) prohibits a lawyer from aiding a nonlawyer in the unauthorized practice of law. The dual practice contemplated by your involvement with the consulting firm may be prohibited if the legal services are provided, not independently, but as part of the primary functions of the consulting company.

There is no clear definition of what constitutes the practice of law. For a general discussion, see Dauphin County Bar Association v. Mazzacare, 465 Pa. 545, 351 A.2d 229 (1976). It may, therefore, be extremely difficult to differentiate between purely business advice and legal advice which may be rendered by the company, since, as you have pointed out, legal questions such as protection of patents and trademarks, immigration, drafting of agreements and federal regulations arise as part of the consulting services. Moreover, the consulting firm may be entering into the practice of law by marketing your services as part of a total business package, if your role as a lawyer is not clearly delineated. See Maine Board of Bar Overseers Professional Ethics Committee, Opinion 79, 5/6/87 (digest attached).

It is also the feeling of this Committee that, since the consulting company will be identifying legal problems for the clients and then referring the clients to in-house counsel for resolution of those problems, you may run afoul of the prohibition against solicitation which is provided in Rule 7.2(c) (a lawyer shall not give anything of value to a person for recommending the lawyer's services). In an earlier opinion of this Committee, it was determined that a lawyer could be engaged in a dual practice as attorney and CPA as long as he did not use the practice of a CPA as a feeder for legal business. See Philadelphia Bar Association, Guidance Opinion 70-26. Regarding potential conflicts of interest, one must always ask the question whether an attorney who undertakes a representation will be able to render his or her advice to the client independently of any third party.

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.

As an employee of the consulting firm your interests would be so closely bound with those of the company that it may be difficult to render clearly independent legal advice to clients of the company in all circumstances. Your client may become involved in a legal dispute with the consulting company arising out of the business relationship. Since you would have a duty of loyalty to the client, the situation may put you in an untenable position with respect to the company. There is, in addition, the possibility of a legal dispute between two client companies. In a recent opinion this Committee addressed the difficult question of whether in-house counsel could represent the clients of the insurance company in third-party actions without running afoul of the disciplinary rules. A copy of our Opinion 86-108 is attached for your review. It points out many of the difficulties which arise in that type of representation, which may be analogous to the situations you will face as an in-house attorney with the consulting company.

You have also raised the specific questions of what would happen if the government agency terminated its contract with the consulting company or if the required legal services for the client exceed the bounds of the government agency contract. The professional relationship with the client under these circumstances is directly vulnerable to the adverse decisions of a third party. It would appear, however, that these specific and identifiable conflicts may be cured by full disclosure and client consent as contemplated by Rule 1.7(b):

(b) A lawyer shall not represent a client if the representation of that client may be materially limited by the lawyer's responsibilities to another client or to a third person, or by lawyer's own interests, unless:

(1) the lawyer reasonably believes the representation will not be adversely affected; and

(2) the client consents after full disclosure and consultation. When representation of multiple clients in a single matter is undertaken, the consultation shall include explanation of the implications of the common representation and the advantages and risks involved.

This Committee has been reluctant, however, to find disclosure and client consent an adequate remedy for all conflicts of interest. You will note that Opinion 86-108 concluded in part that disclosure and consent may be insufficient to cure certain conflict problems because of the inherent likelihood of divided loyalty and the practical difficulty of assuring preservation of confidences as and secrets of the respective clients,....

You have correctly pointed out the potential problems your involvement with the company could generate in the area of confidentiality. Rule 1.6 states in part:

(a) A lawyer shall not reveal information relating to representation of a client unless the client consents after consultation....

You have indicated in your letter that the government agency requires extensive reports on the activities performed by the consulting firm on behalf of regional companies. It is also apparent in that you will be working in conjunction with many non-lawyers, exchanging a great deal of information regarding your clients, raising a substantial likelihood of disclosure of client confidences. It is questionable whether the client can be asked to waive confidentiality across the board before entering into a relationship with the consulting company. Rule 1.6 prohibits an attorney from revealing confidences unless the client consents after consultation, indicating the need for the client to know the implications of revelation of particular confidences before he can make an informed decision. Thus, especially where language differences may enter into the equation, disclosure and client consent may not free you from the ethical constraints the Rules provide in the area of confidentiality.

Finally, you have requested guidance on the appropriate method of billing the consulting firm's clients for your legal services. Initially, Rule 1.8(f) would appear to permit payment of your legal fees by the consulting company. Rule 1.8(f) states:

(f) A lawyer shall not accept compensation for representing a client from one other than the client unless:

(1) the client consents after full disclosure of the circumstances and consultation;

(2) there is no interference with the lawyer's independence of professional judgment or with the client-lawyer relationship; and

(3) information relating to representation of a client is protected as required by Rule 1.6.

This rule, of course, requires that the lawyer's independence of profession judgment be upheld and that the client consent after full disclosure of the circumstances. However, Rule 5.4(a) prohibits a lawyer from sharing legal fees with a nonlawyer, except under circumstances not relevant to the present inquiry. Accordingly, extraordinary care must be taken to insure that the consulting company does not receive more compensation from the client for legal services than is paid to the lawyer. In a February l988 Opinion the Alabama State Bar Disciplinary Commission held that a law firm was not permitted to employee leasing arrangement with a company which enter into an employee leasing arrangement with a company which would receive $12.00 per employee above the amount necessary to cover employee salaries in each pay period. Moreover, the courts are sensitive to the issue of fee-splitting between lawyers and non-lawyers. In Grassman v. State Bar, 553 P.2d 1147 (Calif. Sup. Ct. 1976) the Court opined that prohibited fee-splitting between lawyer and laymen... poses the possibility of control by the lay person, interested in his own profit, rather than the client's fate.

The Rules do not provide direct guidance on how to bill the consulting company's clients for your services. However, it would appear that the client should be fully informed of the amount it is paying for these services. Such an arrangement would be to your benefit should the question of impermissible fee-splitting ever arise.

The Committee understands that the consulting firm wishes to package your services as a lawyer together with the services of the company as business consultants, and thereby present an attractive deal to potential clients. However, the Committee feels that it is the very nature of the package deal which causes a number of difficulties with respect to the Rules of Professional Conduct. While the Committee has not reached the conclusion that your participation in the consulting firm is per se prohibited under the Rules, this Committee recommends that you proceed, if at all, with extreme caution in view of the multiple ethical traps involved in this type of representation. It is particularly important that your independence of judgment be preserved with respect to any legal work that you do on behalf of the consulting firm's clients. It is also important to note, as indicated above, that to the extent your company's services could be construed as the practice of law you risk violating the provisions of the Rules of Professional Conduct. We urge that you take all of these factors into account in planning your activities with the consulting company.

   

The Philadelphia Bar Association's Professional Guidance Committee provides, upon request, advice for lawyers facing or anticipating facing ethical dilemmas. Advice is based on the consideration of the facts of the particular inquirer's situation and the Rules of Professional Conduct as promulgated by the Supreme Court of Pennsylvania. The Committee's opinions are advisory only and are based upon the facts set forth. The opinions are not binding upon the Disciplinary Board of the Supreme Court of Pennsylvania or any other Court. They carry only such weight as an appropriate reviewing authority may choose to give it.