| Oregon State Bar Bulletin — DECEMBER 2010 |
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When Wearing Two Hats May Get You Burned
By Helen Hierschbiel
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It is becoming more common to see lawyers who are also real estate brokers, mortgage brokers, financial planners, fiduciaries, psychologists, mediators and arbitrators. Whether because of economic imperatives, or as a matter of professional growth and satisfaction, or even in response to client needs, more and more lawyers seem to be supplementing their law practices with some other professional practice.
As lawyers consider expanding their practices into non-legal disciplines, they often ask whether they can ethically pursue both their law practices and other professions. At the outset, lawyers should look at the substantive law that pertains to the profession they want to pursue. Assuming a lawyer has met whatever licensing, insurance, disclosure or other obligation imposed by the substantive law governing the alternate profession, nothing in the Oregon Rules of Professional Conduct prohibits the lawyer from engaging in the practice of law and another occupation. See OSB Formal Op No 2005-10 (lawyer may own real estate firm and title company that do business with lawyer’s legal clients). Even so, because lawyers are governed at all times by the Rules of Professional Conduct they should take care when providing non-legal services to legal clients; there are ethical traps for the unwary.
Conflicts
Recognizing and avoiding conflicts of interest is one of the more common concerns for lawyers who have side businesses, particularly when their clients do business with those other companies. Oregon RPC 1.7(a)(2) provides that a current conflict of interest exists if “there is a significant risk that the representation of one or more clients will be materially limited by the lawyer’s responsibilities to another client, a former client or a third person or by a personal interest of the lawyer...” Thus, when there is a significant risk that a lawyer’s personal or other financial interests in a non-legal business will materially limit the lawyer’s responsibilities to a client, that lawyer has a conflict under RPC 1.7(a)(2).
OSB Formal Op No 2006-176 discusses whether a lawyer may act not only as the lawyer, but also as the real estate agent and mortgage broker for a client who wants to buy or sell real estate. The opinion concludes that the lawyer’s interest in fees or income from these other roles, as well as liability concerns from the other roles, “would create a significant risk that [the] lawyer’s ability to ‘exercise independent professional judgment and render candid advice’ (RPC 2.1) would be compromised.” Similarly, acting as both a neutral escrow agent for a transaction and the lawyer for a party to the transaction presents a conflict because the escrow agent’s obligation of neutrality is in direct contradiction to the obligations that a lawyer has to a client. See OSB Formal Op No 2005-55.
Notwithstanding the existence of a conflict, RPC 1.7(b) provides that a lawyer may represent a client if:
1. the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client;
2. the representation is not prohibited by law;
3. the representation does not obligate the lawyer to contend for something on behalf of one client that the lawyer has a duty to oppose on behalf of another client; and
4. Each affected client gives informed consent, confirmed in writing.
Informed consent is defined under RPC 1.0(g) as: “the agreement by a person to a proposed course of conduct after the lawyer has communicated adequate information and explanation about the material risks of and reasonably available alternatives to the proposed course of conduct.” Written consent also requires the lawyer to recommend that the client seek independent legal advice to determine if consent should be given.
In addition, when a lawyer’s side business is doing business with the lawyer’s client, consideration must be given to the limitations set forth in RPC 1.8(a), which provides more stringent requirements for obtaining client consent than those under RPC 1.7(b). RPC 1.8(a) provides:
A lawyer shall not enter into a business transaction with a client or knowingly acquire an ownership, possessory, security or other pecuniary interest adverse to a client unless:
1. The transaction and terms on which the lawyer acquires the interest are fair and reasonable to the client and are fully disclosed and transmitted in writing in a manner that can be reasonably understood by the client;
2. The client is advised in writing of the desirability of seeking and is given a reasonable opportunity to seek the advice of independent legal counsel on the transaction; and
3. The client gives informed consent, in a writing signed by the client, to the essential terms of the transaction and the lawyer’s role in the transaction, including whether the lawyer is representing the client in the transaction.
On its face, RPC 1.8(a) does not regulate a lawyer’s dealings with a former client or with someone who is not a client. However, lawyers should take care when evaluating whether a lawyer-client relationship exists. In Oregon, a lawyer-client relationship is established whenever the client has a reasonable basis, grounded in objective facts of which the lawyer has some knowledge, to believe that the lawyer is representing the client. See In re Weidner, 310 Or 757, 770 (1990). Thus, if the lawyer provides any legal advice or services, even within the context of the non-legal business relationship, the lawyer will likely have established a lawyer-client relationship. Similarly, even if a lawyer does not have an open active matter for a client, if a former client occasionally but regularly consults with the lawyer on legal matters, then that person would likely be considered a current client for purposes of RPC 1.8(a).
Even if a potential customer is truly a former client, such that RPC 1.8(a) does not apply, a lawyer may not exploit that former relationship by using or disclosing information relating to the representation. See RPC 1.9(c); In re Phillips, 338 Or 125 (2005)(lawyer disciplined for, among other things, knowingly disclosing client secrets to a company with which the lawyer had a joint venture agreement, for the purposes of selling insurance products to clients.)
Advertising and Solicitation
Advertising can also present challenges for lawyers who operate ancillary businesses. Oregon RPC 7.1 generally provides that any communication about a lawyer may not be false or misleading. Determining whether a statement is false may be simple, but assessing whether it is misleading can be more difficult. The cautious approach in making that assessment requires considering how the statement is likely to be interpreted by an unsophisticated consumer. Thus, OSB Formal Op 2005-108 concludes that a lawyer who has an active mediation practice may advertise the practice under “counselors — marriage, family, child and individual” sections of the yellow pages as long as the advertisement reflects the lawyer’s status as a lawyer offering mediation services.
Lawyers should also take care to observe the ban on in-person solicitation of legal business when providing non-legal services. The non-legal business may not be used to solicit clients with legal needs in a manner that violates RPC 7.3. The case of In re Blaylock, 328 Or 409 (1999) is instructive on this potential ethical trap. The lawyer in the case was also a physician who was on duty one night at the hospital. For the purpose of offering legal assistance, the lawyer approached a patient who had been injured in an accident. Because the lawyer was under the impression that the patient had sought his legal advice through an intermediary, the court did not find that the lawyer had violated the rule prohibiting in-person solicitation. Even so, lawyers would be wise to exercise extra caution when confronted in their non-legal business with an individual who has legal needs as well.
Fee-Sharing
Oregon RPC 5.4 prohibits lawyers from sharing legal fees with non-lawyers. It also prohibits lawyers from entering into partnerships with non-lawyers if any part of the business constitutes the practice of law. The prohibitions of RPC 5.4 are intended to preserve a lawyer’s independent professional judgment as a lawyer. Thus lawyers should be mindful when setting up an ancillary business, not to allow non-lawyers any control or influence over their law practice.
Conclusion
With care, lawyers generally may own and operate other non-legal businesses. When doing so, they should take care to identify and resolve conflicts, follow RPC 1.8(a) when engaging in business transactions with clients, ensure all communications about their services are neither false nor misleading, and maintain the professional independence of their law practices.
ABOUT THE AUTHOR
Helen Hierschbiel is general counsel for the Oregon State Bar. She can be reached at (503) 620-0222, or toll-free in Oregon at (800) 452-8260, ext. 361, or by e-mail at hhierschbiel@osbar.org.
Ethics opinions are published and updated on the bar’s website here.
An archive of Bar Counsel articles is available here.
© 2010 Helen Hierschbiel