|Oregon State Bar Bulletin DECEMBER 2011|
Pitfalls of Gift-giving and Free Advice
By Amber Hollister
As the holiday season approaches, many of our minds turn to giving and receiving gifts. But, as the old adage goes, no good deed goes unpunished. Before you give, solicit or receive a gift, pause to consider the possible ethical implications. Then, by all means, feel free to be generous.
Gifts from Clients
Every lawyer appreciates a pat on the back for a job well done. Sometimes, that kudos may come in the form of a flower arrangement, a seasonal fruit basket or a box of chocolates. But a week rent-free at a client’s vacation home or a gift of pricey antiques? Maybe not.
RPC 1.8(c) prohibits lawyers from soliciting any “substantial gift from a client, including a testamentary gift” or preparing an instrument for a client “giving the lawyer or a person related to the lawyer any substantial gift, unless the lawyer or other recipient of the gift is related to the client.” Being related to the client includes a relative or individual “with whom the lawyer or the client maintains a close familial relationship.”
This rule has been interpreted to mean that lawyers should not state or imply that they need substantial favors or gifts from clients, in addition to their fee, to provide good representation. For instance, a California ethics opinion concluded that a lawyer who tells her client she needs to “recharge her batteries” and would “dive back into the case after relaxing for a week” rent-free at the client’s vacation home would violate the rule against improperly inducing a substantial gift from a client. California Ethics Op 2011-180 (2011).
Testamentary gifts conveyed to a lawyer or the lawyer’s family in an instrument drafted by the lawyer are especially suspect, unless the client is the lawyer’s relative. RPC 1.8(c). In In re Schenck, a lawyer drafted a will for his client gifting antiques, furniture and one half of her estate to the lawyer’s wife. 345 Or 350, 358, mod on recon, 345 OR 652 (2008). The will further provided that if the client’s family member predeceased her, the entire estate would go to the lawyer’s wife. At trial, there was undisputed testimony that the gift of furniture and antiques was worth at least $1,000. Although the accused argued that the gift was not substantial, the court disagreed, and the lawyer was disciplined.
While lawyers may not solicit substantial gifts from clients, they need not fear accepting smaller, unsolicited gifts “such as a present given at a holiday or as a token of appreciation” from a client. Comment (6) to ABA Model Rule 1.8. The commentary further explains that “[a] lawyer may accept a gift from a client, if the transaction meets the general standards of fairness.” The commentary cautions, however, that if a gift is more substantial, even if the lawyer is allowed to accept it, it may be voidable under the doctrine of undue influence.
Gifts to and from Referral Sources
Lawyers like to show their appreciation, too. In a challenging economy, a well-timed referral makes a big difference, and a thank-you gift may seem appropriate.
Although lawyers can thank friends who provide unsolicited client referrals, they cannot reward those friends with gifts for doing so. See OSB Legal Ethics Ops 2005-73 and 2005-35. Lawyers are not allowed to “compensate or give anything of value to a person or organization to promote, recommend or secure employment by a client, or as a reward for having made a recommendation resulting in employment by a client.” RPC 7.2(a). Although there is no authority on point in Oregon, other jurisdictions have concluded that lawyers may give de minimis thank you gifts to nonlawyers for unsolicited referrals, because de minimis gifts are not “something of value”. See Arizona Ethics Op 02-01 (2002) (lawyer may give gift of restaurant gift certificate or movie tickets, to lawyers and nonlawyers for past client referrals); Pennsylvania Ethics Op 2002-103 (2002) (lawyer may send small gifts, such as dinner tickets, to another lawyer who has referred clients to the lawyer); cf., Rhode Island Ethics Op 89-5 (1989) (lawyer may not give former client a gift, even though it is valued at less than $100, in appreciation of a past referral). Because there is no acknowledged de minimis exception in Oregon, the most conservative approach is to send a thoughtful note and no more.
Similarly, lawyers may not give referrals in return for referrals. The Oregon State Bar Legal Ethics Committee has concluded that lawyers may not participate in professional groups or referral clubs where they are obligated to cross-refer clients to other professionals in return for referrals as a condition of membership. By engaging in such cross-referrals the attorney is “giving something of value” in exchange for the promotion of the attorney’s own services, which violates RPC 7.2(a). See OSB Formal Ethics Op 2005-175.
This rule against giving gifts to referral sources runs both ways. Lawyers cannot refer clients to nonlawyers with the understanding that they will receive a fee, commission or anything of value in return for the referral. RPC 5.4(e). But there is a de minimis gift exception to RPC 5.4(e); lawyers may accept insubstantial thank you gifts from nonlawyers, such as realtors or bankers, to whom they have referred clients in the “ordinary course of social or business hospitality.”
While lawyers may not give nonlawyers gifts in exchange for a referral, they may share legal fees earned as a result of a referral with another lawyer, as long as they get their client’s informed consent to do so. See RPC 1.5(d).
Lending Your Client a
Lawyers are invested in their clients, and rightfully so. Working side by side towards a common goal can forge strong bonds. But our ethics rules set boundaries about how and when lawyers can lend a helping hand — lawyers must resist the impulse to extend loans or financial assistance to clients for living expenses when litigation is contemplated or ongoing. RPC 1.8(e).
When representing a client in litigation, lawyers often bear witness to their clients’ financial vulnerabilities. RPC 1.8(e), however, prohibits lawyers from advancing or guaranteeing financial assistance to a client when representing a client “in connection with contemplated or pending litigation”. Although a lawyer may advance the costs of litigation (including bail money), the client must remain ultimately responsible for those costs, to the extent of the client’s ability to pay. OSB Ethics Op No2005-4. Comment (10) to ABA Model Rule 1.8 explains that the purpose of the rule is to prevent clients from “pursu(ing) lawsuits that might not otherwise be brought” and to stop lawyers from having “too great a financial stake in the litigation.”
Well-meaning lawyers may run afoul of this rule by seeking to lend their clients money in times of need. For instance, in In re Carstens, 17 DB Rptr 46 (2003), a lawyer loaned money to a divorce client to help prevent her from losing her house, and later loaned her money for household expenses. Similarly, in In re Hendrick, 19 DB Rptr 170 (2005), a lawyer loaned money to his client to resolve a nonjudicial foreclosure and satisfy other debts owed by the client to a creditor. Both lawyers were disciplined. The moral of the story? When faced with contemplated or pending litigation, the best gift you can give a client is good legal representation.
The Gift of Free Advice
Perhaps the most valuable gift lawyers can give is free legal advice. Donating your time to represent indigent clients is a great way to get in the spirit of giving. The bar’s certified pro bono programs and ONLD’s Practical Skills through Public Service Program provide terrific opportunities for both experienced and newly minted lawyers to engage in meaningful pro bono work.
But, what about giving free advice to friends, family or acquaintances at a holiday party? Before dishing out free legal advice, it is important to remember that the same ethics standards apply whether or not your advice is free. For instance, a lawyer owes duties of confidentiality and loyalty to any person with whom the lawyer discusses the possibility of forming a client-lawyer relationship, even if the discussion takes place in an unorthodox setting. RPC 1.18.
Similarly, when a lawyer provides a friend with free individualized legal advice, the person becomes a client. In Oregon, a client-lawyer relationship is remarkably easy to form. Under the “reasonable expectations” test articulated in In re Weidner, 310 Or 757, 770 (1990), if a person subjectively believes that you are her lawyer and that belief is supported by other objective facts, that person may very well be your client. Picking up a new client without meaning to can lead to serious problems; because no one runs a conflict check in the middle of a cocktail party, you may violate RPC 1.7 or RPC 1.9 without even realizing it. For all of these reasons, lawyers should be cautious about when and where they provide free legal advice.
Although there are potential ethics perils to giving gifts and free legal advice, they are by no means an insurmountable barrier to generosity. Lawyers with a clear understanding of their obligations under the rules of professional conduct can wholeheartedly engage in the spirit of giving.
ABOUT THE AUTHOR
Amber Hollister is deputy 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. 312, or by e-mail at email@example.com.
© 2011 Amber Hollister