State Bar Ethics Opinions cite the applicable California Rules of Professional Conduct in effect at the time of the writing of the opinion. Please refer to the California Rules of Professional Conduct Cross Reference Chart for a table indicating the corresponding current operative rule. There, you can also link to the text of the current rule.
What are the ethical considerations involved in an attorney's participation in a service exchange in which a percentage of the legal fees earned are paid to the exchange?
It is improper for an attorney to participate in a service exchange in which a percentage of the legal fees earned are paid to the exchange.
Rules 2-101 and 3-102 of the Rules of Professional Conduct of the State Bar.
In 1977 we were asked if there was an ethical bar to an attorney becoming a member of a service exchange. We said there was because the arrangement was a form of solicitation of professional employment contrary to rule 2-101 of the Rules of Professional Conduct and because the payment of a percentage of the fees to the exchange was a form of fee splitting contrary to rule 3-102 of the Rules of Professional Conduct. (opn. No. 1977-44 of the State Bar's Committee on Prof. Responsibility and Conduct.)
After we issued our opinion, rule 2-101 of the Rules of Professional Conduct was changed and we have now been asked to consider another exchange agreement. Under the terms of this agreement, an attorney, after payment of a membership fee, half in trade and half in cash, would provide services for other members of the exchange, charging his or her customary fee. The amount of that fee would then be entered on the books of the exchange as a credit. The attorney could use that credit to obtain goods or services from other members of the exchange after paying a cash fee of eight percent of the amount of the purchase to the exchange. Should there be any disputes between members, they would be placed before an arbitration board consisting of five members whose decision is binding.
Rule 2-101 of the Rules of Professional Conduct now permits solicitation of professional employment in accordance with the standards set forth by the rule. We are not given enough facts to reach an opinion on this specific inquiry, but it appears the member would simply be listed as a member of the exchange practicing law. A simple listing is clearly within the parameters of rule 2-101. Hence this rule is no longer a bar to participation in a service exchange.
Among its provisions, rule 3-102 of the Rules of Professional Conduct prohibits (1) the direct or indirect sharing of fees with a person not licensed to practice law and (2) compensating a person not licensed to practice law for securing professional employment. The requirement here that the attorney pay a cash fee equivalent to eight percent of the amount of fees credited to his or her account comes under both prohibitions. By listing the attorney as a member to other members, the exchange secures employment in which it will eventually benefit by obtaining cash equivalent to eight percent of the legal fee. The attorney is splitting his or her fee. The terms of the agreement provide a monetary incentive for the exchange to refer business not because of the attorney's competence, but simply because the exchange benefits financially. This is the precise vice the rule is intended to avoid.
We are also troubled by that part of the agreement which requires arbitration by five other exchange members when disputes arise. Under the authority of Business and Professions Code section 6200, the State Bar has adopted rules for arbitration of fee disputes between attorneys and their clients. Subdivision (b) of section 6200 of the Business and Professions Code makes it clear that the purpose of such arbitration is to protect the client. Were an attorney a member of an exchange, the arbitration clause purports to be a waiver of the procedure established by the State Bar by all members of the exchange who used their credits to employ the attorney. There would be a serious question of the propriety of an attorney using the exchange clause in the defense of a fee dispute which a client wished to have resolved by the State Bar
This opinion is issued by the Standing Committee on Professional Responsibility and Conduct of The State Bar of California. It is advisory only. It is not binding upon the courts, The State Bar of California, its Board of Governors, any persons or tribunals charged with regulatory responsibilities, or any member of the State Bar.