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.
May a lawyer donate legal services to a charitable or nonprofit corporation which will auction the services to the highest bidder as a fund raising device?
Although there is no provision on the State Bar Act or the Rules of Professional Conduct expressly prohibiting a lawyer from donating legal services to be auctioned as a fund raising device for the benefit of a charitable or nonprofit organization, a number of professional standards and ethical considerations circumscribe the manner in which the donation and the auctioning of the legal services may be made. A lawyer, when considering whether to donate legal services for auction by a charitable or nonprofit organization, should give careful consideration to the rules and limitations discussed in this opinion.
Rules 2-101, 2-102, 2-1(]7, 2-110, 2-111, 3-102, 4-101, 5-101, 5-102 and 6-101 of the Rules of Professional Conduct of the State Bar.
The Committee has been asked whether a lawyer may ethically donate his or her legal services to a charitable or nonprofit organization which will auction the services to the highest bidder as a fund raising device. Members of the legal profession traditionally have engaged in charitable and pro bono activities to contribute to the betterment of society. The donation at issue here is just one of the many ways of making a contribution.
The Committee has concluded that there is no provision in the State Bar Act or the Rules of Professional Conduct expressly prohibiting a lawyer from donating legal services to be auctioned as a fund raising device for the benefit of a charitable or nonprofit organization. However, a number of professional standards and ethical considerations circumscribe the manner in which the donation and the auctioning of the legal services may be made.
This is a question of first impression. There is no express case or statutory authority resolving the issues raised by the donation of legal services in the context of a charitable organization's auction. Accordingly, the Committee's analysis derives from the review of long-standing general principles of professional responsibility, their application by California courts in analogous situations to those posited here, and the public policy considerations underlying such principles.
A lawyer is not permitted directly or indirectly to share legal fees with nonlawyers. (Rule 3-102(A), Rules Prof. Conduct.)
Under the facts as presented to the Committee, the lawyer who donates legal services for auction has given up any right to, or expectation of, receiving fees for his or her services. Similarly, the person bidding on the services is aware that his or her money is to be paid directly to the charitable or nonprofit organization. Under this scenario, there is no sharing of fees.
However, the lawyer might choose to donate a discrete number of hours, which turns out to be insufficient to complete the particular matter that the client brings to the lawyer. For example, what if the lawyer says he or she will donate 10 hours of his or her time, and the client's particular matter requires 15 hours of work? If the client agrees to pay directly to the lawyer a fee for the last 5 hours, has there been fee-splitting between the lawyer and the charitable organization?
The Committee has concluded that even in this fact situation there is no fee-splitting. The fee for the donated 10 hours has gone in its entirety to the charitable organization. From the outset, as a result of communications that accurately inform the auction attendees of the nature and extent of the donated legal services (see Section D, infra), the lawyer, charitable organization, and potential clients are aware that the fees for any legal services exceeding the donated services are subject to separate negotiation between the lawyer and the client.
Rule 3-102(B) of the Rules of Professional Conduct provides:
"A member of the State Bar shall not compensate or give or promise anything of value to any person or entity for the purpose of recommending or securing employment of the member or the member's firm by a client, or as a reward for having made a recommendation resulting in employment of the member or the member's firm by a client. A member's offering of or giving a gift or gratuity to any person or entity, which has made a recommendation resulting in the employment of the member or the member's firm, shall not of itself violate this rule, provided that the gift or gratuity was not offered in consideration of any promise, agreement or understanding that such gift or gratuity would be forthcoming or that referrals would be made or encouraged in the future.
At first blush, a lawyer's contribution of legal services for charitable auction arguably ,night be characterized as a gift or compensation for recommending or securing employment of the prospective client who is the highest bidder, within the meaning of rule 3-102(B) of the Rules of Professional Conduct. The Committee's analysis of the purposes of rule 3-102(B), as well as of the legally created exceptions to its proscriptions, suggest that such a characterization would be unfounded.
None of the dangers against which this rule is designed to protect is present in our situation. Rule 3-102(B) of the Rules of Professional Conduct was drafted to guard against the abuses of competitive in-person solicitation by a layperson (Crawford v. State Bar (1960) 54 Cal. 2d 659, 665-666); the possibility of control of negotiations, litigation or representation in a legal matter by a layperson interested in his or her own profit rather than the client's fate, (Utz v. State Bar (1942) 21 Cal. 2d 100, 108);, the lay intermediary's tendency to recommend the most generous, as opposed to the most competent, attorney;1 (Linnick v. State Bar (1964) 62 Cal. 2d 17, 21; Hildebrand v. State Bar (1950) 36 Cal. 2d 504, 513 [Traynor, J., dissenting.]); and the presence of a third party demanding the allegiance the lawyer properly owes to his or her client (People v. Merchants Protective Corp. (1922) 189 Cal. 531, 539). Since these potential problems do not exist in our situation, it does not make sense to argue that rule 3-102(B) automatically applies.
Equally convincing is the fact that certain programs, which on their face appear to violate rule 3-102(B) of the Rules of Professional Conduct, have been explicitly excepted from this rule. It has been decided that such programs do not offend the fundamental public policies described above, and that the public services and benefits of such programs outweigh the likelihood of abuse. Examples of programs excepted from the rule are lawyer referral services, legal services programs and group and prepaid legal insurance programs. In Emmons, Williams, Mires & Leech v. State Bar (1970) 6 Cal.App.3d 565 [86 Cal.Rptr. 367], the Court of Appeal for the Third Appellate District upheld the payment of a referral fee from a lawyer to a county bar association's lawyer reference service, despite the prohibitions against fee-splitting and payment of fees for recommendations of employment contained in former rules 2 and 3 of the Rules of Professional Conduct.2 The court concluded that the basic features of the lawyer referral service in question did not offend the public policy considerations underlying these rules. The court reasoned that the bar association lawyer referral service sought not individual profit, but public and professional objectives; and that lawyer referral services had a legitimate, nonprofit interest in making legal services more readily available to the public. (Emmons, Williams, Mires & Leech v. State Bar, supra, 6 Cal.App.3d, at p. 574.)
Similarly, for many years, lawyer participation in group and prepaid legal insurance programs was prohibited on the ground that such participation violated the principles contained in present rule 3-102 of the Rules of Professional Conduct. However, the Rules of Professional Conduct were amended by the addition of rule 2-102(A), which encourages lawyers' participation in legal service organizations (which are administered in part by laypersons) and group and prepaid legal services programs. Rule 2-102(A) states that a lawyer's participation in a program, activity or organization that furnishes, recommends, or pays for legal services is encouraged and is not, in and of itself, a violation, so long as it is "bona fide." A program, activity or organization is not bona fide if it allows any third person, organization or group to interfere with or control the performance of the lawyer's duties to the client; allows unlicensed persons to practice law; allows any third person, organization or group to receive, directly or indirectly, any part of the consideration paid to the lawyer; or would violate the provisions relating to advertising and solicitation contained in rule 2-101 of the Rules of Professional Conduct. (Rule 2-102(A), Rules Prof. Conduct.) Rule 2-102(A) was intended to ratify and expand the exception for lawyer participation in programs that furnish legal services to indigents and in group and prepaid legal service arrangements. This rule recognized that there are situations where a lawyer's association with a lay organization or its members presents no risk of conflicting interests or other abuses. (Final Report and Recommendations of the Special Committee on Lawyer Advertising and Solicitation, November 1978, at pp. 38-39.)
On the limited facts presented, the Committee has concluded that a donation of legal services for charitable auction is more closely analogous to the types of activities permitted by rule 2-102(A) than to the activities that rule 3-102(B) was intended to guard against. The mere auctioning of donated legal services does not involve the danger of control by laypersons or by the charitable or nonprofit organization. The organization's interest lies in acquiring funds for the operation of its program. Once the auction is over and the funds are received, the organization ordinarily would have no further interest or concern in the attorney-client relationship.
Similarly, the charitable organization's auction will not lead to the unauthorized practice of law by someone who is not licensed to practice. The facts contemplate that all legal services are to be performed by the donating member of the bar. The organization's interest is making legal services available as an item at an auction and in obtaining funding for the continuance of its public services, rather than engaging in the practice of law. Finally, the organization does not receive direct or indirect compensation paid to the lawyer. In the auction situation, the lawyer has donated the value of the described legal services to the organization. Conversely, the persons bidding on the legal services know and understand that any funds they pay will go directly to the organization for charitable or public service purposes, rather than to the lawyer.
Balanced against the remote likelihood of abuse of fundamental public policies are the benefits that flow from an attorney's donation of legal services to a public service or charitable organization's fund raising event. Encouraging members of the bar to donate funds or legal services for the benefit of society is consistent with the highest goals and historic role of the legal profession. (See Bus. & Prof. Code, 6068(h); ABA Code of Prof. Responsibility, canon 2 and EC 2-1.)
In the traditional formation of a lawyer-client relationship, the client comes to the lawyer following an advertisement or referral from another individual. During the initial consultation, the lawyer and the client have the opportunity to reach an understanding regarding the terms and conditions of the engagement, as well as the nature and extent of legal representation.
The formation of the lawyer-client relationship in the auction setting is very different. The client's understanding of the legal services to be provided will come from the descriptions contained in any available promotional literature, or from the oral statements made by the charitable organization, the auctioneers, or their agents. In the auction situation, the client may not have the opportunity to ask questions about the nature and extent of the legal services to be provided, anti the lawyer may not have the opportunity to clarify the misunderstandings or misapprehensions of the prospective client. Thus, unless the lawyer takes certain precautions, there exists the danger that persons bidding on legal services may not be making an informed choice of legal counsel.
Accordingly, the lawyer contemplating a donation of legal services must take steps to ensure that the nature and extent of the donated legal services are accurately described. Communications describing the legal services should not contain any untrue statement and should not contain any matter or present any matter in a manner or format which is false, deceptive or which tends to confuse, deceive or mislead the public. (See rules 2-102(A)(1) and (2), Rules Prof. Conduct.) The lawyer has the affirmative duty to see that the auction attendees clearly understand the area of the lawyer's expertise, the types of matters or questions which the lawyer will not or cannot address, and the limitations upon the extent of the legal services, whether it be expressed by the number of hours or by the matter or problem handled. Only in this fashion can the lawyer and client reach a meeting of the minds.
Furthermore, the lawyer's participation in the proposed auction should be conditioned upon the charitable organization's agreement not to distribute or otherwise publicize any communication concerning the nature and extent of legal services to be provided without prior approval of the lawyer. Because a lawyer might be held professionally responsible for the delivery of such communication, a prudent lawyer should prepare the description of the donated services and condition the donation of services upon the organization's use of that description in order to insure that it is not misleading or deceptive. (See rule 2-101(A)(1-6), Rules Prof. Conduct, and Standards (1) through (4) adopted pursuant to rule 2-101(D), Rules Prof. Conduct.)
Rule 2-101(B) of the Rules of Professional Conduct prohibits a lawyer or his or her agent from soliciting professional employment from a potential client for pecuniary gain in person or by telephone. Since pecuniary gain will be obtained by the charitable or nonprofit organization, rule 2-101(B) arguably applies in our situation. Therefore, a lawyer who chooses to participate in an auction should ensure that, prior to the auction, no communications concerning the donated legal services are delivered in person or by telephone to any potential bidder. However, this rule would not prevent telephonic or in-person publication of the auction itself.
Communications concerning the donated legal services might also disclose the reasonable value of such services, were they provided to an ordinary client. Rule 2-107(A) of the Rules of Professional Conduct prohibits a member of the bar from entering into an agreement for, charging or collecting an illegal or unconscionable fee. Rule 2-107(B) of the Rules of Professional Conduct describes an unconscionable fee as a fee that is "so exorbitant and wholly disproportionate to the services performed as to shock the conscience of lawyers of ordinary prudence practicing in the same community." In order to prevent a prospective client from inadvertently entering into an unconscionable fee arrangement, a lawyer should consider disclosing the reasonable value of the services being provided. Presumably, some auction attendees will be motivated in part by a desire to assist the charitable organization and therefore may be willing to pay a higher price than they otherwise would agree to pay. In such a case, and where the lawyer has disclosed the reasonable value of the legal services, the prospective client has given his or her "informed consent" within the meaning of rule 2-107(B)(9).
Additionally, rule 2-101(E) of the Rules of Professional Conduct would require the participating lawyer to retain for one year "a true and correct copy or recording of any 'communication' made by written or electronic media pertaining to the member or the member's firm." For example, the lawyer should retain a copy of any communication prepared concerning the nature and extent of legal services to be provided which is disseminated by the lawyer, the organization, or the auction's representatives, and keep a recording of any portions of the auction pertaining to the legal services.
In sum, although a lawyer's donation of legal services to be auctioned as a fund raising device for the benefit of a charitable or nonprofit organization is not per se violative of rule 2-101 of the Rules of Professional Conduct, the lawyer must exercise caution in order that the various provisions of the rule are not violated inadvertently.
The difficulty with the provision of legal services at a charitable auction is that the lawyer will not have an opportunity to interview the client prior to the auction. Indeed, the identity of the client is unknown until the competitive bidding process has been completed. Thus, the lawyer does not know whether representation of the client will conflict with the lawyer's professional obligations. A variety of facts, circumstances, and situations inherent in the client's legal matter could compel the lawyer to decline representation.
For example, rule 2-110 of the Rules of Professional Conduct prohibits a lawyer from accepting employment where the potential client wishes to accomplish any of the following objectives:
"(A) Bring a legal action, conduct a defense, or assert a position in litigation, or otherwise take steps, solely for the purpose of harassing or maliciously injuring any person or to prosecute or defend a case solely out of spite.
"(B) Present a claim or defense in litigation that is not warranted under existing law, unless it can be supported by good faith argument for an extension, modification or reversal of existing law.
"(C) Take or prosecute an appeal solely for delay, or any other reason not in good faith."
Rule 2-111(B) of the Rules of Professional Conduct requires a lawyer to withdraw from representation of a client in any of the following circumstances:
"(1) He knows or should know that his client is bringing a legal action, conducting a defense, asserting a position in litigation, or otherwise having steps taken for him solely for the purpose of harassing or maliciously injuring any person or solely out of spite, or is taking or prosecuting an appeal merely for delay, or for any other reason not in good faith; or
"(2) He knows or should know that his continued employment will result in violation of these Rules of Professional Conduct or the State Bar Act; or
"(3) His mental or physical condition renders it unreasonably difficult for him to carry out the employment effectively."
Also, a lawyer may not accept employment that is adverse to any current or former client, with respect to any matter in which the lawyer has obtained confidential information, unless the lawyer obtains the written consent of such client. (Rule 4-101, Rules Prof. Conduct.) A lawyer may not enter into a business transaction with a client or acquire an ownership, possessory, security or other pecuniary interest adverse to a client unless the terms of the transaction are fully disclosed to the client and are fair and reasonable to the client. Furthermore, the client must be given an opportunity to seek the advice of independent counsel regarding the transaction. (Rule 5-101, Rules Prof. Conduct.) A lawyer may not represent conflicting interests, unless all parties have given their written consent. (Rule 5-102(B), Rules Prof. Conduct.) If the lawyer has some relation with the adverse party or some personal interest in the subject matter of the employment, he or she must disclose such facts to the client before accepting the client's business, and then obtain a written waiver from the client. (Rule 5-102(A), Rules Prof. Conduct.)
Finally, during the initial interview or during the course of representation, a lawyer may become aware that he or she does not have the requisite competence to handle the client's matter within the meaning of rule 6-101 of the Rules of Professional Conduct. If and when this occurs, the lawyer may be unable to complete the legal services that were described and bid upon during the auction.
Thus, a lawyer may discover during the initial client interview, or at some point thereafter, that he or she cannot continue to represent the client because of the provisions of the Rules of Professional Conduct, particularly rules 2-110, 2-111, 4-101, 5-101, 5-102 or 6-101. In the usual relationship, when a lawyer is not able to represent the client, the lawyer must refund any part of the fee paid in advance that has not been earned, unless the fee is a true retainer. (See rule 2-111(A)(3), Rules Prof. Conduct.) By contrast, in the auction situation, it is the charitable organization and not the lawyer who has received the money bid for the legal services.
One solution to this dilemma is as follows: (1) as a condition to donation of the legal services, the charitable or nonprofit organization must agree in advance to refund the auction price bid if the lawyer cannot take the case; (2) the organization must agree to refund the pro rata portion of the auction price bid if, as a result of his or her professional obligations, the lawyer is unable to complete the engagement; (3) the lawyer, the charitable organization, and the auctioneer should state clearly in advance that the lawyer's services will be available only if, following the intitial consultation, the lawyer determines that the representation is consistent with his or her professional obligations; and (4) if the lawyer cannot accept the employment or is required to withdraw from representation, the lawyer should assist the client in obtaining a refund of all or part of the auction price bid.
Lawyers may be asked to donate legal services to a charitable or nonprofit organization which will auction such services as a fund raising device. The legal profession traditionally has contributed to charitable and pro bono activities, and should be encouraged to continue doing so.
However, a number of professional standards and ethical considerations circumscribe the manner in which the lawyer may make his or her donation of legal services, and the manner in which such services may be auctioned. The prudent lawyer should pay careful attention to these rules and considerations.
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.
1 The Committee assumes that the charitable organization will auction the legal services of every lawyer who offers to donate his or her time, and does not distinguish among the potential lawyer-donors based upon the dollar value of the services donated.
2 The substance of former rule 3 has been incorporated into present rule 3-102 of the Rules of Professional Conduct.