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.
1. To what extent do the California Rules of Professional Conduct apply to a member who is performing, or represents and markets herself as able to perform, both legal and non-legal professional services for a client at the same time?
2. Does rule 1-400 of the California Rules of Professional Conduct apply to a member's use of her qualifications as a lawyer in marketing a purely non-legal service?
3. What rules apply when, as part of a member's investment advisory services involving both legal and non-legal advice, the member refers clients to a portfolio manager, who then pays the member a percentage of the compensation received for managing the portfolio?
1. When a member performs both legal and non-legal professional services for a client, the member is subject to the California Rules of Professional Conduct with respect to all of those services.
2. Rule 1-400 of the California Rules of Professional Conduct applies to a member's use of her credentials as a lawyer, such as the title "Esq." or reference to experience in tax and estate law on business cards, stationery, and other material promoting non-legal services where the services are difficult to distinguish from legal services and a reasonable prospective client would infer from the use of the member's credentials that the member is offering legal services or services involving legal advice.
3. Under the facts presented, the compensation arrangement is not an impermissible sharing of fees with a non-lawyer. However, to the extent that the member's service is subject to the California Rules of Professional Conduct, the referral and compensation arrangement creates for the member a financial interest in the subject matter of the representation, requiring written disclosure to the client under rule 3-310(B)(4), and constitutes a business transaction with a client, requiring the member to comply with rule 3-300.
Rules 1-310, 1-320, 1-400, 3-300, and 3-310 of the California Rules of Professional Conduct.
Business and Professions Code section 6068 (e).
Attorney A intends to form A & Company, through which A will offer investment advisory services, including (1) identifying the investment needs and objectives of clients, (2) assisting clients in retaining a suitable portfolio manager and monitoring portfolio management, and, (3) in appropriate cases, directly managing the client portfolio herself.
Although A intends to market her services solely as an investment advisor (emphasizing, inter alia, her National Association of Securities Dealers (NASD) registration and state certification as investment advisor), she also intends to emphasize her legal background in the course of advertising, marketing, and soliciting clients. Attorney A intends to use the designation "Esq." with her name and to list her L.L.M. in taxation on her business cards, stationery, and brochures. Attorney A also intends to include a description of her former business and tax law practice in written marketing materials and oral solicitations for her investment advisory service.
Attorney A's income will consist of an investment advisory fee, calculated as a percentage of the portfolio under management, which would be paid by the portfolio manager whom A assists the client in retaining. In those cases in which A provides direct portfolio management services, her fees for those services also will be based on a percentage of assets under management.
Attorney A anticipates that she may provide incidental legal advice to her clients directly relating to the investment advisory process. However, she does not intend to charge any additional fee for such advice beyond the customary investment advisory fee.
On occasion, in the course of giving investment advice, A anticipates that her clients will require the preparation of legal documents in connection with some of the investments. In those situations, she expects to refer the client to another attorney to prepare the documents; however, A will review and advise the client concerning the documents after they have been prepared. The outside attorney will be retained by A's investment advisory client, who will be directly responsible for the outside attorney's fees.
In California State Bar Formal Opinion Number 1995-141, the Committee addressed in general the ethical considerations which apply to lawyers or law firms that render non-legal services.1 The facts presented in this opinion involve three issues which the Committee did not address in that opinion: (1) the extent to which the California Rules of Professional Conduct (hereinafter "rule(s)") apply to a lawyer when her services include any activity that constitutes the practice of law; (2) whether and the extent to which rule 1-400 applies to the marketing of non-legal professional services by a lawyer that includes references to the lawyer's legal training, experience, or skills; and (3) whether there is an impermissible division of fees with a non-lawyer under the facts presented.
In general, when a lawyer is providing both legal and non-legal services to a client, all of the services are considered to be legal services for purposes of determining whether a lawyer must comply with the rules.2
Whether a member is providing legal services and is thus subject to the rules does not depend upon whether the lawyer charges for the service or how the lawyer may characterize the service.3 The ultimate question is functional: Is the lawyer performing a service that is performed as part of the practice of law and would constitute the practice of law if performed by a non-lawyer? (See Cal. State Bar Formal Opn. No. 1995-141.)4
Under the facts presented, A is performing tasks that are traditionally understood to constitute legal services, such as providing legal advice and reviewing legal documents. While A primarily intends to render non-legal investment advice, the rendition of legal services in connection with non-legal services requires A to conform her conduct to the duties imposed on lawyers under the California Rules of Professional Conduct and State Bar Act. (Layton v. State Bar, supra, 50 Cal.3d at p. 904.)
As a result, A must maintain the confidentiality of her clients' information under Business and Professions Code section 6068 (e), which requires an attorney "to maintain inviolate the confidence, and at every peril to himself or herself, preserve the secrets of a client." This duty protects client information more broadly than does the lawyer-client privilege. (Goldstein v. Lees (1975) 46 Cal.App.3d 614, 621, fn. 5 [120 Cal.Rptr. 253].) Section 6068 (e) encompasses any information relating to the representation of a client, gained from any source, which a client has requested be held inviolate or the disclosure of which is likely to be embarrassing or detrimental to the client. (Cal. State Bar Formal Opn. No. 1993-133.) While engaged as a dual practitioner under the facts described, A cannot reasonably segregate the information she acquires in the provision of legal services and that which she acquires in the provision of non-legal services; all information concerning the client should be regarded as within the scope of Business and Professions Code section 6068 (e).
In addition, A owes a duty of loyalty to her clients, which, among other things, will require A to avoid the representation of adverse interests under rule 3-310, as well as comply with rule 3-300 with respect to any business transactions between A and her clients or A's acquisition of any ownership, possessory, security, or other pecuniary interest adverse to her clients.5
Rule 1-400 governs certain aspects of a lawyer's marketing of services and consists of two types of regulation: (1) regulation of "communications" concerning a member's availability for professional employment and (2) regulation of, and prohibition of certain types of, "solicitations" concerning such availability.
In California State Bar Formal Opinion Number 1995-141, the Committee concluded that rule 1-400 applies to solicitations and communications concerning the availability of legal services. The Committee also concluded that the rule does not apply to solicitations and communications regarding the availability "of purely non-legal professional services." Under the standard articulated in that opinion and in light of the principles stated above, rule 1-400 will apply if the investment advisory services that A is marketing include the performance of a legal service. If A is promoting a purely non-legal service that does not involve the rendition of any legal service, rule 1-400 will not apply.6
The facts in this opinion present an additional issue not before the Committee in California State Bar Formal Opinion Number 1995-141: Does rule 1-400 apply to A's use of her credentials as a lawyer to market any services that include an activity that constitutes the practice of law? It is the Committee's opinion under the facts presented that rule 1-400 does apply to any such marketing.
The Committee's conclusion is founded on the broad definition of a "communication." Rule 1-400(A) defines a "communication" as "any message or offer by or on behalf of a member concerning the availability for professional employment of a member or a law firm directed to any former, present, or prospective client." The rule specifically includes "[a]ny use of firm name, trade name, fictitious name, or other professional designation of the member or law firm." (Rule 1-400(A)(1).) Under rule 1-400, a "communication" also includes "[a]ny stationery, letterhead, business card, sign, brochure, or other comparable written material describing such member, law firm or lawyers." (Rule 1-400(A)(2).)
The Committee believes that where A lists her qualifications or experience as a lawyer in a communication for law-related professional services such as investment advice, such use of legal credentials is a "communication" within the meaning of rule 1-400 if a recipient of such materials could reasonably believe that A is offering legal services or investment advice that involves legal judgment or considerations.7 Thus, under the facts described, where A is seeking employment as an investment advisor, and even where she contemplates that she will not be providing legal services to prospective clients, the use in A's promotional material or on her stationery of the title "Esq.," reference to A's experience in tax and estate planning law or reference to A's being a "Certified Tax Specialist" are professional designations that could constitute communications under rule 1-400, if such use could reasonably lead prospective clients to misperceive the nature of the services being offered.
Such a result may be avoided if A's business cards and stationery contain an express disclaimer that A is not offering and does not intend to provide legal services or legal advice. Of course, no disclaimer will be effective if A is in fact performing legal services or offering legal advice. In addition, such a disclaimer may be ineffective where the services offered are clearly law-related and may inevitably and inextricably involve activities that are legal services.8 However, the Committee emphasizes that each situation will be fact specific with respect to whether a recipient could reasonably believe that a given use of legal credentials in advertising or marketing materials indicates that a member is offering to perform legal services.9
Where A's use of legal credentials are "communications" within the meaning of rule 1-400, each of the requirements in paragraph (D) must be met. The communications cannot contain any untrue statements or any matter which is false or deceptive, or which tends to confuse, deceive or mislead the recipient (rule 1-400(D)(1), rule 1-400(D)(2)); they may not "[o]mit to state any fact necessary to render the statements made, in light of the circumstances under which they are made, not misleading to the public" (rule 1-400(D)(3)); they cannot fail to clearly indicate that they are communications (rule 1-400(D)(4)); and they cannot be communicated in a "manner which involves intrusion, coercion, duress, compulsion, intimidation, threats, or vexatious or harassing conduct" (rule 1-400(D)(5)). To the extent that A uses her professional designations as a lawyer on business cards, stationery, or promotional materials for investment advisory services, and when such use is a "communication", she must comply with these requirements.
For the same reasons, the Committee believes that A's promotional use of her professional designation as a lawyer may subject her activities to the rule 1-400 prohibition on certain "solicitations." Rule 1-400(B) defines a "solicitation" as a "communication" concerning the availability for professional employment of a member or a law firm in which a significant motive is pecuniary gain and which is either transmitted in person or by telephone or by any means to a person known to the sender to be represented by counsel in the matter which is a subject of the communication. The definition specifically includes the term "communication," which, in turn, encompasses any use of a lawyer's professional designation.
Rule 1-400(C) prohibits "solicitations" made by or on behalf of a member or law firm to a prospective client with whom the member does not have a family or prior professional relationship.10 Under the facts presented, the prohibition will apply if A seeks to solicit business in person or telephonically by referencing her credentials as a lawyer.
The Committee believes that applying rule 1-400 in this manner makes sense under the circumstances. A is a dual practitioner whose non-legal profession is nevertheless law-related. When she seeks to attract clients by reference to her legal training and expertise, prospective clients could reasonably be led to believe that they will receive legal as well as non-legal services, or at a minimum, advice based upon legal considerations.11
The hypothetical proposes that A would be paid a fee by the non-lawyer portfolio manager to whom A refers her investment advisory clients (to be calculated as a percentage of the portfolio manager's fee); the portfolio manager would not be otherwise affiliated with A & Company. Thus, A would be receiving a commission-like fee for introducing her clients to the primary investment manager. This commission may be the exclusive source of A's income or could be in addition to a separate fee that A would charge her client directly for services and advice prior to referral to a primary portfolio manager.
Rule 1-320(A) prohibits a member from "directly or indirectly shar[ing] legal fees with a person who is not a lawyer," except under certain conditions not relevant to this discussion. To the extent that A's company performs legal services or offers legal advice, rule 1-320(A) prohibits A from sharing with a non-lawyer any fee received as compensation for those services or advice. If A is not performing such services, A is not prohibited from sharing fees with a non-lawyer. (See In the Matter of Bragg (Review Dept. 1997) 3 Cal. State Bar Ct. Rptr. 615 [fundamental concern addressed by prohibition against fee-splitting with non-lawyer is "the risk posed by the possibility of control by non-lawyers more interested in personal profit than the client's welfare"].)
Under the facts presented, A is not "sharing a legal fee" within the meaning of rule 1-320(A). This is not a case in which A is compensated by the client for professional services including legal services and shares that compensation with a non-lawyer investment advisor (see Cal. State Bar Formal Opn. No. 1984-79 [where lawyer refers clients to litigation support consulting service that is owned by non-lawyers, fees to consulting service may not come in whole or part from the lawyer's own fee]); nor is it a situation in which A and the portfolio manager are partners in a single practice that offers both legal and non-legal services to its clients. (See generally Annot., Attorney Splitting Fees With Other Attorney or Layman as Grounds For Disciplinary Proceedings (1966) 6 A.L.R. 3d 1446.)
The referral and compensation arrangement described is structurally similar to a situation in which a lawyer advises his estate planning client to purchase insurance, refers the client to an insurance agent and then accepts compensation from the agent to whom the client was referred. The Committee has concluded that such an arrangement creates in the lawyer a financial interest in the subject matter of the representation, to which rule 3-310(B)(4) applies, and constitutes a business transaction with a client, subject to rule 3-300. In California State Bar Formal Opinion Number 1995-140, the Committee found that in such a case, the attorney must: (1) make full disclosure in writing of all relevant circumstances surrounding the insurance referral arrangement and all actual and reasonably foreseeable consequences to the client from that arrangement under rule 3-310(B)(4); (2) comply with all requirements of rule 3-300, including obtaining the client's written consent to the arrangement; and (3) ensure that the attorney is able to competently advise the client under the circumstances. (Cal. State Bar Formal Opn. No. 1995-140.)12
To the extent that A's services involve legal services, under the facts presented, the same rules apply. As a result, A will be required to satisfy the disclosure obligations of rule 3-310(B)(4) and the rigorous disclosure and consent protocol in rule 3-300 with respect to her referral of clients to an investment portfolio manager from whom she will receive compensation. The referral arrangement gives A a financial and business stake in the representation, since A will be paid a commission directly as a consequence of A's referral to a recommended portfolio manager. (See Cal. State Bar Formal Opn. No. 1995-140 at fn. 3; see also Rodgers v. State Bar (1989) 48 Cal.3d 300, 314 [256 Cal.Rptr. 381] [lawyer who induced client to obtain loan from third party, where loan proceeds were used to pay fees owed to the lawyer, violated rule against acquiring interest adverse to client without full disclosure of fair terms].)
Finally, if A receives compensation from the portfolio manager but also charges a separate legal fee for review and legal advice concerning the portfolio and does not share that legal fee, such an allocation would comply with the requirement of rule 1-320. However, to the extent that A offers such review and advice as an activity of a partnership with non-lawyer partners, rule 1-310 would prohibit such a partnership.
Dual practitioners who offer their services in areas such as real estate brokerage or investment advising, in which the nature of the practice and the advice sought have significant overlap with legal practice and advice, must be aware of the requirements under the rules, including those governing lawyer advertising, solicitation and fee arrangements, even where they believe that they are providing non-legal services. When a member's status as a lawyer is known to the client, applicable rules might be found to govern all of the member's activities in both professions.
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 on 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 In California State Bar Formal Opinion Number 1995-141, the Committee defined a "non-legal service" as services which are not performed as part of the practice of law and which may be performed by non-lawyers without constituting the practice of law. The definition of legal services which the Committee uses in this opinion is the reverse of the non-legal service definition.
2 See Kelly v. State Bar (1991) 53 Cal.3d 509, 517 [280 Cal.Rptr. 298] [attorney's conduct in non-legal business transaction on behalf of a client who also received legal services is subject to the rules]; Layton v. State Bar (1990) 50 Cal.3d 889, 904 [268 Cal.Rptr. 845] [". . . where an attorney occupies a dual capacity, performing for a single client or in a single matter, along with legal services, services that might otherwise be performed by laymen, the services that he renders in the dual capacity all involve the practice of law, and he must conform to the Rules of Professional Conduct in the provision of all of them."]; L. A. Cty. Bar Assoc. Formal Opn. No. 384 [dual practitioner who is both an attorney and real estate broker may practice both occupations together from a single office, provided he complies with all applicable rules of professional conduct, including rules governing advertising and solicitation]; and Cal. State Bar Assn. Formal Opn. No. 1982-69 [monies paid to an attorney who performs both brokerage and legal services in a single transaction should be regarded as "legal fee" for purposes of rule against splitting fees with non-lawyers].
3 Additionally, it should be noted that there are rules and State Bar Act provisions which would apply to a lawyer when engaged in any activity, whether or not the lawyer is representing a client or performing a legal service. Some of these rules are discussed in California State Bar Formal Opinion Number 1995-141. This opinion does not address which rules would apply if a lawyer engages in a purely non-legal activity and makes no representation regarding his or her status as a lawyer.
4 This opinion is not intended to address or opine upon the issue of the unauthorized practice of law. Regarding activities undertaken by an individual who is not an active member of the California State Bar, members should consider California Business and Professions Code sections 6125 to 6127. Members should also consider rule 1-300 (Unauthorized Practice of Law) and rule 1-310 (Forming a Partnership With a Non-Lawyer). Regarding what constitutes the practice of law in California, members should consider the following cases: Birbrower, Montalbano, Condon & Frank v. Superior Court (1998) 17 Cal.4th 119 [70 Cal.Rptr.2d 858]; Farnham v. State Bar (1976) 17 Cal.3d 605 [131 Cal.Rptr. 661]; Bluestein v. State Bar (1974) 13 Cal.3d 162 [118 Cal.Rptr. 175]; Baron v. City of Los Angeles (1970) 2 Cal.3d 535 [86 Cal.Rptr. 673]; Crawford v. State Bar (1960) 54 Cal.2d 659 [7 Cal.Rptr. 746]; People v. Merchants Protective Corp. (1922) 189 Cal. 531, 535 [209 P. 363]; Estate of Condon (1998) 65 Cal.App.4th 1138 [76 Cal.Rptr.2d 922]; People v. Landlords Professional Services (1989) 215 Cal.App.3d 1599 [264 Cal.Rptr. 548]; and People v. Sipper (1943) 61 Cal.App.2d Supp. 844 [142 P.2d 960].
5 As the Committee noted in California State Bar Formal Opinion Number 1995-141, even in the absence of a lawyer-client relationship, a California State Bar member must conform to the professional standards of a lawyer when rendering non-legal professional services that involve a fiduciary relationship. (See, e.g., Beery v. State Bar (1987) 43 Cal.3d 802, 811-814 [239 Cal.Rptr. 121] ["'[a]n attorney who accepts the responsibility of a fiduciary nature is held to the high standards of the legal profession whether or not he acts in his capacity as an attorney.' [Citation.]"]; Sodikoff v. State Bar (1975) 14 Cal.3d 422, 428-429 [121 Cal.Rptr. 467] [attorney who assumes fiduciary relationship and breaches fiduciary duties in a manner that would justify discipline if the relationship had been that of attorney and client may be subject to discipline even if no formal attorney-client relationship existed].)
When A's relationship with a client in the course of rendering a purely non-legal service creates an expectation that she owes a duty of fidelity or she is exposed to a client's confidential information in the course of rendering the non-legal professional service, A may be subject to the same duties to avoid the representation of adverse interests under rule 3-310 with respect to that client as she would if there had been a lawyer-client relationship. (See Cal. State Bar Formal Opn. No. 1981-63; William H. Raley Co. v. Superior Court (1983) 149 Cal.App.3d 1042 [197 Cal.Rptr. 232]; Allen v. Academic Games Leagues of America, Inc. (C.D. Cal. 1993) 831 F.Supp. 785.).
6 It often may be a close question whether a proffered service is "purely non-legal." Here, where the anticipated investment advice will involve law-related issues, A's professional services may almost inevitably draw on A's legal training and judgment. (See L.A. Cty. Bar Assn. Formal Opn. No. 384 ["Where . . . the lawyer's other profession is law-related, another ethical difficulty is encountered. It may be impossible to know whether the lawyer's work for a client is performed as part of the practice of law or a part of the lawyer's other occupation"]; ABA Formal Opn. No. 328 ["If the second occupation (such as a real estate brokerage business) is so law-related that the work of the lawyer in such occupation will involve, inseparably, the practice of law, the lawyer is considered to be engaged in the practice of law while conducting that occupation. Accordingly, he is held to the standards of the bar while conducting that second occupation from his law offices"].)
7 Several ABA opinions prohibited an attorney from listing both occupations on letterhead or business cards, on the rationale that the non-legal profession could serve as a feeder to legal services, in violation of the rules against solicitation. (ABA Formal Opn. No. 297 (Feb. 24, 1961); ABA Informal Opn. No. 1248 (Nov. 7, 1972); ABA Informal Opn. No. C-431 (June 20, 1961).) Other jurisdictions also have expressed this concern. (See, e.g., Ohio State Bar Ethics Opn. No. 86-5 (May 29, 1986) [dual practitioner may not use her non-legal occupation as a feeder to her legal practice].)
8 There is authority for the proposition that an attorney who is not an active member of the bar may list her J.D. degree as a credential, but may not hold herself out as a lawyer. (See ABA/BNA Lawyers' Manual on Profession Conduct at §81:3012 [1-18-89 update].)
9 See fn. 5, ante.
10 The rule permits "solicitations" which are protected from abridgement by the United States Constitution or California Constitution.
11 With respect to the constraints upon and risks to a lawyer clearly acting in a dual capacity on behalf of a client, such as a lawyer/real estate broker, see California State Bar Formal Opinion Number 1982-69.
12 See also L.A. Cty. Bar Assoc. Formal Opn. No. 372 (Feb. 21, 1978) [It is unethical for an attorney to (1) render legal advice to a lay consulting firm for the purpose of transmitting that legal opinion to its direct customer and (2) receive payment from the lay consulting firm, which in turn bills its direct client a larger fee reflecting the payment to the attorney.]; L.A. Cty. Bar Assoc. Formal Opn. No. 443 [It is unethical for an attorney to accept a referral fee from a physician to whom the attorney refers cases, reasoning that a person to whom a referral fee is paid "may not keep the best interests of the clients paramount when he profits from his referral. He is likely to refer claimants, not to the most competent attorney, but to the one who is compensating him" and therefore creates a conflict of interest between himself and his client.].