Ethics Opinions

 
NASSAU COUNTY BAR ASSOCIATION
COMMITTEE ON PROFESSIONAL ETHICS
Archive of Ethics Opinions
Opinion No.: 1996-2
Topics: Partnership with a non-lawyer in a business entity to negotiate out of court settlements for business debtor clients.
Digest: An attorney should not form a business partnership with a non-lawyer to provide out-of-court negotiation services notwithstanding disclaimers as to the attorney's ability to dispense legal advice.
Code Provisions: 3-101(A)
DR 3-102(A)
DR 3-103(A)
DR 2-101(A)
DR 5-107(C)
EC 3-5
Facts Presented: Inquiring counsel wishes to form a partnership with a non-lawyer family member for the purpose of negotiating out-of-court settlements for business debtor clients. The partnership would expressly indicate to client debtors that no legal advice will be provided.
Inquiry: This inquiry actually poses three questions:

1) May an attorney enter into a partnership with a non-attorney to provide services to business debtor clients in assisting same to negotiate out-of-court settlements with creditors if he specifically advises said clients that he is acting in a non-legal capacity?

2) Must said attorney, if such partnership is permissible, advise the client that the attorney partner is, in fact, a licensed attorney although no legal services are to be performed by the partnership?

3) May the attorney-partner in the business debt negotiation business prepare a "client agreement", to be signed by the debtor client, wherein the agreement specifically states that the partnership "cannot give legal advice, specifically gives no such advice and cannot act as an attorney-at-law" and the client may seek the services of an attorney if deemed necessary?

Determination: An attorney may not enter into a partnership with a non-attorney to provide out of court negotiation services to business debtor clients even where an express representation would be made by the partnership or attorney that no legal advice can be given or the lawyer cannot act as an attorney-at-law.
Analysis: An attorney can have a second profession practiced concurrent with law. Engaging in a non-legal business is not scorned but rather, the attorney should be mindful of the prohibitions against using a non-lawyer as a business partner for informal legal business solicitation. (DR 2-103). An attorney can neither advertise a joint or dual profession, nor can an attorney give the impression to clients that they will get both services for one fee (DR 2-101, DR 2-103, BANC opinion 92-12). The related profession or business may not be used as a feeder for the law practice (BANC opinion 88-96). A lawyer may not practice or advertise under a designation containing the lawyer's name together with any designation involving non-lawyers. (BANC Op 88-34)

 

In the discussion of a lawyer's participation in a divorce mediation service, as an attorney participant, this committee enunciated some of the rules which govern lawyers' business activities:

 

Even more important, Canon 3 of the Code of Professional Responsibility states that "a lawyer should assist in preventing the unauthorized practice of law". Disciplinary Rule 3-101 (A) specifically prohibits a lawyer from aiding a non-lawyer in the unauthorized practice of law. Similarly, DR 3-102 (A) prohibits the sharing of legal fees with a non-lawyer and DR 3-103 (A) prohibits a lawyer from forming a partnership with a non-lawyer "if any of the activities of the partnership consist of the practice of law". BANC-82/8

 

Aware that partnerships with non-lawyers are prohibited by DR 3-103 (A) if any of the activities of the partnership consist of the practice of law, counsel correctly seeks an opinion from this committee.
In essence, inquiring counsel asks whether the ethical problem would be cured by express advisement to prospective clients that (a) he is acting in a non-legal capacity, (b) no legal services are to be performed, (c) he cannot give legal advice and no such advice is given, (d) he cannot act as an attorney-at-law and (e) the client may seek the services of an attorney if deemed necessary. The proposition advanced by inquiring counsel is that "no legal services are to be performed" and it would therefore follow, that no activities of the out-of- court debt negotiation partnership would consist of the practice of law. Were this the case, DR-103(A) would not be violated.

 

Inquiring counsel, in partnership with a non-lawyer, proposes to provide a service to business debtors. The chosen second profession of this practicing attorney (assumed but not expressly stated in inquiry) would consist of the "negotiation" of out-of-court settlements with business creditors on behalf of debtor clients of the to-be-formed partnership. The Committee must now determine if this form of second profession should be permitted.

 

The specific question, which should form the basis of this inquiry, is whether an attorney partner in the to-be-formed business partnership can provide out-of-court "negotiation" services without having any of his activities constitute as the practice of law? This question must be answered in the negative.

 

Inquiring counsel may assert that "negotiation" is a service that can be lawfully performed by lawyers and non-lawyers alike. This committee concludes, however, that owing largely to his status as an attorney, when a lawyer engages in this form of activity it is not possible to conclude that he can maintain this form of activity without the actual or potential resort to activities characterizable as the practice of law. Accordingly, his actions are governed by the ethical considerations and rules which have been enacted to protect the public and the profession. Counsel's partnership with the non-lawyer partner, therefore, offends DR-103(a) and DR 5-107(c), despite the express disclosures (A-E, above) proffered as part of this inquiry.

 

This inquiry concerns a to-be-formed debt negotiation service. While this committee has not yet passed upon the specific question at hand, attention is drawn to a decision of the State Bar Association has opined that an attorney may not participate in a debt consolidation service to the law firm's clients. NYSBA Opinion 633/92. This committee has held (BANC 84-5) that the client's business entity with an attorney participant may not retain the services of the attorney participant. The inquiring attorney, thus, cannot accept the customers of the negotiation service as his legal clients and the attorney's legal clients cannot be directed to the negotiation service. Clearly, an attorney's two professions must be distinct entities and may not jointly draw clients from the same client base.

 

Then what of the assertion that the two business entities - the lawyer's practice and the negotiation partnership - would be separate and devoid of client interchange? Although not expressly set forth in the inquiry submitted to the committee, an examination of the disclaimers in the inquiry ("no legal services", etc.) could reasonably be read to imply that inquiring attorney intends a wall of separation between his two professions would be maintained.

 

The question then remains, assuming a total separation of the business activities, may an attorney participate in the negotiation partnership? This committee holds in the negative.

 

It is the opinion of this committee that the proposed business activity ("negotiation" of out-of-court settlements on behalf of debtors with business creditors) cannot be confined to "negotiation" in a vacuum. A lawyer participant in such an activity, must, and will, as a matter of human nature, bring to bear in such a process his knowledge of the law, an evaluation of the legal rights and duties of the participants and the remedies of each participant. It is folly to suggest otherwise. In this regard, the obvious should be stated. All the fundamental aspects of the debtor-creditor relationship are governed by the laws of our state and nation. The rights and responsibilities of the parties, while influenced by personal codes, business mores and the respective bargaining positions of the parties, are profoundly influenced by the laws (and knowledge of the legal principles) governing the debtor-creditor partnership. Most debtors (potential clients of the partnership) are fully aware of the foregoing and, it would follow, would desire the assistance in this regard and would seek advantage by resort to -those with superior knowledge of the rules governing the debtor-creditor negotiation process. To suggest that one could provide "negotiation" service disconnected from the application of legal principles (and the "practice" of law) is unrealistic. Further, the proposed disclaimers herein would, directly or incidentally, serve as advertisement that the business clients are receiving the services or knowledge of a trained attorney. This cannot be sanctioned.

 

Inquiring attorney has indicated that negotiation would occur in the context of an anticipated out-of-court settlement. However, such negotiation takes place in an environment impacted by the distinct possibility of pending litigation. All but the most unsophisticated know that out-of-court negotiation settlement (with or without the assistance of professional negotiation) is an alternative to litigation. Indeed, negotiation is often a prelude to litigation. If efforts at negotiation fail, litigation, at the creditor's option, often follows. With this in mind, the committee cannot condone a lawyer's participation in the negotiation service which we find to be characterized as a quasi-litigation proceeding and prelude to litigation.

 

The aforesaid reasoning and result are supported, albeit in a different business context, by a recent decision in which this committee prohibited the formation of a business entity consisting of lawyers and non-lawyers to file tax certiorari proceedings. (BANC Opinion #533). The basis for this determination was that the process, to be participated in with non-lawyers, "encompasses many of the trappings of litigation". Clearly, the focus in this decision was upon the forum in which the activity was to be performed. In the matter at hand, inquiring counsel could understandably assert that out-of-court negotiations, by definition, are separated from any forum and should not be governed by the principles enunciated in this committee's holding in opinion #533 as they are not the practice of law. In this opinion, the following was noted:

 

Although the Code does not specifically define what conduct or activity may constitute the practice of law (EC3-5), the New York State Bar Association Committee on Professional ethics has noted that there are many services which may be properly undertaken by lawyers and non-lawyers alike - especially in the fields of taxation and tax planning. Opinion No. 557 (2-17-84) (holding that it is improper for a lawyer and an accountant to form a firm for the purpose of preparing tax returns and giving tax-related advice to clients). The State Bar Committee has held that when such services are performed by a lawyer, they constitute the practice of law and the lawyer, in performing them, is governed by the Code of Professional Responsibility. Id. Therefore, the active participation by a lawyer in the rendering of services in a small claims assessment review proceeding would for the purposes of those services performed by the lawyer, constitute the practice of law even though a non-lawyer is authorized by the statute to perform the same services. If the lawyer is found to have engaged in the practice of law, then the lawyer may not affiliate with a non-lawyer as observed by this committee in opinion 93-24 (a lawyer may form a partnership with non-lawyers so long as the lawyer does not act as a lawyer in the same transaction in which his or her real estate firm acts as a broker, and none of the activities of the partnership may consist of the practice of law.)" BANC opinion #533 (emphasis added)

 

It is conceded that the proceedings (filing tax certiorari claims) which were noted in this decision are characterizable as litigation or quasi-litigation. As such, a lawyer's participation in same cannot occur in conjunction with a non-lawyer partner. However, in the matter now at hand, "debt negotiation", the committee holds that the difference is not significant enough to warrant a finding contrary to that of BANC Opinion #533.

 

The lawyer's participation in the debt negotiation service is fraught with potential difficulties, occasioned by the lawyer's status as an attorney. Bearing in mind that litigation is a distinct possibility, a question arises if the negotiation service (with an attorney participant) can protect the client's confidences? The attorney should be mindful of DR 2-101(A) which prohibits a lawyer from advertising or obtaining publicity that contains deceptive or misleading statements. Any reference to the attorney's academic or professional credentials could be construed as suggestive of legal expertise and services. Are the rules governing attorney responsibilities diluted or rendered inoperative because of his association with a non-lawyer? Will the negotiation partnership advise the client to take actions which, while economically advantageous, are not sanctioned lawyer conduct and characterized as deceitful, fraudulent or deceptive? DR 1-102 In short, do the rules of the market place differ from the professional standards governing attorneys? May an attorney act as a non-attorney or with non-attorney in a proceeding which may lead to litigation and exempt himself from such rules? In the context of a pre-litigation or litigation-like proceeding, a lawyer does not resolve the ethical objections to the joint provision of services with a non-lawyer simply by concealing his or her status as an attorney. The Code prohibits the lawyer from engaging in "conduct involving dishonesty, fraud, deceit or misrepresentation". DR 1-102(A)(4).

 

In view of the foregoing finding that the attorney should not enter into this partnership the second and third Questions submitted are moot.

 

(Approved by Executive Subcommittee on 1/2/96; Approved by Full Committee on 1/31/96)
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