BAR ASSOCIATION OF NASSAU COUNTY
COMMITTEE ON PROFESSIONAL ETHICS

Opinion No. 2003-2
(Inquiry No. 696)
 
Archive of Ethics Opinions
 
Topics:
Conflict of interest of attorney solicited by private school to represent students and their parents in dispute with local school districts over the proper placement of students in "appropriate" schools, where the private school pays the attorneys fees, and an "appropriate" school in the clients' best interests may be one other than the school soliciting the attorney and paying the fees.
 
Digest:
It is permissible for an attorney solicited by a private school to represent students and their parents in disputes with local school districts over the proper placement of students with special needs in appropriate schools where the attorney will be paid by the private school, provided that the attorney determines in the first instance, pursuant to the disinterested lawyer test, that the representation of the client will not be adversely affected and that he or she can competently represent the interests of the clients, and the attorney complies with all of the following: (i) the attorney makes full disclosure to the client of the nature and extent of the relationship, financial and otherwise, between the attorney and the soliciting private school, as well as the implications of the lawyer's interest; (ii) to the extent there is dual representation of both the private school and the student and parents, full disclosure is made of the implications of the simultaneous representation and the advantages and risks involved; (iii) the client consents to the attorney's receipt of payment by the soliciting school; (iv) nothing of value is given by the attorney to the soliciting school; (v) the attorney exercises independent professional judgment and does not permit the soliciting payer school to affect, direct or regulate his or her professional judgment; and (vi) the attorney maintains the student and parent clients' confidences in accordance with DR 4-101.
 
Code Provisions:
DR 2-11 0(B)(2)
DR 2-103(B)
DR 4-101
DR 5-101(A)
DR 5-105 (A), (C)
DR 5-107 (A)(I),(2)
DR 5-107(B)
Model Rule, 1.7, Comment 13
EC 2-21
EC 5-1
EC 5-2
EC 5-14
EC 5-21
EC5-22
EC5-23
 
Facts Presented:
The inquiring attorney has stated that in disputes over the placement of students in what is characterized as "appropriate" schools, certain provisions of the State Education Law provide for the payment of attorneys fees by the school district if the child and parents substantiaHYprevail at an impartial hearing. However, if the school district settles the dispute before the hearing, attorneys fees will not necessarily be part of the settlement and, under the statutory provisions, if a settlement is rejected by the child and parents before a hearing, and the child and parents do not obtain an award substantially more than was presented in settlement, attorneys fees are not paid. According to the inquiring attorney, the effect of these fee provisions is that plaintiffs in such actions who cannot afford to pay an attorney usually cannot find an attorney to represent them. In recognition of this situation and to accommodate that problem, a private school has solicited and agreed to pay an attorney to represent students and their parents in disputes with local school districts over placement of students in appropriate schools. However, in a given case, an appropriate school placement for the child may turn out to be the school that is paying the fees or a school other than the private school which is paying the attorney's fees.
 
Inquiry:
Mayan attorney accept payment offees from a private school to represent parents and students in a dispute with local school districts over the placement of students in appropriate schools where it is possible that the clients' interests may require the attorney to advocate for the placement of clients in schools other than the private school paying the attorney's fees?
 
Determination:
Yes, provided the attorney in the first instance determines that a disinterested lawyer would believe that the representation of the client will not be adversely affected and that the attorney can competently represent the clients' interests, and : (i) the attorney makes full disclosure to the client of the nature and extent of the relationship, financial and otherwise, between the attorney and the soliciting private school, as well as the implications of the lawyer's interest; (ii) to the extent there is dual representation of both the private school and the student and parents, full disclosure is made of the implications of the simultaneous representation and the advantages and risks involved; (iii) the client consents to the attorney receiving payment from the soliciting school; (iv) nothing of value is given by the attorney to the soliciting school; (v) the attorney does not permit the soliciting school to affect, direct or regulate his or her professional judgment; and (vi) the attorney does not compromise his or her duty to maintain the student and parent clients' confidences.
 
Analysis
What is at issue here, is the ability of an attorney to accept payment from a third party and to represent multiple clients that could potentially have differing interests at some point in time in the proceeding, where the private school is paying for the fees of the student and parents, or, alternatively, for the attorney to represent a client (the parents and student) whose interests may diverge from that of the third-party payer (the private school) where the attorney's exercise of independent judgment may be affected by his or her own financial and business interests by accommodating the payer in order to maintain a steady source of clients.

In making an analysis, several provisions of the Code of Professional Responsibility are implicated as follows:

DR 5-101 Conflicts of Interest - Lawyer's Own Interests

A. A lawyer shall not accept or continue employment if the exercise of independent professional judgment on behalf of a client will be or reasonably may be affected by the lawyer's own financial, business, property or personal interests, unless a disinterested lawyer would believe that the representation ofthe client will not be adversely affected thereby and the client consents to the representation after full disclosure of the implications of the lawyer's interest.

DR 5-105(A) Conflicts ofInterest; Simultaneous Representation

A. A lawyer shall decline proffered employment if the exercise of independent professional judgment in behalf of a client will be or is likely to be adversely affected by the acceptance of the proffered employment, or if it would be likely to involve the lawyer in representing differing interests, except to the extent permitted under DR 5-105 (C).

B. A lawyer shall not continue multiple employment if the exercise of independent professional judgment in behalf of a client will be or is likely to be adversely affected by the lawyer's representation of another client, or if it would be likely to involve the lawyer in representing differing interests, except to the extent permitted under DR 5-105 (C).

C. In the situations covered by DR 5-105 (A) and (B), a lawyer may represent multiple clients if a disinterested lawyer would believe that the lawyer can competently represent the interest of each and if each consents to the representation after full disclosure of the implications of the simultaneous representation and the advantages and risks involved.

Moreover, with respect to the fees incurred for a client but paid by another, the attorney must not allow his or her judgment to be influenced, as mandated by DR 5-107 that provides:

DR 5-107 Avoiding Influence by Others than the Client

A. Except with consent of the client after full disclosure a lawyer shall not:

1. Accept compensation for legal services from one other than the client.
2. Accept from one other than the client anything of value related to his or her representation of or employment by the client.

B. Unless authorized by law, a lawyer shall not permit a person who recommends, employs or pays the lawyer to render legal services for another to direct or regulate his or her professional judgment in rendering such legal services, or to cause the lawyer to compromise the lawyer's duty to maintain the confidence and secrets of the client under DR 4-101.

The relevant Ethical Considerations provide additional guidance and reinforce these Disciplinary Rules. A lawyer's professional judgment should be "free of compromising influence and loyalties" (EC5-1), and a lawyer should not accept employment if the lawyer's personal interests "will, or there is a reasonable probability that they will," affect adversely the advice given to the client (EC5-2). A lawyer also should not accept "anything of value from someone other than the client "without the knowledge and consent of the client after full disclosure" (EC2-21), and the professional judgment of the lawyer should be exercised "solely for the benefit of the client" and "free of compromising influences and loyalties." (EC5-I). See also EC5-14 and EC5-23. Finally, EC5-22 cautions that, where compensation is from a source other than the client, "the lawyer may feel a sense of responsibility to someone other than the client."

Additionally, while not adopted in this state, ABA Model Rule 1.7 (as amended in 2002) provides further guidance with respect to the lawyer's representation of differing interests:

RULE 1.7 CONFLICT OF INTEREST: CURRENT CLIENTS

(a) Except as provided in paragraph (b), a lawyer shall not represent a client if the representation involves a concurrent conflict of interest. A concurrent conflict of interest exists if:

          ....

(2) there is a significant risk that the representation of one or more clients will be materially limited by the lawyer's responsibilities to another client, a former client or a third person or by a personal interest ofthe lawyer.

(b) Notwithstanding the existence ofa concurrent conflict of interest under paragraph (a), a lawyer may represent a client if:

(1) the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client;

(2) the representation is not prohibited by law;

(3) the representation does not involve the assertion of a claim by one client against another client represented by the lawyer in the same litigation or other proceeding before a tribunal; and

(4) each affected client gives informed consent, confirmed in writing.

Especially instructive is Comment [13] to this rule that states:

Interest of Person Paying for a Lawyer's Service

[13] A lawyer may be paid from a source other than the client, including a co-client, if the client is informed of that fact and consents and the arrangement does not compromise the lawyer's duty ofloyalty to the client. See Rule I.8(f). If acceptance ofthe payment from any other source presents a significant risk that the lawyer's representation of the client will be materially limited by the lawyer's own interest in accommodating the person paying the lawyer's fee or by the lawyer's responsibilities to a payer who is also a co-client, then the lawyer must comply with the requirements of paragraph (b) before accepting the representation, including determining whether the conflict is consentable and, if so, that the client has adequate information about the material risks of the representation.

Previously, this Committee had occasion in other factual settings to consider issues closely related to that involved here. In Nassau County Bar Op. 94-7 (1994), we recognized the permissible acceptance by an attorney of the payment of fees from one other than the client. In that situation, the Committee concluded that the Code of Professional Responsibility permitted a lawyer in a criminal case to accept payment from a defendant's sister, provided the attorney adhered to the mandates of DR 5-107(A) and (B), in that the client consents after full disclosure and the attorney exercises his or her independent professional judgment solely for the benefit ofthe client. In Nassau County Bar Op. 98-13 (1998), the Committee concluded that an attorney, on a list of attorneys maintained by a home builder for referral to purchasers, may represent purchasers of homes sold by the builder where the builder referred the attorney to the purchaser and where the builder paid the attorney's fees, provided the attorney complied with DR 5-107. In reaching its conclusion, the Committee emphasized that the attorney must make full disclosure of the relationship with the builder to the client, obtain the client's consent, and not permit the builder "to direct or regulate" the attorney's professional judgment in rendering services to the client. And in Nassau County Bar Op. 01-05 (2001), the Committee placed particular emphasis on the lawyer's ability "to represent the interests of the client irrespective of the source of payment of the lawyer's fees."

On the other hand, this Committee determined in Nassau County Bar Op. 97-11 (1997) that an attorney could not participate in a "Make a Will" fund-raising program for the benefit of a non-profit organization where the client would pay a fee directly to the sponsoring organization. In addition to being concerned that such a program violated DR 2-1 03(B) (which prohibits a lawyer from giving anything of value to a third party for recommending the lawyer's employment), the Committee also expressed concern that the lawyer "might be reluctant to seem disloyal to the fundraising organization by recommending against a gift to the organization, even if advising against such a gift would be in the best interest of the testator."

Other bar associations have considered arrangements between attorneys and thirdparty fee payers and determined that under the circumstances there presented, the attorney may not accept or continue in the representation. In N.Y. State Bar Op. 694 (1997), that Committee determined that an attorney may not participate in a program operated by a real estate broker which offered prospective home purchasers reduced closing costs if the purchasers used an attorney selected by the real estate broker to represent both the lender and the purchaser. In reaching its conclusion, that Committee determined that the attorney has a conflict of interest under DR 5-101 (A) which could not be cured by the client's consent, cited the attorney's "strong interest" in the success ofthe broker, and concluded that "the personal financial incentive for the attorney to use his or her influence over the purchaser to secure an enforceable contract of sale and to close the transaction is sufficiently great that it is not at all obvious that the attorney can adequately represent the interests ofthe purchaser and the Lender as well." Similarly, Suffolk County Bar Op. 99-1 (1999) concluded that an attorney's placement on an "Attorney List" provided by a company and given to prospective clients contemplating entering into transactions with the providing company, violated DR 5-101 (A) because economic pressures "may arise" if the attorney "becomes the beneficiary of a sizeable amount of client referrals" which might affect the attorney's "ability to exercise independent judgment" on behalf of his or her clients. See also N.Y. County Lawyers' Op. 729 (2000)(attorney may represent witness even though his or her fee is to be paid by someone other than the client provided the attorney exercises his professional judgment solely for the benefit of his client; but if the "lawyer's connections to or relationship with" the referring party "will affect adversely" the advise to be given to his or her client, the lawyer may not undertake the representation).

In the factual presentation with which the inquiring attorney is faced, two outcomes are foreseeable. In the first, the private school paying the attorney's fees will be the most "appropriate" school for the student, and placement in that school plainly will be in the best interest of the student and the parents. This is the easy case. In these circumstances, the interests of the client and the "payer" private school are aligned. There is no conflict of interest and the attorney may undertake the representation, provided there is full disclosure to the client of the relationship between the attorney and the private school, the client consents to the payment relationship, the attorney exercises independent professional judgment on behalf of the client and without interference from the payer private school, and client confidences are preserved in accordance with DR 4-10 I.

But what happens in those circumstances when, as the inquiring attorney recognizes, the best interests of the student and his or her parents diverge from that of the private school and require the attorney to advocate for placement in a school other than the school paying the attorney's legal fees? If this were to occur, it would seem to place the attorney in an inherently conflicting position. The school which is paying the attorney's fees stands to gain economically only if the student is placed in its school - but the bests interests of the student may require the attorney to advocate for placement in a different school that is more appropriate for the student. It may be prudent for the attorney to withdraw from the engagement at that time to avoid later accusations that he or she was less than zealous in advocating for the student. However, consistent with the reasoning in Nassau County Bar Op. 98-13 (1998), this Committee is not prepared to adopt a per se rule that would always prohibit the attorney from undertaking a representation simply because the fee payer's interests could theoretically conflict with the client's interests.

As we stated in Opinion 01-05 (2001) "Of paramount importance is the lawyer's ability to represent the interest of the client irrespective of the source of payment of the lawyer's fees." Whether it is the attorney's exercise of independent professional judgment that may be affected by personal and financial interests which might cause the attorney to accommodate the interests of the person paying the fee, or because of differing interests between multiple clients or otherwise I , the test for the attorney to accept or continue in the employment is that of the disinterested lawyer. On that basis:

"the lawyer must determine whether it is 'obvious' in view of the differing interests, again viewed through the eyes of a 'disinterested lawyer' that the lawyer can competently represent the interests of each. Only if the answer to this is in the affirmative maya lawyer continue the dual representations and even then, only if each client consents after full disclosure."

Nassau County Bar Op. 01-05, citing N.Y. County 707 (1995). With this having been said, we caution that since the possibility that the payer's interests and the client's interests may eventually differ is reasonably foreseeable at the inception of the representation, it would behoove the attorney to consider with the client, in advance, the prejudice the client might suffer if the potential differences tum into actual differences and the attorney is required to withdraw to avoid violating a Disciplinary Rule - see DR 2-11O(B)(2) (mandating withdrawal where the lawyer's "continued employment will result in violation of a Disciplinary Rule").

accept the representation of the student and parents as clients with payment of the fees by the soliciting private school, provided that the attorney determines in the first instance, pursuant to the disinterested lawyer test enunciated in DR 5-101 (and DR 5-105 (C) if there is a dual representation), that the representation of the client will not be adversely affected and that he or she can competently represent the interests of the clients, with compliance of all of the following: (i) the attorney makes full disclosure to the client of the nature and extent ofthe relationship, financial and otherwise, between the attorney and the soliciting private school, as well as the implications of the lawyer's interests; (ii) to the extent there is dual representation of both the private school and the students and parents, full disclosure is made of the implications of the simultaneous representation and the advantages and risks involved; (iii) the client consents to payment of the attorney's fees by the soliciting school; (iv) nothing of value is given by the attorney to the soliciting school; (v) the attorney exercises independent professional judgment and does not permit the payer school to affect, direct or regulate his or her professional judgment; and (vi) the attorney maintains the student and parent clients' confidences in accord with DR 4-101.

[Approved by the Executive Committee on January 14, 2003; Approved by the Full Committee, subject to Executive Committee editing, on January 22,2003; Edited and approved by the Executive Committee on March 11,2003]

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1 According to 22 NYCRR § 1200.1 (a) the definition of differing interests "include every interest that will adversely affect either the judgment or the loyalty to a client, whether it be a conflicting, inconsistent, diverse, or other interest".

2 Professor Roy Simon writes in his commentary to DR 5-101(A) that "[t]he 'disinterested lawyer' test was added to DR 5-101 in 1999 to replace the old 'obvious' test which was hard to understand ..... " He also says that "[i]n practice, the old 'obvious' test may not significantly differ from the new 'disinterested lawyer' test, but adding the new test to the text of the rule is a service to all lawyers." Roy Simon, Simon's New York Code of Professional Responsibility Annotated (2003 Edition) at 454.

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