Ethics Advisory Opinion 14-03

Utah State Bar
Ethics Advisory Opinion Committee

Opinion Number 14-03

Issued April 22, 2014


1.         Do the Utah Rules of Professional Conduct prohibit referral agreements between two attorneys that require one of the attorneys (the “Referring Attorney”) to refer to the other (the “Receiving Attorney”) all clients that have a certain specified type of products liability claim?


2.         The Committee concludes that an agreement between two attorneys which requires the Referring Attorney to refer to the Receiving Attorney all clients that have a certain specified type of claim may likely violate various provisions of the Utah Rules of Professional Conduct (the “Rules”).


3.         The Referring Attorney, licensed to practice in the State of Utah, and the Receiving Attorney, licensed to practice elsewhere, enter into an agreement governed by Utah law (the “Agreement”) to jointly pursue certain kinds of products liability claims (the “Claims”) of individuals located in the State of Utah.  The Agreement provides in relevant part:

  1. Referring Attorney will generate the cases by placing advertising and/or arranging for medical testing and diagnosis of prospective clients and would be entitled to reimbursement from the Receiving Attorney for the costs of doing so.
  2. In return for the Receiving Attorney’s agreement to pay those expenses, the Referring Attorney would be required to exclusively refer to the Receiving Attorney all clients having such Claims who contact the Referring Attorney.  The Referring Attorney would not be allowed to represent such clients himself or to refer such clients to any other attorney.
  3. The Referring Attorney will place advertising, accept incoming calls from potential clients, obtain medical records from potential clients, arrange for medical testing, and perform certain other related tasks, before turning the clients over to Receiving Attorney for further action.
  4. The Receiving Attorney will decide in his sole discretion the venue, jurisdiction, timing, counts, and content of complaints or petitions, joinder of plaintiffs and/or defendants, and any other strategic issues relating to the Claims.
  5. The Referring Attorney will ask clients to sign new fee agreements directly with the Receiving Attorney, identifying the Receiving Attorney as the clients’ attorney, will inform the clients of the division of fees between the two attorneys, and will inform the clients of any other matters deemed by either attorney to be required by the Rules of Professional Conduct.
  6. The Referring Attorney will not be required to perform any services except those specified in the Agreement or required by the Utah Rules or by any other ethical rules governing the Claims or any resulting cases.
  7. The Receiving Attorney will pay the Referring Attorney specified portions of the fees recovered by the Receiving Attorney for the clients on their Claims.



4.         The fee sharing agreement between the two attorneys is governed by Rule 1.5, which provides that there may be a division of fees between lawyers in different firms, but on the following condition:

(e)(1) the division is in proportion to the services performed by each lawyer or each lawyer assumes joint responsibility for the representation;

(e)(2) the client agrees to the arrangement, including the share each lawyer will receive, and the agreement is confirmed in writing; and

(e)(3) the total fee is reasonable.

Ethics Advisory Opinion 14-02

Utah State Bar
Ethics Advisory Opinion Committee 

Opinion Number 14-02 

Issued January 14, 2014


1.         Is an Agreement between a non-lawyer Marketer and a Law Firm where the Marketer conducts telephone marketing to solicit and refer clients to Law Firm in violation of the Rules of Professional Conduct where the payment to the Marketer matches a percentage of the fees paid to the Law Firm by the clients referred to the Law Firm by the Marketer?

2.         If the Agreement is in violation of the Rules of Professional Conduct must the Attorney retained by Marketer to enforce the Agreement inform the appropriate professional authority pursuant to Rule 8.3(a)?


3.         The Agreement, which requires payment to the non-lawyer Marketer to be based on a percentage of the fees paid to the Law Firm by the clients referred to the Law Firm by the Marketer, violates Rule 7.2(b) and Rule 5.4 of the Rules of Professional Conduct.

4.         The question of whether it should be apparent to the Attorney retained by Marketer to enforce the Agreement, that the Agreement violates Rule 7.2(b) and/or Rule 5.4 of the Rules of Professional Conduct, in a manner that triggers a duty to inform the appropriate professional authority under Rule 8.3(a), is a fact specific inquiry undertaken by the lawyer presented with a Rule 8.3(a) question.  The Committee expresses no opinion as to whether these specific facts do in fact trigger any obligation of the Attorney under Rule 8.3(a).


5.         A Marketer has an agreement with a Law Firm to conduct telephone marketing to solicit and refer clients to the Law Firm.  Marketer is paid by Law Firm, but Marketer receives payment which matches a percentage of the fees paid to the Law Firm by the clients who retain the Law Firm and were referred to the Law Firm by the Marketer.  If the Law Firm is not paid in full by the clients referred by the Marketer, Law Firm’s payment to Marketer is reduced.  An agency of another State requires the Law Firm to refund a substantial portion of fees paid to the Law Firm by residents of that State.  Law Firms payments to the Marketer were reduced correspondingly.

6.         Marketer then retains an Attorney to enforce payments – without reductions – under the agreement between the Law Firm and the Marketer.


7.         Rule 7.2(b) states that:  “A lawyer shall not give anything of value to a person for recommending the lawyer’s services[.]”  The comments to Rule 7.2 indicate that:  “Lawyers are not permitted to pay others for channeling professional work.”  [Comment 5].  Here, the arrangement between a Law Firm and Marketer violates the plain language of Rule 7.2(b) and it is not readily apparent from the facts of this matter that any exception to the plain language of Rule 7.2(b) is applicable.

8.         The comments to Rule 7.2 recognize the limited exceptions to this prohibition and mimic the language of Rule 7.2(b)(2) in indicating that:  “A lawyer may pay the usual charges of a legal service plan or a lawyer referral service. . . . A lawyer referral service . . . is an organization that holds itself out to the public to provide referrals to lawyers with appropriate experience in the subject matter of the representation.”  [Comment 6].  “At a minimum, Rule 7.2(b) requires that the lawyer referral service be available to the public and that it provide referrals to multiple lawyers and law firms, not to a single lawyer or a single law firm.”  [Opinion 07-01].  Here, there is no indication that the Marketer is in fact a “lawyer referral service.”[1]

Ethics Advisory Opinion 13-05

Utah State Bar

 Ethics Advisory Opinion Committee

Opinion Number 13-05

 Issued September 10, 2013



1.         To what extent may an attorney participate in an “on-site” fee/retainer funding program to obtain and finance attorney retainer or litigation funds?



2.         A lawyer may not participate in an “on-site” fee/retainer funding program, under the circumstances set forth herein, as such would violate the provisions of Rules of Professional Conduct 1.7(a) (Conflict of Interest: Current Clients), Rule 1.8(a) (Acquire a pecuniary interest adverse to the client).  The lawyer may, however, obtain a waiver of the conflict by complying with the terms of Rules 1.7(b) and 1.8(a), including making full disclosure and obtaining “informed consent” confirmed in writing.  Adequate measures must also be taken to safeguard the lawyer’s independent judgment under Rule 5.4(c) (A third party may not direct or regulate the lawyer’s professional judgment.)



3.         A financing company, “Instant Legal Fee Funding” (the “finance company”), offers a same as cash funding program for law firm retainers and fees.  The finance company provides the physical equipment necessary to carry out the mechanics of the arrangement on site at the lawyer’s office.  To initiate the process at the lawyer’s office, the client swipes an item of personal financial identification through the finance company’s identifying device.  The finance company also provides the law firm with an imaging machine that scans the client’s personal check in order to facilitate the finance company’s collection of periodic loan repayments directly from the client’s banking account.

4.         The finance company then may qualify the client for a loan of up to $5000.  The finance company charges a transaction fee ranging from 9.95% interest to 28.95% depending on risk factors it considers, including the repayment period.  If the client qualifies, the law firm provides the client with the finance company’s contractual agreement to repay the finance company.  The finance company has no recourse against the lawyer if the client does not pay the money.



5.         Rule 1.7(a)(2) requires an attorney to refrain from representation if “There is a significant risk that the representation of one or more clients will be materially limited by the lawyer’s responsibilities to …a third person or by a personal interest of the lawyer.”  Comment 10 to that section provides:

The lawyer’s own interests should not be permitted to have an adverse effect on representation of a client…In addition, a lawyer may not allow related business interests to affect representation, for example, referring clients to an enterprise in which the lawyer has an undisclosed interest.

6.         Because of the necessarily close relationship which must exist between the finance company and the lawyer, it is apparent that a conflict exists under 1.7(a) which may create a “significant risk” that the lawyer’s representation of the client would be “materially limited.” Additionally, Rule 1.8(a) prohibits a business transaction or other pecuniary interests adverse to a client.[1]  For the reasons set forth herein, the arrangement contemplated is sufficiently adverse to the client so that a conflict appears to exist under 1.8(a) as well.

7.         Under both rules, the material question concerns the involvement of the attorney in both the attorney obtaining the retainer by this method and the finance company’s ability to collect the retainer fee back from the client.  We presume from the stated facts that the attorney has no direct interest in the finance company.  That, however, does not resolve all issues.  The question that must be answered is whether the financial arrangement, albeit indirect, between the lawyer and the finance company, may adversely affect the representation of the client.  Although, the finance company has no recourse against the lawyer if a client defaults on a loan, it is only natural that the lawyer will want to keep the finance company happy in order to assure perpetuation of the relationship between the lawyer and finance company.  The lawyer will be under pressure to assure that the finance company is repaid.  The lawyer may very well feel obliged in litigation to make certain the client achieves a recovery, even if it requires settlement at a lesser amount than would otherwise be accomplished, in order to avoid the risk that the finance company would go unpaid.  Thus, the lawyer obviously has a financial and personal interest adverse to the client in continuing the advancement of fees program solely for the benefit of the lawyer in future cases.  This places both Rules 1.7(b) and 1.8(a) in issue.

Ethics Advisory Opinion No. 12-03


Opinion No. 12-03
Issued December 13, 2012


1. May a community association management company profit from legal work performed by the company’s in-house attorney?


2. A community association management company’s profiting from legal work performed by the company’s in-house attorney constitutes the improper sharing of fees with a non-lawyer in violation of Utah Rule of Professional Conduct 5.4(a).[1]


3. An attorney is employed as in-house counsel for a community association management company. Although the company does not profit from the legal work the attorney performs, the company believes that other community association management companies routinely profit from the legal work performed by their respective in-house attorneys. Specifically, these companies collect a fee from their clients for legal services at a rate that is higher than the cost the companies incur in employing their corporate attorneys. The issue addressed in this Opinion stems from this practice.


4. Rule 5.4(a) of the Utah Rules of Professional Conduct, “Professional Independence of a Lawyer,” sets out the basic principle that applies to the issue presented. It reads in relevant part: “[a] lawyer or law firm shall not share legal fees with a nonlawyer . . . .”

5. As its title suggests, the purpose of Rule 5.4 is to protect the professional independence of lawyers and prevent problems that might otherwise occur when non-lawyers, such as corporate employers, assume positions of authority in business arrangements with lawyers. See ABA Comm. on Prof’l Ethics & Responsibility, Formal Op. 392 (1995) [hereafter ABA Op.].

6. These arrangements cause particular concern because non-lawyers are not bound by the ethical mandates regarding independence, conflicts of interest, confidentiality, fees, and other important provisions that govern lawyers’ conduct. See id. Without these constraints, non-lawyers are free to pursue their own interests, which may be disadvantageous and detrimental to their clients’ best interests. See Emmons, Williams, Mires & Leech v. State Bar, 86 Cal.Rptr. 367, 372 (1970) (“[F]ee splitting between lawyer and layman . . . poses the possibility of control by the lay person, interested in his own profit, rather than the client’s fate . . . .”).

7. For example, in the situation presented to the Committee, some community association management companies have been establishing and charging clients fees for legal services provided by in-house counsel. Although the Committee has not been presented with any evidence suggesting that these fees are excessive, there is nothing to prevent these companies from setting unreasonable rates—something an attorney could not do under Utah Rule of Professional Conduct 1.5. This causes special concern because these companies are, by their nature, highly motivated by profits and concerned with the “bottom line.” SeeABA Op.

8. Rule 5.4(a) eliminates this and other problems by preventing non-lawyer employers from viewing and using their legal departments as profit centers. This conclusion is significantly bolstered by the opinions of several other ethics committees who have considered this issue. Indeed, there appears to be a consensus that non-lawyer employers may not profit from the legal work performed by their in-house or corporate attorneys. See e.g., Va. State Bar Standing Comm. on Legal Ethics, Op. 1838 (2007) (“[C]orporate counsel cannot be used to generate profits for an employer, as that would be considered fee splitting with a non-lawyer and a violation of Rule 5.4(a).”); State Bar of Ariz. Comm. on the Rules of Prof’l Conduct, Op. 99-12 (1999) (“A lawyer employed by an architectural firm may not provide legal services to the firm’s clients, where the firm pays the attorney a salary but charges the clients an hourly rate for the lawyer’s services, because of . . . impermissible fee-sharing with non-lawyers.”); ABA Comm. on Prof’l Ethics & Responsibility, Formal Op. 392 (1995) (“If a corporate in-house lawyer provides services to third persons for a fee, the lawyer violates Model Rule 5.4(a) if the lawyer turns over to the corporation any portion of the fee beyond the cost to the corporation of the services provided.”); Tex. Prof’l Ethics Comm., Op. 490 (1993) (“A lawyer who is a salaried employee of a bank may not under the Texas Disciplinary Rules of Professional Conduct participate in the preparation of loan application documents for bank customers if the bank charges the customers a specific fee for the lawyer’s services with respect to the loan application documents.”); Ala. State Bar Office of Gen. Counsel, Op. 1992-13 (1992) (“A fee-splitting problem under Rule 5.4 exists only when a non-lawyer agency makes a profit from the rendition of legal services by one of its salaried lawyers.”); Ill. State Bar Ass’n, Op. 90-20 (1991) (“In this case, the consumer-client would pay the institution for the preparation of the trust. The institution would then keep a portion of that fee and provide payment to the attorney. This sharing of legal fees violates Rule 5.4(a).”); N.Y. State Bar Ass’n Comm. on Prof’l Ethics, Op. 618 (1991) (“[T]he evil arises only when a lay agency earns a profit from the rendition of legal services by its salaried employee.”); Phila. Bar Ass’n Prof’l Guidance Comm., Op. 88-26 (1988) (“[E]xtraordinary care must be taken to insure that [an employer] does not receive more compensation from the client for legal services than is paid to the lawyer.”); Mass. Bar Ass’n Ethics Comm., Op. 84-1 (1984) (“[I]t would be unethical fee-splitting for a non-lawyer employer of an attorney to bill a third party more for that attorney’s services than the actual cost of such services to the employer . . . .”); Dallas Bar Ass’n Legal Ethics Comm., Op. 1982-3 (1982) (“An attorney is considered to be sharing legal fees with a nonlawyer or forming a partnership with a nonlawyer for the practice of law if the employing corporation reaps any benefit, reward or profit from the attorney’s provision of legal services to third parties.”).


Ethics Advisory Opinion No. 06-03

Issued December 8, 2006
1. Issue:
Under what circumstances may a Utah lawyer be personally involved in a lending transaction to finance a client’s cause of action or obtain funds for the payment of the lawyer’s legal fees and expenses?

2. Conclusion: (a) A lawyer may not directly or indirectly represent a lender to the lawyer’s client in connection with a loan that is made for the purpose of enabling the client to pay the lawyer’s fees or costs. (b) A lawyer may not participate in a contingent, non-recourse loan with a third-party lender to finance the costs and expenses of litigation where the terms of the lending arrangement create the potential that the financial risk to the lawyer of the lending arrangement are lessened if the lawyer obtains no recovery for the client.
3. The Committee has received two separate requests regarding the propriety of financial transactions between Utah lawyers and third-party lending sources. Although the factual backgrounds are substantially different, they both raise similar questions concerning lawsuit funding for clients who may not be in a position to pay a lawyer’s ongoing fees or costs up front.
4. Background for EAOC File No. R0206: In the first situation, a Utah lawyer (“Lawyer”) has clients who cannot pay Lawyer’s retainer or flat fee because they do not have sufficient available cash on hand, although they are employed and could repay a loan over time. Lawyer proposes to organize and manage a consumer money-lending company (“Affiliated Lending”) as a limited liability company that would be capitalized and owned by Lawyer’s relatives. Affiliated Lending would be a manager-managed limited liability company (“LLC”), and Lawyer would be the sole manager of the LLC. Lawyer would review loan applications, initiate and service loans for Affiliated Lending. Lawyer also would receive compensation from Affiliated Lending for these services. Affiliated Lending would consider and make loans to the public, as well as to Lawyer’s clients. If the client were subsequently to default on a loan, any judicial collection action would be referred by Affiliated Lending (presumably acting through its manager-lawyer) to a third-party collection agency. Lawyer would never represent Affiliated Lending in pursuing a collection action against one of Lawyer’s clients.1
5. In referring clients to Affiliated Lending, Lawyer would explain potential conflicts of interest to the client in a written disclosure. This disclosure would explain that Affiliated Lending is owned by Lawyer’s relatives, that Lawyer manages Affiliated Lending, that the client has the right to have the arrangement reviewed by independent counsel, that there would be severe repercussions to the client if there is a default on a loan, and that a potential conflict could arise between Lawyer and the client if the client did default. The client would be required to sign this written disclosure before applying for a loan from Affiliated Lending. The loans would be made at or below market rates for comparable high risk, short-term loans.2
6. Analysis: The proposed lending-fee arrangement here places Lawyer in a dual relationship with conflicting loyalties. On the one hand, Lawyer owes a duty of loyalty to the client, while, at the same time, Lawyer owes a duty of loyalty to Affiliated Lending as its sole, managing employee. The relationship between Affiliated Lending and the client is adverse: Affiliated Lending is a creditor of the client. As such, Lawyer’s duties to both the client and Affiliated Lending are in conflict. More importantly, Lawyer’s dual loyalties make it difficult, if not impossible, for Lawyer to provide objective, unbiased advice and representation to the client where, by doing so, the interests of Affiliated Lending might be impaired, or the personal interests of Lawyer in Affiliated Lending might be adversely affected. (more…)

Ethics Advisory Opinion No. 04-01

March 29, 2004
1 Issue:
What action, if any, may a lawyer for an employer ethically undertake on behalf of a vanished former employee who, along with the employer, has been named as a defendant in an action arising when the person was an employee?

2 Answer: Under certain narrowly prescribed conditions, an employer’s lawyer may ethically take limited action to protect the interests of the vanished former employee, provided the lack of direct contact with that defendant is brought to the attention of the relevant tribunal.
3 Facts: Plaintiff filed suit naming a company and its former employee as defendants. The employer concedes that the former employee was acting in the course and scope of his employment and has asked the company’s lawyers to represent the missing defendant. Absence of a formal answer to the complaint may result in a default judgment being entered against the absent former employee. We have no information about the reasons for the employee’s absence, but we assume that a reasonable effort has been made to locate the person and determine the reason for the absence. We also assume that, at this early stage of the proceeding, the interests of the employer and former employee are not in conflict.1The lawyer requesting this opinion also indicated that the employer has liability insurance that covers the incident giving rise to the lawsuit.2The company has requested that the lawyer represent the missing ex-employee.
4 Analysis: This case presents two fundamental, but competing ethical principles: On the one hand, a basic ingredient of the representation of a client is that, under Rule 1.4, the lawyer communicate with the client, keep the client informed about the status of the case, and provide sufficient information to the client that he may make informed decision.3On the other hand, lawyers have a general obligation to advance the administration of justice.4
5 A formal application of Rule 1.4, without reference to any other parts of the Rules of Professional Conduct, would produce the following syllogism: The lawyer hasn’t communicated with the absent ex-employee and cannot formally satisfy the requirements of Rule 1.4; a violation of Rule 1.4 constitutes an ethical transgression; ergo, the lawyer may not ethically represent the ex-employee. Yet, we find this result inconsistent with the greater public policy of providing safeguards for an individual’s rights to the extent practicable and when it can be done without infringing on the rights of others. After all, the Utah Rules of Professional Conduct are “rules of reason . . . [that] should be interpreted with reference to the purpose of legal representation.”5
6 Further, before a mechanical application of Rule 1.4 to the absent defendant leads us to conclude that lack of initial attorney-client communication mandates no representation, we consider the intent of Rule 1.4. It is constructed around the normal relationship of an attorney-client contact already having been established and provides the guidelines that require a lawyer to keep that client properly informed “to the extent the client is willing and able” to be so informed.6Here, for reasons that are not known—and perhaps not contemplated by the drafters and adopters of the Rules—the (prospective) client is not “willing and able.” Without further analysis, we, therefore, decline to conclude that Rule 1.4 prevents all forms of representation of the missing employee.

Ethics Advisory Opinion No. 02-01

Issued February 11, 2002
1 Issue:
Do the Utah Rules of Professional Conduct preclude a Utah lawyer from financing litigation costs through a loan from a third-party lending institution, if (a) the lawyer is obligated to repay the loan and (b) the client, by separate agreement with the lawyer, is obligated to reimburse the lawyer for such costs?

2 Conclusion: The Utah Rules of Professional Conduct do not preclude such litigation-financing arrangements, provided the lawyer discloses to the client the terms and conditions of the loan, the client consents, and the lawyer, but not the client, is obligor on the loan.

3 Background: A Utah State Bar lawyer seeks an advisory opinion regarding the ethical propriety under the Utah Rules of Professional Conduct of participating in a “recourse” loan program,1by which the lawyer would finance the costs of litigation for his client through a third-party lending institution offering loans to lawyers for litigation expenses.
The primary features of a typical program include:
The program allows a lawyer, often a personal-injury lawyer seeking to finance a contingent-fee case, to raise the money at low cost to be invested in litigation expenses. This is accomplished through a low-interest, recourse loan to the lawyer or law firm who uses the potential fees from the case as loan collateral.
Under the terms of the loan, the lending institution advances reimbursable litigation costs, as defined in the loan agreement, to the lawyer. The brochure of one such lending institution claims it advances 95% to 100% of the lawyer’s case costs.
The lawyer pays monthly interest charges on funds advanced under the loan, and remits the loan principal upon settlement or resolution of the case. By a separate agreement with the client, the lawyer ultimately recoups litigation expenses and interest charges from the client if the case is successful.
If the case is abandoned or lost, the lawyer is obligated to repay advanced costs and expenses and any outstanding interest to the lender. The lawyer may elect not to receive funding from the lending institution on a particular case if the potential for success is not deemed high enough. The client remains obligated to repay the lawyer for such advanced costs under a separate agreement between the lawyer and the client.
The lending institution recommends the lawyer add language to the client fee agreement that discloses the case-financing transaction. A sample client letter discloses, “If no recovery is obtained, you will be obligated only for disbursements and charges as described below.” Such disbursements include photocopying, messenger service, computerized research, videotape recordings, travel expenses, experts, investigators, etc. In disclosing the financing arrangement, the letter states, “You acknowledge and agree that we [the law firm] may borrow funds from time to time to pay certain of the costs referred to above and agree that, in addition to reimbursing us for the amount of such costs, you also will reimburse us for any interest charges and related expenses we incur in connection with such borrowings.”
4 Variations of such financing arrangements are possible, but the essential features for purposes of this opinion are that the lawyer is obligated to the lending institution to repay the loan principal, and the client is obligated to reimburse the lawyer for advanced litigation costs, plus any applicable interest.

Ethics Advisory Opinion No. 02-03

(Issued February 27, 2002)
1 Issue:
What are the ethical obligations of an insurance defense lawyer with respect to insurance company guidelines and flat-fee arrangements?

2 Opinion: An insurance defense lawyer’s agreement to abide by insurance company guidelines or to perform insurance defense work for a flat fee is not per se unethical. The ethical implications of insurance company guidelines must be evaluated on a case by case basis. An insurance defense lawyer must not permit compliance with guidelines and other directives of an insurer relating to the lawyer’s services to impair materially the lawyer’s independent professional judgment in representing an insured. If compliance with the guidelines will be inconsistent with the lawyer’s professional obligations, and if the insurer is unwilling to modify the guidelines, the lawyer must not undertake the representation. Flat-fee arrangements for insurance defense cases are unethical if they would induce the lawyer improperly to curtail services for the client or perform them in any way contrary to the client’s interests. Obligations of lawyers under the Utah Rules of Professional Conduct, including the duty zealously to represent the insured, cannot be diminished or modified by agreement.
Insurance Company Guidelines
3 Opinion Request Concerning Insurers’ Guidelines. The Ethics Advisory Opinion Committee has received a request for an ethics advisory opinion concerning insurance company guidelines for counsel who are employed to defend litigation brought by a third party against an insured. The requestors state that insurance companies doing business in Utah have incorporated in their defense-counsel retainer agreements certain billing protocols or guidelines governing attorneys’ procedures and payments that raise ethical issues.
4 Prior Opinions. Although issues pertaining to insurance company guidelines have been the subject of considerable discussion elsewhere,1 they have not been addressed directly by this Committee.2 When ethical concerns about insurance company guidelines have been raised in ethics opinions from other jurisdictions, the opinions are generally consistent with the summary set forth in ABA Opinion No. 01-421:
A lawyer must not permit compliance with “guidelines” and other directives of an insurer relating to the lawyer’s services to impair materially the lawyer’s independent professional judgment in representing an insured.
Although most of the ethics opinions on insurance company guidelines take a general approach, a few—while acknowledging that certain guidelines may be appropriate—have taken issue with particular guidelines. For purposes of illustration, portions of selected ethics opinions from other jurisdictions are set forth in Appendix A. We do not intend to imply agreement with the conclusions of these opinions. Rather, we wish to describe more fully the kinds of concerns that have been raised elsewhere, many of which are raised directly in the request before us.
5 Montana Supreme Court Decision. The Montana Supreme Court has issued an opinion that addresses these topics, but only after having determined that the insured is the sole client of the defense lawyer. Under that structure, the court noted that defense counsel (a) does not have a “blank check” to escalate litigation costs, (b) should consult with the insurer, (c) must charge reasonable fees, and (c) can be held accountable for its work. The Montana court then held that “defense counsel in Montana who submit to the requirement of prior approval [obtaining consent of the insurer prior to taking certain actions] violate their duties under the Rules of Professional Conduct to exercise their independent judgment and to give their undivided loyalty to insureds.”3

Ethics Advisory Opinion No. 02-04

Issued March 15, 2002
1 Issue:
May a lawyer, who is also a certified public accountant employed by an accounting firm, contemporaneously conduct from an office at the accounting firm public accounting services as an employee of the accounting firm and a law practice independent from the accounting firm without violating the Utah Rules of Professional Conduct?

2 Opinion: A lawyer who is a certified public accountant and employed by an accounting firm may not contemporaneously practice law and accounting from the offices of the accounting firm without violating Rule 5.4(b) of the Utah Rules of Professional Conduct. Accounting is a “law-related service,” and, when accounting services are provided by an active lawyer, the lawyer is subject to the Utah Rules of Professional Conduct while engaged in either profession. The lawyer is, therefore, prohibited by Rule 5.4(b) from forming a business association with a non-lawyer to provide the accounting services when the lawyer is contemporaneously engaged in the practice of law.
3 Factual Background: A lawyer (“Lawyer”) who is also a certified public accountant (“CPA”) is employed by an accounting firm owned by other CPAs (“Accounting Firm”). Lawyer is an employee of Accounting Firm, but does not have an ownership interest in the firm. Lawyer desires to conduct the professional practices of accounting and law from his office at Accounting Firm. Lawyer will pay Accounting Firm rent for the fair market value of office space, computer and furniture, receptionist and other Accounting Firm resources used by Lawyer in the legal practice, calculated on an hourly basis. Lawyer will develop his own clients, but may accept referrals from CPAs employed by Accounting Firm. Lawyer will directly and separately bill clients for legal services performed, and will not pay any referral fees to Accounting Firm. Lawyer will maintain confidentiality of law client files by maintaining these files separately from the accounting files of Accounting Firm.
4 Analysis: In the Committee’s prior opinions, we have found that, under certain circumstances, a lawyer engaged in a law-related occupation will be subject to the Utah Rules of Professional Conduct while engaged in either occupation.1These opinions are consistent with opinions issued by the American Bar Association prior to its adoption of ABA Model Rule 5.7 in 1994.2
5 Model Rule 5.7 addresses circumstances under which a lawyer who provides “law-related services” is subject to the ABA Rules of Professional Conduct. Under the rule, if the services are not provided in circumstances that (a) are distinct from the lawyer’s provision of legal services to clients, or (b) are provided by a separate entity, but the lawyer fails to take reasonable measures to assure that persons obtaining the law-related services know that the services of the separate entity are not legal services and that the protections of the attorney-client relationship do not exist.3
6 The Utah Supreme Court has not adopted Model Rule 5.7. While the Committee has noted that Model Rule 5.7 is consistent with its analysis in prior opinions,4 the Committee has not endorsed the rule, as the decision to adopt any new rule is exclusively within the purview of the Utah Supreme Court.5

Ethics Advisory Opinion No. 02-07

Issued: September 13, 2002
1 Issue:
Under Rule 5.4 of the Utah Rules of Professional Responsibility, may a Utah lawyer (a) hire a paralegal, not otherwise associated with the lawyer or the lawyer’s firm, as an independent contractor, or (b) compensate an employee paralegal or other firm employee based on a percentage of the lawyer’s fees.
2 Conclusion: Utah lawyers may hire outside paralegals on an independen-contractor basis, provided the paralegal does not control the lawyer’s professional judgment. In addition, if the amounts paid for services are not tied to specific cases, Utah lawyers or law firms may share fees with nonlawyer employees in a compensation plan.
3 Background: A Utah lawyer contemplates hiring outside paralegals and compensating them on a per task basis. The lawyer seeks our opinion on whether such an arrangement complies with the Utah Rules of Professional Responsibility. While the lawyer’s inquiry is limited to hiring outside paralegals, it raises related issues about whether compensation for paralegals and other professionals, either as independent contractors or employees, can be tied to fees the lawyer generates. We take the occasion to resolve both the lawyer’s inquiry and to reiterate and clarify our prior opinions on these issues.
4 Analysis: The plain language of Rule 5.4,1as well as official comments to the Rule, and our opinions interpreting it, stress its underlying rationale: “protect[ion of] the lawyer’s professional independence of judgment” and overriding loyalty to the client against potential conflicts.2The proposed contractual arrangement here is between the lawyer and an outside, independent paralegal. This arrangement does not violate either the letter or spirit of Rule 5.4, assuming the paralegal compensation is totally independent from the lawyer’s relationship with, and compensation from, the client. The same rationale would apply to other third parties the lawyer hires, such as expert witnesses, copy centers, computer specialists, etc.
5 Under Rule 5.4(a), the lawyer in such a relationship would not be sharing legal fees with the non-lawyer paralegal or other third-party professional. Our rationale for this conclusion is the same as that in Opinion 02-01, in which we concluded that a lawyer would not be sharing legal fees with a non-lawyer financing company that underwrote litigation under a “recourse” loan to the lawyer.3The non-lawyer paralegal, as with the financing company in Opinion No. 02-01, has an independent contractual relationship with the lawyer and is paid for work done, no matter the outcome of any legal matter.
6 Succinctly stated, the contemplated lawyer-paralegal relationship is permissible under the Utah Rules of Professional Conduct because the lawyer’s professional judgment is not compromised.
7 The same concept applies to employee-paralegals. Rule 5.4(a) forbids the sharing of legal fees, except in three instances, one of which is the inclusion of a “nonlawyer employee” in a “compensation plan” under Rule 5.4(a)(3). The Rule does not presume to define the boundaries of an acceptable compensation plan. We have previously held, however, that compensation of nonlawyer employees may be based upon a percentage of gross or net income provided: (a) compensation is not tied to specific fees from a particular case; (b) there is nothing in the nature of the arrangement that would tend to impair the independence of the law firm or lawyer; and (c) no other rule of professional conduct is violated.4

Ethics Advisory Opinion No. 00-03

(Approved March 9, 2000)
Issue: May a Utah lawyer who is also a real estate title officer ethically enter into a partnership with or form a small business corporation with a nonlawyer for the purpose of assisting clients in challenging their real estate taxes?

Opinion: No. Even if the proposed activities can also be performed lawfully by nonlawyers, a lawyer may not ethically form a partnership or other business association with a nonlawyer if any of the activities of the partnership consist of the “practice of law.” Nor may a lawyer practice with or in the form of a business organization if a nonlawyer owns an interest in that organization. A lawyer may form a business relationship with a nonlawyer to engage in such activities only if the lawyer withdraws entirely from the active practice of law.
Facts: A lawyer who is currently licensed to practice law in Utah is also licensed as a real estate title officer. He owns a title company and practices law part time. He proposes to form a small business corporation with a nonlawyer to assist clients in challenging their real estate taxes in return for a percentage of any resulting decreases in taxes. Each shareholder would have equal ownership. The corporation would also offer similar services to Utah counties in return for a percentage of any resulting increases in tax revenues. The request suggests that most but not all challenges on behalf of taxpayers would be resolved without an appearance before the applicable tax board or commission. The request claims that nonlawyers may assist taxpayers in proceedings before such tax boards and commissions.1
Analysis: Rule 5.4 imposes limitations on a lawyer’s affiliation with nonlawyers in order “to protect the lawyer’s professional independence of judgment.”2Rule 5.4(b) prohibits a lawyer from “form[ing] a partnership with a nonlawyer if any of the activities of the partnership consist of the practice of law.”3Here, the request proposes equal ownership with a nonlawyer of a small business corporation. That form of affiliation presents, however, no less of a threat to the lawyer’s professional independence of judgment than does a partnership. We conclude, therefore, that Rule 5.4(b)’s ethical prohibition applies to the proposed arrangement.4
The issue presented to this Committee is, therefore, whether the representation of taxpayers in tax commission proceedings for the purpose of challenging real estate tax assessments is “the practice of law” within the meaning of Rule 5.4.
The Rules do not define the practice of law. In interpreting Utah Code Ann. § 78-51-25, which prohibits the practice of law by those not licensed as lawyers, the Utah Supreme Court has held that activities prohibited to nonlawyers include a wide variety of activities beyond “appearing in court.”5The Court has also stated:
The practice of law, although difficult to define precisely, is generally acknowledged to involve the rendering of services that require the knowledge and application of legal principles to serve the interests of another with his consent. It not only consists of performing services in the courts of justice throughout the various stages of a matter, but in a larger sense involves counseling, advising and assisting others in connection with their legal rights, duties, and liabilities.6 (more…)

Ethics Advisory Opinion No. 97-11

(Approved December 5, 1997)
May an attorney finance the expected costs of a case by borrowing money from a non-lawyer pursuant to a non-recourse promissory note, where the note is secured by the attorney’s interest in his contingent fee in the case?

Conclusion: An attorney’s grant of a security interest in a contingent fee from a particular case to secure a loan constitutes the sharing of fees with a non-lawyer in violation of Utah Rules of Professional Conduct 5.4(a).
Facts: “Attorney” has consulted with a private individual who is not an attorney (“Lender”). Lender proposes to loan to Attorney an agreed-on amount to be used for costs and expenses in pursuing a matter on behalf of Attorney’s client (“Client”). Attorney and Client have a contingent-fee agreement under which Attorney is responsible for costs, and under which Attorney is entitled to a percentage of the recovery. A promissory note would be executed under which an interest rate would be calculated on the basis of the risk of loss of the case and the fact that Attorney’s portion of the recovery would be the only source of repayment of the funds. Funds would be disbursed by Attorney in periodic draws as expenses were incurred.
The loan agreement would also state that Attorney would pay Lender the first proceeds of his share of any recovery until the amount of the note, plus interest, was paid. However, the loan would be “nonrecourse” to Attorney; that is, in the event the loan is not repaid, the Attorney could not be held personally liable by Lender for repayment. As security for the loan, Attorney would assign to Lender his interest in the contingent-fee agreement with Client. A security agreement and financing statement would be signed and proper filings with the appropriate authorities would be made to perfect Lender’s security interest. Client would specifically consent to the loan in writing. Lender would agree that he has no right to direct or influence the litigation, that his sole contact with Attorney would be for Attorney to report on the progress of the case, and that Lender could audit expenses paid from loan proceeds for genuineness.
Analysis: Except in certain circumstances, none of which apply to the matter before us, Rule 5.4(a) prohibits a lawyer or law firm from sharing legal fees with a nonlawyer.1The Comment to Rule 5.4 states that the rule “expresses traditional limitations on sharing fees,” and that “[t]hese limitations are to protect the lawyer’s professional independence of judgment.”
Lender contends that the proposed arrangement does not involve “fees,” because it is merely the repayment of “costs.” We disagree. First, the proposed source of repayment is from Attorney’s share of the award under the contingent-fee agreement with Client. Attorney agreed to accept responsibility to pay costs and took the risk that he would not recover them out of his share of the award. For our purposes, all of his receipts are “fees.” Even if we were to view the first funds coming to Attorney as reimbursement of costs, however, it is clear that, due to the interest factor on the loan, some amounts from the pure “fee” portion of the recovery could have to be paid to Lender to pay the note in full. (more…)

Ethics Advisory Opinion No. 96-08

(Approved November 1, 1996)
May an attorney represent a person who seeks to obtain payment under the terms of a client-solicitation agreement entered into with another attorney, where the agreement involved the payment of a “finder’s fee” to the person?

Opinion: Although a “finder’s fee” agreement between an attorney and a client may be a violation of Rule 5.4(a) of the Utah Rules of Professional Conduct, the Rule governs the ethical conduct of attorneys . Thus, the solicitation agreement did not violate any duty of the non-lawyer parties under the Utah Rules of Professional Conduct. Therefore, absent a violation of Rule 3.1 concerning non-meritorious actions, the plaintiff’s new attorney may seek recovery under the solicitation agreement on behalf of his non-lawyer client.
Analysis: In this request for an ethics opinion, the following facts were alleged: A non-lawyer client (“Client”) engaged a Utah attorney (“Attorney A”) to consider a potential case against an employer. Attorney A felt the potential claim had merit, but, given the particular facts of the case, concluded it would be economical only if at least 100 plaintiffs with similar claims were involved. He offered the client a “finders fee of $500 per head” (the “Solicitation Agreement”) if the client could get a least 100 other people to sign up with the attorney as individual plaintiffs. Client agreed and found such other plaintiffs, who engaged Attorney A, and they successfully pursued their claims in court. Attorney A collected contingent fees from the plaintiffs.
Client then made demand on Attorney A to pay under the Solicitation Agreement. Attorney A refused, saying that such an agreement was never entered into, and, even if it was, such an agreement is not permitted under the Utah Rules of Professional Conduct. Attorney B, who has been engaged by Client to pursue a claim against Attorney A to recover under the Solicitation Agreement, seeks guidance as to whether instituting such a suit would itself violate Rules 8.4.1
First, for purposes of this opinion, we will assume, without deciding, that the Solicitation Agreement was entered into by Attorney A and that it violated Rule 5.4(a), which limits the ability of a lawyer to share legal fees with a non-lawyer.2However, the Rules of Professional Conduct only apply to lawyers. Therefore, while Attorney A may have acted unethically and violated the Rules by entering into the Solicitation Agreement, such unethical conduct does not impose any restrictions on Client nor does it automatically render the Solicitation Agreement void or a nullity as a matter of contract law.3
Second, even if the conduct of Attorney A in entering into the Solicitation Agreement was improper, the impropriety occurred at the time of the formation of the agreement. Nothing in the institution of an action later to enforce such an agreement on behalf of Client would amount to Attorney B’s “knowingly assisting or inducing” Attorney A to violate the Rules under Rule 8.4(a).
It is for the courts to decide whether the Solicitation Agreement was void ab initio as violative of public policy.4Attorney B should, however, be aware of Rule 3.1, which reads, in part: “A lawyer shall not bring or defend a proceeding, or assert or controvert an issue therein, unless there is a basis for doing so that is not frivolous, which includes a good faith argument for an extension, modification, or reversal of existing law.” If there were a clear expression by the Utah Legislature or courts that lawyers’ finders’-fee agreements were void as against public policy and unenforceable, Attorney B could be ethically restrained from pursuing a contract-based theory of recovery for Client under Rule 3.1. The Committee is not aware of any such expression, however. (more…)