Draft Changes to the Ethical Rules

To Authorize Multidisciplinary Practices

As Proposed by the State Bar of Arizona

Task Force on the Future of the Profession

March, 2001  

** The following proposed changes to the Rules of Professional Conduct reference only those portions of the Ethical Rules that are pertinent to the discussion of multidisciplinary practices.  Accordingly, the full texts of the Rules and Comments are not included. 

SUPREME COURT RULE 42 – RULES OF PROFESSIONAL CONDUCT 

TERMINOLOGY 

“Firm” [delete entire existing definition up to “in a private  firm” and replace with]:

            means: a) any partnership, corporation, joint venture, or other business entity, that performs legal services for another; b) lawyers employed in the legal department of a corporation or other organization; and c) lawyers employed in a legal services organization.

***Throughout the Rules the term “law firm” needs to be changed to “firm.”

“Partner” [delete entire definition]

Add:

            “Owner” denotes any lawyer holding an equity interest in a firm.

ER 1.6 CONFIDENTIALITY

Add:

            (e) A lawyer shall disclose, in writing, to legal clients in connection with undertaking any legal servicesthat other non-lawyersin the firm may have affirmative duties of disclosure that conflict with the lawyer’s duties of confidentiality, and that the lawyer shall not disclose to any other professionals in the firm any information related to the legal representation if such disclosure would adversely impact the client, except as required by paragraphs (b), (c), or (d), and ER 3.3(a)(2) or to accomplish the lawyer’s fee-sharing arrangements within the firm. Such writing shall specify what the disclosure or reporting obligations are of the other professionals that could conflict with the lawyer’s duty of confidentiality.

Add to Comments after second paragraph under “Authorized Disclosure”:

            Lawyers are not impliedly authorized to disclose information if it would adversely impact a legal client, except as required by paragraphs (b), (c), or (d) and ER 3.3(a)(2).  Further, lawyers are obligated to reasonably ascertain the disclosure and reporting obligations of other professionals in the firm prior to disclosing any information related to the lawyer’s representation of a legal client.

ER 1.7 CONFLICT OF INTEREST: GENERAL RULE

Insert at end of (b) before “unless”:

            Or by the disclosure obligations of another professional of the firm.

Add New 1.7(c):

            (c) A lawyer shall disclose, in writing, to clients for legal services that: 1) if the client retains the services of another professional in the firm, the lawyer may receive a financial benefit from that retention and the nature of the benefit; 2) legal clients are not obligated to retain the services of other professionals in the firm and are free to choose a professional outside of the firm; and 3) clients of legal services may want to consult with another professional or lawyer separate from the firm to review the terms of the engagement and alternatives to the engagement.

ER 1.10 IMPUTED DISQUALIFICATION: GENERAL RULE

Delete the first sentence of the Comment, under “Definition of ‘Firm’” and insert:

            All clients of a firm are clients of the lawyers who render legal services through that firm or are owners of that firm for conflict purposes.

            *Task Force Comment:  This portion of the Comments to ER 1.10 was modified to clarify that all clients of the firm must be considered legal clients for conflict purposes.  Moreover, the language “or are owners of that firm” was included to address passive investment by lawyers in another firm.

ER 1.15            SAFEKEEPING PROPERTY

(a) A lawyer shall hold property of his or her clients or third persons that is in a lawyer’s possession in connection with a  representation separate from both the lawyer’s own property and the firm’s property.  Funds shall be kept in a separate trust account maintained in the state where the lawyer’s office is situated, or elsewhere with the consent of the client or third person, in accordance with this court’s rules.  Nonlawyers of the firm shall not have any authority or control over such trust accounts.   Other property shall be identified as such and appropriately safeguarded.  Complete records of such account funds and other property shall be kept and controlled by the lawyer and shall be preserved and accessible for a period of five years after termination of the representation.

(b) Upon receiving funds or other property in which a lawyer’sclient or third person has an interest, a lawyer shall promptly notify the client or third person .  [……]

(c) When in the course of representation a lawyer is in possession of property in which both the lawyer and another person claim interests, the property shall be kept separate by the lawyer until there is an accounting and severance of their interests. […]

Add to comment section:

When a firm receives money that is partially eligible for deposit into the firm’s trust account and partially eligible for deposit into other firm accounts, the entire amount shall be deposited into the firm’s trust account and then disbursed in a timely and appropriate manner.

ER 1.16  DECLINING OR TERMINATING REPRESENTATION

(d) Upon termination of representation, a lawyer shall take steps to the extent reasonably practicable to protect a client’s interests, [. . . ] surrendering papers and property to which the client is entitled [. . .]

Add to comment section:

If any portion of the client’s firm files were used for legal services, the lawyer must comply with the requirements of this rule and provide the client with those portions of the files.

ER 5.1 RESPONSIBILITIES OF AN OWNERPARTNER OR SUPERVISORY LAWYER

Change (a):

A partner in a law n owner lawyer shall make reasonable efforts to ensure that that firm has in effect measures giving reasonable assurance that all lawyers in thatthe  firm conform to the rules of professional conduct.

Change (c)(2):

            The lawyer is anpartner in the lawowner of the firm in which the other lawyer practices, or has direct supervisory authority over the other lawyer, and knows of the conduct at a time when its consequences can be avoided or mitigated but fails to take reasonable remedial action.

ER 5.3 RESPONSIBILITIES REGARDING NONLAWYERSASSISTANTS

With respect to a nonlawyer employed or retained by or associated with a lawyer including nonlawyer members in the firm:

(a)  a lawyer in the partner in a law firm shall make reasonable efforts to ensure that the firm has in effect measures giving reasonable assurance that the nonlawyers’person’s conduct is compatible with the professional obligations of the lawyer;

(b)  change “person” to “nonlawyer”

(c)   change “person” to “nonlawyer” and change:

(2) the lawyer is a partner in the law firm in which the person is employed, or has direct supervisory authority over the person, knows of the conduct at a time when its consequences can be avoided or mitigated but fails to take reasonable remedial action.

ER 5.4 PROFESSIONAL INDEPENDENCE OF A LAWYER

Delete all of the Rule and replace with:

(a)   A lawyer may render legal services through a firm in which non-lawyers have an ownership or equity interest (but not a passive investment), and share legal fees with that firm, but only if:

(1)  there is no interference with the lawyer’s independent professional judgment or with the client-lawyer relationship;

(2)  information relating to the representation of a client is protected as required by ER 1.6;

(3)  the firm does not engage in advertising of legal services or personal contact with prospective clients of legal services that would violate ER 7.1 through 7.5;

(4)  the arrangement does not result in charging a legalfee that violates ER 1.5;

(5)  there exists an affirmative written agreement among all members of the firm, signed by all members of the firm or by a member with the authority to bind all members of the firm, that there will be no interference with the lawyers’ independence of professional judgment or with any client-lawyer relationship; and

(6)  there is no interference with any of the lawyer’s other obligations under these Rules.

(b)  Except as provided in section (a), a lawyer or firm shall not share legal fees with a nonlawyer, except that:

(1)  an agreement by a lawyer with the lawyer’s firm, partner, or associate may provide for the payment of money, over a reasonable period of time after the lawyer’s death, to the lawyer’s estate or to one or more specified persons; or

(2)  a lawyer who undertakes to complete unfinished legal business of a deceased lawyer may pay to the estate of the deceased lawyer that proportion of the total compensation which fairly represents the services rendered by the deceased lawyer.

Add to Comments:

“Passive Investment” as used in this rule is intended to cover investing assets in a firm but not holding any management, supervisory, or other control in the daily operations of the firm .  This would, for instance, prohibit a firm from being a publicly traded entity.

*Task Force Comment:  Paragraphs (b)(1) and (2) are from former ER 5.4(a)(1) and (2).

ER 5.5 UNAUTHORIZED PRACTICE OF LAW

Add to Comments:

The definition of the practice of law is established by law and varies from one jurisdiction to another. Whatever the definition, limiting the practice of law to members of the bar protects the public against rendition of legal services by unqualified persons.  Paragraph (b) does not prohibit a lawyer from employing the services of paraprofessionals and delegating functions to them, so long as the lawyer supervises the delegated work and retains responsibility for their work.  See ER 5.3.  Further, paragraph (b) does not prohibit a lawyer from associating with other professionals who provide non-legal services in conjunction with the lawyer’s services, so long as the lawyer retains responsibility for the legal services.  (Utah’s proposed change) and assures that the nonlawyers do not engage in unauthorized practice of law.  Likewise, it does not prohibit lawyers from providing professional advice and instruction to nonlawyers whose employment requires knowledge of the law; for example, claims adjusters, employees of financial or commercial institutions, social workers, accountants and persons employed in government agencies. In addition, a lawyer may counsel nonlawyers  clients who wish to proceed pro se.

ER 7.1  COMMUNICATIONS AND ADVERTISING CONCERNING A LAWYER’S SERVICES

Delete all references to “partner” in (p) and (r) and change to “owner”.

Delete all references to “law” preceding the word “firm” throughout the Rule.

Delete all of subsection (i).

Add to subsection (j):

            This does not prohibit the sharing of fees within a firm, as permitted by ER 5.4.

Delete in all parts of (k) the words “legal” and “law” before references to directories, textbooks and treatises.

ER 7.3 DIRECT CONTACT WITH PROSPECTIVE CLIENTS

Add:

(a)   A lawyer may not solicit or have another solicit on his or her behalf professional employment from a prospective client with whom the lawyer has no family or prior professional relationship in person or by telephone, when a motive for the lawyer’s doing so is the lawyer’s pecuniary gain.

Add to Comments:

Current non-legal clients of the firm shall be considered clients of the lawyer for both conflict and solicitation purposes, such that the prohibitions set forth in paragraph (a) are not applicable.

ER 7.5  FIRM NAMES AND LETTERHEADS

Modify:

(a)   A lawyer shall not use a firm name, letterhead or other professional designation that violates ER 7.1. A trade name may not be used by a lawyer in private practice, if it does not imply a connection with a government agency or with a public or charitable legal services organization and is not otherwise in violation of these Rules.

(b)  delete “law”

(c)   remains unchanged.

(d)  Lawyers may not state or imply that they practice in a firm unless that is true. partnership or other organization only when that is the fact.

·       Task Force comment: The added language in (a) is from DC Rule 7.5.

ER 8.3  REPORTING PROFESSIONAL MISCONDUCT

Add new paragraph (c):

(c)   Lawyers having knowledge that a nonlawyer is engaged in the unauthorized practice of law , as defined by these rules, shall inform the appropriate professional authority, except as otherwise provided in these rules.

(d)   (c) [Remains unchanged.]

*Task Force Comment: This addition establishes a UPL reporting obligation but is still subject to the Confidentiality Rule, 1.6.  

Last Update: 09/04/02