Ethics Opinion No. 316
Adopted December 14, 2001
TOPIC: Law Related Business Between a Lawyer and a Client
INQUIRY: May an attorney engaged by a client for counseling in estate planning and trust matters provide estate planning services to the client and (1) offer to sell to the client financial products, such as insurance or securities, which the attorney is licensed to sell; or (2) refer the client to a business in which the attorney owns an interest (or from which he or she receives compensation) for the purchase of such products?
ABSTRACT: While the safest and least onerous course of conduct would be for a lawyer to avoid possible conflicts of interest and ethical violations by not entering into business transactions with a client beyond the attorney-client relationship, total avoidance of such transactions is not demanded by the ethics rules or by the vast majority of case law and ethics opinions interpreting them.
Under the current Oklahoma Rules of Professional Conduct, a lawyer may enter into a business transaction with a client if: (1) the terms of the transaction and the lawyer’s interest therein (including compensation) are fair and reasonable to the client, (2) the terms of the transaction and the lawyer’s interest therein are fully disclosed in an understandable manner to the client in writing, (3) the client is advised to, and given a reasonable opportunity to, seek independent counsel in the transaction, and (4) thereafter, the client consents to the transaction in writing.
If these requirements are satisfied, the client’s interests can be adequately protected. If the lawyer complies with the applicable Rules of Professional Conduct and other laws (such as insurance or securities licensure, registration and disclosure requirements), a lawyer who provides legal services to a client in estate planning or trust matters may also provide non-legal, but ancillary, products or services to their law clients, either directly or through an affiliated entity.
Because the “fair and reasonable to the client” standard is both objective and fact-specific in nature, no absolute “safe harbor” exists. However, as the provision of coordinating legal and non-legal services evolves, Oklahoma lawyers who provide law-related services to their clients can minimize the risk of alleged ethics violations by carefully reviewing the applicable Rules of Professional Conduct and fully documenting their compliance with these requirements in order to respond to any subsequent questions regarding their professional conduct.
The issues regarding lawyers’ participation (whether individually, through a law firm, or through a related business entity) in providing law-related, or so-called “ancillary business,” services have been the subject of debate for many years. The term “law related services” is used to describe “services that might reasonably be performed in conjunction with and in substance are related to the provision of legal services, and that are not prohibited as unauthorized practice of law when provided by a nonlawyer.”1
The broad range of law-related businesses and fields in which lawyers may be involved includes insurance agencies, title insurance companies, collection agencies, real estate brokerages, consulting businesses, and similar enterprises. Other examples of law-related services include providing financial planning and related products (such as the estate planning products that are the subject of the present inquiry), accounting, tax preparation, trust services, legislative lobbying, economic analysis, social work, psychological counseling, and dispute resolution services.2
Lawyers who practice in the area of estate planning are often asked by their clients to evaluate different proposals for life insurance and other financial products. If the lawyer is licensed to sell financial products that are used in estate planning, such as insurance or securities, or if the lawyer owns an interest in (or receives compensation from) a business that sells estate planning products, the lawyer’s recommendation of such a product (or one product over another) must be made in accordance with the requirements of Rules 1.7(b), 1.8(a) and 2.1 of the Rules of Professional Conduct.
Issues concerning how, and to what extent, the Rules of Professional Conduct apply to law-related business transactions between lawyers and clients have been addressed with mixed conclusions by a variety of state bar associations.3 In legal ethics advisory opinions issued since the 1930s, the Oklahoma Bar Association has concluded that Oklahoma lawyers may engage in law-related businesses – including businesses that offer insurance and other financial services – if they comply with the applicable ethics rules.4 In its Restatement (Third) of the Law Governing Lawyers, the American Law Institute likewise concluded that lawyer involvement in ancillary business activities is not prohibited, if the lawyer’s dual practice of law and the ancillary enterprise are conducted in accordance with applicable ethical rules.5
While issues concerning “multidisciplinary practice” or “MDP” (in which a single entity comprised of lawyers and non-lawyers provides legal services as well as other types of services) have divided the American Bar Association (the “ABA”),6 the ABA’s position concerning the provision of law-related services through a separate entity is clear. Under Model Rule 5.7, which the ABA adopted in 1994, if law-related services are provided through an entity that is distinct from the firm through which the lawyer provides legal services, and the lawyer takes reasonable measures to assure that the person obtaining the law-related services knows that the services are not legal services and that the protections of the client-lawyer relationship do not exist, the lawyer is not subject to all of the Rules of Professional Conduct with respect to the provision of law-related services.7 However, if the lawyer has a client-lawyer relationship with the person whom the lawyer refers to a separate law-related service entity controlled by the lawyer, the lawyer must comply with the disclosure and consent requirements in Rule 1.8(a).8 These rules place the burden on the lawyer to explain to the client which services are legal in nature, and which are not and thus do not carry the client-lawyer protections.
Although the Oklahoma Supreme Court has not adopted ABA Model Rule 5.7, its provisions are not inconsistent with existing Oklahoma Rules of Professional Conduct and previous Oklahoma ethics advisory opinions.9 Other states that have not adopted Rule 5.7 have allowed lawyers to provide law-related services under strict guidelines designed to protect the clients receiving the non-legal services.10
In providing law-related services to a client, a lawyer must guard against placing self-interest before the interests of the client.11 The rationale behind this rule is simple: When the interests of a lawyer and a client collide, loyalties are confused and the lawyer’s effectiveness is diminished. This task can be arduous, some suggest impossible, in the situation where a lawyer provides legal services to a client who has engaged the lawyer for counseling in estate planning and trust matters and the lawyer offers to sell to the client a financial product (in which the lawyer has an economic interest) that has some relationship to the legal services received by the client. The pitfalls of this situation are compounded when the lawyer’s compensation from the sale of the financial product exceeds the lawyer’s compensation for the related legal services.
However, the Committee believes that the potential problems and risks associated with providing financial products or other law-related services to a client can be avoided in most transactions if the required disclosures are made and informed written client consent is obtained. Of course, each transaction will have to be evaluated in accordance with its individual circumstances.
B. Prior Oklahoma Ethics Opinions Regarding Law Related Businesses
The OBA has previously issued a number of legal ethics advisory opinions concerning issues relating to law-related businesses.12 Some of the opinions, based on the facts presented and the ethical rules then in effect, concluded that the conduct in question violated the rules. However, as early as the 1930s, the OBA also recognized that Oklahoma lawyers are not prohibited from engaging in law-related businesses if they comply with the applicable ethics rules. Several of the opinions addressed the question of whether a practicing lawyer may sell insurance products to his or her clients. For example, OBA Advisory Op. No. 290 (October 29, 1976) involved title insurance:
An attorney may recommend to his client the purchase of title insurance, and thereafter act as both title examiner and agent for the title insurance company in a real estate transaction or a loan transaction, so long as the attorney makes full disclosure to his client of the details of the transaction, including the financial remuneration to be received by the attorney from the title insurance company and the restrictions on his ability to represent either of the parties should a claim arise, and does not violate any of the disciplinary rules of the Canons of Professional Responsibility.
While these opinions provide useful insights concerning law-related businesses, it is important to note that since they were issued, the standards governing lawyers’ professional conduct have been modified through the adoption of the Rules of Professional Conduct, which replaced the Code of Professional Responsibility and the former Canons of Ethics. Notably, the guidelines and restrictions regarding lawyer communications and advertising (which were discussed in many of the prior opinions) have undergone significant changes. Therefore, it is appropriate to re-examine issues relating to the provision of law-related services under the current Rules.
C. Current Rules Governing Law Related Businesses
If legal services and the law-related services or products are billed separately and the ancillary enterprise does not engage in the practice of law, involvement of both the lawyer’s law practice and the lawyer’s ancillary business enterprise in the same matter does not constitute impermissible fee-splitting with a nonlawyer, even if nonlawyers have ownership interests in the ancillary enterprise.13 However, a lawyer’s dual practice of law and the ancillary enterprise must be conducted in accordance with applicable legal restrictions (e.g., insurance or securities licensure, registration or disclosure requirements), including those of the Rules of Professional Conduct.
The Oklahoma Rules of Professional Conduct to be considered in answering the questions presented concerning the provision of law-related services include Rule 1.7(b), Rule 1.8(a), and Rule 2.1.
1. Rule 1.7(b).
Loyalty is an essential element in the lawyer’s relationship to a client. Loyalty to a client is impaired when a lawyer cannot consider, recommend or carry out an appropriate course of action for the client because of the lawyer’s other responsibilities or interests.14 Rule 1.7(b) addresses such situations:
A lawyer shall not represent a client if representation of that client may be materially limited…by the lawyer’s own interests, unless
(1) the lawyer reasonably believes the representation will not be adversely affected; and
(2) the client consents after consultation…
A possible conflict does not itself preclude the representation. The critical questions are the likelihood that a conflict will arise, and, if it does, whether it will materially interfere with the lawyer’s independent professional judgment in considering alternatives or foreclose courses of action that reasonably should be pursued on behalf of the client.15
When the lawyer’s own interests are involved, Rule 1.7(b) not only requires that the client must consent after consultation, but also requires that, independent of such consent, the lawyer must reasonably believe the representation of the client will not be adversely affected by the lawyer’s own interests. As part of the consultation with the client, the lawyer must disclose the nature of the lawyer’s interest: “A lawyer may not allow related business interests to affect representation, for example, by referring clients to an enterprise in which the lawyer has an undisclosed interest.” Rule 1.7, Comment.
2. Rule 2.1.
Like Rule 1.7(b), Rule 2.1 underscores that a lawyer’s independent professional judgment in representing a client must not be influenced by the lawyer’s own interests. Rule 2.1 states:
In representing a client, a lawyer shall exercise independent professional judgment and render candid advice. In rendering advice, a lawyer may refer not only to law, but to other considerations such as moral, economic, social and political factors, that may be relevant to the client’s situation.
A client is entitled to straightforward advice expressing the lawyer’s honest assessment.16 In rendering advice concerning other considerations that may be relevant to the client’s situation (for example, in making recommendations to a client concerning financial or estate planning products), the lawyer’s independent professional judgment cannot be compromised by the lawyer’s own interests.
3. Rule 1.8(a).
Rule 1.8(a) of the Oklahoma Rules of Professional Conduct directly addresses the issue of business dealings between lawyers and their clients:
A lawyer shall not enter into a business transaction with a client unless:
(1) the transaction and terms on which the lawyer acquires the interest are fair and reasonable to the client and are fully disclosed and transmitted in writing to the client in a manner which can be reasonably understood by the client;
(2) the client is given a reasonable opportunity to seek the advice of independent counsel in the transaction; and
(3) the client consents in writing thereto.
While the language seems straightforward, a number of questions have arisen concerning the proper interpretation and application of this Rule.
a. Disclosure and Consent
Rule 1.8(a) requires that before entering into a business transaction with a client, a lawyer must fully explain to the client the terms of the transaction, the potential for any conflicts, and obtain the client’s consent. Rule 1.8(a) further requires that both the lawyer’s disclosure and the client’s consent must be in writing.
The disclosure requirements in Rule 1.8(a) are echoed in other Rules of Professional Conduct and the accompanying comments. “A lawyer may not allow related business interests to affect representation, for example, by referring clients to an enterprise in which the lawyer has an undisclosed interest.” Comment to Rule 1.7, emphasis supplied.17 Rule 7.1(a) also may require disclosure of the lawyer’s interest in a law-related business, to avoid creating a false or misleading impression concerning the interrelationship between the lawyer’s legal services and the law-related services or products.18
With respect to the issue of “what constitutes full disclosure,” courts and advisory committees in other states have found that all relevant circumstances of the transaction – including the nature of the lawyer’s interest in the transaction and a clear statement of the potential risks associated with the transaction – should be disclosed.19 For example, if a lawyer recommends to an estate-planning client financial products in which the lawyer has a financial interest, the lawyer should consider including elements such as the following in a written disclosure to the client:
1. That the lawyer has a business and financial relationship with the insurance company (or agency, brokerage or underwriting firm making the products available);
2. Whether the lawyer or the law-related business will receive a commission, referral fee, management fee or other compensation from the sale of or investment in the financial products;
3. That the interests of the client and the interests of the insurance company or product sponsor and the attorney, as an agent for the product sponsor, may be different and may conflict;
4. Whether the lawyer or the company with which the lawyer is affiliated is licensed to sell only certain types of financial products and, if so, why the lawyer is recommending the proposed product instead of other products in which he or she does not have a financial interest. Such a disclosure should include either (1) a comparative assessment of the costs and the relative risks and benefits of the recommended product and other products that might be suitable for the client’s needs, or (2) general identification of other alternatives and specific sources (such as other financial services providers not affiliated with the lawyer), from which the client could obtain comparative information concerning product recommendations;
5. That if the client authorizes the attorney to disclose confidential information in the course of obtaining the financial product for the benefit of the client, such disclosure may constitute a waiver of the client‘s rights to confidentiality based upon the lawyer-client relationship;
6. Whether the insurance company (or product sponsor, agency or brokerage through which the lawyer sells or places the order for the policy or product) is a client of the lawyer;
7. That in the event of a claim or controversy, the lawyer could be disqualified in representation of both the client and the insurance company or sponsoring broker or underwriter;20
8. That the client should consider seeking the opinion of independent counsel concerning the proposed transaction.
Even after such disclosures, one state bar association has concluded that the inherent conflicts of interest between an estate planning client and an estate planning lawyer who offers insurance or other financial products to the client are so great that no meaningful consent by the client can be given:
Because of the conflict of interest involved, it is impermissible for a lawyer engaged in estate planning to offer life insurance products to clients who come to the lawyer for counseling in estate and trust matters, if the lawyer has a financial interest in the particular products recommended. Because of the wide array of insurance products that are available at differing costs, etc., there could not be meaningful consent by the client to the lawyer having a separate business interest of this kind.
N.Y. State Bar Ass’n Op. 619 (1991).21
However, other states have found that the disclosure and consent requirements of Rule 1.8(a) can be satisfied in an estate planning context, and, if these requirements are met, the lawyer may recommend to a client financial products or services in which the lawyer has an economic interest. In Opinion 95-17a, the Kansas Bar Association concluded:
Under the Model Rules it is possible for an estate planning lawyer to sell the client the life insurance necessary to fund the trust in the estate plan, provided (1) that the client is fully aware of the attorney’s conflict of interest including the premium commission obtained by counsel, (2) the client knowingly consents to the conflict, (3) the client has an opportunity for independent consultation, (4) the life insurance sold is appropriate to the estate plan, and (5) independent of client consent, the attorney determines the representation of the client in this manner is not adversely affected by the lawyer’s other interests.22
The Committee believes that the integrity of the legal profession and clients’ interests are protected when a client is provided with the detailed written disclosures required by Rule 1.8(a) and given the opportunity to consult with independent counsel. In such circumstances a client should have sufficient information from which to decide whether or not to enter into an ancillary business transaction with the client’s lawyer. Lawyers must, however, be vigilant for those circumstances where, because of age, infirmity or other circumstances, a client places such extraordinary reliance on his or her lawyer as to preclude “informed consent” irrespective of detailed disclosures. In such circumstances, the Committee believes, a lawyer is required to avoid the ancillary business transaction entirely.
b. Fair and Reasonable Transaction Terms.
Rule 1.8(a) prohibits business transactions between a lawyer and client that are not “fair and reasonable” to the client. In situations where the lawyer is recommending life insurance, securities, or other estate planning products to the client, not only the threshold decision to use insurance as an estate planning vehicle in the first instance, but the comparisons of other available products, insurance coverage or investment amounts, premiums to be paid by the client, and the commission payments to the lawyer would all be subject to review under the “fair and reasonable” standard.
One state ethics panel has opined that the “fair and reasonable” test cannot be met in these circumstances:
Where a lawyer provides estate planning legal services, a frequent topic is whether and to what extent insurance products should be used to satisfy some of the client’s financial objectives, and if so, which ones… In such matters, a central object of the representation is to advise how best to satisfy the financial needs of the client … where a lawyer has a financial interest or affiliation with a particular insurance agency or company, the lawyer’s independent professional judgment in recommending insurance products for a particular client would unavoidably, and impermissibly, be affected by the lawyer’s personal interest in selling insurance… Given this inherent conflict, the requirements of fairness and reasonableness to the client imposed by Rule 1.8(a) are impossible to satisfy.
Rhode Island Sup. Ct. Ethics Advisory Panel Opinion No. 96-26 (Nov. 14, 1996) at 2 (citations omitted.)
The Committee understands these concerns, but believes that general accessibility to both a variety of estate planning services (e.g., other lawyers, accounting firms, financial planners, and estate planning packages/computer programs), and to pricing for competing insurance products, will provide a client (and the OBA) with meaningful standards by which “fairness” and “reasonableness” may be reviewed.
c. Independent Advice
Rule 1.8(a) specifically requires a lawyer contemplating an ancillary business transaction with a client to provide the client with a reasonable opportunity to obtain the advice of independent counsel. For a lawyer to comply with this requirement, more than a casual suggestion that a client consult with another lawyer is necessary.23 While the Rules do not require the lawyer’s advice, in this regard, to be in writing, the prudent lawyer will include such advice in the written disclosures mandated by Rule 1.8(a)(1).
D. Additional Considerations for Law-Related Businesses
Once a dual capacity relationship is created, the lawyer continues to be subject to the requirements of Rule 1.7(b), Rule 2.1, and Rule 1.8(a) in any post-sales transactions with his or her law clients. For example, a lawyer who sells insurance products to clients must be sensitive to potential conflicts that may arise if the client cancels his or her insurance, or if a dispute arises between the insurer and the client/insured.24 Similar conflicts could arise in the securities arena should the truth, correctness, or completeness of investment disclosures come into question. The lawyer will have the burden of showing that his or her legal advice (or omission of advice) was free from any bias or conflict of interest created by the dual capacities in which the lawyer acted.25
If law-related services are provided through a separate entity, the lawyer must make reasonable efforts to inform the clients of the law-related services that they are not receiving legal services and are not protected by the attorney-client relationship.26 The nature and scope of such efforts will depend upon the facts, but may include:
1. Providing written notice of the lawyer’s interest in the entity before providing the law-related services, with written acknowledgment of the notice by the client;
2. Keeping the offices of the lawyer and the law-related business physically separate;
3. Providing disclaimers in any marketing or advertising; and
4. Maintaining separate letterhead, or providing clear notice of the relationship between the lawyer and the entity.27
In addition, the lawyer should remember that even if the Rules of Professional Conduct do not apply to the services provided by the law-related business, the Rules still will apply to the lawyer’s own actions as a lawyer. For example, the lawyer must take care not to disclose confidential information to the law-related business regarding a joint client without the client’s prior consent.28
If the separation between legal and non-legal services is not clearly defined (i.e., if the law-related services are provided by the lawyer in circumstances that are not distinct from the lawyer’s provision of legal services to clients), the Committee believes that the entire spectrum of the Rules of Professional Conduct will apply to the ancillary business as well.29
E. Referral Fees
In addition to issues concerning the lawyer’s provision of (or the lawyer’s ownership in a business that provides) law-related services, the question before the Committee also raises issues concerning referrals to businesses in which the lawyer does not own an interest but from which the lawyer receives compensation.
Some state bar associations have concluded that it is per se unethical for a lawyer to refer a client to an investment advisor and take a referral fee from the commission paid to that advisor. States finding the practice per se unethical under Rule 1.7 and or Rule 1.8 include Arizona, Kentucky, Nevada, and New York. In essence, these states conclude that no amount of disclosure can overcome the conflict in interest between the lawyer and client in this type of situation.30
Other states, including California, Utah, Connecticut, Missouri and Illinois, have found that there is no per se prohibition against such referral fees. These jurisdictions reason that, although the payment of a referral fee by an investment advisor causes the lawyer to have an interest that raises issues under Rule 1.7(b) and Rule 1.8(a), it may be possible for the lawyer to determine that there is no conflict of interest and that the lawyer’s interest will not adversely affect the client or the lawyer’s duty of loyalty to the client.31
We share the concerns expressed by the states that have declared per se prohibitions against a lawyer’s receiving compensation for making a client referral to an investment advisor. Nevertheless, we find more persuasive the rationale set forth in the opinions permitting a reasoned analysis of all of the facts of the particular situation. As long as such a determination meets the specific requirements of Rules 1.7 and 1.8 and is objectively reasonable, such referral fees are not prohibited by the Rules of Professional Conduct.
1. See Rule 5.7 of the American Bar Association’s Model Rules of Professional Conduct.
2. See ABA Model Rule 5.7, Comment 9; Restatement (Third) of the Law Governing Lawyers,§ 10, Comment g.
3. See notes 21-22 below, and accompanying text.
4. See note 12 below, and accompanying text.
5. See Restatement (Third) of the Law Governing Lawyers § 10, Comment g.
6. As defined in the report of the ABA Commission on Multidisciplinary Practice, issued June 8, 1999, “multidisciplinary practice” or “MDP” denotes a partnership, professional corporation, or other association or entity that includes lawyers and nonlawyers and has as one, but not all, of its purposes the delivery of legal services to a client(s) other than the MDP itself or that holds itself out to the public as providing nonlegal, as well as legal, services. It includes an arrangement by which a law firm joins with one or more other professional firms to provide services, and there is a direct or indirect sharing of profits as part of the arrangement. In its report, the ABA Commission recommended that lawyers be allowed to partner with professionals from other disciplines, and urged changing the ABA Model Rules of Professional Conduct to allow fee-sharing between lawyers and other owners of MDPs. At the ABA’s annual meeting in July 2000, the ABA House of Delegates rejected the Commission’s recommendation concerning MDP.
7. ABA Model Rule 5.7 provides as follows:
(a) A lawyer shall be subject to the Rules of Professional Con-duct with respect to the provision of law-related services, as defined in paragraph (b) if the law related services are provided:
(1) by the lawyer in circumstances that are not distinct from the lawyer’s provision of legal services to clients; or
(2) by a separate entity controlled by the lawyer individually or with others if the lawyer fails to take reasonable measures to assure that a person obtaining the law-related services knows that the services of the separate entity are not legal services and that the protections of the client-lawyer relationship do not exist.
(b) The term “law-related services” denotes services that might reasonably be performed in conjunction with and in substance are related to the provision of legal services, and that are not prohibited as unauthorized practice of law when provided by a nonlawyer.
8. See ABA Model Rule 5.7, Comment 5.
9. See note 12 below and accompanying text. See also OBA Board of Governors Second Informational Report-Multidisciplinary Practice, 71 The Oklahoma Bar Journal 1697 (July 8, 2000) (“Oklahoma has never adopted a rule similar to ABA Model Rule 5.7. It is not that Oklahoma has rejected the idea of ancillary services, but it simply has not considered the Model Rule since it was proposed in 1994.”)
10. See Utah Ethics Advisory Op. 98-08 (Sept. 11, 1998) (accounting-practice subsidiary owned by law firm), citing Penn. Ethics Advisory Op. No. 93-01 (1993) (lawyer-owned adoption agency); N.J. Ethics Advisory Op. No. 657 (1992) (specifying disclosure and consent requirements for law-related services); S.C. Ethics Advisory Op. No. 93-05 (1993) (lawyer-owned accounting firm).
11. See Rule 1.7(b), Oklahoma Rules of Professional Conduct.
12. See, e.g., OBA Advisory Op. 31 (May 27, 1932) (insurance claims adjustment business); OBA Advisory Op. 48 (January 27, 1933) (“The writing of fire insurance by a lawyer while in the active practice, is not, in the opinion of the Board, condemned by any accepted standard in this country, provided it is done with due observance of the standard of conduct required of him as a member of the bar; and provided that he not use the business; nor the fact that he is a member of the bar to obtain insurance business”); OBA Advisory Op. 145 (April 12, 1950) (abstract business); OBA Advisory Op. 147 (June 14, 1950) (“…[T]he conducting of an insurance business by a practicing attorney violates no rule or principle of legal ethics provided care is exercised to keep the two lines of business separate and apart so that neither business will be used as a means of procuring business for the other”); OBA Advisory Op. 165 (Jan. 14, 1953) (advertising restrictions for attorneys engaged in insurance and real estate business); OBA Advisory Op. 249 (May 11, 1967) (conducting of real estate sales, management and brokerage business by practicing attorney); OBA Advisory Op. 274 (June 23, 1973) (practicing lawyer may also engage in accounting practice).
13. See Restatement (Third) of the Law Governing Lawyers, § 10, Comment g; Rule 5.4(a), Oklahoma Rules of Professional Conduct (stating general rule that “A lawyer or law firm shall not share legal fees with a nonlawyer…”); Rule 5.4(b) (“A lawyer shall not form a partnership with a nonlawyer if any of the activities of the partnership consist of the practice of law.”)
14. Rule 1.7, Comment.
15. Rule 1.7, Comment.
16. Rule 2.1, Comment.
17. Under the prior Code of Professional Responsibility and the Rules of Professional Conduct (which became effective while the disciplinary complaint was pending), the Oklahoma Supreme Court publicly censured an Oklahoma lawyer who failed to disclose to real estate clients that the lawyer owned an interest in the title insurance company to which the client was referred. See Oklahoma Bar Ass’n v. Halley, 781 P.2d 833, 835 (Okla. 1989).
18. Rule 7.1(a) states: “A lawyer shall not make a false or misleading communication about the lawyer or the lawyer’s services. A communication is false or misleading if it: (a) … omits a fact necessary to make the statement considered as a whole not materially misleading.” See Restatement of the Law (Third) of the Law Governing Lawyers § 10, Comment g (“…To avoid misleading the client, a lawyer must reveal the lawyer’s interest in the ancillary enterprise when it should be reasonably apparent that the client would wish to or should assess that information in determining whether to engage the services of the other business…”)
19. See ABA/BNA Lawyers’ Manual on Professional Conduct, 51:504-505; citing Greene v. Greene, 436 N.E.2d 496, 499 (N.Y.Ct. App. 1982); West Virginia Bar Comm. on Legal Ethics v. Cometti, 430 S.E.2d 320, 325 (W. Va. Ct. App. 1993); Iowa State Bar Ass’n Comm. on Professional Ethics & Conduct v. Mershon, 316 N.W.21d 895, 899 (Iowa 1982); In re Breen, 830 P.2d 462 (Ariz. 1992); Oregon Ethics Op. 1991-32; Iowa State Bar Ass’n Comm. on Professional Ethics & Conduct v. Carty, 515 N.W.2d 32, 35 (Iowa 1994).
20. See OBA Advisory Opinion 290 (October 29, 1976) (attorney who recommends the purchase of title insurance and acts as agent for title insurance company must make “full disclosure to his client of the details of the transaction, including É the restrictions on his ability to represent either of the parties should a claim arise…”). Under such circumstances, the lawyer may be under a mandatory duty to decline or terminate the representation even if written disclosure pursuant to Rule 1.7(b) or 1.8(a) has been accomplished. See Rule 1.16(a)(1) (requiring mandatory withdrawal if representation will result in a violation of the Rules).
21. See N.Y. State Bar Ass’n Op. 711 (1998) (lawyer licensed as insurance broker may not sell long-term care insurance to clients whom lawyer represents in estate planning). The New York State Bar has not adopted the Model Rules of Professional Conduct.
22. See Kansas Bar Ass’n Op. 96-05 (May 28, 1996) (Estate planning attorney may refer clients to investment advisory firm in which attorney owns interest if full disclosure is made to the client and client consents after opportunity to obtain independent legal advice.) See also South Carolina Bar Op. 90-16 (Lawyers may with full disclosure to clients of all relevant factors refer estate planning clients to an insurance agency in which the law firm owns a 50% or greater interest); Michigan Ethics Op. No. R1-135 (1992) (a lawyer insurance agent may sell insurance to law clients provided that ethics rules regarding business transactions with client, confidentiality and conflicts of interest are observed); Illinois State Bar Ass’n Op. 90-32 (May 15, 1991) (Lawyer may sell insurance and investment products to existing clients through lawyer’s commission sales position with insurance firm as long as lawyer makes full disclosure and seeks informed consent); California State Bar Ass’n Op. 1995-140 (Lawyer may advise client to purchase insurance and may refer client to insurance agent and accept compensation from agent for that referral; written disclosure of the referral arrangement must be made to client and written consent to arrangement must be obtained from client); Virginia State Bar Ass’n Op. 1612 (Sept. 21, 1994) (Lawyer who is independent insurance agent may represent client who is insured by insurance company for which the lawyer sold insurance policies to other individuals; lawyer should make full disclosure to client and obtain consent).
23. See In Re Smyzer, 527 A.2d 857, 862 (N.J. 1987) (“a lawyer must take every possible precaution in ensuring that his client is fully aware É of the need for independent and objective advice.”).
24. See South Dakota Ethics Op. 94-20 (Jan. 17, 1995) (lawyer who is also a licensed insurance agent cannot sell insurance as agent of insurer and later provide the insured with legal advice in relation to their insurance coverage).
25. See ABA Informal Op. No. 82-1482, ABA/BNA Lawyer’s Manual on Professional Conduct 801:329.
26. See ABA Model Rule 5.7; Restatement of the Law (Third) of the Law Governing Lawyers § 10, Comment g (“The lawyer must also disclose to the client, unless the client is already sufficiently aware, that the client will not have a client-lawyer relationship with the ancillary business and the significance of that fact. Other disclosures may be required in the course of the matter. For example, when circumstances indicate the need to do so to protect an important interest of the client, the lawyer must disclose to the client that the client’s communications with personnel of the ancillary enterprise – unlike communications with personnel in the lawyer’s law office … – are not protected under the attorney-client privilege. If relevant, the lawyer should also disclose to the client that the ancillary business is not subject to conflict-of-interest rules … similar to those applicable to law practice.”).
27. See Utah Ethics Advisory Op. No. 98-08 (Sept. 11, 1998).
28. See Rule 1.6, Oklahoma Rules of Professional Conduct.
29. See, ABA Model Rule 5.7; Utah Ethics Advisory Op. No. 151 (Oct. 28, 1994) (Rules of Professional Conduct will apply to lawyer acting as appraiser, unless lawyer makes clear to client, in writing, that lawyer is not providing legal services and that attorney-client relationship is not established); ABA Formal Op. No. 328 (June 1972) (lawyer “may practice from the same office both as a lawyer and as a member of a law-related profession or occupation, such as a marriage counselor, accountant, labor relations consultant, real estate broker, or mortgage broker, if he complies … with all provisions of the Code of Professional Responsibility while conducting his second, law-related occupation. A lawyer may not, of course, escape his obligations under … disciplinary rules of the Code by the stratagem of ostensibly dividing into two separate offices his office quarters which are, for practical purposes, unitary or integral.”) See also OBA Advisory Opinion No. 290 (October 29, 1976) (“a lawyer engaged in a law-related occupation … must conform to the Code of Professional Responsibility in the conduct of such other occupation. This would govern such activities as solicitation, advertising, reasonableness of compensation and other matters.”)
30. Ariz. Jud. Advisory Op. 98-09; Ky. Bar Ass’n Ethics Comm. Formal Op. E-390 (July 1996); State Bar of Nev. Comm. on Ethics and Prof. Responsibility Formal Op. 24 (June 18, 1997); N.Y. Comm. on Prof. Ethics Op. 682 (1996). See also American College of Trust and Estate Counsel Commentaries on Model Rules of Professional Conduct, MRPC 1.7 (3rd Ed. 1999) (“[A] lawyer should not accept a rebate, discount, commission or referral fee from a nonlawyer in connection with the representation of a client. The receipt by the lawyer of such a payment involves a conflict of interest with respect to the client. It is improper for a lawyer, who is subject to the strict obligations of a fiduciary, to benefit personally from such a representation. The client is generally entitled to the benefit of any economies achieved by the lawyer.”)
31. See Calif. Comm. on Prof. Responsibility and Conduct Formal Op. No. 1999-154; Utah Ethics Advisory Op. No. 99-07 (Dec. 3, 1999); Conn. Ethics Ops. 97-16 (1997) and 94-25 (1994); Mo. Bar Office of Chief Disciplinary Counsel, Informal Adv. Op. 960124 (1996); Ill. State Bar Ass’n Op. of Prof. Conduct 97-04 (1997).