The Indiana Supreme Court Disciplinary Commission is warning lawyers of the potential ethical pitfalls that can arise when Hoosier attorneys affiliate themselves with out-of-state law firms or non-lawyer legal services companies.
In its second lawyer ethics advisory opinion, the commission urges attorneys to proceed with caution when asked to lend their legal services to out-of-state or non-lawyer groups, a relationship that could allow the non-Indiana groups to offer legal services in the Hoosier state without actually having to be a member of the Indiana bar.
“Lawyers may find themselves being approached more and more by non-lawyer companies or out-of-state law firms looking to establish an ongoing affiliation for providing legal services in Indiana,” the commission wrote in a non-binding advisory opinion released Dec. 11. “Such offers may be attractive as a means of expanding the lawyer’s practice and developing a recurring flow of business.”
Referring to such relationships as the “license rental” business model, the commission said out-of-state firms or non-lawyer legal groups who engage in this model often ask Indiana lawyers to serve in an “of counsel” capacity to work on a variety of legal issues like debt settlement, mortgage foreclosures, estate planning, traffic violations or criminal expungements, among others. These relationships make the Hoosier attorney a nominal member of the “national” out-of-state firm or non-lawyer group.
“However, the common feature of this business model is that the non-lawyer company or out-of-state law firm wants to offer legal services in Indiana on an ongoing basis without being licensed to practice law in Indiana,” the opinion continues. “They then direct the cases to an Indiana lawyer for a portion of the fees charged, often while requiring relatively minimal work or involvement by the Indiana lawyer.”
Such relationships can expose Hoosier attorneys to seven types of potential ethical violations, the commission warned:
- Assisting the unauthorized practice of law;
- Abdication of professional independence;
- Improper fee splitting;
- Lack of client communication;
- Limited representation;
- Failure to supervise non-lawyer assistants, and;
- Assisting ethical violations
First addressing the risk of assisting in the unauthorize practice of law, a violation of Indiana Professional Conduct Rule 5.5(a), the commission said lawyers who enter into license rental agreements enable out-of-state firms or non-legal groups to perform “the bulk of the work” and keep “the bulk of the fee without temporary admission under Indiana Admission and Discipline Rule 3(2).” Similarly, a lawyer runs the risk of violating fee splitting prohibitions in Rules 5.4(a) and 1.5(e) by taking only a portion of the fee and by not informing clients about how the fees are shared among the Indiana and non-Indiana attorneys.
“Under the ‘license rental’ model, it is often kept secret from the client that their local lawyer is getting paid a small portion of the much larger fee collected by the ‘national’ firm,” the commission wrote.
Lawyers likewise run the risk of violating Rule 1.4 by failing to properly communicate with clients. The license rental model often does not afford clients the opportunity to “meaningfully consult” with their counsel and keeps clients uninformed about issues such as the scope of the Indiana lawyer’s representation, the opinion says.
That scope comes into play under Rule 1.2(c), which requires Hoosier attorneys to receive client consent if the attorney is only going to provide limited representation.
“The ‘license rental’ model often raises concerns about meeting this obligation,” the opinion says. “However, limited representation, even if the client is informed and consents, does not absolve a lawyer of potential rule violations referenced in this opinion.”
The commission further warned of violations of Rules 1.8(f) and 5.4(c), relating to professional independence. These rules may be violated “when the non-lawyer company or out-of-state law firm dictates nearly all aspects of the representation, particularly the objectives and legal strategy.”
Additionally, the Guidelines for the Use of Non-Lawyer Assistants, as well as Rule 5.3(b), could be implicated under the license rental model, the commission wrote. Specifically, it warned lawyers against failing to supervise non-lawyer assistants and allowing those assistants to establish attorney-client relationships.
“A regular feature of the ‘license rental’ model is that a significant amount of work is performed by paralegals and legal assistants, usually in another state, where they are difficult to monitor,” the opinion says. Further, “the ‘license rental’ model often employs non-lawyers to contract with clients and commit them to a legal strategy before the lawyer gets involved.”
Finally, the commission warned that lawyers who participate in the license rental model could be found in violation of Rule 8.4(a), which prohibits assisting another person in violating the Rules of Professional Conduct.
“The ‘license rental’ model can take many forms and presents many pitfalls for the Indiana practitioner,” the opinion concludes. “A lawyer should carefully review the relevant rules and understand that affiliation with a non-lawyer company or out-of-state law firm may put him/her at risk of violating multiple ethical rules and that the lawyer may be subject to discipline.”
Tuesday’s advisory opinion marks the second time the Disciplinary Commission has issued ethical advice through a program launched in April. That month the commission began offering formal and informal guidance to Hoosiers lawyers and judges via the Supreme Court’s website and the Indiana Courts Portal.
The formal advice comes in the form of advisory opinions like the one issued Tuesday and the first opinion issued in April, which urged caution when participating in and paying for online legal referral services.
The informal advice, by contrast, will be issued to specific attorneys and judges who pose ethical questions via the Indiana Courts Portal.