Ethics Alert: Business Arrangements with Nonlawyers

Nonlawyers frequently propose to go into business with lawyers or to become part of a lawyer’s practice. Lawyers should be wary of these proposals, as nonlawyers are not subject to the same professional obligations as lawyers and are often unaware of them, and many arrangements proposed by nonlawyers violate ethics rules and may subject the lawyer to discipline (see Rules Regulating The Florida Bar.) Nonlawyers have proposed a variety of agreements, even offering to hire lawyers as “in-house counsel” to provide services to the nonlawyer’s customers.

Florida Bar members:

• Cannot pay a referral fee or give anything of value to a nonlawyer for referring clients to the lawyer. [Rule 4-7.17(b)]
• Cannot directly or indirectly divide fees with a nonlawyer. [Rule 4-5.4(a)]
• Cannot assist in the unauthorized practice of law by:
  • providing legal services for a customer or client of a nonlawyer company while employed as in- house counsel for a nonlawyer company;
  • forming a company with a nonlawyer to perform services if any of the services are the practice of law; or
  • assisting a nonlawyer individual or company in providing services that the individual or company is not authorized to provide or are otherwise illegal. [Rule 4-5.5(a)]
• Cannot assist a nonlawyer in violating the provisions of laws governing the nonlawyer’s business, for example the Foreclosure Rescue Act, Section 501.1377, Florida Statutes in the case of real estate professionals. [Rule 4-8.4(d)]
• Cannot directly contact clients to offer representation (including by telephone or electronic means that include real-time communication face-to-face such as video telephone or video conference) and cannot allow someone else to directly contact clients on the lawyer’s behalf. [Rules 4- 7.18(a) and 4-8.4(a)]
• Cannot accept referrals from nonlawyers acting in the guise of a qualifying provider such as a lawyer referral service, directory, pooled advertising program, or similar service (legitimate qualifying providers must comply with a rule which requires all advertisements and contact with prospective clients to be in compliance with the attorney advertising rules, in addition to other requirements) [Rule 4-7.22]
• Must have a direct relationship with clients who hire the lawyer for representation. [Rules 4- 1.1, 4-1.2 and 4-1.4]
• Cannot allow a nonlawyer to choose a lawyer for a client or direct a lawyer’s representation of a client. [Rules 4-1.1, 4- 1.2, 4-1.4, and 4-5.5(a)]
• Cannot allow a nonlawyer who pays for a lawyer to represent another to direct the lawyer or affect the lawyer’s independent professional judgment in providing legal services to the client. [Rules 4-1.8(f) and 4-5.4(d)]
• Cannot allow the lawyer’s trust account to be used to hold funds when the funds are not being held in connection with legal representation. [Rule 5-1.1(a)(1)]

Several ethics opinions, Opinions 92-3 and 95-1 in particular, discuss similar proposals and the ethics problems that arise when lawyers enter business arrangements with nonlawyers.

While this ethics alert cannot address every possible area of concern, there are some issues common to certain areas of practice.

Foreclosure Rescue/Loan Modification

State statutes and federal rules impose restrictions on certain nonlawyer industries. Although The Florida Bar cannot provide legal advice, lawyers should be aware of and comply with the requirements of state and federal law. Regarding foreclosure rescue and/or loan modification services, state statutes prohibit accepting advance fees and require registration of service providers. There are exceptions for lawyers, but only under specific circumstances. See Florida Statutes, Sections 501.1377 and 494.00115(1)(d). The Federal Trade Commission has adopted a rule on Mortgage Assistance Relief Services (MARS). The rule bans providers of mortgage foreclosure rescue and loan modification services from collecting fees until homeowners accept a written offer from their lender or servicer. There is an exception for lawyers who meet specific requirements and who place their fees into a trust account. This rule effectively bans nonrefundable fees in Florida in these cases, because nonrefundable fees cannot be placed into a trust account under the Rules Regulating The Florida Bar. See Rule 5-1.1(a)(1) and Florida Ethics Opinion 93-2. This alert does not address whether a lawyer is subject to the registration and licensing provisions of Chapter 494. Lawyers with questions about whether they are subject to an exemption should contact the Office of Financial Regulation at 850-410-9896. Information is also available on the Office of Financial Regulation website.

Bankruptcy

It constitutes the unlicensed practice of law for a nonlawyer to prepare bankruptcy forms for another. The Florida Bar v. Catarcio, 709 So. 2d 96 (Fla. 1998). This includes the petition and any necessary schedules. A nonlawyer corporation should not determine whether it is necessary for an individual to file for bankruptcy. However, a nonlawyer may sell blank forms necessary for a bankruptcy and complete the forms with information provided in writing by the individual. The Florida Bar v. Brumbaugh, 355 So. 2d 1186 (Fla. 1978). It also constitutes the unlicensed practice of law for a nonlawyer to represent someone in bankruptcy court. The Florida Bar v. Kaufman, 452 So. 2d 526 (Fla. 1984).

Probate and Living Trusts

The Supreme Court of Florida has held that it constitutes the unlicensed practice of law for a nonlawyer to draft a living trust and related documents for another. In The Florida Bar Re Advisory Opinion – Nonlawyer Preparation of Living Trusts, 613 So.2d 426 (Fla. 1992) the Court indicated that the assembly, drafting, execution and funding of living trust documents constitute the practice of law, but the mere gathering of necessary information for a living trust does not constitute the practice of law. The case also addressed potential conflicts of interest and concerns regarding non-lawyers influence over an attorney’s independent professional judgment. If the lawyer is employed by the corporation selling the living trust rather than by the client, then the lawyer’s duty of loyalty to the client could be compromised. Additionally, in The Florida Bar v. American Senior Citizen Alliance, Inc., 689 So.2d 255 the Court found that a lay company engaged in the unlicensed practice of law because the company answered legal questions, determined a living trust was appropriate for particular people based on their circumstances, drafted, executed and funded living trusts. Lawyers were employed as in-house counsel to provide legal services and reviewed the completed documents.

This alert does not address every potential problem or concern. Lawyers should not assume that conduct is permissible merely because it is not listed above. If you are a Florida Bar member with specific questions about your own conduct related to this type of situation, you should contact The Florida Bar Ethics Hotline at 800-235-8619.

This alert also does not address the issue of what conduct by nonlawyers is permissible. Questions regarding whether conduct of nonlawyers constitutes the unlicensed practice of law should be directed to The Florida Bar Unlicensed Practice of Law Department at 850-561-5840.