Editor's Note:
State Bar Ethics Opinions cite the applicable California Rules of Professional Conduct in effect at the time of the writing of the opinion. Please refer to the California Rules of Professional Conduct Cross Reference Chart for a table indicating the corresponding current operative rule. There, you can also link to the text of the current rule.
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Attorney's seeking the referral of potential clients by a lay intermediary.
A lawyer should not mail a letter prepared for mass distribution to all real estate brokers in an area, encouraging them to refer potential clients to the lawyer by offering a discount on legal fees for clients so referred.
Rules 2-101(B) and (C) and 3-102(B) of the Rules of Professional Conduct of the State Bar of California.
Business and Professions Code section 6152.
The Committee has been asked whether a lawyer may ethically encourage real property brokers to refer potential clients to the attorney by a mass-mailing to brokers offering a discount on legal fees to those clients who are referred to the attorney by the broker. This Committee's Formal Opinion 1980-54 discussed the unsolicited mass-mailing of letters to potential clients describing legal services. In this opinion we discuss such unsolicited mass-mailing in the context of obtaining discounts and making referrals.
There are three potential problems the lawyer should consider before contemplating any such letter. One relates to payment for referrals (see rule 3-102(B)), one to advertising (see rule 2-101(B) and (C)), and to potential violations of Business and Professions Code section 6152.
Rule 3-102(B) prohibits an attorney from compensating or giving or promising anything of value to a person or entity for the purpose of recommending or securing employment of the attorney or the attorney's firm by a client or as a reward for having made a recommendation resulting in employment of the attorney or the attorney's firm.1 The reason for the proscription was explained by the Court in Linnick v. State Bar (1964) 62 Cal.2d 17, 21 [396 P.2d 33], as follows:
"Whether or not a lay intermediary solicits the business referred, he may-not keep the best interest of the clients paramount when he profits from his referrals. He is likely to refer clients, not to the most competent attorney, but to the one who is compensating him." (Citations omitted.)
If the lawyer were asking real estate brokers to refer clients to the lawyer with no promise of a fee reduction, then the lawyer would not have promised anything of value to the broker or to the client referred. But if the clients referred by a broker receive a fee reduction, the broker will be given the opportunity to promote the broker's practice by offering the broker's customers legal services at a reduced rate. The customer, and even the broker, may be unaware that this fee would be available to other real estate brokers. In that case, the broker may be able to use the attorney's fee reduction to build the broker's business, even though this "opportunity" arises from the erroneous belief that the broker has a special referral relationship with the attorney. Thus, arguably, the attorney has given the broker something of value for the client referrals, in violation of rule 3-102(B).
A contrary argument can be made. If, as hypothesized, the lawyer sends the mass mailing to all real estate brokers and gives the fee reduction to all clients referred by brokers, the value to the broker of being able to obtain reduced legal fees for a customer may be de minimus. However, if the opportunity to make the referrals is of no benefit to the broker, why would a broker do it? It may be that a broker, knowing no attorneys and having a customer who needs one, might, in a disinterested, off-hand way, show the lawyer's letter to the customer and, with a disclaimer of any knowledge about the lawyer's ability, let the matter drop. But it is more probable that a real estate broker may follow the suggestion of the attorney and refer a number of clients to the attorney, anticipating some sort of reciprocity, such as referrals to the broker by the attorney or informal free legal advice. Even if the attorney does not meet the broker's expectation in this regard, the evil which the rule is designed to circumvent may occur; i.e., a layperson referring a potential client to an attorney, not based on that layperson's opinion of the attorney's abilities, but based on the expectation of a personal reward. (Linnick v. State Bar, supra.) Thus it seems likely that a mass-mailing of this type will either fail to obtain the desired business for the lawyer or will succeed in a way which causes an ethical problem for the lawyer.
A lawyer receiving referrals from the broker under these conditions would also have to guard against conflicts of interest. A client referred by a real estate broker may have a claim against the broker, or there may be alternative approaches to a problem, one of which is detrimental to the interest of the real estate broker. The attorney would have to scrupulously avoid acting in the interest of anyone other than the client.
This Committee is of the opinion that a mass-mailing of the type proposed could well violate the duties of an attorney under rule 3-102(B).
Under rule 2-101(A), a "communication" is a message concerning the availability for professional employment of an attorney or an attorney's firm. A communication made by or on behalf of an attorney shall not:
(i) contain any untrue statement; or
(ii) contain any matter, or present or arrange any matter in a manner or format, which is false, deceptive, or which tends to confuse, deceive, or mislead the public; or
(iii) omit to state any fact necessary to make the statements made, in light of the circumstances under which they are made, not misleading to the public; or
(iv) fail to indicate clearly, expressly or by context, that it is a message concerning the availability for professional employment of an attorney; or
(v) state that an attorney is a certified specialist unless the attorney holds a current certificate as a specialist issued by the California Board of Legal Specialization pursuant to a plan for specialization approved by the Supreme Court; or
(vi) be transmitted in any matter which involved intrusion, coercion, duress, compulsion, intimidation, threats or vexatious or harassing conduct.
These requirements for communications apply not only to communications made by the attorney, but also those made "on behalf of the attorney" (see rule 2-101(C)). If an attorney asks a lay intermediary to refer potential clients to the attorney, offering a fee reduction, that attorney has set in motion a contact with the potential client about the availability of the attorney's services without retaining control over the contents of that message. Each attorney has a duty to assure the communications with potential clients made at the attorney's instigation meet the standard enunciated. In the circumstances hypothesized, the attorney may violate that duty, depending upon what the broker tells the client.
The Committee is of the opinion that such a conclusion would be constitutional under the holding of Bates v. State of Arizona (1977) 433 U.S. 350 [97 S.Ct. 2691, 53 L.Ed.2d. 810] and subsequent case law. False, deceptive or misleading advertising can be restrained. If that is so, then logically an attorney may be compelled to maintain control over advertising to be done at the attorney's instigation so as to assure that the advertising is not false, deceptive or misleading.
In California, there are additional rules governing the actions of agents soliciting business or communicating with potential clients.
"No solicitation or 'communication' seeking professional employment from a potential client for pecuniary gain shall be delivered by a member or a member's agent in person or by telephone to the potential client, nor shall a solicitation or 'communication' specifically directed to a particular Potential client regarding that Potential clients particular case or matter and seeking professional employment for pecuniary gain be delivered by any other means, unless the solicitation or 'communication' is protected from abridgement by the Constitution of the United States or by the Constitution of the State of California. A potential client includes a former or present client..." (Rule 2-101(B), Rules of Professional Conduct.)
It is unlawful for:
"(1) Any person, in his individual capacity or in his capacity as a public or private employee, or for any firm, corporation, partnership or association to act as a runner or capper for any such attorneys or to solicit any business for any such attorneys in and about the state prisons, county jails, city jails, city prisons, or other places of detention of persons, city receiving hospitals, city and county receiving hospitals, county hospitals, justice courts, municipal courts, superior courts, or in any public institution or in any public place or upon any public street or highway or in and about private hospitals, sanitariums or in and about any private institution or upon private property of any character whatsoever..." (Bus. & Prof. Code, 6152.)
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"(a) A runner or capper is any person, firm, association or corporation acting in any manner or in any capacity as an agent for an attorney at law, whether the attorney is admitted in California or any other jurisdiction, in the solicitation or procurement of business for such attorney at law as provided in this article."
"(b) An agent is one who represents another in dealings with one or more third persons."' (Bus. & Prof. Code, 6151.)
In California, these rules apply to attorneys and agents of attorneys. This is in contrast to the Model Code of Professional Responsibility of the American Bar Association, Disciplinary Rule 2-103(C), which provides that a lawyer shall not request a person or organization to recommend or promote the use of his services or those of his partner or associate or any other lawyer affiliated with him or his firm, as a private practitioner, except under certain circumstances not applicable here.
The Court of Appeals of New York, in October of 1981, considered the case of In re Greene (1981) App. Div., 444 NYS.2d 883, which involved an attorney being found guilty of professional misconduct for having mailed approximately 1,000 direct mail fliers to real estate brokers in two counties, seeking recommendations from those real estate brokers and quoting a fixed fee for legal representation on property transactions. In finding that the lawyer was, through this action, guilty of professional misconduct, the Court interpreted and found to be constitutional a section of the New York Judiciary Law which provided:
"It shall be unlawful for any person or his agent, employee or any person acting on his behalf, to solicit or procure through solicitation either directly or indirectly legal business, or to solicit or procure through solicitation a retainer, written or oral, or any agreement authorizing an attorney to Perform or render legal services, or to make it a business so to solicit or procure such business, retainers or agreements."
The ABA rule and the New York statute appear to be broader than the California rule, which refers only to lawyers and lawyers' agents.
We need not and do not reach the question of whether the real estate broker, in the facts presented, become the agent of the attorney merely because of the mass-mailing encouraging the broker for no compensation, to refer clients. Rather, we note these other rules lest a member of the bar, reading this opinion think that merely by maintaining firm control over the message given on the attorney's behalf by a lay intermediary, a lay intermediary may ethically be used to procure professional employment for the lawyer. If the lawyer controls, or under the law has the right to control, the actions and message of the lay intermediary, the intermediary may have become the lawyer's agent.
Agency is a question of fact. It may be that one does not become an agent merely by complying with the request of another. In Edwards v. Freeman (1949) 34 Cal.2d. 548 [212 P.2d 883], a woman asked her son to drive her into town when he next was going there. He did so and was involved in a collision. The Court rejected the argument that the son was the woman's agent, saying:
"To permit a finding of agency upon this evidence would be, in effect, to hold that one who performs a mere favor for another, without being under any legal duty to serve and without assenting to any right of control, can be an agent. That is not the law... In the absence of the essential characteristic of the right of control there is not true agency..." (Edwards v. Freeman, supra, at pp.591-2.)
The law recognizes that consideration is not essential to the creation of an agency. One may gratuitously undertake to act as an agent. A gratuitous agent cannot be compelled to perform a particular undertaking, but if he actually begins to perform he must obey instructions. Witkin, Summary of California Law, 8th Ed., Vol. 1, pp. 701, 717-718; McPhetridge v. Smith (1929) 101 Cal. App. 122 [281 P. 419]; Ramey v. Myers (1952) 111 Cal.App. 2d 679 [245 P. 2d 360]; Spector v. Miller (1962) 199 Cal.App. 2d 87; Housewright v. Pacific Far East Line, Inc. (1964) 229 Cal. App. 2d 259.
Should the relationship with the lay intermediary constitute an agency relationship, further ethical problems arise. An attorney who distributes the proposed letter therefore will create a conundrum. If the attorney complies with rule 2-101 by controlling the conduct of the broker, the broker will become the agent of the attorney. The attorney will thereby violate Section 6152 of Business and Professions Code. If attorney does not control the conduct of the broker, rule 2-101 will be violated.
We conclude that an attorney should not request client referrals from laypersons, promising a fee reduction from the client so referred, because the attorney (a) may breach his/her duty to assure that the message conveyed to the potential client is truthful, not misleading, and otherwise consistent with rule 2-101(A) (b) may be engaging in direct solicitation of clients through an agent in violation of rule 2-101(B) and Business and Professions Code section 6152; and/or (c) may have given something of value of the layperson for the referral contrary to rule 3-102(B).
This opinion is issued by the Standing Committee on Professional Responsibility and Conduct of The State Bar of California. it is advisory only. It is not binding upon the courts, The State Bar of California, its Board of Governors, any persons or tribunals charged with regulatory responsibilities, or any member of the State Bar.
1 This rule goes on to specifically exempt an attorney's offering or giving a gift or gratuity to any person or entity which has made a recommendation, so long as the gift or gratuity was not offered in consideration of any promise, agreement, or understanding that such a gift or gratuity would be forthcoming or that referrals would be made or encouraged in the future.
The Los Angeles County Bar Association Ethics Committee recently considered the application of this rule in the context of an organization referring its members to an attorney. (L.A. County Bar Assoc. Formal Opn. 401.)
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