NYSBA Delegates Approve MacCrate MDP Proposals

By Lazar Emanuel

[Originally published in NYPRR December 2000]

New York took a significant first step towards the implementation of the MacCrate Committee’s MDP proposals on Nov. 4, 2000, when the NYSBA House of Delegates approved two new DRs — DR 1-106 and DR 1-107— and modified existing DR 2-101, DR 2-102 and DR 2-103. The changes approved by the Delegates have been submitted to the Appellate Division.

The new DRs permit lawyers and law firms to provide nonlegal services to clients or others, provided that no nonlawyer who is involved in supplying these services owns or controls the law practice of the lawyer or law firm or is otherwise permitted to direct the professional judgment of the lawyers supplying the services. They also permit lawyers and law firms to enter into inter-professional contractual arrangements with nonlegal professionals to supply legal and other professional services. These arrangements have been called “side by side arrangements.”

The text of the new and modified DRs appears below. The related Ethical Considerations are also reprinted below.

DR 1-106 Responsibilities Regarding Nonlegal Services

A. With respect to lawyers or law firms providing nonlegal services to clients or other persons: [Editor’s note: the term “nonlegal services” is defined in section (C) below.]

1. A lawyer or law firm that provides nonlegal services to a person that are not distinct from legal services being provided to that person by the lawyer or law firm is subject to these Disciplinary Rules with respect to the provision of both legal and nonlegal services.

2. A lawyer or law firm that provides nonlegal services to a person that are distinct from legal services being provided to that person by the lawyer or law firm is subject to these Disciplinary Rules with respect to the nonlegal services if the person receiving the services could reasonably believe the nonlegal services are the subject of an attorney-client relationship.

3. A lawyer or law firm that is an owner, controlling party or agent of, or that is otherwise affiliated with, an entity that the lawyer or law firm knows to be providing nonlegal services to a person is subject to these Disciplinary Rules with respect to the nonlegal services if the person receiving the services could reasonably believe the nonlegal services are the subject of an attorney-client relationship.

4. For purposes of DR 1-106(A)(2) and DR 1-106(A)(3), it will be presumed that the person receiving nonlegal services could not reasonably believe the services to be the subject of an attorney-client relationship if the interest of the lawyer or law firm is de minimis or if the lawyer or law firm has advised the person receiving the services in writing that the services are not legal services and that the protection of an attorney-client relationship does not exist with respect to the nonlegal services.

B. Notwithstanding the provisions of DR 1-106(A), a lawyer or law firm that is an owner, controlling party, agent, or is otherwise affiliated with an entity that the lawyer or law firm knows to be providing nonlegal services to a person shall not permit any nonlawyer providing such services or affiliated with that entity to direct or regulate the professional judgment of the lawyer or law firm in rendering legal services to any person, or to cause the lawyer or law firm to compromise its duty under DR 4-101(B) and (D) with respect to the confidences and secrets of a client receiving legal services.

C. For purposes of DR 1-106, “nonlegal services” shall mean those services that lawyers may lawfully provide and that are not prohibited as the unauthorized practice of law when provided by a nonlawyer.

DR 1-107 Contractual Relationships Between Lawyers and Nonlegal Professionals

A. A lawyer or law firm may enter into and maintain a contractual relationship with a nonlegal professional or nonlegal professional service firm for the purpose of offering to the public, on a systematic and continuing basis, legal services performed by the lawyer or law firm, as well as other professional services, notwithstanding the provisions of DR 5-101(A), provided that: [Editor’s note: DR 5-101(A) deals with conflicts of interest occasioned by a lawyer’s business or personal interests.]

1. The profession of the nonlegal professional or nonlegal professional service firm is a profession listed by the Office of Court Administration pursuant to DR 1-107(B);

2. The lawyer or law firm neither grants to the nonlegal professional or nonlegal professional service firm, nor permits such person or firm to obtain, hold or exercise, directly or indirectly, any ownership or investment interest in, or managerial or supervisory right, power or position in connection with, the practice of law by the lawyer or law firm; and

3. The fact that the contractual relationship exists is disclosed to any client of the lawyer or law firm to whom nonlegal professional services are provided.

B. For purposes of DR 1-107(A):

1. Each profession on the list maintained by the Office of Court Administration shall have been designated by it, or shall have been approved by it upon the application of an individual or firm in this State, upon a determination that the profession is composed of individuals who, with respect to their profession:

a. have been awarded a Bachelor’s Degree or its equivalent from an accredited college or university;

b. are licensed to practice the profession by an agency of the State of New York or the United States Government; and

c. are required under penalty of suspension or revocation of license to adhere to a code of ethical conduct that is reasonably comparable to that of the legal profession.

2. The term “ownership or investment interest” shall mean any such interest in any form of debt or equity, and shall include any interest commonly considered to be an interest accruing to or enjoyed by an owner or investor.

C. DR 1-107(A)(1) shall not apply to relationships consisting solely of reciprocal referral agreements or understandings between a lawyer or law firm and a nonlegal professional or nonlegal professional service firm.

D. Notwithstanding DR 3-102(A), a lawyer or law firm may allocate costs and expenses with a nonlegal professional or nonlegal professional service firm pursuant to a contractual relationship permitted by DR 1-107(A), provided the allocation reasonably reflects the costs and expenses incurred or expected to be incurred by each. [Editor’s Note: DR 3102(A) prohibits the sharing of fees with a non-lawyer.]

DR 2-101 Publicity and Advertising

A. A lawyer on behalf of himself or herself or partners or associates, shall not use or disseminate or participate in the preparation or dissemination of any public communication or communication to a prospective client containing statements or claims that are false, deceptive or misleading.

B. (Repealed)

C. It is proper to include information, provided its dissemination does not violate the provisions of DR 2-101(A), as to:

1. legal and nonlegal education, degrees and other scholastic distinctions; dates of admission to any bar; areas of the law in which the lawyer or law firm practices, as authorized by the Code of Professional Responsibility; public offices and teaching positions held; memberships in bar associations or other professional societies or organizations, including offices and committee assignments therein; foreign language fluency;

2. names of clients regularly represented, provided that the client has given prior written consent;

3. bank references; credit arrangements accepted; prepaid or group legal services programs in which the attorney or firm participates; nonlegal services provided by the lawyer or by an entity owned and controlled by the lawyer, the existence of contractual relationships between the lawyer or law firm and a nonlegal professional or nonlegal professional service firm, to the extent permitted by DR 1-107, and the nature and extent of services available through those contractual relationships and

4. <legal> fees for initial consultation; contingent fee rates in civil matters when accompanied by a statement disclosing the information required by DR 2-101(L) of this section; range of fees for legal and nonlegal services, provided that there be available to the public free of charge a written statement clearly describing the scope of each advertised service; hourly rates; and fixed fees for specified legal and nonlegal services.

D. Advertising and publicity shall be designed to educate the public to an awareness of legal needs and to provide information relevant to the selection of the most appropriate counsel. Information other than that specifically authorized in DR 2-101(C) that is consistent with these purposes may be disseminated providing that it does not violate any other provisions of this Rule.

DR 2-102 Professional Notices, Letterheads, and Signs

A. A lawyer or law firm may use professional cards, professional announcement cards, office signs, letterheads or similar professional notices or devices, provided the same do not violate any statute or court rule, and are in accordance with DR 2-101, including the following:

1. A professional card of a lawyer identifying the lawyer by name and as a lawyer, and giving addresses, telephone numbers, the name of the law firm, and any information permitted under DR 2-101(C), DR 2-101(D) or DR 2-105. A professional card of a law firm may also give the names of members and associates.

2. A professional announcement card stating new or changed associations or addresses, change of firm name, or similar matters pertaining to the professional offices of a lawyer or law firm or of any nonlegal business conducted by the lawyer or law firm pursuant to DR 1-106. It may state biographical data, the names of members of the firm and associates and the names and dates of predecessor firms in a continuing line of succession. It may state the nature of the legal practice if permitted under DR 2-105.

3. A sign in or near the office and in the building directory identifying the law office and any nonlegal business conducted by the lawyer or law firm pursuant to DR 1-106. The sign may state the nature of the legal practice if permitted under DR 2-105.

4. A letterhead identifying the lawyer by name and as a lawyer, and giving addresses, telephone numbers, the name of the law firm, associates and any information permitted under DR 2-101(C), DR 2-101(D) or DR 2-105. A letterhead of a law firm may also give the names of members and associates, and names and dates relating to deceased and retired members. A lawyer or law firm may be designated “Of Counsel” on a letterhead if there is a continuing relationship with a lawyer or law firm, other than as a partner or associate. A lawyer or law firm may be designated as “General Counsel” or by similar professional reference on stationery of a client if the lawyer or the firm devotes a substantial amount of professional time in the representation of that client. The letterhead of a law firm may give the names and dates of predecessor firms in a continuing line of succession.

B. A lawyer in private practice shall not practice under a trade name, a name that is misleading as to the identity of the lawyer or lawyers practicing under such name, or a firm name containing names other than those of one or more of the lawyers in the firm, except that the name of a professional corporation shall contain “P.C.” or such symbols permitted by law, the name of a limited liability company or partnership shall contain “L.L.C.,” “L.L.P.” or such symbols permitted by law, and, if otherwise lawful, a firm may use as, or continue to include in its name the name or names of one or more deceased or retired members of the firm or of a predecessor firm in a continuing line of succession. Such terms as “legal clinic,” “legal aid,” “legal service office,” “legal assistance office,” “defender office” and the like, may be used only by qualified legal assistance organizations, except that the term “legal clinic” may be used by any lawyer or law firm provided the name of a participating lawyer or firm is incorporated therein. A lawyer or law firm may not include the name of a nonlawyer in its firm name, nor may a lawyer or law firm that has a contractual relationship with a nonlegal professional or nonlegal professional service firm pursuant to DR 1-107 to provide legal and other professional services on a systematic and continuing basis include in its firm name the name of the nonlegal professional service firm or any individual nonlegal professional affiliated therewith. A lawyer who assumes a judicial, legislative or public executive or administrative post or office shall not permit his or her name to remain in the name of a law firm or to be used in professional notices of the firm during any significant period in which the lawyer is not actively and regularly practicing law as a member of the firm and, during such period, other members of the firm shall not use the lawyer’s name in the firm name or in professional notices of the firm.

DR 2-103 Solicitation and Recommendation of Professional Employment

B. A lawyer shall not compensate or give anything of value to a person or organization to recommend or obtain employment by a client, or as a reward for having made a recommendation resulting in employment by a client, except that:

1. A lawyer or law firm may refer clients to a nonlegal professional or nonlegal professional service firm pursuant to an agreement or other contractual relationship with such nonlegal professional or nonlegal professional service firm to provide legal and other professional services on a systematic and continuing basis as permitted by DR 1-107, or

2. A lawyer may pay the usual and reasonable fees or dues charged by a qualified legal assistance organization or referral fees to another lawyer as permitted by DR 2-107.

CANONS 1 & 2 — ETHICAL CONSIDERATIONS

The Disciplinary Rules approved by the NYSBA House of Delegates on Nov. 4, 2000 and reprinted above were accompanied by a number of new ECs. These ECs read as follows:

CANON 1

Provision of Nonlegal Services

EC 1-9 (new). For many years, lawyers have provided nonlegal services to their clients. By participating in the delivery of these services, lawyers can serve a broad range of economic and other interests of clients. Whenever a lawyer directly provides nonlegal services, the lawyer must avoid confusion on the part of the client as to the nature of the lawyer’s role, so that the person for whom the nonlegal services are performed understands that the services may not carry with them the legal and ethical protections that ordinarily accompany an attorney-client relationship. The recipient of the nonlegal services may expect, for example, that the protection of client confidences and secrets, prohibitions against representation of persons with conflicting interests, and obligations of a lawyer to maintain professional independence apply to the provision of nonlegal services, when that may not be the case. The risk of confusion is especially acute when the lawyer renders both legal and nonlegal services with respect to the same matter. Under some circumstances, the legal and nonlegal services may be so closely entwined that they cannot be distinguished from each other. In this situation, the recipient is likely to be confused as to whether and when the relationship is protected as a client-lawyer relationship. Therefore, where the legal and nonlegal services are not distinct, DR 1-106(A)(1) requires that the lawyer providing nonlegal services adhere to all of the requirements of the Code of Professional Responsibility with respect to the nonlegal services. DR 1-106(A)(1) applies to the provision of nonlegal services by a lawyer even when the lawyer is not personally providing any legal services to the person for whom the nonlegal services are being performed if the person is also receiving legal services from another lawyer in the firm that are not distinct from the nonlegal services.

EC 1-10 (new). Even when the lawyer believes that the provision of nonlegal services is distinct from any legal services being provided, there is still a risk that the recipient of the nonlegal services might reasonably believe that the recipient is receiving the protection of an attorney-client relationship. Therefore, DR 1-106(A)(2) requires that the lawyer providing the nonlegal services adhere to the Disciplinary Rules, unless exempted by DR 1-106(A)(4). Nonlegal services also may be provided through an entity with which a lawyer is affiliated, for example, as owner, controlling party or agent. In this situation, there is still a risk that the recipient of the nonlegal services might reasonably believe that the recipient is receiving the protection of an attorney-client relationship. Therefore, DR 1-106(A)(3) requires that the lawyer involved with the entity providing nonlegal services adhere to all the Disciplinary Rules with respect to the nonlegal services, unless exempted by DR 1-106(A)(4).

EC 1-11 (new). The Disciplinary Rules will be presumed not to apply to a lawyer who directly provides or is otherwise involved in the provision of nonlegal services if the lawyer complies with DR 1-106(A)(4) by communicating in writing to the person receiving the nonlegal services that the services are not legal services and that the protection of an attorney-client relationship does not exist with respect to the nonlegal services. Such a communication should be made before entering into an agreement for the provision of nonlegal services, in a manner sufficient to assure that the person understands the significance of the communication. In certain circumstances, however, additional steps may be required to communicate the desired understanding. For example, while the written disclaimer set forth in DR 1-106(A)(4) will be adequate for a sophisticated user of legal and nonlegal services, a more detailed explanation may be required for someone unaccustomed to making distinctions between legal services and nonlegal services.

EC 1-12 (new). Although a lawyer may be exempt from the application of Disciplinary Rules with respect to nonlegal services on the face of DR 1-106(A), the scope of the exemption is not absolute. A lawyer who provides or who is involved in the provision of nonlegal services may be excused from compliance with only those Disciplinary Rules that are dependent upon the existence of a representation or attorney-client relationship. Other rules, such as those prohibiting lawyers from engaging in illegal, dishonest, fraudulent or deceptive conduct (DR 1-102), requiring lawyers to report certain attorney misconduct (DR 1-103), and prohibiting lawyers from misusing the confidences or secrets of a former client (DR 4-101(B)), apply to a lawyer irrespective of the existence of a representation, and thus govern a lawyer otherwise exempt under DR 1-106(A). A lawyer or law firm is always subject to these Disciplinary Rules with respect to the rendering of legal services.

Contractual Relationships Between Lawyers and Nonlegal Professionals

EC 1-13 (new). DR 1-107 permits lawyers to enter into interprofessional contractual relationships for the systematic and continuing provision of legal and nonlegal professional services provided the nonlegal professional or nonlegal professional service firm with which the lawyer or law firm is affiliated does not own, control, supervise or manage, directly or indirectly, in whole or in part, the practice of law by the lawyer or law firm. The nonlegal professional or nonlegal professional service firm may not play a role in, for example, the decision whether to accept or terminate an engagement to provide legal services in a particular matter or to a particular client, determining the manner in which lawyers are hired or trained, the assignment of lawyers to handle particular matters or to provide legal services to particular clients, decisions relating to the undertaking of pro bono publico and other public-interest legal work, financial and budgetary decisions relating to the legal practice, and determining the compensation and advancement of lawyers and of persons assisting lawyers on legal matters.

EC 1-14 (new). The contractual relationship permitted by DR 1-107 may provide for the reciprocal referral of clients by and between the lawyer or law firm and the nonlegal professional or nonlegal professional service firm. It may also provide for the sharing of premises, general overhead, or administrative costs and services on an arm’s length basis. Such financial arrangements, in the context of an agreement between lawyers and other professionals to provide legal and other professional services on a systematic and continuing basis, are permitted notwithstanding that they involve the exchange of value for client referrals and, technically, a sharing of professional fees, matters that are dealt with specifically in DR 2-103(B)(1) and DR 1-107(D). Similarly, lawyers participating in such arrangements remain subject to general ethical principles in addition to those set forth in DR 1-107 including, at a minimum, DR 2-102(B), DR 5-105(A), DR 5-105(B), DR 5-107(B), DR 5-107(C), and DR 5-108(A). Thus, the lawyer or law firm may not, for example, include in its firm name the name of the nonlegal professional service firm or any individual nonlegal professional, or enter into formal partnerships with nonlawyers, or practice in an organization authorized to practice law for a profit in which nonlawyers own any interest. Moreover, a lawyer or law firm may not enter into an agreement or arrangement for the use of a name in respect of which a nonlegal professional or nonlegal professional service firm has or exercises a proprietary interest if, under or pursuant to the agreement or arrangement, that nonlegal professional or firm acts or is entitled to act in a manner inconsistent with DR 1-107(A)(2) or EC 1-13. More generally, a law firm’s interest in maintaining an advantageous relationship with a nonlegal professional service firm might, in certain circumstances, adversely affect the independent professional judgment of the law firm creating a conflict of interest subject to DR 5-101(A).

EC 1-15 (new). Each lawyer and law firm having a contractual relationship under DR 1-107 has an ethical duty to observe these Disciplinary Rules with respect to its own conduct in the context of the contractual relationship. For example, the lawyer or law firm cannot permit its obligation to maintain client confidences as required by DR 4-101 to be compromised by the contractual relationship or by its implementation by or on behalf of nonlawyers involved in the relationship. In addition, the prohibition in DR 1-102(A)(2) against a lawyer or law firm circumventing a Disciplinary Rule through actions of another applies generally to the lawyer or law firm in the contractual relationship.

EC 1-16 (new). When in the context of a contractual relationship permitted under DR 1-107 a lawyer or law firm refers a client to the nonlegal professional or nonlegal professional service firm, the lawyer or law firm shall observe the ethical standards of the legal profession in verifying the competence of the nonlegal professional or nonlegal professional services firm to handle the relevant affairs and interests of the client. Referrals should only be made when requested by the client or deemed to be reasonably necessary to serve the client.

EC 1-17 (new). To assure that only appropriate professional services are involved, a contractual relationship for the provision of services is permitted under DR 1-107 only if the nonlegal party thereto is a professional or professional service firm meeting appropriate standards as regards ethics, education, training, and licensing. The Office of Court Administration maintains a public list of eligible professions. Individuals and firms in this state may apply for the inclusion of particular professions on the list, or professions may be added to the list by the Office of Court Administration sua sponte. A lawyer or law firm not wishing to affiliate with a nonlawyer on a systematic and continuing basis, but only to engage a nonlawyer on an ad hoc basis to assist in a specific matter, is not governed by DR 1-107 when so dealing with the nonlawyer. Thus, a lawyer advising a client in connection with a discharge of chemical wastes may engage the services of and consult with an environmental engineer on that matter without the need to comply with DR 1-107. Likewise, the requirements of DR 1-107 need not be met when a lawyer retains an expert witness in a particular litigation.

EC 1-18 (new). Depending upon the extent and nature of the relationship between the lawyer or law firm, on the one hand, and the nonlegal professional or nonlegal professional service firm, on the other hand, it may be appropriate to treat the parties to a contractual relationship permitted by DR 1107 as a single law firm for purposes of these Disciplinary Rules, as would be the case if the nonlegal professional or nonlegal professional service firm were in an of counsel relationship with the lawyer or law firm. If the parties to the relationship are treated as a single law firm, the principal effects would be that conflicts of interest are imputed as between them pursuant to DR 5-105(D), and that the law firm would be required to maintain systems for determining whether such conflicts exist pursuant to DR 5-105(E). To the extent that the rules of ethics of the nonlegal profession conflict with these Disciplinary Rules, the rules of the legal profession will still govern the conduct of the lawyers and the law firm participants in the relationship. A lawyer or law firm may also be subject to legal obligations arising from a relationship with nonlawyer professionals who are themselves subject to regulation.

CANON 2

Lawyer Advertising

[Editor’s note: EC 2-10 is not new. Underscoring indicates additions to existing text.]

EC 2-10 (amended by underlined text). A lawyer should ensure that the information contained in any advertising which the lawyer publishes, broadcasts or causes to be published or broadcast is relevant, is disseminated in an objective and understandable fashion, and would facilitate the prospective client’s ability to select a lawyer. A lawyer should strive to communicate such information without undue emphasis upon style and advertising stratagems which serve to hinder rather than to facilitate intelligent selection of counsel. Although communications involving puffery and claims that cannot be measured or verified are not specifically referred to in. DR 2-101, such communications would be prohibited to the extent that they are false, deceptive or misleading. Special care should be taken to avoid the use of any statement or claim which is false fraudulent misleading deceptive or unfair, or which is violative of any statute or rule of court, in disclosing information, by advertisements or otherwise, relating to a lawyer’s legal or nonlegal education, experience or professional qualifications, the nature or extent of any nonlegal services provided by the lawyer or by an entity owned and controlled by the lawyer, or the existence of contractual relationships between the lawyer or law firm and a nonlegal professional or nonlegal professional service firm to the extent permitted by DR 1-107 and the nature and extent of services available through those contractual relationships. A lawyer who advertises in a state other than New York should comply with the advertising rules or regulations applicable to lawyers in that state.

Lazar Emanuel is the Publisher of NYPRR.

DISCLAIMER: This article provides general coverage of its subject area and is presented to the reader for informational purposes only with the understanding that the laws governing legal ethics and professional responsibility are always changing. The information in this article is not a substitute for legal advice and may not be suitable in a particular situation. Consult your attorney for legal advice. New York Legal Ethics Reporter provides this article with the understanding that neither New York Legal Ethics Reporter LLC, nor Frankfurt Kurnit Klein & Selz, nor Hofstra University, nor their representatives, nor any of the authors are engaged herein in rendering legal advice. New York Legal Ethics Reporter LLC, Frankfurt Kurnit Klein & Selz, Hofstra University, their representatives, and the authors shall not be liable for any damages resulting from any error, inaccuracy, or omission.

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