Nonlawyer Ownership of Law Firms

A financial planner, a CPA, and a lawyer walk into a bar … to form a law firm. A joke, right? Two years from now, some version of this could be happening for real in California.

A state task force headed by a former law professor is expected to produce proposals in 2019. Presently, Rule of Professional Conduct 5.4 prohibits nonlawyers from acting as partners, corporate officers, or directors of a law firm. The same rule strictly regulates fee sharing and forbids nonlawyers from directing or controlling a lawyer’s professional judgment.

Why consider nonlawyer ownership?

Some view nonlawyer ownership as a means of boosting productivity, reducing costs, and improving access to justice. Others herald the benefits of outside investment and potential for greater innovation in the corporate legal market.

What we can expect from California

Your opinion may differ, but I believe the State Bar of California is ready to make this change. The purpose of the Task Force is to work out the issues.  I predict:

  • California will be the first state to allow nonlawyer ownership of a law firm.
  • Nonlawyer owners will be prohibited from controlling or directing the professional judgment of a lawyer in the course of providing professional services to a client.
  • Nonlawyer owners will be allowed to control or direct business affairs of the firm.
  • Fee sharing will be authorized, provided: (a) clients give informed consent in writing; and (b) the sharing of legal fees does not affect the lawyer’s professional judgment.
  • Receiving referral fees from nonlawyers will be permissible.
  • Disclaimers or disclosures may be required in firm advertising, marketing, engagement agreements, websites, etc.
  • Lawyers will be permitted to reveal confidential client information to nonlawyer owners and their staff in order to carry out representation.
  • Conflict of interest rules will expand to include nonlawyers as “members” of the firm – a conflict for one is a conflict for all.

Operational concerns

Anyone pondering formation of a future lawyer/nonlawyer union should think long and hard about all the issues involved in business formation. A business plan, mission statement, and written ownership agreement will be an absolute must. Thorough insurance coverage, including professional liability, will be a necessity.  Prepare to integrate office systems, record retention, and nonlawyer staff. This includes training!  If nonlawyer partners are beholden to regulatory agencies, know the ins and outs for your sake, but don’t fall into the trap of advising nonlawyer owners. Lastly, have a plan for departure. When a law partner leaves you high and dry, the repercussions aren’t pretty. But at least you can temporarily cover your partner’s legal cases. This isn’t likely to be true with a nonlawyer partner who has an area of expertise (and perhaps licensure) that you lack.

All Rights Reserved – Beverly Michaelis – 2018

When Opposing Counsel Doesn’t Respond

Quote

A recent post in NW Sidebar posed this interesting question.

While it is rare for opposing counsel to go MIA, it does happen. What steps should you take? Can you contact the adverse party directly?

Cut and dried rule

Oregon RPC 4.2 and Washington RPC 4.2 make no bones on this point. Direct contact with an adverse party is not permitted if you know the party is represented.  Exceptions are made in the case of consent, court order, if “authorized by law,” or when a notice must be sent directly to a party pursuant to a written agreement.

What to do

Post author Sandra Schilling makes some excellent recommendations:

  • Remember that non-communication from opposing counsel may be a deliberate strategy or delaying tactic. While lawyers have ethical duties of communication and due diligence toward clients, there is no specific rule requiring lawyers to respond to one another.
  • Make repeated efforts at contact. Warn opposing counsel of the consequence of continued nonresponse (you will contact the adverse party directly). Document your efforts.
  • Wait a reasonable amount of time.
  • Seek a court order if possible.
  • Otherwise, consider if the circumstances have abrogated your initial knowledge of representation. As Schilling points out, to “know” is to have “actual knowledge” under the rules. Your “actual knowledge” may be inferred from the changed circumstances (repeated attempts to contact, warnings to opposing counsel, and counsel’s nonresponse).
  • If you make direct contact with the adverse party, make sure you tell them to refer the communication to their attorney if they are still represented, and ask for documentation of termination if they say they aren’t.

I would add: at any point along the way feel free to use the Oregon Ethics Hotline: 
1-503-431-6475 or 1-800-452-8260.

All Rights Reserved 2018 Beverly Michaelis

Credit Card Surcharges Revisited

Remember the Payment Card Interchange Fee Settlement?

Processing credit card payments is a fact of life for today’s law firm. So are costly surcharges – the fee assessed by your bank or credit card processor for the privilege of accepting this form of payment.

In 2015 – 2016, some Oregon law firms took the position that the Payment Card Interchange Fee Settlement (PCIFS) permitted them to pass on credit card surcharges to clients.  As a reminder, the PCIFS was a class action settlement among merchants, Visa, MasterCard, and other defendants. American Express and Discover were not part of the litigation.  Applying the conditions of the settlement to a service-based industry like the legal profession was always tenuous at best.

Regardless, using the PCIFS as a justification for passing on credit card surcharges became moot in mid-2016 when the Second Circuit Court of Appeals reversed and remanded approval of the settlement.

The Post-PCIFS Era

If you’ve read my blog before, you know I’m an ardent advocate of absorbing credit card surcharges as a cost of doing business. This doesn’t mean watching money fly out the door without recourse.  It does mean you shouldn’t pass on surcharges as a separate cost item to the client.  Consider:

  • Assessing surcharges (or crediting clients for the net amount less fees) involves extra administrative and bookkeeping steps.  If you get the math wrong and the transaction involves trust account funds, you could face disciplinary action.
  • Firms who want to charge for credit cards often bill clients for postage, faxing, scanning, and photocopying.  These items already rate high on the client annoyance scale.  Pass on surcharges and that scale may tip.
  • Ethically, clients are not obliged to pay any cost to which they did not agree.  If you did not include the right to assess surcharges in your fee agreement, you cannot unilaterally pass on the cost after the fact.  Granted, you can fix this by modifying your fee agreement – but it isn’t necessarily advisable and may not be successful.  See OSB Formal Opinion 2005-97.
  • Fees can be adjusted to reflect this, and other, costs of doing business.
  • Surcharges are outright illegal in some states and capped in others.
  • Passing on surcharges may trigger compliance with Regulation Z of the Truth in Lending Act:

Passing the merchant fee on to the client or crediting the client for the net amount of the transaction only … may implicate Regulation Z of the Truth in Lending Act, 12 CFR §226.  As a result, you may be compelled to offer cash discounts to all clients and make specified disclosures to your clients who pay by credit card.  See CONSUMER LAW IN OREGON ch 14 (Oregon CLE 1996 & Supp 2000).  OSB Legal Ethics Opinion No. 2005-172.

As Before: Proceed at Your Own Risk

If you want to assess surcharges, do your own research and proceed at your own risk.

I leave you with these words of wisdom from LawPay, a popular credit card processor serving the legal profession:

While your state may allow you to pass on transaction fees to clients, think carefully before doing so. Potential clients will not expect a higher fee simply because they use a different form of payment. In today’s market the best practice may be to simply absorb these fees yourself as the cost of doing business.

All Rights Reserved 2018 Beverly Michaelis