Abstract 98/99-07

Summary of Facts Provided

The attorney entered into a written contingency fee agreement with the client to represent the client in a personal injury action. The contingency fee agreement between the attorney and the client did not provide that the attorney could recover attorney fees if the client discharged the attorney prior to the conclusion of the matter. After performing some services, the client discharged the attorney without cause.

Issues and Conclusions

Can the attorney ethically assert a charging lien, pursuant to CRS § 12-5-119 (1998), for attorney fees and costs incurred in representing the client who unilaterally terminated the attorney's services without cause?

If the contingency fee agreement does not expressly provide that the attorney may recover attorney fees where the client has discharged the attorney without cause, the agreement does not substantially comply with C.R.C.P., Ch. 23.3 regarding the recovery of attorneys' fees. As such, Colo. RPC 1.5 and 8.4(d) ethically prohibit the attorney from asserting a lien to recover such fees. Colo. RPC 1.5(c) provides that a lawyer's fee may be contingent provided, inter alia, that a contingent fee shall meet all of the requirements of C.R.C.P., Ch. 23.3. Under Ch. 23.3, Rule 5(d), the contingency fee agreement must set forth "a statement of the contingency upon which the client is to be liable to pay compensation otherwise than from the amounts collected for him by the attorney." Further, Rule 6 prohibits an attorney from recovering any fees if he fails to comply substantially with all of the requirements of C.R.C.P., Ch. 23.3. In Elliott v. Joyce, 889 P.2d 43 (Colo. 1994), under similar circumstances the Supreme Court applied these rules to prohibit a recovery of attorney fees under a quantum meruit theory, as a sanction for failure to comply with C.R.C.P., Ch. 23.3.

Assuming the attorney has complied with the requirements in Colo. RPC 1.8(e) and C.R.C.P. 23.3, Rule 5(f), regarding costs incurred on the client's behalf, the attorney may ethically assert a charging lien pursuant to CRS § 12-5-119 (1998), for the reasonable, authorized costs incurred on behalf of the client. However, if the attorney does not comply with C.R.C.P., Ch. 23.3, Rule 5(f), the attorney may not ethically assert a lien to recover costs. Elliott v. Joyce, 889 P.2d at 45. Rule 5(f) requires all contingency fee agreements to include a stipulation from the client that the client, except as permitted by Colo. RPC 1.8(e), is to be liable for expenses. The stipulation must include an estimate of such expenses, authority of the attorney to incur the expenses and make disbursements, and a maximum limitation not to be exceeded without the client's written authority. Colo. RPC 1.8(e) prohibits the attorney from advancing expenses on behalf of the client unless the client remains ultimately liable for such expenses. The attorney may only forgive such expenses "if it is or becomes apparent that the client is unable to pay such expenses without suffering substantial financial hardship."

Abstract 98/99-08

Summary of Facts Provided

Lawyer A is an associate in a law firm. Lawyer B is a partner in the same law firm and also serves as a part-time municipal judge for the city in which the firm is located. Lawyer B is appointed on an annual basis by the city and is paid directly by the city; the firm does not receive any sort of fee or salary in connection with Lawyer B's service as a part-time municipal judge.

Issues and Conclusions

Is it ethical for Lawyer A to represent criminal defendants in county court where city law enforcement personnel are expected to testify, even though Lawyer B is employed as a part-time municipal judge for the city? Yes.

One potential problem involves conflicts of interest, Colo. R.P.C. 1.10(a) prohibits a lawyer in a firm from knowingly representing a client when any one lawyer in the firm practicing alone would be prohibited from doing so by Colo. R.P.C. 1.7, 1.8(c), 1.9 or 2.2. Given the facts presented, however, it does not appear that Lawyer B would have a conflict of interest, so there is not imputed conflict under Rule 1.10(a).

Another potential problem involves Colo. R.P.C. 1.12, which prohibits a lawyer in a firm from representing anyone in a matter in which another lawyer in that firm participated personally and substantially as a judge, unless (1) all parties to the proceeding consent after disclosure or (2) the disqualified lawyer is "screened" from the case, and written notice is given to the appropriate tribunal. In this regard, a lawyer is "screened" from a case when he or she is barred from participating in it and is not apportioned any fee from it. Given the facts presented, however, Rule 1.12 does not prohibit Lawyer A from representing clients in county court because Lawyer B serves as a part-time municipal judge.

This issue was addressed in Formal Opinion 45 (1984 & 1996 Addendum) [26 The Colorado Lawyer 58 (May 1997)]. Formal Opinion 45 concludes that a lawyer may not accept employment with respect to matters which have or may come before the lawyer who is a part-time judge or which derive from or are incidental thereto or matters involving persons who are parties to any matter which has or appears likely to come before the lawyer in his capacity as judge. In addition, the Opinion states that anyone practicing with a lawyer who is a part-time judge shall not accept any employment which the part-time judge could not. As noted in Formal Opinion 45, these prohibitions are necessary to maintain the public's confidence in the judicial system.

Abstract 98/99-09

Summary of Facts Provided

Two trust and estate planning attorneys, who work for different law firms, have formed a Colorado corporation to serve as a fiduciary (trustee, successor trustee, or personal representative) of estates left by clients of each of the attorneys or by residents in the geographic area. The two attorneys are shareholders and directors of the corporation. They are the only officers of the corporation, and the work efforts and products of other employees or agents of the corporation will be subject to their direct supervision and control. Although the two attorneys presently are the only shareholders of the corporation, they anticipate admitting non-attorney shareholders in the future, most likely investment advisors who will be compensated through a year-end profit-sharing arrangement.

The operations of the corporation have not commenced yet, but when they do they will be conducted from the law office of one of the attorneys. The attorneys plan to serve as trust officers for each client of the corporation. The attorneys also plan to review, through their respective law firms, trust and estate documents the corporation administers, thus, in effect, providing legal advice to the corporation.

The attorneys plan to disclose fully their respective interests in the corporation when mentioning the corporation to their respective clients as a fiduciary option for the clients' estate planning purposes. They also plan to disclose fully the corporation's fee schedules, and other possible fiduciaries for their respective clients to consider appointing in the estate planning documents they each prepare through their respective law firm practices. The attorneys formed the corporation to provide trust and estate administration services in their geographic area, where no other business entity currently provides such services.

Issues and Conclusions

May the attorneys ethically conduct the operations of the corporation as planned? Do the services provided by the corporation constitute legal services? How may the attorneys ethically inform their clients of the availability of the corporation to provide fiduciary services?

The CBA Ethics Committee ("Committee") believes it would be very difficult, if not impossible, for the attorneys to conform their respective practices through their law firms and through the corporation with the ethics rules which pertain to dual practices. There is no per se prohibition in the Colorado Rules of Professional Conduct against lawyers engaging in a second occupation or business, provided that the second occupation does not constitute a vehicle for improper solicitation, otherwise known as a "feeder operation," in violation of Rules 7.2(c) and 7.3(a). However, the ethical danger of dual occupations increases if the separate business involves any of the following elements: (a) the second occupation is conducted from the law office premises, (b) the second occupation is related to the practice of law, or (c) the lawyer provides both legal and non-legal services in the same transaction. CBA Formal Op. 98 (adopted December 14, 1996) [26 The Colorado Lawyer 21 (April 1997)]. All three elements exist in the present case. In addition, persons associated with the same law firm may not ethically charge separate fees as an estate fiduciary and attorney for their respective services to the estate. CBA Formal Op. 21 (as amended July 20, 1962, addendum issued 1995). Here, the attorneys would be acting as trust officers of the corporation, and providing legal advice through their respective law firms. Accordingly, the attorneys should make certain their clients consent to such dual representation, coordinate which entity will bill for the services rendered, and explain to the client that the client will be billed only once for the services provided by the corporation and the law firm, together.

The following additional ethics rules also may pertain to the proposed arrangement: Rule 1.5(a) (reasonableness of fees), Rule 1.6 (confidentiality of information), Rule 1.7 (conflicts of interest), Rule 1.8 (prohibited transactions), Rule 1.9 (conflicts of interest relative to former clients), Rule 1.10(a) (imputed disqualification), Rule 1.16(a)(1) (declining or terminating representation), and Rule 2.2 (duties of a lawyer acting as an intermediary).

Whether the services rendered through the corporation constitute the practice of law is a legal question outside the purview of the Ethics Committee. However CBA Formal Op. 87 (revised December 14, 1991, addendum issued 1995) [21 The Colorado Lawyer 219 (Feb. 1992)] provides examples of trust funding tasks, such as assignment of business interests and preparation of deeds for real estate, that are "legal" in nature; whereas, tasks such as changing beneficiary designations, bank account titles and stock account titles are "non-legal." Thus, the attorneys should clearly delineate the non-legal services provided through the corporation from the legal services rendered through their respective law firms. If the corporation's services are legal in nature, its operation would violate Rule 7.5(b), which prohibits lawyers from practicing under a trade name or a name that is misleading as to the identity of the attorneys. In addition, attorneys ethically may not use professional notices containing a trade name or a name that is misleading. CBA Formal Op. 83 (adopted November 18, 1989, addendum issued 1993) [19 The Colorado Lawyer 25 (Jan. 1990)]. Furthermore, if the corporation's services are legal in nature, the plan to allow non-lawyer shareholders would violate Rule 5.4(a) and (b), which prohibit sharing legal fees with a non-lawyer and prohibit forming a partnership with a non-lawyer if any of the activities of the partnership consist of the practice of law. Also, Rule 5.5(b) prohibits a lawyer from assisting another in the unauthorized practice of law.

With regard to informing their clients that the corporation is available to provide fiduciary services, any communication in that regard must comply with Rules 7.1 through 7.4 (as amended January 1, 1998) and Rule 7.5. These rules govern both the context and content of any communication intended to solicit business for the corporation. Likewise, if any clients of the corporation need legal advice or estate planning work, referral to either of the attorneys or their respective law firms must comply with Rules 7.1 through 7.4. See CBA Formal Op. 83 and CBA Formal Op. 98.

Abstract 98/99-10

Summary of Facts Provided

A for-profit corporation (the "Corporation") has invited a lawyer to participate in an attorney referral network. In exchange for a monthly participation fee of $2,500, the Corporation would refer "leads" (names and addresses of patients seen at chiropractic and physical therapy clinics, and names and addresses of people involved in automobile accidents) to a limited number of attorneys; referrals would be exclusive and would be divided among lawyers participating in the network based on the leads’ zip codes. The Corporation would mail a form letter to each of those leads on Corporation letterhead, and the letter would include the following statements: (1) "We make sure that you receive all the benefits you deserve." (2) "We handle cases like yours—on a contingency (percentage) basis, which means that the referral attorney does not get paid unless you get paid." (3) "If you want to receive the most complete medical care and money for which you are entitled from your injury, call your team at [Corporation] . . . and we will schedule a ‘Free Consultation’ with the right attorney for you." (4) "[Corporation] and our referral service is FREE to you. We charge NO FEE to you for our service whatsoever."

Issues and Conclusions

May the lawyer participate in the Corporation’s referral network? No. The Committee believes that the lawyer’s participation in the program would violate the Colorado Rules of Professional Conduct.

Colorado Rule of Professional Conduct 1.5(a) unequivocally prohibits referral fees. Rule 7.2(c) prohibits a lawyer from providing anything of value to a for-profit organization in exchange for referrals. Under these rules and the comment to Rule 7.2, the $2,500 per month payment for leads is unethical. See People v. Zimmerman, 938 P.2d 131 (Colo. 1997); CBA Formal Op. 83 (adopted Nov. 18, 1989, addendum issued July 24, 1993) [23 The Colorado Lawyer 329 (Feb. 1994)].

Although the letter would be from the Corporation, not the lawyer, it would be mailed on the lawyer’s behalf, and the lawyer therefore may be responsible for its content. The form letter to prospective clients contains statements which violate several rules governing attorney communications concerning legal services. Colo. RPC 7.1(e), 8.4(a), (c).

Rule 7.1(a) prohibits misleading communications about the lawyer or the lawyer’s services, including statements that are "likely to create an unjustified expectation about results the lawyer can achieve." The form letter is or may be misleading in its statements or suggestion that (a) the Corporation itself will perform the work for the client, (b) the participating attorney is a part of the Corporation, and (c) the participating attorney is competent to handle the matter. Also, statements such as "[w]e make sure that you receive all the benefits you deserve" and "WE CAN HELP YOU" are likely to create an unjustified expectation about the results the lawyer can achieve. The form letter also violates Rule 7.1(d) which requires "[a]ny communication that states or implies the client does not have to pay a fee if there is no recovery" to "also disclose that the client may be liable for costs."

Rule 7.2(d) requires "[a]ny advertisement made pursuant to this Rule" to "include the name of at least one lawyer responsible for its content." Rule 7.3(d) requires any communication governed by Rule 7.3 to include the words "this is an advertisement" in a clear and conspicuous form on the outside of the envelope and at the beginning and end of any written communication. The form letter is from the Corporation and not the lawyer, but it is on the lawyer’s behalf; however, it does not identify the lawyer or include the "advertisement" legend. Therefore, it also does not comply with Rules 7.2(d) and 7.3(d).

Rule 7.3(c) prohibits solicitation of legal work from a client whom the lawyer knows or reasonably should know is represented by another lawyer in the matter. According to the Corporation’s proposal to the lawyer, some of the leads are already represented by counsel. If the form letter were sent to those leads, the mailing would violate Rule 7.3(c).

Finally, if the Corporation would be involved in providing services to clients, and if the lawyer does not adequately supervise the Corporation and its lay employees, the lawyer might be in violation of Rule 5.5(b) which prohibits a lawyer from assisting a person who is not a member of the Colorado bar in the unauthorized practice of law. In that regard, the lawyer must be sensitive to his duty of confidentiality under Rule 1.6. Because the Corporation would screen and process incoming calls from prospective clients, the lawyer is responsible for assuring that the Corporation’s non-attorney personnel are properly trained to perform their screening work and to comply with the requirements of Rule 1.6. See CBA Formal Op. 83.

Abstract 98/99-11

Summary of Facts Provided

Upon his retirement from the practice of law, Lawyer A wishes to sell his law practice to Lawyer B. The attorneys are considering a transaction whereby Lawyer B would pay Lawyer A a percentage of future fees received by Lawyer B for work performed by Lawyer B for Lawyer A's clients.

Issues and Conclusions

May a retiring lawyer structure the sale of his law practice to require the purchasing lawyer to pay the retiring lawyer a percentage of future fees collected by the purchasing lawyer for work performed by the purchasing lawyer for the selling lawyer's clients? The Committee believes that this arrangement is permissible under the Colorado Rules of Professional Conduct.

Colorado Rule of Professional Conduct 1.17, which became effective on July 1, 1997, permits a lawyer to sell his or her law practice, including the value of its goodwill, subject to compliance with the terms of the Rule. The Rule does not regulate the method of establishing a price for a practice or how the price is to be paid; the comment assumes that the price will be based on the reasonable value of the practice. Rule 1.17(b) prohibits the buyer from increasing the fees charged to clients because of the sale, or from otherwise passing on to clients the cost of goodwill. Rule 7.2(c) provides that the sale of a law practice in accordance with Rule 1.17 does not constitute a prohibited payment for the recommendation of the purchasing lawyer's services.

The Committee believes that the rationale for the adoption of Rule 1.17 was to enable sole practitioners to sell their practices at a reasonable price, which would include the value of its goodwill. Because a sale price based on a percentage of future collected fees is consistent with that underlying goal of Rule 1.17, the Committee concludes that such a transaction is permissible. The Committee does not believe that payment of a percentage of future fees to a retiring lawyer constitutes a prohibited division of fees under Rule 1.5(d), particularly in light of the later adoption of Rule 1.17. However, the Committee notes that there is authority for a contrary conclusion, including Schoenwald, Model Rule 1.17 and the Ethical Sale of Law Practices: A Critical Analysis, 7 Geo.J.Legal Ethics 395 (1993).