Participation in Business Networks — NYSBA Opinion 791/2006 | New York Legal Ethics Reporter

Participation in Business Networks — NYSBA Opinion 791/2006

NYPRR Archive

By Lazar Emanuel

[Originally published in NYPRR April 2006]

Opinion 791 — 2/1/2006

The Committee was asked to reconsider its opinion 741(5/25/01), dealing with a lawyer’s participation in a business network which requires reciprocal referrals and which includes non-lawyers among its members. In Opinion 741, the Committee had concluded that the lawyer could not participate in the network without violating the Disciplinary Rules.

The business network considered in Opinion 741 was limited to one member for each profession and required each member, including the lawyer, to refer clients to the other members. Each member was also required to pay a one-time registration fee of$50 and annual dues of $240.

The Committee construed the lawyer’s obligation to refer clients to the non-lawyer members of the network as creating a conflict of interest under DR 5-101(A), which essentially prohibits a lawyer from accepting or continuing employment by a client if his professional judgment in behalf of the client will be affected by the lawyer’s own financial or business interests.

Further, the obligation by the non-lawyer members to refer clients to the lawyer would raise several other ethical issues. For example, the lawyer might not be competent to handle the matter and would therefore be prohibited from undertaking it under DR 6-101(A). Also, (1) the lawyer might not have adequate time to devote to the matter, and (2) representation of the client referred by a non-lawyer member might result in a conflict with a current or former client of the lawyer under DR 5-105 and DR 5-108.

“More importantly,” the Committee said, “participation in the organization would run afoul of DR 2-103(B)…” That Rule provides:

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 a lawyer may pay the usual and reasonable fees or dues charged by a qualified legal assistance organization. …

The dues paid by the lawyer to the network, and the obligation of the lawyer to refer clients to the non-lawyer members, construed together, would constitute the giving of “value” by the lawyer under the Rule. Only those organizations listed in DR 2-103(D) are exempt from the Rule, and the business network is not included in the list.

The business network in Opinion 741 encouraged its members to engage in “word of mouth” advertising. “…[It’s] like having dozens of sales people working for you. …When they meet someone new who could use your products or services they hand your card out and recommend your services.” The Committee commented:

DR2-103(A) prohibits a lawyer from engaging in in-person solicitation, other than from a close friend, relative, client or former client. DR 1-102(A)(2) prohibits a lawyer from circumventing a Disciplinary Rule through actions of another. It is ethically permissible for a lawyer to ask another person to hand out his or her business card, without stating more. [See N.Y. State 659 (1994).] If, however, the other members of the organization (to whom the attorney must make referrals) are encouraged to recommend the lawyer’s services orally, this oral conversation might violate the Code. The Committee concluded that a lawyer may not participate in a business network that requires the lawyer to refer clients to other members in exchange for their referral of legal business.

Opinion 791 Reaffirms Opinion 741

The inquiring lawyer in Opinion 791 attempted to distinguish her local chapter of a business network from the network in Opinion741 on the grounds that the chapter does not require lawyers to refer clients to other members in exchange for client referrals, and that the policies of the chapter are to recognize professional standards contained in a formal professional code of ethics as superseding its own. As was the case in Opinion 741, the lawyer was required to pay registration and annual fees to the chapter.

The Committee responded by reiterating its position in Opinion741 and stating “and that conclusion is correct whether or not the organization charges the lawyer any membership fees or other fees.”

Again, the Committee relied on DR 2-103(B). Even though the lawyer member was not required to refer anyone, the chapter required non-lawyer members to make referrals to the lawyer, and there was no indication that the professional standards governing these non-lawyers “would supersede their mandate to bring referrals to other chapter members.” “In effect,” the Committee held, “by paying the annual fee, the lawyer is paying for referrals.”

The various exceptions to DR 2-103(b) do not apply to the chapter: (1) The organization does not constitute a “contractual relationship” with non-legal professionals under DR 1-107; (2) the networking organization does not fit within any of the exceptions in DR 2-103(B)(2), because it is not a “qualified legal assistance organization;” and (3) the fees paid to the organization are not “referral fees to another lawyer as permitted by DR 2-107,” and therefore fail to meet the test of the exception in DR 2-103(B)(2).

The Committee reaffirmed its conclusions in Opinion 741 and added:

…a lawyer also may not participate in a business networking organization that charges membership dues and/or other fees and requires non-lawyer members to refer potential clients to members of the organization who are lawyers.

Lazar Emanuel is the Publisher of NYPRR

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Lazar Emanuel