Can a law firm fund and bankroll a nominally separate firm's office and advertising in exchange for that firm referring cases to it?

Plain-English summary

A law firm proposed to fund the cost of establishing a separate firm, paying its rent, utilities, incidental expenses, and the salaries of one or more attorneys and their secretaries. The lawyers in the separate firm would not be partners or associates of the funding firm. The funding firm would underwrite all of the separate firm's television and radio advertising. In return, the separate firm would refer certain cases it generated to the funding firm, which could accept or decline them; accepted cases would be handled on a contingency basis, with the separate firm receiving a referral fee. The firm asked whether it could fund the separate firm and pay for its advertising under this referral arrangement.

The Disciplinary Commission answered that the firm may not establish a separate and distinct law firm and pay for its advertising and other operating expenses in return for referrals. It noted the same question had been considered in RO-92-23, which found that this type of arrangement would violate Rule 7.1 because the public could be misled about who would actually be representing them, particularly where the funding firm intended to screen the separate firm's cases. The opinion also found that because the firm would pay the salaries and operating expenses of these unassociated lawyers, it would be giving something of value in return for a referral or recommendation of its services, violating Rule 7.2(c).

The Commission observed that although the firm called the new firm "separate," its apparent purpose was to create an advertising front and referral conduit for the existing firm. Under Rule 1.10 (vicarious disqualification), whether a group of lawyers constitutes a "firm" is a factual question, and the Comment notes a group could be a firm in one context but not another. The Commission concluded the "separate" firm would inherit all the conflicts relevant to the funding firm's former and existing clients, and the funding firm would be reciprocally affected by Rule 1.10.

Currency note

This opinion was modified by RO-99-01 (1999); consult that later opinion for the modified guidance. It was issued in 1993, before the 2002 Ethics 2000 revisions to the ABA Model Rules of Professional Conduct and Alabama's subsequent amendments to its Rules of Professional Conduct. Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule, deadline, or requirement mentioned here.

Common questions

Q: Can a law firm pay for a separate firm's office and advertising in exchange for referrals?

A: No. The opinion concluded a firm may not bankroll a nominally separate firm's operating expenses and advertising in return for case referrals.

Q: Why does that arrangement violate the advertising rules?

A: The opinion concluded it could mislead the public about who is actually representing them (Rule 7.1) and that paying the unassociated lawyers' salaries and expenses gives something of value for a referral or recommendation (Rule 7.2(c)).

Q: Would the two firms be treated as one for conflicts purposes?

A: Per the opinion, yes; under Rule 1.10 the "separate" firm would inherit all conflicts relevant to the funding firm's former and existing clients, and the funding firm would be reciprocally affected.

Background and rules framework

The opinion interprets Rule 7.1 (Model Rule 7.1, communications about a lawyer's services; misleading communications), Rule 7.2(c) (Model Rule 7.2, giving something of value for recommending the lawyer's services), and Rule 1.10 (Model Rule 1.10, imputation of conflicts within a firm) of the Alabama Rules of Professional Conduct. It builds on the Commission's earlier opinion RO-92-23 addressing the same arrangement.

Citations and references

Rules of Professional Conduct:

• Model Rule 7.1 / Ala. R. Prof. C. 7.1 (misleading communications about services)
• Model Rule 7.2 / Ala. R. Prof. C. 7.2(c) (giving value for a recommendation)
• Model Rule 1.10 / Ala. R. Prof. C. 1.10 (imputed disqualification; what is a "firm")

Other opinions cited:

• Ala. Formal Op. RO-92-23: the same separate-firm/referral arrangement

See also

• AL Ethics Op. 1993-11: use of "associates," "law firm," "law offices"
• AL Ethics Op. 1993-20: Rule 5.4 fee-splitting prohibition

Source

• Landing page: https://www.alabar.org/office-of-general-counsel/formal-opinions/1993-23/
• Original PDF: https://www.alabar.org/assets/2019/02/RO-93-23.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain; the linked PDF is authoritative.

ETHICS OPINION

RO-93-23

QUESTION:

"Our firm desires to fund the costs of establishing a separate firm, paying rent, utilities, incidental expenses and salaries for one or more attorneys and their secretaries. The lawyers comprising the separate firm would not be partners or associates of our firm. In the event the separate firm desired to advertise then we would underwrite all costs and expenses relating to television and radio advertising of the services of the separate firm.

It is anticipated the lawyers comprising the separate firm will refer to our firm certain cases generated by their firm which our firm desired to handle. Our firm will handle those cases it desires and may decline those it does not wish to handle.

All cases which our firm decides to handle will be under a contingency fee arrangement, with the separate firm receiving any referral fee earned.

May we fund the establishment of the separate firm and pay for its advertising, under agreement that certain cases generated by that firm may be referred to our firm for our acceptance or rejection as above described?"

ANSWER:

Your law firm may not establish a separate and distinct law firm and pay for advertising and other operating expenses in return for the referral of certain cases.

DISCUSSION:

This same question was previously considered by the Disciplinary Commission in RO-92-23 which is attached hereto. In that opinion, the Disciplinary Commission felt that this type of arrangement would violate Rule 7.1 of the Rules of Professional Conduct because the public could be misled about who would actually be representing them. You have not specified who is going to control the content of any advertising, and who will decide which cases are to be referred to your firm. It sounds as though you intend to screen all of the separate firm's cases.

Other Rules of Professional Conduct are potentially impacted by your proposal. Since your firm is going to pay salaries and operating expenses of these unassociated lawyers, you are giving something of value in return for a referral or recommendation of your services. This is violative of Rule 7.2(c).

While you have made a point of identifying this new firm established by you as "separate", it is apparent that your only purpose in proceeding as stated is to create an advertising front and referral conduit for your existing firm. Rule 1.10 deals with vicarious disqualification of lawyers associated in a "firm". Whether a group of lawyers constitutes a firm for purposes of this rule is a factual question. The Comment to Rule 1.10 notes that a group of lawyers could be considered a "firm" in one context of the rule, but not in another. If lawyers are associated in the practice of law in some way, the exact relationship can be immaterial for purposes of Rule 1.10. In that regard, it is the Commission's opinion that this "separate" firm would inherit all the conflicts relevant to your firm's former and existing clients. Your firm would, of course, be reciprocally affected by Rule 1.10.

12/30/93

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