Can a lawyer own and operate a nonlegal ancillary business, such as a medical-management company, and refer the lawyer's own clients to it?

Plain-English summary

A Nevada attorney asked whether a lawyer may own and operate an ancillary business providing nonlegal medical-management services, and whether the lawyer may refer clients to it. The Committee answered both questions in two parts.

On ownership, the answer is yes. The Nevada Rules of Professional Conduct do not prohibit a lawyer from owning and operating an ancillary business that provides nonlegal services, so long as the lawyer's conduct in operating it conforms to the applicable ethical standards and the business does not become a vehicle for improper solicitation for the lawyer's law practice. The opinion notes that such nonlegal services should be readily distinguishable, from the client's perspective, from the practice of law, and that in operating the business the lawyer must remain cognizant of the rules governing solicitation (NRPC 7.2 and 7.3), conflicts (NRPC 1.7 and 1.8), and professional misconduct (NRPC 8.4).

On referrals, the answer is more restrictive. A referral of the lawyer's own client to the lawyer's ancillary business is a business transaction with a client, governed by NRPC 1.8(a). That rule prohibits such a transaction unless its terms are fair and reasonable and fully disclosed in writing in a manner the client can understand, the client is advised in writing of the desirability of seeking independent legal counsel and given a reasonable opportunity to do so, and the client gives informed consent in a writing signed by the client to the essential terms and the lawyer's role. Even after satisfying 1.8(a), the referral creates a personal-interest conflict, because the lawyer's interest in the ancillary business may materially limit the representation. The lawyer therefore may not continue to represent the client unless the client properly waives that conflict under NRPC 1.7(b). In making the required disclosures and obtaining informed consent, the lawyer must disclose both the lawyer's interest in the ancillary business and the nature and scope of the potential conflicts that may arise.

In practice

The opinion holds that, under the Nevada rules, owning a nonlegal ancillary business is permitted if the lawyer follows the ethics rules and does not use the business to improperly solicit law-practice clients. Referring one's own client to that business is a business transaction subject to the written-disclosure, independent-counsel, and signed-consent requirements of NRPC 1.8(a), and continued representation after such a referral requires the client's waiver of the personal-interest conflict under NRPC 1.7(b), with full disclosure of the lawyer's interest and the potential conflicts.

Common questions

Q: Can a lawyer own a side business that provides nonlegal services?

A: Yes. The opinion concluded the Nevada rules do not prohibit owning and operating a nonlegal ancillary business, provided the lawyer's conduct conforms to the ethics rules and the business is not a vehicle for improper solicitation of the law practice.

Q: Can the lawyer send the lawyer's own clients to that business?

A: Only with safeguards. The opinion holds a referral is a business transaction with a client under NRPC 1.8(a), requiring fair terms fully disclosed in writing, written advice to seek independent counsel, and the client's signed informed consent.

Q: Does the lawyer have to address a conflict after referring the client?

A: Yes. The opinion concluded the referral creates a personal-interest conflict, so the lawyer may not continue the representation unless the client waives it under NRPC 1.7(b), with disclosure of the lawyer's interest and the potential conflicts.

Background and rules framework

The opinion interprets NRPC 1.8(a) (business transactions with a client), NRPC 1.7(b) (waiver of a personal-interest conflict), and the solicitation rules NRPC 7.2 and 7.3, together with NRPC 8.4, as applied to a lawyer who owns a nonlegal ancillary business and considers referring clients to it.

Citations and references

Rules of Professional Conduct:

• Model Rule 1.8 / Nev. RPC 1.8(a) (business transactions with a client)
• Model Rule 1.7 / Nev. RPC 1.7(b) (waiver of conflict; informed consent)
• Model Rules 7.2, 7.3 / Nev. RPC 7.2, 7.3 (advertising; solicitation)
• Model Rule 8.4 / Nev. RPC 8.4 (misconduct)

See also

• NV Ethics Op. 53: an attorney-owned medical-lien business
• NV Ethics Op. 52: lawyers providing lobbying and other law-related services

Source

• Landing page: https://nvbar.org/for-lawyers/ethics-discipline/ethics-opinions/
• Original PDF: https://nvbar.org/wp-content/uploads/Ethics_Op_45.pdf