I run a marketing company on the side that serves doctors, chiropractors, mortgage brokers, and real estate agents. I've referred law clients to some of these same professionals for years. Now that they're becoming marketing-company clients, is it a conflict of interest for me to keep referring my law clients to them?

Plain-English summary

The inquiring attorney, who maintains a private law practice, planned to establish a marketing company that would provide marketing, advertising, and public relations services for a fee to professionals such as doctors, chiropractors, mortgage brokers, and real estate agents. The attorney had developed working relationships with several such professionals over the years and had often referred law clients to them; the attorney anticipated these professionals would likely become clients of the new marketing company and wanted to continue making the referrals.

The panel explained that referring a client to a business in which the lawyer has a financial interest ordinarily triggers Rule 1.8(a) (business transactions with clients) and Rule 1.7(a)(2) (material limitation to representation), citing the Comment to Rule 1.7's warning against referring clients to a business in which the lawyer has an undisclosed financial interest. But the panel distinguished the attorney's situation: the attorney was not referring clients to his or her own marketing company, and had no direct financial interest in the individual professional practices or businesses receiving the referrals. The panel found the attorney's indirect financial interest, as the marketing company's fee-for-service provider to those professionals, did not meet the "significant risk" standard of newly adopted Rule 1.7(a)(2). The panel further noted that if the referrals were part of a reciprocal referral arrangement, Rule 7.2(c)(4) (also newly effective April 15, 2007) would require the arrangement to be non-exclusive and the client to be informed of its existence and nature. Even absent such an arrangement, the panel advised the attorney to disclose the business relationship to referred clients so they could weigh that fact before engaging the referred professional.

In practice

The opinion holds that, under the Rhode Island rules as they stood at the time of the opinion, a lawyer's indirect financial interest in a nonlawyer professional's business, arising from the lawyer's separate marketing company providing fee-for-service marketing to that professional, does not by itself create a significant risk of material limitation under Rule 1.7(a)(2), unlike a direct financial interest in the referred business, which the opinion states would create a conflict. Where the referral arrangement is reciprocal, Rule 7.2(c)(4) requires the arrangement to be non-exclusive and requires informing the client of the arrangement's existence and nature. The panel advised disclosure of the business relationship to referred clients in all events.

Common questions

Q: Is it automatically a conflict of interest to refer law clients to professionals I also do business with through a side company?

A: Not under this opinion, if the lawyer's interest in the referred professional's business is indirect (here, as a fee-for-service marketing provider) rather than a direct financial interest in that professional's practice. The panel found no significant risk of material limitation under Rule 1.7(a)(2) on these facts.

Q: Does it matter if my referral arrangement with these professionals is reciprocal (they refer clients back to me)?

A: Yes. The opinion states that a reciprocal referral arrangement must comply with Rule 7.2(c)(4), which requires the arrangement to be non-exclusive and requires that the client be informed of the existence and nature of the agreement.

Q: Even if there's no conflict and no reciprocal arrangement, do I need to tell my clients about the business relationship?

A: The panel advised disclosing the business relationship in either case, so clients have the opportunity to weigh that fact before deciding to engage the referred professional.

Background and rules framework

The opinion interprets Rhode Island Rule 1.7(a)(2) (Conflict of Interest: Current Clients), which tracks Model Rule 1.7(a)(2) and asks whether there is a significant risk that representation of a client will be materially limited by the lawyer's responsibilities to another client, a former client, a third person, or by the lawyer's own personal interest. It also references Rule 1.8(a) (business transactions with clients) and Rule 7.2(c)(4) (reciprocal referral arrangements), a provision newly effective April 15, 2007 that permits a lawyer to refer clients to another lawyer or nonlawyer professional under a reciprocal referral agreement so long as the agreement is non-exclusive and the client is informed of it.

Citations and references

Rules of Professional Conduct:

• MR 1.7(a)(2) (concurrent conflicts of interest; significant risk of material limitation)
• MR 1.8(a) (business transactions with clients)
• MR 7.2(c)(4) (reciprocal referral arrangements; non-exclusivity and client disclosure requirements)

Statutes:

• None cited.

Cases:

• None cited.

Other opinions cited:

• None cited.

See also

• ISBA Op. 10-02: Reciprocal Referral Agreements
• COBAR Op. 106: Referral Fees and Networking Organizations
• ISBA Op. 12-03: Lawyer's Participation in Networking Group With Nonlawyer Professionals
• CA Bar Op. 2002-159: Attorney Referral to Broker for Loan-Funded Fees

Source

• Landing page: https://www.courts.ri.gov/attorney-resources/Pages/Ethics-Advisory-Panel-default.aspx
• Original PDF: https://www.courts.ri.gov/Opinions/EAP%202007-11.pdf

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

Final

               Rhode Island Supreme Court Ethics Advisory Panel
                     Opinion No. 2007-11 Request No. 945
                            Issued October 11, 2007

Facts

    The inquiring attorney, who has a private law practice, plans to establish a

marketing company. The marketing company will provide marketing, advertising, and
public relations services for a fee to various professionals, including doctors, chiropractic
doctors, mortgage brokers, and real estate agents. Over the years, the inquiring attorney
has developed good working relationships with several such professionals, and often refers
law clients to them. The inquiring attorney anticipates that these professionals will likely
become clients of the marketing company. The inquiring attorney would like to continue
to refer law clients to professionals for whom his/her marketing company will provide
services.

Issue Presented:

   The inquiring attorney asks whether it is a conflict of interest under the Rules of

Professional Conduct to refer law clients to professionals who are clients of a separate
marketing company owned by the inquiring attorney.

Opinion:

    It is not a conflict of interest under Rule 1.7 for the inquiring attorney to refer

clients to nonlawyer professionals who are clients of the inquiring attorney's marketing
company. The Panel advises the inquiring attorney to disclose the business relationship to
clients who are so referred.

Reasoning:

    In general, referring a law client to a business in which the lawyer has a financial

interest triggers obligations under conflicts-of-interest rules, namely, Rule 1.8(a) (business
transactions with clients), and Rule 1.7(a)(2) (material limitations to representation.) See
Comment to Rule 1.7 (lawyer may not allow other business interests to affect
representation, for example, by referring clients to a business in which lawyer has an
undisclosed financial interest.) The inquiring attorney does not propose to refer law clients
to his/her marketing company. Rather, the inquiring attorney, who has referred clients to
certain nonlawyer professionals with whom he has had working relationships, wishes to
continue to do so should those professionals become clients of his/her marketing company.

   The Panel does not believe that such referrals would create a conflict of interest

under Rule 1.7(a)(2) which states:
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            (a) Except as provided in paragraph (b), a lawyer shall not
            represent a client if the representation involves a concurrent
            conflict of interest. A concurrent conflict of interest exists if:

                                            ***

                   (2) there is a significant risk that the representation of one
                   or more clients will be materially limited by the lawyer's
                   responsibilities to another client, a former client or a third
                   person or by a personal interest of the lawyer.

    Referring clients to various doctors, chiropractors, mortgage brokers, and real

estate agents who receive marketing services from the inquiring attorney's separate
marketing company does not, per se, pose a significant risk of material limitation to the
inquiring attorney's representation of his/her clients. Under the facts of this inquiry, the
inquiring attorney does not have a direct financial interest in the individual professional
practices or businesses to which his/her clients are referred. A direct financial interest
would create a conflict of interest under Rule 1.7. The Panel notes, however, that the
inquiring attorney has an indirect financial interest in those businesses as their provider of
marketing services. The Panel believes that such an indirect interest does not meet the
"significant risk" standard of newly adopted Rule 1.7(a)(2). Nevertheless, lawyers should
be mindful that they must not allow personal or financial interests, direct or indirect, to
obscure their objectivity or to interfere with their professional obligations to clients.

   If the inquiring attorney's referrals to the various professionals are part of a

reciprocal referral arrangement, the inquiring attorney must comply with Rule 7.2(c).
Subsection (4) of Rule 7.2(c) is a new provision of the Rhode Island Rules of Professional
Conduct which became effective on April 15, 2007. Rule 7.2(c)(4) states:

   (c) A lawyer shall not give anything of value to a person for recommending the
       lawyer's services except that a lawyer may

                                         ***

   (4) refer clients to another lawyer or a nonlawyer professional pursuant to an
   agreement not otherwise prohibited under these Rules that provides for the other
   person to refer clients or customers to the lawyer, if

                 (i) the reciprocal referral agreement is not exclusive, and

                 (ii) the client is informed of the existence and nature of the agreement.

    Under subsection (4), lawyers are permitted to enter reciprocal referral

arrangements with lawyers and nonlawyer professionals, so long as the reciprocal referral

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Final 2007-11
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arrangements are not exclusive, and the client is informed about the arrangements. Even
absent a reciprocal referral arrangement, the Panel advises the inquiring attorney to
disclose the business relationship between him/her and the various professionals who are
marketing clients in order to provide clients with the opportunity to weigh that fact before
deciding to engage the referred professional, and to assure clients of his/her loyal
representation.

    The Panel concludes that the Rules of Professional Conduct permit the inquiring

attorney to refer clients to nonlawyer professionals who are business clients of the
attorney's marketing company, and advises the inquiring attorney to disclose the business
relationships to clients who are referred to them.

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