Can a South Carolina lawyer team with an out-of-state law firm to jointly market entity-formation services where the SC lawyer provides all legal advice?

Plain-English summary

A South Carolina attorney considered teaming with a Georgia law firm that specialized in entity formation. The Georgia firm would handle marketing, initial client contact, and fact-gathering, and would generate documents; the South Carolina attorney would answer all South Carolina legal questions, be the sole provider of legal advice, approve and sign the Articles of Incorporation, and be responsible for filings. The marketing was low-profile: direct mail to South Carolina CPAs, an informational booth at CPA seminars, and brochures for CPAs to give clients, with the main pieces naming both the firm and the attorney. The questions were whether the joint marketing was permissible, what "legal services" the South Carolina attorney must provide, whether the Georgia firm would be a referral service, and whether the firm must disclose it is not licensed in South Carolina.

The committee concluded the joint marketing is permissible if the lawyer-advertising rules are followed, which essentially require truthful advertising without overreaching. The South Carolina attorney must provide all legal advice, including determining the type of entity to form, and may rely on the Georgia firm for initial interviewing and fact-gathering only under the South Carolina attorney's ultimate supervision and responsibility. Rule 5.3 authorizes a non-lawyer to be associated with a lawyer (including as an independent contractor) but requires the lawyer to be responsible for the non-lawyer's conduct, and the attorney must avoid assisting the unauthorized practice of law under Rule 5.5(b). Rule 1.1 requires competent representation in every matter, and the South Carolina lawyer must be proactive, not passive, in consulting the client about whether to incorporate.

On advertising, Rule 7.1 bars false, misleading, or unfair communications and material omissions, so all forms (including ancillary ones) must carry the South Carolina lawyer's name, and any statement that the Georgia firm is a law firm must disclose that it is not licensed in South Carolina. The committee found Rule 7.2's manner-and-media requirements satisfied by the low-key plan, with the responsible-lawyer (7.2(d)), payment-disclosure (7.2(e)), and address (7.2(i)) provisions met by naming the South Carolina lawyer. Rule 7.3 was not implicated because the brochures were not directed at people known to need legal services in a particular matter and the lawyer was not making direct contact with prospective clients. The arrangement is not a referral service because the South Carolina lawyer himself takes part in and is named on all advertising. Finally, the Georgia firm must disclose in all advertising that it is not licensed in South Carolina; that obligation attaches to the South Carolina attorney because omitting it would be a material omission.

In practice

Under this opinion, on the facts presented, a South Carolina lawyer may enter a joint-marketing arrangement with an out-of-state firm for entity formation if the lawyer provides and controls all legal advice and supervision and the advertising rules are met. The committee tied the result to Rule 1.1 (competence in every matter), Rule 5.3 (responsibility for associated non-lawyers), Rule 5.5(b) (no assisting unauthorized practice), Rule 7.1 (naming the South Carolina lawyer on all pieces and disclosing the firm's non-licensure), and Rules 7.2 and 7.3 (manner, required disclosures, and inapplicability of the targeted-solicitation rule). It held the plan is not a referral service because the South Carolina lawyer is named on all advertising.

Common questions

Q: Can I jointly advertise with an out-of-state firm if I provide all the legal work?

A: Yes, if the advertising rules are followed. The committee concludes the South Carolina lawyer may do so provided the lawyer gives all legal advice, supervises the firm's fact-gathering, and is named on all materials.

Q: What counts as the "legal services" only I can provide?

A: The committee says all legal advice, including determining the type of entity to form, and proactively counseling the client on whether to incorporate. The Georgia firm may do initial interviewing and fact-gathering only under your supervision, and you must avoid assisting the unauthorized practice of law under Rule 5.5(b).

Q: Is the out-of-state firm a lawyer referral service?

A: No. The committee concludes it is not, because the South Carolina lawyer takes part in the advertising and is named on all pieces, including ancillary forms.

Q: Does the out-of-state firm have to say it is not licensed here?

A: Yes. The committee holds the Georgia firm must disclose in all advertising that it is not licensed to practice law in South Carolina, and that this obligation attaches to the South Carolina attorney because the omission would be materially misleading under Rule 7.1.

Background and rules framework

The opinion applies South Carolina's versions of Model Rule 1.1 (competence), Model Rule 5.3 (responsibilities regarding non-lawyer assistance), Model Rule 5.5 (unauthorized practice; 5.5(b)), and Model Rules 7.1, 7.2, and 7.3 (advertising and solicitation), at SCACR 407.

Citations and references

Rules of Professional Conduct:

• MR 1.1 / SC Rule 1.1 (competent representation)
• MR 5.3 / SC Rule 5.3 (responsibility for associated non-lawyers)
• MR 5.5 / SC Rule 5.5(b) (assisting the unauthorized practice of law)
• MR 7.1 / SC Rule 7.1 (false or misleading communications; material omissions)
• MR 7.2 / SC Rule 7.2(d), (e), (i) (advertising; responsible lawyer, payment disclosure, address)
• MR 7.3 / SC Rule 7.3(c) (solicitation; targeted written communications)

See also

• SC Bar Ethics Op. 04-05: Identifying the firm in out-of-state co-counsel ads
• SC Bar Ethics Op. 04-09: Displaying out-of-state lawyers' business cards
• ABA Formal Op. 506: Responsibilities regarding nonlawyer assistants

Source

• Landing page: https://www.scbar.org/for-lawyers/quicklinks/legal-resources/ethics-advisory-opinions/ethics-advisory-opinion-05-12/

Original opinion text

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

UPON THE REQUEST OF A MEMBER OF THE SOUTH CAROLINA BAR, THE ETHICS ADVISORY COMMITTEE HAS RENDERED THIS OPINION ON THE ETHICAL PROPRIETY OF THE INQUIRER’S CONTEMPLATED CONDUCT. THIS COMMITTEE HAS NO DISCIPLINARY AUTHORITY. LAWYER DISCIPLINE IS ADMINISTERED SOLELY BY THE SOUTH CAROLINA SUPREME COURT THROUGH ITS COMMISSION ON LAWYER CONDUCT.

Ethics Advisory Opinion 05-12

RULES 1.1, 5.3, 5.5(b), 7.1, 7.2 and 7.3

Facts
Attorney is contemplating a unique arrangement with a Georgia law firm which “specializes” in entity formation to handle the formation of corporations and limited liability companies in South Carolina. A limited amount of legal advertising will be required.

The firm together with its predecessor firm has a ten year history of entity formation in Georgia. It currently forms more than 3,000 new Georgia entities a year. It considers two of its strengths to be its document assembly system and low key marketing program. By teaming with Attorney, it wishes to provide services in South Carolina. However, it is not forming a multi-state law firm or partnership.

The firm would handle marketing, initial client contact and information gathering from the client. Attorney would answer any South Carolina legal questions from the client and would be the sole provider of legal advice. The firm would generate all documents and forward the Articles of Incorporation to Attorney for his approval and signature. He would be responsible for any filings.

The marketing plan is very low profile and simple. First, the form plans to send direct mail to South Carolina CPAs. Second, the firm plans to set up an informational booth a few times a year at their Continuing Education Seminars. It would also provide a brochure for CPAs to give to their interested clients. The main advertising pieces would identify both the firm and Attorney. There are a few ancillary forms that only have the firm name on it.

The firm is expected to use its best efforts to comply with the South Carolina lawyer advertising rules. Any marketing pieces will be approved by Attorney before use. The firm is concerned that it may be considered a legal referral service because it would be doing the advertising for services to be performed by a South Carolina attorney. Attorney prefers to think of the plan as in the nature of a joint venture wherein the firm is providing legal related services while all legal services and legal advice are provided by a South Carolina attorney.

Questions
1. May a Georgia law firm and a South Carolina Attorney prepare a joint marketing package wherein all legal services will be provided by the South Carolina attorney?
a. In this factual setting, what constitutes the legal services which must be provided by the South Carolina attorney?

2. Would the Georgia law firm be considered a legal referral service because it is jointly advertising for legal services to be performed by a South Carolina attorney?

3. Is the Georgia law firm required to disclose in its advertising that it is not licensed to practice law in the state of South Carolina?

Summary
A Georgia law firm and a South Carolina attorney may prepare a joint marketing package wherein all legal services will be provided by the South Carolina attorney, provided that the rules on lawyer advertising are complied with. As will be discussed below, lawyer advertising rules essentially require that all advertising be truthful and that there be no overreaching or imposition upon potential clients while in vulnerable status. The fact that the marketing is being provided through other lawyers and certified public accountants to the clients of the certified public accountants and other lawyers generally suggests, without more, that there is less likelihood of overreaching or imposition.

1. The South Carolina attorney must indeed provide all legal advice. The Georgia firm may do initial interviewing and fact gathering, but such must always be under the ultimate control of the South Carolina attorney, and the South Carolina attorney is at all times responsible for these activities. While it is not necessary to dictate to a South Carolina attorney what specific activities he must undertake in order to provide “all legal services,” it would appear that this would include counseling or at least questioning the client as to why the client wants to incorporate or whether there are any other more beneficial alternatives. The attorney also should be cautious of not violating Rule 5.5(b) with respect to assisting the unauthorized practice of law.

2. The Georgia law firm would not be considered a legal referral service because the advertising that it is doing is being performed as a joint venture with the South Carolina attorney. All forms, including ancillary forms, must have the South Carolina lawyer’s name on it, as well as that of the Georgia law firm.

3. The Georgia law firm must disclose in all advertising that it is not licensed to practice law in the State of South Carolina. This is not simply an issue of unauthorized practice of law, it is also required by the rules on advertising. This obligation actually attaches to the South Carolina attorney, because the South Carolina attorney is engaged in a joint venture with the Georgia law firm, and it would be a material omission for the South Carolina lawyer to fail to disclose that the Georgia law firm is not licensed to practice law in the State of South Carolina.

Opinion
1. Joint marketing issue.
Rule 7.1 prohibits a lawyer from making false, misleading, deceptive, or unfair communications about the lawyer or the lawyer’s services. Rule 7.1(a) prohibits a lawyer from omitting a fact necessary to make the statement considered as a whole not materially misleading. Rule 7.1(b) prohibits a lawyer from making a statement which is likely to create an unjustified expectation about the results a lawyer can achieve. If the lawyer implies that the presence of the Georgia law firm will help in rendering legal services, the lawyer will be violating the above provisions. Therefore, it is necessary that all forms, including ancillary forms, include the name of the South Carolina lawyer on them. For the same reasons, it is necessary that all communications which state that the Georgia law firm is a law firm must also disclose that the Georgia law firm is not licensed to practice law in the State of South Carolina.

It is not improper for the Georgia law firm to state that it is a law firm on such advertisements, because there are many aspects of corporate law which are federal in nature and do not require knowledge of South Carolina law (e.g., tax law). Therefore, it is not improper for the Georgia law firm to state that it is a law firm, but for the above reasons, it must also disclose that it is not licensed to practice law in the State of South Carolina.

If the above is done, there is nothing in Rule 7.1 which will have been violated.

A significant part of Rule 7.2 addresses the manner and media in which advertising may be carried out. Since the advertising contemplated herein is low key (i.e. through certified public accountants or other attorneys), there appear to be no problems with the manner of advertising or the media used.

Rule 7.2(d) requires that any advertisement made must include the name of at least one lawyer responsible for its content. This is complied with by the inclusion of the name of the South Carolina attorney. Rule 7.2(e) is complied with because the South Carolina lawyer is included in all advertisements.

The South Carolina lawyer must be careful to disclose his address as set out in Rule 7.2(i).

Rule 7.3(c) states that every written communication from a lawyer soliciting professional employment from a client “known to be in need of legal services in a particular matter” shall comply with Rules 7.1 and 7.2, and shall contain additional disclosures. However, the brochures are not being given to individuals whom the South Carolina lawyer knows to be in need of legal services in a particular matter. Therefore, 7.3(c) is inapplicable.

Rule 7.3 is also not implicated because the lawyer is not making direct contact with prospective clients. Instead, essentially referrals are being sought from other licensed professionals (i.e., lawyers and certified public accountants).

a. Scope of legal services which must be provided by the South Carolina attorney.

This committee is reluctant to state what particular facts constitute proper legal representation in any field of law, and that is not the intent of this opinion. What is emphasized is that because the facts involve a joint marketing effort between a Georgia law firm and a South Carolina attorney, the South Carolina attorney must be responsible for all legal services and all legal advice. The committee cautions that legal advice necessarily includes the type of entity to be formed. Therefore, the South Carolina attorney must make that determination. The attorney also should be cautious of not violating Rule 5.5(b) with respect to assisting the unauthorized practice of law.

However, it is not improper for an attorney to rely on others, even those not in his law firm, to gather facts. Examples of this include real estate title opinions, private investigations in divorce cases, and the like. All of these are examples of activities which are not carried out by employees of a law firm, but which the lawyer is responsible for and must oversee. The manner of such oversight is within the sound discretion of the attorney. In this connection, the facts state that the Georgia law firm “would handle marketing, initial client contact, and information gathering from the client.” The marketing issue has been discussed above.

It is not improper for the Georgia law firm to handle initial client contact and information gathering, provided that the manner of doing so is ultimately subject to the supervision of the South Carolina attorney.

Rule 5.3 specifically authorizes a non-lawyer to be “associated with” a lawyer. Association does not mean direct employment. However, Rule 5.3(b) requires that the lawyer be responsible for the conduct of the non-lawyer. The Comment to Rule 5.3 also states that lawyers may employ assistants “whether employees or independent contractors.”

This committee will not dictate to practitioners the manner in which such supervision must take place, only that the lawyer is responsible for this conduct. It must be emphasized that such oversight is not a mere formality, but instead must be taken seriously by the South Carolina attorney and is an integral part of his representation of his client in all cases. It would also be improper for the South Carolina attorney to allow the Georgia law firm to interfere with such representation. It must be emphasized that Rule 1.1 requires the following:

“A lawyer shall provide competent representation to a client. Competent representation requires the legal knowledge, skill, thoroughness, and preparation reasonably necessary for the representation.”

Each case that the lawyer handles must comply with Rule 1.1, regardless of whether the client initially came to the South Carolina lawyer on his own or came as a result of a joint marketing effort with the Georgia law firm. The South Carolina lawyer must not merely play a passive role in responding to any South Carolina legal questions from the client, but in fact should be proactive in consulting with the client about whether incorporation is the desired course.

2. Lawyer referral service issue.
   This is not a lawyer referral service because the South Carolina lawyer himself is taking part in the advertising and is named on all advertisements. As mentioned above, all forms, including ancillary forms, must have the name of the South Carolina lawyer on them. Rule 7.2(e) only regulates advertising for the benefit of a non-advertising lawyer, but in this case South Carolina lawyer is named lawyer on all advertisements.

3. Disclosure issue.
   For the reasons discussed above, the Georgia firm must disclose in all advertisements that it is not licensed to practice law in the state of South Carolina.