Can a law firm own stock in a loan company that lends to its clients with pending claims and keep referring clients there?

Plain-English summary

The inquiry asked whether it violated the Canons for a firm of attorneys to invest in the stock of a loan company that lends considerable money to persons with pending damage-suit claims (and from which the firm's clients had borrowed in the past), and to continue sending clients who might need to borrow to a loan company in which the firm owns stock.

The Committee held that neither the investment nor the referrals would, of themselves, violate the Canons (9-0). It reasoned that if the connection between the loan company and the firm, because of the stock ownership, is not used for the purpose of or as an incident to the solicitation of business (which would violate Canon 24) or for stirring up litigation (which would violate Canon 25), then the firm's purchase of the stock would not violate the Canons. The continued referral of clients to a company in which the firm owns stock likewise would not violate the Canons, provided the practice is not engaged in with sufficient notoriety or regularity to constitute an indirect solicitation of business or advertisement on the firm's behalf, and is not done for the purpose of, or as an aid to, securing employment in view of the barratry statute.

Currency note

This opinion was issued in 1960, under the former Texas Canons of Ethics, which the Texas Disciplinary Rules of Professional Conduct replaced effective January 1, 1990. It also predates Bates v. State Bar of Arizona, 433 U.S. 350 (1977), which loosened categorical advertising restrictions, though prohibitions on solicitation were not eliminated. 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 Treat this page as historical context, not current guidance.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 own stock in a loan company that lends to its clients with pending claims?

A: Under this opinion, yes, of itself. The Committee held the investment would not violate the Canons so long as the connection is not used for, or as an incident to, the solicitation of business or to stir up litigation.

Q: Can the firm keep referring clients who need to borrow to a company it owns stock in?

A: Yes, with limits. The Committee held continued referrals would not violate the Canons provided they are not made with sufficient notoriety or regularity to be an indirect solicitation or advertisement, and are not done to secure employment in view of the barratry statute.

Q: What would turn this into a violation?

A: The Committee identified using the connection to solicit business (Canon 24), stirring up litigation (Canon 25), referrals with enough notoriety or regularity to be indirect solicitation or advertising, or referrals made to secure employment in view of the barratry statute.

Background and rules framework

The opinion interprets former Texas Canons 24 (advertising and solicitation) and 25 (stirring up litigation), together with the state barratry statute, as applied to a firm's investment in a loan company and its referral of clients there. The modern analogs are ABA Model Rules 7.2 (advertising) and 7.3 (solicitation of clients).

Citations and references

Rules of Professional Conduct:

• MR 7.2 (advertising), as the modern analog
• MR 7.3 (solicitation of clients), as the modern analog
• Texas Canons 24 and 25 (former canons)

Statutes:

• Texas barratry statute (referenced)

See also

• TX Ethics Op. 215: A Charity's Designated Adoption Firm
• TX Ethics Op. 224: Lawyer Ad in a Circus Program
• TX Ethics Op. 230: Advancing Money to Clients

Source

• Landing page: https://www.legalethicstexas.com/resources/opinions/opinion-211/
• Original PDF: https://tcle-web.s3.amazonaws.com/public/documents/Opinion_211.pdf

Original opinion text

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

QUESTION PRESENTED

Is it a violation of the Canons of Ethics for a firm of attorneys to:
Invest in the stock of a loan company which lends considerable money to persons who have pending damage suit claims, and from which company the clients of said law firm have borrowed money in the past.
Continue to send their clients, who might have a need to borrow money, to a loan company in which they own stock.

18 Baylor L. Rev. 297 (1966)

SOLICITATION, INDIRECT- INVESTING IN STOCK OF COMPANY, LENDING MONEY TO PERSONS WITH DAMAGE SUIT CLAIMS
It is not a violation of the Canons of Ethics for a firm of attorneys to invest in the stock of a loan company which lends considerable money to persons who have pending damage suit claims and from which company the clients of said law firm have borrowed money in the past if such connection between the company and the attorneys is not used for the solicitation of business; nor is it a violation for said law firm to continue to send its clients, who might have a need to borrow money, to a loan company in which it owns stock, provided such practice is not engaged in with sufficient notoriety or regularity to constitute an indirect solicitation of business or advertisement on behalf of the firm of attorneys, or if it is not done for the purpose of, or as an aid to, securing employment in view of the barratry statute.

Canons 24, 25.

Such investment and referral, as set out in sections a and b hereof, would not of itself be in violation of the Canons of Ethics.

If the connection between the loan company and the firm of attorneys, because of the stock ownership, is not used for the purpose of or as an incident to the solicitation of business (which would, of course, constitute a violation of Canon No. 24) or for the purpose of stirring up litigation (which would be a violation of Canon No. 25) the purchase, by a firm of attorneys, of stock in a loan company which lends money to persons having pending damage suit claims would not be a violation of the Canons of Ethics, nor would the referral or continued referral, by a law firm of its clients to a loan company in which said law firm owns stock be a violation of the Canons of Ethics, provided such practice is not engaged in with sufficient notoriety or regularity to constitute an indirect solicitation of business or advertisement on behalf of the film of attorneys, or if it is not done for the purpose of, or as an aid to, securing employment in view of the barratry statute. (9-0.)

Tex. Comm. On Professional Ethics, Op. 211 (1960)