Can a Texas lawyer who is in-house counsel to a healthcare provider agree to represent the provider's injured patients at low cost in exchange for the provider referring those patients?
Texas Ethics Opinion 543: In-House Counsel Taking Patient Referrals From a Healthcare Provider
Short answer: Per the Committee, a lawyer who serves as in-house counsel to a healthcare provider may not agree to represent the provider's injured patients at low cost in exchange for the provider referring those patients; the arrangement violates the rules on payment for referrals, professional independence, and conflicts of interest.
Disclaimer: This is an advisory ethics opinion. Advisory opinions are not binding; they interpret the Texas Disciplinary Rules of Professional Conduct and are persuasive authority. This summary is for research purposes only and is not legal advice. Verify current rules before acting on any specific guidance.
About this page: The plain-English summary and Q&A below were written by Ezel based on the official opinion. The opinion text is reproduced at the bottom; the official source (linked) controls.
Plain-English summary
A lawyer serves as general (in-house) counsel to a healthcare provider while keeping a separate law firm in the same building. The lawyer and the provider proposed an arrangement under which the lawyer would represent, at low cost, the provider's patients with auto-accident personal injury claims who are being treated by the provider. Patients could choose other counsel, and would sign a separate agreement disclosing the lawyer's ties to the provider. The provider would receive its charges out of any settlement, and would continue giving the lawyer clerical support as part of his compensation. The lawyer would seek conflict waivers in each case, but the provider would not consent to the lawyer handling any patient dispute against it other than a charges dispute, so a malpractice claim by the patient against the provider would require the lawyer's withdrawal.
The Committee analyzes Rule 7.03(b), which bars giving anything of value to a non-lawyer for soliciting or referring clients. It concludes the lawyer's offer of low-cost services is an inducement and a thing of value given to the provider, who will be recommending the lawyer to its patients, so the lawyer would violate Rule 7.03(b) by accepting the referrals. Comment 3 to Rule 7.03 explains that paying non-lawyers to solicit clients lets a non-lawyer do what a lawyer is forbidden to do.
The Committee then applies Rule 2.01 (independent professional judgment and candid advice) and Rule 5.04(c) (a lawyer must not let a person who recommends, employs, or pays the lawyer direct the lawyer's professional judgment). Because a personal-injury victim's condition reflects both the injury and the provider's medical care, the Committee concludes the lawyer could not adequately represent the patient without being free to address the provider's possible legal responsibility; the agreement to withdraw from disputes against the provider is therefore an impermissible restriction on the lawyer's independent judgment. Finally, the Committee holds that the lawyer's continuing loyalty and duties to his employer create a conflict under Rule 1.06(b), and that the lawyer could not satisfy Rule 1.06(c)(1)'s requirement of a reasonable belief that the patient's representation would not be materially affected, because the lawyer would be serving "two masters."
In practice
Under this opinion, and under the Texas rules as they stood at the time, an arrangement in which a lawyer who is in-house counsel to a healthcare provider takes referrals of the provider's injured patients in exchange for low-cost services is prohibited. The opinion holds the arrangement violates Rule 7.03 (accepting referrals procured by giving the provider something of value), Rules 2.01 and 5.04(c) (the agreement to withdraw from disputes against the provider improperly restricts the lawyer's independent judgment), and Rule 1.06(b) and (c) (an uncurable conflict, because the lawyer's loyalty to the employer would materially affect the patient's representation).
Common questions
Q: Can a lawyer offer a referral source low-cost legal services in exchange for client referrals?
A: Per Opinion 543, no. The Committee concludes that offering low-cost services to a provider's patients in exchange for referrals is giving the provider "anything of value" for referring clients, which Rule 7.03(b) prohibits.
Q: I'm in-house counsel to a company. Can I represent its customers on personal injury claims if I disclose the relationship and get waivers?
A: Per this opinion, disclosure and waivers were not enough on these facts. The Committee holds the lawyer's loyalty to his employer creates a Rule 1.06(b) conflict, and the lawyer could not reasonably believe the patients' representation would not be materially affected, so the conflict could not be cured under Rule 1.06(c).
Q: Can the arrangement require the lawyer to step aside if the client wants to sue the referring company?
A: The Committee says that requirement is itself a problem. Agreeing to withdraw from any patient dispute against the provider (other than a charges dispute) improperly restricts the lawyer's independent judgment under Rules 2.01 and 5.04(c), because the patient's condition may reflect the provider's own legal responsibility.
Background and rules framework
The opinion interprets Texas Disciplinary Rule 7.03 (prohibited solicitations and payments, related to ABA Model Rule 7.2), Rule 5.04 (professional independence of a lawyer, ABA Model Rule 5.4), Rule 2.01 (advisor, ABA Model Rule 2.1), and Rule 1.06 (conflict of interest, ABA Model Rule 1.7). The analysis turns on whether low-cost services are a thing of value given for referrals, whether the agreement to withdraw from disputes against the provider restricts the lawyer's judgment, and whether the lawyer's duties to his employer create a conflict that cannot be waived.
Citations and references
Rules of Professional Conduct:
- MR 7.2 (payment for recommending a lawyer's services)
- MR 5.4 (professional independence)
- MR 2.1 (advisor)
- MR 1.7 (conflict of interest)
- Texas Disciplinary Rules 7.03(b), 5.04(c), 2.01, 1.06(b) and (c)
See also
- TX Ethics Op. 561: Paying a Fee for a For-Profit Internet Client-Matching Service
- TX Ethics Op. 641: Client Referrals From a Financial Planning Company
- TX Ethics Op. 643: Lawyer-Owned Debt Management Company Referrals
Source
- Landing page: https://www.legalethicstexas.com/resources/opinions/opinion-543/
- Original PDF: https://tcle-web.s3.amazonaws.com/public/documents/Opinion_543.pdf
Original opinion text
Reproduced from the official source for research purposes. The linked source is authoritative.
QUESTION PRESENTED
Under the Texas Disciplinary Rules of Professional Conduct, may a lawyer enter into an agreement as described below with a healthcare provider, for which the lawyer is its in-house counsel, to refer patients with personal injury claims to that lawyer?
STATEMENT OF FACTS
A lawyer is currently employed as general counsel (in-house counsel) by a healthcare provider and provides legal guidance and services to the healthcare provider and its affiliates. The lawyer also maintains a separate law firm, which is located in the same building with his employer. The lawyer is permitted to represent clients other than the healthcare provider or its affiliates and actively does so.
The lawyer and healthcare provider wish to enter into an agreement whereby the lawyer will provide legal services at low cost to the healthcare provider’s patients who have personal injury claims as a result of automobile accidents and who are receiving treatment from the healthcare provider. The patient would be free to choose any other lawyer, if preferred. A separate agreement would be executed between the lawyer and the patient/client with full disclosure of past and present relationships between the lawyer and the healthcare provider and its affiliates. Written disclosures would be in bold print and discussed with each patient/client before entering into such an agreement.
Separate agreements between the patient/client and healthcare provider would be entered into concerning the payment of charges owed to the healthcare provider. Those charges would be paid to the healthcare provider at time of settlement or other resolution.
As part of the lawyer’s compensation package, and in return for in-house legal services to the healthcare provider, the lawyer will continue to receive clerical and related support from the healthcare provider during the time that he or his firm is representing any healthcare provider patients.
Full disclosure of the existence of conflicts of interest or potential conflicts will be made in every case to the healthcare provider and the patient/client by the lawyer, who will request written waiver of conflicts from both in each instance. However, the healthcare provider will not agree to the lawyer handling disputes between the healthcare provider and the patient/client except those disputes regarding charges. In other words, disputes such as a malpractice claim by the patient/client against the healthcare provider would require the lawyer’s withdrawal and nonparticipation.
DISCUSSION
Any time a lawyer enters or considers entering into a referral arrangement, the lawyer is confronted with several provisions of the Texas Disciplinary Rules. The above described arrangement between the healthcare provider and its in-house counsel raises several ethical issues under Rule 7.03, Prohibited Solicitations & Payments; Rule 5.04, Professional Independence of a Lawyer; Rule 2.01, Advisor; and Rule 1.06, Conflict of Interest: General Rule.
It is apparent from the foregoing Statement of Facts that the healthcare provider will be recommending the lawyer to its patients. Although the patient is free to choose another lawyer, the fact that the lawyer has agreed to provide low cost legal services is certainly an inducement for the patient to become a client of the lawyer. Rule 7.03(b) provides in pertinent part as follows:
“A lawyer shall not pay, give, or offer to pay or give anything of value to a person not licensed to practice law for soliciting prospective clients for, or referring clients or prospective clients to, any lawyer or firm . . . .”
The lawyer would violate said rule if the lawyer is giving “anything of value” to the healthcare provider. The lawyer is offering his legal services at lower cost to the healthcare provider’s patients in exchange for a referral from the healthcare provider of that patient. Such an agreement gives the healthcare provider a competitive advantage over other healthcare providers who are not able to offer their patients a lawyer who will provide legal services at such low cost. Additional consideration that the healthcare provider is receiving under the proposed arrangement between it and the lawyer is that the healthcare provider will have greater assurance that any amount owed to it for its charges will be paid upon settlement or other resolution of the patient/client case.
Although the healthcare provider proposes that it will exercise no control over or involvement in the personal injury case, the lawyer is giving up an element of control by agreeing to withdraw from representing the patient/client in the event that there is a dispute between the healthcare provider and the patient/client other than a dispute over charges. This restriction is discussed in more detail below.
The Committee is of the opinion that, under the proposed arrangement, the lawyer is giving something of value to the healthcare provider who will be soliciting prospective clients or referring clients or prospective clients to the lawyer.
Comment 3 to Rule 7.03 states in pertinent part as follows:
“However, paying, giving, or offering to pay or give anything of value to persons not licensed to practice law who solicit prospective clients for lawyers has always been considered to be against the best interest of both the public and the legal profession. Such actions circumvent these Rules by having a non-lawyer do what a lawyer is ethically proscribed from doing. Accordingly, the practice is forbidden by Rule 7.03(b).”
A client is entitled to expect that a lawyer will exercise independent professional judgment and render candid advice. See Rule 2.01. In the case of a victim of a personal injury requiring medical care, the victim’s condition after the injury and medical care reflects both the effects of the injury and the effects (good or bad) of the medical care. In such circumstances, the Committee is of the opinion that it would be impossible for an attorney to appropriately represent the patient/client without being able to address fully the possibility that the healthcare provider might have some legal responsibility for the condition of the patient/client after the injury.
Thus an agreement that precludes representation of the patient/client adverse to the healthcare provider would constitute an impermissible restriction on the lawyer’s exercise of independent professional judgment on behalf of his client, the injury victim. Such a restriction would be contrary to Rule 5.04(c), which provides:
“A lawyer shall not permit a person who recommends, employs, or pays the lawyer to render legal services for another to direct or regulate the lawyer’s professional judgment in rendering such legal services.”
Furthermore, under the facts described above, the healthcare provider is the employer of the lawyer. By virtue of such relationship, the lawyer would owe certain duties and loyalties to his employer. Loyalty to the lawyer’s employer is apparent in the proposed arrangement as reflected in the agreement that the lawyer must withdraw from further representing patient/clients in the event that there is any type of dispute between the healthcare provider and the patient/client other than a dispute over charges. The lawyer’s loyalty to the employer would continue during the lawyer-client/patient relationship, and such loyalty would present improper interference with the exercise of the lawyer’s professional judgment.
Explaining the rationale of the above rule, Comment 4 to Rule 5.04 provides in pertinent part as follows:
“Because the lawyer-client relationship is a personal relationship in which the client generally must trust the lawyer to exercise appropriate professional judgment on the client’s behalf, Rule 5.04(c) provides that a lawyer shall not permit improper interference with the exercise of the lawyer’s professional judgment solely on behalf of the client. The lawyer’s professional judgment should be exercised only for the benefit of the client free of compromising influences and loyalties.”
Since the lawyer has a past, present, and continuing relationship with the healthcare provider, the lawyer’s obligations to his employer and the lawyer’s own interests as an employee of the healthcare provider would create a conflict of interest situation under Rule 1.06(b), which provides in pertinent part as follows:
“In other situations and except to the extent permitted by paragraph (c), a lawyer shall not represent a person if the representation of that person: ...
(2) reasonably appears to be or become adversely limited by the lawyer’s or law firm’s responsibilities to another client or to a third person or by the lawyer’s or law firm’s own interests.”
A conflict under Rule 1.06(b) does not preclude proposed representation if the lawyer is able to comply with Rule 1.06(c), which provides as follows:
“A lawyer may represent a client in the circumstances described in (b) if:
(1) the lawyer reasonably believes the representation of each client will not be materially affected; and
(2) each affected or potentially affected client consents to such representation after full disclosure of the existence, nature, implications, and possible adverse consequences of the common representation and the advantages involved, if any.”
The lawyer in the arrangement described herein would owe loyalty not only to the patient/client, but also to the healthcare provider. As such, the lawyer is serving “two masters,” and it is the Committee’s opinion that the lawyer employed by the healthcare provider could not meet the requirement of Rule 1.06(c)(1) that the lawyer reasonably believe that the representation of the patient/client would not be materially affected by the lawyer’s responsibilities and interests arising from the lawyer’s relationship with the healthcare provider. Accordingly, the lawyer’s representation of the patient/client would also be prohibited by Rule 1.06(b).
It is the opinion of the Committee that the arrangement described above would be prohibited by several rules of the Texas Disciplinary Rules of Professional Conduct.
The lawyer would violate Rule 7.03 by accepting referrals from the healthcare provider under the stated circumstances.
The referral of the healthcare provider’s patients to its in-house counsel creates a very serious potential that the existing employer/employee relationship between the healthcare provider and the lawyer will cause improper interference with the lawyer’s exercise of independent professional judgment on behalf of patient/clients. Such an arrangement would violate Rule 2.01 and Rule 5.04(c).
Finally, such an arrangement would be prohibited by Rule 1.06(b) and (c) as an impermissible conflict of interest.
CONCLUSION
It is the opinion of the Committee that the arrangement described above would be prohibited by several rules of the Texas Disciplinary Rules of Professional Conduct.
The lawyer would violate Rule 7.03 by accepting referrals from the healthcare provider under the stated circumstances.
The referral of the healthcare provider’s patients to its in-house counsel creates a very serious potential that the existing employer/employee relationship between the healthcare provider and the lawyer will cause improper interference with the lawyer’s exercise of independent professional judgment on behalf of patient/clients. Such an arrangement would violate Rule 2.01 and Rule 5.04(c).
Finally, such an arrangement would be prohibited by Rule 1.06(b) and (c) as an impermissible conflict of interest.
Tex. Comm. On Professional Ethics, Op. 543 (2002)