MARYLAND STATE BAR ASSOCIATION, INC.
COMMITTEE ON ETHICS
ETHICS DOCKET NO. 2002-12
Law firm’s ownership of private investigation service and use by firm
You inquire as to the propriety of your firm having an "ownership interest" in an investigation service. You do not provide information about the exact nature or the extent of the proposed "ownership interest" of the investigation service. You advise that the investigation service would conduct independent investigations for your firm's cases when necessary. The service would have an established cost schedule, which you assert would be competitive in the marketplace. You further advise that the service would conduct witness interviews, site investigations, asset checks and licensure status, would take photographs and serve court papers among other things. The investigation service would be managed by a licensed private investigator. You also advise that the law firm's clients would be informed of your ownership interest in the investigation service through a disclosure and consent form, which they would sign. You advise that the law firm would advise clients that they could choose another investigation service but that the law firm would use it's investigation service unless clients specifically direct the firm to do otherwise. Lastly, you report that the lawyers in your firm would explain the consent form to your clients and answer questions that they have.
The Ethics Committee has previously opined that it is not, per se, unethical for a lawyer to own or promote a business, whether law related or not. See e.g., Ethics Opinion 95-14. However, this Committee has on many occasions highlighted ethics issues commonly inherent in such situations.
Those ethical issues include:
In several previous opinions, this Committee has expressed concern that these and other ethical problems are inherent in a lawyer's activity in a second, related profession or business, especially in circumstances where a client was asked or expected to engage the services of the lawyer's secondary business. In this regard, the Committee refers you to the extensive treatment of those considerations in Ethics Opinion 92-12.
Rule 1.7(b) of the Maryland Rules of Professional Conduct would appear to limit your proposed relationship and use of the investigation service upon certain circumstances. Rule 1.7(b) provides:
Subsection (c) of rule 1.7 further specifies that the required consultation shall include an explanation of any limitations resulting from a lawyer or the firm's own interests, as well as the advantages and risks involved.
As a general principal, all transactions between a lawyer and his or her clients must be fair and reasonable. In the fact situation you have presented, it is unlikely that your clients would be knowledgeable about competitive market rates for investigation services or engage in "comparison shopping." It is also possible that your firm's ownership interest in the investigation service would create client confusion as to whether you and the lawyers in your firm, as professionals bound by ethical considerations, are properly serving a client, or are feeding an ancillary business. Thus, the Committee has serious reservations about whether your business proposal would be fair and reasonable for the law firm's client's.
Although Rule 1.7 would appear to permit the proposed activity with client consent after consultation, the Comment accompanying this Rule indicates otherwise, with the following admonition:
However, as indicated in…paragraph (b)(1) with respect to material limitations on representation of a client, when a disinterested lawyer would conclude that the clients should not agree to the representation under the circumstances, the lawyer involved cannot properly ask for such agreement or provide representation on the basis of the client's consent.
In other words, there are situations where, even if the client consents after consultation, the lawyer nevertheless may not undertake the representation. For example, in Ethics Opinion 92-14, the Committee advised that it was unethical for a lawyer to sell life insurance to clients, finding that to do so would allow an attorney to take unfair advantage of the attorney-client relationship.
The Committee notes that it has previously found certain circumstances where it is acceptable for a lawyer to refer clients to an ancillary business so long as full disclosure of the lawyer's financial interest(s) is made to the client. (MSBA Opinion 98-34: an attorney may collect commission on issuance of bonds required as part of foreclosure; MSBA Opinion 93-06: lawyer with interest in a drunk driving program may refer it clients; MSBA 91-44: lawyer may furnish client with list of consulting firms which includes one owned by a lawyer in the firm; MSBA 88-80: lawyer may refer clients to a medical clinic in which he has an interest). However, these circumstances are distinguishable in that the client, not the lawyer had control over the extent to which the ancillary business would be utilized, whereas in the current inquiry, the lawyer would control the frequency and extent to which the ancillary business operation would be utilized at the expense of the client.
The Comment to Rule 1.7 also provides that "[T]he lawyer's own interests should not be permitted to have adverse effect on representation of a client." The Comment further provides that a lawyer's need for income should not interfere with his or her paramount obligation to advance a client's best interests. The relationship of attorney and client is one of trust and confidence, with the client looking to his or her attorney for guidance. The Committee believes that it is unethical for a lawyer to take advantage of that relationship by using investigation services from which the lawyer will realize a financial benefit at the expense of the client.
References: Rule 1.7 of the Maryland Rules of Professional Conduct for Lawyers, Ethics Dockets 98-34, 95-14, 93-06, 92-12, 91-44, and 88-80