MARYLAND STATE BAR ASSOCIATION, INC.
COMMITTEE ON ETHICS
ETHICS DOCKET NO. 2005-11
PARTICIPATION IN FOR-PROFIT REFERRAL ORGANIZATION WITH NON-ATTORNEYS
You state that you have been approached by a networking and referral organization. This organization has multiple chapters around the world. Each chapter consists of various professionals and business people who seek to obtain referrals and learn marketing techniques. Only one person from any given profession or line of business can join any individual chapter. The particular chapter that has approached you includes, among others, a beauty consultant, heating and air conditioning contractor, investment advisor, and AFLAC insurance agent.
The chapters hold weekly meetings. At these meetings, there is usually a general presentation on how to better market your business. A chapter officer may also draw attention to other seminars that are taking place in the area that address marketing techniques. This is followed by a detailed presentation by one member educating the others about his or her business. Finally, at the end of the meeting, members exchange referrals they have obtained for each other (if any) during the course of the past week.
The referral organization is a for profit entity. It earns its revenue through annual membership fees paid by each member. The members do not pay fees to each other and the organization does not make any referrals. You characterize the organization’s role as helping to bring people together to make “free referrals among themselves.”
You further state that there is no requirement that you provide referrals to other members, or that you obtain referrals from them. You write that it is “theoretically possible to join a chapter only for the various educational programs they provide.” The organization has no quotas and there are no “quid pro quo referrals.”
You ask whether participation in this organization would violate Rule 1.7, 5.4 or 7.2 and, if not, are there any limits on the extent to which you would be permitted to participate. In the Committee’s judgment, participation in this organization would violate the current Rules of Professional Conduct.
As you acknowledge in your inquiry, we have opined many times before on referral arrangements with non-lawyers. See, e.g., Ethics Docket 87-17, 88-65, 90-46, 95-11, 96-17, 2000-34, 2000-35, 2000-40. This Committee has looked with disfavor on referral arrangements with non-lawyers.
For example, in Ethics Docket 96-17, we found fault with a proposed referral arrangement with a financial planning services firm. The Committee found that the proposal violated Rule 1.7(b) because clients would not receive disclosure of the lawyer’s potentially compromised interest. In such a situation, we observed, the lawyer’s own interest in receiving the benefits of the referral relationship could conflict with doing what is best for the client. We also opined that the transaction amounted to an indirect economic transaction that failed to comply with Rule 1.8 (Conflict of Interest” Prohibited Transactions). In Ethics Docket 2000-34, we concluded that even with disclosure, such arrangements could present an unacceptable conflict of interest, and could compromise the lawyer’s professional independence, violating Rule 5.4. In Ethics Docket 2000-35, we opined that a “free referral arrangement” offered by the accounting arm of a national financial services company created both conflict of interest and advertising concerns.
In our judgment, the arrangement offered by this organization presents the same ethical concerns we encountered in those previous opinions. Arrangements of this nature create undisclosed conflicts of interest, compromise an attorney’s professional independence and risk violation of the rule prohibiting in-person solicitation.
You have not provided this Committee with a copy of the organization’s rules, but an examination of the web site suggests the pitfalls are serious. Furthermore, our examination of ethics opinions from sister states involving this, or a remarkably similar, organization reinforces our concerns.
We begin our analysis with information contained on the organization’s web site. The organization advises that membership is desirable because:
Belonging to [our organization] is like having dozens of sales people working for you because all of them carry several copies of your business cards around with them.
When they meet someone who could use your products or services, they hand out your card and recommend you. It’s as simple as that! It’s simple because it’s based on a proven concept by [the organization’s founder . . . called “givers gain.” If I give you business you’ll give me business and we’ll both benefit as a result.
There is an asterisk in this blurb which directs the reader to the following caveat:
Note, some professions, specifically attorneys and certain health care professionals, may not be permitted to seek direct referrals through in-person solicitation through the use of business cards pursuant to their ethical code. Members of [the organization] that belong to these professions are directed to follow their profession’s own ethical guidelines.
The organization clearly contemplates that members will pass around the business cards of others. For non-lawyers, this is of no concern. For lawyers, however, the prime, advertised objective of this organization raises a serious concern. Rule 7.3 prohibits in-person solicitation of clients.1
In Ethics Docket 98-30, we stated “that the distribution of business cards [through another] when such distribution is performed manually (as opposed to by mailing) constitutes ‘in person contact with a prospective client’ and that such contact is improper.”
We also found in that opinion that, contrary to the inquirer’s suggestion, the proposed practice violated Rule 7.2(c) because it involved the exchange of something of value. Rule 7.2(c) provides:
[a] lawyer shall not give anything of value to a person for recommending the lawyer’s services, except that a lawyer may pay the reasonable cost of advertising or written communication permitted by this Rule and may pay the usual charges of a not-for-profit lawyer referral service or other legal service organization.
In that opinion, the inquirer and a bail bondsman proposed laminating their business cards back-to-back for distribution. The Committee reasoned that the proposed practice involved an implicit “quid pro quo.”
The Committee believes that the conjoining of the cards amounts to an agreement to the effect of “You distribute my cards, and I’ll distribute yours.” Thus, by distributing the bail-bondsman’s cards you would be giving something of value in exchange for his commitment to distribute your cards. While the Rule would not prohibit you from recommending the bail-bondsman and does not prohibit him from gratuitously recommending you, your commitment to use such back-to-back cards in exchange for his use of such cards is not permitted by the Rule.
Although the organization you propose to join does not go so far as to laminate business cards back-to-back, it clearly promotes the concept of “You distribute my cards, and I’ll distribute yours.” The Committee finds that this presents the implicit quid pro quo we rejected in Ethics Docket 98-30.
Nor is the Committee persuaded that attorneys can carve out a separate, ethically compliant, niche for themselves in this organization. Although the organization’s web site advises lawyers that they are directed to follow their profession’s own ethical guidelines, the Committee is not naive.
Participation in this organization is intended to harness the efforts of others to market your legal services. The possibility of joining solely for the educational benefits strikes the Committee as purely “theoretical.”
The Committee is concerned, too, by what it has read regarding this, or a highly similar, organization in the opinions of ethics committees from other states. For example, in Formal Opinion 2004-175 of the Oregon State Bar, the Committee considered the ethical propriety of lawyer participation in an association whose “stated purpose is the exchange of business referrals between members.” The Committee noted that the organization stressed the importance of attendance at monthly meetings and that making referrals was a condition of maintaining membership. However, the Oregon Committee observed that the Association’s rules “acknowledge that the formal standards of ethics of a profession supersede any Association rules.” The Oregon Ethics Committee was not persuaded by this verbal sleight of hand. It found that membership implicitly required the exchange of something for value for referrals. “[S]ubstance must rule over form and a lawyer cannot join a group such as the Association on the premise that the rules are suspended for lawyers if, in fact, the referral requirements are a condition of membership.” The Oregon Committee also expressed the concern that even if the group did not require reciprocal referrals, contacts made by attorneys to referred clients could violate the prohibition on in-person solicitation.
Similarly, the New York State Bar Association’s Committee on Professional Ethics concluded that a lawyer could not participate in an organization such as that described by you. See, Ethics Opinion 741. As here, that Association required participants to attend regular meetings. The organization’s rules provided: “Participants are required to bring bona-fide referrals and/or visitors to their chapter.” The rules also provided: “I will take responsibility for following up on the referrals I receive.” The organization’s materials stated that belonging was “like having dozens of sales people working for you because all the other members carry several copies of your business card around with them. When they meet someone new who could use your products or services they hand your card out and recommend your services.” The New York Committee found, as we have found here, that membership in the organization compromised the lawyer’s independence, risked in-person solicitation, and potentially created undisclosed conflicts of interest.
The Committee is mindful that on February 8, 2005, the Court of Appeals adopted amendments to the Rules of Professional Conduct which take effect on July 1, 2005. Rule 7.2 has been amended to read, in relevant part:
Rule 7.2 Advertising
- A lawyer shall not give anything of value to a person for recommending the lawyer’s services except that a lawyer may
- refer clients to another lawyer or a non-lawyer 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
- the reciprocal referral agreement is not exclusive, and
- the client is informed of the existence and nature of the agreement.
In the Committee’s judgment, the application of the new rule would not cure the multiple defects posed by this arrangement. The risk of a conflict of interest is unchanged. The risk of in-person2 solicitation also would be undiminished. Accordingly, we conclude that both under the present and revised rules the referral arrangement you propose is not permissible.
REFERENCES:
Maryland Rules of Professional Conduct : Rules 1.7, 1.8, 5.4, 7.2 , 7.3
Ethics Opinions: Ethics Docket 87-17, 88-65, 90-46, 95-11, 96-17, 98-30, 2000-34, 2000-35, 2000-40
Oregon State Bar, Formal Opinion 2004-175
New York State Bar Association, Committee on Professional Ethics, Ethics Opinion 741
1 Rule 7.3 Direct Contact with Prospective Clients
- A lawyer may initiate in person contact with a prospective client for the purpose of obtaining professional employment only in the following circumstances and subject to the requirements of paragraph (b):
- if the prospective client is a close friend, relative, former client or one whom the lawyer reasonably believes to be a client;
- under the auspices of a public or charitable legal services organization; or
- under the auspices of a bona fide political, social, civic, fraternal, employee or trade organization whose purposes include but are not limited to providing or recommending legal services, if the legal services are related to the principal purposes of the organization.
2 The Committee notes that the organization does not limit its membership to “professionals,” and thus, the amended Rule 7.2 may not apply.