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Ten Ethics Questions from Young Lawyers  |  Lawyer Admission and Regulation in Illinois  |  Client Trust Account Handbook

TEN ETHICS QUESTIONS FROM YOUNG LAWYERS

(CBA Record - March 1998)

By Mary F. Andreoni, Administrative Counsel, ARDC

Question #1: Responsibilities of a Subordinate Lawyer
Question #2: Hourly Billing
Question #3: Multi or Cross-Jurisdictional Practice
Question #4: Business Transactions with Clients
Question #5: Firm Names and Letterheads
Question #6: Duty to Report Lawyer Misconduct
Question #7: Law Firm Dissolution or Departure
Question #8: Advertising: Targeted Mailing Solicitation
Question #9: Referral Fees
Question #10: Serving As Director and As Lawyer for a Corporation

Question #1: What is an associate to do when a partner orders the associate to do something the associate considers improper?

Answer: A subordinate lawyer is bound by the Rules of Professional Conduct even if the lawyer acts at the direction of another person (Rule 5.2(a)). However, the subordinate lawyer does not violate the Rules if the subordinate lawyer acts in accordance with the supervising lawyer's "reasonable resolution" of an "arguable" question of professional duty (Rule 5.2(b)). In other words, if it was clear at the time that the actions were undertaken that it was a violation of the Rules, a subordinate lawyer cannot blindly follow the directions of a supervising lawyer and claim a "Nuremberg defense," i.e, "I was just following orders."

For example, if a subordinate was told by a supervising lawyer to file a pleading that the subordinate lawyer knew or reasonably should have known was frivolous, the subordinate would be guilty of a violation of professional conduct. ABA Annot. Model Rules of Professional Conduct, at p. 425-26 (3d ed. 1996).

However, the subordinate lawyer does not violate the Rules if there is an "arguable" or close question about whether the supervising lawyer's directions would result in a violation of the Rules. For example, if there is a serious question about whether the interests of current clients conflict under Rule 1.7, the subordinate lawyer can rely on the supervising lawyer's reasonable resolution of the question. See Kelley's Case, 627 A.2d 597 (N.H. 1993) (subordinate lawyer could not rely on Rule 5.2(b) as a defense where the potential conflict was clear and could reasonably be answered only one way)

Determining whether a directed course of action is a "reasonable resolution" of an "arguable" question of professional duty can at times be difficult, particularly for a less experienced lawyer. As a starting point, the subordinate lawyer should discuss his or her concerns with the supervising lawyer. If the subordinate lawyer is still concerned that the supervising lawyer's resolution is not "reasonable," the subordinate lawyer should talk to other partners in the firm, particularly if there is a partner designated as the "ethics counsel" or if there is an ethics committee created at the firm to resolve these questions. If the subordinate lawyer continues to be concerned, the subordinate lawyer may want to consult with a professional responsibility lawyer.

If the subordinate lawyer determines that the supervising lawyer is asking him to engage in a course of action that would clearly result in a violation of the Rules, then the subordinate lawyer must refuse to participate or assist in the matter even if refusal may result in the subordinate lawyer's dismissal from the firm. See Jacobson v. Knepper and Moga, P.C.,___Ill.2d ___, No. 84740 (Ill., Dec. 31, 1998) (lawyer could not maintain retaliatory discharge claim against former law firm based on allegation the he was terminated for objecting to law firm's alleged practice of filing debt collection cases in wrong venue); See also Balla v. Gambro, Inc., 145 Ill.2d 492, 164 Ill.Dec. 892, 584 N.E.2d 104 (1991) (in- house counsel cannot bring cause of action for retaliatory discharge against company) and Herbster v. North American Co. for Life & Health Ins., 150 Ill.App.3d 21, 103 Ill.Dec. 322, 501 N.E.2d 343 (1st Dist. 1986).

Question #2: Is it proper to bill a client for time spent on an airplane traveling to a meeting when that time is spent: a) sleeping or b) working on projects for another client who will also be billed for that time?

Answer: In analyzing any fee question, two questions must be asked ? (1) what is the agreement or understanding with the client; and (2) is the fee objectively reasonable under Rule 1.5. A lawyer is required to explain the basis or rate of the fee to the client at the outset of the representation (Rule 1.5(b)). The explanation concerning the fee must be sufficient so that the client can make informed decisions (Rule 1.4(b)). Although only contingent fee agreements must be in writing pursuant to the ethics rules (Rule 1.5(c)), the prudent lawyer will typically reduce to writing the parties' understanding of the charges to be made in any case and have the client sign and retain a copy. Regardless of a client's consent to the terms of a fee agreement, the lawyer cannot charge an unreasonable fee and the fee agreement remains subject to court scrutiny. In re Teichner, 104 Ill.2d 150, 161, 83 Ill.Dec. 552, 470 N.E.2d 972 (1984)

Rule 1.5(a) lists eight factors to be considered in determining whether a fee is reasonable. Rule 1.5 contemplates different kinds of billing arrangements, including billing on the time and labor expended. The questions asked here presume that the client has agreed to be billed by the lawyer on an hourly basis.

Subpart (a) concerns whether a lawyer can properly bill a client for travel time. If the lawyer has informed the client of how the client will be charged, the client has agreed, and the charges otherwise meet the requirements of reasonableness under Rule 1.5(a), then this is proper. See Matter of Comstock, 664 N.E.2d 1165 (Ind. 1996) (lawyer charged unreasonable fee in part for including travel time to and from a distant law library when another suitable law library was minutes away); see Cripe v. Leiter, 291 Ill.App.3d 161, 683 N.E.2d 514, 225 Ill.Dec. 346 (3d Dist. 1997), pet. for leave to appeal allowed, Docket No. 84117 (Jan. 29, 1998) (plaintiff can maintain cause of action against lawyers under the Consumer Fraud Act for deceptive business practice of making alleged misrepresentations on legal invoices by setting forth charges for time purportedly not actually spent).

As for subpart (b), ABA Standing Committee on Ethics and Professional Responsibility ABA Formal Opinion 93-379 (Dec. 6, 1993) ("Billing for Professional Fees, Disbursements and Other Expenses") addressed certain hourly billing practices, including the practice of billing more than one client for the same hours spent. This opinion, which attracted a good deal of interest from the bar when it was issued, set forth certain guidelines on what constitutes reasonable billing procedures. No known contrary view has been published. ABA Formal Op. 93-379 concluded that the practice of billing several clients for the same time is unreasonable and a violation of Rule 1.5. ABA Formal Op. 93-379 reasoned that a lawyer, billing one client six hours for travel time, while working five hours on behalf of another client during the same time frame, would not be entitled to eleven billable hours because the lawyer did not actually perform eleven hours of services and the lawyer should not bill clients as though the lawyer worked exclusively on that client's matter for that time period. (ABA Formal Op. 93-379, at 7-8; see Cal. Formal Op. No. 1996; 147, at pgs. 4-5 (1996).

Question #3: May a lawyer admitted only in Illinois advise a client located in Milwaukee on legal issues related to a) Illinois law, b) Wisconsin law, c) federal tax law. Does it matter where the meeting takes place?

Answer: A lawyer cannot practice law in a jurisdiction where doing so violates the regulation of the legal profession in that jurisdiction (Rule 5.5(a)). The goal in prohibiting unauthorized lawyers from practicing in the jurisdiction is to protect that state's citizens from the dangers posed by unscrupulous lawyers or incompetent lawyers, who lack knowledge of the local law, and who are not subject to regulation by the state's disciplinary authority.

Determining when a lawyer is engaged in the unauthorized practice of law is not subject to any precise definition. The determination of whether the out-of-state lawyer is engaged in the unauthorized practice of law is dependent upon the nature of the activity. For litigation matters, it is clear that a lawyer who does not have a license or has not been permitted by a court to appear pro hac vice cannot appear in court or file pleadings. (S.Ct.Rule 707; see Fruin v. Northwestern Medical Faculty Foundation, Inc., 194 Ill.App.3d 1061, 1063, 551 N.E.2d 1010 (1st Dist. 1990) (complaint, filed by a Wisconsin lawyer not licensed in Illinois, was a "nullity" and subject to dismissal with prejudice after the statute of limitations had run prior to an appearance by an Illinois licensed lawyer on the plaintiff's behalf.)

For nonlitigation representation, such as transactional or consulting matters as here, the question becomes more difficult, and the lawyer must make an effort to learn what the jurisdiction considers to be the "practice of law" within its state. In Illinois, the "practice of law" is broadly defined as "the giving of advice or the rendition of any service requiring the use of any degree of legal knowledge or skill." Lozoff, 342 N.E.2d at 478. Whether the activity that is "practice of law" occurs within a jurisdiction depends upon the relationship of the underlying transaction to the lawyer's home jurisdiction and the "foreign" jurisdiction. Some factors that have been identified are whether the lawyer is engaged frequently in the foreign jurisdiction (ISBA Op. No. 94-5 (July 1994); Geo. Hazard, The Law of Lawyering, sec. 5.5:203) and whether the activity has an affect in another state, such as property, that might be considered the practice of law in that state. See Lozoff v. Shore Heights, Ltd., 35 Ill.App.3d 697, 342 N.E.2d 475 (2d Dist. 1976), aff'd., 66 Ill.2d 398, 362 N.E.2d 1047, 6 Ill.Dec. 225 (1977) (a lawyer licensed only in Wisconsin who had rendered legal services in connection with an Illinois real estate transaction had engaged in the unauthorized practice of law and could not recover fees).

For the first part of the question, if the lawyer, located in Illinois, is retained by a Wisconsin client simply to give legal advice on Illinois, Wisconsin or federal law, the lawyer would not be considered engaged in the unauthorized practice of law simply because the client is situated in Wisconsin. In advising clients on Wisconsin or federal law, the question really is one of the lawyer's competence. If the lawyer met with the client in Wisconsin, the lawyer would have to determine whether Wisconsin considered the nature of his activities in Wisconsin to be the unauthorized practice of law in their state. See ISBA Op. No. 92-6 (Oct. 23, 1992) (lawyer, not licensed in Illinois, who sought to set up an Illinois office limited to federal litigation might amount to the unauthorized practice of law)

Disciplinary proceedings against lawyers practicing outside the territorial limits of their state of license are infrequent. See In re Qua, 95 CH 699, M.R. 11774 (Dec. 1, 1995) (lawyer reprimanded after having been reprimanded in Michigan for filing an answer on behalf of a client in a state income tax litigation matter while on he was on inactive status in the State of Michigan). Most disciplinary proceedings under Rule 5.5 in Illinois are brought against lawyers who continue to practice after their suspension or disbarment or who aid another lawyer not authorized to practice in Illinois (See, e.g., In re Schelly (1983), 94 Ill.2d 234, 446 N.E.2d 236 (attorney disciplined for facilitating the unlicensed practice of law); In re Discipio (1994), 163 Ill. 2d 515, 645 N.E.2d 906 (attorney suspended for aiding in the unauthorized practice of law); In re Gehl, 96 CH 689 (M.R. 12941 - Nov. 26, 1996)(lawyer disbarred in large part for aiding a Wisconsin lawyer, who was not admitted pro haec vice, in the unauthorized practice of law in the representation of divorce clients in Illinois courts); In re Stuligross, 208 Wis.2d 200, 560 N.W.2d 269 (1997). Also, a lawyer who engages in the unauthorized practice of law may be at risk not only for disciplinary action but also forfeiture of any fees involved as well. See Lozoff.

Question #4: Is it appropriate for a lawyer to purchase stock in a company the lawyer represents or in a direct competitor of a client?

Answer: Such transactions are not per se prohibited under the ethics rules. Under Rule 1.7(b), however, a lawyer is prohibited from representing a client if the representation may be materially limited by the lawyer's own interests unless the lawyer (a) reasonably believes that the representation will not be adversely affected and (b) the client consents after disclosure. Similarly, Rule 1.8(a) provides that unless the client consents after disclosure, the lawyer is prohibited from entering into a business transaction with the client if either the lawyer and client have or may have conflicting interests or the client expects the lawyer to exercise the lawyer's professional judgment therein for the protection of the client. Rule 1.8(j) prohibits the lawyer from acquiring a proprietary interest in the cause of action or subject matter of litigation which is being conducted for the client.

In the first scenario, the lawyer would need to consider under Rules 1.7(b), 1.8(a) and 1.8(j) whether his duty of loyalty to the client is compromised by his own financial interests.

In the second scenario, not only must the lawyer consider whether he can zealously represent the client's best interests but the lawyer would also need to determine whether in the course of receiving confidential information from the client that he may potentially use that information to the detriment of the client. The client must be given full disclosure of the lawyer's relationship and consent to that relationship and waive any potential conflict or use of confidence by the lawyer. ISBA Op. No. 870 (April 27, 1984) (lawyer may represent a client when the lawyer has a financial interest in a client's competitor only if there is consent of the client).

Question #5: May a sole practitioner who employs two law student clerks and a paralegal use the business name "Mary Jones & Associates" on business cards and letterhead?

Answer: A lawyer's letterhead is a form of advertising and, as such, is subject to the general dictates of Rule 7.1 that it not contain false or misleading information. A lawyer may state or imply in their letterhead that they practice in a partnership or other organization only when that is the fact (Rule 7.5(d). Here, the lawyer's letterhead stating that the lawyer is practicing with "associates" may cause clients to reasonably believe that the lawyer's practice includes other lawyers. This is false and misleading and is prohibited under the Rules. See In re Laubenheimer, 335 N.W.2d 624 (Wis. 1983) (firm name containing names of lawyers not truly associated was deceptive). However, a lawyer may list individually non-lawyer support personnel, such as administrators, office managers, and paralegals on his or her letterhead so long as the information is true and the listing includes a clear indication of the non-lawyer's status within the firm. See ABA Informal Op. 89;1527 (2/22/89); ISBA Op. 87-1 (9/8/87) (non-legal personnel may be listed if clearly identified as such)

Question #6: When a lawyer friend tells me about unethical conduct by a third lawyer, do I have an obligation to report to the ARDC what I know about the original unethical conduct or my friend's failure to report it himself?

Answer: A lawyer must have unprivileged knowledge of certain types of serious misconduct to trigger the mandatory reporting obligations contained in Rule 8.3(a). See In re Himmel (1988), 125 Ill.2d 531, 127 Ill.Dec. 708, 533 N.E.2d 79 (lawyer suspended one year for failure to report his unprivileged knowledge of conversion of settlement funds by client's prior lawyer). "Knowledge" under the Rules is defined as "actual knowledge of the fact in question." See Ill.Rules of Prof.Conduct, Terminology. Here, the lawyer does not possess actual knowledge of the underlying alleged misconduct but information based on hearsay. Therefore, the lawyer does not have a duty to report what his friend has told him. See Sukowicz, T., The Himmel Duty: Observations by an ARDC Lawyer, CBA Record (Nov. 1997)

Further, the lawyer's knowledge of his friend's failure to make a "Himmel" report is not the kind of offense he must report. Only certain types of serious misconduct must be reported: the commission of criminal act that reflects adversely on the lawyer's honesty, trustworthiness or fitness as a lawyer; or conduct involving dishonesty, fraud, deceit or misrepresentation. See Rule 8.3(a).

Question #7: May a lawyer who is planning to leave a law firm let his clients know his plans and ask them to take their business to his new firm? May a lawyer who has left her previous firm contact the clients she served there and ask them to bring their business to her?

Answer: Absent a special agreement, the client employs a law firm and not a particular lawyer in the firm (Corti v. Fleisher, 93 Ill.App.3d 517, 49 Ill.Dec. 74, 78, 417 N.E.2d 768 (1st Dist. 1981). However, the client has the right to choose whether he will continue to use the law firm or will transfer his business with the departing lawyer. See Rule 1.16(a)(4) and Model Rule 1.16, Comment. As a general matter, if a lawyer leaves the firm before completing work on a matter, under Rule 1.4, the clients for whose matters the departing lawyer was primarily responsible for handling should be notified of the lawyer's departure and advised of their right to decide who will complete or continue their matter. ABA/BNA Lawyer's Manual on Professional Conduct, 91:706; ABA Annot. Model Rules of Professional Conduct, pgs. 507-08 (3d ed. 1996); ABA Annot. Model Rules of Professional Conduct, at page 507-08 (3d ed. 1996). A joint notice from the law firm and the departing lawyer has been suggested as perhaps the most desirable way for affected clients to be notified of the change and to present them with the option of staying with the firm taking their business with the departing lawyer. See ABA Informal Op. Nos. 1466 (1981) and 1457 (1980) (provides guidance on the information that should be put in the announcement or notification letter to clients); Wis. State Bar Ethics Op. E-80-18 (1980).

Rule 7.2 generally allows the departing lawyer to notify clients for whom he has worked that he is leaving the firm and to advise them of their right to retain him. See ISBA Op. Nos. 83-14 (May 21, 1985); 86-16 (May 13, 1987). However, some courts have determined that partnership duties and tort law considerations limit the solicitation of a firm's clients by a departing lawyer. See Paul L. Pratt P.C. v. Blunt, 488 N.E.2d 1062 (1st Dist. 1986); Dowd and Dowd, Ltd. v. Gleason, aff'd. in part and rev'd. in part, 181 Ill.2d 460, 230 Ill.Dec. 229, 693 N.E.2d 358 (1998), leave to appeal allowed, 171 Ill.2d 564, 222 Ill.Dec. 430, 677 N.E.2d 964 (1997)) (cause of action stated by law firm against departing partners for breach of fiduciary duty by certain pre-departure activities).

Once the lawyer leaves the law firm, Rule 7.3(a)(1) permits the departing lawyer to solicit the continued business of clients' on whose matters the lawyer worked. See Rule 5.6 (prohibits lawyers from offering or making any employment agreement that restricts a lawyer's future to practice law); Stevens v. Rooks, Pitts and Poust, 225 Ill.Dec. 48, 682 N.E.2d 1125 (1st Dist. 1997). See also Dowd.

Question #8: May a lawyer send an informational newsletter to people and businesses the lawyer does not currently represent? What if the newsletter is targeted to people who are likely to need the lawyer's services?

Answer: Newsletters are a form of solicitation, i.e., to promote the law firm's services in order to obtain legal business, and as such are regulated by the advertising rules contained in Rules 7.1, 7.2, 7.3 and 7.4. See Conn. Op. 94-18 (June 16, 1994); Pa. Op. 93-176 (Jan. 27, 1994). So long as the newsletter does not contain false or misleading statements, Rule 7.3(a)(1) allows the lawyer to send the newsletter to existing or former clients, except as provided in Rule 7.3(b). If the mailing is to prospective clients, in addition to the above requirements, the newsletter must be clearly marked as advertising material both on the newsletter and on any containing envelope.

Question #9: Can a lawyer seek payment from another lawyer for referrals based on a) a flat amount, b) a portion of the resulting billings, or c) a portion of the contingent recovery?

Answer: Lawyers not in the same firm may divide a legal fee where the primary service performed by one lawyer is the referral of the client to another lawyer. Rule 1.5(g) However, for a referral agreement to be enforceable, the agreement must meet the following requirements under Rule 1.5(g): 1) the lawyers must disclose to the client that the referring lawyer has received or will receive economic benefit from the referral and the extent and basis for the economic benefit, 2) the referring lawyer must agree to assume the same legal responsibility for the performance of the services as would a partner of the receiving lawyer, 3) the client must consent to the division of fees and responsibilities, and 4) the total fee of the lawyers must be reasonable. See Davies v. Grauer, No. 1-96-1523 (Aug. 27, 1997) (oral joint venture agreement was enforceable because clients had knowledge of the referral agreement between the lawyers), distinguishing Holstein v. Grossman, 246 Ill.App.3d 719 (1st Dist. 1993) and Anderson v. Anchor Organ. for Health Maintenance, 274 Ill.App.3d 1001 (1st Dist. 1995) (oral agreement to share fees between lawyers unenforceable because clients had no knowledge of and did not consent to the arrangement). Assuming that the requirements of Rule 1.5(g) are met, there is no restriction on the way a reasonable referral fee may be divided between the lawyers. See ISBA Op. No. 90-18 (January 29, 1991) (permissible for referral agreement to split fees equally under a contingent fee agreement).

Question #10: May a lawyer who represents a not for profit charity also serve as member of the board of directors for that charity?

Answer: Under Rule 1.13(a) a lawyer employed or retained by an organization represents the organization acting through its duly authorized constituents. Serving in a dual capacity as a director and as the lawyer for a corporation has many inherent difficulties that should be avoided. (Rules 6.3 and 6.4 generally permits a lawyer to serve as a director, officer or member of a not-for-profit legal services organization or organization involved in law reform because the lawyer does not have a client-lawyer relationship with the organization.) Some of the problems are conflicts of interests under Rule 1.7(b). (Can the lawyer separate his own personal interest as a director from the advice that he gives the company as its counsel?). Serving as both director and attorney for the charity may compromise the lawyer's independent judgment that the client seeks in its counsel; may result in loss of confidentiality (discussions at directors' meetings may not be privileged as confidential communications when the director is also counsel to the corporation). In addition, if the lawyer is named as a director/witness in litigation, he and his law firm may be disqualified from representing the company. See Berry v. Saline Mem. Hosp., 907 S.W.2d 736 (Ark. 1995).

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