Ethics Opinions

Opinion No. 78-2

Summary: An open panel, prepaid legal service plan proposed by a charitable corporation does not violate any of the disciplinary rules. The corporation's closed panel plans are improper because they require participating lawyers to split fees with the corporation.

Facts: A nonprofit foreign corporation proposes to offer three legal service plans in Massachusetts. The plans would be offered to groups (corporations, associations, unions, etc.) as an employee benefit. Employees would become members in the association organized for the purpose of administering the plans. Payments for participation in the plans are by monthly payroll deduction.
There are two "closed panel" plans and one "open panel" plan. Under the closed panel plan lawyers contract with the corporation to provide services to the members. As to their compensation the corporation agrees " ... to pay the attorney ... (on a) retained basis 50% of the total amount paid by all plan members to the organization, group, association, etc. accepted as a client by the attorney." Under the "open panel" plan the member chooses his own attorney who is compensated by the corporation according to a fixed fee schedule (e.g.: Preparation of a Will, $60.00).

Discussion: DR 2-103(A) to (E) regulates "Recommendation of Professional Employment." In general, this rule prohibits solicitation of professional employment by lawyers. There are a few narrowly defined exceptions. Specifically, DR 2-103(D) provides that
A lawyer shall not knowingly assist a person or organization that recommends, furnishes, or pays for legal services to promote the use of his services or those of his partners or associates. However, he may cooperate in a dignified manner with the legal service activities of any of the following, provided that his independent professional judgment is exercised in behalf of his client without interference or control by any organization or other person: [Text of exceptions relating to activities of law schools, the military and bar associations is omitted] (5) Any other non-profit organization that recommends, furnishes, or pays for legal services to its members or beneficiaries, but only in those instances and to the extent that controlling constitutional interpretation requires the allowance of such legal service activities and only if the following conditions, unless prohibited by such interpretation, are met: (a) The primary purposes of such organization do not include the rendition of legal services. (b) The recommending, furnishing or paying for legal services to its members is incidental and reasonably related to the primary purposes of such organization. (c) Such organization does not derive a financial benefit from the rendition of legal services by the lawyer. (d) The member or beneficiary for whom the legal services are rendered and not the organization is recognized as the client of the lawyer in that matter."
Under this standard there is no objection to the "open panel" plan. It does not call on the lawyer to assist anyone to "promote the use of his services." The client chooses his attorney in the normal way and without any suggestion from the corporation.
However, the disciplinary rule probably puts several obstacles in the path of the closed panel plans. For example, it appears that the "recommending, furnishing or paying for legal services" is by no means "incidental" to the purpose of this charitable corporation. Rather, this activity can be inferred to be its principal purpose.
Considerable uncertainty is injected into the discussion of this disciplinary rule because its conditions (such as the purpose of the organization's activity) only apply if they are not " ... prohibited [under] ... controlling constitutional interpretation ... ." In this connection inference can be made to cases such as United Mine Workers v. Illinois State Bar Association, 389 U.S. 217 (1967) (right of labor union to free speech and assembly allows it to employ lawyers to prosecute workers' compensation claims). The result in the well-known Bates case is some indication of recent trends in the closely related area of lawyer advertising.
However, it is not necessary to resolve this issue since the "closed-panel" plans are clearly objectionable on another ground. DR 3-102 provides (with exceptions not relevant to this inquiry) that "A lawyer or law firm shall not share legal fees with a non-lawyer ... ." We regard the provision for sharing client revenue on a fifty-fifty basis between the corporation and the attorney as a clear violation of this rule.
We have addressed ourselves only to the legal ethics aspects of these plans and express no opinion about the effect of recent legislation in Massachusetts regulating prepaid legal service plans. Acts 1977, c.774. Whether the plans are in compliance with this legislation is a matter of substantive law which we do not consider.


Permission to publish granted by the Board of Delegates, 1978. As stated in the Rules of the Committee on Professional Ethics, this advice is that of a committee without official governmental status.
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