The inquirer asks whether it is permissible for an attorney practicing in Pennsylvania to sell life insurance or securities and financial products to his or her clients and/or non-clients, and if so, under what circumstances. Inquirer asks whether it is necessary for the entity selling the life insurance and/or securities and financial products to be separately incorporated.
Pennsylvania Rule of Professional Conduct 5.7, "Responsibilities Regarding Nonlegal Services," governs the provision of nonlegal services by lawyers, and provides as follows:
(a) A lawyer who provides nonlegal services to a recipient that are not distinct from legal services provided to that recipient is subject to the Rules of Professional Conduct with respect to the provision of both legal and nonlegal services.
(b) A lawyer who provides nonlegal services to a recipient that are distinct from any legal services provided to the recipient is subject to the Rules of Professional Conduct with respect to the nonlegal services if the lawyer knows or reasonably should know that the recipient might believe that the recipient is receiving the protection of a client-lawyer relationship.
(c) A lawyer who is an owner, controlling party, employee, agent, or is otherwise affiliated with an entity providing nonlegal services to a recipient is subject to the Rules of Professional Conduct with respect to the nonlegal services if the lawyer knows or reasonably should know that the recipient might believe that the recipient is receiving the protection of a client-lawyer relationship.
(d) Paragraph (b) or (c) does not apply if the lawyer makes reasonable efforts to avoid any misunderstanding by the recipient receiving nonlegal services. Those efforts must include advising the recipient that the services are not legal services and that the protection of a client-lawyer relationship does not exist with respect to the provision of nonlegal services to the recipient.
Rule 5.7 thus does provide that it is permissible for a lawyer to provide nonlegal services to his clients or non-clients. As the Comment to Rule 5.7 states, lawyers have for many years been providing their clients with nonlegal services such as title insurance, financial planning, accounting, trust services, real estate counseling, legislative lobbying, economic analysis, social work, psychological counseling, tax return preparation, and patent, medical and environmental consulting.
When a lawyer is providing nonlegal services, whether to a client or a non-client, there is the potential for the recipient of the nonlegal services to mistakenly believe, because the provider of the services is a lawyer, that the services are protected by the safeguards that apply in an attorney-client relationship (such as protection of client confidences, prohibitions against representation of persons with conflicting interests, and obligations of a lawyer to maintain professional independence). Rule 5.7 therefore provides that when the legal and nonlegal services are relatively indistinguishable from each other, or there is a reasonable likelihood that the recipient of the nonlegal services might mistakenly believe that he is receiving the protection of a client-lawyer relationship, then Rule 5.7(a) requires that the lawyer providing the nonlegal services adhere to all of the requirements of the Rules of Professional Conduct, including those addressing conflicts of interest (Rules 1.7 through 1.11), confidentiality of information (Rule 1.6), and advertising and solicitation (Rules 7.1 through 7.3).
In order to avoid having to try to ascertain whether or not the recipient of nonlegal services understands that the nonlegal services are distinct from legal services, and therefore not subject to the protections of the Rules, Rule 5.7(d) provides that neither Rules 5.7(b) or (c), nor the rest of the Rules of Professional Conduct will apply if the lawyer takes reasonable efforts to avoid any misunderstanding by the recipient. To accomplish this, the lawyer must communicate, preferably in writing, to the person receiving the nonlegal services that the services will not be provided under the protections of the client-lawyer relationship.
The burden is upon the lawyer to show that the lawyer has taken reasonable measures under the circumstances to clearly communicate to the recipient of the nonlegal services that there exists no attorney-client relationship with respect to those services. For example, as stated in the comment to Rule 5.7, "a sophisticated user of nonlegal services, such as a publicly-held corporation, may require a lesser explanation than someone unaccustomed to making distinctions between legal services and nonlegal services, such as an individual seeking tax advice from a lawyer-accountant or investigative services in connection with a lawsuit."
Thus, if a lawyer makes it clear in writing to the recipient of the nonlegal services that those services are not legal in nature and therefore are not covered by the protections afforded an attorney-client relationship, the lawyer will not have to comply with the Rules of Professional Conduct in providing those ancillary nonlegal services. Note, however, that under Rule 5.7(a), where the legal and nonlegal services are truly indistinguishable, the Rules of Professional Conduct will apply to the provision of the nonlegal services, regardless of disclosures made by the attorney to the recipient of the services.
The inquirer has also asked whether the entity providing the nonlegal services must be separately incorporated. The Comment to Rule 5.7 states that although nonlegal services may be provided through "an entity with which a lawyer is somehow affiliated, for example, as owner, employee, controlling party or agent . . .there is still a risk that the recipient of the nonlegal services might believe that [he] is receiving the protection of a client-lawyer relationship." Where there is such a risk, the lawyer affiliated with the entity must comply with the Rules of Professional Conduct, unless exempted by Rule 5.7(d). So again, the prudent course to take, even where the provider of nonlegal services is a separate entity, is to make it clear in writing to the recipient that the services are nonlegal and not subject to the protections applicable to a lawyer-client relationship.
The inquirer is strongly cautioned that the analysis of whether or not a particular service is legal or nonlegal is highly fact intensive. While this opinion provides a thorough analysis of Rule 5.7, the inquirer must be very careful to properly apply Rule 5.7 and this opinion to his particular facts.
It should be noted that there is a significant minority Committee dissent which is that Rule 1.8 also applies to a scenario when distinct non-legal services are being provided by an attorney to an existing client.
The dissent does not agree with the majority conclusion that without the Rules expressly so providing, compliance with Rule 5.7 eliminates the protections of 1.8 when there is an already existing attorney-client relationship. It is agreed that provided there is compliance with Rule 5.7 that Rule itself does not require any other disclosures as to the distinct non-legal services being provided to the client. However, since Rule 5.7 allows those services to be treated as a separate outside business relationship, without the safeguards of the Rules as they apply to the attorney-client relationship, Rule 1.8 thus must apply on the other side of that relationship, i.e. the existing attorney-client relationship. Doing business with a client causes a conflict that needs to be disclosed and waived as in any circumstance where an attorney is doing business with a client. The dissent notes that this position is consistent with the Comment to Pennsylvania Rule of Professional Conduct 5.7 which provides in part
The Relationship Between Rule 5.7 and Other Rules of Professional Conduct
Even before Rule 5.7 was adopted, a lawyer involved in the provision of nonlegal services was subject to those Rules of Professional Conduct that apply generally. For example, Rule 8.4(c) makes a lawyer responsible for fraud committed with respect to the provision of nonlegal services. Such a lawyer must also comply with Rule 1.8(a). Nothing in this rule is intended to suspend the effect of any otherwise applicable Rule of Professional Conduct such as Rule 1.7(b), Rule 1.8(a) and Rule 8.4(c).
In addition, that ABA Model Rule of Professional Conduct 5.7 in comment number five agrees. That comment provides,
"When a client-lawyer relationship exists with a person who is referred by a lawyer to a separate law-related service entity controlled by the lawyer, individually or with others, the lawyer must comply with Rule 1.8(a)."
Providing there is compliance with Rule 1.8(a) the minority dissent agrees with the final conclusion of the majority.