NEW YORK COUNTY LAWYERS’ ASSOCIATION
COMMITTEE ON PROFESSIONAL ETHICS
In answering questions this Committee acts by virtue of the following provision of the By-laws of the Association, Article 5A, Section 3:
“This Committee shall have power, when consulted to advise inquirers respecting questions of proper professional conduct, reporting its action to the Board of Directors from time to time.”
It is understood that this Committee acts on specific questions submitted ex-parte and in its answers bases its opinion on such facts only as are set forth in the question.
QUESTION NO. 663
TOPIC: LAW FIRM’S EMPLOYMENT OF AN INVESTIGATORY AGENCY OWNED BY SPOUSE OF PARTNER OF LAW FIRM
DIGEST: A LAW FIRM MAY EMPLOY AN INVESTIGATORY AGENCY OWNED AND OPERATED BY A PARTNER’S SPOUSE AFTER FULL DISCLOSURE AND CONSENT OF THE CLIENT. THE REIMBURSEMENT OF THE EXPENSES OF THE AGENCY BY THE IAW FIRM’S CONTINGENT FEE CLIENTS IS A MATTER OF LAW WITH RESPECT TO WHICH NO OPINION IS EXPRESSED.
Is it proper for a law firm to hire on a fee-for-services basis an investigatory agency owned and operated by the spouse of a partner of the law firm?
If it is proper, then is it permissible to charge the fees paid by the law firm to the investigatory agency as a disbursement in personal injury case handled by the law firm on a contingency basis?
If the answer to Question 2 above is affirmative, would the answer be any different if the law firm were to be the only client of the investigatory agency?
ANSWER TO QUESTION NO. 663
Addressing the second inquiry first, the determination as to whether the fee is a proper disbursement or is a payment for services which should be performed by the attorney and for which he is receiving a contingent fee is a matter of law over which this Committee expresses no opinion. Attention is directed, however, to the Rules of the Supreme Court, Appellate Division, First Department, §603.7(e) which provides for the deduction from the amount recovered of “expenses and disbursements for expert testimony and investigative or other services properly chargeable to the enforcement of the claim or prosecution of the action.” (underlining added).
Assuming that the investigatory agency’s fees are proper disbursements, the close, intimate relationship, personal and financial, of husband and wife requires that full disclosure of the affiliation is made to the client and the client’s consent obtained. If the relationship adversely affects the attorney’s ability to exercise independent professional judgment on behalf of the client, the attorney must refuse employment or withdraw unless the client consents EC5-1, 5-2, 5-3, 5-19, 5-21, DR5-101(A). See NYSBA Opinion No. 131 (4/9/70) and No. 549 (2/14/83). The fee should be reasonable EC2-17, and not illegal or clearly excessive, DR2-106(A) and the attorney should reach a clear agreement with the client as to the basis for the fee EC2-19, 2-23.
The lawyer should also be mindful of the following ethical considerations which bear upon the proposed activity. A lawyer must not aid a non-lawyer in the unauthorized practice of law, DR3-101(A), must not share legal fees with a non-lawyer, DR3-102(A) and the investigatory agency should not be used to solicit business for the lawyer DR2-103. See ABA Informal Opinion 1375 (August 10, 1976) ABA Informal Opinion 1445 (February 1, 1980) and Indiana Opinion No. 1 of 1981. In addition, a lawyer, while representing a client in connection with litigation, may not advance or guarantee financial assistance to the client, except that a lawyer may do so with respect to expenses of investigation, among other things, provided the client remains ultimately liable for such expenses. See DR5-103 (B).
If the law firm is the only client of the investigatory agency, a question may arise as to whether the agency might be deemed an agent or employee of the law firm and not an independent contractor. Whether the payment of a fee to the investigatory agency might then be considered additional compensation to the law firm would have to be decided in light of the applicable law, ED 2-17 DR2-106(A) and court rules such as §603.7(e) (1) of the Rules of the Appellate Division, First Department, which provides: “The receipt, retention or sharing of compensation which is in excess of such scheduled fees shall constitute the exaction of unreasonable and unconscionable compensation in violation of any provision of the Code of Professional Responsibility as adopted by the New York State Bar Association effective January 1, 1970, as amended… unless authorized by a written order of the court as hereinafter provided.”
January 21, 1985
NEW YORK COUNTY LAWYERS’ ASSOCIATION
COMMITTEE ON PROFESSIONAL ETHICS
In answering questions this Committee acts by virtue of the following provision of the By- laws of the Association, Article 54, Section 3:
“This Committee shall have power, when consulted, to advise inquirers respecting questions of proper professional conduct, reporting its action to the Board of Directors from time to time.”
It is understood that this Committee acts on specific questions submitted ex parte and in its answers bases its opinion on such facts only as are set forth in the question.
QUESTION NO. 664
TOPIC: DISCLOSURE BY ATTORNEY OF INTENDED CONFIDENTIAL INFORMATION MISTAKENLY RELEASED TO PUBLIC FILE
DIGEST: AN ATTORNEY MAY DISCLOSE TO CLIENT INFORMATION FOUND IN PUBLIC FILE, BUT PLACED THERE BECAUSE OF MISTAKE BY SUBMITTING PARTY; CERTAIN PRELIMINARY CONDITIONS.
Is it proper for an attorney to give a client data intended to be kept confidential, but made public in connection with a federal agency proceeding in which the attorney is engaged on behalf of the client because the submitting party did not properly request confidentiality? Under agency rules a request may be made that material submitted be kept confidential. A prescribed procedure must be followed and the agency may reject the request for confidentiality and return the material. A party, intending certain statistical data to be kept confidential, did not follow the agency rules and the material was placed in a public file. The attorney obtained a copy, but realized a mistake had been made. The attorney advised the agency, which removed the material from the public files. Upon request, the, attorney returned the copy obtained from the public files. Before doing so, without advising the agency or the submitting party, a photostatic copy was made.
ANSWER TO QUESTION NO. 664
The inclusion of the data in a public file as a result of an error by the submitting party deprived it of confidentiality. However, the attorney may have caused the agency to believe that no copy was made of the material and that its removal from the public file protected its confidentiality. The party submitting the material, if not made aware of the facts, would be under the impression that the material remained confidential. Therefore, the attorney should advise the agency and the submitting party that a copy of the material has been retained and that, unless within a reasonable period of time action is taken to prevent its release, it will be delivered to the client. Only after the expiration of such reasonable time should the data be released. Otherwise the attorney, having failed to disclose the retention of a copy, may have engaged in conduct involving misrepresentation contrary to DR -1 – 102 A.4.
February 6, 1985