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NEW YORK COUNTY LAWYERS’ ASSOCIATION
Committee on Professional Ethics
QUESTION NO, 694
TOPIC: UNAUTHORIZED PRACTICE OF LAW; LAWYER RETAINED BY CORPORATION TO ADVISE CORPORATION’S CLIENTS.
DIGEST: IN-HOUSE LAWYER OF REAL ESTATE MANAGEMENT COMPANY MAY NOT PARTICIPATE IN ARRANGEMENT WHERE LAWYER’S SERVICES ARE OFFERED TO COMPANY’S CLIENTS IF ARRANGEMENT VIOLATES SECTION 495 OF JUDICIARY LAW; IN-HOUSE LAWYER MUST RETAIN PROFESSIONAL INDEPENDENCE IN REPRESENTING COMPANY’S CLIENTS.
CODE: DR 3-101(A), 5-105(A), (B) & (C), 5-107(A) & (B), 5-108(A), 5-109(A), 7-102(A); EC 5-23, 5-24.
A lawyer has been asked to serve as in-house counsel to XYZ, a real estate management company. The lawyer would prosecute landlord-tenant summary proceedings for XYZ’s clients and not actions on behalf of XYZ itself. XYZ would advertise the availability of the lawyer’s legal services at discounted rates to XYZ’s clients. To the extent that the legal fees paid by XYZ’s clients were insufficient to cover the lawyer’s salary and expenses, XYZ would pay the shortfal1.
May the lawyer work as XYZ’s in-house lawyer under these circumstances?
Many corporations have established departments of in- house lawyers to assist in corporate operations. Hazard & Koniak, The Law and Ethics of Lawyering 903 (1991). The client of an in-house lawyer is the employer-corporation. N.Y. Lawyer’s Cede of Professional Responsibility (1990) (the “Code”) DR 5- 109(A). Thus, an in-house lawyer may render legal services to the employer-corporation as he or she would to any other client. N.Y. State 84 (1968).
Under the proposed arrangement, however, the in-house lawyer would not render legal services directly to XYZ , but rather to XYZ’s clients. Although a lawyer is not prohibited per se from representing a client as part of his or her employment arrangement with a third party, see N.Y. County 627 (1974) (proper for lawyer to be employed by director of institution to represent mentally retarded patients), the proposed arrangement raises various legal and ethical concerns.
Unauthorized Practice of Law
Section 495 of the Judiciary Law provides in pertinent part:
No corporation or voluntary association shall . . . furnish attorneys or counsel, nor . . . assume, use or advertise the title of lawyer or attorney, attorney-at-law, or equivalent terms in any language in such manner as to convey the impression that it is entitled to practice law or to furnish legal advice, services or counsel, nor . . , advertise that either alone or together with or by or through any person whether or not a duly or regularly admitted attorney-at-law, it has, owns, conducts or maintains a law office or an office for the practice of law, or for furnishing legal advice, services or counsel.
N.Y. Jud. Law $ 495(1)(d), (g) & (h) (McKinney 1983).
This Committee generally does not pass on questions of law. It is our opinion, however, that XYZ’s advertising or furnishing legal services in the manner proposed would most likely be a violation of Section 495. If the conduct does violate Section 495, the in-house lawyer’s participation in the arrangement would be improper. See DR 7-102(A)(7) (lawyer shall not assist client in conduct lawyer knows to be illegal). See also DR 3-101(A) (prohibiting lawyer from aiding nonlawyer in unauthorized practice of law). See generally People by Lefkowitz v. Lawrence Preska Associates, Inc., 90 Misc. 2d 59, 393 N.Y,S.2d 650 (1977) (purpose of § 4 95 is to prohibit interference and possible conflict of interest in the attorney-client relationship); People v. Peoples Trust Co., 180 A.D. 494, 167 N.Y.S 767 (1917) (purpose of § 495 is to prevent corporations from performing legal services through lawyers in their employ and having lawyers owe loyalty primarily to the corporations and not to the client).
Professional Independence on Behalf of XYZ’s Clients
Even if the proposed arrangement were to comport with the Judiciary Law, the arrangement would be proper only if the lawyer were able to retain professional independence in representing XYZ’s clients. See N.Y. County 627; DR 5-107(B) (prohibiting lawyer whose compensation is paid by third party to permit third party “to direct or regulate his or her professional judgment “); EC 5-23 (“lawyer who is employed by one to represent another must constantly guard against erosion of professional freedom”); EC 5-24 (“lawyer must decline to accept direction of his professional judgment from any layman”). Consequently, the lawyer must not allow XYZ to influence or control his or her representation of XYZ’s clients.
Prior to undertaking representation of a client of XYZ, the in-house lawyer would have to obtain the consent of each client after full disclosure of the nature, of, and risks that may arise as a result of, his or her dual role as XYZ’s employee and the client’s lawyer. DR 5-107(A)(1) (prohibiting lawyer from accepting compensation from any person other than client without informed consent). Upon undertaking the representation of a client of XYZ, the in-house lawyer would owe the same ethical duties to XYZ’s client as to XYZ. Thus, the lawyer may not divulge confidences or secrets of either XYZ or XYZ’s client without the informed consent of the respective party. See N.Y. State 485 (1978) (improper for legal aid lawyers to divulge client confidences to legal aid board without clients’ consent).
As well, if a conflict exists between the interests of XYZ and those of a client of XYZ, the in-house lawyer may not represent the client, DR 5-105(A) & (B), unless “it is obvious that the lawyer can adequately represent the interest of each and if each consents to the representation after full disclosure of the possible effect of such representation on the exercise of the lawyer’s independent professional judgment on behalf of each.” DR 5-105(C). If such a conflict arises after the lawyer begins representing XYZ’s client, the lawyer may not represent either XYZ or XYZ’s client without consent of both. DR 5-108(A).
It would be improper for XYZ’s in-house lawyer to participate in the proposed arrangement unless the arrangement comports with the Judiciary Law and the lawyer retains professional independence in representing both XYZ and XYZ’s clients.
October 19, 1992