July 18, 2012 Articles

Initial Ethics Considerations in Starting My Own Law Firm

Make sure you don't run afoul of state licensing and disciplinary rules.

By Arden B. Levy

Like hang gliding off the edge of a cliff, opening my own solo practice has been both exhilarating and frightening. And throughout the process of beginning my firm, one of my primary goals has been to identify all the possible ethics land mines in an effort to avoid any unexpected “explosions.” I already knew that solo practitioners often are the targets of bar disciplinary proceedings, very likely due in part to the fact that they do not have the benefit of a firm ethics advisor or vetting process like lawyers in larger firms. So, as I began to make decisions related to starting a firm, I was cognizant of the added risk that solos may be at greater risk of bumping into professional conduct rules. I wanted to avoid taking any risks. Thus, before I opened my doors, I familiarized myself with my jurisdictions’ rules of professional conduct and frequently contacted the anonymous ethics hotlines for my jurisdictions to ask questions as issues arose.

 

This article provides an overview of some of the key decisions related to opening my own firm and the ethics issues raised by those decisions. I have attached links to pertinent sections of the ABA Model Rules of Professional Conduct where appropriate. My hope is that reading about the issues that I have listed may be helpful to other attorneys out there who are contemplating opening their own practices. I caution that this article is not an exhaustive analysis or all-inclusive list of all the possible ethics issues that might arise. Moreover, lawyers in different jurisdictions in different circumstances may not face all of the same issues or prioritize their concerns in the same way. Each lawyer should identify the considerations that are most important to him or her and the ethics issues that are raised by those considerations, as well as the relevant state rules of professional conduct and how the bar interprets those rules.

In the Beginning . . .
When I began planning to open my own firm, my first activity was simply to plot out the decisions to be made and the ethics issues that I might face with those decisions. Many of those decisions related to how the practice would operate and basic firm procedures, such as location, firm name, firm advertising, and client procedures I would use. The Model Rules provided a good starting point for understanding the ethics issues. In addition, the ABA’s Commission on Ethics 20/20 has been addressing some of the issues arising out of the changing legal marketplace, such as the increased use of the Internet, which was helpful as well for understanding the “hot” ethics issues practitioners are facing.

The Office
Physical or “Virtual” Office 
In making decisions regarding office type and location, I first had to determine what would be important to my existing and future clients, as well as my practice needs. What more did I need besides my laptop computer and Internet access, a copier and scanner, and fax capability? What type of administrative assistance, if any, would I need? Was it enough for me to work out of my home, or did I need an office space? And if so, would I need office space in more than one location? I considered the wide spectrum of “virtual” office space, ranging from a simple post office box, to a dedicated phone line with phone answering service, or even a certain number of hours per month of dedicated office or conference space time. Spaces are managed by national companies or small local businesses. In addition, “virtual” spaces generally have some staff available to provide administrative assistance. My options were extensive.

Whether the use of “virtual” space runs into any ethics issues depends on the nature and description of the space and the state’s rules of professional conduct, among other factors.Model Rule 7.1, “Communications Concerning a Lawyer’s Services,” helps inform this issue:

A lawyer shall not make a false or misleading communication about the lawyer or the lawyer’s services. A communication is false or misleading if it contains a material misrepresentation of fact or law, or omits a fact necessary to make the statement considered as a whole not materially misleading.

Questions to ask in an effort to avoid being “misleading” include the following: How will the space be used? Is the attorney reachable by mail? By phone? If a client visits? Does the attorney have access to office space?

In evaluating my needs in light of these rules, I determined that although I typically meet with clients at their offices, the daily needs of my litigation practice required that I have access to physical office space and administrative support. These factors drove my decision making as I examined my options.

Determining Where the Practice and Offices Will Be Located
In making the change from a large firm to a solo practice, I decided that I needed to establish a practice that was more local in nature. For example, in my multijurisdictional location of the Washington, D.C., metropolitan area, I knew that I would be preparing to move for admission to another bar. Knowing that I must be careful to avoid the unauthorized practice of law, I examined the rules of professional conduct in the jurisdictions where I was already licensed and  in the jurisdiction where I hoped to be admitted, as well as the ABA’s Model Rules.

Model Rule 5.5, “Unauthorized Practice of Law; Multijurisdictional Practice of Law,” is helpful on this topic. Subpart (a) states that “[a] lawyer shall not practice law in a jurisdiction in violation of the regulation of the legal profession in that jurisdiction. . . .” Similarly, subpart (b) advises that “[a] lawyer who is not admitted to practice in this jurisdiction shall not: . . . (2) hold out to the public or otherwise represent that the lawyer is admitted to practice law in this jurisdiction.” In recognition of the changing nature of the practice of law today, the ABA has recently proposed a Model Court Rule, “Practice Pending Admission,” which is cross-referenced with Model Rule 5.5 and would allow a lawyer to practice for up to one year in a new jurisdiction where the lawyer is making good-faith efforts to establish a practice. However, at this time, practitioners should look to their own state’s guidance on a multijurisdictional practice.

The Firm Name
Honesty 
The ABA’s Model Rules caution against the use of a misleading firm name. This issue came up in connection with how I conveyed the size and nature of my firm’s practice. I knew that I would be opening my firm as a solo practitioner. Thus, as a result of my discussions with other attorneys and ethics advisors in my jurisdictions, I decided to stay away from a naming convention like “Levy and Associates” or some other name that denoted a group of attorneys practicing together, even if I might eventually hire other attorneys as my firm grows.

 Model Rule 7.5, “Firm Names and Letterheads,” subpart(a), explicitly states that “[a] lawyer shall not use a firm name, letterhead or other professional designation that violates Rule 7.1.” More specifically, Rule 7.5(d) states that “[l]awyers may state or imply that they practice in a partnership or other organization only when that is the fact.” However, “partnership,” “organization,” or other group may be defined by a specific state’s rules. Solo attorneys may hire contract attorneys or associate attorneys, and one or both of those situations may allow a firm to include the term “group” or “associates” in the name. Of course, using a name such as “The Litigation Firm” is one way to avoid the issue entirely and an option to consider as part of the naming process.

Confirming Whether Preapproval Is Necessary
Some state bars require that lawyers obtain advance approval of a firm name. For example, one of my jurisdictions required that all the corporate registration documents be completed before I submitted the proposed firm name to the bar, which then took 14 days to approval. It was important to know the state rules in advance so that I had sufficient time to obtain preapproval.

Firm Advertising and Unauthorized Practice of Law
I determined that in the fast-changing world of web-based content and advertising, how a lawyer holds himself or herself out to the world can and will raise some challenging questions. Those questions potentially arise at every point of contact with current and prospective clients, from letterhead to websites to blogs. I came to think of “advertising” in terms of the “worst possible case” scenario—each electronic or paper writing of any kind could be construed as sent to a prospective client and could be made public. With that in mind, I considered some of the areas I would have to resolve before opening my firm.

Letterhead and Business Cards
A lawyer’s choice of wording on firm letterhead and business cards dovetails with many of the same issues encountered in naming the firm—avoiding misleading language. For example, one issue I focused on was whether and how to indicate the jurisdictional limitations of my practice. Model Rule 7.5(b) provides guidance on this issue in relation to firms with offices in more than one jurisdiction, stating that the “identification of the lawyers in an office of the firm shall indicate the jurisdictional limitations on those not licensed to practice in the jurisdiction where the office is located.” It may simply be necessary to state clearly where the lawyer is or is not admitted to practice. However, different jurisdictions may have different approaches to how to word that statement.

The Need to Define “Prospective Clients” Broadly
In evaluating how my advertising would be received and construed, I tried to prepare my firm materials and writings with a large audience in mind. Model Rule 7.1 prohibits “misleading” advertising. Notably, the ABA 20/20 Commission’s Revised Draft Resolutions for Comment –Technology and Client Development,”dated February 21, 2012, propose changes to Rules 7.1 and Rule 1.18, “Duties to Prospective Client,” to address the increasing volume of electronic communications between lawyers and others, such as a prospective client “chatting” electronically with a lawyer before retaining the lawyer’s services, or even a lawyer’s personal Facebook page or Twitter account. These resolutions provide a useful set of “best practices” guidelines for dealing with marketing through the Internet.

Website and Other Social Media
I kept in mind the theme of honesty in advertising as I developed my website and began engaging in other social media. For example, I viewed my LinkedIn page as a public résumé of sorts for a prospective employer. Model Rule 7.4, “Communication of Fields of Practice and Specialization,” provides guidance on how to represent practice areas. Subpart (a) is permissive in nature, providing that a “lawyer may communicate the fact that the lawyer does or does not practice in particular fields of law.” However, subpart (d) prohibits a lawyer from “stat[ing] or imply[ing]” that he or she is certified as a specialist in a particular field of law, unless “(1) the lawyer has been certified as a specialist by an organization that has been approved by an appropriate state authority or that has been accredited by the American Bar Association; and (2) the name of the certifying organization is clearly identified in the communication.” In conforming to these limitations, I could only make statements that I focus on certain practice areas.

Establishing Practice Procedures
Once I determined the basic elements of how and where to set up my practice, and how to advertise that practice, my next focus was establishing some basic procedures pertaining to the client-lawyer relationship. My goal is to prevent ethics issues from ever arising.

Retainer Letters and Fees
Of course, it had always been important to set forth a clear understanding of the scope of work, fees, and other terms of the arrangement in client retainer letters. Model Rule 1.2, “Scope of Representation and Allocation of Authority Between Client and Lawyer,” subpart (a), sets out the expected factors to consider in setting fees. For example, among the factors that a lawyer can consider are “(1) . . . the novelty and difficulty of the questions involved”; . . . “(3) the fee customarily charged in the locality for similar legal services”; . . . and “(7) the experience, reputation, and ability of the lawyer or lawyers performing the services. . . .”

Now, however, as a solo practitioner, the collection of fees has become even more critical because my income will depend entirely on my ability to collect fees, and good retainer agreements will be essential. Rule 1.2(b) specifically directs the following:

The scope of the representation and the basis or rate of the fee and expenses for which the client will be responsible shall be communicated to the client, preferably in writing, before or within a reasonable time after commencing the representation, except when the lawyer will charge a regularly represented client on the same basis or rate. Any changes in the basis or rate of the fee or expenses shall also be communicated to the client.

As an example of my efforts to avoid unclear payment terms, I decided to ignore the rule’s exception for communicating the terms and fees when charging “a regularly represented client on the same basis or rate.” Instead, I made a decision to create a new retainer for each separate matter with a description of the pertinent scope of the work. I hope that the fewer terms that remain open for interpretation, the less likely clients will be to misunderstand or avoid their payment obligations.

Defining Payment Terms and Consequences of Nonpayment
In creating a retainer template that clearly laid out the terms of agreement, I included payment terms other than fees, such as the period of time permitted to question some or all of the fees or expenses on an invoice, the period of time for payment, and the consequences of late payment. The retainer template also included each type of expense that clients must pay. I set forth clear procedures for handling fee disputes with clients, including a requirement for negotiation, then mediation, and then arbitration. Ultimately, setting the terms for all possible contingencies has seemed to be the best way to avoid or resolve future potential issues.

Advance Fee Payments 
I set up my practice to allow for advance fee payments, particularly for new clients and matters. In so doing, I tried to establish proper procedures for managing those funds to comply with the requirements of the jurisdictions I practice in. On the simple end of things, as reflected in Model Rule 1.5, “Fees,” Comment 4, “[a] lawyer may require advance payment of a fee, but is obliged to return any unearned portion.” More complicated, however, is ensuring that those advanced funds stay separate from a firm’s operating account. Only after work is completed and invoiced to the client should any of those funds be transferred into a firm’s operating account as payment. Other practitioners have talked about the problems that arise from failing to properly monitor and administer such funds. For example, if a client pays with a credit card and the credit card fee is incorrectly taken out of the unearned advanced retainer fee, not the firm’s operating account, the firm should repay those moneys back to the unearned portion. Understanding state requirements for managing these funds is important.

Interest on Lawyer Trust Accounts
Advance fee payments also raise issues regarding interest on lawyer trust accounts (IOLTA). Many states now require that lawyers or firms establish and maintain earned client fees in IOLTA accounts. Typically, state bars direct that the income generated by these accounts fund go-to organizations such as legal aid. I knew early on that I was required to establish and use an IOLTA account for all advance fee payments made by clients. To that end, I looked at the list of banks provided by my bar association and those recommended by other solo practitioners in deciding where to open my firm accounts. I wanted a bank that was familiar with IOLTA account requirements and that might have some processes in place to enable me to avoid possible missteps with managing funds.

Division of Fees with Other Attorneys
Knowing that I would be out on my own, and no longer with a group of other attorneys, I anticipated that I might need to work with other counsel on larger matters or related to other practice areas. I knew it was important to understand how to divide fees between firms in a way that will not raise ethics issues. For example, at least one of the jurisdictions where I am licensed prohibits the collection of fees for any referrals. Model Rule 1.5(e) allows for the division of fees only if “(1) the division is in proportion to the services performed by each lawyer or each lawyer assumes joint responsibility for the representation; (2) the client agrees to the arrangement, including the share each lawyer will receive, and the agreement is confirmed in writing; and (3) the total fee is reasonable.” I realized that whatever future arrangements my firm uses, the arrangements must clearly set out how fees will be divided and do so in a way that is fair and reasonable for both firms.

Division of Fees or Co-ownership of Firm with Nonlawyers
I knew that as I started up my practice, I would not face issues related to division of fees with nonlawyers or co-ownership of my firm with a nonlawyer. Model Rule 5.4, “Professional Independence of a Lawyer,” subpart (a), states that “[a] lawyer or law firm shall not share legal fees with a nonlawyer. . . .” The “hot” issue related to Rule 5.4 concerns whether lawyers may end up violating this rule and sharing fees with nonlawyers by “daily deal” advertising. In particular, a few state bar ethics opinions have recently permitted this type of advertising. However, I determined that this would not be an issue that would affect me at this time.

Employees
Finally, I determined that I would not need to hire my own administrative staff at the outset of my practice. Instead, I would use the administrative staff and legal secretary available on an hourly basis through my new office-share arrangement. Although the staff would not be my employees, I still wanted to be cognizant of my responsibilities as a supervisor. Model Rule 5.3, “Responsibilities Regarding Nonlawyer Assistants,” takes a commonsense approach to this issue. Subpart (a) provides that a supervising attorney “shall make reasonable efforts to ensure that the firm has in effect measures giving reasonable assurance that the [employee’s] conduct is compatible with the professional obligations of the lawyer. . . .” Subpart (b) requires that an attorney make “reasonable efforts to ensure that the [employee’s] conduct is compatible with the professional obligations of the lawyer,” and subpart (c) notes that a “a lawyer shall be responsible for conduct of such a person that would be a violation of the Rules of Professional Conduct if engaged in by a lawyer if” known or ratified by the lawyer. In other words, just as I had done before starting my own firm, I must closely supervise and review the work product of any nonlawyer staff.

Conclusion
Looking back on the experience of making the first set of decisions on where and how to open my own practice, I considered numerous ethics issues. The ABA’s Model Rules are a great starting point because they provide a good understanding for many topic areas, and the recent 20/20 Commission has focused on some of the “hot” topics arising from the new web-based marketplace. After that, I looked at the respective rules in the locations where I would be practicing. Equally important was that I sought the advice of attorneys who already had opened their own practices and had thought about many of these same issues. I also consulted each jurisdiction’s anonymous ethics hotlines. No question, I decided, was too insignificant. Ensuring compliance with rules of professional conduct will be a continuing process. Good luck!

 

Keywords: litigation, ethics and professionalism, Model Rules of Professional Conduct, state bar association, fee arrangements, employees, interest on lawyer trust accounts, IOLTA

Arden B. Levy is a sole practitioner with Arden Levy Law PLLC in Washington, D.C., and Alexandria, Virginia.

 


Copyright © 2012, American Bar Association. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or downloaded or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. The views expressed in this article are those of the author(s) and do not necessarily reflect the positions or policies of the American Bar Association, the Section of Litigation, this committee, or the employer(s) of the author(s).