Lawyer-Controlled Entities

Lawyer-Controlled Entities

A lawyer who keeps a law-related service apart from the law practice has cleared only the first of the two circumstances in Rule 5.7(a). The second circumstance operates on the separated arrangement itself. When law-related services are provided "in other circumstances by an entity controlled by the lawyer individually or with others," the lawyer remains subject to the Rules of Professional Conduct if the lawyer "fails to take reasonable measures to assure that a person obtaining the law-related services knows that the services are not legal services and that the protections of the client-lawyer relationship do not exist."¹

Together, the two circumstances create a presumption that the lawyer's professional duties follow the service. A customer who sees an offering that appears ancillary to a law practice, with no affirmative step by the lawyer to separate it from the practice, is entitled to expect that the lawyer will protect confidential information, avoid conflicts of interest, maintain professional independence, and advertise ethically. Those protections attach unless the lawyer both performs the services in a manner distinctly separate from the legal practice and takes reasonable measures to ensure that the recipient knows the services are not legal services.²

Each half does work the other cannot do. Separation without explanation leaves the customer guessing what kind of service this is. Explanation without separation contradicts what the customer sees, a lawyer-run offering that looks like part of the practice. Because the lawyer decides how the business is built and presented, the lawyer carries the job of drawing the line clearly.

The two subsections that follow take the halves in turn. Structure asks whether the lawyer controls an entity whose circumstances are distinct from the law practice. Communication asks what the customer was told. A lawyer who controls such an entity avoids the Rules only by satisfying both, so an exam answer under this trigger needs a separate conclusion on each.

Control and Distinct Circumstances

Three phrases in Rule 5.7(a)(2) carry the structural analysis. The services must be provided in circumstances "other" than those of the law practice, they must be provided through an "entity," and the lawyer must control that entity, "individually or with others."³ The duty to take reasonable measures, which closes the clause, is a separate question for the next subsection. Here the only issue is when a business's organization and ownership bring the lawyer within reach of the trigger.

"Other circumstances" picks up where the first circumstance leaves off. A service that is not distinct from the practice, with the same people and the same engagement, draws the Rules directly under Rule 5.7(a)(1). Only a service that already looks distinct reaches Rule 5.7(a)(2), which makes the second circumstance the rule's check on the lawyer who has done the structural work and may believe the job finished. One account of the rule states the escape in just these terms: the lawyer must perform the services "in a manner distinctly separate from the legal practice."⁴

The entity need not be wholly separate from the law practice. The 2002 revision of paragraph (a)(2) dropped the word "separate" before "entity," and the commentary indicates that providing the law-related services through different support staff, meaning staff other than those who assist with the legal work, may be enough.⁵ A law firm may therefore run a law-related service as a discrete function inside the firm. What the rule demands in place of total separation is a clear line of demarcation from the law practice, one that signals to an outsider that the services are offered in circumstances distinct from the practice of law.⁶ The test looks at what the arrangement tells the person on the outside, and legal separateness on paper decides nothing. An entity that shares the practice's office, staff, and name signals nothing. A discrete unit with its own personnel and a visible boundary can signal a great deal, as can an accounting or copying business run through a different structure or from a separate location.⁷

Control is the second structural condition, and "individually or with others" makes it broader than sole ownership. A lawyer who runs the business alone is covered, and so is a lawyer who shares control with nonlawyer partners, because other owners do not take the lawyer's control away. Control is the trigger because the lawyer who controls a business decides how it presents itself to the public. A lawyer with no control has no such power, so a lawyer who merely points clients toward an independent provider stays outside this trigger.

Students go wrong most often on the second lawyer. The suite, staff, and name show that the business is distinct, and that clears the first circumstance only. Distinctness does not remove the second circumstance, because the second operates on precisely the arrangements that satisfy the first. A stem describing a separately housed, separately staffed business that the lawyer owns is therefore asking about control and notice, and physical separation cannot carry the answer. A stem describing only a referral to an outside firm asks whether the lawyer controls anything, and if the answer is no, this trigger drops out.

The fourth step shows why structure alone cannot resolve a problem under the second circumstance. A lawyer who controls a distinct entity remains subject to the Rules until recipients have been told what they are and are not receiving, and the next subsection takes up that communication.

Reasonable Measures to Inform

The closing clause of Rule 5.7(a)(2) moves from structure to communication. Once the lawyer controls a distinct entity, the question becomes what the customer has actually been told. Three features of the text organize the analysis. The duty is to take "reasonable measures," so the lawyer is judged by what the lawyer did. The target of those measures is the customer's knowledge, so the goal is a customer who understands the situation. And that knowledge has two parts joined by "and," so the explanation must cover both.⁹

The two required points answer two different misunderstandings. The first is that the service might be legal service. The second is that the protections of the client-lawyer relationship, which include confidentiality, freedom from conflicts, and professional independence, might apply.¹⁰ A customer told only that the company gives no legal advice may still assume that a business run by a lawyer keeps secrets and avoids conflicts, since the customer has no reason to think a lawyer's duties stop at the door of the side business. A statement covering only the first point therefore leaves the main confusion in place. The usual exam error is to treat "this is not a law firm" as complete when it says nothing about what protections the customer lacks.

The rule does not say how much explanation is enough, and the commentary gives a sliding answer. The amount depends on the circumstances, meaning how distinct the law-related services are from the law practice, and on the sophistication of the person in using legal services.¹¹ Both factors track the risk of confusion. A service delivered under its own name, from its own location, with its own staff gives the customer fewer reasons to connect it with the lawyer's practice, so less needs to be said. A regular buyer of legal services already knows where lawyering ends and other business begins, while a first-time customer may not see the line and needs a fuller explanation. Because the standard moves with those facts, no fixed checklist of words defines a reasonable measure.

Timing and form matter as well. The commentary advises that the explanation be given before the transaction for the law-related services, and preferably in writing.¹² Timing matters because the explanation exists to let the customer choose with knowledge, and a customer who has already bought the service or disclosed confidences cannot choose on the basis of what the lawyer reveals later. A writing is preferable because the customer can keep it and the lawyer holds a record of what was said. But "preferably" makes the writing advice, and the firmer directive is that the explanation come first.

Sometimes the organization of the business does the work a statement would otherwise do. If the business plainly separates the lawyer as a professional from its operation, for instance by never identifying the lawyer as an owner or operator, and it sits in a structure wholly disassociated from any law practice, such as a physically separate location, the arrangement may itself prevent misunderstanding.¹³ A customer of a copying shop across town who never learns the lawyer's name has nothing to be confused about. That result is the exception. In most circumstances the lawyer must inform the recipient directly and forthrightly of the distinct nature of the services and the inapplicability of professional standards.¹⁴

Both lawyers satisfy the structural half, so they differ only in what the customer was told. The brochure ties the first company to a lawyer and gives the customer no way to learn that client-lawyer protections are absent. The second customer receives both facts in time to decide whether to buy.

The burden stays with the lawyer. If the explanation is vague, late, or incomplete, the customer remains entitled to expect full adherence to the Rules.¹⁵

Two limits qualify the point. When the customer of the law-related services is also the lawyer's legal client, the business-transaction rule, Rule 1.8(a), still applies: the lawyer must ensure that the terms are fair, that the client is informed in writing and given a chance to consult independent counsel, and that the client consents in writing. A statement that the services are not legal services does not displace those safeguards.¹⁶ And when legal and law-related services are provided on the very same matter and become so closely entwined that they cannot be told apart, no explanation can restore the distinction.¹⁷