ETHICS OPINION 326-1934

NUMBER 326 1934

Question. A is the attorney for a trade organization which pays this attorney an annual retainer and advances to him all disbursements. The retainer covers all usual legal services rendered by A to his client. The major part of A’s services is to sit in at meetings of the credit men of the eleven firms which form the trade association, and at such meetings determinations are reached upon courses of action toward delinquent debtors. In this manner it is concluded that the condition of B’s business and his conduct thereof are such that proceedings in bankruptcy should be taken against the latter as a benefit to all the members of the trade association, and the trade generally. Three member creditors of B are selected for the purpose of making and filing an involuntary bankruptcy petition against B, and in the consequent proceedings the referee awards to the petitioning creditors the sum of $150 for the services of their attorney, and also makes an allowance for disbursements incurred by him. Such allowance and disbursements are paid to A as attorney for the petitioning creditors.

Is it proper professional conduct for A to account to his client, the trade association, for the moneys so received by him, either by a direct payment thereof to the trade association, or by a credit therefor on his retainer?

Answer. No. In the opinion of the Committee, no division of compensation for professional services should be made by a lawyer except with another lawyer duly admitted to practice and amenable to professional discipline, and even then it is not professionally proper to divide such compensation unless the recipient of the division performs professional services or shares professional responsibility therefor. This principle is recognized by Canon 34 of the Canons of Professional Ethics of the American Bar Association. The fact that the lawyer receives other compensation from the trade organization is not sufficient reason for varying the conclusion or for reimbursing the organization or for crediting it with such fees or any part of them, or in any way accounting to it therefor, “He should regard and treat the member as his client; and he should not compensate the Association or divide his compensation with it.” (Announcement of opinion of this Committee with the concurrence of the Committee on Unlawful Practice of the Law, May 2, 1921, published on page iv of the published questions and answers of this Committee.)

Disciplinary measures and decisions in other jurisdictions have been taken against both lawyers and organizations for similar practices: Dworken v. Apartment House Owners Association of Cleveland, 3 Ohio State Bar Assn. Rep. 627, 28 Nisi Prius Reports (Ohio) New Series 114. affirmed by the Court of Appeals of Cuyahoga County, 38 Ohio App. 265, 176 N.E. 577; People v. Peoples Stock Yards State Bank, 344 111. 462, 176 N.E. 901: In re Otterness, 232 N.W. 318 (Minn. Sept. 26, 1930); State v. Retail Credit Men’s Association of Chattanooga, 163 Tenn. 450, 43 S.W. 2d 918.

In so answering, the Committee does not approve of a retainer which requires the lawyer to account for such compensation; and he should not accept a retainer so conditioned. However, it does not construe the question to mean that such a condition was a part of the retainer.