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End-of-life notice: American Legal Ethics Library

As of March 1, 2013, the Legal Information Institute is no longer maintaining the information in the American Legal Ethics Library. It is no longer possible for us to maintain it at a level of completeness and accuracy given its staffing needs. It is very possible that we will revive it at a future time. At this point, it is in need of a complete technological renovation and reworking of the "correspondent firm" model which successfully sustained it for many years.

Many people have contributed time and effort to the project over the years, and we would like to thank them. In particular, Roger Cramton and Peter Martin not only conceived ALEL but gave much of their own labor to it. We are also grateful to Brad Wendel for his editorial contributions, to Brian Toohey and all at Jones Day for their efforts, and to all of our correspondents and contributors. Thank you.

We regret any inconvenience.

Some portions of the collection may already be severely out of date, so please be cautious in your use of this material.


Arizona Legal Ethics

V. LAW FIRMS AND ASSOCIATIONS

5.1   Rule 5.1 Responsibilities of a Partner and Supervisory Lawyer

5.1:100   Comparative Analysis of Arizona Rule

5.1:101      Model Rule Comparison

The 2003 amendments changed the title and paragraph of the Rule, and the accompanying Comment, to extend the requirements of the Rule beyond partners in a private firm to those with comparable managerial authority, and to managing lawyers in corporate law departments, government agencies and legal services organizations. The basic requirement of the Rule - that such managing lawyers make reasonable efforts to insure that the conduct of lawyers in the "firm" comport with the requirements of the Rules of Professional Conduct - was unchanged.

AZ-ER 5.1 and its accompanying Comment are substantially identical to MR 5.1 and its accompanying Comment.

5.1:102      Model Code Comparison

The former Code of Professional Conduct had no direct counterpart to this Rule. Former DR 1-103(A) merely provided that a lawyer who possessed unprivileged knowledge of another lawyer's violation of DR 1-102 was obligated to report that information to the appropriate investigative and/or disciplinary authority.

5.1:200   Duty of Partners to Monitor Compliance with Professional Rules

  • Primary Arizona References: AZ-ER 5.1(a) and accompanying Comment
  • Background References: ABA Model Rule 5.1(a), Other Jurisdictions
  • Commentary: ABA/BNA § 91:201, ALI-LGL § 12, Wolfram § 16.2, G. Hazard, Jr. & W. Hodes, The Law of Lawyering: A Handbook on the Model Rules of Professional Conduct (1989)

AZ-ER 5.1(a) imposes upon partners in a firm, and upon lawyers who individually or together with other lawyers, possess comparable managerial authority a generalized duty to make reasonable efforts to ensure that the firm has in place measures that provide reasonable assurance that all lawyers in the firm will conform to the Rules of Professional Conduct. As the Comment to this aspect of the Rule points out:

Paragraph (a) requires lawyers with managerial authority in a firm to make reasonable efforts to establish internal policies and procedures designed to provide reasonable assurance that all lawyers in the firm will conform to the Rules of Professional Conduct. Such policies and procedures include, but are not limited to, those designed to detect and resolve conflicts of interest, identify dates by which actions must be taken in pending matters, account for client funds and property and ensure that inexperienced lawyers are properly supervised.

Other measures required to fulfill the responsibility prescribed in paragraph (a) can depend on the firm's structure and the nature of its practice. In a small firm of experienced lawyers, informal supervision and periodic review of compliance with the required systems ordinarily will suffice. In a large firm, or in practice situations in which difficult ethical problems frequently arise. Some firms, for example, have a procedure whereby junior lawyers can make confidential referral of ethical problems directly to a designated senior partner or special committee. See ER 5.2. Firms, whether large or small, may also rely on continuing legal education in professional ethics. In any event, the ethical atmosphere of a firm can influence the conduct of all its members and the partners may not assume that all lawyers associated with the firm will inevitably conform to the Rules.

Comment, AZ-ER 5.1, 2, 3.

The principal change wrought by the 2003 amendments to the Rule was to extend its coverage beyond the former "partners in a firm" to encompass all lawyers who alone, or in conjunction with others, exercise comparable managerial authority. The Comment to this aspect of the Rule makes clear, however, that the intent was to make the Rule's obligations applicable to all lawyers with management responsibility of legal organizations:

Paragraph (a) applies to lawyers who have managerial authority over the professional work of a firm. See ER 1.0(c). This includes members of a partnership, the shareholders in a law firm organized as a professional corporation, and members of other associations authorized to practice law; lawyers having comparable managerial authority in a legal services organization or a law department of an enterprise or government agency; and lawyers who have intermediate managerial responsibilities in a firm. Paragraph (b) applies to lawyers who have supervisory authority over the work of other lawyers in a firm.

Comment, AZ-ER 5.1, 1.

The language of AZ-ER 5.1(a) is virtually identical to the language in AZ-ER 5.3(a) that describes the supervisory responsibilities of partners in a law firm with respect to nonlawyers employed or retained by the firm. In a case concerning the application of the latter rule, Matter of Galbasini, 163 Ariz. 120, 786 P.2d 971 (1990), the Supreme Court, relying heavily on G. Hazard, Jr. & W. Hodes, The Law of Lawyering: A Handbook on the Model Rules of Professional Conduct, p. 464 (1989), ruled that AZ-ER 5.3 was violated when a supervising lawyer failed to take any precautionary steps at all, even though there was no violation of the ethical rules by the lawyer's staff. See also Matter of Struthers, 179 Ariz. 216, 877 P.2d 789 (1994); Matter of Miller, 178 Ariz. 257, 872 P.2d 661 (1994). Given the similarity of the language in the two Rules, it is reasonable to assume that a law firm partner or supervising attorney runs some risk of violating the provisions of AZ-ER 5.1(a) if that individual takes absolutely no precautions to see to it that other lawyers in the firm comply with their ethical obligations.

A partner or supervising attorney certainly cannot properly direct a subordinate to engage in improper conduct. Thus, in Arizona Ethics Opinion No. 93-13, the Committee on the Rules of Professional Conduct ruled that the institution in a prosecutor's office of a blanket policy of seeking a peremptory change of judge whenever a prosecution was assigned to a particular judge, because of a perceived anti-prosecutorial bias in the judge's prior rulings in criminal matters, might violate this Rule, depending upon the motive underlying the policy.

5.1:300   Monitoring Duty of Supervising Lawyer

  • Primary Arizona References: AZ-ER 5.1(b) and accompanying Comment
  • Background References: ABA Model Rule 5.1(b), Other Jurisdictions
  • Commentary: ABA/BNA § 91:201, ALI-LGL § 12, Wolfram § 16.2, G. Hazard, Jr. & W. Hodes, The Law of Lawyering: A Handbook on the Model Rules of Professional Conduct (1989)

AZ-ER 5.1(b) requires lawyers with direct supervisory authority over another lawyer to take reasonable steps to ensure that the supervised lawyer conforms to the rules of professional conduct. Again, as noted in the portion of the Comment quoted in the immediately preceding Section, what constitutes reasonable measures may vary depending on the size of the firm and the nature of its practice, but that would logically seem to be less of a potentially exculpatory factor in the case of a lawyer who directly supervises the work of another lawyer, because of the presumed opportunity for the supervising lawyer to directly observe the subordinate's performance of his or her professional duties.

Consistently with this proposition, the reported instances where lawyers have been disciplined for violations of AZ-ER 5.1 have involved the failure of a supervisory lawyer to adequately monitor the activities of a lawyer subject to the disciplined lawyer's direct supervision. In Matter of Lenaburg, 177 Ariz. 20, 864 P.2d 1052 (1993), the Supreme Court approved a censure and two-year suspension of a lawyer for, among other things, failing to see that an associate lawyer prosecuted one case diligently for one client and kept the client adequately informed, failing to adequately supervise the conduct of an associate who was found by a court to have filed frivolous suits, and failing to ensure that a probate matter which the lawyer had assigned to an associate with no probate experience was transferred to an associate with such experience. In Matter of Rice, 173 Ariz. 376, 843 P.2d 1268 (1992), the Court approved censuring a lawyer and placing him on one year's probation for, among other things, failing to ensure that associates to whom he had assigned client matters appeared at hearings in those matters.

Once again, the language of AZ-ER 5.1(b) is virtually identical to the language in AZ-ER 5.3(a) that describes the supervisory responsibilities of partners in a law firm with respect to nonlawyers employed or retained by the firm. In a case concerning the application of the latter rule, Matter of Galbasini, 163 Ariz. 120, 786 P.2d 971 (1990), the Supreme Court, relying heavily on G. Hazard, Jr. & W. Hodes, The Law of Lawyering: A Handbook on the Model Rules of Professional Conduct, p. 464 (1989), ruled that AZ-ER 5.3 was violated when a supervising lawyer failed to take any precautionary steps at all, even though there was no violation of the ethical rules by the lawyer's staff. See also Matter of Struthers, 179 Ariz. 216, 877 P.2d 789 (1994); Matter of Miller, 178 Ariz. 257, 872 P.2d 661 (1994). Given the similarity of the language in the two Rules, it is reasonable to assume that a supervising attorney runs some risk of violating the provisions of AZ-ER 5.1(a) if that individual takes absolutely no precautions to see to it that other lawyers in the firm comply with their ethical obligations.

Lawyers placed in supervisory positions by firms should ensure that they have the authority and autonomy to discharge their obligations under AZ-ER 5.1(b). Thus, in Arizona Ethics Opinion No. 96-08, the Committee ruled that an Arizona attorney could accept a position as an associate to operate the Arizona office of an out-of-state firm as long as: (1) the associate has a bona fide employment relationship with the firm, (2) the Arizona associate is permitted to be fully responsible for the Arizona office, including the right to supervise partners in the office not yet admitted in Arizona and/or who limited their practices to federal law, and (3) the firm clearly indicates on its letterhead and all communications where each of the attorneys is admitted and that the Arizona associate is the managing lawyer for the Arizona office.

5.1:400   Failing to Rectify the Misconduct of a Subordinate Lawyer

Under AZ-ER 5.1(c), a lawyer will be responsible for a subordinate lawyer's ethical violations if the lawyer ordered or ratified the conduct, or if the lawyer failed to take reasonable remedial action after learning of it. With respect to the obligations that this aspect of the Rule imposes upon lawyers who are directly supervising the errant subordinate lawyer, the Comment to the Rule observes:

A supervisor is required to intervene to prevent avoidable consequences of misconduct if the supervisor knows that the misconduct occurred. Thus, if a supervising lawyer knows that a subordinate misrepresented a matter to an opposing party in negotiation, the supervisor as well as the subordinate has a duty to correct the resulting misapprehension.

Comment, AZ-ER 5.1, 5.

The very same obligation is imposed upon partners in a firm who are not directly supervising the lawyer who violates an ethical rule. If a partner in the firm in which the errant lawyer practices learns of the misconduct at a time when its consequences can be avoided or mitigated, the partner has an obligation to take reasonable remedial action. As the Comment to this aspect of the Rule notes:

Partners and lawyers with comparable authority have at least indirect responsibility for all work being done by the firm, while a partner or manager in charge of a particular matter ordinarily also has supervisory responsibility for the work of other firm lawyers engaged in the matter. Appropriate remedial action by a partner or managing lawyer would depend upon the immediacy of that lawyer's involvement and the seriousness of the misconduct.

Comment, AZ-ER 5.1, 5. There are no other Arizona authorities that elaborate upon these principles or explain what remedial actions may be required and/or effective in specific situations.

5.1:500   Vicarious Liability of Partners

As noted earlier, under AZ-ER 5.1(c), a partner in a firm will be responsible for the misconduct of another lawyer in the firm if (1) the partner ordered the conduct involved or, with knowledge of the specific conduct involved, ratified it, or (2) learns of the misconduct at a time when its consequences can be avoided or mitigated, but fails to take reasonable remedial action. In addition, under the doctrine of Matter of Galbasini, 163 Ariz. 120, 786 P.2d 971 (1990), a partner in a firm could be found to have violated the provisions of AZ-ER 5.1(a) if the partner fails to take any precautionary steps at all to see that that the firm has taken measures to ensure that lawyers in the firm comply with their ethical obligations, even if no ethical violations by other lawyers in the firm occur.

If the misconduct is such that it also results in malpractice liability to the client then all partners in the firm will be jointly and severally liable for any judgment entered in favor of the client. Clogher v. Winston & Strawn, 181 Ariz. 372, 891 P.2d 240 (App. 1995). In fact, it has been held that, under Arizona's partnership statutes and common law, punitive damages may be awarded vicariously against a partnership for acts of a partner performed in the ordinary course of the partnership's business. Hyatt Regency Phoenix Hotel Company v. Winston & Strawn, 184 Ariz. 120, 907 P.2d 506 (App. 1995), cert. denied 517 U.S. 1234, 116 S.Ct. 1877, 135 L.Ed.2d 173 (1996). Thus, it is not uncommon to find that many Arizona law firms have organized, or reorganized, themselves as either "limited liability corporations" or "limited liability partnerships" to avoid this exposure.

5.2   Rule 5.2 Responsibilities of a Subordinate Lawyer

5.2:100   Comparative Analysis of Arizona Rule

5.2:101      Model Rule Comparison

The 2003 amendments to the Arizona Rules of Professional Conduct made no changes either to this Rule or to the accompanying Comment.

AZ-ER 5.2 and its accompanying Comment are identical to MR 5.2 and its accompanying Comment.

5.2:102      Model Code Comparison

There was no counterpart to this Rule in the Code of Professional Resopnsibility.

5.2:200   Independent Responsibility of a Subordinate Lawyer

AZ-ER 5.2(a) makes clear that it is not automatically a complete defense to a charge of a violation of one of the ethical rules that the lawyer involved in the alleged violation was a subordinate attorney who was merely acting at the direction of a supervising attorney. Subordinate lawyers have an independent duty to assess the ethical propriety of actions they are directed to undertake. The Comment to the Rule notes, however:

Although a lawyer is not relieved of responsibility for a violation by the fact that the lawyer acted at the direction of a supervisor, that fact may be relevant in determining whether a lawyer had the knowledge required to render conduct a violation of the rules.

Comment, AZ-ER 5.2, 1.

In Arizona Ethics Opinion No. 96-08, the Committee on the Rules of Professional Conduct ("the Committee") held that an Arizona attorney may be hired as an associate to operate and manage the local office of a firm whose main office is outside Arizona, if (1) the associate has a bona fide employment relationship with the firm, (2) the Arizona attorney is fully responsible for the local Arizona office, including the power to supervise and direct partners in the firm working in the office who are not as yet admitted in Arizona but limit their practices to federal law, (3) the firm clearly indicates on all communications and its letterhead where each of the attorneys in the office is admitted and that the Arizona associate is the manager for the Arizona office. In Arizona Ethics Opinion No. 93-13, the Committee questioned the propriety of a blanket policy of a prosecutor's office which required individual attorneys in the office to file notices seeking a peremptory change of judge when a matter was assigned to a particular judge because of the judge's rulings in prior criminal matters, and the propriety of individuals in the office following that policy unquestioningly.

In Arizona Ethics Opinion No. 90-10, the Committee ruled that an individual public defender whose estimated caseload greatly exceeded the standards set forth in State v. Joe U. Smith, 140 Ariz. 355, 681 P.2d 1374 (1984) had an ethical responsibility to decline to accept new cases, if possible, or to withdraw from previous assignments until the inquiring attorney's caseload became manageable.

5.2:300   Reliance on a Supervisor's Resolution of Arguable Ethical Issues

Under AZ-ER 5.2(b), it is not an ethical violation if a subordinate lawyer has acted in accordance with a supervisory lawyer's reasonable resolution of an arguable question of professional duty. As the Comment to this aspect of the Rule notes, this exception to the operation of AZ-ER 5.2(a) is driven by, and recognizes, the practical realities of modern-day law practice:

When lawyers in a supervisor-subordinate relationship encounter a matter involving professional judgment as to ethical duty, the supervisor may assume responsibility for making the judgment. Otherwise, a consistent course of action or position could not be taken. If the question can reasonably be answered only one way, the duty of both lawyers is clear and they are equally responsible for fulfilling it. However, if the question is reasonably arguable, someone has to decide upon the course of action. That authority ordinarily reposes in the supervisor, and a subordinate may be guided accordingly.

Comment, AZ-ER 5.2, 2. Of course, the difficult situation is presented when, in the language of the Comment, the ethical question "can reasonably be answered only one way," but the supervisory and subordinate lawyer nevertheless arrive at different answers. From the perspective of the subordinate lawyer, it is at that point that the proscriptions of AZ-ER 5.2(a) may come into play.

There are no other Arizona authorities that apply or elaborate upon the principles stated in AZ-ER 5.2(b) and the accompanying Comment.

5.3   Rule 5.3 Responsibilities Regarding Nonlawyer Assistants

5.3:100   Comparative Analysis of Arizona Rule

5.3:101      Model Rule Comparison

As with AZ-ER 5.1, the 2003 amendments to this Rule and the accompanying Comment similarly expanded its coverage beyond partners in a private firm to those with comparable managerial authority, as well as to managing lawyers in corporate and government law departments and legal services organizations.

AZ-ER 5.3 and its accompanying Comment are substantially identical to MR 5.3 and its accompanying Comment. Paragraph 2 of the Comment to AZ-ER 5.3, however, contains the following sentence which is not found in the corresponding paragraph of the Comment to MR 5.3: "Law enforcement officers are generally not considered associated with government lawyers, for purposes of this Rule."

5.3:102      Model Code Comparison

There was no direct counterpart to this Rule in the former Code of Professional Responsibility. DR 4-101(D) of the Code did require lawyers to exercise reasonable care to prevent employees, associates and others whose services the lawyer utilized from disclosing or using client confidences. In addition, former DR 7-107(J) provided that a lawyer should take reasonable care to prevent the lawyer's employees and associates from making extrajudicial statements that the lawyer would be precluded from making under the provisions of DR 7-107.

5.3:200   Duty to Establish Safeguards

  • Primary Arizona References: AZ-ER 5.3(a) and (b) and accompanying Comment
  • Background References: ABA Model Rule 5.3(a), Other Jurisdictions
  • Commentary: ABA/BNA § 91:201, ALI-LGL §§ 4, 5, Wolfram § 16.3, G. Hazard, Jr. & W. Hodes, The Law of Lawyering: A Handbook on the Model Rules of Professional Conduct (1989)

AZ-ER 5.3(a) imposes upon partners in a firm, and those with comparable managerial authority, a generalized duty to make reasonable efforts to ensure that the firm has in place measures that provide reasonable assurance that nonlawyers employed or retained by, or associated with, the firm conduct themselves in a fashion that is compatible with the professional obligations of the lawyer. AZ-ER 5.3(b) requires that lawyers who have direct supervisory authority over such nonlawyers take reasonable steps to ensure that their conduct is compatible with the lawyer's professional obligations. As the Comment to the Rule observes:

Lawyers generally employ assistants in their practice, including secretaries, investigators, law student interns, and paraprofessionals. Such assistants, whether employees or independent contractors, act for the lawyer in rendition of the lawyer's professional services. Law enforcement officers generally are not considered associated with government lawyers, for purposes of this Rule. A lawyer must give such assistants appropriate instruction and supervision concerning the ethical aspects of their employment, particularly regarding the obligation not to disclose information relating to representation of a client, and should be responsible for their work product. The measures employed in supervising nonlawyers should take account of the fact that they do not have legal training and are not subject to professional discipline.

Comment, AZ-ER 5.3, 1. Although the distinctions seems more theoretical than real, particularly in those cases where a lawyer has been charged with a violation of AZ-ER 5.3, the Arizona Supreme Court has held, in a series of cases, that the Rule does not impose upon lawyers vicarious liability for the misdeeds of their nonlawyer staff or consultants, but rather an independent, and enforceable, duty of supervision, one element of which is a duty to put in place adequate safeguards to ensure that the conduct of staff or consultants does conform to ethical requirements to which the lawyer is subject.

Matter of Galbasini, 163 Ariz. 120, 786 P.2d 971 (1990), the first of these decisions, arose out of a formal agreement entered into between Galbasini and an entity called RMJ, Inc., which characterized itself as an employer management firm, expert in accounts receivable management, pursuant to which RMJ was to manage Galbasini's law office. In actuality, RMJ was merely a collection agency that Galbasini used to handle collection matters for clients. After terminating the relationship, Galbasini learned of several instances where sums had been collected by RMJ, but not remitted to clients. One of the ethical violations with which Galbasini was charged arising out of this relationship was a failure to adequately supervise the activities of RMJ. Relying heavily on G. Hazard, Jr. & W. Hodes, The Law of Lawyering: A handbook on the Model Rules of Professional Conduct, p. 464 (1989), the Court observed:

An attorney who supervises a nonlawyer associate is not required to guarantee that the associate will never engage in "incompatible" conduct, for that would be tantamount to vicarious liability. On the other hand, if a supervising lawyer takes no precautionary steps at all, he or she violates Rule 5.3 whether or not their nonlegal associates misbehave.

Id., 163 Ariz. at 124, 786 P.2d at 975. The Court then went on to note: "Although ER 5.3 may not establish a rule of vicarious or imputed liability, it does mandate an independent duty of supervision." Id. The Court essentially found that Galbasini had conducted no supervision of RMJ whatsoever and had thus violated AZ-ER 5.3. For this and several other violations arising out of the relationship with RMJ, Galbasini was suspended for six months.

Matter of Miller, 178 Ariz. 257, 872 P.2d 661 (1994) involved the Court's summary affirmance of an Order of the Disciplinary Commission suspending Miller, who had already been disbarred for other violations, for a concurrent period of twelve months for, among other things, violations of AZ-ER 5.3. Miller had turned over the handling of a new collections practice Miller was developing to one Bell, who apparently collected some funds for certain clients, but failed to turn over the money to the clients. Miller did not know of this at the time, and fired Bell when the situation was discovered. The Commission nevertheless felt the situation presented was controlled by the Supreme Court's decision in Matter of Galbasini, supra, and imposed discipline on Miller, which the Supreme Court approved:

This analysis concedes that an attorney who supervises a non-lawyer assistant is not required to guarantee that that assistant will never engage in conduct that is not compatible with the professional obligations of the lawyer. However, the analysis provides that if a supervising lawyer takes no precautionary steps whatsoever, ER 5.3 is violated, regardless of whether or not the non-lawyer assistants misbehave.

Id., 178 Ariz. at 259, 872 P.2d at 663.

Finally, Matter of Struthers, 179 Ariz. 216, 877 P.2d 789 (1994) was a disciplinary proceeding arising out of Struthers' retention by an entity called Child Support Collections ("CSC"), which specialized in collecting overdue child support payments from divorced parents, and worked on a contingency basis. After letters and telephone calls failed to secure collections, CSC would turn the file over to one of its retained attorneys. After an investigation by the State Banking Department into financial irregularities at CSC, it was dissolved, and Struthers superficially converted its operations into a supposed independent law practice, with the former principals of CSC retained as "legal assistants." In reality, CSC simply continued to operate as it had in the past. The Court commenced its discussion of one of the categories of ethical violations with which Struthers had been charged, by stating:

It is important to note that lawyers are often responsible for the actions of their nonlawyer assistants. Ethical Rule 5.3(a) provides that a lawyer in Struthers' position shall "make reasonable efforts to ensure that the firm has in effect measures giving reasonable assurance" that nonlawyer assistants conduct themselves according to the rules for lawyers. In addition, ER 5.3(c) holds a lawyer responsible for an employee's misconduct if the lawyer ratifies that conduct or fails to mitigate its consequences when possible.

179 Ariz. at 219, 877 P.2d at 792. The Court found that Struthers had virtually abandoned responsibility for running his supposed law office to the former principals of CSC, whom he knew had previously been charged with serious financial irregularities, exercised no oversight over them, gave them total control over the office and unfettered access to his trust account. Based on these findings, the Court had little difficulty concluding that Struthers had failed to meet his obligations under AZ-ER 5.3 to ensure that his nonlawyer assistants complied with his professional obligations: "Although there may often be some question of what is a reasonable effort to ensure proper conduct by nonlawyer employees, at a minimum the lawyer must screen, instruct and supervise." Id. For these, and many other, violations, Struthers was disbarred.

5.3:300   Duty to Control Nonlawyer Assistants

AZ-ER 5.3(a) imposes upon partners in a firm, and those with comparable managerial authority, a generalized duty to make reasonable efforts to ensure that the firm has in place measures that provide reasonable assurance that nonlawyers employed or retained by, or associated with, the firm conduct themselves in a fashion that is compatible with the professional obligations of the lawyer. AZ-ER 5.3(b) requires that lawyers who have direct supervisory authority over such nonlawyers take reasonable steps to ensure that their conduct is compatible with the lawyer's professional obligations. There are thus three separate categories of nonlawyer assistants to which the obligations imposed by these Rules apply: (1) those "employed" by a firm or lawyer; (2) those "retained by" a firm or lawyer; and, (3) those "associated with" a firm or lawyer.

The Rule is clearly applicable to the supervision of staff members who are in the employ of the firm or lawyer. In Matter of Rice, 173 Ariz. 376, 843 P.2d 1268 (1992), the Supreme Court approved an Order of the Disciplinary Commission placing Rice on one year's probation for, among other things, violations of both AZ-ER 5.1 and 5.3. The Commission had found that Rice had failed to adequately instruct and supervise his staff to ensure that clients received the correct billings, that clients were dealt with in a cooperative manner, that clients were notified when their matters were assigned to a different attorney, and that clients were represented at hearings in their cases.

For purposes of this Rule, lawyers associated with a firm, or employed by an individual lawyer, who are not yet admitted to practice in Arizona are considered nonlawyer staff. Thus, in Matter of Brown, 175 Ariz. 134, 854 P.2d 768 (1993), the Supreme Court affirmed a decision of the Disciplinary Commission suspending Brown for six months and imposing a subsequent two year probation for, among other things, violations of AZ-ER 5.3. It appeared that the charged violation of AZ-ER 5.3 consisted of Brown delegating a client's case to an attorney in his firm who was not licensed as an attorney in Arizona, and failing to supervise what the attorney did.

In Arizona Ethics Opinion No. 96-06, the Committee on the Rules of Professional Conduct ("the Committee") addressed the issue of the status of attorneys, employed by Arizona firms, who were admitted in other jurisdictions, but were awaiting admission to the Bar in Arizona. The Committee confirmed that such a "foreign" lawyer "may only perform those services that a nonlawyer could perform because, technically, the foreign lawyer is not a lawyer in Arizona ..." (The Committee also held that the "foreign" lawyer must also disclose that he or she is admitted only in another jurisdiction.) The Committee then noted:

A member of the State Bar of Arizona must supervise the work performed by the foreign lawyer, in compliance with ER 5.3. Moreover, the supervising lawyer ultimately is responsible for the work performed by the foreign lawyer, including adherence to the Rules of Professional Conduct. Supervision of the foreign lawyer should include: 1) reviewing the pleadings prepared by Lawyer B [the "foreign" lawyer] and having only Lawyer A [the supervising lawyer] sign such pleadings; 2) reviewing any letters drafted by Lawyer B and assuring that she indicates in the letter or signature line that the correspondence is sent on behalf of Lawyer A; and 3) Lawyer A advising clients that Lawyer B is not admitted in Arizona and that Lawyer A will be "counsel" to the clients until such time as Lawyer B is admitted in Arizona.

Id., p. 5.

In Arizona Ethics Opinion No. 87-27, the Committee held that an attorney may properly employ a lawyer who has been disbarred in the same capacity as the attorney would employ any non-lawyer for assistance, as long as the attorney ensures that the employee does not engage in unethical conduct or the unauthorized practice of law.

As noted earlier, the Rule also imposes a duty of supervision with respect to nonlawyers who are "retained by" or "associated with" a firm or a lawyer. Thus, in both Matter of Struthers, 179 Ariz. 216, 877 P.2d 789 (1994) and Matter of Galbasini, 163 Ariz. 120, 786 P.2d 971 (1990), [discussed in Section 5.3:200, supra], the lawyers were subjected to discipline for failure to adequately supervise "legal assistants" they had retained or separate businesses with which they had become associated in the performance of legal services for clients.

In Arizona Ethics Opinion No. 2001-11, the Committee addressed an inquiry from a firm that assisted clients in qualifying for and processing claims involving Medicaid and Arizona Long Term Care System Benefits, and proposed to contract with an outside agency to work with and assist the firm's clients in preparing and processing benefit applications. The Committee held that this would be permissible under certain conditions, one of which was that the firm honor its obligation under AZ-ER 5.3 to make sure that the agency's conduct was compatible with the firm's professional obligations, including the preservation of client confidences.

In Arizona Ethics Opinion No. 99-13, the Committee held that an Arizona attorney may ethically permit a nonlawyer paralegal, who is also a licensed tribal advocate, to represent clients in tribal court if the rules of the court in question permitted that, because it is the court's rule that control. Such engagements will not run afoul of the lawyer's duty not to assist the unauthorized practice of law, as long as the representation by the paralegal is limited to matters in tribal court.

In Arizona Ethics Opinion No. 99-11, the Committee on the Rules of Professional Conduct (hereinafter "the Committee") held that it was ethically permissible for a lawyer in private practice to direct a private investigator or "tester" to misrepresent his or her identity or purpose in contacting someone who is the subject of an investigation, but only if the misrepresentations are for the purpose of gathering facts before filing suit. The Committee was heavily influenced by the fact that the use of such "testers" to establish evidence of discrimination has become common practice, is often necessary, and has been approved by the courts. The Committee concluded that it would be inconsistent with the intent of the Rules of Professional Conduct, given the current state of the law, to prohibit such a practice.

In Arizona Ethics Opinion No. 98-08, the Committee held that it was ethically proper for an attorney to contract with a paralegal to have the paralegal assist with conducting initial interviews of estate planning clients, so long as: (1) the attorney supervises and controls the paralegal's activities to assure that the paralegal does not engage in the unauthorized practice of law; (2) there is no sharing of fees; (3) the initial interviews are only with existing clients; and, (4) there is no solicitation of new business by the paralegal.

In Arizona Ethics Opinion No. 93-01, the Committee addressed an inquiry from an attorney concerning the ethical propriety of associating with a nonlawyer-operated business which represented itself as being a "complete eviction service." According to the facts provided by the inquiring attorney, among the services this service purported to provide landlords were included the following: tenant screening, service of process on tenants, collection of past due rent, short of litigation, preparation of termination notices, satisfactions of judgment, writs of restitution, and documents relating to forcible and detainer actions, and the legal assistance of an attorney when required. The Committee felt that the inquiry presented was controlled by its prior Arizona Ethics Opinion No. 86-07, which concerned the ethical propriety of an attorney cooperating with a nonlawyer "consulting service," which provided expert testimony to its customers for a contingent fee. The Committee noted that, in that prior Opinion, it had held:

We determined that ER 5.3 applied to the lawyer's business relationship with the consulting service, even though the service contracted directly with the customer. We concluded that the lawyer would violate ER 5.3 in so cooperating in view of the facts that the consulting service was a completely independent entity, and that the lawyer had no means of ensuring that the consulting service's conduct was compatible with the lawyer's professional obligations. That opinion stands for the proposition that an attorney may not provide legal services in association with a nonlawyer unless the nonlawyer's activities relating to the lawyer's representation of the client are subject to the attorney's supervision and control.

Arizona Ethics Opinion No. 93-01, p. 3. Turning to the problem at hand, the Committee expressed concern that the facts presented to it suggested that the eviction service was employing and supervising the lawyer, when the requirements of ER 5.3 would require exactly the opposite situation. The Committee thus concluded:

As the Comment to ER 5.3 advises, an attorney must be ultimately responsible for the nonlawyer's work product. We believe that fulfilling this responsibility requires a greater degree of supervision than that contemplated by the inquiring attorney's association with the eviction service.

To comply with ER 5.3, the inquiring attorney should, at a minimum, become familiar with the employment responsibilities of the nonlawyer members of the eviction service, and she must inform them of the fundamentals of professional responsibility, especially the duty to maintain client confidences. See Comment to ER 5.3. Further, she must establish procedures by which she will be responsible for the work product of the nonlawyers. If she cannot effectively establish such a degree of supervision, her association with the eviction service would violate ER 5.3.

Id., p. 4.

In Arizona Ethics Opinion No. 2001-11, the Committee addressed an inquiry from a firm that assisted clients in qualifying for and processing claims involving Medicaid and Arizona Long Term Care System benefits. The firm proposed to contract with an outside agency to work with and assist the firm's clients in preparing and processing benefit applications. The Committee advised, inter alia, that the firm would have an obligation under this Rule to make sure that the agency's conduct was compatible with the firm's professional obligations, including the preservation of client confidences.

One of the professional obligations of a lawyer with which the lawyer should ensure nonlawyer staff complies that is specifically mentioned in the Comment to AZ-ER 5.3 is the obligation, imposed by AZ-ER 1.6, to keep in confidence information relating to the representation of clients. As the Court noted in Samaritan Foundation v. Superior Court In and For County of Maricopa, 173 Ariz. 426, 844 P.2d 593 (App. 1992), vacated on other grounds sub nom. Samaritan Foundation v. Goodfarb, 176 Ariz. 497, 862 P.2d 870 (1993):

An attorney is ethically responsible for the conduct of a nonlawyer employed by, retained by, or associated with the lawyer. 17A A.R.S. Sup.Ct.Rules, Rules of Professional Conduct, Rule 4.2, ER 5.3(1988). The Rules of Professional Conduct require the lawyer with direct supervisory control over the nonlawyer to "make reasonable efforts to ensure that the [nonlawyer's] conduct is compatible with the professional obligations of the lawyer." Id. Those obligations include client confidentiality. Id.

Id., 173 Ariz. at 433, fn.8, 844 P.2d at 600. In fact, in certain situations, the supervisory lawyer must not only take reasonable steps to ensure that nonlawyer staff maintains the confidences of clients of the lawyer or the firm by which they are currently employed, but also the confidences of clients to which they were exposed in prior employments in the legal field.

Smart Industries Corp., Mfg. v. Superior Court In and For County of Yuma, 179 Ariz. 141, 876 P.2d 1176 (App. 1994) involved a Special Action from a decision of the Yuma County Superior Court refusing to disqualify a firm that was representing the plaintiffs in a pending action in which Smart Industries was a defendant. The grounds for the requested disqualification was the fact that the firm representing the plaintiffs had, while the matter was pending, hired an individual who had been a legal assistant for the lawyer representing the defendant Smart Industries and who had, while in that lawyer's employ, worked extensively on the litigation.

The Superior Court had denied the motion because it did not feel that AZ-ER 1.10 applied to nonlegal assistants. The Court of Appeals, however, held that "the operation of ER 1.10(b) may be extended to the conduct of nonlawyers through ER 5.3." Id., 179 Ariz. at 145, 876 P.2d at 1180. The Court noted that, while ER 5.3 does not place upon a lawyer an "imputed liability" for the actions of the nonlawyer employee, it does create an independent duty of supervision, and: "The lawyer's duty of supervision over, and responsibility for, the conduct of a nonlawyer assistant under ER 5.3 clearly encompasses the protection of client confidences communicated to a nonlawyer assistant, such as a paralegal or secretary." Id., 179 Ariz. at 146, 876 P.2d at 1181.

The Court of Appeals concluded that a law firm could avoid disqualification in circumstances such as were presented by cautioning the nonlawyer not to disclose any information relating to the representation of a client of the former employer, and by not permitting the nonlawyer to work on any matter on which the nonlawyer worked for the prior employer or respecting which the nonlawyer employee has information relating to the representation of a client of the former employer. Id., 179 Ariz. at 149-150, 876 P.2d at 1184-1185, and:

We conclude that the screening requirements articulated above are sufficient to satisfy a lawyer's duty under ER 5.3 to supervise a nonlawyer employee in a manner that will assure conduct "compatible" with the lawyer's ethical obligations.

Id., 179 Ariz. at 150, 876 P.2d at 1185. The Court reversed, however, and directed that plaintiffs' firm be disqualified, because it had failed to institute any screening procedures at all.

5.3:400   Responsibility for Misconduct of Nonlawyer Assistants

Under AZ-ER 5.3(c), a lawyer will be held responsible for conduct of a nonlawyer employed or retained by or associated with the lawyer that would be a violation of the Rules of Professional Conduct if engaged in by a lawyer, if the lawyer ordered or ratified the conduct, or if the lawyer failed to take reasonable remedial action after learning of it at a time when its consequences could have been avoided or mitigated.

Thus, in Matter of Struthers, 179 Ariz. 216, 877 P.2d 789 (1994) (discussed in Section 5.3:200, supra.), the Court approved the imposition of discipline on an attorney, Struthers, who had in effect virtually abandoned responsibility for running his law office to two individuals whom he knew had previously been charged with financial irregularities, exercised no oversight over their activities, and gave them unfettered access to his trust account. As the Court observed: ". . .ER 5.3(c) holds a lawyer responsible for an employee's misconduct if the lawyer ratifies that conduct or fails to mitigate its consequences when possible." 179 Ariz. at 219, 877 P.2d at 792.

Similarly, in Matter of Rice, 173 Ariz. 376, 843 P.2d 1268 (1992), the Supreme Court approved an Order of the Disciplinary Commission placing Rice on one year's probation for, among other things, violations of both AZ-ER 5.1 and 5.3. The Commission had found that Rice had failed to adequately instruct and supervise his staff to ensure that clients received the correct billings, that clients were dealt with in a cooperative manner, that clients were notified when their matters were assigned to a different attorney, and that clients were represented at hearings in their cases.

Finally, in Matter of Galbasini, 163 Ariz. 120, 786 P.2d 971 (1990), the Court approved the imposition of discipline upon a lawyer who had used, to handle collection matters for clients, a collection agency which had, in several instances, collected sums for clients, but failed to remit them.

5.4   Rule 5.4 Professional Independence of a Lawyer [Restrictions on Form of Practice]

5.4:100   Comparative Analysis of Arizona Rule

5.4:101      Model Rule Comparison

In light of the adoption of AZ-ER 1.17, this Rule was amended to permit a lawyer who purchases the practice of a deceased, disabled or disappeared lawyer to pay the purchase price to the estate or non-lawyer representative of the incapacitated lawyer. A new paragraph (a)(4) was added which permits a lawyer to share court-awarded fees with a non-profit organization that hired or recommended the lawyer. Paragraph (d) was amended to prevent lawyers from practicing with a professional corporation or association authorized to practice law for a profit if a nonlawyer is a corporate officer or director, or occupies a position of similar responsibility in any form of association other than a corporation.

AZ-ER 5.4 and its accompanying Comment are now identical to MR 5.4 and its accompanying Comment.

5.4:102      Model Code Comparison

There are several provisions in the former Code of Professional Responsibility which addressed the same subject matter as AZ-ER 5.4. DR 3- 102(A) provides that "[a] lawyer shall not share legal fees with a nonlawyer ...." DR 3-103(A) provided that "[a] lawyer shall not form a partnership with a nonlawyer if any of the activities of the partnership consist of the practice of law." DR 5-107(B) provided that "[a] lawyer shall not permit a person who recommends, employs or pays him to render legal services for another to direct or regulate his professional judgment in rendering such legal services." Finally, DR 5-107(C) provided that "[a] lawyer shall not practice with or in the form of a professional corporation or association authorized to practice law for a profit, if: (1) A nonlawyer owns any interest therein, except that a fiduciary representative of the estate of a lawyer may hold the stock or interest of the lawyer for a reasonable time during administration; (2) A nonlawyer is a corporate director or officer thereof; or (3) A nonlawyer has the right to direct or control the professional judgment of the lawyer."

EC 5-24 provided the following elaboration with respect to the requirements concerning the form or organization which was appropriate for a law practice:

A lawyer should not practice with or in the form of a professional legal corporation, even though the corporate form is permitted by law, if any director, officer or stockholder of it is a nonlawyer. Although a lawyer may be employed by a business corporation with nonlawyers serving as directors or officers, and they necessarily have the right to make decisions of business policy, a lawyer must decline to accept direction of his professional judgment from any layman. Various types of legal aid offices are administered by boards of directors composed of lawyers and laymen. A lawyer should not accept employment from such an organization unless the board sets only broad policies and there is no interference in the relationship between him and the individual client he serves. Where a lawyer is employed by an organizatoin, a written agreement that defines the relationship between him and the organization and provides for his independence is desirable since it may serve to prevent misunderstanding as to their respective roles. Although other innovations in the means of supplying legal counsel may develop, the responsibility of the lawyer to maintain his professional independence remains constant...."

5.4:200   Sharing Fees with a Nonlawyer

AZ-ER 5.4(a) contains a blanket prohibition on a lawyer, or law firm, sharing legal fees with a nonlawyer, subject only to three limited exceptions which do not implicate the underlying purpose of the rule:

(1) A lawyer or law firm may enter into an agreement with a lawyer to pay money to that lawyer's estate or to one or more beneficiaries identified by the lawyer, over a reasonable period of time followoing the lawyer's death;

(2) A lawyer undertaking to complete unfinished legal business of a deceased lawyer may pay to that lawyer's estate a proportion of the total compensation received which fairly represents services rendered by the deceased lawyer; and

(3) A lawyer or firm may include nonlawyer employees in a compensation or retirement plan which is based, either in whole or in part, on a profit-sharing arrangement.

The Comment to the Rule as a whole notes that the limitation on the sharing of fees with a nonlawyer is a traditional one, and "[T]hese limitations are to protect the lawyer's professional independence of judgment." Comment, AZ-ER 5.4, 1.

In Matter of Struthers, 179 Ariz. 216, 877 P.2d 789 (1994), the Supreme Court approved the disbarment of Struthers for a host of ethical violations arising out of his relationship with an entity initially called Child Support Collections ("CSC"), which subsequently changed its name to "MIROVI." CSC specialized in collecting overdue child support payments from divorced parents. After letters and telephone calls failed to secure collection of support payments, CSC would turn the file over to one of its retained attorneys. CSC handled all matters on a contingency basis. After an investigation by the State Banking Department into financial irregularities at CSC, it was dissolved, and Struthers superficially converted its operations into a law practice, but retained the former principals of CSC as "legal assistants." In reality, CSC simply continued to perate exactly as it had in the past.

The Court found that Struthers virtually abandoned responsibility for running his office to the former principals of CSC, exercised no oversight over them, gave them total control over the office and unfettered access to his trust account. This formed the basis for a finding that Struthers had violated, inter alia, the obligations imposed by AZ-ER 5.3. In addition, the Court found that Struthers had an agreement with MIROVI, CSC's successor, to turn over to it all fees he received, with any profit left after paying expenses to be distributed by agreement of the parties. The Court easily concluded that this arrangement violated the provisions of AZ-ER 5.4(a), and expressed explicit approval of the conclusion, articulated by the Arizona Court of Appeals in Peterson v. Anderson, 155 Ariz. 108, 745 P.2d 166 (App. 1987), that fee- splitting agreements with nonlawyers are contrary to public policy and unenforceable, in addtion to being unethical. Id., 179 Ariz. at 224, 877 P.2d at 797.

In Arizona Ethics Opinion No. 2000-10, the Committee on the Rules of Professional Conduct (hereinafter "the Committee") addressed an inquiry from a temporary staffing agency which placed lawyers on short-term assignments with law firms. The Committee initially cautioned that, where such a placement occurs, both the firm and the temporary lawyer have a responsibility to be sure there is compliance with the Rules of Professional Conduct. The Committee then held that arrangements of this nature will not violate AZ-ER 5.4(a) if the payment to the temporary agency is made regardless of any amounts actually received from the law firm's client, and is not calculated as a percentage of what the firm receives. In Arizona Ethics Opinion No. 99-12, the Committee held that a lawyer employed by an architectural firm may not provide legal services to the architectural firm's clients, where the firm pays the attorney a salary, but the firm charges clients an hourly rate for the lawyer's services.

In Arizona Ethics Opinion No. 96-11, the Committee on the Rules of Professional Conduct ("the Committee") ruled that a lawyer could not properly have legal fees paid for a client through a referral service, and that the lawyer could not be employed, part-time, by that referral service to provide legal services to its clients. In Arizona Ethics Opinion No. 93-01, the Committee addressed an inquiry from a lawyer concerning the propriety of associating with a nonlawyer-operated business which represented itself to be a "complete eviction service," and offered to provide landlords with the following types of services: tenant screening, service of process, collections of past due rental payments, document preparation, including such documents as satisfactions of judgment, pleadings, writs or restitution, etc., and representation by an attorney in forcible entry and detainer proceedings. The Committee found that the proposed association presented a number of ethical problems, including that it might involve the improper sharing of fees with a nonlawyer if the eviction service proposed to, or did, charge its customers fees directly for the provision of attorney representation.

In Arizona Ethics Opinion No. 85-07, the Committee determined that an attorney could not properly enter into a contract with a company which provided services relating to employment compensation matters unless the fees payable to the attorney were directly related to the services performed by that attorney and the fee the company charged its clients bore a direct relationship to the services that it provided. In Arizona Ethics Opinion No. 81-23, the Committee ruled that an attorney may enter into an agreement with a collection agency where the agency institutes litigation against debtors and the proceeds collected (after the deduction of court costs and letgal fees) go to the collection agency. In Arizona Ethics Opinion No. 85-03, the Committee held that an attorney could not properly accept legal employment from a law plan that required fees to be shared between the plan and the attorney.

The foregoing Opinions all dealt with a situation where the attorney was inquiring concerning an arrangement pursuant to which a nonlawyer-operated business proposed to employ the attorney or to contract for the attorney's services. Potentially improper fee-splitting problems may also be presented where the attorney proposes to hire or contract with a nonattorney for services related to the attorney's practice. Thus, in Arizona Ethics Opinion No. 98-08, the Committee concluded that an attorney could ethically contract with a paralegal to have the paralegal assist with the conduct of initial interviews of estate planning clients but only if (1) the attorney supervised and controlled the paralegal's activities to assure that the paralegal did not engage in the unauthorized practice of law, (2) there was no sharing of fees between the attorney and the paralegal, (3) the initial interviews were only with existing clients; and, (4) there was no solicitation of new business by the paralegal.

In Arizona Ethics Opinion No. 93-05, the Committee indicated that it would be proper, under certain conditions, for an attorney to employ a non-testifying trial consultant and to pay the consultant a bonus fee if the case resulted in a settlement or victory at trial. In Arizona Ethics Opinion No. 90-14, the Committee held that a law firm could ethically pay a non-lawyer marketing director incentive compensation measured by a percentage of increased revenues, so long as the marketing director had no influence over any lawyer's exercise of professional judgment.

In Arizona Ethics Opinion No. 84-09, however, the inquiry to the Committee was whether it was ethically proper for an attorney to enter into a contingent fee contract with a lay company that consulted on medical malpractice cases. The consulting firm offered to evaluate the merits of such cases for plaintiffs' attorneys and, if it determined that the claim was meritorious, to secure a qualified expert witness to testify on the plaintiff's behalf. The expert's fees were to be paid to the consulting firm, purportedly acting as the collection agent for the expert. The Committee concluded that such an arrangement might be proper, but only if no portion of the attorney's fee was used to pay the fees of the consulting firm, and the attorney retained at all times control and direction over the litigation and the consulting firm.

Fee-splitting issues have also arisen in situations concerning the financial aspects of law practices. In Arizona Ethics Opinion No. 89-10, the Committee ruled that, when an attorney accepts a credit card for the payment of legal fees, the underwriting lender acts merely as a collection agency and is not sharing fees with the attorney. In Arizona Ethics Opinion No. 82-02, the Committee determined that an attorney may properly refer past due accounts to a lay agency for collection, provided that any fee for legal services rendered was reasonable and there was no sharing of fees with the agency. In Arizona Ethics Opinion No. 98-05, the Committee held that a law firm could not ethically sell its accounts receivable to a factor because: (1) that would require the disclosure of confidential information beyond that permitted under AZ-ER 1.6, and (2) it would involve the sharing of legal fees with a non-lawyer. In that same Opinion, the Committee concluded that a lawyer could not sell accounts receivable to a factor if the agreement would permit the factor to resell the accounts to anyone or if the agreement would permit the factor to receive correspondence from the lawyer's clients that might contain confidential information.

Finally, in Arizona Ethics Opinion No. 83-13, the Committee concluded that in- house counsel for an insurance carrier could properly turn over to the carrier any fees awarded to him or her as sanctions imposed under Rule 37 of the Arizona Rules of Civil Procedure.

5.4:300   Forming a Partnership with Nonlawyers

AZ-ER 5.4(b) provides that a lawyer may not properly form a partnership with a nonlawyer "if any of the activities of the partnership consist of the practice of law." Recognizing that, in modern times, firms have eschewed the traditional partnership form in favor of some variety of corporate status, AZ-ER 5.4(d) provides that a lawyer may not practice with or in the form of a professional corporation or association authorized to practice law for a profit, if: (1) a nonlawyer owns any interest therein (subject to one exception -- where the stock or interest of a lawyer is held by a fiduciary while administering that lawyer's estate), or (2) a nonlawyer is a corporate director or officer thereof.

These prohibitions are the logical corollary of AZ-ER 5.4(a)'s prohibition on sharing legal fees with a nonlawyer. In Arizona Ethics Opinion No. 93-01, which concerned the propriety of an attorney becoming associated with a nonlawyer- operated business which represented itself as providing to landlords a "complete eviction service," including representation by an attorney, and which is discussed in Section 5.4:200, supra, the Committee pointed out that AZ-ER 5.4(b) "is designed to protect a lawyer's independent professional judgment by prohibiting nonlawyers from having a financial stake in the lawyer's practice." In that case, the Committee concluded that the eviction service would potentially acquire such a financial stake if the attorney collected a salary or earned a fee from the eviction service. The Committee also noted that, because of the important purpose served by AZ-ER 5.4(b), it had historically construed the term "partnership" very broadly.

For example, in Arizona Ethics Opinion No. 82-18, the Committee held that an attorney could not ethically assist paralegals who provided paralegal and investigative services, even if (1) the attorney would be a salaried employee of the paralegals' corporation, and not a shareholder or officer, (2) the corporation would make no profit from the attorney's fees, (3) the attorney would receive the legal fees charged in their entirety, and (4) the only clients of the paralegals' corporation would be other lawyers.

The Committee has even seemed to consider a single individual desiring to practice two professions simultaneously as fitting within the term "partnership." In Arizona Ethics Opinion No. 97-08, the Committee responded to an inquiry from a lawyer who was also an accountant and wished to provide both types of services from the same office. The Committee concluded that the lawyer could indicate that he was also an accountant on his legal stationery, but (1) the two businesses must remain separate both financially and for advertising purposes, even though they may be housed in the same physical location, (2) the non-legal business could not be used as a "feeder" for the law firm and clients of the accounting business could not be solicited for legal work, (3) clients of the law firm who were referred to the accounting business must be advised of the lawyer's interest in it and that the attorney-client privilege would not extend to the accounting work performed, (4) appropriate safeguards must be in place to assure against breaches of confidentiality and conflicts for the legal practice, and (5) the lawyer could not indicate that he was a lawyer in advertisements for the accounting business unless the advertisements complied with the provisions of the Arizona Rules of Professional Conduct concerning advertising.

Finally, in Arizona Ethics Opinion No. 96-05, the Committee ruled that, because there were so many potential conflicts presented by an attorney referring legal clients to a chiropractic clinic in which the attorney had an interest, such arrangements should be avoided.

5.4:400   Third Party Interference with a Lawyer's Professional Judgment

AZ-ER 5.4(c) provides that a lawyer may not allow "a person who recommends, employs, or pays the lawyer to render legal services for another to direct or regulate the lawyer's professional judgment in rendering such legal services." In the corporate context, under AZ-ER 5.4(d), a lawyer may not practice law in a corporate form, if a nonlawyer is an officer or director of the corporation or association, or if a nonlawyer has the right to direct or control the professional judgment of a lawyer. Once again, as is the case with the other provisions contained in AZ-ER 5.4, the purpose of this provision is to ensure that the lawyer exercises independent professional judgment on behalf of the lawyer's clients. See discussion of Arizona Ethics Opinion Nos. 93-01 and 84-09 in Section 5.4:300, supra.

Applying this provision, the Committee ruled, in Arizona Ethics Opinion No. 90-18, that a County Attorney was required to refrain from entering into a contract with the Department of Economic Security (DES) to assist individuals in child support collection matters, if the County Attorney's clients will be the individuals in need of the services rather than the DES, and if the provisions of the proposed contract direct that the attorney proceed in a manner not in the individuals' best interests. Similarly, in Arizona Ethics Opinion No. 87-13, the Committee determined that an attorney who is the acting director of a public defender agency could not follow the directives of the manager of the governing body which funds that agency if to do so would violate any of the Rules of Professional Conduct.

In Arizona Ethics Opinion No. 2001-06, the Committee concluded that a lawyer could not enter into a criminal defense contract to provide legal services paid by a third party if the contract might induce the lawyer to curtail necessary services or to perform them in a way contrary to the client's interests because of insufficient funding and/or the need to secure authorization from non-lawyer third parties.

The situation in which issues of improper interference by a third party with the lawyer's independent exercise of professinal judgment arise most frequently is where an insurance carrier retains a lawyer to defend a claim that has been brought against one of its insureds. Where a third party, such as an insurance carrier, is paying the lawyer's fees for representing a client, the potential for conflict arises if and when the third party attempts to control or dictate the actions that the lawyer takes on behalf of the client involved. As the Comment to Arizona ER 1.7 explains:

A lawyer may be paid from a source other than the client, including a co-client, if the client is informed of that fact and consents and the arrangement does not compromise the lawyer's duty of loyalty or independent judgment to the client. See ER 1.8(f). If acceptance of the payment from any other source presents a significant risk that the lawyer's representation of the client will be materially limited by the lawyer's own interest in accommodating the person paying the lawyer's fee or by the lawyer's responsibilities to a payer who is also a co-client, then the lawyer must comply with the requirements of paragraph [AZ-ER 1.7] (b) before accepting the representation, including determining whether the conflict is consentable and, if so, that the client has adequate information about the material risks of the representation.

Comment, AZ-ER 1.7, 13. In fact, AZ-ER 1.8(f), cited in the Comment to Arizona ER 1.7, addresses this situation specifically. That Rule provides that a lawyer must not accept compensation for representing a client from someone other than the client unless: "(1) the client consents after consultation; (2) there is no interference with the lawyer's independence of professional judgment or with the lawyer-client relationship; and (3) information relating to representation of a client is protected as required by ER 1.6."

The Supreme Court recently held, in Paradigm Insurance Company v. The Langerman Law Offices, P.A., 200 Ariz. 146, 24 P.3d 593 (2001), that, while the interests of an insurer and its insured are often aligned, there is always the potential for conflict, and that, if such a conflict arises, the primary duty of a lawyer hired by the carrier to defend the insured is to the insured. See also State Farm Mutual Automobile Ins. Co. v. Federal Ins. Co., 72 Cal.App.4th 1422, 86 Cal.Rptr.2d 20 (1999). On the other hand it is also established in Arizona that, where there is an actual or potential divergence between the interests of the carrier and the interests of the insured, it is the insured that is the lawyer's client and to whom the lawyer owes a duty of loyalty. Paradigm Insurance Company v. The Langerman Law Offices, P.A., supra; Parsons v. Continental National American Group, 113 Ariz. 223, 550 P.2d 94 (1976); Arizona Ethics Opinion No. 94-03. In that setting, the attorney owes the insured undeviating and single allegiance, whether compensated by the insurer or the insured. Id. In the course of representing an insured, a lawyer must be careful not to reveal to the insurer information obtained during the defense of the insured-client which might lead to a denial of insurance coverage, without the client-insured's fully informed consent. In addition, the lawyer's professional judgment must be exercised on behalf of the insured, free from improper interference by the insurance carrier. The issue of insured-insurer conflicts is discussed more thoroughly in Sections 1.7:315, 1.7:400 and 1.8:720, supra.

In Arizona Ethics Opinion No. 99-08, the Committee held that insurance defense lawyers could not participate in an audit review program conducted by an insurance company's outside auditor where the program requires (1) the disclosure of confidential information about the client/insured (without the client's informed consent), (2) restricts the lawyer's independent professional judgment by limiting the services the lawyer may perform, and (3) grants the auditor permission to review client files. The Committee stressed that, when an insurer engages a lawyer to defend an insured, the insured is the lawyer's client to whom the lawyer owes a duty of undeviating allegiance and loyalty. The lawyer is prohibited from revealing, without the client/insured's consent, information relating to the representation, and the disclosures which would occur during the course of an audit of the attorney's client files cannot be justified as being impliedly authorized to carry out the objectives of the representation. The Committee also cautioned insurance defense practitioners to be careful in submitting bills to carriers not to make unnecessary disclosures of information relating to the representation, and not to disclose at all information which could prove detrimental to the insured/client.

In Arizona Ethics Opinion No. 2001-06, the Committee held that a lawyer may not enter into a criminal defense contract to provide legal services paid by a third party if the contract might induce the lawyer to curtail necessary services or to perform them in a way contrary to the client's interests because of insufficient funding and/or the need to secure authorization from non-lawyer third parties.

Similarly, in Arizona Ethics Opinion No. 2001-01, the Committee held that an attorney could not ethically enter into a contract with a county to provide representation to indigent criminal defendants which contained a provision that precluded the attorney from undertaking certain types of civil matters against the county on behalf of clients the attorney would represent under the agreement. The Committee concluded that the provision was an impermissible restriction on the lawyer's right to practice, under AZ-ER 5.6, because it applied after the contract terminated, and impermissibly allowed a third-party payor to control the lawyer's independent professional judgment, in violation of AZ-ER 1.8.

5.4:500   Nonlawyer Ownership in or Control of Profit-Making Legal Service Organizations

As earlier noted, AZ-ER 5.4(d) prohibits a lawyer from practicing with or in the form of a professional corporation or association authorized to practice law for a profit, if:

(1)   A nonlawyer owns any interest in the professional corporation or association (with one exception -- the situation where a deceased lawyer's interest in the corporation or association is held by a nonlawyer fiduciary while administering that lawyer's estate);

(2)   A nonlawyer is an officer or director of the professional corporation or association; or

(3)   A nonlawyer has the right to direct or control the professional judgment of a lawyer in the corporation or association.

5.4:510      Group Legal Services

In Arizona Ethics Opinion No. 96-11, the Committee ruled that a lawyer may not have legal fees paid for a client through a referral service or business, and the lawyer may not be employed part-time by the referral service or business to provide legal services to clients of the service. Similarly, in Arizona Ethics Opinion No. 85-03, the Committee held that an attorney may not accept legal employment from a law plan that requires that fees be shared between the plan and the attorney.

5.4:520      Nonprofit Organizations Delivering Legal Services

In Arizona Ethics Opinion No. 82-16, the Committee determined that, under certain circumstances, a lawyer may join an "open" or "closed" panel of attorneys to provide legal services to school district boards. An attorney may not, however, accept employment from a School Board Association on a salary and expenses basis to provide legal services to members of the Association, if the school districts that do not want the legal services pay lower dues than the districts whose members will use the legal services.

5.5   Rule 5.5 Unauthorized Practice of Law

5.5:100   Comparative Analysis of Arizona Rule

5.5:101      Model Rule Comparison

There were no changes proposed or made to this Rule as part of the 2003 amendments to the Arizona Rules of Professional Conduct. This Rule, and AZ-ER 8.5, were analyzed by the State Bar's Task Force on the Multijurisdictional Practice of Law, and its recommendations, as modified by the State Bar Board of Governors, have not as yet been submitted to the Arizona Supreme Court.

Because Arizona has not yet acted to adopt rules dealing with the multijurisdictional practice of law, AZ-ER 5.5 and its accompanying Comment significantly different than MR 5.5 and its accompanying Comment. AZ-ER 5.5 maintains its flat prohibitions on practicing law in a jurisdiction where a lawyer is not authorized to do so and on assisting another to do so. MR 5.5 contains that prohibition, but specifies categories of activities that a lawyer may conduct in a jurisdiction where the lawyer is not admitted that will not constitute the unauthorized practice of law.

5.5:102      Model Code Comparison

With regard to AZ-ER 5.5(a), DR 3-101(B) of the former Code of Professional Responsibility provided that: "A lawyer shall not practice law in a jurisdiction where to do so would be in violation of regulations of the profession in that jurisdiction." With regard to AZ-ER 5.5(b), former DR 3-101(A) provided that: "A lawyer shall not aid a nonlawyer in the unauthorized practice of law."

5.5:200   Engaging in Unauthorized Practice

AZ-ER 5.5(a) prohibits an Arizona lawyer from practicing law in a jurisdiction "where doing so violates the regulation of the legal profession in that jurisdiction . . . ." AZ-ER 5.5(a). Relying in part on this provision, the Committee on the Rules of Professional Conduct, in Arizona Ethics Opinion No. 99-06, held that Arizona lawyers could not ethically participate in an Internet referral service that sent legal questions from the public to participating lawyers based upon the subject matter of the question, and could not give such services a fee (or a portion of the lawyer's fee) for those referrals.

Rule 31(a)(3) of the Rules of the Arizona Supreme Court further provides:

"[e]xcept as hereinafter provided in subsection 4 of this section (a), no person shall practice law in this state or hold himself out as one who may practice law in this state unless he is an active member of the state bar, and no member shall practice law in this state or hold himself out as one who may practice law in this state while suspended, disbarred, or on disability inactive status." ASCR 31(a)(3).

Rule 31(a)(2)(A) of the Rules of the Arizona Supreme Court now defines "the practice of law" as providing legal advice or services to or for another by:

(1) preparing any document in any medium intended to affect or secure legal rights for a specific person or entity;

(2) preparing or expressing legal opinions;

(3) representing another in a judicial, quasi-judicial, or administrative proceeding, or other formal dispute resolution process such as arbitration or mediation;

(4) preparing any document through any medium for filing in any court, administrative agency or tribunal for a specific person or entity; or

(5) negotiating legal rights or responsibilities for a specific person or entity.

The Arizona Supreme Court had previously held that the practice of law can be defined as "those acts, whether performed in court or in the law office, which lawyers customarily have carried on from day to day through the centuries," including:

One person assisting or advising another in the preparation of documents or writings which affect, alter or define legal rights; the direct or indirect giving of advice relative to legal rights or liabilities; the preparation for another of matters for courts, administrative agencies and other judicial or quasi-judicial bodies and officials as well as the acts of representation of another before such a body or officer.

State Bar of Arizona v. Arizona Land Title & Trust Co., 90 Ariz. 76, 95, 366 P.2d 1, 14 (1961), modified on other grounds, 91 Ariz. 293, 371 P.2d 1020 (1962). See also Matter of Fleischman, 188 Ariz. 106, 933 P.2d 563 (1997) (the negotiation of a contract constitutes the practice of law).

The Arizona courts have held that defining and regulating the practice of law in Arizona is a function committed exclusively to the judicial branch of Arizona government. Hunt v. Maricopa County Emp. Merit System Comm'n, 127 Ariz. 259, 261, 619 P.2d 1036, 1038 (1980). Thus, a trial court order which permitted a son, who was not a lawyer, to appear, ask questions and make arguments on behalf of his mother was reverses because it improperly interfered with the Supreme Court's exclusive jurisdiction to determine who may practice law in Arizona, and improperly authorized the unauthorized practice of law. Encinas v. Mangum, 203 Ariz. 357, 54 P.3d 826 (App. 2002). Accordingly, any person who has not been admitted to the Arizona Bar, by satisfying requirements established by the Arizona Supreme Court, or who is not supervised by a member of the State Bar of Arizona, cannot prepare legal documents, give legal advice or negotiate legal matters, without engaging in the unauthorized practice of law. (The State Bar of Arizona is a "unitary bar;" persons admitted to the practice of law in Arizona must be members of the State Bar of Arizona.) The requirements for admission as an active member of the State Bar of Arizona, and the admissions process, are described in Section 8.1:200, infra.

Similarly, members of the State Bar of Arizona who are on inactive status, or have been suspended or disbarred cannot practice law. The Disciplinary Commission of the Arizona Supreme Court has penalized lawyers who have engaged in the unauthorized practice after a suspension or a disbarment. See Matter of Coburn, 181 Ariz. 250, 889 P.2d 608 (1995) (lawyer who continued to practice law while on suspension was suspended for additional two-year period); Matter of Taylor, 180 Ariz. 290, 883 P.2d 1046 (1994) (lawyer who continued to practice law while on suspension was suspended for additional three-year period); and Matter of Tarletz, 165 Ariz. 243, 798 P.2d 381 (1990) (lawyer who continued to practice law while on suspension, together with other misconduct, was disbarred). The Supreme Court also has jurisdiction to enjoin the unauthorized practice of law by a disbarred, but formerly admitted, lawyer. In re Creasy, 198 Ariz. 539, 12 P.3d 214 (2000).

5.5:210      Practice of Law by Nonlawyers

Although the "general rule" is that only active members of the State Bar of Arizona may practice law in Arizona, there are certain instances where individuals may engage in activities that constitute the practice of law without having secured admission to, and being a member of, the State Bar of Arizona. For example, Rule 31(c), RASC prescribes the following situations where lay persons may, without being licensed as an attorney, engage in activities that would otherwise constitute the practice of law:

1. In proceedings before the Department of Economic Security, an individual party may represent himself or herself, or be represented by a duly authorized agent who is not charging a fee for the representation;

2. In proceedings before the Department of Economic Security, an employer, including a corporate employer, may be represented by an officer or employee;

3. In proceedings before the Department of Economic Security, a duly authorized agent who is charging a fee may represent any party, but an attorney authorized to practice law in Arizona must be responsible for and supervise such an agent;

4. An employee may designate a representative who need not be an attorney, before any board hearing or any quasi-judicial hearing dealing with personnel matters, but any such designated representative who is not a licensed attorney may not charge any fee for any such services rendered;

5. An officer of a corporation, or a managing member of a limited liability company, who is not a licensed attorney may represent such an entity before a justice court, provided that (a) the entity has specifically authorized that individual to represent it before such courts, (b) such representation is secondary or incidental to other duties of that individual to the entity, and is not the individual's primary duty, (c) the entity was an original party to or a first assignee of a conditional sales contract, conveyance, transaction or occurrence which gave rise to the proceeding in that court, and (d) the assignment was not made for a collection purpose;

6. A person who is not an active member of the State Bar may represent a party in small claims procedures in the Arizona Tax Court;

7. An officer or other duly authorized agent of a corporation, who is not charging a fee for the representation, may represent a corporation before the Industrial Commission of Arizona or the Arizona Division of Occupational Safety and Health in any matter arising under Chapter 2, Article 10 of Title 23 of the Arizona Revised Statutes;

8. An ambulance service may be represented by a corporate officer or employee who has been specifically authorized to represent it in administrative proceedings before the Arizona Department of Health Services;

9. A person who is not an active member of the State Bar may represent a corporation in small claims procedures, provided such person is a full-time officer or employee of the corporation and is not charging a fee for the representation;

10. A party may represent himself or herself, or be represented by a duly authorized agent who is not charging a fee for the representation, in any administrative appeal before the Department of Health Services, for behavioral health services;

11. An officer or employee of a corporation or unincorporated association who is not an active member of the State Bar may represent the corporation or association before the Superior Court in general stream adjudication proceedings, provided that (a) the corporation or association has specifically authorized the officer or employee to represent it in such proceedings, (b) the representation is not the officer's or employee's primary duty to the corporation or association, but is secondary or incidental to other duties related to the management or operation of the corporation or association, and (c) the officer or employee is not receiving separate or additional compensation for the representation.

12. An officer or full-time and permanent employee of a corporation who is not an active member of the State Bar may represent the corporation in administrative proceedings before the Arizona Department of Environmental Quality, provided that (a) the corporation has specifically authorized the officer or employee to represent it in the particular administrative hearing, (b) the representation is not the officer's or employee's primary duty to the corporation, but is secondary or incidental to other duties of the officer or employee related to the management or operation of the corporation, (c) the officer is not receiving separate or additional compensation for the representation, and (d) the corporation has been furnished a timely and appropriate general written warning relating to the potential effects of the proceeding on the corporations's and its owners' legal rights;

13. A legal entity may be represented, in proceedings before the Office of Administrative Hearings, by a full-time officer, partner, member or manager of a limited liability company, or employee, provided that (a) the legal entity has specifically authorized such person to represent it in the particular matter, (b) such representation is not the person's primary duty to the legal entity, but is secondary or incidental to other duties relating to the management or operation of the entity, and (c) the person is not receiving separate or additional compensation for the representation;

14. An individual may be represented by a duly authorized agent who is not charging a fee for the representation, in any administrative appeal proceeding relating to the Arizona Health Care Cost Containment System;

15. An individual may appear on his or her own behalf, or be represented by a certified public accountant, or by a federally authorized tax practitioner, in any administrative proceeding concerning the Arizona Department of Revenue, whether before that Department or before the Office of Administrative Hearings, and in administrative proceedings before a state or county board of equalization, the Arizona Department of Transportation, the Arizona Department of Economic Security, the Arizona Corporation Commission, or any county, city or town taxing or appeals official. If the amount in dispute in such proceeding is less than five thousand dollars ($5,000), the taxpayer may be represented by any duly authorized representative. In any such proceeding, regardless of the amount in controversy, a legal entity, including a governmental entity, may be represented by a full-time officer, partner, member or manager of a limited liability company, or employee provided (1) the entity has specifically authorized that person to represent it in the matter; (2) the representation is not that person's primary duty to the entity, but is secondary or incidental to other duties that person has relating to the management or operation of the entity; and, (3) the person does not receive separate or additional compensation for the representation.

16. A taxpayer may be represented before the Board of Tax Appeals, in any single dispute where the amount involved is less than twenty-five thousand dollars ($25,000), by a certified public accountant, or by a federally authorized tax practitioner.

In addition, clinical law professors, certain law students participating in an approved clinical law practice program, attorneys employed by approved legal services organizations, and what are termed "emeritus attorneys" may engage in the practice of law under carefully circumscribed circumstances prescribed in the Rules of the Arizona Supreme Court. See the discussion in Section 0.2:220, supra, and in Section 8.1:200, infra.

Under Rules 31(b) and 33(b) of the Rules of the Arizona Supreme Court, lawyers from other jurisdictions are not permitted to practice law in Arizona unless they are also a member of the State Bar of Arizona, or are admitted pro hac vice to appear in an Arizona case. RASC 31(a)(3) and 33(c). The Arizona Court of Appeals has also stated that lawyers from other states, who are not licensed to practice law in Arizona, are considered "non-lawyers" under the Code of Professional Responsibility and/or the Rules of Professional Conduct. Peterson v. Anderson, 155 Ariz. 108, 745 P.2d 166 (Ariz. App. 1987).

In Arizona Ethics Opinion No. 96-06, the Committee on the Rules of Professional Conduct ("the Committee") considered whether an out-of-state attorney could practice law in Arizona, while waiting for the bar exam results. The Committee concluded, as did the Court of Appeals in Peterson, that an out-of-state attorney who is not licensed in Arizona, is considered to be a "non-lawyer" under the Rules of Professional Conduct. The Committee explained that an out-of-state lawyer may perform only those activities that a non-lawyer could perform while awaiting the bar exam results. In addition, a member of the Arizona Bar must (1) supervise the out-of-state attorney in accordance with AZ-ER 5.3 to ensure that such attorney does not engage in the unauthorized practice of law, (2) ensure that the out-of-state lawyer complies with the Rules of Professional Conduct, and (3) ensure that the out-of-state lawyer discloses the state in which the lawyer has been admitted in all written and oral communications with clients. See also Arizona Ethics Opinion No. 96-08, where the Committee discussed the ethical restrictions that would apply where a New York law firm proposed to open an Arizona office supervised by an associate who was admitted to practice in Arizona, and the ethical obligations of the Arizona associate in question.

On the other hand, in Arizona Ethics Opinion No. 85-09, the Committee determined that an affiliation of Arizona and out-of-state attorneys for the purposes of advertising was permissible, so long as the advertisements were not false or misleading, clearly indicated the jurisdictional limitations applicable to the out-of-state attorneys involved, and did not otherwise encourage or aid the unauthorized practice of law. Similarly, in Arizona Ethics Opinion No. 2000-08, the Committee concluded that it was permissible for a law firm to list on its letterhead, as "Of Counsel," two lawyers not admitted in Arizona whose practice would be limited to consultation in federal Social Security matters, provided the letterhead also disclosed that the two lawyers were not admitted in Arizona and the limitations on their practice.

Arizona lawyers are, however, permitted to employ non-lawyer assistants to assist in the practice of law. All non-lawyer assistants must be supervised by the Arizona lawyers, and the Arizona lawyer are responsible for the misconduct of any non-lawyer assistants in his employ. See AZ-ER 5.3 and 5.5. Thus, in Arizona Ethics Opinion No. 98-08, the Committee addressed the question whether an attorney may contract with a paralegal to conduct initial interviews of estate planning clients, and to obtain signatures on estate planning documents from such clients. The Committee determined that the non-lawyer paralegal could perform these activities so long as:

1. The attorney will closely supervise the paralegal's activities to ensure that the paralegal does not engage in the unauthorized practice of law;

2. There will be no fee sharing between the attorney and paralegal;

3. The initial interviews to be conducted by the paralegal will only be with existing clients of the attorney; and

4. The paralegal will not engage in the solicitation of new business for the attorney.

In Arizona Ethics Opinion No. 87-27, the Committee considered the circumstances under which a disbarred lawyer could be allowed to work for a lawyer or law firm. The Committee concluded that a former lawyer can perform those activities that a non-lawyer is entitled to perform. The Committee explained, however, that the lawyer/employer of the disbarred attorney has an obligation to supervise the disbarred attorney, and cannot assist the disbarred attorney in the unauthorized practice of law.

In Arizona Ethics Opinion No. 93-01, the Committee discussed whether an attorney can associate with a nonlawyer-operated eviction service for the purpose of providing attorney representation for customers of the eviction service. The Committee concluded that the lawyer would be responsible for supervising the nonlawyer members of the eviction service and ensuring their compliance with the Rules of Professional Conduct. In addition, the attorney would need to establish procedures to monitor the operations of the eviction service to the extent the attorney is responsible for its work. The lawyer is also prohibited from assisting a nonlawyer in the unauthorized practice of law. For further discussion of a lawyer's obligation to supervise nonlawyer employees, see 5.3:200, infra.

5.5:220      Admission and Residency Requirements for Out-of-State Lawyers

Rule 33(b) of the Rules of the Arizona Supreme Court provides that "[n]o person shall practice law in the State of Arizona without being admitted to the bar by compliance with the following rules, provided that an attorney practicing in another state or territory . . . may be permitted by any court to appear in a matter pro hac vice . . . ." RASC 33(b). Thus, out-of-state lawyers seeking to appear in a matter before an Arizona court may be permitted to appear in a case pro hac vice. Out-of-state lawyers seeking to practice in Arizona on a continuing basis, however, must apply for admission in accordance with Rule 34 of the Rules of the Supreme Court. Arizona no longer has a durational residency requirement for admission to the bar.

Under Rule 34, an out-of-state lawyer must file an application with the Committee on Character and Fitness containing all of the same information requested of recent law school graduates, together with evidence that the lawyer is in good standing in those jurisdictions where the lawyer has previously practiced. RASC 34(b). Specifically, the out-of-state lawyer must submit for each jurisdiction in which the lawyer is admitted to practice: (1) a certificate from the officer having custody of the roll of attorneys stating that the lawyer is in good standing, and (2) a certificate from the bar association stating whether the lawyer is in good standing. RASC 34(b)(2) and (3). An out-of-state lawyer shall be admitted to the Arizona bar upon passing the bar examination, and upon receiving a recommendation for admission from the Committee on Character and Fitness. RASC 36(a)(4). See 8.1:200, infra, for a more detailed discussion of the admission requirements.

5.5:230      Pro Hac Vice Admission [see also 8.1:240]

An attorney who is a member in good standing of the bar of another state or territory or insular possession of the United States or the District of Columbia, but who is not admitted to practice in Arizona, may appear as counsel pro hac vice by following the procedures specified in Rule 33(d), Rules of the Supreme Court. That Rule was originally amended, effective December 1, 2001, to impose extremely complicated and onerous requirements for nonresident lawyers seeking pro hac vice admission in Arizona courts and before Arizona administrative agencies that conduct adjudicative functions. Because of objections to the amendments, and a motion for reconsideration, filed by several interested parties, the Supreme Court suspended the operation of the amended Rule indefinitely. By Order dated May 31, 2002, the Court adopted a revised amended version of Rule 33(d), which is to take effect September 1, 2002. As a consequence, pro hac vice applications made between now and August 31, 2002 must comply with the requirements of Rule 33(d) as it existed prior to December 1, 2001. Applications made on or after September 1, 2002 must comply with the requirements of the revised amended Rule, described hereinafter. [The revised amended Rule provides that pro hac vice status may only be granted for a period of one (1) year, and must be renewed annually thereafter. It does not address the question whether pro hac vice admissions granted under the pre-December 1, 2001 Rule, which contained no such provisions, are subject to this renewal requirement.]

Under the revised amended Rule, before even applying for pro hac vice admission, the out-of-state lawyer must first obtain from the State Bar of Arizona a form of Notice specified in the Rule. To obtain that Notice, the lawyer must submit to the State Bar the original and one copy of a verified application, which must be accompanied by a certificate from the state bar or clerk of the highest admitting court of each state in which the nonresident attorney has been admitted to practice, certifying the lawyer's date of admission and the lawyer's current membership status or eligibility to practice in that jurisdiction, and a non-refundable application fee equal to 85% of the current annual dues paid by active members of the State Bar of Arizona for the calendar year in which the application is made. Where pro hac vice admission is sought in many cases which constitute "consolidated or related matters," only one application and application fee is required per nonresident attorney. In the discretion of the State Bar, the application fee requirement may also be waived to permit pro bono representation of an indigent client by a nonresident attorney.

The verified application must be on a form approved by the State Bar Board of Governors, and must provide the following information: (1) the title of the case or cause, court, board or agency or docket number in which the nonresident attorney will be seeking to appear pro hac vice and whether that case is related to or consolidated with a matter in which the attorney has previously applied to appear pro hac vice (2) the nonresident attorney's residence and office address, (3) the courts to which the nonresident attorney has been admitted and the dates of such admission, (4) that the nonresident attorney is a member in good standing in such courts, (5) that the nonresident attorney is not currently suspended or disbarred in any court, (6) whether the nonresident attorney is currently subject to any pending disciplinary proceeding by any court, agency or similar organization and, if so, the jurisdiction where such proceeding is pending, the nature of the matter under investigation, and the name and address of the disciplinary authority investigating the matter, (7) whether the nonresident attorney has ever been disciplined by any court, agency or organization authorized to discipline lawyers, (8) the title of the court and cause and docket number of any case in Arizona in which the nonresident attorney has filed an application to appear as counsel in the preceding three (3) years, the date of such application, and whether it was granted, (9) the name, address and telephone number of local counsel, (10) the name of each party in the case (in which the nonresident attorney will seek to appear), and the name and address of counsel of record for each such party, (11) a certification by the nonresident attorney that he or she will be subject to the jurisdiction of the courts and agencies of the State of Arizona and of the State Bar of Arizona with respect to the law governing the conduct of attorneys to the same extent as an active member of the State Bar of Arizona, (12) a statement that the nonresident attorney will review and comply with appropriate rules of procedure as required in the case in question, and (13) a statement that the nonresident attorney understands and will comply with the standards of professional conduct required of members of the State Bar of Arizona.

Upon receipt of the verified application and application fee from the nonresident attorney, the State Bar will issue, to local counsel, a Notice of Receipt of Complete Application ("Notice") which states: (1) whether the nonresident attorney has previously submitted an application for pro hac vice admission in Arizona within the preceding three (3) years, (2) the date of such application or motion, and (3) whether the application or motion was granted or denied. The Notice is to include as exhibits the nonresident attorney's original verified application and the original certificates of good standing that accompanied it.

Local counsel then must file a motion to associate the nonresident attorney pro hac vice and serve the motion on all parties. The motion must be accompanied by (1) the original verified application submitted to the State Bar by the nonresident attorney, (2) the original certificates of good standing for the nonresident attorney, (3) the Notice issued to local counsel by the State Bar, and (4) a proposed order granting or denying the motion. The order granting or denying the motion to associate must be entered by the court or administrative agency in which it is filed within twenty (20) days after the motion is filed, and local counsel is required to send a copy of the order entered to the State Bar of Arizona.

The revised amended Rule does contain a provision which permits a court, board or administrative agency to permit a nonresident attorney to appear pro hac vice on a temporary basis pending completion of the application procedures specified in the Rule. Where such a temporary pro hac vice admission is granted, however, the court, board or administrative agency must specify a time period for the nonresident attorney to complete the application procedures, and any temporary pro hac vice admission is revoked if the nonresident attorney fails to do so.

The revised amended Rule specifically states that whether to grant a motion to associate a nonresident attorney pro hac vice is discretionary with the court or administrative agency to which it is submitted, and a nonresident attorney must associate local counsel who is a member in good standing of the State Bar of Arizona. The name of such local counsel must appear on all notices, orders, pleadings and other documents filed in the matter, and local counsel must accept joint responsibility with the nonresident attorney for the matter to the client, to opposing parties and counsel, and to the court or administrative agency in which the matter is pending. Local counsel may also be required to appear and participate in pretrial conferences, hearings, trials and other proceedings where the tribunal in question deems such appearance and participation appropriate.

Interestingly, the amended Rule specifies that a motion to associate nonresident counsel may be denied, or the authority of nonresident counsel to appear pro hac vice may be revoked, for "repeated appearances by any person or firm of attorneys pursuant to this rule," absent special circumstances such as a showing that the matter involves a complex area of the law in which the nonresident attorney possesses a special expertise or a lack of local counsel with expertise in the area of law involved in the case.

The order granting the associated nonresident attorney permission to appear pro hac vice is valid and effective only for a period of one (1) year, and must be renewed. In order to secure a renewal of the authority to appear, local counsel must certify to the State Bar of Arizona, on the anniversary date of the nonresident attorney's submission of the original verified application, whether (1) the nonresident attorney continues to act as counsel in the case, or (2) that the case has been fully adjudicated or otherwise concluded. If the nonresident attorney continues to act as counsel in the case, then that attorney must remit to the State Bar of Arizona a renewal fee equal to 85% of the current annual dues paid by active members of the State Bar of Arizona for the calendar year in which renewal is sought. Such renewals are also only valid and effective for a period of one (1) year, so that the renewal procedures and requirements must be followed and satisfied for each year that the nonresident attorney continues to act as counsel in the case. Failure to comply with the renewal procedures and requirements will result in the suspension of the nonresident attorney's authority to appear in any case in Arizona. The Executive Director of the State Bar is to notify the nonresident attorney, local counsel and any court or administrative agency involved of any such suspension. The nonresident attorney's authority to appear may then be reinstated by complying with the renewal procedures and requirements, and by paying the prescribed renewal fee plus a $50 late penalty.

Rule 33(d), RASC provides that counsel thus admitted pro hac vice "consents to the jurisdiction of the court for any alleged misconduct which occurs during the course of the matter," but does not define what constitutes "misconduct." Speer v. Donfeld, 193 Ariz. 28, 969 P.2d 193 (App. 1998). A pro hac vice admission should only be revoked for instances of behavior that, collectively or individually, amount to conduct that was intentionally wrong or that deliberately violated any law, court rule or order. Id.

5.5:240      Performing Legal Services in Another Jurisdiction

AZ-ER 5.5(a) operates to prohibit Arizona lawyers from practicing law in another jurisdiction, if they would violate laws and regulations applicable to the legal profession in that jurisdiction by doing so. Relying in part on this provision, the Committee on the Rules of Professional Conduct, in Arizona Ethics Opinion No. 99-06, held that Arizona lawyers could not ethically participate in an Internet referral service that sent legal questions from the public to participating lawyers based upon the subject matter of the question, and could not give such services a fee (or a portion of the lawyer's fee) for those referrals.

5.5:300   Assisting in the Unauthorized Practice of Law

AZ-ER 5.5(b) provides that a lawyer shall not "assist a person who is not a member of the bar in the performance of activity that constitutes the unauthorized practice of law." The "unauthorized practice of law" is now defined, in Rule 31(a)(2)(B) of the Rules of the Arizona Supreme Court, as including, but not being limited to:

(1) engaging in the practice of law by persons or entities not authorized to practice pursuant to paragraphs (b) or (c) or specially admitted to practice pursuant to Rule 33(d); or

(2) using the designations "lawyer," "attorney at law," "counselor at law," "law office," "J.D.," "Esq.," or other equivalent words by any person or entity who is not authorized to practice law in this state pursuant to paragraphs (b) or (c) or specially admitted to practice pursuant to Rule 33(d), the use of which is reasonably likely to induce others to believe that the person or entity is authorized to engage in the practice of law in this state.

In Arizona Ethics Opinion No. 96-06, the Committee on the Rules of Professional Conduct ("the Committee") considered whether an out-of-state attorney could practice law in Arizona, while waiting for the bar exam results. The Committee concluded, as did the Court of Appeals in Peterson v. Anderson, 155 Ariz. 108, 745 P.2d 166 (App. 1987), that an out-of-state attorney who is not licensed in Arizona, is considered to be a "non-lawyer" under the Rules of Professional Conduct. The Committee explained that an out-of-state lawyer may perform only those activities that a non-lawyer could perform while awaiting the bar exam results. In addition, a member of the Arizona Bar must (1) supervise the out-of-state attorney in accordance with AZ-ER 5.3 to ensure that such attorney does not engage in the unauthorized practice of law, (2) ensure that the out-of-state lawyer complies with the Rules of Professional Conduct, and (3) ensure that the out-of-state lawyer discloses the state in which the lawyer has been admitted in all written and oral communications with clients. See also Arizona Ethics Opinion No. 96-08, where the Committee discussed the ethical restrictions that would apply where a New York law firm proposed to open an Arizona office supervised by an associate who was admitted to practice in Arizona, and the ethical obligations of the Arizona associate in question. On the other hand, in Arizona Ethics Opinion No. 85-09, the Committee determined that an affiliation of Arizona and out-of-state attorneys for the purposes of advertising was permissible, so long as the advertisements were not false or misleading, clearly indicated the jurisdictional limitations applicable to the out-of-state attorneys involved, and did not otherwise encourage or aid the unauthorized practice of law.

In Arizona Ethics Opinion No. 99-10, the Committee held that the Association of Lawyers, a national lawyer association, could ethically place its membership directory on its Internet Web site, categorized by practice areas, so long as the information is not false or misleading. The Committee suggested that, in order to avoid jurisdictional and unauthorized practice of law issues under AZ-ER 5.5, the Association might also want to list bar admissions for lawyers in the directory. The Committee also suggested that the Association might want to clarify that its practice area designations did not necessarily signify that the lawyers were certified specialists in those fields, to avoid problems with AZ-ER 7.4. Similarly, in Arizona Ethics Opinion No. 2001-11, the Committee held that a firm that assisted clients in qualifying for and processing claims involving Medicaid and Arizona Long Term Care benefits, and proposed to contract with an outside agency to assist the firm's clients in preparing benefit applications, had an obligation to insure that the agency's activities did not become the unauthorized practice of law.

In Arizona Ethics Opinion No. 03-03, the Committee held that an Arizona lawyer may not assist a non-lawyer paralegal in either drafting or seeking to enforce a contingent fee agreement for services rendered which the lawyer believes constitute the unauthorized practice of law. Furthermore, the lawyer could not honor a claim asserted against the lawyer's client for a contingent interest in litigation as compensation for services that the lawyer believes constituted the unauthorized practice of law.

Arizona lawyers are, however, permitted to employ non-lawyer assistants to assist in the practice of law. All non-lawyer assistants must be supervised by the Arizona lawyers, and the Arizona lawyer are responsible for the misconduct of any non-lawyer assistants in his employ. See AZ-ER 5.3 and 5.5. Thus, in Arizona Ethics Opinion No. 98-08, the Committee addressed the question whether an attorney may contract with a paralegal to conduct initial interviews of estate planning clients, and to obtain signatures on estate planning documents from such clients. The Committee determined that the non-lawyer paralegal could perform these activities so long as:

1. The attorney will closely supervise the paralegal's activities to ensure that the paralegal does not engage in the unauthorized practice of law;

2. There will be no fee sharing between the attorney and paralegal;

3. The initial interviews to be conducted by the paralegal will only be with existing clients of the attorney; and

4. The paralegal will not engage in the solicitation of new business for the attorney.

In Arizona Ethics Opinion No. 93-01, the Committee discussed whether an attorney can associate with a non-lawyer-operated eviction service for the purpose of providing attorney representation for customers of the eviction service. The Committee concluded that the lawyer would be responsible for supervising the non-lawyer members of the eviction service and ensuring their compliance with the Rules of Professional Conduct. In addition, the attorney would need to establish procedures to monitor the operations of the eviction service to the extent the attorney was responsible for its work. The lawyer was also prohibited from assisting a non-lawyer in the unauthorized practice of law. For further discussion of a lawyer's obligation to supervise non-lawyer employees, see Section 5.3:200, infra.

In Arizona Ethics Opinion No. 99-13, the Committee held that an Arizona attorney may permit a non-lawyer paralegal, who is also a licensed tribal advocate, to represent clients in tribal court if the particular court's rules so permit, and that will not violate the duty not to assist in the unauthorized practice of law, so long as the representation by the paralegal is limited to appearances in tribal court.

The Committee recently issued Arizona Ethics Opinion No. 99-07, in response to "several requests for opinions involving the conduct of non-lawyers purporting to act as public adjusters within the meaning of A.R.S. § 20-281." The Committee noted in its Opinion that in some instances, the "public adjusters," including one who was a disbarred lawyer, were claiming to have the right to adjust personal injury claims for "clients," and to participate in arbitration hearings concerning uninsured motorist issues. The Committee specifically limited its Opinion to situations where these nonlawyer "public adjusters" were not acting under the supervision of a lawyer and were not otherwise licensed to practice.

The Committee initially noted that, by enacting A.R.S. § 20-281, the Legislature was apparently authorizing non-lawyers to engage in what would otherwise be the unauthorized practice of law and, because of that circumstance, the Committee was without authority to declare that these non-lawyers were engaged in the unauthorized practice of law when exercising rights granted to them by the Legislature. The Committee went on to note, however, that lawyers were still bound by the proscription against assisting the unauthorized practice of law, and concluded that a lawyer who interacts with these "public adjusters" in a manner that effectively treats them as lawyers would be violating that proscription. Based upon that analysis, the Committee announced the following four rules to govern dealings between admitted lawyers and unsupervised "public adjusters" and/or their purported "clients":

1. A lawyer may not negotiate with an opposing party's non-lawyer adjuster, if the non-lawyer adjuster is not supervised by an attorney and is not authorized to practice law.

2. A lawyer may communicate directly with an adverse party when the adverse party is represented by a non-lawyer adjuster if the non-lawyer adjuster is not supervised by an attorney and is not authorized to practice law.

3. A lawyer may not participate in an arbitration hearing of an uninsured motorist claim if the adverse party is represented by a non-lawyer adjuster who intends to take and attend depositions, appear at the hearing, offer evidence, examine and cross-examine witnesses, and make argument.

4. A lawyer may honor a non-lawyer adjuster's lien for services performed if the lien relates to services that any non-lawyer could legally perform.

In Arizona Ethics Opinion No. 2001-11, the Committee on the Rules of Professional Conduct addressed an inquiry from a firm that assisted clients in qualifying for and processing claims involving Medicaid and Arizona Long Term Care System benefits. The firm proposed to contract with an outside agency to work with and assist the firm's clients in preparing and processing benefit applications. The Committee advised, inter alia, that the firm would have an obligation under this Rule to make sure that the agency's activities did not become the unauthorized practice of law.

5.6   Rule 5.6 Restrictions on Right to Practice

5.6:100   Comparative Analysis of Arizona Rule

5.6:101      Model Rule Comparison

The 2003 amendments expanded the coverage of this Rule, which prohibits partnership or employment agreements that restrict a lawyer's right to practice after termination of the relationship, to shareholders, operating and other similar types of agreements.

AZ-ER 5.6 and MR 5.6 are substantially similar, but AZ-ER 5.6(b) refers to "settlement of a controversy between private parties," while MR 5.6(b) says "settlement of a client controversy." The Comments to the two Rules are identical.

5.6:102      Model Code Comparison

AZ-ER 5.6 is substantially similar to former DR 2-108.

5.6:200   Restrictions on Lawyers Leaving a Firm

AZ-ER 5.6(a) provides that a lawyer may not have any part in offering, and may not enter into, a partnership, shareholders, operating, employment, or other similar type of agreement that restricts the right of a lawyer to practice after termination of the relationship. The sole exception recognized in the Rule is agreements concerning benefits upon retirement. In addition, the conflict of interest provisions of AZ-ERs 1.9, 1.10 and 1.11 may operate to preclude lawyers moving between private firms, or from government service into private practice, from accepting engagements that would violate the provisions of those Rules.

In Arizona Ethics Opinion No. 2001-01, the Committee on the Rules of Professional Conduct ("the Committee") held that an attorney could not ethically enter into a contract with a county to provide representation to indigent criminal defendants which contained a provision that precluded the attorney from undertaking certain types of civil matters against the county on behalf of clients the attorney represented under the agreement. The provision was found to be an impermissible restriction on the lawyer's right to practice, because it applied after the contract was terminated.

In Arizona Ethics Opinion No. 95-04, the Committee on the Rules of Professional Conduct ("the Committee") ruled that provisions in an in-house attorney's severance agreement that i mpose confidentiality restrictions on the departing lawyer do not impermissibly restrict that attorney's future ability to practice law, so long as the provisions merely reaffirm the requirements imposed by AZ-ER 1.6 on the disclosure of confidential information.

In Arizona Ethics Opinion No. 99-14, the Committee held that a lawyer departing from a firm may contact clients for whom that lawyer has provided legal services while associated with the firm. Indeed, the Committee was of the view that, where the departing lawyer had had significant personal contact with a client in connection with the provision of legal services to that client by the firm, the lawyer had a mandatory duty, under AZ-ER 1.4, to notify the client of his or her departure. The Committee noted that there might be potential legal issues associated with contacting clients while the departing lawyer was still employed by the firm, but the Committee felt resolution of those issues was outside its jurisdiction. The Committee stressed, however, that there was no ethical prohibition on the departing attorney advising clients of the impending departure while still physically present at the firm.

5.6:300   Settlements Restricting a Lawyer's Future Practice

AZ-ER 5.6(b) prohibits either offering or entering into an agreement that is part of a settlement of a controversy between private parties, and which contains a restriction on a lawyer's right to practice. Thus, in Arizona Ethics Opinion No. 90-06, the Committee on the Rules of Professional Conduct ruled that an attorney may not enter into a settlement in which the attorney agrees not to represent clients in future actions against the opposing party and/or other parties to the litigation being settled.

5.7   Rule 5.7 Responsibilities Regarding Law-Related Services

5.7:100   Comparative Analysis of Arizona Rule

5.7:101      Model Rule Comparison

AZ-ER 5.7 was added as a new Rule to the Arizona Rules of Professional Conduct by the 2003 amendments. The Rule has been in the Model Rules of Professional Conduct since 1994.

AZ-ER 5.7(a) and MR 5.7(a) are substantively the same, but Arizona elected a different articulation that was deemed to state the Rule's requirements more understandably. Paragraph 12 of the Comment to AZ-ER 5.7 states specifically: "Variations in language of this Rule from ABA Model Rule 5.7 as adopted in 2002 are not intended to imply a difference in substance." Comment, AZ-ER 5.7, 12. AZ-ER 5.7(b) and MR 5.7(b) are identical.

The Comments to the two Rules are identical, with one exception. Paragraph 3 of the Comment to AZ-ER 5.7 includes only the first sentence of that paragraph of the Comment to MR 5.7.

5.7:102      Model Code Comparison

There was no counterpart to MR 5.7 in the Model Code.

5.7:200   Applicability of Ethics Rules to Ancillary Business Activities

AZ-ER 5.7, which has been in the Model Rules of Professional Responsibility since 1994, was adopted in Arizona in 2003 in recognition that lawyers and law firms have in many instances in modern times undertaken to provide to clients, and others, services that would not, under traditional definitions, constitute the practice of law. As defined in AZ-ER 5.7(b), such ancillary or, as the Rule refers to them, "law-related" services are defined as: "services that might reasonably be performed in conjunction with and in substance are related to the provision of legal services, and that are not prohibited as unauthorized practice of law when provided by a nonlawyer." AZ-ER 5.7(b). As the Comment to the Rule notes:

When a lawyer performs law-related services or controls an organization that does so, there exists the potential for ethical problems. Principal among these is the possibility that the person for whom the law-related services are performed fails to understand that the services may not carry with them the protections normally afforded as part of the lawyer-client relationship. The recipient of the law-related services may expect, for example, that the protection of client confidences, prohibitions against representation of persons with conflicting interests, and obligations of a lawyer to maintain professional independence apply to the provision of law-related services when that may not be the case.

Comment, AZ-ER 5.7, 1.

The Rule attempts to minimize these ethical problems, and client misunderstandings, by drawing a distinction between the circumstances under which the law-related services are provided. When such services are provided in circumstances that are not distinct from those under which the lawyer provides legal services to clients, then the Rules of Professional Conduct are fully applicable. In that case, as the Comment to the Rule notes:

When a lawyer is obliged to accord the recipients of such services the protections of those Rules that apply to the lawyer-client relationship, the lawyer must take special care to heed the proscriptions of the rules addressing conflict of interest (ERs 1.7 through 1.11, especially ERs 1.7(a)(2) and 1.8(a), (b) and (f)), and to scrupulously adhere to the requirements of ER 1.6 relating to disclosure of confidential information. The promotion of the law-related services must also in all respects comply with ERs 7.1 through 7.3, dealing with advertising and solicitation. In that regard, lawyers should take special care to identify the obligations that may be imposed as a result of a jurisdiction's decisional law.

Comment, AZ-ER 5.7, 10.

The law-related services may, however, be provided in a setting distinct from that in which the lawyer provides legal services, such as through a separate organization controlled by the lawyer, either individually or with others. If that is the case, then "the lawyer shall not be subject to the Rules of Professional Conduct, in the course of providing such services, only if the lawyer takes reasonable measures to assure that a person obtaining the law-related services knows that the services of the separate entity are not legal services and that the protections of the client-lawyer relationship do not apply." AZ-ER 5.7(a). As the Comment to the Rule explains:

Law-related services also may be provided through an entity that is distinct from that through which the lawyer provides legal services. If the lawyer individually or with others has control of such an entity's operations, the Rule requires the lawyer to take reasonable measures to assure that each person using the services of the entity knows that the services provided by the entity are not legal services and that the Rules of Professional Conduct that relate to the client-lawyer relationship do not apply. A lawyer's control of an entity extends to the ability to direct its operation. Whether a lawyer has such control will depend upon the circumstances of the particular case.

* * * * * * *

In taking the reasonable measures referred to in paragraph (a) to assure that a person using law-related services understands the practical effect or significance of the inapplicability of the Rules of Professional Conduct, the lawyer should communicate to the person receiving the law-related services, in a manner sufficient to assure that the person understands the significance of the fact, that the relationship of the person to the business entity will not be a client-lawyer relationship. The communication should be made before entering into an agreement for provision of or providing law-related services, and preferably should be in writing.

Comment, AZ-ER 5.7, 4, 6.