83-F-44(a) - Corporation billing clients for in-house counsel services




In-house corporate counsel, subsequent to issuance of Formal Ethics Opinion 83-F-44, has inquired as to whether certain specific services constitute the practice of law or performance of legal services.

The specific services inquired about are: (1) preparation of trademark applications, (2) preparation of copyright applications, (3) preparation of franchise disclosures and agreements pursuant to the Federal Trade Commission rule on franchising, (4) preparation and submission of materials for registration in franchise registration states, business opportunity law states and multi-level marketing states, (5) review of preprepared disclosures and agreements for suggested revisions and (6) rendering advice or opinions as to various state registration requirements. Each of the above services are further mentioned hereinbelow.

The corporation provides advisory services to business people requesting marketing assistance in regard to selling a particular product or service. A feasibility study may be prepared initially to determine the marketability of the product or service. If it is determined that the business is marketable as a franchise, a marketing agreement is then executed giving the corporation the exclusive right to market the franchise and the authority to structure the program in a manner it deems appropriate. The corporation provides and trains salesmen to sell the franchise.

The corporation structures the business as a franchise. The in-house counsel prepares a franchise disclosure document, franchise agreement and various trademark application forms. The art department prepares advertising materials. In-house counsel reviews the advertising materials.

In-house counsel does not charge a fee. The corporation charges the franchisor for all the work done, including the work of in-house counsel. In-house counsel may perform additional work for a particular franchisor, such as research of a particular area of law or preparation of additional trademark or copyright forms. The corporation charges the franchisor for the additional work of counsel. The corporation only handles those matters relevant to the marketing of the franchise business and there is no representation of any franchisor in litigation.

Neither the U. S. Patent and Trademark office nor the Copyright office require that applications be prepared by an attorney. Each office permits the individual applicant to authorize another individual to prepare and submit the application on his behalf. Such registrations are generally a part of the development of a franchising program and sales package which is a major function of the corporation's business.

The preparation of the documents is closely coordinated with the marketing and sales program developed by the corporation. The corporation prior to preparation of the documents obtains an exclusive marketing agreement from the franchisor whereby it has the exclusive right to develop and market the franchisor's business. The corporation is specifically engaged by the franchisor to perform certain marketing and sales service.

The materials prepared for registration in the various states are an extension of the marketing and sales services rendered by the corporation. Certain states require registration through the submission of specific information and fees before a franchise or other business program can be offered for sale in that state. Such information may include specific information regarding the selling agent or broker as well as the franchisor.

The review of pre-prepared disclosures and agreements for suggested revisions is coordinated closely with the marketing and sales skills and experience of the principals of the corporation and such an opinion is not based entirely on the FTC or State disclosure requirements but is also based on the corporation's skill and knowledge in the area of franchise sales.

Advice and opinions as to various state registration requirements only extend to making available a list of states that require prior registration before sales or offers can be made and their respective filing fees. Such a list is readily available to the public.

Ethical Considerations 3-1, 3-2, 3-3, 3-4 and 3-5 of the Code of Professional Responsibility provide guidance on the matters as follows:

EC 3-1. The prohibition against the practice of law by a layman is grounded in the need of the public for integrity and competence of those who undertake to render legal services. Because of the fiduciary and personal character of the lawyer-client relationship and the inherently complex nature of our legal system, the public can better be assured of the requisite responsibility and competence if the practice of law is confined to those who are subject to the requirements and regulations imposed upon members of the legal profession.

EC 3-2. The sensitive variations in the considerations that bear on legal determinations often make it difficult even for a lawyer to exercise appropriate professional judgment, and it is, therefore, essential that the personal nature of the relationship of client and lawyer be preserved. Competent professional judgment is the product of a trained familiarity with law and legal processes, a disciplined, analytical approach to legal problems, and a firm ethical commitment.

EC 3-3. A non-lawyer who undertakes to handle legal matters is not governed as to integrity or legal competence by the same rules that govern the conduct of a lawyer. A lawyer is not only subject to that regulation, but also is committed to high standards of ethical conduct. The public interest is best served in legal matters by a regulated profession committed to such standards. The Disciplinary Rules protect the public in that they prohibit a lawyer from seeking employment by improper overtures, from acting in cases of divided loyalties, and from submitting to the control of others in the exercise of his judgment. Moreover, a person who entrusts legal matters to a lawyer is protected by the attorney-client privilege and by the duty of the lawyer to hold inviolate the confidences and secrets of his client.

EC 3-4. A layman who seeks legal services often is not in a position to judge whether he will receive proper professional attention. The entrustment of a legal matter may well involve the confidences, the reputation, the property, the freedom, or even the life of the client. Proper protection of members of the public demands that no person be permitted to act in the confidential and demanding capacity of a lawyer unless he is subject to the regulations of the legal profession.

EC 3-5. It is neither necessary nor desirable to attempt the formulation of a single, specific definition of what constitutes the practice of law. Functionally, the practice of law relates to the rendition of services for others that call for the professional judgment of a lawyer. The essence of the professional judgment of the lawyer is his educated ability to relate the general body and philosophy of law to a specific legal problem of a client; and thus, the public interest will be better served if only lawyers are permitted to act in matters involving professional judgment. Where this professional judgment is not involved, non-lawyers, such as court clerks, police officers, abstracters, and many governmental employees, may engage in occupations that require a special knowledge of law in certain areas. But the services of a lawyer are essential in the public interest whenever the exercise of professional legal judgment is required.

Activities included within the practice of law include representative appearances before legal tribunals, preparation of pleadings and other documents in connection therewith, drafting of other instruments and documents affecting legal rights and obligations, and giving legal advice.

Also included within the practice of law is any personal relationship established between the attorney and client for the purpose of giving and receiving particular legal advice or delivery of legal services relating to a particular matter or problem.

It is recognized that there are many acts, including the exercise of business or other types of judgment, performed by lawyers that do not constitute the practice of law.

In order to determine if certain acts constitute the practice of law, it is necessary to determine the nature of the activity and the entire surrounding circumstances, including the manner of delivery of the services.

In the event the corporation only handles those matters relevant to the marketing of a business; and, the specific services described herein are performed for the purpose of providing services to business people requesting marketing assistance in regard to selling a particular product or service; and, there is no implication that the services constitute the performance of legal services or performed by an attorney; and, if there is in fact a disclaimer as to performance or legal services; then, the specific services inquired about herein do not constitute the practice of law or performance of legal services.

In the absence of the above conditions, the activities described constitute the practice of law and corporate counsel would be prohibited from allowing the corporation to bill its customers for the legal services performed by counsel.

This 17th day of January, 1984.


O. B. Hofstetter, Jr.
F. Evans Harvill
William R. Willis