Opinion 2000-4
(April 2000)

The inquirer has asked the Committee what duties the inquirer may have in the following scenario described by the inquirer. The inquirer worked for a lawyer ("Lawyer"), who has a personal injury practice. Lawyer regularly refers his clients to a rehabilitation center. The rehabilitation center is legally owned by an individual ("Employee") who works for Lawyer on a full time basis, but who is not paid by Lawyer. Lawyer's father has funded the rehabilitation center, pays Employee, and controls the daily operations of the rehabilitation center. Lawyer's clients whom Lawyer refers to this rehabilitation center are not advised of Employee's legal ownership of the rehabilitation center, Lawyer's father's funding of the rehabilitation center and payment of Employee's compensation (rather than Employee being paid by Lawyer), and Lawyer's father's control of the day to day operations of the rehabilitation center. In addition, inquirer was not permitted by Lawyer to advise Lawyer's clients of these facts when dealing with such clients.

The Committee generally only opines on the conduct or proposed conduct of its inquirers, not other lawyers. In this inquiry, therefore, the Committee will limit its opinion to the conduct of the inquirer. The Committee believes that several Pennsylvania Rules of Professional Conduct (the "Rules") should be considered by the inquirer in this matter.

First, the Committee cites the inquirer to Rule 1.7(b), which provides that it is a conflict to represent a client where the representation of that client "may be materially limited by the lawyer's responsibilities to -- a third person, or by the lawyer's own interests, --" Based on the facts as the inquirer has described them, a full time employee of Lawyer (to whom Lawyer does not pay any compensation) legally owns the rehabilitation center to which Lawyer refers Lawyer's clients, and Lawyer's father has funded and controls the day to day operations of the rehabilitation center and pays Employee's compensation. Assuming Lawyer's desire to see his father and Employee succeed and given the relationship of Employee and Lawyer's father to the rehabilitation center and its finances, it appears that, under Rule 1.7(b), such relationship should have been disclosed to the clients whom Lawyer referred to the rehabilitation center, and such clients' consent to this conflict should have been obtained. See this Committee's Opinion 97-13 (November, 1997) (Lawyer advised to comply with Rule 1.7(b) where his daughter owned a medical testing entity utilized by doctors treating lawyer's clients.)

If there has been a violation of Rule 1.7(b), the Committee then cites the inquirer to Rule 8.3(a), which provides that:

A lawyer having knowledge that another lawyer has committed a violation of the Rules of Professional Conduct that raises a substantial question as to that lawyer's honesty, trustworthiness or fitness as a lawyer in other respects, shall inform the appropriate professional authority.

In determining whether the inquirer has an obligation to report a violation under Rule 8.3(a), the inquirer must go through a two part analysis.

First, does the inquirer have "knowledge" of a violation of the Rules? A Terminology section precedes the Rules, and in that section, "Knowingly," "Known," or "Knows" are defined as "-- denot[ing] actual knowledge of the fact in question." Therefore, the inquirer first should determine whether the inquirer has actual knowledge of the facts on which the inquirer could conclude that there has been a violation of the Rules.

If the inquirer does have such actual knowledge, then, under Rule 8.3(a), the inquirer must determine whether such violation of the Rules "raises a substantial questions as to [the violating] lawyer's honesty, trustworthiness or fitness as a lawyer in other respects, --" (Emphasis added.) In the Terminology section preceding the Rules, "Substantial" is defined as " -- denot[ing] a material matter of clear and weighty importance." The Comment to Rule 8.3 contains more specific guidance: "The term 'substantial' refers to the seriousness of the possible offense and not the quantum of evidence of which the lawyer is aware." (Emphasis added.) The Committee also cites the inquirer to several other statements in the Comment to Rule 8.3: "Reporting a violation is especially important where the victim is unlikely to discover the offense." However, also note: "This Rule limits the reporting obligation to those offenses that a self-regulating profession must vigorously endeavor to prevent."

Thus, the reporting obligation of Rule 8.3(a) requires a lawyer to make a professional judgment as to the seriousness of the purported violation of the Rules, the possible effect on the victims (in this case, the clients), the ability of the clients to discover the purported violation of the Rules, and the possible effect on the profession.

In deciding whether or not the inquirer has an obligation to report professional misconduct under Rule 8.3, the inquirer also must keep in mind the provision of Rule 8.3(c). That Rule states that a lawyer is not required to report misconduct if disclosure of the information on which the report would be based is protected by Rule 1.6, Confidentiality of Information.

To the extent, if any, that the inquirer still represents any of the clients who were formerly represented by Lawyer and who have utilized the rehabilitation center in question, the Committee cites the inquirer to Rule 1.4, Communication. Under Rule 1.4(b), the inquirer must " -- explain a matter to the extent necessary to permit the client to make informed decisions regarding the representation." In the Committee's opinion, any such clients must be informed of the above-stated facts regarding the rehabilitation center, to comply with Rule 1.4(b). This is particularly true if a client's utilization of the rehabilitation center and Lawyer's relationship with the rehabilitation center could be the basis for challenging the necessity or extent of rehabilitation treatment or otherwise impeaching the evidence presented in such client's case.

Any such clients also will have to be consulted if the inquirer intends to report Lawyer under Rule 8.3(a) in order to obtain such client's consent, as required by Rule 1.6. [See above discussion of Rule 8.3(c).]

Lastly, the Committee cites the inquirer to Rule 5.2, Responsibilities of a Subordinate Lawyer. Rule 5.2(a) provides that "A lawyer is bound by the Rules of Professional Conduct even when the lawyer acts at the direction of another person." Thus, a subordinate lawyer is bound by the Rules when carrying out the instructions of a supervisory lawyer, and the subordinate lawyer cannot use those instructions as an excuse for a violation of the Rules. If the inquirer worked on some of these client matters and participated in the referral of clients to the rehabilitation center, without disclosing Laywers connection to the rehabilitation center, then, under Rule 1.10, Imputed Disqualification: General Rule, the inquirer would have been under the same duty to disclose the conflict to such clients and to obtain their consent. See Rule 1.10(d).2.

The Philadelphia Bar Association's Professional Guidance Committee provides, upon request, advice for lawyers facing or anticipating facing ethical dilemmas. Advice is based on the consideration of the facts of the particular inquirer's situation and the Rules of Professional Conduct as promulgated by the Supreme Court of Pennsylvania. The Committee's opinions are advisory only and are based upon the facts set forth. The opinions are not binding upon the Disciplinary Board of the Supreme Court of Pennsylvania or any other Court. They carry only such weight as an appropriate reviewing authority may choose to give it.