Ethics Question of the Month February 2022

So Far Away

The Question

What is required of out-of-state law firms to open a satellite office in Texas?

The Situation

XYZ Law Firm is a partnership based in Minnesota that represents mostly Minnesota clients.  It has one large corporate client in Texas, ABC Corporation. ABC has been very pleased with XYZ’s work and particularly appreciates its relationship with Sean, the partner who oversees ABC’s work. ABC would like for XYZ to open an office near ABC’s corporate headquarters in Texas so XYZ can handle some of ABC’s legal work in Texas. 

ABC asks Sean to move to Texas and become licensed there, but Sean is not interested in relocating. However, Sean has a friend from law school, Riley, who is licensed in Texas and would be a good candidate to open a Texas office for XYZ. After clearing it with ABC, Sean approaches Riley about opening the Texas office. 

Riley, a solo practitioner in Texas, responds by inquiring about joining XYZ as a partner. Sean explains that XYZ policy dictates that Riley would have to start as an associate with the possibility of being considered for partnership after several years. Riley then inquires about joining XYZ as Of Counsel in order to continue to collect profits from the solo practice. Alternatively, Riley proposes joining XYZ as a full-time associate, provided the compensation package is sufficient to offset any losses from closing the solo practice.  

As XYZ considers its options, Sean wonders about the ethical restrictions on out-of-state firms opening satellite offices in Texas. 

The Question

Which of the following is the most accurate?

The Correct Answer is B Of 18 Responses, 27% are correct.

  1. A 4
  2. B 5
  3. C 3
  4. D 2
  5. E 4

The Explanation

The Committee for Professional Ethics considered this question in Ethics Opinion 686 (2020).  The question presented was whether an out-of-state law firm can open a satellite office in Texas staffed only by an associate attorney who is not a partner or shareholder.  The Opinion borrowed heavily from the analysis in Ethics Opinion 577 (2007) (discussed at length in the October 2021 Ethics Question of the Month) regarding the distinction between a “firm lawyer” and a “non-firm lawyer.”  

The question presented in Ethics Opinion 577 involved fee-splitting and whether a firm could mark up an outside lawyer’s fees to the firm when billing the client.  The Opinion states generally that improper fee-splitting only occurs when it is done with a “non-firm lawyer” but not with a “firm lawyer.”   What’s the difference?  Firm lawyers may be contract attorneys or of counsels under some circumstances:

For the purposes of this opinion, firm lawyers who are not shareholders, partners, or associates will be referred to “other firm lawyers.” Other firm lawyers are lawyers that are reasonably considered to be “in” the law firm. Such a determination can be based on various objective factors, including but not limited to the receipt of firm communications, inclusion in firm events, work location, length and history of association with the firm, whether the firm and the lawyer identify or hold the lawyer out as being in the firm to clients and to the public, and the lawyer’s access to firm resources including computer data and applications, client files and confidential information. Examples of other firm lawyers include lawyers referred to as of counsel, senior attorneys, contract lawyers and part-time lawyers.

Non-firm lawyers, however are those without an established connection to the firm:

For the purposes of this opinion, the term “non-firm lawyer” as applied to a particular lawyer’s relationship to a law firm means a lawyer who is not “in” the law firm and instead practices separately from the law firm even when working with the firm on a particular client’s matter. The determination as to whether a particular lawyer is or is not “in” a particular law firm can be based on the various objective factors discussed above. Examples of non-firm lawyers can include outside patent counsel, local counsel, counsel with expertise dealing with a particular government agency, counsel in another state hired to advise regarding the application of that state’s laws, and lawyers hired individually or through another organization that provides temporary additional staffing or capabilities such as document review or research for a particular matter. In many cases, a non-firm lawyer is in fact a member of another law firm.

Opinion 686 uses these distinctions to conclude that a satellite office of an out-of-state firm may be opened with a lawyer who is not a partner as long as certain requirements are met: 

[I]it is unnecessary for the resident Texas lawyer to be a partner in order to create this kind of accountability, provided, however, that the associate or other non-partner lawyer: (1) qualifies as a “firm lawyer” reasonably considered to be “in” the law firm under the factors discussed in Opinion 577; and (2) is given the responsibility and authority to make decisions about the firm’s practice of law in Texas.  These requirements, along with the designation of a resident agent for service of process, will ensure that there is a Texas-licensed lawyer on whom the public, clients, and judicial authorities may rely for compliance with the ethical standards governing the practice of law in Texas.

The best answer is B.  

Bluebook Citation

So Far Away: Ethics Question of the Month - February 2022, Texas Center for Legal Ethics (2022), from https://legalethicstexas.com/ethics-question-of-the-month/ethics-question-of-the-month-february-2022/ (last visited Feb 07, 2023)