February 17, 1982
A properly established non-profit community mental health organization may establish a legal services program for its clients. Charging a reasonable and fair fee for services may principally finance the legal services program. Lawyers may be compensated by such a program by paying them a specified portion of the fees generated so long as the fee charged is reasonable; so long as the remaining portion is used to cover the operating expenses of the service itself. Should the clinic show a profit because the actual expenses were less than estimated in the division of fees between overhead ant the attorney's services, the remaining sums may be used to reduce the fee to future clients or to provide free services to those who cannot afford them so long as the clients who paid the initial fees have consented in advance. A legal services program operated under the auspicious of a bonafide not-for-profit community mental health organization would not be subject to the requirements of DR 2-103(D)(4) that applies to certain other types of legal services.
References: DR 2-103(D)(1)(b), (2), (3) and (4).
An inquiry has been received about the propriety of a non-profit community health organization, that has been properly established and organized under state law, organizing a legal aid service to provide low to moderately priced legal services to its clients.
The organization's clients would be able to use the legal service or any other counsel of the client's choosing. If the client participates in the legal service program, he or she would then become a direct client of the lawyer. All communications between the client and lawyer would than be protected by the usual attorney-client privileges and would not be accessible by the organization. The program would be financed on a fee-for-service basis, with the lawyer receiving a specified portion of the fee he or she generates with the balance being used to pay for administrative costs. Any revenue over costs would be used to either (1) reduce fees or (2) deliver free units of service to indigent clients.
The inquirer asks whether this program would be proper under the Code of Professional Responsibility and mention six questions in particular:
1. May an existing non-profit community organization engaged in other community activities, establish a legal services program?
Yes, DR 2-103(D)(1)(b) allows a legal services program to be established in connection with a bonafide non-profit community organization.
"(D) A lawyer or his or her partner or associate or any other lawyer affiliated with the lawyer of the lawyer's firm may be recommended, employed or paid by, or may cooperate with, one of the following offices or organization that promote the use of his or her services or those of his or her partner or associate or any other lawyer affiliated with him or her or the firm if there is no interference with the exercise of independent professional judgment in behalf of his or her client:
"(1) a legal aid office or public defender office: . . . .
2. May a non-profit legal services program be principally financed by charging fees for service?
3. Is it proper for a non-profit legal services program to compensate lawyers by paying them a specified portion of fees generated?
Yes. There is no Disciplinary Rules that forbids a non-profit legal services program from compensating lawyers on a fee basis as long as the fee is not clearly excessive or illegal.
4. Is it proper to use that portion of fee revenue not paid to lawyers for actual expenses incurred to operate the legal services program?
Yes. The use of such fee revenues for administrative costs by non-profit organizations is permissible under DR 2-103(D). See ABA Informal Opinion 1409 and Informal Opinion 1463.
5. Is it proper to use fee revenue in excess of compensation and actual expenses to provide service at reduced fee or without fee for those who cannot afford the established schedule of fees?
Yes, however, an affirmative response to this inquiry assumes that the estimate of administrative expenses, in the first instance, was reasonable and a good faith calculation of overhead costs.
(i) Client must sign a case form authorizing the legal services organization to keep unused fee revenue as a donation to the program (in lieu of them being escheated to the state), after a full disclosure to and voluntary consent of the client.
(ii) No pressure must be exerted to obtain such consent.
(III) At the conclusion of the representation, the legal services organization must make reasonable efforts to locate the client and inform the client that the remaining deposit money will be contributed to the program in compliance with his or her consent form unless the client wishes to alter his or her instructions.
(iv) A sixty- day waiting period is allowed to pass before the donation is deemed final.
6. Would a legal services program of the type described have to file a plan of operation with the Michigan Supreme Court pursuant to DR 2-103(D)(4)(g) of the Code of Professional Responsibility?
No. DR 2-103(D)(4) applies to those situations not covered in DR 2-103(D)(1), (2) and (3). Your parent organization is covered under DR 2-103(D)(1)(b) and therefore is exempt from the requirements of DR 2-103(D)(4).