Joanna L. Storey Mishler

Senior Counsel, Klinedinst PC

Many lawyers are entrepreneurs at heart, often with the desire to wear two hats and sometimes going so far as to form an ancillary business to provide non-legal services consulting work. The following is a primer on ethical implications that arise when a lawyer operates an ancillary business. 


On a threshold level, be mindful that, even when you are not providing legal services, you are subject to professional discipline under certain provisions of the California Rules of Professional Conduct (CRPC) and the Business and Professions Code. 


For example, actions that involve moral turpitude, dishonesty, or corruption follow you as potential rule violations wherever you go and whatever you do. See Bus. & Prof. Code §6106 and Cal. State Bar Formal Opn. 1995-141. Thus, if you are found to be (or even alleged to be) fraudulent in operating your ancillary business, then the state bar can and will consider that for purposes of evaluating a state bar complaint or inquiry. 


Second, be crystal clear, in writing, with your ancillary business customers that you are not their lawyer (unless you are). And then do what you say - e.g., if you are not their lawyer, then don't act like their lawyer. Don't provide your customers with any legal advice unless you enter into a separate attorney-client relationship with them. We have all had a friend or an acquaintance approach us at a social event to ask for free legal advice. Having an ancillary business customer do this is just as, if not more, risky. Don't be tempted to acquiesce. Rather, be clear that you will not offer legal advice absent an attorney-client relationship.


Consistent with this approach, explain to your ancillary business customers that your communications with them are not privileged (even though you are a lawyer), because there is no attorney-client relationship. View the relationship from their perspective, including assessing their sophistication about such things, and do not assume that they understand the difference between attorney-client relationships and ancillary business operations. Even some C-Suite executives do not understand this concept. So be clear. 


If your ancillary business customer is also your legal services current client, then be mindful of when attorney-client privilege applies and when it doesn't. For example, are you providing legal advice, business advice, or a little bit of both? Read In re Grand Jury , 23 F.4th 1088 (9th Cir. 2021) for a discussion about the "primary purpose" test that applies in the Ninth Circuit. 


If your ancillary business customer is your former legal services client, then tread lightly. Be clear that your attorney-client relationship has ended and the ancillary business provides only non-legal services. 


Third, be careful about conflicts. That bears repeating - Be Careful About Conflicts. 


Under CRPC 1.7(b), "A lawyer shall not, without informed written consent from each affected client and compliance with paragraph (d), represent a client if there is a significant risk the lawyer's representation of the client will be materially limited by the lawyer's responsibilities to or relationships with . . . a third person, . . .." 


Accordingly, your conflicts system should address your ancillary business customers. For example, if you are advising Nike (the client) about its trademarked shoe design and your ancillary business is to design a new logo for a competing shoe company (the third party), then perform a thorough analysis about whether doing so constitutes a conflict. Your conflicts system should be set up in a way to account for the conflict analysis for current, former, and prospective clients (under CRPC 1.18). 


This is as good a time as any for an informed consent refresher. Re-read CRPC 1.0.1(e) to understand the meaning of informed consent: "'Informed consent' means a person's agreement to a proposed course of conduct after the lawyer has communicated and explained (i) the relevant circumstances and (ii) the material risks, including any actual and reasonably foreseeable adverse consequences of the proposed course of conduct."


Under CRPC 1.8.1, if your ancillary business contracts with an existing client, satisfy the three requirements: (a) fully disclose in writing the terms (that are fair and reasonable), (b) advise the client in writing to seek independent counsel (unless you know for a fact that they did), and (c) obtain written informed consent. 


Under CRPC 1.9(c), do not reveal confidential information of former clients or use that confidential information to their disadvantage in your ancillary business.


Fourth, if your ancillary business will be owned by non-lawyers or share in fees with non-lawyers, be sure that clients who you represent wearing both hats are charged separately for your legal services so that the non-lawyers do not receive any of the attorney fee. See CRPC 5.4. 


Fifth, re-read CRPC 7.2 (Advertising) and 7.3 (Solicitation). If you plan to jointly advertise your legal services and ancillary services, then comply with these rules. Pay particular attention to CRPC 7.2(b)(4) if you plan to compensate your ancillary business for referring customers to your legal services. 


Finally, if your goal is to keep the businesses separate, then keep the businesses separate. Use different websites, different phone numbers, and different email addresses. Be vigilant in using the appropriate email address based on which hat you are wearing for the communication. Consider also whether to employ separate staff, depending on the facts and circumstances. The goal is to avoid confusing customers about the nature and scope of your separate legal services. 


As the term "primer" suggests, this discussion is merely a starting point for your ethical analysis. Each situation depends on the facts and circumstances. If you have any doubt consult with an ethics attorney.


The Klinedinst PC Ethics and Risk Management Team writes a monthly Practical Ethics Column to assist California Practitioners understand cutting edge ethics issues, manage risk, and ensure compliance. More about the Team and the authors--Heather L. Rosing, Dave Majchrzak, Joanna Storey Mishler, and Christine Rosskopf-- can be found here: https://klinedinstlaw.com/practice/legal-ethics-law-firm-risk-management