Can North Carolina lawyers own a for-profit adoption agency and also do the legal work for the couples they refer to it?

Plain-English summary

Two lawyers own and manage a for-profit adoption agency that operates from separate space in their firm, takes a fee from adopting couples, and arranges home studies through independent social workers; the same lawyers handle the couples' independent adoptions. On Inquiry #1, the opinion concludes the lawyers may do both, provided they identify and manage the conflicts. The central concern under Rule 1.7 is the lawyers' personal financial interest in the agency. Comment [10] warns that a lawyer may not let related business interests affect a representation, for example by referring clients to an enterprise in which the lawyer has an undisclosed financial interest. Before the agency refers a couple to the lawyers, the lawyers must reasonably conclude that they can adequately protect the couple and that their judgment will not be adversely affected by their interest in the agency, and the couple must give informed consent confirmed in writing, including being told that the lawyers must withdraw if a conflict arises between the couple and the agency (Rule 1.7(b)).

The referral also triggers Rule 5.7 and Rule 1.8. The agency provides law-related services, and Comment [6] to Rule 5.7 requires the lawyer to comply with Rule 1.8(a) (business transactions with clients) when a client is referred to an ancillary business the lawyer controls. The opinion sets out the Rule 1.8(a) requirements: fair and reasonable terms disclosed in writing, written advice of the desirability of independent counsel and a reasonable chance to consult it, and informed written consent to the essential terms and the lawyer's role. Drawing on 2000 FEO 9, the opinion adds that before referring legal clients to the agency the lawyers must make an independent professional determination that the agency best serves the couple, must tell the couple they are free to use other agencies and to hire other counsel, and must explain the firm-agency relationship and the financial interest before any referral.

On Inquiry #2, the opinion concludes the lawyers may not simultaneously represent the adopting couple, the agency, and the birth parents. Adopting the reasoning of ABA Informal Opinion 87-1523 (1987), it holds that the rights surrendered by the biological parent and those assumed by the adoptive parent are in inherent, irreconcilable conflict, making joint representation of birth and adoptive parents a nonconsentable conflict under Rule 1.7. On Inquiry #3, the opinion limits any contact with a birth parent: communications must be confined to providing or collecting information for the agency's forms, and the lawyers must give the birth parent a written disclosure under Rule 4.3 stating that the agency is not a law firm, that the lawyers do not represent the birth parent and cannot give legal advice, that no client-lawyer relationship is created, that the birth parent may retain separate counsel, and that the adopting couple pays the legal fees.

In practice

Under the North Carolina rules as they stood at the time of the opinion, conduct in which lawyers refer their own legal clients to an adoption agency they own, or take the agency's referrals as legal clients, is permitted only if the lawyers satisfy Rule 1.7(b), Rule 1.8(a), and Rule 5.7: an independent judgment that the agency best serves the client, written disclosure of the financial interest and the agency-firm relationship, advice that the client may use other agencies and other counsel, and informed consent confirmed in writing. Per the opinion, the analysis turns on whether the lawyers' financial interest in the agency would materially limit their representation, and on the Rule 1.8(a) safeguards that attach because the agency provides law-related services.

The opinion draws two firm limits. Representing the birth parents while representing the adopting couple or the agency is a nonconsentable conflict that the lawyers may not undertake. And contact with an unrepresented birth parent must be limited to gathering information for the agency's forms, accompanied by a written Rule 4.3 disclosure that the lawyers do not represent the birth parent and that the birth parent may obtain separate counsel.

Common questions

Q: Can North Carolina lawyers own an adoption agency and represent the couples it serves?

A: Yes, with conflict controls. Opinion #1 permits it only if the lawyers comply with Rules 1.7(b), 1.8(a), and 5.7, including an independent judgment that the agency best serves the client, written disclosure of their financial interest, and informed consent confirmed in writing.

Q: What must the lawyers disclose before referring a legal client to their own agency?

A: Opinion #1 requires the lawyers to explain the relationship between the agency and the firm and their financial interest, to tell the couple they may use other agencies and are not obligated to hire the lawyers for the legal work, and to give the couple a reasonable opportunity to seek independent counsel under Rule 1.8(a).

Q: Can the same lawyers also represent the birth parents?

A: No. Opinion #2 adopts ABA Informal Opinion 87-1523 and concludes that the conflict between the birth parents' and adopting parents' interests is inherent and irreconcilable, making representation of the birth parents alongside the adopting couple or the agency a nonconsentable conflict under Rule 1.7.

Q: What can the lawyers say to an unrepresented birth parent?

A: Opinion #3 limits communications to providing or collecting information for the agency's forms and requires a written Rule 4.3 disclosure stating that the agency is not a law firm, that the lawyers do not represent the birth parent and cannot give legal advice, that no client-lawyer relationship is formed, and that the birth parent may retain separate counsel.

Background and rules framework

The opinion applies North Carolina Rule 1.7 (conflict of interest: current clients, the analogue of Model Rule 1.7), focusing on the personal-interest conflict created by the lawyers' ownership of the agency (Comment [10]) and on the consent requirements of Rule 1.7(b). It applies Rule 5.7 (responsibilities regarding law-related services, the analogue of Model Rule 5.7), whose Comment [6] routes a referral to a lawyer-controlled ancillary business into Rule 1.8(a) (business transactions with a client, the analogue of Model Rule 1.8(a)).

For dealings with the birth parents, the opinion applies Rule 4.3 (dealing with an unrepresented person, the analogue of Model Rule 4.3) and references Rule 1.4 (communication) and ABA Informal Opinion 87-1523 for the principle that adoption involves rights in inherent conflict between biological and adoptive parents.

Citations and references

Rules of Professional Conduct:

• MR 1.7 / NC Rule 1.7 (conflict of interest: current clients; Rule 1.7(a), 1.7(b); Comment [10])
• MR 1.8 / NC Rule 1.8(a) (business transactions with a client)
• MR 5.7 / NC Rule 5.7 (responsibilities regarding law-related services; Comment [6])
• MR 4.3 / NC Rule 4.3 (dealing with an unrepresented person)
• MR 1.4 / NC Rule 1.4 (communication)

Other opinions cited:

• ABA Comm. on Ethics and Prof'l Responsibility, Informal Op. 87-1523 (1987): joint representation of biological and adoptive parents in a private adoption is a nonconsentable conflict.
• NC 2000 FEO 9: a lawyer-CPA may offer accounting services to legal clients with full disclosure of the self-interest in the referral.

See also

• NY State Bar Op. 753: Lawyer-Owned Mortgage and Title Company
• Alabama Bar Op. 1987-158: Referrals From an Attorney-Owned Credit Bureau
• Alabama Bar Op. 1987-161: Dual Professions, Attorney and Real Estate Broker

Source

• Landing page: https://www.ncbar.gov/for-lawyers/ethics-and-governing-rules/ethics-opinions/opinions/2014-formal-ethics-opinion-10/

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

Facts:

Attorneys A and B, who handle independent adoptions as part of their law practice, also manage a for-profit adoption agency called “Adopt a Child.” Adopt a Child is a limited liability company. Attorneys A and B receive compensation from Adopt a Child. The agency’s office is located in separate office space within Attorneys A and B’s firm. It has a separate telephone number, signage, fax machine, and copy machine. Adopt a Child is staffed by one employee. Adopt a Child contracts with independent social workers to screen and counsel birthmothers. Without assistance or influence from Attorneys A and B, a social worker conducts a home study on the adopting couple. The social worker then prepares a report which is reviewed by a supervisor and a review committee. A director of Adopt a Child may or may not be a member of the review committee. If the review committee approves the home study, the adoption proceeds. The adopting couple then engages a lawyer to represent their interests. If the home study report is unfavorable, the report is sent to the Department of Social Services. The adopting couple thereafter cannot become a client of Adopt a Child.

Typically, adopting couples learn about Adopt a Child through the agency’s website and advertisements. An initial consultation with Attorney A or Attorney B is arranged. Attorney A or Attorney B meets with the adopting couple to discuss the adoption process. If the adopting couple has identified a child to adopt, then Attorneys A and B proceed with the legal work necessary to complete an independent adoption. If the adopting couple is interested in adoption, but needs assistance in finding a child, a list of licensed adoption agencies is provided to the adopting couple. The adopting couple is informed that Attorneys A and B manage and own Adopt a Child. The adopting couple is encouraged to investigate other available agencies. If the adopting couple decides to use Adopt a Child, the adopting couple is given an application form and asked to pay a $200 application fee. Once approved, the adopting couple becomes a client of Adopt a Child.

Adopting couples pay a $4,500 fee to Adopt a Child, which gives adopting couples the following services: a completed home study, a family profile by a local artist, a two-page website, and access to birthmothers. Once there is a match between a birthmother and an adopting couple, the adopting couple signs a fee contract with the law firm and pays a legal fee to the law firm for legal services. Additional fees may occur in the form of pass-through costs for the birthmother’s living and medical expenses, and legal fees as necessary for termination of parental rights, interstate legal representation, etc. The adopting couple is informed that if there is a conflict of interest, such as a dispute between the birthmother and the adopting couple or between the adopting couple and Adopt a Child, the adopting couple must hire another lawyer to represent them.

Inquiry #1:

May Attorneys A and B co-manage and accept compensation as managers of Adopt a Child and provide legal services to the adopting couple and Adopt a Child?

Opinion #1:

Yes. The primary concern in this inquiry is the ability of Attorneys A and B to identify and manage conflicts of interest. Actual or potential conflicts of interest exist based on (1) the lawyers’ ownership of Adopt a Child, and (2) the referral of an adopting couple represented by Attorney A or Attorney B to Adopt a Child, or the referral of a client of Adopt a Child to Attorney A or Attorney B for legal representation in the adoption.

Rule 1.7 prohibits concurrent conflicts of interest. One type of concurrent conflict of interest exists if the representation of one or more clients may be materially limited by a personal interest of the lawyer. Comment [10] to Rule 1.7 provides, “[t]he lawyer's own interests should not be permitted to have an adverse effect on representation of a client. In addition, a lawyer may not allow related business interests to affect representation, for example, by referring clients to an enterprise in which the lawyer has an undisclosed financial interest.”

Before Adopt a Child may refer an adopting couple to Attorney A and Attorney B for legal services, the agency, acting through the two lawyers, must reasonably conclude that the lawyers can adequately protect the interests of the adopting couple and that their professional judgment on behalf of the adopting couple will not be adversely affected by their financial interest in Adopt a Child. The adopting couple must give informed consent to the representation, confirmed in writing. As part of the disclosure necessary for informed consent, the adopting couple must be informed that in the event of a conflict between the adopting couple and Adopt a Child, Attorneys A and B must withdraw from the representation and the adopting couple will need to obtain new counsel. See Rule 1.7(b).

If a couple that wants to adopt are already clients of either Attorney A or Attorney B, the lawyers may refer the couple to Adopt a Child for adoption services only in compliance with the Rules of Professional Conduct.

The referral of the adopting parents to Adopt a Child implicates Rule 5.7 as well as Rule 1.8. Adopt a Child provides “law-related services.” Rule 5.7 sets out the ethical responsibilities for a lawyer who provides such services. Comment [6] to Rule 5.7 provides that when a client-lawyer relationship exists with a person who is referred by a lawyer to an ancillary business controlled by the lawyer, the lawyer must comply with Rule 1.8(a) pertaining to business transactions with clients. See also Rule 1.8, cmt. [1]. Pursuant to Rule 1.8(a) a lawyer may only enter into a business transaction with a client if: (1) the transaction and terms are fair and reasonable to the client and are fully disclosed and transmitted in writing in a manner that can be reasonably understood by the client; (2) the client is advised in writing of the desirability of seeking, and is given a reasonable opportunity to seek, the advice of independent legal counsel on the transaction; and (3) the client gives informed consent, in writing signed by the client, to the essential terms of the transaction and the lawyer's role in the transaction. Accordingly, a lawyer must make these disclosures and secure the requisite consent before providing law related services to a client.

In 2000 FEO 9, the Ethics Committee held that a lawyer who was also a certified public accountant could provide legal services and accounting services from the same office. The opinion cites Rule 1.7 and provides that the lawyer may offer accounting services to his legal clients, provided the lawyer fully discloses his self-interest in making a referral to himself, and the lawyer determines that the referral is in the best interest of the client.

Before referring legal clients to Adopt a Child, Attorneys A and B must make an independent professional determination that the services offered by Adopt a Child will best serve the interests of the adopting couple. In addition, the adopting couple must be informed that, if they become clients of Adopt a Child, they are not obligated to employ Attorneys A and B to handle the legal work related to an adoption, and that they have the right to legal counsel of their choice. Likewise, if a couple comes in for a legal consultation concerning adoption, Attorneys A and B must explain the relationship between Adopt a Child and their firm and their financial interest in the agency before referring the adopting couple to their agency. The adopting couple must be given access to other agencies and the freedom to choose another adoption agency even if they decide to retain Attorneys A and B to perform their legal work.

If Attorneys A and B comply with the requirements set out in Rule 1.7(b), Rule 1.8(a), and Rule 5.7, they may refer their legal clients to Adopt a Child. Similarly, if Attorneys A and B comply with the requirements of Rule 1.7(b) and Rule 1.8(a), they may accept referrals from Adopt a Child.

Inquiry #2:

May Attorneys A and B simultaneously represent the adopting couple, Adopt a Child, and the birth parent(s)?

Opinion #2:

No. Rule 1.7(a) provides that a lawyer shall not represent a client if the representation involves a concurrent conflict of interest. A concurrent conflict of interest exists if (1) the representation of one client will be directly adverse to another client; or (2) the representation of one or more clients may be materially limited by the lawyer's responsibilities to another client.

In an informal opinion, the ABA opined as follows,

An adoptionis a highly emotional undertaking for both the adoptive and the biological parent. In such situations, the lawyer must take particular care that the client fully understands the significance of the legal actions being taken. The lawyer has the obligation not only to advise the client of the legal rights and responsibilities, but also to counsel regarding the advisability of the action contemplated. See Rule 1.4. The biological parent is entitled to a full disclosure of all rights and obligations involved in the consent to the adoption, revocation of consent, post-adoptive rights, and post-adoptive restrictions, as well as the rights and obligations assumed by the adoptive parent. Where represented by counsel, the biological parent has the right to expect the lawyer to anticipate the consequences of the surrender and advise accordingly.

The rights surrendered by the biological parent and those assumed by the adoptive parent are in potential conflict. The biological parent's right to revoke the consent is in direct conflict with the interests of the adoptive parent. The biological parent has the right to independent advice regarding the revocation of the consent.

The lawyer representing the adoptive parent owes the duty to counsel the adoptive parent and to assist the adoptive parent in securing the consent and avoiding revocation. The rights of the adoptive parent after the adoption decree is final may be antagonistic to perceived rights of the biological parent.

The inherent conflicts cannot be reconciled. Thus, the lawyer seeking to represent both the adoptive and biological parents in a private adoption proceeding cannot have a reasonable belief that the representation of one client would not adversely affect the relationship with or representation of the other client. See Rule 1.7

ABA Comm. on Ethics and Prof'l Responsibility, Informal Op. 87-1523 (1987).

We agree with the reasoning of the ABA opinion and conclude that it is a nonconsentable conflict for Attorneys A and B to represent the birth parents and simultaneously represent the adopting couple and/or Adopt a Child.

Inquiry #3:

What, if any, communication may Attorneys A and B have with a birth parent?

Opinion #3:

Rule 4.3 provides,

[i]n dealing on behalf of a client with a person who is not represented by counsel, a lawyer shall not: (a) give legal advice to the person, other than the advice to secure counsel, if the lawyer knows or reasonably should know that the interests of such person are or have a reasonable possibility of being in conflict with the interests of the client; and (b) state or imply that the lawyer is disinterested. When the lawyer knows or reasonably should know that the unrepresented person misunderstands the lawyer's role in the matter, the lawyer shall make reasonable efforts to correct the misunderstanding.

Any communication between a birth parent and the law firm must be limited to providing or collecting information to be used to complete the forms required by Adopt a Child.

Attorneys A and B must ensure that the birth parent(s) are provided with a written disclosure statement that explains that Adopt a Child is not a law firm; Attorneys A and B do not represent the birth parent(s) and cannot provide the birth parent(s) with legal advice; any communication with the law firm does not create a client-lawyer relationship; and the birth parent(s) are entitled to retain separate legal representation; and that the adopting couple will pay the legal fees.