May in-house counsel for a for-profit company owned by nonlawyers provide legal services to customers of the company if the company gives the customers the option of retaining the in-house counsel and only charges the “actual cost” incurred by the company? In Opinion No. 707, the Professional Ethics Committee for the State Bar of Texas concluded, no.

The company in question “provides litigation management services and support to lawyers, law firms, and corporations, including software and technology to help customers lower their costs and potentially improve litigation results[.]” Although the company employs lawyers, they do not work directly with customers. The company proposed to give customers the option of retaining lawyers who are salaried, full-time employees of the company and if a customer retains the in-house counsel, the company would charge the customer no more than the “actual cost” the company incurs for allowing the in-house counsel to provide legal services.

The Committee rejected the proposal, finding that for-profit companies in Texas cannot provide legal services to customers, even if they offer those services at cost because: (1) a for-profit company owned in part by nonlawyers engages in the unauthorized practice of law if it provides its customers the option of retaining the company’s full-time lawyer-employees at “actual cost” on matters unrelated to the company’s interests. A lawyer-employee who assists the company in the unauthorized practice of law violates Rule 5.05(a)(2); and (2) a lawyer-employee of a for-profit company violates the prohibition against sharing fees with nonlawyers if the corporate employer receives fees or other economic benefit more than the actual cost of offering customers the option of retaining the lawyer-employee.

One major problem with the company’s proposal was that the company would have in-house counsel work on matters unrelated to the company, where interests may not be completely aligned. To juxtapose the company’s proposal, the Committee used the example of an insurance company where in-house insurance attorneys help the customer resolve a claim issue.

In determining this type of in-house counsel service as the unauthorized practice of law, the Committee thought it imperative as whether or not “a corporation engages in the practice of law if it offers its customers the opportunity to retain the corporation’s lawyer-employees.” Here, since the company making the proposal does not practice law (and is not owned by lawyers), an in-house counsel who assists the company in providing such services violates the prohibition on the unauthorized practice of law.

As to the fee sharing with nonlawyers, the Committee noted that in the past the question revolves around whether the lawyers providing the services were charging clients a markup for the services. But in this situation, this answer may not matter because the proposing company “might profit by increased sales or by the ability to charge higher prices on its products and services” by offering the in-house legal services, thereby bringing in more business and having a unique product in the space.

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