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Green Cash key on a computer keyboard with clipping pathBartering for goods and services seems old-fashioned, even primitive — after all, that’s why money was invented, right?  But bartering might be viewed as a component of today’s “sharing economy,” which involves more-direct, Internet-facilitated interactions between consumers and providers.

A recent informal opinion of the Connecticut Bar Association Standing Committee on Professional Ethics advised that lawyers may participate in a barter exchange program and provide legal services to clients in exchange for receiving barter currency, which lawyers would then use to buy goods from other members of the barter exchange, rather than being paid for the services in cash by the client.

How barter exchanges work

Although there are many different models, a retail barter exchange is often a fee-for-membership organization in which the exchange basically acts as a clearinghouse for members, who use barter currency — fictional cash or credits issued by the organization — to exchange goods and services among themselves.

Legal services and the barter system

The Connecticut ethics committee identified several issues for lawyers participating in barter exchanges.  But in sum, the committee said, the state’s Rules of Professional Conduct do not bar participating.

The committee offered the following specifics:

  • Lawyers don’t have to be paid in money.  Comment [4] to Model Rule 1.5 says that “a lawyer may accept property in payment for services,” suggesting that even a straight goods-for-legal-services exchange would not be impermissible.  But in any event, committee said, the barter exchange it was considering really was simply “substituting a different type of currency,” i.e., “barter currency instead of traditional dollars.”  That fact apparently made the analysis more straightforward for the committee.  Additionally, unlike in some jurisdictions, Connecticut lawyers are required to put all fee agreements in writing; the Connecticut ethics committee advised that lawyers must comply by explaining the special basis of the fee in the barter exchange context.
  • Fees paid to the barter exchange do not constitute sharing legal fees with non-lawyers.  The organization under consideration charged participating lawyers (and everyone else) an annual membership fee and a percentage-based transaction fee.  The committee said the annual fee was not  fee-sharing proscribed by Rule 5.4, because it was not related to the lawyer’s fee at all.  And the committee said “because the [percentage] fee is a surcharge on the transaction … as long as the fee is imposed uniformly on all Member transactions, it is permissible” under Rule 5.4.
  • So long as a barter exchange does not suggest or recommend the lawyer to members, it does not violate Rule 7.2’s prohibition against giving anything of value to a person for such a recommendation.  The committee noted that the exchange didn’t push lawyer services to its members, and that there was no limit on the number of lawyers who could participate.
  • Lawyers must retain sole discretion to accept or decline matters from exchange members.  Rule 5.4 bars a lawyer from allowing any third party to interfere with the lawyer’s professional judgment, and no barter exchange rules or regulations may impinge on that judgment.
  • Lawyers must maintain confidentiality.  The duty of confidentiality under Rule 1.6 would preclude lawyers from sharing any client information with a barter exchange, including for example, detailed invoices (which should be conveyed directly to the client, the committee advised).
  • Advance fee payments may raise issues.  The committee noted that “because barter money is fictional currency … and could not be held in an attorney’s trust fund,” as required by the state’s version of Model Rule 1.15, such barter money would only be permitted as advance payment under Connecticut’s Rule 1.15(d), which — unlike Model Rule 1.15 — says that “[a]bsent a written agreement with the client,” advance fees must be deposited into a client trust account and withdrawn only as earned.

Bartering legal services in the modern age

The Connecticut ethics committee acknowledged that “early ethics opinions addressing barter exchange arrangements were undeniably hostile” to the idea, including the ABA’s 1979 Informal Op. 1430 (Jan. 8, 1979), which found membership in a “trade exchange” to be an improper division of fees.  But, said the Connecticut committee, more recent opinions have been “more amenable” to barter, citing opinions from the New York State Bar Association (1994), the Utah State Bar (1997) and, most recently, the North Carolina State Bar (2010).   See also Alabama State Bar Office of General Counsel (2001); Florida Bar (1984, rev. 2011).

Some open issues

The Connecticut opinion doesn’t discuss tax issues, which could introduce some complications for lawyers participating in barter exchanges.  As the North Carolina State Bar’s 2010 opinion notes, federal tax law recognizes revenue from “trade” or “barter” dollars as taxable income, which must be reported using Form 1099-B.  And ethics rules on the treatment of legal fees paid in advance vary considerably across jurisdictions.  In jurisdictions with different rules than Connecticut’s there might be issues in a barter transaction where a lawyer receives plumbing services immediately, but “pays” with legal services that will stretch out over an extended period of time:  are the plumbing services advance fees, and how will they be “withdrawn” only as earned?

Proceed with caution

As always, check your jurisdiction’s rules and ethics opinions, and seek advice as necessary.  If you are in a jurisdiction that expressly approves participation in a barter exchange, it can be a neat way to get a different type of fee for your services — provided you adhere to the applicable ethics (and other) rules and limitations. And, as always, if you are not in such a jurisdiction, stay tuned — ethics rules and opinions are always evolving.

 

 

 

 

 

So, you’ve just met with a potential client and the opportunity to take a fascinating case or close a major deal is at your front door. The catch? The client wants to pay for your services in Bitcoin.  Do you accept? Can you accept?

The do’s and the can’s

If you’re licensed in Nebraska the answer is yes! With some caveats, of course. Late last year, Nebraska’s Lawyer Advisory Committee became the first authority to opine on the legal ethics implications of digital currencies. Ethics Advisory Opinion 17-03 allows attorneys to receive and accept digital currency as payment for legal services. However, in order to ensure attorneys aren’t charging unreasonable fees, the Committee advised that the currency must immediately be converted to U.S. dollars upon receipt. Digital currency can also be accepted from third-party payers so long as there is no interference with the attorney’s independent relationship with the client. And, attorneys can hold digital currency in trust or escrow for clients and third parties as long as it is held separately from the attorney’s property, with reasonable safeguards.

Why Bitcoin?

An advantage to accepting Bitcoin (or other digital currency) as payment is that there are no transfer fees. Unlike payment by credit card, wire, or check, and foreign currency conversion for international transactions, Bitcoin is transferred from client to attorney directly, with no fee attached. Other advantages are instant transactions, no bank acting as middleman in the transaction, and the shared digital ledger book that tracks all Bitcoin transfers, which prevents counterfeiting.

How does Bitcoin work?

Bitcoin is an open-source program existing on a decentralized peer-to-peer network on the internet. Anyone can access Bitcoin, and it is stored in a digital wallet. There is a public key, consisting of numbers and letters constituting the “address” to which the Bitcoin is sent, and a private key that the sender uses to authorize the transfer of Bitcoin from one digital wallet to another. These transfers are managed and tracked in the leger book.

The value of Bitcoin fluctuates (wildly).  As of July 3, one was worth $6,624, but it has been worth almost $20,000.  Bitcoin can be transferred in pieces; the smallest, a Satoshi, is one hundred millionth of a Bitcoin.

Some ethical considerations

Given Bitcoin’s ever-changing value, there is a chance that a Bitcoin that was worth the fair value of the legal services you provided last week may today be worth three times as much.  To the Nebraska Committee, that raises the prohibition against unreasonable fees, under its version of Model Rule 1.5(a). The Committee tried to address this concern by mandating that Bitcoin be converted to U.S. dollars upon receipt.

Not everyone agrees. The late ethics guru Ronald Rotunda, for instance, thought that there is no legal ethics issue in not immediately converting digital currency into dollars. He argued that all forms of currency can rise and fall in value against the U.S. dollar, and that deciding in light of that risk to accept a legal fee in Euros, for instance, is a business decision for the lawyer to make, not an ethics issue.

Another potential issue is that since Bitcoin is not legal tender, the IRS classifies it as property. One commentator has noted that this makes accepting a Bitcoin payment similar to bartering for legal services, “like the country lawyer accepting a bushel of apples for drafting a will.” You should check  ethics opinions in your jurisdiction to determine any restrictions on bartering for legal services before agreeing to accept Bitcoin as payment. (We’ve written about bartering for your legal services here.)

A further issue is how to hold digital currency in a client trust account. The Nebraska Committee advised that if the payment is intended to be a retainer to be drawn on as fees are earned in the future, it must be converted to U.S. dollars immediately.  That certainly avoids the risk that the client’s retainer will go down in value; but it also precludes any upside gain that could benefit the client.  These circumstances might call for some client decision-making — and that makes them a subject that you have a duty to communicate about with your client, under Rule 1.4(b).

The Takeaway

Payment in Bitcoin and other digital currencies can be a very cool and convenient alternative fee method that you can offer clients. Just be sure to consider all of the ethical implications before accepting this form of payment.

* Jasmine C. Taylor is a rising third-year law student at Cleveland-Marshall College of Law in Cleveland, Ohio. She is currently a Sergeant in the Ohio Army National Guard, 1-137th Aviation Regiment.

Marijuana pileWe’ve written before about the intersection of legal ethics and marijuana, focusing on counseling business clients in the marijuana space.  But two recent disciplinary cases caught my eye, each involving a lawyer’s personal marijuana use, and they highlight interesting issues.

Fitness to practice?

The first case involves an Illinois-licensed lawyer who lived in both Michigan and Illinois, and although the case is still at the pleading stage, it raises the question of what kind of criminal conduct reflects adversely on a lawyer’s honesty, trustworthiness or fitness to practice, so as to violate Model Rule 8.4(b).

Under Michigan law, the lawyer was a “qualifying patient” and therefore able to legally possess 2.5 ounces of marijuana for medicinal purposes.  The lawyer’s girlfriend was licensed as the lawyer’s “primary caregiver” under the same law, and therefore she was allowed to possess up to five ounces of marijuana and grow up to 24 marijuana plants.

In his answer to a complaint filed by the Illinois disciplinary commission, the lawyer did not contest:  that from June 2012 to December 2013, his girlfriend grew more than 24 plants in the garage of the rented home they maintained in Michigan; that she also manufactured marijuana products and sold them to third parties; and that he had knowledge of her manufacture and sale of marijuana and provided “informational and financial assistance” to her operation.

According to the Commission’s complaint, law enforcement’s search of the Michigan garage found more than 100 marijuana plants.  In his answer, the lawyer denied that he knew of his girlfriend’s expanded grow operation before then.

The lawyer initially pled guilty to conspiracy to manufacture marijuana and was placed on deferred probation, which he completed; he then pled to a misdemeanor charge for maintaining a drug house, and the conspiracy charge was dismissed.

In the widely-read Legal Profession Blog, this case was headlined “Does Growing More Marijuana Plants than Permitted for Lawful Medical Use Reflect Adversely on Fitness?”  A knee-jerk answer would be, “Well, yes, because Rule 8.4(b) is violated whenever a lawyer commits a crime.”  But the comments to the Rules invite a more searching analysis.  Comment [2] notes that

Many kinds of illegal conduct reflect adversely on fitness to practice law, such as offenses involving fraud … However some kinds of offenses carry no such implication… Although a lawyer is personally answerable to the entire criminal law, a lawyer should be professionally answerable only for offenses that indicate lack of those characteristics relevant to law practice.

Examples of offenses indicating such a lack:  those involving “violence, dishonesty, breach of trust, or serious interference with the administration of justice.”

The disciplinary complaint charges that the lawyer’s criminal offenses violated Rule 8.4(b); the lawyer neither admitted nor denied the legal conclusion.  So — the issue has been joined, and it is one that will likely come up with increasing frequency as state-legalized medical and even state-legalized recreational marijuana use spreads.

Legal services in exchange for marijuana

The second disciplinary case involves a Louisiana lawyer charged with trading legal services for marijuana.  As described in the state supreme court’s opinion, a confidential informant told the sheriff’s office that she had paid her lawyer with dope on previous occasions, and he had told her that if she needed more legal help in the future, they could work out the “same old same old,” meaning payment in marijuana, or in drugs plus cash.

A sting was set up, in which the client-turned-informant told the lawyer she needed his help with criminal charges against her son, and that she had a “crap load of smoke” and a “backpack full of marijuana.”  They met in a car, under police surveillance, and bargained over the amount of an additional cash payment.  The lawyer then asked about “the other thing.  [T]hat’s what I am most concerned about.”  The client handed over a backpack with a half-pound of marijuana, worth $2,500, plus some marked cash.

Shortly after that, in front of his law office, law enforcement pulled the lawyer over for a traffic violation and arrested him.

Two weeks later, after news stories circulated about the incident, the lawyer self-reported his arrest to disciplinary authorities, and went into rehab.  He was diagnosed with alcohol and cannabis dependence and unresolved grief and depression stemming from his father’s death two years earlier.  He testified that the arrest was the best thing that could have happened to him, because he was finally forced to confront his addictions and get sober.

The interesting thing about this case is the disciplinary outcome on the charge of violating Louisiana’s version of Model Rule 8.4(b).  The lawyer admitted the rule violation, was remorseful, cooperative, and in compliance with a five-year contract with the state lawyer-assistance program, which required AA meetings, drug screens, and monthly sobriety reports to a monitor.  The diagnosis of addiction was not contested.  There was no testimony that the lawyer neglected client matters before or after his arrest.

The initial hearing panel recommended a one-year suspension, fully deferred on condition of no further misconduct.  The review board instead recommended a two-year fully-deferred suspension.

But the court rejected both of these recommendations, and instead issued an actual one-year suspension, with no deferment.  The court wrote that the fact that “respondent bartered his legal services for illegal drugs” “directly implicat[ed] the practice of law and caus[ed] harm to the legal profession.”  The court also found that there was “potential harm to his clients and the public.”

In contrast to the Illinois case, the Louisiana lawyer’s conduct was not just unlawful; the court drew a direct connection between the drugs and the lawyer’s practice, since he admittedly collected his legal fees in marijuana.

In the weeds

Irrespective of the result in the Louisiana case, the take-away from both cases should spotlight the role of lawyer assistance programs when lawyers are struggling with substance abuse issues.  As we’ve noted before, these programs exist all over the country, and as the one in my home jurisdiction of Ohio says, no disciplinary problem is made worse by being involved in a program.