If the Proposed Rule is adopted, The Committee recommends that the Court authorize the
Board of Professional Responsibility to promulgate regulations governing the registration of and
reporting by intermediary organizations. These requirements might include requirements such as
those set out in the more detailed version of this Proposed Rule issued in the Committee’s
Preliminary Draft, including the following:

(1) That none of the activities of the organization in this state constitutes the unauthorized
practice of law; and

(2) That, with respect to referrals of its members, beneficiaries or customers to lawyers who
are not employees of the organization, the organization permits the participation of notless
than four lawyers licensed to practice in Tennessee, each of whom maintains an office in the
geographical area served by the intermediary organization; provided, however, that the
organization may require such participating lawyers to

(i) meet reasonable and objectively determinable standards of competence and
experience; and

(ii) pay a reasonable participation fee not otherwise prohibited by these Rules; and

(3) That the organization does not engage in false or misleading communication about the
nature of its activities as a intermediary organization; and

(4) That the organization's marketing activities are conducted in accordance with these Rules
if:

(i) the organization provides any information to current or prospective members,
beneficiaries or customers about specific lawyers who are cooperating with the
intermediary organization; or

(ii) the organization's marketing activity is directed to a person known to be in need
of legal services with respect to a particular matter; and

(5) That the organization does not condition its referral of its members, beneficiaries or
customers to lawyers upon a preliminary determination by the organization that theclient's
claims or defenses have merit or economic value; and

(6) That the organization utilizes reasonable procedures to assure that the lawyers to whom
the organization refers its members, beneficiaries or customers are properly licensed and
competent to handle the matters referred to them; and

(7) That the organization does not limit the objectives of the representation to be provided
byparticipating lawyers to its members, beneficiaries or customers, or the means to be used
to accomplish those objectives, if such limitation would materially impair the lawyer's ability
to provide the client with the quality of representation that would be provided to a client who
had not been referred to the lawyer by the organization; and

(8) That the organization utilizes reasonable procedures to provide substitute counsel in the
event that a lawyer to whom a matter is referred cannot undertake or continue the
representation in compliance with these rules; and

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(9) That the organization acknowledges that a lawyer who undertakes to represent a
member, beneficiary, or customer of the intermediary organization will establish an
attorney-clientrelationship with the member, beneficiary or customer and agrees that it will
not interfere with the lawyer's representation of the client, request or require that the lawyer
reveal information protected by Rule 1.6, or request or require that the lawyer take any other
action prohibited by these rules; and

(10) That the organization has established reasonable procedures to receive complaints from
its members, beneficiaries, or customers about the lawyer to whom they were referred and
promptly forwards a report of any such complaint to the Office of Disciplinary Counsel;
and

(11) That the organization does not refer fee-generating matters to lawyers prohibited by
paragraph (b)(1) from accepting such referrals and, if it is organized for profit, does not
permit its lawyer-employees to represent clients in violation of paragraph (b)(2); and

(12) That the organization has registered with the Board of Professional Responsibility and
complied with all reporting requirements imposed by the Board for the purpose of
enabling lawyers to ascertain from materials on file with the Board whether the organization
is a qualified intermediary organization.

Comparison To ABA Model Rules

There is no Model Rule specifically dealing with this topic. Because of this silence the
ABA Ethics Committee has held in Formal Ethics Opinion 87-355 (1987) that lawyers may
cooperate with for-profit prepaid legal insurance plans provided that the lawyer'srepresentation of
the referred can be conducted in accordance with generally applicable of rules of professional
conduct. Model Rule 7.3(D), however, expressly recognizes the general legitimacy of lawyers
cooperating with intermediary organizations by providing that “a lawyer may participate with a
prepaid or group legal service plan operated by an organization not owned or directed by the lawyer
which uses in-person or telephone contact to solicit memberships or subscriptions for the plan from
persons who are not known to need legal services in a particular matter covered by the plan.”

Changes Made to 1997 Committee Preliminary Draft In Response to Comments

Rule 5.8 in the Preliminary Draft conditioned a lawyer’s right to cooperate with an
intermediary organization upon the lawyer acting reasonably to ascertain that the intermediary met
twelve distinct characteristics of a "qualified" intermediary organization. Upon further
reflection, the Committee concluded that its proposal would impose an unreasonable burden on
lawyers, would not provide meaningful protection for the public, and in the end would be
inconsistent with the profession’s commitment to expanding access to justice by facilitating efforts
of intermediary organizations to help prospective clients secure competent and affordable legal
representation.

Thus, in Proposed Rule 7.6, the Committee has dropped much of the regulatory detail that
wasincluded in Rule 5.8 and recommends that intermediary organizations be required by the
Supreme Court to register with the Office of Disciplinary Counsel of the Board of Professional
Responsibility and to demonstrate that their operations conform to such standards as the Court
approves as necessary for protection of the public. Under Proposed Rule 7.6, the lawyer must only
determine that his or her participation will not lead to a violation of any of the generally applicable
Rules of Professional Conduct and that the organization is registered with the Office of

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Disciplinary Counsel. This is a much more manageable inquiry for the lawyer, and the Committee
believes that Tennessee will be better served if intermediary organizations are monitored by the
Office of Disciplinary Counsel.

Proposed Rule 5.8 as included in the Preliminary Draft read as follows:

Proposed Rule 5.8
Intermediary Organizations

(A) An intermediary organization is an organization which in the ordinary course of its
business or activities refers its customers, members, or beneficiaries to lawyers or pays for
or otherwise provides legal services to the organization's customers, members or
beneficiaries in matters for which the organization does not bear ultimate responsibility.

(B) A lawyer shall not

(1) seek or accept a fee-generating referral from an intermediary organization by
which the lawyer is employed or which is owned or controlled by the lawyer, a law
firm with which the lawyer is associated, or a lawyer with whom the lawyer is
associated in a firm; or

(2) represent any member, beneficiary, or customer of a for-profit intermediary
organization by which the lawyer is employed; or

(3) engage in any of the activities permitted by paragraph (D) in connection with the
activities of an intermediary organization which the lawyer knows or should know is
not a qualified intermediary organization.

(C) Prior to engaging in any of the activities permitted by paragraph (D), a lawyer shall act
reasonably to ascertain that the intermediary organization with which he or she will
participate is a qualified intermediary organization. An intermediary organization is a
qualified intermediary organization if

(1) none of the activities of the organization in this state constitutes the unauthorized
practice of law; and

(2) with respect to referrals of its members, beneficiaries or customers to lawyers
who are not employees of the organization, the organization permits the participation
of not less than four lawyers licensed to practice in Tennessee, each of whom
maintains an office in the geographical area served by the intermediary organization;
provided, however, that the organization may require such participating lawyers to

(a) meet reasonable and objectively determinable standards of competence
and experience; and

(b) pay a reasonable participation fee not otherwise prohibited by these
Rules; and

(3) the organization does not engage in false or misleading communication about the
nature of its activities as a intermediary organization; and

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(4) the organization's marketing activities are conducted in accordance with these
Rules if

(a) the organization provides any information to current or prospective
members, beneficiaries or customers about specific lawyers who are
cooperating with the intermediary organization; or

(b) the organization's marketing activity is directed to a person known to be
in need of legal services with respect to a particular matter; and

(5) the organization does not condition its referral of its members, beneficiaries or
customers to lawyers upon a preliminary determination by the organization that the
client's claims or defenses have merit or economic value; and

(6) the organization utilizes reasonable procedures to assure that the lawyers to
whom the organization refers its members, beneficiaries or customers are properly
licensed andcompetent to handle the matters referred to them; and

(7) the organization does not limit the objectives of the representation to be provided
by participating lawyers to its members, beneficiaries or customers, or the means to
be used to accomplish those objectives, if such limitation would materially impair the
lawyer's ability to provide the client with the quality of representation that would be
provided to a client who had not been referred to the lawyer by the organization; and

(8) the organization utilizes reasonable procedures to provide substitute counsel in
the event that a lawyer to whom a matter is referred cannot undertake or continue the
representation in compliance with these rules; and

(9) the organization acknowledges that a lawyer who undertakes to represent a
member, beneficiary, or customer of the intermediary organization
will establish an attorney-client relationship with the member, beneficiary or
customer and agrees that it will not interfere with the lawyer's representation of the
client, request or require that the lawyer reveal information protected by Rule 1.6, or
request or require that the lawyer take any other action prohibited by these rules; and

(10) the organization has established reasonable procedures to receive complaints

from its members, beneficiaries, or customers about the lawyer to whom they were
referred and promptly forwards a report of any such complaint to the Office of
Disciplinary Counsel; and

(11) does not refer fee-generating matters to lawyers prohibited by paragraph (B)(1)
fromaccepting such referrals and, if it is organized for profit, does not permit its
lawyer-employees to represent clients in violation of paragraph (B)(2); and

(12) the organization has registered with the Board of Professional Responsibility
and complied with all reporting requirements imposed by the Board for the purpose
of enabling lawyers to ascertain from materials on file with the Board whether the
organization is a qualified intermediary organization.

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(D) Except as otherwise prohibited by these rules, a lawyer may participate in the activities
of a qualified intermediary organization that is not owned or controlled by the lawyer, a law
firm with which the lawyer is associated, or a lawyer with whom the lawyer is associated in a
firm as follows:

(1) seek referrals from the organization in compliance with the requirements of
Rules 7.1 through 7.5; and

(2) pay reasonable participation fees charged by the organization if such payments
conform to the requirements of Rule 5.4(A) and the lawyer does not charge a client
who is referred to the lawyer a fee in excess of the fee that the client would have
been charged had there not been a referral; and

(3) undertake the representation of a client referred to the lawyer by the
organization; and

(4) accept payment of the lawyer's fee by the organization if the client consents after
consultation with the lawyer; and

(5) unless otherwise prohibited from doing so by these rules, agree in advance not to
charge a client referred to the lawyer by the organization a fee in excess of an
amount specified by the organization or to be determined in accordance with a
method prescribed by the organization; and

(6) to the extent permitted by Rule 5.5(B) be paid a salary by the organization to
provide legal services to its members, beneficiaries or customers.

COMMENT

1. For there to be equal access to justice, there must be equal access to lawyers.
there to be equal access to lawyers, potential clients must be able to find lawyers and have the
economic resources needed to pay the lawyers a reasonable fee for their services. In effort to assist
prospective clients to find and be able to retain competent lawyers, lawyers and nonlawyers alike
have formed a variety of organizations designed to bring clients andlawyers together and to
provide a vehicle through which the lawyers can be fairly compensated and the clients can afford the
services they need. Some of these intermediary organizations operate as charities. Others operate
as businesses. Because they ultimately bear the liability of their insureds, liability insurance
companies which pay for or otherwise provide lawyers to defend their insureds are not intermediary
organizations within the meaning of this Rule.

For

2. This rule reflects a judgment that a lawyer should be permitted to participate in
activities of an intermediary organization to the extent specified in paragraph (D) so long as the
intermediary organization is not controlled by the lawyer (or the lawyer’s firm or a lawyer with
whom the lawyer is associated in a firm), is not engaged in the unauthorized practice of law, or fails
to meet the standards set forth in paragraph (C) for qualified intermediary organizations.

the

3. The qualifications set forth in paragraph (C) are intended to protect the clients
who are represented by lawyers to whom they have been referred or assigned by an
intermediary organization. It is the responsibility of each lawyer who would participate in
the activities of an intermediary organization to act reasonably to ascertain that the
organization meets the standards set forth in paragraph (C). Normally it will be sufficient

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for the lawyer to ascertain that the organization has registered with the Board of
Professional Responsibility and to review the materials the organization has filed with the
Board in compliance with the Board’s reporting requirements. If, however, by virtue of his
or her participation in the activities of an intermediary organization, a lawyer comes to know
that the organization does not meet the standards set forth in paragraph (C), the lawyer shall
terminate his or her participation in the activities of the organization and should so advise
the Board of Professional Responsibility.

Comments Received After September 2000 Draft, Committee Response, and Changes
Made

1. The Committee has modified Paragraph (b)(1)(iii) to replace the reference to “marketing
activities prohibited by Rules 7.1, 7.3(b) and 7.3(c)” with a reference to “marketing activities that
are false or misleading or otherwise prohibited by the Board of Professional Responsibility.”The
Committee concluded that some restrictions that are appropriate with respect to direct marketing by
a lawyer or law firm may not be appropriate when applied to the marketing activities of an
intermediary organization that not owned or controlled by the lawyer. Thus, the only specific
restriction mentioned in the Rule is the obvious prohibition against false or misleading marketing.
Beyond that, however, the Committee believes that the Court should delegate to the Board of
Professional Responsibility the authority to regulate the marketing activities intermediary
organizations. In anticipation that the Board would promulgate regulations governing the marketing
activities of registered intermediary organization, the Committee has revised the Rule to prohibit a
lawyer from accepting referrals or payment of fees from an intermediary organization if the lawyer
knows or reasonably should know the organization is engaging in prohibited marketing activities.

2. The Committee has modified Paragraph (b)(1)(iv) to refer more broadly to
“requirements,” rather than “reporting requirements.”Because the Committee anticipates that
registered intermediary organizations may be subject to requirements other than a reporting
requirement, the reference to reporting requirements was too narrow.

3. The Board of Professional Responsibility has recommended that the criteria for
intermediary organizations be included in Rule 7.6. The Committee disagrees because it believes
that the Rules of Professional Conduct should only include Rules governing the conduct of
lawyers. Indeed, the Committee’s primary objection to the current rule is that it attempts to use the
ethics rules to indirectly regulate the conduct of intermediary organizations.

4. The Committee believes that the registration requirements for intermediary organizations
should be in a separate rule that will be separately enforced by the Board of Professional
Responsibility or such other agency as the Court deems appropriate. While the Committee would
be honored to work with the Court, the Board of Professional Responsibility, or the Office of
Disciplinary Counsel to develop appropriate standards for intermediary organizations and establish
an effective registration and reporting system, our primary recommendation is that the Court should
separate the regulation of lawyer conduct from the regulation ofintermediary organizations. Thus,
we cannot support the Board’s recommendation that the standards for intermediary organizations
be added to Rule 7.6.

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