By Joan C.
Jan. 17 --A lawyer should consider as many as 21 ethics
rules, along with other applicable law and court rules, before deciding whether
to form an arrangement with a nonlegal business that wants the lawyer to
review forms it has completed for customers seeking citizenship in another
country in return for a percentage of the customers' fees the business
receives, according to an opinion released this month by the New York City
bar's ethics committee (New York City Bar Ass'n Comm. on Prof'l Ethics, Formal
Op. 2014-1, 1/14).
While not exactly saying no to the proposed
arrangement, the committee identified numerous potential problems that could
make it unethical, such as possibly assisting the unauthorized practice of
law, forming a prohibited multidisciplinary practice, sharing legal fees with
a nonlawyer and paying prohibited referral fees.
The opinion also spots
and discusses ethics obligations that may arise if the arrangement creates an
attorney-client relationship between the lawyer and the business's customers.
Lack of direct contact with these clients could make it difficult for the
lawyer to carry out these professional duties, according to the committee.
Lawyers who are contemplating creative arrangements with nonlegal
organizations must analyze for themselves how ethics rules apply to the facts
of the particular game plan, the opinion makes clear.
Nicole Hyland, who chairs the ethics committee, told Bloomberg
BNA she hopes the opinion will help lawyers as a starting point when they are
considering creative relationships with nonlegal businesses. Hyland practices
in New York with Frankfurt Kurnit Klein & Selz P.C.
Hyland said the
opinion arose out of a confidential inquiry by a lawyer who had been
approached about a proposed business arrangement with a company that helps
U.S. citizens apply for citizenship in a foreign country. The committee
developed a formal opinion, she said, because in the current legal
environment many lawyers are looking at nontraditional business
Developing the guidance was challenging, Hyland said. “We
had to approach it as an issue-spotting opinion rather than giving definitive
answers,” and as the committee worked on the opinion, new issues kept popping
up, she said. “Every time we thought we were done, we realized there was
another issue,” she said.
The opinion does not address arrangements
between lawyers and nonprofit organizations, Hyland said, because the informal
inquiry that sparked the opinion involved a proposed business arrangement,
and the opinion is intended for lawyers considering creative business
the opinion, the inquiring lawyer is originally from a foreign country but
lives and is licensed in New York. Part of the lawyer's practice involves
advising U.S. citizens who want to apply for citizenship in the lawyer's
country of origin.
The lawyer is considering a business arrangement
with a nonlegal organization, located in another state, that provides
services to U.S. citizens who want to apply for citizenship in that foreign
country. Under the proposed plan, the business would prepare citizenship
applications for its customers and then send the draft applications to the
lawyer for review to ensure they comply with applicable legal
The lawyer would not meet with or communicate directly
with the applicants. The business charges its customers according to a fixed
fee schedule, and proposes to pay the lawyer a percentage of these fees.
The committee advised the lawyer to consider seven
key questions en route in determining whether the arrangement complies with
York Rules of Professional Conduct.
Which state's rules
apply? New York's rules would apply if the lawyer is licensed only in New
York; if the lawyer is also licensed elsewhere, Rule 8.5(b) should be reviewed
to determine which state's rules apply.
Will the lawyer's
involvement amount to UPL in another jurisdiction? The lawyer must figure
out whether performing the legal review will violate regulations governing the
legal profession in any other jurisdictions implicated in the proposed
arrangement. If so, the lawyer would violate Rule 5.5(a), which forbids
lawyers from practicing law in a jurisdiction contrary to its regulation of
Is the nonlegal business engaged in UPL? The
lawyer must consider whether the nonlegal entity's conduct constitutes the
unauthorized practice of law. Although observing that UPL issues are beyond
the committee's purview, the panel noted that the lawyer needs to evaluate
the types of services the business provides to its customers in light of the
relevant legal authorities that define what it means to engage in the practice
Is the arrangement a forbidden MDP? The committee noted
that New York's Rule 5.8 does not allow lawyers to join with nonlegal
businesses in offering services to the public except for a few specified
categories, none of which includes businesses providing immigration services.
If the proposed arrangement constitutes multidisciplinary practice--which the
committee said it lacked sufficient information to determine--it is prohibited
under Rule 5.8.
Is there improper fee splitting? When analyzing
whether the payment structure violates the prohibition on sharing fees with a
nonlawyer under Rule 5.4(a), the lawyer should consider whether the customers
are paying the business more, less or exactly the same for the lawyer's legal
review as they would if they made payment directly to the lawyer for this
legal service. If the nonlegal business gets a financial benefit by including
the lawyer's legal fees in its overall charges, the arrangement may violate
Rule 5.4(a). Disciplinary authorities are likely to give the payment
arrangement close scrutiny, the committee predicted. It noted that New York
has enacted criminal penalties against fee sharing with nonlawyers.
Does the payment structure amount to paying a referral fee? Rule
7.2(a) forbids a lawyer, except in certain limited circumstances, to
“compensate or give anything of value” to another to recommend or obtain
business for the lawyer. The proposed referral structure might result in an
indirect referral fee if, for example, the amount the nonlegal business pays
the lawyer out of the customers' fees is less than what the lawyer would
charge them directly for the legal review. However, Rule 7.2(a) is not
necessarily violated by offering a “preferential rate” to clients from a
particular referral source. In addition, the lawyer should determine whether
the nonlegal business fits within one of the categories in Rule 7.2(b) that
are excepted from the prohibition against referral fees.
Who is the
lawyer's client? The lawyer needs to consider, depending on the
circumstances and facts, whether the lawyer's clients would be the customers,
the nonlegal business or both.
If the lawyer represents the individuals applying for
citizenship, the committee said, the business arrangement raises concerns
about the lawyer's ability to meet obligations to those clients under
numerous ethics rules:
1.1(a) -- The lawyer may have a difficult time providing competent
representation if the lawyer has no contact with the clients, and the lawyer
would not be in a position to ensure that the nonlegal business implements the
legal advice in a competent manner.
1.2(c) -- If this is a “limited scope representation,” the limits must be
reasonable and the client's informed consent needs to be obtained. The lawyer
may not be able to evaluate the reasonableness of the limits and may not be
able to obtain informed consent without directly communicating with the
1.4 and 1.2(a) -- The lack of direct contact with the clients would make it
difficult to comply with the communication requirements of Rule 1.4 and the
consultation requirements of Rule 1.2(a). Disciplinary authorities are likely
to scrutinize the arrangement closely because the lawyer would have no
opportunity to correct any misleading statements the nonlegal business may
make to the clients about the lawyer, the scope of the representation or the
nature of the legal review.
1.5 -- The lawyer's lack of involvement in determining the amount charged for
the legal review is incompatible with the duty to ensure that the fee charged
to a client is not excessive. Although a fee schedule prepared by a lawyer for
legal services is not necessarily improper, the arrangement would violate Rule
1.5 if the lawyer cedes control over the setting of legal fees to a nonlawyer.
Furthermore, the lack of direct contact with the clients may make it difficult
to comply with the duty to explain the basis or rate of the fee and expenses to
the client, as required by Rule 1.5.
1.6(a) -- The lawyer would need the client's informed consent to pass her
information through the nonlegal business. The client may not be able to make
an informed decision about whether to waive confidentiality without direct
communication with the lawyer.
1.7(a) -- If the business arrangement creates a personal conflict of interest
for the lawyer in representing a client, the client is unlikely to be in a
position to give informed consent to waive the conflict.
1.8(f) -- If an individual seeking citizenship is the client and the nonlegal
business pays her legal fees, the lawyer must comply with the conditions in
Rule 1.8(f) for accepting compensation from a third party, including getting
the client's informed consent to the payment arrangement and protecting the
client's confidential information from the payor.
the reporter on this story: Joan C. Rogers in Washington at email@example.com
To contact the editor responsible
for this story: Kirk Swanson at firstname.lastname@example.org
Full text at http://www.nycbar.org/ethics/ethics-opinions-local/2014opinions/1933-formal-opinion-2014-01.
Lawyers’ Manual on Professional Conduct is a joint publication of the
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