Lawyers May Share Fees With Other Firms Whose Jurisdiction Permits Nonlawyer Owners

The ABA/BNA Lawyers’ Manual on Professional Conduct™ is a trusted resource that helps attorneys understand cases and decisions that directly impacts their work, practice ethically, and...

By Samson Habte  

 

Although most U.S. jurisdictions prohibit nonlawyer owners in law firms, lawyers do not violate the related ban on sharing legal fees with nonlawyers by collaborating and splitting fees with lawyers who practice in a firm that includes nonlawyer owners as permitted in the District of Columbia and some foreign countries, the ABA's ethics committee advised Aug. 19 (ABA Standing Comm. on Ethics & Prof'l Responsibility, Formal Op. 464, 8/19/13).

“Where there is a single billing to a client in such situations,” the committee said, “a lawyer subject to the Model Rules may divide a legal fee with a lawyer or law firm in the other jurisdiction, even if the other lawyer or law firm might eventually distribute some portion of the fee to a nonlawyer, provided that there is no interference with the lawyer's independent professional judgment.”

Clashing Rules?

The opinion addresses two standards that deal with the allocation of legal fees among lawyers and nonlawyers: Model Rule 1.5(e) and Model Rule 5.4(a).


“The possibility that the District of Columbia firm may, or may not, eventually 'share' some fraction of that firm's portion of the fee with a nonlawyer should not expose the lawyer in the Model Rules jurisdiction to discipline.”
ABA Formal Op. 464

Rule 1.5(e) permits lawyers in different firms who jointly represent a client to divide the fee between them. Rule 5.4(a) provides that lawyers generally may not share legal fees with nonlawyers.

Although most states “have professional conduct rules identical or similar to Model Rules 1.5(e) and 5.4(a),” the committee observed, “some jurisdictions, like the District of Columbia and the United Kingdom, have rules that differ significantly from Model Rules 1.5(e) and 5.4(a).”

“In contrast to the Model Rule,” the committee explained, “District of Columbia Rule 5.4(b) permits 'an individual nonlawyer who performs professional services which assist the organization in providing legal services to clients' to hold an ownership interest in a law firm; and District of Columbia Rule 5.4(a) permits the sharing of legal fees with such persons.”

These conflicting approaches may complicate efforts to enter into cross-border, joint representation arrangements--which are increasingly common because of the “growth of national and international commerce,” the committee pointed out.

“For example,” it explained, “a lawyer in a Model Rules jurisdiction may reasonably conclude that [a] client requires the assistance of a specific lawyer in a District of Columbia firm, in which a nonlawyer happens to hold an ownership interest, on a matter involving federal government contracts because that lawyer is uniquely qualified in such matters.”

Such collaboration generally is permitted if the collaborating lawyers comply with Rule 1.5(e), which requires them to obtain the client's consent, assume joint responsibility for the representation, and divide fees proportionately.

But whether such an arrangement is permitted under most states' Rule 5.4 may be less clear when one of the firms includes nonlawyer ownership, the committee said: “[T]here may be a question whether the lawyer from the Model Rules jurisdiction, by participating in this common inter-firm fee arrangement, shares a legal fee in violation of Model Rule 5.4(a) because the District of Columbia firm's portion of the fee will presumably become part of that firm's overall revenues, revenues from which distributions may ultimately be made to the nonlawyer who holds an ownership interest.”

No Problem

The committee concluded that an attorney in a jurisdiction that has adopted Model Rule 5.4 will not run afoul of the prohibition on nonlawyer fee sharing by entering into an “inter-firm fee arrangement” with a District of Columbia or foreign firm.

“That lawyer divided a legal fee only with 'another lawyer,' and a lawyer may divide legal fees with a lawyer admitted in another jurisdiction,” it explained.

“Any concerns of the lawyer subject to the Model Rules regarding inter-firm division of legal fees should end at that point,” the committee said. “The possibility that the District of Columbia firm may, or may not, eventually 'share' some fraction of that firm's portion of the fee with a nonlawyer should not expose the lawyer in the Model Rules jurisdiction to discipline.”

That conclusion, it added, is “in accord with the only other opinion that has directly addressed the question.” See Philadelphia Ethics Op. 2010-7, 26 Law. Man. Prof. Conduct 556 (2010) (Pennsylvania firm may divide fee from joint representation of client with D.C. firm that has nonlawyer partner).

Purpose of Rule

The committee said the concerns underlying the prohibition on nonlawyer fee sharing--which aims to ensure that a lawyer's “independence of professional judgment” is not compromised--are not implicated by permitting collaboration between firms in jurisdictions that have different rules on nonlawyer ownership.

“In the typical situation discussed above,” it explained, “there is no reason to believe that the nonlawyer in the District of Columbia might actually influence the independent professional judgment of the lawyer in the Model Rules jurisdiction, who practices in a different firm, in a different jurisdiction.”

Moreover, prohibiting joint representations with cross-border counterparts on the basis of Rule 5.4 might lead lawyers to adopt the precautionary measure of “refusing to work with firms in the District of Columbia or other countries unless the clients themselves separately retained and paid the District of Columbia or foreign law firms,” the committee said.

That is not a desirable outcome, it stated, because such tactics “would likely annoy clients and add unnecessary complexity to a common arrangement with no constructive purpose.”

“A contrary conclusion would also unreasonably impair the ability of lawyers to work alongside lawyers in firms that may be best suited to serve a particular client or resolve a particular matter,” the opinion adds.

The committee closed by warning that its conclusion “carries an important limitation.”

“Lawyers must continue to comply with the requirement of Model Rule 5.4(c) to maintain professional independence,” it said. “Even if the other law firm may be governed by different rules regarding relationships with nonlawyers, a lawyer must not permit a nonlawyer in the other firm to interfere with the lawyer's own independent professional judgment. As noted above, the actual risk of improper influence is minimal. But the prohibition against improper nonlawyer influence continues regardless of the fee arrangement.”


Full text at http://www.americanbar.org/content/dam/aba/administrative/professional_responsibility/formal_opinion_464.authcheckdam.pdf.

The ABA/BNA Lawyers’ Manual on Professional Conduct is a joint publication of the American Bar Association Center for Professional Responsibility and Bloomberg BNA.

Copyright 2013, the American Bar Association and The Bureau of National Affairs, Inc. All Rights Reserved.