New York Attorney Practicing in D.C. May Share Fees With Nonlawyer Partner

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By Lance J. Rogers  

A New York-licensed lawyer who practices in a District of Columbia law partnership that includes a nonlawyer may perform occasional legal services in New York without running afoul of the state's rule against sharing legal fees with nonlawyers, according to a Nov. 15 opinion issued by the New York State bar's ethics committee (New York State Bar Ass'n Comm. on Professional Ethics, Op. 889, 11/15/11).

Although New York's rules prohibit partnerships with nonlawyers, the committee reasoned that this restriction doesn't come into play here because the conduct primarily occurs in D.C., whose unique rule on law firm ownership doesn't block lawyers from partnering with nonlawyers.

D.C. Partnership

A lawyer admitted in both New York and the District of Columbia intends to form a law partnership in D.C. with a nonlawyer who will provide technical assistance on certain class action claims. In his submission to the committee, the lawyer asked whether it will be ethical for him to share with such a partnership any fees he earns while performing occasional work in New York.

If the answer is no, the lawyer wondered whether the firm could hire the nonlawyer as an employee and compensate her under a profit-sharing arrangement triggered by increases over the firm's current average profit.

The committee said it was unnecessary to reach the second question, as it concluded that the proposed arrangement would not run afoul of New York's regulations so long as the fee-sharing deal complied with D.C.'s rules. This is a conflicts of law question, the committee said, and the rules of the District of Columbia control because that is where the predominant effect of the partnership arrangement will have occurred.

New York Rule of Professional Conduct 5.4(a) prohibits lawyers from sharing fees with nonlawyers, the committee noted. Moreover, Rule 5.4(b) blocks lawyers from forming a partnership with a lawyer if any of the activities of the partnership involve the practice of law.

By contrast, District of Columbia Rule of Professional Conduct 5.4(b) is unique in that it permits law firms to include nonlawyers as owners. The rule allows a lawyer to practice in a firm with a nonlawyer who has a financial interest or managerial authority in the firm and performs professional services that help the firm provide legal services.

Looking to New York's choice of law provision, Rule 8.5, the committee concluded that a New York-licensed attorney who forms a law partnership with a nonlawyer in the District of Columbia does not become subject to New York Rule 5.4 merely because the partnership may undertake some New York litigation work.

Rule 8.5(b)(1) provides that the rules where a tribunal sits shall govern “conduct in connection with a proceeding in a court where a lawyer has been admitted to practice,” the committee noted. That does not describe the instant inquiry, it said, because the formation of the partnership cannot be said to be “conduct in connection with” the New York litigation. The opinion states:

As we read the inquiry, there is no suggestion that undertaking the New York litigation would substantially shift the firm's focus. We assume that the firm, even if it undertook the New York litigation, would continue to be centered on cases and revenue within the District of Columbia.

The same analysis is true for distribution of profits, the committee added, including those generated from occasional legal work in New York.

Predominant Effect in D.C

Conduct not occurring in connection with a court proceeding is governed by New York Rule 8.5(b)(2)(ii), the committee continued. But that provision doesn't trigger New York's Rule 5.4 either, it said, because it comes into play only “if particular conduct clearly has its predominant effect in another jurisdiction in which the lawyer is licensed to practice, [in which event] the rules of that jurisdiction shall be applied to that conduct.”

Forming the D.C. partnership does not clearly have its predominant effect in New York where the firm performs only occasional work in New York, the panel said. Nor does a D.C. partnership's fee distribution clearly have a predominant effect in New York, it added.

“A contrary result, applying the New York Rules more broadly than their intended reach, could result in undue burdens for lawyers admitted in New York, but legitimately practicing in the District of Columbia through a partnership that includes a non-lawyer, who wish to participate in the occasional New York litigation matter,” the committee explained.

Full text of the opinion at .  

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