Ethically Speaking: Sharing fees with non-lawyers: It’s a balancing act

These days, the legal marketplace is becoming increasingly complicated — and more competitive. Solo and small firm attorneys are now competing with legal self-help websites like Legal Zoom and Rocket Lawyer, which provide legal consumers with free fill-in-the-blank forms and sometimes include offers to connect users with lawyers, if needed.

These websites arguably trigger any number of ethical issues, not the least of which is whether the sites are engaging in the unauthorized practice of law. However, because these sites are a relatively new phenomenon, many of the ethical issues presented by these types of Web services have yet to be addressed. But, as the inquiries crop up, the legal ethics commission are stepping up to the task, as occurred recently in Opinion 942 (Nov. 2, 2012), handed down by the New York State Bar Association’s Committee on Professional Ethics.

At issue in this opinion was whether a lawyer may enter into a fee-sharing arrangement with a non-lawyer firm (NLF) where the NLF provides, among other things, template legal documents to its hedge fund manager customers.

In this case, the NLF referred some of its customers to participating attorneys who received the legal fees at issue. The NLF did not disclose to its customers that a part of the fee paid to the NLF was then given the attorneys to compensate them for their services. As described in the opinion, “the attorney would provide an engagement letter to the client. The engagement letter would not state the amount of the fee to be paid by (NLF) to the lawyer, and it appears that the client would not otherwise be so advised.”

In reaching its decision on the issue of the permissibility of the fee-sharing, the committee reviewed the applicable provision, Rule 1.5(b), which provides that a “lawyer shall communicate to a client … the basis or rate of the fee and expenses for which the client will be responsible. This information shall be communicated to the client before or within a reasonable time after commencement of the representation and shall be in writing where required by statute or court rule.”

The committee also noted that pursuant to 22 N.Y.C.R.R. §§ 1215.1 and 1215.2, information regarding the fee-sharing arrangement must be in writing when the fee to be charged is expected to be $3,000 or more.

Based upon its analysis of the applicable rules, the committee concluded, in part, that the proposed fee arrangement violated Rule 1.5(b) since the client was provided with no information about the source of the legal fee: “Under the proposed arrangement, the written engagement letter would be silent as to the legal fee. The lawyer could provide fee information other than in writing if the legal fee were expected to be less than $3,000, but it appears from the inquiry that information about the legal fee will not be provided to the client even orally. The proposed arrangement would thus violate Rule 1.5(b).”

This determination highlights the importance of carefully considering the ramifications of fee-sharing arrangements, especially when monies paid for legal services are shared with non-lawyers. While these arrangements may sometimes be ethical, it’s advisable to tread lightly and, as is always the case when it comes to ethical obligations, err on the side of caution. After all, why put your law license in jeopardy for the sake of a few extra dollars?

The Hon. John E. Bernacki is a Pittsford Town Court Justice. His law firm, John E. Bernacki Jr. PC, is located in Pittsford. He can be reached at www.johnbernackilaw.com.