Can a corporation rent out its in-house lawyers to other clients at a markup, or take a cut of a statutory fee award won by its in-house counsel, above what the lawyer cost the company?

ABA Formal Opinion 95-392: Sharing Legal Fees with a For-Profit Corporate Employer

Short answer: The opinion concluded that if a corporate in-house lawyer provides services to third persons for a fee, or recovers an award of lawyer's fees in litigation for the employer, the lawyer violates Model Rule 5.4(a) by turning over to the corporation any portion of the fee beyond the corporation's actual cost of providing the lawyer's services.

Disclaimer: This is an advisory ethics opinion. Advisory opinions are not binding; they interpret the American Bar Association's Model Rules of Professional Conduct and are persuasive authority. This summary is for research purposes only and is not legal advice. Verify current rules before acting on any specific guidance.

About this page: The plain-English summary and Q&A below were written by Ezel based on the official opinion. We do not reproduce the opinion text on this page; follow the linked source for the official text, which controls.

Plain-English summary

The committee took up two inquiries about corporations profiting from work performed by their in-house counsel. In the first, a corporation that is not generating enough legal work to keep its salaried lawyers busy proposed to "rent" those lawyers to other clients and collect a fee at an hourly rate higher than the cost of employing them. In the second, an in-house lawyer who wins litigation for the employer and can seek a fee award under a fee-shifting statute proposed to share with the employer a "reasonable attorney's fee" exceeding the company's cost of the lawyer's time.

The committee held both arrangements to be impermissible fee sharing under Rule 5.4(a), which provides that a "lawyer or law firm shall not share legal fees with a nonlawyer." It found that the arrangements run afoul not only of the rule's literal language but of its purpose. Rule 5.4 is titled "Professional Independence of a Lawyer," and the opinion explained that the most important problem the rule guards against "is interference by lay persons with a lawyer's practice," because a nonlawyer employer interested in its own profit can impair the lawyer's independent professional judgment. The committee quoted the concern that "[f]ee splitting between lawyer and layman ... poses the possibility of control by the lay person, interested in his own profit, rather than the client's fate."

The committee distinguished these arrangements from the one it had approved in Formal Opinion 93-374 (sharing court-awarded fees with sponsoring pro bono organizations), concluding that the for-profit corporate-employer arrangements violate both the text and the reasons behind the rule. The dividing line is cost: the corporation may be reimbursed for what its in-house counsel's services actually cost it, but it may not retain any markup or profit above that amount.

Currency note

This opinion was issued in 1995, before the American Bar Association's adoption of the 2002 (Ethics 2000) revisions to the Model Rules of Professional Conduct. Subsequent rule amendments and later opinions may have changed the analysis, including developments in alternative business structures and nonlawyer ownership. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule, deadline, or requirement mentioned here.

Common questions

Q: Can a company rent its in-house lawyers to outside clients and keep a markup?

A: No. The opinion concluded that collecting a fee for the in-house lawyer's services to third parties at a rate above the cost of employing the lawyer is improper fee sharing with a nonlawyer under Rule 5.4(a).

Q: If in-house counsel wins a statutory fee award, can the company take a share of it?

A: Only up to the company's actual cost of handling the matter. The committee held that sharing any portion of the award beyond that reimbursement amount violates Rule 5.4(a).

Q: Why does sharing fees with a corporate employer matter under the rules?

A: The opinion explained that Rule 5.4 protects a lawyer's professional independence, and the chief danger is that a nonlawyer interested in its own profit could interfere with or control the lawyer's independent judgment.

Q: Wasn't sharing court-awarded fees approved in an earlier opinion?

A: The committee distinguished Formal Opinion 93-374, which allowed sharing court-awarded fees with sponsoring pro bono organizations, and held the for-profit corporate-employer arrangements here violate both the language and the purpose of Rule 5.4(a).

Background and rules framework

The opinion interpreted Rule 5.4 (professional independence of a lawyer), focusing on subsection (a)'s prohibition on sharing legal fees with a nonlawyer and the rule's stated purpose of preventing lay interference with a lawyer's independent professional judgment. It permitted reimbursement of the employer's actual cost but barred any profit above cost. Because the ABA interprets the Model Rules directly, there is no state-rule analogue.

Citations and references

Rules of Professional Conduct:

• MR 5.4 (professional independence of a lawyer; subsection (a) on sharing fees with nonlawyers)

Cases:

• Emmons, Williams, Mires & Leech v. State Bar, 86 Cal. Rptr. 367 (Ct. App. 1970), fee splitting between lawyer and layperson poses the possibility of lay control

Other opinions cited:

• ABA Formal Op. 93-374: sharing court-awarded fees with sponsoring pro bono organizations is permissible; distinguished here

See also

• ABA Formal Op. 464: Fee division with lawyers who may share fees with nonlawyers
• ABA Formal Op. 499: Passive investment in alternative business structures

Source

• Landing page: ABA Formal Ethics Opinions index
• Original PDF: 95-392.pdf