Can a lawyer take a retainer and a share of a nonlawyer company's contingent fee to handle the company's securities-arbitration clients?

Plain-English summary

A lawyer asked about affiliating with a lay company that represented clients in securities arbitration. The company would obtain clients, supply the lawyer with information about each claim and a prepared "Statement of Claim" to file, pay for experts and audits (and sometimes arbitration costs), and pay the lawyer through a retainer plus a percentage of the company's contingent fee. The committee identified several problems under the Rules of Professional Conduct.

The committee explained that the attorney-client relationship must be a direct one: the lawyer must communicate directly with clients and take direction from them (Rules 4-1.4 and 4-1.2), and the nonlawyer's role in gathering information and preparing claims could be a barrier to that direct relationship. The arrangement also raised prohibited solicitation, because a lawyer may not solicit through direct contact with potential clients or let another do so on the lawyer's behalf (Rule 4-7.4(a), now Rule 4-7.18(a); Rule 4-8.4(a)), and a fee generated by improper solicitation may not be charged or collected (Rule 4-1.5(a)). Any company advertising would have to comply with the lawyer advertising rules.

The committee further observed that the arrangement appeared to interfere with the client's right to choose counsel, since the nonlawyer would effectively decide who represented each client, and that it implicated the rules against assisting the unauthorized practice of law and splitting fees with nonlawyers (Rules 4-5.4(a), (b) and 4-5.5). It also flagged a possible personal conflict under Rule 4-1.7(b), citing the Florida Supreme Court's living-trust decision that a lawyer employed by a company selling a product, rather than by the client, could have a compromised duty of loyalty. The committee concluded it would be improper for the lawyer to enter the proposed arrangement. A note records that the Florida Supreme Court later held nonlawyers retained for compensation to represent investors in securities arbitrations are engaged in the unauthorized practice of law.

Currency note

This opinion was issued in 1995, before The Florida Bar's adoption of the 2006 revisions to the Rules of Professional Conduct. Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule, deadline, or requirement mentioned here. The opinion notes the advertising and solicitation rules it cites (then 4-7.1 through 4-7.8, and 4-7.4(a)) correspond to current Rules 4-7.11 through 4-7.22 and 4-7.18(a).

Common questions

Q: Can a lawyer be paid by a nonlawyer company to handle the company's securities-arbitration clients?

A: Under this opinion, no; the arrangement raised fee-splitting with a nonlawyer, prohibited solicitation, interference with the client's choice of counsel, and assisting the unauthorized practice of law.

Q: Why was paying the lawyer a share of the company's contingent fee a problem?

A: Per the opinion, it implicated Rule 4-5.4, which prohibits sharing legal fees with nonlawyers, and Rule 4-1.5(a), which bars charging or collecting a fee generated by improper solicitation.

Q: What was the concern about the lawyer's loyalty?

A: The committee cited the Florida Supreme Court's living-trust decision that a lawyer employed by the company selling the product, rather than by the client, could have a compromised duty of loyalty (Rule 4-1.7(b)).

Background and rules framework

The opinion applied the rules against sharing fees with and forming partnerships with nonlawyers and assisting unauthorized practice (Rules 4-5.4 and 4-5.5; Model Rules 5.4 and 5.5), the solicitation rules (then Rule 4-7.4(a), now 4-7.18(a); Model Rule 7.3), the direct-communication and scope rules (Rules 4-1.4, 4-1.2), and the conflict rule (Rule 4-1.7(b); Model Rule 1.7).

Citations and references

Rules of Professional Conduct:

• Model Rule 5.4 / Fla. Rule 4-5.4 (professional independence; fee-sharing with nonlawyers)
• Model Rule 5.5 / Fla. Rule 4-5.5 (unauthorized practice of law)
• Model Rule 7.3 / Fla. Rule 4-7.4(a) (solicitation; now Rule 4-7.18(a))
• Model Rule 1.7 / Fla. Rule 4-1.7(b) (conflicts of interest)
• Fla. Rules 4-1.2, 4-1.4, 4-1.5(a), 4-8.4(a)

Cases:

• The Florida Bar re: Advisory Opinion - Nonlawyer Preparation of Living Trusts, 613 So. 2d 426 (Fla. 1992), duty of loyalty where lawyer employed by product seller
• The Florida Bar re: Advisory Opinion - Nonlawyer Representation in Securities Arbitration, 696 So. 2d 1178 (Fla. 1997), nonlawyer securities-arbitration representation is UPL (per the opinion's note)

Other opinions cited:

• Fla. Ethics Ops. 61-1, 66-44 (withdrawn), 67-14, 67-15, 70-18

See also

• FL Bar Ethics Op. 95-1: Fee-Sharing With a Nonlawyer in Social Security Disability Work
• FL Bar Ethics Op. 02-8: Referral Fee From a Securities Dealer and Ancillary Business
• FL Bar Ethics Op. 17-1: Fee Division With a Nonlawyer-Owned Out-of-State Firm

Source

• Landing page: https://www.floridabar.org/etopinions/etopinion-95-2/
• Original PDF: https://www-media.floridabar.org/uploads/2017/04/FL-Bar-Ethics-Op-95-2-1.pdf

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

FLORIDA BAR ETHICS OPINION
OPINION 95-2
July 15, 1995
Advisory ethics opinions are not binding.
An attorney's proposed involvement with a corporation that represents clients in securities arbitration matters would be unethical due to problems concerning conflicts of interest, solicitation, fee-splitting, and assisting the unauthorized practice of law.
Note: Nonlawyers retained for compensation to represent investors in securities arbitrations are engaged in the unauthorized practice of law. See The Florida Bar re: Advisory Opinion - Nonlawyer Representation in Securities Arbitration, 696 So.2d 1178 (Fla. 1997).
RPC: 4-1.2, 4-1.4, 4-1.5(a), 4-1.7(b), 4-5.4(a), 4-5.4(b), 4-5.5, 4-7.1 through 4-7.8 [See current 4-7.11 through 4-7.22], 4-7.4(a) [See current 4-7.18(a)], 4-8.4(a)
Opinions: 61-1, 66-44, 67-14, 67-15, 70-18
Cases: The Florida Bar re: Advisory Opinion - Nonlawyer Preparation of Living Trusts, 613 So. 2d 426 (Fla. 1992)

A member of the Florida Bar requests an advisory opinion about an affiliation with a nonlawyer company to handle securities arbitrations.

The inquiring attorney wishes to enter into a relationship with a lay company that represents clients in securities arbitration. The company will obtain clients and pay the inquirer to represent the clients in negotiation and arbitration (if necessary). The company will pay the inquirer in the form of a retainer and a percentage of the company's contingent fee. The company would also provide the attorney with information regarding the client's claim and a prepared "Statement of Claim" for the inquirer to file. The company also pays for expert witness and audit services for the client, and, in some cases, costs of arbitration.

The inquirer wishes to know if it would be proper to enter into this relationship.

The inquirer's proposal raises numerous issues regarding the Rules of Professional Conduct. First, the attorney-client relationship must be a direct one. See Florida Ethics Opinions 61-1, 67-14, and 67-15. An attorney must have direct communication with the clients and take direction from the clients. See Rules 4-1.4 and 4-1.2, Rules of Professional Conduct. The role of the nonattorney in gathering information and preparing statements of claim in the inquirer's proposal may be a barrier to that direct relationship.

The proposal also raises the question of prohibited solicitation. An attorney may not solicit business through direct contact with a potential client, and he may not allow another to solicit legal business on his behalf. See Rules 4-7.4(a) [See Rule 4-7.18(a)] and 4-8.4(a), Rules of Professional Conduct. The nonattorney may be soliciting business for the inquirer through direct contact with potential clients in the inquirer's proposal. Rule 4-1.5(a) provides that "[a]n attorney shall not enter into an agreement for, charge, or collect ... a fee generated by employment that was obtained through advertising or solicitation not in compliance with the Rules Regulating The Florida Bar." Any advertising of the company would have to follow the Rules of Professional Conduct regarding attorney advertising (Rules 4-7.1 through 4-7.8, Rules of Professional Conduct). [See Rules 4-7.11 through 4-7.22].

The business arrangement also appears to interfere with the client's right to choose his own attorney, since it appears that the nonattorney will actually determine who will represent the client in negotiation and at the arbitration. See Florida Ethics Opinions 66-44 [withdrawn] and 70-18. The proposal also implicates rules prohibiting assisting the unauthorized practice of law and splitting fees with nonattorneys. See Rules 4-5.4(a) and (b) and Rule 4-5.5, Rules of Professional Conduct.

The inquirer should also consider whether he may have some personal conflict in representing the clients given his relationship with the company. See Rule 4-1.7(b), Rules of Professional Conduct. In a similar arrangement regarding living trust preparation, the Florida Supreme Court stated, "If the lawyer is employed by the corporation selling the living trust rather than by the client, then the lawyer's duty of loyalty to the client could be compromised." The Florida Bar re: Advisory Opinion - Nonlawyer Preparation of Living Trusts, 613 So. 2d 426 (Fla. 1992). The Court went on to say, "In light of this duty of loyalty to the client, a lawyer who assembles, reviews, executes, and funds a living trust document should be an independent counsel paid by the client and representing the client's interests alone." Id.

In short, it would be improper for the inquirer to enter into this proposed arrangement in light of the considerations discussed above.