Can a lawyer who takes over a Social Security claim from a nonlawyer representative pay that nonlawyer a share of the fee for prior work?

Plain-English summary

The Social Security Act lets nonlawyers represent claimants before the Social Security Administration, including at hearings before an administrative law judge, but only a lawyer may represent a claimant appealing to federal district court. Both lawyers and nonlawyers usually work on a contingent-fee basis. When a nonlawyer representative dies or stops handling a case, the case may be turned over to a lawyer to pursue an appeal. The question is whether Rule 5.4(a), which bars sharing legal fees with a nonlawyer, prohibits the lawyer from paying the nonlawyer for the work already done.

The opinion concludes the lawyer may compensate the nonlawyer. It acknowledges Rule 5.4(a)'s general prohibition and its purposes: protecting the lawyer's professional independence, preventing solicitation, and discouraging unauthorized practice. The opinion notes the unauthorized-practice concern is not implicated here, because the SSA authorizes nonlawyer representation before a claim reaches federal court.

The opinion reasons that Rule 5.4(a) should not be applied in a way that makes it difficult for a claimant to switch to a lawyer, or that ignores the prior work the nonlawyer did and the nonlawyer's lawful right to contingent compensation. The lawyer may therefore agree to pay the nonlawyer from the legal fee ultimately approved, provided the compensation is reasonable and related to the work the nonlawyer actually performed, and there is full disclosure to the presiding ALJ or federal judge, accomplished by submitting a fee agreement that recites the arrangement with the prior representative.

In practice

Under this opinion, as the North Carolina rule stood at the time, a lawyer who takes over a Social Security claim may share part of the resulting legal fee with the prior nonlawyer representative without violating Rule 5.4(a), so long as two conditions are met: the payment is reasonable and tied to work the nonlawyer actually performed, and the arrangement is disclosed to the presiding ALJ or judge. The opinion grounds the exception in the SSA's authorization of nonlawyer representation, so its reasoning is specific to the Social Security context rather than a general loosening of the fee-sharing bar.

Common questions

Q: Does Rule 5.4(a) bar a lawyer from paying a nonlawyer Social Security representative for a transferred case?

A: No, not in this situation. The opinion concludes a lawyer may compensate the nonlawyer for prior work, because the SSA authorizes nonlawyer representation and the unauthorized-practice concern behind Rule 5.4(a) is not implicated.

Q: How must the payment to the nonlawyer be structured?

A: The compensation must be reasonable and related to the work the nonlawyer actually performed on the claim. It may be paid from the legal fee ultimately approved, including as a percentage of that fee.

Q: What disclosure does the opinion require?

A: There must be full disclosure to the presiding ALJ or federal judge. The opinion says this can be done by submitting the claimant's fee agreement reciting the lawyer's compensation arrangement with the prior representative.

Background and rules framework

The opinion interprets Rule 5.4(a) of the North Carolina Rules of Professional Conduct (the state counterpart to Model Rule 5.4 on a lawyer's professional independence), which prohibits sharing legal fees with a nonlawyer except in limited circumstances. The opinion reads the rule against the federal Social Security framework that expressly permits nonlawyer representation of claimants before the agency and caps representatives' fees, and it relies on comment [1] to the rule for the prohibition's purpose of protecting the lawyer's independent professional judgment.

Citations and references

Rules of Professional Conduct:

• Model Rule 5.4 (professional independence of a lawyer)
• N.C. Rule 5.4(a) (sharing legal fees with a nonlawyer), comment [1]

Statutes:

• Social Security Act (authorizing nonlawyer representation of claimants)
• Equal Access to Justice Act (fees available on appeal to district court)

See also

• ABA Formal Op. 464: Fee Division Across Jurisdictions
• ABA Formal Op. 95-392: Sharing Fees With Employer

Source

• Landing page: https://www.ncbar.gov/for-lawyers/ethics-and-governing-rules/ethics-opinions/opinions/2003-formal-ethics-opinion-10/

Original opinion text

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

Inquiry:

The Social Security Act permits nonlawyers to represent claimants in matters before the Social Security Administration (SSA) including representing claimants at administrative hearings before an administrative law judge (ALJ). However, only a lawyer may represent a client who is appealing an unfavorable decision of the SSA to federal district court. The nonlawyer representatives, as well as the lawyers who represent claimants before the SSA, do so almost exclusively on a contingent-fee basis.

A claimant's representative (whether a lawyer or nonlawyer) does not have to file a fee petition with the SSA if, at the time the representation commences, the representative submits a copy of his or her fee agreement with the claimant to the SSA. In most situations, if the fee agreement complies with the law capping the fee for representation of a claimant, the fee is automatically approved. If the claim is denied at the administrative level and an appeal to district court must be filed, a lawyer representative may pursue the legal fees available under the Equal Access to Justice Act in addition to the contingent fee payable under the fee agreement with the claimant.

Inevitably, some nonlawyer representatives die or decide to stop representing claimants. On occasion, a nonlawyer representative turns over a case to a lawyer to pursue an appeal to federal district court. Given the prohibition on sharing legal fees with nonlawyers set forth in Rule 5.4(a) of the Rules of Professional Conduct, may a lawyer negotiate an agreement with a nonlawyer representative of Social Security claimants by which the lawyer takes over the representation of a claimant from the nonlawyer and agrees to compensate the nonlawyer representative for his or her work on the case in the event the case is favorably resolved for the claimant?

Opinion:

Rule 5.4(a) prohibits a lawyer from sharing legal fees with a nonlawyer except in limited circumstances which are inapplicable here. The purpose of the prohibition, as noted in comment [1] to the rule, is to protect the lawyer's professional independence of judgment from interference from a nonlawyer. The prohibition also prevents solicitation of cases by lawyers and discourages nonlawyers from engaging in the unauthorized practice of law. (The latter reason for the prohibition is not implicated here because the Social Security Administration authorizes nonlawyer representation before a claim is appealed to federal court.)

When a lawyer represents a client on a Social Security claim, it is presumed that the lawyer utilizes his or her legal knowledge, skill, and professional judgment for the benefit of the client. Indeed, some Social Security claimants may seek out a lawyer to represent them precisely because these attributes are not held by nonlawyer representatives.

Rule 5.4(a) should not be applied in a way that may make it difficult or impossible for a claimant to switch to a lawyer representative. Nor should the rule be applied in a way that ignores the prior work the nonlawyer representative did on the case or the fact that the nonlawyer representative may be compensated, by law, on a contingent fee basis. Therefore, a lawyer representative may negotiate an agreement with a nonlawyer representative to transfer a claimant's case and to compensate the nonlawyer although the compensation will be paid from the legal fee ultimately paid on behalf of the client from the Social Security benefits awarded. The amount of the compensation paid to the nonlawyer representative must be reasonable and must be related to the work actually performed by the nonlawyer on behalf of the claimant. To guard against the potential dangers of fee sharing with a nonlawyer, there must be full disclosure to the presiding ALJ or federal judge. This can be accomplished by submitting a fee agreement with the claimant that recites the lawyer's arrangement for compensation with the prior representative even if such compensation is a percentage of the fee ultimately approved by the court.