Can a company's in-house counsel hand over the attorney-fee portion of an insurance arbitration award to the company employer without it being improper fee sharing?
NY State Bar Ethics Opinion 1121: In-house counsel remitting a fee award
Short answer: Where a no-fault insurer pays the attorney-fee portion of an arbitration award to a company's in-house counsel as attorney of record, and New York law entitles the company to recover reasonable attorney fees, the in-house lawyer may remit those fees to the company without violating the rule against sharing legal fees with a nonlawyer.
Disclaimer: This is an advisory ethics opinion. Advisory opinions are not binding; they interpret the New York 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 inquirer is in-house counsel to XYZ, a medical-equipment manufacturer that bills patients' insurers under New York's no-fault law. When an insurer denies a claim, XYZ contests it in arbitration, and XYZ wants its in-house lawyers (who are salaried, do no outside legal work, and get no bonus tied to award value) to handle more of these arbitrations. A successful award is paid in two parts: principal and interest go to XYZ, and the attorney fees (plus any filing fee) go to the attorney of record, because insurers generally will not pay the fee portion directly to the company. The inquirer asks whether remitting the fee portion to XYZ is improper fee sharing, and whether it aids the unauthorized practice of law.
On fee sharing, Rule 5.4(a) bars a lawyer from sharing legal fees with a nonlawyer. The committee compares two prior opinions. In N.Y. State 1096 (2016), an outside lawyer could let a nonlawyer client keep statutory fees because those fees were awarded to the "prevailing party," not the lawyer, so they fell outside Rule 5.4(a). In N.Y. State 906 (2012), sharing fees with a not-for-profit that sponsored litigation for third parties was prohibited, because New York did not adopt ABA Model Rule 5.4(a)(4). Here the facts differ from both: the lawyer is in-house counsel for the prevailing party itself and litigates for the for-profit employer, not third parties. The decisive point is the statute: N.Y. Insurance Law §5106 entitles the claimant, not the attorney, to recover the reasonable attorney fee, and AAA no-fault rules likewise designate the fee as reimbursable to the claimant. So even though the fee check is made out to the attorney of record, XYZ is entitled to it, and signing it over to XYZ does not violate Rule 5.4(a).
On unauthorized practice, Rule 5.5(b) bars aiding a nonlawyer in UPL, and Judiciary Law §495 generally bars corporations from practicing law or taking assignments of claims to pursue civil remedies. Whether particular conduct is UPL is a legal question outside the committee's jurisdiction, but the committee points the inquirer to two statutory exceptions that may apply: §495(2) (a moneyed corporation may take a subrogation assignment) and §495(5) (a corporation may employ attorneys in its own affairs or in litigation to which it is a party).
In practice
Under this opinion, a New York in-house lawyer who recovers a no-fault arbitration award for the employer may remit the attorney-fee portion to the company without it being prohibited fee sharing, because Insurance Law §5106 makes the claimant, not the attorney, the party entitled to the fee. The analysis turns on the fee-shifting statute: where the statute awards fees to the prevailing party, handing them to that party is not sharing fees with a nonlawyer under Rule 5.4(a). The opinion does not decide whether the arrangement is the unauthorized practice of law, a legal question outside its jurisdiction, but it directs the lawyer to the Judiciary Law §495(2) and §495(5) exceptions for subrogation assignments and a corporation employing attorneys in its own affairs.
Common questions
Q: Is it fee sharing for in-house counsel to give the company the fee portion of an award?
A: Not where the statute entitles the company, as the prevailing claimant, to the fee. Under N.Y. Insurance Law §5106 the claimant is entitled to the reasonable attorney fee, so remitting it to the company does not violate Rule 5.4(a) (Opinion 1121 ¶¶ 9-10).
Q: Does it matter that the fee check is made out to the attorney of record?
A: No. Insurers require the check be issued to the attorney of record, but the statute and AAA rules entitle the claimant to the fee, so the company may receive it despite how the check is drawn (¶ 10).
Q: Does remitting the fees aid the unauthorized practice of law?
A: The committee does not decide; whether conduct is UPL is a legal question beyond its jurisdiction. It notes the Judiciary Law §495(2) and §495(5) exceptions (subrogation assignment; a corporation employing attorneys in its own affairs) may apply (¶¶ 11-12).
Background and rules framework
The opinion applies Rule 5.4(a) (Model Rule 5.4) barring fee sharing with nonlawyers and Rule 5.5(b) (Model Rule 5.5) barring assistance with the unauthorized practice of law. It reads both against New York's statutory scheme: Insurance Law §5106, which entitles the prevailing claimant to reasonable attorney fees, and Judiciary Law §495, which restricts corporate practice of law subject to enumerated exceptions.
Citations and references
Rules of Professional Conduct:
- New York Rule 5.4(a) (Model Rule 5.4): no sharing legal fees with a nonlawyer
- New York Rule 5.5(b) (Model Rule 5.5): no aiding the unauthorized practice of law
Statutes:
- N.Y. Insurance Law §5106: claimant entitled to recover reasonable attorney fees
- N.Y. Judiciary Law §495: corporate practice of law; §495(2) subrogation; §495(5) own affairs
Other opinions cited:
- N.Y. State 1096 (2016): statutory fees awarded to the "prevailing party" are outside Rule 5.4(a)
- N.Y. State 906 (2012): New York did not adopt ABA Model Rule 5.4(a)(4); sharing with a sponsoring nonprofit barred
See also
- NY State Bar Op. 1128: Fee division with a deceased lawyer's estate
- NY State Bar Op. 1159: Fee sharing with a deceased lawyer's estate
- NY State Bar Op. 1166: Lawyer-owned IP consulting firm, fee sharing, and supervision
Source
- Landing page: https://nysba.org/ethics-opinion-1121/