NYSBA 2021-04-21

Can lawyers co-own a divorce mediation business with a nonlawyer, accept referrals from it, and enter a reciprocal referral agreement with it?

Short answer: Lawyers may co-own a mediation business with a nonlawyer only if it provides solely nonlegal services and employs no lawyers to give legal advice; they may accept referrals and enter a non-exclusive reciprocal referral agreement, but the conduct rules attach to the business unless clients get a written disclaimer that no client-lawyer relationship exists.

Disclaimer: Advisory only. Not binding precedent.

About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official ethics opinion. The original opinion (linked at the bottom of this page) is the authoritative source for any reliance.

NYSBA Ethics Opinion 1222: Non-Legal Services, Mediation, and Unauthorized Practice

Short answer: The opinion concludes that lawyers may co-own a divorce mediation business with a nonlawyer only if the business provides solely nonlegal services and employs no lawyers to deliver legal services; the lawyer-owners may accept referrals from it and enter a non-exclusive reciprocal referral agreement, but the Rules of Professional Conduct attach to the mediation business unless the lawyer-owners give clients a written disclaimer that the services are not legal services and that no client-lawyer relationship exists.

Disclaimer: This is an advisory ethics opinion. Advisory opinions are not binding; they interpret the New York State Bar Association's view of New York's 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

A divorce law firm and three of its partners proposed to buy a controlling interest in a divorce mediation business, co-owned with a respected nonlawyer mediator. The mediation business would keep separate offices and a different name from the firm, and after a successful mediation it might employ lawyers to draft the separation agreement and divorce documents. The inquirers posed five questions about the structure, the referrals, and the application of the conduct rules.

On the first question, the opinion holds the mediation business may not employ lawyers to provide post-mediation legal services. Rule 5.4(a) bars sharing legal fees with a nonlawyer; Rule 5.4(b) bars lawyers from forming a partnership with a nonlawyer if any of the partnership's activities consist of the practice of law; and Rule 5.4(d) bars a lawyer from practicing in an entity for profit in which a nonlawyer holds an interest. The committee also flagged Judiciary Law §495 (corporations and voluntary associations may not render legal services), which it lacks authority to construe. On the second question, lawyers and nonlawyers may co-own the business if it provides only mediation services, because mediation is a nonlegal service under Rule 5.7(c) (citing N.Y. State 1026 and N.Y. State 1178); the committee expressed no view on whether mediators preparing divorce documents commit the unauthorized practice of law, a question of law beyond its jurisdiction.

On referrals, the opinion finds no per se bar to the firm accepting referrals from a business its partners own, but warns of a Rule 1.7(a)(2) personal-interest conflict: if a client questions a "successful" mediation, the lawyer's ownership stake could create a significant risk of adversely affecting professional judgment. Whether such a conflict exists is a case-by-case question, is imputed under Rule 1.10(a) if it does, and if consentable must be waived by informed consent confirmed in writing under Rule 1.7(b). On the reciprocal referral agreement, Rule 5.8(c) exempts non-exclusive reciprocal referral arrangements with nonlegal professionals from Rule 5.8, so the inquirers may enter one provided it is non-exclusive on both sides and they do not pay for the referrals (citing N.Y. State 755, 1155, and 976). "Non-exclusive" means neither side may promise to refer or accept every matter.

On the final question, Rule 5.7(a)(3) governs nonlegal services provided by a nonlegal entity that lawyers own: the conduct rules apply to those services if the recipient could reasonably believe they are the subject of a client-lawyer relationship. Separate offices, a different name, and the absence of lawyer-mediators point away from that belief, but divorce mediation arises from a legal dispute, mediators often explain legal concepts, and clients may not distinguish lawyer from nonlawyer mediators. Under the Rule 5.7(a)(4) presumption, a recipient is presumed to believe the services are legal services unless the lawyer-owners give a written disclaimer that the services are not legal services and no client-lawyer relationship exists (or the lawyer's interest is de minimis). Without that disclaimer, the mediation business must comply with the conflict rules (including Rule 1.10(e) conflict checks against the firm's clients) and the confidentiality duty in Rule 1.6.

In practice

Under this opinion, New York lawyers may co-own a divorce mediation business with a nonlawyer only when it offers nonlegal mediation services alone and employs no lawyers to provide legal services, because lawyer employment, fee sharing, or nonlawyer ownership of a legal-services entity would violate Rule 5.4(a), (b), and (d). Per the opinion, the lawyer-owners may accept referrals from the business and enter a non-exclusive reciprocal referral agreement so long as they pay nothing for referrals and the arrangement binds neither side to refer or accept every matter (Rule 5.8(c)). Per the opinion, a Rule 1.7(a)(2) personal-interest conflict can arise from the ownership stake on a case-by-case basis, and unless the lawyer-owners give the written disclaimer described in Rule 5.7(a)(4), the conduct rules, including conflict checking and confidentiality, attach to the mediation business.

Common questions

Q: Can a lawyer-and-nonlawyer mediation business employ lawyers to draft the divorce settlement papers?

A: No. Per the opinion, that would share legal fees with a nonlawyer and place a lawyer in a for-profit entity partly owned by a nonlawyer, violating Rule 5.4(a), (b), and (d).

Q: Can lawyers and nonlawyers co-own a divorce mediation business at all?

A: Yes, if it provides only mediation services and no legal services. Per the opinion, mediation is a nonlegal service under Rule 5.7(c) (citing N.Y. State 1026 and 1178), so co-ownership is permitted.

Q: Can the law firm accept referrals from the mediation business its partners own?

A: Yes, but watch for conflicts. Per the opinion, there is no per se bar, but the ownership interest can create a Rule 1.7(a)(2) personal-interest conflict requiring case-by-case analysis and, if consentable, written informed consent.

Q: Can the firm and the mediation business agree to refer clients to each other?

A: Yes, if it is non-exclusive and unpaid. Per the opinion, Rule 5.8(c) exempts non-exclusive reciprocal referral agreements, provided neither side promises to refer or accept every matter and the lawyers do not pay for referrals.

Q: Do the ethics rules follow the lawyers into the mediation business?

A: They can. Per the opinion, under Rule 5.7(a)(3)-(a)(4) the conduct rules apply to the mediation services unless the lawyer-owners give clients a written disclaimer that the services are not legal services and that no client-lawyer relationship exists.

Background and rules framework

The opinion interprets Rule 5.4 (professional independence; fee sharing, partnership, and ownership bars), Rule 5.7 (responsibilities regarding nonlegal services, including the (a)(3) reasonable-belief test and the (a)(4) disclaimer presumption), Rule 5.8 (contractual relationships with nonlegal professionals and the (c) exemption for non-exclusive reciprocal referrals), Rule 1.7(a)(2) and (b) (personal-interest conflicts and consent), Rule 1.10 (imputation and conflict checking), Rule 1.6 (confidentiality), and Rule 2.4 (lawyer as third-party neutral). It also references Judiciary Law §495. These correspond to ABA Model Rules 5.4, 5.7, 1.7, and 2.4.

Citations and references

Rules of Professional Conduct:

New York Rules of Professional Conduct 5.4(a)-(b), (d); 5.7(a)(3)-(4) and (c); 5.8(c) and Cmt. [4]; 1.7(a)(2), (b); 1.10(a), (e); 1.6; 1.12(b); 2.4; 5.5(a)
ABA Model Rules 5.4, 5.7, 1.7, 2.4 (analogues)

Statutes:

N.Y. Judiciary Law §495 (corporations and voluntary associations may not render legal services)

Other opinions cited:

N.Y. State 1026 (2014); N.Y. State 1178 (2019): mediation as a nonlegal service
N.Y. State 755 (2002); N.Y. State 1155 (2018); N.Y. State 976 (2013): non-exclusive reciprocal referral arrangements

Source

Landing page: https://nysba.org/ethics-opinion-1222/