Can a lawyer representing a group of tenants against a landlord accept a bonus or premium from the landlord as part of settling the dispute?

Plain-English summary

The committee addressed whether a lawyer who represents a group of tenants in a cooperative or condominium conversion dispute may accept payment of legal fees from the landlord, including a "premium" or "bonus," as part of a settlement. It began by recognizing that the Code does not bar a lawyer from being paid by someone other than the client. Statutory fee shifting (for example under 42 U.S.C. sec. 1988), private contractual fee shifting, and ordinary settlement arrangements are all permissible, subject to DR 5-107(A), which requires the client's consent after full disclosure, and DR 5-107(B), which forbids the payer from directing the lawyer's professional judgment.

The committee held this situation different because it involved a payment by the adverse party that exceeded a reasonable fee. Two problems followed. First, accepting from the adversary a fee larger than the client would pay risks an excessive fee under DR 2-106, citing N.Y. State 576 and N.Y. State 461 for the principle that third-party payment is meant to provide an alternative source of just compensation, not to augment an otherwise appropriate fee. Second, a bonus conditioned on settlement gives the lawyer an incentive to settle the client's claims regardless of their merits, in tension with DR 5-105(B) and EC 5-1. Because it is not "obvious" that counsel could exercise independent professional judgment in the face of such a bonus, the committee held that client consent, even after full disclosure, cannot cure the conflict, citing the DR 5-105(C) standard and N.Y. State 584.

The committee distinguished this arrangement from a contingent fee, where the amount is fixed in advance with the client and paid from the recovery without the adversary's approval, and from cases in which the client agrees to be compensated only if the adverse party pays a court-awarded fee. On the facts presented, where the clients were responsible for their own fees, it concluded that counsel may not accept a bonus or premium from the landlord in connection with the settlement.

Currency note

This opinion was issued in 1989, under New York's former Code of Professional Responsibility, which New York replaced with the Rules of Professional Conduct in 2009 (third-party payment now appears at Rule 1.8(f), conflicts at Rule 1.7, and fees at Rule 1.5). 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.

Common questions

Q: Can a lawyer's fee be paid by the opposing party at all?

A: Yes, in general. The committee recognized that statutory, contractual, and settlement-based fee shifting are permissible if the client consents after full disclosure under DR 5-107(A) and the payer does not direct the lawyer's judgment under DR 5-107(B).

Q: Why is a settlement "bonus" from the adversary different?

A: The committee held that a payment exceeding a reasonable fee, conditioned on settlement, both risks an excessive fee under DR 2-106 and gives the lawyer an incentive to settle regardless of the client's interest, creating differing interests.

Q: Can the client consent to the bonus?

A: No. The committee held that because it is not obvious counsel could exercise independent judgment in the face of the bonus, client consent under DR 5-105(C) cannot cure the conflict, even with full disclosure.

Background and rules framework

The opinion interpreted the New York Code provisions on third-party payment of fees (DR 5-107(A), (B)), the lawyer's duty of independent judgment (DR 5-101(A); EC 5-1), concurrent conflicts (DR 5-105(B), (C)), and excessive fees (DR 2-106). The closest Model Rule analogues are Rule 1.8(f) (accepting compensation from someone other than the client), Rule 1.7 (concurrent conflicts of interest), and Rule 1.5 (fees).

Citations and references

Rules of Professional Conduct:

• MR 1.8(f) (compensation from a third party; client informed consent)
• MR 1.7 (concurrent conflicts of interest)
• MR 1.5 (fees)
• NY DR 2-106; DR 5-101(A); DR 5-105(B), (C); DR 5-107(A), (B); EC 2-21, 2-24, 2-25, 5-1

Other opinions cited:

• N.Y. State 576 (1986); N.Y. State 461 (1977): third-party payment may not augment an otherwise reasonable fee
• N.Y. State 584 (1987): the DR 5-105(C) "obvious" test cannot be met where the lawyer's compensation depends on consummating the transaction

See also

• NY State Bar Op. 626: Real estate multiple representation and fees
• NY State Bar Op. 611: Representing both the seller and the lender
• NY State Bar Op. 599: Nonrefundable minimum fee retainer agreements

Source

• Landing page: https://nysba.org/opinion-601/