Ezel / Ethics Opinions / NYSBA
NYSBA 2012-11-02

Can a New York lawyer take client referrals from a non-lawyer firm and be paid an undisclosed cut of the flat fee the client pays that firm?

Short answer: No. A lawyer may not accept referrals where the legal fee, in an amount never disclosed to the client, is taken from the fee the client pays a non-lawyer firm; that violates the duty to communicate fee information and risks fee-sharing, referral-payment, and third-party-payer problems.
Currency note: this opinion is from 2012
Subsequent statutory amendments, court decisions, or later opinions or rule amendments may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.
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 Not binding precedent.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.

NY State Bar Ethics Opinion 942: Referrals and undisclosed fees from a non-lawyer firm

Short answer: A lawyer may not accept client referrals from a non-lawyer firm where the lawyer's fee, in an amount never disclosed to the client, is carved out of the flat fee the client pays the non-lawyer firm.

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

View original opinion

Plain-English summary

A non-lawyer firm ("NL Firm") sells logo, website, and marketing services plus template legal documents to hedge fund managers for a flat fee, stating it is not a law firm. NL Firm proposes a higher-priced option that adds a referral to an outside lawyer for "standard hedge fund legal services." The lawyer would send the client an engagement letter, but the lawyer's fee would be paid by NL Firm out of its flat fee under a separate NL Firm-lawyer agreement; the engagement letter would not state the fee, and the client would not otherwise be told it. The committee concludes the lawyer may not enter this arrangement.

The committee first parks several questions of law it cannot decide: whether NL Firm's sale of templates is unauthorized practice (Judiciary Law sections 478, 484), whether its arrangement improperly involves it in legal practice (section 495), and whether it unlawfully solicits legal business (section 479). It notes the answers carry ethics consequences: if NL Firm engages in unauthorized practice, Rule 5.5(b) bars the lawyer from aiding it, and illegal conduct could implicate Rule 8.4(b).

Whatever the legal answers, the committee holds the arrangement violates Rule 1.5(b)'s duty to communicate the basis or rate of the fee to the client (in writing where the fee is expected to be $3,000 or more, per 22 N.Y.C.R.R. 1215). Here the engagement letter is silent on the fee and the client will not be told it even orally. The committee then flags rules that could be violated but cannot be resolved on the facts given: Rule 5.4(a) (sharing legal fees with a nonlawyer), if NL Firm retains part of what the client pays for legal services; Rule 7.2(a) (paying for referrals), if the lawyer charges NL Firm a below-standard fee that operates as a referral payment; Rule 1.8(f) (third-party payment of fees), which requires the client's informed consent, no interference with the lawyer's judgment, and protection of confidences, all doubtful given the limited disclosure; and Rule 1.5(a) (a fee may not be excessive), which cannot be assessed on the facts. The conclusion turns on the undisclosed fee.

In practice

The opinion holds that, under the New York rules as they stood in 2012, the lawyer may not accept referrals where the legal fee is hidden from the client and drawn from what the client pays the non-lawyer firm, because that fails Rule 1.5(b)'s fee-communication duty. The committee identifies the disclosure failure as the dispositive ethics defect, while noting the arrangement could also run afoul of the fee-sharing (5.4(a)), referral-payment (7.2(a)), third-party-payer (1.8(f)), and excessive-fee (1.5(a)) rules depending on facts the inquiry did not supply, and that questions of unauthorized practice are matters of law outside the committee's jurisdiction.

Common questions

Q: Can a lawyer be paid for referred clients out of a non-lawyer company's flat fee?

A: Not on these facts. Per paragraph 12, the lawyer may not accept referrals where the legal fee, undisclosed to the client, is taken from the fee the client pays the non-lawyer firm.

Q: What rule does the undisclosed fee violate?

A: Rule 1.5(b). Per paragraphs 6 and 7, the lawyer must communicate the basis or rate of the fee, in writing if it is expected to reach $3,000, and here the client would not be told the fee even orally.

Q: Could this also be improper fee sharing or a referral payment?

A: Possibly. Per paragraphs 8 and 9, the arrangement could violate Rule 5.4(a) if the non-lawyer firm keeps part of the legal fee, or Rule 7.2(a) if a discounted fee operates as payment for referrals, though the facts given are not enough to decide.

Background and rules framework

The opinion interprets New York Rule 1.5(a) and (b) (Model Rule 1.5, reasonable fees and communicating fee information), Rule 1.8(f) (Model Rule 1.8, third-party payment of fees), Rule 5.4(a) (Model Rule 5.4, sharing fees with a nonlawyer), Rule 5.5(b) (Model Rule 5.5, aiding unauthorized practice), Rule 7.2(a) (Model Rule 7.2, payment for referrals), and Rule 8.4(b) (Model Rule 8.4, illegal conduct reflecting on fitness). It references the Judiciary Law unauthorized-practice and solicitation provisions as questions of law outside its jurisdiction.

Citations and references

Rules of Professional Conduct:

  • MR 1.5 / NY Rule 1.5(a), (b) (reasonable fee; communicating the fee)
  • MR 1.8 / NY Rule 1.8(f) (third-party payment of fees)
  • MR 5.4 / NY Rule 5.4(a) (sharing fees with a nonlawyer)
  • MR 5.5 / NY Rule 5.5(b) (aiding unauthorized practice)
  • MR 7.2 / NY Rule 7.2(a) (payment for referrals)
  • MR 8.4 / NY Rule 8.4(b) (illegal conduct reflecting on fitness)

Statutes:

  • Judiciary Law sections 478, 479, 484, 495 (unauthorized practice; solicitation; corporate practice), raised as questions of law.
  • 22 N.Y.C.R.R. 1215.1, 1215.2 (written letter of engagement where the fee is expected to be $3,000 or more).

See also

Source