Some nonlawyers want to start a consulting firm and have me run its 'legal department,' splitting my fees with the firm and letting it cover my overhead and advertising. Is there any way to structure this so it's ethical?

Plain-English summary

Nonlawyers approached the inquiring attorney about joining a proposed consulting firm that would offer legal consulting alongside business and other consulting services. Under the proposal, the attorney would be a partner running the firm's "legal department," which in the nonlawyers' view includes advising the company and its employees, providing legal services to the company's clients, and bringing in legal clients apart from the other consulting departments, effectively operating a law firm under the consulting firm's name. The consulting firm would cover overhead, including advertising, and in exchange the attorney would split fees with the firm, with client consent; the attorney would otherwise practice free of oversight or pressure from the nonlawyer partners.

The panel found the arrangement squarely prohibited by Rule 5.4. Rule 5.4(a) bars a lawyer or law firm from sharing legal fees with a nonlawyer, subject to four exceptions with no application here. Rule 5.4(b) bars forming a partnership with a nonlawyer if any of the partnership's activities consist of the practice of law. Rule 5.4(d) bars a lawyer from practicing law with or in the form of a professional corporation or association if a nonlawyer owns any interest in it, is a corporate director or officer or holds a position of similar responsibility, or has the right to direct or control the lawyer's professional judgment. The panel also cited Article II, Rule 10 of the Rhode Island Supreme Court Rules, which requires all shareholders, directors, officers, partners, and managers of a limited liability entity that practices law to be licensed attorneys. On top of the Rule 5.4 violations, the panel found the arrangement also runs afoul of Rule 5.5(a), which bars practicing law in violation of the jurisdiction's regulation of the legal profession or assisting another in doing so. The panel concluded the proposed consulting firm is not permitted under the Rules and advised the attorney to decline the invitation, and answered the attorney's second question, whether any restructuring could make the arrangement ethical, in the negative.

In practice

The opinion holds that a lawyer may not operate a law practice inside a business entity in which nonlawyers hold an ownership interest, serve as directors or officers, or otherwise partner with the lawyer in an enterprise whose activities include the practice of law, regardless of assurances that the lawyer will retain independent professional judgment or that clients will consent to the fee split; the structural bars in Rule 5.4 and Rule 5.5 apply to the arrangement itself, not merely to particular instances of interference with the lawyer's judgment.

Common questions

Q: Can I split my legal fees with the nonlawyer consulting firm if my clients consent?

A: No. The opinion holds Rule 5.4(a)'s bar on fee-sharing with a nonlawyer applies regardless of client consent, and none of the rule's four narrow exceptions covers this arrangement.

Q: What if I keep full independence over my legal advice and the nonlawyers don't interfere?

A: The opinion does not treat promised independence as curing the problem; Rule 5.4(b) and (d) bar the partnership and ownership structure itself, whether or not a nonlawyer partner actually directs the lawyer's judgment in practice.

Q: Is there some other way to set up this relationship that would be ethical?

A: No. The panel directly answered this question in the negative, finding the proposed structure, a nonlawyer-owned firm with the attorney running its legal department and splitting fees, is not permitted under the Rules in any form presented.

Background and rules framework

The opinion applies Rhode Island Rule 5.4 (Professional Independence of a Lawyer). Rule 5.4(a) bars fee-sharing with a nonlawyer subject to four listed exceptions; Rule 5.4(b) bars partnering with a nonlawyer where the partnership's activities include the practice of law; Rule 5.4(d) bars practicing law in a professional corporation or association in which a nonlawyer holds an ownership interest, a directorial or officer position, or the right to direct the lawyer's professional judgment. The opinion also applies Rule 5.5(a), barring practice in violation of the jurisdiction's regulation of the legal profession, and cites Article II, Rule 10 of the Rhode Island Supreme Court Rules, requiring all owners and managers of a law-practicing limited liability entity to be licensed attorneys.

Citations and references

Rules of Professional Conduct:

• MR 5.4(a) (bar on fee-sharing with a nonlawyer)
• MR 5.4(b) (bar on partnering with a nonlawyer where the partnership practices law)
• MR 5.4(d) (bar on nonlawyer ownership, directorship, or control in a law-practicing entity)
• MR 5.5(a) (practicing law in violation of the jurisdiction's regulation of the legal profession)

Statutes:

• Rhode Island Supreme Court Rules, Art. II, Rule 10 (all shareholders, directors, officers, partners, and managers of a limited liability entity practicing law must be licensed attorneys)

Cases:

• None cited.

Other opinions cited:

• None cited.

See also

• ABA Formal Op. 499: Passive Investment in Alternative Business Structures
• ABA Formal Op. 91-360: Prohibition of Partnerships With Nonlawyers: Extrajurisdictional Effect
• Rhode Island Ethics Advisory Panel Op. 2013-01: A Paralegal's Bonus Tied to Fees Generated by Cases the Paralegal Helps Settle Is an Impermissible Fee-Sharing Arrangement Under Rule 5.4(a)

Source

• Landing page: https://www.courts.ri.gov/attorney-resources/Pages/Ethics-Advisory-Panel-default.aspx
• Original PDF: https://www.courts.ri.gov/Opinions/EAP%2013-03.pdf

Original opinion text

Final

                           Rhode Island Supreme Court
                         Ethics Advisory Panel Op. 2013-03
                             Issued September 12, 2013

FACTS

    Individuals who are not lawyers have approached the inquiring attorney about being a

part of a business enterprise. The nonlawyers want to start a consulting firm. The inquiring
attorney states that the nonlawyers want to provide legal consulting, as well as business and
various other forms of consulting services. Under the proposed arrangement, the inquiring
attorney would be a partner in the consulting company to run its legal department. The
inquiring attorney states that "[r]unning its legal department, in their eyes, includes providing
legal advice to the company and its employees, providing legal services to clients of the
company, and bringing in legal clients aside and apart from any of the other consulting
departments." The nonlawyers envision a law firm that is being operated by the inquiring
attorney under the name of the consulting firm. The consulting firm would provide overhead
expenses, including advertising, and in return, the inquiring attorney would "split" his/her fees
with the firm, with the client's consent. The attorney would be free to conduct his/her
practice without oversight or pressures from the partners, and would be fully independent in
providing legal advice to clients.

ISSUE PRESENTED

   The attorney asks (1) whether this arrangement violates Rule 5.4 or other Rules of

Professional Conduct; and (2) whether there is a way to arrange the relationship between
lawyers and nonlawyers to prevent unethical behavior.

OPINION

    (1) Yes, the proposed arrangement violates Rule 5.4 and Rule 5.5 of the Rules of
        Professional Conduct; and
    (2) No.

REASONING

    The proposed arrangement is prohibited by Rule 5.4. The rule does not permit fee-

sharing; does not permit partnerships with nonlaweyrs if any of the activities of the
partnerships consist of law practice; and does not permit lawyers to practice law with, or in
the form of, a professional association in which nonlaweyrs have an interest or in which
nonlawyers are corporate directors, officers, or have positions of similar responsibility. See
also Art. II, Rule 10 of Rhode Island Supreme Court Rules (all shareholders, directors,
officers, partners, and manages of limited liability entities that practice law must be attorneys
Final Op. 2013-03
Page | 2

  licensed to practice law.) With four exceptions, which have no application to the instant
  inquiry, Rule 5.4(a) states:  "A lawyer or law firm shall not share legal fees with a
  nonlawyer[.]"

         Rule 5.4(b) addresses partnerships with nonlawyers:

                         (b) A lawyer shall not form a partnership with a
                 nonlawyer if any of the activities of the partnership consist of
                 the practice of law.

         Rule 5.4(d), which addresses law practice in the form of professional corporations or
  associations, states:

                         (d) A lawyer shall not practice with or in the form of a
                 professional corporation or association authorized to practice
                 law for a profit, if:

                         (1) a nonlawyer owns any interest therein, except that a
                 fiduciary representative of the estate of a lawyer may hold the
                 stock or interest of the lawyer for a reasonable time during
                 administration;

                        (2) a nonlawyer is a corporate director or officer thereof
                 or occupies the position of similar responsibility in any form of
                 association other than a corporation; or

                        (3) a nonlawyer has the right to direct or control the
                 professional judgment of a lawyer.

  The arrangement also runs afoul of Rule 5.5(a) which states:

                         (a) A lawyer shall not practice law in a jurisdiction in
                 violation of the regulation of the legal profession in that
                 jurisdiction, or assist another in doing so.

          The Panel concludes that the proposed consulting firm is not permitted by the Rules of
  Professional Conduct, and advises the inquiring attorney to decline the invitation to become
  part of it. As to the inquiring attorney's second question, the Panel responds in the negative.