Can a lawyer form a for-profit mediation firm with non-lawyer mediators and share in its profits?

Plain-English summary

Lawyer A is a certified civil court mediator and a solo practitioner. She wishes to form a for-profit partnership or arrangement with several non-lawyer trained mediators to provide mediation services at a reduced cost, sharing in the profits, with the organization expressly excluding any legal services from its activities. Lawyer A also wishes to serve as one of the mediators for clients the organization solicits and recruits. The inquiry asked whether this arrangement is prohibited by the Rules of Professional Conduct, particularly Rules 5.4 and 7.2(c).

The committee concluded that Rules 5.4 and 7.2(c) do not prohibit the arrangement, so long as no part of the firm's work is the practice of law and clients understand the firm is not engaged in the practice of law. Rule 5.4 limits how a lawyer may include a non-lawyer in fees generated from the practice of law, with the general purpose of protecting the lawyer's professional independence of judgment; its scope is limited to the sharing of legal fees and does not reach business activities a lawyer engages in that have no connection to the practice of law. Relying on its Opinion 94-10, the committee reiterated that mediation is not the practice of law and that bar admission is not a prerequisite to serving as a mediator, and that the mere fact a mediator is also a licensed attorney does not convert mediation into the practice of law. Because mediation fees are not legal fees and the proposed entity will not offer legal services, Rule 5.4 does not bar the arrangement.

The committee added that mediation can involve activities similar to those lawyers offer (facilitating negotiations, helping parties agree on terms affecting legal rights, drafting memoranda that can become binding), so a lawyer-mediator should carefully avoid any appearance of practicing law alongside mediation. As to Rule 7.2(c), which generally bars a lawyer from giving anything of value for recommending the lawyer's services, the committee found it does not apply because no legal services are contemplated.

In practice

The opinion holds that, under South Carolina Rules 5.4 and 7.2(c) as they stood at the time, a lawyer may co-own a for-profit mediation firm with non-lawyers and share its profits, provided the firm does no legal work and clients understand it is not practicing law. The opinion reasons that Rule 5.4's bar on sharing fees with non-lawyers reaches only legal fees, and mediation fees are not legal fees, so the arrangement does not implicate the rule; and that Rule 7.2(c) does not apply because no legal services are involved. The opinion observes that because mediation can resemble legal work, a lawyer-mediator should avoid any appearance of practicing law concurrently with mediation.

Common questions

Q: Can a lawyer go into a mediation business with non-lawyers and split the profits?

A: Yes. The committee said Rules 5.4 and 7.2(c) do not prohibit a lawyer from joining a for-profit mediation firm with non-lawyers and sharing profits, as long as the firm does no legal work and clients understand it is not practicing law.

Q: Why doesn't the fee-sharing rule (5.4) block this?

A: Because mediation fees are not legal fees. The committee said Rule 5.4 is limited to the sharing of legal fees and does not apply to business activities unconnected to the practice of law, and Opinion 94-10 holds that mediation is not the practice of law.

Q: Does the rule against paying for referrals (7.2(c)) apply?

A: No. The committee said Rule 7.2(c) does not apply because no legal services are contemplated by the mediation firm.

Q: What should a lawyer-mediator watch for?

A: Avoiding any appearance of practicing law alongside mediation. The committee noted mediation involves activities similar to legal services, so the lawyer-mediator should carefully avoid appearing to practice law concomitantly with mediation.

Background and rules framework

The opinion interprets South Carolina Rule 5.4 (professional independence; limits on sharing legal fees with non-lawyers) and Rule 7.2(c) (giving things of value for recommending the lawyer's services), which correspond to the like-numbered Model Rules. The analysis turns on the committee's conclusion, drawn from Opinion 94-10, that mediation is not the practice of law, so mediation fees fall outside both rules.

Citations and references

Rules of Professional Conduct:

• MR 5.4 / SC Rule 5.4 (professional independence; sharing legal fees with non-lawyers)
• MR 7.2 / SC Rule 7.2(c) (giving value for recommending the lawyer's services)

Other opinions cited:

• SC Ethics Advisory Opinion 94-10 (mediation is not a legal service; bar admission not required to serve as a mediator)

See also

• SC Bar Ethics Op. 11-05: Daily-Deal Legal Services
• SC Bar Ethics Op. 12-03: Lawyers on Q&A Pay Sites

Source

• Landing page: https://www.scbar.org/for-lawyers/quicklinks/legal-resources/ethics-advisory-opinions/ethics-advisory-opinion-12-06/
• Original PDF: https://www.scbar.org/media/hczdp0uo/12-06.pdf

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

UPON THE REQUEST OF A MEMBER OF THE SOUTH CAROLINA BAR, THE ETHICS ADVISORY COMMITTEE HAS RENDERED THIS OPINION ON THE ETHICAL PROPRIETY OF THE INQUIRER’S CONTEMPLATED CONDUCT. THIS COMMITTEE HAS NO DISCIPLINARY AUTHORITY. LAWYER DISCIPLINE IS ADMINISTERED SOLELY BY THE SOUTH CAROLINA SUPREME COURT THROUGH ITS COMMISSION ON LAWYER CONDUCT.

Ethics Advisory Opinion 12-06

SC Rules of Professional Conduct: 5.4, 7.2(c)

Facts

Lawyer A is a certified civil court mediator. Lawyer A is also a solo practitioner with her own law practice. Lawyer A wishes to form a partnership or agreement with several non-lawyers who are trained mediators to provide mediation services to different groups and individuals at a reduced cost. The organization will operate for a profit, in which Lawyer A wishes to share. The organization will expressly exclude from its activities the provision of any legal services.

Lawyer A also wishes to serve as one of the mediators providing mediation services for the organization to groups and individuals solicited and recruited by the organization.

Question

Is the arrangement of the type described above prohibited by the Rules of Professional Conduct, in particular, Rules 5.4 and 7.2(c)?

Summary

Rules 5.4 and 7.2 (c) do not prohibit an attorney from joining a mediation firm and sharing in its profits, as long as no portion of the work of the mediation firm consists of the practice of law and clients understand that the firm is not engaged in the practice of law. See also Ethics Advisory Opinion 94-10, which concludes that mediation is not a legal service, and that admission to the Bar is not a prerequisite to service as a mediator.

Opinion

Rule 5.4 places strict limits on the ways in which a lawyer may include a non-lawyer in the fees generated from the professional practice of law. The general purpose of the rule is to protect the lawyer’s “professional independence of judgment” with regard to the practice of law or in the rendering of legal services. The scope of Rule 5.4 is limited to fee sharing of legal fees. It does not apply to business activities which, although engaged in by a person who is a lawyer, do not have any connection to that lawyer’s practice of law. The significant inquiry under Rule 5.4 is, therefore, whether the proposed business arrangement would place the attorney in the position of sharing legal fees with non-lawyers. In Ethics Advisory Opinion, 94-10, this Committee opined that mediation is not the practice of law and that admission to the Bar is not a prerequisite to service as a mediator. The mere fact that a mediator is also a licensed attorney does not convert the activity of mediation into the practice of law. Since mediation fees are not legal fees, and the proposed business entity expressly will not be offering legal services, Rule 5.4 does not prohibit the arrangement.

On the other hand, the practice of mediation does involve activities which can be similar to services that are offered by attorneys. For instance, mediators and attorneys both facilitate negotiations, assist parties in agreeing on terms that affect legal rights, and draft memoranda of agreement that can become legally binding documents. In light of the risk that mediation services might be confused with legal services, it is therefore advisable for a mediator who is also an attorney to avoid carefully any appearance that he or she is practicing law concomitantly with the practice of mediation.

Rule 7.2 (c), with some exceptions, prohibits a lawyer from giving anything of value to a person for recommending the lawyer’s services. In this case, no legal services are contemplated. Rule 7.2 (c) therefore does not apply.