Can a lawyer join a barter exchange that takes a 10% commission when the lawyer spends the credits earned from legal fees?

Plain-English summary

A lawyer was asked to join a business exchange group. As a member, the lawyer would provide legal services to other members at normal rates, but instead of cash would receive credit equal to the fees, usable to buy goods and services from other members. The lawyer would get credit for the full fee, but when spending the credit would pay a 10% commission to the exchange. The question was whether the commission arrangement violated the Rules.

The committee concluded it would be a clear violation. Rule 5.4 prohibits sharing fees with a non-lawyer except in limited circumstances, none of which applied. The committee rejected as disingenuous the idea that crediting the full fee avoids fee-sharing: the credit is subject to a 10% commission to a non-lawyer when spent, so the lawyer does not in fact receive the full fee, and the client retaining the lawyer pays 10% more for the legal services than the lawyer receives, with the surcharge going directly to a non-lawyer. That the commission does not pass through the lawyer's hands does not change the substance: the lawyer is effectively paying a non-lawyer a 10% commission for channeling work to him, which Rule 7.2(c) prohibits. The committee noted that while Rule 7.2(c) allows paying the usual charges of a not-for-profit lawyer referral service, it does not countenance the 10% commission in this exchange.

Currency note

This opinion was issued in 1994, before the South Carolina Bar's adoption of the 2005 revisions to the Rules of Professional Conduct. 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 Treat this page as historical context, not current guidance.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 join a barter exchange that takes a cut of the credits earned from legal fees?

A: The committee concluded no. The 10% commission is a clear violation of Rule 5.4 (fee-sharing with a non-lawyer) and Rule 7.2(c) (paying for channeled work).

Q: Does crediting the lawyer the full fee avoid fee-sharing?

A: The committee called that disingenuous, because the credit is reduced by a 10% commission to a non-lawyer when spent, so the lawyer does not actually receive the full fee.

Q: Isn't this like paying a referral service?

A: The committee distinguished it. Rule 7.2(c) permits the usual charges of a not-for-profit lawyer referral service, but not a 10% commission in this kind of business exchange.

Background and rules framework

The opinion applied Rule 5.4 (professional independence; no fee-sharing with non-lawyers) and Rule 7.2(c) (no giving anything of value for channeling or recommending work, subject to a referral-service exception), each corresponding to the like-numbered Model Rule as the rules stood in 1994.

Citations and references

Rules of Professional Conduct:

• South Carolina RPC 5.4 / Model Rule 5.4: professional independence; no fee-sharing with non-lawyers.
• South Carolina RPC 7.2(c) / Model Rule 7.2: no paying a non-lawyer for channeling or recommending work.

See also

• SC Bar Ethics Op. 96-08: Paying a Bondsman to Place Cards
• SC Bar Ethics Op. 95-30: Side Business Under the Firm Name

Source

• Landing page: https://www.scbar.org/for-lawyers/quicklinks/legal-resources/ethics-advisory-opinions/ethics-advisory-opinion-94-34/

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 94-34

A lawyer has been asked to participate as a member in a business exchange group. As a member the lawyer would provide legal services to other members at normal rates but instead of receiving cash the lawyer would receive credit for the amount of the fees which credit can be used for the purchase of goods and service from other members of the exchange. The lawyer would receive credit for the full amount of the attorney's fee but when purchasing goods and services from other members he/she would be required to pay a 10% commission to the exchange.

Question:
Is the proposed commission arrangement in violation of the Rules of Professional Conduct?

Summary:
The proposed commission arrangement would be a clear violation of the prohibition against sharing legal fees with a nonlawyer (Rule 5.4) and the prohibition against paying a non- lawyer a commission for channeling work to a lawyer (Rule 7.2 (c)).

Opinion:
Rule 5.4 prohibits a lawyer from sharing fees with a nonlawyer except in very limited circumstances, none of which apply in this situation.

It is disingenuous in the proposed business exchange relationship to suggest that because the lawyer receives credit for the full attorney's fees that there is no sharing of the fee with a nonlawyer. In the first place the credit that the lawyer receives is subject to the payment of a 10% commission to a nonlawyer when it is used for the purchase of goods and services from other members with the result that the lawyer does not in fact receive the full amount of the fee. Moreover, the member who retains the services of the lawyer is paying 10% more for the legal services than the lawyer receives and the 10% surcharge is being paid directly to a non-lawyer. The mere fact that the 10% commission does not go through the lawyer's hands and is paid directly to the non-lawyer does not affect the substance of the transaction. In such a situation the lawyer is in fact paying a non-lawyer a 10% commission for channeling work to him, a practice that is prohibited by Rule 7.2(c). While Rule 7.2(c) allows a lawyer to pay the usual charges of a not-for-profit lawyer referral service it in no way countenances the payment of a 10% commission in the proposed business exchange relationship.