Ethical Considerations for Lawyers Contemplating Business Arrangements with Non-Legal Organizations: A New York City Bar Association Formal Ethics Opinion

Kathryn Inman
(212) 382-6656

Ethical Considerations for Lawyers Contemplating Business Arrangements with Non-Legal Organizations: A New York City Bar Association Formal Ethics Opinion

New York, January 17, 2014 – The New York City Bar Association’s Committee on Professional Ethics has issued an opinion stating that New York lawyers must consider a wide range of ethical issues before entering into business relationships with non-legal organizations.  

The opinion was prompted by an inquiry from a New York lawyer who was contemplating an arrangement with a non-legal organization based in another state.  Under the proposed arrangement: (1) the lawyer would review forms prepared by the non-legal organization on behalf of its customers to determine whether they comply with certain applicable legal requirements; and (2) the non-legal organization would pay the lawyer a percentage of the fees paid by the customers to the organization, pursuant to a pre-determined fee schedule. According to the inquiry, the lawyer would have no direct communication with the customers of the non-legal organization. The lawyer inquired as to whether this arrangement is ethically permissible under the New York Rules of Professional Conduct (the “Rules”).

As the Committee notes, “this question is particularly relevant in the current legal environment, where attorneys may be considering a variety of creative business arrangements to enhance their economic opportunities,” and that attorneys considering such arrangements “must be mindful of a substantial number of ethical issues.”
The opinion explains that as many as 21 different Rules of Professional Conduct may bear on whether a New York lawyer is permitted to enter the arrangement described above, including Rules 1.1(a), 1.2(a), 1.2(c), 1.4, 1.5(a), 1.5(b), 1.6(a), 1.7(a), 1.8(f), 1.10(e), 1.10(f), 5.4(a), 5.4(c), 5.5(a), 5.5(b), 5.8(a), 5.8(b), 7.2(a), 7.2(b), 8.5(a), and 8.5(b).
Due to the wide range of ethical issues involved, states the opinion, at a minimum the lawyer should consider the following key questions in determining whether the arrangement complies with the Rules:

• Is the lawyer’s conduct governed by the Professional Responsibility Rules of New York or some other jurisdiction?
   
• Does the lawyer’s conduct constitute the unauthorized practice of law in another jurisdiction?
   
• Is the non-legal organization engaged in the unauthorized practice of law?
   
• Does the lawyer’s contemplated arrangement with the non-legal organization constitute an impermissible multidisciplinary practice?
• Does the contemplated payment structure constitute improper fee splitting?
   
• Does the contemplated payment structure constitute the payment of a referral fee?
   
• Who is the lawyer’s client?
   

As to this last question, the lawyer must consider additional ethical concerns if the proposed business arrangement results in an attorney-client relationship being formed with the individual customers (a question of law on which the Committee could not opine). In that situation, the lack of direct communication with the clients may make it difficult for the lawyer to fulfill many of his or her ethical obligations, including duties of competence, communication, confidentiality, and more.

New York lawyers may also need to consider additional issues, the Committee cautions, such as whether the contemplated arrangement complies with relevant substantive laws and court rules, as well as with the rules of professional conduct in jurisdictions other than New York State.

The Opinion can be read here: http://bit.ly/1i1oRhN

About the Association
The New York City Bar Association, since its founding in 1870, has been dedicated to maintaining the high ethical standards of the legal profession, promoting reform of the law and access to justice, and providing service to the profession and the public. The Association, through its 24,000 members, continues to work for political, legal and social reform, while implementing innovative means to help the disadvantaged. Protecting the public’s welfare remains one of the Association’s highest priorities. www.nycbar.org