A Door Opens For Non-Lawyer Fee-Sharing

Published on: 
10/02/2013
Many law firms, both large and small, use contract lawyers to provide legal counsel at reduced cost. Thanks in large part to emerging technology, contract attorneys can contribute to work and efficiency if used correctly as a transparent resource, offering a win-win solution for firms and clients.

The contract attorney is not an out-of-pocket cost for billing purposes. Firms may bill clients at an "attorney's rate," a standard flat rate or any rate established in the engagement agreement.

Model Rule 1.5 declares that fee-splitting in a contract lawyer arrangement is acceptable if both lawyers involved contribute something of value, if the client agrees in writing, and if the total fee is reasonable.

What has not been acceptable — until now — is stated clearly in Rule 5.4: "A lawyer or law firm shall not share legal fees with a nonlawyer." But now the door is being opened to a major change in an ethical Chinese Wall.

In August, the American Bar Association's Committee on Ethics and Professional Responsibility issued an opinion permitting law firms to split fees with other lawyers or law firms practicing in jurisdictions with more relaxed rules regarding one key point:

"Lawyers subject to the Model Rules may work with other lawyers or law firms practicing in jurisdictions with rules that permit sharing legal fees with nonlawyers. Where there is a single billing to a client in such situations, a lawyer subject to the Model Rules may divide a legal fee with a lawyer or law firm in the other jurisdiction, even if the other lawyer or law firm might eventually distribute some portion of the fee to a nonlawyer, provided that there is no interference with the lawyer's independent professional judgment."

In such a version of the contract lawyer arrangement, the outsourcing attorney contributes (presumably) oversight of the outsourced legal work and interfaces with the client on how that legal work is applied by lawyers and nonlawyers alike. That's distinctly different from a situation in which a firm outsources a non-legal service, such as photocopying or document storage.

Note the ethics opinion emphasis that independent professional judgment should not be compromised by sharing a fee with a nonlawyer. That touches on the same argument that has long been used to bar nonlawyer ownership in law firms. The fear has been that a nonlawyer owner would urge lawyers to cross the line of confidentiality and tell potential financing sources that the firm has just signed up a lucrative new client or taken on a matter with potentially high fees.

The issue is not an academic one. Late in 2012, the 2nd U.S. Circuit Court of Appeals revived a law firm's suit contending that the ownership prohibition of Rule 5.4 prevented the firm from raising the money it needs to provide legal services, supposedly violating the Constitution's due process clause.

Such a change, unquestionably, would make law firms, especially large ones, more like their corporate clients. It's questionable whether that would be an improvement.

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