N.Y. Bar Warns About Fee Sharing With Out-of-State Rainmakers

Jan. 8, 2019, 4:26 PM

A New York lawyer shouldn’t share fees with another lawyer not licensed to practice law in New York if the out-of-state lawyer’s conduct would amount to the unauthorized practice of law, the New York state bar’s ethics committee advised in a January 2 opinion.

A recently admitted New York lawyer asked about the ethical implications of affiliating with a potential rainmaker who lives in New York, but is only admitted in New York federal courts. The out-of-state lawyer might attend initial client meetings, “but then would not deal with any of the legal work being performed.”

The committee said it has “never sanctioned an arrangement between a New York lawyer and a non-attorney consisting of nothing more than signing up clients and passing them on to lawyers, with a fee skimmed off the top.” And it said the ethics rules “generally do not allow lawyers to pay for referrals of clients.” It cited New York Rule of Professional Conduct 7.2(a), which says a lawyer can’t pay someone to recommend the lawyer.

Rule 1.5(g) lists the circumstances under which lawyers who aren’t in the same firm can divide fees. One requirement is that the division of fees is proportional to the services performed by the respective lawyers. The committee said it has “made clear that the mere cultivation of client relationships does not qualify as ‘services performed’ by the referring lawyer.”

This inquiry is distinct from others received, the committee said, because the question is “whether an out-of-state lawyer may set up shop in New York for purposes of rainmaking and fee-sharing based solely upon admission to federal courts located here.”

Whether conduct constitutes the unauthorized practice of law is a statutory issue beyond the committee’s purview, the committee said. But under Rule 5.5, a lawyer can’t “practice law in a jurisdiction in violation of the regulation of the legal profession in that jurisdiction” or assist another to do so.

The committee left it to the inquiring lawyer to “resolve the import” of a 1994 Connecticut bankruptcy case, which said a lawyer not licensed in Connecticut, but admitted to Connecticut federal court, engaged in the unauthorized practice of law by providing legal advice in Connecticut. But it cautioned that, if the case controlled, the inquiring lawyer “would run afoul” of Rule 5.5(b), which prohibits aiding a nonlawyer in the unauthorized practice of law.

And “the proposal may well constitute improper solicitation under Rule 7.3,” the committee said.

The opinion is N.Y. State Bar Ass’n Comm. on Prof’l Ethics, Op. 1160, 1/2/19.

To contact the reporter on this story: Mindy Rattan in Washington at mrattan@bloomberglaw.com

To contact the editor responsible for this story: Tom P. Taylor at ttaylor@bloomberglaw.com

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