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End-of-life notice: American Legal Ethics Library

As of March 1, 2013, the Legal Information Institute is no longer maintaining the information in the American Legal Ethics Library. It is no longer possible for us to maintain it at a level of completeness and accuracy given its staffing needs. It is very possible that we will revive it at a future time. At this point, it is in need of a complete technological renovation and reworking of the "correspondent firm" model which successfully sustained it for many years.

Many people have contributed time and effort to the project over the years, and we would like to thank them. In particular, Roger Cramton and Peter Martin not only conceived ALEL but gave much of their own labor to it. We are also grateful to Brad Wendel for his editorial contributions, to Brian Toohey and all at Jones Day for their efforts, and to all of our correspondents and contributors. Thank you.

We regret any inconvenience.

Some portions of the collection may already be severely out of date, so please be cautious in your use of this material.


New York Legal Ethics

V. LAW FIRMS AND ASSOCIATIONS

5.1   Rule 5.1 Responsibilities of a Partner and Supervisory Lawyer

5.1:100   Comparative Analysis of New York Rule

Primary New York References: DR 1-102, DR 1-103, DR 1-104
Background References: ABA Model Rule 5.1, Other Jurisdictions
Commentary:
NY Commentary: Simon's N.Y. Code of Prof. Resp. Annot. (1999 ed.) Canons 1 and 4, et seq.

5.1:101      Model Rule Comparison

NY DR 1-104 was significantly amended effective May 22, 1996 to closely parallel the attorney ethics supervision requirements set forth in Model Rule 5.1. There are two chief differences. NY DR 1-104 (C) and (D) prescribe supervisory standards and responsibilities for both lawyers and non-lawyers, whereas the Model Rules address these two groups in separate rules (Model Rules 5.1 and 5.3, respectively). In addition, NY DR 1-104(A) and (C) impose responsibility directly on the law firm, whereas Model Rule 5.1 assigns responsibility to partners or lawyers in the firm.

NY DR 1-104(A), which requires a law firm to "make reason able efforts to ensure that all lawyers in the firm conform to the disciplinary rules" is substantially similar to Model Rule 5.1(a).

NY DR 1-104(B), which requires "[a] lawyer with management responsibility in the law firm or direct supervisory authority over another lawyer [to] make reasonable efforts to ensure that the other lawyer conforms to the disciplinary rules" is substantially similar to Model Rule 5.1(b).

NY DR 1-104(C), which sets forth a standard for the degree of supervision which must be exercised by a law firm over partners, associates and non-lawyers who work at the firm, has no direct counterpart in the Model Rules. NY DR 1-104(C) provides:

A law firm shall adequately supervise, as appropriate, the work of partners, associates and non-lawyers who work at the firm. The degree of supervision required is that which is reasonable under the circumstances, taking into account factors such as the experience of the person whose work is being supervised, the amount of work involved in a particular matter, and the likelihood that ethical problems might arise in the course of working on the matter.

New NY DR 1-104(D) (Formerly NY DR 1-104(A)), which out lines the vicarious responsibility imposed on a lawyer for anyone who is employed, retained or associated with a lawyer, is comparable to paragraph (c) of Model Rule 5.1. NY DR 1-104 provides that “[a] lawyer shall be responsible for a violation of the Disciplinary Rules by another lawyer or for conduct of a non-lawyer . . . if (1) [t]he lawyer orders, or directs the specific conduct, or with knowledge of the specific conduct ratifies it; or (2) [t]he lawyer is a partner in the law firm in which the other lawyer practices or the non-lawyer is employed, or has supervisory authority over the other lawyer or the non-lawyer, and knows of such conduct, or in the exercise of reasonable management or supervisory authority should have known of the conduct so that reasonable remedial action could be or could have been taken at a time when its consequences could be or could have been avoided or mitigated."

NY DR 1-104(D) is broader than Model Rule 5.1(c) because it encompasses vicarious liability not only for lawyers, but non-lawyers as well (see Model Rule 5.3 concerning vicarious liability for non-lawyer employees).

In addition, several other New York Disciplinary Rules address the need for a lawyer to ensure that other lawyers in the same firm abide by the Rules of Professional Conduct. For example, NY DR 1-102(A)(2) requires that a lawyer “shall not . . . [c]ircumvent a Disciplinary Rule through actions of another.” NY DR 1-103(A) provides that a lawyer “possessing unprivileged knowledge of a violation of DR 1-102 shall report such knowledge to . . . authority empowered to investigate or act upon such violation.” NY DR 4-101(D) requires that a lawyer "exercise reasonable care to prevent his or her employees, associates or others whose services are utilized by the lawyer from disclosing or using confidences or secrets of a client . . . ." Also, DR 5-105(E), added in 1996, requires that all firms have in place a system for detecting conflicts of interest.

5.1:102      Model Code Comparison

There is no Model Code equivalent to NY DR 1-104. NY DR 1-102(A)(2), NY DR 1-103(A) and NY DR 4-101(D) are virtually identical to the Model Code.

5.1:200   Duty of Partners to Monitor Compliance with Professional Rules

Primary New York References: DR 1-104, EC 1-8
Background References: ABA Model Rule 5.1(a), Other Jurisdictions
Commentary: ABA/BNA § 91:201, ALI-LGL § 12, Wolfram § 16.2
NY Commentary: Simon's N.Y. Code of Prof. Resp. Annot. (1999 ed.) Canon 1, et seq.

Relevant Disciplinary Rules

Although the New York Rules do not single out partners per se for monitoring compliance with disciplinary rules, NY DR 1-104 requires a "law firm" to ensure that all lawyers comply with the disciplinary rules. NY DR 1-104 further requires that lawyers with management responsibility or supervisory authority, which could include partners, make "reasonable efforts" to ensure that lawyers conform to the Rules.

Relevant Ethical Considerations

NY EC 1-8 advises a law firm to “adopt measures giving reasonable assurance that all lawyers in the firm conform to the Disciplinary Rules and that the conduct of non-lawyers employed by the firm is compatible with the professional obligations of the lawyers in the firm. Such measures may include informal supervision and occasional admonition, a procedure whereby junior lawyers can make confidential referral of ethical problems directly to a designated senior lawyer or special committee, and continuing legal education in professional ethics.”

Relevant Ethics Opinions

Proposed Ancillary Budget Planning Business Subject to Professional Rules: Nassau County Bar Op. 97-2 (1997): Two law partners wish to establish a "budget planning service" as defined in General Business Law § 455. Debtors will contract to pay a fixed periodic sum of money to the budget planning service, which will pay the debtor's creditors in accordance with an agreed upon plan. The service will operate out of the law firm's suite of offices, but the law firm will avoid any implication that the law firm and the budget planning service are affiliated. For example, there will be no reference to the budget planning service on the law firm's letterhead, business cards, professional announcements, telephone listings, building directory listing, or advertisements. May the attorneys carry out this plan? No. Under the unique statutory scheme established by §§ 455-457 of the General Business Law, a budget planning service may be operated only by Type B not-for-profit corporations or by lawyers. A lawyer who engages in budget planning is thus acting as a lawyer -- lawyers operating the service "cannot act as if they were non-lawyer." Under DR 1-104(C), the lawyers must actively supervise the non-lawyers involved in the budget planning service. "[T]hey may not remain entirely passive when clients of the budget planning service need to weigh alter natives to the service." The lawyers may operate the budget planning service only if they do so as part of their law practice, and if they adhere to the Code of Professional Responsibility when doing so.

5.1:300   Monitoring Duty of Supervising Lawyer

Primary New York References: DR 1-104(C), EC 3-6
Background References: ABA Model Rule 5.1(b), Other Jurisdictions
Commentary: ABA/BNA § 91:201, ALI-LGL § 12, Wolfram § 16.2
NY Commentary: Simon's N.Y. Code of Prof. Resp. Annot. (1999 ed.) Canon 1, et seq.

Relevant Disciplinary Rules

NY DR 1-104(C), articulates an objective standard of "adequate" supervision required of a law firm with respect to the work of partners, associates and non-lawyers who work at the firm. DR 1-104(C) states:

A law firm shall adequately supervise, as appropriate, the work of partners, associates and non-lawyers who work at the firm. The degree of supervision required is that which is reasonable under the circumstances, taking into account factors such as the experience of the person whose work is being supervised, the amount of work involved in a particular matter, and the likelihood that ethical problems might arise in the course of working on the matter.

Relevant Ethics Opinions

Delegation of Billing Functions to Non-Lawyers: Assoc. of the Bar of the City of New York, Formal Op. No. 1994-9, 1994 WL 780796 (July 27, 1994) explains that a law firm may permit a non-lawyer “supervisory billing clerk” to prepare bills to the insurance company that pays the lawyers to defend its insureds, and may delegate “final billing authority” to this non-lawyer without attorney review of the bills before they are sent out, but under NY DR 1-104, “ultimate responsibility for improprieties will still reside with the attorneys in the firm.”

Paralegals' Business Cards: NYSBA Comm. on Prof. Ethics, Op. No. 640, 1992 WL 450730 (December 7, 1992) provides that under NY DR 1-104, a lawyer who employs a paralegal is responsible for ensuring that the content of the paralegal’s business card meets the same standards as those that apply to lawyer advertising. A lawyer must therefore ensure that titles used by non-lawyers are not false or misleading.

Delegation of Real Estate Closing to Paralegal: N.Y. State Bar Op. 677 (1995): A lawyer representing a bank in a real estate transaction may delegate attendance at the closing to a paralegal, provided the lawyer meets two conditions. First, the lawyer must not allow the delegation to interfere with the direct relation between lawyer and client. Second, pursuant to DR 1-104(C), the lawyer must properly supervise the sufficiency and competence of all work delegated to the paralegal. Thus, "the lawyer must consider in advance what will occur under delegation, and review after the fact what in fact occurred, insuring its soundness." Depending on the lawyer's accuracy in forecasting events, the adequacy of a plan to cope with the unforeseen, and the paralegal's suitability and background, the lawyer may or may not be able to satisfy these supervisory obligations by making herself available by telephone during the closing.

Responsibility to Instruct Non-Lawyers as to Ethical Constraints: N.Y. City Bar Op. 1995-11 (1995): EC 3-6 of the Code of Professional Responsibility clearly contemplates that lawyers will delegate tasks to non-lawyers. Under DR 1-104(C), however, a lawyer who employs paralegals or other non-lawyers is responsible for instructing them as to "the ethical restraints under which those in the law office must work." Lawyers "should not rely on others to perform this important task." In addition, since paralegals do not have legal training and are not subject to discipline, lawyers have a "heightened standard of supervision from that generally owed a subordinate attorney."

5.1:400   Failing to Rectify the Misconduct of a Subordinate Lawyer

Primary New York References: DR 1-103, DR 1-104, EC 1-4
Background References: ABA Model Rule 5.1(c), Other Jurisdictions
Commentary: ABA/BNA § 91:201, ALI-LGL § 5, Wolfram § 16.2
NY Commentary: Simon's N.Y. Code of Prof. Resp. Annot. (1999 ed.) Canon 1, et seq.

Relevant Disciplinary Rules

The failure to rectify the misconduct of a subordinate lawyer, when remedial action can still be taken, may result in vicarious liability for a partner or lawyer with supervisory authority over the subordinate lawyer. Specifically, NY DR 1-104 establishes vicarious responsibility for violations of disciplinary rules by another lawyer, where, inter alia, the lawyer is a partner or supervising lawyer and knows or should have known of the other lawyer's conduct "so that remedial action could be or could have been taken at a time when its consequences could be or could have been avoided or mitigated." In addition, NY DR 1-103(A) charges a lawyer with the duty to inform authorities when another lawyer is in violation of the Disciplinary Rules and may require lawyers to report other lawyers in their own firms. Indeed, it is far more likely that a lawyer will have “knowledge” about the misconduct of lawyers within the lawyer’s own firm than outside it. NY DR 1-103(A) does not say exactly where to report a violation, but it does refer to “a tribunal or other authority empowered to investigate or act upon such violation.”

Relevant Ethical Considerations

NY EC 1-4 states: “The integrity of the profession can be maintained only if conduct of lawyers in violation of the Disciplinary Rules is brought to the attention of the proper officials. A lawyer should reveal voluntarily to those officials all knowledge, other than knowledge protected as a confidence or secret, of conduct of another lawyer which the lawyer believes clearly to be a violation of the Disciplinary rules that raises a substantial question as to the other lawyer’s honesty, trustworthiness or fitness in other respects as a lawyer . . .”

Relevant Cases

Public Policy Protection of Attorney Whistle Blower: In Wieder v. Skala, 80 N.Y.2d 628, 593 N.Y.S.2d 752 (1992), the Court of Appeals held that it violated public policy to fire a lawyer for reporting another lawyer at the firm pursuant to NY DR 1-103(A). Junior lawyers also have an obligation to report senior lawyers.

Report Request to Bribe Court Official: In In re Lefkowitz, 105 A.D.2d 161, 483 N.Y.S.2d 281 (1st Dept. 1984), the court held that a lawyer was required to report a request from his senior partners to pay “illegal gratuities” to a court official to gain favorable or faster decisions on pending motions.

Disbarment for Failure to Report Kickback Scheme: In Matter of Jochnowitz, 189 A.D.2d 342, 596 N.Y.S.2d 62 (1st Dept. 1993), a lawyer was disbarred for failing to report another lawyer’s participation in an illegal kickback scheme with city officials.

5.1:500   Vicarious Liability of Partners

Primary New York References: DR 1-104(D)
Background References: ABA Model Rule 5.1, Other Jurisdictions
Commentary: ABA/BNA § 91:201, ALI-LGL §§ 8, 10, Wolfram §
NY Commentary: Simon's N.Y. Code of Prof. Resp. Annot. (1999 ed.) Canon 1, et seq.

Relevant Disciplinary Rules

NY DR 1-104(D) provides that:

A lawyer shall be responsible for a violation of the disciplinary rules by another lawyer or for conduct of a non-lawyer employed or retained by or associated with the lawyer that would be a violation of the disciplinary rules if engaged in by a lawyer if:

1. The lawyer orders, or directs the specific conduct, or, with knowledge of the specific conduct, ratifies it; or

2. The lawyer is a partner in the law firm in which the other lawyer practices or the non-lawyer is employed, or has supervisory authority over the other lawyer or the nonlawyer, and knows of such conduct, or in the exercise or reasonable management or supervisory authority should have known of the conduct so that reasonable remedial action could be or could have been taken at a time when its consequences could be or could have been avoided or mitigated.

Relevant Cases

Partner Not Liable for Co-Partner's False Letter: In re Kauffman, 99 A.D.2d 640, 471 N.Y.S.2d 719 (3d Dept. 1984) (where partner whose name jointly appears on letterhead lacked knowledge of letter sent by co-partner misrepresenting work completed, partner cannot be disciplined for impropriety in the letter).

Liability for False Reports Despite Lack of Actual Knowledge: In re Fata, 22 A.D.2d 116, 254 N.Y.S.2d 289 (1st Dept. 1964) (because of duty to know of activities of other lawyers within firm, lawyer liable for submission of false reports and bills to insurance company even though lawyer lacked actual knowledge of such acts).

5.2   Rule 5.2 Responsibilities of a Subordinate Lawyer

5.2:100   Comparative Analysis of New York Rule

Primary New York References:
Background References: ABA Model Rule 5.2, Other Jurisdictions
Commentary:

5.2:101      Model Rule Comparison

There is no counterpart to this Rule in the NY Code.

5.2:102      Model Code Comparison

There is no counterpart to this Rule in the Model Code.

5.2:200   Independent Responsibility of a Subordinate Lawyer

Primary New York References:
Background References: ABA Model Rule 5.2(a), Other Jurisdictions
Commentary: ABA/BNA § 91:201, ALI-LGL § 5, Wolfram § 16.2

[The discussion of this topic has not yet been written.]

5.2:300   Reliance on a Supervisor's Resolution of Arguable Ethical Issues

Primary New York References:
Background References: ABA Model Rule 5.2(b), Other Jurisdictions
Commentary: ABA/BNA § 91:201, ALI-LGL § 5, Wolfram § 16.2

[The discussion of this topic has not yet been written.]

5.3   Rule 5.3 Responsibilities Regarding Nonlawyer Assistants

5.3:100   Comparative Analysis of New York Rule

Primary New York References:DR 1-102(A)(2), DR 1-104, DR 4-101(D)
Background References: ABA Model Rule 5.3, Other Jurisdictions
Commentary:

5.3:101      Model Rule Comparison

NY DR 1-104, which makes a lawyer responsible for the ethical derelictions of anyone who is “employed” or “retained” or “associated” with a lawyer, whether the other person is a lawyer or non-lawyer, including paralegals, secretaries, law students, expert witnesses, consultants, local counsel, special counsel and anyone else that a lawyer has hired for a particular matter, is similar to Model Rule 5.3. NY DR 1-104 is discussed more fully in Sections 5.1:400 and 5.1:500, supra. In addition, NY DR 4-101(D) requires lawyers to take reasonable care “to prevent [their] employees, associates, and others whose services are utilized by the lawyer from disclosing . . . confidences . . . of a client . . .” See also NY DR 1-102(A)(2) (requiring a lawyer not to circumvent a Disciplinary Rule through actions of another) discussed supra in Section 5.1:200.

5.3:102      Model Code Comparison

NY DR 1-104 has no equivalent in the Model Code. DR 4-101(D) provided that a lawyer "shall exercise reasonable care to prevent his employees, associates, and others whose services are utilized by him from disclosing or using confidences or secrets of a client . . . ." DR 7-107(J) provided that: "[a] lawyer shall exercise reasonable care to prevent his employees and associates from making an extrajudicial statement that he would be prohibited from making under DR 7-107." NY DR 1-102(A)(2) and NY DR 4-101(D) are virtually identical to the Model Code.

5.3:200   Duty to Establish Safeguards

Primary New York References: EC 1-8
Background References: ABA Model Rule 5.3(a), Other Jurisdictions
Commentary: ABA/BNA § 91:201, ALI-LGL §§ 4, 5, Wolfram § 16.3
NY Commentary: Simon's N.Y. Code of Prof. Resp. Annot. (1999 ed.) Canon 1, et seq.

Relevant Ethical Considerations

NY EC 1-8 advises a law firm to “adopt measures giving reasonable assurance that all lawyers in the firm conform to the Disciplinary Rules and that the conduct of non-lawyers employed by the firm is compatible with the professional obligations of the lawyers in the firm. Such measures may include informal supervision and occasional admonition, a procedure whereby junior lawyers can make confidential referral of ethical problems directly to a designated senior lawyer or special committee, and continuing legal education in professional ethics.”

Cross References

See Section 5.1.

5.3:300   Duty to Control Nonlawyer Assistants

Primary New York References: DR 1-104, DR 4-101(D), EC 3-6, 4-2, 4-5, 7-28
Background References: ABA Model Rule 5.3(b), Other Jurisdictions
Commentary: ABA/BNA § 21:8601, ALI-LGL §§ 4, 5, Wolfram § 16.3
NY Commentary: Simon's N.Y. Code of Prof. Resp. Annot. (1999 ed.) Canon 1, et seq.

Relevant Disciplinary Rules

See discussion of NY DR 1-104 in Section 5.1:200, supra. In addition, NY DR 4-101(D) requires a lawyer to “exercise reasonable care to prevent his or her employees, associates, and others whose services are utilized by the lawyer from disclosing or using confidences or secrets of a client, except that a lawyer may reveal the information allowed by DR 4-101(C) [exceptions allowing lawyers to reveal a client’s confidences or secrets, discussed fully in Section 1.6, et seq.] through an employee.”

See also NY DR 1-102(A)(2) (requiring a lawyer not to circumvent a Disciplinary Rule through actions of another) discussed supra in Section 5.1:200.

Relevant Ethical Considerations

NY EC 3-6 acknowledges that "[a] lawyer often delegates tasks to clerks, secretaries and other lay persons. Such delegation is proper if the lawyer maintains a direct relationship with the client, supervises the delegated work, and has complete professional responsibility for the work product."

NY EC 4-2 explains that “. . .[i]t is a matter of common knowledge that the normal operation of a law office exposes confidential professional information to non-lawyer employees of the office, particularly secretaries and those having access to the files; and this obligates a lawyer to exercise care in selecting and training employees so that the sanctity of all confidences and secrets of clients may be preserved. …”

NY EC 4-5 adds that “. . . a lawyer should be diligent in his or her efforts to prevent the misuse of such information by employees and associates.”

NY EC 7-28 provides, inter alia, that a lawyer should not provide any financial inducements to non-expert witnesses, or contingent fees to expert witnesses, and should "exercise reasonable diligence to see that the client and lay associates conform to these standards."

Relevant Ethics Opinions

See Ethics Opinions cited in Section 5.1:300, supra.

Disclosure of Limited Information to Outside Accountants: NYSBA Comm. on Prof. Ethics, Op. No. 473, 1977 WL 15701 (September 7, 1977) explains that NY EC 4-3 recognizes that unless a client directs otherwise, a lawyer may give “limited information from his files to an outside agency necessary for statistical, bookkeeping, accounting, data processing, banking, printing, or other legitimate purposes. . .:” Accordingly, absent a client’s objection, a lawyer may supply confidential information to a carefully selected outside agency for accounting purposes. However, under NY DR 4-101(D), the lawyer must take proper safeguards to preserve confidentiality.

Relevant Cases

Supervision of Secretaries' Handling of Clients' Funds: In In re Collins, 196 A.D.2d 69, 607 N.Y.S.2d 999 (4th Dept. 1994), an attorney violated NY DR 1-104(D)(2) (formerly NY DR 1-104(A)(2)) by failing to adequately supervise two secretaries concerning the receipt, deposit, and remittal of client funds. The secretaries commingled client and non-client funds in a non-office account, did not promptly remit funds owed to a client, and made unauthorized withdrawals of client funds from an account.

Supervision of Non-Lawyer Employees: In In re Stenstrom, 194 A.D.2d 277, 605 N.Y.S.2d 603 (4th Dept. 1993), an attorney violated NY DR 1-104(D)(2) (formerly NY DR 1-104(A)(2)) by failing to supervise non-lawyer employees. The non-lawyer employees “routinely misrepresented to clients the status of their cases and routinely advised clients on legal matters, on some occasions providing inaccurate advice that prejudiced or damaged the clients.” One non-lawyer, the lawyer's wife, wrote checks payable to cash from the lawyer’s trust account and used the proceeds to pay for business or personal expenses. The attorney was disbarred.

5.3:400   Responsibility for Misconduct of Nonlawyer Assistants

Primary New York References: DR 1-104
Background References: ABA Model Rule 5.3(c), Other Jurisdictions
Commentary: ABA/BNA § 91:201, ALI-LGL §§ 4, 5, Wolfram § 16.3
NY Commentary: Simon's N.Y. Code of Prof. Resp. Annot. (1999 ed.) Canon 1, et seq.

Relevant Disciplinary Rules

The New York Code does not contain a separate rule concerning responsibility for misconduct by non-lawyer assistants. Such responsibility is however addressed by NY DR 1-104.

NY DR 1-104(C) provides that "[a] law firm shall adequately supervise as appropriate the work of . . . nonlawyers who work at the firm."

NY DR 1-104(d) provides that "[a] lawyer shall be responsible for a violation of the disciplinary rules by another lawyer or for conduct of a non-lawyer employed or retained by or associated with the lawyer that would be a violation of the Disciplinary Rules if engaged in by a lawyer if the lawyer either ordered the conduct or should have known of it when it could have been avoided or mitigated but failed to take remedial action. See discussion in sections 5.1:100 and 5.1:400, supra.

5.4   Rule 5.4 Professional Independence of a Lawyer [Restrictions on Form of Practice]

5.4:100   Comparative Analysis of New York Rule

Primary New York References: DR 3-102(A), DR 3-103(A), DR 2-103(D), DR 5-107(B), DR 5-107(C), DR 5-107(C)
Background References: ABA Model Rule 5.4, Other Jurisdictions
Commentary:
NY Commentary: Simon's N.Y. Code of Prof. Resp. Annot. (1999 ed.) Canons 2, 3 and 5, et seq.

5.4:101      Model Rule Comparison

NY DR 3-102(A) is virtually identical to Model Rule 5.4(a), except for subparagraph (A)(3) of the Model Rule which allows a lawyer or law firm to include non-lawyer employees not only in a retirement plan but also in a “compensation . . . plan, even though the plan is based in whole or in part on a profit-sharing arrangement” NY DR 3-103(A) is virtually identical paragraph (b) of Model Rule 5.4. NY DR 5-107(B) is virtually identical to paragraph (c) of Model Rule 5.4. The issue of recommendations from or payment by an organization is treated in NY DR 2-103(D). NY DR 5-107(C) is virtually identical to paragraph (d).

5.4:102      Model Code Comparison

NY DR 3-102(A) is virtually identical to the Model Code except that Model Code DR 3-102(A)(3) also permits non-lawyer employees to share in a "compensation" plan, even if based on a profit sharing arrangement. By rejecting this language, New York has continued its traditional prohibition on profit-sharing with non-lawyers except within the narrow scope of retirement plans. NY DR 3-103(A), NY DR 5-107(B) and NY DR 5-107(C) are identical to the Model Code. Although NY DR 2-103(D) omits subdivision (4)(a) of the ABA Model Code, subdivisions (4)(b)-(f) are virtually identical to the ABA version.

5.4:200   Sharing Fees with a Nonlawyer

Primary New York References: DR 3-102(A)
Background References: ABA Model Rule 5.4(a), Other Jurisdictions
Commentary: ABA/BNA § 41:801, ALI-LGL § 60, Wolfram §§ 16.4, 16.5
NY Commentary: Simon's N.Y. Code of Prof. Resp. Annot. (1999 ed.) Canons 2 and 3, et seq.

Relevant Disciplinary Rules

NY DR 3-102(A) states: “A lawyer or law firm shall not share legal fees with a non-lawyer, except that: (1) An agreement by a lawyer with his or her firm, partner, or associate may provide for the payment of money, over a reasonable period of time after the lawyer’s death, to the lawyer’s estate or to one or more specified persons. (2) A lawyer who undertakes to complete unfinished legal business of a deceased lawyer may pay to the estate of the deceased lawyer that proportion of the total compensation which fairly represents the services rendered by the deceased lawyer. (3) A lawyer or law firm may include non-lawyer employees in a retirement plan, even though the plan is based in whole or in part on a profit-sharing arrangement.”

NY DR 3-102(A) expresses the basic rule that a lawyer may not divide legal fees with a non-lawyer. This rule should be read in conjunction with N.Y. Judiciary Law § 491 which prohibits fee sharing with non-lawyers (See below). The basic rule has three exceptions. The first two exceptions relate to deceased lawyers and the third relates to retirement plans. Specifically, subparagraph (A)(1) provides that lawyers may ethically agree that when one of their partners or associates dies, the surviving lawyers may make payments for a reasonable time period to the deceased lawyer’s estate or to anyone the deceased lawyer has specified.

Subparagraph (A)(2) is narrower and more specific than (A)(1) because it permits payments only to a deceased lawyer’s estate and not to other “specified persons”. Moreover, (A)(2) permits payments only out of the “proportion of the total compensation which fairly represents the services rendered by the deceased lawyer,” not a general “payment of money” as (A)(1) allows. (A)(1) applies only to agreements made by a living lawyer, while (A)(2) applies to a successor lawyer after the first lawyer’s death.

Subparagraph (A)(3) allows fee-sharing for purposes of a law firm’s retirement plan. This exception is compelled by the tax laws which disallow “top heavy” plans that confer benefits on managers but not workers, and by ERISA (Employment Retirement Income Security Act of 1974) which mandates roughly equal retirement plan treatment for all employees in an enterprise. Note that New York rejects the language of Model Rule 5.4(a)(3) and the ABA Model Code version which allow firms to include non-lawyer employees not only in a retirement plan, but also in a compensation plan.

There is another exception to sharing fees with non-lawyers that is not enumerated in NY DR 3-102. It is permissible to share legal fees with a former partner or associate. NY DR 2-107(B) (which has no equivalent in the ABA Model Rules or Model Code) allows “payment to a former partner or associate pursuant to a separation or retirement agreement.”

Relevant Statutory Provisions

NY DR 3-102(A) must be read in conjunction with New York Judiciary Law § 491 which provides as follows:

1. It shall be unlawful for any person, partnership, corporation, or association to divide with or receive from, or to agree to divide with or receive from, any attorney-at-law or group of attorneys-at-law, whether practicing in this state or elsewhere, either before or after action brought, any portion of any fee or compensation, charged or received by such attorney-at-law or any valuable consideration or reward, as an inducement for placing, or in consideration of having placed, in the hands of such attorney-at-law, or in the hands of another person, a claim or demand of any kind for the purpose of collecting such claim, or bringing an action thereon, or of representing claimant in the pursuit of any civil remedy for the recovery thereof. But this Section does not apply to an agreement between attorneys and counselors-at-law to divide between themselves the compensation to be received.

2. Any person violating any of the provisions of this Section is guilty of a misdemeanor.

Thus, sharing fees with a non-lawyer is not only a disciplinary violation but also a criminal offense.

Relevant Ethics Decisions

Engagement by and Fee-Splitting With Non-attorney Tax Reduction Firm: N.Y. State Bar Op. 705 (1998): An attorney may not accept an engagement from a non-attorney tax reduction company to bring a property tax proceeding on behalf of the tax reduction company's client if the arrangement involves improper fee-splitting in violation of NY DR 3-102(A), which "would likely be the case if the non-attorney tax reduction company does nothing more than sign[] up clients and pass[] them on to lawyers, with a fee skimmed off the top." If however, this is not the company's sole function, the lawyer may agree to represent the property owner for a contingent fee, which is "allocable to the lawyer's services," even if the fee is itself a percentage of the tax reduction company's fee.

Bank Charges for Attorney's Fees: Assoc. of the Bar of the City of New York, Formal Op. No. 1994-6, 1994 WL 780805 (May 5, 1994): It is proper for an attorney to work for a bank that requires borrowers to pay the reasonable legal fees incurred by the bank in connection with a loan trans action. But the attorney may not allow the bank to profit by charging a fee that would exceed the “actual cost” of the attorney’s services. That would amount to sharing a fee with a non-lawyer in violation of NY DR 3-102(A).

Affiliation with Non-Lawyer to Represent Homeowners in Small Claims Proceedings: NYSBA Comm. on Prof. Ethics, Op. No. 662, 1994 WL 120206 (March 15, 1994): A lawyer may not affiliate with a non-lawyer to represent homeowners in small claims proceedings to reduce real estate taxes even if the lawyer does not hold herself out as a lawyer, be cause the litigation or quasi-litigation setting compels the conclusion that the lawyer is practicing law. This is so even if the non-lawyer could lawfully perform the same work.

Corporate Venture with Non-Lawyer to Obtain Tax Deductions for Clients: NYSBA Comm. on Prof. Ethics, Op. No. 644, 1993 WL 560285 (April 1, 1993): A lawyer may not form a corporation with a non-lawyer to assist homeowners in obtaining real estate tax reductions because such a venture would violate the New York Judiciary Law and NY DR 3-102(A).

Paying Retired Partners Share of Fees for Work Performed before Departure: Nassau County Bar Op. 94-2 (1994): A lawyer who leaves her law firm often reaches an agreement with her old firm on the share of the total fee representing the proportion of the fee represented by the departing attorney’s work before leaving her old firm. Law firms may ethically agree to pay retired partners a share of the fees from a particular client or matter even if the retired partners let their licenses lapse and are no longer members of the New York bar. Likewise, law firms may do the same with lawyers who move to other states and relinquish membership in the New York bar.

Compensating Consultant for Direct Mail Solicitations: N.Y. County Lawyers' Ass'n Op. 720 (1997): A lawyer wishes to engage in direct mail solicitation of potential clients. The lawyer plans to hire a non-lawyer consultant to design the mailings, supervise the mailing process, and perform related tasks. "[T]he consultant's compensation may not be tied to the success or failure of the direct mail solicitation. Compensation on a contingency basis would give the nonlawyer a pecuniary interest in the success of the solicitation that would violate DR 3-102(A)."

Sharing Fees with Disbarred Attorney: N.Y. County Lawyers' Ass'n Op. 719 (1997): A lawyer's client was awarded $1.2 million in a personal injury trial. However, the client cannot collect the judgment because the main defendant cannot pay, and a third party defendant is indebted only to the main defendant and will not pay plaintiff directly. The lawyer wishes to arrange for a disbarred attorney ("Lender") to lend the main defendant the money to pay the judgment in exchange for an assignment of the main defendant's right of contribution against the third party defendant. The disbarred attorney would receive a "lending fee," but his role "would relate solely to loaning funds and obtaining assignment" of the main defendant's right of contribution. Under DR 3-102(A), the inquiring attorney may not share legal fees with any non-lawyer, including a disbarred attorney. But DR 3-102(A) does not prohibit the inquiring lawyer from dealing with the disbarred attorney "so long as the lending fee is not a proxy for an attorney's fee, but rather a genuine fee for Lender being the financing agent." However, if the lending fee is "excessive and not reasonable for acting as a financing agent, the fee may in reality be a legal fee."

Compensation to Class Member for Investigative Work: N.Y. State Bar Op. 679 (1996): Under DR 3-102(A), a lawyer may compensate a class member for investigative work in the class action by including the investigative expenses in the lawyer's fee request to the court at the end of the class action, provided that the compensation sought is based on a reasonable hourly or fixed rate and not on a percentage of the legal fees awarded.

Sharing Fees with Suspended Attorney and Compensating Printer for Referral: Nassau County Bar Op. 96-10 (1996): The inquiring attorney's former client, an attorney, was suspended from the practice of law for one year. While suspended, the suspended attorney is working as a commissioned salesperson for an appellate printer who offers quality work at a competitive price. Recently, one of the suspended attorney's former clients received an adverse decision on a motion, and that client has retained the inquiring attorney's office to handle the appeal. May the inquiring attorney ethically use the services of an appellate printer who has hired a suspended attorney as a com missioned salesperson? Yes, provided: (1) the inquiring attorney does not share any part of the legal fee with the suspended attorney, because that would violate DR 3-102(A), which prohibits a lawyer from sharing a legal fee with a non-lawyer; and (2) the inquiring attorney does not give anything of value to the printer in exchange for referring cases to the attorney, because that would violate DR 2-103(B), which prohibits an attorney from giving "anything of value to a person or organization to recommend or obtain employment by a client, or as a reward for having made a recommendation resulting in employment by a client. . . . "

Donation of Percentage of Fees to Non-Profit Lawyers Advertising Organization: Nassau County Bar Op. 96-4 (1996): A lawyer wishes to advertise legal services in a directory of professionals and retailers prepared by a non-profit organization. When the members use professional services, the professionals donate a set percentage of any fees received to the non-profit organization. This would constitute an improper division of legal fees with a non-lawyer in violation of DR 3-102(A). The rule states certain exceptions, but "[n]o exception for the division of legal fees with a non-lawyer entity is mentioned in DR 3-102 merely by virtue of such entity's status as not-for-profit."

Non-Lawyer Compensation and Discretionary Bonuses Tied to Profitability of Firm: N.Y. City Bar Op. 1995-11 (1995): Under DR 3-102(A)), a non-lawyer employee's compensation "may not be a commission or bonus that is directly linked to a percentage of profits or fees received from any client or the volume of business development, or be a reward for clients brought in or referred by the non-lawyer to the firm." However, non-lawyer compensation may "be tied to the net profits and business performance of a firm." Similarly, "discretionary bonuses, which are almost always tied to the profitability of the firm, may properly be paid to non-lawyer employees without violating the rule against sharing legal fees."

Assignment of Portion of Fees to "Credit Company": N.Y. City Bar Op. 1995-1 (1995): A law firm may enter into a "credit plan" with a credit company that finances the payment of legal fees and collects fees directly from clients, and the lawyer may assign to the credit company 10% to 30% of each fee (depending on the client's credit rating). Under DR 3-102, such an assignment "would not constitute a prohibited division of fees so long as the fees assigned have already been fully earned by the assigning attorney."

Temporary Lawyer Placement Agency Fee Guidelines: N.Y. City Bar Op. 1988-3 (1988): The inquiring lawyer wishes to represent a "temporary lawyer placement agency" (the "Agency"), which would provide attorneys, on a per-diem or per-hour basis, to law firms that need additional expertise or manpower. For example, if Law Firm XYZ lacks the capacity to handle certain trademark issues for an existing client, the law firm would ask the Agency for resumes of temporary attorneys with trademark expertise. Based on the resumes, Firm XYZ would hire a temporary lawyer as an independent contractor. The temporary lawyer would submit time records both to Firm XYZ and to the Agency. The Agency (not the lawyer) would bill Firm XYZ for all of the temporary lawyer's hours at, say, $150 per hour. Firm XYZ would pay the Agency, which would then pay the temporary lawyer $100 per hour. The Agency would retain the balance. May the inquiring lawyer properly represent the Agency in its proposed venture? No, he may not. "The participating attorney's division of fees with the Agency would be barred by DR 3-102(A), which prohibits the division of legal fees with a non-lawyer." However, if Firm XYZ pays the temporary lawyer directly for his services, and if the Firm pays the Agency a separate "fixed fee" strictly for its non-legal services, and if the Agency follows certain other "guidelines" to ensure that both the Agency and its temporary lawyers comport with the Code of Professional Responsibility, then the inquiring lawyer may represent the Agency. With respect to the Agency's "fixed fee":

Our conclusion ... that the Agency be paid a "fixed fee" refers to a prearranged sum independent of the fee ultimately paid to the attorney. In determining that sum, it would be appropriate for the Agency and the Firm to consider the nature of the assignment, and any other pertinent professional considerations relating to the assignment including the reasonably pre dictable length of time and number of hours it would take to perform, and the experience and seniority of the attorney assigned to the matter.

Elaborating on the fee question, the Committee in Op. 1989-2 added the following:

[S]ince the agency unquestionably provides services in locating, recruiting, screening and placing temporary lawyers and those services are not legal services, the compensation paid by the law firm to the agency for those services is not a legal fee within the meaning of DR 3-102(A), whether the law firm and agency (i) set the agency's fee as a fixed amount independent of the time worked by or compensation paid to the temporary lawyer, or (ii) agree upon a basis of calculating the agency's fee which varies, proportionately or otherwise, with the time worked by or compensation paid to the temporary lawyer.

Nevertheless, to guard against any chance of direct or indirect fee sharing, "the following two safeguards are, in the Committee's opinion, necessary":

--The agreement between the agency and the law firm should separately state the fee paid to the agency and identify that fee as compensation for the agency's services in locating, recruiting, screening and placing the temporary lawyer.

--The agency fee, however calculated, may not be included in the legal fee charged by the law firm to its client. If the law firm wishes to pass the agency fee on to the client (rather than absorb that fee in firm overhead), the agency fee should be separately billed to the client as a disbursement like other disbursements for non-legal services.

Relevant Ethical Considerations

NY EC 3-8: Since a lawyer should not aid or encourage a non-lawyer to practice law, the lawyer should not practice law in association with a non-lawyer or otherwise share legal fees with a non-lawyer. This does not mean, however, that the pecuniary value of the interest of a deceased lawyer in a firm or practice may not be paid to the lawyer's estate or specified persons such as the lawyer's spouse or heirs. In like manner, profit-sharing retirement plans of a lawyer or law firm which include non-lawyer office employees are not improper. These limited exceptions to the rule against sharing legal fees with non-lawyers are permissible since they do not aid or encourage non-lawyers to practice law.

Relevant Cases

Discipline for Fee-Splitting with Non-Lawyer: In re Lebowitz, 67 A.D.2d 240, 414 N.Y.S.2d 735 (2d Dept. 1979) (lawyer disciplined for fee-splitting with non-lawyer as inducement for non-lawyer to refer criminal cases).

5.4:300   Forming a Partnership with Nonlawyers

Primary New York References: DR 3-103(A), EC 3-8
Background References: ABA Model Rule 5.4(b), Other Jurisdictions
Commentary: ABA/BNA § 91:401, ALI-LGL § 60, Wolfram §§ 16.4, 16.5
NY Commentary: Simon's N.Y. Code of Prof. Resp. Annot. (1999 ed.) Canon 3, et seq.

Relevant Disciplinary Rules

NY DR 3-103(A) states that a “lawyer shall not form a partnership with a non-lawyer if any of the activities of the partnership consist of the practice of law.”

Relevant Ethical Considerations

NY EC 3-8 emphasizes that “[s]ince a lawyer should not aid or encourage a non-lawyer to practice law, the lawyer should not practice law in association with a non-lawyer or otherwise share legal fees with a non-lawyer . . .”

Relevant Ethics Opinions

Partnership with Non-Lawyer for Business Debtor Negotiations: Nassau County Bar Op. 96-2 (1996): The inquiring attorney wishes to form a partnership with a non-lawyer family member for the purpose of negotiating out-of-court settlements for business debtor clients. The partnership would expressly advise clients that the corporation does not provide legal advice. Is this plan permissible? No. Under DR 3-103(A), a lawyer may not form a partnership with a non-lawyer "if any of the activities of the partnership consist of the practice of law." Even though negotiation is a service that can lawfully be performed by non-lawyers, and even though the inquiring attorney asserts that he will not offer any legal advice in the negotiations, the reality is that he will be practicing law. Owing largely to his status as an attorney, he cannot engage in negotiation without engaging in activities considered to be the practice of law. A lawyer participating in negotiations "must, and will, as a matter of human nature, bring to bear in such a process his knowledge of the law, an evaluation of the legal rights and duties of the participants and the remedies of each participant. It is folly to suggest otherwise."

Affiliation with Non Lawyer to Represent Homeowners in Small Claims Court: NYSBA Comm. on Prof. Ethics, Op. No. 662, 1994 WL 120206 (March 15, 1994): Under NY DR 3-103, a lawyer could not affiliate with a non-lawyer to represent homeowners in small claims proceedings to reduce real estate taxes even if the lawyer did not hold herself out as a lawyer, because the litigation or quasi-litigation setting requires the conclusion that the lawyer is practicing law. This is so even if the non-lawyer could lawfully perform the same work.

Partnership with Japanese Lawyer: NYSBA Comm. on Prof. Ethics, Op. No. 646, 1993 WL 560286 (June 8, 1993): Under NY DR 3-103 a New York lawyer was permitted to form a law partnership with a Japanese “bengoshi.” However, the fact that person is licensed to practice law in a foreign juris diction does not automatically make a partnership with a New York lawyer permissible. Rather, whether a lawyer licensed in a foreign country is a “nonlawyer” for the purposes of NY DR 3-103 depends on whether the “training of an ethical standards applicable to the foreign lawyer are comparable to those of an American lawyer.” In Japan, education requirements are as rigorous as New York’s and “sufficient similarity” exists between the standards of professional conduct in New York and Japan.

Partnership with British Solicitor: NYSBA Comm. on Prof. Ethics, Op. No. 542, 1982 WL 31696 (May 10, 1982): Under NY DR 3-103, a New York lawyer and a British solicitor could form a law partnership because the educational re quirements and standards of practice and discipline in the United Kingdom are similar to the standards in New York.

Divorce Mediation Services by Lawyer: N.Y. State Bar Op. 678 (1996): A lawyer/mediator who participates in a divorce mediation referral service is engaged in the "practice of law" even when acting as a divorce mediator. Although non-lawyers may lawfully provide divorce mediation services without engaging in the unauthorized practice of law, lawyers who provide such services "are engaged in the practice of law for purposes of DR 3-103(A)." Parties to a divorce mediation are entitled to know that the mediator is a lawyer, and once they know the mediator is a lawyer they are likely to expect that the lawyer/mediator will be providing legal services. No form of warning or disclaimer is sufficient to overcome these expectations.

5.4:400   Third Party Interference with a Lawyer's Professional Judgment

Primary New York References: DR 5-107, EC 5-22
Background References: ABA Model Rule 5.4(c), Other Jurisdictions
Commentary: ABA/BNA § 51:901, ALI-LGL § 60, Wolfram § 8.8
NY Commentary: Simon's N.Y. Code of Prof. Resp. Annot. (1999 ed.) Canon 5, et seq.

See also Section 1.2:820 (Persons Paying for Representation of Another)

Relevant Disciplinary Rules

NY DR 5-107(B) prohibits a “person who recommends, employs, or pays [a] lawyer to render legal service for another [from directing or regulating the lawyer’s] professional judgment in rendering such legal services.” This Rule provides another layer of protection against interference by outside parties.

Relevant Ethical Considerations

NY EC 5-22 states: "Economic, political, or social pressures by third persons are less likely to impinge upon the independent judgment of a lawyer in a matter in which the lawyer is compensated directly by the client and the pro fessional work is exclusively with the client. On the other hand, if a lawyer is compensated from a source other than the client, the lawyer may feel a sense of responsibility to someone other than the client."

NY EC 5-23 states: “A person or organization that pays or furnishes lawyers to represent others possesses a potential power to exert strong pressures against the independent judgment of those lawyers. . . . since a lawyer must always be free to exercise professional judgment without regard to the interests or motives of a third person, the lawyer who is employed by one to represent another must constantly guard against erosion of professional freedom.”

See also Section 2:1:200 (“Exercise of Professional Judgment”).

Relevant Ethics Opinions

Engagement by Non-Attorney Tax Reduction Company: NY State Bar Op. (1998): In keeping with NY DR 5-107(B), an attorney engaged by non-attorney tax reduction Company to represent property owners who are company's clients must "bear in mind that the client is the property owner, not the tax reduction company." Thus, the lawyer may not accept the engagement if the company seeks to impose conditions which would compromise the attorney's independent professional judgment on behalf of the client.

Proposed Make-A-Will Fundraising Program: Nassau County Bar Op. 97-11 (1997): Under NY DR 5-107(B) an attorney may not offer to nonprofit organizations a "Make-A-Will" fund raising program where the attorney would prepare wills for participants. The plan runs afoul of NY DR 5-107(B) be cause the attorney "might be reluctant to seem disloyal to the fundraising organization by recommending against a gift to the organization," even if such advice is in the "best interest of the testator."

Payment by Criminal Defendants' Sister: In Nassau County Bar Op. 94-7 (1994), a lawyer proposed a retainer in a criminal matter under which the defendant’s sister agreed to pay the fees and to make monthly payments of $150. This retainer agreement is permissible provided that the lawyer abides by NY DR 5-107(A), which requires the client’s informed consent to the arrangement, and NY DR 5-107(B), which prohibits the lawyer from allowing the defendant’s sister to “direct or regulate” the lawyer’s professional judgment in rendering legal services to the defendant.

Insurance Company's Selection of Insured's Appellate Counsel: Nassau County Bar Op. 97-5 (1997): The inquiring attorney is a trial lawyer who defends cases for a casualty insurance company. When an appeal is filed, the insurance company automatically sends the file to an attorney at another law office. May the insurance company assign the appeal to the other lawyer without seeking or obtaining the client's consent? Yes. Under DR 5-107(B) and EC 5-16, assuming the insurance contract gives the insurance company the right to choose counsel, and assuming that there is no threat that the attorney's loyalty will be divided between the insurance company and its insured, the company does not need the consent of the insured to choose appellate counsel.

Lawyer Paid by Social Service Agency to Represent Minors: N.Y. City Bar Op. 1997-2 (1997): A lawyer is employed and paid by a social service agency that provides legal services to minor children. When the lawyer undertakes to represent a minor as a client, the lawyer "must provide independent, zealous and competent representation and must preserve the client's confidences. . . . " Under DR 5-107(B), the lawyer "may not allow the agency to direct or regulate her professional judgment in rendering legal services to clients."

Guidelines for Temporary Lawyer Placement Agency: N.Y. City Bar Op. 1988-3 (1988): The inquiring lawyer wishes to represent a "temporary lawyer placement agency" (the "Agency"), which would provide attorneys, on a per-diem or per-hour basis, to law firms that need additional expertise or manpower. May the inquiring lawyer properly represent the Agency? Yes, provided the Agency agrees to follow certain "guidelines" to ensure that both the Agency and its temporary lawyers comport with the Code of Professional Responsibility.

Among these guidelines are the following:

1. The Agency must recognize that the relationship between the temporary lawyer and the client is no different from the traditional lawyer-client relationship, and must not interfere with that relationship.

2. The Agency must agree not to attempt to limit or in any way to control the amount of time a lawyer may spend on any particular matter. DR 5-107.

3. The Agency must agree not to attempt to control the kinds of matters a lawyer may handle or the manner in which they are handled, nor may it require a lawyer to take any case or handle any particular matter. DR 5-107(B).

[Note: These guidelines are reaffirmed in N.Y. City Bar Ops. 1988-3-A and 1989-2.]

Joint Representation of Seller, Buyer or Mortgagee and Title Insurer in Real Estate Transaction: N.Y. State Bar Op. 576 (1985): Under DR 5-107, an attorney for the seller, buyer, or mortgagee in a real estate transaction may also serve as an agent for the title insurance company that issues the policy relating to the transaction, and may receive part of the title insurance premium as compensation for her services as agent, if certain conditions are met. These conditions are: (1) the conduct does not violate any statute; (2) the attorney does not have a conflict of interest; (3) all parties consent after full disclosure; (4) the attorney reduces his legal fee by the amount he receives from the title company unless the clients ex pressly consent to a full fee; and (5) the legal fee is not excessive.

Relevant Cases

Insurer Bound to Respect Insured's Counsel's Independent Judgment: Nelson Electrical Contracting Corp. v. Transcontinental Ins. Co., 231 A.D.2d 207, 660 N.Y.S.2d 220 (3d Dep't 1997): In declaring that insurance company was obliged to indemnify insured for costs of defense, even though insured's counsel took certain positions against the wishes of the insurance company, court held that requirement of insurance company's consent could not be invoked to permit the insurer to "direct or regulate" the insured's counsel's professional judgment, contrary to the mandates of NY DR 5-107(B) and NY EC 5-21.

Contingent Payment of Fees by Adversary: In Lincoln Plaza Associates v. Various Tenants, 134 Misc.2d 791, 512 N.Y.S.2d 330 (Civ. Ct. N.Y. County 1987), aff'd, 539 N.Y.S.2d 612 (Sup. Ct. N.Y. County 1989), an attorney was retained by a tenants’ association to protect its rights during the conversion of a rental building to a cooperative or condominium. The fee agreement provided that if the tenants’ association approved the plan, the sponsor of the conversion plan would pay the attorney a substantial fee; but if the association rejected the plan, the association would have to pay the attorney’s fee itself, albeit a much smaller fee. This fee arrangement violated NY DR 5-107(B) because the tenants and the plan sponsor were adversaries.

Lending Name to Collection Agency: Matter of Scheck, 171 A.D.2d 33, 574 N.Y.S.2d 372 (2d Dep't 1991): Attorney suspended for violating NY DR 5-107(B) by allowing collection agency to use "attorney's name, letterhead and signature" on collection letters sent out without attorney's supervision and permitting collection agency to deposit checks payable to the attorney into agency's own account.

5.4:500   Nonlawyer Ownership in or Control of Profit-Making Legal Service Organizations

Primary New York References: DR 5-107(C), EC 5-24
Background References: ABA Model Rule 5.4(d), Other Jurisdictions
Commentary: ABA/BNA § 91:401, ALI-LGL § 60, Wolfram § 16.4, 16.5
NY Commentary: Simon's N.Y. Code of Prof. Resp. Annot. (1999 ed.) Canons 2 and 5, et seq.

Relevant Disciplinary Rules

NY DR 5-107(C) provides: “A lawyer shall not practice with or in the form of a professional corporation or association authorized to practice law for a profit, if:

1. A non-lawyer owns any interest therein, except that a fiduciary representative of the estate of a lawyer may hold the stock or interest of the lawyer for a reasonable time during administration;

2. A non-lawyer is a corporate director or officer thereof; or

3. A non-lawyer has the right to direct or control the professional judgment of a lawyer.

Relevant Ethical Considerations

NY EC 5-24 states: “To assist a lawyer in preserving pro fessional independence, a number of courses are available. For example, a lawyer should not practice with or in the form of a professional legal corporation, even though the corporate form is permitted by law, if any of its directors, officers, or stockholders is a non-lawyer serving as a director or officer, and they necessarily have the right to make decisions of business policy, a lawyer must decline to accept direction of his or her professional judgment from any non-lawyer. Various types of legal aid offices are administered by boards of directors composed of lawyers and non-lawyers. A lawyer should not accept employment from such an organization unless the board sets only broad policies and there is no interference in the relationship of the lawyer and the individual client. Where a lawyer is employed by an organization, a written agreement that defines the relationship between the lawyer and the organization and provides for the lawyer’s independence is desirable since it may serve to prevent misunderstanding as to their respective roles. Although other innovations in the means of supplying legal counsel may develop, the responsibility of the lawyer to maintain professional independence remains constant, and the legal profession must insure that changing circumstances do not result in loss of the professional independence of the lawyer."

See also NY EC 5-22.

5.4:510      Group Legal Services

Relevant Disciplinary Rules

The provision of group legal services is addressed in NY DR 2-103(D) which provides: “A lawyer or the lawyer’s partner or associate or any other affiliated lawyer may be recommended, employed or paid by, or may cooperate with one of the following offices or organizations which promote the use of the lawyer’s services or those of a partner or associate or any other affiliated lawyer if there is no interference with the exercise of independent judgment on behalf of the client:

1. A legal aid office or public defender office

a. Operated or sponsored by a duly accredited law school;

b. Operated or sponsored by a bona fide, non-profit community organization;

c. Operated or sponsored by a governmental agency; or

d. Operated, sponsored, or approved by a bar association;

2. A military legal assistance office;

3. A lawyer referral service operated, sponsored or approved by a bar association;

4. Any bona fide organization which recommends, furnishes or pays for legal services to its members or beneficiaries provided the following conditions are satisfied:

a. Neither the lawyer, nor the lawyer’s partner, nor associate, nor any other affiliated lawyer nor any non-lawyer, shall have initiated or promoted such organization for the primary purpose of providing financial or other benefit to such lawyer, partner, associate or affiliated lawyer.

b. Such organization is not operated for the purpose of procuring legal work or financial benefit for any lawyer as a private practitioner outside of the legal services program of the organization.

c. The member or beneficiary to whom the legal services are furnished, and not such organization, is recognized as the client of the lawyer in the matter.

d. Any member or beneficiary who is entitled to have legal services furnished or paid for by the organization may, if such member or beneficiary so desires, select counsel other than that furnished, se lected or approved by the organization for the particular matter involved; and the legal service plan of such organization provides appropriate relief for any member or beneficiary who asserts a claim that representation by counsel furnished, se lected or approved would be unethical, improper or inadequate under the circumstances of the matter involved; and the plan provides an appropriate procedure for seeking such relief.

e. The lawyer does not know or have cause to know that such organization is in violation of applicable laws, rules of court or other legal requirements that govern its legal service operations.

f. Such organization has filed with the appropriate disciplinary authority, to the extent required by such authority, at least annually a report with respect to its legal service plan, if any, showing its terms, its schedule of benefits, its subscription charges, agreements with counsel and financial results of its legal service activities or, if it has failed to do so, the lawyer does not know or have cause to know of such failure.”

Relevant Cases

Participation in Legal Services Plan Incorporated and Partially Owned by Attorney: In In re Brownstein, 189 A.D.2d 244, 596 N.Y.S.2d 139 (2d Dept. 1993), an attorney was censured for serving participants in a legal service plan that was offered by a legal services corporation the attorney had personally incorporated and in which he was a 50 percent shareholder. The court imposed only a light sanction because the attorney was associated with the corporation for only a short time, no clients complained, and the attorney had no prior disciplinary record.

Relevant Ethics Opinions

Fees to Bar-Approved Lawyer Referral Services: NYSBA Comm. on Prof. Ethics, Op. No. 651, 1993 WL 555951 (June 30, 1993) states that a “[l]awyer referral services operated, sponsored, or approved by a bar association may require participating lawyers to pay the referral service a percentage of the fees earned from referred clients.”

Retention of Fees by Plan's Marketing Firm: Bar Ass’n of Nassau County, Comm. On Professional Ethics, Op. No. 85-2 (1985): the retention of substantial amount of consumer’s payment to a prepaid legal plan by marketing firm operating plan may constitute improper fee-sharing.

5.4:520      Nonprofit Organizations Delivering Legal Services

Relevant Disciplinary Rules

NY DR 5-107(C), on its face, addresses only the practice of law "for a profit" and therefore does not reach the non-profit arena. Thus, in non-profit organizations authorized to practice law under Judiciary Law §§ 495(7) and 496 (allowing organizations such as those described in NY DR 2-103(D), supra, to practice law and establishing reporting requirements for them), or in non-profit prepaid legal service plans, non-lawyers may assume management roles.

5.5   Rule 5.5 Unauthorized Practice of Law

5.5:100   Comparative Analysis of New York Rule

Primary New York References: DR 3-101(A), DR 3-101(B)
Background References: ABA Model Rule 5.5, Other Jurisdictions
Commentary:
NY Commentary: Simon's N.Y. Code of Prof. Resp. Annot. (1999 ed.) Canon 3, et seq.

5.5:101      Model Rule Comparison

NY DR 3-101(B) is almost identical to Model Rule 5.5(a) and NY DR 3-101(A) is almost identical to Model Rule 5.5(b).

5.5:102      Model Code Comparison

Both NY DR 3-101(A) and (B) are identical to the Model Code.

5.5:200   Engaging in Unauthorized Practice

Primary New York References: DR 3-101(A), DR 3-101(B), EC 3-9, 8-3
Background References: ABA Model Rule 5.5(a), Other Jurisdictions
Commentary: ABA/BNA § 21:8001, ALI-LGL §§ 3, 4, Wolfram § 15.1
NY Commentary: Simon's N.Y. Code of Prof. Resp. Annot. (1999 ed.) Canon 3, et seq.

Relevant Disciplinary Rules

NY DR 3-101(B) provides: “A lawyer shall not practice law in a jurisdiction where to do so would be in violation of regulations of the profession in that jurisdiction.”

See also NY DR 3-101(A) (aiding unauthorized practice of law) (discussed in Section 5.5:300, infra.)

Relevant Ethical Considerations

NY EC 3-9: “Regulation of the practice of law is accomplished principally by the respective states. Authority to engage in the practice of law conferred in any jurisdiction is not per se a grant of the right to practice elsewhere, and it is improper for a lawyer to engage in practice where not permitted by law or by court order to do so. However, the demands of business and the mobility of our society pose distinct problems in the regulation of the practice of law by the states. In furtherance of the public interest, the legal profession should discourage regulation that unreasonably imposes territorial limitations upon the right of a lawyer to handle the legal affairs of a client or upon the opportunity of a client to obtain the services of a lawyer of the client’s choice in all matters including the presentation of a contested matter in a tribunal before which the lawyer is not permanently admitted to practice."

NY EC 8-3 states: “The fair administration of justice requires the availability of competent lawyers . . . . Clients and lawyers should not be penalized by undue geographic restraints upon representation in legal matters, and the bar should address itself to improvements in licensing, reciprocity, and admission procedures consistent with the needs of modern commerce.”

Relevant Cases

Practice by Suspended Attorney: In In re Lowenthal, 132 A.D.2d 117, 521 N.Y.S.2d 721 (2d Dept. 1987), appeal dismissed, 71 N.Y.2d 888 (1988), a lawyer was suspended for two years for engaging in the unauthorized practice of law, in violation of NY DR 3-101(B), by advising a client about a will and about a divorce proceeding while he was suspended and failing to notify clients that he was suspended.

5.5:210      Practice of Law by Nonlawyers

[The discussion of this topic has not yet been written.]

5.5:220      Admission and Residency Requirements for Out-of-State Lawyers

[The discussion of this topic has not yet been written.]

5.5:230      Pro Hac Vice Admission [see also 8.1:240]

Relevant New York Court Rules

22 NYCRR § 602.2 Admission Pro Hac Vice of Foreign Attorneys and Counselors at Law provides temporary admission for (a) a Particular Cause; (b) Graduate Students, Graduate Assistants and Law School Teachers; and (c) Law School Graduates.

5.5:240      Performing Legal Services in Another Jurisdiction

Relevant Ethics Opinions

Proposed Internet Web Site Soliciting Trademark Work: N.Y. State Bar Op. 709 (1998): Attorney proposes internet web site soliciting clients who need assistance regarding federal trademark issues. Whether arrangement violates NY DR 3-101(B) depends on whether "attorney's conduct constitutes the unauthorized practice of law in the other juris diction (where potential client resides), a question beyond the committee's jurisdiction. However, the committee notes that "lawyers licensed in one state may appropriately render legal service to clients resident elsewhere in many circumstances.

Preparation of Will for Florida Client in Concert with Florida Counsel. Nassau County Bar Op. 98-8 (1998). Under NY DR 3-101(B), an attorney may prepare a will in New York for a Florida resident where he consults with Florida counsel to review the documents for compliance with Florida law and he discloses to the client that he is not admitted to practice in Florida.

Relevant Disciplinary Rules

NY DR 3-101(B) provides: “A lawyer shall not practice law in a jurisdiction where to do so would be in violation of regulations of the profession in that jurisdiction.”

See also NY DR 3-101(A) (aiding unauthorized practice of law) (discussed in Section 5.5.300, infra.)

Relevant Ethical Considerations

NY EC 3-9: “Regulation of the practice of law is accomplished principally by the respective states. Authority to engage in the practice of law conferred in any jurisdiction is not per se a grant of the right to practice elsewhere, and it is improper for a lawyer to engage in practice where not permitted by law or by court order to do so. However, the demands of business and the mobility of our society pose distinct problems in the regulation of the practice of law by the states. In furtherance of the public interest, the legal profession should discourage regulation that unreasonably imposes territorial limitations upon the right of a lawyer to handle the legal affairs of a client or upon the opportunity of a client to obtain the services of a lawyer of the client’s choice in all matters including the presentation of a contested matter in a tribunal before which the lawyer is not permanently admitted to practice."

NY EC 8-3 states: “The fair administration of justice requires the availability of competent lawyers . . . . Clients and lawyers should not be penalized by undue geo graphic restraints upon representation in legal matters, and the bar should address itself to improvements in licensing, reciprocity, and admission procedures consistent with the needs of modern commerce.”

Relevant Cases

Participation in Multi-State Activities: Even if a lawyer may not practice out-of-state, he or she may engage in activities with clients which do not constitute the practice of law. See Spivak v. Sachs, 16 N.Y.2d 163, 263 N.Y.S.2d 953 (1965) (“recognizing the numerous multi-state transactions and relationships of modern times, we cannot penalize every instance in which an attorney from another State comes into our State for conferences or negotiations relating to a New York client and a transaction somehow tied to New York”).

Foreign Lawyer's Advice by Telephone Only Not Unauthorized Practice: El Gemayel v. Seaman, 72 N.Y.2d 701, 533 N.E.2d 245, 536 N.Y.S.2d 406 (1988): The practice of law includes giving legal advice, appearing in court, and holding one self out as a lawyer. However, a Lebanese lawyer who rendered advice to a New York client only by telephone and never traveled to New York was not engaged in the unauthorized practice of law within the meaning of Judiciary Law § 478 and could not be denied his legal fees on that basis.

5.5:300   Assisting in the Unauthorized Practice of Law

Primary New York References: DR 3-101(A), DR 3-101(B), EC 3-9, 8-3
Background References: ABA Model Rule 5.5(b), Other Jurisdictions
Commentary: ABA/BNA § 21:8201, ALI-LGL § 4, Wolfram § 15.1
NY Commentary: Simon's N.Y. Code of Prof. Resp. Annot. (1999 ed.) Canon 3, et seq.

Relevant Ethics Opinions

Proposed Internet Web Site Soliciting Trademark Work: N.Y. State Bar Op. 709 (1998): Attorney proposes internet web site soliciting clients who need assistance regarding federal trademark issues. Whether arrangement violates NY DR 3-101(B) depends on whether "attorney's conduct constitutes the unauthorized practice of law in the other juris diction (where potential client resides), a question beyond the committee's jurisdiction. However, the committee notes that "lawyers licensed in one state may appropriately render legal service to clients resident elsewhere in many circumstances.

Preparation of Will for Florida Client in Concert with Florida Counsel. Nassau County Bar Op. 98-8 (1998). Under NY DR 3-101(B), an attorney may prepare a will in New York for a Florida resident where he consults with Florida counsel to review the documents for compliance with Florida law and he discloses to the client that he is not admitted to practice in Florida.

Relevant Disciplinary Rules

NY DR 3-101(B) provides: “A lawyer shall not practice law in a jurisdiction where to do so would be in violation of regulations of the profession in that jurisdiction.”

See also NY DR 3-101(A) (aiding unauthorized practice of law) (discussed in Section 5.5.300, infra.)

Relevant Ethical Considerations

NY EC 3-9: “Regulation of the practice of law is accomplished principally by the respective states. Authority to engage in the practice of law conferred in any jurisdiction is not per se a grant of the right to practice elsewhere, and it is improper for a lawyer to engage in practice where not permitted by law or by court order to do so. However, the demands of business and the mobility of our society pose distinct problems in the regulation of the practice of law by the states. In furtherance of the public interest, the legal profession should discourage regulation that unreasonably imposes territorial limitations upon the right of a lawyer to handle the legal affairs of a client or upon the opportunity of a client to obtain the services of a lawyer of the client’s choice in all matters including the presentation of a contested matter in a tribunal before which the lawyer is not permanently admitted to practice."

NY EC 8-3 states: “The fair administration of justice requires the availability of competent lawyers . . . . Clients and lawyers should not be penalized by undue geo graphic restraints upon representation in legal matters, and the bar should address itself to improvements in licensing, reciprocity, and admission procedures consistent with the needs of modern commerce.”

Relevant Cases

Participation in Multi-State Activities: Even if a lawyer may not practice out-of-state, he or she may engage in activities with clients which do not constitute the practice of law. See Spivak v. Sachs, 16 N.Y.2d 163, 263 N.Y.S.2d 953 (1965) (“recognizing the numerous multi-state transactions and relationships of modern times, we cannot penalize every instance in which an attorney from another State comes into our State for conferences or negotiations relating to a New York client and a transaction somehow tied to New York”).

Foreign Lawyer's Advice by Telephone Only Not Unauthorized Practice: El Gemayel v. Seaman, 72 N.Y.2d 701, 533 N.E.2d 245, 536 N.Y.S.2d 406 (1988): The practice of law includes giving legal advice, appearing in court, and holding one self out as a lawyer. However, a Lebanese lawyer who rendered advice to a New York client only by telephone and never traveled to New York was not engaged in the unauthorized practice of law within the meaning of Judiciary Law § 478 and could not be denied his legal fees on that basis.

5.6   Rule 5.6 Restrictions on Right to Practice

5.6:100   Comparative Analysis of New York Rule

Primary New York References: DR 2-108(A)
Background References: ABA Model Rule 5.6, Other Jurisdictions
Commentary:

5.6:101      Model Rule Comparison

NY DR 2-108(A) is substantially the same as paragraph (a) of Model Rule 5.6. NY DR 2-108(A) is substantially the same as paragraph (b) of Model Rule 5.6.

5.6:102      Model Code Comparison

NY DR 2-108 is identical to the Model Code.

5.6:200   Restrictions on Lawyers Leaving a Firm

Primary New York References: DR 2-108(A)
Background References: ABA Model Rule 5.6(a), Other Jurisdictions
Commentary: ABA/BNA § 51:1201 ALI-LGL § 10, Wolfram §
NY Commentary: Simon's N.Y. Code of Prof. Resp. Annot. (1999 ed.) Canon 2 , et seq.

Relevant Disciplinary Rules

NY DR 2-108(A) provides: “A lawyer shall not be party to or participate in a partnership or employment agreement with another lawyer that restricts the right of a lawyer to practice law after the termination of a relationship created by the agreement, except as a condition to retirement benefits.”

Relevant Cases

Forfeiture of Withdrawing Partner's Earned Revenues: Cohen v. Lord, Day & Lord, 75 N.Y.2d 95, 551 N.Y.S.2d 157, 550 N.E.2d 410 (1989): A law firm violated DR 2-108(A) by providing in its partnership agreement that partners who withdrew from the firm to compete with the firm would forfeit money already earned before leaving the firm.

Provision Requiring Withdrawing Partner to Rebate Fees: In Denburg v. Parker Chapin Flattau & Klimpl, 82 N.Y.2d 375, 604 N.Y.S.2d 900 (1993), a law firm’s partnership agreement required that partners who left the firm to compete with it within 5 years had to pay the firm the greater of either 12.5% of the withdrawing partner’s share of the law firm’s profits over the last two years or 12.5% of the withdrawing partner’s billings to the firm’s former clients over the next two years. This penalty violated NY DR 2-108(A). The firm said that the purpose of the clause was to ensure that it could pay for expensive new quarters for five years after moving into them, but the effect of the clause was to deter competition and thus impair clients’ choice of counsel. The provision is thus unenforceable on public policy grounds. (A dissent would have enforced the provision based on its legitimate purpose.)

Offset Permitted: See Hackett v. Milbank, Tweed, Hadley & McCloy, 86 N.Y.2d 146, 630 N.Y.S.2d 274 (1995) (affirming arbitration award holding that partnership agreement which reduced amount paid to withdrawing partner according to income derived from other sources was reasonable and did not constitute restriction on right to practice, because financial penalty was “competition neutral” and did not single out only those partners who leave to compete with firm).

5.6:300   Settlements Restricting a Lawyer's Future Practice

Primary New York References: DR 2-108(B)
Background References: ABA Model Rule 5.6(b), Other Jurisdictions
Commentary: ABA/BNA § 51:1201, ALI-LGL § 10, Wolfram § 16.2.3
NY Commentary: Simon's N.Y. Code of Prof. Resp. Annot. (1999 ed.) Canon 2 , et seq.

Relevant Disciplinary Rules

NY DR 2-108(B)) provides: “In connection with the settlement of a controversy or suit, a lawyer shall not enter into an agreement that restricts the right of a lawyer to practice law.” For example, as part of the settlement of a mass tort suit, the defendants may want to exact an agreement that the plaintiffs’ lawyer will not represent any similar clients in the future. This would give the defendants an advantage because any new lawyer would have to learn the facts from scratch. This would also prevent future plaintiffs from hiring the settling plaintiffs’ lawyer, thus interfering with their choice of counsel. NY DR 2-108(B) deems such agreements invalid and unenforce able.

And plaintiff's attorneys were precluded by the "clean hands" doctrine from using their own ethical violations to escape their contractual obligations.

Relevant Cases

Enforcement of Firm's Agreement to Refrain from Participating in Further Action Against Defendants Concerning Certain Matters: Feldman v. Minars, 230 A.D.2d 356, 658 N.Y.S.2d 614 (1st Dep't 1997) (court enforced provision of settlement agreement whereby plaintiffs' firm warranted to defendants that it would not "assist or cooperate with any other parties or attorneys in any such action against the settling defendants arising out of or related in any way to the investments at issue . . . Nor shall they encourage any other parties or attorneys to commence such action or proceeding." After plaintiffs' firm subsequently solicited other parties to take action against defendants, the Appellate Division enforced settlement agreement. First, the court noted that an agreement by counsel not to solicit clients is not against public policy. Further, the court agreed with Professor Stephen Gillers that NY DR 2-108(B) "is an anachronism, illogical and bad policy", and thus an agreement "not to represent similar plaintiffs in similar actions against a contracting party is not against the public policy of the State of New York." In any event, the failure to enforce a contract freely entered into would be unseemly. And plaintiff's attorneys were precluded by the "clean hands" doctrine from using their own ethical violations to escape their contractual obligations.

5.7   Rule 5.7 Responsibilities Regarding Law-Related Services

5.7:100   Comparative Analysis of New York Rule

Primary New York References:
Background References: ABA Model Rule 5.7, Other Jurisdictions
Commentary:

5.7:101      Model Rule Comparison

There is no counterpart to this Rule in the NY Code.

5.7:102      Model Code Comparison

There is no counterpart to this Model Rule in the Model Code.

5.7:200   Applicability of Ethics Rules to Ancillary Business Activities

Primary New York References:
Background References: ABA Model Rule 5.7, Other Jurisdictions
Commentary: ABA/BNA § 101:2101, ALI-LGL §, Wolfram §

[The discussion of this topic has not yet been written.]