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Ohio Legal Ethics Narrative
v. law firms and associations
Ohio Rule 5.4 is substantively identical to the Model Rule, with the following exceptions:
In subdivision (a)(4), the Model Rule provision allowing a lawyer to share court-awarded legal fees with a nonprofit corporation "that employed, retained or recommended employment of the lawyer in the matter" is limited to sharing of such fees with a nonprofit "that employed or retained the lawyer in the matter."
Subdivision (a)(5) (there is no MR 5.4(a)(5)) deals with the "recommended" aspect included in MR 5.4(a)(4): it permits the sharing of legal fees (not just court-awarded) with a nonprofit that recommended employment in the matter, but only "if the nonprofit organization complies with Rule XVI of the Supreme Court Rules for the Government of the Bar of Ohio."
The following section of the Ohio Code of Professional Responsibility is listed in the Correlation Table (Appendix A to the Rules) as related to Ohio Rule 5.4(a): DR 3-102(A).
The following section of the Ohio Code of Professional Responsibility is listed in the Correlation Table (Appendix A to the Rules) as related to Ohio Rule 5.4(b): DR 3-103.
The following section of the Ohio Code of Professional Responsibility is listed in the Correlation Table (Appendix A to the Rules) as related to Ohio Rule 5.4(c): DR 5-107(B).
The following section of the Ohio Code of Professional Responsibility is listed in the Correlation Table (Appendix A to the Rules) as related to Ohio Rule 5.4(d): DR 5-107(C).
- Primary Ohio References: Ohio Rule 5.4(a)
- Background References: ABA Model Rule 5.4(a)
- Ohio Commentary: Greenbaum, Lawyer's Guide to the Ohio Code of Professional Responsibility §§ 3.44, 3.46-3.53
- Commentary: ABA/BNA § 41:801; ALI-LGL § 10(3); Wolfram § 9.2.4
The material in this section is, in part, excerpted and adapted from Arthur F. Greenbaum, Lawyer's Guide to the Ohio Code of Professional Responsibility §§ 3.44, 3.46-3.53 (1996).
Ohio Rules 5.4(a) and (b) substantially limit the ability of lawyers to enter into joint ventures with nonlawyers where a portion of the service offered through the venture is the practice of law. Rule 5.4(a), with certain exceptions, prohibits fee splitting with nonlawyers and is discussed in this section. Rule 5.4(b) prohibits entering into a partnership with a nonlawyer for the practice of law and is discussed in section 5.4:300.
The basic rationale for these rules is to "express traditional limitations" on fee sharing and third-party direction of a lawyer's professional judgment. Ohio Rule 5.4 cmts.  & . See also section 1.8:710.
Fee sharing - In general: With five stated exceptions, Ohio Rule 5.4(a) prohibits a lawyer or law firm from sharing legal fees with a nonlawyer. Fees may be shared with a nonlawyer only under the following circumstances:
(1) pursuant to an agreement between the lawyer and the lawyer's firm, partner, or associates to provide payment of money, over a reasonable period of time after the lawyer's death, to the lawyer's estate or one or more specified nonlawyers;
(2) a lawyer purchasing the practice of another lawyer in accordance with the provisions of Ohio Rule 1.17 may pay the agreed-upon purchase price to the other lawyer's estate or other representative;
(3) a lawyer or law firm may include nonlawyer employees in a compensation or retirement plan, even though the plan is based in whole or part on a profit-sharing arrangement;
(4) a lawyer may share court-awarded legal fees with a nonprofit organization that employed or retained the lawyer in the matter; and
(5) a lawyer may share legal fees with a nonprofit organization recommending employment of the lawyer in the matter, if the organization complies with Gov Bar R XVI.
Rule 5.4(a)(3) recognizes that paying a nonlawyer's salary is not an impermissible fee-sharing, even though the salary is paid from fee-generated revenue. Also, funds generated by means other than legal fees may be divided with nonlawyers. For example, under the former OHCPR, the Board opined that if a lawyer and a nonlawyer co-sponsored a legal seminar for the public and charged a nominal attendance fee, the resulting income would not be legal fees, and thus a division would not be improper. Bd. of Comm'rs on Grievances & Discipline Op. 94-13, 1994 Ohio Griev. Discip. LEXIS 2 (Dec. 2, 1994).
As the Task Force states in its Ohio Code Comparison to Rule 5.4:
Rule 5.4 is not intended to change any of the provisions in the Ohio Code. Slight modifications in language between Ohio Code provisions and the Model Rule are intended to promote clarity of meaning. Rule 5.4(a) is substantially the same as [former] DR 3-102(A). Rule 5.4(b) is identical to [former] DR 3-103. Rule 5.4(c) is substantially the same as [former] DR 5-107(B). Rule 5.4(d) is substantially the same as [former] DR 5-107(C).
Underlying the prohibition against fee splitting is a fear that the practice may lead to other ethical violations that harm client interests, Bd. of Comm'rs on Grievances & Discipline Op. 94-8, 1994 Ohio Griev. Discip. LEXIS 7 (June 17, 1994), including encouraging the unauthorized practice of law by the nonlawyer, see section 5.5:300, and enhancing the possibility that the third party will interfere with the lawyer's exercise of independent professional judgment on the client's behalf. See Rule 1.8(f) and section 1.8:710. Such arrangements might also lead to an excessive increase in the fees charged the client to cover the fee-splitting arrangement. See Ohio Rule 1.5(a). In the instance of a private investigator who ultimately might testify in a case, such an arrangement could lead to a prohibited payment in exchange for witness testimony. See Ohio Rule 3.4(b) and section 3.4:310.
Fee-sharing problems arise in a number of different contexts. The most common of these have been the subject of a few court decisions and various bar association opinions decided under the former OHCPR. Given the similarity of the two sets of rules on this subject, most of these determinations should be reliable indicators of the law under the Rules of Professional Conduct. These cases and opinions are discussed below.
Fee sharing - Fee sharing with nonlegal employees: While a lawyer may pay an employee a salary that is ultimately derived from legal fees and the employee may be included in the profit-sharing retirement plan of a lawyer or law firm, Ohio Rule 5.4(a)(3), the lawyer may not otherwise enter into a fee-sharing arrangement with an employee. The respondent in Richland County Bar Ass'n v. Akers, 106 Ohio St.3d 337, 2005 Ohio 5144, 835 N.E.2d 29, did so in violation of OH DR 3-102(A), the Code analog to Rule 5.4(a), when he had his former secretary prepare legal documents for respondent's review and approval; upon receipt of payment of legal bills that she sent out, the secretary deducted $30 per hour for her services and sent the balance of the fee to respondent. And see Disciplinary Counsel v. Maley, 119 Ohio St.3d 217, 2008 Ohio 3923, 893 N.E.2d 180, where respondent’s unsupervised secretary helped herself to client fee payments; DR 3-102(A) violated. Nor could a lawyer agree to split a contingency fee with a nonlawyer private investigator to secure the investigator's services in the matter. Bd. of Comm'rs on Grievances & Discipline Op. 94-8, 1994 Ohio Griev. Discip. LEXIS 7 (June 17, 1994). See Duggins v. Steak ' N Shake, Inc., 195 F.3d 828 (6th Cir. 1999) (remanding with recommendation that district court refer plaintiff's former law firm to Ohio Bar Association concerning allegations of fee splitting with "investigator" who was firm's agent/employee). In Columbus Bar Ass'n v. Plymale, 91 Ohio St.3d 367, 745 N.E.2d 413 (2001), however, the panel, Board, and Court all found that a year-end bonus policy for the firm's legal assistants did not violate the Rule, even though the policy expressly provided that a paralegal "assigned to a particular lawyer will be paid .004 [.4%] of the gross fees earned by the lawyer during the fiscal year . . . ." Id. at 369, 745 N.E.2d at 416 (bracketed material by the Court). The Court's opinion does not further analyze the issue.
Fee sharing - Impermissible structural arrangements: When a lawyer enters into an impermissible structural arrangement with a nonlawyer, improper fee sharing often is involved as well. Lawyer-nonlawyer joint ventures raise various ethical issues depending on the exact nature of the relationship. In addition to improper fee sharing under this section, problems that may arise include improper solicitation and referrals (Ohio Rule 7.2(b); see section 7.2:400), aiding the unauthorized practice of law (Ohio Rule 5.5(a); see section 5.5:300), creation of a partnership with a nonlawyer (Ohio Rule 5.4(b); see section 5.4:300), conflict of interest (Ohio Rule 1.7(a)(2)); see section 1.7:500), and third-party influence concerns (Ohio Rule 1.8(f); see section 1.8:710). For example, if a lawyer were employed by a certified public accounting firm to provide legal services to clients of the firm, it would violate the fee-sharing provision. Bd. of Comm'rs on Grievances & Discipline, Op. 89-31, 1989 Ohio Griev. Discip. LEXIS 1 (Oct. 13, 1989). The joint provision of divorce mediation services by a lawyer and a psychologist would also constitute improper fee splitting if some of the fees paid were for drafting a memorandum of understanding "encompassing the terms of the agreement on all matters in the termination of the marriage," a document the Ohio State Bar Association equated with a separation agreement. Ohio State Bar Ass'n Informal Op. 82-2, at 3 (Aug. 3, 1982). A collection agency cannot employ an attorney to handle collection matters for clients of the agency. To do so would involve the corporation in offering legal services, which it is not authorized to do, and might also involve the lawyer and corporation in the sharing of legal fees. Ohio State Bar Ass'n Informal Op. 90-5 (Aug. 2, 1990); but see Cincinnati Bar Ass'n Op. 90-91-10 (n.d.) (lawyer may be retained on a contingency-fee basis by a collection agency to render legal services for creditor clients of the collection agency). Were a lawyer to participate in a living-trust seminar sponsored by an organization, and agree to pay some of the organization's expenses incurred in offering the seminar out of attorney fees generated by related legal services provided to seminar attendees, this would constitute sharing legal fees with a nonlawyer. Ohio State Bar Ass'n Informal Op. 94-2 (Oct. 25, 1994). In each case the lawyer's services would generate fees that in turn would be shared with a nonlawyer.
In Bd. of Comm'rs on Grievances & Discipline Op. 2004-2, 2004 Ohio Griev. Discip. LEXIS 2 (June 3, 2004), the improper fee sharing was inherent in the structural arrangement itself. The proposed structural arrangement was a contract, entered into by a lawyer and a nonlawyer funding company, pursuant to which the lawyer would sell his legal fees to the company upon reaching a settlement agreement in a client's legal matter. The lawyer would get immediate cash in an amount less than the full value of the fee. Upon disbursement of the settlement funds, the funding company would retain the difference between the full fee, paid from the settlement, and the discounted amount advanced to the lawyer. On such facts, the Board had little difficulty concluding:
It is unethical for an attorney to sell his or her legal fees. An attorney who upon reaching a settlement agreement sells or assigns his or her legal fee to a funding company is dividing a legal fee with a non-attorney. The attorney gets only part of his or her legal fee -- the amount advanced by the funding company. The non-attorney funding company gets the rest of the attorney's legal fee. This proposed conduct violates [former] DR 3-102(A). None of the exceptions to the division of fees with non-lawyers, listed in [former] DR 3-102(A)(1) through (5), applies.
Id. at *4. In Core Funding Group, LLC v. McDonald, 2006 Ohio 1625, 2006 WL 832833 (App. Lucas), appellee law firm cited Opinion 2004-2 in support of its argument that enforcement of the assignment of legal fees it made to appellant funding company was against public policy. The court of appeals was not persuaded and concluded that, whatever the ethical consequences under MR 5.4 (the lawyers involved were not from Ohio) of sharing fees or contract rights to fees with a nonlawyer, "'[i]t does not seem to this Court that we can claim for our profession, under the guise of ethics, an insulation from creditors to which others are not entitled.'" (Quoting with approval from PNC Bank v. Berg, 45 UCC Rep. Serv. 2d 27, 1997 Del. Super. LEXIS 19, at n.5 (Del. Super. 1997).) The Ohio court therefore reversed the summary judgment in favor of the law firm and granted the funding company's summary judgment motion against the firm for violation of the security instruments.
Fee sharing - Linking a lawyer's services with those of a nonlawyer: Even if the lawyer maintains structural independence from nonlawyers, linkage between legal services provided by the lawyer and other services provided by a nonlawyer may constitute impermissible fee sharing. Thus, in addressing the question whether a law firm, using a broker to locate a buyer or seller of a business for a client, could share with the broker the fee charged the client, the Board of Commissioners opined that such an arrangement would be improper under former OH DR 3-102(A): "[A] business broker's fee must not come from the law firm's legal fee. If the services of a business broker are used, the broker's fee must be independent of the legal fee." Bd. of Comm'rs on Grievances & Discipline Op. 2003-1, 2003 Ohio Griev. Discip. LEXIS 1, at *14 (Apr. 11, 2003). Accord Bd. of Comm'rs on Grievances & Discipline Op. 92-15, 1992 Ohio Griev. Discip. LEXIS 6 (Aug. 14, 1992) (lawyers in business arrangement with corporation whereby consumers would be receiving legal services through corporation were involved in improper division of legal fees with nonlawyer). The OSBA determined that an attorney who also was a title-insurance agent could not offer reduced fees for title-insurance services in exchange for the client's using the lawyer's legal services. This arrangement amounted to a sharing of fees "if the lawyer compensates a non-lawyer title examiner at his regular rate and must pay the title insurer the standard rate on the policy that is issued." Ohio State Bar Ass'n Formal Op. 37, at 3 (July 3, 1989). These payments, in essence, were seen as coming out of the legal fees obtained. Id. Paying nonlawyer financial planners to distribute a lawyer's brochure to clients who need wills would violate a number of rules, including the prohibition against fee splitting. Ohio State Bar Ass'n Informal Op. 90-6 (Aug. 2, 1990). (The opinion does not explicitly address why this was fee splitting rather than the mere payment of an employee for services. The latter characterization seems plausible, particularly since the fees paid were not contingent on a client being secured through the solicitation. Presumably the fee-splitting notion is that the amount paid for distribution was seen as coming from the fees collected from solicited clients.) Providing trust agreements to clients of a financial planner, with the overall fee to the financial planner divided between the planner and the lawyer, also violated the former Code provision. Ohio State Bar Ass'n Informal Op. 90-2 (July 13, 1990). Similarly, an arrangement whereby persons facing foreclosure actions entered into an agreement with a nonlawyer consultant pursuant to which the consultant secured a single fee from its clients and then used that fee to pay an attorney for providing legal assistance to those clients, could involve the attorney in illegal fee splitting. Cleveland Bar Ass'n Op. 86-3 (Aug. 28, 1986). Accord Cleveland Bar Ass'n Op. 87-1 (July 31, 1987) (following Opinion 86-3 re lawyer's proposed arrangement with consultant that would involve providing medical and legal services to consultant's clients; if consultant's analysis is offered to its clients for single fee and if amounts paid by consultant's clients for legal services is in excess of retainer that consultant pays lawyer, lawyer's participation in such an arrangement would violate former OH DR 3-102(A)).
There are a number of disciplinary cases under the Code involving sharing legal fees with nonlawyers. One of the most recent is Cincinnati Bar Ass’n v. Mullaney, 119 Ohio St.3d 412, 2008 Ohio 4541, 894 N.E.2d 1210, in which the three respondents, who provided legal services on behalf of homeowners in foreclosure proceedings, accepted a portion of the compensation paid by the homeowner/customers to a company in the business of attempting to avoid foreclosure; this arrangement violated DR 3-102(A). Another is Ohio State Bar Ass’n v. Jackel, 118 Ohio St.3d 186, 2008 Ohio 1981, 887 N.E.2d 340, where the lawyer and a company marketing estate-planning services split fees. This arrangement also violated DR 3-102(A). A similar result obtained in Columbus Bar Ass’n v. Willette, 117 Ohio St.3d 433, 2008 Ohio 1198, 884 N.E.2d 581, in which respondent paid a Michigan law firm 50% of the fees he received from each client referred to him by the firm pursuant to a contractual arrangement for the marketing of living trusts and other estate-planning packages. Note that the violation involved sharing fees with a law firm, but the Michigan firm had “no attorneys licensed to practice in Ohio,” id. at para. 13, and thus was considered a nonlawyer for 3-102 purposes. In Disciplinary Counsel v. Simonelli, 113 Ohio St.3d 215, 2007 Ohio 1535, 863 N.E.2d 1039, respondent violated DR 3-102(A) by sharing fees with an entity (whose president was a nonlawyer) that referred bankruptcy business to respondent. Accord Disciplinary Counsel v. Stranke, 110 Ohio St.3d 247, 2006 Ohio 4357, 852 N.E.2d 1202 (same). In Cleveland Bar Ass'n. v. Nosan, 108 Ohio St.3d 99, 2006 Ohio 163, 840 N.E.2d 1073, respondent shared fees with a business selling debt-management services to consumers, who were charged by respondent for establishing their repayment plan; 75% of the fee was forwarded to the nonlawyer business organization; this violated former OH DR 3-102(A). Because respondent was no longer associated with the business, the Court approved the Board's recommendation of a stayed six-month suspension.
Columbus Bar Ass'n v. Fishman, 98 Ohio St.3d 172, 2002 Ohio 7086, 781 N.E.2d 204, concerned a respondent who contracted with an out-of-state nonlawyer organization ("AHC") that was engaged in the sale and marketing of living trusts. Respondent played no role in the initial contacts with prospective customers or clients. If, after initial contact, the customer agreed to pay for preparation of a living trust, AHC representatives had the person execute a fee and engagement agreement, and then collected a fee of $1,695, with the checks made out to respondent. Respondent endorsed the checks as necessary, and AHC deposited the funds in an out-of-state account that was not a client trust account. The trust documents were prepared by AHC and sent to respondent for his review. AHC "delivery agents" then met with the customer and had the necessary paperwork completed. At the same time, the delivery agents attempted to sell annuities to the customers. For each living trust sold, ACH paid respondent $150 for his participation. Not surprisingly, the Board found and the Court concurred that respondent "impermissibly shared fees with AHC . . . ." Id. at para. 17. For this and other OHCPR violations, respondent was suspended from practice for one year.
In Columbus Bar Ass'n v. Moreland, 97 Ohio St.3d 492, 2002 Ohio 6726, 780 N.E.2d 579, the respondent entered into a contract with a corporation that marketed legal services. The corporation sent direct-mail solicitations to potential clients for respondent's estate-planning practice. Respondent paid the company a weekly service fee for each verified appointment with a potential client and received roughly 15-25% of the fee paid by potential clients who in fact signed a representation agreement. The rest went to the company and its sales representatives. The Board found that this conduct violated former OH DR 3-102(A); the Court agreed. Because of mitigating factors, respondent was publicly reprimanded. In Cincinnati Bar Ass'n v. Kathman, 92 Ohio St.3d 92, 748 N.E.2d 1091 (2001), respondent, like the respondent in Fishman, entered into a relationship with an organization marketing living trusts. The organization prepared the trusts; respondent served as a "review attorney." The organization's customers who agreed to have it prepare a trust for them paid the organization's agent by check made out to respondent. Respondent deducted $200 for his legal fee, with the remainder going to the organization. The Board concluded that this arrangement was a fee-sharing agreement between respondent and a nonattorney in violation of former OH DR 3-102(A). The Court adopted the recommendation of the Board and imposed a six-month suspension. In Cincinnati Bar Ass'n v. Spitz, 89 Ohio St.3d 117, 729 N.E.2d 345 (2000), the respondent was indefinitely suspended from the practice of law for violating, inter alia, OH DR 3-102(A) by, under an agreement with a nonlawyer, splitting a fee with the nonlawyer for preparing a deed and trust, and then attempting to cover up the violation with a sham invoice.
Other "living trust" fee-sharing cases in which the respondent violated OH DR 3-102(A) are Cincinnati Bar Ass'n v. Heisler, 113 Ohio St.3d 447, 2007 Ohio 2388, 866 N.E.2d 490, and Disciplinary Counsel v. Wheatley, 107 Ohio St.3d 224, 2005 Ohio 6266, 837 N.E.2d 1188. But the Court in Columbus Bar Ass'n v. Plymale, 91 Ohio St.3d 367, 745 N.E.2d 413 (2001), found no violation where the lawyer and nonlawyer discussed a fee-sharing arrangement but never entered into an agreement to do so. Noting that the rule prohibited sharing fees with a nonlawyer, which did not occur, the majority concluded that even if there had been an agreement, this "does not in and of itself constitute a violation of DR 3-102(A)." Id. at 370, 745 N.E.2d at 416. The justices split 4-3 on this issue.
The Heisler case goes into some detail with respect to the appropriate sanction in such cases, and finds that the respondent in neither Heisler nor Disciplinary Counsel v. Kramer, 113 Ohio St.3d 455, 2007 Ohio 2340, 866 N.E.2d 498 (another living-trust disciplinary case, but not involving fee-sharing) "completely surrendered his professional judgment for the sake of sales," id. at para. 18; this exercise of independent judgment was in contrast to the Kathman and Fishman cases. Moreover, unlike the lawyers in Fishman and Wheatley, the Heisler and Kramer respondents "eventually came to understand the dangers inherent in affiliations with living trust sales enterprises." Id. Because of these differences, the Heisler/Kramer respondents were given stayed six-month suspensions, in contrast to the six-month actual suspension in Kathman and Wheatley and the one-year actual suspension in Fishman. The sanction imposed in Fishman was more severe than that imposed in Moreland or Kathman; the Court seemed particularly troubled that respondent Fishman, who had been in practice for more than thirty-five years, "remains oblivious to the full significance of his unprofessional conduct." Id. at para. 20. Writing for the three-justice dissent in Heisler, Chief Justice Moyer read the precedent differently and would have imposed a six-month actual suspension, because "I am unable to distinguish respondent's misconduct from the actions discussed in [Wheatley and Kathman]." Id. at para. 23.
Fee sharing - Acquiring the practice of another: Ohio Rule 1.17 (incorporating the provisions of former OH DR 2-111), permits a lawyer or law firm to sell or purchase a law practice so long as the transaction is effected in accordance with the provisions of the Rule. See sections 1.17:200-:300. Former OH DR 3-102(A) was amended at the same time by adding new subpart 2 [OH DR 3-102(A)(2)], which expressly recognized that a transaction involving the purchase of a deceased, disabled, or disappeared lawyer's practice in accordance with what is now Ohio Rule 1.17 "may provide for the payment of money, over a reasonable period of time, to a nonlawyer." The operative language is now found in Ohio Rule 5.4(a)(2), which permits the payment of "the agreed-upon purchase price to the estate or other representative of that lawyer."
In Informal Opinion 81-9, the Ohio State Bar Association to addressed the question whether a lawyer taking over the practice of a suspended attorney could compensate that attorney, in part, with a percentage of future case income. The OSBA found that because the suspended attorney was considered a nonlawyer during the time of the suspension, a payment of this kind would constitute impermissible fee sharing. Ohio State Bar Ass'n Informal Op. 81-9 (Nov. 4, 1981).
Fee sharing - Referral fees: Referral fees present another problem in this area. As addressed in Ohio Rule 7.2(b), a lawyer is not permitted to give "a person" anything of value for the referral of cases, although a de minimis exception probably exists, along with the express exception for "usual charges" of a legal-services plan or lawyer referral service set forth in Rule 7.2(b)(2) and (3). See section 7.2:400. In addition to violating Rule 7.2(b), such payments would likely also constitute impermissible fee splitting with a nonlawyer. The Supreme Court so held under the Code analog to Rule 5.4(a) in Cincinnati Bar Ass'n v. Haas, 83 Ohio St.3d 302, 699 N.E.2d 919 (1998), where the respondent had an arrangement to split fees in return for personal-injury referrals. Accord Cleveland Bar Ass'n v. Reed, 94 Ohio St.3d 139, 761 N.E.2d 9 (2002) (splitting fees on cases referred to respondent by Pennsylvania lawyer not admitted in Ohio violated former OH DR 3-102); Greater Cleveland Bar Ass'n v. Protus, 53 Ohio St.2d 43, 372 N.E.2d 344 (1978) (nonlawyer company in business of estimating and adjusting fire-loss claims solicited business for respondent's law firm, which collected fee provided for in employment contract and thereafter paid portion of fee to nonlawyer company; former OH DR 3-102(A) violated, among other provisions; indefinite suspension imposed); Toledo Bar Ass'n Informal Op. 86-9, at 1 (1986) (treating referral fee as fee-sharing issue and stating: "[F]ee sharing may be in the form of a gift of property or other emoluments as well as in the form of money. . . . [T]he test is whether a reasonable man would believe that the gift was of such a substantial value that it constituted a fee sharing, rather than a token of appreciation," which is permissible).
Although there was once some question whether a lawyer's paying a percentage of legal fees earned to a qualified lawyer referral service would constitute improper fee sharing with a nonlawyer, the Code of Professional Responsibility was amended in 1996 to allow this practice. Former OH DR 3-102(A)(5). The Staff Notes to that amended rule stated that the intent was to negate Bd. of Comm'rs on Grievances & Discipline, Op. 95-6, 1995 Ohio Griev. Discip. LEXIS 9 (June 2, 1995), which had opined that a lawyer receiving a percentage of the fee earned from a referral by a nonprofit referral organization other than a bar association violated the pre-amendment version of former OH DR 3-102(A). As stated by the Task Force, Rule 5.4 is not intended to change the analogous OHCPR provisions, such as OH DR 3-102(A). Note, however, that 5.4(a)(5) permits fee sharing with such referral organizations, without use of the "calculated-as-a-percentage" language of former 3-102(A)(5), which provided that the permitted fee was to be calculated as a percentage of legal fees earned by the lawyer. With respect to sharing court-awarded legal fees with nonprofit organizations that employed or retained the lawyer in the matter, see Ohio Rule 5.4(a)(4).
In Bd. of Comm'rs on Grievances & Discipline Op. 2001-2, 2001 Ohio Griev. Discip. LEXIS 2 (Apr. 6, 2001), the Board set forth guidelines concerning whether a lawyer's payment of compensation to a company in exchange for an on-line attorney directory listing was a permissible payment for advertising under former OH DR 2-101, or a prohibited payment for a referral under former OH DR 2-103(B). See Bd. of Comm'rs on Grievances & Discipline Op. 2000-5, 2000 Ohio Griev. Discip. LEXIS 5 (Dec. 1, 2000) (improper for lawyer to enter into agreement with out-of-state law firm operating on-line referral service unless service complied with former OH DR 2-103(C) and the Lawyer Referral and Information Services Regulations ("LRIS"), published at Gov Bar R App VII).
For discussion of fee sharing/referral fees between lawyers not in the same firm, see section 1.5:800.
Fee sharing - Creative fee arrangements: The problem of fee sharing with a nonlawyer should not be confused with entering into creative fee arrangements with clients. For example, the Ohio State Bar Association was asked whether a lawyer could enter into a contract with a county agency to provide legally-mandated child-support enforcement services to eligible parents. Under the arrangement the county would pay the attorney an hourly rate, but would be reimbursed from any court-awarded attorney fees the lawyer received. The OSBA indicated that this arrangement would fall outside the ambit of former OH DR 3-102(A). Rather than sharing of legal fees, this arrangement was "simply the county guaranteeing that the attorney will in fact be paid." Ohio State Bar Ass'n Informal Op. 86-3, at 3 (Apr. 30, 1986). More broadly, the OSBA felt that this kind of transaction was not the sort the rule was meant to prevent:
The purpose of the prohibition against the fee sharing is so that nonlawyers are not aided or incouraged [sic] to practice law.
. . . The purpose of [this] . . . arrangement is obviously beneficial to the public and the Committee does not find any "fee-splitting" problem presented.
Id. at 2 (bracketed material added).
The OSBA reached a like result in Ohio State Bar Ass'n Informal Op. 76-10 (Aug. 24, 1976). In the situation posed, attorneys would provide reduced-fee representation to clients in public-interest cases referred to them from a nonprofit legal-aid office. In turn, they would remit some or all of any court-awarded attorney's fees to the organization. The bar association, finding no impermissible fee splitting, approved this arrangement:
[T]he thrust of the disciplinary rule is, insofar as we are concerned here, to prevent the lay organization from exploiting the legal services of the lawyer and practicing law. But we see no danger of that in the situation presented. There is no sale or exploitation of the lawyers [sic] services since they are not performed for the employer, the Foundation, but for the client. The Foundation merely agrees with the lawyer as to the amount of the fee for his representation of the client. . . . However, where a fee is to be paid or allowed by a court, the lawyer should inform the court as to all relevant aspects of the fee arrangements to insure that the court is not misled.
Id. at 3 (bracketed material added). The arrangements examined in these OSBA opinions are expressly recognized under Rule 5.4(a)(4).
Similarly, the Cleveland Bar Association approved the assignment of court-awarded attorney fees by an instructor handling cases through a law school's legal clinic to the legal clinic. Cleveland Bar Ass'n Op. 144 (Mar. 28, 1980). Although it felt that this practice technically was a sharing of legal fees with a nonlawyer in violation of former OH DR 3-102(A), the bar association determined that prohibiting it would violate public policy and possibly might constitute an antitrust violation as well. Moreover, prohibiting the practice arguably would be in conflict with Gov Bar R II, which the association felt should take precedence over the disciplinary rule in question. Again, Rule 5.4(a)(4) would permit such an arrangement. See also Bd. of Comm'rs on Grievances & Discipline Op. 90-23, 1990 Ohio Griev. Discip. LEXIS 2 (Dec. 14, 1990) (placement of temporary lawyers by agency for fee, based on percentage of lawyer's compensation, did not violate former OH DR 3-102(A), but opinion suggests that law firm's payment of hourly wage to temporary lawyer and fixed fee to agency would be better course).
Fee-sharing problems also might arise if a collection agency is hired to secure delinquent legal fees and is paid based on a percentage of the fees collected. Nevertheless, the Board of Commissioners approved this practice under the Code, as long as the fees to be collected were fully earned prior to referral. According to the Board, such payments were for the collection agency's services, not the splitting of a legal fee. Bd. of Comm'rs on Grievance & Discipline, Op. 91-16, 1991 Ohio Griev. Discip. LEXIS 13, at *9-10 (June 14, 1991). In a 1994 opinion, the Board contrasted this situation with a proposed arrangement whereby an attorney would pay a finance company a certain percentage of any legal fee earned from a prospective client, at a set rate of interest, to enable the client to pay the attorney fees. While acknowledging that some states have approved such arrangements by characterizing them as mere business deals or finance arrangements, the Board refused to do so and instead treated the situation as an impermissible fee division. Bd. of Comm'rs on Grievances & Discipline, Op. 94-11, 1994 Ohio Griev. Discip. LEXIS 4 (Oct. 14, 1994).
Exceptions to the prohibition against fee splitting - Ohio Rule 5.4(a) exceptions: As noted above, the Rule recognizes five exceptions to the general prohibition against sharing legal fees with a nonlawyer. The first deals with payments made to a nonlawyer arising out of the death of an attorney. A lawyer may enter into an agreement with other lawyers with whom he or she works whereby upon death payments will be made over a reasonable time to the lawyer's estate or other designated persons. Ohio Rule 5.4(a)(1). (But note that in Bd. of Comm'rs on Grievances & Discipline Op. 2002-12, 2002 Ohio Griev. Discip. LEXIS 13 (Oct. 4, 2002), the Board opined that the analogous exception in former OH DR 3-102(A) did "not permit an attorney's intervivos transfer of shares in a legal professional association into an irrevocable trust to be held by a [lawyer] trustee for non-attorney beneficiaries to receive income during and after the life of the attorney." Id. at *13.) Under the second exception, an agreement to purchase the practice of a deceased, disabled, or disappeared lawyer may provide for the payment of the agreed-upon purchase price to the estate or other representative of that lawyer. Ohio Rule 5.4(a)(2). The third exception specifies that nonlawyer employees can be included in the profit-sharing compensation or retirement plan of a lawyer or law firm. Ohio Rule 5.4(a)(3). The fourth exception allows an attorney to share court-awarded legal fees with a nonprofit organization that "employed or retained the lawyer in the matter." Ohio Rule 5.4(a)(4). The final exception permits a lawyer to share legal fees with a nonprofit organization that recommended employment of the lawyer, if the organization complies with Gov Bar R XVI. Ohio Rule 5.4(a)(5). The differences between Ohio Rules 5.4(a)(4) and (5) and MR 5.4(a)(4) are set forth in section 5.4:101 supra.
These five exceptions are recognized because fee sharing in these circumstances does not contravene the policies underlying the general prohibition; i.e., they do not aid or encourage nonlawyer practice of law.
- Primary Ohio References: Ohio Rule 5.4(b)
- Background References: ABA Model Rule 5.4(b)
- Ohio Commentary: Greenbaum, Lawyer's Guide to the Ohio Code of Professional Responsibility § 3.45
- Commentary: ABA/BNA § 91:401; ALI-LGL § 10(2)
The material in this section is, in part, excerpted and adapted from Arthur F. Greenbaum, Lawyer's Guide to the Ohio Code of Professional Responsibility § 3.45 (1996).
The structure of the lawyer/nonlawyer relationship: Lawyers are free to practice not only as solo practitioners or in traditional partnerships, but also through a legal professional association, corporation, or legal clinic or a limited liability company or partnership. Gov Bar R III 1. See generally Herbert B. Levine, John C. Goheen & Michael J. Shapiro, One More Reason for Partners to Have a Happy New Year - Amendment to Rule III of the Rules for the Governance of the Bar (effective November 1, 1995), Clev. B. J., Dec. 1995, at 10 (discussing the requirements, advantages, and disadvantages of the different organizational forms). In doing so, however, the attorney must avoid improper entanglement with nonlawyers.
Ohio Rule 5.4(b) prohibits a lawyer from "form[ing] a partnership with a nonlawyer if any of the activities of the partnership consist of the practice of law." See Bd. of Comm'rs on Grievances & Discipline Op. 99-7, 1999 Ohio Griev. Discip. LEXIS 8 (Dec. 2, 1999) (no ethical bar to lawyer not licensed in Ohio from being partner, member, or "other equity holder" in Ohio firm, but lawyer must be licensed in another state to avoid proscriptions of former OH DR 3-103). (Such a licensed out-of-state lawyer, however, could not practice on a regular basis out of the offices of the Ohio firm without raising questions under Rule 5.5(b). See section 5.5:300.)
The reference to forming a "partnership" with a nonlawyer should not be read as being so limited; it is clear that the prohibition extends to any business relationship involving the practice of law. Violation of former OH DR 3-103(A), which contained language identical to that in Rule 5.4(b), took many forms, including
business agreements with nonlawyers: Cincinnati Bar Ass’n v. Mullaney, 119 Ohio St.3d 412, 2008 Ohio 4541, 894 N.E.2d 1210 (working agreement between respondents and Ohio corporation in business of helping its customers attempt to avoid foreclosure on their homes; by “partner[ing] with Foreclosure Solutions in representing debtors facing foreclosure,” id. at para. 22, they violated DR 3-103(A)); Cleveland Bar Ass'n v. Nosan, 108 Ohio St.3d 99, 2006 Ohio 163, 840 N.E.2d 1073 (respondent's affiliation with and legal work on behalf of out-of-state nonlawyer corporation providing consumer-debt consolidation services violated former OH DR 3-103(A)); Bd. of Comm'rs on Grievances & Discipline Op. 2004-9, 2004 Ohio Griev. Discip. LEXIS 11 (Oct. 8, 2004) (establishing mutual referral agreement with chiropractor, compensating chiropractor for referrals, or requesting chiropractor to recommend the lawyer's services to others would constitute business relationship with chiropractor involving practice of law in violation of OH DR 3-103(A)); Bd. of Comm'rs on Grievances & Discipline Op. 2002-1, 2002 Ohio Griev. Discip. LEXIS 1 (Feb. 1, 2002) (law firm's business relationship with real-estate agency, pursuant to which firm paid agency annual fee and offered discounted legal services to agency's customers in exchange for agency's promotion of firm as service provider in real estate benefits program, violated 3-103(A)); Bd. of Comm'rs on Grievances & Discipline Op. 2000-1, 2000 Ohio Griev. Discip. LEXIS 1 (Feb. 11, 2000) (ethically improper under former OH DR 3-103(A) for lawyer to accept fee from financial-services group for referring clients in need of financial services to group); see Bd. of Comm'rs on Grievances & Discipline Op. 97-1, 1997 Ohio Griev. Discip. LEXIS 8 (Feb. 14, 1997) (entering into franchise agreement with nonlawyers in nationwide network of franchised law firms violated 3-103(A)). See also Bd. of Comm'rs on Grievances & Discipline Op. 99-9, 1999 Ohio Griev. Discip. LEXIS 10 (Dec. 2, 1999) (cautioning that on-line service to answer legal questions for fee cannot be joint business effort between lawyer and nonlawyer).
joint ventures involving living trusts: Ohio State Bar Ass'n Informal Op. 94-2 (Oct. 25, 1994) (joint venture between lay organization sponsoring living-trust seminars and attorney providing legal services resulting from seminars constitutes impermissible partnership in violation of rule); Cincinnati Bar Ass'n Op. 91-92-06 (n.d.) (joint venture by lawyer and financial planner, whereby lawyer created living trusts for clients who then had option of talking to financial planner about asset enhancement techniques with respect to trust, violated former OH DR 3-103(A) and 5-107(C)).
formation of in-house law firms: Bd. of Comm'rs on Grievances & Discipline Op. 95-14, 1995 Ohio Griev. Discip. LEXIS 1, at *13-14 (Dec. 11, 1995) (participation by attorney-employees of insurance company in "in-house" law firm established by insurance company to represent insureds and practicing under a separate name violated former OH DR 3-103(A) "because the insurance company and the attorneys are improperly joined together as an 'in-house law firm' in the practice of law."); accord Bd. of Comm'rs on Grievances & Discipline Op. 94-9, 1994 Ohio Griev. Discip. LEXIS 6 (Aug. 12, 1994); see Bd. of Comm'rs on Grievances & Discipline, Op. 92-15, 1992 Ohio Griev. Discip. LEXIS 6 (Aug. 14, 1992) (entering into arrangement with corporation that facilitates corporation's unauthorized practice of law may violate this provision). Cf. Ohio State Bar Ass'n Informal Op. 90-5 (Aug. 2, 1990) (attorney/owner of corporation could render legal services to corporation but not to clients on behalf of corporation).
Note, however, that there is a separate, closely-related line of authority that reaches a different result. In Cincinnati Bar Ass'n v. Allstate Ins. Co., No. UPL 02-02 (Bd. of Comm'rs on Unauthorized Practice of Law Oct. 1, 2003), the Board ruled that Allstate was not engaged in the unauthorized practice of law when its lawyer employees represented the interests of the company's insureds in defending them in litigation in accordance with Allstate's contractual obligation under its insurance policies. The parties stipulated for purposes of the case that Allstate exercised no direction, control, or supervision of its staff attorneys that would impair the attorney's use of independent judgment in representing the policy holders. It was further stipulated that staff lawyers in so acting were protecting Allstate's direct and primary pecuniary interest in the outcome of the litigation involving its insureds. The Board expressly recognized that while a corporation cannot practice law indirectly through employment of lawyers, there is a recognized exception where the corporation has a direct or primary interest, citing Judd v. City Trust & Sav. Bank, 133 Ohio St. 81, 12 N.E.2d 288 (1937), and Land Title Abstract & Trust Co. v. Dworken, 129 Ohio St. 23, 193 N.E. 650 (1934). As a result, the bar association's action was dismissed. Accord Strother v. Ohio Cas. Ins. Co., 5 Ohio Supp. 362, 28 Ohio L. Abs. 550 (C.P. Hamilton 1939), aff'd without opinion. Strother has never been cited in any reported Ohio decision; nor did the UPL Board in Allstate refer to, cite, or distinguish the Board of Commissioners on Grievances and Discipline opinions discussed in the preceding paragraph. Perhaps the characteristic distinguishing the two lines of authority is the establishment of an "in-house" law firm practicing under a "firm name" using one or more of the names of the attorneys in the two BCGD opinions finding a violation of former OH DR 3-103(A); this mechanism was not used in either Allstate or Strother. Given the stamp of approval given by Allstate to straightforward staff attorney employee representation of insureds, and the Supreme Court's denial of review, such devices would now seem to be obsolete in any event. This issue and UPL Opinion 02-02 are discussed in greater detail at section 5.5:300.
Allstate was, quite properly, dealing only with the unauthorized-practice-of-law issue; it did not decide whether such arrangements constitute forming a partnership with a nonlawyer.
One final note about the UPL Allstate decision. It is not reported anywhere, including on Westlaw or LEXIS. All UPL opinions formerly were reported in Ohio Misc.2d and N.E.2d, but this is no longer the case. We have been advised that the current practice is as follows: UPL Board findings of a violation go to the Supreme Court for review and the only published decision is that of the Supreme Court. Dismissals of a charge of unauthorized practice do not automatically go to the Court, but relators can seek discretionary review (as in Allstate; see 100 Ohio St.3d 1514, 2003 Ohio 6460, 800 N.E.2d 33, where review was denied). The general rule, again as in Allstate; is that UPL Board opinions of dismissal are not published anywhere.
In sum, a lawyer should not practice law "in association" with a nonlawyer. The Ohio State Bar Association, for example, determined that if the joint offering of mediation services by a lawyer and psychologist in any way involved the provision of legal services, it would be improper for them to enter into "an association, partnership or other organization" for that purpose. Ohio State Bar Ass'n Informal Op. 82-2, at 3 (Aug. 3, 1982). But nationally, there is significant, more recent, support for a move in the opposite direction -- that providing mediation services is not the practice of law. See ABA Section on Dispute Resolution, Resolution on Mediation and the Unauthorized Practice of Law (Feb. 2, 2002):
Mediation is not the practice of law. Mediation is a process in which an impartial individual assists the parties in reaching a voluntary settlement. Such assistance does not constitute the practice of law.
Id. at 1. The Resolution cites a number of state rules, reports, and ethics opinions supportive of this position, and further notes that the existence of an attorney-client relationship is essential to most definitions of the practice of law. "Because mediators do not establish an attorney-client relationship, they are not engaged in the practice of law when they provided mediation services." Id. at 2. See Ohio Rule 2.4. See also 1 Sarah R. Cole, Nancy H. Rogers & Craig A. McEwen, Mediation - Law, Policy, Practice § 10.2 (2d ed. 2001 Supp. 2007-08) at Supp. 185-86 (discussing ABA Resolution). It must be remembered that the foregoing deals with the lawyer acting as a third-party neutral in the mediation process. Representation of a client involved in the mediation process, of course, is the practice of law. See Disciplinary Counsel v. Alexcole, Inc., Ohio St.3d 52, 2004 Ohio 6901, 822 N.E.2d 348 (participation in mediation hearings by nonlawyer on behalf of clients is unauthorized practice of law).
In a lengthy opinion summarizing much of the national debate regarding the propriety of business arrangements between lawyers and nonlawyers generally, the Cincinnati Bar Association described the test in the following terms:
All of the opinions stand basically for the same proposition: a lawyer cannot enter a business relationship with a non-lawyer where it involves the lawyer's practice of law or his holding himself out as a lawyer. It is clear from various ethics opinions dealing with lawyers in a relationship with a non-lawyer that relationships are only ethically permissible when the lawyer either employs the non-lawyer or the lawyer is not performing a legal function.
Cincinnati Bar Ass'n Op. 91-92-06, at 7 (n.d.) (Opinion 91-92-06 involved joint venture between lawyer and financial planner). Sharing office space with a nonlawyer is permissible, as long as the practices are kept separate and the lawyer complies with the advertising rules and other provisions of the disciplinary rules. See, e.g., Bd. of Comm'rs on Grievances & Discipline, Op. 90-09, 1990 Ohio Griev. Discip. LEXIS 16 (June 15, 1990); Ohio State Bar Ass'n Informal Op. 90-2 (July 13, 1990).
See also Ohio Rule 5.4(d), which prohibits a lawyer from practicing "with or in the form of a professional corporation or association authorized to practice law for a profit" if a nonlawyer owns an interest in the organization, is an officer or director of the organization, or has the right to direct or control the lawyer's professional judgment. See section 5.4:510. (An exception is made for a nonlawyer fiduciary of the estate of a lawyer, who may hold the stock or interest of the lawyer for a reasonable time during administration of the estate. Ohio Rule 5.4(d)(1).
Treatment of attorneys who are retired, suspended, or on inactive status as nonlawyers: The prohibition on practicing law in association with a nonlawyer still applies when a lawyer practices with another lawyer who is retired, suspended, or has taken inactive status. See Bd. of Comm'rs on Grievance & Discipline, Op. 96-3, 1996 Ohio Griev. Discip. LEXIS 6 (Apr. 12, 1996) (attorney who takes inactive registration status cannot continue to hold shares in a legal professional association because shares may be held only by one "authorized to practice law"; an attorney on inactive status is licensed to practice law, but is not authorized to do so). The same logic applies to lawyers who are suspended or retired and extends to prohibit their maintaining equity interests in any form the legal practice may take. See Gov Bar R III 3(B); Gov Bar R VI 3(A); Gov Bar VI 6(B).
Relationships not involving the practice of law: Ohio Rule 5.4(b) does not prohibit a lawyer from participating in a partnership with a nonlawyer where the partnership or other business relationship is not engaged in the practice of law. See, under the former OHCPR, Bd. of Comm'rs on Grievances & Discipline, Op. 94-7, 1994 Ohio Griev. Discip. LEXIS 8 (June 17, 1994) (approving joint ownership of business that provided law-related services, as long as those services did not constitute practice of law).
- Primary Ohio References: Ohio Rule 5.4(c)
- Background References: ABA Model Rule 5.4(c)
- Ohio Commentary: Greenbaum, Lawyer's Guide to the Ohio Code of Professional Responsibility §§ 5.140-5.142
- Commentary: ABA/BNA § 51:901; ALI-LGL § 10(1); Wolfram § 8.8
The material in this section is, in part, excerpted and adapted from Arthur F. Greenbaum, Lawyer's Guide to the Ohio Code of Professional Responsibility §§ 5.140-5.142 (1996).
Third-party direction of the lawyer's legal judgment - In general: Ohio Rule 5.4(c) addresses the distance the lawyer must maintain from a third party who "recommends, employs, or pays" the attorney to provide legal services on behalf of another. While third parties often are involved in creating and supporting the lawyer-client relationship for another, the lawyer must maintain complete loyalty and responsibility to the client. The lawyer cannot allow the third party "to direct or regulate the lawyer's professional judgment" in carrying out the representation. Id.
As former OH EC 5-24 explained, there are numerous instances in which a third party who recommends, employs, or pays for an attorney may have economic interests or social goals different from those of the client receiving the services. In reviewing and advising on the client's case, the lawyer must put those third-party interests aside. The best approach is to handle the case as though no third party is involved at all. The lawyer should serve the client as though the client came to the lawyer independently and is paying the lawyer directly. Failure to heed this advice has led to disciplinary action.
A classic example is Office of Disciplinary Counsel v. Carretta, 72 Ohio St.3d 42, 647 N.E.2d 471 (1995). In Carretta, a lawyer was contacted by his former church's pastor to represent an elderly widow who lived in a nursing home. The pastor was a long-time friend of the client and held the client's power of attorney, which he shared with two others. In preparing a will and trust for the client, the lawyer relied completely on the representations of the pastor, without ever speaking to the client herself, and included in the documents clauses conferring benefits on the pastor, purportedly in accord in the client's wishes as conveyed by the pastor to the lawyer. The Court found a violation of former OH DR 5-107(B) (now Ohio Rule 5.4(c)), in that the lawyer allowed the person who recommended his employment to direct his professional judgment in providing legal services to the client. See also Office of Disciplinary Counsel v. Salling, 71 Ohio St.3d 92, 642 N.E.2d 340 (1994) (reciprocal discipline ordered for lawyer suspended from practice in Hawaii in part for DR 5-107(B) violation).
In Butler County Bar Ass'n v. Bradley, 76 Ohio St.3d 1, 665 N.E.2d 1089 (1996), the Ohio Supreme Court held that "[a]n attorney should avoid even the perception that his or her work can be influenced or controlled by a party other than the client." Id. at 2, 665 N.E.2d at 1091. The attorney in Bradley was publicly reprimanded because he allowed a financial planner to gather information from the client and set the initial fee before either the planner or the client consulted the lawyer. In permitting this, the lawyer "allowed the client to perceive that the setting of a fee, the obtaining of information, and the possible refund of the fee could be controlled by a non-lawyer." Id.
See Bd. of Comm'rs on Grievances & Discipline Op. 2000-3, 2000 Ohio Griev. Discip. LEXIS 3 (June 1, 2000), where the Board opined that it was improper for an insurance defense attorney to abide by the insurance company's litigation management guidelines when they directly interfered with the lawyer's professional judgment by requiring prior approval by the insurer of the lawyer's engaging in legal research, discovery, motion practice, et al.
In the criminal-law context, a trial court should explore potential conflicts of interest that arise from third-party payment of a defendant's legal fees, to assure that due process and effective-assistance-of-counsel values are not compromised. For example, a payer's interest in avoiding being implicated in the crime, or in using the case to set a legal precedent, may conflict with the defendant-client's interest in avoiding or limiting punishment. In contexts such as these, questions of attorney loyalty will arise. See Wood v. Georgia, 450 U.S. 261 (1981).
Third-party direction of the lawyer's legal judgment - Lawyer/third-party joint ventures: Problems often arise when a lawyer's services are involved with the provision of nonlegal services by a third party who typically refers the clients to the lawyer. Depending on how the relationship is structured, the lawyer runs the risk of numerous ethical violations, including improper referral arrangements (see section 7.2:400), unauthorized practice of law concerns (see section 5.5:300), improper fee sharing and structural arrangements (see sections 5.4:200-:300), and various conflict-of-interest problems (see section 1.7:500). Among the conflict-of-interest issues is the very real concern that the lawyer's advice to the client might be directed or regulated by the third party involved, in violation of Ohio Rule 5.4(c).
Whether the concern is sufficient to invalidate the joint arrangement turns on the extent and nature of the connection between the lawyer and the third party. If the third party, rather than the client, compensates the lawyer, directly or indirectly, for the provision of services, or if the third party's activities serve as a basis for the legal work ultimately performed, these raise warning flags that the third party's influence may be too great.
One type of joint venture that has received considerable attention involves an arrangement between a lawyer and a financial planner to offer clients both legal and financial-planning services. Taken together, the advisory opinions issued under the former OHCPR on this topic well illustrate the concerns raised by joint ventures with third parties:
Were a lawyer to provide legal services, such as drafting wills, living wills, and powers of attorney, through a business corporation that markets those services, the lawyer would violate numerous provisions, including OH DR 5-107(B) (the Code analog to Rule 5.4(c)), since this arrangement was likely to allow the corporation to influence the provision of legal services to the client. Bd. of Comm'rs on Grievances & Discipline Op. 92-15, 1992 Ohio Griev. Discip. LEXIS 6 (Aug. 14, 1992). See also Lillback v. Metro. Life Ins. Co., 94 Ohio App.3d 100, 640 N.E.2d 250 (Montgomery 1994) (attorney/life insurance agent who sold life insurance and investments for insurance company to clients and offered those clients free will and trust drafting violated 5-107(B) if insurance company encouraged lawyer, through payments or prospect of greater commissions, to give particular sort of legal advice or to render particular kind of legal service).
A lawyer could not be employed by a financial-planning business to draft revocable living trusts for clients, where nonlawyers first convinced the clients of the desirability of the trust and acquired the basic information regarding the trust. Under this arrangement, the initial advice would be given by a nonlawyer, which in turn would compromise the lawyer's ability to exercise his independent professional judgment on the matter. Ohio State Bar Ass'n Informal Op. 90-2 (July 13, 1990). Accord Toledo Bar Ass'n Op. 91-24 (n.d.) (lawyer will have difficulty giving independent advice in light of initial work done by estate-planning business).
To the extent the lawyer maintains more distance from the corporation, however, the likelihood of a problem lessens. An attorney who represents a financial consulting firm, for example, may also independently represent clients of that firm in estate-planning matters, as long as the clients will pay the lawyer directly for those services. Even then, the lawyer still must make sure that his independent legal judgment is not directed or regulated by the firm in any way. Ohio State Bar Ass'n Informal Op. 79-6 (Sept. 20, 1979).
As these opinions reflect, whether any particular arrangement is prohibited depends on a case-by-case assessment of the degree of entanglement involved. At a minimum, caution is required before entering into arrangements of this kind.
While many of the advisory opinions in this area focus on joint ventures involving arrangements between a lawyer and a financial planner to offer clients both legal and financial planning services, problems have arisen in other contexts as well:
A lawyer could not be employed by an accounting firm to perform legal services for the accounting firm's clients, in part because the firm, a third party, would, as a practical matter, direct or regulate the lawyer in the exercise of his professional judgment. Bd. of Comm'rs on Grievances & Discipline Op. 89-31, 1989 Ohio Griev. Discip. LEXIS 5 (Oct. 13, 1989) (fee-sharing and referral problems also were recognized).
A lawyer could not be employed by a collection business to write demand letters and file suit for creditors, in part because the business, a third party, would, as the employer, functionally direct or regulate the lawyer in the exercise of his professional judgment. Ohio State Bar Ass'n Informal Op. 90-5 (Aug. 2, 1990). But see Cincinnati Bar Ass'n Op. 90-91-10 (n.d.) (approving such relationship as long as collection agency's involvement is sufficiently tangential so as not to interfere with lawyer's professional judgment).
lawyer could be paid by a bank for advising the lawyer's clients in connection with the administration of the bank's small-trust program, but the lawyer had to make sure that professional judgment was in no way influenced by the bank. Bd. of Comm'rs on Grievance & Discipline Op. 90-22, 1990 Ohio Griev. Discip. LEXIS 3 (Oct. 12, 1990).
These opinions bear on the multidisciplinary practice (MDP) issue, which came to a head in Ohio on May 17, 2000, when the Ohio State Bar Association concluded that MDP should not be authorized. 73 Ohio St. B. Ass'n Rep. 553, 561 (May 29, 2000). The ABA likewise rejected MDP at its 2000 annual convention. See ABA J, Sept. 2000, at 92. See further discussion of the MDP issue at section 5.5:300.
At times, the financing arrangement a client undertakes in order to pay the lawyer's fee, if facilitated by an agreement between the lawyer and a third-party payer, may raise Ohio Rule 5.4(c) concerns. For example, under the former OHCPR analog, OH DR 5-107(B), the Board determined that a plan whereby an attorney would pay to a finance company a percentage of the legal fee to be earned from a client, in exchange for the company's making a loan to the client to cover the fees, implicated the former disciplinary rule. Bd. of Comm'rs on Grievances & Discipline Op. 94-11, 1994 Ohio Griev. Discip. LEXIS 4 (Oct. 14, 1994) (Board also found that plan as structured involved an impermissible division of legal fees with a nonlawyer. See section 5.4:200). The Board feared that this entanglement might influence the lawyer in terms of whether to enter into a lawyer-client relationship with a particular client. The decision would turn, in part, on the finance company's view of the client, rather than on an independent assessment by the lawyer. Further, decisions on the degree of effort to expend on the case might be influenced by the fact that a percentage of the fees earned would need to be paid to the company. Independent financing options for the client were stressed as a better course.
Third-party direction of the lawyer's legal judgment - Organizational intermediaries in the provision of legal services: Potential problems may also arise when the lawyer's client contact is filtered through an intermediary organization other than a law firm, such as a referral service or a temporary-lawyer placement firm. Similar problems occur when the lawyer's activities are indirectly affected by an oversight organization such as in the legal-services or legal-aid context.
While the Ohio Rules explicitly allow appropriate lawyer referral services (Ohio Rule 7.2(b)(3) & cmt. ), caution must be exercised to assure that the referring entity does not impermissibly interfere with the professional relationship between the lawyer and client. See, under the former OHCPR, Bd. of Comm'rs on Grievances & Discipline Op. 89-25, 1989 Ohio Griev. Discip. LEXIS 31 (Aug. 18, 1989) (providing that although legal-aid society may refer cases in which it has conflict to volunteer lawyers' project funded through society, care should be taken to avoid third-party influence on volunteer lawyer's exercise of professional judgment). A referral organization's requirement that an attorney could co-counsel only with another attorney who was on the referral panel violated former OH DR 5-107(B), because it allowed the third party to direct the attorney's professional judgment as to the best co-counsel relationship for the client. Bd. of Comm'rs on Grievances & Discipline Op. 92-1, 1992 Ohio Griev. Discip. LEXIS 20 (Feb. 14, 1992). Both former OH DR 5-107(B) and 2-103(D) were violated by a lawyer who participated in a group legal services plan paid for by a church to provide estate-planning services to its members, where the plan provided that the church would bear the cost of the lawyer's preparation of self-trusteed revocable trusts only if the trust contained a provision that, upon the member's death, the church would receive $20,000 or 20% of the proceeds of the trust, whichever was greater. Bd. of Comm'rs on Grievances & Discipline Op. 2002-11, 2002 Ohio Griev. Discip. LEXIS 12 (Aug. 9, 2002). "The provision jeopardizes the lawyer's independent professional judgment in providing legal services that meet the client's needs because the group legal services plan requires that the church's needs be given consideration in every client matter involving a self-trusteed revocable trust." Id. at *10.
Similar problems can arise in the operation of a lawyer-placement service that provides lawyers, law firms, or in-house legal departments with lawyers to be employed on a temporary basis. Such placement services have been approved where certain ethical guidelines are met, including provisions to insure that the placement agency does not interfere with the lawyer's exercise of professional judgment on the client's behalf, contrary to former OH DR 5-107(B) and 5-107(C)(3). Bd. of Comm'rs on Grievances & Discipline Op. 90-23, 1990 Ohio Griev. Discip. LEXIS 2 (Dec. 14, 1990) (other concerns that arose involved fee splitting and protection of client confidences). The Board declared that the placement agency "must" execute an agreement with each temporary lawyer stating to the effect that the agency "will not exert any control or influence over the exercise of professional judgment by the lawyer, including limiting or extending the amount of time the lawyer spends on work for the clients of the employing firm." Id.at *4.
Yet another example of improper use of an organizational intermediary occurred in Bd. of Comm'rs on Grievance & Discipline Op. 97-5, 1997 Ohio Griev. Discip. LEXIS 4 (Oct. 10, 1997), where the Board opined that attorneys forming an ancillary business serving small and medium sized businesses to negotiate legal fees between each business and its retained counsel violated former OH DR 5-107(B), because the ancillary business "would be improperly attempting to exert influence on the attorneys who represent the businesses and would be interfering with a fee contract between attorneys and clients." Id. at *6.
And see Bd. of Comm'rs on Grievances & Discipline Op. 2002-5, 2002 Ohio Griev. Discip. LEXIS 5 (June 14, 2002), holding that a lawyer's agreement with a charitable organization to provide legal services to an unknown winning bidder or ticket holder could, under former OH DR 5-107(B), improperly limit the lawyer's exercise of independent judgment as to whom to accept as a client and what services to provide.
Multiple-firm affiliation: On several occasions under the former OHCPR, the Board of Commissioners on Grievances and Discipline stated: "An attorney at law may not practice with more than one legal professional association or law firm in Ohio at the same time." Bd. of Comm'rs on Grievances & Discipline Op. 89-35, 1989 Ohio Griev. Discip. LEXIS 5, at *1 (Dec. 15, 1989) (syllabus); accord Bd. of Comm'rs on Grievances & Discipline Op. 93-1, 1993 Ohio Griev. Discip. LEXIS 11 (Feb. 12, 1993) (treating the joint operation by two law firms of a 900 number providing legal information on employment law as the impermissible practice of law in more than one firm at a time.
Among the ethical problems involved is a concern that dual practice may lead to conflicting loyalties, where the affiliation with one firm may influence the lawyer in the exercise of independent professional judgment for clients of the other firm. Opinion 89-35 (citing former OH EC 5-1, EC 5-13, and EC 5-24, and noting additional problems under OH DR 2-101, DR 4-101(B), and Gov Bar R III 3(D) (as then in effect)). This prohibition did not extend to a mixture of private practice and government employment. See generally sections 1.7:310 and 1.7:320. Despite the deletion in 1995 of what had been Gov Bar R III 3(D) at the time Opinion 89-35 was decided, the Board subsequently has, in Bd. of Comm’rs on Grievances & Discipline Op. 99-7, 1999 Ohio Griev. Discip. LEXIS 8 (Dec. 2, 1999), announced its intention to “stand by the advice offered within Op. 89-35 that an attorney should not practice with more than one firm.” Id. at *10. In Opinion 99-7, the Board emphasized that its prior opinion was grounded in numerous Code provisions, not just the then-language of Gov Bar R III 3(D). In any event, the rationale for the one-firm rule seems sound under the Professional Conduct Rules, and the language of what is now III 3(D) fits comfortably with it: the firm in which a lawyer is a partner, member, employee, etc., “shall be considered the attorney’s firm for purposes of the Ohio Rules of Professional Conduct and these rules.”
Although a lawyer could not practice in more than one law firm or professional association at a time, this did not preclude a lawyer from maintaining a passive interest in one professional association while practicing in another. In Colaluca v. Climaco, Climaco, Seminatore, Lefkowitz & Garofoli Co., L.P.A., 72 Ohio St.3d 229, 648 N.E.2d 1341 (1995), the Ohio Supreme Court held that a lawyer who formerly had been associated with a legal professional association could retain a share of stock in that legal professional association while subsequently practicing with another. Finally, a lawyer affiliated with a firm may be "of counsel" to another firm or firms, provided the necessary "continuing relationship" exists as to all firms with respect to which the lawyer is "of counsel." Bd. of Comm'rs on Grievances & Discipline Op. 2008-1, 2008 Ohio Griev. Discip. LEXIS 1 (Feb. 1, 2008). Note as well that an out-of-state attorney may be an equity holder in an Ohio firm, Bd. of Comm'rs on Grievances & Discipline Op. 99-7, 1999 Ohio Griev. Discip. LEXIS 8 (Dec. 2, 1999), and may be "of counsel" to an Ohio firm, provided the relationship complies with Ohio disciplinary rules and laws, just as an Ohio lawyer may be "of counsel" to an out-of-state firm, so long as the arrangement does not violate the disciplinary rules of the other state. Bd. of Comm'rs on Grievances & Discipline Op. 2004-11, 2004 Ohio Griev. Discip. LEXIS 9 (Oct. 8, 2004). Accord, under the Rules of Professional Conduct, Bd. of Comm'rs on Grievances & Discipline Op. 2008-1, 2008 Ohio Griev. Discip. LEXIS 1 (Feb. 8, 2008).
- Primary Ohio References: Ohio Rule 5.4(d)
- Background References: ABA Model Rule 5.4(d)
- Ohio Commentary: Greenbaum, Lawyer's Guide to the Ohio Code of Professional Responsibility §§ 5.143-5.144
- Commentary: ABA/BNA § 91:409; ALI-LGL § 10(1); Wolfram § 16.5
The material in this section is, in part, excerpted and adapted from Arthur F. Greenbaum, Lawyer's Guide to the Ohio Code of Professional Responsibility § 5.143 (1996).
Ohio Rule 5.4(d) prohibits a lawyer from practicing "with or in the form of a professional corporation or association authorized to practice law for a profit" if the lawyer might be required to subordinate his independent legal judgment to that of a layperson. (Practice arrangements with a nonlawyer also can involve the lawyer in supporting the unauthorized practice of law, see section 5.5:300, and in violating Ohio Rule 5.4(b), see section 5.4:300.) Rule 5.4(d) identifies three areas of concern -- where:
(1) a nonlawyer 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 nonlawyer is a corporate director or officer thereof or occupies a position of similar responsibility in any form of association other than a corporation; or
(3) a nonlawyer has the right to direct or control the professional judgment of a lawyer.
Ohio Rule 5.4(d)(1)-(3). See also Gov Bar R III 3(B).
The Board of Commissioners issued an opinion finding that the exception contained in former OH DR 5-107(C)(1) (identical to Ohio Rule 5.4(d)(1)) did not apply to an intervivos irrevocable trust set up by a lawyer in a legal professional association in which another lawyer acted as trustee and held the lawyer's shares in the legal professional association for the benefit of the lawyer's nonlawyer minor children. "Individuals not licensed to practice law, who are the beneficiaries of a trust whose assets are shares of a legal professional association, would have what DR 5-107(C)(1) identifies as 'any interest' in a legal professional association." See Bd. of Comm'rs on Grievance & Discipline Op. 2002-12, 2002 Ohio Griev. Discip. LEXIS 13, at *12 (Oct. 4, 2002).
It is important to recognize that Ohio Rule 5.4(d) limits only a lawyer's practicing in a "professional corporation or association authorized to practice law for a profit." It does not prohibit partnership or association with a nonattorney in a nonlegal or ancillary enterprise. See Bd. of Comm'rs on Grievance & Discipline Op. 94-7, 1994 Ohio Griev. Discip. LEXIS 8 (June 17, 1994). See also section 5.5:300. For example, it is permissible for a lawyer to partner with laypersons in a corporation that provides title searches for others, as long as the title work undertaken does not involve the practice of law. Cincinnati Bar Ass'n Op. 94-95-01 (n.d.). For a discussion of when title work becomes the practice of law, see section 5.5:210.
Nor does Ohio Rule 5.4(d) address the situation of a lawyer employed in-house by a business corporation or other entity to provide the entity legal advice, because such entities are not "authorized to practice law." While a lawyer may work in such an organization, the lawyer still must decline direction of his professional judgment by laypersons. See former OH EC 5-25. Of course, the attorney in the in-house setting still owes deference to the client, the organization, on matters of business policy within the client's control; often, nonlawyer officers and directors will make those decisions on behalf of the organization. Id. See section 1.2:320. While there would appear to be no authority on the point in Ohio, ABA Formal Op. 87-355, at 3 n.3 (Dec. 14, 1987) notes that MR 5.4(d) is not directly applicable to for-profit prepaid legal services plans because such plans, "as the Committee understands, are sponsored by entities not authorized to practice law."
In addition, because of the Rule's focus on the practice of law "for a profit," Ohio Rules 5.4(d) does not speak to the many lawyers employed in nonprofit settings such as government or legal aid. See section 5.4:520 below.
Pursuant to Ohio Rule 7.2(b)(2) and Rule 7.2 cmts.  & , group legal-services plans, through which an organization may facilitate access by its members or beneficiaries to lawyers, are authorized in Ohio. Under Gov Bar R XVI 5, the organization offering the legal-services plan can be for-profit or nonprofit. Id. at 5(A). In either case they must be operated so that the organization derives no profit from the rendition of legal services by lawyers. Id. If the organization is for-profit, lawyers employed, directed, supervised, or selected by the organization cannot not render legal services except in matters in which the organization itself bears the ultimate liability of its member or beneficiary. Id. Other constraints, applicable to group legal-services plans of both for-profit and nonprofit sponsoring organizations, are set forth in Gov Bar R XVI 5(B)-(H). For further discussion, see section 7.2:400.
The material in this section is, in part, excerpted and adapted from Arthur F. Greenbaum, Lawyer's Guide to the Ohio Code of Professional Responsibility § 5.144 (1996). See also section 5.4:510.
Inasmuch as Ohio Rule 5.4(d) by its terms applies only to "a professional corporation or association authorized to practice law for a profit," the strictures of the Rule are inapplicable to nonprofit organizations delivering legal services. As Hazard and Hodes state,
[t]his means that a lawyer may practice through prepaid legal services plans operated under the auspices of trade unions, civil rights groups, and other not-for-profit organizations.
2 Geoffrey C. Hazard, Jr. & W. William Hodes, The Law of Lawyering § 45.10, at 45-12.1 (3d ed. Supp. 2004).
It should be noted, however, that former OH EC 5-13 went further than the disciplinary rules to warn the lawyer about being part of "any organization of employees," such as a union, "that undertakes to prescribe, direct, or suggest when or how" the lawyer should fulfill his professional obligations to the individual or organization employing him as a lawyer. Membership in employee organizations was not in itself improper. It was only when the organization infringed on the lawyer's paramount duty to exercise independent judgment for the client that the prohibition arose. See ABA Informal Op. 1325 (Mar. 31, 1975); Santa Clara County Counsel Att'ys Ass'n v. Woodside, 869 P.2d 1142 (Cal. 1994). Particularly in the context of intense labor negotiations, there is a possibility that the union leadership would attempt to pressure individual attorneys to strike and thereby delay or sabotage an employer/client's work in order to gain bargaining leverage with that client. Allowing such third-party pressure to affect the lawyer's independent professional judgment in handling the case clearly was improper under the Code. See ABA Informal Op. 1325. While not violative of Ohio Rule 5.4(d)(3) for the reason stated above, such conduct might well violate other provisions, such as Rule 5.4(c).
Problems of this type also may develop in the relationship between a legal-services attorney and the organization's governing board. To what extent can the governing board set policy, without contravening the lawyer's duty to provide independent professional judgment to each client? It is appropriate for the governing board to set priorities in terms of the kinds of cases an office should handle and establish other general guidelines. Interference with the handling of particular cases, however, would be improper under, inter alia, former OH DR 5-107(B) (now Ohio Rule 5.4(c)). Bd. of Comm'rs on Grievances & Discipline Op. 89-004, 1989 Ohio Griev. Discip. LEXIS 11 (Feb. 17, 1989). Accord former OH EC 5-25 (recognizing that prohibition against directorships for nonlawyers in professional legal corporation did not apply in legal-aid context, but stressing that it in no way allowed third party to interfere with lawyer's exercise of professional judgment in individual cases on client's behalf).