ETHICS OPINION 587-1971 DIVISION OF LEGAL FEES WITH NON-LAWYER

NUMBER 587

QUESTION.

 

 

I would appreciate an opinion on the ethical propriety of the following proposed arrangement to be entered into with a bank.

 

The bank proposes to furnish the attorney with an office and stenographic facilities. The attorney will from this office conduct his own independent practice. He will also act as house counsel for the bank and represent the bank in mortgage closings, where the bank is mortgagee. In such closings, as is customary, the borrower pays the fees of the attorney for the lender. The bank will guarantee the attorney that he will receive a fixed annual sum from fees to be paid by the borrowers. This amount is to be net to the attorney, after the deduction of salaries of the office employees, taxes and insurance payable, if he is to be the employer of the office employees. The excess, if any, over such fixed and agreed upon amount is to be retained by the bank as compensation for the office facilities furnished to the attorney. Earnings by the attorney from his other clients are to be disregarded in making the foregoing computations.

 

ANSWER.

 

Canon 3 of the Code of Professional Responsibility declares that

 

“A Lawyer Should Assist in Preventing the Unauthorized Practice of Law.”

 

Ethical Consideration 3-8 of the Code states in part that:

“Since a lawyer should not aid or encourage a layman to practice law, he should not practice law in association with a layman or otherwise share legal fees with a layman.”

 

Disciplinary Rule 3-101, subsection (A) of the Code mandates that 

“A lawyer shall not aid a non-lawyer in the unauthorized practice of law”,

 

while subsection (A) of Disciplinary Rule 3-102 provides in pertinent  part that

“A lawyer or law firm shall not share legal fees with a non-lawyer***”

 

except under certain conditions not here applicable.

 

Inquiries similar to the instant one were raised under former Canons 34, 35 and 47, the predecessors of Canon 3. Thus, where a bank had inserted in its notes to borrowers a provision for an attorney’s fee in a stipulated amount in case of collection, the proceeds of which fees it proposed to use to defray the expenses of its legal department, it was held that an attorney could not properly accept employment to undertake collection of notes under such arrangement “unless his arrangements with the bank are such that under all circumstances the total of all fees so collected by the bank shall be paid over in full to the attorney,” N.Y. City 353 (1935); cf. ABA 157 (1936), Similarly, while a lending agency may have a title examination and similar work conducted by an attorney of its choice and may require the borrower to pay the fee, the lending agency may not keep the attorney’s fees and pay the lawyer an unrelated salary, since an attorney cannot share his fees with a layman or corporation. ABA Inf. 544 (1962).

 

It has further been held that an attorney for a bank may not permit the bank to retain sums paid by borrowers as attorney’s fees, in an amount greater than that actually paid its lawyers for the particular service, where its lawyers were so paid, or at all where the service was by the bank’s full time salaried attorney. “It is also out opinion that the lawyer must not permit the bank, under the guise of reimbursement, to receive any greater amount from the borrower than that actually required to reimburse it for its lawyer’s services in examining the abstract and closing the loan. It is also our opinion that the lawyer must not permit the bank to retain any money received from the borrower for reimbursement of its lawyer’s service, regardless of whether or not the bank employs the lawyer upon a fixed salary basis.” Michigan 98 (1946), reported in 29 Mich. S.B.J. 124. See Drinker, Legal Ethics 181-185.

 

It has long been settled that ethical impropriety exists and that a lawyer is aiding a lay agency, whether personal or corporate, to practice law “so long as a lay agency pays a lawyer one amount for his services and for those services charges a different amount to the person to whom they are rendered.” ABA 8 (1925). “A lawyer may not properly share his professional <Text not Clear> with a layman or lay agency and may not properly accept employment from a lay intermediary with the knowledge that such lay intermediary is profiling, or expecting to profit, from his professional services.” ABA 10 (1926).

 

Accordingly, in light of the precedents set forth above, it must be held that the proposed arrangement violates the Code.

 

July 7, 1971.