Regulation of the Legal Profession · 6-12% of the exam
3.1Nonlawyers out of the driver's seat (Rule 5.4)
Nonlawyers carry no professional duties to clients. Giving them ownership, fee income, or decision-making authority hands them power without the duties that go with it.
A lawyer may not split a legal fee with a nonlawyer or accept direction from whoever pays the bill. Partnership with a nonlawyer is barred whenever any activity of the arrangement is legal practice. The prohibition on control has no consent exception.
Why
A client's protection comes from the duties a lawyer owes, and a nonlawyer owes none of them. Let someone outside the profession own the practice, take a cut of the fee, or tell the lawyer how to run a file, and the person holding the money starts steering decisions that belong to the person holding the duty.
Plain English
A lawyer may not share legal fees with a nonlawyer outside the four listed exceptions, may not partner with a nonlawyer where any activity of the arrangement is the practice of law, and may not practice in a professional corporation or association authorized to practice law for a profit in which a nonlawyer holds an interest (the one exception: a fiduciary representative of the estate of a lawyer may hold that lawyer's stock or interest for a reasonable time during administration), holds a directorship or officership or a position of similar responsibility in a form of association other than a corporation, or has the right to direct or control professional judgment.
A lawyer may not permit a person who recommends, employs, or pays the lawyer to render legal services for another to direct or regulate that judgment. Co-owning a non-law business with nonlawyers is permitted.
Rule 5.4 — Professional Independence of a Lawyer
- No fee sharing with a nonlawyer, except:
- Money paid over a reasonable period after a lawyer's death to that lawyer's estate or to one or more specified persons — the payee need not be family
- Purchase price for the practice of a deceased, disabled, or disappeared lawyer, paid to the estate or representative
- Nonlawyer employees included in a compensation or retirement plan, even where the plan is based wholly or partly on profit-sharing — this is the exception that covers a bonus drawn from the firm's overall profits, but never a percentage of any specific fee
- Court-awarded fees shared with a nonprofit organization that employed, retained or recommended employment of the lawyer in the matter
- No partnership with a nonlawyer if any activity of the arrangement constitutes the practice of law
- Affirmative permission: a lawyer MAY co-own and operate a business with nonlawyers — a restaurant, a consulting firm, any non-law venture — so long as none of its activities constitutes the practice of law
- No professional corporation or association authorized to practice law for a profit in which a nonlawyer
- owns any interest (sole exception: a fiduciary representative of the estate of a lawyer may hold the stock or interest of the lawyer for a reasonable time during administration),
- is a corporate director or officer or occupies a position of similar responsibility in any form of association other than a corporation, or
- has the right to direct or control the lawyer's professional judgment
- A lawyer may not permit a person who recommends, employs, or pays the lawyer to render legal services for another to direct or regulate the lawyer's professional judgment in rendering those services
Example 1
Ex. 1
Tom defends a policyholder as staff counsel for Cascade Insurance. Claims adjuster Sara directs him in writing to take no depositions on this file. Tom must advise the policyholder of the constraint; if Cascade won't lift the directive, he must withdraw. The prohibition on payer control applies in insurance defense; the insurer's cost concerns are irrelevant. Drop Cascade's reason for the instruction and ask only what choice it removes from Tom.
The exam frames the insurer's directive as a "policy" rather than a direct order. Framing doesn't matter: a lawyer who permits any instruction that removes options professional judgment would exercise for the client violates Rule 5.4. A co-ownership trap: staying in separate lanes doesn't save a lawyer-accountant partnership if one activity constitutes legal practice. Rule 5.4 contains no consent exception.
Tip
Questions · 2
Q 01ch03-e01
Question 1 of 2 · Rule 5.4(c)
Union retained and paid Attorney to represent Employee, a discharged member, at a grievance arbitration. Employee signed the engagement letter and was the only client. While preparing, Attorney concluded that the strongest defense was that Union officers had misapplied the seniority list. The business agent who authorized the fee then instructed Attorney in writing to drop that line of defense, explaining that it would embarrass Union during an organizing campaign. Attorney believed the argument was material to Employee's case but abandoned it and never mentioned the instruction to Employee. The arbitrator upheld the discharge. Is Attorney subject to discipline?
Keys 1 to 4 choose.