MARYLAND STATE BAR ASSOCIATION, INC.
COMMITTEE ON ETHICS
ETHICS DOCKET NO. 2012-12
Re: Fee-Sharing by Local Counsel (Other Md. Attorney) Would Violate Rule that Cannot Share Fee with Non-Lawyer
We are here presented with the question of whether a so-called “Alternative Structure Firm” organized under District of Columbia Rule of Professional Conduct 5.4(b) with a non-lawyer partner could “practice law and assist clients with their needs in the State of Maryland.”
D.C. Rule of Professional Conduct 5.4(b) states that:
A lawyer may practice law in a partnership or other form of organization in which a financial interest is held or managerial authority is exercised by an individual nonlawyer who performs professional services which assist the organization in providing legal services to clients, but only if:
(1) The partnership or organization has as its sole purpose providing legal services to clients;
(2) All persons having such managerial authority or holding a financial interest undertake to abide by these rules of professional conduct;
(3) The lawyers who have a financial interest or managerial authority in the partnership or organization undertake to be responsible for the nonlawyer participants to the same extent as if nonlawyer participants were lawyers under Rule 5.1;
(4) The foregoing conditions are set forth in writing.
Specifically, the inquiry asks whether an attorney in an Alternative Structure Firm (organized pursuant to D.C. Rule of Professional Conduct 5.4(b)) can enter into either of two arrangements without running afoul of the Maryland Rules:
- Can the Alternative Structure Firm hire a separate firm with Maryland-licensed attorneys to provide local co-counsel and advice to their client on issues relating to Maryland law, so long as the client is fully consents to the fee-splitting arrangement?
- Can a Maryland-licensed attorney in the Alternative Structure Firm directly represent a client in Maryland if the non-lawyer partner in the Alternative Structure Firm is screened from all clients in the State of Maryland and receives no profits or fees derived from legal work in the State of Maryland?
At the outset, we highlight that D.C. Rule of Professional Conduct 5.4(b) runs counter to that of Maryland and the other forty-nine states, which all prohibit nonlawyer ownership or control of law firms. Maryland Rule of Professional Conduct (“MRPC”) 5.4(b) states that “a lawyer shall not form a partnership with a nonlawyer if any of the activities of the partnership consist of the practice of law.” Further, MRPC 5.4(d) bars lawyers from practicing in a professional corporation or association in which “a nonlawyer owns any interest,” “is a corporate director or officer thereof or occupies the position of similar responsibility,” or “has the right to direct or control the professional judgment of a lawyer.” The Maryland Rules plainly prohibit the Alternative Structure Firm, which has nonlawyer partners.
The answer to Question 1 is no. No Maryland-licensed attorney could ethically associate as outside local co-counsel with an Alternative Structure Firm because doing so, under the “fee-splitting arrangement” you suggest, would require the outside Maryland-licensed attorney to share fees with the Alternative Structure Firm and its nonlawyers. Under Maryland Rule 5.4(a), “a lawyer or law firm shall not share legal fees with a nonlawyer….” While specific limited exceptions are expressly set forth in Rule 5.4(a), none here apply. Regardless of what other issues may exist with such practice, no outside Maryland attorney could act as local counsel and share fees with the Alternative Structure Firm. Further, Rule 5.5(a) prohibits any attorney in the Alternative Structure Firm from assisting another attorney in practicing law in violation of the Rules.
With regard to Question 2, the answer is also no. Screening the nonlawyer from access to the Maryland clients and/or not sharing the particular legal fees generated from Maryland clients does not remove or alleviate the prohibitions imposed under Maryland Rule 8.4. As set forth above, Maryland Rule 8.4(b) & (d) each broadly prohibit ownership by a nonlawyer in a law firm and provide no mechanism to maneuver around that prohibition by screening information or parsing finances. So, if the attorneys in the Alternative Structure Firm are subject to the application of the Maryland Rules, they would be in violation of Rule 8.4 by being in a firm that allowed any nonlawyer to have any ownership interest.
Any Maryland-licensed attorney belonging to the Alternative Structure Firm is subject to the disciplinary authority of the State of Maryland. See Rule 8.5(a)(1)(“A lawyer admitted by the Court of Appeals to practice in this State is subject to the disciplinary authority of this State, regardless of where the lawyer’s conduct occurs.”). In addition, any lawyer, even if not admitted in Maryland, is subject to Maryland’s disciplinary authority if he or she “provides or offers to provide any legal services in this State.” MRPC 8.5(a)(2)(i). The question then is: Given the different dictates of Maryland and D.C. Rules, which Rules would Maryland disciplinary authority apply given the conflict between the Maryland and D.C. Rule?
Where a clash in different jurisdictions’ rules exists, the choice of law provisions in MRPC 8.5(b) govern which jurisdiction’s rules of professional conduct are applied. For any matter related to litigation in Maryland, the Maryland Rules would clearly apply. MRPC 8.5(b) provides that:
In any exercise of the disciplinary authority of this State, the rule of professional conduct to be applied shall be as follows:
(1) For conduct in connection with a matter pending before a tribunal, the rules of the jurisdiction in which the tribunal sits, unless the rules of the rules of the tribunal provide otherwise; and
(2)For any other conduct, the rules of the jurisdiction in which the lawyer’s conduct occurred, or, if the predominant effect of the conduct is in a different jurisdiction, the rules of the jurisdiction shall be applied to the conduct. A lawyer shall not be subject to discipline if the lawyer’s conduct conforms to the rules of a jurisdiction in which the lawyer reasonably believes the predominant effect of the lawyer’s conduct will occur.
So, if an attorney in the Alternative Structure Firm is involved in litigation or any matter before a tribunal in Maryland, then the attorney is subject to Maryland Rule 5.4(b) or (d), as the case may be, which prohibits lawyers from practicing in a firm with a non-lawyer owner or manager. The same result follows if the attorney’s conduct does not involve a tribunal, but will have its “predominant effect” in Maryland. Given that you are seeking to “practice law and assist clients with their needs in Maryland,” we presume that the predominant effect of the attorney’s conduct will occur in Maryland.
The Committee notes that MRPC 8.5(b)(2) contains a safe harbor for a lawyer whose conduct “conforms to the rules of a jurisdiction in which the lawyer reasonably believes the predominant effect of the lawyer’s conduct will occur.” As comment 4 to MRPC 8.5 explains, “it may not be clear whether the predominant effect of the lawyer’s conduct will occur in a jurisdiction other than the one in which the conduct occurred.” The Committee would advise lawyers to act with caution when representing Maryland clients, advising as to Maryland law, or participating in transactions with a significant connection to Maryland, as each of those situations suggests that the predominant effect of the lawyer’s conduct would be in Maryland.
If, on the other hand, a Maryland-licensed attorney was a partner or member of the Alternative Structure Firm and restricted his or her practice to matters before District of Columbia tribunals or matters having their predominant effect in the District of Columbia, then D.C. Rule of Professional Conduct 5.4(b) would apply to the Maryland-licensed lawyer’s conduct and the non-lawyer’s ownership in the Alternative Structure Firm would not be prohibited. The Committee notes that this result is in accord with the published opinions of the American Bar Association and the State Bar of Michigan. See A.B.A. Formal Op. 91-360 (1991); Mich. Ethics Op. RI-225 (1995).
We encourage you also to search and review other opinions of this committee as a member benefit available at www.msba.org.
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