- A lawyer who has a business performing non-legal services can only pay referral fees to other lawyers as per Rule 1.5(g) or 7.2.
- A lawyer who is an employee of a business performing non-legal services that is owned by non-lawyers “may receive a referral fee from the business if none of the lawyer’s activities as an employee constitute the practice of law.”
- A lawyer who is a non-employee consultant to such a business “may receive a referral fee if the lawyer is not involved in the underlying transaction, obtains informed client consent, and satisfies Rule 1.8(f); if the lawyer is involved in the underlying transaction, then the lawyer mustadvise the client of the referral fee and credit the client with that fee.”
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FACTS. A New York patent attorney (“Attorney”) would like to start a business that would advise clients on applying to the Internal Revenue Service for research and development tax credits (R&D tax credit business) and prepare the necessary applications to the IRS, which are services that he characterizes as non-legal (“RD1”). There is the expectation that at least some of the clients of RD1 would also be clients of Attorney’s law firm. As an alternative, Attorney would work for, or collaborate with, another R&D tax credit business (“RD2”) as employee or a consultant. As part of that engagement, Attorney would market the firm’s services to select industries. In either case, Attorney would market the tax credit services to intellectual property attorneys to encourage them to make referrals. The Committee distinguished the case of a Lawyer-Owned Tax Credit Firmfrom a Non-Lawyer-Owed Tax Credit Firm. Lawyer-Owned Tax Credit Firm To analyze the propriety for a lawyer owning a non-lawyer business and paying referral fees to obtain business, the Committee relied on its previous opinions on multidisciplinary practice[i]which dealt with potential conflict of interest under Rule 1.7 (if the lawyer’s interest in the nonlegal service will have an adverse effect on his or her independent professional judgment on behalf of the client in the legal services), and with applicability of the Rules of Professional Conduct to the provision of the nonlegal services. Particularly important for the Committee is N.Y. State 779 (2004) in which the Committee opined that “even when the services can be performed by both lawyers and non-lawyers (such as preparing tax returns), when the services are performed by a lawyer designated as such, the services constitute the practice of law and the lawyer, in performing them, is governed by the rules of lawyer conduct.” The same reasoning for the Committee applies here:Since it seems likely when the inquirer is marketing to intellectual property lawyers that the inquirer will inform the targets that the inquirer is a lawyer, we believe that the services RD1 will provide should be considered legal services and therefore subject to the Rules. [ii]Since the Rules of Professional Conduct apply, Attorney must respect Rule 7.2, prohibiting the payment of anything of value to compensate a person for referral, with only a few exceptions, none of which apply here. As a consequence, the Committee opined that Attorney may not pay referral fees to lawyers who refer clients to RD1. Full opinion here. For more information, Nathan M. Crystal
[i]N.Y. State 536 (1981) (financial planning business); N.Y. State 687 (1997) (lawyer-insurance broker); N.Y. State 711 (1998) (same); N.Y. State 784 (2005) (entertainment management) and most recently N.Y. State 1155 (2018). [ii]The Committee found that Rule 5.7(a) (a lawyer that “provides service to a person that are not distinct from legal services being provided to that person by the lawyer or law firm is subject to these Rules with respect to the provisions of both legal and nonlegal services”supports this conclusion. Because some of the clients of RD1 will also be clients of the law firm and the Committee is told that “the same factors that would render something patentable … are the very factors that relate to whether a company may receive a tax credit …”. That being the case, the Committee opined that “When a lawyer provides both legal services (patent eligibility) and non-legal services (tax credit eligibility) based upon the same operative facts and criteria, the two services are necessarily integrated and are therefore not distinct within the meaning of Rule 5.7(a). See also N.Y. State 1015 ¶ 14 (2014) (legal and nonlegal services provided in the same matter are not distinct). As a result, the provisions of the Rules apply to the nonlegal services.”