Here are summaries of two ethics opinions issued in January and February 2015. The first opinion was issued by the NYSBA Committee on Professional Ethics, and the second by the NYC Bar Association Committee on Professional Ethics. NYLER will continue to provide updates on new ethics opinions issued by these and other ethics committees in New York State.
For information about how to obtain an ethics opinion from the NYSBA Committee on Professional Ethics, please visit http://www.nysba.org/Ethics/.
For information about how to obtain an ethics opinion from the NYC Bar Association Committee on Professional Ethics, please visit http://www.nycbar.org/ethics/informal-ethics-opinions/.
NEW YORK STATE BAR ASSOCIATION OPINION
NYSBA Ethics Op. 1043 (Jan. 8, 2015):
Receipt of Referral Fee from a Real Estate Broker
The inquiring lawyer represents an estate in the sale of real property. The lawyer referred a real estate broker to the estate's executors and the broker offered to pay the lawyer a percentage of the broker's commission as a referral fee. The lawyer asked the Committee whether he may accept the referral fee in lieu of charging the estate for his work on the transaction. The Committee disapproved, concluding that such an arrangement would violate Rule 1.7(a) because the lawyer would have an irreconcilable conflict of interest. The Committee opined, "the disabling conflict ... is [the] lawyer's pecuniary interest in the broker's success and attendant commission, which irredeemably interferes with the lawyer's distinct obligation to exercise independent professional judgment on the client's behalf." The Committee analogized the inquiry to the long-standing prohibition against a lawyer acting as both a lawyer and a broker in a real estate transaction, noting that "[t]his rationale applies as long as the lawyer has a financial interest in the real estate broker's commission, whether or not the lawyer is acting as a broker."
The full opinion is available at: http://www.nysba.org/CustomTemplates/Content.aspx?id=54100.
NEW YORK CITY BAR ASSOCIATION OPINION
N.Y. City Formal Ethics Op. 2015-1 (Feb. 2015):
Use of a Professional Employer Organization by a Law
Firm
Opinion 2015-1 addresses whether a New York law firm may ethically outsource certain administrative functions to a professional employer organization (PEO). PEOs help businesses provide benefits and human resources services to employees at a lower cost than if the firm were to handle everything in-house. In New York, PEOs are regulated by the New York Professional Employer Organization Act (the NYPEO Act). Because PEOs are considered "co-employers" and retain some authority to hire, fire and discipline employees, PEO arrangements raise several ethical issues for law firms. The Committee concluded that a law firm may use a PEO as long as the firm: (1) does not allow the PEO to interfere with the lawyers' ethical obligations to exercise independent professional judgment or to supervise other lawyers and nonlawyers; (2) does not allow the PEO to access confidential information relating to the firm's clients; (3) complies with the obligation to avoid conflicts of interest; and (4) does not compensate the PEO in a manner that violates rules against sharing fees with nonlawyers. In order for the lawyer to be able to exercise independent professional judgment and adequately supervise, the Committee reasoned, the PEO cannot "have the authority to hire, terminate, or discipline employees or otherwise have control over law firm employees in connection with any aspect of the practice of law." The lawyer or law firm must also implement reasonable safeguards to ensure that the PEO does not have access to confidential information. The Committee also recognized the likelihood that a PEO may service two (or more) lawyers or firms who have clients that are adverse to one another. In such an instance, assuming the PEO does not interfere with the lawyer's professional independence and is not able to access confidential information, then there is no conflict issue under the Rules. The PEO may also charge the lawyer a percentage of the payroll, a flat fee, or a fee-per-employee or service. This does not implicate Rule 5.4(a)'s prohibition on fee-sharing with non-lawyers. However, the Committee cautioned, the PEO cannot be paid based on the fees paid by the firm's clients.
The full opinion is available at: http://www2.nycbar.org/pdf/report/uploads/formalOpinion2015-1EthicalGuidanceforLawFirmsConsideringtheUseofaProfessionalEmployerOrganization.pdf.
This article originally appeared in the New York Legal Ethics Reporter, April 2015
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