NEW YORK STATE BAR
Opinion #618 - 02/15/1991 (20-90)
Topic: Legal fees; remitting fees to a corporate
Digest: A salaried lawyer may not remit to a corporate
employer fees received from a thirdparty in excess of the lawyer's
salary and allocable overhead
Code: DR 1-102(A)(4), 3-101(A), 3-102, 3-102(A),
May a lawyer employed by a multi-employer association
serve as co-counsel to a pension plan and remit to the association the
legal fees received from the plan?
The inquiring lawyer received a salary for full-time
employment with a multiemployer association. The association, funded by
fees collected from the member companies, employs clerical personnel and
professionals. Its principal function is to represent its members in
collective bargaining with a national labor union.
Pursuant to a management labor agreement, a
multi-employer pension plan was established. See 29 USC §§
1002(37)(A), 1060. This plan, a separate legal entity under federal law,
is administered by trustees, some of whom are selected by the union and
some of whom are selected by the participating employers. The plan has
co-counsel, one selected by the union trustees of the plan and one
selected by the employer trustees. The employer trustees propose to
select a lawyer employed by the association to serve as one of the
co-counsel. Because this lawyer receives a salary from the association,
it is expected that the lawyer will remit to the association the legal
fee received from the plan. The inquirer advised that the legal fee may
significantly exceed the lawyer's salary for the time estimated to be
required as co-counsel for the plan.
A threshold matter, not raised by the inquirer, is
whether the lawyer will be able to exercise independent professional
judgment on behalf of the plan while simultaneously serving as counsel
to the association in collective bargaining with the union. We believe
the lawyer may undertake these roles consistent with the requirements of
DR 5-105. The lawyer will serve as counsel to the trustees of the plan
who are required to administer the plan pursuant to the written
agreement and adhere to the comprehensive mandates of the Employee
Retirement Income Security Plan. E.g., 29 USC §§ 1101-12.
These trustees may be officers or employees of "a party in interest,"
which is defined to include the employer or the union, 29 USC
§§ 1002(14), 1108(c)(3), and thus any conflict of interest
inherent in the mere fact that a fiduciary of a benefit plan is also an
officer of an employer (or a union) has been overridden by statute.
Local Union 2134, UMW of America v. Powhatan Fuel, Inc., 828 F.2d 710,
713, (11th Cir. 1987); Evans v. Bexley, 750 F.2d 1498 (11th Cir. 1985);
see generally, Annot., 64 ALA Fed. 602-612 (1983).
As the co-counsel to the plan selected by the employer
trustees bears the responsibility of advising those trustees on the
proper operation of the plan in accordance with their fiduciary
obligations, there does not appear to be any inherent conflict of
interest in a staff lawyer for the employer (or as here for the
multi-employer association) serving as co-counsel to the plan. While not
controlling on questions of ethics, 29 USC § 1108(b)(2)
contemplates that reasonable arrangements may be made between a plan and
a party in interest allowing for legal services necessary to the
operation of the plan, "if no more than reasonable compensation is paid
Except in unusual circumstances, the participating
employers, the association and the plan have an identical interest in
having the plan administered in accordance with the plan agreement and
the requirements of law. Cf. Donovan v. Bierwirth, 680 F. 2d 263 (2d
Cir.), cert. denied, 459 U.S. 1069 (1982). When unusual circumstances
arise (for example, a hostile takeover attempt), the interests of the
employer may not be compatible with the interests of the plan, and in
that event counsel unaffiliated with the employer or the union will be
needed. See Donovan v. Bierwirth, supra, 680 F. 2d at 272-73.
Even assuming that the legal fee to be paid by the
plan is otherwise reasonable, it is improper for the inquiring attorney
to remit the payment to the association if to do so amounts to sharing a
legal fee with a non-lawyer. DR 3-102, which provides that a lawyer
"shall not share legal fees with a non-lawyer..," is designed to prevent
a non-lawyer from controlling the lawyer in a way detrimental to the
interests of the lawyer's client. Wolfram, Modern Legal Ethics p. 510 n.
91 (1986). Some of the reasons for the prohibitions against fee
splitting were discussed in ABA 88-356 (1988) dealing with placement
agencies providing temporary lawyers to law firms. See also N. Y. City
1988-3, 1988-3-A and 1989-2. Among other things, the rule serves to
encourage a lawyer's independence by preventing the practice of law
through an entity in which a non lawyer owns an interest, or is in a
position to manage or direct the lawyer, or has an inducement to do so
by having a financial interest in the fees to be earned.
The concerns about fee splitting between a salaried
lawyer and a lay employer were recently addressed in N.Y. County 670
(1989), which concerned legal fees charged by a bank to its customers
for services provided by a bank's salaried lawyers. In pertinent part,
that opinion states as follows:
Numerous opinions of this and other ethics committees
condemn the practice whereby a salaried staff attorney participates in
an arrangement in which the lay employer charges a third party for
services rendered by the staff attorney an amount that exceeds the
employer's own cost for the services of the staff attorney. The practice
has been censured on at least three separate grounds: (i) it constitutes
sharing a legal fee with a lay person in violation of DR 3-102(A); (ii)
it constitutes aiding a lay person in the unauthorized practice of law
in violation of DR 3-101(A); and (iii) it constitutes a
misrepresentation in violation of DR 1-1 02(A)(4) to label as
"attorneys' fees" amount which has no necessary relationship to the
compensation of the attorneys involved.
All of these opinions assert a slightly different
rationale for condemning the practice of a lending institution charging
a borrower a greater amount than it pays a lawyer for legal services.
Regardless of the Code provision violated -- be it fee splitting, aiding
the unauthorized practice of law, or misrepresentation -- the evil
arises only when a lay agency earns a profit from the rendition of legal
services by its salaried employee.
The opinion goes on to emphasize that there are
several permissible methods for determining the actual cost of a
lawyer's services. By analogy to the legal fees of outside lawyers, the
charges for in-house lawyers may take into account "customary overhead
items such as salary, secretaries and clerks, rent, heat, utilities,
library, depreciation on building and furnishings, and similar
expenses." N.Y. County 670 (1989). The lay employer may not earn a
profit, however, from furnishing the lawyer's services. See also Matter
of Lefkowitz v. Lawrence Peska Assocs, 90 Misc. 2d 59, 62, 393 N. Y.S.
2d 650, 652 (N.Y. Sup. Ct. 1977); Matter of Thompson v. Chemical Bank,
84 Misc. 2d 721, 727, 375, N.Y.S. 2d 729, 736-37 (N. Y. Civ. Ct. 1975).
The analysis in N. Y. County 670 also applies here.
Accordingly, the amount remitted to the association
should be carefully calculated so as not to exceed a fair reimbursement
for the association's costs, which may include an allocated portion of
the lawyer's salary and appropriate overhead expenses. It would be
improper and contrary to DR 3-102(A) for the lawyer to remit to the
association a fee in excess of such costs.
The proposed arrangement is an improper sharing of
legal fees unless the amount to be paid by the plan to the lawyer as a
legal fee and remitted to the association does not exceed the
association's expenses (allocated salary and overhead) in providing the
lawyer's services to the plan.