New York
State Bar Association
Committee on
Professional Ethics
Opinion
1116 (3/29/17)
Topic:
Nonlegal services, fee-sharing with nonlawyers, payment for referrals, billing
practices, disclosing use of nonlawyer assistants, multidisciplinary practice
Digest: A lawyer may enter into an arrangement with a
nonlawyer “foreign migration agent” whereby the nonlawyer hires the lawyer on
behalf of the client and assists the lawyer in communicating with the client,
as well as gathering and translating documents that are required in connection
with the representation, as long as (1) the relationship between the lawyer and
the nonlawyer is not exclusive, (2) the nonlawyer does not interfere with the
lawyer-client relationship, (3) the client consents to the potential conflict
of interest resulting from the referral relationship between the lawyer and the
foreign migration agent, and (4) the lawyer is not paying the foreign migration
agent for referrals. The lawyer must
bill the client separately for fees and expenses and must inform the client of
the name and amount charged by the foreign migration agent for nonlegal
services.
Rules: 1.0(i) & (j), 1.4(a), 1.5(a), (b) &
(d), 1.7(a) & (b), 2.1, 5.3(a)&(b), 5.4(a), 5.5(b), 5.8(a)&(c),
7.2(a)&(b)
FACTS
1. The inquirer is a law firm with a
principal office outside New York and a small office in New York. The firm has several partners and associates
admitted in NY. It practices US
immigration law, and one of its services involves helping clients to obtain
lawful permanent residence in the U.S. (also known as obtaining a green card),
using the so-called EB-5 Program (the “EB-5 Program”). This Program allows a foreign investor (“EB-5
investor”) to qualify for a green card by investing $1 million in a U.S.
commercial enterprise ($500,000 if the investment is made in a targeted area
with high unemployment) and creating or preserving at least 10 full-time jobs
for qualifying U.S. workers.
2. Part of the EB-5 Program allows foreign
investors to make passive investments in qualifying projects under the auspices
of a Regional Center (“Regional Center”) designated by US Citizenship and
Immigration Services (“USCIS”). Regional
Centers sponsor capital investment projects for investment by EB-5
Investors. Many real estate projects in
New York are funded by EB-5 investors through a Regional Center.
3. In the Immigrant Visa Petition on Form
I-526, the applicant must demonstrate that he or she has invested the required
amount and is the legal owner of the capital invested, that the funds are from
a lawful source and that the investment directly or indirectly created 10
jobs. If the Form I-526 is approved,
the investor obtains conditional lawful permanent residence for two years. Prior to the end of the 2-year period,
another petition must be filed to remove the conditional status of the visa by
establishing that the investor has continued to meet all the conditions of the
EB-5 program, including that the EB-5 investment is ongoing.
4. Many EB-5 investors who invest through
Regional Centers rely upon foreign migration agents (“FMAs”), who live in such
investors’ country, to assist them in understanding the projects offered by
various Regional Centers, and in navigating the EB-5 Program. Although the petition on Form I-526 is filed
by a U.S.-licensed lawyer, an FMA may assist the EB-5 investor in establishing
that the requirements of the EB-5 Program have been met, including that the
investor has invested the required amount, that the investor is the legal owner
of the capital invested, and that the investment has created the requisite
number of direct or indirect jobs.
5. The services provided by FMAs to investors
may include the following:
a. Translating the investor’s documents for
the EB-5 process
b. Assisting the law firm to collect all
documents required for the process from the investor, organizing the financial
documentation for the initial submission to USCIS and responding to any
requests for additional information
c. Monitoring the status of all processes and
filings of the investor
d. Assisting the law firm in communicating with
the investor and participating in calls between the investor and the law firm.
6. The FMA may also assist the EB-5
investor by advising on ancillary relocation matters, such as purchasing a home
and selecting schools for children.
7. Finally, the FMA may market the projects
of various Regional Centers to investors and may participate in the development
of the projects. In addition, the FMA
may assist a Regional Center in communicating with the investor. It may receive fees from the Regional Center
when the investment is made in the Center’s project, including (i) a finder’s
fee, (ii) a proportion of the proceeds of the deal, and (iii) part of the
administrative fee paid by the EB-5 Investor.
8. The FMA does not prepare and file the
Immigrant Visa Petition. Rather, it
directs its clients to U.S. immigration lawyers. Depending on the size of the project and the
FMA, the FMA may have dozens of EB-5 investors invest in a single project, who
may all be represented by one U.S. law firm or by different law firms. The lawyer, as preparer of the Petition,
affirms that he or she has prepared the petition at the request of the EB-5
investor and that it is based on all information of which he or she has
knowledge. The engagement letter of the
law firm often provides that the EB-5 investor consents to deal with the law
firm through the FMA as the investor’s agent.
9. Because the EB-5 investor is in a
foreign country and may not speak English, the lawyer or the EB-5 investor must
hire agents, including accountants and translators, to prepare and translate
the necessary papers to document the source of the investment funds and how
they were transferred from the investor’s control to the project. Here, the FMA is proposing that the law firm
engage the FMA to provide the services that would otherwise have to be
performed by a foreign-language speaking accounting firm or staff of the law
firm. The inquirer represents that the
FMA would charge the same fixed fee that an outside firm or the law firm would
charge. The FMA also proposes to serve
as the point of contact with the client in the client’s home country and to
liaise with the lawyer in obtaining necessary documentation, for which the FMA
would charge the lawyer an additional fee.
10. The law firm asks whether it may charge
the client for such nonlegal services, whether it must disclose to the client
that any portion of the fees charged to the client are being used to retain a
nonlawyer to perform services in connection with the visa application, and
whether it must disclose that the FMA is providing these services.
QUESTIONS
11. May a law firm charge the client for
nonlegal services?
12. May the lawyer charge the client a single
fee that includes a flat fee for the lawyer’s services and a flat fee for the
services of the nonlawyer?
13. Must the lawyer disclose to the client
either the identity of the nonlawyer or the amount paid to the nonlawyer?
14. What other considerations apply when a law
firm participates in an arrangement with a nonlawyer whereby the nonlawyer
assists the lawyer in communicating with the client, and manages all document
gathering and translation in connection with the representation?
OPINION
Nonlawyer
Assistants
15. Lawyers often hire nonlawyers to help them
provide legal services. These nonlawyers
may be employees of the law firm or outside service providers. See New York Rules of Professional Conduct
(the “Rules”), Rule 5.3, Comment [3] (“A lawyer may use nonlawyers outside the
firm to assist the lawyer in rendering legal services to the client. Examples include . . . an investigative or paraprofessional
service, . . . a document management
company . . . , . . . a third party for
printing or scanning, and . . . an Internet-based service to store client
information”).
16. Ordinarily, when use of a communication
agent is necessary for effective communication with a client, use of such an
agent is ethically required. See N.Y.
State 1053 (2015) (use of sign language interpreter to assist communication
with a deaf client). As we said in N.Y.
State 1053, under Rule 1.4, a lawyer must, among other things, apprise the
client of material developments in the client’s matter and consult with the
client about the means by which the client’s objectives are to be
accomplished. However, there is also a
danger, when the intermediary is the sole source of communication with the
client without appropriate participation by the lawyer, that the intermediary
could interfere with the lawyer’s obligation under Rule 1.4 to communicate with
the client. Consequently, the lawyer must
ensure that the intermediary is facilitating and not controlling communication
with the client.
17. As Rule 5.3, Comment [2] explains, the
lawyer must ensure that the conduct of nonlawyers that the lawyer employs or
retains is compatible with the lawyer’s professional obligations:
[2]
With regard to nonlawyers, who are not themselves subject to these Rules, the
purpose of the supervision is to give reasonable assurance that the conduct of
all nonlawyers employed by or retained by. . . the law firm . . . is compatible
with the professional obligations of the lawyers and firm. Lawyers . . . may
employ nonlawyers outside the firm to assist in rendering those services. . .
. A law firm must ensure that such
nonlawyer assistants are given appropriate instruction and supervision
concerning the ethical aspects of their employment, particularly regarding the
obligation not to disclose confidential information . . . . A law firm should make reasonable efforts to
ensure that the firm has in effect measures giving reasonable assurance that
nonlawyers in the firm and nonlawyers outside the firm who work on firm matters
will act in a way compatible with the professional obligations of the lawyer.
Charging
the Client for Legal and Nonlegal Services
18. The inquirer asks whether the lawyer may
charge a single fee for legal and nonlegal services. Even if the inquirer were willing to be
liable for the nonlegal services under the Rules, we believe including the
expense for nonlegal services in the fee for legal services would be
inappropriate. Rule 1.5(b) enjoins a
lawyer to communicate to a client “the basis or rate of the fee and expenses
for which the client will be responsible.”
[Emphasis added]. See also 22
N.Y.C.R.R. Part 1215.1(b) (Written Letter of Engagement Rule requires that the
lawyer’s letter of engagement address the scope of the legal services to be
provided and an explanation of attorney's fees to be charged, expenses and
billing practices). This information
must be communicated to the client before or within a reasonable time after commencement
of the representation and must be in writing where required by statute or court
rule. Consequently, in order for the
inquirer to bill the client for the expense of services provided by the FMA
(or, for that matter, the expenses of third-party accountants and translators),
the inquirer must communicate this possibility to the client and the nature of
the charges that will be billed to the client.
19. Since these expenses would not constitute
legal fees of the lawyer, they would appropriately be listed separately on any
legal bill as expenses of the matter.
Like legal fees, expenses are subject to the requirements of Rule 1.5(a)
that they not be excessive. Moreover, without
the consent of the client, the lawyer may bill only the exact amount of the
expenses. See N.Y. State 1050 (2015)
(citing ABA 93-397 (1993) and N.Y. City 2006-3); Cf. Rule 1.5, Comment [1]
(discussing in-house expenses). Since
the inquirer states that the FMA would charge the same amount that would be
charged by a third-party provider or by the law firm for in-house staffers,
these charges may not be not clearly excessive.
However, the lawyer would have to determine that the FMA provides
services of the same quality as those the lawyer’s firm could provide itself or
through third party providers.
Must
the Lawyer Disclose the Identity of the Nonlegal Services Provider?
20. The inquirer asks whether it is necessary
to disclose that nonlegal services are being provided by the FMA or another
nonlawyer provider. We assume this means
that the nonlegal expenses (e.g. for accounting and translation) would be
listed as expenses but the provider would not be identified.
21. The answer to this question is governed by
Rule 1.4 on communication with the client.
Rule 1.4(a)(2) requires the lawyer to “reasonably consult with the
client about the means by which the client’s objectives are to be accomplished”
and Rule 1.4(a)(4) requires the lawyer to “promptly comply with a client’s
reasonable requests for information.”
Comment [5] explains that the client should have “sufficient information
to participate intelligently in decisions concerning the objectives of the
representation and the means by which they are to be pursued” and that the
lawyer must act in the client’s best interests.
Thus, the answer depends upon whether it is reasonable to withhold the
name of the provider.
22. In any representation, outside service
providers may fall within a spectrum of importance to the client. In the case of an outside photocopy service,
the name of the service provider likely is unimportant to the client, and the
lawyer could reasonably conclude that its name need not be provided on the
legal bill (although the client is always entitled to request copies of the
bills for nonlegal services received by the lawyer).
23. Here, for several reasons, we believe it
would not be reasonable to withhold the name of the provider. First, the FMA will have significant contact
with the client, both in the collection of the necessary documents and in
assisting in communication with the lawyer.
Consequently, we believe it is important that the client be aware that
the personnel providing these services are not employees of the lawyer but
rather employees of the FMA.
24. Second, since the inquiry lists services
that the FMA normally provides directly to the EB-5 investor, it is not clear
whether the services for which the law firm would be paying are services for
which the EB-5 investor is already being charged. We believe the EB-5 investor is entitled to a
listing of services for which the lawyer is charging disbursements and the
identity of the service provider, so that the investor may judge whether the
charges are reasonable and appropriate and are not duplicative.
25. Third, the FMA here has a potential
conflict of interest, which the client is entitled to assess. According to the inquirer, the FMA may be
working for itself and a Regional Center, as well as for the law firm and the
investor. For itself and the Regional
Center, the FMA may (i) participate in the development of Regional Center
Projects, (ii) market the projects of various Regional Centers to investors,
and assist a Regional Center in communicating with the investor. It may receive fees from the Regional Center
when the investment is made in the Center’s project, including (i) a finder’s
fee, (ii) a proportion of the proceeds of the deal, and (iii) part of the
administrative fee paid by the EB-5 Investor to the Regional Center. The FMA may also assist the EB-5 investor by
advising on ancillary relocation matters, such as purchasing a home and
selecting schools for children. We
assume this may also involve a fee. In
addition, the FMA is proposing to provide services to the law firm, for which
it will be paid additional fees. We
believe the client is entitled to understand the extent of the total fees that
will be paid to the FMA, and to assess whether the FMA is exerting pressure on
the client to “close the deal” on a particular Regional Center investment.
26. Fourth, informing the client of the name
and compensation of the FMA also enables the client to determine whether the
compensation contains an element of payment for the FMA’s referral of the
lawyer. The client may be the only
person in a position to determine whether its interests are served by having
the FMA perform the many functions it would be performing in connection with
the visa application.
27. Finally, if the reason for failure to
disclose the fact that the nonlegal services were provided by the FMA is to
hide from the client the fact that the FMA is being paid additional amounts in
connection with the immigration visa application, then the bill might be
fraudulent within the meaning of Rule 1.5(d)(3) (a lawyer shall not enter into
an arrangement for, charge or collect “a fee based on fraudulent billing.”);
Rule 1.5, Cmt. [1A] (“A billing is fraudulent if it is knowingly and
intentionally based on false or inaccurate information”); Rule 1.0(i) (“fraud”
or “fraudulent” includes conduct that has a purpose to deceive).
28. For all these reasons, we believe the
lawyer must disclose to the client the roles and compensation of the FMA.
Other
Considerations When a Lawyer has a Relationship with a Nonlawyer
29. Both the Rules and our opinions note
several concerns when lawyers and nonlawyers join to provide legal and
non-legal services. These include
ensuring that (A) the lawyer does not allow the nonlawyer to affect the
lawyer’s independent professional judgment on behalf of the client, (B) the
client consents to any potential conflicts of interest; (C) the lawyer does not
share legal fees with the nonlawyer, (D) the lawyer does not pay the nonlawyer
for referrals, (E) the lawyer adequately supervises the work of nonlawyers who
assist in the provision of legal services, and (F) the client understands the
scope of the representation. See N.Y.
State 1068 (2015) (lawyer joining with a claims recovery firm which would
assemble documents necessary to file the client’s claim and monitor the process
of applications filed on behalf of the client); N.Y. State 992 (2013) (lawyer
and nonlawyer establishing disability office to help with government benefit
matters); N.Y. State 976 (2013) (lawyer and nonlawyer performing forensic
mortgage analysis and legal services); N.Y. State 885 (2011) (lawyer and
nonlawyer working together on property tax reductions). See also N.Y. City 2014-1. We summarize those issues below.
A. Interference with Lawyer’s Independent
Professional Judgment
30. Rule 5.8(a) prohibits, except in certain
limited circumstances, a “contractual relationship with a nonlegal professional
or nonlegal professional service firm for the purpose of offering to the
public, on a systematic and continuing basis, legal services performed by the
lawyer or law firm as well as other nonlegal professional services,” (emphasis
added). The exceptions provided for in
Rule 5.8(a) involve relationships with firms in professions contained on a list
maintained by the Appellate Divisions under Section 1205.3 of the Joint
Appellate Division Rules. FMAs are not
in one of those professions.
Consequently, an exclusive relationship with any FMA is prohibited by
Rule 5.8.
31. Under Rule 5.8(c), the provisions of Rule
5.8(a) do not apply to “relationships consisting solely of non-exclusive
reciprocal referral agreements or understandings” between a lawyer and a
nonlegal professional or nonlegal professional services firm. This opinion assumes that the inquirer and
the FMAs with which the inquirer deals do not have an exclusive
relationship. Nevertheless, since the
inquiry suggests that FMAs are one of the major ways attorneys in this field
obtain their clients, the inquirer must be wary of a relationship that is
non-exclusive in name only. Our opinions
express concern for referral relationships that are effectively exclusive. See N.Y. State 992 (2013) (lawyer may not
effectively form a partnership with a nonlawyer disability office).
32. Even when Rule 5.8(a) does not apply,
other Rules require complete professional independence and uncompromised
loyalty of the lawyers to the client.
See Rule 2.1 (“In representing a client, a lawyer shall exercise
independent professional judgment and render candid advice”); Rule 5.4(a)
(“Unless authorized by law, a lawyer shall not permit a person who recommends,
employs, or pays the lawyer to render services for another to direct or
regulate the lawyer’s professional judgment in rendering such legal services.”)
Because an FMA who is entitled to fees upon closing of an investment may have
an economic interest in ensuring that the closing occurs, where the FMA has a
continuing role in the representation of the client, we believe there is a
significant risk of interference with the lawyer’s independent judgment. Cf. Matter of Greene, 54 N.Y.2d 118, 429
N.E.2d 390, 444 N.Y.S.2d 883 (1981), cert. denied, 455 U.S. 1035 (1982) (lawyer
may not ask a real estate broker to solicit clients for the lawyer, because the
broker has a conflict of interest that may affect the recommendation). Consequently as noted in the next paragraph,
the lawyer must take steps to ensure that the lawyer’s duty of loyalty will not
be compromised.
B. Client Consent to Potential Conflicts of
Interest.
33. Rule 1.7(a)(2) prohibits a lawyer from
representing a client if a reasonable lawyer would conclude that there is a
significant risk that the lawyer’s professional judgment on behalf of the
client will be adversely affected by the lawyer’s own financial, business or
other personal interests.
34. Here, because the lawyer may receive
continuing referrals from the FMA, there is a significant risk that the
lawyer’s judgment on behalf of the client will be affected. The FMA has an economic interest in the
client’s investing in a particular Regional Center project as the basis of the
visa application. If the lawyer believes
the investment is not in the best interests of the client, the lawyer may
nevertheless be reluctant to so advise the client, because acting contrary to
the interests of the FMA may affect future referrals from the FMA. See Matter of Lefkowitz, 47 AD3d 326, 328
(1st Dep’t 2007) (upholding findings of liability against an immigration lawyer
on conflicts grounds, among others, when referee found that lawyer was
dependent on an immigration agent for case referrals, but never informed
clients of this conflict).
35. Rule 1.7(b), however, allows the lawyer to
represent the client as long as the lawyer reasonably believes he or she will
be able to provide competent and diligent representation and the client gives
informed consent, confirmed in writing.
Although some of the language of Rule 1.7(b) seems more suited to
representation of two clients with differing interests, Comment [2] to Rule 1.7
explains that it also applies to a client whose representation might be
adversely affected by the lawyer’s personal interest. Rule 1.0(j) indicates that “informed consent”
denotes that the client must agree to the proposed course of conduct after the
lawyer has communicated information “adequate for the person to make an
informed decision, and after the lawyer has adequately explained to the person
the material risks of the proposed course of conduct and reasonably available
alternatives.”
36. We believe that the lawyer’s potential
personal conflict of interest here is consentable, as long as the lawyer
believes he or she will be able to provide competent and diligent
representation to the client, and the representation is not prohibited by law,
within the meaning of Rule 1.7(b)(2).
Consequently, we believe the lawyer must make the determination that he
or she will be able to provide competent and diligent representation, and, if
the lawyer is able to make such determination, must obtain the client’s
informed consent.
37. We note that the inquiry states that the
lawyer’s engagement letter often provides that the EB-5 investor consents to
deal with the law firm through the FMA as the investor’s agent. We do not believe the lawyer may rely on that
authorization until the client has provided informed consent to the lawyer’s
personal conflict. Nor should the lawyer
rely on the FMA to explain the conflict and obtain consent.
C. Fee-Sharing
38. Our prior opinions have identified two
concerns involving the fee paid to a nonlegal services provider – whether the
lawyer is sharing legal fees with the nonlawyer and whether the lawyer is
paying the nonlawyer for referring legal business.
39. Subject to exceptions not applicable here,
Rule 5.4(a) prohibits a lawyer or law firm from sharing legal fees with a
nonlawyer. Rule 5.4(a). The inquirer states that both the lawyer and
the FMA would charge flat fees for their services. Moreover, the inquirer would pay the FMA the
same fixed fee that the law firm would otherwise have to pay foreign-language
speaking accounting firm or staff of the law firm speaking that language. Assuming that the fees of the FMA are not
related to the amount of the fees charged by the immigration lawyer, and that
the lawyer has not reduced the fees the lawyer normally charges in order to
cover the fees of the nonlawyer, the inquiry would not involve a lawyer sharing
legal fees with a nonlawyer. See N.Y.
State 1068 (2015) (as long as the claims recovery firm provides substantial
assistance in the proceedings and the compensation of the claims recovery firm
is commensurate with the services it provides, then the lawyer would not be
improperly sharing legal fees with a nonlawyer); N.Y. State 976 (2013)
(arrangement could constitute impermissible fee sharing if the lawyer’s payment
to the intermediary is insufficiently related to the value of the company’s
services); N.Y. State 885 (2011) (finding improper fee sharing where there
appeared to be no relation between the funds to be received by the nonlawyer
company and the value of the services performed and stating that the lawyer may
not reduce fees as part of an arrangement to accept referrals from a nonlawyer
who provides services to clients).
D. Payment For Referrals
40. Rule 7.2(a) prohibits a lawyer from
compensating or giving anything of value to a person to recommend or obtain
employment by a client or as a reward for having made a recommendation
resulting in employment by a client. As
we said in N.Y. State 942 (2012), “it would violate this rule if the inquirer
would be giving something of value to [the nonlawyer] in exchange for client
referrals.” As long as hiring the FMA is
not a condition (express or implied) of the referral, and the compensation to
the FMA for the services does not exceed the reasonable value of its services,
the lawyer does not appear to be paying a prohibited referral fee in violation
of Rule 7.2(b). On the other hand, if
the lawyer chooses to hire the FMA rather than another service provider that
the lawyer believes would be better at performing the required tasks, then the
choice of the FMA may reflect compensation for referring the client.
E. Supervision of Nonlawyers
41. As we noted above, the lawyer must ensure
that the conduct of nonlawyers employed by or retained by the law firm is
compatible with the professional obligations of the lawyer. See Rule 5.3, Comment [2].
42. Rule 5.3(b) provides that “A lawyer shall
be responsible for conduct of a nonlawyer employed or retained by or associated
with the lawyer” if the lawyer “orders or directs the specific conduct or with
knowledge of the specific conduct, ratifies it.” The immigration lawyer here is
undoubtedly ordering the work and “ratifies” that work by incorporating it into
the EB-5 visa application. Accordingly,
the lawyer must supervise the work of the FMA and ensure that the work of the
FMA is consistent with the lawyer’s professional obligations to the client and
that the lawyer – not the FMA -- is controlling the representation.
F. Scope of Representation
43. The inquiry indicates that the FMA is
referring the EB-5 client for the purposes of preparing the EB-5 investor’s
immigration application. Since the EB-5
investment is an integral part of the immigration application, we believe a
reasonable client would expect that the lawyer will give advice on whether the
proposed investment meets the EB-5 visa criteria. If there is any disagreement between the
lawyer and the FMA in this regard, the lawyer must ensure that his or her
advice is transmitted accurately to the client.
CONCLUSION
44. A lawyer may enter into an arrangement
with a nonlawyer foreign migration agent whereby the nonlawyer hires the lawyer
on behalf of the client and assists the lawyer in communicating with the
client, as well as gathering and translating documents that are required in
connection with the representation, as long as (1) the relationship between the
lawyer and the nonlawyer is not exclusive, (2) the nonlawyer does not interfere
with the lawyer-client relationship, (3) the client consents to the potential
conflict of interest resulting from the referral relationship between the
lawyer and the foreign migration agent, and (4) the lawyer is not paying the
foreign migration agent for referrals.
The lawyer must bill the client separately for fees and expenses and
must inform the client of the name and amount charged by the foreign migration
agent for nonlegal services.
(26-16)
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