Ethics Opinion

Opinion No. 97-6

June 1997

Summary: A law firm may not donate court-awarded fees in matters that it handled pro bono to the non-profit organization that referred the cases to it when the organization is not a qualified legal assistance organization. This inquiry does not raise the issue in the context of a qualified legal assistance organization, and we therefore do not express a conclusion on that issue.

Facts: A non-profit organization that does not meet the definition, contained in the Disciplinary Rules, of a "qualified legal assistance organization" referred a series of cases to a law firm, which agreed to handle them on a pro bono basis. At the conclusion of the cases, the courts in which they were tried awarded fees to the firm. It inquires whether there is any ethical prohibition against donating those fees to the non-profit organization that referred the cases to it.
Discussion: We emphasize at the outset that we are not addressing the permissibility of a lawyer's sharing a court-awarded legal fee with a qualified legal assistance organization, as that organization is defined in the "Definitions" section of the Disciplinary Rules. We are addressing an inquiry that relates only to non-profit organizations that do not qualify for such status. DR 2-103(E) and DR 3-102(A) are the two disciplinary rules that bear on the question.
DR 2-103(E) provides:
"A lawyer shall not pay any person or organization to solicit professional employment for the lawyer from a prospective client. However, this disciplinary rule does not prohibit a lawyer ... from requesting referrals from a lawyer referral service operated, sponsored, or approved by a bar association or from cooperating with any other qualified legal assistance organization."
DR 3-102(A) provides that a "lawyer or law firm shall not share legal fees with a non-lawyer" (except in circumstances that do not apply here).
The donation of legal fees to a non-profit organization would seem to come within both prohibitions. However, ABA Formal Opinion 93-374 (1993) analyzed analogous provisions of the ABA's Model Rules of Professional Conduct and concluded, over the dissent of one of its members, that the policy considerations for those rules were not applicable to court-awarded fees donated to a non-profit organization. See also Opinion 503 of the Texas Professional Ethics Committee which, without much discussion, reached a contrary conclusion.
We do not believe that we should ignore the prohibition contained in two disciplinary rules adopted by the Supreme Judicial Court unless we conclude that ordinary rules of statutory construction dictate that the apparent meaning of the text should not be applied to this factual situation. That might be the case if the policy considerations for the prohibitions against paying for solicitation of business or sharing fees with a non-lawyer had no relevance when a lawyer handling a matter pro bono donates court-awarded fees to the referring non-profit organization. We conclude that, however these policy considerations ought to be weighed legislatively, they do have relevance to the situation described in the inquiry.
In the first place, Massachusetts DR 2-103 is organized differently from Model Rules 7.2(c) and 7.3 so as to make it clear that the Supreme Judicial Court considered the application of its various subsections to pro bono work. It excepted not-for-a-fee work from the requirements of subsections (B)(1), (C), and (D) but left that work subject to the requirements of subsections (A), (B)(2), and (E). That this was not an oversight is demonstrated by the Statement of the Supreme Judicial Court Committee on DR 2-103 which noted, when reporting its recommendations to the SJC, that its proposal "has subjected those organizations [non-profit organizations] to the general prohibitions of paragraphs (A) and (E) and subparagraph (B)(2)." [Paragraph (E) then contained just the first sentence of what is now paragraph (E).] Since the rule prohibits pro bono legal organizations from paying third parties to solicit business for them, it is difficult to argue that a law firm handling a matter pro bono should be permitted to pay a third party who refers business to it.
ABA Opinion 93-374 argues that when a fee is donated to a non-profit organization there is no financial quid pro quo and hence the donation ought not be considered a "payment." It further argues that donation of fees to non-profit organizations presents no threat to the independence of the lawyer to whom a matter is referred, that it does not burden a client, and that even a sharing of fees should be permitted.
We disagree with the ABA's interpretation as applied to our rules. Non-profit organizations comprise a wide variety of entities, from traditional charities to those serving business and labor interests to those supporting a wide variety of political and social causes. One purpose of the prohibition against sharing fees is to prevent the threat to a lawyer's independence that may come from too close an association between the referrer of business and the lawyer. While many cases of donation of fees might involve purely charitable considerations on the part of the lawyer, in other cases a non-profit organization might well refer persons to a lawyer because the organization is in a position to "induce" a donation of fees or because the lawyer has made it known that he or she is willing to donate all or part of any fee. Indeed, a lawyer might be willing to donate the entire amount of a court-awarded fee as a "loss leader," in the hope or even with the assurance of obtaining future paying business of this sort.
Moreover, the fact that an organization is non-profit does not diminish the potential for economic considerations influencing its lawyer referral decisions. Many non-profit organizations are subject to the same kind of budget constraints that profit organizations must face. ABA Opinion 93-374 downplays these considerations as "secondary" to the organization's likely interest in the merits of litigation it sponsors. Whether they are secondary or primary in any given litigation is not the point. The point is whether they are so trivial that they can be ignored as a policy justification for application of DR 2-103(E) and DR 3-102. We do not think that they are so trivial.
We also disagree with the conclusion of ABA Opinion 93-374 that no threat to the lawyer's independence arises from a fee-sharing or fee-donation arrangement. To the extent that the referring organization and the lawyer develop a business arrangement around the sharing or donating of fees, the potential for the referring organization and the lawyer taking action not in the best interest of the client increases, or at least a policy-maker might so conclude.
Our review of DR 2-103 and DR 3-102(A) therefore leads us to conclude that there are substantial policy considerations supporting their application to the situation put to us. It may well be that there is some subset of conditions in which the policy behind the rules would not be served by prohibiting the donation. But we do not think that those conditions ought to be identified by the Ethics Committee undertaking a common law process of chipping away at what looks like an absolute prohibition. If changes are to be made, they should be made by the same process that produced DR 2-103(E) and DR 3-102(A), rule-making by the Supreme Judicial Court. We therefore conclude that the rules should be applied as apparently written to preclude donation of court-awarded fees to the non-profit organization.
We should make clear that we have not been asked, and we do not address, the question whether and in what amount a law firm may make charitable donations, not related to fees received, to a non-profit organization that refers business to it.
Having begun this opinion by excluding the issue of contribution of legal fees to qualified legal assistance organizations, whether by donation or by contract, we think we should end by making reference to that issue. We are informed that many bar-sponsored lawyer referral programs require a contribution of 10-15 percent of legal fees earned by the private lawyers to whom matters are referred. In addition, many lawyers may wish to donate all or part of court-awarded fees earned in matters that they are handling pro bono on behalf of a qualified legal assistance organization to that organization. The Supreme Judicial Court has retained DR 2-103(E) intact as Proposed Massachusetts Rule of Professional Conduct Rule 7.3(e), but it has indicated that it will be appointing a committee to make recommendations about the advertising and solicitation rules. We think that it may be helpful to point out the failure of the current rules to give clear guidance on the important question of the ability of law firms to share legal fees with qualified legal assistance organizations. Such organizations are defined in the Disciplinary Rules as follows:
"Qualified legal assistance organization" means a legal aid, public defender, or military assistance office; a lawyer referral service operated, sponsored, or approved by a bar association; or a bona fide organization that recommends, furnishes or pays for legal services to its members or beneficiaries, provided the office, service, or organization receives no profit from the rendition of legal services, is not designated [sic, designed?] to procure financial benefit or legal work for a lawyer as a private practitioner, does not infringe the individual member's freedom as a client to challenge the approved counsel or to select outside counsel at the client's expense, and is not in violation of any applicable law.
It should first be noted that the problem with respect to sharing legal fees for pro bono work with non-profit organizations generally is created by DR 2-103(E) and DR 3-102(A) and that the exception for cooperating with a qualified legal assistance organization is contained only in the former disciplinary rule. As the current rules are written, the prohibition in DR 3-102(A), and repeated in proposed Rule 5.4(a), against sharing legal fees with a non-lawyer is unqualified.
It should also be noted that the provision permitting cooperation with a qualified legal assistance organization is itself conditioned on a requirement that any organization claiming the benefit of the "cooperating" exception "receives no profit from the rendition of legal services." A plausible reading of the phrase is that the organization should in each case be able to require only a payment that represents a fair administrative charge for services rendered on that matter. But it is also conceivable that that phrase could be interpreted as meaning that overall the receipt of legal fees should not be a profit-making endeavor.
A final problem concerns the relation between the rules governing sharing of legal fees with non-profit organizations generally and the exception that permits a lawyer to cooperate with the qualified legal assistance organization that is "a bona fide organization that recommends, furnishes or pays for legal services to its members or beneficiaries." What will be the rule and what will be the exception depends on how one defines the limiting conditions of the bona fide organization. If they are read to include only those organizations that regularly recommend, furnish, or pay for legal services, the exemption will be limited to rather specific organizations. If they are read to include occasional or even one-shot instances of recommending, furnishing, or paying, then the exception will threaten the general rule. Likewise, the term "beneficiaries" can be defined broadly or narrowly.
In short, the current rules are quite unclear on the issue of the permissibility of sharing all or a portion of legal fees with a qualified legal assistance organization. Currently, all qualified assistance organizations are treated alike in DR 2-103(E), although there is room for argument that as a matter of policy some should be treated differently with respect to the kinds of cooperation that are permitted under that provision. We hope that these matters will be clarified by the committee that will be studying the advertising and solicitation rules and eventually by the Supreme Judicial Court itself.

Permission to publish granted by the Board of Delegates on April 16, 1997. As stated in the Rules of the Committee on Professional Ethics, this advice is that of a committee without official government status.