Concept
Applying the Rule
Partnership with a nonlawyer when the partnership practices law (Rule 5.4(b))
Applying the Rule
Rule 5.4(b) compresses its test into one sentence: a lawyer shall not form a partnership with a nonlawyer if any of the activities of the partnership consist of the practice of law.1 That sentence holds three conditions, and the ban operates only when all three are present. One concerns the parties, one the form of their association, and one the work the venture does. The preceding section explained why the rule is absolute once it applies. On an exam, the harder task is deciding whether it applies at all.
Each answer gives the next question its point. Until a nonlawyer appears on the other side, nothing remains to ask about the association, and until the association proves to be a partnership, the character of its work is beside the point under this subsection. A lawyer and a layperson who co-own a bookkeeping business that gives no legal service answer yes to the first two questions and no to the third. A salaried accountant on a lawyer’s staff answers no to the second. Either result ends the inquiry under Rule 5.4(b), though not necessarily the whole ethics problem, because other provisions of Rule 5.4 may still reach the arrangement. The four sections below take the questions in turn, and the last returns to the entities that Rule 5.4(d) governs in place of subsection (b).
Lawyer and Nonlawyer Parties
The rule’s own wording supplies the first screening question, because it forbids a lawyer to form a partnership “with a nonlawyer.”2 The ban therefore operates only when the two sides differ in licensure: a lawyer on one side, and on the other a person with no legal training and no law license.3 An accountant, a social worker, or a financial planner qualifies, however expert in her own field, because the category turns on the missing license and not on skill.
Licensure marks the line because professional discipline follows the license. The Rules of Professional Conduct do not apply to nonlawyers, so the bar regulates a legal practice through the lawyers who run it.4 A nonlawyer partner would stand beyond that reach while holding a share of ownership and managerial authority. In that position a person without legal training could determine how legal services are marketed and offered, how the lawyer deals with clients, what advice the lawyer gives, and how fees are billed, and the ethics standards of the profession would not hold that person accountable for any of it.5 The partnership form concentrates the worry, since a co-owner commands as an equal and not as a subordinate whom the lawyer can supervise.
An all-lawyer partnership ends the analysis at the first question. Profit sharing among lawyers is what a law firm is, and the concern about an unaccountable co-owner finds nothing to attach to when every co-owner carries the same professional obligations.
The elder-care firm is what the profession calls a multidisciplinary practice, a fee-sharing association of lawyers and nonlawyers in a firm that delivers both legal and nonlegal services, and Rule 5.4 effectively bars it.6 A yes at this step does not yet make the arrangement forbidden. It opens the inquiry, because the next questions ask whether the group is a true partnership and whether any of its work is law practice. Students most often go wrong here by asking questions the rule does not ask: how well qualified the lay partner is in her own field, or whether the lawyer keeps the last word on legal questions. Neither fact bears on this step, and the ban applies even when the lawyer retains control over all legal aspects of the business.7 The only fact that counts is whether the other party holds a law license.
The Partnership Form
The second screening question turns on the rule’s key noun. Rule 5.4(b) forbids a lawyer to form a partnership with a nonlawyer, so a lawyer’s dealings with a layperson trigger the ban only when those dealings amount to a partnership.9 Lawyers deal with laypeople constantly. They rent offices from landlords, buy software from vendors, and hire accountants and consultants to help run the practice. A rule that reached every such tie would make a law office impossible to operate, and the text singles out one relationship: the layperson who stands inside the business as a co-owner, not outside it as a supplier.
Commentary quoted in a judicial opinion places the core of that relationship in shared results. It describes Rule 5.4(b) as flatly prohibiting a lawyer from sharing the profits and losses of a law practice with a nonlawyer, and as applying even when the lawyer retains control over all legal aspects of the business.10 On an exam, carry the idea in plain terms: the nonlawyer is a co-owner who gains when the practice does well and loses when it does badly. The same commentary reads the neighboring fee-sharing rule, Rule 5.4(a), to bar any financial arrangement in which a nonlawyer’s profit or loss is directly related to the success of a lawyer’s legal business.11
The rule fastens on shared results because of what sharing does to incentives. A nonlawyer who holds a financial stake in the professional services a lawyer offers may solicit or refer clients, interfere in the lawyer’s relationship with clients, or try to influence the lawyer’s professional conduct, and the Rules of Professional Conduct give the bar no way to discipline that person.12 A co-owner’s income depends on the legal work the business produces, so a nonlawyer partner has a direct reason to care how clients are won and how each matter is handled. A vendor paid a set price has no comparable stake. The vendor’s payment does not move with the practice’s results, and the vendor remains a supplier to the lawyers and not a participant in the legal business.
Students most often miss this question by treating a close, continuing working relationship as if it were co-ownership. An accountant who works daily with a law office, sees its books, and bills it every month may be deeply involved in the practice, yet involvement alone does not make anyone a partner.
Ownership and exposure to the practice’s results are the facts that turn a professional from supplier into partner. Two further scenes show how those facts appear.
The salaried professional who owns nothing sits on the other side of the line. Payment for services, even steady and substantial payment, does not by itself make a nonlawyer a partner, because the ownership and the profit-and-loss stake are absent. Nonlawyer employees are taken up in the next part of this chapter.
The Law-Practice Trigger
The third screening question comes from the closing words of Rule 5.4(b), which forbid a lawyer-nonlawyer partnership only “if any of the activities of the partnership consist of the practice of law.”14 Once you have found a lawyer, a nonlawyer, and a partnership between them, you must still ask what the partnership does, because the ban attaches to the work of the venture and not to the credentials of its owners. On an exam the facts usually make legal work plain, through activities such as giving legal advice, drafting wills and trusts, or representing a client in a dispute, so the analysis reduces to one issue: does the partnership’s list of activities contain any legal service?
The word that carries the clause is any. The rule does not ask whether law is the partnership’s main business, its largest source of revenue, or the reason the partners joined forces, so a single legal activity among many nonlegal ones is enough. The reason follows from what the ban protects. A nonlawyer who holds a financial stake in the services a lawyer offers may solicit or refer clients, interfere in the lawyer’s relationship with clients, or try to influence the lawyer’s professional conduct.15 Those dangers reach a client the first time the partnership gives legal advice, however seldom that happens. A threshold keyed to the proportion of legal work would also invite evasion, because a lawyer and a layperson could pair a modest legal service with a larger nonlegal business and call the law incidental, while the clients of that service still faced a co-owner with a profit motive.
The structure in that hypothetical is the multidisciplinary practice, and the answer in nearly every state to whether a lawyer may practice law in partnership with a nonlawyer is an emphatic no.16 A combined practice cannot escape by multiplying its nonlegal offerings. More insurance products or planning services leave the one legal activity undiluted, because the clause counts activities and does not weigh them against one another.
The same clause marks the boundary on the permitted side.
The restaurant partnership falls outside the rule because the rule’s purpose has nothing to attach to. The ban protects the lawyer’s independent professional judgment in serving clients, and a venture with no legal clients exposes no lawyer-client relationship to a nonlawyer co-owner’s profit motive. The lawyer’s role as a partner does not turn the restaurant into a law practice. The restaurant partnership also leaves the lawyer’s separate law practice where it was. Rule 5.4(a) still bars a lawyer or law firm from sharing legal fees with a nonlawyer, subject to four specified exceptions, so the restaurant partner may not be given a cut of the lawyer’s legal fees.17
When the answer is yes at this step and at the two before it, forming the partnership is itself the violation. When the answer is no, the analysis under subsection (b) ends.
Corporations and Other Entities
Rule 5.4(b) speaks only of a partnership, so a lawyer whose venture takes another form must ask which rule governs. Rule 5.4(d) addresses the lawyer who practices with or in the form of a professional corporation or association authorized to practice law for a profit, and it forbids that practice if any one of three listed conditions exists.19 The two subsections aim at the same mischief, a person outside the profession’s discipline holding a stake in, or authority over, a legal practice, and the form of the entity settles only which subsection applies. Here subsection (d) serves to mark the edge of subsection (b).
The three conditions are alternatives:
- A nonlawyer owns any interest in the entity. The one exception lets a fiduciary representative of a deceased lawyer’s estate hold the lawyer’s stock or interest for a reasonable time during administration.20
- A nonlawyer is a corporate director or officer, or occupies a position of similar responsibility in any form of association other than a corporation.21
- A nonlawyer has the right to direct or control the professional judgment of a lawyer.22
Any one of these makes the entity forbidden.23 Each reaches the nonlawyer through a different door. Ownership gives the layperson a claim on the money that legal work produces, the same incentive a nonlawyer partner would have. An office such as director or officer gives the layperson a voice in managing the business, including how legal services are marketed, staffed, and billed. A right to control professional judgment is the most direct intrusion, because it places the lawyer’s advice to clients under the command of someone the Rules of Professional Conduct do not bind. A lawyer who practices where she is subordinate to, or must share managerial authority with, a layperson may become subject to the regulation or control of a person outside the profession’s ethical standards, and that exposure is the independence concern behind all of Rule 5.4.24 Commentary quoted in a judicial opinion describes subsection (d) in just these terms, as addressing the possibility that a lawyer’s professional judgment will be compromised by business relationships with nonlawyers.25
Subsection (d) exists because a rule limited to partnerships could be avoided by changing the label. A lawyer and a layperson who wanted to share the results of a legal practice could incorporate, with the layperson holding shares in place of a partnership interest and drawing a return that rises and falls with the legal work. Nothing about the independence problem would change except the name on the stationery. Subsection (d) closes that gap by testing ownership, office, and control, the features that create the danger, whatever name the entity carries.
On an exam, a fact pattern that describes a corporation cannot be cleared by the screening questions for subsection (b). A lawyer who practices through a for-profit professional corporation with a lay shareholder has formed no partnership, and the absence of a partnership says nothing about subsection (d).
The plaintiffs in Jacoby & Meyers v. Presiding Justices, 847 F. Supp. 2d 590 (S.D.N.Y. 2012), ran into the ownership condition. New York’s version of the rule forbids a lawyer to practice with or in the form of an entity authorized to practice law for profit if a nonlawyer owns any interest in it, and the plaintiffs wanted to accept equity investments from nonlawyers.26 The court reasoned that they could not accept such investments consistent with New York law even if Rule 5.4 were declared unconstitutional. A ruling on Rule 5.4 alone would therefore be a purely advisory declaration, the kind Article III forbids federal courts to issue.27 The section on reform efforts and courts takes up that litigation route.
Subsection (d) carries a limit in its opening clause, because it applies only to entities authorized to practice law for a profit.28 A lawyer may therefore practice through a public agency, or through a nonprofit association in which nonlawyers participate as officials, directors, or officers.29
The form of the entity therefore routes the analysis. A partnership goes to subsection (b), a for-profit corporation or association goes to subsection (d), and a public agency or nonprofit association falls outside subsection (d).