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Ethics Opinion

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RI-225

February 1, 1995

SYLLABUS

    A lawyer does not violate Michigan ethics rules by obtaining a financial interest in an out-of-state law firm that has nonlawyer partners, provided that the ethics rules of the other state allow nonlawyer ownership of law firms and the law firm does not handle Michigan legal matters.

    A Michigan lawyer may not form a partnership for delivery of legal services with a nonlawyer, where any portion of the firm's operations will be conducted in Michigan and where the nonlawyer has any financial interest in or control over the firm's operations in Michigan or on Michigan legal matters.

    References: MRPC 5.4, 8.5; RI-70, RI-122, RI-162, RI-199; CI-709; ABA Op 91-360.

TEXT

A lawyer licensed to practice in both Michigan and in the District of Columbia asks if a Michigan lawyer may obtain a financial interest in a law firm in the District of Columbia in which a financial interest is also held by a nonlawyer, and whether it is permissible for a Michigan lawyer to establish a law firm in the District of Columbia in which a nonlawyer has a financial interest when the same law firm also operates a Michigan office.

Several opinions have addressed multistate law practice and problems that arise when ethics rules of the jurisdictions are not the same. See RI-70, RI-122, RI-162, RI-199, CI-709. In discussing conflicting trust account rules, we stated in RI-70:

    "More directly stated, a lawyer licensed and practicing in another state, who wishes to maintain active membership in the Michigan Bar, may safely follow the home state's ethics rules as long as the lawyer or the lawyer's firm does not become involved in any matter governed by Michigan law. To the extent, however, that a portion of the lawyer's practice or the practice of the lawyer's firm involves legal services in Michigan or governed by Michigan law [hereinafter referred to as "Michigan matters"], that portion of the practice would be controlled by Michigan ethics rules."

In accord, RI-122, fee limitations under Michigan court rules or Michigan ethics rules apply when the matter is before Michigan courts.

Whether a lawyer may obtain a financial interest in an out of state business, and whether a lawyer may establish a law firm in another state are questions determined by the laws and ethics rules of the other state. This Committee offers no opinion on those questions since they are not answerable under the Michigan Rules of Professional Conduct.

The question remaining is whether a Michigan lawyer may be a member of a multistate law firm whose home state allows nonlawyers to have a financial interest in the law firm.

A lawyer licensed in both Michigan and in the District of Columbia is presented with conflicting ethics rules. MRPC 5.4 states:

    "(a) A lawyer or law firm shall not share legal fees with a nonlawyer, except that:

      "(1) an agreement by a lawyer with the lawyer's firm, partner, or associate may provide for the payment of money, over a reasonable period of time after the lawyer's death, to the lawyer's estate, or to one or more specified persons;

      "(2) a lawyer who purchases the practice of a deceased, disabled, or disappeared lawyer may pay to the estate or other representative of that lawyer the agreed-upon purchase price pursuant to the provisions of Rule 1.17; and

      "(3) a lawyer or law firm may include nonlawyer employees in a compensation or retirement plan, even though the plan is based in whole or in part on a profit-sharing arrangement.

    "(b) A lawyer shall not form a partnership with a nonlawyer if any of the activities of the partnership consist of the practice of law.

    "(c) A lawyer shall not permit a person who recommends, employs, or pays the lawyer to render legal services for another to direct or regulate the lawyer's professional judgment in rendering such legal services.

    "(d) A lawyer shall not practice with or in the form of a professional corporation or association authorized to practice law for a profit, if:

      "(1) a nonlawyer owns any interest therein, except that a fiduciary representative of the estate of a lawyer may hold the stock or interest of the lawyer for a reasonable time during administration;

      "(2) a nonlawyer is a corporate director or officer thereof; or

      "(3) a nonlawyer has the right to direct or control the professional judgment of a lawyer." Emphasis added.

On the other hand, the corresponding ethics rule in the District of Columbia states:

    "A lawyer may practice law in a partnership or other form of organization in which a financial interest is held or managerial authority is exercised by an individual nonlawyer who performs professional services which assist the organization in providing legal services to the clients, but only if:

      "(1) the partnership or organization has as its sole purpose providing legal services to clients;

      "(2) all persons having such managerial authority or holding a financial interest undertake to abide by these rules of professional conduct;

      "(3) the lawyers who have a financial interest or managerial authority in the partnership or organization undertake to be responsible for the nonlawyer participants to the same extent as if nonlawyer participants were lawyers under Rule 5.1;

      "(4) the foregoing conditions are set forth in writing." Emphasis added.

ABA Op 91-360 would conclude that a lawyer who is licensed in both the District of Columbia and another jurisdiction (such as Michigan) which prohibits partnerships with nonlawyers, would be permitted to practice with a District of Columbia law firm, provided that the lawyer did not practice actively in Michigan. The same ABA opinion concludes that if the lawyer does actively practice in two such jurisdictions (including one, such as Michigan, which prohibits such partnerships), then the lawyer would be prohibited from entering into such a partnership or obtaining a financial interest in such a firm, i.e., the more restrictive ethics rules would be applied. The same ABA opinion would, nevertheless, also apparently permit such active multistate practice, but only if there was a "requisite separateness," through maintaining separate law firms in each jurisdiction.

MRPC 5.4 explicitly prohibits Michigan lawyers and others who would hold themselves out to perform Michigan legal work (such as out-of-state law firms), from allowing nonlawyers to have ownership interests in the law firm doing Michigan legal work. The rule may not be circumvented by practicing with a firm in a jurisdiction which allows nonlawyer ownership interests. With regard to non-Michigan legal matters, the rules of the forum jurisdiction would apply.

A lawyer does not violate Michigan ethics rules by obtaining a financial interest in an out-of-state law firm that has nonlawyer partners, provided that the ethics rules of the other state allow nonlawyer ownership of law firms and the law firm does not handle Michigan legal matters.

A Michigan lawyer may not form a partnership for delivery of legal services with a nonlawyer, where any portion of the firm's operations will be conducted in Michigan and where the nonlawyer has any financial interest in or control over the firm's operations in Michigan or on Michigan legal matters.

 
     

 

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