Can a Kentucky lawyer form a 'partnership' with an out-of-state firm just to handle forwarded collection accounts and pay it a fixed cut of collections?

Plain-English summary

The committee was asked whether a Kentucky lawyer may enter a partnership with a New York firm for the sole purpose of handling forwarded commercial accounts, paying the New York lawyers three percent of all monies collected or fifty percent of noncontingent fees on forwarded accounts. It answered no on two grounds.

First, the committee found no genuine partnership. Drawing on KBA E-92 (1974), it explained that an arrangement involving only the referral of specified business to an attorney in another state, without a general division of the firm's fees and responsibility for its actions, would not in reality be a partnership at all; here the lawyers were partners only in the sense of carrying on a business, and this was not one law firm within the meaning of DR 2-107. KBA E-92 had subscribed to ABA Formal Opinion 115, which found it improper for two attorneys to hold themselves out as partners in different states without a division of fees on forwarded cases. DR 2-102(C) bars a lawyer from holding himself out as having a partnership unless the lawyers are in fact partners, and the committee concluded the proposed firm was a law firm in form only and not in substance.

Second, the committee found the agreement did not comply with DR 2-107(A), under which a fee division between lawyers not in the same firm is proper only if made in proportion to services performed or responsibility assumed. Because all losses were borne by the resident partner, indicating a lack of responsibility on the national partner's part, and the strict fee schedule reflected no division based on legal services rendered or responsibilities assumed, the contract was nothing more than a written referral service in violation of DR 2-107.

Currency note

This opinion was issued in 1979 under Kentucky's former Code of Professional Responsibility (in effect 1971 to 1990), before the Kentucky Bar Association's 1990 adoption of the Rules of Professional Conduct (SCR 3.130) and the substantial 2009 revisions to those rules. Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against the current rules before relying on any specific rule, deadline, or requirement mentioned here.

Common questions

Q: Can a lawyer call an out-of-state collection arrangement a "partnership"?

A: Not where it is a partnership in form only. The committee held that referral of business without a general division of fees and shared responsibility is not a real partnership, so holding out as partners violates DR 2-102(C).

Q: Was the fixed percentage split a permissible fee division?

A: No. The committee found it an improper referral fee under DR 2-107(A) because it was not proportioned to services performed or responsibility assumed, and all losses fell on the resident lawyer.

Q: What made the committee conclude the national lawyers lacked responsibility?

A: All losses were borne by the resident partner, and the strict fee schedule showed no division based on legal services or responsibilities assumed by each lawyer.

Background and rules framework

The opinion applies DR 2-102(C) (holding out as partners only if in fact partners) and DR 2-107(A) (fee division between lawyers must be proportioned to services or responsibility), as informed by ABA Formal Opinion 115. The modern analogs are Model Rule 1.5 (fees, including the Rule 1.5(e) requirements for dividing fees between lawyers not in the same firm) and Model Rule 7.5 (firm names and holding out, as it stood).

Citations and references

Rules of Professional Conduct:

• DR 2-102(C) (holding out as partners) and DR 2-107(A) (division of fees); modern analogs Model Rule 1.5 and Model Rule 7.5

Other opinions cited:

• KBA E-92 (1974) (out-of-state referral arrangement is not a partnership)
• ABA Formal Opinion 115

See also

• KBA Ethics Op. E-219: Law-Clinic Trade Names

Source

• Landing page: https://kybar.org/For-Members/Rules-Ethics-Information/Ethics-Opinions
• Original PDF: https://kybar.org/Portals/0/Admin/Ethics%20Opinions/KBA_E-221.pdf

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

KENTUCKY BAR ASSOCIATION
Ethics Opinion KBA E-221
Issued: November 1979

This opinion was decided under the Code of Professional Responsibility, which was in effect from 1971 to 1990. Lawyers should consult the current version of the Rules of Professional Conduct and Comments, SCR 3.130 (available at http://www.kybar.org), especially Rules 7.01-7.50 and the Attorneys’ Advertising Commission Regulations, before relying on this opinion.

Question:

May a Kentucky lawyer enter into a partnership with a New York law firm for the sole purpose of handling forwarded commercial accounts with agreement to pay the New York lawyers three percent of all monies collected or fifty percent of all noncontingent fees collected on the accounts that are forwarded to the Kentucky lawyer by the New York law firm?

Answer:

No.

References:

Opinion KBA E-92; DR 2-102(C), 2-107(A); ABA Formal Opinion 115
OPINION

Opinion KBA E-92 (1974) concerned the formation of a partnership with an attorney in another state. It stated that
An arrangement which involved only referral of specified business to an attorney in another state, without a general division of fees earned by the firm and responsibility for its actions. would not in reality be a partnership at all.
In the question presented, the lawyers are partners only in the sense of carrying on a business. We do not believe this is one law firm within the meaning of DR 2-107.
Opinion KBA E-92 (1974) subscribes to the policy of ABA Formal Opinion 115 in which it was found improper for two attorneys to hold themselves out as partners in different states where there was not a division of fees on cases forwarded from one to the other. Further, DR 2-102 provides that
(C) A lawyer shall not hold himself out as having a partnership with one or more other lawyers… unless they are in fact partners.
In the situation presented to the Committee in this case, the proposed law firm is a law firm in form only and not in substance.

A second issue is whether this agreement complies with DR 2-107(A). This section provides that there is no such thing as a “referral fee” unless the division is made in proportion to services performed or responsibility assumed. In this agreement all losses are borne by the “resident” partner which indicates a lack of responsibility on the part of the national partner. Further, the strict fee schedule gives no indication of a division of fees based upon legal services rendered or responsibilities assumed by the respective attorneys. This contract is nothing more than a written “referral service” and in violation of DR 2-107.

Note to Reader
This ethics opinion has been formally adopted by the Board of Governors of the Kentucky Bar Association under the provisions of Kentucky Supreme Court Rule 3.530 (or its predecessor rule). The Rule provides that formal opinions are advisory only.