Can a New York lawyer refer clients to the lawyer's own non-legal business, and can that business refer customers back by phone or in person?

Plain-English summary

The 2001 multidisciplinary-practice amendments added DR 1-106, which provides that the Disciplinary Rules do not apply to a lawyer's distinct non-legal services if the client is given written notice (DR 1-106(A)(4)) that those services are not the subject of an attorney-client relationship. Building on N.Y. State 752 (2002), which held that this notice is not a "safe harbor" from all rules, the committee addressed mutual referrals between a lawyer and the lawyer's own non-legal business (for example, fiduciary, mortgage brokerage, or abstract title companies) where the conflict rules permit the firms to act.

On referrals by the lawyer to the business, the committee held that DR 5-101(A) always applies: the lawyer must obtain informed consent to the personal-interest conflict created by referring a client to a business the lawyer owns, including disclosure of the lawyer's interest, the business's fee structure, and available alternatives (N.Y. State 595). The committee then concluded that the more specific business-transaction rule, DR 5-104(A), does not apply where the lawyer has given the DR 1-106 notice. DR 5-104(A) applies only when the client expects the lawyer to exercise professional judgment for the client's protection in the transaction; that expectation parallels the DR 1-106 standard, so where the client could not reasonably believe the non-legal services are part of the attorney-client relationship, the client should not expect the lawyer's protective judgment in the transaction. The lawyer therefore need not meet DR 5-104(A)'s independent-counsel and written-fairness requirements for the referral, though DR 5-101(A) disclosure remains required.

On solicitation, DR 2-103(A) bars a lawyer's in-person or telephone solicitation of prospective clients (with exceptions for close friends, relatives, and current or former clients). The committee concluded this rule does not stop the lawyer's affiliated business from referring its customers back to the lawyer in person or by phone. A contrary reading would be anomalous, letting the lawyer refer orally to the business but forcing the business to refer back only in writing, and would conflict with the joint-advertising permissions in DR 2-101(C) and DR 2-102(A). The committee distinguished Pennsylvania opinions reaching the opposite result, noting New York went further than Pennsylvania to remove "feeder" precautions (the MacCrate Report). It cautioned that this covers referrals made in operating the ancillary business; it does not let the lawyer personally cold-contact the business's customers to solicit legal work, and no referral fee may be paid.

In practice

Under the Code as it stood in 2002, the opinion concluded that a lawyer who owns a distinct non-legal business and gives the DR 1-106 notice may refer clients to it without complying with DR 5-104(A)'s specific business-transaction terms, but the lawyer must still satisfy DR 5-101(A) by disclosing the lawyer's interest in the business and the availability of alternatives and obtaining consent.

The opinion concluded the ancillary business may advertise the dual roles and refer existing customers or clients to the lawyer by in-person or telephone contact, with two limits: no referral fee may be paid, and the lawyer may not personally use the business's customer list to cold-solicit legal work outside the operation of the business.

Common questions

Q: Can a New York lawyer refer clients to a business the lawyer owns?

A: Yes, with disclosure. The opinion concludes the lawyer must obtain informed consent under DR 5-101(A) to the conflict, disclosing the lawyer's interest, the fee structure, and available alternatives.

Q: Does the lawyer have to follow the business-transaction rule, DR 5-104(A), for the referral?

A: No, where the DR 1-106 notice has been given. The opinion concludes that once the client cannot reasonably believe the non-legal services are part of the attorney-client relationship, DR 5-104(A) does not apply to the referral, though DR 5-101(A) disclosure still does.

Q: Can the lawyer's non-legal business refer customers back to the lawyer by phone or in person?

A: Yes. The opinion concludes DR 2-103(A) does not bar the affiliated business from referring its customers to the lawyer in person or by phone in operating the business.

Q: Can a referral fee be paid for these cross-referrals?

A: No. The opinion concludes no referral fee may be paid for the referral.

Background and rules framework

The opinion interprets New York's former Code of Professional Responsibility: DR 1-106 (non-legal services and the client-notice procedure), DR 5-104(A) (business transactions between lawyer and client), DR 5-101(A) (personal-interest conflicts), and DR 2-103(A) (in-person and telephone solicitation), with the joint-advertising provisions DR 2-101(C) and DR 2-102(A). The Model Rules analogues are Rule 5.7 (law-related services), Rule 1.8(a) (business transactions with a client), Rule 1.7(a)(2) (personal-interest conflicts), and Rule 7.3 (solicitation). New York replaced this Code with the Rules of Professional Conduct in 2009; the DR numbers cited here are historical.

Citations and references

Rules of Professional Conduct:

• MR 5.7 (law-related services); MR 1.8(a) (business transactions with a client)
• MR 1.7(a)(2) (personal-interest conflicts); MR 7.3 (solicitation)
• NY DR 1-106, DR 5-104(A), DR 5-101(A), DR 2-103(A)

Other opinions cited:

• N.Y. State 752 (2002): DR 1-106 notice is not a safe harbor from all rules
• N.Y. State 595 (1988): disclosure when referring to a lawyer-owned abstract company

See also

• NY State Bar Op. 765: Reciprocal referrals with nonlegal professionals
• NY State Bar Op. 779: Paying a marketing organization for referrals
• NY State Bar Op. 1086: Referral fee from an investment advisor

Source

• Landing page: https://nysba.org/ethics-opinion-755/