Can a lawyer pay a potential class member who investigates the case, and can that payment be a percentage of the court-awarded fee?

Plain-English summary

A potential class member approached a lawyer with information about a possible class action and asked to be paid for investigation already done and to be done. The lawyer asked, first, whether he could pay the individual from his own funds, and second, whether he could instead seek compensation for the individual as part of a court fee request based on a percentage of the legal fees.

On the first question, the committee applied DR 5-103(B), which bars a lawyer from advancing or guaranteeing financial assistance to a client in contemplated litigation except that the lawyer may advance the expenses of investigation "provided the client remains ultimately liable for such expenses." So the lawyer may pay the client-investigator from his own funds only if it is clearly understood the client must reimburse the lawyer if the litigation does not produce enough to cover the expense. The committee assumed the payment is bona fide compensation for legitimate, fair-value investigatory services; if it were really payment for bringing the case in, it would violate DR 2-103(B)'s bar on giving value to obtain employment.

On the second question, the committee applied DR 3-102(A)'s flat prohibition on sharing legal fees with a non-lawyer, whose purpose (EC 3-8, EC 3-3) is to prevent lay interference with a lawyer's professional judgment. The committee distinguished permissible salary or hourly arrangements (and percentage-of-net-profit arrangements with office staff who cannot influence cases) from arrangements that give a non-lawyer who can influence the case a stake in the outcome. Here, the individual is both an investigator (able to be selective about facts and to reach witnesses first) and a class member with a strong motive to shape the case; tying his pay to a percentage of the fee award would only deepen that incentive and is therefore prohibited fee sharing. Drawing on N.Y. State 668 (1994), the committee concluded the lawyer could instead pay the investigator a reasonable hourly rate or fixed amount out of awarded fees, so long as the client consents after full disclosure, the individual is not paid for trial testimony in violation of DR 7-109(C), and the aggregate fee is not excessive under DR 2-106(A).

Currency note

This opinion was issued in 1996, under New York's former Code of Professional Responsibility, which New York replaced with the Rules of Professional Conduct in 2009. Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule, deadline, or requirement mentioned here.

Common questions

Q: Can a lawyer pay a client to investigate the client's own potential class action?

A: The opinion concluded the lawyer may advance such investigation expenses only if the client remains ultimately liable to repay them under DR 5-103(B), and only as bona fide compensation for real services, not payment to obtain the case.

Q: Can the investigator be paid a percentage of the court-awarded legal fees?

A: The opinion concluded no. Because the individual can influence the case and has a strong personal motive, a percentage of the fee award is improper fee sharing with a non-lawyer under DR 3-102(A).

Q: How can the investigator be compensated out of awarded fees?

A: The opinion concluded the lawyer may pay a reasonable hourly rate or fixed amount from awarded fees if the client consents after full disclosure, the pay is not for trial testimony (DR 7-109(C)), and the total fee is not excessive (DR 2-106(A)).

Background and rules framework

The opinion interpreted DR 3-102(A) (no sharing legal fees with a non-lawyer), DR 5-103(B) (advancing litigation expenses with the client ultimately liable), DR 2-103(B) (no giving value to obtain employment), DR 7-109(C) (paying witnesses), and DR 2-106(A) (excessive fees) of New York's former Code. The Model Rule analogues are Rule 5.4 (professional independence; fee sharing), Rule 1.5 (fees), and Rule 1.8(e) (financial assistance to a client). New York replaced the Code with the Rules of Professional Conduct in 2009; the DR numbers cited here are historical.

Citations and references

Rules of Professional Conduct:

• MR 5.4 (professional independence of a lawyer; fee sharing)
• MR 1.5 (fees)
• MR 1.8(e) (financial assistance to a client)
• NY DR 2-103(B); DR 2-106(A); DR 3-102(A); DR 5-103(B); DR 7-109(C); EC 3-3; EC 3-8

Cases:

• In re Friedman, 196 A.D.2d 280 (1st Dep't 1994), investigator paid contingent on outcome
• Gorman v. Grodensky, 130 Misc. 2d 837 (Sup. Ct. N.Y. County 1985), percentage-of-profits arrangement as fee splitting

Other opinions cited:

• N.Y. State 668 (1994): hourly pay to a non-lawyer fact-finder
• N.Y. State 651 (1993); ABA 93-374 (1993): paying a referral organization a share of fees for expenses

See also

• NY State Bar Op. 1271: Sharing of legal fees with a non-lawyer (impermissible referral)
• NY State Bar Op. 828: Imputation of nonlawyer investigator conduct
• NY State Bar Op. 1166: Lawyer-owned IP consulting firm, fee sharing and supervision

Source

• Landing page: https://nysba.org/opinion-679/