interests in the contract rights of
other business enterprises. A law firm
is a business, albeit one infused with
some measure of the public trust, and
there is no valid reason why a law
firm should be treated differently than
an accounting firm or a construction
firm. The Rules of Professional
Conduct ensure that attorneys will
zealously represent the interests of
their clients, regardless of whether
the fees the attorney generates from
the contract through representation
remain with the firm or must be
used to satisfy a security interest.
Parenthetically, the court will note
that there is no suggestion that it is
inappropriate for a lender to have
a security interest in an attorney's
accounts receivable. It is, in fact,
a common practice. Yet there is no
real "ethical" difference whether the
security interest is in contract rights
(fees not yet earned) or accounts
receivable (fees earned) in so far as
Rule of Professional Conduct 5.4, the
rule prohibiting the sharing of legal
fees with a non-lawyer, is concerned.
It does not seem to this Court that we
the guise of ethics, an insulation
from creditors to which others are not
entitled.
the law firm had not supported its
"proposition that a credit facility secured
by a law firm's accounts receivable
constitutes impermissible fee sharing
with a non-lawyer."
The court also held that, despite
the law firm's contention, the credit
agreement did not give the lender a
prohibited ownership interest in the law
firm. "A lender who loans money under
a revolving credit facility is a creditor
of the borrower. Unless the credit
agreement provides for equity... the loan
results in debt, not equity." The court
also rejected the law firm's argument
that the terms of the credit agreement
in this case were objectionable because
the law firm agreed to pay the lender a
percentage of the firm's revenue on all of
the firm's cases, rather than a percentage
in certain cases.
The
viability of revolving credit agreements
percentage of the law firm's receipts as
with a factoring agreement, for mass-
tort and other law firms. Lawyers whose
firms need funding to take on new cases,
injured parties who need well-funded
lawyers who can vigorously pursue
their claims, and investors looking for
investment opportunities, can all benefit
from this development.
2015 WL 4279720 (S.D.N.Y. 2015) (rejecting
constitutional challenge to New York law and court
rules prohibiting non-lawyers from taking an equity
interest in a law firm); Bonilla v. Rotter, 36 A.D.3d
534, 829 N.Y.S.2d 52 (1st Dep't 2007) (precluding
fee-sharing arrangement with investigator who
located personal-injury clients at hospitals); Ungar
v. Matarazzo, Blumberg & Assocs., P.C. 260 A.D.2d
485, 688 N.Y.S.2d 588 (2d Dep't 1999) (agreement
under which non-lawyer administrative employee of
law firm received half of the firm's earnings and profits
constituted impermissible fee-sharing with a non-
lawyer); Prins v. Itkowitz & Gottlieb, P.C., 279 A.D.2d
274, 719 N.Y.S.2d 228 (1st Dep't 2001) (condemning
fee sharing-arrangement with purported insurance
expeditor charged with extortion); Gorman v. Grodensky,
130 Misc. 2d 837 (Sup. Ct. N.Y. Co. 1985) (prohibiting
attorney's splitting fees with collections manager).
2015).
1997 WL 527978 (Del. Super. Ct. 1997).