Be Careful What You Ask For

Rule 5.04 of the Texas Disciplinary Rules of Professional Conduct prohibits the sharing of legal fees with non-lawyers except in specific circumstance:

(a) A lawyer or law firm shall not share or promise to share legal fees with a non-lawyer, except that:

(1) an agreement by a lawyer with the lawyer's firm, partner, or associate, or a lawful court order, may provide for the payment of money, over a reasonable period of time, to the lawyer's estate to or for the benefit of the lawyer's heirs or personal representatives, beneficiaries, or former spouse, after the lawyer's death or as otherwise provided by law or court order.

(2) a lawyer who undertakes to complete unfinished legal business of a deceased lawyer may pay to the estate of the deceased lawyer that proportion of the total compensation which fairly represents the services rendered by the deceased lawyer; and

(3) a lawyer or law firm may include non-lawyer employees in a 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 non-lawyer 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.

Alex is a teacher, not a lawyer. Because none of the enumerated exceptions to sharing legal fees with non-lawyers apply here, the proposed fee-sharing agreement would violate Rule 5.04 if Jamie and Morgan agreed to it.

The more interesting question, however, is whether Morgan violated the rule merely by proposing the settlement agreement. Rule 8.04(a)(1) states that lawyers shall not violate the Rules or “knowingly assist or induce another to do so through the acts of another, whether or not such violation occurred in the course of a client-lawyer relationship.”

So did Morgan’s offer to settle the case “assist” or “induce” Jamie to violate the Rules? Ethics Opinion 698 (June 2023) considered this issue, focusing first on the word “assist”:

The Rules do not define the word “assist.” In the Committee’s view, however, a violation of the Rules must have occurred before it can be found that a lawyer “assisted” in that violation. In other words, a mere proposal of impermissible conduct does not “assist” in a Rules violation if the proposal is rejected. The term “assist” is not synonymous with the term “attempt.” Accordingly, the Committee concludes that a lawyer has not “assisted” the violation of a Rule when no violation of that Rule has occurred.

Likewise, the Opinion reaches the same conclusion with the word “induce”:

The Rules also do not define the word “induce.” In other contexts, Texas courts have held that the word “induce” means bringing about an event or course of conduct by influence or persuasion, as opposed to a mere suggestion of prohibited conduct. See, e.g., Cerda v. RJL Entm’t, Inc., 443 S.W.3d 221, 230 (Tex. App.—Corpus Christi-Edinburg 2013, pet. denied) (“‘induce’ means to ‘move by persuasion or influence’ or ‘to bring about by influence’”); Scott v. State, 868 S.W.2d 430, 432 (Tex. App.—Waco 1994, pet. ref’d) (“The legal definition of ‘induce’ is ‘to influence to an act or course of conduct.’”) (citing Black’s Law Dictionary 697 (5th ed. 1979)). Accordingly, the Committee concludes that a lawyer has not “induced” the violation of a Rule when no violation of that Rule has occurred.

Finally, the Opinion notes that the drafters of the TDRPC could have prohibited mere offers to violate Rule 8.04(a)(1), but did not do so:

The Committee’s interpretation of Rule 8.04(a)(1) is further supported by the fact that several Rules expressly prohibit mere offers or encouragement, whereas Rule 8.04(a)(1) does not. See Rule 5.06(a) (“A lawyer shall not participate in offering or making” an employment or partnership agreement that restricts the rights of a lawyer to practice after termination of the relationship) (emphasis added); Rule 4.02(a) (a lawyer shall not “communicate or cause or encourage another to communicate” with a person known to be represented by another lawyer on the matter) (emphasis added); Rule 5.03(b)(1) (subjecting a lawyer to discipline for encouraging conduct of a nonlawyer employee that would violate the Rules if committed by a lawyer). The Committee also notes that Rule 8.04(a)(1) differs materially from ABA Model Rules of Prof’l Cond. R. 8.04(a)(1), which provides it is professional misconduct for a lawyer “to violate or attempt to violate the Rules of Professional Conduct, knowingly assist or induce another to do so, or do so through the acts of another” (emphasis added).

Here, Morgan proposed a prohibited transaction, but no rules violation ultimately took place because Jamie refused the offer. The correct response is B.