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132 N.J.L.J. 574
November 2, 1992
1 N.J.L. 1706
November 2, 1992
ADVISORY COMMITTEE ON PROFESSIONAL ETHICS
Appointed by the New Jersey Supreme Court
In-House Corporate Counsel Billing Client's
Wholly Owned Professional Corporation for
Services Rendered and Forwarding Payments to
The inquirer serves as corporate counsel for a company which
has a number of affiliates and related corporations for which he
also renders legal services. One of these related corporations is
a professional service corporation (PC) engaged in engineering.
When he renders legal services to the PC and to other affiliates,
he records the time thus spent on a weekly time sheet. The parent
corporation bills the PC for the cost of the services rendered and
the PC pays the amount of the bill.
PC renders professional engineering services to various
governmental agencies which allow it to include actual legal
expenses as an item of overhead for which it is entitled to partial
reimbursement. In order to include legal expenses as an item of
overhead, the PC must demonstrate that payment for legal services
was made by the PC to a licensed attorney. The PC may not include
as an overhead charge payments made by it directly to the parent
company for legal services rendered by the inquirer.
The parent company and PC propose that the inquirer bill PC
directly for his legal services and be paid directly by the PC at
an hourly rate. The payments for such services are to be deposited
in the attorney's account and then remitted in toto, with the
consent of the PC, to the parent company.
The purpose of the proposed billing procedure is to allow the
PC to recognize payment of legal fees as an overhead expense when
billing certain governmental agencies. The question submitted by
the inquirer is whether he may properly remit to the parent company
the money he receives for rendering legal services to the PC.
We conclude, on the basis of the factual situation presented,
that the proposed plan is ethically improper.
On its face, the proposed plan appears to constitute an
attempt by the parent company to indirectly secure money to which
it is not otherwise entitled. Attorney participation in such a
scheme will require disclosure to the governmental agencies.
Failure to do so will constitute a violation of RPC 4.1, which
provides in part that "[i]n representing a client, a lawyer shall
not knowingly fail to disclose a material fact to a third person
when disclosure is necessary to avoid assisting a fraudulent act by
a client." Obviously, if the governmental agencies were informed
of the proposed procedure, they would not recognize the inclusion
of charges for legal expenses as an item of overhead.
The other ethical problem which the inquirer presents involves
RPC 5.4, which prohibits a lawyer from sharing fees with a non-
lawyer subject to certain exceptions set forth in the Rule, none of
which are applicable to the present situation. Participation of
the inquirer in the plan will constitute a violation of this Rule.
See Opinion 93, 89 N.J.L.J. 49 (1966).
We stress that our conclusions in this matter relate only to
the factual situation presented to us. We recognize that in
today's economy with parent companies and subsidiaries,
conglomerates and other forms of business enterprises, the
allocation of the expenses of accounting, engineering, computer and
other functions is a common everyday occurrence and that there may
be methods of allocating the costs of legal services which will not
violate the Rules of Professional Conduct. However, the procedure
set forth in the inquiry is not one of them.
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