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                                         132 N.J.L.J. 574
                                        November 2, 1992

                                        1 N.J.L. 1706
                                        November 2, 1992


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
Parent Corporation

    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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