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Ethics Column: Fee Splitting With Co-Counsel: Watch Out!

Wed, 02/22/2017 - 11:18 -- admin25

by Prof. Fred C. Moss

A prospective client is reviewing your contingent fee retainer agreement. It contains a provision allowing you to associate counsel from another firm to assist your representation of the client. The provision states that associated counsel will split your fee which will not be increased. With no further explanation, the client signs the agreement. Thereafter, you contact lawyer Smith at another firm and invite her to “joint venture” with you on the case. You have worked successfully with Smith many times on like matters, and know she is exceptionally competent and professional. The next day, you email your client to inform her that Smith has joined her legal team. Your client emails back, “Great news!” You are a happy camper. But, should you be? Should Smith? Maybe not.

Before the Texas Disciplinary Rules of Professional Conduct were amended in 2005, mainly to eliminate lawyers who were purely referral fee-earning client brokers, your arrangement with Smith was perfectly proper. Today that is not true, yet many lawyers have not changed their practice when associating counsel from another firm. Lawyers seem unaware that amended Ethics Rule 1.04(f) has placed many new requirements on what must be done before a lawyer can ethically share fees with a lawyer from a different firm.

Rule 1.04(f) allows lawyers to share fees only in two situations: when each lawyer’s fee is in proportion to the legal services each actually performs, or when the referring lawyer sharing the fee with the lawyer who actually handles the matter has assumed joint responsibility for the representation. No longer can a lawyer send a client to another firm, do nothing else, and split the fee. To share the fee, the referring lawyer must either share the legal work or agree to be responsible for the legal work done by the other lawyer.

As for what constitutes a “proportion of legal services,” rule comment 12 requires a lawyer to perform “substantial legal services” beyond acquiring the client. Comment 13 states that having “joint responsibility” entails assuming “ethical and perhaps financial responsibility for the representation.” Taking ethical responsibility, which is not an optional responsibility, “requires that the referring or associating lawyer make reasonable efforts to assure [the] adequacy of representation and . . . client communication.”

These requirements pose no problems for you and Smith. You both are going to work on the case. The problem is that you failed to meet the requirements of Rule 1.04(f)(2): Before the other lawyer is associated on the matter or the client is referred to the other lawyer,

1.      The client must be informed of

a.       The identity of the lawyers or firms who will participate in the fee-sharing arrangement;

b.      Whether the division of the fee will be based upon the amount of legal work done, or by an agreement to assume joint responsibility for the representation; and

c.       The share each participating lawyer or firm will receive, or the basis on which the division will be made, such as their respective hourly rate; and

2.      The client must consent to these terms in writing.

But, you argue, when the client signed your retainer you did not know if you were going to associate co-counsel, or if you intended to do so, you did not know who that lawyer would be.

Sorry. The rule requires that you change your practice.

Now, after you identify the lawyer or firm with whom you will associate or to whom you will send the client, you must inform the client of the identity of the other lawyer and the terms of the fee-sharing arrangement BEFORE you finalize the co-counsel or referral agreement. And, you must have the client’s written consent before can you enter into the fee-sharing agreement. Your client’s email consent to associating Smith was not sufficient because the client was not informed of the terms of the fee-sharing agreement. See Campbell Harrison & Dagley, LLP v. Blue, 843 F.Supp.2d 763 (N.D. Tex. 2011).

The consequences of failing to meet the requirements of the rule are harsh. Rule 1.04(g) limits both attorneys to quantum meruit and reasonable expenses. Thus, not only is your co-counsel agreement with Smith void if Smith was to get a percentage of your contingent fee, your contingent fee agreement with your client is unenforceable.

Moral of the story: you can no longer rely on your retainer agreement alone to authorize you to associate co-counsel or refer the client to other counsel and split the fee.

Fred Moss is Professor Emeritus at the S.M.U. Dedman School of Law and is a member of the State Bar’s Committee on the Rules of Ethics. This article expresses his views alone and do not represent the views of the Committee.

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