A client has the right to terminate a lawyer in favor of another at any time. However, the division of fees can get tricky, especially in contingency cases.
The American Bar Association provided clarity on fee splitting last month, by releasing new guidelines for contingency cases when a lawyer is replaced by another at a different firm.
Formal Opinion 487, which was issued by the ABA’s Standing Committee on Ethics and Professional Responsibility, outlines the successor attorney’s obligations when assuming a case where there is monetary recovery.
Fee splitting in contingency cases
In a contingent fee matter, the opinion states that the “Rules 1.5(b) and (c) require that the successor counsel notify the client, in writing, that a portion of any contingent fee earned may be paid to the predecessor counsel.” That is, the arrangement must be transparently disclosed and discussed with the client.
The specific amount or percentage of recovery may not be represented upfront, unless agreed upon by the client and the predecessor and successor counsel. The successor counsel isn’t bound by fee splitting guidelines in Model Rule 1.5(e), as the model rule applies when lawyers from different firms handle a case concurrently. The predecessor attorney, however, may be entitled to a fee for services performed under quantum meruit or other contractual provisions in the fee agreement.
Upon monetary recovery, the “successor counsel may only disburse a portion of the overall attorney’s fee to the predecessor counsel with client consent or pursuant to an order of a tribunal of competent jurisdiction.” The disbursement must be relative to the services provided by each attorney and the totality of the fee.
In the case of a dispute, the successor lawyer must follow the requirements of Model Rule 1.15. The disputed amount must be held in a client trust account until the matter is resolved. If the successor attorney continues to negotiate with the predecessor on the client’s behalf, the successor must notify the client of potential conflicts of interest. Both the successor and predecessor remain bound by confidentiality obligations to the client in the case of a dispute.
Significance of opinion
As Hinshaw & Culbertson outlines, the significance of the opinion is in its clarification that (a) “joint responsibility” for the matter isn’t required by successor and predecessor counsel and (b) the client’s consent to the division of fees is required when monetary recovery is obtained under Rule 1.5(a) rather than at the commencement of the case pursuant to Rule 1.5(e).
This opinion on fee splitting is another significant step toward increasing transparency. This transparency helps mitigate unpredictability in fees and builds trust between lawyers and clients.
Read more about fee arrangements here: Embrace Alternative Fee Arrangements; Kill the Billable Hour.