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Ethics Advisory Opinion 05-20

April 13, 2005

South Carolina Bar Ethics Advisory Opinion 05-20

RULE 1.5(e)

Date: November 18, 2005

Facts
Client engages Attorney A, who meets with client on several occasions and sends demand letter. Attorney A, after dealing with Client for an extended period, determines that suit should be filed and contacts Attorney B for possible association on the case. Subsequently, Attorney A, Attorney B, and Client meet and agree verbally that both attorneys will represent Client. No written agreement is reached as to joint representation, and attorneys do not specifically discuss fee split. Client signed a fee agreement for a 1/3 contingency fee with both attorneys. Shortly thereafter, Attorney B (the associated attorney) files lawsuit with Attorney A listed as co-counsel. The clear intention of all the parties is that Attorney B will be lead attorney and Attorney A will assist with this case by consulting with Client, assisting with discovery responses, attending depositions, etc. Both attorneys assume that fee split will be 50/50 based upon both attorneys being actively involved in the case.

Shortly after suit is filed, Attorney A leaves private practice. He performs no further duties and is no longer involved with the case. Attorney B then successfully concludes the case via settlement after several depositions, much written discovery, hiring an expert witness, and attending a full day of mediation. Attorney A expended approximately 10 hours in this matter and Attorney B spent over 100 hours.

Question
Upon settlement of the case, may Attorney B split the attorneys' fees 50/50 with Attorney A, or must the fee split be based upon the hours spent by the respective attorneys due to Attorney A's withdrawal from the case?

Summary
From the statement of the inquiry, members of the Ethics Advisory Committee (EAC) cannot determine the state of mind of Attorneys A and B, and thus find it impossible to answer the specific question of how to split the fee; however, as guidance, the EAC offers the following comments.

If the fee splitting arrangement was deemed to have been made prior to October 1, 2005, the attorneys may agree to split the fee based either on 1) the degree of services rendered by each or 2) otherwise (e.g., equally) based on the fact that they agreed to share equally in responsibility for the case, provided the client agrees in writing. In either case the client must be advised that the lawyers are sharing the fee. The client need not be advised of the share of each lawyer, but in the case of the assumption of joint responsibility, the client must agree in writing to the joint representation.

If the fee splitting arrangement is deemed to have been made on or after October 1, 2005, the attorneys must obtain the informed written consent of the client for the fee sharing and the proportions of the split.

Opinion

I Former Rule 1.5(e)
Former Rule 1.5(e) provided: "A division of a fee between lawyers who are not in the same firm may be made only if: (1) the division is in proportion to the services performed by each lawyer or, by written agreement with the client, each lawyer assumes joint responsibility for the representation; (2) the client is advised of and does not object to the participation of all the lawyers involved; and (3) the total fee is reasonable."

The Comment to that Rule indicates that the client need not be advised of the proportions of the split, but the client must be informed that the lawyers are sharing the fee and be given an opportunity to object.

See S.C. Ethics Advisory Op. 03-05: “Any agreed split between Lawyers A and B must either be in proportion to the services performed OR by written agreement with the client. Absent the client’s consent, the only permissible fee split must be in proportion to the services performed by each lawyer.” If the client objects, the only permissible fee split must be in proportion to the services performed by each lawyer.

(For treatment of another fee-splitting problem where the client objected, see S.C. Ethics Advisory Op. 98-32a, in which the issue was solely whether a lawyer can ethically share an earned fee with another lawyer in a manner disproportionate to the services performed without having advised client of the agreement and the client objected.)

The fact scenario provided by the inquirer is not sufficient to determine the timing and the details of the agreement between the lawyers. We assume for the purpose of this section of this Advisory Opinion that the agreement to share the fee was made by the lawyers prior to the effective date of the new Rules; therefore, having satisfied the requirement to notify the client of the fact that the two lawyers are sharing the fee, there is no requirement to notify the client of the proportions.

It appears to us from these particular facts that the client did not enter a written agreement with the lawyers for the assumption of joint responsibility; thus Rule 1.5(e) (1) suggests that the fee be split in proportion to the services performed. In order for the fee to be split equally, the client must have agreed in writing for the lawyers to share equally the responsibility for the case and thus dividing the fee in some manner other than in proportion to the services performed, whether that be equally or not.

One factor mitigating in favor of splitting the fee on the basis of work performed is the concept of quantum meruit. Absent an agreement between the lawyers, quantum meruit would work to give the lawyer who did the majority of the work “as much as he deserves.”

II New Rule 1.5(e)
Rule 1.5, among others, was amended by the South Carolina Supreme Court with an effective date of October 1, 2005. Our Supreme Court made major changes to the Rules of Professional Conduct (S.C.Ap.Ct. Rule 407) to reflect some of the modifications recommended by the American Bar Association in its Ethics 2000 Model Rules. See Shearouse Advance Sheet No. 26, June 20, 2005.

Rule 1.5(e) which is now effective in South Carolina reads:

1.5 Fees

[(a) . . . (d)]

(e) A division of a fee between lawyers who are not in the same firm made be made only if:

(1) the division is in proportion to the services performed by each lawyer or each lawyer assumes joint responsibility for the representation;
(2) the client agrees to the arrangement, including the share each lawyer will receive, and the agreement is confirmed in writing; and
(3) the total fee is reasonable.

Comment

Division of Fee

[7] A division of fee is a single billing to a client covering the fee of two or more lawyers who are not in the same firm. A division of fee facilitates association of more than one lawyer in a matter in which neither alone could serve the client as well, and most often is used when the fee is contingent and the division is between a referring lawyer and a trial specialist. Paragraph (e) permits the lawyers to divide a fee either on the basis of the proportion of services they render or each lawyer assumes responsibility for the representation as a whole. In addition, the client must agree to the arrangement, including the share that each lawyer is to receive, and the agreement must be confirmed in writing. Contingent fee agreements must be in a writing signed by the client and must otherwise comply with paragraph (c) of this Rule. Joint responsibility for the representation entails financial and ethical responsibility for the representation as if the lawyers were associated in a partnership. A lawyer who assumes joint responsibility should be available to both the client and the other fee-sharing lawyer as needed throughout the representation and should remain knowledgeable about the progress of the legal matter. A lawyer should only refer a matter to a lawyer whom the referring lawyer reasonably believes is competent to handle the matter. See Rule 1.1.

[8] Paragraph (e) does not prohibit or regulate division of fees to be received in the future for work done when lawyers were previously associated in a law firm. Also, when a client has hired two or more lawyers in succession on a matter and later refuses to consent to a discharged lawyer receiving an earned share of the legal fee, paragraph (e) should not be applied to prevent a lawyer who has received a fee from sharing that fee with the discharged lawyer to the extent that the discharged lawyer has earned the fee for work performed on the matter and is entitled to payment.
(Emphases added.)

In this inquiry, inasmuch as the lawyers did not reach an agreement as to fee-splitting at the beginning of the joint representation (and apparently have not yet reached that agreement), it may be a reasonable interpretation that the agreement to split the fee in some portion or another occurred after the effective date of new Rule 1.5(e). If that is the case, the lawyers must inform the client of the proportions of the fee, and the client must agree in writing, not only as to the joint representation and fee-splitting, but also as to the proportion of the split.

Summation
Assuming that the agreement between the lawyers pre-dates the implementation of the new rules and that there was no written agreement between the lawyers and the client for each lawyer to assume joint responsibility, it seems reasonable to split the fee based on work performed, following the concept of quantum meruit.

On the other hand, if the lawyers are just now (after October 1) sealing an agreement to split the fees either 50/50 or in proportion to services performed, the client must agree in writing to the fee sharing arrangement, including the amount each lawyer is to receive.

In all circumstances, the fee must be reasonable.

Caution
We take this opportunity to remind our brothers and sisters at the bar that a written fee agreement in every circumstance is the preferred mode. In this case, a written fee agreement between the two lawyers themselves and between the lawyers and the client would have avoided what could be a painful exercise.

In addition, the Resolution of Fee Disputes Board is available to lawyers who are in dispute about the allocation of the fee.

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