Reprinted with permission from Litigation News, Summer 2019 (44:4), at 8. ©2019 by the American Bar Association. All rights reserved. This information or any or portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
A fee-sharing agreement between attorneys from different firms and different states is unenforceable absent the client’s consent to the arrangement in writing.
A fee agreement that does not comply with applicable ethical rules may be deemed a violation of public policy and therefore void and unenforceable. ABA Section of Litigation leaders urge knowledge of the ethical requirements in the applicable jurisdiction to avoid uncertainty about the enforceability of interstate fee-sharing arrangements.
Oral Fee-Sharing Agreement Violates Texas Public Policy
In Dickens v. Webster, the Court of Appeals for the Fifth District of Texas considered a fee dispute between cocounsel arising from a wrongful death lawsuit. After her husband died in a FedEx plane crash in Kansas, the client hired a Kansas attorney to pursue litigation, and the client executed a written contingency fee agreement for that attorney to receive 36 percent of the litigation proceeds.
The Kansas attorney filed the tort claim in Texas in order to avoid Kansas’s damage caps and claimed an oral agreement with her Texas cocounsel to split the contingency fee 50-50. The Texas attorney denied any such oral agreement, claiming he sent the Kansas attorney proposed written agreements, which she rejected. The attorneys’ joint client never consented to any fee-sharing arrangement in writing.
After the case settled, the settlement funds were directed to the Texas lawyer, and the Kansas attorney asserted a lien against those proceeds. The client subsequently terminated the Kansas attorney for “interference with the pending settlement.” The Texas attorney then filed a declaratory judgment lawsuit against the Kansas attorney seeking 100 percent of the contingency fee.
The Kansas Rules of Professional Conduct do not require a client to consent in writing to a fee-sharing agreement between counsel. However, the Dickens court applied Texas law, reasoning that parties contracting to share a fee generated by litigation in Texas would expect Texas law to govern that contract. Texas Disciplinary Rule of Professional Conduct 1.04(f)(2) requires lawyers who are not in the same firm to have the client consent in writing to the terms of any fee-sharing arrangement prior to the proposed association or referral.
The court stated that while the disciplinary rules do not define standards of civil liability, a court may deem them to be an expression of public policy such that a contract violating them is unenforceable. The court held that any oral fee-sharing agreement between the parties violated public policy and was unenforceable because it failed to comply with Disciplinary Rule 1.04(f)(2).
Forum’s Ethical Rules Will Control Fee Sharing
In most cases, the law and ethical rules of the litigation forum will determine whether a particular type of fee agreement will be enforceable. “Lawyers may assume that the fee division rule in the jurisdiction where the case will be litigated will be applied by the trial court in the event of a dispute among counsel,” says Thomas G. Wilkinson Jr., Philadelphia, PA, member of the Section of Litigation’s Ethics & Professionalism Committee and the ABA Standing Committee on Professionalism.
This is particularly important when counsel may forum shop for a strategic advantage for the client. “It is interesting that the Kansas lawyer chose Texas, believing it to be a more favorable venue. Lawyers need to look at more than just the tort rules and look at how to protect their fee,” advises John M. Barkett, Miami, FL, cochair of the Section’s Ethics & Professionalism Committee. “Lawyers should not assume that their state bar rules are the same as other states,” says Barkett.
Get Fee-Sharing Agreements—and Client Consent—in Writing
As with virtually all agreements between counsel and clients, best practice is to ensure that a fee-sharing arrangement, and the client’s consent to it, are reduced to writing. “Regardless of whether your jurisdiction permits oral fee agreements, it is a best practice to reduce that fee agreement to writing. That will minimize the possibility of having a later dispute about the terms of the fee agreement,” advises Basheer Y. Ghorayeb, Dallas, TX, former cochair of the Section’s Ethics & Professionalism Committee and current cochair of the Section’s Content Management Committee.
Written fee-sharing agreements and consent also reduce the likelihood of a subsequent fee dispute with clients and cocounsel. “Texas imposed a strict approach to requiring the client’s consideration and consent to fee-splitting agreements. One advantage of the Texas rule is that it helps to avoid the unseemly situation where lawyers pit the client against cocounsel after an award or settlement is reached,” says Wilkinson.
Originally published in Litigation News, Volume 44, Number 4, Summer 2019; reprinted in GPSolo eReport, Volume 9, Number 5, December 2019. © 2019 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. The views expressed in this article are those of the author(s) and do not necessarily reflect the positions or policies of the American Bar Association, the Section of Litigation, or the Solo, Small Firm and General Practice Division.