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Litigation News

Litigation News | 2021

Failure to Follow ethics Rule Voids Fee-Splitting Agreement

Rachel R Harris


  • Divided court tosses ruling in dispute over division of $3.16 million in contingency fees.
  • A fee-splitting agreement between two law firms did not comply with state bar rules. 
  • In so ruling, the appellate court underscored the long-held principle that attorneys must strictly comply with ethics rules when entering fee-splitting agreements. 
Failure to Follow ethics Rule Voids Fee-Splitting Agreement
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A fee-splitting agreement between two law firms did not comply with state bar rules, prompting the reversal of a $390,000 award in a dispute over how to divide $3.16 million in contingency fees. In so ruling, the appellate court underscored the long-held principle that attorneys must strictly comply with ethics rules when entering fee-splitting agreements. ABA Litigation Section leaders agree this ruling is a stark reminder to carefully review state rules when entering into referral and other fee arrangements.

Fee Splitting Agreement Gone Wrong

The dispute in Harmon Parker, P.A. v. Santek Mgmt., LLC arose from an agreement between two law firms—Gerber Law Group and Harmon Parker, P.A.—to serve as cocounsel for a driver rendered quadriplegic from a car accident. The firms agreed to split a 40 percent contingency fee on a 75/25 basis on the first $1 million recovery, and 50/50 on any recovery exceeding $1 million.

The case settled at mediation for $8 million, resulting in $3.16 million total attorney fees. Harmon prepared a closing statement allocating only $1.28 million to Gerber—$390,000 less than the $1.67 million called for by the firms' agreement. Gerber assigned its rights to the additional fee to Santek Management LLC, which sued Harmon for the deficiency. Santek argued that Harmon breached the agreement because Gerber never agreed to modify the agreement.

The jury found Harmon breached the agreement but awarded no damages. However, the trial judge entered a directed verdict awarding Gerber the $390,000 deficiency plus prejudgment interest. Harmon appealed.

Duty to Follow the Rules to Protect Public Interest

In a divided decision, Florida’s 2nd District Court of Appeals reversed the lower court’s ruling. The court concluded that because the potential total amount of fees in the agreement exceeded those authorized by Florida’s fee schedule, the firms needed court approval. Although a circuit court judge approved the agreement, the majority said both Gerber and Harmon failed to comply with Florida Bar Rule 4-1.5(f)(4)(D) relating to contingency fee contracts “in several material respects.”

Specifically, the appellate court explained that the agreement was deficient because the firms failed to: (1) detail what services each firm would provide; (2) specify that “each lawyer assumes joint legal responsibility for the representation;” (3) file a petition for approval within 10 days of execution; and (4) have all counsel verify and sign the petition. The underlying approval of the petition by a lower court judge did not change the appellate court’s analysis. “Indeed, [Florida Bar Rule 4-1.5(f)(4)] expressly provides that approval of the petition does not bar subsequent inquiry,” the majority reasoned.

The majority also relied on a Florida Supreme Court decision, Chandris, S.A. v. Yanakakis, which held that contingent fee agreements that violate Florida’s rules are void, because the requirements governing these contracts are necessary to protect the public interest and to allow noncompliance would “constitute a competitive disadvantage to members of The Florida Bar who do comply with the rules.” The majority concluded that the fee-splitting agreement between Gerber and Harmon was void as against public policy and, thus, unenforceable. Because there was no claim for quantum meruit, the court reversed the $390,000 awarded to Gerber, and directed the trial court, on remand, to enter judgment in Harmon’s favor.

Don’t Get Tossed: Follow the Letter of the Rules

Litigation Section leaders agree that a few precautions can protect firms entering fee splitting arrangements. “The key is to comply with the letter of the Rule,” counsels John M. Barkett, Miami, FL, cochair of the Section’s Ethics & Professionalism Committee.

A simple, yet often overlooked, precaution is to regularly review form agreements for compliance. “A lot of attorneys take old contracts, swap out a few details, and move forward without having scrutinized the contract in years,” explains Michael S. LeBoff, Newport Beach, CA, cochair of the Section’s Professional Liability Litigation Committee.

However, attorneys need to “be very cautious in terms of what they are putting in agreements and making sure they comply with all technicalities even if they disagree with the rule or it doesn’t make any sense,” LeBoff advises. “It’s important for attorneys to stay abreast of changes to each state’s rules and to regularly review their fee-splitting agreements for compliance,” agrees Laura K. Lin, San Francisco, CA, cochair of the Ethics & Professionalism Committee.

The decision is also a reminder that attorneys cannot contract around fundamental rules. “The ethical rules are fundamentally important, and we should expect the court to be watchdogs for those. While we certainly want courts to uphold freedom to contract, that freedom is not without limits,” Lin explains. LeBoff agrees, noting “if the courts did not enforce ethics rules, there would not be a reason for attorneys to comply.” Finally, even though the case did not involve a complaint by a client that the fee was excessive or otherwise improper, Section leaders believe it was proper for the court to step in. “It is important for courts to speak up and underscore how critical these rules are, if we really want courts to not just enforce the rules but to champion them,” concludes Lin.