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January 2017

New ABA Formal Opinion 475: Safeguarding Fees That Are Subject to Division with Other Counsel

You have a personal injury practice.

You are currently representing a client in a matter that involves a particular type of toxic tort that you have never litigated before. You know of another lawyer from another firm who has experience in this area and so you consult with her and agree to bring her on as co-counsel under a fee-sharing arrangement.

The trial is successful, and you have just received a settlement check from the opposing party from which you will deduct the legal fees that are due to you and co-counsel.

Pending disbursement of co-counsel’s portion of the fees, where should you keep them?

Can you deposit them in your firm operating account or should they be kept in your client trust account?    

ABA Formal Opinion 475

ABA Formal Opinion 475 Safeguarding Fees That Are Subject to Division with Other Counsel (2016) addressed these questions, concluding that the fees due co-counsel under a fee-sharing agreement must be kept separate from the lawyer’s own property.

The committee began its analysis with a discussion of ABA Model Rules 1.5 Fees and 1.15 Safekeeping Property. Under Rule 1.5(e), fees can be shared with another lawyer not in the same firm if the fees are divided in proportion to the amount of work each lawyer does on the case or if each lawyer assumes joint responsibility for the representation.

Under Rule 1.15(a), funds in which a client or a “third person” has an interest are to be kept separate from the lawyer’s own property.

So, the question before the committee was, is the outside co-counsel a “third person” under Rule 1.15(a)?

The committee looked to subparts (a) and (d) of Rule 1.15 that state that property of clients or a third person must kept separate from the lawyer’s own property, and that once received the receiving lawyer must promptly notify the client or third person that they have been received, and promptly deliver them.  

The committee noted the variety of situations that implicate Rule 1.15, including “fee advances, advances of costs, receipt of settlement funds, holding client funds to which creditors have claims and fee disputes between the lawyer and the client,” and concluded that the outside co-counsel is a “third person” under the rule. 

The committee also found subpart (e) of the rule to be applicable to the extent that there is a dispute between the lawyers about the amount each lawyer is to receive under the fee-sharing agreement.

The committee was also careful to make clear that the designation of a person as a “third person” in the context of Rule 1.15 did not mean that the person is necessarily considered to be a third person in the context of other Model Rules, such as for example Model Rule 1.6 Confidentiality of Information.

As this new opinion illustrates, sometimes the application of the trust account rules requires careful analysis. To the extent that questions arise in your jurisdiction, contact your state or local bar association for assistance.

Several states have developed handbooks for the proper handling of trust accounts.  See, e.g., the “Client Trust Account Handbook  (Rev. May 2015), published by the Illinois Attorney Registration and Disciplinary Commission;  “Managing Client Trust Accounts, Rules Regulations and Common Sense (revised 2015) and published by the Washington State Bar Association; and “Answering Your Questions about Trust Accounting (updated in 2016), published by the Virginia State Bar Association.

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