February 2017

How the Rule Regarding Fee Sharing May Evolve to Affect Your Practice

By Eric Deitz

Gordon Rees Scully Mansukhani, LLP

California currently permits unaffiliated attorneys to share fees in connection with a given matter, including the payment of fees for referring a client to another lawyer. Attorneys not associated within a partnership or law firm may collaborate to represent a client jointly, or one lawyer may refer a client to another who then represents the client, while the first lawyer still collects a portion of the fee.

In either case, fee splitting is subject to the requirements of Rule 2-200 of the Rules of Professional Conduct, which precludes the sharing of attorney fees among attorneys not affiliated within a partnership or law firm unless: “1) The client has consented in writing thereto after a full disclosure has been made in writing that a division of fees will be made and the terms of such division; and (2) The total fee charged by all lawyers is not increased solely by reason of the provision for division of fees and is not unconscionable as that term is defined in rule 4-200.”

If implemented by the California Supreme Court, proposed changes to the Rules of Professional Conduct will have a far-reaching impact on nearly all aspects of how we practice, and fee sharing is no exception. Currently, Rule 2-200 does not require fee-sharing agreements among lawyers to be in writing, nor does it specify when a client must be informed of a fee-sharing arrangement.

Proposed Rule 1.5.1, subdivision (a), will require a written agreement to divide a fee among lawyers who are not in the same law firm, as well as client consent in writing as soon as the lawyers enter into an agreement to divide a fee or as soon thereafter as reasonably practicable. Attorneys will be required to make a full written disclosure to the client of: (i) the fact a division of fees will be made, (ii) the identity of the lawyers or law firms that are parties to the division, and (iii) the terms of the division. Subdivision (a) of Proposed Rule 1.5.1 carries over the requirement from Rule 2-200 that the total fee charged to a client by all lawyers may not be increased solely by reason of an agreement to divide fees.

If Proposed Rule 1.5.1 is adopted, unaffiliated attorneys interested in sharing a fee will need to negotiate and disclose to the client(s) in writing the proposed terms of such an arrangement when they agree on said terms, or shortly thereafter. The attorneys must then secure client approval of the proposed fee split in writing.

Unlike other jurisdictions that impose a “rule of proportionality” with respect to fee-sharing arrangements among lawyers, proposed Rule 1.5.1 does not. Those states which have adopted a version of ABA Model Rule 1.5, subdivision (e), require a division of fees to be in proportion to the services performed by each lawyer, or require each lawyer to assume joint responsibility for the representation.

A decision to not adopt subdivision (e) of Model Rule 1.5 as part of proposed Rule 1.5.1 will presumably permit the continued payment of pure referral fees in California, where an attorney or law firm merely receives some portion of the fee but does not actively work on the matter.

If the Supreme Court adopts proposed Rule 1.5.1, attorneys practicing in California will need to conform to the new rule. Those who wish to be proactive may adopt a best practices approach in advance of any action by the Supreme Court, both to protect themselves and their clients from unwanted surprises and disagreements concerning fees.

Special thanks to David M. Majchrzak and Heather L. Rosing for their contribution to this article.

**No portion of this article is intended to constitute legal advice. Be sure to perform independent research and analysis. Any views expressed are those of the author only and not of the SDCBA or its Legal Ethics Committee.**