Fee splitting law firms: an idea whose time has come ... and gone
Updated: Sep 6, 2020
Here's the best practice: If two lawyers from different firms are going to split a fee, then they should divide that fee in proportion to the services performed by each lawyer. But what's the usual practice? A larger firm engages an attorney (often a solo practitioner) to perform legal services for its clients; pays that lawyer a certain rate and then bills the client a higher rate. That violates the ABA Model Rules of Professional Conduct 1.5(e).
The rule is that if two lawyers from separate firms are going to split fees, then those fees must be divided in proportion to the services performed by each lawyer; unless, with written consent of the client, the lawyers have agreed to assume joint responsibility for the representation. And just calling that outside attorney a consultant or "of counsel" won't fix the problem.
The longstanding practice has been to treat the "of counsel" attorney as part of the firm for purposes of fee sharing. Such an attorney, therefore, would not be subject to the restrictions applicable to lawyers outside the firm. This has been the view of the Restatement of the Law Governing Lawyers, section 47, Comment g (2000), and several state and local ethics opinions, including Alabama, New Jersey, New York City, Philadelphia, Texas and Virginia. Sidebar: With the exception of Virginia, the rest of the authorities on this list are not exactly known for the quality of their jurisprudence on ethical issues.
But the "of counsel" attorney is rarely a partner (or even an associate) of the firm and, as a result, the developing trend has been to recognize the obvious: the rules regulating the division of fees between lawyers who are not in the same firm also apply to the "of counsel" relationship (see Arizona, California, and Maryland). This is a classic substance over form analysis. Simply calling an outside attorney "of counsel" does not magically turn that attorney into one of the law firm's own attorneys. And calling the attorney a "consultant" does not make the attorney a non-attorney -- even if it did, the law firm then would have a bigger problem for splitting a fee with a non-attorney!
Other ethics opinions -- like the District of Columbia and the state of Florida -- have found what some call a middle ground: concluding that the fee-splitting rules generally apply to the "of counsel" relationship; unless that "of counsel" attorney actually functions as a partner or associate of the firm. On closer review, though, this so-called middle ground really just embraces the developing trend. Spelling it out, if you will, for those resisting change.
Ultimately, it's never a good idea for law firms to try to avoid the rules on fee sharing by using the labels "of counsel" or "consultant." Law firms like to use the "of counsel" moniker because it enhances their prestige, subject matter expertise, or skill set; which then enables the firm to provide a legal service that it would not otherwise have been able to do. But both the firm and the attorney still must obtain from those affected clients written informed consent to that relationship; including what it really means for them, how the fees are to be split, and -- perhaps most importantly -- why those fees are going to be split.