Can a firm split fees with an of-counsel lawyer by reconciling work across all clients at the end of an accounting period?
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This page answers the general question as of 1986. Ezel answers yours: whether it's allowed on your facts, under the current rules of professional conduct in your state, with citations.
Plain-English summary
A firm and a lawyer who was "of counsel" to it, but neither a shareholder nor an associate, proposed to track all fees generated for each other's traditional clients and, at the end of each accounting cycle, pay a percentage of any excess to whichever side was "short," based on the work done. The arrangement would not appear on individual bills, and the client would not be told of it because no payment would be made unless the accounts failed to balance.
The opinion concluded the proposed plan was not permissible. It read ER 1.5(e) to allow a division of fees between lawyers not in the same firm only where the division is in proportion to the services each performs (or each assumes joint responsibility by written agreement with the client) and the total fee is reasonable. Drawing on prior opinions and ABA Informal Opinion 1392, the committee restated that a fee must reflect a division of service or responsibility, and that a lawyer who merely brings about another's employment without rendering service may not share the fee.
The opinion stated that a fee division is ethically permissible only if the client is advised of, and does not object to, the participation of the lawyers involved (though the share each lawyer receives need not be disclosed), and the division is based on the work each performs. The committee found the proposed plan did not meet those standards.
Currency note
This opinion has been withdrawn by the State Bar of Arizona; the official viewer marks it "Opinion Withdrawn; See Opinion 16-01." It is retained here for research and historical context only and is not current guidance.
This opinion was issued in 1986, before the State Bar of Arizona's adoption of the 2003 revisions to the Rules of Professional Conduct. Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule, deadline, or requirement mentioned here.
Common questions
Q: Did the opinion allow the end-of-period fee reconciliation between the firm and its of-counsel lawyer?
A: No. The opinion concluded the proposed plan did not conform to the fee-division rule, which it read to require that the client be advised of the lawyers' participation and that the division track work performed.
Q: Does the client have to be told the exact split each lawyer receives?
A: The opinion concluded the client must be advised of and not object to the lawyers' participation, but that the specific share each lawyer is to receive need not be disclosed.
Q: Is this opinion still in force?
A: No. The official viewer marks it withdrawn and directs readers to Arizona Opinion 16-01.
Background and rules framework
The opinion applied ER 1.5(e) (Model Rule 1.5(e)), which governs the division of a fee between lawyers who are not in the same firm and requires that the division be proportional to services performed (or that the lawyers assume joint responsibility by written agreement with the client) and that the total fee be reasonable. The committee read the rule against prior fee-splitting opinions and ABA Informal Opinion 1392.
Citations and references
Rules of Professional Conduct:
- ER 1.5(e) / Model Rule 1.5(e) (division of fees between lawyers not in the same firm)
Other opinions cited:
- ABA Informal Opinion 1392 (June 2, 1977): a uniform percentage split not proportional to services or responsibility is improper
See also
- AZ Ethics Op. 04-02: Referral Fees and Division of Fees
- AZ Ethics Op. 85-01: Firm-to-Firm "Of Counsel" Letterhead
- AZ Ethics Op. 86-06: Earned-on-Receipt Fees
Source
Original opinion text
Reproduced from the official source for research purposes. The linked source is authoritative.
3/1986
OPINION WITHDRAWN; SEE OPINION 16-01
Division of fees with attorney who is "of counsel" is permissible if based upon percentage of work done.
FACTS
The inquiring attorney wants to know whether or not a lawyer who is “counsel" to the firm, but is not a shareholder or associate, may share fees under the following circumstances. The Committee presumes that the lawyer is, in fact, “of counsel” to the firm, and that his relationship to the firm is close and continuing.
All fees generated for work being done by either the firm or "counsel" for clients who had traditionally been the clients of the other will be kept track of and, at the end of the normal accounting cycle, if there is an excess of work handled by either the firm or “counsel” for the clients of the other, then a percentage of that excess will be paid to the one who is “short" on the basis of work done. This will not be done on the basis of individual bills, and the client will not be told of the arrangement since no payment will be made unless things do not balance out at the end of the accounting period.
QUESTION
May an attorney ethically divide fees with another attorney who is "counsel" to the firm based upon the amount of work done for all clients without regard to the individual clients as such?
ETHICAL ROLE INVOLVED
ER 1.5. Fees
(e) A division of fee between lawyers who are not in the same firm may be made only if:
(1) the division ii in proportion to the services performed by each lawyer or, by written agreement with the client, each lawyer assumes joint responsibility for the representation;
(3) the total fee is reasonable.
OPINION
There were many opinions interpreting the question of fee-splitting written before the adoption of the new Rules of professional Conduct. The opinions contemplate that a lawyer's fee should not exceed the value of the services rendered. A division of fees must be made on a division of service or responsibility. If a lawyer merely brings about the employment of another lawyer, but renders no service and assumes no responsibility, a division of the fee is improper.
Informal Opinion 1392 of the American Bar Association Committee, dated June 2, 1977, said that a uniform percent fee split required by a law firm does not establish a division of fees in proportion to services performed and responsibility assumed as required by DR 2-107(A)(2) of the Code of Professional Responsibility. In those instances where the law firm's services to the client consist solely of a referral to another law firm, such would not be sufficient to entitle the firm to any part of a fee.
It is submitted that the new Rules of Professional Conduct which became effective in Arizona on February 1, 1985, would not alter this requirement. It would seem that, if the client is informed that there are other lawyers working on his case, disclosure is not necessary as to the share of the fee each lawyer is to receive. Since the intent in this case is to pay an excess to the lawyer on the basis of the amount of work done, it would be in conformance with ER 1.5 (e) (1).
It is the opinion of the Committee that it is ethically permissible to divide fees so long as (1) the client is advised of and does not object to the participation of the lawyers involved, even though the share of the fee that each lawyer is to receive does not have to be disclosed, and (2) the division of fee is based upon the amount of work performed by the respective lawyers. The plan which is the subject of this request does not conform to these standards. Thus, it is our opinion that the proposed fee division is not permissible under ER 1.3.
© State Bar of Arizona 1986
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