Of Counsel: Compensation & Fees

Week before last, I started a 3-part series on ethics issues related to lawyers who work “of counsel” to a firm.  The first part is here.  To summarize: “of counsel” and its variants are misleading if the lawyer does not have:

  • “a close, regular and personal relationship that is more than a mere forwarder or receive of legal business, more than an occasional consultant relationship, and more than a relationship for the purposes of one case.”

I promised two more posts. One on conflicts, another on the relationship between the fee rules and “of counsel” attorneys.  I’m finally getting around to it.  (Let’s be honest – it’s not the most thrilling of topics and, anyway, the weather has been fantastic the past few weeks. Summer is short in this neck of the woods!)

Anyhow, let’s pretend we’re at one of my seminars.  I’ll throw the question to the audience – what’s the ethics issue that comes up when it comes to fees & the manner in which a firm compensates a lawyer who is “of counsel?”

Anyone?  Anyone?  Bueller?

Wait, did someone say “fee sharing??”  We have a winner!

Remember – Vermont does not allow straight referral fees.  I’ve blogged on that issue here, here, and here.  Rather, whenever lawyers not in the same firm want to share a fee, Rule 1.5(e) allows the division only if:

  1. it’s in proportion to work performed, or, each attorney assumes joint responsibility for the representation; and,
  2. the client agrees to the arrangement and the arrangement is confirmed in writing; and,
  3. the total fee is reasonable.

Scenario 1:  A former partner in a law firm is “of counsel” to the firm. The attorney has scaled back her practice, but will continue to practice through the firm. The attorney will not practice law at any other firm.  Former partner works on a client matter for firm.  Firm wants to pay former partner.  Does Rule 1.5(e) apply?

This one is clear: no, Rule 1.5(e) does not apply.  Here, though now “of counsel,” the rules treat former partner as being part of the same firm as, well, firm.

Scenario 2: Firm focuses on commercial litigation.  Firm’s clients often have related tax law issues.  Lawyer focuses on tax law.  Firm wants to take on Lawyer as “of counsel.”  Firm lawyers will consult with Lawyer on all client matters involving tax issues.  Firm will disclose the relationship to clients and Lawyer’s rate will be set forth in engagement letters.  Lawyer will also maintain a personal injury practice that is separate and independent from firm.   Does Rule 1.5(e) apply when Firm pays Lawyer?

The Illinois State Bar Association addressed this issue in Opinion 16-04:  The ISBA concluded that the answer is “no,” stating:

  • “The question then becomes how the ‘of counsel’ lawyer can be compensated for his or her services. We have never addressed whether an ‘of counsel’ lawyer is in the same firm or in a separate firm for the purposes of fee division, but conclude that given the close nature of the ‘of counsel’ relationship, the lawyers should be viewed as being in the same firm. Accordingly, while the lawyers may choose to disclose the nature of the fee distribution between the attorneys withthe client, the lawyers should not be subject to the restrictions set forth in Rule 1.5(e). However, fee agreements with ‘of counsel’ attorneys must always meet the general requirements of Rule 1.5 that a lawyer may not charge or collect an illegal fee or an unreasonable fee.”

The Illinois opinion cites to opinions from several other states that reached the same conclusion.

Scenario 3:  Change the last one a bit.  Firm focuses on commercial litigation and its clients often have related tax law issues.  Lawyer’s practice areas include tax and personal injury law.  Lawyer is “of counsel” to firm for tax law issues, but maintains a separate personal injury practice.  Firm does not handle personal injury cases.  A Firm client, however, was injured in accident.  Firm referred the client to Lawyer.  Does Rule 1.5(e) if Lawyer wants to share the fee with Firm?

In this situation, I’d argue “yes,” because Firm and Lawyer are not part of the same firm.  Rather, Firm referred the client to Lawyer’s separate and independent personal injury practice.  As such, if Lawyer chooses to divide the fee with Firm, Rule 1.5(e) applies and the division may only be made:

  1. in proportion to work performed, or, if Firm and Lawyer assume joint responsibility for the representation; and,
  2. if PI client agrees to the arrangement and the arrangement is confirmed in writing; and,
  3. if the total fee is reasonable.

In sum, it strikes me that the compensation issue will be governed by whether “of counsel” is working on the very matter for which client retained firm, or, whether firm referred to the “of counsel” lawyer a matter in which firm was not retained by the client.

Others might disagree.

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