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Why Fee Splitting Can Be a Good Thing

by Mark Scruggs |

Fee splitting is permissible in North Carolina subject to certain limitations.

Rule 1.5(e) of the Rules of Professional Conduct states:

(e) A division of a fee between lawyers who are not in the same firm may be made only if:

(1) the division is in proportion to the services performed by each lawyer or each lawyer assumes joint responsibility for the representation;

(2) the client agrees to the arrangement, including the share each lawyer will receive, and the agreement is confirmed in writing; and

(3) the total fee is reasonable.

Associated Lawyer Clause‑Contingency

Below is a clause that you might consider including in your Engagement Agreement if circumstances warrant.

It is agreed that Lawyer will divide the lawyer’s fees in this case with ____________ (Associated Lawyer) who will be compensated out of the fees which Lawyer otherwise will earn under this Agreement. Associated Lawyer has agreed to assume joint responsibility for this matter. Associated Lawyer will receive 50% of Lawyer’s fees. The total fee to Client will not be increased.  Client waives any attorney-client privilege and duty of confidentiality as to any confidential client information that Lawyer needs to share with Associated Lawyer in order to carry out the representation.

(Note: Lawyer needs to make sure Associated Lawyer runs checks for conflicts of interest before Lawyer associates Associated Lawyer.)

Fee Splitting Might Help You Provide Competent Representation

Rule 1.2 of the Rules of Professional Conduct states: “A lawyer shall not handle a legal matter that that lawyer knows or should know he or she is not competent to handle without associating with a lawyer who is competent to handle the matter.”

If the associated lawyer’s services will contribute to the competent and ethical representation of the client, consider it. You will become a better lawyer more quickly if you associate an experienced lawyer to help you. Yes, you will have to give up some of your fee, but it will be a good investment in your professional development and your client’s case. Moreover, a better outcome equals more money in the client’s pocket.

At Lawyers Mutual we handle malpractice claims that could have been avoided by our insured being willing to associate a more experienced lawyer and being willing to split the fee. We advise lawyers every day “Don’t dabble!” If you are not competent to handle a matter, you are ethically obligated to become competent. One of the ways you can do that is by associating a more experienced lawyer and splitting the fee.

What If There Is a Disagreement Between the Lawyers Concerning How the Total Fee Should Be Split?

Who gets to hold the fee while the dispute is being resolved?

This question came up at one of Lawyers Mutual’s CLE programs recently.  The question assumed a litigation settlement where the client has received the portion of the settlement he was entitled to but his lawyers Abraham, Martin and John are arguing about how to split the lawyers’ fees. The question is where the attorneys should hold the fees while they resolve their dispute.

Abraham, Martin and John complied with Rule 1.5(e). Abraham deposited the litigation settlement in his trust account. The three former amigos are now disputing how the total attorneys’ fees should be divided.

Rule 1.15-2(g) states that “[w]hen funds belonging to the lawyer are received in combination with funds belonging to the client or other persons, all of the funds shall be deposited intact. . . . After the deposit has been finally credited to the account, the lawyer shall withdraw the amounts to which the lawyer is or becomes entitled. If the lawyer’s entitlement is disputed, the disputed amounts shall remain in the trust account or fiduciary account until the dispute is resolved.” (Emphasis added.)

Martin and John dispute Abraham’s entitlement to some portion of the total fee, so Abraham is obligated to hold the disputed amounts in his trust account until the dispute is resolved. Conversely, any undisputed portion of the total fee can be immediately disbursed.

See, e.g., 2011 Formal Ethics Opinion 13.

What About Referral Fees?

Referral fees are permitted in North Carolina subject to certain limitations. But that begs the question:  Who would ever ask for one?  RPC 205 rules that “a lawyer may receive a fee for referring a case to another lawyer provided that, by written consent with the client, both lawyers assume responsibility for the representation and the total fee is reasonable.” Referral fees fall under the latter category of Rule 1.5(e)(1). Thus, whenever a lawyer accepts a fee for referring a case to another lawyer, the lawyer remains responsible for the competent and ethical handling of the matter.

Each of us wants to maximize our fee within ethical bounds and splitting the fee with another lawyer seems to run counter to that goal. However, being willing to split a fee has benefits greater than money. Splitting a fee with a more experienced associated lawyer can help you become a better lawyer faster. Moreover, it can help you provide competent representation to your client and may result in a better outcome for your client and you.

About the Author

Mark Scruggs

Mark Scruggs is senior claims counsel with Lawyers Mutual specializing in litigation, workers compensation and family law matters. You can reach Mark at 800.662.8843 or at mscruggs@lawyersmutualnc.com.

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