Risk Managing Disputed Shared Fee Division

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It is not unusual for lawyers not in the same firm when dividing a shared fee to disagree on the division of the proceeds.  When one lawyer receives earned fees in which the other lawyer has an interest that is disputed, how should the lawyer holding the fees safeguard them until the dispute is resolved?

The ABA in Formal Opinion 475, Safeguarding Fees That Are Subject to Division With Other Counsel [12/7/2016] provides an answer to this question by equating the other lawyer to a third person for purposes of Model Rule 1.15[a] and [d], Safeguarding Property.  The opinion makes it clear that this is the only context in which the other lawyer has the status of third party for purposes of the Rules of Professional Conduct.

From this designation as a third party it follows that the disputed funds should be treated in the same manner as disputed funds with a client.  The opinion includes this guidance:

  • The receiving lawyer should deposit the funds in which co-counsel holds an interest in an account [typically a trust account] separate from the lawyer’s own property.
  • The lawyer who receives the earned fees subject to a division agreement must promptly notify the other lawyer who holds an interest in the fee of receipt of the funds, promptly deliver to the other lawyer the agreed upon portion of the fee, and, if requested by the other lawyer, provide a full accounting.
  • If there is any dispute as to the interest of the receiving lawyer and the other lawyer with whom the receiving lawyer is dividing the fee, the receiving lawyer must keep the funds separate from the lawyer’s own property until the dispute is resolved.
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Editors Note: The Kentucky Rule of Professional Conduct 1.15 is compatible with Model Rule 1.15 in all pertinent parts for the purposes of the ABA’s guidance on this issue.

 


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