Section Review

Fee splits require up-front written client consent

The Supreme Judicial Court has ruled that lawyers who participate in a fee-sharing agreement must obtain written client consent before the referral is made. Saggese v. Kelley, et al., 445 Mass. 434, 837 N.E.2d 699 (2005). This requirement is to satisfy the professional ethical requirements of Mass. R. Prof. C. 1.5(e). The Supreme Judicial Court noted its ruling means the primary responsibility for compliance falls on referring lawyers. It specifically ruled, however, that lawyers to whom the client is referred are not absolved of all responsibility. This means lawyers receiving referrals under fee-sharing arrangements are responsible for ensuring that prior written client consent has been obtained. The court also stated that failure to comply will not render the contract unenforceable per se, but may subject both lawyers to disciplinary action upon division of a fee.

The case presented the court with an oral fee-sharing arrangement between a referring lawyer, Saggese, and the two attorneys who received the client, the Kelleys. Saggese referred a number of clients to the Kelleys over a few months' period, one of whom was the client in this case. At the end of this few months, Saggese made it clear to the Kelleys that he expected a referral fee of one-third of all fees received in cases he had referred to them. The Kelleys made a series of payments to Saggese, noting they were for referral fees on each check.

The client here was not made aware of the fee-sharing arrangement until after her case had been decided, some two-and-a-half years later. At that time, the arrangement and surrounding issues were explained to her. She was told that the fee would not be split if she objected. The client sent a letter a week later authorizing the referral fee payment.

Among other legal theories, the Kelleys contested paying the referral fee because the contract was void as against public policy. Specifically, the Kelleys argued the arrangement violated the terms of DR 2-107(A)(1).1 The court examined DR 2-107(A)(1), which was in place when the arrangement was made, and Mass. R. Prof. C. 1.5(e)2 that went into effect while the Kelleys worked on the client's case. The court found both rules were intended to protect clients from unreasonable fees. Neither rule, however, was intended to prohibit fee-sharing arrangements. The court found it material to its decision that actual client consent had been obtained, albeit after the fact. For this instance, after-the-fact client-ratifying consent was adequate, although not preferred. The holding specifically states that client ratification obtained after the fact will not suffice where the fee-sharing arrangement is made subsequent to issuance of this opinion.

The court acknowledged that both the current and former rules are unclear as to (1) who should disclose a fee-sharing arrangement to the client, (2) when the disclosure should be made and (3) when consent from the client must be obtained. The court's concern was that a client, if presented with a fee-sharing arrangement after the fact, might not feel comfortable suggesting changes or disagreeing once representation had begun. To avoid any possibility of the after-the-fact client acquiescence, the court imposed clear requirements for all future fee-sharing agreements.

As a result, all fee-sharing arrangements formed from Nov. 30, 2005 forward must be disclosed to the client before the referral is made, and the client must agree to the arrangement in writing. Ensuring disclosure has been made and written consent received is the responsibility of both the referring and receiving attorney. The referring attorney has primary responsibility for making disclosure and securing written client consent. The attorney receiving the client must be certain the requirements were met before commencing representation. Failure to comply may subject both the referring and receiving attorney to disciplinary action upon division of a fee.

Of course, experienced counselors to the bar have for years strongly recommended written fee agreements prior to representation commencement. Lawyers who heed this recommendation can comply with this new mandate by adding suitable language in an appropriately prominent way to their written fee agreement forms. That language might read:3

 

The Attorney advises Client that the fee for legal services paid by Client will be divided with [INSERT NAME OF ATTORNEY AND FIRM] to pay [INSERT NAME OF ATTORNEY AND FIRM] for its participation in the services to be provided to Client. The amount charged to Client will be governed by this agreement and the amount paid to [INSERT NAME OF ATTORNEY AND FIRM] for its participation will come from the amount charged according to this agreement. Client consents to the referral to and joint participation of [INSERT NAME OF ATTORNEY AND FIRM] in the representation of Client and the division of the fee.

End notes

1. The Canons of Ethics and Disciplinary Rules Regulating the Practice of Law, S.J.C. Rule 3:07, Canon 2, DR 2-107, 382 Mass. 773 (1981), states: "(A) A lawyer shall not divide a fee for legal services with another lawyer who is not a partner in or associate of his law firm or law office, unless: (1) The client consents to employment of the other lawyer after a full disclosure that a division of fees will be made…. (3) The total fee of the lawyers does not exceed reasonable compensation for all legal services they rendered the client."[back]

2. Rule 1.5(e) of the Massachusetts Rules of Professional Conduct, 426 Mass. 1315 (1998), states, in relevant part: "A division of a fee between lawyers who are not in the same firm may be made only if, after informing the client that a division of fees will be made, the client consents to the joint participation and the total fee is reasonable." Comment [4A] to rule 1.5(e) states that the rule is "substantively the same as former DR 2-107." Id.[back]

3. This language is specifically designed to be part of the Model Fee Agreements promulgated by the MBA's Fee Arbitration Board.[back]

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