How must a lawyer handle a fee that has to be split with a lawyer at another firm?

Plain-English summary

The opinion starts from Model Rule 1.5(e), which permits lawyers not in the same firm to divide a fee if the division is proportionate to services or both assume joint responsibility, the client agrees in writing including each lawyer's share, and the total fee is reasonable. As the opinion notes, a division of a fee "is a single billing to a client covering the fee of two or more lawyers who are not in the same firm." It then frames the central question: when one lawyer receives an earned fee in which both lawyers have an interest, is the other lawyer a "third person" under Rule 1.15? The opinion answers that "Model Rule 1.15 provides the answer."

The opinion reasons that Rule 1.15 "requires the safekeeping of any property that comes into the lawyer's possession in connection with the representation of a client in which the client or any 'third person' has an interest." Because the out-of-firm lawyer holds an interest in the divided fee, that lawyer is a third person for purposes of Rule 1.15. The opinion is careful to cabin this conclusion: the "third person" designation is limited to Rule 1.15's safekeeping purposes and does not make co-counsel a third person for other rules, such as Rule 1.6.

Applying the rule, the opinion states that "the receiving lawyer, therefore, must, under Rule 1.15(a), deposit the funds in which co-counsel holds an interest in an account (typically a trust account) separate from the lawyer's own property." It adds that applicable state implementation "may require that the funds be deposited into an IOLTA (Interest on Lawyer Trust Accounts) account." Under Rule 1.15(d), the receiving lawyer must promptly notify the other lawyer of receipt, promptly deliver the agreed portion, and provide a full accounting if requested. If the lawyers dispute their respective interests, Rule 1.15(e) requires keeping the disputed funds separate until the dispute is resolved.

In practice

Under this opinion, a lawyer who collects a fee that must be split with outside counsel cannot simply deposit it with the lawyer's own funds. The opinion holds the receiving lawyer must hold the funds separate (typically in a trust account, and where state law requires, an IOLTA account), promptly notify the other lawyer, promptly deliver the agreed share, and account on request. It holds that any dispute over the respective shares requires keeping the contested funds separate until resolved, and that this third-person treatment is limited to Rule 1.15 safekeeping.

Common questions

Q: When I collect a fee that must be split with a lawyer at another firm, where do those funds go?

A: Per the opinion, into an account separate from your own property, typically a trust account, and into an IOLTA account where state law requires.

Q: Is the other lawyer a "third person" under Rule 1.15?

A: Yes, for safekeeping purposes. The opinion concludes the out-of-firm lawyer holding an interest in the divided fee is a third person under Rule 1.15.

Q: What do I owe the other lawyer once I receive the fee?

A: The opinion says prompt notice of receipt, prompt delivery of the agreed share, and a full accounting if requested, under Rule 1.15(d).

Q: What if we disagree about who gets what?

A: The opinion holds Rule 1.15(e) requires keeping the disputed funds separate until the dispute over the respective interests is resolved.

Background and rules framework

The opinion interprets Model Rule 1.15 (safekeeping property), including 1.15(a) (holding third-person property separate), 1.15(d) (notice, delivery, and accounting), and 1.15(e) (segregating disputed funds). It reads these against Model Rule 1.5(e) (division of fees between lawyers not in the same firm) and notes that the designation does not extend co-counsel "third person" status under Rule 1.6.

Citations and references

Rules of Professional Conduct:

• ABA Model Rule 1.15 (safekeeping property), including 1.15(a), (d), (e)
• ABA Model Rule 1.5(e) (division of fees)

Other opinions cited:

• State Bar of Arizona Op. 04-03 (2004): applying Rule 1.15(d) to funds delivered for another

Cases:

• Att'y Grievance Comm'n v. Johnson, 976 A.2d 245 (Md. 2009), Rule 1.15(d) and a lawyer serving as settlement agent

See also

• ABA Formal Op. 474: Referral Fees and Conflict of Interest
• ABA Formal Op. 487: Fee Division With a Client's Prior Counsel
• ABA Formal Op. 505: Fees Paid in Advance

Source

• Landing page: ABA Formal Ethics Opinions index
• Original PDF: aba-formal-opinion-475.pdf