Can a law firm pay a year-end bonus, based on a percentage of profits from referred business, to an 'of counsel' attorney who is not a partner or associate and whose tie to the firm is mainly reciprocal referrals, without the client's consent?
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This page answers the general question as of 1992. Ezel answers yours: whether it's allowed on your facts, under the current California Rules of Professional Conduct, with citations.
Plain-English summary
A law firm that handled litigation referred business to an attorney denominated "of counsel" who specialized in tax and corporate matters, and the attorney referred litigation business to the firm. Each billed its own clients separately, the firm asserted no referral fees were paid and its billings were unaffected by referrals, and it was rare for both to work on the same case. The firm proposed to pay the attorney a bonus out of firm profits, based on a percentage of the profits derived from business the attorney referred to the firm, and asked the committee to assume the firm did not want to obtain client consent.
The committee identified Rule 2-200(A), which provides that a member shall not divide a fee for legal services with a lawyer who is not a partner, associate, or shareholder unless certain conditions are met, and Rule 2-200(B), which prohibits giving anything of value in return for the referral of business except between partners, associates, or shareholders of a firm. Relying on its Opinion 457, the committee identified that a bonus based on fees received in a particular matter or matters is a division of fees under Rule 2-200. It identified that the attorney was not a partner or shareholder (no ownership interest) and not an associate under Rule 1-100(B)(4) (an employee employed as a lawyer), so Rule 2-200(A) applied unless the bonus was neither bargained for nor based on fees paid by the client, the attorney had no expectation of a percentage fee, and the amount was compensation for work performed and paid whether or not the firm was paid. Because the bonus was based on a percentage of the profits of the business referred to the firm and was not compensation for work performed, those conditions were not satisfied, so the attorney should receive a bonus only with client consent under Rule 2-200.
The committee identified that the same conclusion follows from State Bar Formal Opinion 1986-88, which held that an out-of-state "of counsel" firm was subject to Rule 2-200 and could avoid it only if compensated at straight hourly rates by the client. The committee identified that this reasoning applies equally to an "of counsel" attorney, so the attorney may still bill the client for his own time on a referred matter, but the bonus on top of his hourly fees would be improper without client consent because the attorney is not an associate, partner, or shareholder of the firm.
Currency note
This opinion was issued in 1992, before California's November 1, 2018 adoption of the renumbered Rules of Professional Conduct. It interprets former Rule 2-200 (division of fees among lawyers), corresponding to current Rule 1.5, along with former Rules 1-320, 1-400, and 3-310. Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule mentioned here.
Common questions
Q: Can a firm pay an "of counsel" lawyer a bonus based on the business they referred in?
A: Per the opinion, not without client consent, where the lawyer is not a partner, associate, or shareholder and the bonus is a percentage of profits from referred business. The committee concluded that is a division of fees under Rule 2-200.
Q: Is an "of counsel" attorney treated as an associate for fee-division purposes?
A: Per the opinion, not on these facts. The committee identified that the attorney held no ownership interest and was not an employee employed as a lawyer under Rule 1-100(B)(4), so Rule 2-200(A) applied.
Q: Can the of-counsel lawyer still bill the client directly for referred work?
A: Per the opinion, yes. The committee identified that the attorney may bill the client for his own time on a referred matter; only the profit-based bonus on top required client consent.
Background and rules framework
The opinion interprets former California Rule 2-200 (division of fees with a lawyer who is not a partner, associate, or shareholder), which corresponds to ABA Model Rule 1.5, and references former Rules 1-320, 1-400, and 3-310, along with Rule 1-100(B)(4)'s definition of "associate." It relies on the committee's Opinion 457, State Bar Formal Opinion 1986-88, and Moran v. Harris.
Citations and references
Rules of Professional Conduct (former):
- California Rule 2-200 (division of fees among lawyers)
- California Rules 1-320, 1-400, 3-310; Rule 1-100(B)(4) (definition of "associate")
Cases:
- Moran v. Harris, 131 Cal.App.3d 913 (1982)
- Dunne & Gaston v. Keltner, 50 Cal.App.3d 560 (1975)
Other opinions cited:
- LACBA Formal Opinion 457 (1989)
- California State Bar Formal Opinion 1986-88; ABA Formal Opinion 90-357
See also
- LACBA Ethics Op. 467: Referral Fees to an Unassociated Attorney
- LACBA Ethics Op. 486: Referrals to Subleasing Attorneys
- LACBA Ethics Op. 457: Performance Bonuses for Paralegals
- LACBA Ethics Op. 511: Sharing Fees as Partner or Employee of Two Law Firms
Source
- Landing page: https://lacba.org/?pg=ethics-opinions
- Original PDF: https://lacba.org/docDownload/2010973
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