Is a contract requiring a departing lawyer to pay his old firm a percentage of contingency fees on cases he takes with him proper, and must the new firm honor it?

Plain-English summary

A lawyer's employment agreement provided that if he left the firm and took contingency-fee clients with him, he would owe the old firm a declining share of the fees later collected: 80 percent for cases settled within six months of departure, 65 percent for seven to twelve months, and 50 percent for cases settled more than a year out. The agreement did not provide for client consent, and the firm never disclosed it to any client. After the lawyer left and settled some covered cases, the old firm demanded that the new firm honor the arrangement. The committee was asked about the propriety of the agreement and the new firm's obligations.

The committee applied DR 2-105(D) (dividing fees among lawyers not in the same firm) and DR 2-106(A) (no agreement restricting a lawyer's right to practice). It noted that a division of fees among lawyers in different firms required client consent to additional counsel, that both lawyers assume responsibility to the client, and disclosure and client consent to the terms. A departing-lawyer fee split cannot meet those requirements: the old firm would assume no responsibility after the lawyer left, and a client would be unlikely to have consented at the outset, and here no client consent was obtained in any event (citing LEOs 1232, 1404, 1556).

Relying on LEO 1556, the committee also concluded the agreement improperly restricted the departing lawyer's ability to practice. The fee owed to the old firm creates a financial disincentive that penalizes the lawyer for leaving and competing, may make him unwilling to work at reduced rates even for his best clients, and thereby impairs the client's right to select counsel of choice, violating DR 2-106(A). The committee found the agreement violated both DR 2-105(D) and DR 2-106(A), and declined to opine on whether the agreement was legally enforceable, a question of law beyond its purview.

Currency note

This opinion was issued in 1999, under Virginia's former Code of Professional Responsibility (the disciplinary rules it cites), before the Virginia State Bar's adoption of the Rules of Professional Conduct effective January 1, 2000. The result has since changed: a Legal Ethics Committee note dated October 23, 2012, appended to the opinion states that Rule 1.5(f) allows fee sharing between lawyers formerly associated in a law firm, with no requirement for client consent. Treat this page as historical context, not current guidance, and verify against current rules before relying on any specific point here.

Common questions

Q: Could a firm take a percentage of a departing lawyer's contingency fees on cases he took with him?

A: Under this 1999 opinion, the clause was improper. The committee held it failed the former fee-division rule (no client consent, and the old firm assumed no continuing responsibility) and improperly restricted the lawyer's right to practice. Note that a 2012 committee note says Rule 1.5(f) now allows fee sharing between lawyers formerly in the same firm without client consent.

Q: Why did the committee treat the clause as a restriction on the right to practice?

A: Citing LEO 1556, it reasoned the fee owed to the old firm is a financial disincentive that penalizes the lawyer for leaving and competing and may push him to decline the client's work, impairing the client's right to choose counsel, in violation of DR 2-106(A).

Q: Did the committee say whether the agreement was enforceable?

A: No. The committee said enforceability is a question of law beyond its purview and limited its opinion to the ethical propriety of the arrangement.

Background and rules framework

The opinion was decided under Virginia's former Code of Professional Responsibility: DR 2-105(D) (requirements for dividing fees between lawyers not in the same firm) and DR 2-106(A) (no agreement restricting a lawyer's right to practice). The modern analogues are Rule 1.5 (fees and fee division) and Rule 5.6 (restrictions on the right to practice); a 2012 committee note points to Rule 1.5(f) for fee sharing among lawyers formerly in the same firm.

Citations and references

Rules of Professional Conduct:

• Former Virginia DR 2-105(D), DR 2-106(A) (Code of Professional Responsibility)
• Virginia Rule 1.5(f) (fee sharing between lawyers formerly in a firm; per the 2012 committee note); Rule 5.6 (restrictions on the right to practice)

Other opinions cited:

• Virginia LEO 1556: a departing-lawyer fee split improperly restricts the right to practice and impairs the client's choice.
• Virginia LEOs 1232, 1404: fee-division and departing-lawyer arrangements under DR 2-105(D).

See also

• VA LEO 1822: Departing Lawyer's Client Notice
• VA LEO 1739: Referral Fees Without Continuing Responsibility

Source

• Landing page: https://vsb.org/Site/about/rules-regulations/leo-opinions.aspx
• Original PDF: https://www.vsb.org/common/Uploaded%20files/LEOs/1732.pdf

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

Committee Opinion
June 29, 1999
LEGAL ETHICS OPINION 1732

CONTRACT BETWEEN LAW FIRM
AND ATTORNEY/EMPLOYEE
REQUIRING PAYMENT TO FIRM OF A
PERCENTAGE FROM ANY
CONTINGENCY FEE CASE
ATTORNEY/EMPLOYEE TAKES WITH
HIM IF HE LEAVES THE FIRM.

You have presented a hypothetical situation in which an attorney worked for a law firm
in which the attorney was required to enter into a written employment agreement. The
employment agreement included a fee-splitting arrangement in the event that the attorney
left the firm and took clients with him which had retained the firm on a contingency fee
basis. The agreement provided that if the attorney settled a client's contingency fee case
within six months after leaving the firm, the attorney must share with the firm 80 percent
of the fee collected. The attorney would owe the firm 65 percent of the total fees
collected for any case settled within seven to twelve months after the attorney left the
firm. For any case settled more than twelve months after the attorney left the firm, the
attorney must share 50 percent of the total fees collected with the former firm.
This agreement made no provision for client consent to the fee splitting arrangement. In
addition, the firm never disclosed the terms of the fee-splitting arrangement with any
client. The attorney left the firm to join a new law firm and has settled some contingency
fee cases which fall within the scope of the fee splitting agreement with the old firm. The
old firm has demanded that the new firm honor the provisions of the fee-splitting
agreement.
Under the facts you have presented, you have asked the committee to opine as to the
propriety of the fee-splitting agreement and the new law firm's ethical obligations with
respect to payment of the fees demanded by the old law firm.
The appropriate and controlling disciplinary rules relative to your inquiry are DR:2105(D) which sets out the requirements for fee-sharing between attorneys who are not
members of the same law firm; and DR:2-106(A) which prohibits a lawyer from entering
into an agreement that restricts the right of the lawyer to practice law.
The committee has previously opined that DR:2-105(D)'s provisions concerning feesharing permit the division of fees among lawyers not in the same firm only if all three
requirements are met: (1) the client must consent to the employment of additional
counsel; (2) both attorneys must assume responsibility to the client; and (3) the terms of
the agreement must be disclosed to the client and the client must consent thereto. In the
context of a fee-splitting agreement between a departing lawyer and his former law firm,
the committee has previously expressed the view that such arrangements cannot meet the
requirements under DR:2-105(D). There is no expectation that the old law firm would
assume responsibility to the client following the attorney's departure from the firm. Nor is
it likely that the client would have agreed, when the client first engaged the old law firm,

Committee Opinion
June 29, 1999
to the employment of additional counsel or to the division of fees. LE Op. 1232, LE Op.
1404 and LE Op. 1556. Even if such expectation were reasonable, there was no client
consent obtained under the facts of your inquiry.
In LE Op. 1556 the Committee opined that it is improper to contractually obligate the
departing attorney who takes clients of the firm with him to share his post-withdrawal
fees collected for such clients with the old law firm. The committee also opined that such
agreements improperly restrict the departing attorney's ability to practice law:
[T]he interjection of a fee [to the firm from which the lawyer withdrew] obviously
impairs the creation of a lawyer-client relationship between the departing lawyer and
the client of his former firm. The impairment arises on both sides of the transaction.
The attorney may be unwilling to work at substantially reduced rates for even his best
clients, and pressure against acceptance in favor of clients paying full value to the
firm would arise within the new [firm employing the departing lawyer]. The attorney
would thus be compelled to decline employment and the client would be deprived of
the attorney of his choice.
LE Op. 1556. Therefore, in addition to violating DR:2-105(D), the committee believes
that the agreement in your hypothetical creates an improper financial disincentive which
has the effect of penalizing the attorney for leaving and competing with the old law firm
and impairs the client's right to select counsel of his choice, in violation of DR:2-106(A).
In the facts you present, the committee believes the fee-sharing agreement violates
DR:2-105(D) and DR:2-106(A). The committee does not opine on whether the feesharing agreement is enforceable since this is a question of law beyond its purview.
Committee Opinion
June 29, 1999

Legal Ethics Committee Notes. – Rule 1.5(f) allows fee sharing between lawyers formerly associated in a
law firm, with no requirement for client consent.
October 23, 2012