May a law firm's buy-out agreement pay a withdrawing shareholder a percentage of fees on the firm's cases?
Apply this to your situation
This page answers the general question as of 1988. Ask about yours and see what the current Washington Rules of Professional Conduct say for your facts, with citations.
Plain-English summary
The inquiry concerned a buy-out agreement between a professional services corporation and a withdrawing shareholder of the corporation. The committee analyzed the fee arrangement under RPC 1.5(e), Washington's rule on dividing fees.
The committee was of the opinion that the buy-out agreement could provide for a percentage fee to be paid to the withdrawing shareholder, provided that the percentage was reasonable and based on the proportion of work done on each individual case. It was also of the opinion, however, that the agreement could not provide for a blanket percentage division on every case, because that would violate RPC 1.5(e).
Currency note
This opinion was issued in 1988, before the 2006 revisions to the Washington Rules of Professional Conduct. 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 Treat this page as historical context, not current guidance.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, deadline, or requirement mentioned here.
Common questions
Q: Could a buy-out pay the departing shareholder a percentage of case fees?
A: Under this 1988 opinion, yes, if the percentage was reasonable and tied to the proportion of work that shareholder did on each individual case.
Q: What form of percentage was not allowed?
A: A blanket percentage division on every case. The committee found that arrangement would violate RPC 1.5(e).
Background and rules framework
RPC 1.5(e), Washington's counterpart to ABA Model Rule 1.5(e), governs the division of a fee, generally requiring that a division be proportional to the services performed or accompanied by a written assumption of joint responsibility and client consent. The committee applied that proportionality principle to a corporate buy-out, allowing a percentage keyed to work done on each case but rejecting a flat percentage of all cases.
Citations and references
Rules of Professional Conduct:
- ABA Model Rule 1.5(e) (division of fees)
- Washington RPC 1.5(e)
See also
- WSBA Ethics Op. 1039: Billing contract-lawyer time at a higher rate
- WSBA Ethics Op. 1117: Departing lawyer and firm dividing a contingent fee
- WSBA Ethics Op. 1184: Lawyer as a corporate consultant and fee sharing
Source
- Landing page: https://ao.wsba.org/print.aspx?ID=333
Original opinion text
Reproduced from the official source for research purposes. The linked source is authoritative.
The Committee considered your inquiry concerning a buy-out agreement between a professional services corporation and a withdrawing shareholder of the corporation. The Committee was of the opinion that the buy-out agreement could provide for a percentage fee to be paid to the withdrawing shareholder provided that the percentage was reasonable and based on the proportion of work done on each individual case. The Committee was of the opinion, however, that the agreement could not provide for a blanket percentage division on every case as that would violate RPC 1.5(e).
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