When a firm pays an independent contract attorney a bonus tied to how a case turns out, is that a division of fees governed by RPC 1.5(e)?

Plain-English summary

The inquirer is an independent contract attorney who contracts with a hiring firm, works under the hiring attorney's supervision, and is paid an hourly fee. The hiring attorney offered to pay her bonuses if the contracted cases, worth several million dollars and on which she does essentially all the work, settle favorably. She wanted an additional compensation arrangement that would not trigger RPC 1.5(e)(1); she did not want to assume joint responsibility, and the hiring attorney did not want to split the fee in proportion to the work.

The opinion answers that, yes, any compensation directly tied to or dependent on the client's payment of a gross fee may be a division of fees for purposes of RPC 1.5(e)(1). It explains that an independent contract attorney may contract with a firm on a fixed-dollar or hourly basis without triggering the rule, as long as the attorney does not receive a share of the gross fee the client pays the firm, citing Informal Opinion 2127 (2006).

The opinion then describes arrangements that stay outside the rule: a firm may give a contract attorney a discretionary bonus or a share of firm-wide net profits, and the contract attorney may renegotiate the rate to reflect the effort an assignment requires. But the committee states that a bonus agreement that ties the right to, and amount of, the bonus to the outcome could trigger RPC 1.5(e)(1)'s division-of-fee requirements. The committee notes it does not opine on the inquirer's malpractice liability in the contract relationship.

In practice

Under this opinion, and under the Washington rule as it stood at the time, a firm can compensate an independent contract attorney through a fixed or hourly rate, a discretionary bonus, a share of firm-wide net profits, or a renegotiated rate without implicating RPC 1.5(e). The opinion treats the dividing line as whether the compensation is tied to or dependent on the client's payment of a gross fee: a bonus keyed to the case outcome may be a division of fees under RPC 1.5(e)(1), which then carries that rule's conditions (proportionality or joint responsibility, written client agreement to the split, and a reasonable total fee).

Common questions

Q: Is an outcome-based bonus to a contract attorney a division of fees?

A: The opinion concludes that any compensation directly tied to or dependent on the client's payment of a gross fee may be a division of fees under RPC 1.5(e)(1), so a bonus tied to the case outcome could trigger that rule.

Q: How can a firm pay a contract attorney without triggering RPC 1.5(e)?

A: The opinion says a fixed-dollar or hourly rate, a discretionary bonus, a share of firm-wide net profits, or a renegotiated rate are arrangements that do not trigger the rule, as long as the attorney does not receive a share of the gross fee the client pays the firm.

Q: What does RPC 1.5(e)(1) require if it applies?

A: As the opinion quotes the rule, a division between lawyers not in the same firm is allowed only if it is in proportion to services or each lawyer assumes joint responsibility, the client agrees to the arrangement and the share each lawyer receives in a writing, and the total fee is reasonable.

Background and rules framework

The opinion interprets Washington RPC 1.5(e)(1) (Model Rule 1.5(e); division of a fee between lawyers who are not in the same firm), which permits such a division only if it is proportional to services or accompanied by joint responsibility, the client agrees in writing to the arrangement and each lawyer's share, and the total fee is reasonable. It applies that rule to compensation paid to an independent contract attorney, drawing the line at compensation tied to or dependent on the client's gross-fee payment, and relies on Informal Opinion 2127 (2006) and Colorado Bar Association Formal Ethics Opinion 105 (1999).

Citations and references

Rules of Professional Conduct:

• Model Rule 1.5 / Washington RPC 1.5(e)(1) (division of a fee between lawyers not in the same firm)

Other opinions cited:

• WSBA Informal Opinion 2127 (2006): paying a contract attorney on a fixed or hourly basis is not a fee division
• Colorado Bar Association Formal Ethics Opinion 105 (1999): compensation tied to the client's gross-fee payment may be a fee division

See also

• WA Ethics Op. 2127: Contract-Lawyer Pay Is Not a Fee Division
• WA Ethics Op. 1398: Two-Firm Contingent-Fee Division
• ABA Formal Op. 00-420: Surcharge for a Contract Lawyer

Source

• Landing page: https://ao.wsba.org/print.aspx?ID=1600

Original opinion text

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

Advisory Opinion: 2159
Year Issued: 2007
RPC(s): RPC 1.5(e)
Subject: An agreement between an attorney and a contract attorney for bonuses that will not be considered fee splitting

ISSUE

Is a compensation arrangement between a law firm and an independent contract attorney that is not a member of that firm, considered a division of fees between attorneys for purposes of RPC 1.5(e), wherein the contract attorney’s compensation consists of a defined share of a gross fee originating from the contract work?

BRIEF ANSWER

Yes. Any compensation that is directly tied to or dependent upon the client’s payment of a gross fee may be considered a division of fees for purposes of RPC 1.5(e)(1). INQUIRY

The inquirer is an independent contract attorney that contracts with another firm (“hiring attorney”). She works under the supervision of the hiring attorney and is paid an hourly fee for her work.

The hiring attorney has offered to give bonuses to the inquirer if any of the contracted cases eventually settle favorably. These cases are worth several million dollars for which the inquirer essentially performs all of the work.

The inquirer is interested in additional compensation arrangement that does not trigger RPC 1.5(e)(1). She does not want to assume joint responsibility for the work performed and the hiring attorney is not interested in splitting the fee in proportion to the work performed.

APPLICABLE RULE

Rule 1.5(e)(1) (Division of a Fee)

DISCUSSION

“A division of a fee between lawyers who are not in the same firm may be made only if: (i) the division is in proportion to the services provided by each lawyer or each lawyer assumes joint responsibility for the representation; (ii) the client agrees to the arrangement, including the share each lawyer will receive, and the agreement is confirmed in writing; and (iii) the total fee is reasonable.” RPC 1.5(e)(1)

An independent contract attorney may contract with a law firm on a fixed dollar or hourly basis without triggering RPC 1.5(e)(1) provided the attorney does not receive a share of the gross fee a client pays the law firm. See e.g. Informal Opinion 2127 (2006). However, any compensation that is directly tied to or dependent upon the client’s payment of a gross fee may be considered a division of fees for purposes of RPC 1.5(e)(1). See e.g. Colorado Bar Assoc. Formal Ethics Opinion 105 (1999).

A law firm may provide an independent contract attorney with additional compensation in the form of discretionary bonuses or a share of firm-wide net profits. Furthermore, an independent contract attorney is free to renegotiate his or her rate to more accurately reflect the nature of the effort expended on assignments. However, we believe that any bonus agreement that ties the right to and amount of the bonus to the outcome could trigger the “division of fee” requirements of RPC 1.5(e)(1).

The committee does not opine about the issue of the inquirer’s malpractice liability in the contract relationship.