A lawyer has a right to share a fee award, but thinking it through first is a good idea.

I had a civil rights case that was very time consuming and difficult. I achieved a good result where the client is getting approximately $30,000. My fee award was in the $200,000 range. The court approved it. My question is, can I share some of my fee with the client?

Samuel C. Stretton.

The first consideration is why would the lawyer want to share the fees with the client since presumably the lawyer spent a great deal of time and effort and took a great risk on the case. The lawyer's fees normally reflect the hours spent. This is not like some massive personal injury award where a lawyer gets a large percentage of the result, which is far beyond any number of hours the lawyer actually spent. This is an award based on the lawyer's reasonable fee and based on the actual time and effort spent, presumably over months and months. In other words, the good feeling a lawyer has when he decided to help a client must also be evaluated by the hard and cold business analysis in terms of the need for that fee to pay off lines of credit, pay off past due debts and to actually be able to make a living.

In these civil rights cases, the most important thing is for the lawyer to have a good and strong fee agreement. The fee agreement may have a percentage or may just be an hourly rate. It may be a combination. But the agreement must set forth what the lawyer is going to receive and what the client is going to be given and also sets forth for fee awards, who gets the money. Traditionally, recovery and fee awards are for the client. But the fee agreement defines who gets what. Therefore, failure to have a good and solid fee agreement could be a real problem if the client is claiming the court award or a major portion of the court-awarded fee.

Assuming the lawyer does have a fee arrangement that carefully defines the fee arrangement, then can the lawyer share the fee with the client if the lawyer wishes to do so?

The rule at issue is Rule 5.4 of the Rules of Professional Conduct in Pennsylvania. That rule prohibits a lawyer from sharing a legal fee with a nonlawyer. There are exceptions. These exceptions involve resolution with the former law partner or their family to provide for payment over a period of time. Another involves compensation plans for nonlawyers. Another involves the purchase of a law practice under Rule 1.17. Rule 5.4(a)(5) specifically states that a lawyer can share a fee if "a lawyer may share court-awarded legal fees with a nonprofit organization that employed, retained or recommended the employment as a lawyer in the matter." The better practice would be to have an agreement on that long in advance on fees and fee sharing.  Comment 4 notes: "Paragraph (a)(5) adds a new dimension to the current rule by specifically permitting sharing of fees with a nonprofit organization. It is a practice proved in the American Bar Association Formal Opinion 93-374."

Although the rule doesn't state, clearly the lawyer can share his fee with his client. The concern of the prohibition against sharing fees with a nonlawyer is to protect the professionalism and independence of the legal profession and to prevent nonlawyers from getting interest in the case. That has a very good purpose.

But, clearly, the lawyer has a right to share fees with a client. This happened many times in personal injury cases where a lawyer who is getting a nice recovery may reduce their contingent fee by 1%, 2% or 3% or more, giving the client a larger recovery. At times, lawyers will have cases on behalf of a family member and will waive their fee so the family member gets the full benefit of the recovery and does not have to reduce it by a contingent fee agreement.

A recent article in a civil rights litigation and attorney's fees annual handbook, Volume 35 (Thomson Reuters, 2019), titled "Ethics of contingent fee retainer agreements that permits counsel to recover greater of either a percentage of fee or enhanced hourly fee in civil rights cases," by Jeff Olson, the author makes the following point: "Such a division of a fee award has uniformly been held not to violate the common law ethical rule against the lawyer sharing a legal fee with a nonlawyer, but it would certainly frustrate the purpose of the fee-sharing statute in play, in as much as it would not serve to attract competent counsel for similar cases in the future. In order for the allocation of a fee award between a lawyer and client should not serve as a deterrent to future attorneys with similar cases, it obviously must permit the lawyer to receive at least all of the money that has been awarded based on the hours they have invested in the case." 

Clearly, if the client gets $30,000 and the lawyer is getting fees of $200,000, the client may feel cheated or upset. But the client has to understand because the $200,000 award is based on hours and hours of work. If the lawyer is independently wealthy and wants to share that with a client, they can. But it should not be the norm, nor should there be pressure to force the lawyer to do that. As noted, the purpose of these civil rights cases is to attract competent lawyers. Lawyers take a great risk in doing these cases because oftentimes the awards are low or not at all. But these cases are time consuming and take a lot of effort. These fee awards can reward a lawyer for their time and effort and their creativity for the time spent. No one wants to discourage future lawyers who are competent from taking on these challenges when they provide a real service not only to the individual, but also to upholding constitutional rights and laws of society.

Therefore, a lawyer has the right to share a fee with his client. The wisdom of doing that should be thought through each time the issue arises. But there is no rule violation for a reasonable fee sharing with the client in the context of a civil rights case or even in the context of a personal injury contingent fee case.

Representing multiple parties is a slippery slope.

I represent several clients in the same personal injury action that has a cap on the recovery. There is a lump sum settlement. How do I now decide what client gets what?

The rules guiding lawyer's conduct when these aggregate settlements occur when lawyers representing several clients is found in the Special Conflict of Interest Rule, 1.8(g).

"A lawyer who represents two or more clients shall not participate in making of an aggregate settlement of the claims of or against the client, or in a criminal case an aggregate agreement as to a nolle contendere pleas, unless each client has informed consent.  The lawyer's disclosure shall include the exitance and nature of all the claims or pleas involved and the participation of each person in the settlement."

Comment 13 to Rule 1.8(g) is a little more specific. The comment notes that representing multiple clients creates a problem for a single lawyer. The comment notes under the General Conflict of Interest Rule 1.7 these risks that should be discussed in advance of the representation. The comment suggests the informed consent should be obtained at the beginning. The comment notes that the scope of representation Rule 1.2(a) protects each client's right to have a final say in deciding whether to accept or reject an offer of settlement. The comment notes as follows: "… before any settlement offer … is made or accepted on behalf of multiple clients, the lawyer must inform each of them about all the material terms of the settlement, including what the other clients will receive or pay if the settlement or plea offer is accepted."

The rule then talks about issues with a class of plaintiffs and a settlement where a lawyer doesn't have an attorney-client relationship with every member and suggests the lawyer has to strictly comply with rules notifying the class members.

Then what does informed consent require? The definition of informed consent is found in Rule of Professional Conduct 1.0(e).

"Informed consent denotes the consent by a person to a proposed course of conduct after the lawyer has communicated adequate information and explanation about the material risk of and reasonably available alternatives to the proposed course of action."

Finally, the interesting aspects of Rule 1.8(g) is it doesn't require the informed consent to be in writing. That's interesting because the American Bar Association Model Rules do. For whatever reason in Pennsylvania, the Supreme Court left out the in writing informed consent. A better practice, obviously, would be to have that in writing.

Any lawyer that's involved in settlements where monies are at issue knows how difficult persons who appeared reasonable, can suddenly be. Former friendships will dissolve in a second. Any lawyer who represents estates knows that when the beneficiaries start to fight. It is very important to set out intentions of what was told or not told to protect the lawyer and the settlements down the line if someone indicates they were misled or weren't told what rule 1.8(g) requires. That rule requires to tell each client about the nature of all the claims and the participation of each person in the settlement, i.e., what they are going to get? Therefore, the better practice would be to have the informed consent in writing.

Lawyers who fail to do that or fail to get the client's consent clearly would be in violation of the aforementioned Rule 1.8(g). But the lawyer may also be in violation for failure to properly inform and advise the client as they are required to under Rule 1.4 of the Rules of Professional Conduct.

One might ask what an aggregate settlement means for the purpose of Rule 1.8(g). In the Pennsylvania Ethics Handbook, 5^th Edition, by the Pennsylvania Bar Association Legal Ethics Committee and edited by attorneys Michael Temin and Thomas G. Wilkinson Jr., the following is said about an aggregate settlement: "Under the definition adopted by the American Law Institute, an aggregate settlement exists when the value of one client's claim depends on the value of other client's claims and the interest of the clients' conflict. An aggregate settlement does not exist if the lawyer consults with each client individually and obtains a minimum settlement authority from each client and then makes a settlement offer that represents the total of the individual settlement offers."

Therefore, representing multiple parties in a settlement, particularly if there is limited settlement pot, the lawyer must very carefully get informed consent. The lawyer at the beginning owes a duty to the clients to explain the situation and explain that their settlement can be compromised by the need to also provide adequate funds for one of the other plaintiffs the lawyer represents. There has to be a waiver of this conflict and it is strongly recommended any waiver of this conflict be done in writing.

Sometimes the better practice, although from a business standpoint it might be considered differently, is not to represent multiple clients. If there are unlimited monies to recover from that's one thing. But if it's a limited pot such as an insurance coverage limited to $300,000 or $500,000 and fairly serious injuries and multiple people, it places the lawyer almost in an impossible position. Pennsylvania has been fairly liberal in these multiple representations, but there is a downside. If because of the conflicting natures the lawyer can't reach a settlement, then that case may have to go to trial or the parties may go their separate ways and the lawyer might end up representing no one. The lawyer has to remember since they receive that confidential information from the clients and if there is going to conflicts later, the lawyer is probably going to be conflicted out because of the confidential information received.

In conclusion, representing multiple parties, whether it's criminal or civil, is a slippery slope. The slope can be navigated but it must be done according to Rule 1.8(g) and full disclosures and consent and the consent has to be informed. Remember law is a profession, not a business.

Chester County lawyer Samuel C. Stretton has practiced in the area of legal and judicial ethics for more than 35 years. He welcomes questions and comments from readers. If you have a question, call Stretton directly at 610-696-4243 or write to him at 301 S. High St. P.O. Box 3231, West Chester, Pennsylvania, 19381.