Failure to Follow Ethics Rule Voids Fee-Splitting Agreement
| Author | Rachel A. Harris |
| Pages | 6-6 |
Published in Litigation News Volume 47, Number 3, Spring 2022. © 2022 b y the American Bar Ass ociation. Reproduc ed with permission. A ll rights reserv ed. This information or an y portion there of may not be copied or dis seminated in any
form or by any means or sto red in an electronic da tabase or retrieval sy stem without the ex press writt en consent of the Amer ican Bar Associatio n.
fee-splitting agreement
between two law fir ms
did not comply with
state bar rules , prompt-
ing the reversal of a
$390,00 0 award in a dispute over
how to divide $3.1 6 million in con-
tingency fees . The decision under-
scored the long- held principle that
attorneys must str ictly comply with
ethics rules wh en entering into fee -
splitting agre ements. AB A Litigation
Sectionlead ers agree this ruling is
a stark remind er to carefully review
state rules when e ntering into refer-
ral and other fee arrangements.
The dispute in Harmon Parker, P.A.
v. Santek Management, LLC arose
from an agreement between two law
firms—Gerber Law Group and Harmon
Parker, P.A.—to serve as cocounsel for
a driver rendered quadriplegic from
a car accident. The firms agreed to
split a 40 percent contingency fee on
a 75/25 basis on the first $1 million
recovery, and 50/50 on any recovery
exceeding $1 million.
The case settled at mediation for
$8 million, resulting in $3.16 million
total attorney fees. Harmon prepared
a closing statement allocating only
$1.28 million to Gerber—$390,000 less
than the $1.67 million called for by the
firms’ agreement. Gerber assigned its
rights to the additional fee to Santek
Management LLC, which sued Harmon
for the deficiency. Santek argued
that Harmon breached the agree-
ment because Gerber never agreed to
modify it.
The jury found Harmon breached
the agreement but awarded no dam-
ages. However, the trial judge entered
a directed verdict awarding Gerber
the $390,000 deficiency plus prejudg-
ment interest. Harmon appealed.
Florida’s 2nd District Court of
Appealsreversed the lower court’s
ruling and held that both Gerber and
Harmon had failed to comply with
Florida Bar Rule 4-1.5(f)(4)(D) relating
Failure to Follow Ethics Rule Voids
Fee-Splitting Agreement
to contingency fee contracts “in several
material respects.”
Specifical ly, the court explai ned that
the firms failed to ( 1) detail what ser-
vices each firm woul d provide; (2) spec-
ify that “each law yer assumes joint legal
responsibility for the representation”;
(3) file a petition for c ourt approval
within 10 days of execution; a nd (4) have
all counsel verif y and sign the petition.
The underlyin g approval of the petition
by a lower court judg e did not change
the appellate court’s analysis. “Indeed,
[Florida Bar Ru le 4-1.5(f)(4)] expressly
provides that approva l of the petition
does not bar sub sequent inquiry,” the
majority reasoned.
The majority also relied on a Florida
Supreme Court decision, Chandris, S.A. v.
Yanakakis, which held that contingent fee
agreements that violate Florida’s ethics
rules are void because the requirements
governing these contracts are neces-
sary to protect the public interest, and to
allow noncompliance would “constitute
a competitive disadvantage to members
of The Florida Bar who do comply with
the rules.” The majority concluded that
the fee-splitting agreement between
Gerber and Harmon was void as against
public policy and, thus, unenforceable.
Because there was no claim for quantum
meruit, the court reversed the $390,000
awarded to Gerber and directed the trial
court, on remand, to enter judgment in
Harmon’s favor.
Litigation Section leaders agree that
a few precautions can protect firms
entering fee-splitting arrangements.
“The key is to comply with the letter
of the rule,” counsels John M. Barkett,
Miami, FL, cochair of the Section’s
Ethics & Professionalism Committee.
A simple, yet often ove rlooked,
precaution is to reg ularly review form
agreements f or compliance. “A lot of
attorneys take old con tracts, swap
out a few details, a nd move forward
without having scru tinized the con-
tract in years,” exp lains Michael S.
LeBo, Newpor t Beach, CA, cochair
of the Section’s Profe ssional Liability
Litigation Committee.
However, attorneys need to “be ve ry
cautious in term s of what they are put-
ting in agreeme nts and making sure they
comply with all techn icalities, even if
they disagree with th e rule or it doesn’t
make any sense,” LeB o advises. “It’s
important fo r attorneys to stay abreast of
changes to each s tate’s rules and to regu-
larly review their fee -splitting agreement s
for compliance ,” agrees Laura K. Lin, S an
Francisco, CA , cochair of the Ethics &
Professionalism Committee.
The decision is a lso a reminder that
attorneys cannot contract around
fundamental rules. “The ethical rules
are fundamentally important, and we
should expect t he court to be watch-
dogs for those. W hile we certainly want
courts to upho ld freedom to contract,
that freedom is n ot without limits,” Lin
explains. LeB o agrees, noting “if the
courts did not e nforce ethics rules,
there would not be a re ason for attor-
neys to comply.” Finally, even thoug h
the case did not involve a co mplaint
by a client that the fee wa s excessive
or otherwise im proper, Section lead-
ers believe it was prop er for the court
to step in. “It is im portant for courts to
speak up and un derscore how critical
these rules are , if we really want courts
to not just enforce the r ules but to
champion the m,” concludes Lin.
RESOURCES
Mitch ell L. Marinello, “ Ethics Misstep Leads
to Fee Award Being Vac ated,” Alternative
Disp. Resol. (Dec. 6, 20 18).
"ABA issues new guid ance on fee-splitti ng
between law yers,” ABA News (June 24,
2019).
Ian S . Clement, “Forme r Cocounsel Must
Share the Fruit s of Their Labor,” Litigation
News (Jan. 23, 2013 ).
Susa n F. Dent, “Fee Agreement Et hics
Violation Voids $ 4 Million Attorney Fee,”
Litigation News (Sept . 9, 2020).
By Rachel A. Ha rris, Litigation N ews Contributing Editor
6 | LITIGATION SECTIO N
ETHICS STR UGGLES IN THE LEGAL WOR LD
To continue reading
Request your trial