Ethics Opinions

 
NASSAU COUNTY BAR ASSOCIATION
COMMITTEE ON PROFESSIONAL ETHICS
Archive of Ethics Opinions
Opinion No.: 1994-3
Topics: Attorney's liens; fee sharing.
Digest: Attorneys have only such liens against recovery as are provided by law. A fee for legal services may be divided with another lawyer only pursuant to the Codes requisites and applicable case law.
Code Provisions: DR 2-107
Facts Presented: In Nassau County Opinion #93-25, this Committee noted in passing that a referring and receiving attorney each "have a lien on the proceeds of the matter and § 475 of the Judiciary Law will permit the Court to determine and enforce such a lien in the event of a dispute." This Committee further in Nassau County Opinion #93-25 determined that a fee could ethically be divided with another attorney not associated with inquiring counsel's firm only pursuant to the requisites of DR 2-107.

 

Inquiring counsel now submits that § 475 of the Judiciary Law grants a lien only to an attorney of record in the action where the recovery is obtained. Inquiring counsel further submits that the courts have consistently upheld fee-sharing agreements even where the benefits to the contracting parties bore no relationship to services performed or responsibility assumed by each.
Inquiry:
(1) Does a forwarding attorney not of record have a lien under § 475 of the Judiciary Law?

 

(2) Does the Code require a standard of conduct higher than that required to have a legally enforceable fee-sharing agreement, and, if so, would a lawyer be subject to discipline if the attorney proceeded to enforce a fee-sharing agreement in violation of the Code but enforceable in court?
Determination: (1) While this question presents an issue of law, this Committee has not held to the contrary.

 

(2) This Committee cannot opine on issues of law, or predict what position may be taken by any Grievance Committee.
Analysis: Inquiry (1): This Committee generally does not address issues of law, such as the propriety of liens in specific situations. However, this Committee will address this inquiry for the limited purpose of clarifying any misunderstanding of Nassau County Opinion #93-25.

An agreement between attorneys may provide for the creation of a consensual lien. Cheng v. Modansky, 73 N.Y.2d 454 (1989). Section 475, however, merely provides:

"From the commencement of an action, special or other proceeding . . . or the service of an answer containing a counterclaim, the attorney who appears for a party has a lien upon his client's cause of action, claim or counterclaim . . . The court upon the petition of the client or attorney may determine and enforce the lien" (emphasis added).

This provision has been held to limit the lien to an attorney of record only. See, Barnum v. Shrogi, 96 A.D.2d 723 (1983). Nassau County Opinion #93-25 was not intended to imply to the contrary, and to the extent that it could be so interpreted, should stand corrected.

 

Inquiry (2): Prior to September 1990, DR 2-107 provided:

 

"[A] lawyer shall not divide a fee for legal services with another lawyer who is not a partner in or associate of his law firm or law office, unless:

 

(1) The client consents to employment of the other lawyer after a full disclosure that a division of fees will be made.

 

(2) The division is made in proportion to the services performed and responsibility assumed by each."

 

As observed by this Committee in Nassau County Opinion #93-25, the practical effect of this rule was to prohibit straight "referral fees." See, also, Nassau County Opinion #90-14 and earlier opinions cited therein. Thus, the Appellate Division in Excelsior 57th Corp. v. Lerner, 160 A.D.2d 407 (1st Dept. 1990) set forth the standard for enforceability of fee-splitting arrangements as follows:

 

"Client knowledge of a joint representation agreement between lawyers is the sine qua non of its ethical validity (Carter v. Katz, Shandell, Katz & Erasmous, 120 Misc. 2d 1009; Code of Professional Responsibility DR 2-107), as well as proof that an attorney who claims part of a legal fee must have shared, to some significant degree, the legal work entailed (Oberman v. Reilly, 66 A.D.2d 686, lv dismissed 48 N.Y.2d 654; A. Stanley Proner, P.C. v. Julien & Schlesinger, 134 A.D.2d 182, 184)." 160 A.D.2d at 408.

In Carter v. Katz, Shandell, Katz & Erasmous, 120 Misc.2d 1009 (Sup. Ct., Queens Co. 1983), the court reviewed the applicable authorities and while concurring with the basic standard which would later be set forth by the Appellate Division in Excelsior, appeared to recognize some implicit degree of deviation between the Code mandate that fee sharing be proportional to the work performed and responsibility assumed, and the applicable law enforcing agreements if there had been merely "some" or a "significant" degree of work performed by the attorney seeking a share in the fee, with no review or consideration of "proportionality." The Carter court thus appeared to be in agreement with inquiring counsel here:

 

"DR 2-107 (A) (2) of the Code of Professional Responsibility governs the propriety of fee division. But American Bar Association (ABA) opinions and New York State case law are also probative on the issue of whether a 50-50 division in the present case would be ethically permissible. The American Bar Association Committee on Professional Ethics has held that a mere recommendation is not a sufficient basis for a forwarding fee. There must be some sharing of work or responsibility. The services, however, may be rendered even merely by correspondence. (ABA Committee on Professional Ethics [1967 ed.], Formal Opns. Nos. 97, 153.) Although the division must be based on sharing service and responsibility, the Committee refuses to measure the proportions thereof or to apportion the fees. The amount of the fee presents no ethical question (ABA Committee on Professional Ethics (1967 ed.), Formal Opn. No. 204), particularly so where defendant makes no claim that the deceased had ever refused to contribute more substantially (Fried v. Cahn, 239 App. Div. 213, 216).

 

"The weight of this State's case law comports with the guidelines set forth by the ABA committee. In the case of Oberman v. Reilly (66 A.D.2d 686, 687), the Appellate Division cited to its decision in Jontow v. Jontow (34 A.D.2d 744, 745), in which it observed that an agreement between attorneys to divide a fee was not prohibited by the canons of ethics where both contributed to the earning of the fee; the court likewise concluded in Oberman that the attorneys were entitled to share the fee equally upon appropriate proof that the attorney of record, Oberman, performed "some work, labor or services which contributed toward the earning of the fee." (Emphasis added.)

 

"In the case of Bohm v. Holzberg (69 Misc. 2d 469, 470), the Appellate Term held: "there was no professional impropriety in agreeing to an equal division of the net fee without a concomitant agreement for an equal division of the work and responsibility, provided there was some division of services and responsibility, and the party seeking to enforce the agreement actually performed some substantial services."(Emphasis added.)

 

"In the case of Sterling v. Miller (2d A.D. 2d 900), affirmed by the Court of Appeals (3 N.Y.2d 778), the defendant claimed that the plaintiff "contributed negligibly toward the earning of the fee"; the Appellate Division held that: "The agreement between the appellant and the respondent Miller to split fees was valid and enforceable, regardless of the respondents' claim that appellant, after obtaining the original retainer, contributed negligibly towards the earning of the fee, especially since there is no claim that appellant ever refused to contribute more substantially (Fried v. Cahn, 239 App. Div. 213.)." 120 Misc.2d at 1018-1019.

In September 1990, DR 2-107 was amended to provide:

"A.

A lawyer shall not divide a fee for legal services with another lawyer who is not a partner in or associate of the lawyer's firm or law office, unless:

 

(1) The client consents to employment of the other lawyer after a full disclosure that a division of fees will be made.

 

(2) The division is in proportion to services performed by each lawyer or, by a writing given to the client, each lawyer assumes joint responsibility for the representation."
(3) The total fee of the lawyers does not exceed reasonable compensation for all legal services they rendered the client."

 

The primary effect of the amendment was to permit a straight "referral feel" without the necessity for the contribution of any services if the written assumption of responsibility requirement is fulfilled. The rule also, however, makes it clear that absent utilization of such a written assumption of joint responsibility the only basis for division of fees will be an arrangement based on the proportionality of the services rendered.

 

Since the above-cited cases were decided under the pre- 1990 Code provisions, it is too soon to assess the weight which the courts will give to the revised Code provision in evaluating the Enforceability of fee-sharing agreements. However, first indications are that little weight may be given. The Appellate Division, in Nicholson v. Nason and Cohen, P.C., 192 A.D.2d 473 (1st Dept 1993), recently reiterated the courts' apparent rejection of the Code's "proportionality" rule:

 

"Under DR 2-107, unassociated lawyers may share in a fee if, among other things, "[t]he division is in proportion to the services performed by each lawyer or, by a writing given to the client, each lawyer assumes joint responsibility for the representation." Neither option avails plaintiff, who admittedly gave no such writing to any of the clients, and whose work, the record establishes, was merely that of a finder, searching for potential clients and conducting non-investigative interviews. While a fee-splitting agreement will be enforced where the attorney seeking a share "performed some work, labor or services which contributed toward the earning of the fee" there being no requirement that compensation be in proportion to the amount of work actually performed (Oberman V. Reilly, 66 A.D.2d 686, 687, 411 N.Y.S.2d 23, appeal dismissed 48 N.Y.2d 602, 421 N.Y.S.2d 1026, 396 N.E.2d 205), more is required of the forwarding attorney than the mere recommendation of a lawyer (see, Carter v. Katz, Shandell, Katz & Erasmous, 120 Misc.2d 1009, 1018, 465 N.Y.S.2d 991)." 192 A.D.2d at 474.

 

While this Committee cannot predict whether -- in the event that there should be any ''gap" between the conduct required by the Code and that required for enforceability of an agreement at law -- an attorney would or would not be subject to sanction for entering into retainers violative of the Code but enforceable at law, it should be noted that the policy rationale underlying the questions of discipline and enforceability are different. As noted by the court in the Carter case, in determining to enforce the inter-attorney fee-splitting agreement despite potential Code violations:

 

"Whatever minor transgressions one might perceive, this court cannot condone this defendant's use of the code provisions as a shield to avoid its legal, ethical and moral obligations. It would be a mockery of justice if this court were to allow the defendant to raise ethical rules, which it may have equally violated, to shield itself from a legitimate claim and thereby unjustly enrich itself." 120 Misc.2d at 1018.

 

Since both parties to any fee-splitting agreement will be attorneys equally culpable for any deviation from the Code requisites, there may well be adequate reasons for enforcing a fee- splitting agreement violative of the Code, while nevertheless subjecting both parties thereto -- including the attorney to whom enforcement is granted -- to discipline. This, however, would be a matter for the grievance committee in the attorney's judicial district and, ultimately, the Appellate Division.

 

[Approved by the Executive Subcommittee on 1/18/94; Approved by the Full Committee on 1/26/94]

 

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