Ethics Opinions

 
NASSAU COUNTY BAR ASSOCIATION
COMMITTEE ON PROFESSIONAL ETHICS
Archive of Ethics Opinions
Opinion No.: 2001-3
Topics: An attorney's entitlement to a fee from another attorney, when initially a conflict of interest existed, but at the time the fee was earned there was no longer a conflict.

Digest: Subject to the clarifications as described, an attorney may not accept a referral fee when a conflict of interest exists.
Code Provisions:  
Facts Presented: Inquiring counsel has been presented with the following situation and wishes to know if the plaintiff's attorney may ethically accept either a "referral" fee or fees based upon work performed.

According to inquiring counsel, Driver 1 and Driver 2 were in an automobile accident. In Driver 1's vehicle were his wife and mother. Driver 1's mother died within 10 days from injuries sustained in the accident. Driver 2's vehicle was owned by a municipality.

The attorney for Driver 1 referred the Estate of the mother to an independent attorney because there appeared to be a conflict between Driver 1 and the Estate of the mother.

Driver 1 and his wife commenced a personal injury suit against Driver 2 and the municipality. Driver 1's mother's Estate commenced a wrongful death suit against Driver 1, Driver 2 and the municipality. Driver 2 commenced a suit against Driver 1. The 3 plaintiffs' actions were joined for trial.

The first issue to be tried was the issue of liability, which resulted in a jury verdict in favor of Driver 1, 100% against both Driver 2 and the municipality. As a result of this verdict, the mother's Estate's cause of action against Driver 1 was disposed of. The trial on the issue of liability was concluded in December 1998. Driver 2 and the municipality filed Notices of Appeal. At this point after the liability verdict, the attorney for Driver 1 performed certain work on behalf of the mother's Estate in preparation for the damages portion of the trial.

The trial for damages for Driver 1, his wife and mother's Estate proceeded in February 2000. During the trial, Driver 1 and his wife settled with Driver 2 and the municipality. The action of the mother's Estate also settled against Driver 2 and the municipality.

 

Inquiry: Is the plaintiff's attorney for Driver 1 entitled to either a referral fee or a fee for services actually performed from the attorney for the mother's Estate upon settlement of all the plaintiffs' cases during the damage portion of the trial or did the original conflict which prohibited the referring attorney from representing both Driver 1 and his mother's Estate preclude acceptance of any fees from the attorney who represented the mother's Estate.
Determination: The attorney for Driver 1 could ethically accept a fee for referring the mother's Estate to the attorney who ultimately represented it. However, the attorney for Driver 1 may accept compensation for the work the attorney actually performed for the Estate, assuming the Estate's executor consented to the fee sharing agreement at some point subsequent to the liability verdict, and provided the fee reasonably reflected the amount of work and/or the amount of responsibility the attorney for Driver 1 actually performed with respect to the case on behalf of the mother's Estate.
Analysis: The facts presented by inquiring counsel clearly indicate that there was a conflict of interest at the time the Estate was referred by the inquiring counsel to the independent attorney. We have not been asked, nor do we express any opinion on the joint representation of the husband driver and the passenger wife.

DR 2-107 states that an attorney may not ethically divide fees with an attorney from another firm unless: (1) the client consents after full disclosure; (2) the division of the fees is in proportion to the respective services performed by each attorney or the attorneys assume joint responsibility for the case; and (3) the total fee is not unreasonable.

An attorney may ethically receive a fee for referring a client only under those enumerated circumstances. The rules prohibit an attorney from accepting a fee from a client on whose case the attorney has not actually worked, unless the attorney accepts "joint responsibility" for the case. (See for instance our Opinion 98-7). An attorney may accept a fee for the non-legal service of referring the client if that attorney agrees to share equally the responsibility assumed for the case, an agreement which a conflict of interest would preclude. In the inquiry presented, the attorney for Driver 1 clearly had a conflict of interest at the time the attorney referred the Estate to the other attorney due to the fact that the attorney was representing Driver 1, whom the Estate would sue. Joint responsibility is precluded under circumstances where the attorney has a conflict of interest.

Due to the fact that the attorney for Driver 1 could not assume responsibility for a case on which the attorney was unable to work as a result of a conflict of interest, the only theory upon which the attorney's claim to a fee could rest was based upon the work done for the Estate subsequent to the liability verdict. In contrast to the situation where joint liability is assumed, when an attorney claims the right to a fee on the basis the attorney performed work on the case, the division of fees must be "in proportion to the services performed by each lawyer." Thus, no fee for non-legal services, such as referral of the client, may ethically be accepted. Further, no agreement to divide fees could have existed at the time the Estate was referred because the conflict of interest precluded both the assumption of joint responsibility and the ability of the attorney for Driver #1 to perform any work on behalf of the Estate. The fact that the liability verdict eliminated the conflict of interest and the attorney for Driver 1 was subsequently able to work on the case could not have been anticipated.

Assuming the attorney for Driver 1 had no conflict of interest after the issue of liability had been determined and the client consented to a fee splitting agreement, there is no reason why the attorney should not be paid for the work the attorney actually performed on behalf of the Estate. The determination of whether such a conflict ceased to exist or otherwise became waivable should be made pursuant to DR 5-105 which requires that a disinterested attorney would believe that the lawyer can competently represent the interests of each and if each client consents.

Inquiring counsel did not provide any information with respect to the issue of client consent. The client would have to have been given full disclosure and then consented to the arrangement after the liability verdict, at which point the conflict of interest ceased to exist.

Therefore, acceptance of a referral fee by the attorney for Driver 1 is prohibited as unethical conduct by the Code of Professional Responsibility, but such attorney may ethically accept payment for the work actually performed notwithstanding the above.

Approved by the Executive Committee on 02/06/01; approved by the Full Committee on 01/31/01

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