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New York Court Holds Fee-Sharing Agreement Is Enforceable Despite Technical Flaws

One issue that arises frequently is whether an agreement between two lawyers to share fees on a case is enforceable.

Rule 1.5(e) provides that:

(e) A division of a fee between lawyers who are not in the same firm may be made only if:

(1) the division is in proportion to the services performed by each lawyer, or if the primary service performed by one lawyer is the referral of the client to another lawyer and each lawyer assumes joint financial responsibility for the representation;

(2) the client agrees to the arrangement, including the share each lawyer will receive, and the agreement is confirmed in writing; and

(3) the total fee is reasonable.

Does a technical violation of the rule make the fee agreement unenforceable? In Matter of Claim of Ryan Haywood Quigley, 2019 NY Slip Op 03433, the Appellate Division of the Supreme Court of New York held that the fee agreement was enforceable. In so ruling it reversed the decision of the trial court. The court reasoned that the client had consented to the fee sharing agreement so there was no reason to throw out the fee sharing agreement. The court’s reasoning is provided below:

Surrogate’s Court concluded that the agreed-upon contingency fee was void because litigation counsel had not satisfied the prerequisites for “divid[ing] a fee for legal services with another lawyer who is not associated in the same law firm” (Rules of Professional Conduct [22 NYCRR 1200.0] rule 1.5 [g]; see Texas Disciplinary Rules of Professional Conduct rule 1.04 [f]). In so doing, Surrogate’s Court rejected the opinions of several experts in legal ethics who found no problem under either the New York or Texas rules of professional conduct (see Rules of Professional Conduct [22 NYCRR 1200.0] rule 1.5 [c], [g]; Texas Disciplinary Rules of Professional Conduct rule 1.04 [c], [f]; see also Samuel v Druckman & Sinel, LLP, 12 NY3d 205, 210 [2009]Robert P. Lynn Jr., LLC v Purcell, 40 AD3d 729, 730-731 [2007]). Assuming without deciding that there was a violation, however, it was “merely malum prohibitum [and] will not necessarily render a contract illegal and unenforceable” (Benjamin v Koeppel, 85 NY2d 549, 553 [1995]see Marin v Constitution Realty, LLC, 28 NY3d 666, 672 [2017]Simaee v Levi, 22 AD3d 559, 562 [2005]). Inasmuch as there is no express provision that a rule violation will render a fee agreement void, such an agreement would remain enforceable if to hold otherwise would be “wholly out of proportion to the requirements of public policy” (Rosasco Creameries, Inc. v Cohen, 276 NY 274, 278 [1937]see Lloyd Capital Corp. v Pat Henchar, Inc., 80 NY2d 124, 127 [1992]).

The legal ethics experts cogently explained that the fee division requirements were intended to ensure that a client understood the financial and legal impacts that could result from his or her attorney involving another attorney in the representation. Those policy concerns are not implicated here, as petitioner signed an unambiguous retainer agreement at the outset that in no “way deceived or misled” her as to the joint representation or the amount of the contingency fee (Samuel v Druckman & Sinel, LLP, 12 NY3d at 210see Mills v Chauvin, 103 AD3d 1041, 1049 [2013]). She was certainly sophisticated enough to understand those points, having already negotiated for changes in the agreement that included a reduced contingency fee. Moreover, there is no dispute that the firms provided significant and effective legal services that resulted in a favorable outcome. Any violation of the rules was therefore a venial one that had no impact upon a successful representation and, while not dispositive, it is telling that all of the parties to the retainer agreement want it enforced. Under these circumstances, the agreement was not void in its inception and, in the absence of any proof of “incompetence, deception or overreaching,” its fee provisions should have been approved (Matter of Lawrence, 24 NY3d at 339).