Lawyers are typically required to “hold funds or other property of clients or third persons that are in a lawyer’s possession in connection with a representation separate from the lawyer’s own funds or other property.” (e.g., Georgia; Florida)
With this in mind, should a lawyer, who receives an earned fee subject to a fee-split with a lawyer in a different firm, treat the other lawyer as a “third person” under Rule 1.15 or its equivalent?
An ABA Formal Opinion from late last year says yes.
In ABA Formal Opinion 475, the ABA’s Standing Committee on Ethics and Professional Responsibility held that the lawyer receiving the earned fee must:
- hold the funds in a trust account separate from the lawyer’s own property;
- appropriately safeguard the funds;
- promptly notify the other lawyer who holds an interest in the fee of receipt of the funds;
- promptly deliver to the other lawyer the agreed upon portion of the fee; and
- if requested by the other lawyer, provide a full accounting.
So if funds to satisfy attorneys fees are received, they must go into the receiving lawyer’s trust account and be disbursed to each lawyer from there. The funds should not be deposited into a lawyer’s operating account and then disbursed to the other lawyer from that account.
This approach is also the safest course where there is a dispute as to the amount of the fee division. Any portion of the fee that is disputed should be kept separate until the dispute resolved. If a lawyer does not place those disputed funds into escrow, he or she could face conversion and breach of contract claims (See, e.g., Louisiana case) or ethics penalties (Wisconsin disciplinary proceeding).
Of course, any portions of the fee that are undisputed can and should be disbursed to each lawyer.