Opinion #150. Charging Referral Fee While Representing Same Client in a Divorce

Issued by the Professional Ethics Commission

Date Issued: May 12, 1995

Facts

Attorney A is handling a divorce matter. He has arranged with Attorney B to undertake representation of his divorce client with respect to a claim of aggravated assault against her husband. Under the recent Omnibus Crime Bill, a civil rights type remedy is available with respect to certain acts of violence against any person or property which are based on the gender of the victim. Under the Act, attorneys’ fees are available to a prevailing plaintiff in the same manner as provided under 42 U.S.C. §1988. Attorney B has agreed to undertake the civil rights claim on a contingency basis and to pay a referral fee to A which is contingent on the size of the recovery. The Commission has been asked if the contingent fee arrangement would violate the Bar Rules. We are also asked what the result would be if A and B were jointly to negotiate an overall settlement of the property division issues in the divorce action and of the civil rights claim.

Opinion

Bar Rule 8(c) (2) prohibits contingent fee arrangements “in respect of the procuring of a divorce, annulment of marriage or legal separation.” However, the Commission sees no reason to conclude that the civil rights claim may not be separated from the divorce. After all, a claim for damages based on domestic violence is not an action to “procur(e) a divorce.”

The Commission has not been advised regarding the division of fees between A and B which would result if there were to be an over‑all settlement involving the marital property issues as well as the civil rights claim. However, it is conceivable that these arrangements could create a conflict of interest if A’s obligation to represent C aggressively in connection with the division of property in the divorce settlement were undermined by his desire to make sure that her ex‑husband retained sufficient assets to fund a generous settlement of the civil rights claim.[1]

A disclosure requirement is imposed by Rule 3.3(d) dealing with the division of fees. That rule limits referral fees to cases in which the client, “after full disclosure, consents to employment of the other lawyer and to the terms for the division of fees .”[2] The proposed fee arrangement does not on its face violate the Bar Rules, however, and would be acceptable if A is able to satisfy the strict disclosure and consent requirements which the rule imposes.

Bar Rule 3.4(f)(2) also appears to be implicated by the proposed division of fees. That rule states that:

(2) Avoiding Adverse Interest.

(i) A lawyer shall not knowingly acquire a property or pecuniary interest adverse to a client, or enter into any business transaction with a client, unless:
(A) The transaction and terms in which the lawyer acquires the interest are fair and reasonable to the client and are fully disclosed and transmitted to the client in manner and terms which should have reasonably been understood by the client;
(B) The client is advised and given a reasonable opportunity to seek independent professional advice of counsel of the client’s choice on the transaction; and
(C) The client consents in writing thereto.

In this case, Attorney A’s “pecuniary interest” in the transaction arises from the fact that, by virtue of the fee arrangement with B, he has acquired a stake in the outcome of the settlement of the civil rights claim which will, in turn, be affected by the division of the marital property. A is, therefore, subject to the stringent requirements of the rule which requires that the terms of the fee division be fair to the client, be disclosed to her in terms she can readily understand, and that her consent to the arrangement be given in writing after having been afforded the opportunity to discuss it with independent counsel. If these conditions can be met, however, the fee arrangement described is permissible.


Footnotes

[1] Presumably, A’s percentage of the contingent fee will increase in direct proportion to the size of the share of the marital property used to fund the husband’s settlement of the civil rights action.

[2] The adequacy of the disclosure would presumably be closely scrutinized in any subsequent proceeding challenging A’s fee since the client would seem to have little to gain by agreeing to the proposed referral fee arrangement.


Enduring Ethics Opinion