What happens to a contingent fee when a lawyer must withdraw before the case is over?
Attorney Maria represents plaintiffs in personal injury cases. She is hired by client Casey to sue for damages resulting from an automobile accident. Casey signs a fee agreement that provides for Maria to receive a percentage of any future recovery.
Maria prepares and files the lawsuit on Casey’s behalf. The defendant’s answer includes a cross-claim against a third-party defendant, and Maria determines that she should also file a claim against the third-party defendant in order to protect Casey’s interests.
When Maria performs a conflict check, she discovers that the third-party defendant is a long-time client of her firm. The resulting conflict of interest will prevent her from representing Casey. Before she refers the case to a new attorney, however, she wants to ensure that she is compensated for her role in bringing in and developing the case. She has about eight hours of time into the case up to this point.
She considers the following, in order of her preference:
According to a 2020 Ethics Opinion, which of these options are permissible under the Texas Disciplinary Rules of Professional Conduct?
A. A 50% share of the ultimate recovery
B. A fee to compensate for the referral only
C. Quantum meruit for the work Maria performed prior to discovering the conflict
D. B and C
E. All of the above
F. None of the above
Fee splitting is permitted in Texas under Rule 1.04(f) of the Texas Disciplinary Rules of Professional Conduct, which states:
(f) A division or arrangement for division of a fee between lawyers who are not in the same firm may be made only if:
(1) the division is:
(i) in proportion to the professional services performed by each lawyer; or
(ii) made between lawyers who assume joint responsibility for the representation; and
(2) the client consents in writing to the terms of the arrangement prior to the time of the association or referral proposed, including
(i) the identity of all lawyers or law firms who will participate in the fee-sharing arrangement; and
(ii) whether fees will be divided based on the proportion of services performed or by lawyers agreeing to assume joint responsibility for the representation; and
(iii) the share of the fee that each lawyer or law firm will receive or, if the division is based on the proportion of services performed, the basis on which the division will be made; and
(3) the aggregate fee does not violate paragraph (a),
The Professional Ethics Committee for the State Bar of Texas considered this question in Ethics Opinion 688 (May 2020). The Opinion concludes that a lawyer who must withdraw because of a conflict of interest cannot possibly assume “joint responsibility” for the ongoing representation. It also finds that, under these circumstances, a 50-50 fee division “cannot reasonably be considered a division in proportion to the professional services performed.”
While the Opinion does not take a position on whether a quantum meruit claim may violate Texas law, it does conclude that such an arrangement here does not violate the Texas Disciplinary Rules of Professional Conduct. But the Opinion does warn that:
A lawyer should be mindful that courts “scrutinize with jealousy” all modifications to a client fee agreement during the representation. Archer v. Griffith, 390 S.W.2d 735, 739 (Tex. 1964). “There is a presumption of unfairness or invalidity attaching to the contract, and the burden of showing its fairness and reasonableness is on the attorney.” Id. See also Opinion 679 (September 2018) (renegotiating fee during representation) and ABA Formal Opinion 11-458 (2011) (“Changing Fee Arrangements During Representation”).
Finally, pure referral fees are not permitted under Rule 1.04(f) because they do not meet the proportion of services and joint responsibility requirements. The correct answer is C.