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Last Post 02 May 2022 03:53 PM by  Lynda Shely
R-22-0022 Ethics Advisory Committee: 1.5 Rule Change Petition
 4 Replies
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Author Messages
Ashleigh Hansen
New Member
Posts:9 New Member

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31 Jan 2022 07:00 PM
    Honorable Christopher Staring, Chair
    Arizona Supreme Court Ethics Advisory Committee
    1501 W. Washington St., Suite 104 Phoenix, AZ 85007
    602-452-3656
    [email protected]

    This rule-change petition addresses gaps and inconsistencies created by the amendment and abrogation of several Arizona Rules of Professional Conduct (“Rules” or “ERs”) by Arizona Supreme Court Orders R-20-0030 and R-20-0034. Specifically, this proposed rule change clarifies a lawyer’s ethical obligations when dividing a client’s legal fee with a person or entity outside of the lawyer’s firm. This petition arises from ethics opinion request EO-21-0001, filed with the Ethics Advisory Committee on June 16, 2021.

    Filed January 31, 2022

    Would adopt a new ER 1.5(f) (amending Rule 42 of the Rules of the Supreme Court of Arizona) to clarify a lawyer’s ethical obligations when dividing a client’s fee with a person or entity outside of the lawyer’s firm who will not be providing legal services on the matter.

    Comments must be submitted on or before Monday, May 2, 2022.
    Any reply by a petitioner must be submitted on or before Wednesday, June 1, 2022.
    Attachments
    Steve Guttell
    New Member
    Posts:1 New Member

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    15 Feb 2022 11:00 PM
    I submit these comments on my own behalf but note that I am chair of the Fee Arbitration Program of the State Bar.
    To the extent referral fees are now allowed, the proposed amendment to ER 1.5 is necessary in the interest of full disclosure to the client.
    The Rule as written does not (and seemingly nor do any of the ER's) prohibit a lawyer from increasing their regular rate in cases where a referral fee is involved. E.g., if the lawyer's regular rate is $300/ hour, is a $330/hour fee reasonable if increased to cover a 10% referral fee? And if so, what is the standard to determine reasonableness? For example, assume the Economics of Law Practice notes a rate of $350 at the 75th percentile for the practice involved. Is the lawyer "reasonable" when the fee is increased due to the referral if it is below the rate in the Eco. of Law Prac.? Would the question then come down to is "reasonableness" determined by comparing the Eco. of Law Prac. rate (generally based on at most 128 responses in the case of Family/Juvenile practice, or as few as 1 response in the case of Antitrust - 2019 Eco. of Law Practice) to what is charged with the increase due to the referral or is a better standard what the lawyer charges his clients when there is no referral. That rate would presumably be what the lawyer himself thinks is reasonable as expressed in their regular rate? However, the regular rate would now be increased (for that client alone) to cover the referral fee. Does that expose an unknowing lawyer to an ethical breach? (Similar issues could also arise in contingency cases.)
    Is the referral fee (and the lawyer receiving the fee) subject to a "reasonableness" analysis and if so is "reasonableness" within the ER 1.5 (a) provision that fees must be "reasonable" controlling? If so, what standard is used to determine whether the fee is reasonable, particularly if the rate is increased due to the referral?
    While the fee overall is subject to an analysis under ER 1.5 (a) what happens if it is determined that the fee is not reasonable? Is the referring attorney a necessary party to a dispute over fees? (Fee Arbitration Rule III. A. 1. does provide Program jurisdiction for disputes between lawyers.) And, if fees are reduced, can the referring attorney be subject to having to return a portion of the fee received for the referral?
    ER 1.5 (a) speaks to the lawyer not making an agreement for, charging, or collecting
    an unreasonable fee or an unreasonable amount for expenses. If referral fees are deemed expenses, it would appear that some of the same issues of determining reasonableness noted above would apply with the added "benefit" of the Supreme Court and Bar having jurisdiction over a referring lawyer that they would not have over, say a copying company that overcharges.
    Thank you.
    Steve Guttell
    602-690-0086
    [email protected]
    Patricia A. Sallen
    New Member
    Posts:7 New Member

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    01 May 2022 05:11 PM
    Comment Opposing R-22-0022 attached.

    Nancy A. Greenlee
    Attorney and Counselor at Law
    821 East Fern Drive North
    Phoenix, Arizona 85014
    Telephone: (602) 264-8110
    Email: [email protected]
    Bar No. 010892

    Patricia A. Sallen
    Ethics at Law PLLC
    3420 N. 42nd Street
    Phoenix, Arizona 85018
    Telephone ( 480) 290-4841
    Email: [email protected]
    Bar No. 012338

    Attachments
    Robert W. Goldwater III
    New Member
    Posts:1 New Member

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    02 May 2022 12:07 PM
    Please see my attached comment opposing R-22-0022.

    Robert W. Goldwater III, Esq.
    The Goldwater Law Firm, PC
    11811 N. Tatum Blvd., Suite 3031
    Phoenix, Arizona 85028
    Telephone: 480-990-1400
    Email: [email protected]
    Bar No. 014443
    Attachments
    Lynda Shely
    New Member
    Posts:1 New Member

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    02 May 2022 03:53 PM
    Lynda C. Shely
    6501 E. Greenway Parkway Suite 103-406
    Scottsdale, Arizona 85254
    480-905-7237
    [email protected]
    Bar No. 015549

    I submit these comments in my individual capacity and not on behalf of any entity, Committee, or Board on which I may serve.
    I suggest that the Court add a clarifying Comment to Rule 1.5 and not the proposed additional paragraph (f), as explained below.
    Arizona Rule of Professional Conduct (“ER”) 1.5 governs how lawyers charge legal fees - ethically. Specifically, ER 1.5 provides for how lawyers determine the “reasonableness” of a legal, what must be contained in a written fee agreement, when lawyers may charge a contingent fee, and when lawyers working in separate “firms” (a term defined in ER 1.0(c)) may divide a fee when “jointly working on a matter” – ER 1.5(e). This last provision, ER 1.5(e), was modified slightly in 2021 as part of the Court’s adoption of proposed amendments from the Task Force on the Delivery of Legal Services. The 2021 amendments were in conjunction with other rule changes, including the elimination of ER 5.4 (prohibition against sharing fees with nonlawyers) and ER 7.2(b)(prohibition against giving anything of value to someone for recommending the lawyer).
    With the abolition of Rules 5.4 and 7.2(b), however, the application of ER 1.5(e)’s requirement about disclosing certain fee-sharing arrangements became unclear. ER 1.5(e) requires that lawyers disclose, in writing, and obtain client consent, to the division of a fee (and the division of responsibility) between lawyers, in different firms, when the lawyers are “jointly working on a matter[.]” The request posed to the Court’s Ethics Advisory Committee (“EAC”) queried whether ER 1.5(e)’s requirements applied to the situation where lawyers were not working jointly on a matter, but wanted to divide a fee between lawyers in different firms simply for payment of a referral of a client from one lawyer to another.
    There is no ambiguity that under the 2021 Rule amendments one lawyer may now pay a flat sum of money to another lawyer – or anyone – for referring a client to the lawyer. But if the payment of the referral sum is a portion of the fee the lawyer earns, does ER 1.5(e) apply?
    Clients care about how much they are being charged in legal fees. The Rule requires that the fees charged be “reasonable” for the services performed. Clients – and the Rules – do not control what the lawyer does with the fee, once earned, as long as the fee was reasonable under the factors set forth in ER 1.5(a). For instance, lawyers are not required to tell clients how much they pay their associates or paralegals in salaries, or how much they pay for rent or advertising.
    The ethics purpose underlying ER 1.5(e) is for the client to know which lawyers will be responsible for the representation, what are the responsibilities of each lawyer, how much each firm will receive for the work each lawyer will be contributing, and that the overall fee charged is reasonable.
    If one lawyer is merely referring a client to another lawyer, and the first lawyer is not “working jointly” on the matter, it appears that ER 1.5(e) should not apply to the situation. The second lawyer is simply paying a referral fee to the first lawyer. If the second lawyer just paid a flat advertising charge to the first lawyer, there is no ambiguity – the lawyers would not need to comply with ER 1.5(e). It follows that even if the second lawyer is paying a portion of the ultimate legal fee to the first lawyer, just as an advertising charge, ER 1.5(e) should not apply. The lawyers are not “working jointly” on the client’s matter.
    The client’s interest in being charged a “reasonable” fee is still protected because the ultimate fee charged to the client by the second lawyer, for all of the work only performed by the second lawyer, must be “reasonable” under ER 1.5(a)’s factors. Again – the client cares about the reasonableness of the fee – not what the lawyer does with the fee once it is earned.
    EAC’s proposed amendment, to add paragraph 1.5(f) to Rule 1.5, complicates the analysis and does not provide any necessary client protection. The proposed paragraph (f)’s application would be to “circumstances other than those governed by 1.5(e)” but it does not explain how a lawyer determines if paragraph (e) or (f) applies to the situation. Nor should a Rule refer to duties of a “firm” when the ethical requirements in ER 1.5 apply to lawyers, not firms. EAC’s proposal could be interpreted as requiring that “firms” disclose fee divisions when paying a portion of fees for rent, bank loans, advertising, or salaries. Proposed paragraph (f) is not needed.
    What would be useful is an explanatory Comment to Rule 1.5 such as the following:
    [9] Paragraph (e) applies only to situations where lawyers in two or more firms jointly represent a client. Then the client is entitled to understand both how the lawyers will divide the work responsibilities and how the one fee charged to the client will be apportioned between the lawyers, in order to assess whether the total fee is reasonable for the work performed. This paragraph does not apply when a lawyer is paying a portion of a fee to a lawyer (or anyone else) in another firm, simply for referring the client and the two lawyers will not be jointly responsible for the matter.

    Any concern regarding lawyers inflating the fees charged to clients in order to pay a referral fee are addressed sufficiently by ER 1.5(a)’s factors.
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