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:
 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.