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Ethics Opinion

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July 18, 1994


    In resolving a dispute with the estate and heirs of a deceased lawyer regarding the decedent's interest in a law firm, a lawyer or law firm may agree to a valuation and payment based in part upon a pro rata portion of the future receipt by the firm of contingent fees to be paid by another law firm for referrals made during the decedent's life.

    References: MRPC 5.4(a); Emmons, Williams, Hires & Leech v. California State Bar, 6 Cal3d 565, 86 Cal Rptr 367 (1970); ABA Op 327, Op 87-355, i86-1519.


A law firm is in the course of resolving a dispute with the estate and heirs of a deceased lawyer, regarding the payment for, or redemption of, the ownership interest of the deceased lawyer in the firm. During the lifetime of the deceased lawyer, no agreement was made providing for the payment of any money to the estate or heirs.

The decedent had referred a number of cases to other firms on a referral fee arrangement for a percentage of the receiving firm's recovery. The deceased lawyer did not perform any services in connection with the cases referred to the other firms. The inquiring firm asks about the propriety of entering into an agreement with the estate and heirs to purchase the deceased lawyer's interest in the firm for a stated value which will be calculated and paid, pro rata, upon receipt of fees due the firm for referrals made by the decedent. The firm would then make payment to the estate or heirs based upon the agreed pro rata percentage.

For purposes of this opinion, it is assumed that the agreements for payment of the referral fees to the inquiring law firm comply with MRPC 1.5(e). MRPC 1.5(e) states:

    "A division of fees between lawyers who are not in the same firm may be made only if:

      "(1) The client is advised of and does not object to the participation of all the lawyers involved; and

      "(2) The total fee is reasonable." Emphasis added.

MRPC 1.5(e) covers only a "division of fees between lawyers." Neither the estate of the deceased lawyer, nor the heirs, is a party to the referral arrangement; neither is a " lawyer" within the meaning of MRPC 1.5(e). Therefore, MRPC 1.5(e) has no application, and is not violated by the proposed arrangement.

Because the proposed agreement is between a lawyer and nonlawyer, MRPC 5.4 controls. MRPC 5.4(a)(1) and (2) state:

    "(a) A lawyer or law firm shall not share legal fees with a nonlawyer, except that:

      "(1) An agreement by a lawyer with the lawyer's firm, partner or associate may provide for the payment of money, over a reasonable period of time after the lawyer's death, to the lawyer's estate or to one or more specified persons;

      "(2) A lawyer who purchases the practice of a deceased, disabled or disappeared lawyer may pay to the estate or other representative of that lawyer the agreed-upon purchase price, pursuant to the provisions of Rule 1.7."

Because there will be no interference with the professional independence of any lawyer, the proposed arrangement does not violate MRPC 5.4(a).

The policy concern of MRPC 5.4(a) is the professional independence of the lawyer. Fee splitting between lawyers and nonlawyers poses the possibility of control by the nonlawyer interested in personal profit or advantage, rather than the best interests of the lawyer's client. Emmons, Williams, Mizes & Leech v. California State Bar, 6 Cal3d 565 at 573-574, 86 Cal Rptr 367 (1970). The rule is intended to avoid the possibility of a nonlawyer's interference with the exercise of a lawyer's independent professional judgment and to assure that the total fee paid by a client is not unreasonably high or artificially inflated to provide for the pecuniary interest of the nonlawyer. ABA Op 87-355. The rule also protects against possible control of the legal matter by the nonlawyer and avoids unauthorized practice of law by nonlawyers. ABA i86-1519.

Despite these admonitions, it has been repeatedly held permissible for a lawyer of law firm to make payments, determined by the earnings of the firm, to a retired partner, or, for a reasonable period of time, to the estate of a deceased partner. See, for example, ABA Op 71-327. The rationale for these limited exceptions is that they do not aid in the practice of law by nonlawyers and they present very little opportunity for interference with the independent professional judgment of the lawyer.

While MRPC 5.4(a)(1) could be restrictively interpreted as limited to only those situations in which the lawyer, while alive, makes an agreement with the firm for payments to the estate or heirs, MRPC 5.4(a)(2) provides ample room for the proposed arrangement in this case. Prudence recommends that each lawyer plan in advance the disposition of the lawyer's interest in the firm or professional corporation; however, like the cobbler's proverbial shoes, prudence does not always prevail. Moreover, even when an agreement is thought to have been struck, disputes may arise only after the lawyer's death or incapacity. A fair reading of MRPC 5.4(a) allows its use for the resolution of such a dispute, the continuation of which could be a much greater detriment and distraction to the "independent judgment of the lawyer" and to the best interests of clients, than any risk presented by the proposed purchase/redemption agreement.

To the extent that the payment must be completed within a "reasonable period of time," the contingent, and therefore unliquidated, nature of the fee in the underlying referred matters makes reasonable the deferral of the payment until each referral fee is determined and received. "Reasonableness" is dependent upon the facts of each case.

In summary, in resolving a dispute with the estate and heirs of a deceased lawyer regarding the decedent's interest in a law firm, a lawyer or law firm may agree to a valuation and payment based, in part, upon a pro rata portion of the future receipt by the firm of contingent fees to be paid by another law firm for appropriate referrals made during the decedent's life.



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