February 11, 1998
Law firms are entitled to offer and formulate agreements which set forth reasonable conditions affecting a lawyer's departure from a law firm.
A partnership agreement may contain language requiring a withdrawing or expelled partner to pay the continuing partnership a percentage of the net attorney fee upon payment for services rendered in any case or matter contingent upon results for any client who elects to continue the representation with the withdrawing or expelled partner.
The requirements of MRPC 1.5(e) must be complied with prior to division of a fee between lawyers who are not in the same firm.
References: MRPC 1.4(b), 1.5(e), 1.8(e), 5.6; RI-86, RI-245; McCroskey, Feldman, Cochrane & Brock, PC v Waters, 197 Mich App 282 (1992).
A lawyer who is a principal member in a partnership of lawyers asks whether a partnership agreement may contain the following language:
"If payment for services in any case or matter handled for any client who elects to continue with the withdrawing or expelled partner is contingent upon results, the withdrawing or expelled partner shall account and pay to the continuing partnership 66 2/3% of the net attorney fee plus reimbursement for all costs incurred by the partnership when the withdrawing or expelled partner resolves the case and receives payment for such services rendered."
MRPC 5.6 states:
"A lawyer shall not participate in offering or making:
"(a) a partnership or employment agreement that restricts the right of a lawyer to practice after termination of the relationship, except an agreement concerning benefits upon retirement or as permitted in Rule 1.17; or
"(b) an agreement in which a restriction on the lawyer's right to practice is part of the settlement of a controversy between private parties."
The inquiry raises no question concerning a lawyer's retirement from practice, nor is there any issue relating to the sale of a law practice as contemplated in MRPC 1.17. The issue, with respect to MRPC 5.6, is whether the proposed language restricts the right of a lawyer to practice after termination of the relationship.
In RI-86, the Committee examined several provisions of a proposed employment agreement concerning the rights of a departing lawyer to continue to serve clients which the lawyer served while at the firm. While several of the provisions were found to be unethical, the Committee emphasized that the purpose of MRPC 5.6(a) was twofold:
"The rule protects future clients against having a restricted pool of lawyers from which to choose, and protects lawyers from bargaining away the right to open their own offices. An agreement which acknowledges a departing lawyer's right to continue to practice but which imposes burdens which make it difficult, if not impossible, for the departing lawyer to represent certain clients, also violates the spirit of the ethics rule."
In RI-245, the Committee opined that an employment agreement which contained language requiring a departing lawyer to pay 1/3 of all fees collected from former clients of the law firm for four years, even though the former law firm performed none of that work, constituted a penalty and created unfair competition between the departed lawyer and the former law firm. The language present in this inquiry is distinguishable from that presented in RI-245. The instant language does not constitute a penalty or create unfair competition between the withdrawing or expelled partner and the continuing partnership, since the language acknowledges the departing lawyer's right to continue to practice and represent former clients of the partnership. While the language may impose a financial burden on the departing lawyer, the burden does not per se amount to an actual restriction on the departing lawyer's right to practice law. The partnership agreement is an attempt to fix the fee the continuing partnership is entitled to in light of the amount of work done on a given file before the file leaves the continuing partnership, a practice specifically approved of by the Michigan Court of Appeals. See McCroskey, Feldman, Cochrane & Brock, PC v Waters, 197 Mich App 282 (1992). Consequently, a partnership agreement may contain language requiring a withdrawing or expelled partner to pay the continuing partnership a percentage of the net attorney fee upon payment for services rendered in any case or matter contingent upon results for any client who elects to continue the representation with the withdrawing or expelled partner.
MRPC 1.8(e) states:
"(e) A lawyer shall not provide financial assistance to a client in connection with pending or contemplated litigation, except that:
"(1) a lawyer may advance court costs and expenses of litigation, the repayment of which shall ultimately be the responsibility of the client; and
"(2) a lawyer representing an indigent client may pay court costs and expenses of litigation on behalf of the client."
A contract provision which attempts to transfer the client's responsibility for reimbursement of costs and expenses to the departing lawyer would be unethical. A contract provision which requires that the costs and expenses incurred by the law firm be paid from any recovery obtained by a departing lawyer when the client has elected to discharge the law firm and continue representation with the departing lawyer is merely a charging lien and is not improper. RI-86.
Because it is unclear whether the continuing partnership is attempting to transfer the client's responsibility for reimbursement of costs and expenses to the withdrawing or expelled partner or, in the alternative, asserting a charging lien, the Committee suggests that the language be clarified.
MRPC 1.5(e) states in part:
"(e) A division of a fee 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 lawyers involved; and
"(2) the total fee is reasonable."
The Comment to MRPC 1.5 with regard to the division of a fee states:
"A division of fee is a single billing to a client covering the fee of two or more lawyers who are not in the same firm. A division of fee facilitates association of more than one lawyer in a matter in which neither alone could serve the client as well, and most often is used when the fee is contingent and the division is between a referring lawyer and a trial specialist. Paragraph (e) permits the lawyers to divide a fee on agreement between the participating lawyers if the client is advised and does not object. It does not require the disclosure to the client of the share that each lawyer is to receive."
The language contained in the partnership agreement anticipates the division of a fee between lawyers who are not in the same law firm. Therefore, if the fee division is to become operative in any given case, the requirements of MRPC 1.5(e) must be complied with.
Law firms are entitled to offer and formulate agreements which set forth reasonable conditions affecting a lawyer's departure from the law firm. RI-86. The select portion of the partnership agreement presented to this Committee is designed to accomplish this result.