MARYLAND STATE BAR ASSOCIATION, INC.
COMMITTEE ON ETHICS
ETHICS DOCKET NO. 2007-14
Treatment of Legal Fees by Union Counsel.
Your recent request for an opinion has been considered by the Committee on Ethics of the Maryland State Bar Association, and I have been assigned to respond to you on behalf of the Committee.
You are general counsel of a local union organization and are a salaried employee. There are two additional salaried lawyers who work with you. In many of the cases handled by you and your colleagues there is an award of legal fees which is paid to the Union. These fees are calculated at a salary-plus-overhead rate and are awarded because of your successful representation of your client. You have referred the Committee to the provisions of 5 U.S.C. § 7701(g) and 42 U.S.C. § 2000e-5(k) and have advised that, when paid to the union itself, “…ethical canons against fee splitting would require they be calculated at salary-plus-overhead rates.” Further, you advise that a number of courts have permitted the fees to be calculated at market rates when the fees are paid into a legal representation fund. See, e.g., Raney v. Federal Bureau of Prisons, 222 F.3d 927 (Fed. Cir. 2000); American Federation of Gov. Employees v. F.L.R.A., 944 F.2d 922 (D.C. Cir. 1991). Your employer has established such a fund and has been receiving market rate fees for a number of years, and has deposited the fees into that account.
You now wish to utilize the services of outside counsel for the union cases and intend to pay counsel on the basis of negotiated below market hourly rates. However, you want to still be eligible to collect fee awards based on “market” rates and deposit the funds in the market rate legal fund. For example, you propose that your legal representation fund would pay outside counsel $100 an hour for each hour of work. However, if there is a fee award to the union, you would want the award based on “market” rates of $300 an hour and would deposit that fee award into the legal representation fund. Further, in the event of a fee award, you would pay outside counsel a bonus of $100 an hour additional for the time covered in the fee award. The remaining balance would be retained in the legal representation fund. You have asked if this arrangement would be “consistent with the Maryland Rules of Professional Conduct.”
In Post v. Bregman, 349 MD 142, 168 (1998), the Court adopted the premise that “…Rule 1.5(e) does constitute a supervening statement of public policy to which fee-sharing agreements by lawyers are subject….” Specifically, Rule 1.5 of the Maryland Rules of Professional Conduct contains the general Maryland ethics rules pertaining to the subject of legal fees. Rule 1.5(e) provides:
(e) A division of a fee between lawyers who are not in the same firm may be made only if:
(1) the division is in proportion to the services performed by each lawyer or each lawyer assumes joint responsibility for the representation;
(2) the client agrees to the joint representation and the agreement is confirmed in writing; and
(3) the total fee is reasonable.
The comment to the Rule explains:
Division of Fee. – [7] 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….Paragraph (e) permits the lawyers to divide a fee on either the basis of the proportion of services they render or by agreement between the participating lawyers if all assume responsibility for the representation as a whole and the client agrees to the joint representation, which is confirmed in writing.
Both types of Division of Services referred to in Paragraph (e) will be involved in the services referred to in the inquiry. Accordingly, the sharing of fees which you proposed would comply with the Maryland Rules of Professional Conduct. See, e.g., Ethics Docket Numbers 05-02; 04-21; 01-16; 96-45; and 89-57.
You have posed one additional question which suggests that the Union may create a non-profit law office (managed by attorneys hired by the non-profit office) which would replace the legal representation fund as the recipient of fee awards, and you ask if the new entity could receive the awards. The Committee does not perceive a difference in the result. Currently, the Union is a non-profit organization and you are employed by that entity. Pursuant to Rule 5.4(a)(5), a lawyer may share court-awarded legal fees with a non-profit organization that employed him.
We trust that the foregoing has been responsive to your inquiry and we thank you for consulting with the Committee
REFERENCES:
5 U.S.C. § 7701(g)
42 U.S.C. § 2200(e) – 5(k)
Raney v. Federal Bureau of Prisons, 222 F.3d 927 (Fed. Cir. 2000)
American Federation of Gov’t. Employees v. F.L.R.A., 944 F.2d 922
(D.C. Cir. 1991)
Post v. Bregman, 349 MD 142, 168 (1998)
Opinions of the Maryland Ethics Committee: 05-02; 04-21; -1=16; 96-45;89-57
Maryland Rules of Professional Conduct: 1.5(e); 5.4(a)(5)
ASSIGNED TO: Donald E. Sharpe
DATE ASSIGNED: December 11, 2006
DATE DISTRIBUTED: April 13, 2007