by: Peter J. Gallagher (@pjsgallagher) (LinkedIn)
Under New Jersey law, lawyers can, in some instances, share fees with lawyers at a different firm to whom they refer a case. But what happens when Lawyer A refers a case to Lawyer B who then refers the case to Lawyer C? Can Lawyers A and B share in the recovery that Lawyer C achieves for the client? This was the question the Appellate Division faced in Weiner & Mazzei, P.C. v. The Sattiraju Law Firm, PC. The answer, in that case, was "no," but there are instances where this type of three-way sharing would be appropriate.
In Weiner & Mazzei, a lawyer was contacted by a family friend in need of advice on a possible workplace injury/change of employment case. The lawyer advised the family friend that he appeared to have a valid claim and referred the family friend to an attorney who specialized in that area of law. The first lawyer claimed that he told the family friend that the second lawyer would take the case on contingency and that the first lawyer would be paid a referral fee. The family friend denied ever being told about the referral fee.
After speaking with the first lawyer, however, the second lawyer also refused the case but agreed to refer it to defendant, a law firm with at least one certified civil trial attorney. The second lawyer had a standing referral agreement with defendant and defendant agreed to abide by the usual one-third referral fee contained in that agreement.
Defendant prosecuted the client's employment case and eventually reached a confidential settlement with the client's former employer. Plaintiffs — the first and second lawyers — sued, claiming they were jointly entitled to one-third of defendant's fee. Defendant moved for summary judgment, which was originally denied, but was later granted upon reconsideration. Plaintiffs appealed.
The Appellate Division noted that New Jersey's version of RPC 1.5 allows lawyers to share fees only if: (1) the division of fees is proportionate to the work each lawyer performed; (2) the client is notified of the division; (3) the client consents to participation of all the lawyers involved; and (4) the total fee is reasonable. The Appellate Division then noted that NJ Court Rule 1:39-6 eliminates the first of these requirements, but not the rest of them, when a certified civil trial attorney receives the referral. In other words, a certified civil trial attorney can share fees in a manner that is not based on the work each lawyer performed on the matter, but the client must still be notified of the agreement to share fees and consent to the participation of all the lawyers involved. This is what ultimately doomed the fee-sharing arrangement in Weiner & Mazzei.
Although it was disputed, the Appellate Division assumed that the first lawyer notified the client about the referral fee he would receive from the second lawyer. But, there was no dispute that the client was never told of, much less consented to, the second lawyer's "participation in the alleged fee-splitting arrangement." In fact, there was no dispute that the second lawyer had no contact with the client at all. As a result, the arrangement did not satisfy the New Jersey Court Rules or the RPCs, therefore, neither the first lawyer nor the second lawyer was entitled to share in defendant's fees.
The lesson to take from this case is that if you are going to enter into a fee sharing arrangement with another lawyer or law firm, be sure to notify the client and obtain the client's consent to the arrangement. If you fail to do so, you may end up without any fees.
Pete's Take 