When a client terminates its legal representation in a contingent fee matter without cause, and subsequently retains new counsel from a different firm, the Rules of Professional Conduct related to the division and disbursement of fees impose certain requirements on the successor attorney. The American Bar Association issued Formal Opinion 4871 (ABA Opinion) to identify the applicable rules and to clarify the duties owed to the client by the successor attorney. The ABA Opinion explains that Model Rule of Professional Conduct (Rule) 1.5(e) (or its state equivalent) has no application to the division of fees in cases of successive representation.2 Such situations are instead governed by Rule 1.5(b)-(c), which requires the successor counsel to “‘notify the client, in writing, that a portion of any contingent fee earned may be paid to the predecessor attorney.” 

Specifically, Rule 1.5(b) requires attorneys to communicate the rate or basis of legal fees, and Rule 1.5(c) requires that the written fee agreement include the method of determining the fee. Both subsections are designed to ensure that the client has a clear understanding of the total legal fee, how it will be computed, and when and by whom it will be paid. When a client replaces its original counsel with new counsel in a contingent fee matter, the discharged attorney may have a claim for fees under quantum meruit or pursuant to a clause in the contingency fee agreement; and the successor counsel’s failure to communicate to the client the existence of such claim would run afoul of Rule 1.5(b)-(c). Therefore, even if the exact amount or percentage (if any) owed to the first attorney is unknown at the time, it is incumbent on the successor attorney to advise a contingency client of the existence and effect of the predecessor attorney’s claim for fees as part of the terms and conditions of the engagement from the outset.

While the foregoing ABA guidance is reasonable, Rule 1.5(b) and (c) do not provide the most compelling basis to obligate successor counsel to advise the client of the predecessor’s possible fee claim. As explained in Pennsylvania Bar Association Formal Opinion 2020-200: Obligations of Successor Contingent Fee Counsel to Advise Client of Potential Obligations to Prior Counsel, “[a] contingent fee agreement that fails to mention that some compensation may be due to, or claimed by, the predecessor counsel in circumstances addressed by this opinion is inconsistent with Rules 1.4(b) and 1.5(c),” which “mandate that successor counsel provide written notice that compensation may be claimed by Lawyer 1, and explain the effect of that claim on Lawyer 2’s contingent fee.”3 Pennsylvania Rule 1.4(b) is identical to Model Rule 1.4(b).

The role of the successor attorney with respect to the discharged attorney’s claim for fees should also be set forth in the engagement agreement. The ABA Opinion advises that the engagement agreement should expressly state whether the issue is one to be decided between the discharged attorney and the client or, alternatively, whether the successor attorney will represent the client in connection with the resolution of prior counsel’s fee interest. If the latter, the successor attorney must obtain the client’s informed consent to the conflict of interest arising from his or her dual role “as counsel for the client and a party interested in a portion of the proceeds” (emphasis in original). In many situations, the fees paid to the discharged and successor attorneys may not affect the client’s ultimate recovery, and the client may make an informed decision to leave the matter for the two attorneys to determine among themselves. In resolving any such dispute, both attorneys remain bound by Rule 1.6 confidentiality or pursuant to any confidentiality provisions in any underlying settlement agreement.

CLICK HERE to read the full article, which was originally published in ALI CLE’s The Practical Lawyer.