State Bar of Arizona Ethics Opinions

16-01: Of Counsel; Fee Splitting
4/2016

“Of counsel” relationships are typically defined by the close, personal, continuous, and regular nature of the relationship. When a close, personal, continuous, and regular relationship exists between an “of counsel” lawyer and a firm, the “of counsel” will be considered a member of the same firm for purposes of Ethical Rule (ER) 1.5(e), governing fee splitting among lawyers, as well as for conflicts purposes. Opinion 86-03 is accordingly withdrawn.



FACTS

This opinion reexamines the conclusion of Op. 86-03 that a lawyer who is “of counsel” to a firm must comply with the requirements of ER 1.5(e) in regard to fee splitting. The opinion further considers what constitutes an “of counsel” relationship and whether conflicts are imputed because of that relationship.

The committee issues this formal opinion sua sponte to clarify practitioners’ ethical obligations under ER 1.5(e) and to confirm that conflicts of interest will be imputed when the “of counsel” relationship is close, personal, continuous, and regular such that the “of counsel” lawyer is considered a member of the same firm.

QUESTIONS PRESENTED

  1. When will an “of counsel” lawyer be considered a member of the same firm for purposes of ER 1.5(e), which governs fee splitting among lawyers?
  2. If an “of counsel” relationship exists, will conflicts of interest be imputed because of that relationship?

APPLICABLE ARIZONA RULES OF PROFESSIONAL CONDUCT[1]

ER 1.0.  Terminology

(c)        “Firm” or “law firm” denotes a lawyer or lawyers in a law partnership, professional corporation, sole proprietorship or other association; or lawyers employed in a legal services organization or the legal department of a corporation or other organization. Whether government lawyers should be treated as a firm depends on the particular Rule involved and the specific facts of the situation. 

ER 1.5.  Fees

(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 receiving any portion of the fee assumes joint responsibility for the representation;

            (2)        the client agrees, in a writing signed by the client, to the participation of all the lawyers involved and the division of the fees and responsibilities between the lawyers; and

            (3)        the total fee is reasonable.

ER 1.10.  Imputation of Conflicts of Interest:  General Rule

(a)        While lawyers are associated in a firm, none of them shall knowingly represent a client when any one of them practicing alone would be prohibited from doing so by ERs 1.7 or 1.9, unless the prohibition is based on a personal interest of the prohibited lawyer and does not present a significant risk of materially limiting the representation of the client by the remaining lawyers in the firm.

ER 1.11.  Special Conflicts of Interest for Former and Current Government Officers and Employees

(a)        Except as law may otherwise expressly permit, a lawyer shall not represent a private client in connection with a matter in which the lawyer participated personally and substantially as a public officer or employee, unless the appropriate government agency gives its informed consent, confirmed in writing, to the representation. No lawyer in a firm with which that lawyer is associated may knowingly undertake or continue representation in such a matter unless:

(1)        the disqualified lawyer is screened from any participation in the matter and is apportioned no part of the fee therefrom; and

(2)        written notice is promptly given to the appropriate government agency to enable it to ascertain compliance with the provisions of this Rule, including a description of the particular screening procedures adopted; when they were adopted; a statement by the personally disqualified lawyer and the new firm that the agency’s material confidential information has not been disclosed or used in violation of the Rules; and an agreement by the new firm to respond promptly to any written inquiries or objections by the agency about the screening procedure; and

(3)        the personally disqualified lawyer and the new firm reasonably believe that the steps taken to accomplish the screening of material confidential information will be effective in preventing such information from being disclosed to the new firm and its client.

ER 1.12.  Former Judge, Arbitrator, Mediator or Other Third-Party Neutral

*  *  *

(c)        If a lawyer is disqualified by paragraph (a), no lawyer in a firm with which that lawyer is associated may knowingly undertake or continue representation in the matter unless:

(1)        the disqualified lawyer is timely screened from any participation in the matter and is apportioned no part of the fee therefrom; and

(2)        written notice is promptly given to the parties and any appropriate tribunal to enable them to ascertain compliance with the provisions of this Rule, including a description of the particular screening procedures adopted; when they were adopted; a statement by the personally disqualified lawyer and the new firm that the parties’ and tribunal’s material confidential information has not been disclosed or used in violation of the Rules; and an agreement by the new firm to respond promptly to any written inquiries or objections by the parties or the tribunal about the screening procedure; and

(3)        the personally disqualified lawyer and the new firm reasonably believe that the steps taken to accomplish the screening of material confidential information will be effective in preventing such information from being disclosed to the new firm and its client.

RELEVANT ETHICS OPINIONS

Arizona Op. 86-03; Arizona Op. 87-24; Arizona Op. 97-09; ABA Formal Op. 90-357; Maine Ethics Op. 175 (2001); New York City Bar Association, Formal Op. 1996-8 (1996); Ohio Ethics Op. 2004-11 (2004); Texas State Bar Op. 450 (1987);Virginia Ethics Op. 1866 (2012).

OPINION 

The term “of counsel” is not precisely defined and encompasses a variety of situations. “Of counsel” relationships can include: (1) a practitioner who practices in association with another firm but on a different basis or in a different practice area than other members of that firm; (2) a retired partner who is not actively practicing with a firm but who remains associated with the firm and is available for consultation; (3) a lawyer who, in effect, is a probationary partner-to-be; and (4) a lawyer who has an anticipated permanent status between a partner and an associate. ABA Formal Op. 90-357. Regardless of the variety of ways that the term is used, the hallmark of a true “of counsel” relationship is that the relationship is close, personal, continuous, and regular. Arizona Op. 87-24; ER 7.5, Comment 3.

“Of counsel” relationships do not include: a relationship involving only an individual case, such as a local counsel relationship; the mere forwarding or receipt of legal work; an outside consultant; or only occasional collaborative efforts between otherwise unrelated firms or lawyers. ABA Formal Op. 90-357; Arizona Op. 87-24.

I.          “Of counsel” will be considered part of the same firm for purposes of fee splitting when the relationship is close, personal, continuous, and regular. 

A prior opinion of this committee, Op. 86-03, stated that the rule regarding fee splitting must be followed when an “of counsel” relationship exists. In some situations, however, “of counsel” lawyers, such as lawyers who anticipate remaining in a permanent status between associates and partners, are clearly part of the law firm that employs them and the fee-splitting provisions of  ER 1.5(e) would not apply. Although other “of counsel” relationships may not be as clear-cut, what distinguishes the “of counsel” relationship from other interactions is the close, personal, continuous, and regular nature of the relationship. In such circumstances, when the relationship is truly an “of counsel” one, the “of counsel” lawyer should be considered a member of the same firm for purposes of  ER 1.5(e). This position is consistent with several other jurisdictions that have considered this issue.  Maine Ethics Op. 175 (2001); Virginia Ethics Op. 1866 (2012); Texas State Bar Op. 450 (1987); New York City Bar Association, Formal Op. 1996-8 (1996); Ohio Ethics Op. 2004-11 (2004); see also Restatement (Third) of the Law Governing Lawyers § 47 Comment (g) (2000) (stating that the rule governing fee splitting between lawyers not in the same firm “does not prevent a law firm, of whatever form, from dividing income among its lawyers (including lawyers who are of counsel and temporarily employed) in any lawful way provided in the firm agreement or by an ad hoc arrangement”).

II.        The requirements of ER 1.5(e) governing fee splitting must be followed when the facts indicate that lawyers are not part of the same firm, regardless of the title used.

Fee splitting among lawyers not in the same firm is governed by ER 1.5(e). If lawyers are not in the same firm, fees may be split only if: (1) the division is in proportion to the services performed by each lawyer or each lawyer receiving any portion of the fee assumes joint responsibility for the representation; (2) the client agrees, in a writing signed by the client, to the participation of all the lawyers involved and the division of the fees and responsibilities between the lawyers; and (3) the total fee is reasonable. See ER 1.5(e).  ER 1.0(c) defines a “firm” or “law firm” as “a lawyer or lawyers in a law partnership, professional corporation, sole proprietorship or other association….” Comment 2 to the rule clarifies that whether two or more lawyers constitute a firm depends on the specific facts:

The terms of any formal agreement between the associated lawyers are relevant to determining whether they are a firm, as is the fact that they have mutual access to information concerning the clients they serve.  Furthermore, it is relevant in doubtful cases to consider the underlying purpose of the Rule that is involved.  A group of lawyers could be regarded as a firm for purposes of the Rule that the same lawyer should not represent opposing parties in litigation, while it might not be so regarded for purposes of the Rule that information acquired by one lawyer is attributable to another. 

In regard to the rule on fee splitting, when the facts reveal that the relationship is not close, personal, continuous, and regular, the lawyer will not be considered a member of the same firm, and the requirements of ER 1.5(e) will apply.

III.       Whether conflicts will be imputed depends on whether the lawyers are considered to be part of the same firm.

Although Opinion 87-24 recognizes the possible imputation of conflicts as well as other ethical obligations arising from the “of counsel” relationship, the opinion does not provide guidance on whether all conflicts would be imputed. Subsequent to Opinion 87-24, the ABA and several other jurisdictions have considered this issue and reasoned that the close, personal, continuous, and regular relationship, which defines a true “of counsel,” necessarily imputes conflicts:

There can be no doubt that an of counsel lawyer (or firm) is ‘associated in’ and has an ‘association with’ the firm (or firms) to which the lawyer is of counsel, for purposes of both the general imputation of disqualification pursuant to Rule 1.10…and the imputation of disqualifications resulting from former government service under Rules 1.11(a) and 1.12 (c)…. 

ABA Formal Op. 90-357. When an association becomes so close that the lawyers are considered to be part of the same firm, “each lawyer is vicariously bound by the obligation of loyalty owed by each lawyer with whom the lawyer is associated.” ER 1.10, Comment 2. The committee agrees that the “of counsel” relationship creates an association with another firm or lawyer that imputes conflicts of interest under ER 1.10, 1.11 and 1.12.

Recognizing that an “of counsel” relationship will impute conflicts when the relationship is close, personal, continuous, and regular, lawyers and law firms need to be attuned to the type of relationship they develop and hold out to the public. A firm may create a relationship that is infrequent or limited in time and the scope of services. Restrictions on file access or other screening may be imposed. In such cases, while the rule governing fee splitting with lawyers not in the same firm will apply, this occasional association will not generally give rise to imputed conflicts. See Arizona Op. 97-09. When the relationship becomes close, personal, continuous, and regular, the association results in the lawyers being considered part of the same firm and the imputed conflicts rules governing such associations apply. Labels, however, will not control. The same type of  close, personal, continuous, and regular relationship that defines an “of counsel” relationship, regardless of what label attaches to it, will result in the associated lawyer being considered a member of a law firm for imputation of conflicts.

CONCLUSION

“Of counsel” relationships, which encompass different forms, are defined by the close, personal, continuous, and regular nature of the relationship. When a true “of counsel” relationship exists, the “of counsel” lawyer is considered a member of the same firm for purposes of fee splitting under ER 1.5(e). Arizona Op. 86-03 is therefore superseded. Given that “of counsel” lawyers are associated in the same firm, the existence of an “of counsel” or similar type of relationship will also result in the imputation of conflicts under ERs 1.10, 1.11 and 1.12. 

 

Formal opinions of the Committee on the Rules of Professional Conduct are advisory in nature only and are not binding in any disciplinary or other legal proceedings. This opinion is based on the Ethical Rules in effect on the date the opinion was published. If the rules change, a different conclusion may be appropriate.

© State Bar of Arizona 2016


[1]  This Opinion does not consider or address other ethical rules that could be implicated by the existence of an “of counsel” relationship. As recognized by ER 1.0(c) and Comment 2 to that rule, a group of lawyers could be regarded as a firm for purposes of certain rules but not others.  See, e.g., ER 1.8, 1.18, 3.6, 3.7, 5.1, 5.3, 6.5 and 7.5.




Copyright ©2004-2018 State Bar of Arizona