One for Conflict and Fees. Of Course!

One for Conflict and Fees. Of Course!

Uncle Joe at the family reunion..

Uncle Joe at the family reunion..

Families and law firms are alike in that they might be functional, dysfunctional, happy, unhappy, big, small, traditional or untraditional.

They also are alike in that members of families and partners, associates and employees of law firms have socially accepted relationships to the collective. (Did you Star Trek fans immediately think of the “hive mind” of the Borg?)

But what about that friend of the family? You know the one. You might have called him “Uncle Joe” growing up but Joe wasn’t your parent’s sibling or a shirt-tail relative, nor was he in a committed relationship with any family member. Joe came to birthdays and Thanksgiving dinner but wasn’t part of the annual holiday photo. He wasn’t on the family tree but was listed as an emergency contact for the alarm system.

He may not have been part of your family, but he had a close, personal, and continuing relationship with your family. Joe probably knew all the family dirt.

If your family were a law firm, Joe would be considered “of counsel”: not technically part of the family, but close enough that he would be considered “family” nonetheless.

The term “of counsel” can refer to lots of different types of relationships. American Bar Association Op. 90-357 describes “four principal patterns of such relationships”:

  •  A part-time practitioner who practices law in association with a firm but on a basis different from that of the mainstream lawyers in the firm;
  • A retired partner of the firm who, although not actively practicing law, nonetheless remains associated with the firm and available for occasional consultation;
  • A lawyer who is, in effect, a probationary partner-to-be, such as a lawyer brought into the firm laterally with the expectation of becoming partner after a relatively short period of time; and
  • A lawyer who is between a partner and associate but having the quality of tenure, or something close to it, and lacking that of an expectation of likely promotion to full partner status.

I would add to that quartet another frequent of-counsel relationship: a specialty boutique law firm that works with a bigger, more general-law-oriented firm and is listed as “of counsel” on the latter’s letterhead.

The hallmark of all of-counsel relationships is that they must be close, personal, continuous and regular. In other words, to say that a lawyer is “of counsel” to your firm, your firm and the other lawyer must have a close, personal, continuous and regular relationship. Not just that you worked together on one case. Not just that the other lawyer refers business to you.

If you don’t meet that definition of “of counsel” but nonetheless claim it, you’re making a misrepresentation.

If you truly have an of-counsel arrangement, and thus have a close, personal, continuous and regular relationship with the other lawyer, the other lawyer shares your conflicts. After all, just like Uncle Joe knows – or should know, if he’d been paying attention -- your family secrets, the of-counsel lawyer is close enough to your firm to know or at least carry the imprimatur of knowing client confidences, and therefore sharing your firm’s conflicts.

The 1990 ABA opinion made that clear:

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 of the Model Rules and the imputation of disqualifications resulting from former government service under Rules 1.11(a) and 1.12(c); and is a lawyer in the firm for purposes of Rule 3.7(b), regarding the circumstances in which, when a lawyer is to be a witness in a proceeding, the lawyer's colleague may nonetheless represent the client in that proceeding.

That of-counsel lawyer, although not technically part of the family, is deemed to be part of the family by virtue of the close relationship that allows the of-counsel lawyer to be called “of counsel.”

So, to put it bluntly, if you claim to be of-counsel to another firm, you’d better have a close relationship with that firm. If you have the requisite close relationship, you and that other firm share conflicts because you’re so tight. The cost of righteously claiming to be “of counsel” is sharing conflicts.

What about the money aspect of the arrangement?

Special ethical rules govern fee-sharing between lawyers who practice in different firms. “Fee sharing” means that two or more firms share one client fee. Here’s a typical example: Lawyer 1, a sole practitioner, takes on a personal-injury plaintiff client. Lawyer 1 tries but can’t settle the matter. Lawyer 1 dislikes litigation and refers the matter to Lawyer 2, who works in another law firm, for Lawyer 2 to litigate. Lawyer 2 litigates the matter and obtains a recovery. Lawyer 1 and Lawyer 2 – not in the same firm -- will share the attorney’s fee out of the recovery. They are dividing the fee.

As Ariz. Ethics Op. 99-04 put it, dividing a 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.

ER 1.5(e) says that lawyers who are not in the same firm may divide one fee 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 fees and responsibilities between the lawyers; and

(3)  the overall fee is reasonable.

(The Arizona Supreme Court added the underlined language as of 1/1/16. I’ve bolded this new language to remind you that our rule has been amended.)

So what does ER 1.5(e) have to do with of-counsel arrangements?

For 30 years, Arizona had an ethics opinion (Op. 86-03) that concluded -- confusingly and with little cogent analysis -- that an of-counsel lawyer and the law firm to which the lawyer was of counsel had to comply with ER 1.5(e) because the of-counsel lawyer was neither a partner nor an associate of the law firm.

As a result, while the of-counsel lawyer and the law firm to which the lawyer was of counsel were considered one family for conflicts purposes, they were considered separate families where fees were concerned.

Here’s where you might mutter “Huh? An of-counsel lawyer is tight enough with the firm to be part of it for conflicts but not for fees?”

Yes, there certainly was a disconnect. But that disconnect now has been formally repaired.

The State Bar’s recently released ethics opinion, Ariz. Ethics Op. 16-01, has withdrawn Op. 86-03 and concludes, accurately, that in a truly of-counsel relationship, the of-counsel lawyer “should be considered a member of the same firm for purposes of ER 1.5(e).”

Here’s where I mutter “Of course.”

Op. 16-01 injects an interesting twist to the of-counsel analysis, however.

For decades, the analysis has been this: If you label yourself “of counsel” to a firm, you and the firm had better have a close, personal, continuous and regular relationship. Now, Op. 16-01 says no matter what label you put on the relationship, if the relationship is “close, personal, continuous and regular,” then the associated lawyer is a member of the law firm for imputation of conflicts and fee splitting.

That makes sense. Labels don’t work, as Op. 86-03 showed. That opinion, an example of last-century thinking about the legal profession, assumed that law firms consist only of people called “associates” and “partners.” Decades ago, law firms had associates on partner track and partners, and only the occasional of-counsel lawyer who was neither fish nor fowl. But today a law firm might have equity and non-equity partners; partner-track associates and permanent associates; of-counsel, contract and part-time lawyers. And lots of sole practitioners forgo a multi-lawyer firm so they can form teams of lawyers customized for clients’ needs.

In general, I think this is where we are in Arizona:

  • If you call your relationship with another firm “of counsel,” you’d better have a close, personal, continuous and regular relationship. If so, you’ll be considered one firm for conflicts and fees.
  • If you call your relationship “of counsel” but you don’t have a close, personal, continuous and regular relationship, you’re engaging in deceptive advertising.
  • If you have a relationship with another law firm and you call it something other than “of counsel” but it’s nonetheless close, personal, continuous and regular, you’ll still be considered one firm for conflicts and fees. Trying to be creative with titles and labels won’t help you escape sharing conflicts if the reality of the relationship shows otherwise.
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