A recent Law 360 article by Hilary Gerzhoy and Julienne Pasichow, “Avoiding The Ethical Pitfalls of Crowdfunded Legal Fees”, reports on the ethics of crowdfunding for legal fees.  This article was posted with permission.  The article reads:

Within two days of being charged with manslaughter in the death of Jordan Neely, Daniel Penny had crowdfunded over $1.5 million to cover his legal fees.  Penny was charged with killing Neely, a Michael Jackson impersonator, on a New York City subway after placing him a fatal chokehold.  The case was widely covered and highly politicized.

Democrats, including Rep. Alexandria Ocasio-Cortez, D-N.Y., and New York Gov. Kathy Hochul, called for charges against Penny and justice for Neely's family.  Republicans, including Florida Gov. Ron DeSantis, Rep. Marjorie Taylor Greene, R-Ga., and Rep. Matt Gaetz, R-Fla., voiced their support for Penny.

Crowdfunding legal services is a relatively new phenomenon.  It's most often used to fund litigation involving individuals — as opposed to corporate entities — that implicates human rights issues, the environment and judicial review.

In one widely publicized case, two Yemeni refugees with valid immigrant visas were intercepted at Dulles International Airport, handcuffed and sent out of the country — the result of former President Donald Trump's temporary seven-country travel ban, which had been signed just a few hours earlier while the brothers were en route.  The crowdfunding campaign raised $36,600 in its first week.

While crowdfunding legal services provides a way for many to access lawyers when representation would otherwise be unaffordable, it also comes with a bevy of ethics risks.  This article will examine the key ethical rules governing crowd-sourced legal funds and the steps lawyers can take to mitigate their risk.

The Daniel Penny Case

In May, the Manhattan District Attorney's office charged Penny, a 24-year-old U.S. Marines veteran, with second-degree manslaughter after he killed Neely on a New York City subway earlier that month.  For more than three minutes, Penny placed Neely in a fatal chokehold leading to his death.  Penny claimed self-defense, stating that Neely was threatening passengers on the train.  It was later learned that Neely had been suffering from a mental health crisis and was experiencing homelessness at the time he was killed.  Penny was released on $100,000 bond.  On June 28, he appeared in court in Manhattan to plead not guilty.

The law firm representing Penny — Raiser & Kenniff PC — arranged for a fundraiser on the Christian crowdfunding site GiveSendGo to cover Penny's legal fees.  As of Sept. 29, the fundraiser has collected nearly $3 million.  How can Penny's legal team use those crowd-sourced funds? What restrictions are imposed by the ethics rules?

This article will examine the critical steps to ensure compliance with the American Bar Association's Model Rules of Professional Conduct, which are largely adopted in most jurisdictions.

Confidentiality Runs to the Client, Not the Funders

Perhaps the most fundamental feature of the lawyer-client relationship is the protection of client confidences.  Model Rule of Professional Conduct 1.6 prohibits a lawyer from revealing "information relating to the representation of a client unless the client gives informed consent, the disclosure is impliedly authorized in order to carry out the representation or the disclosure is permitted [under certain enumerated circumstances]."

A lawyer must make reasonable efforts to prevent inadvertent or unauthorized access to the information, a standard that is highly fact-dependent and considers the sensitivity of the information and the extent to which additional safeguards would enhance security versus hinder the representation.  Lawyers who organize fundraisers, manage crowdfunded donations and apply them toward legal fees must ensure that they neither represent nor imply that they will provide information about the representation to donors in exchange for donations.

It is best to obtain informed consent for any information that will be disclosed to donors and to steer clear of "providing specific information about how the funds will be used to effectuate the legal strategy," as articulated by the D.C. Bar in a 2018 ethics opinion.  To avoid any ambiguity, lawyers should note in the narrative section of the fundraiser that they will not provide any information about the objectives of the representation, actions taken, specific uses of the funds or developments in the case.

When donors fund a lawyer's representation of a client through crowd-sourcing, they must do so with the understanding that they will receive no information about the representation.  We recommend including the proposed narrative language for the fundraiser in the engagement letter signed by the client, which should also describe the fundraising arrangement and the fact that the collected funds will be applied to legal fees and expenses as they are earned or incurred.

There may be instances in which a client wants a lawyer to provide case updates to donors or specific individuals.  To do so, the lawyer must obtain informed consent from the client.  This requires that the lawyer explain the risks of disclosure to the client and have the client approve of the exact information to be disclosed.

Most importantly, the client must understand that disclosing privileged and confidential information about the representation to third parties will destroy the attorney-client privilege and prevent the lawyer from later claiming privilege over the disclosed information.  The same warning should also be given to a client who is managing the fundraiser themselves and wishes to disclose case information or updates to donors.

Crowd-sourced Funds Cannot Interfere with a Lawyer's Professional Independence

Before accepting crowd-sourced funds as payment for legal services, a lawyer must obtain informed consent from the client.  This is true regardless of whether the lawyer is self-administering the funds as they are earned or whether the client is paying the lawyer's invoices using crowd-sourced funds.  Lawyers should consider including relevant language providing for this arrangement in their engagement letter with the client.  Under the Model Rules, even if such an arrangement is in place, a lawyer may not, under any circumstances, allow the person or persons paying the lawyer's fees to "direct or regulate the lawyer's professional judgment in rendering such legal services."

While donors' generosity often enables a client to pursue legal claims or defenses where it would otherwise be financially impossible, donors cannot control how the fundraised money is used within the representation.  Only the client determines the objectives of the representation and whether to follow the lawyer's recommended strategy.

Ensuring that the narrative statement on the fundraising website contains language informing donors that they will not be permitted to exert control or influence over the objectives of the representation or the methods by which they are carried out — in addition to not being entitled to case information — may prove helpful in warding off donors who believe that their dollars earn them a say in the representation.  There may be situations in which the donors' interests differ from those of the client — for example, where donors may wish to minimize the amount spent on the representation to get more for less or avoid taking steps in the representation that may be costly.

In circumstances where the lawyer is aware of divergent interests between the donors and the client, the lawyer cannot accept the representation or continue the crowdfunded payment arrangement unless the lawyer is certain that they can exercise independent judgment and will not allow the donors to interfere with their professional decision making.

Be Circumspect About Trial Publicity

Crowdfunded cases are often those that are highly publicized, political and involve public figures. They tend to come with an increased public desire for publicity and insider information.  Many of these cases go to trial, which further extends the period in which the public remains interested and heightens public intrigue.

Model Rule 3.6 governs trial publicity and warns lawyers against making statements that are likely to prejudice the proceedings in any way.  This is all the more true in highly publicized cases, where a lawyer's statements about a case are likely to be widely disseminated.  While media attention on a case does not change lawyers' confidentiality obligations under Model Rule 1.6, Model Rule 3.6 provides that lawyers can provide concrete facts about the case if they are unlikely to cause prejudice.

Lawyers can reveal basic information about the claim at issue, people involved, public records, the existence of a pending investigation, the scheduling or results of litigation, and requests for help in obtaining evidence, and they can offer warnings of danger to an individual or to the public.  In criminal cases, lawyers can provide additional information to the public, including, among other things, information about the residence and occupation of the accused, and the location, time and place of the arrest.

Where a client has suffered prejudice due to recent bad publicity, the lawyer can make statements to mitigate that prejudice.  A lawyer should not speak publicly about a case, however, without the consent of their client after the client weighs the risks and benefits of such disclosures.

Treat Cowdfunded Legal Fees as Advanced Fees, Safeguarding Them in a Trust Account

The two most prominent ethics opinions to address crowdfunded legal fees, a 2015 Philadelphia Bar opinion and a 2018 D.C. Bar opinion, emphasize the importance of safeguarding crowdfunded fees in a trust account and not moving them over to an operating account until they are earned.

As the D.C. Bar opinion notes, because crowdfunding can "trigger areas of confusion that may not be present in a traditional client-self pay situation," lawyers should establish, in a written fee agreement, the rate of their fees, the scope of the representation and specific plans for crowdfunded money, such as the ownership of excess crowdfunds and responsibility for payment if the crowdfunds do not fully cover legal fees and expenses.

Critically, funds collected by a lawyer on a client's behalf through crowdfunding should be treated as advanced fees and placed in a trust account for the client.  In the crowdfunded legal fees context, lawyers need to be especially cognizant of their duty not to charge excessive fees under Rule 1.5.  For example, if a matter resolves quickly, a lawyer would be hard-pressed to claim all of the proceeds of the fundraiser as fees.

Conclusion

The crowdfunding of legal fees represents an exciting opportunity to provide access to legal services to those for whom it might be otherwise unattainable.  With a principled approach — paying special attention to your obligations to maintain confidentiality and your professional independence, and safeguarding funds in a trust account — you can protect yourself from ethics mishaps while serving a wider array of clients.

Hilary Gerzhoy is a partner and vice chair of the legal ethics and malpractice group at HWG LLP.  Julienne Pasichow is an associate at the firm.

A recent Law 360 article by Lourdes Fuentes, “Twitter Legal Fees Suit Offers Crash Course in Billing Ethics”, reports on ethical lessons from the recent Twitter fee dispute litigation case.  This article was posted with permission.  The article reads:

Corp.'s case against law firm Wachtell Lipton Rosen & Katz, filed over Twitter's legal bill in connection with Elon Musk's $44 billion acquisition of the company, highlights the importance of following proper billing practices, which are governed not only by contract law but also by the higher standards imposed on lawyers by the rules of professional conduct.  The claims in X Corp. v. Wachtell Lipton Rosen & Katz, filed in early July in California's San Francisco County Superior Court, include restitution (unjust enrichment), breach of fiduciary duty, aiding and abetting breach of fiduciary duty, and violation of California Business and Professions Code, Section 17200.

The pleading contains a litany of facts but recounts a concise timeline. From when Wachtell was retained on June 21, 2022, to the Oct. 13 party held to celebrate the month-end closing of the deal at the original $44 billion price, only 114 days had elapsed.  In that time, Twitter received two invoices.  These invoices were included as exhibits to the complaint.  A review of the invoices reveals blank time entries, vague descriptions, irrelevant references and block billing, among other issues.  The invoices amount to close to $18 million.

To compound these perceived improprieties, the final fee statement then added an extra $72 million dollars to that tab.  This was a "success fee" that was referenced in the closing day letter agreement drafted by Wachtell and signed by Twitter's then-chief legal officer, Vijaya Gadde, allegedly hours before the closing sale of Twitter on Oct. 27.  Significantly, the success fee had not been outlined in the engagement letter.

While the validity of the claims will be decided in court, the suit spotlights vital legal billing practices and ethical considerations for attorneys and clients alike.  Even if Wachtell defeats X, the suit has put the reputation of the firm's billing practices at risk.  Moreover, the suit has put the reputation and ethics of individual attorneys at risk by disclosing the invoices at issue, tying timekeeper names to time entries.

Further, the answer to whether the $90 million is fair pay or windfall may not be based on the amount itself, but on whether the parties followed the rules of professional conduct governing attorney-client relationships.  By reexamining billing approaches in light of the Twitter fees case, law firms and clients can take away important lessons on proper billing practices.

The Relevant Rules

Client and lawyer can maintain a positive partnership that is founded on transparency and trust by following an ethical road map.

The claims in the complaint provide us with a good starting point.  They are based on common law tort, contract law and the American Bar Association's Model Rules of Professional Conduct, which have been similarly adopted to varying degrees in other states' jurisdictions.  These are:

    Section 6147 of the California Business and Professions Code, which addresses contingency fees;

    Rule 1.5 of both the California and New York Rules of Professional Conduct, which prohibit unreasonable or unconscionable fees;[6] and

    Rule 1.8 of both the California and New York Rules of Professional Conduct, which prohibit soliciting gifts from clients.

By keeping these rules — or their equivalent from your jurisdiction — top of mind, practitioners can avoid the appearance of impropriety. Though not mentioned in the complaint, I would also add ABA Rule 1.4, which deals with attorney-client communications, to this list.

8 Crucial Steps for Success Fees

Fees based on the outcome of a case, like the success fee in the Twitter case, are permissible, but they still need to be reasonable.  While the ABA rules do not specifically mention success fees, they state that a fee may be contingent on the outcome of the matter for which the service is rendered.  The rules do, however, state that:

A contingent fee agreement shall be in a writing signed by the client and shall state the method by which the fee is to be determined.  Success fees are common in transactional matters, but these are typically negotiated as part of an engagement letter.  They are structured to incentivize the law firm to achieve the best possible outcome for the client.  However, the exact nature and amount of these fees can vary and are a subject of negotiation between the parties.  As a result, it is crucial for both parties to follow these steps.

Transparency and Disclosure

All terms related to the success fee should be clearly stated in the engagement letter or contract.  This includes how the fee is calculated, when it is to be paid, and under what conditions it may be modified or waived.

Reasonableness of the Fee

All fees must be reasonable.  Look for guidance in ABA Rule 1.5 for factors that can be considered to determine reasonableness of a success fee. These can include:

    The novelty and difficulty of the case;

    The skill required to properly provide legal services;

    Comparable rates in your area for like services;

    The amount at issue and the results obtained;

    Time limitations imposed by the client or by the circumstances;

    The reputation, experience and ability of the lawyers performing the services; and

    Whether the fee is fixed or contingent.

Proportionality

The success fee should be proportional to the value provided by the law firm.  This could be in relation to the deal size, the complexity of the transaction or the level of risk involved.

Incentive Alignment

Make sure that the fee structure selected aligns the firm's incentives with the client's goals.  Otherwise, it could be considered a conflict of interest, among other ethical pitfalls.

Regulatory Compliance

Understand your state-specific rules or regulations that might apply.  For example, California's Section 6147 speaks to contingency fee agreements.  Research your jurisdiction's rules and regulations.  Remember, as well, that some jurisdictions may cap or ban certain types of fees.

Dispute Resolution

Include a clause specifying how any disputes over the success fee will be resolved, whether through arbitration, mediation or court proceedings.

Periodic Review

It may be prudent to include provisions for reviewing the success fee arrangement at various stages of the transaction.

Client Consent

Explicit, informed consent from the client is crucial, especially if the success fee arrangement is unconventional or complex.  It is important to note that all fees must not only be reasonable but also adequately explained to clients.  Circumventing clear documentation enables end-runs around billing safeguards in violation of ABA Rule 1.5 and violates Rule 1.4.

While a lawyer and client may renegotiate a fee agreement during an ongoing relationship, the lawyer typically carries the burden of establishing fairness of the new arrangement if it is ever challenged.  Fee agreements entered during the attorney-client relationship will get heightened scrutiny to avoid the appearance of undue influence or impropriety.

In the case of Twitter, the success fee was agreed upon allegedly hours before the closing of the deal.  Although Twitter's old board agreed to the fees, the circumstances in which this transpired could be perceived as unethical and improper because of the lateness of the agreement made by the parties to include a success fee.  Hence, in addition to challenging the fee as unreasonable, the lawsuit claims that, based on the facts leading to the closing day letter agreement, the success fee should be considered a gift, and hence a violation of ABA Rule 1.8.

10 Proper Billing Practices

The controversy highlighted in the Twitter fee case provides a valuable reminder of the heightened scrutiny in attorney-client relationships due to its fiduciary nature and the rules of professional conduct.  In addition to the steps specific to success fees outlined above, it is important to keep these broader billing best practices in mind.

Engagement

Always formalize the fee arrangement in a written agreement.  This holds true whether you are dealing with an hourly rate, a contingency fee or some other type of fee structure.  Any modifications to the engagement terms or fee structure should also be put in writing.

Transparency

Clearly outline how legal fees will be calculated, any percentages that may accrue in the case of a contingency fee and any other expenses that will be deducted from the recovery.

Client Communication

Keep the client informed about any developments.

Alternative Fee Arrangements

There is nothing wrong with exploring creative billing options that can benefit both parties, but ensure they are in line with ethical guidelines and are clearly outlined in the agreement.

Data-Driven Metrics

Consider using data-driven methods to establish fees, especially for alternative fee arrangements.  This adds an element of fairness and can help align incentives between client and lawyer.  Notably, today we have the benefit of using artificial intelligence to come up with creative data-based alternative fee arrangements.

Review and Oversight

Periodically review the billing practices to ensure compliance with your client guidelines.  Train your timekeepers in proper billing practices and client-specific billing guidelines.  This training should be done annually and while onboarding new personnel.

Regulations

Understand the rules governing fees and conflicts of interest.  Train your lawyers in the rules of professional conduct.  This training should be done annually and while onboarding new personnel.

Fiduciary Duty

Always act in the best interest of the client, keeping in mind the fiduciary nature of the attorney-client relationship.

Avoid Surprises

Be proactive to avoid sticker shock.  Discuss potential scenarios and outcomes openly with the client, so they know what to expect in terms of fees.

For example, one fact alleged in the complaint is that:

[I]n the middle of the board's final October 27 meeting, former Twitter general counsel Sean Edgett sent the chart of fees that the Twitter board was meeting to approve.  Upon seeing the magnitude of the fees being presented for the board's approval, one former Twitter director immediately exclaimed in an email reply to Edgett: "O My Freaking God."

Regular Invoicing

Provide detailed invoices that outline the work done, the time spent and the costs incurred.  This not only aids transparency but will also help in resolving any disputes that may arise.  Also remember, your time entries should be treated with as much care as any work product; they should be clear, concise, descriptive and grammatically correct.

By following this ethical road map, the parties will reduce the likelihood of disputes and misunderstandings and, also, maintain a good working relationship.

Conclusion

Whether you are the client or the lawyer, beware falling asleep at the wheel when it comes to new engagements, modifications to billing and billing practices generally.  To do so may risk legal action and your reputation.

Lourdes Fuentes is a seasoned litigator, Founder & Chair of Karta Legal LLC, law firm partner and CEO.  She has a law degree from the University of Pennsylvania and is also a certified Legal Project Manager and Lean Six Sigma Black Belt.  With decades in the field, her expertise lies in optimizing legal operations and promoting ethical billing.  Lourdes founded Karta Legal to tackle these specific challenges, offering tailored solutions that include innovative technology adoption and process improvement.  Her firm caters to a diverse range of clients—from Fortune 100 companies to specialized boutique law firms—ensuring they adhere to transparent and ethical billing practices.

A recent Law.com article by Diana C. Manning, “Mid-Year Billing Tips: The Devil Is In The Details”, reports that the art of billing is an inevitable part of any law practice, so buckle up, because the devil is in the details.  This article was posted with permission.  The article reads:

In an earlier installment on effective and efficient billing practices, we covered the “lay of the land” on billing successfully for both seasoned practitioners and new attorneys.  This summer edition promises not to disappoint, covering such topics as billing guidelines and risk management.  The art of billing is an inevitable part of any law practice, so buckle up, because the devil is in the details.

Billing Guidelines

It is an essential practice to develop a written set of billing guidelines as part of the engagement agreement with a client. Apart from the obligations set out in the RPCs (see ABA Model Rules 1.4 & 1.5), attorneys have an interest in maintaining written billing standards agreed to by the client for transparency in collecting fees and for the defense of potential claims centered on the attorney’s bills.  As a matter of practice, most institutional clients require acceptance of and adherence to their own set of established billing guidelines as part of the retention.  These standards serve as the blueprint for billing throughout a given representation, and set out various requirements and prohibitions for getting paid.  At the outset, be sure to develop a familiarity with the billing guidelines for a given matter, which typically includes such details as timing of the client’s invoice, payment schedules, personnel rates, and task-specific guidelines.  Not being cued in on a client’s billing particulars can lead to swift phone calls from the client, rejected invoices, outright non-payment, and client dissatisfaction.

A common pitfall is overstaffing on routine or ordinary tasks that can yield duplicative charges. See J.E.V. v. K.V., 426 N.J. Super. 475, 494 (App. Div. 2012) (“deducting $5,625 from the counsel fees, stating that amount was unreasonable because the situation only warranted one attorney when two were present.”); Bell v. Prefix, 784 F. Supp. 2d 778, 787 (E.D. Mich. 2011) (finding it “not reasonable to consistently bill a party for two attorneys to do the same work/review each other’s work.”).  Root this out early on by designating a legal team with members who have clearly defined roles and can allay fears of overstaffing.  A cohesive legal team will also minimize inefficiencies that can strain the attorney-client relationship and be a detriment to billing success. See Universal Drilling v. Newpark Drilling Fluids, 2011 U.S. Dist. LEXIS 17203, at *8 (D. Colo. Feb. 22, 2011) (“The court lauds the economies that can be obtained by delegating the bulk of litigation responsibilities to associate attorneys, and recognizes that the limited oversight and guidance of more senior attorneys to provide supervision and review of such work may be appropriately billed as well.”).  When client satisfaction is paramount, lawyers should always strive to leave the positive impression of efficiency with a results-oriented billing practice.

Risk Management in Attorney Billing

Clarity is key when it comes to billing formats.  Regardless of the particular matter, the goal is to convey in a clear and articulable manner as much information as is reasonable, both for the client and the attorney’s benefit. See, e.g., Handschu v. Special Services Division, 727 F.Supp.2d 239, 242 (S.D.N.Y. 2010)(Attorneys seeking court-ordered compensation “must document the application with contemporaneous time records … that should specific, for each attorney, the date, the hours expended, and the nature of the work done.”); Bell v. Prefix, 784 F. Supp. 2d 778, 787 (E.D. Mich. 2011)(“Both attorneys frequently utilized non-descript ‘block-billing’ in their entries.  In other words, for many entries it is not possible for the Court to ascertain what the attorney was doing.”).  From a risk management standpoint, clarity in billing entries allows a client to better understand the what and why for each billed activity taken on the client’s behalf.  As the adage goes, it is quality rather than quantity that matters.  For attorney billing, this means being able to project the quality of representation in billing entries that are both clear and helpful to the client.

Another incentive for honing your billing practices is to reduce the likelihood of a potential fee dispute, or catalyst for a malpractice claim or disciplinary action.  Excessive billing can lead to disciplinary action. See In re Coffey’s Case, 152 N.H. 503, 511-12 (2005)(finding violation of RPCs, including “charging his client a clearly excessive fee” where attorney “billed 225 hours to write a brief”).  State disciplinary authorities routinely conduct audits of the books and records of attorneys and law firms that engage in the private practice of law within a given jurisdiction.  A discussion on the topic of audit compliance programs may well be reserved for a future publication, but suffice it to say for present purposes that ethical billing is critical to the integrity of the legal profession, and falling short of ethical standards in this regard can jeopardize a practitioner’s law license.  Apart from state disciplinary arms, law firms will conduct audits of legal fees and expenses for risk management purposes.  The rise in unique and client-specific billing guidelines often requires law firms to employ personnel whose responsibilities include compliance with billing guidelines.

The Bottom Line

Throughout the attorney-client relationship, lawyers and law firms should keep an open dialogue with the client when it comes to billing expectations.  Communication is key.  Practitioners will also want to master the billing guidelines of clients early on and keep up-to-date with any changes.  The scrutiny over bills by clients (and ethics authorities) has only increased with advancements in technology.  The goal for practitioners should be to develop a system for billing that is both ethical and efficient.

Diana C. Manning is the managing principal at Bressler, Amery & Ross.

A recent Law 360 story by Rachel Riley, “Wash. Judges Ask If Atty Fee Split Restrains Competition”, reports that Washington state appellate judges scrutinized a fee-splitting agreement that a Seattle lawyer says illegally stifles competition, looking for ways the contract might limit the careers of departing attorneys or otherwise go against the public's interest.  Washington Court of Appeals Judge Ian S. Birk said attorney James Banks' challenge against Seattle Truck Law PLLC hinges on the question of whether the arrangement imposes "a burden on subsequent client choice" that violates the Rules of Professional Conduct.

The employment contract requires Banks to pay 40-50% of contingency fees he earns from former Seattle Truck clients back to the firm during the three years following his departure.  Banks has argued that the provision is illegal because it could potentially discourage an attorney from leaving the firm or from taking existing clients with them, given that they would have to split the fees.

Christopher L. Hilgenfeld of Davis Grimm Payne & Marra, representing Seattle Truck Law, contended Banks presented no evidence at trial that the fee split had impacted client choice.  "The clients' fee did not change in this matter," Hilgenfeld said.  "The client got to make whatever choice they wanted to make.  And they did not pay a different fee."

But Judge Birk questioned how an attorney would even get such evidence, since asking a prospective or former client to provide a declaration for their lawyer's own personal legal squabbles would be a conflict of interest.  "The attorneys would be in the position of having to get declarations from their clients about what the clients felt in order to serve the attorneys' personal interests in the resolution of this law firm dispute. That doesn't sound very normal," Judge Birk said.  "To me it looks like, in case law, the courts look at the agreement itself and judge whether they believe the terms are so onerous it creates a restraint," Judge Birk added.

According to Banks, Seattle Truck Law was founded by Tennessee-based personal injury attorney Morgan Adams of Truck Wreck Justice, who lured him in when he was a junior attorney and structured the employment contract to the Seattle firm's advantage.  Banks argues the trial court erred in granting Seattle Truck Law summary judgment in its breach-of-contract claims against him and ruled that the firm was entitled to about $200,000 of the fees he collected from settling cases for clients from the firm.

"Of course attorneys can divide up fees that have already been earned, profits that are already on the way," said Gary W. Manca of Talmadge/Fitzpatrick, representing Banks. "But here these are contingency fees that have not yet been earned."  Manca emphasized that it's not necessary to provide evidence that the agreement in fact had these limiting effects, but only that it "could have a deleterious effect on client choice and professional freedom."

But Judge David Mann, too, questioned if that's the case with this agreement, given that the half of the fees Banks was contractually entitled to after the split was actually more than his cut of fees earned on contingency cases while working at the firm. 

"No client is getting harmed here," Judge Mann said. "He's not going to cut back on his work because he's earning less. He's actually earning more.  Where is there a public injury?"  Manca responded that Banks took on new costs by leaving the firm because he had to pay overhead costs associated with starting a new practice, such as staffing and insurance.

Seattle Truck has contended that most of the work on the settlements was done while Banks was still working at the firm.  It also argues the fee split provision works in the public's favor because it incentivizes young attorneys to stick with their firms and gain experience before departing to practice on their own.  "Law firms would be greatly reduced if a big case comes in if they feel like that attorney is going to have a good relationship and the client could walk out the door," Hilgenfield said.

A recent Law 360 story by James Mills, “Appeals Court Says Calif. Firm Must Share Fees With Ex-Atty,” reports that a California state appellate panel held that an attorney's fee sharing agreement with her former law firm was enforceable.  The panel ruled the memorandum of understanding between Los Angeles litigator Ibiere Seck and The Cochran Firm in Los Angeles was enforceable since it clearly spelled out a fee sharing agreement about cases she had worked that would remain with the firm upon her departure.  The firm had contended the MOU was not definitive enough to be enforced, despite the fact the firm had no issues with the fee sharing agreement regarding five other cases covered by the MOU.

"The material terms of the fee sharing agreement between the parties can be readily ascertained from the MOU. The Cochran Firm was required to pay Seck 25 percent of the net attorney fees for a specified list of cases," the three judges on the Second Appellate District wrote in their non-published opinion.  "We are provided with no reasonable explanation why The Cochran Firm contends that the MOU was not sufficiently definite given that it performed under the terms of the agreement on five separate occasions without incident."

Seck worked at The Cochran Firm for 10 years, departing at the end of 2018 to start her own firm, Seck Law, in downtown Los Angeles, according to her LinkedIn profile.  She represents plaintiffs in civil litigation, including catastrophic injury, wrongful death, traumatic brain injury and civil rights cases.  The MOU included a list of specific cases that Seck had worked on that were remaining with The Cochran Firm for which she would receive 25% of the attorney fees.  The court ruling detailed that in 2019, the firm paid her 25% of five cases covered by the MOU.

However, in October 2019, the John Reddick v. Los Angeles County Metropolitan Transportation Authority personal injury case settled for $5 million.  When Cochran did not share the money with Seck, she asserted a lien for 25% of the attorney fees.  Seck had started with that case in 2017, and it was specifically covered by the MOU.  The Cochran Firm filed a complaint against Seck regarding the Reddick case saying the MOU did not cover it as Reddick did not consent in writing to the fee agreement.  The Cochran Firm also sought to have the court declare that Seck had no legal right to assert a lien on the firm.  However, a trial court ruled in Seck's favor in July 2020.

After that ruling, Seck made a formal demand for payment in the Reddick case but The Cochran Firm rejected the demand. In October 2020, Seck filed a cross complaint for breach of contract for The Cochran Firm's refusal to pay her 25%.  Seck moved for summary judgment on the breach of contract claim and in April 2022, the trial court granted the motion, finding the MOU created a valid fee sharing agreement between the two parties.

In May 2022, the trial court entered a judgment in favor of Seck and awarded her $500,000, which was her 25% share of the Reddick case attorney fees plus interest.  The trial court also ruled she was entitled to receive court costs.  At the same time, the court stated that The Cochran Firm's complaint against Seck was resolved and therefore moot.  But The Cochran Firm appealed, contending that the MOU was unenforceable because it was not sufficiently definite.

In addition to ruling in Seck's favor regarding the enforceability of the MOU, the appellate court also dismissed The Cochran Firm's contention that the MOU was unenforceable because it violated the Rules of Professional Conduct, rule 1.5.1, which prohibits lawyers who are not in the same law firm from dividing a fee for legal services, unless certain conditions are met including written consent from the client.  The court noted that Seck was still employed at The Cochran Firm when the MOU was enacted, thus the fee sharing agreement was not subject to rule 1.5.1.  The appellate court further ruled the amount of time Seck spent working on any of the cases on the MOU, including the Reddick case, was irrelevant.  If a specific case was listed on the MOU, she should be paid the 25% agreed to.

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