June 15, 2023
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.