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Opinion #69. Agreement of Public Interest Litigation Organization to Receive Percentage of Court-Awarded Attorney's Fees on Referred Cases
Issued by the Professional Ethics Commission
Date Issued: March 14, 1986
Question
A Public Interest Litigation Organization (?PILO?) wishes to enter into an agreement with an attorney to handle a case in which the PILO is interested under which a percentage of the attorney?s fees which may be awarded by the court to be paid by the adversary party would be paid to a foundation affiliated with the PILO. This foundation ?is to direct its principal efforts toward initiating and supporting the educational and litigative activities of the PILO which can be funded with tax deductible contributions.? The attorney questions whether this arrangement is permitted by the Code of Professional Responsibility.
Opinion
Bar Rule 3.3(e) states that with three exceptions ?A lawyer or law firm shall not share legal fees with a non‑lawyer.? The three exceptions involve (1) payments upon a lawyer?s death by his firm or associates to his estate or named beneficiaries, (2) payment for unfinished legal business of a deceased lawyer, and (3) retirement or compensation plans to employees of a lawyer or law firm based upon profit‑sharing arrangements. The exceptions to the general prohibition are very narrow and are not applicable to this matter.
Neither the PILO nor its foundation, despite their interest in, and concern for, law related matters, are lawyers or a law firm. The PILO is not licensed to practice law in the State of Maine and is not subject to the Code of Professional Responsibility. An informal opinion of the American Bar Association dealing with arrangements between lawyers and so‑called legal support or consultation organizations has held that participation with, or engagement of, such organizations may be permissible if the lawyer ?maintains a direct relationship with his client, supervises the delegated work, and has complete professional responsibility for the work product.? See ABA Code of Professional Responsibility, E.C. 3‑6. However, the inquiring attorney was cautioned that compensation of the consultant organization must be computed ?without regard to the legal fees collected by the attorneys requesting this service. . . . (A) contingent fee agreement between attorney and his non‑lawyer employees is forbidden . . . Formal Opinion 297 states that an accountant employee of a law firm must be `paid a regular salary computed without regard to fees collected for legal services rendered to particular clients?.?[1]
Clearly the arrangement described in the present inquiry falls outside the bounds of permissible fee arrangements contemplated by the above ABA opinions. The prohibition of Rule 3.3(e) is unambiguous and does not permit the fee arrangement contemplated as it would involve splitting legal fees with a non‑lawyer.[2]
Concurring Opinion
One member of the Commission believes the following comments should be added to the opinion.
Adopting an assumption encouraged by the form of the question and perhaps required by the proposed agreement, the opinion treats a court‑awarded attorney?s fee as entirely subject to the attorney?s disposition. Given this assumption, the result can only be that division of the fee is barred by Rule 3.3(e). By thus limiting the question and answer, however, we risk misleading the bar, since a court‑awarded attorney?s fee is not necessarily subject to the attorney?s control until it is actually paid over unconditionally to the attorney.
In the first place, the right to a court‑awarded attorney?s fee usually belongs, not to the attorney, but to the client. Such an award is nearly always based on explicit statutory authority, such as 42 U.S.C.A. § 1988 or 5 M.R.S.A. §213. Generally those statutes authorize an award of attorney?s fees to the party litigant, not to the attorney who represents that litigant. International Travel Arrangers, Inc. v. Western Airlines, Inc., 623 F.2d 1255 (8th Cir. 1980). Hence the courts have held that the existence of a private fee agreement with the attorney is irrelevant to an award of attorney?s fees, both in cases in which the private agreement provides for payment of a sum greater than that awarded by the court, Sargent v. Sharp, 579 F.2d 645 (First Cir. 1978), and when the private agreement, such as it was, did not provide for payment of any attorney?s fee. The latter includes the many cases in which courts have held that attorney?s fees may be awarded despite representation of the plaintiff by a legal services organization or by some other entity devoted to providing free legal services. In many of those cases the opinions refer to the award as if it were an award to the attorney, but when the question has been presented it is clear that in reality the recipient is the client.
Since the award goes to the client, absent directions from the court, the client may decide how it is to be distributed. It may be paid to his attorney, or it may be kept by the client, as a reimbursement for fees already paid or otherwise. It seems clear that Rule 3.3(e) cannot prohibit an agreement for division of a fee award between client and PILO. An attorney who accepts employment subject to that agreement has not agreed to divide an attorney?s fee within the meaning of Rule 3.3(e). He simply accepts the client?s distribution of the judgment that may be recovered. Whether or not the public interest litigation organization provides any services for the attorney or for the client should not matter. The amount the defendant is required to pay as an allowance for costs and attorney?s fees will have been determined by the court?after hearing?on the basis of such criteria as the court deems applicable; consequently, it is hard to see how the size of the attorney?s fee could later be questioned.
In the second place, disposition of an allowance for attorney?s fees is subject to the control of the Court. For example, in Carmel v. Hillsdale, 428 A.2d 548 (N.J. App. 1981), the court seems to have determined that the fee allowance would be paid to the American Civil Liberties Union, which would control subsequent distribution to cooperating attorneys and to itself. In Sargent v. Sharp, 579 F.2d 645 (First Cir. 1978), the court noted that the trial judge could restrict the application of any fee award paid by the defendant to reimbursement for amounts the plaintiff might already have paid to counsel, citing an earlier opinion in Farmington Dowel Products v. Foster Manufacturing Co., 421 F.2d 61 (First Cir. 1970).
The converse situation seems to have occurred in Miller v. Amusement Enterprises, Inc., 426 F.2d 534 (Fifth Cir. 1970), in which the Court of Appeals observed that the District Court could use its general equitable powers to insure that an award of attorney?s fees actually reached the attorney and was not retained by the plaintiffs. If the court ordering an award decides that the allowance is to be divided between attorney and PILO, Rule 3.3(e) cannot be implicated. The PILO might present such a request pro se or through separate counsel, or the attorney may simply have agreed to disclose to any such court the terms of a cooperating attorney agreement to provide services pro bono, with the court to decide on the consequences.
Footnotes
[1] The facts do not indicate what, if any, services the PILO performs for the attorney in the matter. If none were performed then additional issues such as charging an excessive fee would be of concern. (Back)
[2] The Commission is aware that there may be instances where, pursuant to applicable Federal law, a court has awarded attorney?s fees directly to PILO?s. Those decisions are not relevant to the issue presented. Construction of federal statutes is beyond the jurisdiction of this Commission. However, the fact that a court may determine it can award "fees" to a PILO in a civil rights case has no relevance to whether an attorney and PILO can agree to split legal fees awarded to the attorney by a court.
