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Fee-Sharing Agreement: Bennett v. Ashcraft
The Baltimore Medical Malpractice Lawyer Blog is a trusted source for legal analysis and commentary. It covers Maryland appellate opinions in personal injury cases involving issues that arise in medical malpractice cases. The Appellate Court of Maryland issued a reported opinion in Bennett v. Ashcraft & Gerel, LLP, 259 Md. App. 403 (2023). The decision involved a fee-sharing agreement between a lawyer and her former law firm employer.
At the beginning of employment, the lawyer and the firm entered into a fee-sharing agreement to divide any contingency fee if the lawyer received a payment from representing a firm client after the lawyer left the firm. The lawyer subsequently withheld approximately $706,000 in payments, claiming the agreement was unenforceable because it violated the Maryland Attorneys’ Rules of Professional Conduct. (Id. at 415-16).
The fee-sharing agreement provided different fee splits depending on when the lawyer retained the client and when the employment ceased. Accordingly, the focus was on how long the firm, or the lawyer was responsible for the client. (Id. at 418).
After leaving employment, the lawyer brought suit in the Circuit Court for Prince George’s County against the firm, including challenging the agreement concerning several clients. (Id. at 422).
The circuit court then ruled that the agreement did not violate the Maryland Attorneys’ Rules of Professional Conduct. (Id. at 13). The circuit court entered an order awarding the firm approximately $700,000 in fees but denying prejudgment interest. (Id. at 427).
Appellate Court
Maryland Rule 19-305.6(a) provides:
“An attorney shall not participate in offering or making a partnership, shareholders, operating, employment, or other similar type of agreement that restricts the right of an attorney to practice after termination of the relationship, except an agreement concerning benefits upon retirement.”
The Appellate Court noted that financial disincentives for taking firm clients can violate the rule if they represent disguised attempts to penalize competition. (Id. at 20). However, the rule does not preclude fee-sharing agreements logically related to the anticipated financial impact of the lawyer’s departure. (Id. at 432).
Without the agreement, the lawyer and firm would have their interests determined by quantum meruit, a legal principle that allows for the recovery of a reasonable value for services rendered. This can be a factually intensive and costly exercise, as it requires a detailed assessment of the services’ value. (Id. at 432-34).
In examining similar fee-sharing agreements, one bar ethics committee stated that if the fee-split percentages represent a generally fair allocation based on the firm’s historical experience, there is no rule violation. (Id. at 436). The Appellate Court also discussed cases from other jurisdictions upholding similar agreements. (Id. at 438-40).
Holdings
The Appellate Court’s finding in this case carries significant weight. It concluded that the agreement did not purport to restrict the right of the lawyer to practice law or restrict clients’ choice. The Court also held that although the percentages may not correspond perfectly with quantum meruit, they represent a reasonable attempt in advance. As a result, the agreement was enforceable on its face. (Id. at 440-43). This ruling sets a precedent for similar cases in the future.
The Appellate Court also found it was enforceable as applied. The Court noted that the lawyer had previously insisted that the firm adhere to the agreement. Moreover, the fee division was reasonable, a finding that could have significant implications for future fee-sharing agreements. The lawyer obtained a $700,000 fee for one client in a matter already settled in principle. However, the lawyer obtained an increase for the client. (Id. at 433).
The Court likened the agreement to an enforceable liquidated damages clause, a provision in a contract that specifies a predetermined amount of damages to be paid in the event of a breach. This comparison is significant, as it suggests that the Court views fee-sharing agreements as a legitimate means of allocating financial risks and rewards in the legal profession. Agreements like the one at issue should be encouraged. (Id. at 445).
The Court upheld the firm’s summary judgment for approximately $706,000 and found that the circuit court failed to award prejudgment interest of approximately $81,000. (Id. at 447-60, 460-64).
Commentary by the Baltimore Medical Malpractice Lawyer on Fee-Sharing Agreement
The Appellate Court’s reasoning and result are not surprising. The courts generally favor these types of fee-sharing agreements and scrutinize them to ensure they are not a penalty. However, in this instance, the agreement was similar to those found by various courts and bar associations to be permissible under the Attorney’s Rules. This decision could have significant implications for the future of fee-sharing agreements, potentially setting a precedent for their enforceability and the factors that courts will consider in evaluating them.
Law firms seeking such an arrangement can use this opinion to model an agreement. Of course, such an agreement does not necessarily save time and money. In this case, the agreement still led to litigation that took over five years. It’s important to consider the potential benefits, such as a clear and agreed-upon fee structure, as well as the potential drawbacks, such as the risk of disputes and litigation, when deciding whether to enter into a fee-sharing agreement.
Quantum meruit can require extensive analysis, and a fee-sharing agreement can be easy to implement. However, the time and expense under either course depend mostly on whether the parties want to fight or work things out.
Mark Kopec is a top-rated Baltimore medical malpractice lawyer. Contact us at 800-604-0704 to speak directly with Attorney Kopec in a free consultation. The Kopec Law Firm is in Baltimore and helps clients throughout Maryland and Washington, D.C. Thank you for reading the Baltimore Medical Malpractice Lawyer Blog.