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Enhance Your Bottom Line

Aside from reducing your own workload, hiring a contract attorney can enhance your bottom line. In California, a law firm may charge the client a higher hourly rate than the law firm pays the contract attorney.

Of course, it is imperative that the client understand that a contract attorney may perform work on the client’s case. (Bus. & Prof. Code § 6068(m); CRPC 1.4(a); Los Angeles County Bar Association Professional Responsibility and Ethics Committee (“LACBA”) Formal Opinion No. 473 (1993)). This may be accomplished in your retainer agreement.

Moreover, while there are rules regarding fee-splitting between attorneys (see California Rules of Professional Conduct (“CRPC”) 1.5.1), those rules do not apply where (1) the amount paid to the contract attorney by the hiring attorney is compensation for work performed and must be paid whether or not the hiring attorney is paid by the client; (2) the amount paid by the hiring attorney to the contract attorney is neither negotiated nor based on fees which have been paid to the hiring attorney by the client; and (3) the contract attorney does not receive a percentage fee. (See State Bar of California Standing Committee of Professional Responsibility and Conduct Formal Opinion 1994-138. See also Chambers v. Kay (2002) 29 Cal.4th 142, 154). Thus, in most cases, the fee-splitting rules are inapplicable to the work of contract attorneys.

Whether a hiring attorney is required to disclose the actual financial terms of the agreement with the contract attorney may depend on the circumstances of the case.

Both CRPC 1.4(a)(3) and Business and Professions Code section 6068(m) require that an attorney keep the client reasonably informed of “significant developments” relating to the employment or representation by the attorney. But whether the work performed by a contract attorney constitutes a “significant development” depends on several factors, including (1) whether responsibility for overseeing the client’s matter is being changed; (2) whether the contract attorney will be performing a significant portion or aspect of the work; or (3) whether staffing of the matter has been changed from what was specifically represented to or agreed with the client. LACBA Formal Opinion No. 473. However, at least one ethics opinion, without much explication, has asserted that where the relationship with the contract attorney constitutes a “significant development,” such as drafting an appeal, “the client must be informed of the specifics of the agreement between the [hiring attorney and contract attorney].” LACBA Formal Opinion No. 518. The opinion does not provide guidance as to the whether the level of specificity must include the hourly rate the contract attorney charges the hiring attorney.

In most cases, unless the hiring attorney is planning to turn over control of the entire matter to the contract attorney, or the contract attorney is drafting a significant pleading, such as an appeal, the work performed by the contract attorney would not constitute a “significant development,” and the amount of compensation paid to the contract attorney would not have to be disclosed. However, it is a best practice to disclose the potential use of a contract attorney in the fee agreement in all cases, and where the work constitutes a “significant development,” to disclose the extent of contract attorney’s involvement in the specific case. See San Diego County Bar Association Ethics Opinion 2007-1.