How Fee Sharing Agreements Impact your Legal Funding
In some types of litigation it’s common for an attorney to share or split fees with another attorney. Although you might be more than happy to work with the other attorney, you may not want him/her to know about your firm finances. That’s why some firms worry about getting legal funding based on a case where they are sharing fees because co-counsel may find out. However, that is rarely the case. Funding companies should only require a few pieces of pertinent information and generally should be keeping the financing confidential.
What information is needed?
When there is co-counsel and a fee share or fee split, funding companies typically request a signed agreement between co-counsel. What needs to be in the agreement varies; however, the main concern is that it lay out what percentage of the fee each attorney is entitled to receive.
What if there is no signed agreement between the attorneys?
In class actions, signed agreements are common. However, in other types of cases often there is no agreement. When no agreement exists, correspondence/email confirming the arrangement may also be sufficient. There is no need for the attorney to disclose to other counsel that he or she is seeking funding. The attorney can simply send an email setting forth the agreement and ask other counsel to confirm.
What about if the attorney is seeking funding against a referral fee or other case where he/she is not in charge of the litigation?
Often there is no signed agreement in the case of referral fees especially when the attorneys work together often. However, when an attorney is seeking funding on a referral fee due him/her from another attorney, the situation is a little more complicated since the attorney does not have control of the matter and the funds will not be deposited in his/her escrow account. When another attorney is in charge of the case and the funds are going to his or her account first, then funding companies will often require a letter from the other attorney acknowledging the funder’s interest in the fee. In the letter, the attorney who is handling the case must agree to pay the funder’s fee directly to the funder upon receipt of the funds. That means that the attorney seeking funding will need to advise the other attorney that he/she is getting funding.
However, an experienced and reputable funding company will still make each decision on a case by case basis as the circumstances vary. For instance, in a class action or a multi-district litigation, a funder may not require a letter from the other attorney, in which case the funding can remain confidential. Establishing a strong relationship with a funding company can help facilitate the funding as the company is more familiar with your business.
If you have a question about financing a case involving fee sharing, fee splitting or referral fees, contact us for a consultation.