In the case of Steven B. Katz et al. v. Frank, Weinberg & Black, PL, Case Number 4D18-1215 (Fla. 4th DCA January 30, 2019), a noncompliant agreement for approximately $500,000 in referral fees on a contingency fee case was considered void under Florida because the attorneys did not sign an agreement in writing to be jointly responsible for the case in exchange for the customary 25% referral (participation) fee.
How It All Got Started
Katz was an associate attorney at Frank, Weinberg & Black from 2007 until 2013 when he was terminated from employment without a separation agreement with the law firm. While an associate attorney, Katz sought to represent a client for a potential whistleblower lawsuit, however, his law firm did not want to accept the case. Thereafter, Katz referred the case to Vitale. Vitale accepted the case and filed a lawsuit in 2008. The case settled in 2016.
Although Vitale sent an email to Katz referencing the referral fee, neither Katz nor his former law firm ever signed a fee agreement for this client and never agreed to become jointly responsible for legal malpractice on the case.
No Honor When It Comes To Contingency Fees
After Vitale settled the case, he sought an invoice from Katz’s law firm (subsequently established after his termination) and a release from Katz’s former law firm before he would pay the referral fee. It is not surprising that Katz’s former law firm refused to release any entitlement to fees from the case. However, if that was not bad enough, Katz’s former law firm appears to have successfully argued at the trial level that it was entitled to the referral fee because Katz was an employee at the time of the referral.
If Katz’s former employer had only stated in a letter that they waived any interest they might have, it seems that the referral would have probably been paid to Katz without any complaint.
Different Story On Appeal
The problem with this ruling by the trial judge is that the agreement is void because it did not comply with Rule 4-1.5(f)(2) of the Rules Regulating the Florida Bar. The rules states in part regarding contingency fee agreements:
Every lawyer who … enters into [a] fee agreement … whereby the lawyer’s compensation is to be dependent or contingent … upon the successful … settlement thereof shall do so only where such fee arrangement is reduced to a written contract, signed by the client, and by a lawyer … representing the client.
The rule goes on further to say:
Each participating lawyer or law firm shall sign the contract with the client and shall agree to assume joint legal responsibility to the client for the performance of the services in question as if each were partners of the other lawyer or law firm involved.
In Chandris v. Yanakakis, 668 So. 2d 180 (Fla. 1995), the Florida Supreme Court held that a contingent fee agreement that does not comply with the rules is void as against the public interest.
Now What Happens
Having reached the unavoidable conclusion that the $500,000 referral fee is void, what happens to the money?
Since this case is an interpleader, the trial judge will decide who gets the money. From the tone of the opinion, my guess is that the judges feel that the money should go to the client rather than to Vitale even though he may claim entitlement based on a standard contingency fee agreement. The problem with giving the money to Vitale under the contingency fee agreement is that Vitale filed the interpleader lawsuit in the first place (this type of lawsuit is filed when a party is in doubt about what to do with funds in their possession).
As such, it is likely that Vitale already took the position in the lawsuit itself that other parties (Katz or his former employer) were entitled to the money. It is unlikely that a trial judge would allow him to go back and now make a claim to those funds after Katz and the former employer’s claims to the money have failed.
Therefore, the money belongs to the client as a discounted legal contingency fee (assuming that any “quantum meruit” award is negligible for either Katz or his former law employer). Likewise, the client should be joined in the interpleader action (even though not joined in the original action). Vitale, in failing to get written consent from the client to pay a referral fee in the first place, essentially has unclean hands when it comes to claiming the disputed referral fee.
Lesson To Be Learned
Referral fees in contingency fee cases in Florida need to be in writing and signed by the client and all the lawyers (or law firms) participating. In doing so, the lawyers become “jointly responsible” for the representation and effectively become “partners” for the case.
What To Do If You Have Been Referred By An Attorney
If you have been referred to another lawyer or law firm, you should contact your attorney to discuss whether a referral fee will be paid at the end of your case. If a referral fee is to be paid, then the referral attorney should have signed the contract to become jointly responsible and you should have been provided with a copy of the contract with the referral attorney’s signature on it.
Referral fees of 25% are customarily paid in Florida personal injury cases to the attorney originating the client. Fee splits greater than 25% require a petition for approval with a court of competent jurisdiction.
If there is disagreement over how much or whether a referral fee should be paid, it is better to resolve that before the contingency (settlement or civil judgment) occurs. After the occurrence of a contingency, as in this case, it seems that greed prevails over the voice of reason and fair dealing.