Insurance auditing fees can be improper fee splitting
If a client requires a law firm to use a third-party auditing company to review the legal fee with the firm paying the auditor a percentage of the fee, is that impermissible fee splitting under Bar rules?
A Bar ethics staff opinion found it was and on October 15 the Professional Ethics Committee declined a request to review the issue and then ratified the staff opinion.
The committee also gave its final approval to Proposed Advisory Opinion 21-1, which gives advice to attorneys responding to online criticisms from persons other than clients or former clients. And it declined to review a staff refusal to answer a lawyer’s questions about attorneys’ actions in immigration court.
Committee member Skip Smith brought the issue of paying the third-party auditing company to the committee’s attention. Bar staff had concluded in Staff Opinion 42056 that the arrangement was an improper division of fees under Bar Rule 4-5.4. Smith said he’s seen the question come up in other jurisdictions around the country.
According to the committee’s agenda information, the law firm worked for an insurance company defending policy holders and “is required by the insurance company to submit all of the firm’s invoices to a third-party vendor that audits the bills and charges [to the firm] a 2.5% processing charge on all legal fees that are submitted and approved by the third-party vendor for payment.”
“It strikes me out of the box that a legal fee auditor’s charge to a law firm whose bill is being audited by that company when that fee is based on a percentage of the fee being reviewed…does not really constitute the kind of fee sharing that the rule is designed to prohibit,” Smith said. “I think it’s taking the rule too far.”
He said the rule was intended to prevent things like sharing fees with a nonlawyer to get a referral, or with an investigator, or with a nonlawyer paralegal.
“This is a somewhat after the fact separate obligation of the law firm, just as though a court reporter might send a bill to the law firm. It just happens that the legal fee auditing company’s fee is calculated as a percentage,” Smith said. “The fee sharing rule is designed to preserve the independent professional judgment of the lawyer…. That is not at risk here in any real meaningful way.”
He likened it to paying the bank changes on credit card transactions.
But other committee members disagreed.
“The compensation paid to the auditing company is based on the amount of fees. If the insurance company paid that fee directly, that would not be fee sharing but because the insurance company is basically requiring the lawyer to pay a third party based on the fee bills, that seems like fee sharing,” said committee member Linda Lanosa. “It seems like a slippery slope to fee sharing for other services.”
“Based on the plain language of [Rule] 4-5.4 the staff opinion is correct,” said committee member Kevin Franz. “I don’t know how a formal opinion could really change that because then you would be advising against the plain language of the rule.”
He added, though, that like a specific rule allows for payment of credit card fees, a separate rule amendment could allow for payment of the auditing fees.
The committee rejected Smith’s motion to prepare a formal opinion overturning the staff opinion by a 20-8 vote. It then voted to ratify the staff opinion 23-5.
Proposed Advisory Opinion 21-1 holds that an attorney may not reveal confidential information about a current or former client, without the client’s informed consent, in responding to an online review of comments made by a non-client.
The opinion said the attorney could say the commenter is not a client and could also say, “As a lawyer, I am constrained by the Rules Regulating The Florida Bar in responding, but I will simply state that it is my belief that the comments are not accurate.”
The committee received one comment, which argued attorneys should be able to post links to public court and other records to refute the claims.
But committee Vice Chair Phil Hutchinson said the committee discussed that issue and determined attorneys have a duty to protect client information even if it is otherwise available in a court or other public record.
The committee voted unanimously to affirm the opinion as written. It will become final unless the commenting attorney appeals to the Bar Board of Governors within 30 days or if the board modifies or withdraws the opinion.
The committee also upheld the Bar staff rejection of a request to write a staff opinion about an immigration attorney’s ethical obligation in advising clients on admitting or denying allegations in deportation proceedings. The attorney also asked the committee to issue a formal advisory opinion.
Committee members agreed with Bar staff that under Bar rules they could not respond because the inquiring attorney had asked about past conduct by other attorneys. Under Bar rules, Bar staff and the committee can only address prospective conduct by the inquiring attorney.
The committee also heard about plans for its annual Masters Seminar on Ethics at the Bar’s Annual Convention next June.
Committee member Steven Teppler said three panels are planned. For one, state and federal judges will discuss how the increased use of remote court proceedings has changed courtroom practices and how that affects ethics.
The second panel will be grievance experts who will look at post-pandemic trends in lawyer discipline. The final panel will focus on technology and ethics, Teppler said, including how hybrid and remote legal proceedings affect ethics, health-care privacy, and cybersecurity issues.
