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Split-fee agreements common when lawyers leave firm

It is not unusual for law firms to negotiate split-fee agreements that account for lawyers moving on after they have worked on contingency fee matters, Toronto business lawyer Bill Northcote tells Law Times.

“Some firms have got very elaborate compensation systems that reflect the division of an award,” says Northcote, chair of Shibley Righton LLP’s business law practice group.

“Usually, they’re worked out internally without much public scrutiny.” 

However, as Law Times reports, one Toronto litigation and corporate law boutique is suing a former non-equity partner in the firm for $9 million after a dispute over a contingency fee client. The law firm alleges the lawyer breached his contract and fiduciary duty to the firm, claiming he “improperly solicited” some of its clients when he resigned in 2015, including a property development company.

The lawyer denies the claims and is demanding $1.1 million from the firm, alleging it owes him for work he did on the file, says Law Times.

Last year, the law firm also sued the property development company, seeking payment for its success at a 2014 trial. The lawyer won intervener status, asking the court to order any funds received by the firm to be paid into court for his benefit, says the article.

However, the court denied the request, concluding the lawyer’s claim did not meet the strict requirements for such a “specific fund,” pointing out that his claim was “in essence, for damages for breach of contract,” Law Times reports.

Northcote, who is not involved in the case and commented generally in the Law Times story, says he believes the judge made the right call in denying the lawyer’s request for the creation of a specific fund, as what he was attempting to do “was effectively get a pre-judgment garnishment."

“As the judge says, the claim between him and the former firm is really just contractual, so there was no reason to sequester the funds,” Northcote explains.

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