Pension boards rely upon their lawyers to provide them with advice regarding (1) whether to participate in a securities class action lawsuit; (2) which law firm to retain to represent them and, finally, (3) what level of contingency fee the firm should be paid. Obviously, if fund counsel is receiving 10-18% of a class action law firm’s fee for the referral, he cannot be relied upon to provide the fund with impartial advice.
It is our understanding that many legal advisers to pensions and others receiving referral fees do not disclose the financial arrangements. While states may differ as to the ethical requirements applicable to lawyers within their boundaries, in our opinion those who serve as legal advisers to pension fiduciaries should observe the highest ethical standards.
(e) A division of a fee between lawyers who are not in the same firm may be made only if:
(1) the division is in proportion to the services performed by each lawyer or each lawyer assumes joint responsibility for the representation;
(2) the client agrees to the arrangement, including the share each lawyer will receive, and the agreement is confirmed in writing; and
(3) the total fee is reasonable
Even if the requirement of a fully informed and consenting client is met, fulfilling the proportionality requirement in subsection (1) appears — to put it mildly — fairly difficult. I agree with the Benchmark article: pension fund attorneys need to abide by the “highest ethical standards,” and should therefore stop taking such referral fees. Pension funds owe it to their own beneficiaries to insist upon it, perhaps requiring a signed statement from their lawyers confirming that no referral fees will be taken. That’s the only way to avoid the appearance of giving or receiving “fee-duce-ary” [fee-induced] advice.