Partner Kevin Franz Quoted in Florida Bar News Article – Insurance Auditing Fees Can Be Improper Fee Splitting

October 21, 2021 by on News

Boyd & Jenerette Partner Kevin Franz was quoted in an article featured in The Florida Bar News titled, “Insurance Auditing Fees Can Be Improper Fee Splitting,” published on October 19, 2021. Kevin, a board certified appellate lawyer, has served on the Professional Ethics Committee since 2018.

The article highlights the Professional Ethics Committee’s approval to Proposed Advisory Opinion 21-1, which advises attorneys responding to online criticisms from persons other than clients or former clients.

The committee also agreed with a Bar ethics staff opinion that impermissible fee splitting under the Bar rules occurs if a client required 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.

Excerpts from the article below:

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.

To read the full article, please click here.

Kevin D. Franz
Partner
Direct: 954.622.0093
Email: kfranz@boydjen.com

Kevin D. Franz is a Partner with the firm’s Appellate Practice division. Mr. Franz is Board Certified in Appellate Practice by The Florida Bar. He has received the Martindale-Hubbell AV Preeminent® Peer Review Rating, and has more than 13 years of experience handling all types of civil appellate proceedings. Mr. Franz has handled appeals and petitions in all five district courts of appeal for the State of Florida and the Supreme Court of Florida, argued before all five district courts of appeal, and handled appeals in the United States Court of Appeals for the Eleventh Circuit.

Mr. Franz also has extensive experience in litigating and arbitrating maritime law disputes involving the cruise line industry under both the U.S. General Maritime Law and Bahamian Law.

Mr. Franz received his B.S. from the University of Maryland at College Park in 2001, and his J.D. from the University of Miami School of Law in 2005. He then clerked for the Honorable E. Allen Shepherd in the Circuit Court for Prince George’s County, Maryland before beginning his career in insurance defense with an emphasis on litigation support and appellate practice.

Mr. Franz is admitted to practice before the Florida Supreme Court, the five Florida District Courts of Appeal, the three United States District Courts in Florida, and the United States Court of Appeals for the Eleventh Circuit.

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