Thursday, January 19, 2012

Is It OK to Pay Referral Fees?

That’s a topic that our students should know about.  According to the Rules of Professional Conduct, a lawyer cannot pay referral fees to non-lawyers. (Rule 7.2)

Can lawyers pay referral fees to lawyers? Yes, if there is compliance with Rule 1.5(e). Here is the explanation from Attorney at Work.

Rule 1.5 (e) specifically governs referral fees between attorneys, and spells out certain requirements, including these three:

  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.

While the last two clauses are self-explanatory, many lawyers have questions about the meaning of the first clause. Some mistakenly believe that all fee division arrangements must be proportional. The rule is clear that this is not the only option. Non-proportional arrangements are allowed if “each lawyer assumes joint responsibility.” What does this mean?

Joint responsibility implies that both the referring and receiving lawyers would be held liable for any claim of malpractice. Some interpreters of the rule believe that it is enough for a referring lawyer to simply state responsibility in the referral agreement. Others believe that the referring lawyer must actually do something—other than just making the referral—in the actual representation. Regular brief contacts with the client or an occasional review of relevant documents would probably suffice.

Better Safe Than Sorry 

Many state rules follow Rule 1.5 (e) very closely, if not verbatim, but some do not. To ensure compliance in your jurisdiction, always check the state rules and apply them rigorously. Many states have an ethics hotline to answer questions.


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