Referral Fees: The Logistics of Fee Sharing

Fee sharing is not unfamiliar to most attorneys.  Model Rule of Professional Conduct 1.5(e) permits lawyers who are not in the same firm to share or divide a fee.  A typical example is when an attorney refers a case out to “trial counsel”.  But, fee sharing has its restrictions. For example, the Model Rules permit fee sharing only when the fee is reasonable, the client agrees to the arrangement and the division of the fee is proportionate to the share of each lawyer’s services or the lawyers assume joint responsibility for the representation. These requirements create ethical implications for lawyers engaged in fee sharing. Fortunately, the ABA recently provided some guidance.

The ABA, Standing Committee on Ethics and Professional Responsibility recently issued an opinion, about the propriety of fee sharing and reminds lawyers of the ethical considerations to keep in mind when making and receiving referrals. The opinion notes that implicit in the idea of fee sharing is that the first attorney undertook representation of the client.  When the case is referred to a second attorney (depending on the jurisdiction) joint representation can occur.

States vary greatly in how they have adopted Model Rule 1.5, and some states have eliminated the proportionality or joint responsibility requirement altogether.  The Model Rules caution that “[j]oint responsibility for the representation entails financial and ethical responsibility for the representation as if the lawyers were associated in a partnership.”  In the case of joint representation, both lawyers are subject to the conflict provisions of Model Rule 1.7.  Therefore, it is important to know the requirements of your jurisdiction before making or receiving a referral and run the appropriate conflict checks if necessary.

When a conflict of interest arise in a referral scenario, as with most other conflicts it does not necessarily prohibit the referral as long as the lawyers obtained informed consent to the conflict.  Assuming the lawyer reasonably believes that he will be able to provide competent and diligent representation, the lawyer can obtain informed consent, confirmed in writing of each affected client before making or receiving the referral.  Lawyers should familiarize themselves with the required disclosures when obtaining informed consent. For example Model Rule 1.0(e) requires an adequate explanation about the material risks of representation and reasonably available alternatives.

Finally, the Rule also requires the client to agree to the fee division in writing.  The agreement should be entered into at the outset of the representation and at the time of the referral not once the actual fee is received or determined.  The agreement must describe in sufficient detail how the feel will be divided. Furthermore, in the case of a contingent fee the total fee cannot be increased simply because of the referral.

Regardless of their practice area, most attorneys will at some point make or receive a referral. Before doing so, it is important to know the rules of your jurisdiction on any requirements or restrictions about the representation to ensure a seamless transition.