When it rains, it pours – at least we hope so when it comes to generating business for our firms. But what are the ethical considerations for making it rain?
While marketing the firm and its legal services, lawyers should be mindful of the ethics rules related to sharing fees, advertising, and referrals. Referrals, while a good source for new business, can also result in ethical violations. Thankfully, there are some relatively clear guidelines concerning referrals and sharing fees.
ABA Model Rule 5.4(a) makes it clear that lawyers cannot share fees with non-lawyers. The Comment to this Rule states the reasoning behind it – that the limitations on sharing fees are to protect the lawyer’s professional independence of judgment. Rule 7.2 seemingly expands upon this Rule in its prohibition against a lawyer giving anything of value to a non-lawyer for recommending the lawyer’s services, which would clearly include a referral fee.
In the alternative, lawyers can share referral fees with other lawyers subject to certain requirements under the Model Rules. ABA Model Rule 1.5(e) addresses referral fees between attorneys by listing the following requirements:
- the division is in proportion to the services performed by each lawyer or each lawyer assumes joint responsibility for the representation;
- the client agrees to the arrangement, including the share each lawyer will receive, and the agreement is confirmed in writing; and
- the total fee is reasonable.
Keep in mind that each jurisdiction sets their own rules surrounding the referral of clients. So, be sure to reach out to your local state bar for clarity. That being said, although it is common practice for lawyers to refer cases to one another, referrals do not come without some risk. After a lawyer refers a case to another firm, their obligations to the client do not cease to exist. Too often referrals are made without any thought of the potential malpractice exposure. However, when referring a case to another firm, acceptance of a fee can bring liability for the other attorney’s work.
From a risk management perspective, referring attorneys who are accepting a referral fee should inform the client of the presence of the referral fee and obtain written consent to the fee division. Many times referral fees are viewed by the client as payment for legal advice. So, providing the client with a clearly written explanation of the division of responsibility between the referring firm and the working attorney is recommended. If a referring firm is in a jurisdiction where it is acceptable to obtain a fee based on a mere referral and the referring firm will not be working on the case, it should inform the client that they will no longer be involved in the matter. Further, the firm should not permit its name to be placed on any pleadings.
Although referrals can be a great way for you to gain more clients, things can get a little cloudy when referrals and fee sharing arrangements are not handled in an ethical way. So while looking for those dollars to fall from the sky, keep these tips in mind to avoid any costly ethical violations. And don’t forget your umbrella – there’s rain in the forecast.
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