April 28 — A lawyer who expects to receive a fee for referring a client must confirm that the referred matter doesn't present a conflict of interest and must get the client's written consent to the fee division at the outset, the ABA's ethics committee advised April 21.
Rules on conflicts among clients apply because the referring lawyer in a fee-splitting arrangement “represents” the referred client even if the lawyer doesn't provide the legal services, according to the opinion.
The opinion outlines a referring lawyer's ethical responsibilities under ABA Model Rule of Professional Conduct 1.5(e), which addresses division of fees among lawyers who aren't in the same firm, and Model Rule 1.7, which addresses current-client conflicts of interests.
Lawyers who refer cases to other attorneys will want to bookmark the opinion as a resource for making valid, enforceable fee-sharing arrangements—and not transgressing any ethics rules along the way.
The committee said Rule 1.5(e) establishes two alternative standards for fee-sharing: either the division must be in proportion to the services performed, or the lawyers must assume joint responsibility for the representation.
Comment  to Rule 1.5 states that joint responsibility entails financial and ethical responsibility for the representation as if the lawyers were associated in a partnership.
Accordingly, the committee said, the referring lawyer in a fee-sharing arrangement represents the referred client for purposes of the ethics rules even if the other attorney performs all legal services in the matter.
That's implicit in Model Rule 1.5(e), the committee said. It cited Connecticut Informal Ethics Op. 2013-04 (2013) and Maine Ethics Op. 145 (1994) as general authority for the proposition that a referring lawyer undertakes the client's representation when the lawyer expects to receive part of the fee.
State versions of Rule 1.5 vary widely in how closely they follow the ABA model, the committee pointed out. (See box.)
Rule 1.5(e) requires that the client agree to the fee division and that the agreement be confirmed in writing, the committee said.
The agreement must describe the fee division—including the share each lawyer will receive—without skimping on details, according to the opinion.
Rule 1.5(e) also mandates that the total fee be reasonable. When a referring lawyer and another attorney divide a fee, the total fee can't go up because of the referral, the committee said.
The agreement on division of fees, including client consent confirmed in writing, must be completed before or within a reasonable time after the representation begins, the committee advised. The lawyers shouldn't wait to take care of this toward the end of the relationship, it said.
The committee pointed out that the rule refers to the share each lawyer “will receive.” The use of the future tense indicates the fee-sharing agreement will precede the division of fees, it said.
It also noted that under Comment  to Rule 1.1 (competence), a lawyer ordinarily should obtain a client's informed consent before contracting with attorneys outside the lawyer's firm to provide or to help provide legal services to a client.
A referral fee arrangement subjects both the referring lawyer and the receiving lawyer to the conflict provisions of Rule 1.7, the committee advised. This follows from the fact that both lawyers are representing the client, it said.
Model Rule 1.7(a) forbids concurrent representation of clients who will be directly adverse to each other. It also prohibits lawyers from representing a client when there's a significant risk that the lawyer's responsibilities to another client will materially limit the representation, or that the lawyer's duties to a former client or a third person or the lawyer's own personal interests will hamper the representation.
Rule 1.7(b) permits the lawyer to handle a representation despite a conflict if the client provides informed consent and three other requirements can be met.
The opinion analyzes several variations of a typical scenario to flesh out how Rule 1.7 applies to referring lawyers in a fee-sharing arrangement.
The referring lawyer in the hypothetical scenario has long represented a flower shop jointly owned by two women. Rose, one of the owners, was in a car accident while on a personal errand driving a car owned by the shop. She asked the lawyer to refer her to a personal injury attorney and wants the lawyer to receive a referral fee even though the other attorney would handle her case.
The committee said the referring lawyer must assess whether a conflict exists under Rule 1.7(a) before assuming joint responsibility for the matter. It gave this guidance:
The committee said that in the second and third scenarios the lawyer must obtain informed consent from both Rose and the flower shop, and must meet the other requirements of Rule 1.7(b). However, if Rose and the flower shop assert claims against each other in the suit, client consent wouldn't cure the conflict, it said.
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ABA Formal Ethics Op. 474 describes several types of state variations from Model Rule 1.5(e):
▸Some jurisdictions don't specifically mandate proportionality or joint representation, simply requiring client consent and a reasonable total fee. These include California (which doesn't follow the Model Rules), Connecticut, Delaware, Michigan and Oregon.
▸A few states, including Colorado and Wyoming, either prohibit referral fees or don't have a version of Rule 1.5(e).
▸Louisiana requires a lawyer to provide substantial legal services to justify a fee division.
▸Some states require that lawyers always assume ongoing joint responsibility, or joint financial responsibility, for the matter. They include Arizona, Illinois and Wisconsin.
The ABA maintains charts showing how each jurisdiction has modified the Model Rules, including a chart for Model Rule 1.5, at http://www.americanbar.org/groups/professional_responsibility/policy/rule_charts.html.
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